DCIT, V. M/s Control Component (I) Pvt. Ltd.,

ITA 1757/BANG/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9271 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 10-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 13-02-2013
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: P K PRASAD; UMASHANKAR S
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 10AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER IT(TP)A NO.4/BANG/2014 (ASSESSMENT YEAR: 2009-10) M/S. CONTROL COMPONENT INDIA PVT. LTD., SJR PARK, 6 TH FLOOR, WARP TOWER, FLAT NO -13, 14, 15, EPIP ZONE PHASE I, WHITEFIELD MAIN ROAD, BANGALORE -560066. PAN : AACCC 8610 K APPELLANT VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -11(2), BANGALORE. RESPONDENT IT(TP)A NO.1757/BANG/2013 (ASSESSMENT YEAR: 2009-10) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -11(2), BANGALORE. APPELLANT VS. M/S. CONTROL COMPONENT INDIA PVT. LTD., BANGALORE -560066. PAN : AACCC 8610 K RESPONDENT ASSESSEE BY : SHRI. P. K. PRASAD & SHRI. UMASHANKAR, ADVOCATES REVENUE BY : SHRI. D. SUDHAKAR RAO, CIT-DR DATE OF HEARING : 10.08.2016 DATE OF PRONOUNCEMENT : 09.11 .2016 IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 2 OF 22 O R D E R PER INTURI RAMA RAO, AM : THESE CROSS APPEALS FILED BY THE ASSESSEE COMPANY A S WELL AS THE REVENUE DIRECTED AGAINST THE ASSESSMENT ORDER DATED 31.10.2013 PASSED U/S 143(3) R.W.S. 144 C OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2009-1 0. BRIEFLY THE FACTS OF THE CASE ARE THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS A WHOLLY OWNED SUBSIDIARY COMPANY OF I MI OVERSEAS INTERNATIONAL LTD., UK. IT IS ENGAGED IN THE BUSINESS OF PROVIDING IT ENABLED SERVICES, SUPPORT SERVICES AND ARE MANUFACTURERS OF SILENCERS. 2. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 WAS FILED ON 29.09.2009 DECLARING INCOME OF RS.1,17,00,020 /- AND IT WAS REVISED ON 31.3.2010 A T THE SAME TOTAL INCOME. THE ASSESSEE COMPANY ALSO REPOR TED THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS A ES: INTERNATIONAL TRANSACTIONS (AS MENTIONED IN 92 CE REPORT) SL. NO. TYPE OF TRANSACTION AMOUNT (RS.) 1. SALE OF SILENCERS 2,36,98,794/- 2. RECEIPT FROM IT ENABLED SERVICE 18,03,63,843/- 3. RECEIPT FROM SUPPORT SERVICES 38,48,327/- 4. REIMBURSEMENT OF EXPENSES PAID 31,797/- IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 3 OF 22 3. THE ASSESSEE COMPANY SOUGHT TO JUSTIFY THE CONSIDERATION RECEIVED FOR THE ABOVE INTERNATIONAL TRANSACTIONS ENTERED WITH ITS AE TO BE AT ARMS LEN GTH PRICE. THE ASSESSEE COMPANY ALSO SUBMITTED A TRANSFER PRIC ING STUDY REPORT ADOPTING THE OPERATING PROFIT TO TOTAL COST AS A PROFIT LEVEL INDICATOR FOR THE TRANSFER PRICING STU DY. THE ASSESSEE COMPANY APPLIED THE TRANSACTIONAL NET MARG IN METHOD (TNMM) WHICH WAS CONSIDERED TO BE THE MOST APPROPRIATE METHOD FOR THE PURPOSE OF BENCH MARKING THE INTERNATIONAL TRANSACTIONS. THE ASSESSEE COMPANYS PROFIT MARGIN WAS COMPUTED AT 12%. AND THE ASSESSEE COMP ANY CLAIMED THAT THE SAME WAS COMPARABLE WITH THE OTHER COMPANIES RENDERING IT ENABLED SERVICES. FOR THE P URPOSE OF TP STUDY, THE ASSESSEE COMPANY HAD CHOSEN 11 COMPARABLE ENTITIES AND ARITHMETIC MARGIN AND OPERA TING PROFIT MARGIN OF SAID COMPARABLES WAS COMPUTED AT 1 3%. ACCORDING TO THE ASSESSEE COMPANY, ITS PLI WAS WITH IN THE RANGE OF 5% OF ARITHMETIC MARGIN OF THE COMPARABL E ENTITIES. THUS IT WAS CLAIMED THAT THE TRANSACTION OF THE AE ARE AT ARMS LENGTH. THE ASSESSEE COMPANY FOR THE PURPOSE OF ITS TP STUDY HAD ADOPTED THE FOLLOWING FILTERS F OR THE PURPOSE OF ITS TP STUDY: IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 4 OF 22 APPLYING THE ABOVE FILTERS, THE FOLLOWING 11 ENTITI ES WERE CHOSEN AS COMPARABLES WHOSE AVERAGE PROFIT MARGIN WAS COMPUTED AT 13%. 4. THE ASSESSING OFFICER AFTER NOTICING ABOVE INTER NATIONAL TRANSACTIONS, REFERRED THE MATTER TO THE TRANSFER P RICING OFFICER (TPO). THE TPO, BY ORDER DATED 16.04.2013, PASSED UNDER SECTION 92CA(3) OF INCOME TAX ACT COMPUTED TH E TRANSFER PRICING ADJUSTMENT AT RS.1,51,89,959/-. T HE LEARNED TPO ACCEPTED THE TNMM ADOPTED BY THE ASSESS EE COMPANY BUT REJECTED THE TRANSFER PRICING REPORT. THEN THE TPO PROCEEDED TO IDENTIFY THE DIFFERENT SET OF COMP ARABLES FOR THE PURPOSE OF DETERMINING ALP. WHILE DOING SO , THE TPO HAD APPLIED THE FOLLOWING FILTERS: IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 5 OF 22 5. THE TPO HAS REJECTED 10 COMPARABLES SELECTED BY THE ASSESSEE COMPANY IN THE TP STUDY AND INTRODUCED 7 N EW COMPANIES AND FINALLY SELECTED 8 COMPARABLES. THE REASONS GIVEN BY THE LEARNED TPO FOR REJECTION OF THE COMPA RABLES CHOSEN BY THE ASSESSEE COMPANY ARE AS UNDER: IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 6 OF 22 THE FINAL SET OF COMPARABLES CHOSEN BY THE LEARN ED TPO ARE AS UNDER: 6. THE TPO COMPUTED THE AVERAGE PROFIT MARGIN OF TH E COMPARABLES FINALLY SELECTED AT 25.04% AND AFTER GI VING WORKING CAPITAL ADJUSTMENT OF 1.78%, ADJUSTED ARITH METIC MEAN WAS DETERMINED AT 26.82% AND ON THE ABOVE SAID BASIS, TPO COMPUTED TRANSFER PRICING ADJUSTMENT IN RESPECT OF ITES SERVICES AS FOLLOWS: IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 7 OF 22 7. THE ASSESSING OFFICER PASSED DRAFT ORDER DATED 05.03.2013 U/S. 143 INCORPORATING THE ABOVE ADJUSTM ENTS AND ALSO DISALLOWING THE CLAIM U/S 10A TO THE EXTEN T OF RS.23,28,704/- IN RESPECT OF TRAVEL AND COMMUNICATION EXPENDITURE INCURRED REDUCING THE SAME FROM THE EXP ORT TURNOVER. 8. BEING AGGRIEVED BY THE DRAFT ASSESSMENT ORDER, T HE OBJECTIONS WERE FILED BEFORE HONBLE DRP CONTENDING INTERALIA THAT THE LEARNED TPO OUGHT TO HAVE ACCEPT ED THE USE OF MULTIPLE YEAR DATA FOR COMPUTING THE FINAL M ARGIN OF THE COMPARABLES AND THE RISK ADJUSTMENT SHOULD BE G IVEN TO THE ASSESSEE COMPANY ON ACCOUNT OF DIFFERENCE IN RI SK LEVEL ASSUMED BY THE ASSESSING COMPANY AND THE COMPARABLE ENTITIES CHOSEN. THE ASSESSEE COMPANY ALSO CONTEND ED THAT THE EMPLOYEE COST FILTER WHEREIN ONLY THE COMPANIES HAVING IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 8 OF 22 EMPLOYEE COST MORE THAN 25% OF THE REVENUE SHOULD B E APPLIED. IT WAS FURTHER CONTENDED ENTITY M/S. INFO SYS BPO LIMITED SHOULD BE EXCLUDED FROM THE LIST OF COMPARA BLES BOTH ON THE GROUNDS OF TURNOVER AS WELL AS THE ENTI TY HAVING HIGH BRAND VALUE. AND IN RESPECT OF ACCENTIA TECH NOLOGIES LTD., IT WAS CONTENDED THAT THESE ENTITIES SHOULD B E REJECTED AS IT IS ENGAGED BOTH IN THE SOFTWARE ACTIVITIES AS WELL AS ITES ACTIVITIES AND NO SEGMENTAL INFORMATION WAS AV AILABLE ON THE DOMAIN. 9. AS REGARDS THE ENTITY M/S. COSMIC GLOBAL LIMITED , IT WAS CONTENDED THAT IT DOES NOT PASS THE FILTER OF E MPLOYEE COST AND THE ABOVE SHOULD BE REJECTED. AND SO FAR AS M/S. ECLERX SERVICES LTD., IS CONCERNED, IT WAS CON TENDED THAT THIS COMPANY CANNOT BE COMPARED WITH THAT OF T HE ASSESSEE COMPANY AS IT IS ENGAGED IN THE HIGH END K PO ACTIVITIES. THE ASSESSEE COMPANY ALSO OBJECTED TO THE EXCLUSION OF MICROGENETICS SYSTEMS LTD., AND R SYST EMS INTERNATIONAL LTD., AS IT IS FUNCTIONALLY SIMILAR T O THAT OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY ALSO CONTEN DED THAT IN RESPECT OF TRAVELLING EXPENDITURE AND TELEP HONE EXPENDITURE INCURRED IN FOREIGN EXCHANGE, REDUCING THE SAME FROM EXPORT TURNOVER ALONE IS NOT CORRECT. 10. AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSE E COMPANY, THE HONBLE DRP PASSED DIRECTIONS UNDER SE CTION 144C(5) OF THE ACT UPHOLDING THE FILTER APPLIED BY THE LEARNED TPO AND APPLICATION OF USE OF ONLY CURRENT YEAR DATA AS AGAINST MULTIPLE DATA AS ADOPTED BY THE ASSESSEE . AND IN IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 9 OF 22 RESPECT OF SELECTION OF COMPARABLES IS CONCERNED, T HE OBJECTIONS OF THE ASSESSEE COMPANY HAS BEEN OVERRUL ED PLACING RELIANCE ON SEVERAL DECISIONS OF THE COORDI NATE BENCH OF THE TRIBUNAL. HOWEVER, IN RESPECT OF TRAVELLING EXPENDITURE INCURRED IN FOREIGN CURRENCY AND FOREIG N EXCHANGE LOSS, THE HONBLE DRP DIRECTED THE TPO/AO TO REDUCE FROM BOTH THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING OF DEDUCTION UNDER SECTION 10A. BEING AGGRIEVED BY THAT PART OF THE ASSESSMENT ORDER, THE ASSESSEE COMPANY IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 4/B/2014: 11. GROUND NO. 1 IS GENERAL IN NATURE AND DO NOT REQUIR E ANY ADJUDICATION. GROUND NO. 2 CONSIST OF TO E. SUB GROUNDS A, B, C & D ARE NOT PRESSED BEFO RE US. THE ONLY GROUND OF APPEAL URGED BY THE SELECTION OF COMPARABLES. THE LEARNED AR VEHEM ENTLY CONTENDED THE THE LIST OF COMPARABLES. NOW WE SHALL DEAL WITH EA CH OF THEM: (I) INFOSYS BPO LTD CONTENDED THAT COMPARED WITH THE ASSESSEE COMPANY AS IT IS FUNCTIO NALLY DISSIMILAR. IT IS SUBMITTED THAT THIS COMPANY IS I NTO PROVIDING HIGH END INTEGRATED SERVICES AND HAV BRAND VALUE AND HIGH TURNOVER. THEREFORE THIS COMP ANY CANNOT BE COMPARED WITH THAT OF ASSESSEE COMPANY AN D RELIANCE IN THIS REGARD WAS PLACED ON THE FOLLOWING DECISION OF THE COORDINATE BENCH IT(TP)A NO.1757/BANG/2013 IT(TP) NO.4/BANG/2014 PAGE 10 OF 22 GROUND NO. 1 IS GENERAL IN NATURE AND DO NOT REQUIR E ANY ADJUDICATION. GROUND NO. 2 CONSIST OF 5 SUB GROUNDS A TO E. SUB GROUNDS A, B, C & D ARE NOT PRESSED BEFO RE US. THE ONLY GROUND OF APPEAL URGED BY LEARNED AR IS REGARDING THE SELECTION OF COMPARABLES. THE LEARNED AR VEHEM ENTLY THE FOLLOWING COMPARABLES CANNOT BE INCLUDED IN THE LIST OF COMPARABLES. NOW WE SHALL DEAL WITH EA CH OF INFOSYS BPO LTD : THE LEARNED AR VEHEMENTLY CONTENDED THAT ENTITY M/S. INFOSYS BPO LTD., CANNOT BE COMPARED WITH THE ASSESSEE COMPANY AS IT IS FUNCTIO NALLY DISSIMILAR. IT IS SUBMITTED THAT THIS COMPANY IS I NTO PROVIDING HIGH END INTEGRATED SERVICES AND HAV BRAND VALUE AND HIGH TURNOVER. THEREFORE THIS COMP ANY CANNOT BE COMPARED WITH THAT OF ASSESSEE COMPANY AN D RELIANCE IN THIS REGARD WAS PLACED ON THE FOLLOWING DECISION OF THE COORDINATE BENCH : IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 GROUND NO. 1 IS GENERAL IN NATURE AND DO NOT REQUIR E SUB GROUNDS A TO E. SUB GROUNDS A, B, C & D ARE NOT PRESSED BEFO RE US. IS REGARDING THE SELECTION OF COMPARABLES. THE LEARNED AR VEHEM ENTLY FOLLOWING COMPARABLES CANNOT BE INCLUDED IN THE LIST OF COMPARABLES. NOW WE SHALL DEAL WITH EA CH OF : THE LEARNED AR VEHEMENTLY M/S. INFOSYS BPO LTD., CANNOT BE COMPARED WITH THE ASSESSEE COMPANY AS IT IS FUNCTIO NALLY DISSIMILAR. IT IS SUBMITTED THAT THIS COMPANY IS I NTO PROVIDING HIGH END INTEGRATED SERVICES AND HAV ING HIGH BRAND VALUE AND HIGH TURNOVER. THEREFORE THIS COMP ANY CANNOT BE COMPARED WITH THAT OF ASSESSEE COMPANY AN D RELIANCE IN THIS REGARD WAS PLACED ON THE FOLLOWING IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 11 OF 22 ON THE OTHER HAND, THE LEARNED CIT(DR) VEHEMENTLY ARGUED THAT TURNOVER IS NOT A RELEVANT CRITERIA FOR THE COMPARABILITY. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE ANNUAL REPORT OF M/S. INFOSYS BPO LTD., IT IS CLEAR THAT IT IS WHOLL Y OWNED SUBSIDIARY OF M/S. INFOSYS LTD. IT IS AN UNDISPUTE D FACT THAT THE INFOSYS BPO POSSESSES HIGH BRAND VALUE AND INTA NGIBLES. SUCH COMPANIES CANNOT BE COMPARED WITH COMPANIES LI KE THAT OF ASSESSEE COMPANY AS HELD BY HONBLE DELHI H IGH COURT CIT VS. AGNITY TECHNOLOGIES PVT. LTD., 219 TA XMANN 26 AND THE SAME RATIO HAS BEEN FOLLOWED BY SEVERAL COORDINATE BENCHES LIKE THE CASE OF NOVA NORDISK IN DIA PVT. LTD.,[IT(TP) A NO. 122/BANG/2014, AY 2009-10] DATED 08.05.2015 WHEREIN THE COORDINATE BENCH FOLLOWING T HE DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF I Q INFORMATION SYSTEMS PVT. LTD., VS. DCIT, CIRCLE (1) , HYDERABAD DATED 31.07.2014 HELD THAT THE INFOSYS BP O CANNOT BE COMPARED WITH ITES COMPANY FOR THE ASSESS MENT YEAR 2009-10. THE RELEVANT PARAGRAPHS ARE AS UNDER : IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 12 OF 22 WE DO NOT FIND ANY REASON TO DIFFER WITH THE DECISI ONS OF THE COORDINATE BENCHES CITED SUPRA. THEREFORE, WE DIRECT TPO/AO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. (II) ADITYA BIRLA MINACS WORLDWIDE LTD: LEARNED AR CONTENDS THAT THIS COMPANY CANNOT BE COMPARED WITH THAT OF ASSESSEE COMPANY AS THE RELAT ED PARTY TRANSACTIONS ARE MORE THAN HAD PLACED RELIANCE ON THE FOLLOWING DECISIONS: WE FIND THAT TPO HAD APPLIED RPT FILTER OF MORE THA N 25% OF SALES AND THE APPLICATION OF THE FILTER OF RPT MORE THAN 15% AND ANY EVENT , IN THE PRESENT CASE THE COMPANY QUALIFIES IS FOUND TO BE FUNCTIONAL ASSESSEE COMPANY AND THEREFORE WE DO NOT SEE ANY RE ASON TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S. THEREFORE, WE UPHOLD INCLUSION OF THIS ENTITY IN TH E L COMPARABLES. IT(TP)A NO.1757/BANG/2013 IT(TP) NO.4/BANG/2014 PAGE 13 OF 22 ADITYA BIRLA MINACS WORLDWIDE LTD: LEARNED AR CONTENDS THAT THIS COMPANY CANNOT BE COMPARED WITH THAT OF ASSESSEE COMPANY AS THE RELAT ED PARTY TRANSACTIONS ARE MORE THAN 15 % I.E., 15.68% AND HAD PLACED RELIANCE ON THE FOLLOWING DECISIONS: WE FIND THAT TPO HAD APPLIED RPT FILTER OF MORE THA N 25% OF SALES AND THE ASSESSEE COMPANY HAD NOT CHALLENGE APPLICATION OF THE FILTER OF RPT MORE THAN 15% AND ANY , IN THE PRESENT CASE , THE RPT FILTER IS ONLY 15.68% QUALIFIES ALL THE FILTERS APPLIED BY THE TPO AND IS FOUND TO BE FUNCTIONAL LY COMPARABLE WITH THAT OF THE ASSESSEE COMPANY AND THEREFORE WE DO NOT SEE ANY RE ASON TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S. THEREFORE, WE UPHOLD INCLUSION OF THIS ENTITY IN TH E L IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 ADITYA BIRLA MINACS WORLDWIDE LTD: THE LEARNED AR CONTENDS THAT THIS COMPANY CANNOT BE COMPARED WITH THAT OF ASSESSEE COMPANY AS THE RELAT ED % I.E., 15.68% AND WE FIND THAT TPO HAD APPLIED RPT FILTER OF MORE THA N CHALLENGE APPLICATION OF THE FILTER OF RPT MORE THAN 15% AND ANY THE RPT FILTER IS ONLY 15.68% AND THE FILTERS APPLIED BY THE TPO AND COMPARABLE WITH THAT OF THE ASSESSEE COMPANY AND THEREFORE WE DO NOT SEE ANY RE ASON TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S. THEREFORE, WE UPHOLD INCLUSION OF THIS ENTITY IN TH E L IST OF (III) ACCENTIA TECHNOLOGIES LTD: BEFORE US THAT THIS COMPANY CANNOT BE COMPARED WITH THAT OF THE ASSESSEE COMPANY AS IT IS FUNCTIONALLY DIFFERENT AND IT IS ENGAGED IN THE BUSINESS OF PROD UCT DEVELOPMENT AND SOFTWARE DEVELOPM RESULTS CANNOT BE COMPARED AS EXTRAORDINARY EVENT O F ACQUISITION OF M/S. OAK TECHNOLOGIES DURING THE YEAR HAVING IMPACT ON THE PROFITABILITY OF THE ENTITY. RELIANCE IN THIS REGARD WAS PLACED ON DECI SION OF : WE HEARD MATERIAL ON RECORD. THE CONTENTION THAT BECAUSE OF EXTRAORDINARY EVENT LIKE AMALGAMATION OF THE ACCENTIA TECHNOLOGIES CANNOT BE ACCEPTABLE . IT IS ONLY DURING THE IRIDIUM TECHNOLOG IT(TP)A NO.1757/BANG/2013 IT(TP) NO.4/BANG/2014 PAGE 14 OF 22 ACCENTIA TECHNOLOGIES LTD: IT IS CONTENDED BEFORE US THAT THIS COMPANY CANNOT BE COMPARED WITH THAT OF THE ASSESSEE COMPANY AS IT IS FUNCTIONALLY DIFFERENT AND IT IS ENGAGED IN THE BUSINESS OF PROD UCT DEVELOPMENT AND SOFTWARE DEVELOPM ENT. THE FINANCIAL RESULTS CANNOT BE COMPARED AS EXTRAORDINARY EVENT O F ACQUISITION OF M/S. OAK TECHNOLOGIES INC. TOOK PLACE DURING THE YEAR HAVING IMPACT ON THE PROFITABILITY OF THE ENTITY. RELIANCE IN THIS REGARD WAS PLACED ON DECI SION OF : WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE CONTENTION THAT BECAUSE OF EXTRAORDINARY EVENT LIKE AMALGAMATION , THE FINANCIAL RESULTS OF THE ACCENTIA TECHNOLOGIES CANNOT BE COMPARED IS NOT . IT IS ONLY DURING THE FINANCIAL YEAR TECHNOLOG IES AND GEOSOFT TECHNOLOGIES WERE MERGED IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 IT IS CONTENDED BEFORE US THAT THIS COMPANY CANNOT BE COMPARED WITH THAT OF THE ASSESSEE COMPANY AS IT IS FUNCTIONALLY DIFFERENT AND IT IS ENGAGED IN THE BUSINESS OF PROD UCT ENT. THE FINANCIAL RESULTS CANNOT BE COMPARED AS EXTRAORDINARY EVENT O F TOOK PLACE DURING THE YEAR HAVING IMPACT ON THE PROFITABILITY OF THE ENTITY. RELIANCE IN THIS REGARD WAS PLACED ON DECI SION OF : THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE CONTENTION THAT BECAUSE OF FINANCIAL RESULTS COMPARED IS NOT 2007-08 WERE MERGED IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 15 OF 22 WITH THE ACCENTIA TECHNOLOGIES LTD. THIS CAN BE FO UND FROM PAGE 29: AND DURING THE FINANCIAL YEAR 2008-09 I.E., RELEVAN T TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THIS COMPA NY HAD ONLY ACQUIRED 96% STAKE IN OAK TECHNOLOGIES INC. TH AT MEANS THE FINANCIAL RESULTS OF OAK TECHNOLOGIES INC . WERE NOT MERGED WITH THE ACCENTIA TECHNOLOGY LTD. THIS FACT IS EVIDENT FROM THE PAGE NO. 61 OF THE ANNUAL REPORT F OR THE FINANCIAL YEAR 2008-09. THEREFORE THIS CONTENTION CANNOT BE ACCEPTED. NOW WE SHALL DEAL WITH THE OTHER CONTENTIONS OF THE ASSESSEE COMPANY THAT THIS COMPANY CANNOT BE COMPAR ED WITH THAT OF ITES COMPANY ON FUNCTIONALITY. FROM T HE ANNUAL REPORT FOR THE FINANCIAL YEAR 2008-09, IT IS CLEAR FROM PAGE 3 OF ANNUAL REPORT PLACED AT PAGE NO. 788 OF T HE PAPER BOOK, THE BUSINESS PROFILE OF THE COMPANY IS DESCRIBED AS UNDER: IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 16 OF 22 THE STORY OF ACCENTIA TECHNOLOGIES IS INDEED A TRU LY INSPIRATIONAL ONE, UNSURPASSED IN INDIA. AS THE FA STEST GROWING BPO COMPANY IN THE HEALTHCARE RECEIVABLES C YCLE MANAGEMENT SPHERE, WE ARE NOT READY TO REST ON OUR LAURELS. WE HAVE VERY AMBITIOUS PLANS FOR THE FUTU RE, WHICH WE ARE SURE OF ACHIEVING WITH THE ENTHUSIASTIC MANA GEMENT TEAM, HIGHLY MOTIVATED EMPLOYEES, EVER EXPANDING CL IENTELE AND SUPPORTIVE INVESTORS. WE ARE NOW ENTERING THE DATA PROCESSING OUTSOURCIN G BUSINESS AREA, AND HOPE TO REALIZE ABOUT 25% OF OUR TOTAL REVENUES FROM THIS NEW BUSINESS STREAM IN THE FIRST YEAR ITSELF AND FROM THE SCHEDULE 8 OF THE AUDITED ACCOUNTS, TH E DESCRIPTION OF THE INCOME FROM OPERATIONS ARE GIVEN AS UNDER: FROM THE ABOVE IT IS VERY CLEAR THAT IT IS NOT ENGA GED EITHER IN THE SOFTWARE DEVELOPMENT OR IN THE SOFTWA RE DEVELOPMENT PRODUCTS. THEREFORE THE CONTENTION THA T THE COMPANY IS IN THE SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS DEVELOPMENT CANNOT BE ACCEPTED. FROM THE N ATURE OF THE DESCRIPTION OF THE INCOME, IT IS VERY CLEAR THAT IT IS AN ITES COMPANY. THIS ENTITY IS COMPARABLE WITH THAT OF TH E ASSESSEE COMPANY. (IV) M/S. CONTENDED THAT THIS COMPANY IS FUNCTIONALLY DIFFERE NT FROM THAT OF THE ASSESSEE COMPANY AS IT OUTSOURCES ITS SERVICES TO 3 FROM THE BUSINESS OF TRANSLATION SERVICES AND RELIA NCE IN THIS REGARD WAS PLACED ON THE FOLLOWING DECISION OF THE COORDINATE BENCH: ON THE OTHER HAND, THE LEARNED DR RELIED ON THE ORDERS OF TPO. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ONLY WAS OBJECTED SERVICES TO 3 RD IT(TP)A NO.1757/BANG/2013 IT(TP) NO.4/BANG/2014 PAGE 17 OF 22 COMPANY. THIS ENTITY IS COMPARABLE WITH THAT OF TH E ASSESSEE COMPANY. M/S. COSMIC GLOBAL LTD: THE AR VEHEMENTLY CONTENDED THAT THIS COMPANY IS FUNCTIONALLY DIFFERE NT FROM THAT OF THE ASSESSEE COMPANY AS IT OUTSOURCES ITS SERVICES TO 3 RD PARTY AND THE MAJ OR REVENUE IS DERIVED FROM THE BUSINESS OF TRANSLATION SERVICES AND RELIA NCE IN THIS REGARD WAS PLACED ON THE FOLLOWING DECISION OF THE COORDINATE BENCH: ON THE OTHER HAND, THE LEARNED DR RELIED ON THE ORDERS OF TPO. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ONLY GROUND ON WHICH THIS COMPANY OBJECTED FOR INCLUSION WAS THAT IT SUBCONTRACTED ITS RD PARTY. HOWEVER, FROM THE PERUSAL OF THE IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 COMPANY. THIS ENTITY IS COMPARABLE WITH THAT OF TH E THE AR VEHEMENTLY CONTENDED THAT THIS COMPANY IS FUNCTIONALLY DIFFERE NT FROM THAT OF THE ASSESSEE COMPANY AS IT OUTSOURCES ITS OR REVENUE IS DERIVED FROM THE BUSINESS OF TRANSLATION SERVICES AND RELIA NCE IN THIS REGARD WAS PLACED ON THE FOLLOWING DECISION OF THE ON THE OTHER HAND, THE LEARNED DR RELIED ON THE ORDERS OF TPO. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED WHICH THIS COMPANY FOR INCLUSION WAS THAT IT SUBCONTRACTED ITS FROM THE PERUSAL OF THE IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 18 OF 22 ANNUAL REPORT OF THIS COMPANY AT PAGE NO. 75 OF THE ANNUAL REPORT FOR THE FINANCIAL YEAR 2008-09 PLACED AT PAG E NO. 928 AND PAGE NO. 76 IT IS CLEAR THAT FOR EARNIN G THE REVENUE OF RS.7,37,02,584/- THE EXPENDITURE ON SALA RIES AND WAGES OF RS. 1,57,11,460/- WAS INCURRED CONSTITUTIN G TO 21.31%. HOWEVER, FROM THE SCHEDULE 10 AND 11, NO EXPENDITURE WAS SHOWN TOWARDS OUTSOURCING OF WORK. THUS THE CONTENTIONS ADVANCED ARE NOT SUPPORTED BY THE M ATERIAL ON RECORD. THEREFORE IT CANNOT BE ACCEPTED. THUS WE UPHOLD THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES. (V) M/S. EXLERX SERVICES: IT IS CONTENDED THAT THIS ENTITY IS A KPO COMPANY, KNOWLEDGE PROCESSING ENGAGED IN PROVIDING DATA ANALYTICS AND DATA PROCES SING SOLUTIONS TO ITS CUSTOMERS AND INTANGIBLES LIKE GOO DWILL AND EARNING ABNORMALLY HIGH PROFITS. THUS IT WAS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERE NT FROM THAT OF ITES COMPANY LIKE THE ASSESSING COMPANY. RELIANCE IN THIS REGARD WAS PLACED IN THE DECISION OF : 12. NOW THE LAW IS QUITE SETTLED THAT COMPARED WITH A TO THE NATURE OF THE FUNCTIONS PERFORMED BY THE COM PARABLE AS WELL AS THE ASSESSEE COMPANY, A FINDING HAS TO B E RENDERED BY THE LOWER AUTHORI COMPANY OR ITES COMPANY. ON THE RECORD. TO THE REMAND THE MATTER BACK TO THE FILE TPO/AO TO DECIDE WHETHER THIS ENTITY IS IT IS FOUND TO BE EXCLUDE IT FROM THE LIST OF COMPARABLES. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE COMPANY IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. IT(TP)A NO.1757/BANG/2013 IT(TP) NO.4/BANG/2014 PAGE 19 OF 22 NOW THE LAW IS QUITE SETTLED THAT A KPO CANNOT BE COMPARED WITH A PURELY ITES COMPANY. BUT HAVING REGARD TO THE NATURE OF THE FUNCTIONS PERFORMED BY THE COM PARABLE AS WELL AS THE ASSESSEE COMPANY, A FINDING HAS TO B E RENDERED BY THE LOWER AUTHORI TIES WHETHER IT IS A KPO COMPANY OR ITES COMPANY. WE DO NOT FIND ANY SUCH FINDING RECORD. IN THE ABSENCE OF SUCH FINDING, WE DEEM IT FIT TO THE REMAND THE MATTER BACK TO THE FILE TPO/AO TO DECIDE WHETHER THIS ENTITY IS A KPO COMPANY OR ITES COMPAN IT IS FOUND TO BE A KPO COMPANY, WE DIRECT THE TPO/AO TO EXCLUDE IT FROM THE LIST OF COMPARABLES. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE COMPANY IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 KPO CANNOT BE ITES COMPANY. BUT HAVING REGARD TO THE NATURE OF THE FUNCTIONS PERFORMED BY THE COM PARABLE AS WELL AS THE ASSESSEE COMPANY, A FINDING HAS TO B E IS A KPO WE DO NOT FIND ANY SUCH FINDING OF SUCH FINDING, WE DEEM IT FIT TO THE REMAND THE MATTER BACK TO THE FILE TPO/AO TO DECIDE KPO COMPANY OR ITES COMPAN Y. IF KPO COMPANY, WE DIRECT THE TPO/AO TO IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 20 OF 22 DEPARTMENTAL APPEAL NO. [IT(TP)A 1757/BANG/2013] GROUNDS OF APPEAL: 14. THE ONLY GRIEVANCE OF THE REVENUE IN THIS APPEA L IS THAT THE CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER (AO) TO RECOMPUTE THE DEDUCTION ALLOWABLE U /S 10A AND 10AA OF THE INCOME-TAX ACT, 1961 [HEREINAFTER R EFERRED TO AS THE ACT FOR SHORT] AFTER REDUCING THE EXPEN DIURE INCURRED ON TRAVEL, TELE-COMMUNICATION CHARGES AND IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 21 OF 22 EXPENSES INCURRED FOR TRAVEL IN FOREIGN CURRENCY BO TH FROM THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER. ACCORDING TO THE REVENUE, THE ORDER OF THE HONBLE HIGH COURT IN THE CASE OF CIT VS. TATA ELXSI LTD. (349 ITR 98) HAS NO T BEEN ACCEPTED BY THE DEPARTMENT AND A SLP HAS BEEN FILED BEFORE THE HONBLE SUPREME COURT. THEREFORE, THE ORDER OF THE CIT(A) SHOULD BE REVERSED. 15. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE CIT(A) HAS FO LLOWED THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TATA ELXI LTD (SUPRA) FOR HOLDING THAT THE EXPEN SES EXCLUDED FROM THE EXPORT TURNOVER SHOULD ALSO BE EX CLUDED FROM THE TOTAL TURNOVER FOR COMPUTATION OF DEDUCTIO N U/S 10A AND 10AA OF THE ACT. IN VIEW OF THE SAME, WE S EE NO MERIT IN THE APPEAL OF THE REVENUE. HENCE, THE SAM E IS DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISM ISSED. IT(TP)A NO.1757/BANG/2013 & IT(TP) NO.4/BANG/2014 PAGE 22 OF 22 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 TH DAY OF NOVEMBER , 2016 SD/- SD/- (SUNIL KUMAR YADAV) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : BANGALORE DATED : 09/11/2016 /NS/ COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER ASSISTANT RE GISTRAR INCOME-TAX APPELLATE TRIBUNAL BANGALORE