OSC Services Pvt. Ltd., Gurgaon V. DCIT, Gurgaon

ITA 1846/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4245 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 31-03-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 92D

Judgement Text

ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 1846/DEL /2015 ASSTT. YEAR: 2010-11 OSC SERVICES PVT. LTD., VATIKA TOWERS, 3 RD & 4 TH FLOOR, TOWER-B, DLF GOLF COURSE ROAD, SECTOR-54, GURGAON-120002 (PAN: AAACO8800H) VS DCIT, CIRCLE-3, GURGAON. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI K.M. GUPTA, ADV. RESPONDENT BY: SHRI SANJAY KUMAR YADAV, SR. DR DATE OF HEARING: 18.05.2018 DATE OF PRONOUNCEMENT: 14.08.2018 ORDER PER SUDHANSHU SRIVASTAVA, J.M. THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AND CHALLENGES THE FINAL ASSESSMENT ORDER PASSED SUBSEQ UENT TO THE DIRECTIONS OF THE LEARNED DISPUTE RESOLUTION PANEL (DRP) - III, NEW DELHI DATED 16.12.2014 FOR ASSESSM ENT YEAR 2010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PART OF THE CLIFFORD CHANCE GROUP AND RENDERS ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 2 INFORMATION TECHNOLOGY (IT) AND IT ENABLED BACK OFF ICE SUPPORT SERVICES (ITES) TO ITS ASSOCIATED ENTERPRIS ES (AE). DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIO NS:- I) PROVISION OF CONTRACT IT SERVICES: RS. 23,78,46,578/- II) PROVISION OF CONTRACT IT ENABLED SERVICES: RS. 31,94,68,166/- III) REIMBURSEMENT OF EXPENSES PAID: RS. 38,40,543/- 2.1 THE ASSESSEE USED OP/TC FOR CALCULATING THE PRO FIT LEVEL INDICATOR (PLI). THE RETURN OF INCOME WAS FI LED DECLARING AN INCOME OF RS. 3,60,247/-. REFERENCE W AS MADE TO THE LD. TRANSFER PRICING OFFICER (TPO) IN V IEW OF THE INTERNATIONAL TRANSACTIONS AS AFORESAID. THE ASSESSEE HAD SELECTED 23 COMPARABLES FOR THE PURPOS E OF DEMONSTRATING THAT THE INTERNATIONAL TRANSACTIONS W ERE CONDUCTED AT ARMS LENGTH PRICE (ALP). THE MEAN MA RGIN OF THE COMPARABLES WAS 12.45% WHEREAS THE ASSESSEE S MARGIN WAS 23.98%. ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 3 2.2 DURING THE COURSE OF TRANSFER PRICING PROCEEDINGS, THE LD. TPO DIRECTED THE ASSESSEE TO S UBMIT UPDATED MARGINS USING CURRENT DATA OF COMPARABLES A ND, ACCORDINGLY, THE ASSESSEE SUBMITTED FRESH SEARCH RE SULT WHICH WAS BASED ON 17 COMPARABLES WITH MEAN MARGIN OF 9.29% WHEREAS THE ASSESSEES MARGIN STOOD AT 23.98% ONLY. THE LD. TPO ALSO REQUIRED THE ASSESSEE TO FU RNISH BIFURCATION BETWEEN IT AND ITES SERVICES AND THE OP /TC IN BOTH THE SEGMENTS OF THE ASSESSEE WAS 23.98%. SUBSEQUENTLY, THE LD. TPO SELECTED 11 COMPARABLES I N THE FINAL SET OF COMPARABLES WITH AVERAGE MARGIN OF 38.61% AND, THEREAFTER, AFTER ALLOWING WORKING CAPI TAL ADJUSTMENT TO THE ASSESSEE, PROPOSED TRANSFER PRICI NG ADJUSTMENT OF RS. 3,20,29,274/-. 2.3 AGGRIEVED WITH THE DRAFT ASSESSMENT ORDER, THE ASSESSEE APPROACHED THE LD. DRP BUT THE LD. DRP REJECTED THE ASSESSEES OBJECTIONS RAISED BEFORE IT AND DIRECTED THE ASSESSING OFFICER TO MAKE ADJUSTMENT O F RS. 3,20,29,274/- TO THE INCOME OF THE ASSESSEE WHICH W AS IN LINE WITH THE PROPOSED ADJUSTMENT BY THE LD. TPO. ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 4 AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW; 1. THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSI NG OFFICER (LD. AO) PURSUANT TO THE DIRECTIONS OF LE ARNED DISPUTE RESOLUTION PANEL (LD. DRP) IS BAD IN FACTS AND LA W. 2. THE LD. AO (FOLLOWING THE DIRECTIONS OF THE LD. DR P), ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE AD DITION OF RS. 3,20,29,274/- TO THE INCOME OF THE APPELLANT AS PRO POSED BY THE LEARNED TRANSFER PRICING OFFICER (LD. TPO) BY HOLDING THAT THE RELATED PARTY INTERNATIONAL TRANSACTIONS PERTAI NING TO PROVISION OF INFORMATION TECHNOLOGY (IT) AND IT E NABLED BACK- OFFICE SUPPORT CITES) SERVICES DO NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE INCOME-TAX ACT, 1961 ('THE ACT'). IN DOING SO, THE LD. AO/LD. TPO HAVE GROSSLY ERRED IN: 2.1 THAT NONE OF THE CONDITIONS SET OUT IN SECTION 920( 3) OF THE ACT ARE SATISFIED IN THE INSTANT CASE; 2.2 DISREGARDING THE ARMS LENGTH PRICE (ALP) AS DETE RMINED BY THE APPELLANT IN THE TRANSFER PRICING (TP) DOC UMENTATION MAINTAINED AS PER SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 (RULES) AS WELL AS FRE SH SEARCH; AND IN PARTICULAR MODIFYING/ REJECTING THE FILTERS APPLIED BY THE APPELLANT; 2.3 CHARACTERISING CERTAIN ACTIVITIES PERFORMED BY THE APPELLANT UNDER ITES SENDEES SEGMENT DURING THE FY 2009-10 AS KNOWLEDGE PROCESS OUTSOURCING (KPO) SENDEES AN D THEREBY REJECTING AND IGNORING THE DETAILED FUNCTIO NS, ASSETS AND RISK ANALYSIS CARRIED BY THE APPELLANT IN THE T P DOCUMENTATION AND EXPLAINED DURING ASSESSMENT PROCE EDINGS. AND ALSO IGNORING THE DEFINITION OF ITES AND KPO SE NDEES LAID DOWN BY THE SAFE HARBOUR RULES NOTIFIED BY THE CENT RAL BOARD OF DIRECT TAXES; ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 5 2.4 REJECTING THE COMPARABILITY ANALYSIS UNDERTAKEN BY THE APPELLANT IN THE TP DOCUMENTATION/ FRESH SEARCH, AN D CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION OF CERTAIN ERRONEOUS, ADDITIONAL, REVISED FILTERS I N DETERMINING THE ALP; 2.5 INCLUDING CERTAIN COMPANIES IN THE FINAL SET THAT A RE NOT COMPARABLE TO THE ITES SEGMENT OF THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED, AND EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRIVOLOUS/INCONSISTENT GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS P ERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; AND 2.6 INCLUDING COMPANIES HAVING ABNORMAL MARGINS/VOLATILE MARGINS IN THE FINAL COMPARABLES SET WITHOUT APPRECIATING THE FACT THAT SUCH ABNORMAL/VO LATILE MARGINS ARE DUE TO CERTAIN ABNORMAL CONDITIONS LIKE BUSINESS RESTRUCTURING, SUPER NORMAL GROWTH IN REVENUE/NET PROFITS ETC. AND ON THE OTHER HAND RESO RTING TO ARBITRARY REJECTION OF LOW-PROFIT/LOSS MAKING COMPA NIES BASED ON ERRONEOUS AND INCONSISTENT REASONS. 3 THE LD. AO ERRED ON FACTS AND IN LAW IN INITIATIN G PENALTY PROCEEDINGS UNDER SECTION 27I(I)(C) OF THE ACT. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS HEREIN OR ADD AN Y FURTHER GROUNDS AS MAY BE CONSIDERED NECESSARY EITH ER BEFORE OR DURING THE HEARING. 3. THE LD. AR SUBMITTED THAT THE FINAL LIST OF C OMPARABLES SELECTED BY THE LD. TPO INCLUDED 11 COMPANIES WHICH ARE AS UNDER:- ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 6 3.1 THE LD. AR SUBMITTED THAT THE ASSESSEE WAS PRAY ING FOR EXCLUSION OF 5 COMPARABLES OUT OF THIS FINAL LIST V IZ. ACCENTIA TECHNOLOGIES LTD.; ECLERX SERVICES LTD.; GENESIS IN TERNATIONAL CORPORATION LTD.; TCS E SERVE LTD. AND TCS E SERVE INTERNATIONAL LTD. THE ARGUMENTS ADVANCED BY THE LD. AR FOR EXCL USION OF THE 5 COMPARABLES BEING CONTESTED BY THE ASSESSEE ARE A S UNDER:- 1. ACCENTIA TECHNOLOGIES : THE LD. AR SUBMITTED THAT THE ITAT, IN ASSESSE ES OWN CASE FOR ASSESSMENT YEAR 2009-10, HAD EXCLUDED ACCENTIA AS A COMPARABLE BY HOLDING THAT THIS COMPANY WAS FUNCTIO NALLY DISSIMILAR TO THE ASSESSEE COMPANY AND SEGMENTAL IN FORMATION WAS NOT AVAILABLE AND THERE WERE CERTAIN MERGERS AN D ACQUISITIONS DURING THE YEAR. IT WAS FURTHER SUBMI TTED THAT THERE 1 ACCENTIA TECHNOLOGIES LTD. 43.07% 2 COSMIC GLOBAL LTD. 18.28% 3 ECLERX SERVICES LTD. 55.97% 4 FORTUNE INFOTECH LTD. 22.80% 5 GENESIS INTERNATIONAL CORPORATION LTD. 111.46% 6 INFOSYS BPO LTD. 31.46% 7 JINDAL INTELLICOM LTD. 13.62% 8 MICROLAND LTD. (ITES SEGMENT) -3.62% 9 OMEGA HEALTHCARE MANAGEMENT SERVICES PRIVATE LTD. 15.31% 10 TCS E SERVE LTD. 62.55% 11 TCS E SERVE INTERNATIONAL LTD. 53.80% AVERAGE 38.61% ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 7 WAS NO CHANGE IN THE FUNCTIONAL PROFILE OF THE ASSE SSEE VIS--VIS THE IMMEDIATELY PRECEDING YEAR WHEREIN THIS COMPANY HAD BEEN DIRECTED TO BE EXCLUDED BY THE ITAT. IT WAS FURTHE R SUBMITTED THAT THE ASSESSEE CONTINUED TO RENDER ITES SERVICES AND, THEREFORE, THIS COMPANY WAS LIABLE TO EXCLUDED FROM THE FINAL SET OF COMPARABLES. THE LD. AR HIGHLIGHTED THAT ACCENTI A TECHNOLOGIES LTD. WAS ENGAGED IN PROVIDING DIVERSIF IED SERVICES LIKE SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES A ND THAT ITS SERVICES AND SOLUTIONS ARE FOCUSED ON HEALTHCARE RE CEIVABLES CYCLE MANAGEMENT SERVICES AND DEVELOPMENT OF SOFTWARE PRO DUCTS. IT WAS ALSO SUBMITTED THAT ACCENTIA DEALT IN SOFTWARE PRODUCTS AS WELL AS IT OWNED INTELLECTUAL PROPERTY RIGHTS OF TH E SOFTWARE TOOLS DEVELOPED BY IT AND THAT IT BEARS SUBSTANTIAL RISK ASSOCIATED WITH THE SUCCESS/FAILURE OF THESE PRODUCTS/TOOLS IN THE MARKET. IT WAS FURTHER SUBMITTED THAT ACCENTIA HAD REVENUE FROM ME DICAL TRANSCRIPTION, BILLINGS AND COLLECTIONS AND INCOME FROM CODING BUT THE SEGMENT WISE RESULTS WERE NOT AVAILABLE IN THE ANNUAL REPORT OF THE COMPANY. IT WAS ALSO SUBMITTED THAT DURING FY 2009-10, RELEVANT TO THE YEAR UNDER CONSIDERATION, ACCENTIA AMALGAMATED WITH ONE OF ITS SUBSIDIARIES, NAMELY, A SSCENT INFORSERVE PRIVATE LIMITED AND, THEREFORE, THIS EXT RAORDINARY EVENT ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 8 IMPACTED THE OVERALL PROFITABILITY OF THIS COMPANY AS THE FINANCIAL RESULTS FOR THIS YEAR WERE INCLUSIVE OF THE FIGURES OF THE AMALGAMATING SUBSIDIARY RESULTING IN ABNORMALLY HIG H OP/TC OF 43.07%. THE LD. AR ALSO PLACED RELIANCE ON A NUMBE R OF ORDERS OF THE VARIOUS BENCHES OF THE ITAT WHEREIN THIS COM PANY HAD BEEN DIRECTED TO BE EXCLUDED. 2. ECLERX SERVICES LIMITED: THE LD. AR SUBMITTED THAT THE ITAT IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009-10 HAD EXCLUDED ECLERX SERVICE S LIMITED AS A COMPARABLE BY HOLDING THAT THIS COMPANY OPERAT ED AS A KPO PROVIDING DATA ANALYTICS AND DATA PROCESS SOLUTIONS WHICH COULD NOT BE COMPARED WITH INFORMATION TECHNOLOGY ENABLED SERVICES SEGMENT OF THE ASSESSEE. THE LD. AR REITERATED THA T THERE IS NO CHANGE IN THE FUNCTIONAL PROFILE OF THE ASSESSEE VI S--VIS ASSESSMENT YEAR 2009-10 AND, THEREFORE, FOR THIS RE ASON ALONE, THE ECLERX SERVICES LIMITED WAS LIABLE TO BE EXCLUD ED FROM THE FINAL SET OF COMPARABLES. IT WAS FURTHER SUBMITTED THAT THIS COMPANY WAS ENGAGED IN RENDERING CONSULTING SERVICE S, PROCESS OUTSOURCING AND AUTOMATION SERVICES AND, FURTHER, T HE ANNUAL REPORT OF ECLERX SERVICES LIMITED DID NOT CONTAIN S EGMENT WISE RESULT WITH RESPECT TO FINANCIAL SERVICES AND SALES AND MARKETING ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 9 SUPPORT. IT WAS ALSO SUBMITTED THAT DURING THE YEA R UNDER CONSIDERATION, ECLERX SERVICES LIMITED HAD EARNED A N ABNORMALLY HIGH MARGIN OF OP/TC OF 59.57%, THEREBY RENDERING I T UNFIT TO BE SELECTED AS A COMPARABLE. LD. AR PLACED RELIANCE O N A NUMBER OF ORDERS OF ITAT DELHI BENCH WHEREIN THIS COMPANY HAD BEEN EXCLUDED AND SUBMITTED THAT BASED ON THESE JUDICIAL PRECEDENTS, THIS COMPANY DESERVED TO BE EXCLUDED. 3. GENESYS INTERNATIONAL CORPORATION LIMITED: THE LD. AR SUBMITTED THAT THIS COMPANY HAD ALS O BEEN DIRECTED TO BE EXCLUDED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 BY THE ITAT ON THE GROUND THAT THIS CO MPANY OPERATED AS A HIGH END KPO SERVICE PROVIDER AND, TH EREFORE, THE SAME COULD NOT BE COMPARED WITH THE ITES SEGMENT OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THERE IS N O CHANGE IN THE FUNCTIONAL PROFILE OF THE ASSESSEE VIS--VIS ASSESS MENT YEAR 2009- 10 WHEREIN THIS COMPANY WAS DIRECTED TO BE EXCLUDED BY THE ITAT AND, THEREFORE, THERE WAS NO REASON FOR INCLUDING G ENESYS AS A COMPARABLE. IT WAS FURTHER SUBMITTED THAT GENESYS IS PRIMARILY ENGAGED IN THE AREA OF GEOGRAPHICAL INFORMATION SYS TEM (GIS) SERVICES AND THIS COMPANY PROVIDED HIGH END GIS SER VICES WHICH INCLUDED GENERATION, PROCESSING, MANAGEMENT AND MAI NTENANCE ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 10 OF DATA FOR GIS AND OTHER INFORMATION MANAGEMENT SY STEMS. IT WAS FURTHER SUBMITTED THAT GENESYS ALSO FOCUSSED ON RESEARCH & DEVELOPMENT (R&D) FOR DEVELOPING NEW FUNCTIONALITIE S WHEREAS THE ASSESSEE WAS A ROUTINE SERVICE PROVIDER RENDERI NG SERVICES TO ITS AES AND INCURRED NO EXPENDITURE ON R&D. IT WAS ALSO SUBMITTED THAT THIS COMPANY HAD ALSO EARNED AN ABNO RMALLY HIGH OP/TC MARGIN OF 111.46% AND HENCE IT WAS UNFIT TO B E INCLUDED AS A COMPARABLE. RELIANCE WAS PLACED ON NUMEROUS J UDICIAL PRECEDENTS OF THE HONBLE DELHI HIGH COURT AND ITAT DELHI BENCHES WHEREIN THIS COMPANY HAD BEEN DIRECTED TO B E EXCLUDED. 4. TCS E SERVE LIMITED : IT WAS SUBMITTED BY THE LD. AR THAT THIS COMPA NY WAS ENGAGED IN PROVIDING DIVERSIFIED SERVICES I.E. ITES AND CERTAIN OTHER TECHNICAL SERVICES INVOLVING SOFTWARE TESTING , VERIFICATION AND VALIDATION OF SOFTWARE AT THE TIME OF IMPLEMENT ATION, DATA CENTRE MANAGEMENT ACTIVITIES AND, THEREFORE, THIS C OMPANY WAS NOT FUNCTIONALLY COMPARABLE TO THE ITES SERVICES BE ING PROVIDED BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE ANNUAL REPORT OF THIS COMPANY DOES NOT CONTAIN SEGMENT WISE RESUL T IN THE CASE OF ITES AND TECHNICAL SERVICES AND, THEREFORE, IN A BSENCE OF SEGMENT WISE RESULTS, TCS E-SERVE CANNOT BE ACCEPTE D AS A ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 11 COMPARABLE. IT WAS FURTHER SUBMITTED THAT THIS COM PANY HAS THE BRAND VALUE OF THE TATA GROUP WHICH WAS EVIDENT FRO M PAYMENT BEING MADE ON ACCOUNT OF TATA BRAND EQUITY CONTRIBU TION TO TATA SONS LIMITED AND, THEREFORE, IT WAS ENJOYING THE BE NEFIT OF BRAND VALUE OF THE TATA GROUP WHICH WAS NOT SO IN THE CAS E OF THE ASSESSEE AND, THEREFORE, THE SAME WAS NOT A GOOD CO MPARABLE. IT WAS FURTHER SUBMITTED THAT THIS COMPANY OWNED INTAN GIBLES IN THE FORM OF SOFTWARE LICENSES WHICH WAS AGAIN NOT S O IN THE CASE OF THE ASSESSEE COMPANY. IT WAS ALSO SUBMITTED THA T THIS COMPANY HAD EARNED ABNORMALLY HIGH OP/TC MARGIN OF 63.38% DURING THE YEAR UNDER CONSIDERATION. THE LD. AR PL ACED RELIANCE ON THE NUMBER OF JUDICIAL PRECEDENTS AND SUBMITTED THAT IN VIEW OF THE VARIOUS ORDERS OF THE ITAT WHEREIN THIS COMP ANY HAD BEEN DIRECTED TO BE EXCLUDED ON SIMILAR GROUNDS, THIS CO MPANY NEEDED TO BE EXCLUDED IN THE ASSESSEES CASE ALSO. 5. TCS E-SERVE INTERNATIONAL LIMITED: IT WAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN PROVIDING DIVERSIFIED SERVICES WHICH INCLUDED ITES AND TECHNI CAL SERVICES LIKE SOFTWARE TESTING, VERIFICATION, DATA PROCESSIN G SERVICES AND VALIDATION OF SOFTWARE AT THE TIME OF IMPLEMENTATIO N AND DATA CENTRE MANAGEMENT ACTIVITIES AND, THEREFORE, THE CO MPANY WAS ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 12 NOT FUNCTIONALLY COMPARABLE TO THE ITES SEGMENT OF THE ASSESSEE. IT WAS SUBMITTED THAT THE ANNUAL REPORT OF THIS COM PANY ALSO DID NOT CONTAIN SEGMENTAL DETAILS IN THE CASE OF ITES A ND TECHNICAL SERVICES. IT WAS ALSO SUBMITTED THAT THIS COMPANY OWNED INTANGIBLES IN THE FORM OF SOFTWARE LICENSES AND AL SO ENJOYED BRAND VALUE OF BEING ASSOCIATED WITH THE TATA GROUP AND, THEREFORE, THE PROFILE OF THIS COMPANY WAS DISSIMIL AR TO THAT OF THE ASSESSEE COMPANY WHICH WAS ONLY A CAPTIVE IT ENABLE D SERVICE PROVIDER. IT WAS ALSO SUBMITTED THAT THIS COMPANY HAD ALSO EARNED ABNORMALLY HIGH OP/TC MARGIN OF 53.80% DURIN G THE YEAR UNDER CONSIDERATION, AND, THEREFORE, IT WAS UNFIT T O BE SELECTED AS A COMPARABLE. RELIANCE WAS PLACED ON NUMEROUS ORDE RS OF THE ITAT DELHI BENCH WHEREIN THIS COMPANY HAD BEEN DIRE CTED TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 4. IN RESPONSE, THE LD. SR. DR PLACED STRONG RELIAN CE ON THE OBSERVATIONS OF THE LD. TPO IN RESPECT OF THE 5 COM PARABLES BEING CONTESTED BY THE ASSESSEE AND SUBMITTED THAT EVEN T HE LD. DRP HAD UPHELD THE TRANSFER PRICING ADJUSTMENT PROPOSED BY THE LD. TPO AFTER DULY CONSIDERING THE OBJECTIONS OF THE AS SESSEE. 4.1 WITH RESPECT TO ACCENTIA, IT WAS SUBMITTED THAT THE FAR PROFILE OF THE COMPANY IS ESSENTIALLY SIMILAR TO TH AT OF THE ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 13 ASSESSEE. MOREOVER, THE ASSESSEE HAS NOT SHOWN HOW AMALGAMATION HAS IMPACTED THE PROFITABILITY OF THE COMPANY. HENCE, IT IS TO BE RETAINED AS COMPARABLE. 4.2 WITH RESPECT TO ECLERX SERVICES LIMITED, IT WAS SUBMITTED THAT THE FAR PROFILE OF THE COMPANY IS ESSENTIALLY SIMILAR TO THAT OF THE ASSESSEE. FURTHER, HIGH PROFIT MARGIN IS NO CRITERION TO REJECT IT AS COMPARABLE IF IT PASSES THE FAR COMPAR ABILITY TEST. HENCE, IT IS TO BE RETAINED AS COMPARABLE. 4.3 WITH RESPECT TO TCS E-SERVE LTD., IT WAS SUBMIT TED THAT THE FAR PROFILE OF THE COMPANY IS ESSENTIALLY SIMILAR T O THAT OF THE ASSESSEE. HIGH PROFIT MARGIN IS NO BASIS FOR REJEC TION. HENCE, IT IS TO BE RETAINED AS COMPARABLE. 4.4 WITH REGARD TO TCS E-SERVE INTERNATIONAL LTD., IT WAS SUBMITTED THAT THE FAR PROFILE OF THE COMPANY IS ES SENTIALLY SIMILAR TO THAT OF THE ASSESSEE. HIGH PROFIT MARGI N IS NO BASIS FOR REJECTION. HENCE, IT IS TO BE RETAINED AS COMPARAB LE. 4.5 WITH RESPECT TO GENESYS INTERNATIONAL CORPORAT ION LIMITED, IT WAS SUBMITTED THAT FAR PROFILE OF THE C OMPANY IS ESSENTIALLY SIMILAR TO THAT OF THE ASSESSEE. HENCE , IT IS TO BE RETAINED AS COMPARABLE. ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 14 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIAL ON RECORD. OUR OBSERVATIONS AND FINDIN GS WITH RESPECT TO EACH OF THE COMPARABLES BEING SOUGHT TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES ARE AS UNDER: (I) ACCENTIA TECHNOLOGIES : WE FIND THAT THE ITAT, IN ASSESSEES OWN CASE FOR A SSESSMENT YEAR 2009-10 IN ITA NO. 1910/DEL/2014, VIDE ORDER DATED 23.11.2017, HAD EXCLUDED ACCENTIA AS A COMPARABLE BY HOLDING TH AT THIS COMPANY WAS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE COMPANY AND SEGMENTAL INFORMATION WAS NOT AVAILABLE AND THE RE WERE CERTAIN MERGERS AND ACQUISITIONS DURING THE YEAR. THE LD. SR. DR COULD NOT POINT OUT THAT THERE WAS ANY CHANGE IN TH E FUNCTIONAL PROFILE OF THE ASSESSEE VIS--VIS THE IMMEDIATELY P RECEDING YEAR WHEREIN THIS COMPANY HAD BEEN DIRECTED TO BE EXCLUD ED BY THE ITAT. ACCORDINGLY, IN VIEW OF THE ORDER OF THE CO- ORDINATE BENCH OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2009-10 A S AFORESAID, WE DIRECT EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 15 (II) ECLERX SERVICES LIMITED: WE FIND THAT THE ITAT, IN ASSESSEES OWN CASE FOR A SSESSMENT YEAR 2009-10 IN ITA NO. 1910/DEL/2014, VIDE ORDER DATED 23.11.2017, HAD EXCLUDED ECLERX SERVICES LIMITED AS A COMPARABL E BY HOLDING THAT THIS COMPANY OPERATED AS A KPO PROVIDING DATA ANALYTICS AND DATA PROCESS SOLUTIONS WHICH COULD NOT BE COMPA RED WITH INFORMATION TECHNOLOGY ENABLED SERVICES SEGMENT OF THE ASSESSEE. THE LD. SR. DR COULD NOT DEMONSTRATE THAT THERE WAS ANY CHANGE IN THE FUNCTIONAL PROFILE OF THE ASSESSEE VIS--VIS ASSESSMENT YEAR 2009-10. ACCORDINGLY, IN VIEW OF THE ORDER OF THE C O-ORDINATE BENCH OF THE ITAT IN ASSESSEES OWN CASE FOR AY 200 9-10 AS AFORESAID, WE DIRECT EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. (III) GENESYS INTERNATIONAL CORPORATION LIMITED: WE FIND THAT THE ITAT, IN ASSESSEES OWN CASE FOR A SSESSMENT YEAR 2009-10 IN ITA NO. 1910/DEL/2014, VIDE ORDER DATED 23.11.2017, HAD EXCLUDED GENESYS ON THE GROUND THAT THIS COMPAN Y OPERATED AS A HIGH END KPO SERVICE PROVIDER AND, THEREFORE, THE SAME COULD NOT BE COMPARED WITH THE ITES SEGMENT OF THE ASSESSEE. DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LD. SR. DR COULD ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 16 NOT DEMONSTRATE THAT THERE WAS ANY CHANGE IN THE FU NCTIONAL PROFILE OF THE ASSESSEE VIS--VIS ASSESSMENT YEAR 2 009-10. ACCORDINGLY, IN VIEW OF THE ORDER OF THE CO-ORDINAT E BENCH OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2009-10 AS AFORE SAID, WE DIRECT EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. 4. TCS E SERVE LIMITED : IT IS SEEN THAT THIS COMPANY IS ENGAGED IN PROVIDIN G DIVERSIFIED SERVICES I.E. ITES AND CERTAIN OTHER TECHNICAL SERV ICES INVOLVING SOFTWARE TESTING, VERIFICATION AND VALIDATION OF SO FTWARE AT THE TIME OF IMPLEMENTATION, DATA CENTRE MANAGEMENT ACTI VITIES AND, THEREFORE, THIS COMPANY WAS NOT FUNCTIONALLY COMPAR ABLE TO THE ITES SERVICES BEING PROVIDED BY THE ASSESSEE. IT I S ALSO SEEN THAT THE ANNUAL REPORT OF THIS COMPANY DOES NOT CONTAIN SEGMENT WISE RESULT IN THE CASE OF ITES AND TECHNICAL SERVICES A ND, THEREFORE, IN ABSENCE OF SEGMENT WISE RESULTS, TCS E-SERVE CANNOT BE ACCEPTED AS A COMPARABLE. WE ALSO NOTE THAT THIS COMPANY WA S DIRECTED TO BE EXCLUDED AS A COMPARABLE BY ITAT DELHI BENCH IN THE CASE OF BC MANAGEMENT SERVICES PVT. LTD. IN ITA 5829/DEL/20 15 VIDE ORDER DATED 25.05.2017. THE RELEVANT OBSERVATIONS O F THE CO- ORDINATE BENCH IN THIS CASE ARE AS UNDER: ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 17 18. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WE LL AS THE MATERIAL AVAILABLE ON RECORD. ONE OF THE MAIN POIN TS OF DISTINCTION WHICH IS QUITE OSTENSIBLE IS THAT THE TCS E-SERVE' IS A SUBSIDIARY OF TATA CONSULTANCY SERVICES LIMI TED, WHICH IS ONE OF THE LEADING AND GIANT COMPANY IN THE WORL D AND HAS AN INHERENT ELEMENT OF VERY HIGH BRAND VALUE ASSOCI ATED WITH IT. SUCH A HIGH BRAND VALUE DEFINITELY HAS AN IMPAC T ON THE PRICING POLICY, NICHE MARKET, CONTRACTUAL TERMS, ET C. AND THEREBY AFFECTING THE PROFIT MARGINS. ANNUAL REPORT OF THIS COMPANY REFLECTS THAT HUGE PAYMENTS HAVE BEEN MADE BY TCS E-SERVE TO TCS LIMITED FOR THE USE OF THE BRA ND AS A ROYALTY. THIS FACT ITSELF SHOWS THE EFFECT OF BRA ND VALUE IN THE PRICING MECHANISM. ON A FURTHER ANALYSIS IT IS SEEN THAT THE EMPLOYEE COST BASE IS MORE THAN 64 TIMES THAN T HE ASSESSEE AND EVEN THE TURNOVER IS ALSO MORE THAN 67 TIMES AS COMPARED TO THE ASSESSEE. THIS ONLY GOES TO SUGGEST THAT ASSETS EMPLOYED BY TCS E-SERVE ALONG WITH HUGE INTANGIBLES IN THE FORM OF BRAND VALUE DEFINITELY H AS A HUGE EFFECT IN PLI AND VITIATES THE COMPARABILITY UNDER FAR ANALYSIS WITH A COMPANY LIKE ASSESSEE WHICH IS A CA PTIVE SERVICE PROVIDER WITHOUT MUCH INTANGIBLES AND RISKS . ANOTHER IMPORTANT THING WHICH HAS BEEN POINTED OUT BY LEARN ED COUNSEL IS THAT, THE OPERATION OF TCS E-SERVE BROA DLY COMPRISE OF TRANSACTION PROCESSING AND TECHNICAL SE RVICES INCLUDING SOFTWARE TESTING, VERIFICATION AND VALIDA TION FOR WHICH NO SEGMENTAL BIFURCATION IS AVAILABLE. IN ABS ENCE OF SUCH VITAL INFORMATION OF THE MARGINS OF SUCH VARIE D SEGMENTS ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 18 IT BECOMES QUITE DIFFICULT TO PUT SUCH COMPANY IN T HE COMPARABILITY BASKET SO AS TO BENCH MARK THE CORREC T PROFIT MARGIN. ALL THE AFORESAID FACTORS HAVE BEEN HELD SO IN VARIOUS DECISIONS OF THIS TRIBUNAL IN SEVERAL CASES AS RELI ED UPON BY THE LD. COUNSEL, INCLUDING THE DECISION OF AMRI PRI CE INDIA PRIVATE LIMITED (SUPRA). THUS, IN OUR OPINION TCS E-SERVE CANNOT BE HELD TO BE A GOOD COMPARABLE FOR THE PURP OSE OF BENCH MARKING THE ASSESSEES PLI AND ACCORDINGLY, W E DIRECT THE LD. AO/TPO TO EXCLUDE TCS E-SERVE FROM THE COMPARABILITY LIST. THEREFORE, IN VIEW OF THE ABOVE OBSERVATIONS OF THE CO-ORDINATE BENCH OF THE ITAT, RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE EXCLUSION OF TCS E SERVE FROM THE FINAL LIST OF COM PARABLES. (V) TCS E-SERVE INTERNATIONAL LIMITED: IT IS SEEN THAT THIS COMPANY IS ENGAGED IN PROVIDIN G DIVERSIFIED SERVICES WHICH INCLUDED ITES AND TECHNICAL SERVICES LIKE SOFTWARE TESTING, VERIFICATION, DATA PROCESSING SERVICES AND VALIDATION OF SOFTWARE AT THE TIME OF IMPLEMENTATION AND DATA CEN TRE MANAGEMENT ACTIVITIES AND, THEREFORE, THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ITES SEGMENT OF THE ASSESSEE. IT IS FURTHER SEEN THAT THE ANNUAL REPORT OF THIS COMP ANY ALSO DID NOT CONTAIN SEGMENTAL DETAILS IN THE CASE OF ITES A ND TECHNICAL SERVICES. WE ALSO NOTE THAT THIS COMPANY WAS DIRECT ED TO BE ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 19 EXCLUDED AS A COMPARABLE BY ITAT DELHI BENCH IN THE CASE OF VERTEX CUSTOMER SERVICES INDIA PVT. LTD. IN ITA 15 08/DEL/2015 VIDE ORDER DATED 28.11.2017. THE RELEVANT OBSERVATI ONS OF THE CO- ORDINATE BENCH IN THIS CASE ARE AS UNDER: 42. HOWEVER, PERUSAL OF THE BACKGROUND AND PRINCIP AL ACTIVITIES OF THE TCS INTL. AND TCS GIVEN IN AN NUAL REPORT, AVAILABLE AT PAGE 413, SHOWS THAT THE COMPANYS OPE RATION IS BROADLY COMPRISE OF TRANSACTION PROCESSING AND TECH NICAL SERVICES. TRANSACTION PROCESSING INCLUDES THE BROAD SPECTRUM OF ACTIVITIES INVOLVING THE PROCESSING, COLLECTIONS , CUSTOMER CARE AND PAYMENTS IN RELATION TO THE SERVICES OFFER ED BY CITIGROUP TO ITS CORPORATE AND RETAIL CLIENTS. TECH NICAL SERVICES INVOLVE SOFTWARE TESTING, VERIFICATION AND VALIDATI ON OF SOFTWARE AT THE TIME OF IMPLEMENTATION AND DATA CEN TRE MANAGEMENT ACTIVITIES WHEREAS FOR ALL THE DIVERSIFY ING SERVICES NO BREAK UP IS GIVEN. SO, IN THE ABSENCE O F COMPLETE SEGMENTAL DATA, TCS CANNOT BE TREATED AS ITES. MORE OVER ABNORMAL GROWTH IN OPERATING INCOME OF 174% AND OPE RATING PROFIT OF 355% AS IS EVIDENT FROM PAGE 389 OF THE A NNUAL REPORT PAPER BOOK VOL.I MAKES IT INCOMPARABLE WITH THE TAXPAYER WHICH IS A ROUTINE ITES PROVIDER HAVING TU RNOVER OF RS.76.91 CRORES. SO, IN THE ABSENCE OF INCOMPLETE S EGMENTAL DATA, PECULIAR CIRCUMSTANCES AND NORMAL GROWTH, WE ARE OF THE CONSIDERED VIEW THAT TCS ESERVE INTERNATIONAL L TD. AND TCS ESERVE LTD. ARE NOT A VALID COMPARABLE. ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 20 43. COMPARABILITY OF TCS INTL. AND TCS HAS BEEN EXAMINED BY THE TRIBUNAL IN AMERIPRISE INDIA PVT. LTD. (SUPR A) AND HAS BEEN ORDERED TO BE EXCLUDED AS COMPARABLE WITH AMER IPRISE INDIA PVT. LTD. (SUPRA) WHICH WAS ALSO A ROUTINE IT ES PROVIDER ON THE GROUND THAT TCS INTL. AND TCS IS ENGAGED IN RENDERING BPO SERVICES TO THE BANKING AND FINANCIAL SERVICES INDUSTRY AND TRAVEL, TOURISM AND HOSPITALITY SUCH S ERVICES INCLUDE TRANSACTION PROCESSING AND TECHNICAL SERVIC ES. SINCE VERIFICATION OF VALIDATION IS PART OF THE SOFTWARE DEVELOPMENT THIS CANNOT BE TAKEN AS A VALID COMPARABLE. SO WE A RE OF THE CONSIDERED VIEW THAT TCS ESERVE INTERNATIONAL LTD. AND TCS ESERVE LTD. ARE NOT SUITABLE COMPARABLES VIS-A-VIS THE TAXPAYER. THEREFORE, IN VIEW OF THE ABOVE OBSERVATIONS OF THE CO-ORDINATE BENCH OF THE ITAT, RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE EXCLUSION OF TCS E SERVE INTERNATIONAL LTD. FROM TH E FINAL LIST OF COMPARABLES. 6. IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST, 2018. SD/- SD/- (N.K. BILLAIYA ) (SUDHANSHU SRIVASTAVA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14 TH AUGUST, 2018 GS ITA NO. 1846/DEL/2015 ASSESSMENT YEAR 2010-11 21 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER ASSISTANT REGI STRAR DA DATE OF DICTATION DATDATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER DATDATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE OTHER MEMBER DA DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATDATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT DA DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R.PS/PS DATDATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DA DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DA DATE ON WHICH THE FILE GOES TO THE HEAD CLERK TH DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DA DATE OF DISPATCH OF THE ORDER