Appeal details
Counselvise Citation
[2019] 116 COUNSELVISE.COM (IT) 9560 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 4 month(s) 16 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
03-07-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Assessment Year
2011-2012
Appeal Filed On
17-02-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER IT (TP) A NO S . 195/BANG/2016 & 459/BANG/2017 ASSESSMENT YEAR S : 2011 - 12 & 2012 - 13 FNF INDIA PRIVATE LIMITED (FORMERLY FNF BUSINESS PROCESS OUTSOURCING SERVICES PVT. LTD.), SURVEY NO.46(P) & 47(P), ELECTRONIC CITY, PHASE II, HOSUR ROAD, BANGALORE 560 100. PAN: AAECP 1100P VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), BANGALORE. APPELLANT RESPONDENT APP ELLANT BY : SHRI K.R. VASUDEVAN, ADVOCATE RESPONDENT BY : SHRI C.H. SUNDAR RAO, CIT(DR - I)ITAT, BENGALURU. DATE OF HEARING : 01.07 .2019 DATE OF PRONOUNCEMENT : 03 . 0 7 .201 9 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT IT(TP)A.NO.195/BANG/2016 IS AN APPEAL BY THE ASS ESSEE AGAINST THE ORDER DATED 21.12.2015 OF ACIT, CIRCLE-3(1)(1), BANGALORE (HEREINAFTER REFERRED TO AS THE ASSESSING OFFICER, AO IN SHORT ) PASSED U/S.143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (THE ACT) IN R ELATION TO AY 2011-12. 2. IT(TP)A.NO.459/BANG/2017 IS AN APPEAL BY THE ASS ESSEE AGAINST THE ORDER DATED 22.12.2016 OF THE AO PASSED U/S.143 (3) R.W.S. 144C(13) OF THE ACT IN RELATION TO AY 2012-13. IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 2 OF 20 IT(TP) A.NO.195/BANG/2016 (AY 2011-12) 3. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF FID ELITY NATIONAL FINANCIAL INTERNATIONAL, MAURITIUS (FNF MAURITIUS ) AND IS A CAPTIVE SERVICE CENTER OF FNF INC. THE ASSESSEE PROVIDES INFORMATI ON TECHNOLOGY ENABLED SERVICES (ITES) TO ITS ASSOCIATED ENTERPRIS E (AE). IN TERMS OF THE PROVISIONS OF SEC.92A OF THE ACT, THE ASSESSEE AND ITS WHOLLY OWNED HOLDING COMPANY WERE ASSOCIATED ENTERPRISES ('AES') . IN TERMS OF SEC.92B(1) OF THE ACT, THE TRANSACTION OF PROVIDING ITES WAS AN INTERNATIONAL TRANSACTION I.E., A TRANSACTION BET WEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR IN TANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONE Y, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME , LOSSES OR ASSETS OF SUCH ENTERPRISES, AND SHALL INCLUDE A MUTUAL AGREEM ENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE O R FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES. I N TERMS OF SEC.92(1) OF THE ACT, ANY INCOME ARISING FROM AN INTERNATIONAL T RANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. 4. AS FAR AS THE PROVISION OF ITES ARE CONCERNED, T HE ASSESSEE FILED A TRANSFER PRICING STUDY (TP STUDY) TO JUSTIFY THE PR ICE PAID IN THE INTERNATIONAL TRANSACTION AS AT ALP BY ADOPTING THE TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD (MAM) OF DETERMINING ALP. THE ASSESSEE SELECTED OPERATING PROFIT/TOTAL C OST (OP/TC) AS THE PROFIT LEVEL INDICATOR (PLI) FOR THE PURPOSE OF COM PARISON. THE OP/TC OF THE ASSESSEE WAS ARRIVED AT 15.50% BY THE ASSESSEE IN ITS TP STUDY. THE IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 3 OF 20 OPERATING INCOME WAS RS.34,58,02,453/- AND THE OPER ATING COST WAS RS.30,73,91,430/-. THE OPERATING PROFIT (OPERATING INCOME OPERATING COST WAS RS.3,84,11,023/-. THUS, THE OP/TC WAS ARR IVED AT 12.49%. THE ASSESSEE CHOSE COMPANIES WHO ARE ENGAGED IN PROVIDI NG SIMILAR SERVICES SUCH AS THE ASSESSEE FROM THE PROWESS AND CAPITALIN E PLUS DATA BASE. THE ASSESSEE IDENTIFIED 8 COMPANIES WHOSE AVERAGE A RITHMETIC MEAN OF PROFIT MARGIN WAS 14.38% WHICH WAS LESS THAN THE OP ERATING MARGIN OF THE ASSESSEE. THE ASSESSEE THEREFORE CLAIMED THAT THE PRICE IT CHARGED IN THE INTERNATIONAL TRANSACTION SHOULD BE CONSIDERED AS A T ARMS LENGTH. 5. THE TRANSFER PRICING OFFICER (TPO) TO WHOM THE D ETERMINATION OF ALP WAS REFERRED TO BY THE AO, ACCEPTED TNMM AS THE MAM AND ALSO USED THE SAME PLI FOR COMPARISON I.E., OP/TC. THE TPO SELECTED A SET OF 10 COMPARABLE COMPANIES (2 OUT OF THE 10 SO CHOSEN WERE COMPARABLE COMPANIES WHICH THE ASSESSEE HAD CHOSEN IN ITS TRAN SFER PRICING STUDY VIZ., COSMIC GLOBAL LTD., AND JINDAL INTELLICOM LTD .) AND WORKED OUT THE AVERAGE ARITHMETIC MEAN OF THEIR PROFIT MARGINS AND ADJUSTMENT TO ALP AS FOLLOWS:- IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 4 OF 20 TRANSFER PRICING ADJUSTMENT PROPOSED BY THE TPO: COMPUTATION OF ARMS LENGTH PRICE PARTICULARS AMOUNT INR ARMS LENGTH MEAN MARGIN ON COST 24.77% LE SS: WORKING CAPITAL ADJUSTMENT - 0.85% ADJUSTED MARGIN 25.62% PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE PARTICULARS AMOUNT INR OPERATING COST 30,73,91,430 ARMS LENGTH PRICE @ 125.62% OF OPERATING COST 38,61,45,114 PRICE RECEIVED 34,58,02,453 SHORTFALL BEING ADJUSTMENT U/S. 92CA 4,03,42,661 6. AGGRIEVED BY THE AFORESAID ADDITION OF RS.4,03,4 2,661/- TO THE TOTAL INCOME OF THE ASSESSEE, THE ASSESSEE FILED OBJECTIO NS BEFORE THE DISPUTES RESOLUTION PANEL (DRP) U/S.144C OF THE ACT. THE DRP EXCLUDED 8 OUT OF THE 10 COMPARABLE COMPANIES CHOSEN BY THE TPO. AS A RESULT, ONLY TWO COMPANIES REMAINED FOR CONSIDERATION PURSUANT TO TH E ORDER OF THE DRP VIZ., ICRA ONLINE LTD., AND JINDAL INTELLICOM PVT.L TD. THE PURSUANT TO THE DIRECTIONS OF THE DRP, THE AGGREGATE TP ADJUSTMENT MADE BY THE TPO STOOD REDUCED TO RS. 3,96,04,921/-. IN EFFECT, THE TP ADJUSTMENT MADE BY THE TPO IN RESPECT OF THE ITES SEGMENT OF THE ASSES SEE SURVIVED POST THE DRP'S DIRECTIONS. IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 5 OF 20 7. BEFORE THE TRIBUNAL, THE ASSESSEE SEEKS EXCLUSIO N OF ICRA ONLINE LTD., A COMPARABLE CHOSEN BY THE TPO AND RETAINED B Y THE DRP AS A COMPARABLE COMPANY. THE ASSESSEE ALSO SEEKS TO INC LUDE R SYSTEMS LTD., AND INFORMED TECHNOLOGIES INDIA LTD., WHICH T HE ASSESSEE HAD CHOSEN AS A COMPARABLE IN ITS TP STUDY. WE HAVE HE ARD THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE AND THE LEA RNED DR ON THE ABOVE ISSUE. 8. AS FAR AS EXCLUSION OF THE COMPANY ICRA ONLINE L TD. IS CONCERNED, THIS TRIBUNAL IN THE CASE OF M/S. ZYME SOLUTIONS PVT.LTD. VS. ACIT IT(TP) A.NO.85/BANG/2016 FOR AY 2011-12 ORDER DATED 28.4.2017 IN PARAGRAPH-26 OF ITS ORDER WAS PLEASED TO REMAND TO TPO/AO FOR FRESH CONSIDERATION, THE COMPARABILITY OF THIS COMPANY WI TH THE ASSESSEE. FOLLOWING THE SAID DECISION, WE SET ASIDE THE ORDER OF THE AO IN THIS REGARD AND REMAND TO THE TPO/AO FOR FRESH CONSIDERATION TH E COMPARABILITY OF THIS COMPANY WITH THE ASSESSEE ON THE LINES INDICATED IN THE ORDER IN THE CASE OF M/S. ZYME SOLUTIONS PVT.LTD. (SUPRA). 9. AS FAR AS INCLUSION OF COMPARABLE COMPANY M/S. R SYSTEMS LTD., IS CONCERNED, THE DRP EXCLUDED THIS COMPANY FROM THE L IST OF COMPARABLE COMPANIES FOR TWO REASONS VIZ., (I) THE FINANCIAL Y EAR ENDING OF THIS COMPANY WAS DIFFERENT AND (II) THAT THE SEGMENTAL I NFORMATION RELATING TO ITES SEGMENT IS NOT AVAILABLE. AS FAR AS THE FIRST OBJECTION IS CONCERNED, THIS TRIBUNAL IN ASSESSEES OWN CASE CONSIDERED THE EXCLUSION OF THIS COMPANY ON GROUND NO. (I) VIZ., THAT THE FINANCIAL YEAR ENDING OF THIS COMPANY WAS DIFFERENT FROM THAT OF THE ASSESSEE COM PANY, IN IT (TP) NO.221/BANG/2015 FOR AY 2010-11 ORDER DATED 31.1.20 19. THE TRIBUNAL HELD THAT IF THE FINANCIAL RESULTS OF THE COMPARABL E COMPANY, EVEN THOUGH IT HAS A DIFFERENT YEAR ENDING THAN THE COMPANY WITH W HICH ITS MARGINS ARE IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 6 OF 20 SOUGHT TO BE COMPARED, CAN BE CULLED OUT FROM THE F INANCIAL DATA AVAILABLE FINANCIAL IN PUBLIC DOMAIN FOR THE FINANCIAL YEAR O F THE COMPANY WITH WHICH IT IS SOUGHT TO BE COMPARED, THAN A COMPANY CANNOT BE REGARDED AS NOT COMPARABLE. THE FOLLOWING ARE THE RELEVANT OBSERVA TIONS OF THE TRIBUNAL:- 3. AT THE TIME OF HEARING, ASSESSEE NOT PRESSED G ROUND NOS. 1, 2, 3, 3(A), 4, 5, 6, 7, 8, 9, 10,11 & 12. THE LD. A R PRESSED ONLY GROUND RELATED TO THE COMPARABLES IN 3(B) WITH REFE RENCE TO R SYSTEMS INTERNATIONAL LIMITED. OTHER FIVE COMPARABL ES VIZ., NITTANY OUTSOURCING SERVICES PVT. LTD., DATAMATICS FINANCIAL SERVICES LTD., CALIBER POINT BUSINESS SOLUTIONS LTD ., ULTRAMARINE & PIGMENTS LTD. AND JINDAL INTELLICOM LTD. ARE NOT PRESSED. 4. THE FIRST GROUND FOR CONSIDERATION IN THIS APPEA L IS WITH REGARD TO CONSIDERING R SYSTEMS INTERNATIONAL LTD. AS COMPARABLE. 5. THE ASSESSEE HAS SELECTED IN THE TRANSFER PRICIN G DOCUMENTATION R SYSTEMS INTERNATIONAL LTD. AS A COM PARABLE COMPANY SINCE IT IS FUNCTIONALLY COMPARABLE AND PAS SING ALL THE FILTERS APPLIED BY THE ASSESSEE IN THE TP DOCUMENTA TION. HOWEVER THE LOWER AUTHORITIES REJECTED THAT COMPANY ON THE BASIS THAT IT HAS DIFFERENT YEAR ENDING. AGAINST THIS ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR SUBMITTED THAT R SYSTEMS INTERNATIONAL L TD. ACCOUNTING PERIOD IS JANUARY TO DECEMBER AND ASSESSEES ACCOUN TING PERIOD IS APRIL TO MARCH, THEREFORE THAT THE ASSESSEE AND R S YSTEMS INTERNATIONAL LTD. WERE OPERATING FOR A PERIOD OF 1 2 MONTHS ACCOUNTING CYCLE. SINCE THEY WERE FACING SIMILAR BU SINESS CYCLES, MARKET AND ECONOMIC CONDITIONS, IT IS NOT POSSIBLE TO SAY THAT BECAUSE OF DIFFERENT ACCOUNTING PERIOD IT HAD ANY I MPACT ON ITS FINANCIALS AND RESULTED INTO DISTORTION OF COMPARAB ILITY. SINCE USE OF DIFFERENT ACCOUNTING PERIOD HAVE NO EFFECT ON TH E COMPARABILITY PARAMETERS AS MENTIONED IN RULE 10B(2) OF THE IT RU LES 1962, THEREFORE IT WOULD BE INAPPROPRIATE TO REJECT R SYS TEMS INTERNATIONAL LTD. WHICH IS FUNCTIONALLY COMPARABLE COMPANY ONLY ON THE REASON THAT IT HAS DIFFERENT ACCOUNTING PERI OD. HE RELIED ON THE JUDGEMENT OF HONBLE PUNJAB & HARYANA HIGH COUR T IN THE CASE OF CIT VS. MERCER CONSULTING (INDIA) PVT. LTD. IN ITA NO. IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 7 OF 20 101 OF 2015(O&M) DATED 24.08.2016 WHEREIN HONBLE H IGH COURT HELD THAT THE RULE 10(B)(4) DOES NOT EXCLUDE FROM CONSIDERAT ION THE DATA OF AN ENTITY MERELY BECAUSE ITS FINANCIAL YEAR IS DIFFERENT FROM THE FINANCIAL YEAR OF THE ASSESSEE. WHAT THE RULE REQUIRES IS THAT THE DATA TO BE USED IN ANALYZ ING THE FINANCIAL RESULTS OF AN UNCONTROLLED TRANSACTION WI TH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATIN G TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTI ON HAS BEEN ENTERED INTO. THUS, SO LONG AS THE DATA RELATI NG TO THE FINANCIAL YEAR IS AVAILABLE, IT MATTERS NOT, IF THE FINANCIAL YEAR FOLLOWED IS DIFFERENT. IN THE CASE BEFORE US T HE DATA RELATING TO THE RELEVANT FINANCIAL YEAR OF R.SYSTEM S INTERNATIONAL LIMITED IS AVAILABLE. WE ARE, THEREFO RE, ENTIRELY IN AGREEMENT WITH THE DECISION OF THE TRIB UNAL THAT IF THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO IS DIRECTLY AVAILABLE FROM THE ANNUAL ACCOUNTS OF THAT COMPARAB LE, THEN IT CANNOT BE HELD AS NOT PASSING THE TEST OF S UB- RULE(4) OF RULE 10B. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE ACCOUNTING PERIOD OF ASSESSEE AND R SYSTEMS INTERNA TIONAL LTD. ARE DIFFERENT AND HENCE THE LOWER AUTHORITIES HAVE NOT CONSIDERED R SYSTEMS INTERNATIONAL LTD. AS COMPARABLE. THE SAME TO BE UPHELD. FOR THIS PURPOSE SHE RELIED ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SCHLUMBERGER INDIA TECHNOLO GY CENTRE (P.) LTD. VS. DDIT IN ITA NO. 640 (PUN.) OF 2014 DATED 1 0.01.2018 WHEREIN HELD IN PARA 21 AS FOLLOWS:- 21. NOW, COMING TO THE CONCERN JINDAL INTELLICOM P VT. LTD. THE CASE OF ASSESSEE BEFORE US IS THAT THE SAI D CONCERN HAS DIFFERENT FINANCIAL YEAR THAN THE ONE OF ASSESS EE. THE ASSESSING OFFICER HAD APPLIED THE CURRENT YEAR DATA AS CONTEMPORANEOUS DATA TO BE USED FOR BENCHMARKING TH E ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF ASSESSEE. THE ASSESSEE HAD PREPARED ITS FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR STARTING FROM 1ST APRIL, 2009 TO 31ST MARCH, 2010. THE CASE OF ASSESSEE BEFO RE US IS THAT JINDAL INTELLICOM PVT. LTD. HAS PREPARED IT S IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 8 OF 20 FINANCIAL STATEMENTS FOR PERIOD OF 15 MONTHS AND TH E SAME IS NOT TO BE SELECTED IN THE FINAL SET OF COMPARABL ES. 22. WE FIND THAT THE PUNE BENCH OF TRIBUNAL IN THE CASE OF BMC SOFTWARE INDIA PVT. LTD. VS. DCIT IN ITA NO.1425/PN/2010, RELATING TO ASSESSMENT YEAR 2006-0 7, ORDER DATED 16.03.2016 HAD REJECTED THE CONCERN HAV ING 15 MONTHS FINANCIALS. 23. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CI T VS. PTC SOFTWARE (I) PVT. LTD. IN INCOME TAX APPEAL NO. 732 OF 2014 HAD ALSO HELD THAT THE COMPARABLE DATA SHOU LD PERTAIN TO THE SAME FINANCIAL YEAR. ACCORDINGLY, WE HOLD THAT THE MARGINS OF CONCERN HAVING DIFFERENT ACCOUN TING PERIOD CANNOT BE SELECTED FOR BENCHMARKING INTERNAT IONAL TRANSACTIONS AND THE SAME IS TO BE EXCLUDED FROM TH E FINAL SET OF COMPARABLES. ACCORDINGLY, WE DIRECT THE ASSESS ING OFFICER TO EXCLUDE JINDAL INTELLICOM PVT. LTD. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. AS RIGHTLY POINTED OUT BY THE LD. AR, RU LE 10(B)(4) DOES NOT EXCLUDE FROM CONSIDERATION THE DATA OF AN ENTIT Y MERELY BECAUSE ITS FINANCIAL YEAR IS DIFFERENT FROM THE FI NANCIAL YEAR OF THE ASSESSEE. WHAT THE RULE REQUIRES IS THAT THE DATA T O BE USED IN ANALYZING THE FINANCIAL RESULTS OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELA TING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTI ON HAS BEEN ENTERED INTO. THUS SO LONG AS THE DATA RELATING TO THE FINANCIAL YEAR IS AVAILABLE, IT MATTERS NOT, IF THE FINANCIAL YEAR FOLLOWED IS DIFFERENT. IN THE CASE BEFORE US THE DATA RELATING TO THE RELEVANT FINANCIAL YEAR OF R.SYSTEMS INTERNATIONAL LIMITED I S AVAILABLE. WE ARE, THEREFORE, ENTIRELY IN AGREEMENT WITH THE DECI SION RELIED BY LD. AR THAT IF THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO IS DIRECTLY AVAILABLE FROM THE ANNUAL ACCOUNTS OF THAT COMPARABLE, THEN I T CANNOT BE HELD AS NOT PASSING THE TEST OF SUB-RULE(4) OF RULE 10B AND THE SAME IS THE VIEW TAKEN BY HONBLE PUNJAB & HARYANA HIGH COU RT IN THE CASE OF CIT VS. MERCER CONSULTING (INDIA) PVT. LTD. (SUPRA). BEING SO, IN OUR OPINION DATA RELATING TO THE ASSESSEE FI NANCIAL YEAR TO BE INTERPOLATED AND THEREAFTER IF REQUIRED, IT SHOULD BE CONSIDERED AS A IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 9 OF 20 COMPARABLE TO THE ASSESSEES CASE. WITH THIS OBSERV ATION WE REMIT THIS ISSUE TO THE FILE OF TPO FOR HIS FRESH CONSIDE RATION. 10. THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED BEFORE US THE DETAILS OF THE FINANCIAL RESULTS AVAILABLE FOR THE PERIOD F OR WHICH THIS COMPANIES PROFIT MARGINS ARE SOUGHT TO BE COMPARED WITH THAT OF THE ASSESSEE COMPANY. WE ARE THEREFORE OF THE VIEW THAT THE TPO SHOULD CONSIDER THE FINANCIAL RESULTS OF THIS COMPANY FOR THE PERIOD RE LATABLE TO THE ASSESSEES FINANCIAL YEAR AND FOR THIS PURPOSE THE ISSUE IS RE MANDED TO THE TPO. 11. THE LEARNED DR PRAYED THAT THIS COMPANY HAS BEE N CONSISTENTLY MAKING LOSSES AND IF ON THE BASIS OF CONSISTENT LOS S MAKING COMPANY WHICH IS ABNORMAL IS APPLIED AND IF THIS COMPANY HAS TO B E EXCLUDED ON THIS BASIS, THEN THE TPO SHOULD BE DIRECTED TO EXAMINE THIS ISS UE ALSO IN THE SET ASIDE PROCEEDINGS. THE PRAYER OF THE LEARNED DR WAS NOT OBJECTED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE. THEREFORE THE TP O IS DIRECTED TO EXAMINE THE COMPARABILITY OF THIS COMPANY, APPLYING THIS FILTER ALSO. 12. AS FAR AS THE OTHER REASON GIVEN FOR EXCLUDING THIS COMPANY THAT SEGMENT DETAILS RELATING TO THE ITES SEGMENT ARE NO T AVAILABLE, IS CONCERNED, WE FIND THAT THIS IS NOT THE REASON ASSI GNED BY THE TPO FOR DISREGARDING THIS COMPANY AS COMPARABLE COMPANY. S ECONDLY, THE ASSESSEE WAS NOT PUT ON NOTICE ON THIS ASPECT BY TH E DRP. THIRDLY, THE LEARNED COUNSEL BROUGHT TO OUR NOTICE PAGE-97 OF TH E ANNUAL REPORT OF THIS COMPANY THAT THE SEGMENTAL RESULTS OF THE ITES SEGM ENT IS AVAILABLE. THEREFORE WE DEEM IT FIT AND PROPER TO DIRECT THE T PO TO CONSIDER THE COMPARABILITY OF THIS COMPANY AFRESH. IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 10 OF 20 13. AS FAR AS COMPARABILITY OF THE COMPANY INFORMED TECHNOLOGIES LTD., IS CONCERNED, IT IS UNDISPUTED THAT THE ASSESSEE I N ANNEXURE 1.16 OF ITS OBJECTIONS TO THE DRAFT ASSESSMENT ORDER OF THE AO, OBJECTED TO THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARAB LE COMPANIES, BUT THIS OBJECTION WAS NOT CONSIDERED BY THE DRP AT ALL. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE OBJECTIONS BY THE ASSESSEE BEFORE THE DRP AGAINST EXCLUSION OF THIS COMPANY BY THE TPO, THE TPO SHOUL D BE RECONSIDER HIS DECISION OF EXCLUDING THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES AND FOR THIS PURPOSE, WE REMAND THIS ISSUE ALSO FOR FRESH CONSIDERATION BY THE TPO. 14. IN GR.NO.11 THE ASSESSEE HAS CONTENDED THAT THE TPO AND THE DRP ERRED IN ADDING TO THE AVERAGE ARITHMETIC PROFIT MA RGIN OF THE COMPARABLE COMPANIES CHOSEN BY THE TPO, NEGATIVE WORKING CAPIT AL ADJUSTMENT. ON THE ABOVE GROUND, IT IS UNDISPUTED THAT THE HYDERA BAD BENCH OF THE ITAT IN ITA.NO. 206/HYD/2014 FOR ASSESSMENT YEAR 2009-2010 IN THE CASE OF ADAPTEC (INDIA) P. LTD. VS. THE ACIT, CIRCLE 1(1) , ORDER DATED 25.3.2015 HELD THAT NO SUCH ADDITION CAN BE MADE FOR THE FOLL OWING REASONS:- GROUND NO.8 PERTAINS TO THE ISSUE OF NEGATIVE WORK ING CAPITAL. AS BRIEFLY STATED ABOVE, AFTER ARRIVING AT THE ARITHME TIC MEAN OF ALL COMPARABLES AT 22.03%, THE A.O. WORKED OUT NEGATIVE WORKING CAPITAL ADJUSTMENT OF 3.22% THEREBY, MAKING ARMS LE NGTH PRICE AT 25.25%. EVEN THOUGH, DRP REFUSED TO INTERFERE WITH THE OBJECTIONS OF THE ASSESSEE IN ITS ORDER, WE WERE INFORMED THAT DRP HAS DIRECTED THE TPO/A.O. NOT TO MAKE ANY NEGATIVE WORK ING CAPITAL ADJUSTMENT IN SOME OF THE CASES IN THE NEXT ASSESSM ENT YEAR, IN THE CASES OF MARKET TOOLS RESEARCH P. LTD., AND MEGA SY STEMS WORLDWIDE INDIA P. LTD., ASSESSEE PLACED ON RECORD COPIES OF ORDERS OF DRP. IN THAT DRP CONSIDERED THE ISSUE AND DIRECTED THE TPO AS UNDER : IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 11 OF 20 '14. GROUND NO.11 : NEGATIVE WORKING CAPITAL ADJUST MENT - MAKING A NEGATIVE WORKING CAPITAL ADJUSTMENT WITH OUT APPRECIATING THE FACT THAT THE COMPANY DOES NOT BEA R ANY WORKING CAPITAL RISKS. ON THIS ISSUE, THE ASSESSEE SUBMITTED AS UNDER : 'THE LEARNED TPO DETERMINED THE ALP FOR THE INTERNATIONAL TRANSACTIONS WITH A.ES BY MAKING A NEGATIVE WORKING CAPITAL ADJUSTMENT FOR THE DIFFERENCES IN WORKING CAPITAL BETWEEN THE ASSESSEE AND THE COMPANIES CONSIDERED AS COMPARABLES. THE ASSESSEE DOES NOT AGREE WITH THE LEARNED TPO AS THE COMPANY DOES NOT BEAR ANY WORKING CAPITAL RISK SINC E IT IS BEEN FULLY FUNDED BY IT'S A.E. FROM ITS INCEP TION AND HAS NO WORKING CAPITAL CONTINGENCIES. THE COMPANY HAS NEVER TAKEN ANY LOANS TILL DATE FROM TH E DATE OF INCORPORATION NOR HAS INCURRED ANY EXPENSE FOR MEETING THE WORKING CAPITAL REQUIREMENT.' WE HAVE GONE THROUGH THE SUBMISSIONS AND THE ORDER OF THE TPO. THE ASSESSEE PLEADED THAT THE DRP HAS ACCE DED SUCH A PLEA IN SOME OTHER CASE. ON EXAMINATION, WE FIND THAT THE DRP, HYDERABAD IN THE CASE OF CORDYS SOFTW ARE INDIA P. LTD., FOR A.Y. 2008-09 IN ITS DIRECTIONS DA TED 03.08.2012 HAS GIVEN A FINDING AS UNDER : '7.7. 4 THUS, WORKING CAPITAL ADJUSTMENT IS MADE FO R THE TIME VALUE OF MONEY LOST WHEN CREDIT TIME IS PROVIDED TO THE CUSTOMERS. THE APPLICANT IS NOT AN ENTREPRENEUR BUT A CAPTIVE SERVICE PROVIDER. ITS ENTIRE FUNDING NEEDS ARE PROVIDED BY THE A.E. THIS BEING SO, THE APPLICANT DOES NOT STAND TO LOSE ANYTHING AS IT IS COMPENSATED ON A TOTAL COST PLUS BASIS. THE TPO PROBABLY WAS CARRIED AWAY BY THE LARGE AMOUNT OF RECEIVABLES APPEARING IN THE BOOKS OF THE APPLICANT. BUT THE APPLICANT IS RUNNING ITS BUSINESS WITHOUT ANY WORKING CAPITAL RISK WHILE COMPARABLE COMPANIES HAVE SUCH A RISK FOR THEM. IF AT ALL ANY WORKING CAPITAL ADJUSTMENT IS TO BE MADE TO THIS SITUATION, ONLY A POSITIVE ADJUSTMENT HAS T O BE MADE TO THE COMPARABLES SO THAT THEY ARE BROUGHT IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 12 OF 20 ON PAR WITH THE APPLICANT. IN VIEW OF THE SAME, THE PANEL DIRECTS THAT NEGATIVE WORKING CAPITAL ADJUSTMENT TO THE ARITHMETIC MEAN MARGIN OF THE COMPARABLES SHALL NOT BE MADE.' IN VIEW OF THE ABOVE, THE PANEL DIRECTS THAT NEGATI VE WORKING CAPITAL ADJUSTMENT TO THE ARITHMETIC MEAN MARGIN OF THE COMPARABLES SHALL NOT BE MADE.' 15. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THA T ASSESSEE'S CASE BEING SIMILAR, THERE IS NO NEED FOR MAKING ANY NEGA TIVE WORKING CAPITAL ADJUSTMENT WHEN ASSESSEE DOES NOT CARRY ANY WORKING CAPITAL RISK. IN FACT, TPO SHOULD HAVE DONE NECESSARY WORKING CAPITAL ADJU STMENT TO THE PROFITS OF THE SELECTED COMPARABLES SO AS TO MAKE THEM COMP ARABLE TO THE ASSESSEE. IN VIEW OF THIS, WE DIRECT THE TPO NOT TO MAKE NEGATIVE WORKING CAPITAL ADJUSTMENT. 16. IT IS UNDISPUTED THAT THE ASSESSEE IS ALSO A CA PTIVE SERVICE PROVIDER SUCH AS THE ASSESSEE IN THE CASE DECIDED BY THE ITA T HYDERABAD BENCH AND THEREFORE MAKING A NEGATIVE WORKING CAPITAL ADJ USTMENT WITHOUT APPRECIATING THE FACT THAT THE COMPANY DOES NOT BEA R ANY WORKING CAPITAL RISKS, WAS NOT CORRECT. FOLLOWING THE AFORESAID D ECISION, WE ALLOW GR.NO.11 RAISED BY THE ASSESSEE. ALL OTHER GROUNDS RELATING TO TRANSFER PRICING WERE NOT PRESSED. THE GROUNDS WITH REGARD TO CHARGING OF INTEREST U/S.234A AND 234 B OF THE ACT HAS BEEN CHALLENGED O N THE GROUND OF IMPROPER COMPUTATION. THE AO IS DIRECTED TO VERIFY THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND IF FOUND CORRECT COMPUTE CORRECT LIABILITY OF INTEREST U/S.234A AND 234 B OF THE ACT. 17. IN THE RESULT, IT(TP)A.NO. 195/BANG/2016 FOR AY 2011-12 IS PARTLY ALLOWED. IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 13 OF 20 IT(TP) A.NO.459/BANG/2017 (FOR AY 2012-13) 18. THE DISPUTE IN AY 2012-13 ALSO RELATES TO DETER MINATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF THE INTERNATIONAL TRANSACTION OF PROVIDING ITES TO AE. AS FAR AS THE PROVISION OF ITES ARE CO NCERNED, THE ASSESSEE FILED A TRANSFER PRICING STUDY (TP STUDY) TO JUSTIF Y THE PRICE PAID IN THE INTERNATIONAL TRANSACTION AS AT ALP BY ADOPTING THE TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD (MAM) OF DETERMINING ALP. THE ASSESSEE SELECTED OPERATING PROFIT/TOTAL C OST (OP/TC) AS THE PROFIT LEVEL INDICATOR (PLI) FOR THE PURPOSE OF COM PARISON. THE OP/TC OF THE ASSESSEE WAS ARRIVED AT 15% BY THE ASSESSEE IN ITS TP STUDY. THE OPERATING INCOME WAS RS. 45,56,86,624 AND THE OPERA TING COST WAS RS.39,62,49,237. THE OPERATING PROFIT (OPERATING I NCOME OPERATING COST WAS RS.5,94,37,387. THUS THE OP/TC WAS ARRIVED AT 15%. THE ASSESSEE CHOSE COMPANIES WHO ARE ENGAGED IN PROVIDING SIMILA R SERVICES SUCH AS THE ASSESSEE FROM THE PROWESS AND CAPITALINE PLUS D ATA BASE. THE ASSESSEE IN ITS TP STUDY ON THE BASIS OF COMPARABLE COMPANIES CHOSEN BY IT, CLAIMED THAT THE PRICE IT CHARGED IN THE INTERN ATIONAL TRANSACTION SHOULD BE CONSIDERED AS AT ARMS LENGTH. 19. THE TRANSFER PRICING OFFICER (TPO) TO WHOM THE DETERMINATION OF ALP WAS REFERRED TO BY THE AO, ACCEPTED TNMM AS THE MAM AND ALSO USED THE SAME PLI FOR COMPARISON I.E., OP/TC. THE TPO SELECTED A SET OF 10 COMPARABLE COMPANIES AND WORKED OUT THE AVERAGE ARITHMETIC MEAN OF THEIR PROFIT MARGINS AND ADJUSTMENT TO ALP AS FOLLO WS:- IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 14 OF 20 12.4 COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATOR I S TAKEN AS THE ARMS LENGTH MARGIN. PLEASE SEE ANNEXURE B FOR DET AILS OF COMPUTATION OF PLI OF THE COMPARABLES. BASED ON TH IS, THE ARMS LENGTH PRICE OF THE SERVICES RENDERED BY THE TAXPAY ER TO ITS AE(S) IS COMPUTED AS UNDER:- ARMS LENGTH MEAN MARGIN ON C OST 28.11% LESS: WORKING CAPITAL ADJUSTMENT (AS PER ANNEX.C) 2.80% ADJUSTED MARGIN 30.91% OPERATING COST 39,62,49,237 ARMS LENGTH PRICE (ALP) 130.91% OF OPERATING COST 51,87,29,876 PRICE RECEIVED 45,56,86,624 SHORTFALL BEING ADJUSTMENT U/S. 92CA 6,30,43,252 5% OF PRICE RECEIVED 2,27,84,331 SINCE THE SHORTFALL IS EXCEEDING 5% OF THE INTERNAT IONAL TRANSACTION, ADJUSTMENT IS MADE S. NO. NAME OF CASE OP/OC (%) 1. ACCENTIA TECHNOLOGIES LTD., 11.75% 2. UNIVERSAL PRINT SYSTEMS LTD. (SEG)(BPO) 52.46% 3. INFORMED TECHNOLOGIES INDIA LTD. 6.08% 4. INFOSYS BPO LTD., 36.% 5. JINDAL INTELLICOM LTD., - 0.05 6. MICROGENETIC SYSTEMS LTD., 19.61 7. TCS E - SERVE LTD., 63.69% 8. BNR UDYOG LTD. (SEG) (MEDICAL TRANSCRIPTION) 50.61% 9. EXCEL INFOWAYS LTD. (SEG)(IT/BVPO) 29.79 10. E4E HEALTHCARE SERVICES LTD., 19.85% AVERAGE PLI 28.11% IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 15 OF 20 THE ABOVE SHORTFALL OF RS.6,30,43,252/- IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S. 92CA IN RESPECT OF IT ENABL ED SERVICES SEGMENT OF THE TAXPAYERS INTERNATIONAL TRANSACTION S. 20. AGGRIEVED BY THE AFORESAID ADDITION OF RS.6,30, 43,252 TO THE TOTAL INCOME OF THE ASSESSEE, THE ASSESSEE FILED OBJECTIO NS BEFORE THE DISPUTES RESOLUTION PANEL (DRP) U/S.144C OF THE ACT. THE DRP EXCLUDED 3 OUT OF THE 10 COMPARABLE COMPANIES CHOSEN BY THE TPO. AS A RESULT, ONLY 7 COMPANIES REMAINED FOR CONSIDERATION PURSUANT TO TH E ORDER OF THE DRP. 21. IN THIS APPEAL, THE ASSESSEE SEEKS EXCLUSION OF INF OSYS BPO LTD., BNR UDYOG LTD., TCS E SERVE LTD., FROM THE FINAL LI ST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. ON EXCLUSION OF THE A FORESAID THREE COMPARABLE COMPANIES, THE LEARNED COUNSEL FOR THE A SSESSEE BROUGHT TO OUR NOTICE A DECISION OF THE ITAT BANGALORE, RENDER ED IN THE CASE OF MOBILY INFOTECH LTD. [2018] 97 TAXMANN.COM 2 (BANGALORE - TRIB.) WHEREIN THIS TRIBUNAL IN THE CASE OF AN ASSESSEE RE NDERING ITES SUCH AS THE ASSESSEE RULED ON THE COMPARABILITY OF THE AFOR ESAID COMPANIES AS FOLLOWS:- INFOSYS BPO LTD. ON SIMILAR FACTS, A CO-ORDINATE BENCH OF THIS TRIBU NAL IN THE CASE OF CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTANTS (P.) L TD. ( SUPRA ) CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTANTS (P.) LTD. V. ASSTT. CIT [2018] 94 TAXMANN.COM 97 (BANG. - TRIB.) (PARAS 6.3.1, 7.3 & 10.3.1) DIRECTED THAT INFOSYS BPO LTD., BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES AS IT I S NOT COMPARABLE WITH A COMPANY MERELY PROVIDING ITES, BECAUSE OF ITS BRAND VALUE A ND EXTRAORDINAR Y EVENTS IN THE PREVIOUS YEARS RELEVANT TO ASST. YEAR 2012-13 VIZ. , THE ACQUISITION OF AN AUSTRALIA BASED COMPANY WHICH HAD EFFECT ON ITS PROFITS. FOLL OWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTANTS (P.) LTD. ( SUPRA ), INFOSYS BPO LTD. IS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. [PARA 7.3] IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 16 OF 20 BNR UDYOG LTD. (SEGMENT - MEDICAL TRANSCRIPTION) THE CONTENTIONS OF THE ASSESSEE THAT THE COMPANY BN R UDYOG LTD., IS FUNCTIONALLY DIFFERENT AND FAILS THE RPT FILTER AT THE ENTITY LEVEL. IT WA S FOUND FROM THE RECORD THAT THE BENCHMARKING OF SELECTED COMPANY 'BNR' HAS BEEN DON E ONLY AT THE MEDICAL TRANSCRIPTION SEGMENT AND ISSUE OF RPT HAS NOT BEEN URGED BEFORE THE ASSESSING OFFICER/DRP. FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH OF ITAT BANGALORE IN THE CASE OF INDEGENE (P.) LTD. V. ASSTT. CIT [2017] 85 TAXMANN.COM 60 FOR ASST. YEAR 2012- 13, THE ISSUE O F COMPARABILITY OF 'BNR' WAS REMANDED TO THE FILE F OR THE TPO FOR FRESH CONSIDERATION ON GROUND THAT IN THE YEAR UNDER CONS IDERATION, THERE WERE 3 SEGMENTS. HOW MUCH OF THE RPT EXPENSES PERTAIN TO EACH OF THE SEGMENTS REQUIRED EXAMINATION AND THIS ASPECT H AD NOT BEEN ANALYZED BY EITHER THE TPO OR THE ASSES SEE. WHILE IT IS CLEAR FROM THE TPO'S ORDER THAT IF THE BENCHMARKING IS DONE ONLY FOR THE MEDICAL TRANSCRIPTION SEGMENT, THEN THE RPT PERTAINING TO T HAT SEGMENT ONLY SHOULD BE CONSIDERED. HOWEVER, SINCE HO W MUCH OF THE RPT PERTAIN TO THE MEDICAL TRANSCRIPT ION SEGMENT HAS NOT BEEN DETERMINED BY EITHER THE TPO O R THE ASSESSEE, THE BENCH THOUGHT IT APPROPRIATE AND PROPER TO REMAND THE MATTER OF C OMPARABILITY OF THIS COMPANY BNR UDYOG LTD., TO THE FILE OF THE T PO FOR DETERMINATION OF THE ISSUE AFRESH IN LINE WI TH OBSERVATION ABOVE. FOLLOWING THE ABOVE DECISION OF THE CO- ORDINATE BENCH IN THE CASE OF INDEGENE (P.) LTD. ( SUPRA ) AND CONSIDERING THE FACTUAL MATRIX INVOLVED, THAT HOW MUCH RPT PERTAINS TO THE MEDICAL TRANSCRIPTION HAS NOT BEEN DETERMINED BY EITHER THE TPO OR THE ASSESSEE, IT WAS FELT APPROPRIATE AND PR OPER TO REMAND THE ISSUE OF COMPARABILITY OF THIS COMPANY, BNR UDYOG LTD. TO TH E FILE OF THE TPO FOR DETERMINATION AFRESH. [PARA 8.3.2] TCS E-SERVE LTD. WHILE THE ASSESSEE HAS CONTENDED THAT THE SERVICES RENDERED BY THIS COMPANY, TCS E- SERVE LTD. ARE HIGH END KPO SERVICES, IT HAS NOT BR OUGHT OUT AS TO WHICH OF THESE ARE THE SERVICES THAT WOULD COME UNDER TECHNICAL SE RVICES. ON THE OTHER HAND, THE TPO HAS HELD ALL THE SERVICES RENDERED BY THE ASSESSEE TO B E BPO SERVICES WITH ANY PROPER ANALYSIS. IN THIS FACTUAL MATRIX OF THE CASE , THE CO- ORDINATE BENCH OF TRIBUNAL-BANGALORE IN THE CASE OF INDEGENE (P.) LTD . ( SUPRA ) HAS REMANDED THE MATTER OF COMPARABILITY OF THIS COMPANY TO THE FILE OF THE TPO FOR FRESH CONSIDERATION. IN VIEW OF THE FACTUAL MATRIX OF THE CASE ON HAND, AS LAID OUT ABOVE AND FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF INDEGENE (P.) LTD. ( SUPRA ) WHICH IS ALSO RENDERED ON SIM ILAR FACTS, IT IS APPROPRIATE TO REMAND THE MATTER OF THE COMPARABILITY OF THIS COMPANY, TCS E- SERVE LTD., TO THE FILE OF THE TPO FOR FRESH CONSIDERATION. [PARA 9.3.1] IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 17 OF 20 22. THE LEARNED DR HOWEVER SUBMITTED THAT THE ASSES SEE IS A MIX OF BOTH HIGH END AND A LOW-END ITES PROVIDER AND THIS ASPECT SHOULD BE TAKEN NOTE OF BY THE TPO WHEN DECIDING COMPARABILITY OF B NR UDYOG LTD., AND TCS E SERVE LTD. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AR E OF THE VIEW THAT FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, I NFOSYS BPO LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES AND THE COMPARABILITY OF BNR UDYOG LTD., AND TCS E SERVE LTD., SHOULD BE CON SIDERED AFRESH BY THE TPO ON THE LINES INDICATED IN THE DECISION REFERRED TO ABOVE AND ALSO KEEPING IN MIND THE SUBMISSION OF THE LEARNED DR BE FORE US. WE HOLD AND ORDER ACCORDINGLY. 24. IN GROUND NO.13, THE ASSESSEE HAS PRAYED FOR IN CLUSION OF CRYSTAL VOXX LTD. AS A COMPARABLE COMPANY. THIS COMPANY WA S NOT REGARDED AS COMPARABLE COMPANY WITH THE ASSESSEE BY THE DRP FOR THE REASONS GIVEN IN PARA 2.15 OF ITS ORDER I.E., FOR THE REASON THAT IN THE FINANCIAL RESULTS, THE AUDITORS HAVE MENTIONED THAT THIS COMPANY WAS PREDO MINANTLY A BUSINESS PROCESS OUTSOURCING (BPO) COMPANY AND THEREFORE THI S COMPANY CANNOT BE SAID TO BE AN ITES COMPANY. THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT IN THE VERY SAME NOTE, T HE AUDITORS HAVE ALSO MENTIONED THAT THE ONLY REPORTABLE SEGMENT WAS BPO. THEREFORE THIS COMPANY WAS A BPO COMPANY AND THE RESULTS OF THE BP O WHICH IS THE ONLY SEGMENT OUGHT TO HAVE WEIGHED IN THE MIND OF THE TP O TO INCLUDE THIS COMPANY AS A COMPARABLE COMPANY. 25. WE HAVE CONSIDERED THE SUBMISSION OF THE LEARNE D COUNSEL FOR THE ASSESSEE AND ARE OF THE VIEW THAT THE PLEA RAISED B Y THE ASSESSEE IS CORRECT AND THE TPO OUGHT TO HAVE REGARDED THIS COM PANY AS COMPARABLE IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 18 OF 20 COMPANY BECAUSE THE ONLY REPORTABLE SEGMENT OF THIS COMPANY WAS BPO. WE DIRECT THE TPO TO INCLUDE THIS COMPANY AS A COMP ARABLE COMPANY. 26. IN GROUND NO.14, THE ASSESSEE ALSO SEEKS INCLUSION OF A COMPANY BY NAME JINDAL INTELLICOM LTD. AS A COMPARABLE COMP ANY. ON INCLUSION OF THE AFORESAID COMPANY AS COMPARABLE COMPANIES, THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE A DECISION OF TH E ITAT BANGALORE, RENDERED IN THE CASE OF MOBILY INFOTECH LTD. [2018] 97 TAXMANN.COM 2 (BANGALORE - TRIB.) WHEREIN THIS TRIBUNAL IN THE CASE OF AN ASSESSEE RENDERING ITES SUCH AS THE ASSESSEE RULED ON THE CO MPARABILITY OF THE AFORESAID COMPANY AS FOLLOWS:- 11. (I) ACCENTIA TECHNOLOGIES LTD., ('ACCENTIA') (II) JINDAL INTELLICOM LTD., ('JINDAL') 11.1 BOTH THESE COMPANIES 'ACCENTIA' AND 'JINDAL' WERE SELECTED BY THE ASSESSEE IN ITS TP STUDY. IN PROCEEDINGS U/S. 9 2CA OF THE ACT, THE TPO ALSO ACCEPTED AND SELECTED BOTH THESE COMPA NIES AS BEING FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS CAN BE S EEN AT PGS 17 AND 18 OF THE TPO'S ORDER. ACCORDING TO THE ASSESSE E, NO OBJECTIONS WERE RAISED AGAINST THEIR INCLUSION IN THE FINAL SE T OF COMPARABLES BEFORE THE DRP, BUT HOWEVER THE DRP SUO MOTO REJECT ED AND EXCLUDED THESE TWO COMPANIES FROM THE LIST OF COMPA RABLES. 11.2 WE HAVE HEARD BOTH THE PARTIES IN THE MATTER AND P ERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. THE BA SIC FACTS NOT IN DISPUTE ARE THAT THE ABOVE TWO COMPANIES, 'ACCENTIA ' AND 'JINDAL' WERE SELECTED AS COMPARABLES BOTH BY THE ASSESSEE I N ITS TP STUDY AND THE TPO AS PER HIS ORDER U/S. 92CA OF THE ACT. WE FIND THAT, AS CONTENDED, THE DRP HAS SUO MOTO REJECTED THESE TWO COMPANIES AS COMPARABLE WITHOUT THE ASSESSEE HAVING RAISED ANY O BJECTIONS TO THEIR INCLUSION IN THE FINAL SET OF COMPARABLES. WE HAVE CAREFULLY PERUSED PARAS 3.20 AND 3.21 OF THE DRP'S ORDER AND FIND THAT THE DRP HAS NOT ADDUCED ANY PROPER REASONING AS TO WHY THESE COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMPA RABLES, IN IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 19 OF 20 SPITE OF THE FACT THAT NO OBJECTIONS TO THEIR INCLU SION HAS BEEN RAISED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, WE DEEM IT APPROPRIATE TO SET ASIDE THE DRP'S ORDER EXCLUDING THESE TWO COMPA NIES FROM THE LIST OF COMPARABLES AND RESTORE THE ISSUE OF COMPAR ABILITY OF THESE TWO COMPANIES TO THE FILE OF THE TPO FOR FRESH ADJU DICATION. NEEDLESS TO ADD, THAT THE ASSESSEE WILL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER AND TO FIL E SUBMISSIONS/DETAILS REQUIRED, WHICH SHALL BE CONSID ERED BY THE TPO BEFORE DECIDING THE MATTER. 27. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE DIRECT THE TPO TO EXAMINE COMPARABILITY OF THE COMPANY JINDAL INTELLI COM LTD., AFRESH ON THE LINES INDICATED IN THE DECISION REFERRED TO IN THE EARLIER PARAGRAPH AFTER AFFORDING ASSESSEE OPPORTUNITY OF BEING HEARD. 28. IN GROUND NO.15 THE ASSESSEE HAS CONTENDED THAT THE TPO AND THE DRP ERRED IN ADDING TO THE AVERAGE ARITHMETIC PROFI T MARGIN OF THE COMPARABLE COMPANIES CHOSEN BY THE TPO, NEGATIVE WO RKING CAPITAL ADJUSTMENT. ON THE ABOVE GROUND, IT IS UNDISPUTED THAT THE HYDERABAD BENCH OF THE ITAT IN ITA.NO. 206/HYD/2014 FOR ASSESSMENT YEAR 2009- 2010 IN THE CASE OF ADAPTEC (INDIA) P. LTD. VS. THE ACIT, CIRCLE 1(1) O RDER DATE 25.3.2015 HELD THAT NO SUCH ADDITION CAN BE MADE. THIS GROUN D IS SIMILAR TO GROUND NO. 11 RAISED BY THE ASSESSEE IN THE APPEAL FOR AY 2011- 12, WHICH WE HAVE DISCUSSED IN THE EARLIER PART OF THIS ORDER. FOR THE REASONS GIVEN THEREIN, WE ALLOW GROUND NO.15 RAISED BY THE ASSESSEE. ALL OTHER GROUNDS RELATING TO TRANSFER PRICING WERE NOT PRESSED. IT(TP)A NO. 195/BANG/2016 & 459/BANG/2017 PAGE 20 OF 20 29. IN THE RESULT, BOTH THE APPEALS BY THE ASSESSEE ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 03 RD DAY OF JULY, 2019. SD/- SD/- ( JASO N P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 03 RD JULY, 2019. / D ESAI S MURTHY / COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.
