SITEL INDIA LTD, MUMBAI V. DCIT RG 8(3), MUMBAI

ITA 1777/MUM/2012

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6912 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2007-2008
• Appeal Filed On: 13-03-2012
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Condonation of delay; Revenue expenditure; TDS; Set aside
• Section: 143(3); 195; 274; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No.1777/Mum./2012 (Assessment Year : 2007–08) Sitel India Ltd. 4A, Parke Davis Complex Saklnaka, Andheri Kurla Road Mumbai 400 072 PAN – AAFCS1297M ................ Appellant v/s Dy. Commissioner of Income Tax Range–8(3), Mumbai ................Respondent ITA No.1426/Mum./2012 (Assessment Year : 2007–08) Asstt. Commissioner of Income Tax Circle–8(3), Mumbai ................ Appellant v/s Sitel India Ltd. 4A, Parke Davis Complex Saklnaka, Andheri Kurla Road Mumbai 400 072 PAN – AAFCS1297M ................ Respondent Assessee by : Shri Ajit Jain a/w Shri Siddesh Chaugule Revenue by : Shri Tejinder Pal Singh Date of Hearing – 17/05/2022 Date of Order – 15/07/2022 Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 2 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present cross appeals have been filed by assessee and Revenue challenging the impugned order dated 16/12/2011, passed under section 250 of the Income Tax Act, 1961 (‘the Act’) by the learned Commissioner of Income Tax (Appeals)–15, Mumbai [‘learned CIT(A)’], for the assessment year 2007–08. ITA No. 1777/Mum/2012 Assessee’s appeal – A.Y. 2007–08 2. The appeal filed by the assessee before us is delayed by 5 days. Along with the present appeal assessee has also filed an application seeking condonation of delay in filing the appeal, which is also supported by an affidavit sworn by the Managing Director of the assessee company. In the affidavit, the deponent has submitted as under : “4. I say that the order of the Commissioner of Income Tax-(Appeals) - 15, Mumbai dated 16th December 2011 for the Assessment Year 2007 2008 was served on the Applicant's office on 9th January, 2012. 5. I say that the Applicant is a Public Limited company. During the relevan Assessment year i.e. 2007-2008 the office premise of the Applicant was changed from 4A, PARKE DAVIS Complex, Sakinaka, Andheri (E), Mumbai 400072, to BOOMERANG building, 5 th Floor, Chandivali Farm Road, Near Chandivali Studio, Andheri (East), Mumbai 400 072. As a result of this shifting several papers and other documents were misplaced. The said impugned order dated 16 th December, 2011 was also misplaced during the same time. I further submit that at the same time the Finance Manager of the Company who was looking after tax matters also changed. As a result thereof, we were unable to communicate to our lawyers to draft and file the Appeal in time before the Hon'ble ITAT. As a result thereof the Applicant could not file the appeal in time before the Hon'ble ITAT. The Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 3 delay therefore in the present case has been caused on account of a 'sufficient cause' and the same therefore deserves to be condoned.” 3. In view of the above, the assessee has requested to condone the delay as the same is unintentional and due to circumstances beyond the control of the assessee. On the other hand, learned Departmental Representative (‘learned DR’) did not raise any serious objection against the application seeking condonation of delay. Having perused the application, which is also supported by an affidavit, we are of the considered view that there exist sufficient cause for not filing the appeal within the limitation period and therefore we condone the delay in filing the appeal by the assessee and we proceed to decide this appeal on merits. 4. In its appeal, assessee has raised following grounds: “1. The CIT (A) erred in not appreciating that there was no intention of shifting profits outside India by the Appellant and has further failed in not giving any finding/ reasoning to hold that the arm's length price has not been rightly arrived at by the Appellant. The impugned order is therefore bad-in-law and is liable to be set aside. 2. The CIT (A) erred in not appreciating that the Transfer Pricing Officer (TPO) has violated the provisions of para 55.5 of the circular No. 14/2001, since the Appellant is eligible for tax holiday under section 10A of the Income tax Act, 1961 (hereafter the said 'Act) and accordingly, there can be no intention to shift profits outside India by manipulating prices charged or paid on international transactions with AE's, thereby eroding India's tax base. 3. The CIT (A) erred in rejecting the multiple year analysis undertaken by the Appellant for computing the net cost plus margin (NCP) of comparable companies. 4. The CIT (A) erred in not appreciating that the judicial principle of 'Impossibility of performance' should have been considered in the facts of the present case, in as much as the same-year comparable data was not Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 4 completely available at the time of entering into the international transaction as well the time of as completing the documentation. The impugned order is therefore passed on a complete non-application of mind and is liable to be set aside. 