M/s. Avaya India Pvt. Ltd., Gurgaon V. Addl. CIT, New Delhi

ITA 1958/DEL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8464 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 31-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Additional evidence; Question of law; Notional interest; TDS; FORM 26AS
• Section: 143(3); 234B; 40(a)(ia); 133(6); 40a(ia); 13; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI SUDHANSHU SRIVASTAVA, JUDI CIAL MEMBER ITA NO. 1958/DEL/2017 [ASSESSMENT YEAR: 2012-13] & ITA NO. 9131/DEL/2016 [ASSESSMENT YEAR: 2015-16] AVAYA INDIA PVT. LTD VS. THE ADDL. C.I.T. GLOBAL BUSINESS PARK SPECIAL RANGE - 1 M.G ROAD, GURGAON NEW DELHI PAN: AAECA 3592 N [APPELLANT] [RESPONDENT] DATE OF HEARING : 14.01.2020 DATE OF PRONOUNCEMENT : 17.01.2020 ASSESSEE BY : A.Y 2012-13 SHRI SHASHWAT BAJPAI, ADV SHRI SHARAD AGARWAL, ADV A.Y 2015-16 SHRI AJIT KORDE, ADV SHRI VAIBHAV AGARWAL, ADV REVENUE BY : SHRI SURENDRA PAL, CIT - DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER: THE ABOVE TWO SEPARATE APPEALS BY THE ASSESSEE ARE PREFERRED AGAINST SEPARATE ORDERS FRAMED U/S 143(3) R.W.S 144 C OF THE INCOME- 2 TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' ] FOR ASSESSMENT YEARS 2012-13 AND 2015-16. SINCE BOTH THESE APPEALS WERE HEARD TOGETHER, WE ARE DISPOSING THEM OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 9131/DEL/2016 [A.Y. 2015-16] 2. GROUND NOS 1 AND 2 ARE GENERAL IN NATURE AND NEE D NO ADJUDICATION. 3. GRIEVANCE IN GROUND NO. 3 RELATES TO THE TP ADJU STMENT IN RELATION TO NOTIONAL INTEREST ON OVERDUE RECEIVABLE S AMOUNTING TO RS. 4,21,01,399/-. 4. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSE SSEE STATED THAT AN IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN ASS ESSMENT YEAR 2010-11 AND THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. A COPY OF THE ORDER OF THE TR IBUNAL HAS BEEN FURNISHED ON RECORD. 4. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE FI NDINGS OF THE ASSESSING OFFICER/TPO AND HEAVILY RELIED UPON THE D ECISION OF THE DRP. 3 5. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE OR DERS OF THE AUTHORITIES BELOW. WE FIND FORCE IN THE CONTENTION S OF THE LD. COUNSEL FOR THE ASSESSEE. A SIMILAR ISSUE WAS CONS IDERED BY THE CO-ORDINATE BENCH ITA NO. 7290/DEL/2018 FOR A.Y 2014-15 IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH READ AS UNDER: 19. IN GROUND NO. 4 TO 4.6 OF THE APPEAL, THE ASSE SSEE HAS CHALLENGED TRANSFER PRICING ADJUSTMENT IN RELATION TO NOTIONAL INTEREST ON OUTSTANDING RECEIVABLES OF RS.3,81,58,1 72/-. 19.1 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT ASSESSEE IS A DEBT FREE ENTITY AND SINCE IT DOES NO T CARRY ANY INTEREST COST ON ITS FUNDS, THEREFORE, IT IS NOT NE CESSARILY REQUIRED TO CHARGE AN INTEREST ON DELAYED REALIZATI ON. IN THIS RESPECT, THE LD. COUNSEL RELIED ON THE DECISION OF THE HON'BLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF BECH TEL INDIA (ITA 379/2016). 19.2 ON THE OTHER HAND, THE LEARNED DR R ELIED ON THE ORDER OF THE LOWER AUTHORITIES. 19.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD. ON PERUSAL OF FINANCIA L STATEMENTS OF THE ASSESSEE PLACED ON PAGE 1 TO 27 OF THE PAPER BOOK, WE FIND THAT ASSESSEE HAS NOT BORROWED ANY MONEY. WE F IND THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF BECHTEL INDIA (SUPRA) HAS OBSERVED THAT WHERE THE APPELLANT IS A DEBT FREE 4 COMPANY, THE QUESTION OF RECEIVING ANY INTEREST IN RECEIVABLE DID NOT ARISE. THE RELEVANT FINDING OF THE HON'BLE HIGH COURT IS REPRODUCED AS UNDER: '4. AS FAR AS QUESTION (B) CONCERNING THE ADJUSTMEN T FOR INTEREST NO RECEIVABLES, THE COURT FINDS THAT THE I TAT HAS RETURNED A DETAILED FINDING OF FACT THAT THE ASSESS EE IS A DEBT FREE COMPANY AND THE QUESTION OF RECEIVING ANY INTE REST ON RECEIVABLES DID NOT ARISE. CONSEQUENTLY, NO SUBSTAN TIAL QUESTION OF LAW ARISES FOR CONSIDERATION AS FAR AS THIS ISSU E IS CONCERNED.' ITA NO.7290/DEL/2018 19.4 RESPECTFULLY FOLLOWING AB OVE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, NO ADJUSTMENT ON ACCOUNT OF INTEREST ON OUTSTANDING RECEIVABLE IS WARRANTED IN THE CASE OF THE ASSESSEE. ACCORDINGLY, THE RELEVANT GROUNDS OF THE APPEAL ARE ALLOWED. 6. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-OR DINATE BENCH [SUPRA], WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. GROUND NO. 3 WITH ALL ITS SUB-GROUNDS IS ALLOWED. 7. GROUND NO. 4 WITH ALL ITS SUB GROUNDS RELATES TO CORPORATE TAX ADJUSTMENT IN RELATION TO TAX DEDUCTED AT SOURCE RE CONCILIATION. 5 8. FACTS RELATING TO THIS ISSUE ARE THAT DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THERE WAS MISMATCH BETWEEN FORM 26AS AND TAX CREDIT CLAIMED. THE ASSESSEE WAS ASKED TO FURNISH A RECONCILIATION FOR TDS AS AP PEARING IN FORM 26AS VIS A VIS THE AMOUNT CLAIMED IN THE RETURN OF INCOM E AND THEREBY THE ASSESSING OFFICER PROPOSED TO ADD THE DIFFERENCE BE TWEEN THE REVENUE AMOUNTING TO RS. 6,93,80,572/- RECOGNISED BY THE AS SESSEE IN ITS BOOKS OF ACCOUNT AND THE AMOUNT APPEARING IN FORM NO. 26A S. 9. IN ITS REPLY, THE ASSESSEE STATED THAT IT HAS RE COGNISED TOTAL REVENUE OF RS. 6,93,80,572/- IN ITS FINANCIAL STATE MENT FROM M/S BHARTI HEXACOM LTD BASED ON ACCRUAL SYSTEM OF ACCOUNTING R EGULARLY FOLLOWED BY THE ASSESSEE AND THE SAID AMOUNT HAS BEEN DULY O FFERED TO TAX IN THE RETURN OF INCOME. AS REGARDS THE DIFFERENCE OF RS. 10.79 CRORES, IT WAS EXPLAINED THAT M/S BHARTI HEXACOM LTD HAD CREAT ED EXCESS PROVISION AND THE SAME DOES NOT REPRESENT INCOME OF THE ASSESSEE. 10. THE ASSESSING OFFICER WAS NOT CONVINCED AND PRO POSED THE DIFFERENCE AMOUNTING TO RS. 1,07,76,96,802/- AS INC OME OF THE ASSESSEE. 6 11. THE ASSESSEE RAISED OBJECTIONS BEFORE THE DRP A ND THE PANEL DIRECTED THE ASSESSING OFFICER AS UNDER: IN THIS CASE, HEARING WAS HELD ON 16.05.2019 BEFOR E DRP-1 PANEL. WITH REGARD TO THE ADDITION ON ACCOUNT OF DI FFERENCE IN RECEIPTS AS PER 26AS, THE AR OF THE ASSESSEE HAS SU BMITTED HIS STATEMENT CONTENDING THAT 'BHARTI HEXACOM' HAS CREA TED EXCESS PROVISION DURING THE SUBJECT AY AND THE SAME DOES NOT REPRESENT INCOME OF THE ASSESSEE FOR SUBJECT AY. I AM DIRECTED BY THE DRP TO DIRECT YOU TO VERIFY TR ANSACTION WITH 'BHARTI HEXACOM ON SIMILAR LINES AS DONE IN PR ECEDING AY AND SUBMIT YOUR REPORT GIVING SPECIFIC FINDING THE SUBMISSIONS OF THE ASSESSEE [FILED DURING THE DRP HEARING COPY ENC LOSED] PROVIDE DUE AND SUFFICIENT OPPORTUNITY TO THE ASSE SSEE ANDSUBMIT YOUR REPORT ON THE SAME LATEST BY 14.06.2 019. 12. PURSUANT TO THE DIRECTIONS OF THE DRP, THE ASSESSIN G OFFICER REPLIED AS UNDER: IN THIS REGARD, IT IS SUBMITTED THAT THIS OFFICE HA D WRITTEN A LETTER F.NO. ADDI. R-1/AVAYA/REMAND REP/2019-20/46/ DATED 31.05.2019 TO ASSESSEE TO PROVIDE INFORMATION. FURT HER, THE INFORMATION U/S 133(6) OF THE I.T. ACT, 1961 WAS CA LLED FROM M/S BHARTI HEXACOM LIMITED FOR THE F.Y. 2014-15 IN THE CASE OF M/S 7 AVAYA INDIA PVT. LTD, VIDE LETTER F.NO. ADDL. CIT/S PL R- 1/133(6)/2019-20/55 DATED 06.06.2019 TO CORROBORATE THE CLAIM OF THE ASSESSEE WITH RESPECT TO ADDITIONAL EV IDENCE. 3. HOWEVER, M/S BHARTI HEXACOM LIMITED HAS NOT SUB MITTED ANY INFORMATION YET IN THIS REGARDS. THEREFORE THE CLAIM OF THE ASSESSEE W.R.T. SUBMISSION OF ADDITIONAL EVIDENCES CANNOT BO VERIFIED. HENCE THE PROPOSED ADDITION IN THE DRAFT ASSESSMENT ORDER IS CORRECT. TOTAL RECEIPTS OF THE ASSESSEE AP PEARING IN THE 26AS WHICH WAS ALSO CONFIRMED BY THE M/S BHARTI HEX ACOM LIMITED THROUGH THEIR MAIL DATED 19.12.2018 HAS NOT BEEN NEGATED. THUS, THE ADDITIONAL EVIDENCE CANNOT BE AC CEPTED FOR AS IT HAS NOT BEEN RECONCILED OR CONFIRMED BY THE M/S BHARTI HEXACOM LIMITED. 4. IT IS FURTHER SUBMITTED THAT THE CASE MAY BE DE CIDED BASED ON THE MERITS AND CIRCUMSTANCES, AND GIVING D UE CONSIDERATION TO THE OPINION OF ASSESSING 13. BEFORE THE DRP, THE ASSESSEE FILED A REPLY FROM M/S BHARTI HEXACOM AND AFTER CONSIDERING THE DETAILS FURNISHED BY THE DRP HELD AS UNDER: 13. THE DETAILS HAVE NOW BEEN RECEIVED, CLEARING U P THE ISSUE AFTER THE RESPONSE FROM BHARATI HEXACOM SENT BY IT TO THE AO 8 ON 15.07.2019. THE ANNEXURE 4 SUBMITTED BY THE ASSE SSEE IS ATTACHED WITH THIS DIRECTION WHICH GIVES THE RECONC ILIATION. THE AO IS DIRECTED TO ANALYSE THE SAME I.E THE DETAILS FILED BY THE ASSESSEE VIS-A-VIS THE DETAILS FILED BY BHARTI HEXA COM AGAIN. THE EXCESS PROVISION MADE BY THE BHARTI GROUP AS MADE C LEAR BY ITS LETTER SHOULD NOT BE ADDED TO THE INCOME OF THE ASS ESSEE. THE ASSESSING OFFICER WILL ACCORDINGLY RECOMPUTED THE A DDITION MADE IF ANY REMAINS, DUE TO MISMATCH OF FORM 26AS. 14. NOT FOLLOWING THE FINDINGS /DIRECTIONS OF THE D RP, THE ASSESSING OFFICER MADE ADDITION OF RS. 10,79,78,288/-. 15. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE ONC E AGAIN FURNISHED COMPLETE DETAILS OF M/S BHARTI HEXACOM AND ALSO FUR NISHED A RECONCILIATION STATEMENT, WHICH IS AS UNDER: PARTICULARS AMOUNT (IN INR) AS PER FORM 16A/26AS (A) 177,358,800 ADD: INVOICE DATED 16.04.2014 RAISED FOR THE PERIOD OF S ERVICE 14.03.2014 TO 13.04.2014 (PROPORTIONATE REVENUE BOO KED FOR 13 DAYS FOR FY 2014-15 AND HENCE ADDED BACK) (B) 2,277.3% LESS: EXCESS PROVISION BOOKED BY BHARTI HEXACOM (C) 110,255,683 TOTAL (L))=(A)+(B)-( C) 69,380,572 REVENUE OFFERED BY AVAYA INDIA IN THE FINANCIALS/IN COME TAX RETURN 69,380,572 9 RECONCILIATION OF INCOME OFFERED TO TAX IN THE RETU RN OF INCOME VIS-A- VIS- AMOUNT APPEARING IN THE RESPONSE SUBMITTED BY BHARTI HEXACOM LIMITED PARTICULARS AMOUNT (IN INR) AS PER BHARTI HEXACOM (A) 59,127,457 ADD: INVOICES ISSUED BY AVAYA INDIA IN THE SUBSEQUENT YE AR AGAINST THE SERVICES RENDERED FOR FY 2014- 15 (NOT ACCOUNTED BY BHARTI HEXACOM) (B) 13,406,434 LESS: REVERSAL OF PROPORTIONATE REVENUE RECOGNISED BY AVA YA INDIA IN THE PRECEDING YEAR I.E. FY 2012- 13 VIDE INVOICE DATED 16.04.2014 AS MENTIONED ABOVE ( C) 3,153,317 TOTAL (D)=(A)+(B)-( C) 69,380,573 REVENUE OFFERED BY AVAYA INDIA IN THE FINANCIALS/LN COME TAX RETURN 69,380,572 16. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESS EE THAT IF THE RECONCILIATION STATEMENT IS EXAMINED, THEN THERE WO ULD REMAIN NO DIFFERENCE IN THE INCOME RETURNED BY THE ASSESSEE V IS A VIS FORM NO. 26AS. 17. PER CONTRA, LD. DR STATED THAT THIS RECONCILIAT ION MAY BE SENT TO THE ASSESSING OFFICER FOR EXAMINATION. 18. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. AT THE VERY OUTSET, WE HAVE TO S TATE THAT INVOKING OF PROVISIONS OF SECTION 68 OF THE ACT ON THE ALLEGED DIFFERENCE IN THE 10 REVENUE RECOGNISED BY THE ASSESSEE AND FORM 26AS ST ATEMENT IS BAD IN LAW IN AS MUCH AS SECTION 68 IS NOT AT ALL APPLICAB LE ON SUCH DIFFERENCE. SECONDLY, WE FIND THAT THE DRP HAS GIVEN CATEGORICA L FINDING THAT ONLY THE DIFFERENCE, IF ANY, SHOULD HAVE BEEN ADDED BUT WE FIND THAT WITHOUT GOING INTO THE RECONCILIATION STATEMENT, TH E ASSESSING OFFICER HAS MADE ADDITION THEREBY DISOBEYING THE DIRECTIONS OF THE DRP. HOWEVER, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO. THE ASSE SSING OFFICER/TPO IS DIRECTED TO EXAMINE THE RECONCILIATION STATEMENT ME NTIONED ELSEWHERE AND WHEN FOUND CORRECT, NO ADDITION IS CALLED FOR. WITH THESE DIRECTIONS, GROUND NO. 4 WITH ALL ITS SUB GROUNDS I S ALLOWED. 19. GROUND NO. 5 RELATES TO SHORT GRANT OF TDS CRE DIT. WE DIRECT THE ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSES SEE AS PER EVIDENCES FURNISHED AND ALLOW TDS CREDIT AS PER PROVISIONS OF LAW. 20. GROUND NO. 6 RELATES TO CHARGING OF INTEREST U/ S 234B OF THE ACT. 21. CHARGING OF INTEREST IS CONSEQUENTIAL AND THE A SSESSING OFFICER IS DIRECTED TO CHARGE INTEREST AS PER PROVISIONS OF LA W. 11 ITA NO. 1958/DEL/2017 A.Y 2012-13 22. GROUND NO. 1 IS GENERAL IN NATURE AND NEEDS NO ADJUDICATION. 23. FIRST GRIEVANCE RELATES TO TP ADJUSTMENT OF RS. 2,85,10,070/- TO THE INCOME OF THE ASSESSEE BY HOLDING THAT ITS INTE RNATIONAL TRANSACTIONS PERTAINING TO IT ENABLED SERVICES DO N OT SATISFY THE ARMS LENGTH PRINCIPLE. 24. THE QUARREL IS IN RESPECT OF TWO COMPARABLES, N AMELY, ECLERX SERVICES LTD AND INFOSYS BPO LTD. 25. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASS ESSEE STATED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN A SSESSEES OWN CASE IN A.Y 2010-11 WHEREIN THE TRIBUNAL EXCLUDED THESE COMPARABLES AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE. 26. PER CONTRA, THE LD. DR COULD NOT BRING ANY DIST INGUISHING DECISION IN FAVOUR OF THE REVENUE. 27. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL 12 FOR THE ASSESSEE. THESE TWO COMPARABLES WERE CONSI DERED BY THE TRIBUNAL IN ITA NO. 1904/DEL/2015 VIDE ORDER DATED 03.12.2018. THE RELEVANT FINDINGS OF THE COORDINATE BENCH READ AS U NDER: B. ECLERX LIMITED: 6. THE LD. COUNSEL REFERRED TO THE ANNUAL REPORT OF THE COMPANY AND SUBMITTED THAT THE COMPANY IS ENGAGED IN PROVID ING DATA ANALYTICS, DATA MANAGEMENT AND PROCESS SOLUTIONS TH US IT IS FUNCTIONALLY DISSIMILAR TO THE ITES SEGMENT OF ASSE SSEE. THE LD. COUNSEL ALSO SUBMITTED THAT DURING THE YEAR UNDER C ONSIDERATION, THE COMPANY HAS SHOWN VERY HIGH TURNOVER AND SUPERN ORMAL PROFITS AND THE CIRCUMSTANCES BEING EXCEPTIONAL, TH E COMPANY NEED TO BE EXCLUDED FROM THE SET OF THE COMPARABLES . THE LD. COUNSEL FURTHER SUBMITTED THAT THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2008- 09 HAS DIRECTED TO EXCLUDE THE ABOVE COMPANY FROM FINAL SET OF COMPARABLES ON ACCOUNT OF THE FUNCTIONAL DISSIMILARITY. THE LD. COUNSEL ALSO SUBMITTED THAT THE COMPANY HAS BEEN FOUND TO BE FUNCTIONALLY DISSI MILAR BY THE HON'BLE DELHI HIGH COURT WITH A BPO COMPANY IN THE CASE OF EVALUESERVE SEZ (GURGAON) PRIVATE LIMITED IN ITA 24 1 OF 2018. IN VIEW OF THE ABOVE, THE LD. ITA NO.1904/DEL/2015 COUNSEL REQUESTED TO EXCLUDE T HE COMPANY FROM THE FINAL SET OF THE COMPARABLES. 13 6.1 THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DER OF THE LD. TPO AND SUBMITTED THAT THE ASSESSEE IS ENGAGED IN V IDE RANGE OF VERTICALS AND THUS IT IS DIFFICULT TO CATEGORISE TH E ASSESSEE AS A LOW-END BPO SERVICE PROVIDER. 6.2 WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES ON THE ISSUE OF EXCLUSION OF THE COMPANY FROM FINAL SET OF COMPARABLES. WE NOTE THAT THE TRIBUNAL IN ITA NO. 146/DEL/2013 F OR ASSESSMENT YEAR 2008-09 HAS EXAMINED THE ISSUE OF F UNCTIONAL DISSIMILARITY OF THE ASSESSEE WITH M/S. E CLARX SER VICE LTD. THE TRIBUNAL (SUPRA) HELD THAT COMPANY CANNOT BE COMPAR ED WITH A LOW-END SERVICE PROVIDER LIKE THE ASSESSEE. THE REL EVANT FINDING OF THE TRIBUNAL IS REPRODUCED AS UNDER: 'AS REGARDS THE AFORESAID TWO COMPARABLES [MENTIONE D AT SL.NOS.(VII) & (VIII)], THE LD. AR AT THE OUTSET ITSELF POINTED OU T THAT ECLERX AND VISHAL ARE INTO KPO SERVICES. ACCORDING TO HIM, ALTHOUGH KPO SERVICES WERE ITES BUT THE NATURE OF THESE SERVICES WERE MATERIALLY DIFFERENT THAN THE SERVICES RENDERED BY THE ASSESSEE. IT WAS ASSERTED THAT ECLERX IS ENGAGED IN FINANCIAL SERVICES IN THE NATURE OF ACCOUNT RECONCILIATION, T RADE ORDER MANAGEMENT SERVICES AND HAS BEEN RATED AS A LEADING KPO BY NELSO HALL. IT WAS CONTENDED THAT SIMILARLY VISHAL WAS ENGAGED IN THE SERVICES OF DATA ANALYTICS AND PROVIDING DATA P ROCESSING SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORL D. VISHAL TOO HAD BEEN RATED AS A LEADING KPO BY NELSO HALL. IN A DDITION, IT 14 WAS POINTED OUT THAT WHILST THE EMPLOYEE COSTS INCU RRED BY VISHAL WAS RELATIVELY LOW AND CONSTITUTED ONLY 2.30 % OF ITS TOTAL COST DURING THE RELEVANT YEAR, THE HIRE CHARGES, VE NDOR PAYMENTS CONSTITUTED ALMOST 87% OF THE TOTAL COSTS. ACCORDIN G TO THE AR, THIS EVIDENCED THAT VISHAL' S BUSINESS MODEL WAS DI FFERENT AND VISHAL HAD OUTSOURCED SIGNIFICANT PART OF ITS OPERA TIONS. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL AVAILABLE ON RECORD. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. (SUPRA) HAS HELD AS U NDER :- ITA NO.1904/DEL/2015 '36. AS POINTED OUT EARLIER, T HE TRANSFER PRICING ANALYSIS MUST SERVE THE BROAD OBJECT OF BEN CHMARKING AN INTERNATIONAL TRANSACTION FOR DETERMINING AN ALP. T HE METHODOLOGY NECESSITATES THAT THE COMPARABLES MUST BE SIMILAR IN MATERIAL ASPECTS. THE COMPARABILITY MUST BE JUDG ED ON FACTORS SUCH AS PRODUCT/ SERVICE CHARACTERISTICS, F UNCTIONS UNDERTAKEN, ASSETS USED, RISKS ASSUMED. THIS IS ESSENTIAL TO ENSURE THE EFFICACY OF THE EXE RCISE. THERE IS SUFFICIENT FLEXIBILITY AVAILABLE WITHIN THE STATUTO RY FRAMEWORK TO ENSURE A FAIR ALP. 37. APPLYING THE AFORESAID PRINCIPLES TO THE FACTS OF THE PRESENT CASE, IT IS ONCE AGAIN CLEAR THAT BOTH VISHAL AND E CLERX COULD NOT BE TAKEN AS COMPARABLES FOR DETERMINING THE ALP. VI SHAL AND ECLERX, BOTH ARE INTO KPO SERVICES. IN MAERSK GLOBA L CENTERS (INDIA) PVT. LTD. (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAD 15 NOTED THAT ECLERX IS ENGAGED IN DATA ANALYTICS, DAT A PROCESSING SERVICES, PRICING ANALYTICS, BUNDLING OPTIMIZATION, CONTENT OPERATION, SALES AND MARKETING SUPPORT, PRODUCT DAT A MANAGEMENT, REVENUE MANAGEMENT. IN ADDITION, ECLERX ALSO OFFERED FINANCIAL SERVICES SUCH AS REAL-TIME CAPITA L MARKETS, MIDDLE AND BACK-OFFICE SUPPORT, PORTFOLIO RISK MANA GEMENT SERVICES AND VARIOUS CRITICAL DATA MANAGEMENT SERVI CES. CLEARLY, THE AFORESAID SERVICES ARE NOT COMPARABLE WITH THE SERVICES RENDERED BY THE ASSESSEE. FURTHER, THE FUNCTIONS UN DERTAKEN (I.E. THE ACTIVITIES PERFORMED) ARE ALSO NOT COMPAR ABLE WITH THE ASSESSEE. IN OUR VIEW, THE TRIBUNAL ERRED IN HOLDIN G THAT THE FUNCTIONS PERFORMED BY THE ASSESSEE WERE BROADLY SI MILAR TO THAT OF ECLERX OR VISHAL. THE OPERATING MARGIN OF E CLERX, THUS, COULD NOT BE INCLUDED TO ARRIVE AT AN ALP OF CONTRO LLED TRANSACTIONS, WHICH WERE MATERIALLY DIFFERENT IN IT S CONTENT AND VALUE. IN MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. ( SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAD NOTED THE SAME AN D HAD, THUS, EXCLUDED ECLERX AS A COMPARABLE. IT IS FURTHER OBSE RVED THAT THE COMPARABILITY OF ECLERX HAD ALSO BEEN EXAMINED BY THE HYDERABAD BENCH OF THE TRIBUNAL IN M/SCAPITAL IQ IN FORMATION SYSTEMS(INDIA) (P.) LTD. V. ADDITIONAL COMMISSIONER OF INCOME - TAX (SUPRA), WHEREIN, THE TRIBUNAL DIRECTED THE EXC LUSION OF ECLERX AS A COMPARABLE FOR THE REASON THAT IT WAS E NGAGED IN PROVIDING KPO SERVICES AND FURTHER THAT IT HAD ALSO RETURNED SUPERNORMAL PROFITS. 16 38. IN OUR VIEW, EVEN VISHAL COULD NOT BE CONSIDERE D AS A COMPARABLE, AS ADMITTEDLY, ITS BUSINESS MODEL WAS C OMPLETELY DIFFERENT. ADMITTEDLY, VISHAL'S EXPENDITURE ON EMPLOYMENT COST DURING THE RELEVANT PERIOD WAS A SMALL FRACTION OF THE PROPORT IONATE COST INCURRED BY THE ASSESSEE, APPARENTLY, FOR THE REASO N THAT MOST OF ITS WORK WAS OUTSOURCED TO OTHER VENDORS/SERVICE PROVIDERS. THE DRP AND THE TRIBUNAL ERRED IN BRUSHING ASIDE TH IS VITAL DIFFERENCE BY OBSERVING THAT OUTSOURCING WAS COMMON IN ITES INDUSTRY AND THE SAME WOULD NOT HAVE A BEARING ON P ROFITABILITY. PLAINLY, A BUSINESS MODEL WHERE SERVICES ARE RENDER ED BY EMPLOYING OWN EMPLOYEES AND USING ONE'S ITA NO.1904 /DEL/2015 OWN INFRASTRUCTURE WOULD HAVE A DIFFERENT COST STRU CTURE AS COMPARED TO A BUSINESS MODEL WHERE SERVICES ARE OUT SOURCED. THERE WAS NO MATERIAL FOR THE TRIBUNAL TO CONCLUDE THAT THE OUTSOURCING OF SERVICES BY VISHAL WOULD HAVE NO BEA RING ON THE PROFITABILITY OF THE SAID ENTITY.' IN THE LIGHT OF THE AFORESAID DECISION OF THE HONOR ABLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAMPGREEN (SUPRA) WHEREIN THE IT WAS HELD THAT BOTH THESE COMPANIES C ANNOT BE COMPARED WITH THE LOW END SERVICE PROVIDER LIKE THE APPELLANT IN THIS CASE. 6.3 WE FIND THAT THE ISSUE IN DISPUTE BEFORE US IN THE YEAR UNDER CONSIDERATION IS ALSO WHETHER THE KNOWLEDGE P ROCESSING SERVICES (KPO) OF E-CLERX CAN BE COMPARED WITH THE LOW-END BPO 17 SERVICES OF THE ASSESSEE. SINCE THE ISSUE IN DISPUT E IN THE ASSESSMENT YEAR 2008-09, BEING IDENTICAL TO THE PRE SENT ISSUE IN SAME SET OF CIRCUMSTANCES, RESPECTFULLY FOLLOWING T HE FINDING OF THE TRIBUNAL (SUPRA), WE DIRECT THE LD. AO/TPO TO E XCLUDE THE ABOVE COMPANY FROM FINAL SET OF THE COMPARABLES. C. INFOSYS BPO LIMITED: 7. BEFORE THE LD.TPO, THE ASSESSEE REQUESTED TO EXC LUDE THE COMPANY IN VIEW OF HIGH TURNOVER AND PROFIT AND BRA ND VALUE OF THE INFOSYS. ACCORDING TO THE ASSESSEE, THE BRAND V ALUE HAS INFLUENCED THE PRICING POLICY OF THE COMPANY AND DI RECTLY IMPACTED THE MARGINS EARNED BY THE COMPANY AND THUS , IT CANNOT BE COMPARED WITH THE ASSESSEE WHO IS PROVIDING SERV ICES TO ITS ASSOCIATED ENTERPRISE. THE LD. TPO REJECTED THE CON TENTION OF THE ASSESSEE AND HELD THAT HIGH TURNOVER DOES NOT H AVE ANY IMPACT ON THE PROFITABILITY. HE ALSO OBSERVED THAT BRAND VALUE IN A SERVICE INDUSTRY, MAY DERIVE ITS REVENUES BUT MAY NOT AFFECT THE PROBABILITY BECAUSE ANY BRAND COMES WITH A ITA NO.1904/DEL/2015 COST I.E. HIGH EXPENSES ARE REQUIR ED TO BE INCURRED TO BUILD BRAND VALUE. BEFORE US THE LD. CO UNSEL OF THE ASSESSEE SUBMITTED THAT THE COMPANY IS ENGAGED IN C USTOMER SERVICE OUTSOURCING, FINANCIAL ACCOUNTING, KNOWLEDG E SERVICES, HUMAN RESOURCE OUTSOURCING ETC AND THUS IT IS FUNCT IONALLY DISSIMILAR TO THE ASSESSEE. THE LD. COUNSEL ALSO RE ITERATED THE REASONS SUBMITTED BEFORE THE LD. TPO FOR EXCLUDING THE ABOVE COMPANY. 7.1 THE LD. COUNSEL IN SUPPORT OF THE CONT ENTION THAT 18 INFOSYS BPO LIMITED, AN ENTITY HAVING HIGH BRAND VA LUE WERE ABLE TO COMMAND GREATER PROFITS, RELIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN ITA 241/2018 THE CASE O F EVALUESERVE SEZ (GURGAON) PRIVATE LIMITED. THE LD. COUNSEL ALSO RELIED ON THE DECISION OF THE HON'BLE HIGH COU RT OF THE BOMBAY IN THE CASE OF CIT VS. PENTAIR WATER INDIA P RIVATE LIMITED FOR ASSESSMENT YEAR 2010-11 REPORTED IN (20 16) 69 TAXMANN.COM 180 (BOMBAY), WHEREIN IT IS HELD THAT I NFOSYS BPO LIMITED HAVING TURNOVER OF RS. 649.56 CRORES CANNOT BE COMPARED WITH THE COMPANY HAVING TURNOVER OF RS. 11 CRORE. 7.2 ON THE CONTRARY THE LD. DR RELIED ON THE FINDIN G OF THE LOWER AUTHORITIES AND SUBMITTED THAT THERE IS NO AD VANTAGES TO THE COMPANY OF THE BRAND VALUE OF INFOSYS AND NO EX PENDITURE HAS BEEN INCURRED BY THE COMPANY FOR BRAND VALUE. O N THE ISSUE OF TURNOVER, THE LD. DR SUBMITTED THAT TURNOVER OF THE ASSESSEE COMPANY IS OF RS. 369 CRORES WHICH IS COMPARABLE TO THE TURNOVER OF THE INFOSYS BPO LIMITED AND THUS IT CAN NOT BE REJECTED ON THE GROUND OF THE HIGH TURNOVER. 7.3 IN THE REJOINDER, THE LD. COUNSEL SUBMITTED THA T TURNOVER OF THE ASSESSEE IN ITES SEGMENT IS MERELY RS.23 CRORES AND ITA NO.1904/DEL/2015 THUS THE CASE OF THE ASSESSEE DULY COVERED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT. 7.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON THE RECORD. THE ISSUE IN DISPU TE BEFORE US IS WHETHER THE INFOSYS BPO LIMITED CAN BE EXCLUDED FROM THE 19 FINAL SET OF THE COMPARABLES IN THE INSTANT CASE ON THE GROUND OF HIGH BRAND VALUE AND HIGH TURNOVER. WE NOTE THAT TH E ISSUE OF HIGH BRAND VALUE OF INFOSYS BPO LIMITED AND RESULTA NT HIGHER PROFITABILITY HAS BEEN ADJUDICATED BY THE HON'BLE D ELHI HIGH COURT IN THE CASE OF EVALUESERVE SEZ (GURGAON) PRIV ATE LIMITED (SUPRA) AS UNDER: '5. THIS COURT NOTICES THAT AS FAR AS THE EXCLUSION OF THREE COMPARABLES - M/S. TCS E-SERVE LIMITED; M/S. TCS E- SERVE INTERNATIONAL LIMITED AND M/S. INFOSYS BPO LTD. IS CONCERNED, THE ITAT WAS COGNIZANT OF AND TOOK NOTE OF THE CIRC UMSTANCES THAT THESE ENTITIES HAD A HIGH BRAND VALUE AND, THE REFORE, WERE ABLE TO COMMAND GREATER PROFITS; BESIDES, THEY OPER ATED ON ECONOMIC UPSCALE. THIS APPROACH CANNOT BE FAULTED H AVING REGARD TO THE DECISION OF THIS COURT IN PR. COMMISSIONER OF INCOME TAX V. B.C. MANAGEMENT SERVICES PVT. LTD . 2018 (89) TAXMAN.COM 68 (DEL), WHICH READS AS FOLLOWS: '13. THE EXCLUSION OF SECOND COMPARABLE ICRA TECHNO ANALYTICS LTD. WAS ON THE BASIS THAT IT HAD ENGAGED ITSELF IN PROCESSING AND PROVIDING SOFTWARE DEVELOPMENT AND CONSULTANCY AND ENGINEERING SERVICES/WEB DEVELOPMENT SERVICES. THE REASONS FOR EXECUTION WERE FUNCTIONAL DISSIMILARITIES AND THAT SEGMENTAL DATA WERE UNAVAILABLE. AGAIN THE FINDINGS OF THE ITAT ARE REA SONABLE AND BASED ON RECORD. THE THIRD COMPARABLE THAT THE AO/T PO EXCLUDED IS TCS E-SERVE. THE ITAT OBSERVED THAT THO UGH THERE IS A CLOSE FUNCTIONAL SIMILARITY BETWEEN THAT ENTIT Y AND THE 20 ASSESSEE, HOWEVER, THERE IS A CLOSE CONNECTION BETW EEN TCS E- SERVE AND TATA CONSULTANCY SERVICE LTD. WHICH WAS H IGH BRAND VALUE; THAT DISTINGUISHED IT AND MARKED IT OUT FOR EXCLUSION. THE ITAT RECORDED THAT THE BRAND VALUE ASSOCIATED WITH TCS CONSULTANCY REFLECTED IMPACTED TCS E-SERVE PROFITAB ILITY IN A VERY POSITIVE MANNER. THIS INFERENCE TOO IN THE OPI NION OF COURT, CANNOT BE TERMED AS UNREASONABLE. THE RATIONALE FOR EXCLUSION IS THEREFORE UPHELD. THE ASSESSEE WAS AGGRIEVED BY THE INCLUSION OF ACCENTIA FROM A SOFTWARE DEVELOPMENT COMPANY. TH E REVENUE IS ITA NO.1904/DEL/2015 AGGRIEVED BY THE EX CLUSION OF ACCENTIA FROM THE TP ANALYSIS. THE DRP HAD DIRECTED ITS DELETION. WE OBSERVE THAT THE VIA T HAS NOTICED THE UNAVAILABILITY OF THE SEGMENTAL DATA SO FAR AS THES E COMPARABLES ARE CONCERNED. FURTHERMORE, THE FUNCTIONALITY OF TH IS ENTITY WAS CONCERNED, IT IS DIFFERENT FROM THAT OF THE ASSESSE E; ACCENTIA WAS ENGAGED IN KPO SERVICES IN THE HEALTHCARE SECTO R. 14. IN VIEW OF THE ABOVE FINDINGS, THIS COURT IS OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES. THE APP EALS ARE DISMISSED.' 7.5 SIMILARLY, THE INFOSYS BPO LIMITED HAS BEEN REJ ECTED IN VIEW OF THE HIGH TURNOVER BY THE HON'BLE BOMBAY HIGH COU RT IN THE CASE OF CIT VERSUS PENTAIR WATER INDIA PRIVATE LIMI TED (SUPRA). 7.6 IN THE INSTANT CASE ALSO THE ASSESSEE HAS SOUGH T TO EXCLUDE THE INFOSYS BPO LTD ON THE BASIS OF THE HIGH BRAND VALUE AND HIGH TURNOVER OF THE COMPANY. RESPECTFULLY, FOLLOWI NG THE ABOVE 21 DECISIONS OF THE HON'BLE DELHI HIGH COURT AND HON'B LE BOMBAY HIGH COURT, WE DIRECT THE LD. AO/TPO TO EXCLUDE THE ABOVE COMPANY FROM THE FINAL SET OF THE COMPARABLES. 28. ON FINDING PARITY OF FACTS, RESPECTFULLY FOLLOW ING THE FINDINGS OF THE COORDINATE BENCH [SUPRA], WE DIRECT THE ASSESSI NG OFFICER/TPO TO EXCLUDE THESE TWO COMPANIES FROM THE FINAL SET OF C OMPARABLES. GROUND NO. 2 WITH ALL ITS SUB-GROUNDS IS ALLOWED. 29. SECOND GRIEVANCE RELATES TO THE DISALLOWANCE OF THE EXPENSES ON CAR LEASE RENTALS AMOUNTING TO RS. 7,55,58,782/- U/ S 40(A)(IA) OF THE ACT. 30. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASS ESSEE STATED THAT THE PAYEES HAVE INCLUDED LEASE RENTALS IN THEIR INC OME TAX RETURNS AND IN THE LIGHT OF SECOND PROVISO TO SECTION 40A(IA) O F THE ACT, THE ADDITIONS CANNOT BE MADE IN THE HANDS OF THE ASSESS EE. 31. PER CONTRA, THE LD. DR STATED THAT IN SUCH A SC ENARIO, THE MATTER SHOULD BE RESTORED TO THE FILE OF THE ASSESSING OFF ICER FOR VERIFICATION. 22 32. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT THE AS SESSEE HAS PAID CAR LEASE RENTALS AMOUNTING TO RS. 7,55,58,782/- AND ON SUCH PAYMENTS, PROVISIONS OF SECTION 40A(IA) OF THE SQUARELY APPLY . HOWEVER, THE SECOND PROVISO INSERTED TO SECTION 40A(IA) OF THE A CT HAS BEEN HELD TO BE DECLARATORY AND CURATIVE AND HAVE BEEN GIVEN A R ETROSPECTIVE EFFECT FROM 1.4.2005 AS HELD BY THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF ANSAL LAND MARK TOWNSHIP [P] LTD 377 ITR 635. HOWEV ER, IT IS INCUMBENT UPON THE ASSESSEE TO FURNISH NECESSARY EV IDENCES TO DEMONSTRATE THAT THE PAYEES HAVE SHOWN RECEIPTS AS THEIR INCOME. 33. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE O F THE ASSESSING OFFICER/TPO. THE ASSESSEE IS DIRECTED TO FURNISH N ECESSARY EVIDENCES AND THE ASSESSING OFFICER/TPO IS DIRECTED TO EXAMIN E THE SAME AND DECIDE THE ISSUE AFRESH AFTER GIVING REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. 34. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED ON THE GROUNDS ARGUED BEFORE US. 23 35. IN THE RESULT, TO SUM UP, ITA NO. 1958/DEL/2017 IS PARTLY ALLOWED AND ITA NO. 9131/DEL/2019 IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 17.01. 2020. SD/- SD/- [SUDHANSHU SRIVASTAVA ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT ME MBER DATED: 20 TH JANUARY, 2020. VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT ASST. REGISTRAR 4. CIT(A) ITAT, NEW DELHI 5. DR 24 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER