M/s TNS India Private Limited, Hyderabad V. Dy.CIT, Cir-2(3), Hyderabad

ITA 1875/HYD/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0354 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 31-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 133(6); 139(5); 10B; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1875/HYD/2012 ASSESSMENT YEAR: 2008-09 M/S TNS INDIA PVT. LTD., HYDERABAD PAN AABCN2278F VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHOPRA REVENUE BY : SMT. G. APARNA RAO DATE OF HEARING 30-03-2015 DATE OF PRONOUNCEMENT 17-04-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL OF ASSESSEE IS AGAINST THE ASSESSMENT ORDER PASSED U/S 143(3) READ WITH SECTION 92CA(3) AND 144 C(13) OF THE IT ACT, 1961. THE APPEAL PERTAINS TO AY 2008-09. 2. BRIEFLY THE FACTS ARE, ASSESSEE AN INDIAN COMPAN Y WAS INCORPORATED IN THE YEAR 1992 AS ORACLE RESEARCH AN D CONSULTANCY PVT. LTD. IT WAS PART OF MBL GROUP, WHICH WAS ACQU IRED BY NFO GROUP IN1997. NFO GROUP, IN TURN, WAS ACQUIRED BY TNS GRO UP IN THE YEAR 2003. TNS GROUP, AS CLAIMED, IS ONE OF THE WORLDS LARGEST AND LEADING CUSTOM MARKET RESEARCH SPECIALISTS. IT PROV IDES QUALITY MARKETING INFORMATION AND INNOVATIVE MARKET RESEARC H SOLUTIONS ACROSS THE PRODUCT LIFE CYCLE, FROM DEVELOPING PROD UCTS TO BUILDING BRANDS AND MARKETING COMMUNICATIONS. THE GROUP PROV IDES SERVICES ACROSS THE GLOBE. ASSESSEE, ON ITS PART, IS ENGAGED IN RENDERING A 2 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. RANGE OF COMPREHENSIVE MARKET RESEARCH SERVICES TO DOMESTIC AND INTERNATIONAL CLIENTS THROUGH VARIOUS OFFICES IN DI FFERENT CITIES ACROSS INDIA. ASSESSEE ALSO PROVIDES IT ENABLED BACK OFFIC E DATA PROCESSING SERVICES (ITES) THROUGH ITS OFFSHORE RESEARCH SERVI CE CENTRE (ORSC) AT HYDERABAD, WHICH IS A 100% EOU REGISTERED UNDER SOFTWARE TECHNOLOGY PARK OF INDIA (STPI) SCHEME. FO R THE AY UNDER DISPUTE, ASSESSEE FILED ITS RETURN OF INCOME ORIGIN ALLY ON 29/09/08 DECLARING TOTAL INCOME OF RS. 2,12,58,500. SUBSEQUE NTLY, ASSESSEE FILED A REVISED RETURN OF INCOME ON 31/03/10 DECLAR ING LOSS OF RS. (-) 3,21,01,031. DURING THE RELEVANT FY, ASSESSEE AS PE R 3CEB REPORT, DISCLOSED THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH IT AES: I) PROVISION OF ITES(BPO SERVICES) TO AES RS. 47,51,80,266 II) PROVISION OF MARKET RESEARCH (MR) SERVICES RS. 8,79,06,893 III) PAYMENT TOWARDS OVERHEAD ALLOCATION CHARGES AN D LICENSE FEES (TOGETHER REFERRED TO AS MANAGEMENT FEES) GROUP OVERHEAD ALLOCATION FEE RS. 1,57,74,0 55 ASIA PACIFIC OVERHEAD ALLOCATION FEERS.1,76,22,00 0 REGIONAL MANAGEMENT ALLOCATION FEE RS.1,66,23,495 IV) PAYMENT OF TRADE MARK LICENSE FEE RS. 1,19,02,086 V) PAYMENT OF BUSINESS SOLUTIONS LICENSE FEE - RS. 93,96,576 VI) REIMBURSEMENT BY AES - RS. 22,03,172 VII) REIMBURSEMENT TO AES RS. 42,943,052 2.1 FOR THE PURPOSE OF BENCHMARKING ITS INTERNATION AL TRANSACTIONS WITH ITS AES, ASSESSEE AGGREGATED THE REVENUE RECEI VED FROM BPO SERVICES AS WELL AS MARKET RESEARCH SERVICES AND CO NDUCTED A TP ANALYSIS THROUGH AN EXTERNAL CONSULTANT BY CHOOSING ITSELF AS THE TESTED PARTY. TNMM WAS ADOPTED AS THE MOST APPROPRI ATE METHOD WITH OPERATING PROFIT TO OPERATING COST AS THE PROFIT LE VEL INDICATOR (PLI). A SEARCH IN THE DATA BASES YIELDED 21 COMPANIES AS C OMPARABLES. AS THE WEIGHTED AVERAGE MARGIN OF THE COMPARABLES WAS FOUND TO BE WITHIN THE TOLERANCE BAND OF ASSESSEES PROFIT MARG IN, THE PRICE 3 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. CHARGED BY THE ASSESSEE WAS FOUND TO BE WITHIN ARM S LENGTH. DURING THE ASSESSMENT PROCEEDING, AO NOTICING THAT ASSESSE E HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH AES, MADE A RE FERENCE TO THE TRANSFER PRICING OFFICER (TPO) TO DETERMINE THE ARM S LENGTH PRICE (ALP). IN COURSE OF PROCEEDING BEFORE HIM, TPO CALL ED FOR THE BOOKS OF ACCOUNT, FINANCIAL STATEMENTS, TP STUDY, AND VAR IOUS INFORMATIONS SUBMITTED BY ASSESSEE. AFTER EXAMINING THE MATERIAL S AVAILABLE BEFORE HIM AND ALSO CONSIDERING THE SUBMISSIONS OF ASSESSE E, TPO, THOUGH, AGREED WITH ASSESSEE THAT TNMM IS MOST APPROPRIATE METHOD, BUT, HE NEVERTHELESS REJECTED TP REPORT OF ASSESSEE BY OBSE RVING THAT ASSESSEE HAS USED MULTIPLE YEAR DATA AND APPLIED IN APPROPRIATE FILTERS WHILE SELECTING COMPARABLES AS A RESULT OF WHICH TH E TP ANALYSIS BECAME UNRELIABLE. AFTER REJECTING THE TP REPORT, T PO UNDERTOOK A SEARCH HIMSELF BY APPLYING SOME ADDITIONAL FILTERS WHICH YIELDED 20 COMPARABLES INCLUDING SOME SELECTED BY ASSESSEE WIT H ARITHMETIC MEAN PLI OF 29.16%. THE FINAL COMPARABLES SELECTED BY TPO WITH THEIR OP TO OC ARE AS UNDER: S.NO. NAME OF THE COMPARABLE COMPANY TOTAL INCOME (RS. IN CRORES) PBIT/ COST% 1 ACCENTIAL TECHNOLOGIES LTD. 51.04 44.50 2 ACROPETAL TECHNOLOGIES LTD. (SEG.) 20.80 35.30 3 ADITYA BIRLA MINACS 183.17 -0.55 4 ASIT C MEHTA 4.82 9.10 5 CALIBER POINT BUSINESS SOLUTIONS (SEG) 53.00 10.97 6 CORAL HUB (VISHAL INFO) 13.07 51.84 7 COSMIC GLOBAL 5.86 24.30 8 CROSSDOMAIN SOLUTION PVT. LTD. 27.40 26.96 9 DATAMATICS FINANCIAL (BPO DIV.) 16.72 34.87 10 E4E (EARLIER KNOWN AS NITANNY OUTSOURCING) 25.99 17.50 11 ECLERX 123.45 66.50 12 GENESYS INTERNATIONAL 47.52 51.91 13 HCL COMNET SYSTEMS & SERVICES LTD. (SEG) 388.05 32.97 14 ICRA ONLINE LTD. (SEG) 82.29 11.22 15 INFOSYS BPO LTD. 825.08 20.03 16 I-SERVICE INDIA PVT. LTD. 13.39 10.92 4 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. 17 MOLD TEK TECHNOLOGIES LTD. 17.84 106.82 18 R SYSTEM INTERNATIONAL LTD. (SEG) 21.33 4.30 19 SPANCO LTD. (SEG) 42.27 8.94% 20 WIPRO LTD. 1158.80 30.23 ARITHMETIC MEAN 29.16 2.2 AFTER ALLOWANCE OF 0.43% TOWARDS WORKING CAPITA L ADJUSTMENT, THE ADJUSTED ARITHMETIC MEAN PLI WAS WORKED OUT AT 28.73% AND THE ALP OF INTERNATIONAL TRANSACTION WAS DETERMINED AT RS. 144,94,01,963 AND AFTER EXCLUDING THERE FROM NON AE SALES OF RS. 56,58,92,732, THE ALP OF SALES WITH AES WAS DETERMINED AT RS. 88,35,0 9,231 AS AGAINST PRICE RECEIVED BY ASSESSEE FROM AES OF RS. 56,75,46 ,826. THE RESULTANT SHORT FALL OF RS. 31,59,62,405 WAS TREATE D AS TP ADJUSTMENT U/S 92CA. FURTHER, THE TPO ALSO DID NOT ACCEPT ASSE SSEES CLAIM OF PAYMENT TOWARDS INTRA GROUP SERVICES (MANAGEMENT FE E AND LICENCE FEE) AMOUNTING TO RS. 7,13,18,212 ON THE GROUND THA T THE ASSESSEE HAS FAILED TO FURNISH/SUBSTANTIATE WITH DOCUMENTARY EVIDENCE THE NEED FOR SUCH SERVICES AND ALSO WHETHER SUCH SERVICES WE RE ACTUALLY RENDERED BY AES. HE FURTHER OBSERVED IF AT ALL ANY SUCH SERVICES WERE RENDERED BY AES WHETHER ASSESSEE DERIVED ANY BENEFI T THERE FROM. THUS, TPO BEING OF THE VIEW THAT THERE IS NO NECESS ITY FOR MAKING PAYMENT TOWARDS INTRA GROUP SERVICES DETERMINED TH E ALP OF SUCH SERVICES AT NIL. HOWEVER, THE TPO DID NOT MAKE ANY SEPARATE ADJUSTMENT ON THIS ACCOUNT SINCE THE AMOUNT IN QUES TION ALREADY GOT MERGED IN THE ADJUSTMENT MADE TO THE PRICE RECEIVED ON ACCOUNT OF TRANSACTIONS PERTAINING TO SALE OF SERVICES. IN CON SEQUENCE OF THE ORDER PASSED BY TPO, AO MADE A DRAFT ASSESSMENT ORD ER MAKING ADDITION OF THE TP ADJUSTMENT OF RS. 31,59,62,405 T O THE ALP. THAT BESIDES, AO ALSO RECOMPUTED THE DEDUCTION CLAIMED U /S 10A OF THE ACT, WHICH RESULTED IN ADDITION OF AN AMOUNT OF RS. 6,81,37,974. FURTHER, AO DISALLOWED ASSESSEES CLAIM OF EXPENDIT URE ON ACCOUNT OF LICENCE FEE OF RS. 1,00,99,916 PAID TOWARDS OPERATI NG SOFTWARE AND APPLICATION SOFTWARE BY TREATING THE SAME AS CAPITA L IN NATURE. BEING AGGRIEVED OF THE DRAFT ASSESSMENT ORDER, ASSESSEE F ILED OBJECTIONS 5 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. BEFORE THE DISPUTE RESOLUTION PANEL (DRP) BOTH ON T P ISSUES AS WELL AS CORPORATE TAX ISSUES. 2.3 AS FAR AS ASSESSEES OBJECTIONS WITH REGARD TO TP ISSUES ARE CONCERNED, LD. DRP GRANTED PARTIAL RELIEF TO ASSESS EE BY ACCEPTING ASSESSEES CLAIM THAT OTHER INCOME OF RS. 28,69,633 IS TO BE TREATED AS PART OF OPERATING REVENUE FOR COMPUTATION OF PLI . THE DRP ALSO ACCEPTED ASSESSEES OBJECTIONS WITH REGARD TO TWO O F THE SELECTED COMPARABLES, NAMELY, MOLD TEK TECHNOLOGIES LTD. AND CORAL HUB LTD. AND DIRECTED AO TO REMOVE THEM. AS FAR AS PAYMENT M ADE TOWARDS INTRA GROUP SERVICES ARE CONCERNED, THOUGH, LD. DRP REJECTED ASSESSEES OBJECTIONS WITH REGARD TO DETERMINATION OF ALP AT NIL BUT THE LD. DRP DIRECTED EXCLUSION OF SUCH PAYMENT FROM OC WHILE COMPUTING ALP. ALL OTHER OBJECTIONS OF ASSESSEE ON TP ISSUES WERE REJECTED BY LD. DRP. AS FAR AS CORPORATE TAX ISSUES ARE CONCERNED, LD. DRP GRANTED PARTIAL RELIEF TO ASSESSEE. IN PURSUANC E TO THE DIRECTIONS OF LD. DRP, AO FINALIZED THE ASSESSMENT AS PER THE IMPUGNED ASSESSMENT ORDER. BEING AGGRIEVED OF THE ADDITIONS MADE, ASSESSEE IS BEFORE US RAISING AS MANY AS 20 GROUNDS. 3. GROUND NO. 1 TO 15 ARE ON TP ISSUES WHERE AS GRO UND NO. 16 TO 20 ARE ON CORPORATE TAX ISSUES. AS FAR AS TP ISSUES ARE CONCERNED, GROUND NO. 1 BEING OF GENERAL NATURE, NO SPECIFIC A DJUDICATION IS NECESSARY. AS FAR AS OTHER GROUNDS ON TP ISSUES ARE CONCERNED, LD. AR AT THE TIME OF HEARING CONFINED HIS ARGUMENT TO GROUND NOS. 3, 4, 9, 10 AND DID NOT PRESS OTHER GROUNDS. ACCORDINGLY, THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 4. HEREINAFTER WE WILL DEAL WITH THE SURVIVING GROU NDS ON TP ISSUES. IN GROUND NO. 3, ASSESSEE HAS CHALLENGED TH E DETERMINATION OF ALP OF MANAGEMENT FEE AND LICENCE FEE PAID TO AE AS NIL. 5. BRIEFLY THE FACTS RELATING TO THE ISSUE ARE, DUR ING THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE CLAIMED PAYMENT OF MANAGEMENT FEE AND LICENCE FEE OF RS. 7,13,18,212 TOWARDS VARI OUS SERVICES 6 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. PROVIDED BY AES. TPO HOWEVER REJECTED ASSESSEES CL AIM AND DETERMINED ALP OF SUCH SERVICES AT NIL BY OBSERVING THAT ASSESSEE HAS FAILED TO SUBSTANTIATE THE NEED FOR SERVICES AN D FURTHER ASSESSEE FAILED TO PROVE WHETHER SERVICES WERE ACTUALLY REND ERED AND ASSESSEE DERIVED ANY BENEFIT FROM SUCH SERVICES. OF COURSE, THE TPO DID NOT MAKE ANY SEPARATE ADJUSTMENT WHILE DETERMINING THE ALP OF SUCH SERVICES AT NIL. LD. DRP THOUGH UPHELD THE DETERMIN ATION OF ALP AT NIL, A DIRECTION WAS GIVEN TO EXCLUDE SUCH EXPENDIT URE INCURRED BY ASSESSEE FROM OPERATING COST. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. LD. COUNSELS OF BOTH THE P ARTIES AGREED BEFORE US THAT THE ISSUE IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE BY THE ORDERS OF ITAT IN ASSESSEES OWN CASE FOR AY 2003-04 TO 2005-06 AND 2009-10. AS CAN BE SEEN WHILE CONSIDERI NG IDENTICAL NATURE OF DISPUTE, THE COORDINATE BENCH OF ITAT IN ASSESSEES OWN CASE IN ITA NO. 944/HYD/2007, 194/HYD/08 AND 798/HY D/09 DATED 22/01/14 FOR AYS 2003-04 TO 2005-06 HELD AS UNDER: 16. WE HAVE CONSIDERED THE ISSUE. WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSING OFFICER/TPO WITH REFERENCE TO THE SERVICE S PROVIDED BY AES. ASSESSEE HAS PROVIDED THE AGREEMENTS WHICH WERE ENTERED NOT DURI NG THE YEAR BUT IN EARLIER YEAR AND HAS BEEN PAYING THE SERVICE FEE TERMED AS MANAG EMENT FEE ACCORDINGLY. THIS CLAIM IS NOT ARISING FOR THE FIRST TIME IN THIS YEAR BUT, IS ALSO THERE IN EARLIER YEARS AND LATER YEARS. ASSESSEE IS PART OF A WORLDWIDE GROUP AND TH EY HAVE PLACED SOME CORPORATE CENTERS FOR GUIDANCE OF VARIOUS UNITS RUN BY THEM A CROSS THE GLOBE. IT WAS SUBMITTED THAT THE COSTS BEING INCURRED BY THE CENTERS ARE BE ING SHARED BY VARIOUS UNITS AND ASSESSEES SHARE IN THIS YEAR HAS COME TO 5% OF THE RECEIPTS PAYABLE TO NFO WORLDWIDE INC USA AND AT 4% TO NFO ASIA PACIFIC LTD. HONGKONG ON THE NET REVENUES. THESE AMOUNTS ARE WITHIN THE NORMS PRESCRIBED FOR PAYMENT OF FEES TO VARIOUS GROUP COMPANIES OF SIMILAR NATURE. THERE IS NO DISPUTE WI TH REFERENCE TO SERVICES BEING PROVIDED BY THE GROUP COMPANIES TO ASSESSEE AND ASS ESSEE ALSO PAID VARIOUS OTHER AMOUNTS INCLUDING ROYALTY. AS SUBMITTED BY ASSESSEE , EVEN THOUGH SOME CORRESPONDENCE WAS PLACED ON RECORD WITH REFERENCE TO THE ADVISE GIVEN TO ASSESSEE, PROVIDING A CONCRETE EVIDENCE WITH REFERENCE TO THE SERVICES IN THE NATURE OF SPECIFIC ACTIVITIES IS DIFFICULT, LIKE PROVING THE ROLE OF A N ANESTHESIAN IN AN OPERATION CONDUCTED BY A SURGEON. THERE MAY BE AN EVIDENCE OF OPERATION BEING PERFORMED BY THE DOCTOR IN THE FORM OF SUTURES OR SCARS ETC, WHICH CAN BE PROV ED LATER BUT THE ROLE OF AN ANESTHESIAN BEFORE OPERATION AND AFTER GAINING CONS CIOUSNESS IS DIFFICULT TO PROVE AS THAT IS NOT TANGIBLE IN NATURE. LIKEWISE, FOR THE A DVISE GIVEN BY VARIOUS GROUP CENTERS TO THE GROUP COMPANIES IN DAY-TO-DAY MANNER IS DIFFICU LT TO PLACE ON RECORD BY WAY OF 7 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. CONCRETE EVIDENCE BUT THE WAY BUSINESS IS CONDUCTED , ONE CAN PERCEIVE THE SAME. ASSESSEE HAS GIVEN A DETAILED WRITE-UP AS WELL AS T HE SERVICES PROVIDED AND BENEFIT OBTAINED WHICH WERE NOT CONTRADICTED. THE ASSESSING OFFICER DID NOT BELIEVE THE SAME IN THE ABSENCE OF CONCRETE EVIDENCE. UNLESS THE ASS ESSING OFFICER STEPS INTO ASSESSEES BUSINESS PREMISES AND OBSERVES THE ROLE OF THESE CO MPANIES/ ASSESSEES BUSINESS TRANSACTIONS, IT WILL BE DIFFICULT TO PLACE ON RECO RD THE SORT OF ADVICE GIVEN IN DAY-TO-DAY OPERATIONS. WHAT SORT OF EVIDENCE SATISFIES THE AO IS ALSO NOT SPECIFIED. ASSESSEE HAS ALREADY PLACED LOT OF EVIDENCE IN SUPPORT OF CLAIMS . THEREFORE, ON THAT COUNT, WE ARE NOT IN AGREEMENT WITH THE ASSESSING OFFICER AND TPO THAT SERVICES WERE NOT RENDERED BY THE GROUP COMPANIES TO ASSESSEE. 16.1. EVEN OTHERWISE, THE ROLE OF TRANSFER PRICING OFFICER IS TO DETERMINE THE ARMS LENGTH PRICE OF A TRANSACTION. HE CANNOT REJECT THE ENTIRE PAYMENT UNDER THE PROVISIONS OF SEC. 92CA AS HELD BY THE HONBLE DELHI HIGH COUR T IN THE CASE OF EKL APPLIANCES LTD (SUPRA) WHEREIN THE HONBLE DELHI HIGH COURT, ON SI MILAR FACTS WHERE THE TPO ALSO DETERMINED THE ALP AT NIL, HAS HELD AS UNDER : 21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR ASSESSEE TO SHOW THAT ANY LEGITIMATE EXPENDITUR E INCURRED BY HIM WAS ALSO INCURRED OUT OF NECESSITY. IT IS ALSO NOT NECESSARY FOR ASSESSEE TO SHOW THAT ANY ITA.NO.944/H/07, 194 & 74/H/08, 793/H/09, 654,655/H /10 & 7/H/2012 TNS INDIA PVT. LTD. EXPENDITURE INCURRED BY HIM FOR THE PURPOSE OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED 'WHOLLY AND EXCLUSIVELY' FOR THE PURPOSE OF BUSINESS AND NOTHING MORE. IT IS THIS PRINCIPLE THAT INTER ALIA FINDS EXPRESSION IN THE OECD GUIDELINES, IN THE PARAGRAPHS WHICH WE HAVE QUOTED ABOVE. 22. EVEN RULE IOB(L)(A) DOES NOT AUTHORISE DISALLOW ANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR ASSESSEE TO HAVE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXP ENDITURE WAS UNREMUNERATIVE OR THAT IN VIEW OF THE CONTINUED LOS SES SUFFERED BY ASSESSEE IN HIS BUSINESS, HE COULD HAVE FARED BETTER HAD HE NOT INCURRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FOR THE PURPOSE OF RULE LOB. WHETHER OR NOT TO ENTER INTO THE TRANSACTION IS FOR ASSESSEE TO DE CIDE. THE QUANTUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILITY THEREOF AS BUSINESS EXPENDITURE, H E HAS NO AUTHORITY TO DISALLOW THE ENTIRE EXPENDITURE OR A PART THEREOF O N THE GROUND THAT ASSESSEE HAS SUFFERED CONTINUOUS LOSSES. THE FINANCIAL HEALT H OF ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOWABILITY OF AN EXPENSE; THER E IS CERTAINLY NO AUTHORITY FOR THAT. WHAT THE TPO HAS DONE IN THE PRESENT CASE IS TO HOLD THAT ASSESSEE OUGHT NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYAL TY/BRAND FEE, BECAUSE IT HAS BEEN SUFFERING LOSSES CONTINUOUSLY. SO LONG AS THE EXPENDITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW T HE SAME ON ANY EXTRANEOUS REASONING. AS PROVIDED IN THE OECD GUIDELINES, HE I S EXPECTED TO EXAMINE THE INTERNATIONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BUT A WHOLESALE DISALLOWANCE OF THE EXPE NDITURE, PARTICULARLY ON THE GROUNDS WHICH HAVE BEEN GIVEN BY THE TPO IS NOT CONTEMPLATED OR AUTHORISED. 8 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. 23. APART FROM THE LEGAL POSITION STATED ABOVE, EVE N ON MERITS THE DISALLOWANCE OF THE ENTIRE BRAND FEE / ROYALTY PAYM ENT WAS NOT WARRANTED. ASSESSEE HAS FURNISHED COPIOUS MATERIAL AND VALID R EASONS AS TO WHY IT WAS SUFFERING LOSSES CONTINUOUSLY AND THESE HAVE BEEN R EFERRED TO BY US EARLIER. FULL JUSTIFICATION SUPPORTED BY FACTS AND FIGURES HAVE B EEN GIVEN TO DEMONSTRATE THAT THE INCREASE IN THE EMPLOYEES COST, FINANCE CH ARGES, ADMINISTRATIVE EXPENSES, DEPRECIATION COST AND CAPACITY INCREASE H AVE CONTRIBUTED TO THE CONTINUOUS LOSSES. THE COMPARATIVE POSITION OVER A PERIOD OF 5 YEARS FROM 1998 TO 2003 WITH RELEVANT FIGURES HAVE BEEN GIVEN BEFOR E THE CIT (APPEALS) AND THEY ARE REFERRED TO IN A TABULAR FORM IN HIS ORDER IN PARAGRAPH 5.5.1. IN FACT THERE ARE FOUR TABULAR STATEMENTS FURNISHED BY ASSE SSEE BEFORE THE CIT (APPEALS) IN SUPPORT OF THE REASONS FOR THE CONTINU OUS LOSSES. THERE IS NO MATERIAL BROUGHT BY THE REVENUE EITHER BEFORE THE C IT (APPEALS) OR BEFORE THE TRIBUNAL OR EVEN BEFORE US TO SHOW THAT THESE ARE I NCORRECT FIGURES OR THAT EVEN ON MERITS THE REASONS FOR THE LOSSES ARE NOT GENUIN E. 24. WE ARE, THEREFORE, UNABLE TO HOLD THAT THE TRIB UNAL COMMITTED ANY ERROR IN CONFIRMING THE ORDER OF THE CIT (APPEALS) FOR BOTH THE YEARS DELETING THE DISALLOWANCE OF THE BRAND FEE L ROYALTY PAYMENT WHI LE DETERMINING THE ALP. ACCORDINGLY, THE SUBSTANTIAL QUESTIONS OF LAW ARE A NSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. THE APPEALS ARE ACCORDINGLY DISMISSED WITH NO ORDER AS TO COSTS. 17. RESPECTFULLY FOLLOWING THE ABOVE, WE ARE OF THE OPINION THAT THE TPO WENT BEYOND HIS JURISDICTION IN DENYING THE PAYMENT OUT-RIGHTLY , WHEREAS, HIS ROLE IS LIMITED TO DETERMINING THE ALP. IN THE GUISE OF DETERMINATION OF ALP, THE TPO CANNOT QUESTION THE BUSINESS DECISION OF PAYMENT AND DETERMINE THAT NO SERVICES WERE RENDERED. IN THAT VIEW OF THE MATTER, THE DIRECTION OF THE TPO CANNOT BE UPHELD AT ALL. 17.2 BE THAT AS IT MAY, THE TPO ALSO INVOKED RULE 10B TO ANALYSE THE T RANSACTIONS ON TNMM METHOD. ACCORDINGLY, FEW OF THE TRANSACTIONS PARTICULARLY, PROVISIONS FOR DATA PROCESSING SERVICES AND ROYALTY ETC., WERE ANALYSED UNDER TNMM AND ACCEPTED THAT ASSESSEES PLI IS MORE THAN THE COMPARABLES. WHILE DETERMINING THE PLI, PAYMENT OF MANAGEMENT FEES IS ALSO CONSIDERED AS AN EXPENDITURE. IN THAT SENSE, EVEN AFTER PAYING THE MANAGEMENT FEE AT 4%, THE PROFIT LEVEL INDICATOR IS MORE THAN THE COMPARABLE CASES. THEREFORE, ASSESSEES TRANSACTIONS ARE DEEMED TO BE AT ARMS LENGTH. CONSIDERING THAT ALSO, DENIAL OF MANAGEMENT FEES IS NOT PROPER ON TH E PART OF THE TPO/ ASSESSING OFFICER. CONSIDERING THE ABOVE, WE ARE OF THE OPINI ON THAT THE ACTION OF THE TPO IN DETERMINING THE ALP AT NIL IS NOT ACCORDING TO THE PROVISIONS OF LAW AND ALSO ON FACTS. THEREFORE, WE DIRECT HIM TO ALLOW THE CLAIM. 18. HOWEVER, AS SEEN FROM THE PRICING PATTERN OF TH E AGREEMENT, THE METHODOLOGY PRESCRIBED IS NOT AS FIXED PERCENTAGE OF ASSESSEES TURNOVER/ NET RECEIPTS. THE COSTS ARE ITA.NO.944/H/07, 194 & 74/H/08, 793/H/09, 654,655/H /10 & 7/H/2012 TNS INDIA PVT. LTD. TO BE WORKED OUT IN THE GROUP CONCERN OR SERVI CE PROVIDER AND ARE ALLOCATED TO SPECIFIC GROUP COMPANIES. NEITHER THE TPO NOR ASSES SING OFFICER EXAMINED WHETHER THE PAYMENT OF FEE PAID IS ACCORDING TO THE AGREEMENT O R NOT. WHAT WE NOTICED, AS PER THE INVOICE PLACED, IS THAT ASSESSEE WAS GIVEN INVOICES AT A FIXED AMOUNT WHERE AS THE AGREEMENT PROVIDES OTHERWISE. THERE MAY BE ADJUSTME NTS AT THE END OF YEAR BASED ON OVER ALL COST INCURRED BY AES. THIS REQUIRES EXAMIN ATION AS TPO/AO DENIED THE CLAIM 9 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. ITSELF. THEREFORE, IN ORDER TO VERIFY THE PRICING M ETHODOLOGY AS PRESCRIBED IN THE AGREEMENT AND PAYMENT OF THE AMOUNTS, THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THIS ASPECT AND ALLOW THE AMOUNTS, IF THE PAYMENT IS ACCORDING TO PRICING METHODOLOGY AGREED BETWEEN THE PARTIES. THEREFORE, WHILE ALLOWING THE GROUND ON THE QUESTION OF CLAIM OF MAN AGEMENT FEES AS SUCH, THE QUANTIFICATION THEREOF IS RESTORED TO THE ASSESSING OFFICER TO EXAMINE WITH REFERENCE TO THE AGREEMENT BETWEEN THE PARTIES. ACCORDINGLY, GRO UNDS 2 TO 5 ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. SIMILAR VIEW WAS ALSO EXPRESSED BY ITAT IN ASSESSEE S OWN CASE FOR AY 2009-10 IN ITA NO. 604/HYD/2014 DT. 13/02/2015. AS THE ISSUE IN DISPUTE IS MATERIALLY SAME, RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF COORDINATE BENCH IN ASSESSEES OWN CAS E, WE REMIT THE ISSUE BACK TO THE FILE OF THE AO/TPO TO DETERMINE T HE QUANTUM OF MANAGEMENT FEE AND LICENCE FEE WITH REFERENCE TO AG REEMENT BETWEEN THE PARTIES. THIS GROUND IS ALLOWED FOR STA TISTICAL PURPOSES. 7. IN GROUND NO. 4, ASSESSEE HAS RAISED THE ISSUE O F NON CONSIDERATION OF OTHER RECEIPTS OF RS. 28,69,633 AS PART OF OPERATING REVENUE FOR COMPUTING THE MARGIN. 8. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI ALS ON RECORD. AS CAN BE SEEN FROM THE FINANCIAL STATEMENTS OF THE ASSESSEE, DURING THE YEAR ASSESSEE EARNED CERTAIN INCOME WHICH WAS S HOWN AS OTHER INCOME, THE DETAILS OF WHICH ARE AS UNDER: PARTICULARS AMOUNT INTEREST 340,176 PROFIT ON SALE FIXED ASSETS/INVESTMENT 15,203 SALE OF SCRAP, QUESTIONNAIRES 364,991 REIMBURSEMENT OF TRAVELLING & OTHER EXPENSES BY CLIENTS 2,149,263 TOTAL 2,869,633 8.1 THE TPO WHILE COMPUTING THE PLI EXCLUDED THE AF ORESAID OTHER INCOME SHOWN BY ASSESSEE FROM OPERATING REVENUE. IN THE OBJECTIONS RAISED BEFORE LD. DRP ASSESSEE CLAIMED THAT THE OTH ER INCOME SHOWN ARE ALSO FROM THE OPERATIONS OF THE BUSINESS, HENCE , SHOULD BE TREATED AS PART OF OPERATING REVENUE. LD. DRP AFTER CONSIDERING THE 10 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. SUBMISSIONS ACCEPTED ASSESSEES CLAIM AND DIRECTED TPO TO TREAT THE OTHER INCOME SHOWN BY ASSESSEE AS PART OF OPERATING REVENUE. HOWEVER, THE DIRECTIONS OF LD. DRP WERE NOT IMPLEME NTED BY AO IN THE FINAL ASSESSMENT ORDER. IN OUR VIEW, WHEN LD. D RP HAS SPECIFICALLY DIRECTED TPO TO TREAT THE OTHER INCOME SHOWN BY ASS ESSEE AS PART OF OPERATING REVENUE FOR COMPUTING PLI, AO/TPO ARE DUT Y BOUND TO COMPLY TO THE DIRECTIONS OF LD. DRP. THAT BEING THE CASE, WE DIRECT AO/TPO TO COMPUTE PLI BY TREATING THE OTHER INCOME AS PART OF THE OPERATING REVENUE. 9. THE NEXT ISSUE AS RAISED IN GROUND NO. 9 IS WITH REFERENCE TO CERTAIN COMPARABLES SELECTED BY TPO. AS ALREADY STA TED HEREINBEFORE, OUT OF THE 20 COMPARABLES SELECTED BY TPO, DRP EXCLUDED TWO COMPARABLES BY ACCEPTING ASSESSEES OB JECTION. HOWEVER, BEFORE US, ASSESSEE HAS OBJECTED TO SELECT ION OF 8 MORE COMPARABLES. HEREINAFTER WE WILL DEAL WITH EACH OF THE COMPARABLE OBJECTED TO BY ASSESSEE. 9.1. ACCENTIA TECHNOLOGIES LTD. : LD. AR SUBMITTED BEFORE US THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS IT IS ENG AGED IN HEALTHCARE RESEARCH MANAGEMENT SERVICES AND SOFTWARE PRODUCTS. FURTHER, COMPANYS SEGMENTAL INFORMATION IS NOT AVAILABLE IN PUBLIC DOMAIN. LD. AR SUBMITTED, THE COMPANY IS ALSO NOT COMPARABL E AS IT IS AN EXCEPTIONAL YEAR OF OPERATION FOR THE COMPANY DUE T O EXTRAORDINARY EVENT. FURTHER EXPLAINING, IT WAS SUBMITTED DURING THE RELEVANT PY, GEO SOFT TECHNOLOGIES (TRIVANDRUM) LTD. AND IRIDIUM TECHNOLOGIES INDIA PVT. LTD. WERE MERGED WITH THE SAID COMPANY A ND THE COMPANY ALSO PURCHASED BUSINESS OF THUNGA SOFTWARE PVT. LTD ., GSR SYSTEMS INC., GSR PHYSICIAN BILLING SERVICES INC. DENMED TR ANSCRIPTION SERVICES INC. AND ACCENTIA FZE. IN SUPPORT OF SUCH SUBMISSION, LD. AR REFERRED TO THE ANNUAL REPORT OF THE COMPANY AS SUB MITTED IN THE PAPER BOOK. LD. AR SUBMITTED, THE INCREASE IN THE T URNOVER AND PROFIT MARGIN OF THE COMPANY IS DUE TO MERGER AND ACQUISIT ION. THUS, IT WAS SUBMITTED THE COMPANY CANNOT BE TREATED AS COMPARAB LE. IN SUPPORT 11 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. OF SUCH CONTENTION, ASSESSEE RELIED UPON THE DECISI ON OF ITAT, HYDERABAD BENCH IN CASE OF HSBC ELECTRONIC DATA PRO CESSING INDIA PVT. LTD. VS. CIT, ITA NO. 1647/HYD/12 DATED 24/10/ 14. HE ALSO SUBMITTED THAT IN ASSESSEES OWN CASE FOR AY 2009-1 0, THE TRIBUNAL HAS EXCLUDED THIS COMPANY FROM THE LIST OF COMPARAB LES. 9.2 THE LD. DR THOUGH AGREED THAT THE COMPANY HAS B EEN HELD TO BE NOT A COMPARABLE WITH A ITES COMPANY IN CASE OF HSB C BUT SHE NEVERTHELESS SUPPORTED THE REASONING OF TPO AND DRP ON THE ISSUE OF SELECTION OF THE AFORESAID COMPARABLE. 9.3 WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. THE MAIN THRUST OF ARGUMEN T OF LD. AR FOR REJECTING THE AFORESAID COMPARABLE IS ON ACCOUNT OF EXTRAORDINARY EVENT ARISING OUT OF MERGER AND ACQUISITION DURING THE YEAR WHICH COULD HAVE IMPACTED THE PROFIT MARGIN OF THE COMPAN Y. WE FIND MERIT IN THE AFORESAID SUBMISSIONS OF LD. AR. ON A PERUSA L OF THE ANNUAL REPORT OF THE COMPANY, IT IS FOUND THAT DURING THE YEAR THE COMPANY HAS MADE ACQUISITIONS WHICH MIGHT HAVE IMPACTED THE PROFIT MAKING OF THE COMPANY. THEREFORE, IN OUR VIEW, THIS COMPANY C ANNOT BE TREATED AS A COMPARABLE TO ASSESSEE. WE ARE SUPPORTED IN O UR VIEW BY THE ORDER OF THE COORDINATE BENCH FOR THE SAME AY IN CA SE OF HSBC DATA PROCESSING INDIA P. LTD. VS. ACIT (SUPRA). WE, THER EFORE, DIRECT AO/TPO TO EXCLUDE THIS COMPANY. 10. ACROPETAL TECHNOLOGIES LTD. (SEG.) : OBJECTING TO THE SELECTION OF THIS COMPANY, LD. AR SUBMITTED BEFORE US THAT TH IS COMPANY IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN THE BUSI NESS OF ENGINEERING DESIGN SERVICES. FURTHER, IN RESPONSE TO NOTICE ISS UED U/S 133(6) BY THE TPO, THE COMPANY HAS ADMITTED THAT IT PROVIDES SERVICES IN THE AREA OF SOFTWARE DEVELOPMENT. LD. AR SUBMITTED THAT EVEN OTHERWISE ALSO THE ANNUAL REPORT OF THE COMPANY SHOWS THAT 71 % OF THE TOTAL EXPENDITURE OF THE COMPANY IS IN FOREIGN CURRENCY U NDER THE HEAD ONSITE DEVELOPMENT EXPENSES WHICH SUGGEST THAT TH E COMPANY 12 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. PROVIDE SUBSTANTIAL ONSITE SERVICES AND ALSO COULD HAVE OUTSOURCED SERVICES. THUS, IT WAS SUBMITTED THE COMPANY CANNOT BE CONSIDERED AS COMPARABLE. IN SUPPORT OF SUCH CONTENTION, LD. A R RELIED ON THE DECISION OF ITAT IN CASE OF HSBC ELECTRONIC DATA PR OCESSING INDIA PVT. LTD. VS. CIT, ITA NO. 1647/HYD/12 DATED 24/10/ 14, TRIOLOGY E BUSINESS SERVICES SOFTWARE LTD. VS. DCIT, ITA 1054/ BANG/2011 AND HELLO SOFT INDIA PVT. LTD. ITA NO. 645/HYD/09 AND I TA 1411/HYD/10. 10.1 THE LD. DR, ON THE OTHER HAND, RELYING UPON TH E REASONING OF TPO AND DRP JUSTIFIED SELECTION OF THE AFORESAID CO MPANY. 10.2 WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL ON RECORD. THE MAIN GRIEVANCE OF ASSES SEE AGAINST THE SELECTION OF THE AFORESAID COMPANY IS ON THE ISSUE OF FUNCTIONALITY. ON A PERUSAL OF THE SEGMENTAL REVENUE AS EVIDENT FROM THE ANNUAL REPORT OF THE COMPANY, THE COMPANY DERIVES INCOME FROM ENG INEERING DESIGN SERVICES AND SOFTWARE DEVELOPMENT SERVICES. THEREFO RE, THE SERVICES PROVIDED BY THE COMPANY ARE IN THE NATURE OF HIGH E ND SERVICES COMING WITHIN THE CATEGORY OF KNOWLEDGE PROCESS OUT SOURCING (KPO) WHEREAS ASSESSEE IS PROVIDING LOW END (BPO) SERVICE S. IN FACT, TPO HIMSELF IN HIS ORDER HAS STATED THAT COMPANIES PROV IDING HIGH END (KPO) SERVICES CANNOT BE TREATED AS COMPARABLE TO I TES (BPO) SERVICE PROVIDERS. CONSIDERING THESE ASPECTS THE CO ORDINATE BENCH IN CASE OF HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD. VS. CIT (SUPRA) HELD THE AFORESAID COMPANY AS NOT COMPARABL E TO A BPO SERVICE PROVIDER. RESPECTFULLY FOLLOWING THE VIEW E XPRESSED BY THE COORDINATE BENCH AS AFORESAID, WE ALSO DIRECT AO/TP O TO EXCLUDE THIS COMPANY. 11. COSMIC GLOBAL LTD.: LD. AR SUBMITTED BEFORE US, THE COMPANY IS FUNCTIONALLY DIFFERENT AS IT IS PREDOMINANTLY IN TO TRANSLATION SERVICES. FURTHER, HE SUBMITTED THAT THE COMPANY FAILS THE EM PLOYEE COST FILTER AS EMPLOYEE COST IS ONLY 17.32% OF THE TOTAL EXPEND ITURE. LD. AR SUBMITTED, SUCH LOW EMPLOYEE COST IS SUGGESTIVE OF THE FACT THAT THE 13 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. COMPANY DOES NOT PROVIDE BPO SERVICES BY ITSELF BUT OUTSOURCES THE WORK. HE FURTHER SUBMITTED, THE SEGMENTAL DETAILS AS AVAILABLE FROM THE FINANCIALS OF THE COMPANY REVEAL THAT THE REVEN UE EARNED FROM BPO SERVICES IS ONLY RS. 19.63 LAKHS. HENCE, IT CAN NOT BE CONSIDERED AS A COMPARABLE TO ASSESSEE. 11.1 LD. DR, HOWEVER, SUPPORTED THE REASONING OF TH E TPO ON THE SELECTION OF THIS COMPANY. 11.2 WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL ON RECORD. AS CAN BE SEEN, THE FIRST O BJECTION OF ASSESSEE FOR SELECTION OF THE AFORESAID COMPANY IS ON THE ISSUE THAT IT FAILS THE EMPLOYEE COST FILTER. HOWEVER, ON A PERUS AL OF THE ORDER OF TPO, IT IS SEEN THAT THE TPO HAS NOT APPLIED THE EM PLOYEE COST FILTER AT ALL. THEREFORE, ASSESSEES CONTENTION THAT THE C OMPANY FAILS EMPLOYEE COST FILTER CANNOT BE ACCEPTED. HOWEVER, W E FIND MERIT IN THE OTHER CONTENTION OF LD. AR THAT THE TURNOVER FR OM BPO SERVICES IS LESS THAN 1 CRORE. AS CAN BE SEEN, THE TPO WHILE AP PLYING FILTERS FOR SELECTION OF COMPARABLE HAVE EXCLUDED COMPANIES HAV ING LESS THAN 1 CRORE TURNOVER FROM BPO SERVICES. IT IS THE CONTENT ION OF LD. AR BEFORE US, IN THE ASSESSMENT YEAR UNDER CONSIDERATION REVE NUE OF THIS COMPANY FROM BPO SERVICES IS ONLY RS. 19.63 LAKHS. HENCE, IT FAILS THE LESS THAN 1 CRORE BPO SERVICES TURNOVER APPLIED BY TPO. WE FIND THAT THIS ASPECT HAS NOT BEEN VERIFIED PROPERLY BEF ORE SELECTING THE COMPANY AS COMPARABLE. IT IS ALSO PERTINENT TO NOTE HERE, FOR THIS VERY REASON THIS COMPANY WAS EXCLUDED AS A COMPARABLE IN ASSESSEES OWN CASE FOR AY 2009-10 BY THE ITAT IN ITA NO. 604/ HYD/2014 DATED 13/02/2015. IN VIEW OF THE AFORESAID, WE RESTORE TH E COMPARABILITY OF THE AFORESAID COMPANY TO AO/TPO FOR FRESH EXAMINATI ON AND IF IT IS FOUND THAT THE REVENUE EARNED BY THIS COMPANY FROM BPO SERVICES IS ONLY RS. 19.63 LAKHS, AS CLAIMED BY ASSESSEE, THEN, THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. 14 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. 12. ECLERX SERVICES LTD .: LD. AR OBJECTING TO SELECTION OF THIS COMPANY, SUBMITTED BEFORE US, THE COMPANY IS ENGAGE D IN KPO SERVICES IN THE FIELD OF DATA ANALYTICS, OPERATIONS MANAGEMENT AND AUDIT RECONCILIATION. IT WAS SUBMITTED, THE BUSINES S MODEL OF THE COMPANY AS PER ITS OWN ADMISSION ARE COMPLETELY DIF FERENT FROM THE BPO SERVICES PROVIDED BY ASSESSEE. IN THIS CONTEXT, LD. AR REFERRED TO THE ANNUAL REPORT OF THE COMPANY. THUS, LD. AR SUBM ITTED, THE COMPANY CANNOT BE TREATED AS COMPARABLE TO ASSESSEE . IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN CASE OF HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD. VS. CIT (SUPRA). 12.1 LD. DR, HOWEVER, RELIED UPON THE ORDER OF TPO AND DRP. 12.2 HAVING CONSIDERED THE SUBMISSIONS OF THE PARTI ES IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD, WE ARE OF THE VIE W THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE TO ASSESSEE NOT ONL Y DUE TO THE FACT THAT IT IS INVOLVED IN HIGH END (KPO) SERVICES BUT IT ALSO EARNED SUPER NORMAL PROFITS DUE TO EXTRAORDINARY EVENT. FOR THE AFORESTATED REASONS, THE COORDINATE BENCH IN CASE OF HSBC ELECT RONIC DATA PROCESSING INDIA PVT. LTD. VS. CIT (SUPRA) FOLLOWIN G THE DECISIONS IN SOME OTHER CASES EXCLUDED THIS COMPANY. RESPECTFULL Y FOLLOWING THE VIEW EXPRESSED BY COORDINATE BENCH WE DIRECT AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 13. GENESYS INTERNATIONAL CORPORATION LTD. : OBJECTING TO SELECTION OF THIS COMPANY, LD. AR SUBMITTED, THE CO MPANY CANNOT BE TREATED AS A COMPARABLE TO ASSESSEE AS IT IS FUNCTI ONALLY DIFFERENT. IT WAS SUBMITTED THE COMPANY IS ENGAGED IN THE NICHE B USINESS OF GEOGRAPHICAL INFORMATION SERVICES COMPRISING PHOTOG RAMMETRY, DATA CONVERSION, DATA MIGRATION, DATA MAINTENANCE, APPLI CATION DEVELOPMENT, OUTSOURCING SERVICES AND OTHER RELATED SERVICES. IN THIS CONTEXT, HE REFERRED TO THE ANNUAL REPORT OF THE CO MPANY AS SUBMITTED IN THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE CO MPANY IS WORKING 15 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. CLOSELY WITH MICROSOFT, NOKIA, DIGITAL GLOBE AND GO OGLE EARTH, WHICH PROVIDE GEO DATA. IN FACT IT WAS SUBMITTED, THE COM PANY IS EXCLUSIVE RESELLER FOR NAVTEQ DATA FOR ENTERPRISE SPACE IN IN DIA. THUS, IT WAS SUBMITTED THE COMPANY IS NOT AT ALL A COMPARABLE TO ASSESSEE. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON A DECISI ON OF THE COORDINATE BENCH IN CASE OF HSBC ELECTRONIC DATA PR OCESSING INDIA PVT. LTD. VS. CIT (SUPRA). 13.1 THE LD. DR JUSTIFIED THE SELECTION OF AFORESAI D COMPANY BY RELYING UPON THE FINDING OF TPO. 13.2 WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIALS ON RECORD. ON A DETAILED ANALYSIS OF THE FUNCTIONALITY OF THE AFORESAID COMPANY AS REVEALED FROM THE ANNUAL R EPORT AND OTHER MATERIALS BROUGHT ON RECORD, IT IS NOTICED THAT THI S COMPANY IS NOT AT ALL FUNCTIONALLY SIMILAR TO ASSESSEE AS THE SERVIC ES PROVIDED BY THIS COMPANY IS IN THE NATURE OF GEOSPATIAL SERVICES WHI CH REQUIRES SKILLED MAN POWER AND SCIENTISTS, CIVIL ENGINEERS, WHEREAS, ASSESSEE IS BASICALLY ENGAGED IN PROVIDING SERVICES RELATED TO HUMAN RESOURCES AND DOES NOT REQUIRE SKILLED MAN POWER. MOREOVER, I T IS FURTHER REVEALED THAT THIS COMPANY IS ALSO INVOLVED IN R&D SERVICES AND OWNS INTANGIBLES. THUS, AS CAN BE SEEN, THIS COMPANY BEI NG TOTALLY DIFFERENT IN ITS FUNCTIONALITY CANNOT BE A COMPARABLE TO ASSE SSEE. FOR THE VERY SAME REASON, THE COORDINATE BENCH IN CASE OF HSBC E LECTRONIC DATA PROCESSING INDIA PVT. LTD. VS. CIT (SUPRA) HAS HELD THAT THIS COMPANY CANNOT BE COMPARABLE TO A BPO SERVICE PROVIDER. IN VIEW OF THE AFORESAID, WE DIRECT AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 14. HCL COMNET SYSTEMS AND SERVICES LTD.(SEG.) AND WIPRO LTD. : OBJECTING TO THE SELECTION OF THE AFORESAID COMPA NIES, LD. AR SUBMITTED, AS FAR AS HCL COMNET SYSTEMS AND SERVICE S LTD. IS CONCERNED, IT IS FUNCTIONALLY DIFFERENT AS IT IS EN GAGED IN PROVIDING TELECOMMUNICATION AND REMOTE INFRASTRUCTURE MANAGEM ENT SERVICES. 16 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. HE SUBMITTED, THE COMPANY HAS BEEN RATED AS A LEADI NG COMPANY IN THE FIELD OF MANAGED SECURITY SERVICES AND INFRASTR UCTURE OUTSOURCING. THAT BESIDES, THE COMPANY HAS CONSIDERABLY HIGH TUR NOVER OF ABOUT 495 CRORES FOR THE RELEVANT PY COMPARED TO ASSESSEE S TURNOVER OF 113 CRORES. THUS, IT WAS SUBMITTED, THE COMPANY CAN NOT BE TREATED AS COMPARABLE TO ASSESSEE. AS FAR AS WIPRO LTD. IS CON CERNED, LD. AR SUBMITTED, THE COMPANY IS FUNCTIONALLY DIFFERENT AS IT OWNS SIGNIFICANT INTANGIBLES AND THE INFORMATION ON THE INTANGIBLES RELATING TO THE BPO SEGMENT IS NOT AVAILABLE. HE SUBMITTED, AUDITED SE GMENTAL DATA OF THE COMPANY WAS NOT AVAILABLE AND MANUALLY CORRECTE D AND UNAUDITED DATA FROM ITS TP REPORT HAS BEEN CONSIDERED, WHICH CANNOT BE SAID TO BE AUTHENTIC. THAT BESIDES, IT WAS SUBMITTED THE CO MPANY HAS SIGNIFICANTLY HIGH TURNOVER OF RS. 1158 CRORES DURI NG THE RELEVANT PY. THUS, LD. AR RELYING UPON A DECISION OF THE HYDERAB AD BENCH IN CASE OF HYUNDAI MOTORS INDIA ENGG. P. LTD. VS. ITO, ITA NO. 1850/HYD/12 DATED 21/02/14, SOUGHT REMOVAL OF THESE TWO COMPANI ES. 14.1 LD. DR, SUBMITTED THAT AS THE TPO HAS SELECTED THESE TWO COMPANIES ON VALID REASONING, THERE IS NO NEED TO E XCLUDE THEM. 14.2 WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIALS ON RECORD. AS CAN BE SEEN, IN CASE OF HYUNDAI MOTORS INDIA ENGG. P. LTD. VS. ITO (SUPRA) THESE TWO COMPA NIES WERE EXCLUDED BY APPLYING THE TURNOVER FILTER CONSIDERIN G THE FACT THAT ASSESSEES TURNOVER WAS ONLY RS. 15 CRORES. HOWEVER , IN THE PRESENT CASE, ASSESSEES TURNOVER IS ALSO QUITE HIGH I.E. 1 13 CRORES. WHILE HCL COMNETS TURNOVER IS ABOUT FOUR TIMES HIGHER TH AN ASSESSEE, THAT OF THE WIPRO IS ABOUT TEN TIMES MORE. WHEREAS, TPO HAS SELECTED SOME COMPANIES WHICH HAVE CONSIDERABLY LESS TURNOVE R THAN ASSESSEE. FOR EXAMPLE, TURNOVER OF ASIT C. MEHTA IS 4.82 CRORES AND THAT OF I SERVICES INDIA LTD. IS 13.39 CRORES. COMP ARED TO THESE TWO COMPANIES ASSESSEES TURNOVER IS HIGHER BY ABOUT 22 TIMES AND 8 TIMES RESPECTIVELY. THEREFORE, WHEN THE ASSESSEE IS NOT OBJECTING TO SUCH LOW TURNOVER COMPAINES, APPLYING THE SAME LOGI C HE SHOULD NOT 17 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. OBJECT TO HIGH TURNOVER COMPANIES ALSO, WHEN THE DI FFERENCE IN TURNOVER IS MORE OR LESS WITHIN THE SAME RANGE. THU S, IN OUR VIEW, HCL COMNET AND WIPRO CANNOT BE CONSIDERED TO BE UNC OMPARABLE TO ASSESSEE ONLY ON THE BASIS OF TURNOVER. HOWEVER, AS SESSEES CLAIM OF FUNCTIONAL DIFFERENCE OF THE COMPANIES REQUIRES EXA MINATION. AS COULD BE SEEN, IN CASE OF HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD. VS. CIT (SUPRA) THE COORDINATE BENCH EXPRESSING SIM ILAR VIEW REMITTED THE MATTER BACK TO THE FILE OF AO/TPO WITH A DIRECT ION TO EXCLUDE THESE TWO COMPANIES AS COMPARABLES IN CASE THE DATA (SEGMENTAL OR UNIT) IS FOUND TO BE INCOMPLETE OR FUNCTIONAL PROFI LE ARE DIFFERENT. WITH A SIMILAR DIRECTION, MATTER IS REMITTED BACK TO AO/ TPO FOR EXAMINING AFRESH AFTER DUE OPPORTUNITY OF BEING HEARD TO ASSE SSEE. 15. INFOSYS BPO LTD. : OBJECTING TO THE SELECTION OF THE AFORESAID COMPANY, LD. AR SUBMITTED BEFORE US, INFOSYS IS A T IER ONE IT COMPANY AND ITS BRAND AND INTANGIBLES ENJOY A PREMI UM PRICING. LD. AR SUBMITTED, FOR BRAND VALUE OF INFOSYS IT CANNOT BE A COMPARABLE TO ASSESSEE. IN SUPPORT OF SUCH CONTENTION, LD. AR REL IED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF AGN ITY INDIA TECHNOLOGIES PVT. LTD., ITA NO. 1204/2011. HE ALSO SUBMITTED THAT IN ASSESSEES OWN CASE FOR AY 2009-10, ITAT HAS HELD T HE AFORESAID COMPANY NOT TO BE A COMPARABLE TO ASSESSEE. 15.1 LD. DR, HOWEVER, SUPPORTED THE REASONING OF TP O 15.2 HAVING CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD, WE ARE OF THE VIEW THAT TH IS COMPANY CANNOT BE TREATED AS COMPARABLE TO ASSESSEE AS NOT ONLY IT IS A GIANT COMPANY HAVING THE INFOSYS BRAND BEHIND IT BUT IT I S ALSO FUNCTIONALLY DIFFERENT. THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD., [2013] 219 TAXMAN 26 HAS HE LD THAT INFOSYS CANNOT BE TREATED AS COMPARABLE TO OTHER SMALL COMP ANIES. VARIOUS BENCHES OF ITAT HAVE ALSO EXPRESSED SIMILAR VIEW. I N THE AFORESAID 18 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. VIEW OF THE MATTER, WE DIRECT AO/TPO TO EXCLUDE THI S COMPANY FROM THE LIST OF COMPARABLES. GROUND NO. 9 IS ACCORDINGL Y DISPOSED OF. 16. IN GROUND NO. 10, ASSESSEE HAS OBJECTED TO REJE CTION OF CERTAIN COMPANIES BY TPO. THOUGH IN THE GROUND RAISED, ASSE SSEE HAS CHALLENGED THE REJECTION OF 10 COMPARABLES, BUT, AT THE TIME OF HEARING BEFORE US LD. AR CONFINED HIS ARGUMENT TO O NLY TWO OF THE COMPANIES, NAMELY, ACCURATE DATA CONVERTORS PVT. LT D. AND INFORMED TECHNOLOGIES LTD. IN VIEW OF THE ABOVE, WE PROPOSE TO RESTRICT OUR FINDING TO THESE TWO COMPANIES ONLY. 16.1 ACCURATE DATA CONVERTORS PVT. LTD. : CHALLENGING THE REJECTION OF THIS COMPANY, LD. AR SUBMITTED BEFORE US, THE CO MPANY IS ENGAGED IN THE DATA PROCESSING ACTIVITY LIKE ASSESSEE. HE S UBMITTED, AS PER INFORMATION SUBMITTED IN RESPONSE TO NOTICE ISSUED U/S 133(6), THE COMPANYS ENTIRE REVENUE IS FROM EXPORT OF BPO SERV ICES. HE SUBMITTED, THE COMPANY WAS NOT SELECTED BY ASSESSEE IN ITS TP STUDY. THE TPO HIMSELF CALLED FOR INFORMATION FROM THE SAI D COMPANY. THOUGH, AS PER THE INFORMATION SUBMITTED BY THE SAI D COMPANY, IT SATISFIES ALL THE FILTERS APPLIED BY TPO BUT THE CO MPANY HAS NOT BEEN INCLUDED IN THE LIST OF COMPARABLES WITHOUT ASSIGNI NG ANY REASONS. IN SUPPORT OF HIS CONTENTION, LD. AR REFERRED TO THE INFORMATION SUBMITTED BY THE COMPANY IN RESPONSE TO NOTICE ISS UED U/S 133(6) BY TPO, A COPY OF WHICH IS PLACED AT PAGE 439 OF ASSE SSEES PAPER BOOK. 16.2 LD. DR ON THE OTHER HAND SUBMITTED BEFORE US, ASSESSEE HAS NOT OBJECTED TO REJECTION OF AFORESAID COMPANY EITH ER BEFORE TPO OR BEFORE LD. DRP. 16.3 IN THE REJOINDER, LD. AR CONTESTED THE CLAIM O F THE LD. DR BY SUBMITTING THAT ASSESSEE DID OBJECT TO REJECTION OF THIS COMPANY BEFORE LD. DRP. IN THIS CONTEXT, HE REFERRED TO THE LETTER DATED 23/05/12 FILED BEFORE LD. DRP, A COPY OF WHICH IS P LACED AT PAGE 376 OF ASSESSEES PAPER BOOK. 19 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. 16.4 HAVING CONSIDERED THE SUBMISSIONS OF THE PARTI ES, WE ARE OF THE VIEW THAT THE ISSUE OF COMPARABILITY OF THE AFORESA ID COMPANY REQUIRES EXAMINATION CONSIDERING ASSESSEES CLAIM THAT AS PE R THE INFORMATION SUBMITTED IN RESPONSE TO THE NOTICE U/S 133(6), THE COMPANY SATISFIES ALL THE FILTERS APPLIED BY TPO. WE, THEREFORE, REST ORE THE MATTER BACK TO THE FILE OF THE TPO TO EXAMINE THE ISSUE AFTER D UE OPPORTUNITY OF BEING HEARD TO ASSESSEE. 17. INFORMED TECHNOLOGIES LTD. : LD. AR SUBMITTED, THE ONLY REASON FOR WHICH THE TPO CONSIDERED THIS COMPANY A S UNCOMPARABLE IS BECAUSE THE REVENUE EARNED BY THE COMPANY IS ONL Y 66.45% THEREBY IT FAILS MORE THAN 75% ITES REVENUE FILTER APPLIED BY TPO. LD. AR SUBMITTED, THE TPO HAS ARRIVED AT THE BPO ITES S ERVICE REVENUE AT 66.45% BY TREATING THE RENTAL INCOME AS OPERATIO NAL REVENUE. HOWEVER, THE ENTIRE EXPORT REVENUE OF THIS COMPANY IS EARNED FROM BPO SERVICES ONLY, HENCE, THE RENTAL INCOME CANNOT BE CONSIDERED AS PART OF OPERATIONAL REVENUE. HE FURTHER SUBMITTED, TPO HAS ALSO SELECTED COMPANIES WHOSE EXPORTS SALES ARE MORE THA N 25% OF THE REVENUE. THUS, AS THE REVENUE EARNED BY THIS COMPAN Y FROM EXPORT IS MORE THAN 25% IT CANNOT BE EXCLUDED AS A COMPARABLE . TO SUBSTANTIATE HIS CLAIM, LD. AR REFERRED TO THE FINA NCIALS OF THE COMPANY AS SUBMITTED AT PAGE 470-475 OF THE PAPER B OOK. 17.1 LD. DR, HOWEVER, SUPPORTED THE REASONING OF TP O. 17.2 WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIALS ON RECORD. IT IS VERY MUCH EVIDENT FR OM THE ORDER OF TPO THAT HE HAS REJECTED THIS COMPANY SOLELY FOR THE RE ASON THAT REVENUE FROM BPO SERVICES IS LESS THAN 75% OF THE TOTAL OPE RATIONAL INCOME. HOWEVER, WE FIND MERIT IN THE CONTENTION OF LD. AR THAT ENTIRE EXPORT REVENUE OF THIS COMPANY IS EARNED FROM BPO SERVICES ALONE. HENCE, RENTAL INCOME CANNOT BE TREATED AS PART OF OPERATIO NAL INCOME. FURTHER, THERE IS ALSO SUBSTANCE IN THE SUBMISSIONS OF LD. AR THAT THE COMPANY SATISFIES MORE THAN 25% REVENUE EARNED FROM EXPORT FILTER 20 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. APPLIED BY TPO. AS NEITHER TPO NOR DRP HAVE EXAMIN ED THE AFORESAID ASPECTS WHILE REJECTING THE AFORESAID COM PANY AS COMPARABLE, WE THINK IT APPROPRIATE TO RESTORE THE ISSUE OF COMPARABILITY OF THIS COMPANY TO AO/TPO FOR CONSIDE RING AFRESH AFTER DUE OPPORTUNITY OF BEING HEARD TO ASSESSEE. WE MAKE IT CLEAR, IF ON EXAMINING THE INFORMATION AVAILABLE ON RECORD TPO F INDS THAT THIS COMPANY SATISFIES ALL THE FILTERS APPLIED BY HIM, T HEN, HE MAY CONSIDER THIS COMPANY AS A COMPARABLE. 17.3 WE DIRECT THE AO/TPO TO COMPUTE THE ALP OF THE INTERNATIONAL TRANSACTION ENTERED INTO BY ASSESSEE WITH ITS AES K EEPING IN VIEW THE OBSERVATIONS MADE BY US IN THE PRECEDING PARAGRAPHS . FURTHER, WHILE DOING SO AO/TPO IS DIRECTED TO CONSIDER ASSESSEES CLAIM WITH REGARD TO ANY ALLOWANCE WITH REFERENCE TO FUNCTION, ASSETS AND RISKS IN ACCORDANCE WITH LAW. CORPORATE TAX ISSUES 18. IN GROUND NO.16, ASSESSEE HAS RAISED THE ISSUE OF NON- CONSIDERATION OF ITS CLAIM OF DEDUCTION U/S 10A AS PER THE REVISED RETURN OF INCOME. 19. BRIEFLY THE FACTS ARE, ORIGINALLY, ASSESSEE HAS FILED THE RETURN OF INCOME CLAIMING DEDUCTION U/S 10A OF THE ACT FOR A N AMOUNT OF RS. 1,47,74,443 FOR ITS OFF-SHORE RESEARCH SERVICE CENT RE (ORSC). HOWEVER, SUBSEQUENTLY, FINDING MISTAKE IN THE DEDU CTION CLAIMED U/S 10A OF THE ACT, ASSESSEE FILED A REVISED RETURN ON 31/03/2010 REVISING ITS CLAIM OF DEDUCTION U/S 10A OF THE ACT, TO RS. 6 ,81,37,974. IN THE DRAFT ASSESSMENT ORDER, AO HOWEVER REJECTED ASSESSE ES CLAIM OF DEDUCTION U/S 10A. THE DRP WHILE DECIDING THE OBJEC TIONS RAISED BY ASSESSEE AGAINST THE DRAFT ASSESSMENT ORDER, DIRECT ED AO TO ALLOW DEDUCTION CLAIMED U/S 10A FOR THE ORSC UNIT. WHILE IMPLEMENTING THE DIRECTIONS OF DRP IN THE ASSESSMENT ORDER, AO HOWEV ER ALLOWED ASSESSEES CLAIM OF DEDUCTION U/S 10A AS PER THE OR IGINAL RETURN AND 21 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. IN THE PROCESS REJECTED ASSESSEES CLAIM OF DEDUCTI ON AS MADE IN THE REVISED RETURN. 20. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE HAS FILED A REVISED RETURN OF INCOME BEFORE AO REVI SING THE CLAIMING DEDUCTION U/S 10A OF THE ACT. FURTHER, DURING THE A SSESSMENT PROCEEDING ASSESSEE HAS ALSO SUBMITTED A REVISED FO RM 56F. IN OUR VIEW, AO WITHOUT EXAMINING ASSESSEES CLAIM OF DEDU CTION U/S 10A AS PER THE REVISED RETURN COULD NOT HAVE PROCEEDED TO ALLOW THE CLAIM AS PER THE ORIGINAL RETURN WHEN HE DOES NOT DISPUTE TH E FACT THAT THE REVISED RETURN IS A VALID RETURN AS PER THE PROVISI ONS OF SECTION 139(5) OF THE ACT. IN COURSE OF HEARING, LD. AR BROUGHT TO OUR NOTICE THAT ASSESSEE HAS ALSO FILED A PETITION U/S 154 OF THE A CT RAISING THE VERY SAME ISSUE BEFORE AO, WHICH IS STILL PENDING. CONSI DERING THE AFORESAID FACTS, WE ARE INCLINED TO REMIT THIS ISSU E BACK TO THE FILE OF AO WITH A DIRECTION TO CONSIDER ASSESSEES CLAIM AS PER REVISED RETURN AND IN ACCORDANCE WITH LAW AFTER DUE OPPORTUNITY OF BEING HEARD TO ASSESSEE. THIS GROUND IS ALLOWED FOR STATISTICAL PU RPOSES. 21. THE ISSUE RAISED IN GROUND NO. 17 IS WITH REGAR D TO TREATING THE SOFTWARE LICENCE FEE PAID AS CAPITAL EXPENDITURE AN D ALLOWING DEPRECIATION @ 25%. 22. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PR OCEEDING, AO NOTICED THAT IN THE PROFIT & LOSS A/C, ASSESSEE HA S DEBITED AN AMOUNT OF RS. 2,21,29,855 TOWARDS COMPUTER MAINTENANCE CHA RGES. FROM THE BREAK-UP SUBMITTED BY ASSESSEE, IT WAS NOTICED BY A O THAT ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 1,00,99,916 ON ACCOUNT OF LICENCE FEE. AO ASKED ASSESSEE TO EXPLAIN WHY THE EXPENDITURE CL AIMED SHOULD NOT BE DISALLOWED AS IT IS IN THE NATURE OF CAPITAL EXPENDITURE. THOUGH ASSESSEE OBJECTED TO SUCH VIEW OF AO, BUT, AO REJEC TING THE OBJECTIONS OF ASSESSEE DISALLOWED THE EXPENDITURE C LAIMED AND ADDED THE AMOUNT OF RS. 1,00,99,916 BY TREATING IT AS CAP ITAL EXPENDITURE. 22 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. ASSESSEE OBJECTED TO THE ADDITION MADE BEFORE DRP. LD. DRP, THOUGH, UPHELD AOS DECISION THAT THE EXPENDITURE I NCURRED IS CAPITAL IN NATURE, BUT, DIRECTED AO TO ALLOW DEPRECIATION AT APPROPRIATE RATE. THE AO WHILE COMPLETING FINAL ASSESSMENT IN PURSUAN CE TO THE DIRECTIONS OF LD. DRP, ALLOWED DEPRECIATION @ 25% O N THE SOFTWARE LICENCE FEE BY MENTIONING THAT IT FALLS IN THE BLOC K OF INTANGIBLE ASSETS. 23. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. IT IS VERY MUCH EVIDENT FR OM RECORD THAT THE SOFTWARE LICENCE FEE HAS BEEN PAID TOWARDS OPERATIO N AS WELL AS APPLICATION SOFTWARE. THAT BEING THE CASE, THE RATE OF DEPRECIATION APPLICABLE IS 60% (AS APPLICABLE TO COMPUTER) AND NOT 25% AS ALLOWED BY AO. MOREOVER, THIS ISSUE IS MORE OR LESS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE AY 2009-10. THE COORDINATE BENCH I N ITA NO. 604/HYD/14 WHILE DECIDING THE ISSUE HELD AS UNDER: 37. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE DECI SIONS RELIED UPON BY LD. AR. AS FAR AS ASSESSEES CLAIM THAT THE EXPENDITURE CLAIMED HAS TO BE TREATED AS REVENUE EXPENDITURE, W E ARE OF THE VIEW THAT AS PER THE ITAT SPECIAL BENCH DECISIONS I N CASE OF AMWAY INDIA LTD. VS. DCIT (SUPRA), WHETHER A PARTIC ULAR EXPENDITURE IN RELATION TO ACQUISITION OF SOFTWARE WILL BE REVENUE OR CAPITAL, CANNOT BE DECIDED BY EITHER THE OWNERSH IP TEST OR ENDURING BENEFIT TEST. THE FUNCTIONAL TEST HAS ALSO TO BE APPLIED. ITAT SPECIAL BENCH WENT ON TO LAY DOWN CERTAIN TEST S FOR DECIDING WHETHER THE EXPENDITURE INCURRED HAS TO BE TREATED AS REVENUE OR CAPITAL. IN THE PRESENT CASE, ASSESSEE H AS NOT BROUGHT ANY MATERIAL ON RECORD TO ESTABLISH THAT BY APPLYING THE FUNCTIONAL TEST, THE EXPENDITURE CAN BE SAID TO BE OF A REVENUE NATURE. MOREOVER, AFTER 01/04/2003 COMPUTER SOFTWAR E HAS BEEN SPECIFICALLY BROUGHT INTO THE SCHEDULE AT PAR WITH COMPUTER AS FAR AS ELIGIBILITY OF DEPRECIATION IS CONCERNED. TH EREFORE, AFTER 01/04/2003, COMPUTER SOFTWARE IN THE NATURE OF APP LICATION SOFTWARE AND NOT MERE LICENCE FOR RENEWAL HAVE TO B E TREATED AS CAPITAL ASSETS ELIGIBLE FOR DEPRECIATION AT THE SAM E RATE AS OF COMPUTER. THEREFORE, EXPENDITURE INCURRED FOR ACQUI RING SUCH ASSET WILL BE CAPITAL EXPENDITURE. HOWEVER, WE ACCE PT LD. ARS ALTERNATIVE CONTENTION THAT DEPRECIATION SHOULD BE ALLOWED AT 60%. AS PER THE NEW APPENDIX APPLICABLE FROM AY 200 6-07, DEPRECIATION ON COMPUTER AND COMPUTER SOFTWARE IS T O BE 23 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. ALLOWED AT 60%. AS AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT COMPUTER SOFTWARE ACQUIRED BY ASSESSEE IS NOT IN THE NATURE OF SOFTWARE AS MENTIONED IN THE APPENDIX , IN OUR VIEW, AO IS NOT JUSTIFIED IN ALLOWING DEPRECIATION AT 25%. WE, THEREFORE, DIRECT AO TO ALLOW DEPRECIATION ON THE C OMPUTER SOFTWARE AT 60%. THIS GROUND IS PARTLY ALLOWED. IN VIEW OF THE ABOVE, WE DIRECT AO TO ALLOW DEPRECI ATION @ 60% ON THE SOFTWARE LICENCE FEE. THIS GROUND IS PARTLY ALL OWED. 24. IN GROUND NO. 18 ASSESSEE HAS RAISED THE ISSUE OF WRONG ADJUSTMENT OF REFUND AND IN GROUND NO. 19 ASSESSEE HAS CHALLENGED THE LEVY OF INTEREST U/S 234D ON SUCH WRONG ADJUSTM ENT OF REFUND. 25. AT THE TIME OF HEARING BEFORE US, LD. AR SUBMIT TED THAT ASSESSEE HAS ALSO RAISED THE SAME ISSUE BEFORE AO IN A PETIT ION FILED U/S 154 OF THE ACT ON 07/01/2013. CONSIDERING THE NATURE OF DI SPUTE AND ALSO THE FACT THAT ASSESSEE HAS FILED A PETITION U/S 154 OF THE ACT BEFORE AO, WE DIRECT AO TO VERIFY ASSESSEES CLAIM AND GRANT R ELIEF ACCORDINGLY IF ASSESSEES CLAIM IS FOUND TO BE CORRECT ON VERIFICA TION OF FACTS AND MATERIALS ON RECORD. WHILE EXAMINING THE ISSUE, AO SHOULD ALSO EXAMINE THE NECESSITY OF CHARGING INTEREST U/S 234 D OF THE ACT. 26. GROUND NO. 20 IS ON INITIATION OF PENALTY PROCE EDINGS U/S 271(1)(C) OF THE ACT. THE ISSUE RAISED IN THIS GROU ND BEING PREMATURE AT THIS STAGE OF THE PROCEEDING, THERE IS NO NEED T O ADJUDICATE THE SAME. ACCORDINGLY, THIS GROUND IS DISMISSED AS INFR UCTUOUS. 27. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 17 TH APRIL, 2015 SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 17 TH APRIL, 2015 24 ITA NO. 1875/HYD/2012 M/S TNS INDIA PVT. LTD. KV COPY TO:- 1) M/S TNS INDIA PVT. LTD., PLOT NO. 17, ROAD NO. 3 , BANJARA HILLS, HYDERABAD 500 034. 2)DC IT,CIRCLE 2(3), HYDERABAD 3)DRP, HYDERABAD 4) TPO, HYDERABAD 4) DIT (INTERNATIONAL TAXATION), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.