5. The CIT (A) erred in upholding the order of the Transfer Pricing Officer (TPO) and in disregarding the idle capacity adjustment made by the Appellant on the basis of the Transfer pricing documentation submitted. 6. The CITIA) erred in holding that the ive existing to trade pricing would not only be limited to the extent of revetant, it would als extend to the incurring of balo by the Appellant on behalf of the 7. The CIT(A) erred in holding that the interest income earned by the Appellant from term deposits amounting to Rs. 2,252,149/- is assessable as "Income from Other Sources as against Profits and Gains' from business and thereby disallowing the deduction under section 10A of the Act. 3. The CIT (A) erred in not appreciating that the interest income earned on fixed deposits by the Appellant was not an independent activity of the Appellant but it had arisen from the business activity of the Appellant and was inextricably linked to the business of the Appellant and hence entitled to the deduction under section 10A of the Act. 9. The CIT (A) on an erroneous interpretation of the facts of the case, erred in holding that the training income of Rs. 7,00,48,008/- cannot be attributable to export activity of the Appellant and consequently not eligible for deduction under section 10A of the Act. 10. The CIT (A) erred in holding that the training was provided to the end customers of the AE, which is a factual anomaly, and thereby holding that the service Income (training income) was not relatable to the export activity and hence ineligible for deduction under section 10A of the Act. 11. The CIT (A) erred in upholding the order of the A.O. in disallowing communication line expenses and legal professional expenses amounting to Rs. 3,31,61,399/ and Rs. 1,19,27,329/- respectively under section 40(a) (i) of the Act. 12. The CIT (A) erred in not appreciating the documentary evidence on record which clearly reflect that the communication line expenses and legal professional expenses of Rs. 3,31,61,399/- and Rs. 1,19,27,329/ respectively were pure reimbursements and would not attract the provisions of section 195 of the Act and therefore could not be disallowed under section 40(a) (i) of the Act. 13. On the facts and in the circumstances of the case and in law, the CIT(A). erred in not granting depreciation amounting to Rs. 16 83,326/- (Rupees Sixteen Lakhs Eighty Three Thousand Three Hundred Twenty Six Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 5 only) on software expenses assessed as capital in nature, in previous years.” 5. In addition to the above grounds, assessee vide application dated 21/08/2019, sought admission of following additional ground of appeal: “Without prejudice to Ground no. 11 and 12, based on the facts and in the circumstances of the case and in law the Hon ble CITA) erred in not considering the disallowance of communication line expenses and legal and professional expenses, for computation of deduction under Section 10A of the Income-tax Act, 1961 (the Act).” 6. Vide another application dated 08/02/2021, assessee sought admission of following additional grounds of appeal pertaining to the impugned transfer pricing adjustment: “Ground No. 1: Rejection of Comparables selected by the Appellant in list of final Comparables On the facts and circumstances of the case and in law, the learned AO and TPO have rejecting the following comparables having significant related party transactions: i. BNR Udyog Ltd. ii. Firstsource Solutions Ltd. iii. HCL Technologies Ltd. iv. Fortune Infotech Ltd b. On the facts and circumstances of the case and in law, the learned AO and TPO ought to have rejected the following comparables due to differences in the Functions, Assets and Risks and/or other extraordinary events: i. Maple Esolutions Ltd Triton Corp Ltd. ii. Triton Corp Ltd. iii. Spanco Telesystems and Solutions Ltd. iv. Wipro Limited. Ground No. 2: Rejection of Comparable selected by the TPO in list of final Comparables: Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 6 The learned TPO AO/CIT(A) erred in selecting the following comparable company ignoring the Rule 10B(2) and Rule 108(3) of the Income-tax Rules, 1962 (the Rules') governing comparability analysis: i. Iservices India Pvt. Ltd. The Appellant craves leave to add to or alter, by deletion, substitution, modification or otherwise or amend or withdraw the Additional Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either before or during the hearing of the appeal.” 7. During the course of hearing, learned Authorised Representative (‘learned AR’), at the outset submitted that assessee wish to only press ground No. 13 raised in assessee’s appeal along with the aforesaid additional grounds filed vide applications dated 21/08/2019 and 08/02/2021. In view of the submissions by the learned AR, other grounds raised in assessee’s appeal i.e. grounds no. 1 to 12, are dismissed as not pressed. 