Hyundai Motor India Engineering Private Limited, Hyderabad V. Deputy Commissioner of Income Tax, Circle-2(2), Hyderabad

ITA 1807/Hyd/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4596 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-05-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 03-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts; Revised return
• Section: 143(3)

Judgement Text

ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 1 OF 16 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.1807/HYD/2017 (ASSESSMENT YEAR: 2013-14) M/S.HYUNDAI MOTOR INDIA ENGINEERING PVT. LTD HYDERABAD PAN:AABCH7867C VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.R. VASUDEVAN FOR REVENUE : SHRI J. SIRI KUMAR, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2013-14, AGAI NST THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 144C( 5) R.W.S. 144C(13) OF THE I.T. ACT, DATED 26.09.2017. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, ENGAGED IN THE BUSINESS OF PROVIDING R&D SUPPORT SE RVICES IN RESPECT OF COMPUTER AIDED DESIGN (CAD) AND COMPUTER AIDED ENGINEERING (CAE), HAS A 100% EOU REGISTERED UNDER THE STPI. IT ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WIT H ITS AE AND FOR DETERMINATION OF THE ALP OF SUCH TRANSACTIONS, IT A DOPTED TNMM AS THE MOST APPROPRIATE METHOD FOR EACH OF THE TRAN SACTIONS AND ARRIVED AT THE PLI OF 8.30% AS AGAINST THE AVERAGE MARGIN OF THE DATE OF HEARING: 24.05 . 201 8 DATE OF PRONOUNCEMENT: 09.08.2018 ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 2 OF 16 COMPARABLES AT 10.60%. AS THE PLI FELL WITHIN +_3% RANGE, THE TRANSACTIONS WERE CONCLUDED TO BE AT ARMS LENGTH. 3. OBSERVING THAT THE SEARCH PROCESS AS WELL AS THE CHOICE OF FILTERS ADOPTED BY THE ASSESSEE ARE NOT I N CONFORMITY WITH THE TRANSFER PRICING REGULATIONS, THE TPO REJECTED THE ASSESSEES T.P STUDY AND CONDUCTED FRESH ANALYSIS AGGREGATING ALL THE TRANSACTIONS UNDER TNMM. OUT OF THE 7 COMPANIES ADO PTED BY THE ASSESSEE AS COMPARABLES, THE TPO ACCEPTED ONLY ONE COMPANY I.E. E4E HEALTHCARE BUSINESS SERVICES PRIVATE LTD AS A C OMPARABLE TO THE ASSESSEE. THEREAFTER, HE PROPOSED SIX OTHER COM PANIES AS COMPARABLES. THE ASSESSEE RAISED ITS OBJECTIONS TO ALL THE COMPARABLES PROPOSED BY THE TPO. HOWEVER, THE TPO R EJECTED THE ASSESSEES OBJECTIONS AND FINALLY ADOPTED THE FOLLO WING COMPANIES AS COMPARABLES AND ARRIVED AT THE MEAN MARGIN OF 22 .30%. I) ACROPETAL TECHNOLOGIES LTD (SEG.) II) MICROGENETICS LTD III) INFOSYS BPO LTD IV) MICROLAND LTD V) CAPGEMINI BUSINESS SERVICES (INDIA) LTD VI) E4E HEALTHCARE BUSINESS SERVICES PVT. LTD VII) HARTRON COMMUNICATIONS LTD (SEG.) 4. THEREAFTER, HE COMPUTED THE ALP AS UNDER: DESCRIPTION AMOUNT (IN RS.) ARMS LENGTH MARGIN 22.30% LESS: WCA 0.83% ADJUSTED ARMS LENGTH MARGIN 21.47% OPERATING COST (OC) 95,60,44,658 ADJUSTED ARMS LENGTH MARGIN(%)(AALM) 21.47 % ARMS LENGTH PRICE=(100+AALM)*OC 116,13,07,446 PRICE RECEIVED (OR) 103,53,50,002 ADJUSTMENT U/S 92CA 12,59,57,444 ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 3 OF 16 LESS: VOLUNTARY TP ADJUSTMENT MADE 8,50,52,572 IN THE REVISED RETURN FOR THE A.Y 2013-14 ADJUSTMENT TO BE MADE 4,09,04,872 5. IN ACCORDANCE WITH THE ABOVE TP ORDER, THE AO PROPOSED DRAFT ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE PREFERRED ITS OBJECTIONS TO THE DRP. THE DRP CONFIR MED THE DRAFT ASSESSMENT ORDER IN ACCORDANCE THEREWITH, THE FINAL ASSESSMENT ORDER WAS PASSED U/S 143(3) R.W.S. 144C(5) R.W.S. 1 44C(13) OF THE I.T. ACT ON 26.09.2017 AGAINST WHICH, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL BY RAISING THE FOLLOWING GROUN DS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE FINAL ASSESSMENT ORDER DATED 26 SEPTEMBER 2017 (AND RECEIVED BY THE APPELLANT ON 05 OCTOBER 2017) PASSE D BY THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 2(2 ), HYDERABAD U/S 143(3) READ WITH SECTION 92CA READ WI TH SECTION 144((5) READ WITH SECTION 144((13) OF THE I NCOME-TAX ACT, 1961 ('ACT'), PURSUANT TO THE DIRECTIONS DATED 28 AUGUST 2017 BY DISPUTE RESOLUTION PANEL, BANGALORE ('DRP') U/S 144((5) OF THE ACT AND READ WITH ORDER DATED 31 OCTOBER 2016 ISSUED BY TRANSFER PRICING OFFICER ('T PO') U/S 92CA(3) OF THE ACT, IS BAD IN LAW AND VOID ABINITIO SO FAR AS IT IS PREJUDICIAL TO THE APPELLANT. TRANSFER PRICING 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED IN MAKING TRANSFER PRICIN G ADJUSTMENT OF RS. 3,42,12,559 ON ACCOUNT OF PROVISI ON OF INFORMATION TECHNOLOGY ENABLED SERVICES ('ITES') BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES ('AES'). 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED IN REJECTING TRANSFER PRI CING DOCUMENTATION MAINTAINED BY THE APPELLANT IN ACCORD ANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME -TAX RULES, 19,62 ('RULES') AND UNDERTAKING A FRESH ECON OMIC ANALYSIS DURING THE COURSE OF ASSESSMENT PROCEEDING S AND THEREBY MAKING AN ADJUSTMENT OF RS.3,42,12,559 TO T HE INTERNATIONAL TRANSACTIONS. ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 4 OF 16 SELECTION OF INCOMPARABLE COMPANIES 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/ DRP ERRED IN CONFIRMIN G ACCEPTANCE OF FOLLOWING COMPANIES AS COMPARABLES AS SELECTED BY THE TPO: A) CAPGEMINI BUSINESS SERVICES (INDIA) LIMITED; B) INFOSYS BPO LIMITED AND C) HARTRON COMMUNICATIONS LIMITED (SEG). 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TPO/AO/ DRP ERRED IN ACCEPTING COMPANIES DISREGARDING THE COMPARABILITY FACTORS SUCH AS BRAN D, GIANT SIZE, SCALE OF OPERATIONS, HAVING DIVERSIFIED OPERATIONS, EXTRA-ORDINARY EVENTS ETC. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED IN ACCEPTING HARTRON COMMUNICATIONS LIMITED WITHOUT APPRECIATING THAT THE AUDITOR HAS QUALIFIED ITS REPORT ON ACCOUNT OF NON- COMPLIANCE WITH ACCOUNTING STANDARD-15 REGARDING PROVISION FOR RETIREMENT EXPENSES, FOR WHICH IMPACT ON PROFITS IS NOT ASCERTAINABLE. ERROR IN COMPUTATION OF MARGIN OF COMPARABLE COMPANIES 6. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED IN CONFIR MING THE TPO'S STAND OF TREATING THE PROVISION FOR BAD A ND DOUBTFUL DEBTS AS NON-OPERATING EXPENSES FOR THE PU RPOSE OF MARGIN COMPUTATION OF COMPARABLE COMPANIES AS SELECTED BY TPO. 7. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP WED IN CONFIRMI NG THE TPO'S STAND OF TREATING THE BAD DEBTS WRITTEN O FF AS NON-OPERATING EXPENSES FOR THE PURPOSE OF MARGIN COMPUTATION OF COMPARABLE COMPANIES AS SELECTED BY TPO. REJECTION OF COMPARABLE COMPANIES 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED BY NOT INCLUD ING FOLLOWING COMPANIES AS COMPARABLES AS REQUESTED BY THE APPELLANT. A) ACE BPO SERVICES LIMITED; B) CALIBER POINT BUSINESS SOLUTIONS LIMITED (SEG); C) INFORMED TECHNOLOGIES LIMITED; D) JINDAL INTELLICOM LIMITED AND ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 5 OF 16 E) CRYSTAL VOXX LIMITED. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED BY NOT INCLUD ING COMPANIES WHICH ARE FUNCTIONALLY COMPARABLE AND MEE TS THE FILTER ADOPTED BY THE TPO. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/ DRP ERRED BY NOT APPRECIATING THAT INFORMED TECHNOLOGIES LIMITED AND JINDAL INTELLICOM LIMITED ARE CONSI RED AS COMPARAB LES BY THE TPO IN EARLIER ASSESSMENT YEARS ('AY') IN APPEL LANT'S OWN CASE. 11. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED BY NOT CONSIDERING THE SUBMISSIONS OF THE APPELLANT ON COMPARABLES AS PER GROUND NO. 8 WHILE PASSING THE RESPECTIVE ORDERS. ADJUSTMENT SHOULD BE RESTRICTED TO THE INTERNATIONAL TRANSACTIONS 12. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP HAS ERRED IN MAKING THE ADJUSTMENT BY CONSIDERING TOTAL REVENUE OF THE APPE LLANT WITHOUT APPRECIATING THAT THE TRANSFER PRICING ADJU STMENT SHOULD BE RESTRICTED ONLY TO THE VALUE OF INTERNATI ONAL TRANSACTIONS WITH THE AE. USE OF FILTERS 13. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED IN UPHOLDING THE USE OF DIFFERENT FINANCIAL YEAR END FILTER FOR REJECTION O F COMPARABLE COMPANIES WHILE UNDERTAKING THE COMPARAT IVE ANALYSIS. 14. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED IN UPHOLDING THE U SE OF SERVICE INCOME FILTER OF 75% TO SALES FOR THE PU RPOSE OF SELECTING COMPARABLE COMPANIES WHILE UNDERTAKING TH E COMPARATIVE ANALYSIS. 15. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED IN NOT APPLYING UPPER LIM IT FOR SALES TURNOVER FILTER. REJECTION OF USE OF MULTIPLE YEAR DATA 16. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED IN REJECTING THE USE OF MULTIPLE YEAR DATA AND USING DATA FOR FY 2012-13 ON LY. ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 6 OF 16 ADJUSTMENT FOR RISK DIFFERENCES 17. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED IN DISREGARDING T HE RISK PROFILE OF THE APPELLANT VIS-A-VIS COMPARABLE COMPANIES SELECTED BY THE TPO AND NOT ALLOWING RISK ADJUSTMENT AS PER THE PROVISIONS OF RULE 10B(1)(E) OF THE RULES. ARM'S LENGTH RANGE OF 3% 18. THAT THE AO/TPO BE DIRECTED TO RE-WORK THE PROFIT MARGINS OF THE APPELLANT VIS-A-VIS THE RESUL TANT COMPARABLE COMPANIES AND TO ALLOW THE BENEFIT OF +/ -3% RANGE AS PROVIDED IN PROVISO TO SECTION 92C(2) OF T HE ACT. 19. THE APPELLANT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH O THER AND CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY AL L OR ANY OF THE ABOVE GROUNDS OF APPEAL. 6. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH THE ASSESSEE HAS RAI SED 19 GROUNDS OF APPEAL, IT DOES NOT WISH TO PRESS GROUND S 13 TO 19. THESE GROUNDS ARE ACCORDINGLY REJECTED AS NOT PRESS ED. GROUNDS 1 & 2 ARE GENERAL IN NATURE AND HENCE REQUIRE NO ADJU DICATION. 7. AS REGARDS GROUNDS 3 TO 5 ARE CONCERNED AGAINST THE COMPARABILITY OF THE 3 COMPANIES MENTIONED THEREIN, WE FIND THAT THE ASSESSEE IS SEEKING EXCLUSION OF THESE COMPANIE S MAINLY ON THE GROUNDS OF FUNCTIONAL DISSIMILARITIES. THEREFOR E, EACH OF THE COMPARABLE IS DEALT WITH HEREUNDER: 7.1) INFOSYS BPO LTD: THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS COMPANY IS FUNCTIONALL Y DISSIMILAR AS IT PROVIDES NICHE SERVICES WITHIN ITES ACTIVITIE S AND HAS A VERY HIGH TURNOVER; AND BRAND VALUE. HE DREW OUR ATTENTI ON TO THE ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 7 OF 16 ANNUAL REPORT OF THE SAID COMPANY FOR THE RELEVANT FINANCIAL YEAR, TO DRIVE HIS POINT. HE ALSO RELIED UPON ITAT ORDER THE ASSESSEES OWN CASE FOR THE A.YS 2008-09 TO 2011-12, WHEREIN T HIS COMPANY WAS EXCLUDED. 7.2 THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. 7.3 HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS TRIBUNAL IN THE ASSESS EES OWN CASE FOR THE EARLIER A.YS 2008-09 TO 2011-12 HAS DIRECTE D ITS EXCLUSION DUE TO FUNCTIONAL DISSIMILARITY AND BRAND VALUE. FO R THE SAKE OF CLARITY AND READY REFERENCE, THE RELEVANT PARAS OF THE ORDER OF ITAT IN ITA NOS.128 & 216/HYD/2016 DATED FOR THE A.Y 201 1-12 ARE REPRODUCED HEREUNDER: 18.4. COMING TO GROUND NO. 2, WE NOTICE THAT DRP HA S EXCLUDED BOTH INFOSYS BPO LTD., AS WELL AS TCS E-SERVE LTD. REVEN UE IS OBJECTING ONLY ONE, INFOSYS BPO THAT IT WAS WRONGLY EXCLUDED ON THE GROUND OF HIGH TURNOVER AS IT DOES NOT INFLUENCE THE NET MARG INS OF THE COMPANY. HOWEVER, THERE ARE OTHER REASONS ALSO ON WHICH THE DRP HAS EXCLUDED THE ABOVE COMPANY. THE DRP'S ORDER WITH REFERENCE T O INFOSYS BPO LTD., IS AS UNDER: '2.13 GROUND OF OBJECTION 13 INFOSYS BPO LIMITED (' INFOSYS' OR 'THE COMPANY') HAS TO BE REJECTED BASED ON THE PRESENCE OF THE BRAND THEREBY WARRANTING ADJUSTMENTS ARE REQUIRED TO ELIM INATE THE IMPACT OF BRAND ON PROFITS EARNED. SINCE IT MIGHT NOT BE POSS IBLE, INFOSYS IS TO BE REJECTED AS A COMPARABLE. INFOSYS BPO LIMITED ('INFOSYS' OR 'THE COMPANY') HA S TO BE REJECTED BASED ON THE FACT THAT IT IS AN OVERSIZED COMPANY A S COMPARED TO THE TESTED PARTY. THE LEARNED TPO ERRED BY NOT REJECTING INFOSYS AS C OMPARABLE, AS EXCLUSION OF INFOSYS AS COMPARABLE IS UPHELD BY JUR ISDICTIONAL ITAT IN ASSESSEE OWN CASE (ITAT NO.255/HYD/2014 &ITA.NO.185 0/HYD/2012) FOR AY 2009-10 AND AY 2008-09. ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 8 OF 16 IT IS SUBMITTED THAT THE COMPANY SHOULD BE EXCLUDED DUE TO THE FOLLOWING REASONS :- FUNCTIONAL DISSIMILARITY - NICHE AREAS THAT INFOSYS SPO IS BACKED BY INFOSYS TECHNOLOGIES LIMITED WHICH SUPPORTS INFOSYS SPO TO OFFER AN INTEGRATED IT-BPO DELIVERY MODEL DESIGNED FOR 'ONE STOP SHOP' SOLUTION MODEL WHICH HELPS MANAGING THE ENTIRE OUTSOURCING O PERATIONAL CHAIN OF IT AND PROCESS MANAGEMENT SERVICES. INFOSYS BPO' S BUSINESS SERVICE CENTRE PERFORMS THE BACK OFFICE FUNCTIONS F OR DISPERSED BUSINESS UNITS AND LOCATIONS. A PICTORIAL PRESENTAT ION OF BACK OFFICE FUNCTIONS IS DISPLAYED BELOW: PRESENCE OF BRAND THAT WHILE CONSIDERING INFOSYS BP O AS A COMPARABLE COMPANY, DUE CONSIDERATION SHOULD BE GIVEN TO THE F ACT THAT INFOSYS SPA POSSESSES BRAND VALUE WHICH WILL TEND TO INFLUENCE THE PRICING POLICY AND THEREBY DIRECTLY IMPACTING THE MARGINS EARNED B Y INFOSYS SPA. AS SEEN FROM AN EXTRACT OF THE SCHEDULE 200200 (SEL LING AND MARKETING EXPENSES) TO THE PROFIT & LOSS A/C OF THE ANNUAL RE PORT FOR THE FY 2010-11 OF INFOSYS SPA, INDICATES THAT IT IS DISTIN GUISHED FROM THE ASSESSEE DUE TO THE PRESENCE OF BRAND AND ITS ASSOC IATED VALUE. IT IS ALSO SUBMITTED THAT INFOSYS SPA HAS IDENTIFIE D THE PRESENCE OF BRAND IN ITS SERVICES/ PRODUCTS AND HAS GOODWILL AS A PAR T OF ITS FIXED ASSETS SCHEDULE 100600. FOLLOWING IS AN EXTRACT WHICH PROV IDES EVIDENCE TO THE FACT STATED ABOVE. IT IS ALSO SUBMITTED THAT :- INFOSYS BPO, BEING A SUBSIDIARY OF LNFOSYS LIMITE D, HAS AN ELEMENT OF BRAND VALUE ASSOCIATED WITH IT. THIS CAN BE FURTHER CONFIRMED BY THE PRESENCE OF BRAND RELATED EXPENSES INCURRED BY INFO SYS BPO. PRESENCE OF A BRAND IS LIKELY TO COMMAND PREMIUM PRICES THAT THE CUSTOMERS ARE WILLING TO PAY FOR THE BRANDED SERVIC ES/PRODUCTS. THE ASSESSEE WISHES TO HUMBLY SUBMIT THAT THE ASSES SEE DOES NOT HAVE ANY BRAND ASSOCIATED WITH IT. HENCE THE ASSESSEE SU BMITS THAT INFOSYS SPA CANNOT BE COMPARABLE TO THE ASSESSEE. RATIO OF SUM OF ADVERTISING AND MARKETING EXPENSES TO SALES GREATER THAN 3% THE LEARNED TPO HAS FAILED TO APPRECIATE TH E MARKETING EXPENSES FILTER. SINCE INFOSYS BPO SPENDS 8.40% OF ITS SALES IN ADVERTISEMENT, THIS HAS GENERATED SIGNIFICANT REVEN UE AND CREATION OF BRAND VALUE FOR INFOSYS SPA AS THERE IS A HIGH DEGR EE OF CORRELATION BETWEEN ADVERTISING AND SALES. SIZE OF THE COMPARABLE THE LEARNED TPO HAS FAILED T O APPRECIATE THE FACT THAT THE ITES INDUSTRY IS CLEARLY DEMARCATED B ASED ON SIZE AND THAT ASSESSEE CANNOT BE COMPARED TO COMPANIES HAVING SAL ES DISPROPORTIONATE TO THE SALES GENERATED BY THE ASSE SSEE. IF ONE WERE TO LOOK AT THE TURNOVER/SIZE OF THE 13 COMPARABLE COMP ANIES SELECTED BY THE LEARNED, TPO AND PLOT IT ON A SCATTERED DIAGRAM , THEN ONE COULD ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 9 OF 16 NOTICE THAT BOTH INFOSYS IS A CLEAR OUTLIER. THE SC ATTERED DIAGRAM OF THE 13 COMPARABLE COMPANIES IS PRESENTED BELOW: THE ASSESSEE RELIED ON THE DECISION OF THE HON'BLE I TAT, HYDERABAD IN ASSESSEE'S OWN CASE FOR A.Y. 2009-10 IN WHICH THE H ON'BLE ITAT HELD THAT 'WE ARE IN AGREEMENT WITH THE CONTENTIONS OF T HE COMPARABILITY ON TURNOVER RATIO OF ASSESSEE WITH THIS COMPANY ON THE GROUND THAT ASSESSEE'S TURNOVER IS ABOUT RS.15.79 CRORES, AS AG AINST TURNOVER OF RS.1016 CRORES OF THE INFOSYS. WE ARE ALSO OF THE V IEW THAT OTHER CONTENTIONS WITH REGARD TO THE BRAND VALUE AND BRAN D BUILDING EXERCISE, HAVING HUGE ASSET BASE, CAN BE CONSIDERED TO ARRIVE AT THE CONCLUSION THAT INFOSYS BPO IS FUNCTIONALLY NOT SIMILAR TO THA T OF ASSESSEE. INFOSYS BPO STANDS ON ITS OWN AS AN EXCLUSIVE BPO OF THE IN FOSYS TECHNOLOGIES AND IN EARLIER YEARS, GENERALLY INFOSY S BPO IS EXCLUDED IN MANY OF THE CASES. CONSIDERING THESE ASPECTS, WE AR E OF THE OPINION THAT EVEN THOUGH THE PROFITS OF THE INFOSYS BPO LTD. IS REASONABLE AND NO SUPER PROFITS ARE EARNED, BECAUSE OF ITS BIG BRAND VALUE THIS COMPANY HAS TO BE EXCLUDED ON THE GROUNDS OF FUNCTIONAL DIS SIMILARITY ON FAR ANALYSIS. THEREFORE, WE DIRECT THE ASSESSING OFFICE R/TPO TO EXCLUDE THIS COMPANY.' THE HON'BLE ITAT HAS TAKEN SIMILAR V IEW IN A.Y. 2008- 09 ALSO. HAVING CONSIDERED THE SUBMISSION, EVEN THOUGH WE AR E IN AGREEMENT OF THE EXCLUSION OF THE ABOVE COMPANY, DUE TO TURNOVER , HOWEVER, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE ITAT ON FUNCTIONAL DIFFERENCES, INCLUDING THE INFLUENCE OF THE BRAND V ALUE ON THE MARGINS, WE DIRECT THE A.O. TO EXCLUDE THE ABOVE COMPANY FRO M THE COMPARABLES'. 18.5. IN VIEW OF THE DETAILED REASONS GIVEN BY THE DRP IN EXCLUDING THE COMPANY, NOT ONLY ON THE BASIS OF THE HIGH TURNOVER BUT ALSO WITH REFERENCE TO THE BRAND VALUE ETC., WE DO NOT SEE AN Y REASON TO INTERFERE WITH THE FINDINGS OF THE DRP. IN FACT THE GROUND RA ISED IS NOT COVERING ALL THE ISSUES ON WHICH THE DRP HAS REJECTED THE AB OVE SAID COMPANY. IN VIEW OF THIS, WE DO NOT FIND ANY MERIT IN CONSID ERING THE REVENUE'S GROUND. ACCORDINGLY, GROUND 2 IS REJECTED . 7.4 RESPECTFULLY FOLLOWING DECISION OF COORDINATE B ENCH, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM T HE FINAL LIST OF COMPARABLES. 8. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THI S COMPANY IS FUNCTIONALLY DISSIMILAR AS IT IS INVOLVED IN BPO SE RVICES, CLOUD ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 10 OF 16 SERVICES, BUSINESS INFORMATION MANAGEMENT SERVICES AND OTHER I.T RELATED SERVICES AS AGAINST THE SUPPORT SERVICE S PROVIDED BY THE ASSESSEE WHICH HAVE BEEN CATEGORIZED AS ITES. ON PE RUSAL OF THE ANNUAL REPORTS OF THE SAID COMPANY AT PAGES 863 AND 865 OF THE PAPER BOOK FILED BY THE ASSESSEE, WE FIND THAT THE COMPANY CAPGEMINI BUSINESS SERVICES (INDIA) LTD IS NOT ONLY TO ITES IN FINANCING & ACCOUNTING BUT HAS ALSO WIDENED THE SCO PE OF SERVICES IN SUPPLY CHAIN, PROCUREMENT, TECHNICAL PU BLICATION SERVICES AND HAS SHOWN THE INTENTION TO DIVERSIFY T HE PORTFOLIOS. WE FIND THAT IT IS ALSO PROVIDING SERVICES IN RELAT ION TO THE OPERATIONAL CONTROL SYSTEM AND FOR COMPLIANCE WITH THE PROVISIONS OF THE SARBANES OXLEY ACT, 2002 AND THAT IT ALSO ST ATED THAT THE COMPANY HAS STRATEGICALLY EXPANDED ITS NEW SERVICES BY INCLUDING NON SOX RELATED ACTIVITIES LIKE I.T RISK ASSESSMENT , SAS 70, ASSURANCE AND RISK MANAGEMENT TO MANY COMPANIES. FU RTHER, WE FIND THAT THE ASSESSEE HAS REPORTED INCOME ONLY FROM THE SALE OF SERVICES. THUS, WE ARE INCLINED TO AGREE WITH TH E LEARNED COUNSEL FOR THE ASSESSEE THAT THE ACTIVITIES OF CAP GEMINI BUSINESS SERVICES ARE MUCH MORE DIVERSIFIED THAN THE ACTIVIT IES OF THE ASSESSEE AND UNLESS AND UNTIL A SUITABLE ADJUSTMENT CAN BE MADE, THE SAID COMPANY CANNOT BE TAKEN AS A COMPARA BLE. IT HAS BEEN HELD IN A NUMBER OF CASES THAT WHERE A COMPARA BLE IS INTO DIVERSIFIED ACTIVITIES, THE SAME CAN BE TAKEN AS A COMPARABLE PROVIDED THE SEGMENTAL RESULTS ARE AVAILABLE. AS SE EN FROM PAGE NO.1015 OF THE PAPER BOOK, SEGMENTAL RESULTS ARE NO T AVAILABLE FOR ITES SERVICES. THEREFORE, WE ARE OF THE OPINION THA T CAPGEMINI BUSINESS SERVICES IS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 11 OF 16 9. AS REGARDS HARTRON COMMUNICATIONS LTD IS CONCERN ED, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS COMPANY IS ALSO FUNCTIONALLY DISSIMILAR AS IT PROVIDES MULT IPLE SERVICES LIKE BPO, LPO, BACK OFFICE SOFTWARE DEVELOPMENT, TECHNIC AL SOLUTIONS, MEDICAL BUILDING, ETC., AND THAT THE SEG MENTAL INFORMATION IS NOT AVAILABLE. IT WAS ALSO BROUGHT T O OUR NOTICE THAT THE AUDITOR HAS CLARIFIED ABOUT THE NON-COMPLIANCE REGARDING PROVISIONS FOR RETIREMENT BENEFITS AND IMPAIRMENT O F THE ASSETS. FURTHER, HE SUBMITTED THAT THE ASSESSEE HAS TAKEN T HE OBJECTION ABOUT THIS COMPANY BEFORE THE DRP, BUT THE DRP HAS NOT DISCUSSED THE SAME AND HAS SIMPLY CONFIRMED THE ORD ER OF THE TPO. 10. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT BEFORE THE TPO, THE ASSESSE E HAD ONLY TAKEN AN OBJECTION THAT THE SAID COMPANY IS FUNCTIO NALLY DISSIMILAR. BEFORE THE DRP ALSO, THE ASSESSEE HAD A LSO STATED THAT IN ADDITION TO THE BPO, LPO AND ITES SERVICES, THIS COMPANY IS ALSO ENGAGED IN PROVIDING INTELLECTUAL PROPERTY SER VICES IN THE NATURE OF PATENT SEARCH, PATENT PROTECTION, AND OBT AINING THE TRADE-MARK SERVICES, IP MANAGEMENT AND FURTHER IN S OFTWARE DEVELOPMENT SERVICES SUCH AS WEB PAGE APPLICATION, STANDALONE SOFTWARE APPLICATION, DISTRIBUTED APPLICATIONS, DES KTOP/LAPTOP APPLICATIONS AND MOBILE APPLICATIONS. THE ASSESSEE HAD RELIED UPON THE ANNUAL REPORT AS WELL AS WEBSITE INFORMATI ON OF THE SAID COMPANY TO SUBMIT AS ABOVE AND PLEADED THAT NO SEGM ENTAL INFORMATION IS AVAILABLE. HOWEVER, THE DRP HAS SUMM ARILY REJECTED THE ASSESSEES CONTENTION AND HAS CONFIRME D THE ASSESSMENT ORDER. SINCE THE FACTS MENTIONED BY THE ASSESSEE ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 12 OF 16 ABOUT HARTRON COMMUNICATIONS NEED TO BE VERIFIED, W E DEEM IT FIT AND PROPER TO REMIT THIS ISSUE TO THE FILE OF THE A O FOR VERIFICATION OF THE ASSESSEES CONTENTIONS AND IF IT IS FOUND TO BE IN DIVERSIFIED ACTIVITIES AND NO SEGMENTAL INFORMATION IS AVAILABL E, THEN WE DIRECT THAT THIS COMPANY CANNOT BE TAKEN AS A COMPA RABLE. THUS, GROUNDS OF APPEAL NOS. 3 TO 5 ARE PARTLY ALLOWED FO R STATISTICAL PURPOSES. 11. AS REGARDS GROUNDS 6 AND 7 ARE CONCERNED, THEY ARE AGAINST TREATING THE PROVISION OF BAD AND DOUBTFUL DEBTS, AS NON- OPERATING EXPENSES FOR THE PURPOSE OF MARGIN OF THE COMPARABLE COMPANIES SELECTED BY THE TPO. WE FIND THAT THIS PR OVISION FOR BAD AND DOUBTFUL DEBTS IS AVAILABLE ONLY IN THE CAS E OF CAPGEMINI BUSINESS SERVICES (INDIA) LTD AND INFOSYS BPO LTD A ND SINCE WE HAVE DIRECTED THAT THESE COMPANIES ARE TO BE EXCLUD ED FROM THE FINAL LIST OF COMPARABLES, THE ADJUDICATION OF THES E GROUNDS AT THIS STAGE WOULD ONLY BE AN ACADEMIC EXERCISE. THEREFORE , WE DO NOT ADJUDICATE GROUNDS 6 & 7 AND ARE ACCORDINGLY REJECT ED. 12. AS REGARDS GROUNDS 8 TO 11 ARE CONCERNED, IT IS FOR INCLUSION OF CERTAIN COMPANIES AS COMPARABLES. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ACE BPO SER VICES LTD WAS TAKEN BY THE ASSESSEE AS A COMPARABLE, BUT THE TPO HAS HELD IT TO BE FUNCTIONALLY NOT COMPARABLE AND THE DRP HA S ALSO CONFIRMED THE REJECTION ON THE GROUND THAT NO INFOR MATION ABOUT THE RPT FILTER IS AVAILABLE IN THE ANNUAL REPORT. I T IS SUBMITTED THAT THE SAID COMPANY IS ALSO ENGAGED IN ITES SERVI CES AS PER ITS ANNUAL REPORT AND THE COMPANYS WEBSITE AND THE RPT DATA IS AVAILABLE IN THE ANNUAL REPORT. ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 13 OF 16 13. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. 14. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT FROM THE ANNUAL REPORT OF A CE BPO SERVICES LTD, AT PAGE NOS. 1318 AND 1368 OF THE PAP ER BOOK, THIS COMPANY IS INTO BPO SERVICES AND THE TRANSACTIONS W ITH RELATED PARTIES ARE ALSO REPORTED. THEREFORE, WE ARE OF THE OPINION THAT THIS COMPANY NEEDS TO BE CONSIDERED AS A COMPARABLE. THE AO IS DIRECTED TO VERIFY THE INFORMATION FILED BY THE ASS ESSEE AND IF IT SATISFIES THE RPT FILTER, THEN THE SAME SHOULD BE C ONSIDERED AS A COMPARABLE. 15. AS REGARDS CALIBER POINT BUSINESS SOLUTIONS LTD (SEG.) IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HOWE VER, ON GOING THROUGH THE MATERIAL AND THE ANNUAL REPORT OF THE COMPANY, WE DO NOT FIND IT TO BE A COMPARABLE TO TH E ASSESSEE. THEREFORE, THE EXCLUSION OF THE COMPANY FROM THE LI ST OF COMPARABLE IS CONFIRMED. 16. AS REGARDS INFORMED TECHNOLOGIES LTD IS CONCERN ED, THE TPO HAD REJECTED THE SAME ON THE GROUND THAT IT IS FUNCTIONALLY NOT COMPARABLE WHILE THE DRP STATED TH AT IT FAILS INCOME FROM ITES MORE THAN 75% TO TOTAL OPERATING R EVENUE FILTER. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID COMPANY IS ENGAGED IN ITES SERVICES AS PER THE ANNU AL REPORT AND WAS ACCEPTED AS A COMPARABLE IN THE ASSESSEES OWN CASE FOR THE A.YS 2011-12 AND 2012-13. WITH REGARD TO THE DR PS FINDING ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 14 OF 16 THAT IT FAILS INCOME FROM ITES MORE THAN 75% TO TOT AL OPERATING REVENUE FILTER, HE SUBMITTED THAT NEITHER THE TPO N OR THE ASSESSEE HAVE MADE SUCH COMMENT OR SUBMISSION. THE LEARNED DR WAS ALSO HEARD WHO RELIED ON THE ORDERS OF THE AUTHORIT IES BELOW. 17. ON GOING THROUGH THE MATERIAL ON RECORD, PARTIC ULARLY ON PAGE NOS. 1407, 1427 AN 1477 OF THE PAPER BOOK, WE FIND THAT THE SAID COMPANY IS ALSO PROVIDING ITES AND BACK OF FICE BOP SERVICES AND AS SEEN FROM PAGE 1425 IN THE COLUMN O F SEGMENTAL REPORTING, IT IS STATED THAT THE COMPANY IS PROVISI ONALLY ENGAGED IN THE BUSINESS PROCESS OUTSOURCES WHICH IS ONLY REPOR TABLE AS PER AS-17 STANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTS OF INDIA ON SEGMENTAL REPORTING. THUS, WE FIND THAT TH IS COMPANY CAN BE CONSIDERED AS A COMPARABLE. FURTHER, THE TPO HAS NOT MENTIONED ABOUT THE FILTER OF OPERATING REVENUE BEI NG MORE THAN 75%. THEREFORE, THE DRP IS CLEARLY IN ERROR IN CONS IDERING THE SAME. THE TPO IS DIRECTED TO CONSIDER THIS COMPANY AS A COMPARABLE AFTER VERIFYING THE DETAILS FURNISHED BY THE ASSESSEE. 18. AS REGARDS JINDAL INTELLICOM LTD IS CONCERNED, THE TPO HAD REJECTED THE SAME ON THE GROUND THAT IT IS NOT FUNCTIONALLY COMPARABLE AND THE DRP HAS CONFIRMED THE SAME. THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY WAS TAKEN AS A COMP ARABLE AND ACCEPTED BY THE TPO IN THE ASSESSEES OWN CASE FOR THE A.YS 2012- 13 AND 2011-12. UPON CONSIDERING THE RIVAL CONTENTI ONS, WE DEEM IT FIT AND PROPER TO REMIT THE ISSUE OF COMPARABILI TY OF THIS COMPANY TO THE FILE OF THE TPO AND IF IT IS FOUND T HAT THE SAID COMPANY WAS ACCEPTED TO BE A COMPARABLE COMPANY IN THE EARLIER A.YS, THEN THE AO/TPO SHALL CONSIDER THE SAME AS CO MPARABLE FOR ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 15 OF 16 THE RELEVANT A.Y, UNLESS THERE IS A DIFFERENCE IN T HE SERVICES RENDERED BY BOTH THE COMPANIES IN THE RELEVANT A.YS BEFORE US. 19. AS REGARDS CRYSTAL VOXX LTD IS CONCERNED, THE T PO HAS REJECTED THIS COMPANY ON THE GROUND THAT IT DID APP EAR IN THE SEARCH ANALYSIS OF THE TPO AND THE DRP HAS CONFIRME D THE SAME. THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE ANNUAL REPORT OF THE COMPANY TO SUBMIT THAT THI S COMPANY IS ALSO A BPO COMPANY AND THERE IS ONLY A SINGLE SEGME NT AND HENCE SHOULD BE CONSIDERED AS A COMPARABLE. 20. AS SEEN FROM THE PAPER BOOK FILED BY THE ASSESS EE, THE ANNUAL REPORT OF THE COMPANY IS AVAILABLE IN THE PU BLIC DOMAIN AND THE ASSESSEE HAD SUBMITTED THE SAME DURING THE ASSESSMENT PROCEEDINGS. SINCE CRYSTAL VOXX LTD IS ENGAGED IN O NLY SEGMENT, BPO, AND IT ALSO SATISFIED THE OTHER FILTERS ADOPTE D BY THE TPO, WE DEEM IT FIT AND PROPER TO DIRECT THE TPO TO VERIFY THE COMPARABILITY OF THIS COMPANY. THEREFORE, THE MATTER IS REMITTED TO THE FILE OF THE TPO FOR FRESH ANALYSIS. 21. IN THE RESULT, GROUNDS OF APPEAL NOS. 8 TO 11 A RE TREATED AS PARTLY ALLOWED. 22. AS REGARDS GROUND NO.12, IT IS SETTLED POSITION THAT ONLY THE INTERNATIONAL TRANSACTIONS ARE TO BE CONSI DERED FOR THE ALP ADJUSTMENT AND FOR THIS PURPOSE, ONLY THE OPERA TING REVENUE AND OPERATING COST OF THE INTERNATIONAL TRANSACTION IS TO BE CONSIDERED. THEREFORE, THE AO IS DIRECTED TO CONSID ER THE OPERATING ITA NO 1807 OF 2017 HYUNDAI MOTOR INDIA ENGG. P LT D PAGE 16 OF 16 REVENUE AND THE OPERATING COST OF THE RELEVANT INTE RNATIONAL TRANSACTIONS ONLY FOR THE ALP ADJUSTMENT. GROUND NO .12 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 23. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH AUGUST, 2018. SD/- SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 9 TH AUGUST, 2018. VINODAN/SPS COPY TO: 1 M/S. HYUNDAI MOTOR INDIA ENGG. PVT. LTD, SURVEY N O.5/2 & 5/3, OPP: HITECH CITY RAILWAY STATION (M MTS) HYDERABAD 500084 2 DY.CIT, CIRCLE 2(2) 5 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD 3 PR.CIT - 2 HYDERABAD 4 CHIEF COMMISSIONER OF INCOME TAX (INTERNATIONAL T RANSACTION)(SZ) BENGALURU 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER