ADP Private Limited, Hyderabad V. Dy.CIT., Circle-1(1), Hyderabad

ITA 191/HYD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6241 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 07-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO; U MINICHANDRAN
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 143(3); 133(6); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 191/HYD/2014 ASSESSMENT YEAR: 2009-10 ADP PVT. LTD., HYDERABAD. PAN AAACW2655C VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(1), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 134/HYD/2014 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(1), HYDERABAD. VS. ADP PVT. LTD., HYDERABAD. PAN AAACW2655C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVI BHARADWAJ REVENUE BY : SMT. G. APARNA RAO & SMT. U. MINI CHANDRAN DATE OF HEARING 28-12-2016 DATE OF PRONOUNCEMENT 18-01-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THESE APPEALS ARE PREFERRED BY THE ASSESSEE AS WEL L AS THE REVENUE AGAINST THE ORDERS PASSED U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) DATED 03/12/ 2013 RELATING TO AY 2009-10. 2. BRIEF FACTS OF THE CASE ARE, THE ASSESSEE, A WH OLLY OWNED SUBSIDIARY OF ADP GROUP, IS ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE DEVELOPMENT SERVICES. THE COMPANY HAD SET UP A 100% EOU UNDER THE STPI SCHEME AT HYDERABAD IN JUNE 1999. FO R THIS AY 2009- 10, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29/0 9/2009 DISCLOSING 2 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. AN INCOME OF RS. 6,87,22,369/- AFTER CLAIM OF DEDUC TION U/S 10A OF THE ACT IN RESPECT OF PROFIT FROM STPI UNIT. THE AO VID E HIS DRAFT ORDER ENHANCED THE TOTAL INCOME OF THE ASSESSEE TO RS. 16 ,47,75,806/-, TRANSFER PRICING ADJUSTMENT BEING RS. 7,74,11,952/- IN ACCORDANCE WITH THE TPOS ORDER PASSED U/S 92CA(3) AND IN COMP UTING DEDUCTION U/S 10A OF THE ACT, THE AO MADE THE FOLLOWING ADJUS TMENTS IN APPLYING THE PRESCRIBED FORMULA. EXPORT TURNOVER: REDUCED COMMUNICATION CHARGES OF R S. 8,73,53,250/- FROM EXPORT TURNOVER CONSIDERING THE SAME AS ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE IN DIA. THE ABOVE ADJUSTMENT RESULTED IN REDUCTION ON AMOUN T OF PROFITS ELIGIBLE FOR DEDUCTION U/S 10A BY RS. 1,86,41,485/- . 2.1 THE ASSESSEE ENTERED INTO THE FOLLOWING INTERNA TIONAL TRANSACTIONS FOR SOFTWARE DEVELOPMENT SERVICES AND ITES AS PER FORM 3CEB: ASSOCIATE ENTERPRISE AMOUNT (RS.) ADP INC., USA 172,76,74,579 ADP COBRA SERVICES INC. 8,58,45,694 AUTOMATIC DATA PROCESSING LTD., AUSTRALIA 15,19,11,112 ADP TAX SERVICES INC 34,26,09,948 ADP BENEFIT SERVICES INC 14,45,84,606 ADP NEDERLANDS, BV 2,53,48,070 ADP SCREENING AND SELECTION SERVICES INC 4,67,82,601 ADP INSURANCE AGENCY INC 3,03,93,335 BUSINESS MANAGEMENT SOFTWARE LTD. 31,40,0186 ADP GLOBAL VIEW BV 5,56,25,346 ADP CANADA CO 5,14,90,335 AUTOMATIC DATA PROCESSING LTD., UK 8,50,59,541 ADP EMPLOYER SERVICES GMBH 38,09,628 ADP GSI FRANCE 1,04,01,322 2.2 THE ASSESSEE ALSO REIMBURSED (PAID) TO AES, AN AMOUNT OF RS,4,10,04,154/-. IN ADDITION, TO THE ABOVE TRANSAC TIONS, THE ASSESSEE ALSO MADE PAYMENTS OF RS. 95,89,335/- TOWARDS MANAG EMENT FEE 3 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. ALLOCATION, AND RS.56,43,087/- TOWARDS PAYROLL SERV ICES TO ONE OF THE AES. THE TRANSACTIONS PERTAINING TO PAYMENT OF MANA GEMENT ALLOCATION FEES AND PAYROLL