8. As the issues raised by the assessee, by way of additional grounds of appeal, are legal issues which can be decided on the basis of material available on record, we are of the view that same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon’ble Supreme Court in NTPC Ltd v/s CIT: 229 ITR 383. 9. As regards additional grounds of appeal, pertaining to impugned transfer pricing adjustment, raised vide application dated 08/02/2021, brief facts as emanating from the record are: The assessee is engaged in business of call centre and IT enabled services. For the year under consideration, assessee e-filed its return of income on 31/10/2007 Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 7 declaring total income at Rs. Nil, after claiming exemption under section 10A of the Act. The assessee is 50:50 joint venture between Systems Integrated Telemarketing, Netherlands and the TATA group. During the year under consideration, the assessee entered into following international transactions with its associated enterprises: Sl. No. Nature of Transaction Amount (Rs.) 1. Provision of customer contact services 127,63,39,851 2. Payment of service charges 1,19,27,329 3. Payment of lease charges 42,17,295 4. Reimbursement of expenses 3,47,08,197 10. In respect of international transaction pertaining to ‘Provision of Contact Centre Services’, the assessee provides Contact Centre Services i.e. email, web based chat solutions and voice responses to the customers of SITEL Corp, USA and SITEL UK Ltd. (i.e. its AEs), as it is not capable of directly marketing its services. For benchmarking this transaction, the assessee adopted the Transactional Net Margin Method (‘TNMM’) as the most appropriate method with Profit Level Indicator (‘PLI’) of operating profit on cost. The assessee adopted certain adjustment for unutilised capacity and on such adjustments it has submitted that its net cost plus margin was 14.2%. The assessee selected 22 comparable companies and adopted the weighted average of their operating profit on cost for 3 years and the average mean was submitted as 12.51%. Accordingly, it was claimed that the international transaction of ‘Provision of Contact Centre Services’ is at arm’s length price (‘ALP’). Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 8 11. The Assessing Officer made reference to Transfer Pricing Officer (‘TPO’) for determination of ALP of the aforesaid international transaction. During the transfer pricing assessment proceedings, the assessee filed its reply in response of each comparable proposed by the TPO. Vide order dated 29/10/2010 passed under section 92CA(3) of the Act, the TPO finally selected set of 21 companies as comparable having average mean margin of 20.62%. By applying the arm’s length margin, the TPO, proposed an upward adjustment of Rs. 14,01,94,740 in respect of international transaction of ‘Provision of Contact Centre Services’. In conformity, the Assessing Officer, inter-alia, passed the order under section 143(3) of the Act. In appeal before the learned CIT(A), the assessee only challenged the inclusion of Infosys BPO Ltd and IService India Private Limited as comparable. 12. Vide additional grounds of appeal, the assessee has now, inter-alia, sought exclusion of following companies, selected by the TPO, as comparable on the basis that same have significant related party transactions: (i) BNR Udyog Ltd.; (ii) Firstsource Solutions Ltd.; (iii) HCL Technologies Ltd. and (iv) Fortune Infotech Ltd. 13. Further, the assessee also sought exclusion of following companies, selected by the TPO, as comparable on the basis of difference in functions, assets and risk and/or other extraordinary events: Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 9 (i) Maple E solutions Ltd.; (ii) Triton Corp Ltd.; (iii) Spanco Telesystems and Solutions Ltd.; and (iv) Wipro Ltd. 14. During the course of hearing, learned Representatives appearing for the parties fairly agreed that the issue regarding the selection of aforesaid comparables be remanded to the learned CIT(A). 15. We find from the perusal of the impugned order passed by the learned CIT(A) that none of the aforesaid companies was challenged before the learned CIT(A) and therefore, there is no adjudication in respect of these comparables. Thus, we deem it appropriate to remand the issue of selection of these comparables, challenged by the assessee before us vide additional ground no. 1, to the file of the learned CIT(A) for adjudication. As a result, additional ground No. 1, raised vide application dated 08/02/2021, is allowed for statistical purpose. 16. Additional ground No.2, raised vide aforesaid application, is pertaining to exclusion of Iservices India Private Limited. This company was proposed as a comparable by the TPO during the transfer pricing assessment proceedings. The assessee challenging said comparable on the basis that this company has abnormal commission on sales. Vide order passed under section 92CA(3) of the Act, the TPO included Iservices India Private Limited as a comparable for benchmarking the aforesaid international transaction without recording any finding. In appeal before the learned CIT(A), assessee challenged the inclusion of this company as Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 10 a comparable. The learned CIT(A) vide impugned order, inter-alia, dismissed the appeal filed by the assessee on this issue and upheld the inclusion of this company as a comparable. Being aggrieved, assessee is in appeal before us. 17. During the course of hearing, learned AR submitted that assessee’s submissions, in respect of this comparable, were not properly considered by the learned CIT(A). On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities. 18. We have considered the rival submissions and perused the material available on record. We find that the learned CIT(A) vide impugned order upheld the inclusion of this company as a comparable and rejected the submission of the assessee that this company having commission on sales makes it non-comparable to the assessee. We further find that the learned CIT(A) also did not analysed functions performed, assets employed and risk assumed by this company vis-à-vis the assessee. In view of the above, we deem it appropriate to remand this issue of selection of Iservices India Private Limited as a comparable to the file of learned CIT(A) for de novo adjudication after considering all the submissions of the assessee. As a result, additional ground No. 2, raised vide application dated 08/02/2021, is allowed for statistical purpose. Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 11 19. As regards additional ground raised vide application dated 21/10/2019, same pertains to computation of deduction under section 10A of the Act. 20. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the course of provision of contact centre services to its AEs, on certain occasions some costs in the nature of communication line expenses, and legal and professional charges were incurred by the overseas AEs, which was subsequently reimbursed by the assessee. The Assessing Officer disallowed the expenditure under section 40(a)(i) of the Act for non-deduction of TDS. In appeal, learned CIT(A) upheld the disallowance made by the Assessing Officer. 21. During the course of hearing, learned AR submitted that the disallowance of communication line expenses and legal and professional charges should be considered for computation of deduction under section 10A of the Act by placing reliance upon decision of Hon’ble Supreme Court in CIT vs HCL Technologies Ltd., [2018] 404 ITR 719 (SC). 22. We find that in HCL Technologies Ltd. (supra), Hon’ble Supreme Court held that while computing deduction under section 10 A of the Act, expenses excluded from ‘export turnover’ have to be excluded from ‘total turnover’ also, otherwise, any other interpretation makes the formula under section 10A unworkable and absurd and, hence, such deduction shall be allowed from the ‘total turnover’ in the same proportion as well. Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 12 From the perusal of the record, we find that the lower authorities have not examined this issue from this perspective as is now raised before us by way of additional ground of appeal, by placing reliance upon aforesaid decision of Hon’ble Supreme Court. In view of the above, we remand this issue to the file of Assessing Officer for de novo adjudication. We further direct that if it is found that the aforesaid expenses were excluded from the ‘export turnover’ then such expenses should also be excluded from the ‘total turnover’, while computing the deduction under section 10A of the Act, following the aforesaid decision of Hon’ble Supreme Court. As a result additional ground, raised by the assessee vide application dated 21/08/2019, is allowed for statistical purpose. 23. Ground No. 13 is the only ground pressed by the assessee in its original set of grounds and the same pertains to disallowance of depreciation amounting to Rs. 16,83,326 on software expenses assessed as capital in nature, in previous years. 24. The brief facts of the case pertaining to this issue, as emanating from the record are: During the course of assessment proceedings in the earlier years, the Assessing Officer had disallowed software expenses as capital in nature and allowed depreciation on the same. However, while computing the total income, during the year under consideration, the Assessing Officer did not grant any depreciation on such software expenses treated as capital in nature, in previous years. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 13 on this issue on the basis that such claim has not been made by the assessee either in the return or in the revised return of income filed by the assessee, following the decision of Hon’ble Supreme Court in Goetze India Ltd. (157 Taxman 1). Being aggrieved, the assessee is in appeal before us. 25. During the course of hearing, learned AR reiterated the submissions made before the lower authorities. On the other hand, learned DR vehemently relied upon the order passed by the learned CIT(A). 26. We have considered the rival submissions and perused the material available on record. An expenditure incurred for the purpose of business is allowed as revenue expenditure until and unless the same is capital in nature. In case, such expenditure is treated as capital in nature, the assessee is entitled to depreciation on same. In the present case, as per the assessee, software expenses incurred in the previous years were treated as capital in nature and depreciation on same was allowed. For the year under consideration, such depreciation was not granted by the Assessing Officer and assessee’s appeal before the learned CIT(A) was also dismissed on the basis of Hon’ble Supreme Court’s decision in Goetze India Ltd (supra). In view of the above, we deem it appropriate to remand this issue to the file of Assessing Officer for de novo adjudication after examination of the assessment records of the preceding assessment years, wherein, as per assessee’s claim, such expenditure was treated as capital in nature. We further direct that if it is found that expenditure was Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 14 treated as capital in nature and depreciation on same was granted in past, the assessee be granted similar relief for the year under consideration, as per law. As a result, ground No. 13 raised in assessee’s appeal is allowed for statistical purpose. 27. In the result, appeal by the assessee is partly allowed for statistical purpose. ITA No. 1426/Mum/2012 Revenue’s appeal - A.Y. 2007–08 28. In its appeal, the Revenue has raised following grounds: "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing to exclude Infosys BPO Ltd. from the set of comparables for benchmarking analysis for determining the Arm's Length Price in respect of international transactions with AEs without doing any FAR analysis for excluding the said comparable." 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred allowing the benefit of +/-5% relief to the assessee, without appreciating that the benefit of +/-5% is not a standard deduction available to all the assessees under the Income Tax Act, 1961." 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to exclude receipts from Other Services amounting to Rs.7,00,48,008 from total turnover following interalia the decision of the Hon'ble Bombay High Court in the case of GemPlus Jewellery India Ltd., 330 ITR 175 without appreciating that the Department has not accepted the said decision and filed a SLP to the Supreme Court. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer not o set-off of losses of its two 10A units from the profits of other 10A units while computing deduction u/s. 10A and to allow carry forward of loss of such 10A units without appreciating the fact that deduction u/s: 10A is allowable out of Total Income, which is to be computed taking into account set-off of losses as per Chapter VI of the I.T. Act." The Appellant prays that the order of the CIT(A) on the above ground be set aside and that of the ITO/ACIT/DCIT be restored.” Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 15 29. At the outset, learned A.R. accepted Revenue’s contention in respect of ground No. 2 raised in Revenue’s appeal. Accordingly, ground No. 2 is allowed. 30. The issue arising in ground No. 1, raised in Revenue’s appeal, is pertaining to exclusion of Infosys BPO from the set of comparables for benchmarking the international transaction pertaining to ‘Provision of Contact Centre Services’. 31. The brief facts of the case pertaining to this issue, as emanating from the record, are: This company was proposed as a comparable by the TPO during the transfer pricing assessment proceedings. The assessee challenging said comparable on the basis that this company is functionally not comparable to the assessee as it has substantial sales, and selling and marketing expenses and there is significantly dissimilar turnover basis. Vide order passed under section 92CA(3) of the Act, the TPO included Infosys BPO as a comparable for benchmarking the aforesaid international transaction without recording any finding. In appeal before the learned CIT(A), assessee challenge the inclusion of this company as a comparable. The learned CIT(A) vide impugned order, inter-alia, allowed the appeal filed by the assessee on this issue and directed the exclusion of this company as a comparable. Being aggrieved, Revenue is in appeal before us. Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 16 32. During the course of hearing, learned DR by vehemently relying upon the TPO’s order submitted that Infosys BPO is comparable to the assessee as it services are in nature of ITeS. On the other hand learned AR reiterated the submissions made before the learned CIT(A). 33. We have considered the rival submissions and perused the material available on record. The assessee challenged the inclusion of Infosys BPO on the basis that it is not comparable to the assessee as it has substantial brand building, selling and marketing expenses and has large scale of operations. Before the learned CIT(A), the assessee made following submissions: “1. Infosys BPO Limited (Infosys BPO) Functionally not comparable Infosys BPO is engaged in provision of voice, date and knowledge process outsourcing (KPO) services. The relevant extract from the annual report of the Company is as under "Your company delivers end to end voice, data and knowledge process outsourcing and help customers transform their business by enabling them to do their work better, faster cheaper and differently". It is pertinent to note that KPO industry involves outsourcing of high end knowledge work. To perform these duties, workers are required to have expertise like analytical skills, business or domain knowledge, legal skill set, crafting, and technical know-how along with knowledge of processes. These services are usually provided by comparatively higher-skilled workforce like MBAs, Doctors, Lawyers, Engineers, and other professionals having expertise in specific domain. Further, KPO presents unique operational challenges in comparison to BPO. Since the Appellant is not engaged in rendering KPC services, Infosys BPO should not be considered as a comparable company. Substantial brand building, selling and marketing expenses During FY 2006-07, Infosys BPO has incurred substantial selling and marketing expenses (including brand building expenses) of Rs.41.48 ie. Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 17 6.39 percent of the revenue whereas the Appellant has not incurred any such expenses as the Appellant is mainly engaged in rendering services to its ABs. Further, for carving its brand, Infosys BPO had u ide taken several programs such as Infosys BPO Elective, the Academia conclave, Professor Partnership programs, etc. which have been recognized at national as well as at ate national level. For a branded services, a customer is usually willing to pay a premium Accordingly, Infosys BPO has enormous advantages in account of the brand name vis-à-vis the Appellant on the Appellant does not incur such expedite or undertake such programs. Hence, the Appellant submits that Infoeys BPO should not be considered as comparable. Scale of Operations - Growth in total revenue in FY 2006-07 by 77% compared to F.Y. 2005-06; - Growth in net profit in FY 2006-07 by 65% compared to FY 2005-06; - Employees strength of 11,226 in FY 2006-07 compared to 7,021 employees in F.Y. 2004-05 and - FY 2004-05, and - Customer base has increased from 22 to 30 in FY 2306-07. Further, Infosys DPO also operates from international centres at Brno, China and Philippines vis-a-vis the Appellant which operates from India only. Since, the scale of operations at which Appellant operates is much less as compared to the sacale of operations of Infosys BPO, the said company cannot be accepted as comparable. Significantly dissimilar turnover base Considering a number of economic factors and market dynamics, your honour would appreciate that a company like Infosys BPO having a turnover of Rs. 649.56 crores as against the Appellant’s turnover of around 129.25 crores, lacks comparability based on scale of operations. Thus, comparability between such companies would not be in accordance with the provisions of the Act und Rules unless comparability adjustments are made. In this regard, the Pune Tribunal in case of E-gain Communications has held that dos cognizance should be made to the turnovers of the tested party and the comparables, In case of Aginity India Technologies Private Limited 20:0] (ITA. No. 3856/2010) it was observed that where there is a huge variance in the turnover of comparable companies vis-à-vis the tax payer it should not be considered as comparable company. Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 18 Further, in a recent ruling of Deloitte Consulting Indian Private Limited vs DCIT for AY 2004-95, Hyderabad Tribunal held that high turnover company should be excluded from the final list of comparable companies. In light of the foregoing submissions, it is respectfully submitted that Infosys BPO cannot be considered as comparable to the Appellant and hone should be rejected.” 34. After considering the submissions, learned CIT(A) directed exclusion of this company from the set of comparables for benchmarking the international transaction, observing as under: “iv. The appellant in its submission has contended to exclude Infosys BPO Ltd. from the set of comparables. In view of the facts and submission of the appellant that this company has brand value, and incurs heavy marketing and selling expense and cost of software package for own use, the company is directed to be excluded from the set of comparables. 35. In various decisions of the coordinate bench of Tribunal, Infosys BPO has been excluded as a comparable for benchmarking the international transaction pertaining to ITeS, wherein the taxpayer is a captive service provider, on the basis that Infosys BPO is in knowledge process outsourcing, having significant intangibles, has large scale of operation and is a giant company with huge turnover. In view of the above, we find no infirmity in the order passed by the learned CIT(A) directing exclusion of Infosys BPO for benchmarking the international transaction of ‘Provision of Contact Centre Services’. Accordingly, ground no. 1 raised in Revenue’s appeal is dismissed. 36. The issue arising in ground no. 3, raised in Revenue’s appeal, is pertaining to exclusion of receipts from other services from total turnover. Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 19 37. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the course of assessment proceedings, upon perusal of profit and loss account, it was observed that assessee has shown to have earned a sum of Rs. 7,00,48,008 on account of other services in the form of training fees, which was included by the assessee in its income for the purpose of deduction under section 10A of the Act. The assessee was asked to show cause as to why such training fees income amounting to Rs. 7,00,48,008 be not excluded for the purpose of exemption under section 10A of the Act. In reply assessee submitted that assessee provides Contact Centre Services to the customers of its AEs. The major activities of the assessee include providing e-CRM services using the voice, web chart, email and others. The assessee further submitted that for providing the services, training is provided to the employees, which is reimbursed from the respective associated enterprises. Accordingly, assessee submitted that there is a direct nexus between profits and gains of the business of the undertaking and income derived from the trading activity by undertaking and as such the said income is eligible for deduction under section 10A of the Act. The Assessing Officer vide order passed under section 143(3) of the Act did not agree with assessee’s submission and held that providing of training is not a part of the business objective of the assessee but merely incidental to such objective. The Assessing Officer further held that the income earned therefrom cannot be said to have a direct and proximate nexus Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 20 with the activity of export of articles or things of computer software. Accordingly, the Assessing Officer excluded the training fees income for the purpose of computing deduction under section 10 A of the Act. 38. In appeal before the learned CIT(A), assessee raised an alternative argument that such receipts on account of training provided should not only be excluded from the export turnover but also should be excluded from the total turnover for the purpose of computing the deduction under section 10A of the Act. The learned CIT(A) vide impugned order accepted the alternatively plea of the assessee and directed the Assessing Officer to recompute the deduction under section 10A of the Act after exclusion of receipts from other sources amounting to Rs. 7,00,48,008 from the total turnover also. 39. During the course of hearing, learned Representatives appearing for the parties fairly agreed that the issue is now settled in favour of the taxpayer by the decision of Hon’ble Supreme Court in HCL Technologies Ltd. (supra). 40. Thus, respectfully following the aforesaid decision of Hon’ble Supreme Court in HCL Technologies Ltd. (supra), we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. Accordingly, ground No. 3 raised in Revenue’s appeal is dismissed. 41. The issue arising in ground No. 4, raised in Revenue’s appeal, is pertaining to computation of deduction under section 10A of the Act. Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 21 42. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, from the perusal of computation of income, it was observed that assessee has shown to have incurred business loss in respect of its units which are eligible for purpose of deduction under section 10A of the Act. It was further observed that the assessee had earned business profits in other units which are eligible for deduction under section 10A of the Act. The Assessing Officer also noted that the assessee has claimed carry forward of net loss of Rs. 8,22,97,184. The Assessing Officer vide order passed under section 143(3) of the Act computed the deduction under section 10A of the Act after setting of the losses of 10A units against the profit of other 10A units. In appeal, learned CIT(A) allowed the appeal filed by the assessee on this issue. Being aggrieved, the Revenue is in appeal before us. 43. During the course of hearing, learned Representatives appearing for both the parties fairly agreed that this issue is now settled in favour of the taxpayer by the decision of Hon’ble Supreme Court in CIT vs Yokogawa India Ltd, [2017] 391 ITR 274 (SC). 44. Thus, respectfully following the aforesaid decision of Hon’ble Supreme Court in Yokogawa India Ltd. (supra), we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. Accordingly, ground No. 4 raised in Revenue’s appeal is dismissed. Sitel India Ltd. ITA No.1777/Mum./2012 and ITA no.1426/Mum./2012 Page | 22 45. In the result, appeal by the Revenue is partly allowed. Order pronounced in the open court on 15/07/2022 Sd/- PRAMOD KUMAR VICE PRESIDENT Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 15/07/2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai