American Express (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1868/DEL/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2762 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I2
• Next Hearing Date: 28-03-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 31-03-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T M SHIVAKUMAR
• Keywords: Related party transaction; Depreciation; Transfer pricing; Principle of natural justice; International transaction; Wholly owned subsidiary
• Section: 143(3); 234B; 133(6); 10B

Judgement Text

AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 2 : NEW DELHI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 1868/DEL/2015 (ASSESSMENT YEAR: 2007 - 08 ) AMERICAN EXPRESS (INDIA) PVT. LTD, METROPOLITAN SAKET, 7 TH FLOOR, OFFICE BLOCK, DISTRICT CENTRE, SAKET, NEW DELHI PAN:AAACA8163F VS. DCIT, CIRCLE - 2(2), NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 1674/DEL/2015 (ASSESSMENT YEAR: 2007 - 08) DCIT, CIRCLE - 2(2), NEW DELHI VS. AMERICAN EXPRESS (INDIA) PVT. LTD, METROPOLITAN SAKET, 7 TH FLOOR, OFFICE BLOCK, DISTRICT CENTRE, SAKET, NEW DELHI PAN: AAACA8163F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAGESWAR RAO, ADV REVENUE BY: SHRI TM SHIVAKUMAR, CIT DR DATE OF HEARING 28/03/ 2017 DATE OF PRONOUNCEMENT 0 7 / 06 / 2017 O R D E R PER PRASHANT MAHARISHI, A. M. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 2 1. TH ESE TWO APPEALS ARE FILED BY ASSESSEE AND REVENUE RESPECTIVELY AGAINS T THE ORDER OF THE D EPUTY COMMISSIONER OF INCOME TAX , CIRCLE 2 (2), NEW DELHI [ HEREINAFTER REFE RRED TO AS THE LD. AO] DATED 28. 12.2014 FOR THE ASSESSMENT YEAR 2007 - 08 PASSED U/S 143 (3) R.W.S. 144C AND 254 OF THE INCOME TAX A C T, 1961[ IN SHORT THE ACT ]. 2. THE BRIEF HISTORY OF THE PRESENT APPEAL FOR AY 2007 - 08 IS THAT ASSESSEE FILED ITS RETURN OF INCOME ON 30/10/2007 DECLARING TOTAL INCOME OF RS. 66659 9500/ . SUBSEQUENTLY ASSESSEE REVISED IT ON 30/06/2009 ON SAME INCOME. ASSESSEE FURTHER REVISED IT ON 30/03/2009 AT THE SAME INCOME. 3. AS THE ASSESSEE HAS ENTERED INTO CERTAIN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE [HEREINAFTER REFERRED TO AS THE AE] , LD AO REFERRED IT TO THE LD. TRANSFER PRICING OFFICER [ HEREINAFTER REFERRED TO AS THE TPO] FOR DETERMINATION OF THE ARMS LENGTH PRICE [ HEREINAFTER REFERRED TO AS ALP] OF THOSE TRANSACT ION. THE LD. TRANSFER PRICING OFFICER PASSED ORDER U/S 92CA (3) OF THE ACT ON 26/10/2010 PROPOSING AN UPWARD ADJUSTMENT OF RS. 559965116/ . LD. AO FRAMED DRAFT ASSESSMENT ORDER U/S 143(3) OF THE ACT ON 29/12/2010. 4. THE ASSESSEE FILED OBJECTION BEFORE THE LD. DISPUTE RESOLUTION PANEL [HEREINAFTER REFERRED TO AS THE DRP ]. THE LD. DISPUTE RESOLUTION PANEL ISSUED DIRECTION S ON 10 /8/2011 AND CONSEQUENTLY THE LD. AO IN ITS FINAL ASSESSMENT ORDER PASSED ON 31/10/2011 INCO RPORATED THOSE DIRECTIONS . LD. AO, AGAINST THE RETURNED INCOME OF RS. 6 66599500/ , TRANSFER PRICING ADJUSTMENT OF RS. 550927343/ AND WITHDRAWAL OF DEDUCTION U/S AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 3 10 A OF THE ACT OF RS. 407112732 / - WAS MADE AND ASSESSED THE TOTAL INCOME U/S 143 (3) OF TH E ACT AT RS. 1 624639580 / - . 5. AGAINST THAT ORDER , ASSESSEE PREFERRED AN APPEAL BEFORE THE COORDINATE BENCH WHO VIDE ORDER DATED 24 TH OF AUGUST 2012 SET ASIDE THE ISSUE OF TRANSFER PRICING ADJUSTMENT BACK TO THE FILE OF LD. AO / TPO VIDE PARA NO. 14 OF THAT ORDER. FURTHER DISALLOWANCE OF DEDUCTION U/S 10 A OF THE ACT WAS DECIDED IN FAVOUR OF THE ASSESSEE VI DE PARA NO. 20 OF THAT ORDER. 6. SUBSEQUENTLY, THE LD. TPO PASSED AN ORDER U/S 92CA (3) OF THE ACT PUR SUANT T O DIRECTION OF THE COORD INATE BENCH ON 23 RD OF JANUARY 2014 WHEREIN HE HAS COMPUTED THE ARMS LENGTH PRICE OF THE INT ERNATIONAL TRANSACTION OF RS. 5 472986545/ AT RS. 6 207999065/ AND PROPOSED AN ADJUSTMENT OF RS. 735012520/ . 7. LD. AO PASSED DRAFT ASSESSMENT ORDER U/S 143 (3) R.W.S. 254 OF THE ACT ON 28 TH OF MARCH 2014 PROPOSING AN ADDITION OF RS. 7 35012520/ ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT TO THE TOTAL INCOME OF THE ASSESSEE OF RS. 1624639575 / - ASSESSED U/S 143( 3 ) OF THE INCOME TAX ACT BY THE ORIGINAL ORDER DATED 31 /10/2011. 8. ASSESSEE PREFERRED OBJECTIONS BEFORE THE LD. DISPUTE RESOLUTION PANEL 1, NEW DELHI WHO ISSUED DIRECTION ON 17/12/2014. CONSEQUENT TO THOSE DIRECTIONS, THE LD. TRANSFER PRICING OFFICER PASSED AN ORDER O N 14/01/2015 WHEREIN FOR INTERNATIONAL TRANSACTION OF RS. 5472986545/ ARMS LENGTH PRICE WAS DETERMINED AT RS. 6066915805/ AND ADJUSTMENT WAS DETERMINED AT RS. 593929260/ . 9. SUBSEQUENTLY ASSESSMENT U/S 143 (3) READ WITH SECTION 144C AND 254 OF THE INCO ME TAX ACT WAS PASSED ON 28/01/2015 BY AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 4 THE LD. ASSESSING OFFICER WHEREIN THE TOTAL INCOME OF THE A SSESSEE WAS DETERMINED AT RS. 1 260528760 / - AGA INST A RETURNED INCOME OF RS. 66659 9500/ MAKING TRANS FER PRICING ADJUSTMENT OF RS. 59392 9260 / - . THIS ORDER IS UNDER CHALLENGE BEFORE US. 10. THE FOLLOWING GROUNDS ARE RAISED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2007 - 08: 1. THE ORDER PASSED BY THE EARNED ADDITIONAL COMMISSIONER OF INCOME TAX, TRANSFER PRICING OFFICER - 1(1). NEW DELHI ('THE LEARNED TPO'), THE DRAFT ASSESSMENT ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX. CIRCLE 1(1). NEW DELHI AND THE FINAL ASSESSMENT ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2). NEW DELHI ('THE LEARNED AO'), PURSUANT TO THE DIRECTIONS OF THE HON' BLE DISPUTE RESOLUTION PANEL ('THE HON'BLE DRP'), ARE BAD IN LAW AND VOID - AB - INITIO. 2. THE LEARNED AO FOLLOWING THE ORDER OF THE LEARNED TPO AND THE HON'BLE DRP HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DETERMINING THE TOTAL INCOME OF THE APPELLAN T AT INR 1,260.528,760 / - AS AGAINST THE RETURNED INCOME OF INR 666,599,500 / - AND THEREBY MADE AN UPWARD ADJUSTMENT OF INR 593,929,260 / - . PART - TRANSFER PRICING GROUNDS OF APPEAL 3. THA T ON FACTS OF THE CASE AND IN LAW, THE TPO / AO / DRP HAVE ERRED IN REJECTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT BY CONDUCTING A FRESH ECONOMIC ANALYSIS FOR INTERNATIONAL TRANSACTION PERTAINING TO EXPORT OF DATA PROCESSING AND BACK OFFICE SUPPORT SERVICES ('IMPUGNED TRANSACTION'). 4. THAT ON FACTS OF THE CASE AND IN LAW, THE TPO7A07DRP HAVE ERRED IN CONDUCTING A FRESH ECONOMIC ANALYSIS BY USING ARBITRARY FILTERS FOR IDENTIFYING COMPANIES COMPARABLE TO THE APPELLANT. THE ARBIT RARY FILTERS APPLIED BY THE TPO AND CONFIRMED BY THE DRP7AO INTER - ALIA INCLUDE THE FOLLOWING: O TO REJECT COMPANIES HAVING IT ENABLED SERVICES INCOME LESS THAN INR 1 CRORE; AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 5 O TO REJECT COMPANIES HAVING DIFFERENT ACCOUNTING YEAR THAN THAT OF THE O APPELLANT (I.E. THE DATA OF COMPANY DOES NOT FALL WITHIN 12 MONTH PERIOD STARTING FROM 1 APRIL 2006 TO 31 MARCH 2007); AND O TO REJECT COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES WHICH ARE NOT IN LINE WITH THE INDUSTRY TREND AND COMPANIES WHICH SHOWED DIMINISHING REVENUE TREND 5. THAT ON FACTS OF THE CASE AND IN LAW, THE TPO7AO7DRP HAVE ERRED IN USING SINGLE YEAR DATA FOR FINANCIAL YEAR ('FY') 2006 - 07 OF ALLEGED COMPARABLE COMPANIES WITHOUT CONSIDERING THE FACT THAT THE SAME WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS AND DISREGARDING THE APPELLANT'S CLAIM FOR USE OF MULTIPLE YEAR DATA FOR COMPUTING THE ARM'S LENGTH PRICE. 6. THAT ON FACTS OF THE CASE AND IN LAW, THE TPO/AO/DRP HAVE ERRED IN SELECTING COMPANIES IN THE FINAL SET OF ALLEGED COMPARABLES WHICH ARE FUNCTIONALLY DIFFERENT AS COMPARED TO THE APPELLANT FOR THE IMPUGNED TRANSACTION. 7. THAT ON FACTS OF THE CASE AND IN LAW, THE TPO/AO/DRP HAVE ERRED IN LAW AND IN FACTS BY SE LECTING CERTAIN COMPANIES WHICH ARE EARNING SUPER NORMAL PROFITS AS COMPARABLE TO THE APPELLANT. 8. THAT ON FACTS OF THE CASE AND IN LAW, THE TPO/AO/DRP HAVE ERRED IN REJECTING CERTAIN COMPANIES AND ADDING CERTAIN COMPANIES TO THE FINAL SET OF ALLEGED COM PARABLE COMPANIES, THEREBY RESORTING TO CHERRY PICKING OF COMPARABLE COMPANIES FOR BENCHMARKING THE IMPUGNED TRANSACTION. 9. THAT ON FACTS OF THE CASE AND IN LAW, THE TPO/AO/DRP WITHOUT APPRECIATING THE FUNCTIONAL ANALYSIS UNDERTAKEN BY THE APPELLANT IN I TS TRANSFER PRICING STUDY, HAVE ERRED BY IDENTIFYING COMPANIES WHICH ARE ENGAGED IN PROVIDING KNOWLEDGE PROCESS OUTSOURCING SERVICES BY STATING THAT THE APPELLANT IS ENGAGED IN PROVIDING HIGH END SERVICES WHEREAS THE APPELLANT IS ONLY ENGAGED IN RENDERING EXPORT OF DATA PROCESSING AND BACK OFFICE SUPPORT SERVICES. 10. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP WITHOUT APPRECIATING THE RISK PROFILE OF THE APPELLANT, HAVE ERRED IN STATING THAT THE APPELLANT BEARS THE SIGNIFICANT RISKS AND AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 6 ACCORDINGLY FAIL ED TO MAKE APPROPRIATE ADJUSTMENTS TO ACCOUNT FOR VARYING RISK PROFILES OF THE APPELLANT VIS - A - VIS' THE ALLEGED COMPARABLES FOR IMPUGNED TRANSACTION 11. THAT ON FACTS OF THE CASE AND IN LAW, THE DRP HAS ERRED IN LAW AND IN FACTS BY NOT GIVING THE FINDING ON THE FACTS SUBMITTED BY THE APPELLANT WITH RESPECT TO ALLEGED COMPARABLE AND RELYING ON THE FINDING GIVEN IN THE PREVIOUS DIRECTIONS BY THEIR PREDECESSOR. 12. THAT ON FACTS OF THE CASE AND IN LAW, THE TPO/AO/DRP IGNORED THE PRINCIPLE OF NATURAL JUSTICE BY NOT GIVING DUE COGNIZANCE TO THE DETAILED ANALYSIS AND TECHNICAL ARGUMENTS SUBMITTED BY THE ASSESSEE. 13. THE LEARNED TPO/AO/DRP HAVE ERRED IN LAW BY EXERCISING HIS POWERS U/S 133(6) OF THE ACT TO OBTAIN INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOM AIN AND RELYING ON THE SAME FOR COMPARABILITY PURPOSES. 14. THAT ON FACTS OF THE CASE AND IN LAW, THE TPO/AO/DRP HAVE ERRED BY NOT CONSIDERING THAT THE ADJUSTMENT TO THE ARM'S LENGTH PRICE, IF ANY, SHOULD BE LIMITED TO THE LOWER END OF THE 5 PERCENT RAN GE AS THE APPELLANT HAS THE RIGHT TO EXERCISE THIS OPTION UNDER THE SECOND PROVISO TO SECTION 92C(2) OF THE ACT. 15. THAT ON FACTS OF THE CASE AND IN TAW. THE AO/DRP HAS ERRED IN CONFIRMING THAT TPO/AO HAS DISCHARGED HIS STATUTORY ONUS BY ESTABLISHING THAT THE CONDITIONS SPECIFIED IN CLAUSE (A) TO (D) OF SECTION 92C(3) OF THE ACT HAVE BEEN SATISFIED BEFORE DISREGARDING THE ARM'S LENGTH PRICE DETERMINED BY THE APPELLANT AND PROCEEDING TO DETERMINE THE ARM'S LENGTH PRICE. 16. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN CHARGING EXCESS INTEREST U/S 234C OF THE ACT. 17. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN CHARGING INTEREST U/S 234B OF THE ACT WHILE COMPLETELY DISREGARDING THE PROVISIONS OF THE ACT AND THE JUDICIAL PRECEDENCE IN THIS REGARD. 18. THE LEARNED AO HAS ERRED, IN FACTS AND IN LAW, BY INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF ACT IN RELATION TO TRANSFER PRICING ADJUSTMENT AND WITHOUT RECORDING ANY ADEQUATE REASONS FOR SUCH INITIATION. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 7 THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE & WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE, WITHDRAW ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE AP PEAL. 11. THE FOLLOWING GROUNDS ARE RAISED BY THE REVENUE FOR THE ASSESSMENT YEAR 2007 - 08: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD DRP HAS ERRED IN DIRECTING TO COMPUTE THE MARGIN OF THE ASSESSEE AS WELL AS THAT OF THE COMPARABL E BY TREATING FOREIGN EXCHANGE GAIN/ LOSS AS OPERATING EXPENDITURE. 12. ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS INTERNATIONAL INCORPORATION USA AND IS ENGAGED IN THE PROVISION OF IT ENABLED SERVICES TO ITS OVERSEAS GROUP COMPANY. IT HAS ENTERED INTO 13 TYPES OF TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES . A SSESSEE IN ITS TRANSFER PRICING STUDY REPORT SUBMITTED THAT TRANSACTIONAL NET MARGIN METHOD [ HEREINAFTER REFERRED TO AS TNMM] IS THE MOST APPROPRIATE METHOD [ IN SHORT MAM] AND IT IS USED PROFIT LEVEL INDICATOR [ IN SHORT PLI] OF OP/OC. A SSESSEE ON OPERATING REVENUE OF RS. 5472986545/ AND OPERATING EXPENSES OF RS. 4756722906/ HAS OPERATING PROFIT OF RS. 71626 3639/ , HENCE, PLI ARRIVED AT 15.06%. FOR BENCHMARKING, ITS TRANSACTION IT S ELECTED 16 COMPARABLES WHOSE MEAN MARGIN OF WAS 20.96% USING MULTIPLE YEAR DATA AND SUBMITTED THAT THEIR INTERNATIONAL TRANSACTIONS ARE AT ARMS LENGTH. 13. DESCRIBING THE FUN CTIONAL PROFILE OF THE ASSESSEE, IT WAS SUBMITTED IN THE TRANSF ER PRICING STUDY REPORT BY ASSESSEE THAT AMERICAN EXPRESS GROUP IS ENGAGED IN THE BUSINESS OF RENDERING TRAVEL RELATED SERVICES OF AMERICAN EXPRESS CARD, TRAVELERS AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 8 CHEQUES AND TRAVEL SERVICES, FINANCIAL ADVISORY SERVICES AND INTERNATIONAL BANKING SERVICES THROUGHOUT THE WORLD. FURTHER REGARDING FUNCTIONAL PROFILE OF THE ASSESSEE , IT WAS SUBMITTED THAT IT IS ESSENTIALLY A DATA PROCESSING AND BACK - OFFICE SUPPORT COMPANY ENGAGED IN MANUFACTURE AND EXPORT OF DATA MANAGEMENT INFORMATION ANALYSIS AND CONTROL AND PROVIDING TELE SERVICING AND TRANSACTION PROCESSING SUPPORT. IT ONLY CATERS TO THE AMERICAN EXPRESS GROUP. IT SUBMITTED THAT AE COMPENSATED ASSESSEE ON A COST PLUS BASIS WITHOUT REGARD TO THE SUCCESS OR FAILURE OF THE ACTIVITIES. A SSESSEE DOES NOT O W N ANY INTANGIBLES. IT WAS SUBMITTED THAT IT IS A ROUTINE DATA PROCESSING AND BACK - OFFICE SUPPORT COMPANY, WHICH BEARS SIGNIFICANTLY LOWER THAN NORMAL RISK WITH RESPECT TO ITS ACTIVITIES. IT HAS THREE UNITS, WHICH ARE PERFORMING THOSE FUNCTIONS. THE UNIT WISE FU NCTIONING IS SHOWN BY THE ASSESSEE AS UNDER : - 1. FCE UNITS (NEW DELHI AND GURGAON) A) INPUT AEIPL RECEIVES RAW DATA / RAW INFORMATION (''RAW DATA') IN ELECTRONIC FORM OR IN THE FORM OF PAPER BASED INPUTS (DOCUMENTS, VOUCHERS, REPORTS ETC.). THE RAW DATA IS RECEIVED THROUGH MAIL/COURIER, FAX AND ELECTRONIC TRANSMISSION FROM CLIENTS' RESPECTIVE LOCATIONS TO AEIPL SERVERS THROUGH DATA LINKS. THE RAW DATA COMPRISES UNPROCESSED OR SEMI - PROCESSED ACCOUNTING, FINANCIAL AND COMMERCIAL INFORMATION RELATIN G TO THE BUSINESSES OF AMERICAN EXPRESS LOCATIONS WORLDWIDE. THE RAW DATA IS USED AS AN INPUT FOR THE PROCESSING CARRIED OUT BY AEIPL. THE VARIOUS KINDS OF RAW DATA RECEIVED BY AEIPL ARE AS FOLLOWS: CARD MEMBER DATA PERTAINING TO TRANSACTIONS DONE BY AMERICAN EXPRESS CARD. MEMBERS. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 9 AMERICAN EXPRESS COMPANY DATA: DATA PERTAINING TO DAY - TO - DAY TRANSACTIONS UNDERTAKEN WITHIN AMERICAN EXPRESS COMPANIES WHICH NEED TO BE RECORDED AND REPORTED TO THE RESPECTIVE AMERICAN EXPRESS COMPANIES ('CUSTOMER COUNTRY') IN DIFFERENT REPORTS AND ACCOUNTING FORMATS. VARIOUS TYPES OF INPUTS RECEIVED FOR PROCESSING AND RECORDING IN ELECTRONIC OR PHYSICAL FORM ARE AS FOLLOWS: INVOICES VOUCHERS VENDOR PURCHASE ORDERS EMPLOYEES TRAVEL EXPENSE VOUCHERS AIRLINES / SES / HOTELS DATA: THESE PERTAIN TO DATA ON TRANSACTIONS DONE FOR AMERICAN EXPRESS TRAVEL BUSINESS AND INCLUDE DATA ON: SALE OF AIR TICKETS TO CUSTOMERS AND PAYMENTS TO AIRLINES PAYMENT TO SERVICE ESTABLISHMENTS FOR PURCHASES MADE THROUGH AMERICAN EXPRESS CARDS BOOKING OF HOTELS FOR CUSTOMERS AND PAYMENTS TO HOTELS CUSTOMERS BANK DATA: THESE INCLUDE DATA ON TREASURY AND OTHER TRANSACTIONS DONE BY AMERICAN EXPRESS CARD MEMBERS B) PROCESSING OF INPUTS (DATA MANAGEMENT, INFORMATION ANALYSIS AND CONTROL) THE COMPANY USES THE RAW DATA AS INPUT AND CARRIES OUT A SERIES OF PROCESSES (I.E., REORGANIZATION, ANALYSIS, TRANSFORMATION, AND CONVERSION OF RAW DATA) AS PER THE PROCESSING REQUIREMENTS OF ITS CUSTOMERS TO GENERATE CUSTOMIZED OUTPUT. C) OUTPUT THE CO MPANY'S OUTPUT, WHICH IS EXPORTED TO ITS CUSTOMERS INCLUDING AMERICAN EXPRESS LOCATIONS, INCLUDES THE FOLLOWING AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 10 ITEMS PROCESSED AND PREPARED AS PER THE CUSTOMERS' SPECIFICATIONS: READY TO USE BUSINESS REPORTS AND COMPUTATIONS; FINANCIAL STATEMENTS SUCH AS BALANCE SHEETS, PROFIT AND LOSS ACCOUNTS, LEDGERS, TRIAL BALANCES, ACCOUNTS PAYABLE ANALYSIS, ACCOUNTS RECEIVABLE ANALYSIS, AND FIXED ASSETS REGISTERS; BANK ACCOUNT CONTROL REPORTS AND BANK TRANSACTION PROCESSING; . PAYROLL PROCESSING AND REPORTS; ACCOUNT RECONCILIATION REPORTS; PAYMENT INSTRUCTIONS FOR PAYMENT TO VENDORS; CARD TRANSACTION PROCESS OUTPUTS; TRAVEL BUSINESS TRANSACTION REPORTS; AND OTHER MIS REPORTS PER CUSTOMERS' SPECIFIC REQUIREMENTS 2. AEGSC, GURGAON THIS UNIT PROVIDES CALL CENTRE SERVICES TO GROUP COMPANIES, WHICH INVOLVES ANSWERING INCOMING AMEX CARD MEMBER CALLS FOR QUERIES RELATED TO CARD MEMBER TRANSACTIONS. THESE QUERIES INCLUDE, ITER ALIA, BALANCE ENQUIRY, PRODUCT FEATURE QUERIES, CHANGE IN PERS ONAL INFORMATION ETC. THE UNITS ALSO HANDLES CALLS FOR AEFA PARTICIPANTS (RETIREMENT SERVICES) TO PROVIDE ACCOUNT RELATED INFORMATION/ ACCOUNT MAINTENANCE, AND PROVIDES BACK OFFICE SUPPORT IN RELATION TO RESOLVING CARD MEMBER MATTER RELATED TO BILLING. T HIS UNITS ALSO CONDUCTS CERTAIN DATA ANALYSIS TO DETECT HIGH RISK ACCOUNT ACTIVITY, AND ALSO SUPPORTS INITIATES SUCH AS PRODUCT REDESIGN, CONSOLIDATION/ MIGRATIONS, ORGANIZATIONAL RESTRUCTURING AND PROJECT MANAGEMENT SUPPORT TO IMPLEMENT RECOMMENDATIONS. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 11 14. THE LD. TRANSFER PRICING OFFICER OUT OF THE 16 COMPARABLES SELECTED BY THE A SSESSEE ACCEPTED 10 COMPARABLES, INTRODUCED 16 COMPARABLES AND THEREBY DETERMINED PLI OF THOSE COMPARABLES USING OP/TC AT 30.51% . FURTHER, WORKING CAPITAL ADJUSTMENT OF 3.62 - PERCENTAGE AND RISK ADJUSTMENT AT 5.88% WAS COMPUTED BUT RISK ADJUSTMENT WAS REJECTED AND ONLY WORKING CAPITAL ADJUSTMENT WAS GRANTED. THEREFORE, AVERAGE ARITHMETIC MEAN PROFIT LEVEL INDICATOR WAS COMPUTED AT 26.83% AND ADJUSTMENT WAS COMPUTED AT RS. 559965116/ . BEFORE THE LD. DISPUTE RESOLUTION PANEL , A SSESSEE OBJECTED TO 14 COMPARABLES AND LD. DRP HELD THAT LD. TRANSFER PRICING OFFICER HAS CORRECTLY INCLUDED THOSE COMPARABLE. ON APPEAL BEFORE THE COORDINATE BENCH THE MATTER WAS SET ASIDE TO THE FILE OF THE LD. TRANSFER PRICING OFFICER TO GRANT AN OPPORTUNITY TO THE ASSESSEE BY PROVIDING INFORMATION OBTAINED BY THE ASSESSING OFFICER/TRANSFER PRICING OFFICER U/S 133 (6) AND TO CONSIDER THE SUBMISSION. 15. PURSUANT TO THAT LD. TRANSFER PRICING OFFICER PROVI DED THE INFORMATION OBTAINED U/S 133 (6) OF THE ACT TO THE ASSESSEE ON FOURTH AND 07/03/2013 AND FURTHER GRANTED OPPORTUNITY FOR MAKING SUBMISSION. FURTHER DETAILS ASKED BY THE ASSESSEE V IDE LETTER DATED 8/3/2013 WERE ALSO PROVIDED. AFTER CONSIDERING THE O BJECTION OF THE ASSESSEE V IDE LETTER DATED 24 TH MAY 2013 THE ASSESSING OFFICER COMPUTED ADJUSTMENT AT RS . 735012520/ BY WITHDRAWING THE WORKING CAPITAL ADJUSTMENT GRANTED EARLIER. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 12 16. ASSESSEE APPROACHED LD. D ISPUTE RESOLUTION PANEL CONSEQUENT TO THE DRAFT ASSESSMENT ORDER PASSED BY THE LD. ASSESSING OFFICER PROPOSING THE AB OVE ADJUSTMENT. L D. DISPUTE RESOLUTION PANEL ISSUED ITS DIRECTION ON 17/12/2014. ON 14/01/2015, TH E LD. TRANSFER PRICING OFFICER RECOMPUTED THE MARGIN OF THE TAXPAYER AS WELL AS THE COMPARABLE COMPANIES TREATING THE FOREIGN EXCHANGE GAIN/LOSS AS OPERATING INCOME AND EXPENDITURE AND COMPUTED THE ADJUSTED PLI OP/TC OF 26 COMPARABLES AT 28.72% AND DETERMINED THE SHORTFALL ADJUSTMENT U/S 92CA OF THE ACT AT RS. 593929260/ . THEREFO RE, ULTIMATELY, THE LD. DISPUTE RESOLUTION PANEL UPHELD THE 26 COMPARABLES ORIGINALLY INCORPORATED IN THE ORDER OF THE LD. TRANSFER PRICING OFFICER AND ONLY RELIEF THAT WAS GRANTED WAS TO CONSIDER THE FOREIGN EXCHANGE GAIN OR LOSS AS PART OF OPERATING PROF IT. CONSEQUENTLY, FINAL ASSESSMENT ORDER U/S 143 (3) WAS FRAMED ON 28/01/2015. 17. IN NUTSHELL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LD. ASSESSING OFFICER WHEREIN CERTAIN COMPARABLES ARE TAKEN BY LD. TRANSFER PRICING OFFICER AND REVENUE IS AGGRIEVED B Y THE ORDER OF THE LD. DISPUTE RESOLUTION PANEL AGAINST DIRECTION THAT FOREIGN EXCHANGE GAIN OR LOSS SHOULD BE PART OF OPERATING PROFIT. 18. ASSESSEE HAS SUBMITTED A CHART BEFORE US STATING THAT ASSESSEE IS CONTESTING 11 COMPARABLES AND HAS STATED THAT MOS T OF THE COMPANIES FOR WHICH APPELLANT IS SEEKING EXCLUSION ARE COVERED BY THE DECISION OF AOL ONLINE INDIA PRIVATE LIMITED ( TS - 156 - ITAT - 2016) (BANG) FOR AY 2007 - 08 AND MAGMA DESIGN AUTOMATION INDIA PRIVATE LIMITED V ACIT ITA NO 1214/BANG/ 2011. FOR CLAIM OF RISK ADJUSTMENTS IT RELIED UP ON THE DECISION OF DCIT V H ELLOSOFT INDIA P LTD ITA NO AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 13 645/HYD/2009 AND 1411 OF 2010 AND KOB MEDICAL TEXTILES LIMITED . IN THE END IT WAS ALSO MENTIONED THAT ALL THE GROUNDS OF APPEAL ARE BEING PR ESSED AND THIS SYNOPSIS IS ONLY FOR EASE OF REFERENCE DURING HEARING AND IS NOT A SUBSTITUTE TO THE GROUNDS OF APPEAL AND OTHER PAPER BOOKS SUBMITTED ON RECORD. 19. WE HAVE CAREFULLY PERUSED THE ABOVE - CITED DECISIONS. WE ARE OF THE VIEW THAT FOR DECIDING A COMPARABILITY THE ONLY GUIDELINE IS RULE 10B (2) OF THE INCOME TAX RULES 1962 AND IT CANNOT BE SAID THAT A COMPARABLE CAN BE DECIDED ON THE BASIS OF JUDICIAL PRECEDENT UNLESS THAT PRECEDENT LAY DOWN SOME GUIDING FACTORS TO INTERPRET RULE 1 0B (2). MERELY BECAUSE A COMPANY IS HELD NOT TO BE COMPARABLE WITH ANOTHER COMPANY, IT CANNOT BE SAID THAT IT BECOMES INCOMPARABLE WITH THE WHOLE WORLD. SUCH AN APPROACH IS NOT ONLY FALLACIOUS BUT ALSO AGAINST THE PROVISIONS OF THE INCOME TAX RULES 1962. E ACH COMPARABLE NEEDS TO BE TESTED ON ITS OWN STRENGTH AND WEAKNESS FOR COMPARABILITY STUDY. ON THIS BASIS, WE PROCEED TO TEST THE CHALLENGE OF THE ASSESSEE TO VARIOUS COMPARABLES. 20. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT IT IS CONTESTI NG 11 COMPARABLES INCLUDED IN THE ORDER OF THE LD. TRANSFER PRICING OFFICER. FOR THE SAKE OF SIMPLICITY THEY ARE TABULATED AS UNDER: SR NO COMPARABLE WHETHER INCLUDED BY ASSESSEE IN TP STUDY REPORT OPERATING MARGIN COMPUTED BY ASSESSEE OPERATING MARGIN COMPUTED BY TPO ( ADJUSTED) 1 VISHAL INFORMATION TECHNOLOGIES LIMITED YES 26.64% 41.98% AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 14 2 MOLD TEK TECHNOLOGIES LIMITED ( SEGMENT ) NO N A 113.49% 3 ACCENTIA TECHNOLOGIES LIMITED ( SEGMENT) NO NA 30.61% 4 ECLERX SERVICES LIMITED NO NA 84.90% 5 MAPLE SOLUTIONS LIMITED YES 34.05% 29.85% 6 TRITON CORPORATION LIMITED YES 17.11% 27.75% 7 BODH TREE CONSULTING LIMITED ( SEGMENT ) NO NA 28.29% 8 INFORMED TECHNOLOGIES INDIA LIMITED NO NA 34.15% 9 HCL COMNET SERVICES LIMITED ( SEGMENT) NO NA 42.21% 10 INFOSYS BPO LIMITED NO NA 28.08% 11 WIPRO LIMITED NO NA 25.69% 21. FIRSTLY, WE EXAMINE THE GROUNDS OF APPEAL OF THE ASSESSEE. THE ASSESSEE EXCEPT CONTESTING THE COMPARABLE HAS NOT PLEADED ANY OTHER GROUNDS OF THE APPEAL. ASSESSEE IS CONTESTING ONLY THE EXCLUSION OF ABOVE 11 COMPARABLES. THEREFORE, WE DEAL WITH THE GROUNDS ONLY WI TH RESPECT TO THESE ASPECTS PRECISELY . B EFORE US NO FURTHER ARGUMENTS WERE ADVANCED ON ANY OF THE OTHER GROUNDS EXCEPT FOR THE EXCLUSION OF THE ABOVE COMPARABLES , HENCE AL OTHER GROUNDS OF APPEAL EXCEPT TO THE INCLUSION / EXCLUSION OF 11 COMPARABLES, A LL OTHER GROUNDS ARE REJECTED. 22. BEFORE ADDRESSING THE ISSUE OF EXCLUSION OR INCLUSION OF A COMPARABLE, I T IS NECESSARY THAT CORRECT FUNCTIONAL PROFILE OF THE ASSESSEE IS CAPTURED. 23. THE LD. AUTHORIZED REPRESENTATIVE REFERRED TO THE FUNCTIONAL ANALYSIS OF T HE COMPANY FROM THE TP STUDY REPORT AND FROM THE ORDER OF THE LD. TRANSFER PRICING OFFICER. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 15 24. HOWEVER, THE LD. DEPARTMENTAL REPRESENTATIVE IN FACT OBJECTED TO THE FUNCTIONAL PROFILE OF THE COMPANY ITSELF AND SUBMITTED THAT ASSESSEE IS NOT A LOW END IT SER VICE PROVIDER. HE PUT A DETAILED WRITTEN SUBMISSION ON THIS ASPECT WHEREIN HE HAS RAISED SEVERAL ISSUES. HE FIRST REFERRED TO THE PAGE NO. 986 OF THE PAPER BOOK, WHICH IS THE SUMMARY OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE ALONG WITH ITS AE. HE THEN CORRELATED THESE FUNCTIONS WITH THE ASSOCIATED ENTERPRISE AS TO WHOM THE SERVICES ARE BEING PROVIDED REFERRING TO PAGE NO. 993 OF THE PAPER BOOK. FROM THI S, HE SUBMITTED THAT THE BUSINESS BEING CARRIED ON BY THE ASSOCIATED ENTERPRISES WHO ARE RECEIVING SERVICES FROM THE ASSESSEE IS VERY HIGH - END BUSINESS. HE FURTHER REFERRED TO PAGE NO. 1010 OF THE PAPER BOOK TO SHOW THAT THE OUTPUT PROVIDED BY THE NEW DELH I FCE UNITS ARE READY TO USE BUSINESS REPORTS AND COMPETITIONS, WHICH IS A VERY HIGH - END SERVICE. HE THEREFORE STATED THAT IT IS NECESSARY TO LOOK INTO WHAT IS THE INPUT FOR THE SERVICES AND WHAT IS THE OUTPUT THAT ASSESSEE GENERATES. HE FURTHER REFERRED T O THE SERVICES PROVIDED BY AEG SC UNIT, WHICH CARRIES OUT CERTAIN DATA ANALYSIS TO DETECT HIGH - RISK ACCOUNT ACTIVITY AND ALSO SUPPORT INITIATIVES SUCH AS PRODUCT REDESIGN CONSOLIDATION MIGRATION ORGANIZATIONAL RESTRUCTURING AND PROJECT MANAGEMENT SUPPORT T O IMPLEMENTATION. HE THEREFORE SUBMITTED THAT THE SERVICES BEING PROVIDED BY TH E ASSESSEE IS NOT LOW END ITES . HE FURTHER REFERRED TO PAGE NO. 12 OF THE ORDER OF THE LD. DISPUTE RESOLUTION PANEL WHEREIN THE HUMAN RESOURCES EMPLOYED BY THE ASSESSEE WERE AN ALYZED AND SUBMITTED THAT DESPITE INFORMATION ASKED FROM THE ASSESSEE SUCH INFORMATION OF PERSONS EMPLOYED BY THE ASSESSEE WERE NOT PROVIDED. IN VIEW OF THIS, HE AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 16 SUBMITTED THAT THE FUNCTIONS PERFORMED BY THE COMPANY ARE NOT LOW END BUT HIGH E ND. HE FURTH ER REFERRED TO THE DETAILS OF 15 PERSONS GIVEN AT PAGE NO. 13 OF THE ORDER OF THE LD. DISPUTE RESOLUTION PANEL AND STATED THAT ALL THESE PERSONS EMPLOYED BY THE ASSESSEE ARE PROVIDING HIGH E ND SERVICES. HE FURTHER REFERRED TO PAGE NO. 21 OF THE ORDER OF TH E LD. DISPUTE RESOLUTION PANEL WHEREIN IT HAS BEEN HELD THAT THE TAXPAYER ITSELF HAS NOT GIVEN THE COMPLETE EMPLOYEE WISE DETAILS IN SPITE OF SUFFICIENT OPPORTUNITIES GIVEN TO IT AND THE TAXPAYER HAS ITSELF ADMITTED THAT IT HOLD POSITION FOR EMPLOYEES HAV ING SPECIALIZED SKILLS AND KNOWLEDGE AND IT HIRES EMPLOYEES WITH TECHNICAL ACCOUNTING AND FINANCIAL KNOWLEDGE . HE THEREFORE REFERRED TO THE OBSERVATION OF THE LD. DISPUTE RESOLUTION PANEL THAT THE EMPLOYEE S OF THE TAXPAYER ARE ALS O WELL - EQUIPPED TO RENDER HIGH E ND SERVICES. HE FURTHER SUBMITTED THAT THE EDUCATIONAL QUALIFICATION OF VARIOUS EMPLOYEES WAS NOT GIVEN. HE ALSO HARPED UP ON THE SALARY STRUCTURE OF THE EMPLOYEES. HE THEREFORE HELD THAT ASSESSEE IS NOT A BU SINESS PROCESS OUTSOURCING UNIT BUT A KNOW LEDGE PROCESS OUTSOURCING UNIT. IN VIEW OF THIS, HE SUBMITTED THAT EARLIER ORDERS OF THE TRIBUNAL HAS NOT CORRECTLY APPRECIATED THE FUNCTIONS PERFORMED BY THE ASSESSEE. 25. IN RESPONSE TO THIS, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED WRITTEN N OTE ON THE FUNCTIONAL PROFILE OF THE ASSESSEE WHICH IS AS UNDER: - AS DIRECTED BY HON'BLE TRIBUNAL AT THE HEARING HELD ON 27 LH & 28 LH MARCH 2017. THIS BRIEF SYNOPSIS IS BEING FILED ON THE LIMITED ASPECT PROFILE OF THE COMPANY. WE RESPECTFULLY SUBMIT THIS BRIEF NOTE MAY KINDLY BE CONSIDERED IN ADDITION TO AND AS SUPPLEMENTING THE DETAILED ORAL AND WRITTEN ARGUMENTS IN AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 17 SUPPORT OF INCLUSION AND EXCLUSION O F VARIOUS COMPANIES AS COMPARABLE FOR THE PURPOSES OF BENCHMARKING. ALL SUCH SUBMISSIONS ARE NOT BEING REPEATED HEREIN IN THIS PRESENT NOTE IN THE INTERESTS OF BREVITY AS ALSO TO COMPLY WITH DIRECTION OF HON'BLE TRIBUNAL. SERVICES WHICH ARE SUBJECT MATTER OF BENCHMARKING UNDER CHAPTER X CONTINUE TO BE PROVIDED UNDER SERVICE AGREEMENT ENTERED INTO IN 2002. T HERE HAS BEEN NO CHANGE IN NATURE OR SCOPE OF SERVICES OVER THE YEARS, INCLUDING PERIOD RELATING TO ABOVE CITED APPEAL. ONLY THE MARKUP RATE ON COST HAS CHANGED FROM TIME TO TIME. COPY OF AGREEMENTS IS AVAILABLE AT PAGE 1145 AND 1154 OF THE PAPER BOOK. DURING THE PERIOD RELEVANT TO PRESENT APPEALS ALSO THERE WAS NO CHANGE IN SCOPE OR NATURE OF SERVICES AND APPELLANT SUBMITS THAT SERVICES CONTINUED TO BE RO UTINE BPO BACK OFFICE SUPPORT IN NATURE - CURSORY REFERENCE TO PAGE 1009 AND 1010 WOULD ESTABLISH THIS. THE SLIGHTLY DIFFERENT AND ERRONEOUS CONCLUSION REACHED BY DRP WHICH WAS RELIED UPON AND UNDULY OVER EMPHASISED BY LD. DR AT THE TIME OF HEARING RESULT ED FROM IGNORING TO CONSIDER ALL THE INFORMATION PROVIDED AND AVAILABLE ON RECORD . AS POINTED OUT DURING THE COURSE OF HEARING BY APPELLANT'S AUTHORISED REPRESENTATIVE, INCORRECT AND SELECTIVE RELIANCE ON PORTIONS OF INFORMATION BY DRP. DURING PROCEEDINGS BEFORE LD. DRP APPELLANT WAS REQUIRED TO PROVIDE CERTAIN DETAILS OF EMPLOYEES. .INFORMATION REQUIRED WAS SUBMITTED AS IS EVIDENCED FROM PAGES 446 , 447 AND 448 IN THE COURSE OF HEARINGS BEFORE DRP. REFERENCE TO DRP ORDER WOULD SHOW THAT D RP CHOOSE TO REFER TO DETAILS AT PAGE 448 ONLY AND CONVENIENTLY AVOIDED ANY REFERENCE TO DISCUSSION ON THE COMPLETE DETAILS PROVIDED. THIS APPROACH LED TO CONCLUSION BY DRP THAT NATURE OF SERVICES PROVIDED BY THE APPELLANT HAD U PO AND KPO CHARACTERISTICS. AS CLARIFIED IN TH E REJOINDER BY APPELLANTS AUTHORISED REPRESENTATIVE AND RIGHTLY NOT DENIED BY LD. DR, THE ARGUMENTS AND SUBMISSIONS OF LD. DR WERE ALSO ON SIMILAR LINES AS LD. DRP AND FOLLOW THE SAME ERRONEOUS NOTION ON LIMITATION OF DETAILS OF EMPLOYEES ON RECORD. IT IS NOT ONLY NE CESSARY BUT IMPORTANT TO REFER T O DETAILS AT PAGE 447 AND T AKE THE SAME ALSO INTO CONSIDERATION IN ANY SUCH EVALUATION EXERCISE. AS CAN BE SEEN FROM DETAILS SUBMITTED LARGE PART OF THE AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 18 EMPLOYEES ARE GRADUATES, REFERENCE ONLY 15 OF THE EMPLOYEES DRAWING SALARY BEYOND A CERTAIN AMOUNT SHOULD NOT VITIATE THIS POSITION THAT SERVICES PROVIDED BY APPELLANT CONTINUED TO BE BACK OFFICE SUPPORT BPO SERVICES, IT IS NOT DIFFICULT TO APPRECIATE THAT SUCH 15 PEOPLE WERE NECESSARY TO COORDINATE, ADMINISTER AND GUIDE THE 3500 ODD EMPLOYEES SO AS TO ENSURE DESIRED QUALITY OF SUPPORT SERVICES ACROSS JURISDICTIONS AS SET OUT IN TRANSFER PRICING STUD Y REPORT ITSELF. FURTHER. APPELLANT HAD PUT ON RECORD THE PROFILE OF AEIPL AT PAGE 989 OF THE PAPER BOOK VOL 2 OF 2. T HE SAME IS REPRODUCED BELOW FOR YOUR HONOUR'S KIND REFERENCE 'AEIPL WAS INCORPORATED IN INDIA, IN 1994 AS A 100% SUBSIDIARY OFAEII. USA. AEIPL UNDERTAKES DATA MANAGEMENT, INFORMATION ANALYSIS AND CONTROL ACTIVITIES FOR EXPORT TO VARIOUS AMERICAN EXPRESS AFFILIATES WORLDWIDE. THE EXPORTS ARE MADE TO AEIPL CUSTOMERS MAINLY THROUGH TELECOM LINKS. AEIPL RECEIVES INPUTS IN THE FORM OF DATA MAINLY IN ELECTRONIC F ORM TO UNDERTAKE BUSINESS PROCESSING. THE COMPANY IS ALSO ENGAGED IN PROVIDING TELE SERVICING AND TRANSACTION PROCESSING SUPPORT TO AMERICAN EXPRESS GROUP ENTITIES. AEIPL CAN THUS BE CHARACTERIZED AS A ROUTINE DATA PROCESSING AND BACK OFFICE SUPPORT COMPAN Y. TILL FY 2003 - 04, AEIPL WAS ORGANISED INTO TWO UNITS, ONE OF WHICH WAS A 100% EXPORT ORIENTED UNIT, NAMELY FCE UNIT, ENGAGED IN DATA MANAGEMENT, INFORMATION ANALYSIS AND CONTROL ACTIVITIES. THE OTHER UNIT WAS A 100% EXPORT UNIT UNDER THE SOFTWARE TECHNO LOGY PARK SCHEME OF INDIA NAMELY AEGSC UNIT AND WAS ENGAGED IN PROVIDING TELE - SERVICING AND TRANSACTION PROCESSING SUPPORT. DURING THE YEAR 2004 - 05 THE COMPANY HAS SET UP A NEW STP UNIT (FEC GURGAON) . AEIPL USES THE TRADEMARK, PROCESSES, KNOW - HOW, TECHNIC AL DATA SOFTWARE, OPERATING / QUALITY STANDARDS ETC. DEVELOPED / OWNED BY AMERICAN EXPRESS GROUP. AEIPL DOES NOT OWN ANY OF THE AMERICAN EXPRESS GROUP'S INTANGIBLES. AEIPL DOES NOT OWN ANY NON - ROUTINE INTANGIBLES ARISING OUT OF ITS FUNCTIONS, AND AS SUCH A SSUMES SIGNIFICANTLY LESS THAN NORMAL RISKS, ASSOCIATED WITH THE CARRYING OUT ITS BUSINESS.' AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 19 FURTHER, THE DETAILED FUNCTIONS PERFORMED BY AEIPL IS PLACED ON RECORD AT THE PAGE 1009 OF THE PAPER BOOK VOL 2 OF 2 THE SAME IS REPRODUCED BELOW FOR YOUR HONOUR' S KIND REFERENCE FUNCTIONS PERFORMED BY AEIPL AEIPL IS ESSENTIALLY A DATA PROCESSING AND BACK OFFICE SUPPORT COMPANY ENGAGED IN MANUFACTURE AND EXPORT OF DATA MANAGEMENT, INFORMATION ANALYSIS AND CONTROL, AND PROVIDING TELE - SERVICING AND PROVIDING TELE - SERVICING AND TRANSACTION PROCESSING SUPPORT. AEIPL CATERS TO THE AMERICAN EXPRESS GROUP. AS PER THE CONTRACTUAL - ARRANGEMENT THAT AEIPL HAS WITH GROUP COMPANIES FOR THE PROVISION OF SUCH SUPPORT, THE RESULTANT OUTPUT OF THE ABOVE MENTIONED DATA PROCE SSING AND BACK OFFICE SUPPORT, WILL BE THE PROPERTY OF AMERICAN EXPRESS GROUP AND AT NO POINT IN TIME SHALL SUCH OWNERSHIP VEST WITH AEIPL EITHER WHOLLY OR PARTLY. AEIPL DOES NOT OBTAIN ANY COPYRIGHTS, PATENTS RIGHTS, TRADE SECRETS OR TRADEMARKS ON SUCH OU TPUT. AS PER THE ARRANGEMENT, GROUP COMPANIES COMPENSATE AEIPL ON A COST - PLUS BASIS WITHOUT REGARD TO THE SUCCESS OR FAILURE OF THE ACTIVITIES. FOR THIS PURPOSE, COSTS COMPRISE ALL OF THE DIRECT AND INDIRECT COSTS, INCLUDING SALARIES, TRAVEL EXPENSES, PRO FESSIONAL FEES, RENT, DEPRECIATION, FINANCIAL CHARGES, ETC. THE PERCENTAGE OF MARK - UP IS MUTUALLY AGREED UPON BETWEEN AEIPL AND GROUP COMPANIES. THUS, AEIPL IS A ROUTINE DATA PROCESSING AND BACK OFFICE SUPPORT COMPANY, WHICH BEARS SIGNIFICANTLY LESS THAN N ORMAL RISKS WITH RESPECT TO ITS ACTIVITIES. AEIPL IS ORGANISED INTO THREE UNITS - (I) FCE UNIT (MATHURA ROAD, NEW DELHI) (AN EOU UNIT), (II) AEGSC UNIT (INFOCITY, GURGAON) (AN STP UNIT), AND (HI) FCE UNIT (DLF PHASE V, GURGAON) (AN STP UNIT). THE FUNCTIONS PERFORMED BY THESE UNITS ARE DETAILED BELOW: 1. FCE UNITS (NEW DELHI AND GURGAON) A) INPUT AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 20 AEIPL RECEIVES RAW DATA / RAW INFORMATION (''RAW DATA') IN ELECTRONIC FORM OR IN THE FORM OF PAPER BASED INPUTS (DOCUMENTS, VOUCHERS, REPORTS ETC.). THE R AW DATA IS RECEIVED THROUGH MAIL/COURIER, FAX AND ELECTRONIC TRANSMISSION FROM CLIENTS' RESPECTIVE LOCATIONS TO AEIPL SERVERS THROUGH DATA LINKS. THE RAW DATA COMPRISES UNPROCESSED OR SEMI - PROCESSED ACCOUNTING, FINANCIAL AND COMMERCIAL INFORMATION RELATING TO THE BUSINESSES OF AMERICAN EXPRESS LOCATIONS WORLDWIDE. THE RAW DATA IS USED AS AN INPUT FOR THE PROCESSING CARRIED OUT BY AEIPL. THE VARIOUS KINDS OF RAW DATA RECEIVED BY AEIPL ARE AS FOLLOWS: CARD MEMBER DATA DATA PERTAINING TO TRANSACTIONS DONE BY AMERICAN EXPRESS CARD. MEMBERS. AMERICAN EXPRESS COMPANY DATA: DATA PERTAINING TO DAY - TO - DAY TRANSACTIONS UNDERTAKEN WITHIN AMERICAN EXPRESS COMPANIES WHICH NEED TO BE RECORDED AND REPORTED TO THE RESPECTIVE AMERICAN EXPRESS COMPANIES ('CUSTOMER COUNTRY') IN DIFFERENT REPORTS AND ACCOUNTING FORMATS. VARIOUS TYPES OF INPUTS RECEIVED FOR PROCESSING AND RECORDING IN ELECTRONIC OR PHYSICAL FORM ARE AS FOLLOWS: INVOICES VOUCHERS VENDOR PURCHASE ORDERS EMPLOYEES TRAVEL EXPENSE VOUCHERS AIRLINES / SES / HOTELS DATA: THESE PERTAIN TO DATA ON TRANSACTIONS DONE FOR AMERICAN EXPRESS TRAVEL BUSINESS AND INCLUDE DATA ON: SALE OF AIR TICKETS TO CUSTOMERS AND PAYMENTS TO AIRLINES PAYMENT TO SERVICE ESTABLISHMENTS FOR PURCHASES MADE THROUGH AMERICAN EXPRESS CARDS BOOKING OF HOTELS FOR CUSTOMERS AND PAYMENTS TO HOTELS CUSTOMERS BANK DATA: THESE INCLUDE DATA ON TREASURY AND OTHER TRANSACTIONS DONE BY AMERICAN EXPRESS CARD MEMBERS B) PROCESSING OF INPUTS (DATA MANAGEMENT, INFORMATION ANALYSIS AND CONTROL) AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 21 THE COMPA NY USES THE RAW DATA AS INPUT AND CARRIES OUT A SERIES OF PROCESSES (I.E., REORGANIZATION, ANALYSIS AND TRANSFORMATION AND CONVERSION OF RAW DATA) AS PER THE PROCESSING REQUIREMENTS OF ITS CUSTOMERS TO GENERATE CUSTOMIZED OUTPUT. C) OUTPUT THE COMPANY'S OUTPUT, WHICH IS EXPORTED TO ITS CUSTOMERS INCLUDING AMERICAN EXPRESS LOCATIONS, INCLUDES THE FOLLOWING ITEMS PROCESSED AND PREPARED AS PER THE CUSTOMERS' SPECIFICATIONS: READY TO USE BUSINESS REPORTS AND COMPUTATIONS; FINANCIAL STATEMENTS SUCH AS BALANCE SHEETS, PROFIT AND LOSS ACCOUNTS, LEDGERS, TRIAL BALANCES, ACCOUNTS PAYABLE ANALYSIS, ACCOUNTS RECEIVABLE ANALYSIS, AND FIXED ASSETS REGISTERS; BANK ACCOUNT CONTROL REPORTS AND BANK TRANSACTION PROCESSING; . PAYROLL PROCESSING AND REPORTS; ACCOUNT RECONCI LIATION REPORTS; PAYMENT INSTRUCTIONS FOR PAYMENT TO VENDORS; CARD TRANSACTION PROCESS OUTPUTS; TRAVEL BUSINESS TRANSACTION REPORTS; AND OTHER MIS REPORTS PER CUSTOMERS' SPECIFIC REQUIREMENTS THUS, AEIPL IS ENGAGED IN PROVISION OF DATA PROCESSING AND HAC K OFFICE SUPPORT SERVICES TO ITS GROUP ENTITIES, WHICH DOES DOES NOT INVOLVE PROVISION OF SERVICES REQUIRING HIGH - END RESEARCH AND ANALYTICS. THESE SERVICES ARE SUPPORTIVE IN NATURE TO THE AMERICAN HXPRESS GROUP ENTITIES. FURTHER, THESE SERVICES DOES NOL REQUIRE USE OR/ CREATION OF UNIQUE & VALUABLE AND ASSUMPTION OR CONTROL OF SUBSTANTIAL OR SIGNIFICANT RISK. DETAILS OF INPUTS RECEIVED AND OUTPUT EXPECTED TO BE DELIVERED AS EXTRACTED AT PAGES 28 (APPEAL SET) OF DRP ORDER (AS ALSO EXTRACTED HEREIN BELOW FO R READ} REFERENCE) WOULD ESTABLISH BEYOND ANY DOUBT THAI THE APPELLANT PROVIDES AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 22 PURELY BL'O SERVICES, THERE IS NOT EVEN A TINGE OF HIGH NATURE OF SERVICES. FCE UNITS (NEW DELHI AND GURGAON) D) INPUT AEIPL RECEIVES RAW DATA / RAW INFORMATION ('RAW DATA') IN ELECTRONIC FORM OR IN THE FORM OF PAPER BASED INPUTS (DOCUMENTS, VOUCHERS, REPORTS ETC.). THE RAW DATA IS RECEIVED THROUGH MAIL/COURIER, FAX AND ELECTRONIC TRANSMISSION FROM CLIENTS' RESPECTIVE LOCA TIONS TO AEIPL SERVERS THROUGH DATA LINKS. THE RAW DATA COMPRISES UNPROCESSED OR SEMI - PROCESSED ACCOUNTING, FINANCIAL AND COMMERCIAL INFORMATION RELATING TO THE BUSINESSES OF AMERICAN EXPRESS LOCATIONS WORLDWIDE. THE RAW DATA IS USED AS AN INPUT FOR THE PR OCESSING CARRIED OUT BY AEIPL. THE VARIOUS KINDS OF RAW DATA RECEIVED BY AEIPL ARE AS FOLLOWS: CARD MEMBER DATA DATA PERTAINING TO TRANSACTIONS DONE BY AMERICAN EXPRESS CARD MEMBERS. AMERICAN EXPRESS COMPANY DATA: DATA PERTAINING TO DAY - TO - DAY TRANSACTIONS UNDERTAKEN WITHIN AMERICAN EXPRESS COMPANIES WHICH NEED TO BE RECORDED AND REPORTED TO THE RESPECTIVE AMERICAN EXPRESS COMPANIES ('CUSTOMER COUNTRY') IN DIFFERENT REPORTS AND ACCOUNT ING FORMATS. VARIOUS TYPES OF INPUTS RECEIVED FOR PROCESSING AND RECORDING IN ELECTRONIC OR PHYSICAL FORM ARE AS FOLLOWS: INVOICES VOUCHERS VENDOR PURCHASE ORDERS EMPLOYEES TRAVEL EXPENSE VOUCHERS AIRLINES / SES / HO TELS DATA: THESE PERTAIN TO DATA ON TRANSACTIONS DONE FOR AMERICAN EXPRESS TRAVEL BUSINESS AND INCLUDE DATA ON: SALE OF AIR TICKETS TO CUSTOMERS AND PAYMENTS TO AIRLINES PAYMENT TO SERVICE ESTABLISHMENTS FOR PURCHASES MADE THROUGH AMERICAN EXPRESS CARDS BOOKING OF HOTELS FOR CUSTOMERS AND PAYMENTS TO HOTELS AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 23 CUSTOMERS BANK DATA: THESE INCLUDE DATA ON TREASURY AND OTHER TRANSACTIONS DONE BY AMERICAN EXPRESS CARD MEMBERS. E) PROCESSING OF INPUTS (DATA MANAGEMENT, INFORMATION ANALYSIS AND CONTROL) THE COMPANY USES THE RAW DATA AS INPUT AND CARRIES OUT A SERIES OF PROCESSES (I.E., REORGANIZATION, ANALYSIS AND TRANSFORMATION AND CONVERSION OF RAW DATA) AS PER THE PROCESSING REQ UIREMENTS OF ITS CUSTOMERS TO GENERATE CUSTOMIZED OUTPUT. F) OUTPUT THE COMPANY'S OUTPUT, WHICH IS EXPORTED TO ITS CUSTOMERS INCLUDING AMERICAN EXPRESS LOCATIONS, INCLUDES THE FOLLOWING ITEMS PROCESSED AND PREPARED AS PER THE CUSTOMERS' SPECIFICATIONS: READY TO USE BUSINESS REPORTS AND COMPUTATIONS; FINANCIAL STATEMENTS SUCH AS BALANCE SHEETS, PROFIT AND LOSS ACCOUNTS, LEDGERS, TRIAL BALANCES, ACCOUNTS PAYABLE ANALYSIS, ACCOUNTS RECEIVABLE ANALYSIS, AND FIXED ASSETS REGISTERS; BANK ACCOU NT CONTROL REPORTS AND BANK TRANSACTION PROCESSING; PAYROLL PROCESSING AND REPORTS; ACCOUNT RECONCILIATION REPORTS; PAYMENT INSTRUCTIONS FOR PAYMENT TO VENDORS; CARD TRANSACTION PROCESS OUTPUTS; TRAVEL BUSINESS TRANSACTION REPORTS; AND OTHER MIS REPORTS P ER CUSTOMERS' SPECIFIC REQUIREMENTS THE OUT OF CONTEXT AND SELECTIVE READING OF SOME OF THE ABOVE SERVICES LIKE MONITORING OF CREDIT PERIOD, TRAVEL RELATED SUPPORT SERVICE TO AKS TRAVEL RELATED BUSINESS PRODUCTS ETC., AS ATTEMPTED AT ORAL HEARING OF APPEALS IS NOTHING BUT A FEEBLE ATTEMPT TO SOMEHOW JUSTIFY REACHING A DIFFERENT CONCLUSION ON THE PROFILE OF SERVICES AND IS NOT ONLY UNJUSTIFIED BUT ALSO LEADS TO INCORRECT AND ABSURD CONCLUSIONS. WITHOUT OVEREMPHASIZING ON CONSISTENCY IT MAY BE NECESSARY TO CONSIDER FULL FACTS IN RIGHT PERSPECTIVE. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 24 APPELLANT REITERATES ITS SUBMISSION THAT THE NATURE OF SERVICES HAVE BEEN RIGHT HELD TO BE BPO CONSISTENTLY YEAR AFTER YEAR AND THERE IS NO JUSTIFICATION FOR A DIFFERENT CONCLUSION DURING AY 2007 - 08. APPELLANT RESPECTFULLY PRAYS FOR APPROPRIATE CONSIDERATION OF ABOVE SUBMISSION IN ADDITION TO ALL OTHER SUBMISSIONS ALREADY MADE IN CONNECTION WITH ABOVE APPEAL AT THE HEARINGS. 26. TO LOOK AT THE FUNCTION PROFILE OF THE ASSESSEE AND TO CLASSIFY IT INTO VARIOUS CATEG ORIES OF ITES SERVICES IS NOT REQUIRED BECAUSE OF THE REASON THAT EACH COMPARABLE IS REQUIRED TO BE TESTED ON THE FUNCTIONAL COMPARABILITY AND ASSETS USED AND RISK ASSUMED TO PERFORM THOSE FUNCTIONS. THE TESTES ARE LAID DOWN U/R 10B(2) OF THE I NCOME TAX RULES 1962 WHICH PROVIDES AS UNDER : - (2) FOR THE PURPOSES OF SUB - RULE (1), THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFERENCE TO THE FOLLOWING, NAMELY : - (A) THE SPECIFIC C HARACTERISTICS OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION ; (B) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED , BY THE RESPECTIVE PARTIES TO THE TRANSACTIONS ; (C) THE CONT RACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS ; (D) CONDITION S PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 25 LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVE LOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. 27. THEREFORE, PARAMOUNT IMPORTANCE IS REQUIRED TO BE GIVEN TO CHARACTERISTICS OF THE SERVICES, FUNCTIONS PERFORMED AND ASSETS AND RISK INVOLVED IN PERFORMING THOSE FUNCTIONS AND THEN CONTRACTUAL TERMS AND BUSINESS CONDITIONS. IF THE ABOVE TEST IS SATISFIED TH EN VARIOUS CLASSIFICATION OF NOMENCLATURE AND BRACKETISING OF THE FUNCTIONS IS A FUTILE EXERCISE. 28. ON ANALYSIS OF THE FUNCTIONS OF THE ASSESSEE IT IS NOTED THAT IT PROVIDES BACK OFFICE OPERATIONS, REVENUE ACCOUNTING, CALL CENTER SERVICES, SUPPORT CENT ER IS NATURALLY AND ITES SERVICES AND IS DEFINITELY DIFFERENT FROM THE KNOWLEDGE PROCESS OUTSOURCING SERVICES. FURTHER MERELY FOR THE REASON THAT AEGSEC SERVICES AT GURGAON UNIT PROVIDES CERTAIN DATA RISK ANALYSIS SERVICES TO DETECT HIGH RISK ACCO UNT ACTIVITY DOES NOT MAKE THE SERVICES PROVIDED AS HIGH END SERVICES PROVIDER. 29. FURTHERMORE THE LD TPO HAS NOT QUESTIONED THE FAR ANALYSIS PROVIDED BY THE ASSESSEE AND HAS ACCEPTED IT TO BE AND ITES SERVICE PROVIDER AND NOT AN KPO. THE ASSESSEE IN ITS TP STUDY REPORT HAS CLASSIFIED IT AS BPO WHICH IS NOT DISPUTED BY LD TPO. THE DIFFERENCE IS ALSO EXPLAINED IN RULE 10 TA (E) AND (G) OF THE INCOME TAX RULES 1962. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 26 30. NOW WE COME TO THE ISSUE OF THE EXCLUSION OR INCLUSION OF THE COMPARABLE FOR THE C OMPARABILITY ANALYSIS IN DETERMINATION OF THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. 31. THE FIRST COMPARABLE CONTESTED BY THE ASSESSEE IS VISHAL INFORMATION TECHNOLOGIES LTD SUBMITTING THAT IT HAS A DIFFERENT BUSINESS MODEL AS IT GIVES 65.36% OF ITS WORK TO THE OUTSIDE VENDOR AND ITS EMPLOYEE COST COMPRISES OF JUST 5.52% OF THE TOTAL COST WHEREAS TH E APPELLANTS EMPLOYEE COST IS 59.05%. IN VIEW OF THIS, IT WAS SUBMITTED THAT VISHAL INFORMATION TECHNOLOGIES LTD GETS THINGS DONE THROUGH OUTSOURCING MODEL AND THE ASSESSEE IS CARRYING ON WORK THROUGH ITS OWN EMPLOYEES. IT WAS SUBMITTED THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 06 COORDINATE BENCH HAS REJECTED THIS COMPANY FOLLOWING THE FUNCTIONAL DIFFERENCES HIGHLIGHTING THE FACT THAT VISHAL TECHNOLOGIES OUTSOURCES A SIGNIFICANT PART OF ITS ACTIVITIES. HE REFERRED TO PARA NO. 8.1 OF THE ORDER OF THE COORDINATE BENCH. 32. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE EARLIER ORDER OF THE COORDINATE BENCH DID NOT DEAL WITH THE DETAILS OBTAINED BY LD AO U/S 133 (6). HE THEREFORE INVITED REFERENCE TO PAGE NO. 217 OF THE APPEAL PAPER BOOK WH EREIN VISHAL INFORMATION TECHNOLOGIES LTD IS DISCUSSED AS COMPARABLE. HE SUBMITTED THAT IN ASSESSMENT YEAR 2008 09, THE TAXPAYER HAS RAISED THE SIMILAR OBJECTION ON THIS COMPARABLE. 33. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. IT IS CONTESTED BY T HE ASSESSEE THAT EMPLOYEE COST IN CASE OF THE COMPARABLE IS 5.52% AND OUTSIDE VENDOR COST IS 65.36%, WHEREAS IN CASE OF THE ASSESSEE TOTAL EMPLOYEE COST IS 59.05%. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. TRANSFER PRICING OFFICER ISSUED AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 27 NOTICE U/S 133 (6) OF THE INCOME TAX ACT TO SEEK INFORMATION ABOUT THE EXPENSES OF DATA ENTRY AND VENDOR PAYMENTS. THIS WAS REPLIED BY THE COMPANY STATING THAT DURING THE FINANCIAL YEAR 2007 - 08 THE COMPANY HAD INFRASTRUCTURE WITH A SEATING CAPACITY OF 475 SEATS FOR 3 S HIFTS COMBINED TOGETHER, WHEREAS THE UTILISED CAPACITY FOR THE PER IOD WAS AROUND 225 SEATS FOR 3 SHIFTS COMBINED. LOOKING TO THE VARIOUS STEPS OF THE PROCESS , I T WAS SUBMITTED THAT THE VENDORS PERSONNEL WERE OCCUPYING THREE S HIFTS FROM 2 00 TO 22 5 PERSONS AND THE EXPENSES INCURRED FOR VENDORS PERSONAL DEBITED TO THE DATA ENTRY CHARGES AND VENDOR P AYMENTS. ON PERUSAL OF THE ABOUT DETAILS , IT IS APPARENT THAT THE INFORMATION WAS GIVEN FOR THE FINANCIAL YEAR 2007 08, WHEREAS THE IMPUGNED ASSESS MENT YEAR BEFORE US IS ASSESSMENT YEAR 2007 08 I.E. FINANCIAL YEAR 2006 07. IN VIEW OF THIS, THE ABOVE INFORMATION OBTAINED BY THE ASSESSING OFFICER WAS NOT RELEVANT FOR THE IMPUGNED ASSESSMENT YEAR. WE HAVE CAREFULLY PERUSED THE ANNUAL ACCOUNTS OF TH IS COMPANY SUBMITTED BEFORE US AT PAGE NO. 376 OF THE PAPER BOOK WHERE THE DATA ENTRY CHARGES AND VENDOR PAYMENTS HAVE BEEN SPECIFIED AT RS. 1 3 1207282/ OUT OF TOTAL COST OF RS. 202835405/ - WHICH IS APPROXIMATELY 64.68% OF THE TOTAL COST. THIS ITSELF SHOWS THAT THIS COMPANY IS GETTING THINGS DONE THROUGH OUTSIDE VENDOR AND IS NOT CARRYING ON WORK BY EMPLOYING ITS OWN HUMAN RESOURCES WHERE AS IN CASE OF THE ASSESSEE, IT CARRIES ON ITS BUSINESS THROUGH ITS OWN EMPLOYEES FOR WHOM DURING THE YEAR IT HAS INCURR ED COST OF RS. 2783055185 OUT OF THE TOTAL COST OF RS. 4713578439 / - WHICH IS ALMOST 59% OF THE TOTAL COST. WE HAVE ALSO CAREFULLY PERUSED THE ORDER OF THE COORDINATE BENCH IN A AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 28 ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006 07 WHEREIN AT 8.2 THE COORDINAT E BENCH HAS DIRECTED FOR EXCLUSION OF THIS COMPARABLE HOLDING THAT THE OUTSOURCING MODEL HAS ITS IMPACT ON THE OVERALL PROFITABILITY OF THE COMPANY AND THEREFORE THE BUSINESS MODEL OF THE COMPARABLE COMPANY IS DIFFERENT THAN THE ASSESSEE AND HENCE IT IS RE QUIRED TO BE EXCLUDED. IN VIEW OF THIS WE DO NOT FIND ANY REASON TO DEVIATE FROM THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR EARLIER YEARS. FURTHER, HONOURABLE DELHI HIGH COURT HAD ALSO AN OCCASION TO CONSIDER THE EXCLUSION OF VISHAL INFOR MATION TECHNOLOGIES LTD IN RAMPGREEN SOLUTIONS PRIVATE LIMITED VERSUS CIT (DELHI) (ITA 102/2015) WHEREIN PARA NO. 38, THE HONBLE HIGH COURT HAS HELD THAT THIS COMPARABLE COULD NOT BE CONSIDERED, AS A COMPARABLE BECAUSE OF ITS BUSINESS MODEL WAS COMPLETELY DIFFERENT. IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT AS WELL AS THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE , WE DIRECT THE LD. AO/TPO TO EXCLUDE VISHAL INFORMATION TECHNOLOGIES LTD FROM COMPARABILITY ANALYSIS. 34. WITH RESPECT TO MOULD TEK TECHNOLOGIES LTD IT IS SUBMITTED THAT THE COMPARABLE IS A KNOWLEDGE PROCESS OUTSOURCING UNIT, WHICH PROVIDES HIGH - END ENGINEERING CONSULTING SERVICES AND EMPLOYS ENGINEERS TO PROVIDE S UCH SERVICES. THEREFORE, IT IS A KPO AND THE BUSINESS OF THE ASSESSEE IS BPO . FURTHER, RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF ITA NO. 102/2015 RAMPGREEN SOLUTIONS PRIVATE LIMITED VERSUS CIT, DATED 10 TH OF AUGUST 2015 WHEREIN IT HAS BEEN HELD THAT KPO CANNOT BE TAKEN AS A COMPARABLE WITH BPO. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 29 35. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSESSEE IS ALSO ENGAGED IN TO THE BUSINESS OF HIGH - END SERVICE PROVIDER AND THEREFORE IT IS ONLY THE DIFFERENCE OF VERTICALS HE NCE, ACCORDING TO HIM THIS COMPARABLE COMPANY CANNOT BE EXCLUDED. HE FURTHER SUBMITTED THAT THIS COMPANY WAS PART OF THE COMPANIES CONSIDERED BY THE TAXPAYER. IN ITS ACCEPT REJECT MATRIX AND THERE WERE NO REASONS GIVEN FOR REJECTION OF THIS COMPANY ON FUN CTIONALITY GROUND. HE FURTHER REFERRED TO PAGE NO. 374 - 379 OF THE APPEAL PAPER BOOK TO SUBMIT THAT LD. ASSESSING OFFICER IS GIVEN ALL THE CONSIDERATION OF CAREFUL THOUGHT. 36. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. AT PAGE NO. 378 OF HIS ORDER, T HE LD. TRANSFER PRICING OFFICER HAS HELD THAT TH IS COMPANY IS RENDERING 3 KIND OF SERVICES ENGINEERING SERVICES, BPO AND DATA PROCESSING AND ALL 3 PARTS ARE FALLING INTO THE IT ENABLED SERVICES AND HENCE THE COMPANYS IT DIVISION IS COMPARABLE TO THE TAX PAYER. WE HAVE ALSO PERUSED PAGE NO 642 OF THE PAPER BOOK WHICH IS THE STARTING OF THE ANNUAL REPORT OF THAT COMPANY WHICH SPEAKS THAT THIS COMPANY IS PIONEER IN STRUCTURAL ENGINEERING KPO SERVICES. ON PERUSAL OF PAGE NO 653 OF THE PAPER BOOK , IN ITS DIRECTORS REPORT THE COMPANY HAS STATED THAT DURING THE YEAR COMPANYS IT UNIT HAS STARTED THE ENGINEERING SERVICES TO HIGH RISE BUILDINGS FOR CLIENTS IN US AND CANADA. DURING THE YEAR THIS COMPANY ALSO ACQUIRED THE BUSINESS OF CROSS DETAILING INC. AND ENGINEERING SERVICE COMPANY KPO LOCATED AT INDIANA, USA. THE FUNCTION OF THIS COMPANY ARE BASED ON ENGINEERING SERVICES WHICH NEEDS QUALIFIED ENGINEERS ONLY AND SAME IS NOT COMPARABLE WITH THE F UNCTIONS OF ASSESSEE LOOKING AT THE HUMAN RESOURCES EMPLOYED AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 30 BY THE ASSESSEE. MOSTLY ITS HUMAN RESOURCES ASSET DEMONSTRATES FUNCTIONS OF THE COMPANY . FURTHER HON DELHI HIGH COURT HAS HELD IN CASE OF RAMPGREEN SOLUTIONS LIMITED V CIT ( SUPRA) THAT KNOWLED GE PROCESS OUTSOURCING UNIT CANNOT BE COMPARED WITH BUSINESS PROCESS OUTSOURCING UNIT ON THE LOGIC THAT BOTH EMPLOY DIFFERENT KIND OF HUMAN RESOURCES. EVEN OTHERWISE ITS SEGMENTAL REVENUE IS NOT AVAILABLE QUA THE ENGINEERING SERVICES KPO AND ANY OTH ER ITES SERVICES. THEREFORE WE DIRECT THE LD TPO TO EXCLUDE THIS COMPARABLE. 37. T HE NEXT COMPARABLE IS ACCENTIA TECHNOLOGIES LTD WHICH IS OBJECTED TO BY THE ASSESSEE . THE ABOVE COMPANY IS SELECTED BY THE LD TRANSFER PRICING OFFICER AND FURTHER 133(6) NOTICE S WERE ISSUED AND IT WAS FOUND THAT THIS COMPANY IS ENGAGED IN THE MEDICAL TRANSCRIPTION SERVICES AND SATISFIES ALL THE FILTERS APPLIED BY THE TPO. THE ASSESSEE OBJECTED THAT THIS COMPANY IS ENGAGED IN SALES OF SOFTWARE. THE LD DRP REJECTED THE CONTENTION OF THE ASSESSEE ALSO. 38. BEFORE US THE LD AR SUBMITTED THAT LD TPO HIMSELF HAS STATED THAT ANNUAL REPORT FOR FY 2006 - 07 IS NOT AVAILABLE AND FURTHER NO SEGMENTAL INFORMATION IS PROVIDED. IT WAS FURTHER ARGUED THAT TH IS COMPANY WAS FORMED AFTER AMALGAMATION O F GEOSOFT TECHNOLOGIES, IRIDIUM TECHNOLOGIES PVT. LTD. 39. LD DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT LD TPO HAS CORRECTLY APPLIED THE FILTER AND ALSO THIS COMPANY IS FUNCTIONALLY SIMILAR. HE THEREFORE SUBMITTED THAT ABOVE COMPARABLE HAS RIGHTLY BEEN INCLUDED IN THE COMPARABILITY ANALYSIS. 40. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND NOTED THAT STAND ALONE ANNUAL FINANCIAL STATEMENT PROVIDED OF THIS COMPANY AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 31 FOR YEAR ENDED MARCH 2007 SHOWS THAT REVENUE MODEL OF THIS COMPANY IS MEDICAL TRANSCRIPTION, CODING AND SOFTWARE DEVELOPMENT. OUT OF THE TOTAL REVENUE OF RS. 287231664 / - , RS. 165433967 / - CONSIST OF MEDICAL TRANSCRIPTION, RS. 27600281/ - IS FROM CODING AND RS. 94197416/ - FROM SOFTWARE DEVELOPMENT. INTERESTINGLY ON READING NOTE 6 AT PAGE NO. 634 OF THE PAPER BOOK WHEREIN IN SIGNIFIC ANT ACCOUNTING POLICY IT IS STATED THAT THIS COMPANY IS ALSO ENGAGED IN PRODUCTION OF A MOVIE TITLED LOVE IN INDIA. FURTHERMORE, PURSUANT TO THE ORDER OF THE BOMBAY HIGH COURT THE ERSTWHILE SUBSIDIARIES OF THE COMPANIES GEOSOFT TECHNOLOGIES AND IRIDIUM T ECHNOLOGIES HAVE MERGED WITH THE COMPANY W.E.F. 1 ST APRIL 2006. THEREFORE, NATURALLY THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET ALSO INCORPORATE THE FINANCIAL RESULTS OF THOSE COMPANIES , WHICH MAKES THIS YEAR AN EXTRAORDINARY YEAR FOR THIS COMPANY . IN VIEW OF THE EXTRAORDINARY EVENTS DURING THE YEAR OF MERGER, THE FUNCTIONAL PROFILE OF MEDICAL TRANSCRIPTION, SOFTWARE DEVELOPMENT AND FILM PRODUCTION AS WELL AS ABSENCE OF SEGMENTAL INFORMATION WHERE THE COMPANY HAS ONLY STATED THAT IT HAS ONLY ONE SEGMENT OF ACTIVITY NAMELY HEALTHCARE RECEIVABLE MANAGEMENT , WE DO NOT HAVE ANY HESITATION IN HOLDING THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THE FUNCTIONS PERFORMED BY THE ASSESSEE AND HAS EXTRAORDINARY EVENTS AND HENCE, WE DIRECT FOR EXCLUSION O F THE SAME. 41. THE NEXT COMPARABLE CONTESTED BY THE ASSESSEE IS E - CLER X SERVICES LTD. AND THE ASSESSEE IS STATED THAT THIS COMPANY PROVIDES HIGH END KPO AND THEREFORE IT IS NOT COMPARABLE WITH THE ASSESSEE WHO IS ITES SERVICE PROVIDER . THE ASSESSEE RELIED AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 32 U PON THE DECISION OF HON'BLE DELHI HIGH COURT IN CASE OF R A MPGREEN SOLUTIONS LTD 60 TAXMANN.COM 355 (DEL). 42. THE LD DR VEHEMENTLY OBJECTED THAT IT IS ONE OF THE MOST IDEAL COMPARABLE AS BOTH ARE DOING THE SAME WORK. HE FURTHER REFERRED THAT DATA ANALYSIS IS THE MAIN FUNCTION OF THIS COMPARABLE WHICH IS ALSO DONE BY THE ASSESSEE. HENCE, HE PRESSED FOR RETAINING THE SAME. 43. WE HAVE CAREFULLY CO NSIDERED THE RIVAL CONTENTIONS. THE HON'BLE DELHI HIGH COURT IN 377 ITR 533 IN RAMPGREEN SOLUTIONS PVT. LTD VS. CIT, HAS SPECIFICALLY HELD THAT THIS COMPARABLE COMPANY IS ENGAGED IN KPO SERVICES. FURTHER, THE SPECIAL BENCH IN CASE OF MERSK GLOBAL CENTRE IN DIA PVT. LTD VS. ACIT 147 ITD 83 HAS ALSO HELD THAT THE COMPARABLE IS KPO AND EXCLUDED THIS COMPANY. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE DELHI HIGH COURT WE DIRECT EXCLUSION OF THIS COMPARABLE. 44. THE NEXT COMPARABLE S OBJECTED ARE MAP PLE SOLUTIONS LTD AND TRITON CORP LTD WHEREIN AR HAS STATED THAT THIS COMPANY PROMOTERS ARE ENGAGED IN FRAUD AND THEREFORE SHOULD BE EXCLUDED. THE LD AR FURTHER SUBMITTED THAT THOUGH TAX PAYER CONSIDER THIS COMPANY AS COMPARABLE HOLDING IT ENGAGED IN CALL CENTRE SERVICES BUT LATER ON IT WAS FOUND THAT THIS COMPANY IS SUBJECT TO FRAUD AND HENCE, THE FINANCIAL INFORMATION IS NOT RELIABLE. HE REFERRED TO PAGE NO. 650 AND 651 OF THE PAPER BOOK . HE FURTHER RELIED ON THE DECISION OF THE COORDINATE BENCH IN CASE OF CRM SERVICES INDI. PVT LTD. ITA NO. 4068/DEL/2009 . 45. THE LD DR SUBMITTED THAT THE ABOVE COMPANY IS SELECTED BY THE ASSESSEE AS FUNCTIONALLY COMPARABLE AND NOW THE ABOVE CITED ORDER OF TH E TRIBUNAL CANNOT BE USED AS A PRECEDENCE. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 33 46. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE OWNER OF THE COMPANY HAVE COMMITTED A FRAUD AND THEREFORE THE FINANCIAL OF THIS COMPANY CANNOT BE COMPARED. WE HAVE CAREFULLY PERUSED VIDE PARA NO. 70 OF THAT DECISION OF THE COORDINATE BENCH THIS COMPARABLES ARE CONSIDERED . THE COORDINATE BENCH HELD AS UNDER: - 17. GROUND NOS. 5 TO 9 ARE AGAINST INCLUSION OF GALAXY COMMERCIAL, MAPLE E SOLUTIONS, TRITON CORPORATIO N, AND NUCLEUS NETSOFT AND GIS (INDIA) LTD. AS COMPARABLE CASES BY THE TPO. IN REGARD TO GALAXY COMMERCIAL, THE OBJECTION OF THE ASSESSEE BEFORE THE TPO HAS BEEN THAT IT HAS DIVERSIFIED ACTIVITIES WHILE THE ASSESSEE IS CARRYING ON THE BUSINESS OF VOICE BAS ED CALL CENTRE ONLY. THE TPO MENTIONED THAT THE COMPANY IS CARRYING ON BPO OPERATION AND TRANSPORT OPERATION. THE RESULTS OF ONLY BPO OPERATION ARE BEING CONSIDERED FOR THE PURPOSE OF DETERMINING ARM'S LENGTH PRICE. IN THIS REGARD, THE FUNCTIONS ARE MORE O R LESS SIMILAR. 17.1 BEFORE US, IT IS SUBMITTED THAT THE AFORESAID COMPANY IS ENGAGED IN CUSTOMIZED BPO SERVICES AND NOT IN CALL CENTRE ACTIVITIES. IT IS CARRYING ON THREE DISTINCT BUSINESSES, NAMELY, - (I) BPO OPERATIONS, (II) TRANSPORT OPERATIONS AND (I II) PURCHASE AND SALE OF SHARES AND UNITS. ALTHOUGH IT IS MENTIONED BY THE TPO THAT ONLY BPO OPERATIONS HAVE BEEN CONSIDERED, BUT HE APPLIED ENTITY - WISE PROFIT. SEGMENT - WISE PROFITABILITY IS NOT AVAILABLE IN THE AUDITED ACCOUNTS. THEREFORE, THIS CASE HAS B EEN, WRONGLY CONSIDERED AS A COMPARABLE. 17.2 IN REGARD TO MAPLE E SOLUTIONS & TRITON CORPORATION, IT IS MENTIONED IN THE REPORT OF THE TPO THAT THE FIRST NAMED COMPANY IS CARRYING ON THE BUSINESS OF RENDERING DATA PROCESS SERVICES AND BPO SERVICES. OBJE CTION HAS BEEN RAISED THAT THE DIRECTORS OF THE COMPANY WERE INVOLVED IN A FRAUD. THIS COMPANY IS A WHOLLY OWNED SUBSIDIARY OF HARYANA FIBRES LTD., WHOSE PROMOTERS WERE INVOLVED IN FRAUD AS PER NEWSPAPER REPORT AND THE CBI REPORT. THE TPO MENTIONED THAT AC CORDING TO CBI BULLETIN OF DECEMBER, 2008, IT WAS REPORTED THAT THE RASTOGI FAMILY CHEATED GOVERNMENT OF INDIA TO THE TUNE OF RS. 54.00 CRORE IN LATE 1980S AND MID 1990S. RASTOGI BROTHERS HAD FLOATED 14 FIRMS FOR THE PURPOSE OF EXPORT OF BICYCLE PARTS TO R USSIA AND HONG KONG. THEY WERE ARRESTED BY THE FBI AND U.K. AUTHORITIES AND SENTENCED TO IMPRISONMENT FOR MORE THAN 9 YEARS. HOWEVER, THE REPORT NOWHERE CONTAINS THE NAME OF THIS COMPANY. ACCORDING TO THE DATA AVAILABLE AT PROWESS DATA BASE, IT IS ENGAGED IN THE BUSINESS OF CALL CENTRE ACTIVITIES; IT HAD SET UP 100% EOU AND IT HOLDS REGISTRATION UNDER SECTION 10B. IN REGARD TO THE SECOND MENTIONED COMPANY, IT WAS SUBMITTED THAT IT IS ENGAGED IN TWO ACTIVITIES I.E., TELECOM SECTOR AND BPO SECTOR. IT IS ALSO A COMPANY OF RASTOGI GROUP AND, THEREFORE, OTHER OBJECTIONS ARE THE SAME AS IN THE CASE OF FIRST MENTIONED COMPANY. THE TPO MENTIONED THAT THE COMPANY IS DERIVING REVENUE FROM ITES ACTIVITIES WHICH ARE COMPARABLE TO THE AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 34 BUSINESS OF THE ASSESSEE. THUS, BOTH THE COMPANIES WERE INCLUDED AS COMPARABLES. 17.3 IN REGARD TO NUCLEUS NETSOFT & GIS (INDIA) LTD., IT WAS SUBMITTED THAT ITS BUSINESS IS FUNCTIONALLY DIFFERENT AND THERE ARE RELATED PARTY TRANSACTIONS TO THE EXTENT OF 21.60%. ITS PLI WORKS OUT TO 32.47% A GAINST 44% COMPUTED BY THE TPO. IN THE ORDER, IT IS MENTIONED THAT THIS COMPANY IS RENDERING ITES. THE SOFTWARE PART IS HANDLING OF CAD/CAM SERVICES, WHICH DOES NOT AMOUNT TO SOFTWARE DEVELOPMENT. THE RELATED PARTY TRANSACTIONS WORKED OUT TO ONLY 6.07% WHI CH IS WITHIN THE PERMISSIBLE RANGE. THE WORKING OF PLI AT 44% IS ALSO CORRECT. 17.4 IN REGARD TO INCLUSION OF ALL THESE COMPANIES, THE LD. CIT, DR RELIED ON THE ORDER OF THE AO. 17.5 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE ADMITTED FACTS IN RESPECT OF GALAXY COMMERCIAL ARE THAT IT IS CARRYING ON THREE LINES OF BUSINESSES AND SEGMENT PROFITABILITY IS NOT AVAILABLE. OBVIOUSLY, OVERALL PROFITABILITY OF THE COMPANY CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE AS IT WILL AMOUNT TO COMPARING INCOMPARABLE CASES. FURTHER, THE BUSINESS REPUTATION OF RASTOGI GROUP, OWNING MAPLE E SOLUTIONS AND TRITON CORPORATION, IS UNDER SERIOUS INDICTMENT. THEY ARE ALSO CARRYING ON THE BUSINESSES OF DATA PROCESSING SERVICES AND ITES SERVICES APART FROM BPO SERVICES. IN VIEW OF A QUESTION MARK ON THE REPUTATION OF THE OWNER, ALBEIT FOR EARLIER YEARS, IT WOULD BE UNSAFE TO TAKE THEIR RESULTS FOR COMPARISON OF THE PROFITABILITY OF THE ASSESSEE. SIMILARLY, IT HAS NOT BEEN CONTESTED BY THE LD. CIT - DR BEFORE US THAT RELATED PARTY TRANSACTION IN CASE OF NUCLEUS NETSOFT & GIS (INDIA) LTD. AMOUNTED TO 22.28% AGAINST THE WORKING OF 6.07%. THE HIGH FIGURE OF 22.28% RENDERS THE CASE INCOMPARABLE AS THE TOLERABLE LIMIT OF RELATED PARTY TRANSACTIONS WOULD B E IN THE VICINITY OF 10% TO 15%. ACCORDINGLY, IT IS HELD THAT NONE OF THESE CASES CAN BE TAKEN TO BE COMPARABLE CASE. 47. ON READING THE ABOVE ORDER IT IS APPARENT THAT FRAUD HAS BEEN COMMITTED IN 1980S AND MID 90S AND NOT IN THE CURRENT YEAR. THE COORDINATE BENCH HAS ALSO NOTED THAT COMPLAINT DID NOT NAME THE ABOVE COMPANY BUT THE TRIBUNAL HAS HELD THAT DUE TO QUESTION MARK ON THE REPUTATION OF THE OWNER FOR THAT YEAR THOUGH FRAUD HAPPENED IN EARLIER YEARS, IT WOULD BE UNSAFE TO TAKE THEIR RESULT FOR COMPARAB ILITY. THE ASSESSEE HAS PLACED BEFORE US THE BALANCE SHEET FOR THE YEAR ENDED ON 31.03.2007 WHICH HAS BEEN AUDITED BY THE AUDITOR CERTIFYING THAT ANNUAL ACCOUNTS OF THE COMPANY ARE TRUE AND FAIR . THE DIRECTOR AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 35 RESPONSIBILITY STATEMENT IN THE DI RECTORS R EPORT ALSO SHOWS THAT THE ACCOUNTS OF THE COMPANY ARE PREPARED ACCORDING TO THE APPLICABLE ACCOUNTING STANDARDS APPROVED BY THE MINISTRY OF CORPORATE AFFAIRS AND THEY ARE TRUE AND FAIR. ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT ALSO WE DID NOT FIND ANY IMP ACT OF FRAUD ON THE FINANCIAL STATEMENTS INCLUDING THE SIGNIFICANT ACCOUNTING POLICY AND NOTES ON ACCOUNT. NONE HAS BEEN POINTED OUT BY THE LD COUNSEL. IN FACT IT HAS NOT BEEN DISAGREED BY THE LD AR THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE. IT IS F URTHER REQUIRED TO BE NOTED THAT BOTH THESE COMPARABLES ARE SELECTED BY THE TAX PAYER IN ITS TP STUDY REPORT CONSIDERING THEM FUNCTIONALLY COMPARABLE. THIS FACT IS EVIDENT FROM PARA NO. 12 OF THE ORDER OF THE LD TRANSFER PRICING OFFICER. FIRSTLY IN BOTH T HE COMPANIES THERE IS NO FRAUD EITHER AGAINST OR BY THE COMPANY. SECONDLY THERE IS NO IMPACT OF ANY FRAUD COMMITTED BEFORE TWO DECADES ON THE FINANCIALS OF THE COMPANY. FURTHER REVENUE OF BOTH THE COMPANIES ARE INCREASING THIS YEAR FROM THE LAST YEAR, T HEREFORE I IT CANNOT BE ALSO ASSUMED FOR THIS YEAR AT LEAST THAT THERE IS SOME IMPACT OF TAINTED PROMOTERS ON THE FINANCIALS. THEREFORE, WE DO NOT HAVE ANY OPTION BUT TO REJECT THE ARGUMENT OF THE LD AR FOR EXCLUSION OF THE ABOVE COMPARABLE. HENCE, WE D IRECT TO RETAIN THE ABOVE BOTH COMPARABLE S NAMELY MAPLE SOLUTIONS LTD AND TRITON CORP LTD . 48. THE NEXT COMPARABLE CONTESTED IS BOD H TREE CONSULTING LTD . THE MAIN CONTENTION OF THE ASSESSEE IS THAT THIS COMPANY IS ENGAGED IN THE DEVELOPING SOFTWARE PRODUCTS AND MAINLY CONCENTRATION OF STABILIZATION OF THE TOOLS FOR THE E - PAPER SOLUTION . IT WAS FURTHER SUBMITTED THAT THIS COMPARABLE IS ALSO ENGAGED IN SOFT WARE AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 36 DEVELOPMENT SERVICES. THE LD AR REFERRED TO PAGE NO. 359 TO 363 OF THE APPEAL SET WHEREIN, SEVERAL ARGUMENTS ARE RAISED FOR EXCLUSION. IN THE END THE AR RELIED UPON THE DECISION OF THE COORDINATE BENCH IN CASE OF NTT DATA INDIA ITA NO. 1862/HYD/2012 . THE LD AR FURTHER REFERRED TO REPLY DATED 5.02.2010 OF THE COMPANY U/S 133(6) OF THE ACT WHICH SHOWS THAT THE COMPARABLE IS ALSO ENGAGED IN SOFTWARE DEVELOPMENT. THEREFORE, HE PLEADED FOR ITS EXCLUSION. 49. THE LD DR VEHEMENTLY OBJECTED TO THE SAME. 50. WE HAV E CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND WE HAVE PERUSED THE ANNUAL ACCOUNT OF THE COMPANY AT PAGE 1 TO 34 OF THE PAPER BOOK. ACCORDING TO THE FINANCIAL INFORMATION AVAILABLE, THIS COMPANY IS ENGAGED IN PROVIDING OPEN AND END - TO - END WEB SOLUTIONS, SOFTWARE CONSULTANCY, DESIGN, AND DEVELOPMENT OF SOLUTION. IN RESPONSE TO QUERIES U/S 133(6) ENQUIRY LETTER OF THE TPO THAT IT IS ENGAGED IN THE DATA CLEANSING SERVICES WHICH ARE PROVIDED TO A CLIENT FOR WHOM THE COMPANY HAS DEVELOPED A SOFTWARE APPLICAT ION. USING THE TOOL DEVELOPED BY THE COMPANY IT PROVIDES DATA CLEANSING SERVICES BY CONSTANTLY UPGRADING THE APPLICATION THEREFORE, THERE IS AN ELEMENT OF SOFTWARE DEVELOPMENT IN THE SERVICES PROVIDED BY THE COMPANY. FROM THE ABOVE INFORMATION, IT IS APPAR ENT THAT THE COMPARABLE IS A SOFTWARE DEVELOPER. WE ARE OF THE OPINION THAT SOFTWARE DEVELOPER IS A COMPANY WHICH PASSES ON TECHNOLOGY BY DEVELOPING A SPECIFIC SOFTWARE APPLICATIONS WHEREAS THE ASSESSEE IS NOT A SOFTWARE DEVELOPER. FURTHER, ON ANALYSIS OF THE FINANCIAL OF THE COMPARABLE COMPANY IT IS APPARENT THAT IT HAS TREATED THE DATA CLEANSING SERVICES AND SOFTWARE DEVELOPMENT SERVICES AS A SINGLE AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 37 SEGMENT AND THEREFORE, SEGMENTAL INFORMATION ARE NOT AVAILABLE ABOUT SOFTWARE SALES AND SOFTWARE SERVICES . IN VIEW OF ABSENCE OF SEGMENTAL INFORMATION WE ARE OF THE OPINION THAT A SOFTWARE DEVELOPER CANNOT BE FUNCTIONALLY COMPARABLE WITH A PURE CAP TIVE SERVICE PROVIDER. IN VIEW OF THIS, WE DIRECT EXCLUSION OF BODHTREE CONSULTING LTD FROM THE COMPARABILITY AN ALYSIS. 51. THE NEXT COMPARABLE OBJECTED TO BY THE ASSESSEE IS INFORMED TECHNOLOGIES INDIA LTD SUBMITTING THAT IT IS FUNCTIONALLY NOT COMPARABLE AS IT ANALYZED DATA ON FINANCIAL FUNDAMENTAL, CORPORATE GOVERNANCE, DIRECTOR OF EXECUTIVE COMPENSATION AND CAPITAL MARKET. IT IS FURTHER STATED THAT IT CHARGES BUSINESS DEVELOPMENT FEE OF 20 % OF THE TOTAL COST AND THEREFORE ITS REVENUE MODEL IS ALSO DISMISSED. WE FURTHER RELIED ON THE DECISION OF THE COORDINATE BENCH IN CASE OF CUMMINS TURBO TECHNOLOGIES VS. DCIT 53 TAXMANN.COM 492 (PUNE) WHEREIN, PARA NO. 29 THE ABOVE COMPARABLE WERE EXCLUDED. 52. THE LD DR VEHEMENTLY SUBMITTED THAT THE COMPARABLE IS FUNCTIONALLY COMPARABLE AND THEREFORE, IT CANNOT BE EXCLUDED. 53. WE HAVE CAREFULLY CONSIDER ED THE RIVAL CONTENTIONS. WE HAVE ALSO PERUSED THE ANNUAL FINANCIAL STATEMENT OF THE COMPANY FOR YEAR ENDED ON 31.03.2007 AT PAGE NO. 139 TO 178 OF THE PAPER BOOK. THE COMPANY IS AN IT ENABLED KNOWLEDGE BASED BACK OFFICE PROCESSING CENTRE. COMPANY COLLECT S AND ANALYSES THE DATA ON FINANCIAL FUNDAMENTAL, CORPORATE GOVERNANCE, EXECUTIVE COMPENSATION, AND CAPITAL MARKET. THE INCOME OF THE ASSESSEE AS PER SCHEDULE 10 IS DATA OUTSOURCING CHARGES - BPO. THEREFORE, THE FUNCTIONAL COMPARABILITY OF THIS COMPANY WIT H THE ASSESSEE CANNOT BE SAID TO BE DISSIMILAR. FURTHER, MERELY BECAUSE IT HAS AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 38 CERTAIN TYPE OF EXPENDITURE WHICH IS BUSINESS DEVELOPMENT EXPENDITURE IT CANNOT BE SAID THAT ITS FUNCTIONS BECOME DIFFERENT. FURTHER, THE CLAIM OF THE ASSESSEE THAT IT IS A PERS ISTENT LOSS MAKING COMPANY ALSO CANNOT BE CONSIDERED BECAUSE DURING THE YEAR THE COMPANY HAS EARNED PROFIT OF RS. 20740984/ - AGAINST A LOSS IN THE PREVIOUS YEAR OF RS. 4488926/ - . IT IS FURTHER SUBMITTED THAT FOR AY 2004 - 05 AND FY 2005 - 06 THE ASSESSEE HAS I NCURRED LOSS OF 59.07% AND 44.21% AND IN CURRENT YEAR THE PROFIT IS 34.30%. THEREFORE, THIS COMPANY HAS FLUCTUATING PROFITS. ON THE IDENTICAL REASONS THE COORDINATE BENCH IN CUMMINS TURBO TECHNOLOGIES LTD VS. DCIT (SUPRA) CONSIDERING THE DECISION OF THE SP ECIAL BENCH IN CASE OF MAERSK GLOBAL CENTERS INDIA PVT. LTD VS. ACIT (SUPRA) HAS EXCLUDED THIS COMPARABLE HOLDING AS UNDER: - 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL STANDS ON THIS ASPECT. IN THE CONTEXT OF THE CONTROVERSY RELATING TO THE EXCLUSION OF ABNORMAL PROFIT MAKING CONCERNS, A REFERENCE HAS BEEN MADE TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. V. ASSTT. CIT [2014] 147 ITD 83/43 TAXMANN.COM 100 (MUM. - TRIB.) . THE RELEVANT OBSERVATIONS OF THE BENCH ARE AS UNDER : 'IN GENERALITY, WE ARE OF THE VIEW THAT THE ANSWER TO THIS QUEST ION WILL DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE INASMUCH AS POTENTIAL COMPARABLE EARNING ABNORMALLY HIGH PROFIT MARGIN SHOULD TRIGGER FURTHER INVESTIGATION IN ORDER TO ESTABLISH WHETHER IT CAN BE TAKEN AS COMPARABLE OR NOT. SUCH INVESTIGATION S HOULD BE TO ASCERTAIN AS TO WHETHER EARNING OF HIGH PROFIT REFLECTS A NORMAL BUSINESS CONDITION OR WHETHER IT IS THE RESULT OF SOME ABNORMAL CONDITIONS PREVAILING IN THE RELEVANT YEAR. THE PROFIT MARGIN EARNED BY SUCH ENTITY IN THE IMMEDIATELY PRECEDING YE AR/S MAY ALSO BE TAKEN INTO CONSIDERATION TO FIND OUT WHETHER THE HIGH PROFIT MARGIN REPRESENTS THE NORMAL BUSINESS TREND. THE FAR ANALYSIS IN SUCH CASE MAY BE REVIEWED TO ENSURE THAT THE POTENTIAL COMPARABLE EARNING HIGH PROFIT SATISFIES THE COMPARABILITY CONDITIONS. IF IT IS FOUND ON SUCH INVESTIGATION THAT THE HIGH MARGIN PROFIT MAKING COMPANY DOES NOT SATISFY THE COMPARABILITY ANALYSIS AND OR THE HIGH PROFIT MARGIN EARNED BY IT DOES NOT REFLECT THE AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 39 NORMAL BUSINESS CONDITION, WE ARE OF THE VIEW THAT THE HIGH PROFIT MARGIN MAKING ENTITY SHOULD NOT BE INCLUDED IN THE LIST OF COMPARABLE FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. OTHERWISE, THE ENTITY SATISFYING THE COMPARABILITY ANALYSIS WITH ITS HIGH PROFIT MARGIN REFLECTING NORMAL BUSINESS CONDITION SHOULD NOT BE REJECTED SOLELY ON THE BASIS OF SUCH ABNORMAL HIGH PROFIT MARGIN.' IN TERMS OF THE AFORESAID DISCUSSION OF THE SPECIAL BENCH, IT IS QUITE CLEAR THAT THE CONCERNS EARNING ABNORMAL HIGH PROFIT MARGINS CANNO T BE EXCLUDED FROM THE LIST OF COMPARABLES UNLESS APPROPRIATE INVESTIGATIONS ARE MADE. IT WOULD BE NECESSARY TO ASCERTAIN AS TO WHETHER THE HIGH PROFIT MARGINS REFLECT A NORMAL BUSINESS PHENOMENA OR WHETHER IT IS THE RESULT OF CERTAIN ABNORMAL CONDITIONS P REVAILING IN A PARTICULAR YEAR. IN ORDER TO DETERMINE SO, PROFIT MARGINS EARNED BY SUCH CONCERN IN THE PROXIMATE PRECEDING AND SUCCEEDING YEARS WOULD BE REQUIRED TO BE CONSIDERED IN ORDER TO ESTABLISH WHETHER THE HIGH PROFIT MARGINS REFLECT A NORMAL BUSINE SS TREND OR OTHERWISE. IN THIS BACKGROUND OF THE MATTER, THE APPELLANT HAS FURNISHED BEFORE US THE OPERATING MARGIN TRENDS OF THE SAID CONCERN OVER THE FIVE FINANCIAL YEARS I.E. FOR THE THREE PRECEDING YEARS AND ONE SUCCEEDING FINANCIAL YEAR. NOTABLY, FOR THE FINANCIAL YEAR UNDER CONSIDERATION, THE MARGIN OF THE SAID CONCERN IS 34.71% WHEREAS FOR THE PRECEDING THREE FINANCIAL YEARS OF 2003 - 04, 2004 - 05 AND 2005 - 06 IT IS - 6.47%, - 69.07% AND - 44.21% RESPECTIVELY AND FOR THE SUBSEQUENT FINANCIAL YEAR OF 2007 - 08 , THE MARGIN IS 3.67%. THE AFORESAID CLEARLY SUGGESTS A WIDE FLUCTUATION IN THE MARGINS EARNED BY THE SAID CONCERN OVER A PERIOD OF TIME. IN - FACT, A FURTHER ANALYSIS OF THE FINANCIAL DATA FOR THE AFORESAID YEARS SUGGEST THAT THERE IS A WIDE FLUCTUATION IN THE REVENUE GENERATION OF THE SAID CONCERN DURING THE FINANCIAL YEAR UNDER CONSIDERATION AS COMPARED TO THE PAST THREE FINANCIAL YEARS. FOR THE SUBSEQUENT FINANCIAL YEAR, THE REVENUE GENERATION HAS TAKEN A DOWNWARD TREND WHICH AGAIN REFLECTS A WIDE FLUCTUA TION. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REFERRED TO THE ANNUAL REPORT OF THE SAID CONCERN FOR THE FINANCIAL YEAR UNDER CONSIDERATION TO POINT OUT THAT THE COMPANY HAS ACKNOWLEDGED A GROWTH OF 132.86% IN ITS REVENUE GENERATION AS COMPARED TO THE IMMEDIATELY PRECEDING FINANCIAL YEAR. IN OUR CONSIDERED OPINION, THERE IS NO MATERIAL TO SAY THAT THE HIGH PROFIT MARGIN OF 34.71% DECLARED BY THE SAID CONCERN IN THE INSTANT FINANCIAL YEAR IS A NORMAL BUSINESS TREND. OSTENSIBLY, THE FI NANCIAL RESULTS OF EITHER THE THREE PRECEDING FINANCIAL YEARS OR OF THE SUCCEEDING FINANCIAL YEAR DO NOT JUSTIFY THAT THE MARGIN OF 34.71% FOR THE YEAR UNDER CONSIDERATION IS A NORMAL BUSINESS TREND. THUS, IN OUR CONSIDERED OPINION, THE INCLUSION OF THE SA ID CONCERN IN THE FINAL SET OF COMPARABLES WOULD NOT LEND CREDIBILITY TO THE COMPARABILITY ANALYSIS AND THEREFORE IT DESERVES TO BE EXCLUDED. WE HOLD SO. 9. THE PLEA SETUP BY THE CIT(A), AND WHICH HAS BEEN REITERATED BEFORE US IS THAT THE POINT SETUP BY THE ASSESSEE WOULD INVOLVE CONSIDERATION OF MULTIPLE YEAR DATA OF THE COMPARABLE WHEREAS THE TRANSFER PRICING ANALYSIS IS REQUIRED TO BE DONE BASED ON THE SINGULAR FINANCIAL YEAR DATA I.E. FINANCIAL YEAR DATA OF THE COMPARABLES RELEVANT TO THE YEAR IN WHIC H THE INTERNATIONAL TRANSACTIONS HAVE BEEN ENTERED INTO. IN OUR CONSIDERED OPINION, THE AFORESAID PLEA OF THE REVENUE IS UNTENABLE HAVING REGARD TO THE ISSUE IN QUESTION. NO DOUBT, SUB - RULE (4) OF RULE 10B OF THE INCOME TAX RULES, 1962 (IN SHORT 'THE RULES ') PRESCRIBE THAT THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 40 WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. SO HOWEVER, THE AFORESAID RULE IS NOT ABSOLUTE INASMUCH AS PROVISO THEREOF PERMITS USE OF THE DATA RELATING TO OTHER YEARS, SUBJECT TO THE CONDITION THAT IT REVEALS 'FACTS WHICH COULD HAVE AN INFLUENCE' ON THE DETERMINATION OF TRANSFER PRICES IN RELATION TO THE TESTE D TRANSACTION. WE ARE ONLY POINTING OUT THE AFORESAID TO SAY THAT THE PROPOSITION BEING CANVASSED BY THE REVENUE THAT DATA OF THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO, ALONE AND ALONE, IS TO BE USED IS NOT AN ABSOLUTE PROPOSITION. NEEDLESS TO SAY, THE OBJECTIVE OF CARRYING OUT THE COMPARABILITY ANALYSIS IS TO DETERMINE THE ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION BY MEANS OF EXAMINING SIMILARLY PLACED UNCONTROLLED TRANSACTIONS. THEREFORE, IF ON FACTS, IT CAN BE ESTABLISHED THAT ADOPTION OF A CERTAIN COMPARABLE WOULD LEAD TO SKEWED RESULTS OR THAT THE FINANCIAL DATA OF A PARTICULAR COMPARABLE IS OTHERWISE DEVOID OF CREDIBILITY, SUCH COMPARABLES WOULD DESERVE TO BE EXCLUDED FROM THE LIST OF COMPARABLES EVEN IF S UCH AN EXERCISE INVOLVED EXAMINATION OF DATA OF THE COMPARABLES FOR MORE THAN ONE FINANCIAL YEAR. IN THE PRESENT CASE, AS OUR DISCUSSION IN THE EARLIER PARAS REVEAL, THE PROFIT MARGIN OF 34.71% FOR THE YEAR UNDER CONSIDERATION IS AN ABNORMAL BUSINESS TREND , AND, ACCORDINGLY THE SAID CONCERN IS LIABLE TO BE EXCLUDED. THEREFORE, WE DO NOT FIND ANY FORCE IN THE PLEA OF THE REVENUE TO RETAIN THE SAID CONCERN IN THE FINAL LIST OF COMPARABLES. 54. IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH, RESPECTFULLY FOLLOWING IT , WE DIRECT FOR EXCLUSION OF INFORMED TECHNOLOGIES INDIA LTD RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH. 55. THE NEXT COMPARABLE OBJECTED TO BY THE ASSESSEE WAS HCL COMNET SERVICES LTD CONTESTING THAT IT IS FUNCTIONALLY DIS SIMILAR, FOLLOWS DIFFERENT FINANCIAL YEAR, HAS DIFFERENT POLICY OF REVENUE RECOGNITION AND ONLY SEGMENTAL INFORMATION RECEIVED BY THE TPO U/S 133(6) OF THE ACT WAS PROVIDED. 56. THE LD DR SUBMITTED THAT IT IS ALSO ENGAGED IN BUSINESS OF ITES SERVICE PROVIDER T HEREFORE, IT IS FUNCTIONALLY MOST COMPARABLE. 57. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE COMPANIES ACCOUNTING YEAR - ENDS ON JUNE 2007, HOWEVER, THE 133(6) DATA WAS SUBMITTED BY THE COMPARABLE FROM 01.04.2006 TO 31.03.2007. WE HAVE ALSO PERUSED THE ANNUAL REPORT OF THE AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 41 COMPANY AT PAGE NO. 57 TO 128 OF THE PAPER BOOK. THE MAIN INCOME STREAM OF THE ASSESSEE IS BANDWIDTH AND OTHER SERVICES AND IT ENABLED SERVICES. THE COMPANY HAS ALSO PROVIDED SEGMENTAL INFORMATION AT PAGE NO. 1 01 WITH RESPECT TO ITS TELECOMMUNICATION SERVICES DIVISION AND IT ENABLED SERVICES DIVISION. IN ITS IT ENABLED SERVICES DIVISION IT PROVIDED SERVICE OF DATA SERVICE MANAGEMENT, END USER COMPUTER SERVICES MANAGEMENT, MANAGED SECURITY SERVICES, NETWORKING S ERVICES AND TOOLS AND PROCESS CONSULTANT SERVICES. IN VIEW OF THIS IT IS APPARENT THAT THIS COMPANY IS FUNCTIONALLY COMPARABLE WITH THE ASSESSEE. MERELY BECAUSE THE COMPANY USES ONE OR TWO WORDS WHILE DESCRIBING ITS FUNCTIONS CANNOT MAKE IT UN - COMPARABLE. HOWEVER, DRP VIDE ITS DIRECTION DATED 17.12.2014 AT PAGE NO. 9/29 WHILE DISCUSSING THE ABOVE COMPARABLE NOTED THAT ANNUAL REPORT OF THE COMPANY IS GIVEN TO THE ASSESSEE FOR FINANCIAL YEAR ENDING ON 31.03.2009, INSTEAD OF 2007, HENCE, THE LD TPO WAS DIRECT ED TO PROVIDE ANNUAL REPORT OF MARCH 2007. HOWEVER, THE LD TPO VIDE ORDER DATED 14.01.2015 GIVING EFFECT TO THE ORDER OF THE LD DRP HAS NOT PROVIDED THIS INFORMATION AND BEFORE US TO THE ANNUAL REPORT OF THE ABOVE COMPANY WAS ALSO FOR JUNE FY ENDING AND NO T FOR MARCH ENDING. A COMPARABLE CANNOT BE INCLUDED IN THE COMPARABILITY ANALYSIS FOR COMPARING THE PLI OF THE ASSESSEE WITHOUT HAVING CONCISE AND PRECISE PUBLICLY INFORMATION ABOUT THE COMPARABLE FOR SAME FINANCIAL PERIOD. IN THE PRESENT CASE THE COMPAR ABLE IS FOLLOWING JUNE AS ITS ACCOUNTING YEAR, THEREFORE, WITHOUT HAVING PUBLICLY AVAILABLE INFORMATION ABOUT THE COMPARABLE FOR THE COMPARATIVE ACCOUNTING YEAR OF THE ASSESSEE IT CANNOT BE SELECTED AS COMPARABLE . IN VIEW OF THIS, WE AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 42 DIRECT THE EXCLUSION O F ABOVE COMPARABLE SOLELY FOR THE REASON OF NON - AVAILABILITY OF COMPARABLE FINANCIAL INFORMATION. 58. THE NEXT COMPARABLE CONTESTED BY THE ASSESSEE IN INFOSYS BPO LTD CONTESTING THAT IT IS ENGAGED IN KNOWLEDGE PROCESS OUTSOURCING AND IS OF HUGE SIZE. THE LD AR REFERRED TO VARIOUS PARTS OF THE BALANCE SHEET OF THAT COMPANY TO DEMONSTRATE IS THAT SAME IS NOT COMPARABLE. 59. THE LD DR RELIED UPON THE ORDERS OF THE LOW ER AUTHORITIES. 60. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ANNUAL ACCOUNT OF THE ABOVE COMPANY AT PAGE NO. 179 TO 281 OF THE PAPER BOOK. ACCORDING TO THAT, THIS COMPANY IS ENGAGED IN CRM, FINANCE AND ACCOUNTING, KNOWLEDGE SERVICES, ORDER MANAGEMENT AND PROCUREMENT AND HUMAN RESOURCES FOR VARIOUS VERTICAL BUSINESS UNDERTAKING. FURTHER, THE LD DRP AT PAGE NO. 8 OF ITS DIRECTION HAS NOTED THAT ALL THE INFORMATION WERE PROVIDED BY THE TPO TO THE ASSESSEE OBTAINED U/S 133(6) OF THE ACT A ND THEREFORE, THERE IS NO OBJECTION ABOUT THE FUNCTIONAL DISSIMILARITY WITH THE COMPANY. FURTHER, IT WAS SUBMITTED BY THE LD AR THAT THIS COMPANY HAS OPERATING REVENUE OF RS. 649 CRORES WHEREAS THE ASSESSEE GROSS REVENUE IS ONLY RS. 55.94 LAKHS, THEREFORE, BY MERE SIZE THIS COMPANY IS REQUIRED TO BE EXCLUDED. HON'BLE DELHI HIGH COURT IN CASE OF PR CIT VS. ACTIS GLOBAL SERVICES FINDS MERIT THAT SIZE AND SCALE OF THE OPERATIONS MAKES IT INAPPOSITE COMPARABLE. IN THE PRESENT CASE THE DIFFERENCE IN THE GROSS RE VENUE FROM RS. 649 CRORES OF THE COMPARABLE ITSELF WHICH IS MORE THAN 1200 TIMES OF THE TURNOVER THE ASSESSEE COMPANY. IN VIEW OF THIS WE DIRECT THE EXCLUSION OF THE INFOSYS BPO LTD FROM THE COMPARABILITY ANALYSIS. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 43 61. THE NEXT COMPARABLE IS WIPRO LTD WHICH I S CONTESTED BY THE ASSESSEE STATING THAT DURING THE YEAR THERE IS AN ACQUISITION OF THE REAL BUSINESS THEREFORE, IT MAKES AN EXCEPTIONAL YEAR . IT WAS ALSO CONTENDED THAT IT HAS HUGE INTANGIBLES AND THEREFORE, THERE IS DIFFERENCE IN ASSET PROFILE OF THE COM PARABLE. 62. THE LD DR RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 63. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. ON PERUSAL OF THE ANNUAL ACCOUNT OF THE COMPANY AT PAGE NO. 22 IT MENTIONS FOLLOWING INFORMATION. WE HAVE CONTINUED TO PURSUE THE STRATEGY OF BUSINESSES WHICH COMPLEMENT OUR SERVICE OFFERING, PROVIDE ACCESS TO NICHE SKILL SETS AND EXPAND OUR PRESENCE IN SELECT GEOGRAPHIES. WE HAVE A DEDICATED TEAM OF PROFESSIONALS WHO IDENTIFY BUSINESSES WHICH MEET OUR STRATEGIC REQUIREMENTS AND ARE CULTURAL FIT TO WIPRO. THE FOLLOWING BUSINESSES HAVE JOINED THE WIPRO FAMILY DURING THE YEAR 1. US BASED QUANTCCH GLOBAL SERVICES LLC AND THE LNDIA BASED QUANTCCH GLOBAL SERVICES LTD. FOR A CASH CONSIDERATION, WHICH INCLUDES UPFRONT PAYMENT OF APPROXIMATELY USD 3 MILION. 2. CMANGO - TRANSACTIONS CONSUMMATED IN APRIL 2006 - US BASED CMANGO INC AND INDIA BASED CMANGO INC AND INDIA PRIVATE LIMITED FOR CASH CONSIDERATION WHICH INCLUDES UPFRONT PAYMENT OF USD 20 MN. 3. UROPE BASED RETAIL SOLUTIONS PROVIDER, ENABLER. THE CONSIDERATION INCLUDED UPFRONT CASH PAYMENT OF APPROXIMATELY EUROS 41 MILLION. 4. FINLAND BASED SARAWARC OV, FOR A CASH CONSIDERATION OF APPROXIMATELY EURO 25 MILLION. 5. MIDDLE EAST AND SAARC OPERATIONS OF 3D NETWORKS AND PLANET PSG FOR A CASH CONSIDERATION OF APPROXIMATELY USD 23 MILLION. 6. IN OUR CONSUMER CARE AND LIGHTING BUSINESS WE ACQUIRED NORTH - WEST SWITCHES BUSINESS FROM NORTH - WEST SWITCHGEAR LTD., A COMPANY IN THE BUSINESS OF SWITCHES, SOCKETS, MCBS ETC. FOR AN UPFRONT CASH CONSIDERATION OF RS. 1,022 MILLION. 7. IN OUR INFRASTRUCTURE ENGINEERING BUSINESS, WE ACQUIRED HYDRAUTO GROUP AB (' HVDRAUTO') FOR A CASH CONSIDERATION OF USD 31 MILLION. WE PARTNERED WITH MOTOROLA, A GLOBAL LEADER IN WIRELESS COMMU NICATIONS, TO FORM A JOINT VENTURE NAMELY WMNETSERV LIMITED TO DELIVER WORLD - CLASS MANAGED SERVICES TO TELECOM OPERATORS IN THE AREA OF NETWORK OPERATION. AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 44 64. FURTHER, THIS COMPANY HAS GROSS SALES OF ITES SEGMENT AS THREE SEGMENTS AS GLOBAL IT SERVICE AND PRODUCTS COMPRISING OF IT SERVICES AND BPO SEGMENTS, INDIA AND ASIA IT SERVICES AND PRODUCTS AND CONSUMER CARE AND LIGHTING . HOWEVER, ON THE BASIS OF THE WORKING SUBMITTED BY THE LD TPO IT SHOWS THAT SEGMENTAL REVENUE OF RS. 9797767937/ - WHICH IS FOR T HE REASONS STATED WITH RESPECT TO EXCLUSION OF INFOSYS BPO SQUARELY APPLIES TO THIS COMPARABLE ALSO. IN VIEW OF THIS, WE DIRECT TO EXCLUDE WIPRO FROM THE COMPARABILITY ANALYSIS. 65. IN VIEW OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 66. NOW WE COME TO THE APPEAL OF REVENUE WHICH HAS ONLY ONE GROUND THAT THE LD DRP HAS ERRED IN DIRECTING TO COMPUTE THE MARGIN OF THE ASSESSEE AS WELL AS THAT OF THE COMPARABLE BY TREATING FOREIGN EXCHANGE GAIN AND LOSS AS OPERATING EXPENDITURE . THE LD DISPUTE RESOLUTION PANEL VIDE PARA NO. 5.5 WHILE DEALING WITH GROUND NO. 10 OF THE OBJECTION OF THE ASSESSEE AS HELD THAT FROM THE PREVIOUS ORDER OF THE LD DRP IT WAS NOTED THAT WHILE DISPOSING GROUND NO. 8 OF OBJECTION THE PREVIOUS DRP HAS HELD THAT FOREIGN EXCHANGE GAIN AND LOSS ES ARE OPERATING IN NATURE BOTH FOR THE TAXPAYERS AS WELL AS FOR THE COMPARABLES AND THEREFORE, IT DIRECTED THE LD TPO TO TREAT FOREIGN EXCHANGE GAIN OR LOSS AS OPERATING. FURTHERMORE, LOOKING AT THE ORDER OF THE LD DRP DATED 10.08.2011 GROUND NO. 8 THE DR P HAS DIRECTED TO INCLUDE THE FOREIGN EXCHANGE GAIN AND LOSS AS OPERATING IN NATURE. THE LD ASSESSING OFFICER HAS NOT CHALLENGED THIS ORDER WHEN THE ORDER U/S 143(3) OF THE ACT WAS PASSED INCORPORATING THE ABOVE DIRECTION. THEREFORE, CHALLENGE TO THE SAME IN THE SECOND GROUND OF THE APPEAL IS DESERVE TO BE REJECTED. FURTHERMORE , IN THE SAFE AMERICAN EXPRESS ( INDIA ) PRIVATE LIMITED V DCIT ITA NO 1868/DEL/2015 DCIT V AMERICAN EXPRESS ( INDIA) PRIVATE LIMITED ITA NO 1674/DEL/2015 A Y 2007 - 08 45 HARBOR RULES CBDT ITSELF HAS CONSIDERED THAT FOREIGN EXCHANGE GAIN OR LOSS SHALL BE PART O F OPERATING EXPENDITURE/ INCOME, I.E. RULE 10 TA (J) & (K) . THOUGH, SAFE HARB OR RULES DO NOT APPLY TO THE PRESENT YEAR, HOWEVER, IT GIVES A GUIDANCE ABOUT MANNER OF CO MPUTING PROFIT LEVEL INDICATOR FURTHER THE CONCEPT OF OPERATING EXPENDITURE AND INCOME HAS NOT UNDERGONE ANY CHANGE. IN VIEW OF THIS WE DISMISS THE APPEAL OF THE REVE NUE. ORDER PR ONOUNCED IN THE OPEN COURT ON 0 7 / 06 / 2017 . - S D / - - S D / - ( AMIT SHUKLA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 7 / 06 / 2017 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI