Berkadia Services India Private Limited, Hyderabad V. Dy.CIT, Circle-1(3), Hyderabad

ITA 1802/HYD/2013

• Counselvise Citation: 180222514 RSA 2013
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 24-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: UTPAL SEN; AMIT MISHRA
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency
• Section: 92C; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1802/HYD/13 : ASSESSMENT YEAR 2009 - 10 M/S. BERKADI A SERVICES INDIA PRIVATE L TD., HYDERABAD (PAN - AABCC 8445 P) V/S. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(3), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI UTPAL SEN & AMIT MISHRA RESPONDENT BY : SHRI D.SUDHAKAR RAO DR DATE OF HEARING 15 .0 9 .2014 DATE OF PRONOUNCEMENT 19.09.2014 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE DY. COMMISSIONER OF INCOME - TAX, CIRCLE (3), HYDERABAD (ASSES SING OFFICER) DATED 31.10.2013 PASSED UNDER S.143(3)OF THE AC T READ WITH THE DIRECTIONS GIVEN BY THE DISPU T E RESOLUTION PANEL(DRP) UNDER S.144C( 5 ) OF THE ACT. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSIN ES S O F PROVIDIN G BACK OFFICE PROCESSING SE R VICES AND IT ENABL E D SERVICES. IT M A INLY PROVIDES TRANS A CTION SERVICES, AND SERVICES R E L A TED TO FINANCIAL ANALYSIS, GLOBAL SOLUTIONS AND ACCOUNTS AND FINANCE. RETURN O F INCOME FOR THE YE A R UNDER CONSI D ERATION WAS FILED BY IT ON 24.9.2009 , DECLARIN G TOTAL INCOME OF R S .15,39,573, AFTER CLAIMING DEDUCTION OF R S .3,11,89,850 UNDER S.10A OF THE ACT. DURING TH E COU R SE OF ASSESSMENT PROCE E DIN G S, IT WAS NO T ICED BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAS PROVIDED I T ENABLED BACK OFFICE PROCESSING SERVICES TO HOLDING I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 2 COMPANY, M/S. CAPMARK FINANCE INC., USA AND A TOTAL AMOUNT O F RS .20,52,96,951 IS CHARGED FOR SUCH SERVICES . IN ORDER TO DETERMINE THE ARMS L ENGTH P RICE (ALP ) OF TH RE E TRANSACTIONS OF THE ASSESSEE COMPANY WITH IT S ASSOCI A TED EN T ERPRISE (AE) , A REFERENCE , THEREFORE , WAS MADE B Y THE ASSESSING OFFICER TO THE TRANSFER P RICING O FFICER (TPO) UNDER S.92 C A(1) OF THE ACT. I N THE TP STUDY R EPORT SUBMITTED BY THE ASSESSEE, TP ANALYSIS WAS DON E BY APPLYING TRANSACTIONS N ET M A RGIN METHOD (TNMM) , TAKING OPERATING P ROFIT TO TOTAL COST (OP/TC) AS PRICE LEVEL INDICATOR (PLI) . IN THE SAID REPORT, FOURTEEN COMP A RABL E S WERE SELE C TED BY TH E ASSESSEE BY APPLYING CERTAIN FILTERS AND SIN C E TH E AR ITHM E TIC M EAN OF OP/TC OF THE SAID FOURTE EN COMPARABLES WAS 11.19%, AS AGAINST THE OP/TC OF 14.62 % O F THE ASSESSEE IN REL A TION TO ITS INTERNATIONAL TRANSACTIONS WITH AE, THE PRICE CH A RGED TO TH E AE IN R E SPE C T OF T HREE TRANS A CTIONS WAS CLAIMED BY THE ASSESSEE TO BE AS AT ARMS LENGTH. 3. AFTE R GOING THROUGH THE RELE V ANT DOCUMENTS MAINTAINED BY TH E ASSESSEE AND AFTER ANALYZING THE RELEVANT TRANSA C TIONS, THE TPO WAS OF THE OPINION THAT THE METHOD ADOPTED BY THE ASSESSEE FOR SELECTING THE C OMPARABLES SUFFERED FROM DEFE C TS AN D THE SAME, THEREFORE, HAD RESULTED IN SELE C TION OF INAPPROPRIATE COMPARABLES AND R EJECTION OF APPROPRIATE COMP A RABL E S. HE ACCORD I NGLY CONFRONTED THE ASSESSEE WITH HIS OBSERVATIONS IN THIS RE G ARD, SEEKING THE LATTERS EXPLANATION/OBJ E CTION S AND AFTER TAKING INTO CON S I D ERATIO N THE O BJ E CTION S RAIS E D BY TH E ASSESSEE , THE NEW SEARCH CON DU CTED BY HIM FOR SELECTING THE APPROPRIATE COMPARABLES AND THE ANALYSIS OF THE DATA BASE, THE RELEVANT AN N UAL REPORTS AND THE IN F ORM A TION COLLECTED UNDER S.133( 6 ) AS MADE BY HIM, TH E TPO FINALLY SELECTED THE FOLLOW I N G 12 COMPANIES AS COMP A RABLES WITH ARITHM E TIC MEAN OF THEIR OP/TP AT 27.42%. I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 3 SL. NO. COMPANY NAME OPERATING REVENUE RS.(IN CRORES) PBIT/ COST % 1. ACCENTIA TECHNOLOGIES LIMITED 78.73 49.40 2. A C ROPETAL TECHNOLOGIES LTD. (SEG. ) 33.13 25.01 3. ADITYA BIRLA MINACS WORLDWIDE LTD. 231.57 0.53 4. COSMIC GLOBAL LTD. 7.76 48.20 5. CROSSDOMAIN 33.76 29.38 6. ECLERX SERVICES LTD. 187.98 53.44 7. INFOSYS B P O LTD. 10 8 . 23 16.90 8. JEEVAN SOFTECH TECHNOLOGY LTD. 1.79 16.56 9. MICROLAND LIMITED 144.05 2.35 10. MICROGENETIC SYSTEMS LTD. 1.27 10.11 11. R.SYSTEMS INTERNATIONAL LTD.(SEG) 26.55 5.77 12. GENESYS INTERNATIONAL LTD. 83.18 71.50 AVERAGE 27.42 4. AFTER ALLO W IN G W O R KIN G C API T AL ADJU S TM E NT OF 1.15%, ARITHM E TIC MEAN MARGIN OF THE SELECTED COMPARABLES AT 26.27% WA S TAKEN BY THE TPO AS ADJU S TED ARMS LENG T H MARGIN AND APPLYIN G THE SAME TO THE CORRES P ONDING OPERATING COST OF RS.17,84,82,779, THE ARMS LENGTH PRICE O F TH E INTERNATIONAL TRANSACTION S O F THE ASSESSEE COMPANY WITH ITS AE WAS WORKED OUT BY HIM AT RS.22,52,59,189, AS AGAINST THE PRICE O F R S .20,52,96,951 CHARGED BY THE ASSESSEE . T HE DIFFERENCE OF R S .1,83,11,450 ACCORDINGLY WAS WORKED OUT BY THE TPO, AS TP ADJUSTMENT THAT IS REQUIRED TO BE MADE IN RESPECT OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AE. I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 4 5. WHEN THE ADDITION ON ACCOUNT OF TP ADJUSTMENT WORKED OUT BY THE TPO WAS PROPOSED TO BE MADE BY THE ASSESSING OFFICER TO THE TOTAL IN C OM E O F TH E ASSESSEE IN THE DRAFT AS SESSMENT, OBJECTIONS W E RE FIL E D BY THE ASSESSEE BEFORE THE DI S PUTE RESOLUTION PANEL, WHICH IN T ER ALIA INCLUDED THE O BJ E C TIONS OF TH E ASSESSEE IN RESPE C T OF COMPARABILITY ANALYSIS CARRIED OUT IN THE TP STUDY REPORT GIVEN BY THE TPO AND THE APPLICATION OF ADDITIONAL FILTERS BY THE TPO, WHICH ACCORDING TO THE ASSESSEE, RESULTED IN INCLUSION OF CERTAIN COMPANIES IN TH E COMPARABILITY ANALYSIS WHICH DID NO T SATISFY THE TEST OF CO M PARAB I L ITY . THE DISPUTE RESOLUTION PANEL DID NO T FIND MERIT IN THE SUBMI S SION S M A DE BY TH E ASSESSEE ON THIS ISSUE AND HOLDING THE ACTION OF THE TPO TO BE PROPER, THEY DECLINED TO INTERFERE WITH THE SAME. THE DRP ALSO OVERRULED SUBSTANTIALLY THE OTHER OBJECTIONS RAISED BY THE ASSESSEE. ACCORDINGLY, FINAL ASSESSMENT ORDER WAS PASSED BY THE ASSESSING OFFICER ON 31.10.2013 UNDER S.143(3) AS PER THE DIRECTIONS GIVEN BY THE DRP UNDER S. 144C(5) , MAKING THEREIN THE ADDITION OF R S .1,83,11,454 TO THE TOTAL INCOME ON ACCOUNT OF TP ADJUSTMENT. 6 . AGGRIEVED BY TH E ORD E R OF THE ASSESSING OFFICER UN D ER S.143(3) READ WITH S.144C(5) OF THE ACT, ASSESSEE HAS FIL E D THIS APPEAL BEFORE THE TRIBUNAL, TAKING THE FOLLOWING GROUNDS - 1 THAT THE LEARNED AO AND HONBLE DRP HAVE ERRED IN DETERMINING THE ARMS LENGTH MARK - UP FOR PROVISION OF IT ENABLED BACK OF FICE SERVICES AS 26.27% (AFTER WORKING CAPITAL ADJUSTMENT) AND CONSEQUENTLY MADE AN ADDITION OF RS.18,311,464 TO THE TOTAL INCOME OF THE APPELLANT AS AN ADJUSTMENT TO THE ARMS LENGTH PRICE UNDER SECTION 92CA OF THE ACT. 2. THAT ON THE FACTS AND CIRCUMSTAN CES OF THE CASE, HONBLE DRP ERRED IN UPHOLDING THE DECISION OF THE LEARNED ASSESSING OFFICER/LEARNED TPO IN REJECTING THE TRANSFER PRICING (TP) DOCUMENTATION. 3. THAT THE LEARNED. ASSESSING OFFICER/LEARNED TPO ERRED IN REJECTING THE COMPARABILITY ANALYS IS CARRIED OUT BY THE APPELLANT IN THE TP DOCUMENTATION AND SHOULD NOT HAVE I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 5 CARRIED OUT A FRESH COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE. 4. THAT THE LEARNED. ASSESSING OFFICER/LEARNED. TPO ERRED IN REJECTING THE COMPANIES SIMILAR TO THE APPELLANT IN FUNCTIONS, ASSET BASE AND RISK PROFILE WHILE PERFORMING COMPARABILITY ANALYSIS. 5. THAT THE LEARNED ASSESSING OFFICER/LEARNED TPO ERRED IN REJECTING COMPANIES SIMILAR TO THE APPELLANT IN FUNCTIONS, ASSET BASE AND RISK PROFILE WHILE PERFOR MING COMPARABILITY ANALYSIS 6. THAT THE LEARNED ASSESSING OFFICER/LEARNED TPO ERRED IN ERRED IN SELECTING FRESH COMPANIES WHICH ARE LARGER IN SIZE AS COMPARED TO THE APPELLANT AND COMPANIES THAT ARE EARNING SUPER NORMAL PROFITS. 7. THAT THE LEARNED ASSES SING OFFICER/LEARNED TPO ERRED IN : USING THE DATA AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS INSTEAD OF THOSE AVAILABLE AS ON THE DATE OF PREPARING THE TP DOCUMENTATION, NOT APPLYING MULTIPLE YEAR DATA FOR COMPARABLE COMPANIES AND USING DATA FOR THE FINANCIAL YEAR 2008 - 09 ALONE, AND COLLECTING SELECTIVE INFORMATION OF THE COMPANIES BY EXERCISING POWER GRANTED TO HIM U/S. 133(6) OF THE INCOME TAX ACT, 1961 THAT WAS NOT AVAILABLE TO THE APPELLANT IN THE PUBLIC DOMAIN. 8. THAT THE HON'BLE DRP/LEARNED AO ERRED IN IGNORING THE LIMITED RISK NATURE OF THE CONTRACTUAL SERVICES PROVIDED BY THE APPELLANT AND IN NOT PROVIDING AN APPROPRIATE ADJUSTMENT TOWARDS THE RISK DIFFERENTIAL EVEN WHEN THE FULL FLEDGED ENTREPRENEURIAL COMPANIES ARE SELECTED AS COMPARABLES . 9. THAT THE HON'BLE DRP/LEARNED. ASSESSING OFFICER ERRED IN NOT GRANTING AN ADJUSTMENT FOR THE DIFFERENCE IN RATE OF DEPRECIATION CHARGED BY THE APPELLANT AND FOR COMPARABLE COMPANIES. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, T HE LEARNED ASSESSING OFFICER HAS ERRED IN ADDING THE TRANSFER PRICING ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER UNDER SECTION 92C OF THE ACT WHILE DETERMINING THE BOOK PROFITS UNDER SECTION 1165JB OF THE ACT. 7 . AS SUBMITTED BY THE LEARNED C OUNSE L FOR THE ASSESSEE, G R OUNDS NO.1 TO 3 RAISED IN THE APPEAL OF TH E ASSESSEE ARE GENERAL IN NATURE SEEKING NO DECISION THE R EON. I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 6 8 . I N GR O UNDS NO.4 TO 6, THE ASSESSEE HAS CH A LLENGED THE COMP A RABL E S SELECTED BY THE TPO FOR THE PURPOSE OF TP ANALYSIS AND AS SUBMI T TED B Y THE LEARNED COUNSEL OR THE ASSESSEE, THE ASSESSEE IS OBJECTING TO THE SELECTION OF ONLY THE FOLLOWING SIX COMPARABLES, OUT OF THE TWELVE COMPANIES SELECTED AS COMP A RABLES. SL. NO. COMPANY NAME 1. ACCENTIA TECHNOLOGIES LIM ITED (SEG) 2. A C ROPETAL TECHNOLOGIES LTD. (SEG.) 3. COSMIC GLOBAL LTD. 4. ECLERX SERVICES LTD. 5. GENESYS INTERNATIONAL LTD. 6. INFOSYS B P O LTD. 9 . WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THE ISSUE OF INCLUSION/EXCLUSION OF THE ABOVE S IX COMPANIES AS COMPARABLES, AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE VARIOUS DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL CITED BY BOTH THE SIDES. ACCENTIA TECHNOLOGIES LIMITED(SEG) 1 0 . AS REGARDS THE SELECTION OF ACCENTIA TECHNOLOGIES LIMITED ( S EG) AS COMPARABLE, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISIONS OF THIS TRIBUNAL IN THE CASES OF CAPITAL I Q INFORMATION SYSTEMS (INDIA) PVT. LTD. V/S. ADDL./DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(2), HYDERABAD AND VICE VERSA (ITA N O. 124 AND 170/HYD/2014 DATED 31.7.2014 ); EXCELLEN CE DATA R E SEARCH PVT. LTD., HYDERABAD V/S. ITO WARD 2(1), HYDERABAD ( ITA NO.159/ H YD/2014 DATED 31.7.2014 ); AND HYUNDAI MOTORS INDIA ENGINEERING P. LTD., HYDERABAD V/S. DCIT, CIRCLE 2(2), HYDERABAD (ITA NH O.255/HYD/2014 DATED 31.7.2014 ), WHEREIN M/S. ACCENTIA I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 7 TECHNOLOGIES LIMITED ( S EG) WAS EXCLUDED BY THE T RIBUNAL FROM THE LI S T OF COMPARABLES ON TH E GROUND THAT IT WAS A CASE OF MERGERS AND ACQUISITION, AND THE COMPANY WAS ALSO FOUND TO B E FUNCTIONALLY DIFFE R ENT. IT IS, HOWEVER, OB S ER V ED THAT IN ASSESSEE S OWN CA S E FO R ASSESSMENT YEAR 2008 - 09 (ITA NO.1812/HYD/2012), THE T RIBUNAL VIDE ITS ORDER DATED 11.4.2014 HAS SET ASIDE THE ISSUE IN REL A TION TO THE SEL E CTION OF THI S COMPARABLE TO THE FI LE OF THE ASSESSING OFFICER/TPO WITH A DIRE C TION TO DECIDE THE SAME AFRESH FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE CASE OF M ARKET TOOLS RESEARCH P. LTD. (ITA NO.1811/HYD/2011 DATED 24.10.2013), WHEREIN, IT WAS HELD AS UNDER - 9.3 .. IT IS NO DOUBT TRUE THAT EXCEPTIONAL EVENTS LIKE MERGER/DEMERGER DOES IMPACT THE PROFITABILITY OF A COMPANY. HENCE, IT IS NECESSARY TO LOOK INTO THIS ASPECT BEFORE SELECTING A PARTICULAR COMPANY AS COMPARABLE. IN THE AFORESAID CIRCUMSTANCES AND KEEPING IN VIEW T HE DECISIONS OF THE COORDINATE BENCHES AS AFORESAID, WE REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL VERIFY THE FACT WHETHER IN FACT, THE EXCEPTIONAL EVENTS LIKE AMALGAMATION AND ACQUISITION, WHICH HAVE TAKEN PLACE IN THIS CASE, HA S ANY IMPACT ON THE PROFITABILITY OF THE COMPANY AS CLAIMED BY THE ASSESSEE, AND THEREAFTER DECIDE THE ISSUE OF THE ACCEPTABILITY OR OTHERWISE OF THE AFORESAID COMPANY AS A COMPARABLE. WHILE DOING SO, THE ASSESSING OFFICER SHALL ALSO CONSIDER THE CONTENTIO N OF THE ASSESSEE WITH REGARD TO THE FUNCTIONAL DIFFERENCE OF THE SAID COMPANY WITH THE ASSESSEE. THE ASSESSING OFFICER SHALL ACCORDINGLY REDECIDE THIS ISSUE IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. APPLYING THE RULE OF CONSISTENCY, WE PREFER TO FOLLOW THE DECISION OF THIS TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR, VIZ. ASSESSMENT YEAR 2008 - 09, AND RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO FOR DECIDING THE SA ME AFRESH AS PER THE SAME DIRECTIONS AS GIVEN IN ASSESSMENT YEAR 2008 - 09. WE ALSO DIRECT THE ASSESSING OFFICER/TPO TO TAKE INTO CONSIDERATION, THE DECISIONS OF THE TRIBUNAL RENDERED IN THE CASES OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. (SUPRA) ; EXCELLENCE I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 8 DATA RESEARCH PVT. LTD., HYDERABAD (SUPRA); AND HYUNDAI MOTORS INDIA ENGINEERING P. LTD., HYDERABAD (SUPRA), CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE WHILE DECIDING THIS ISSUE. ACROPETAL TECHNOLOGIES LTD. (SEG.) 11 . AS REGARDS SELEC TION OF A C ROPETAL TECHNOLOGIES LTD. (SEG.) AS COMPARABLE, IT IS OBSERVED THAT THE SAID COMPANY WAS EXCLUDED BY THE TRIBUNAL FROM THE LI S T O F COMPARABLES IN ASSESSMENT YEAR 2008 - 09, AFTER HAVING FOUND THE SAME TO B E FUNCTIONALL Y DIFFERENT FROM THAT OF THE A SSESSEE - COMPANY. THE RELEVANT OB S ERVATIONS O F THE T RIBUNAL AS RECORDED IN PARAGRAPH 25 OF ITS ORDER DATED 1 1 .4.2014 ARE R E PRODUCED HEREUNDER - 25. WE HAVE HE A RD THE SUBMI S SION S OF TH E PARTIES AND PERUSED THE MATERIALS ON RECORD. IN CASE OF M ARKET TOOL S RESEARCH PRIVATE LIMITED (SUPRA) THE COORDINATE BENCH OF THI S TRIBUNAL HELD THIS COMPANY AS INCOMP A RABL E TO A PURELY IT ENABLED SERVICE PROVIDER OBSERVING AS UNDER: - WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. AS CAN BE SEEN FROM THE MATERIAL ON RECORD, THE TPO HAS ADMITTED THAT THE AFORESAID COMPANY HAS TWO SEGMENTS, AND ONLY THE IT ENABLED SERVICES SEGMENT, RELATING TO ENGINEERING DESIGN SERVICES WAS CONSIDERED BY THE TPO FOR COMPARABILITY ANALYSIS. HOWEVER, THE INCOME - TAX APPELLATE TRIBUNAL BANGALORE BENCH IN THE CASE OR SYMPHONY MARKETING SOLUTIONS INDIA P. LTD. (SUPRA) HAS HELD THAT THE FUNCTIONS PERFORMED BY THE ENGINEERING DESIGN SERVICES SEGMENT OF THE COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ITES /BPO FUNCTIONS. THE RELEVANT PORTION FROM THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA P. LTD. (SUPRA), IS EXTRACTED BELOW FOR READY REFERENCE - 13. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. ON A PERUSAL OF THE NOTE NO.15 OF NOTES TO ACCOUNTS WHICH GIVES SEGMENTAL REVENUE OF THIS COMPANY, IT IS CLEAR THAT THE MAJOR SOURCE OF INCOME FOR THIS COMPANY IS FROM PROVIDING ENGINEERING DESIGN SERVICE AND INFORMATION TECHNOLO GY SERVICES. THE FUNCTIONS PERFORMED BY THE ENGINEERING DESIGN SERVICES SEGMENT OF THE COMPANY CANNOT BE CONSIDERED AS COMPARABLE TO THE ITES/BPO FUNCTIONS PERFORMED BY THE ASSESSEE. THE I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 9 PERFORMANCE OF ENGINEERING DESIGN SERVICES IS REGARDED AS PROVIDING HIGH END SERVICES AMONG THE BPO WHICH REQUIRES HIGH SKILL WHEREAS THE SERVICES PERFORMED BY THE ASSESSEE ARE ROUTINE LOW END ITES FUNCTIONS. WE THEREFORE HOLD THAT THIS COMPANY COULD NOT HAVE BEEN SELECTED AS A COMPARABLE, ESPECIALLY WHEN IT PERFORMS ENGIN EERING DESIGN SERVICES WHICH ONLY A KNOWLEDGE PROCESS OUTSOURCING [KPO] WOULD DO AND NOT A BUSINESS PROCESS OUTSOURCING [BPO]. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUD E THIS COMPANY FROM THE LIST OF COMPARABLES WHILE DETERMINING THE ARMS LENGTH PRICE. FACTS BEIN G M ATE RIALLY SAME, WE FOLLOW TH E AFORESAID VIEW OF THE CO - ORDIN A TE BENCH AND DIRECT THE AO/TPO TO EXCLU D E THIS COMPANY FROM LIST OF COMPARABLES. AT THE TI ME OF HEARING BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THE RELEVANT FACTS INVOLVED IN THE YEAR UNDER CONSIDERATION ARE DIFFERENT FROM ASSESSMENT YEAR 2008 - 09. WE, THEREFORE, RESPECTFULLY FOLLOW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2008 - 09 AND DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE ACROPETAL TECHNOLOGIES LTD.(SEG) FROM THE LIST OF COMPARABLES. COSMIC GLOBAL LTD. 1 2 . AS REGARDS THE SELECTION OF COSMIC GLO BAL LTD. AS COMPARABLE, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISIONS OF THIS TRIBUNAL IN THE CASES OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. (SUPRA); EXCELLENCE DATA RESEARCH PVT. LTD., HYDERABAD (SUPRA); AND HYUNDAI MOTORS INDIA ENGINEERING P. LTD., HYDERABAD (SUPRA), WHEREIN M/S. COSMIC GLOBAL LTD. WAS EXCLUDED BY THE TRIBUNAL FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT WAS FOUND TO BE FUNCTIONALLY DIFFERENT. IT IS , HOWEVER, OBSERVED THAT IN ASSESSEES OWN CASE FO R ASSESSMENT YEAR 2008 - 09 (ITA NO.1812/HYD/2012), THE TRIBUNAL VIDE ITS ORDER DATED 11.4.2014 HAS SET ASIDE THE ISSUE IN RELATION TO THE SELECTION OF THIS I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 10 COMPARABLE TO THE FILE OF THE ASSESSING OFFICER/TPO , VIDE PARA 19 OF ITS ORDER DATED 11.4.2014 WHICH READS AS UNDER - 19. WE HAVE HEARD SUBMI S SION S OF THE P A RTIES AND P ER USED THE MATERIAL ON RECORD. A S CAN BE SEEN, THIS T R IBUNAL IN CA S E OF CAPI T AL IQ INFORMATION SYSTEMS P VT. LTD. (SUPRA) AND OTHER DECISION S CITED BY THE LEARNED AR, DIRECTED THE EXCLUS ION OF COM P ANI E S WHO HAVE OUT SOURCED THEIR ACTIVI TI ES TO THI R D PARTY VENDORS AND HELD THAT THEY CANNOT B E TREATED AS COMPARABLES. CON S I D ERIN G TH E SUBMI S SION S OF THE LEARNED AR THAT THE AFORESAID COMPANY HAS OUTSOU R CED THE I T ENABLED SERIES TO THIRD PARTY VENDORS, WE REMIT THE ISSUE BACK TO THE FILE O F TH E AO/TPO FOR CON S I D ERING AFRESH THE ISSUE OF COMPARABILITY OR OTHERWISE OF THE SAID COMPANY, IN A C CORDAN C E WITH LAW AND AFT E R GIVING REASONABLE OPPORT UN ITY OF H EA RING TO THE ASSESSEE. APPLYING THE RULE OF CONSISTENCY, WE PREFER TO FOLLOW THE DECISION OF THIS TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR, VIZ. ASSESSMENT YEAR 2008 - 09, AND RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO FOR DECIDING THE SAME AFRESH A S PER THE SAME DIRECTIONS AS GIVEN IN ASSESSMENT YEAR 2008 - 09. WE ALSO DIRECT THE ASSESSING OFFICER/TPO TO TAKE INTO CONSIDERATION, THE DECISIONS OF THE TRIBUNAL RENDERED IN THE CASES OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. (SUPRA); EXCELLENC E DATA RESEARCH PVT. LTD., HYDERABAD (SUPRA); AND HYUNDAI MOTORS INDIA ENGINEERING P. LTD., HYDERABAD (SUPRA), CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE WHILE DECIDING THIS ISSUE. ECLERX SERVICES LTD. 1 3 . AS REGARDS SELECTION OF ECLERX SERVICES LTD. AS COMPARABLE, IT IS OBSERVED THAT THE SAID COMPANY WAS EXCLUDED BY THE TRIBUNAL FROM THE LIST OF COMPARABLES IN ASSESSMENT YEAR 2008 - 09, AFTER HAVING FOUND THE SAME TO BE FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE - COMPANY. THE RELEVANT OBSERVA TIONS OF THE TRIBUNAL AS RECORDED IN PARAGRAPH 7 OF ITS ORDER DATED 11.4.2014 ARE REPRODUCED HEREUNDER - I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 11 25. WE HAVE HE A RD THE SUBMI S SION S OF TH E PARTIES AND PERUSED THE MATERIALS ON RECORD. UNDISPUTEDL Y , THE TPO HAS ACCEPTED THE ASSESSEE AS A PURELY ITE S PROVIDER. IT I S A FACT THAT THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH IN CA S E OF M ARKET TO O LS RESEARCH LTD. (ITA NO.1811/HYD/11 DATED 24.10.2013), WHICH IS A PURELY I T ENABLED S ERVI C E PRO V I D ER LIKE TH E ASSESSEE, CON S IDERIN G THE FACT THAT THE AFO RESAID COMPANY IS ENGAGED IN P R OV I DING KPO SERVI C ES HELD THAT THIS COMPANY CANNO T BE TR E ATED AS COMPARABLE TO AN ASSESSEE WHICH IS ENGAGED IN PROVISION OF I T ENABLED S E RVI C ES IN BPO SEC T O R . THE FINDING O F THE T RIBUN A L IN THIS RE G ARD IS E X TRACTED HEREUNDER FOR CONVENIENCE. 7.3 WE HAVE HEARD SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. IT IS NOT DISPUTED THAT THE AFORESAID COMPANY HAS SHOWN VERY HIGH PROFIT OF 66.91% DURING THE YEAR. THE ANNUAL REPORT OF THE COMPANY ALSO MENTIONS THE A CTIVITY OF THE COMPANY AS A KPO SERVICE. IN THE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE AFORESAID COMPANY IS COMPARABLE TO THE ASSESSEE. THE INCOME - TAX APPELLATE TRIBUNAL HYDERABAD BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS INDIA P. LTD. (SUPRA) HAS HELD THE AFORESAID COMPANY, TO BE NOT A COMPARABLE TO A COMPANY PROVIDING PURELY ITE SERVICES, AS IT IS ENGAGED IN PROVIDING PURELY KPO SERVICES. FOLLOWING THE AFORESAID DECISION OF THE COORDINATE BENCH, THE INCOME - TAX APPELLATE TRIBUNAL HYDERABAD IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08 (SUPRA), HAS ALSO DIRECTED THE EXCLUSION OF THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES. THERE ARE NUMBER OF OTHER DECISIONS OF DIFFERENT BENCHES OF THE TRIBUNAL INCLUDING THE DECISION OF BANGALORE BENCH IN THE CASE OF SYMPHONY MARKETING (IT(TP)A NO.1316/BANG/2012 DATED 14.8.2013), WHEREIN THE AFORESAID COMPANY HAS BEEN TREATED AS NOT TO BE A COMPARABLE, AS IT IS INVOLVED IN PROVIDING KPO SERVICES AS WELL AS IT IS EARNING SUPER - NORMAL PROFITS. RES PECTFULLY FOLLOWING THE CONSISTENT VIEW OF DIFFERENT BENCHES OF THE TRIBUNAL, INCLUDING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007 - 08, WE HOLD THAT THE AFORESAID COMPANY CANNOT BE TREATED AS A COMPA RABLE WITH THE ASSESSEE. FACTS BEING MATERIALLY THE SAME, FOLLOWING THE FINDING OF THE COORDINATE BENCH IN CASE OF MARKET TOOLS RESEARCH PVT. LTD. (SUPRA), WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THE AFORESAID COMPANY FROM THE LIST OF COMPARABLE S. AT THE TIME OF HEARING BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THE RELEVANT FACTS INVOLVED IN THE YEAR UNDER CONSIDERATION ARE DIFFERENT I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 12 FROM ASSESSMENT YEAR 2008 - 09. WE, THEREFORE, RESPECTFU LLY FOLLOW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09 AND DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE ECLERX SERVICE LTD. FROM THE LIST OF COMPARABLES. GENESYS INTERNATIONAL LTD. 1 4 . AS RE GARDS THE SELECTION OF GENESYS INTERNATIONAL LTD. AS COMPARABLE, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISIONS OF THIS TRIBUNAL IN THE CASES OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. (SUPRA); EXCELLENCE DATA RESEARCH PVT. LTD ., HYDERABAD (SUPRA); AND HYUNDAI MOTORS INDIA ENGINEERING P. LTD., HYDERABAD (SUPRA) , WHEREIN M/S. GENESYS INTERNATIONAL LTD. WAS EXCLUDED BY THE TRIBUNAL FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT WAS FOUND TO BE FUNCTIONALLY DIFFERENT. IT IS , HOWEVER, OBSERVED THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09 (ITA NO.1812/HYD/2012), THE TRIBUNAL VIDE ITS ORDER DATED 11.4.2014 HAS SET ASIDE THE ISSUE IN RELATION TO THE SELECTION OF THIS COMPARABLE TO THE FILE OF THE ASSESSING OFFICER/TP O WITH A DIRECTION TO DECIDE THE SAME AFRESH WITH THE FOLLOWING OBSERVATIONS - 13. WE HAVE HARD SUBMI S SION S O F THE PAR T I E S AND PE R USED THE M ATERIAL ON RECORD. AS CAN BE SEEN, THE COORDINATE BENCH OF THE T R IBUNAL HAD AN OCCASION TO CONSIDER THE COMPARABIL ITY O F TH E AFORESAID COMPANY IN THE CA S E OF COGNIZAN T TECHNOLOGY SER V I C ES P . LTD. V/S. ACIT(ITA NO.2106/ & 1864/HYD/2011 DATED 22.5.2013 ) . THE TRIBUNAL AFT6ER ANALYSIN G THE ACTIVITIES UNDERTAKEN BY TH E ASSESSEE COMPANY VIS - - VIS THE ACTIVITIES OF THE ASSE SSEE B E F O RE IT, WHICH IS ENGAGED ONLY ITE SERVI C ES TO ITS AE, HAD REMITTED THE ISSUE TO THE FILE OF THE TPO FOR CONSIDERING AFRESH. FOLLO W IN G THE SAME, WE ALSO REMIT THE ISSUE WITH REGARD TO CO M PAR A BILITY OF THE ABO V E COMPANY, TO THE FILE O F THE TPO TO CON SIDER THE ISSUE AFRESH IN TH E LIGHT O F THE DIRECTION GIVEN BY THE COORDINATE BENCH IN THAT CA S E, OF COURSE, AFTER GIVING REASONABLE OPPORTUNITY O F H E ARING TO THE ASSESSEE. I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 13 APPLYING THE RULE OF CONSISTENCY, WE PREFER TO FOLLOW THE DECISION OF THIS TRIBUN AL RENDERED IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR, VIZ. ASSESSMENT YEAR 2008 - 09, AND RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECTIONS AS GIVEN IN ASSESSMENT YEAR 2008 - 09 . WE ALSO DIRECT THE ASSESSING OFFICER/TPO TO TAKE INTO CONSIDERATION, THE DECISIONS OF THE TRIBUNAL RENDERED IN THE CASES OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. (SUPRA); EXCELLENCE DATA RESEARCH PVT. LTD., HYDERABAD (SUPRA); AND HYUNDAI MOT ORS INDIA ENGINEERING P. LTD., HYDERABAD (SUPRA), CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE WHILE DECIDING THIS ISSUE. INFOSYS BPO 1 5 . AS REGARDS SELECTION OF INFOSYS BPO AS A COMPARABLE COMPANY, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE SAID COMPANY CANNOT BE TAKEN AS COMPARABLE BECAUSE OF ITS UNCOMPARABLE SIZE OF OPERATIONS. HE HAS CONTENDED THAT THE TURNOVER OF THE SAID COMPANY WAS 52 TIMES LARGER THAN THAT OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ALTHOUGH THE LEA RNED DEPARTMENTAL REPRESENTATIVE HAS CONTENDED THAT THE SIZE OF OPERATIONS DOES NOT MATTER AS FAR AS SELECTION OF COMPARABLES IS CONCERNED, ESPECIALLY IN THE SECTOR OF IT ENABLED SERVICES, IT IS OBSERVED THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE D ELHI HIGH COURT IN THE CASE OF CIT V/S. AGNITY TECHNOLOGIES PVT. LTD. (219 TAXMAN 26) HOLDING THAT HUGE TURNOVER COMPANIES LIKE INFOSYS AND WIPRO CANNOT BE CONSIDERED AS COMPARABLES WITH SMALLER COMPANIES LIKE THE ASSESSEE IN THE PRESENT CASE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF AGNITY TECHNOLOGIES P. LTD. (SUPRA), WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE INFOSYS BPO FROM THE LIST OF COMPARABLES. I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 14 1 6 . AS DISCUSSED ABOVE, T HE ISSUE RELATING TO INCLUSION /EXCLUSION OF THE COMPANIES SELECTED BY THE TPO FROM THE LIST OF FINALIZED COMPARABLES AS RAISED IN GROUNDS NO.4 TO 6 ACCORDINGLY IS DECIDED IN FAVOUR OF THE ASSESSEE IN RESPECT OF THREE COMPARABLES, AND IN RESPECT OF THE REMAINING THREE COMPARABLES, THE MATTER IS SET ASIDE TO THE FILE OF THE AO/TPO TO DECIDE THE SAME AFRESH TAKING INTO CONSIDERATION THE RESPECTIVE DIRECTIONS, GIVEN HEREINABOVE, AFTER GIVING THE ASSESSEE PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD. THE ASSESSING OFFICER/TPO IS ACCORDI NGLY DIRECTED TO DECIDE THE FINAL LIST OF COMPARABLES AND RECOMPUTE THE ARMS LENGTH PRICE ON THE BASIS OF ARITHMETIC MEAN OF OP/TC OF THE COMPARABLES FINALLY SELECTED. 1 7 . AS REGARDS GROUNDS NO.7 TO 9, THE LEARNED REPR E SENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUES RAISED THEREIN H A VE BECOME INFRUCTUOUS AT THIS STAGE IN AS MUCH AS IF THE ARMS L ENGTH P RICE TO BE DETERMINED BY TH E A O/TPO AS PER THE D IR E CTIONS GIVEN WHILE DISPOSING OF GROUNDS NO.4 TO 6 FALL S WITHIN THE RANGE OF +/ - 5%, THERE WOUL D BE NO CA S E OF ANY TP ADJU S TMEN T AND THE ISSUES INVOLVED IN GROUNDS NO.7 TO 9 , IN SUCH A CASE , WOULD BECOME ACADEMIC ONLY. W E, TH E R E FORE, DO NOT CONSIDER IT NECESSARY OR EXP E DIENT TO DECIDE THE ISSUES INVOLVED IN GROUNDS NO.7 TO 9. 1 8 . AS REGARDS THE I SSUE INVOLVED IN GROUND NO.10 RELATING TO THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TP ADJUSTMENTS, WHILE DETERMINING THE BOOK PROFIT OF THE ASSESSEE COMPANY UNDER S.115JB OF THE ACT, IT IS OBSERVED THAT THE INCOME OF THE ASSESSEE HAVING BE EN FINALLY ASSESSED BY THE ASSESSING OFFICER AS PER THE NORMAL PROVISIONS OF THE ACT, THIS ISSUE IS MERELY OF ACADEMIC NATURE. NEVERTHELESS, AS AGREED BY THE LEARNED REPRESENTATIVES OF BOTH SIDES, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE B Y THE DECISION OF THE HONBLE SUPREME I TA NO. 1802/H YD/20 13 M/S. BERKADIA SERVICES INDIA PRIVATE LTD., HYDERABAD 15 COURT IN THE CASE OF APOLLO TYRES LTD. (255 ITR 273) WHEREIN IT IS HELD THAT THE ASSESSING OFFICER HAS LIMITED POWER OF MAKING ADJUSTMENTS TO THE BOOK PROFIT AS DECLARED BY THE ASSESSEE, AND THE SAME IS RESTRICTED ONLY TO THE ADDITIONS AND REDUCTIONS AS PROVIDED IN EXPLANATION TO S.115JB. SINCE THE ADJUSTMENTS SO PROVIDED IN THE EXPLANATION TO S.115JB DO NOT INCLUDE THE ADDITION ON ACCOUNT OF TP ADJUSTMENTS, WE RESPECTFULLY FOLLOW THE DECISION OF THE SUPREME COURT IN T HE CASE OF APOLLO TYRES (SUPRA) TO HOL D THAT THE ADDITION M AD E BY THE ASSESSING OFFICER ON ACCOUNT OF TP ADJUSTMENT WHILE DETERMINING THE BOOK PROFIT OF TH E ASSESSEE COMPANY UNDER S.115JB OF THE ACT IS NO T SUSTAINABLE. TH E SAME IS THEREFORE, DELETED AND GROUND NO.10 OF THE ASSESSEE S APPEAL IS ALLOWED. 19 . IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 19 TH SEPTEMBER, 2014 SD/ - SD/ - ( SAKTIJIT DEY ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 19 TH SEPTEMBER, 2014 COPY FORWARDED TO: 1. M/S. BERKADIA SERVICES INDIA PRIVATE LTD., 9 TH FLOOR, BLOCK 2, DLF CYBERCITY, GACHIBOWLI VILLAGE, HYDERABAD 500 019 2 . DY. COMMISSIO NER OF INCOME - TAX CIRCLE 1( 3 ), HYDERABAD 3. 4. DISPUTE RESOLUTION PANEL, HYDERABAD DIRECTOR GENERAL OF INCOME - TAX, INTERNATIONAL TAXATION, HYDERABAD 500 004. 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S