SERVICES WERE AGGREGATE D WITH THE MAIN TRANSACTIONS THEREFORE, NO SEPARATE ANALYSIS WAS DO NE. 2.3 THE TPO, OF ALL THE TRANSACTIONS, DETERMINED A RM'S LENGTH PRICE WITH RESPECT TO THE INTERNATIONAL TRANSACTIONS IN P ROVIDING SOFTWARE SERVICES. THE ASSESSEE PROVIDED SOFTWARE DEVELOPMEN T SERVICES TO ITS AES AS WELL AS ITES AND THE BILLING TO THE AE WAS O N OPERATING COST PLUS MARK-UP BASIS, AS PER THE TP REPORT. CONSIDERI NG THAT, THE TPO CONDUCTED SEARCH FOR COMPARABLES OF THE TAXPAYER WI TH REGARD TO COMPARABLES ENGAGED IN ITES, AND ANALYZED THE TRANS ACTIONS PERTAINING TO THE ITES. 2.4 AS PER THE ANNUAL REPORT, THE FINANCIALS OF TH E ASSESSEE FOR THIS FY, 2008-09, WERE AS UNDER: DESCRIPTION AMOUNT (RS.) OPERATING REVENUE 284,26,98,860 OPERATING COST 243,13,68,874 OPERATING PROFIT (PBIT) 41,13,29,986 OP TO COST RATIO 16.92% 2.5 FOR DETERMINATION OF THE ARMS LENGTH PRICE OF THE ABOVE TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES, THE A SSESSEE ADOPTED TRANSACTIONS NET MARGIN METHOD (TNMM). TPO DID NOT DISPUTE THE METHOD AND CONSIDERED IT TO BE THE MOST APPROPRIATE METHOD. THE PROFIT LEVEL INDICATOR, OPERATING PROFIT TO COST RA TIO, FOR THE ASSESSEE WAS 17.53%. ITS TP STUDY BASED ON 8 COMPARABLES YIE LDED PLI OF 17.53%. HENCE THE MARGIN EARNED WAS CONSIDERED AT A RM'S LENGTH BY THE ASSESSEE. BUT, THE TPO CARRIED OUT A FRESH SEAR CH, REJECTED 4 COMPARABLES OF THE ASSESSEE, AND ADDED ANOTHER 8 ON THE BASIS OF INFORMATION CALLED FOR U/S 133(6) OF THE ACT. THIS LED TO AN AVERAGE (ARITHMETIC MEAN) PLI OF THE COMPARABLES AT 27.42%. THE FINAL COMPARABLES SELECTED BY THE TPO ARE AS UNDER: 4 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. SL.NO. NAME OF THE COMPANY OP TO TOTAL COST 1. ACCENTIA TECH. 49.40 2. ACROPETAL TECHNOLOGIES LTD. (SEG.) 25.01 3. ADITYA BIRLA MINACS WORLDWIDE LTD. 0.53 4. COSMIC GLOBAL LTD. 48.20 5. CROSSDOMAIN 29.38 6. ECLERX SERVICES LTD. 53.34 7. INFOSYS BPO LTD. 16.90 8. JEEVAN SCIENTIFIC/SOFTECH TECHNOLOGY LTD. 16.56 9. MICROLAND LTD. 2.35 10. MICROGENETIC SYSTEMS LTD. 10.11 11. R SYSTEMS INTERNATIONAL LTD. 5.77 12. GENESYS INTERNATIONAL LTD. 71.50 ARITHMETIC MEAN 27.42 2.6 WORKING CAPITAL ADJUSTMENT WAS ALLOWED BY THE T PO WHICH REDUCED THE PLI TO 23.55%. ALL THESE ACTIONS LED TO AN ADJUSTMENT OF RS. 7,74,11,952/-. CALCULATION FOR THE ARM'S LENGTH PRICE IS AS BELOW: DESCRIPTION AMOUNT ARITHMETIC MEAN OF PLI AS ARRIVED AT BY THE TPO 27.42% LESS: WCA 3.87% ARMS LENGTH MARGIN AS ARRIVED AT BY THE TPO 23.55% OPERATION COST (OC) 116,70,57,059 ADJUSTED ARMS LENGTH MARGIN (%) (AALM) 23.55% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) @ 123.55% OF OPERATING COST 144,18,98,996 PRICE RECEIVED BY THE ASSESSEE 136,44,87,044 SHORTFALL BEING ADJUSTMENT U/S 92CA 7,74,11,952 THE ABOVE SHORTFALL OF RS. 7,74,11,952/- WAS TREATE D AS TRANSFER PRICING ADJUSTMENT U/S 92CA OF THE IT ACT BY TPO. 5 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. 2.7. ACCORDINGLY, THE TPO PASSED AN ORDER U/S 92CA (3) OF THE ACT ON 28/01/2013, RECOMMENDED ADJUSTMENT OF RS. 7,74,1 1,952/-. THE SAME WAS INCORPORATED BY THE AO IN THE DRAFT ASSESS MENT ORDER. 3. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE T HE DRP. 4. DRP REJECTED THE OBJECTIONS OF THE ASSESSEE AND CONFIRMED THE ACTION OF THE TPO WITH REGARD TO THE ADJUSTMENT OF RS. 7,74,11,952/-. HOWEVER, AS REGARDS THE OBJECTION OF THE ASSESSEE R EGARDING COMPUTATION OF DEDUCTION U/S 10A OF THE ACT BY REDU CING THE DATA LINK CHARGES FROM THE EXPORT TURNOVER AND FURTHER NOT RE DUCING THE SAME FROM THE TOTAL TURNOVER, THE DRP DIRECTED THE AO TO REDUCE DATA LINK CHARGES FROM THE EXPORT TURNOVER AS WELL AS FROM TO TAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A. 5. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE IS IN A PPEAL BEFORE US AND HAS RAISED 14 GROUNDS OF APPEAL, OUT OF WHIC H THE ASSESSEE HAS PRESSED ONLY GROUND NO. 8 PERTAINING SELECTION OF COMPARABLES AND GROUND NO. 13 PERTAINING TO SHORT CREDIT FOR TA X DEDUCTED AT SOURCE, WHICH IS CORPORATE TAX MATTER. THEREFORE, T HE OTHER GROUNDS ARE TREATED AS NOT PRESSED. 6. THE REVENUE ALSO CAME IN APPEAL AGAINST THE ACTI ON OF THE DRP IN DIRECTING THE AO TO EXCLUDE THE DATA LINK CHARGE S AND FREIGHT CHARGES BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. FIRST WE WILL TAKE UP THE GROUNDS OF ASSESSEE: 7. THE LD. AR OBJECTED TO THE SELECTION OF FOLLOWIN G COMPARABLES BY THE TPO, WHICH IS RAISED IN GROUND NO. 8. NAME OF THE COMPANY 1. ACCENTIAL TECHNOLOGIES LTD. 2. ACROPETAL TECHNOLOGIES LTD. (SEG.) 3. COSMIC GLOBAL LTD. 4. ECLERX SERVICES LTD. 5. GENESYS INTERNATIONAL CORPORATION LTD. 6 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. THEREFORE, WE WILL DEAL WITH EACH OF THE COMPANY TH AT WAS OBJECTED BY THE ASSESSEE. 1. ACCENTIA TECHNOLOGIES LTD.: 1.1 THE LD. AR OBJECTING TO THE AFORESAID COMPANY B EING TREATED AS COMPARABLE, SUBMITTED THAT THE SAID COMPANY HAS EXT RAORDINARY EVENTS AND ACQUISITIONS. HE SUBMITTED THAT IN THE FOLLOWING RULINGS ITAT REJECTED THE SAID COMPANY AS COMPARABLE: 1. HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD., ITA NO. 247&295/HYD/14. 2. M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD., ITA NO. 124/HYD/14. 3. TNS INDIA PVT. LTD., ITA NO. 604 & 419/HYD/14. 4. EXCELLENCE DATA RESEARCH , ITA NO. 159/HYD/14 5. HYUNDIA MOTOR ENGG. P. LTD., ITA NO. 255/H/14 6. OSI SYSTEMS PVT. LTD., ITA NO. 683&542/H/14 1.2 IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS I NDIA PVT. LTD., (SUPRA), THE COORDINATE BENCH HAS HELD AS UNDER: 21.2 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND NOTICED THAT THIS COMPANY OPERATES IN A DIFFERENT BUSINESS STRAT EGY OF ACQUIRING COMPANIES FOR INORGANIC GROWTH AS ITS STR ATEGY. IN EARLIER YEARS ON THE REASON OF ACQUISITION OF VARIO US COMPANIES, BEING AN EXTRAORDINARY EVENT WHICH HAD AN IMPACT ON THE PROFIT, THIS COMPANY WAS EXCLUDED. AS SUBMITTED BY THE LD. COUNSEL, THIS YEAR ALSO, THE ACQUISITION OF SOME COMPANIES BY THA T COMPANY MAY HAVE IMPACT ON THE PROFIT. CONSIDERING THE PROF IT MARGINS OF THE COMPANY AND INSUFFICIENT SEGMENTAL DATA, WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS COM PARABLE. MOREOVER, THIS IS ALSO NOT A COMPARABLE IN THE CASE OF M/S MERCER CONSULTING (INDIA) P. LTD. (SUPRA), WHICH IN DICATES THAT THE TPO THEREIN HAS EXCLUDED IT AT THE OUTSET. IN VIEW OF THIS, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPARABLE, FROM THE LIST OF COMPARABLES SELECTED. 1.3 THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DERS OF REVENUE AUTHORITIES AND SUBMITTED THAT THE ACQUISITION WAS COMPLETED DURING THE YEAR BUT IT MAY NOT HAVE ANY FINANCIAL IMPACT. (REFER PAGE 221 OF PAPER BOOK). 7 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. 1.4. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND KEEPING IN TUNE WITH THE CONSISTENT VIEW OF DIFFERE NT BENCHES OF THE TRIBUNAL IN RESPECT OF HISTORY OF THIS COMPANY IN A CQUIRING NEW BUSINESS. IT MIGHT HAVE SOME IMPACT ON THE FINANCIA LS AND INADEQUATE SEGMENTAL DATA, THIS COMPANY WAS NOT CONSIDERED AS COMPARABLE. THE LD. DR SUBMITTED THAT THERE MAY NOT BE ANY FINA NCIAL IMPACT DUE TO ACQUISITION. WE ARE NOT IN A POSITION TO APPRECI ATE AS THE DATA SUBMITTED BEFORE US IS INSUFFICIENT. CONSIDERING TH E CONSISTENT VIEW OF OTHER COORDINATE BENCHES, WE ARE INCLINED TO REJECT THIS COMPANY AS COMPARABLE. THEREFORE, WE DIRECT THE AO/TPO TO EXCL UDE THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES. 2. ACROPETAL TECHNOLOGIES LTD. 2.1 THE LD. AR OBJECTING TO THE AFORESAID COMPANY B EING TREATED AS COMPARABLE, SUBMITTED THAT THE SAID COMPANY PROVIDE S ENGG DESIGN SERVICES AND A PRODUCT COMPANY. HE SUBMITTED THAT IN THE FOLLOWING RULINGS OF ITAT, WHICH REJECTED THE SAID COMPANY A S COMPARABLE: 1. HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD., ITA NO. 247&295/HYD/14. 2. M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD., ITA NO. 124/HYD/14. 3. TNS INDIA PVT. LTD., ITA NO. 604 & 419/HYD/14. 4. EXCELLENCE DATA RESEARCH , ITA NO. 159/HYD/14 5. OSI SYSTEMS PVT. LTD., ITA NO. 683&542/H/14 2.2 IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS I NDIA PVT. LTD., (SUPRA), THE COORDINATE BENCH HAS HELD AS UNDER: 20. THE OBJECTION OF ASSESSEE WITH REFERENCE TO THI S COMPANY IS THAT THE COMPANY IS INVOLVED IN ENGINEERING DESIGN SERVICES AND HIGH END SERVICES AND HAS PRODUCTS IN ITS INVENTORY . IT IS ALSO INVOLVED IN R&D ACTIVITY AND DEVELOPING SOPHISTICAT ED DELIVERY SYSTEM. IT WAS FURTHER SUBMITTED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE AT SEGMENT LEVEL ALSO, AS E NGINEERING DESIGN SERVICES ARE HIGH END SERVICES, AS CONSIDERE D IN OTHER CASES. IT IS FURTHER SUBMITTED THAT ALLOCATION OF E XPENSES BETWEEN SEGMENTS IS NOT POSSIBLE AND DEPRECIATION WAS NOT A LLOCATED BETWEEN THE SEGMENTS. THERE ARE EXTRA-ORDINARY EVEN TS WHICH 8 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. IMPACT PROFIT ALSO, AS CAN BE SEEN FROM THE ANNUAL REPORTS. IT IS FURTHER SUBMITTED THAT THIS COMPANY IS NOT SELECTED IN THE LIST OF COMPARABLES SELECTED IN THE CASE OF MERCER CONSULTI NG (INDIA) PVT. LTD. AND THEREFORE, SELECTION OF THE COMPANY B Y THE TPO IN THIS CASE, WHICH IS ALSO IN SIMILAR ITES SERVICES, IS NOT PROPER. 2.3 THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DERS OF REVENUE AUTHORITIES. 2.4. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND KEEPING IN TUNE WITH THE CONSISTENT VIEW OF DIFFERE NT BENCHES OF THE TRIBUNAL IN RESPECT OF REJECTING THIS COMPANY AS CO MPARABLE DUE TO FUNCTIONALLY DIFFERENT AND IMPROPER SEGMENTAL DATA (REFER PAGE 235 OF PAPER BOOK). WE, THEREFORE, DIRECT THE AO/TPO TO EX CLUDE THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES. 3. COSMIC GLOBAL LTD.: 3.1 THE LD. AR OBJECTING TO THE AFORESAID COMPANY B EING TREATED AS COMPARABLE, SUBMITTED THAT THE SEGMENTAL REVENUE OF BPO SEGMENT OF THIS COMPANY IS ONLY RS. 27.76 LAKHS AND ALSO BR OUGHT TO OUR NOTIC THE COMPANY HAS ENGAGED IN SUB-CONTRACTING THE BUSI NESS BY INCURRING HUGE TRANSLATION CHARGES (REFER PAGE 241 OF PAPER BOOK). HE SUBMITTED THAT IN THE FOLLOWING RULINGS ITAT REJ ECTED THE SAID COMPANY AS COMPARABLE: 1. HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD., ITA NO. 247&295/HYD/14. 2. M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD., ITA NO. 124/HYD/14. 3. TNS INDIA PVT. LTD., ITA NO. 604 & 419/HYD/14. 4. EXCELLENCE DATA RESEARCH , ITA NO. 159/HYD/14 5. HYUNDIA MOTOR ENGG. P. LTD., ITA NO. 255/H/14 6. OSI SYSTEMS PVT. LTD., ITA NO. 683&542/H/14 3.2 IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS I NDIA PVT. LTD., (SUPRA), THE COORDINATE BENCH HAS HELD AS UNDER: 19. THE MAIN OBJECTION OF ASSESSEE WITH REFERENCE T O THE INCLUSION OF THIS COMPANY IS WITH REFERENCE TO OUTS OURCING OF ITS MAIN ACTIVITY. EVEN THOUGH THIS COMPANY IS IN ASSES SEE'S TP 9 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. STUDY, IT HAS RAISED OBJECTION BEFORE THE TPO THAT THIS COMPANY'S EMPLOYEE COST IS LESS THAN 21.30% AND MOST OF THE C OST IS WITH REFERENCE TO THE OUTSOURCING CHARGES OR TRANSLATION CHARGES, AND AS SUCH THIS IS NOT A COMPARABLE COMPANY. THE TPO, THOUGH CONSIDERED THESE SUBMISSIONS, REJECTED THE SAME, ON THE REASON THAT THIS DOES NOT IMPACT THE PROFIT MARGIN OF THE COMPANY. OPPOSING THE VIEW TAKEN BY THE TPO, IT IS SUBMITTED THAT THIS COMPANY CANNOT BE SELECTED AS COMPARABLE, AS SIMILA R ISSUE WAS DISCUSSED BY THE COORDINATE BENCH OF THE TRIBUNAL(D ELHI) IN THE CASE OF MERCER CONSULTING (INDIA) P. LTD. (SUPRA), VIDE PARAS 13.2 TO 13.3, WHICH READ AS UNDER- '13.2. NOW COMING TO THE FACTUAL MATRIX OF THIS CAS E, WE FIND FROM THE MATERIAL ON RECORD THAT OUTSOURCING CHARGES OF THIS CASE CONSTITUTE 57.31% THE TOTAL OPERATING COSTS. THIS D OES NOT APPEAR TO US TO BE A VALID REASON FOR ELIMINATING THIS CAS E FROM THE LIST OF COMPARABLES. ON GOING THROUGH THE ANNUAL ACCOUNTS O F COSMIC GLOBAL LIMITED, A COPY OF WHICH HAS BEEN PLACED ON RECORD, FIND THAT ITS TOTAL REVENUE FROM OPERATIONS ARE AT 7.37 CRORE DIVIDED INTO THREE SEGMENTS, NAMELY, MEDICAL TRANSCRIPTION AND CONSULTANCY SERVICES AT RS. 9.90 LACS, TRANSLATION CHARGES AT RS. 6.99 CRORE AND ACCOUNTS BPO AT RS. 27.76 LAKHS. THE ID. AR HAS MADE OUT A CASE THAT OUTSOURCING ACTIVITY CARRIED O UT BY THIS COMPANY CONSTITUTES 57% OF TOTAL EXPENSES. THE REAS ON FOR WHICH WE ARE NOT AGREEABLE WITH THE ID. AR IS THAT WE HAVE TO EXAMINE THE REVENUE OF THIS CASE ONLY FROM ACCOUNTS BPO SEGMENT AND NOT ON THE ENTITY LEVEL, BEING ALSO FRO M MEDICAL TRANSCRIPTION AND TRANSLATION CHARGES. WHEN WE ARE EXAMINING THE RESULTS OF THIS COMPANY FROM THE ACCOUNTS BPO S EGMENT ALONE, THERE IS NO NEED TO EXAMINE THE POSITION UND ER OTHER SEGMENTS. THE ENTIRE OUTSOURCING IS CONFINED TO TRA NSLATION CHARGES PAID AT RS.3.00 CRORE, WHICH IS STRICTLY IN THE REALM OF THE TRANSLATION SEGMENT, REVENUES FROM WHICH ARE TO THE TUNE OF RS. 6.99 CRORE. IF THIS SEGMENT OF TRANSLATION IS NOT U NDER CONSIDERATION FOR DECIDING AS TO WHETHER THIS CASE IS COMPARABLE OR NOT, WE CANNOT TAKE RECOURSE TO THE FIGURES WHIC H ARE RELEVANT FOR SEGMENTS OTHER THAN ACCOUNTS BPO. THUS IT IS HE LD THAT THIS CASE CANNOT BE EXCLUDED ON THE STRENGTH OF OUTSOURC ING ACTIVITY, WHICH IS ALIEN TO THE RELEVANT SEGMENT. 13.3. HOWEVER, WE FIND THIS CASE TO INCOMPARABLE ON THE ALTERNATIVE ARGUMENT ADVANCED BY THE ID. AR TO THE EFFECT THAT TOTAL REVENUE OF THE ACCOUNTS BPO SEGMENT OF COSMIC GLOBAL LTD. IS VERY LOW AT RS. 27.76 LACS. WE HAVE DISCUSSED TH IS ASPECT ABOVE IN THE CONTEXT OF CG-VAK'S CASE AND HELD THAT A CAPTIVE UNIT CANNOT BE COMPARED WITH A GIANT CASE AND THUS EXCLUDED CG-VAK WITH TURNOVER FROM ACCOUNTS BPO SEGMENT AT R S.86.10 LACS. AS THE SEGMENTAL REVENUE OF BPO SEGMENT OF CO SMIC GLOBAL LTD. AT RS. 27.76 LACS IS STILL ON MUCH LOWE R SIDE, THE 10 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. REASONS GIVE ABOVE WOULD FULLY APPLY TO HOLD COSMIC GLOBAL LTD. AS INCOMPARABLE. THIS CASE IS, THEREFORE, DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN VIEW OF THE DETAILED ANALYSIS OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE ABOVE REFERRED CASE, IN THIS CASE A LSO WE ACCEPT THE CONTENTIONS OF ASSESSEE AND DIRECT THE ASSESSIN G OFFICER/TPO TO EXCLUDE THIS COMPARABLE FOR THE SAME REASONS. 3.3 THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DERS OF REVENUE AUTHORITIES. 3.4. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, IT IS OBSERVED THAT THIS COMPANY HAS EARNED IN BPO SEGMEN T ONLY RS. 27.76 LAKHS AND ALSO INCURRED HUGE COST BY WAY OF T RANSLATION CHARGES. WE ARE AWARE THAT THE TRANSLATION CHARGES HAVE AN INBUILT MARGIN INCLUDED IN THE COST, WHICH CANNOT COMPARED WITH THE COST STRUCTURE OF THE ASSESSEE. HENCE, THIS COMPANY CANN OT BE CONSIDERED AS COMPARABLE. ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES. 4. ECLERX SERVICES LTD.: 4.1 THE LD. AR OBJECTING TO THE AFORESAID COMPANY B EING TREATED AS COMPARABLE, SUBMITTED THAT THE SAID COMPANY HAS DIV ERSIFIED SERVICES AND KPO SERVICES. HE SUBMITTED THAT IN THE FOLLOWIN G RULINGS ITAT REJECTED THE SAID COMPANY AS COMPARABLE: 1. HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD., ITA NO. 247&295/HYD/14. 2. M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD., ITA NO. 124/HYD/14. 3. TNS INDIA PVT. LTD., ITA NO. 604 & 419/HYD/14. 4. EXCELLENCE DATA RESEARCH , ITA NO. 159/HYD/14 5. HYUNDIA MOTOR ENGG. P. LTD., ITA NO. 255/H/14 6. OSI SYSTEMS PVT. LTD., ITA NO. 683&542/H/14 4.2 IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS I NDIA PVT. LTD., (SUPRA), THE COORDINATE BENCH HAS HELD AS UNDER: 18.2 WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE ANNUAL REPORT AND THE OBJECTIONS OF THE ASSESSEE. AS SEEN FROM THE 11 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. ANNUAL REPORT, THE ABOVE COMPANY IS INVOLVED IN DIV ERSE NATURE OF SERVICES AND THERE WAS NO SEGMENTAL DATA FOR DIVERS IFIED SERVICE PORT FOLIO. MOREOVER, THIS COMPANY CAN BE CONSIDERE D AS KPO AND WE ARE OF THE OPINION THAT THIS COMPANY IS NOT COMPARABLE TO ASSESSEES SERVICES. WE, THEREFORE, DIRECT THE AO/T PO TO EXCLUDE THIS COMPANY. 4.3 THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DERS OF REVENUE AUTHORITIES. 4.4. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND KEEPING IN TUNE WITH THE CONSISTENT VIEW OF DIFFERE NT BENCHES OF THE TRIBUNAL IN RESPECT OF THE AFORESAID COMPANY, WE DI RECT THE AO/TPO TO EXCLUDE THE AFORESAID COMPANY FROM THE LIST OF C OMPARABLES. 5. GENESYS INTERNATIONAL CORPORATION LTD.: 5.1 THE LD. AR OBJECTING TO THE AFORESAID COMPANY B EING TREATED AS COMPARABLE, SUBMITTED THAT THE SAID COMPANY IS FUNC TIONALLY DIFFERENT AND HAS PROVISION FOR GEOGRAPHICAL INFORMATION SYST EM SERVICES. HE SUBMITTED THAT THE IN THE FOLLOWING RULINGS ITAT RE JECTED THE SAID COMPANY AS COMPARABLE: 1. HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD., ITA NO. 247&295/HYD/14. 2. M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD., ITA NO. 124/HYD/14. 3. TNS INDIA PVT. LTD., ITA NO. 604 & 419/HYD/14. 4. EXCELLENCE DATA RESEARCH , ITA NO. 159/HYD/14 5. HYUNDIA MOTOR ENGG. P. LTD., ITA NO. 255/H/14 6. OSI SYSTEMS PVT. LTD., ITA NO. 683&542/H/14 5.2 IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS I NDIA PVT. LTD., (SUPRA), THE COORDINATE BENCH FOLLOWING THE DECISIO N OF THE DELHI BENCH IN THE CASE OF M/S MERCER CONSULTING (INDIA) LTD. VS. DCIT IN ITA NO. 966/DEL/2014, DATED 6 TH JUNE, 2014, HELD THAT THERE IS A VAST DIFFERENCE BETWEEN THE FUNCTIONS OF THE ABOVE COMPA NY AND THAT OF THE ASSESSEE. THIS COMPANY AS SUCH, CANNOT BE TREAT ED AS COMPARABLE ON FAR ANALYSIS. WE, THEREFORE, DIRECT T HE AO/TPO TO 12 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. EXCLUDE THIS COMPANY. THE FINDINGS OF THE BENCH IN THE CASE OF M/S MERCER CONSULTING (INDIA) LTD. (SUPRA) ARE AS UNDER : 14.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RIVAL MATERIALS ON RECORD. IT HAS BEEN NOTICED SUPRA THAT ASSESSEE IS BASICALLY P ROVIDING VARIOUS SERVICES TO THE CUSTOMERS OF ITS AES IN RELATION TO HUMAN RESOURCES WHICH ARE MORE OR LESS CENTERED AROUND THE EMPLOYEES OF THE PROSPECTIVE CLIENTS. WH EN WE CONSIDER THE NATURE OF SERVICES PROVIDED BY GENESYS INTERNATIONAL CORPORAT ION LTD., IT COMES TO THE FOREFRONT THAT THEY ARE PROVIDING FULL RANGE OF GEOSPATIAL SE RVICES TO ITS CUSTOMERS. IN SIMPLE TERMS, GEOSPATIAL SERVICES MEANS THE SERVICES RELATING TO THE RELATIVE POSITION OF THINGS ON THE EARTHS SURFACE. THESE BASICALLY INCLUDE 3D MAPPING , NAVIGATION MAPS, IMAGE PROCESSING, CADASTRAL MAPPING, ETC. IF WE TAKE INTO ACCOUNT THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE, BEING FINANCIAL AND RETIR EMENT SECURITY, HEALTH, PRODUCTIVITY OF EMPLOYEES AND EMPLOYMENT RELATIONSHIPS AND THEN TRY TO COMPARE THEM WITH THOSE RENDERED BY GENESYS, IT IS MANIFESTED THAT BOTH ARE TOTALLY INCOMPARABLE. 14.3. THE TPO ON PAGE 48 OF HIS ORDER HAS EXAMINED CBDT CIRCULAR SO 890 (E) DATED 26.9.2000 WHICH PROVIDES A DETAILED LIST OF PRODUCT S OR SERVICES THAT CAN BE COVERED UNDER THE ITES FOR THE PURPOSES OF SECTION 10A AND 10B OF THE ACT. IN THIS CIRCULAR, INFORMATION TECHNOLOGY ENABLED PRODUCTS/SERVICES HA VE BEEN DIVIDED INTO FIFTEEN CATEGORIES, STARTING WITH BANK OFFICE OPERATIONS, C ALL CENTRES ETC. AND ENDING WITH WEBSITE SERVICES. FROM THE VERY DESCRIPTION OF SUCH SERVICES, IT IS PALPABLE THAT EVEN THOUGH THESE FALL UNDER THE OVERALL ITES CATEGORY, BUT SOME OF THEM ARE QUITE DIFFERENT FROM EACH OTHER. TO CITE, SERVICE AT SL.NO. (VI) OF THIS CIRCULAR IS GEOGRAPHIC INFORMATION SYSTEM SERVICES AND AT SL. NO. (VII) IS HUMAN RESO URCES SERVICES. NO DOUBT, ALL THESE FIFTEEN CATEGORIES OF PRODUCTS/SERVICES HAVE BEEN I NCLUDED UNDER THE MAJOR HEAD OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES), B UT MOST OF THEM ARE QUITE DISTINGUISHABLE FROM OTHERS. IN OUR CONSIDERED OPIN ION, THE FIFTEEN BROAD CATEGORIES SET OUT IN THIS CIRCULAR CANNOT PER SE BE CLAIMED AS SI MILAR TO EACH OTHER. A CURSORY LOOK AT THESE PRODUCTS/SERVICES TRANSPIRES THAT SOME OF THE M ARE FUNCTIONALLY QUITE DIFFERENT FROM EACH OTHER. FURTHER THE LEVEL OF INVESTMENT RE QUIRED FOR PROVIDING SUCH SERVICES IS ALSO NOT CONSISTENT. IN OUR CONSIDERED OPINION, THE MERE FACT THAT TWO SERVICES ARE PLACED UNDER THIS CATEGORY DO NOT BECOME AUTOMATICALLY COM PARABLE. IF A CASE PROVIDING ONE CATEGORY OF SERVICES UNDER ITES IS CLAIMED AS COMPA RABLE WITH ANOTHER IN THE CATEGORY SERVICE UNDER ITES AS PER THIS CIRCULAR, THEN IT MU ST BE SHOWN EX FACIE THAT IT IS BROADLY SIMILAR. ADVERTING TO THE FACTS OF THE INSTANT CASE , WE FIND THAT THE SERVICES RENDERED BY GENESYS FALL UNDER CLAUSE (VI) WITH THE HEADING GE OGRAPHICAL INFORMATION SYSTEMS SERVICES, WHEREAS THOSE RENDERED BY THE ASSESSEE F ALL PARTLY UNDER CLAUSE (VII) WITH THE HEADING HUMAN RESOURCES SERVICES AND PARTLY UNDER CLAUSE (XI) WITH THE HEADING PAYROLL. ON JUXTAPOSITION EXAMINATION OF THESE TW O SETS OF SERVICES, WE FIND THAT THERE IS A VAST DIFFERENCE WHICH MAKE ONE QUITE DISTINCT FRO M THE OTHER. IN VIEW OF SUCH FUNCTIONAL INCOMPARABILITY BETWEEN ASSESSEE AND GENESYS, WE HO LD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE. WE, THEREFORE, DIRECT TO EXC LUDE THIS CASE FROM THE LIST OF COMPARABLES. 5.3 THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DERS OF REVENUE AUTHORITIES. 13 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. 5.4. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND KEEPING IN TUNE WITH THE DECISION OF THE ITAT, DELH I BENCH IN RESPECT OF THE AFORESAID COMPANY, WE DIRECT THE AO/TPO TO E XCLUDE THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES. 8. WE THEREFORE DIRECT THE ASSESSING OFFICER /TPO T O DETERMINE THE ALP KEEPING IN VIEW OUR DIRECTIONS GIVEN HEREINABOV E AND IF ON SUCH DETERMINATION THE PRICE CHARGED BY THE ASSESSEE FOR ITS INTERNATIONAL TRANSACTION IS FOUND TO BE WITHIN THE ARMS LENGTH T HEN NO ADJUSTMENT IS REQUIRED TO BE MADE. 9. AS REGARDS GROUND NO. 13 REGARDING SHORT CREDIT FOR TAX DEDUCTED AT SOURCE, WE REMAND THE ISSUE TO THE FIL E OF THE AO WITH A DIRECTION TO ALLOW THE TDS CREDIT IN ACCORDANCE WIT H LAW. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. 11. AS REGARDS THE GROUND RAISED BY THE REVENUE IN ITS APPEAL REGARDING THE ACTION OF THE DRP IN DIRECTING THE AO TO EXCLUDE DATA LINK CHARGES AND FREIGHT CHARGES BOTH FROM TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A, WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE DRP AS IT IS IN CONFO RMITY WITH THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. GEM PLUS JEWELLERY (330 ITR 175) AS WELL AS DIFFERENT B ENCHES OF TRIBUNAL INCLUDING ITAT, CHENNAI BENCH (SB) IN THE CASE OF I TO VS. SAK SOFT (313 ITR (AT) 853) WHEREIN IT IS HELD THAT COMMUNIC ATION CHARGES ATTRIBUTABLE DIRECTLY TO THE EXPORT OF ARTICLE OR THING OUTSIDE INDIA HAS TO BE EXCLUDED BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING EXEMPTION U/S 10A OF THE ACT. IN V IEW OF THE RATIO LAID DOWN AS ABOVE, THE FINDING OF THE DRP ON THIS ISSUE IS UPHELD AND GROUND RAISED BY THE REVENUE IS DISMISSED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 14 ITA NO. 191 & 134/H/14 M/S ADP PVT. LTD. 13. TO SUM UP, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON 18 TH JANUARY, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER ACC OUNTANT MEMBER HYDERABAD, DATED: 18 TH JANUARY, 2017 KV COPY TO:- 1) M/S ADP (P) LTD., 6-3-1091/C/1, FORTUNE 9, RA JBHAVAN ROAD, SOMAJIGUDA, HYDERABAD. 2) DCIT, CIRCLE 1(1), 4 TH FLOOR, AAYAKAR BHAVAN, HYDERABAD. 3) DRP, HYDERABAD 4. DIT, INTERNATIONAL TAXATION, INCOME TAX TOWERS, 10-2-3, AC GUARDS, HYDERABAD 500 004. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE