S & P Capital IQ (India) Private Limited, Hyderabad V. Deputy Commissioner of Income Tax, Circle-3(1), Hyderabad

ITA 1878/Hyd/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7859 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 12-02-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 16-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 234B

Judgement Text

ITA NO 1878 OF 2017 S&P CAPITAL IQ INDIA P LTD HYD ERABAD. PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1878/HYD/2017 (ASSESSMENT YEAR: 2013-14) M/S. S&P CAPITAL IQ (INDIA) PRIVATE LIMITED, HYDERABAD PAN: AACCS8657G VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 3(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.C. DEVDAS FOR REVENUE : SHRI Y.V.S.T. SAI, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2013-14 AGAIN ST THE FINAL ASSESSMENT ORDER DATED 16.10.2017 PASSED U/S 143(3) R.W.S. 144C(1) OF THE I.T. ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, ENGAGED IN THE BUSINESS OF PROVIDING I.T. ENABLED S ERVICES TO ITS A.E, FILED ITS RETURN OF INCOME FOR THE A.Y 2013-14 ON 30.11.2012 ADMITTING AN INCOME OF RS.54,88,99,410/-. DURING TH E SCRUTINY PROCEEDINGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION S WITH ITS AE AND THEREFORE, THE DETERMINATION OF THE ALP OF INTE RNATIONAL TRANSACTION WAS REFERRED TO THE TPO U/S 92CA OF THE ACT. THE TPO DATE OF HEARING : 12.02.2019 DATE OF PRONOUNCEMENT : 24.04.2019 ITA NO 1878 OF 2017 S&P CAPITAL IQ INDIA P LTD HYD ERABAD. PAGE 2 OF 11 OBSERVED THAT THE ASSESSEE PROVIDES I.T. ENABLED BA CK OFFICE SERVICES TO ITS AES AND IN THIS PROCESS IT EXTRACTS THE REQUIRED DATA FROM THE FINANCIAL STATEMENTS, NOTES TO FINANCIAL S TATEMENTS, AUDIT REPORT ETC., AND COLLATING IN THE FORM OF RATIOS, S TANDARDIZED GRAPHS ETC., AND ALSO PREPARES BUSINESS DESCRIPTION S, BIOGRAPHIES OF KEY EXECUTIVES AND TRACKS KEY DEVELOPMENTS IN TH E COMPANIES ON A REGULAR BASIS. THEREFORE, HE TREATED THE ASSES SEE AS A CONTRACT I.T. ENABLED SERVICE PROVIDER, OPERATING I N A LOW RISK OR ALMOST RISK MITIGATED ENVIRONMENT. 3. FROM THE 3CEB REPORT/T.P. DOCUMENT, THE AO OBSERVED THAT THE INTERNATIONAL TRANSACTION WAS FOR A SUM OF RS.372,38,88,703 AND THAT THE ASSESSEES MARGIN WAS 15.38% AND THAT THE REIMBURSEMENT OF EXPENSES TO THE AE WA S TO THE TUNE OF RS.31,64,046. AFTER GOING THROUGH THE TP DO CUMENT, THE TPO WAS OF THE OPINION THAT THE METHOD OF SEARCH AD OPTED BY THE ASSESSEE SUFFERS FROM DEFECTS WHICH RESULTED IN SEL ECTION OF INAPPROPRIATE COMPARABLES AND REJECTION OF COMPARAB LE COMPANIES. THEREFORE, HE REJECTED THE TP DOCUMENT O F THE ASSESSEE AND CONDUCTED AN INDEPENDENT ANALYSIS BY A GGREGATING BOTH THE TRANSACTIONS UNDER THE TNMM. HE OBSERVED T HAT THE ASSESSEE HAS SELECTED 10 COMPANIES AS COMPARABLES. THE TPO ACCEPTED ONLY 3 COMPANIES I.E.E4E HEALTHCARE BUSINE SS SERVICES PRIVATE LTD, INFOSYS BPO LTD AND MICROGENETICS SYST EMS LTD AS COMPARABLE TO THE ASSESSEE. THEREAFTER, THE TPO ADO PTED 7 COMPANIES AS COMPARABLE TO THE ASSESSEE INCLUDING T HE 3 COMPANIES TAKEN BY THE ASSESSEE AND ACCEPTED BY THE TPO. THEREAFTER, HE ARRIVED AT THE AVERAGE MARGIN OF THE COMPARABLE COMPANIES AT 22.30% AND AFTER GIVING THE NEGATIVE W ORKING CAPITAL ITA NO 1878 OF 2017 S&P CAPITAL IQ INDIA P LTD HYD ERABAD. PAGE 3 OF 11 ADJUSTMENT OF (-)1.10%, HE ARRIVED AT THE TP ADJUST MENT U/S 92CA OF THE ACT AT RS.25,98,03,681/- TOWARDS ITES SERVIC ES RENDERED BY THE ASSESSEE. IN ACCORDANCE WITH THE TP ORDER, A DRAFT ASSESSMENT ORDER WAS PROPOSED AGAINST WHICH THE ASS ESSEE PREFERRED ITS OBJECTIONS BEFORE THE DRP AND THE DRP GRANTED PARTIAL RELIEF BY DIRECTING THE EXCLUSION OF TWO CO MPANIES I.E. ACROPETAL TECHNOLOGIES LTD AND INFOSYS BPO LTD FROM THE FINAL LIST OF COMPARABLES. IN CONSONANCE WITH THE DRP ORDER, T HE FINAL ASSESSMENT ORDER WAS PASSED RESULTING IN THE ADJUST MENT OF RS.25,10,61,407/- AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING REVISED GROUNDS OF APPE AL: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ('LEARNED AO') HAS ER RED IN PASSING THE ASSESSMENT ORDER UNDER SECTION 143(3) R EAD WITH SECTION 144C OF THE INCOME TAX ACT, 1961 ('THE ACT') AFTER CONSIDERING THE ADJUSTMENTS PROPOSED BY THE LEARNED TRANSFER PRICING OFFICER ('LEARNED TPO') IN HIS ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT AND SUBSEQUENTLY CONFIRMED BY THE HON'BLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP'). EACH OF THE GROUND IS REFERRED TO SEPARATELY, WHICH MAY KINDLY BE CONSIDERED INDEPENDENT OF EACH OTHER. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1. THE LEARNED AO/TPO/DRP HAVE ERRED IN MAKING AN ADDITION OF INR 251,061,407 TO THE TOTAL INCOME OF THE APPELLANT IN RESPECT OF INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF IT-ENABLED SERVICES BY T HE APPELLANT TO ITS ASSOCIATED ENTERPRISE ('AE') (HERE INAFTER REFERRED TO AS 'IMPUGNED TRANSACTION'). 2. THE LEARNED AO/TPO/DRP HAVE ERRED IN NOT ACCEPTI NG THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT I N ACCORDANCE WITH PROVISIONS OF THE ACT AND MODIFYING THE ECONOMIC ANALYSIS FOR DETERMINATION OF ARM'S LENGTH PRICE ('ALP') OF THE IMPUGNED TRANSACTION TO HOLD THAT TH E SAME IS NOT AT ARM'S LENGTH. ITA NO 1878 OF 2017 S&P CAPITAL IQ INDIA P LTD HYD ERABAD. PAGE 4 OF 11 3. THE LEARNED AO/TPO/DRP HAVE ERRED IN: A. NOT ACCEPTING THE USE OF MULTIPLE YEAR DATA, AS ADOPTED BY THE APPELLANT IN TRANSFER PRICING (TP') DOCUMENTATION; AND B. DETERMINING THE ARM'S LENGTH MARGINS I PRICES US ING DATA PERTAINING ONLY TO FINANCIAL YEAR ('FY') 2012- 13 WHICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIM E OF COMPLYING WITH THE INDIAN TP DOCUMENTATION REQUIREMENTS. 4. THE LEARNED AO/TPO/DRP HAVE ERRED, IN REJECTING CERTAIN COMPARABLE COMPANIES SELECTED BY THE APPELL ANT BY APPLYING INAPPROPRIATE COMPARABILITY CRITERIA SU CH AS : A. DIFFERENT ACCOUNTING YEAR; AND B. EMPLOYEE COST LESS THAN 25 PERCENT OF TOTAL COST 5. THE LEARNED AO/TPO/DRP HAVE ERRED IN PASSING AN ORDER WHICH HAS COMPUTATIONAL ERRORS IN THE MARGIN OF THE COMPARABLE COMPANIES USED IN DETERMINATION OF ARM'S LENGTH MARGIN FOR THE IMPUGNED TRANSACTION. 6. THE LEARNED AO/TPO/DRP HAS ERRED, IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, BY WRONGLY REJ ECTING CERTAIN COMPANIES FROM AND ADDING CERTAIN COMPANIES TO THE FINAL SET OF COMPARABLES FOR THE IMPUGNED TRANSACTIONS ON AN ADHOC BASIS, THEREBY RESORTING T O CHERRY-PICKING OF COMPARABLE FOR BENCHMARKING THE IMPUGNED TRANSACTIONS. 6.1 THE LEARNED AO/TPO/DRP HAS ERRED, IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, IN EXCLUDING C ERTAIN COMPANIES LISTED BELOW FROM THE FINAL SET OF COMPAR ABLES EVEN THOUGH THESE COMPANIES ARE COMPARABLE TO THE ASSESSEE INFORMED TECHNOLOGIES LIMITED JINDAL INTELLICOM PRIVATE LIMITED ACE BPA SERVICE S LIMITED R SYSTEMS INTENATIONAL LIMITED (SEG.) ALLSEC TECHNO LOGIES LIMITED DATAMATICS FINANCIAL SERVICES LIMITED CALIBER POINT BUSINESS SOLUTIONS LIMITED 6.2 THE LEARNED AO/TPO/DRP HAS ERRED, IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, IN INCLUDING C ERTAIN ITA NO 1878 OF 2017 S&P CAPITAL IQ INDIA P LTD HYD ERABAD. PAGE 5 OF 11 COMPANIES LISTED BELOW TO THE FINAL SET OF COMPARAB LES EVEN THOUGH THESE COMPANIES ARE NON-COMPARABLE TO T HE ASSESSEE. HARTRON COMMUNICATIONS LIMITED (SEG.) (33.43 PERC ENT) CAPGEMINI BUSINESS SERVICES (INDIA) LIMITED (26.7 8 PERCENT) 7. THE LEARNED AO/TPO/DRP HAVE ERRED IN NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS-A-VIS THE COMPARABLE COMPANIES. 8. THE LEARNED AA HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1) (C) OF THE ACT. 9. THE LEARNED AO HAS ERRED IN LEVYING CONSEQUENTIA L INTEREST UNDER SECTION 234B AND 234C OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMI T OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL . THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APPEAL AND THE FACTS AND CIRCUMSTAN CES OF THE CASE. 4. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS CHALLENGING THE EXCLUSION OF ONLY TWO COMPANIES I.E. CAPGEMENI BUSINESS SERVI CES (INDIA) LTD AND HARTRON COMMUNICATIONS LTD. THE ASSESSEE IS ALSO SEEKING INCLUSION OF TWO COMPANIES I.E. JINDAL INTE LLICOM LTD (JINDAL) AND INFORMED TECHNOLOGIES LTD (INFORMED ). THOUGH THE ASSESSEE HAS RAISED AS MANY AS NINE GROUNDS OF APPE ALS, AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE ASSESSEE IS LIMITING ITS ARGUMENTS ON THE EXCLUSION AND INCLUSION OF THE ABOVE COMPANIES ONLY AND FURTHER S UBMITTED THAT IF THE ABOVE TWO COMPANIES ARE EXCLUDED, THE ASSESS EES MARGIN WOULD BE WITHIN THE +_3% OF THE ASSESSEES MARGIN. ALL OTHER GROUNDS ARE THEREFORE, TREATED AS NOT PRESSED. ITA NO 1878 OF 2017 S&P CAPITAL IQ INDIA P LTD HYD ERABAD. PAGE 6 OF 11 5. AS REGARDS THE COMPARABILITY OF CAPGEMENI BUSINE SS SERVICES (INDIA) LTD TO THE ASSESSEE, THE LEARNED C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID COMPANY WAS FUNCTI ONALLY DIFFERENT FROM THE ASSESSEE. HE SUBMITTED THAT AS P ER THE ANNUAL REPORT OF THE COMPANY, IT IS ENGAGED IN PROVIDING D IVERSIFIED HIGH END SERVICES IN THE NATURE OF ENGINEERING SERVICES, IT ENABLED SHARE SERVICES, SUPPLY CHAIN, PROCUREMENT, TECHNICA L PUBLICATION, OPERATIONAL CONTROL ASSESSMENTS FOR COMPLIANCE WITH SOX ACT, IT RISK ASSESSMENT, ASSURANCE AND RISK MANAGEMENT. THE REFORE, ACCORDING TO THE ASSESSEE, IT IS A COMPANY WHICH IS PROVIDING KPO SERVICES AND THEREFORE, CANNOT BE TREATED AS COMPAR ABLE TO THE ASSESSEE. FURTHER, IT IS SUBMITTED THAT CAPGEMENI B USINESS SERVICES (INDIA) LTD IS A WELL KNOWN BRAND, WHICH I S USED BY THE SAID COMPANY WITHOUT ANY PAYMENT OF ROYALTY AND THE REFORE, THE PRESENCE OF INTANGIBLE IS A FACTOR WHICH HAS TO BE CONSIDERED FOR EXCLUDING THIS COMPANY FROM THE FINAL LIST OF COMPA RABLES. HE REFERRED TO THE RELEVANT OBSERVATIONS OF TPO AND DR P WHEREIN THE RELEVANT OBJECTIONS WERE RAISED BY THE ASSESSEE, BU T WERE NOT DEALT WITH BY THE TPO AND BY THE DRP IN DETAIL BUT WERE S UMMARILY REJECTED. HE HAS ALSO LED US TO THE RELEVANT PAPERS IN THE RELEVANT ANNUAL REPORTS OF THE COMPANY TO BUTTRESS HIS ARGUM ENT THAT THIS COMPANY IS ENGAGED IN PROVIDING HIGH END KPO SERVIC ES. ACCORDING TO HIM, CAPGEMENINI IS ALSO PROVIDING ENG INEERING AND DESIGN SERVICES, WHICH ARE KPO SERVICES EVEN AS PER RULE IOTA. 6. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T THE ASSESSEE IS RELYING UPON THE RECITALS IN THE WEBSIT E OF THE ITA NO 1878 OF 2017 S&P CAPITAL IQ INDIA P LTD HYD ERABAD. PAGE 7 OF 11 COMPANY WHEREIN IN ORDER TO ADVERTISE, LOT OF TECHN ICAL TERMINOLOGIES WERE USED BUT THE FACT IS THAT CAPGEM ENI BUSINESS SERVICES (INDIA) LTD IS AN I.T. ENABLED SERVICE PRO VIDER AND HAS BEEN TREATED AS SUCH BY THE DEPARTMENT. HE SUBMITTE D THAT EVEN THE ASSESSEE HAS GOT A BRAND VALUE AND THEREFORE, T HE ASSESSEE AND CAPGEMENI BUSINESS SERVICES (INDIA) LTD WERE ON PAR WITH EACH OTHER AND NO ADJUSTMENT IS REQUIRED TO BE MADE . 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT CAPGEMENI BUSINESS SERVICES (INDIA) LTD DURING THE YEAR, PROVIDED I.T. ENABLED ASSURED SERV ICES IN FINANCE AND ACCOUNTING TO MANY INDIAN AND GLOBAL CLIENTS AN D HAS WIDENED THE SCOPE OF SERVICES IN SUPPLY CHAIN, PROG RAMME, TECHNOLOGY AND ENGINEERING SERVICES ETC.,WHEREAS TH E ASSESSEE IS PROVIDING SERVICES IN FINANCIAL PROCESSES, ANNUAL A ND QUARTERLY FINANCIAL REPORTS. THEREFORE, WE ARE SATISFIED THAT BOTH THE COMPANIES ARE NOT INTO SIMILAR TYPE OF ACTIVITIES A S CAPGEMENI BUSINESS SERVICES (INDIA) LTD IS ALSO INTO MORE DIV ERSIFIED ACTIVITIES SUCH AS TECHNOLOGY & ENGINEERING SERVICES AND THERE FORE, THE ACTIVITIES RENDERED BY IT ARE FUNCTIONALLY DIFFEREN T. FOR THE SAKE OF CLARITY AND READY REFERENCE, THE RELEVANT DETAILS F ROM THE ANNUAL REPORT OF CAPGEMENI AT PAGE 1035 OF THE PAPER BOOK ARE REPRODUCED HEREUNDER: COMPANY PROFILE & KEY FIGURES: WITH MORE THAN 180,000 PEOPLE IN OVER 40 COUNTRIES, CAPGEMINI IS A GLOBAL LEADER IN CONSULTING, TECHNOL OGY AND OUTSOURCING SERVICES. TOGETHER WITH ITS CLIENTS, CA PGEMINI CREATES AND DELIVERS BUSINESS, TECHNOLOGY AND DIGIT AL SOLUTIONS THAT FIT THEIR NEEDS, ENABLING THEM TO ACHIEVE INNO VATION AND COMPETITIVENESS. A DEEPLY MULTICULTURAL ORGANIZATIO N, CAPGEMINI HAS DEVELOPED ITS OWN WAY OF WORKING, THE ITA NO 1878 OF 2017 S&P CAPITAL IQ INDIA P LTD HYD ERABAD. PAGE 8 OF 11 COLLABORATIVE BUSINESS EXPERIENCE, AND DRAWS ON HIG HTSHORE, ITS WORLDWIDE DELIVERY MODEL. WE OFFER AN ARRAY OF INTEGRATED SERVICES THAT COMBI NE TOP-OF- THE-RANGE TECHNOLOGY WITH DEEP SECTOR EXPERTISE AND A STRONG COMMAND OF OUR FOUR KEY BUSINESSES. Q. FIND SERVICES: APPLICATION SERVICES INFRASTRUCTURE SERVICES SER VICES BUSINESS SERVICES INSIGHTS & DATA _ CLOUD CHOICE - TECHNOLOGY AND ENGG. SERVICES CONSULTING SERVICES - MOBILE SOLUTIONS CYBERSECURITY - READY2SERIES DIGITAL SERVICES - SECURE YOUR ASSETS THE AFORESAID ACTIVITIES CANNOT BE CONSIDERED COMPA RABLE TO THE ASSESSEE WHICH IS ENGAGED IN PROVIDING LOW END IT ENABLED SERVICES AND IS A RISK MITIGATED ENTITY. FURTHER, A NEWS ARTICLE IN BUSINESS WIRE INDIA, DAT ED 25 OCTOBER 2012, CATEGORICALLY MENTIONS THAT CAPGEMINI PROVIDES A WIDE VARIETY OF SERVICES SUCH AS FINANCE & ACCOUN TING, MANAGEMENT ASSURANCE, ENGINEERING SERVICES, CONTENT MANAGEMENT, RESEARCH & ADVISORY, SUPPLY CHAIN MANAGEMENT, PROCUREMENT SERVICES AND HUMAN RESOURCE S OUTSOURCING ETC. HOWEVER QUITE MANY OF THESE SERVIC ES SUCH AS ENGINEERING SERVICES, RESEARCH AND ADVISORY ARE HIG H-END KPO SERVICES WHICH CANNOT BE COMPARED WITH THE ROUTINE IT ENABLED SERVICES. AS REGARDS EXPLOITATION OF BRAND VALUE, WE ARE IN AGREEMENT WITH THE CONTENTIONS OF THE LEARNED DR THAT BOTH THE COM PANIES USED BRANDS OF THEIR HOLDING COMPANIES AND THEREFORE, AR E ON PAR WITH EACH OTHER. HOWEVER, DUE TO FUNCTIONAL DISSIMILARIT Y, WE DIRECT THE AO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF C OMPARABLES. 8. AS REGARDS, HARTRON COMMUNICATIONS LTD IS CONCERNED, THE ARGUMENT OF THE ASSESSEE IS THAT IT IS FUNCTIONALLY DIFFERENT BECAUSE IT INCLUDES BOTH ITES AS WELL AS OTHER SERVICES LIKE SOFTWARE SERVICES AND THE SEGMENTAL RESULTS/IN FORMATION IS ITA NO 1878 OF 2017 S&P CAPITAL IQ INDIA P LTD HYD ERABAD. PAGE 9 OF 11 NOT AVAILABLE. HE ALSO SUBMITTED THAT IT IS AN EXCE PTIONAL YEAR OF OPERATION WITH AN INCREASE IN REVENUE FROM BPO BUSI NESS TO THE TUNE OF 483.72% OVER THE LAST YEAR AND THERE IS A H UGE FLUCTUATION IN THE FINANCIAL RESULTS OF THE COMPANY IN THE EARL IER AND SUBSEQUENT A.YS. HE ALSO SUBMITTED THAT THE FLUCTUA TION IS ON ACCOUNT OF DIFFERENCE IN TREATMENT OF INCOME AND EX PENDITURE. HE SUBMITTED THAT THE SAID COMPANY, ON ONE HAND, RECOG NIZES EXCEPTIONAL REVENUE ON CASH BASIS AND THE EXPENDITU RE ON ACCRUAL BASIS AND THUS IT VIOLATES THE CONCEPT OF MERCANTIL E SYSTEM OF ACCOUNTING. THEREFORE, IT CANNOT BE HELD AS A COMPA RABLE. THE ASSESSEE ALSO REFERRED TO THE DECISIONS OF THE TRIB UNAL AT DELHI IN THE CASE OF CIENA INDIA IN ITA NO.1453/DEL/2014 WHE REIN IT WAS HELD THAT COMPANIES WHOSE FINANCIAL RESULTS ARE NOT BASED ON MERCANTILE SYSTEM OF ACCOUNTING, SHOULD NOT BE TAKE N AS A COMPARABLE. IN SUPPORT OF THIS CONTENTION, THE LEAR NED AR REFERRED TO THE ANNUAL REPORT OF THE SAID COMPANY. 9. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT SUFFICIENT INFORMATION WITH REGARD TO THE REVENUE FROM ITES IS AVAILABLE AND HAS BEEN TAKEN BY THE TPO IN HIS ORDER. HE SUBMITTE D THAT THE SAID COMPANY IS ALSO FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING EXCEPT FOR A FEW ITEMS AND THEREFORE, IT IS NOT COR RECT TO SAY THAT THE SAID COMPANY IS FOLLOWING CASH SYSTEM OF ACCOUN TING WHICH IS NOT ALLOWED TO BE FOLLOWED AFTER IT WAS MADE MANDAT ORY TO MAINTAIN BOOKS OF ACCOUNT ON MERCANTILE SYSTEM OF A CCOUNTING. THEREFORE, ACCORDING TO HIM, HARTRON COMMUNICATIONS LTD IS ALSO A COMPARABLE COMPANY. ITA NO 1878 OF 2017 S&P CAPITAL IQ INDIA P LTD HYD ERABAD. PAGE 10 OF 11 10. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT HARTRON COMMUNICATIONS LTD HAS REPORTED INCOME FROM BOTH THE EXPORT AND DOMESTIC SALES. AS SEEN FROM THE AUDITORS REPORT, THE ASSESSEE HAS MAINTAINED PROPE R BOOKS OF ACCOUNT AS REQUIRED BY LAW AND THERE IS NO QUALIFIC ATION BY THE AUDITORS. AT PARA 1.6 OF THE NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDING 31.03.2013, IT IS MENTIONED THAT AL L THE REVENUES ARE ACCOUNTED FROM ACCRUAL BASIS, EXCEPT FOR PROCES SING CHARGES (EXPORT INCOME), INTEREST ON CALLS ARREARS, LISTING FEE AND LEAVE ENCASHMENT WHICH ARE ACCOUNTED FOR ON CASH BASIS. A T PARA 12 OF THE SAID REPORT, IT IS STATED THAT THE INCOME FROM BPO SERVICES IS RS.17,99,52,212 WHICH HAS BEEN BOOKED ON THE BASIS OF INDIAN CURRENCY REALIZED. AT NOTE 17, THE REVENUE FROM OPE RATIONS IS REPORTED, WE FIND THAT THE EXPORT INCOME HAS BEEN R EPORTED AT RS.17,99,52,211/-. FURTHER, FROM THE DATA PUBLISHED BY THE ASSESSEE, THIS YEAR IS AN EXCEPTIONAL YEAR OF OPERA TION. THE FINANCIAL RESULTS OF HARTRON COMMUNICATIONS LTD CAN NOT BE CONSIDERED FOR THE PRECEDING AND SUCCEEDING FINANCI AL YEARS IS AS UNDER: F.Y 2009-10 (-) 22.07% F.Y 2010-11 (-) 97.56% F.Y 2011-12 (-) 37.15% F.Y 2012-13 25.05% F.Y 2013-14 (-) 2.52% F.Y 2014-15 (-) 26.02% THEREFORE, IT CAN BE SEEN THAT THIS YEAR HAS BEEN A N EXCEPTIONAL YEAR FOR THE SAID COMPANY. THEREFORE, WE ARE OF THE OPINION THAT HARTRON COMMUNICATION LTD CANNOT BE CONSIDERED AS A COMPARABLE COMPANY TO THE ASSESSEE. IN THIS VIEW OF THE MATTER, WITHOUT COMMENTING ON THE OTHER OBJECTIONS OF THE A SSESSEE, ITA NO 1878 OF 2017 S&P CAPITAL IQ INDIA P LTD HYD ERABAD. PAGE 11 OF 11 AGAINST THIS COMPANY, WE DIRECT THE AO/TPO TO EXCLU DE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES ONLY FOR THE GROUND OF EXCEPTIONAL PERFORMANCE DURING THE RELEVANT YEAR. 11. THOUGH THE ASSESSEE HAS SOUGHT INCLUSION OF INF ORMED TECHNOLOGIES INDIA LTD, JINDAL INTELICOM LTD, WE FI ND THAT BY EXCLUSION OF THE TWO COMPANIES IN THE ABOVE PARAGRA PHS, THE ASSESSEES MARGIN FALLS WITHIN + OR -3% OF THE AVER AGE MARGIN OF THE COMPARABLES. THEREFORE, WE DO NOT VENTURE TO AD JUDICATE ON THE INCLUSION OF THESE TWO COMPANIES AT THIS STAGE, AS IT WOULD ONLY RESULT IN AN ACADEMIC EXERCISE. 12. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH APRIL, 2019. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 24 TH APRIL, 2019. VINODAN/SPS COPY TO: 1 M/S.S&P CAPITAL IQ INDIA PVT. LTD., SURVEY NO.12P , KONDAPUR VILLAGE, SERILINGAMPALLY MANDAL, R.R. DISTT. HYDERA BAD 500081 2 DY.CIT, CIRCLE 3(1) HYDERABAD 3 PR.CIT 3 HYDERABAD 4 CHIEF CIT (INTL.TAXN) BENGALURU 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER