M/s. Vaildor Capital India Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1961/DEL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1808 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 06-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAWETA NAKRA DATTA
• Assessee Lawyers: S D KAPILA; R R MAURYA
• Keywords: Presumptive income; Transfer pricing; International transaction; Services rendered outside India; Bad and doubtful debts
• Section: 143(3); 10B

Judgement Text

PAGE 1 OF 18 IN THE INCOME TAX APPELATE TRIBUNAL DELHI BENCH I.2: NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 1961/DEL/2015 A.Y.: 2010-11 VAILDOR CAPITAL INDIA PVT. LTD. VS. ITO, WARD 26( 1), 8599, EAST PARK ROAD, C.R. BUILDING, KAROL BAGH, NEW DELHI NEW DELHI (PAN: AABCH8403J) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. S.D. KAPILA, ADV. & SH. R.R. MAURYA, ADV. DEPARTMENT BY : MS. SAWETA NAKRA DATTA, SR. DR. O R D E R PER H.S. SIDHU, JM 01 THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORD ER OF THE ASSESSING OFFICER PASSED U/S. 143(3) OF THE INCOME T AX ACT, 1961 (IN SHORT ACT) FOR THE ASSESSMENT YEAR 20 10-11 IN PURSUANCE OF THE DIRECTION OF THE LEARNED DIPSUTE RESOLUTION PANEL FOR DETERMINING ARMS LENGTH PRICE U/S. 92CA(3) OF THE ACT BY THE LD. TRANSFER PRICING OFFICER (T PO) VIDE ORDER DATED 29.1.2014 WHICH BECAME THE SUBJECT MATTER OF THE DIRECTIONS BEFORE THE LD. DISPUTE RES OLUTION PANEL (DRP)-II, NEW DELHI VIDE ORDER DATED 14.11.2014 . PAGE 2 OF 18 CONSEQUENTLY, THE ASSESSMENT WAS PASSED AT RS. 1,36,42,883/- AGAINST THE RETURNED INCOME OF RS. 8,04 6/-. THE ASSESSEE THOUGH HAS FILED 07 GROUNDS OF APPEAL, HOWEVER, HAS AGITATED THE ISSUE OF I. INCLUSION OF FOREIGN EXCHANGE FLUCTUATION AS OPERATING INCOME WHILE DETERMINING PROFIT LEVEL INDICATOR (PLI); II. GRANT OF WORKING CAPITAL ADJUSTMENT AND III. DISPUTE WITH INCLUSION AND EXCLUSION OF THE COMPARABLES. 02 THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS O F RENDERING IT ENABLED SERVICES ( ITES) IN THE NATURE OF DATA MANAGEMENT SERVICES (I.E. DATA MANAGEMENT SERVICES, DATA COLLECTION, ORGANIZATION, VALIDATION, ANALYSIS AND FILTERING OF ACCOUNTS) AND CALL CENTER SERVICES TO IT S OVERSEAS ASSOCIATED ENTERPRISE ( AE) . THE RETURN OF IN COME WAS FILED ON 15.10.2010 DECLARING INCOME OF RS. 8,04 6/-. THE AO NOTED THAT ASSESSEE HAS ENTERED INTO THE INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRIS ES, THEREFORE, REFERENCE WAS MADE TO THE LD. TPO-II(7), NEW DELHI TO DETERMINE THE ARMS LENGTH PRICE U/S. 92CA(3) . THE TPO RECORDED THE FUNCTIONAL PROFILE OF THE ASSE SSEE AT PAGE NO. 2 TO 4 OF HIS ORDER AND THEN CHARACTERIZED THE FUNCTIONS OF THE ASSESSEE AS ITE SERVICES. THE FUNCT IONS OF THE ASSESSEE ARE UNDISPUTEDLY AS UNDER:- 3. FUNCTIONAL ANALYSIS PAGE 3 OF 18 AS PER THE TP DOCUMENTATION SUBMITTED BY THE ASSESS EE, THE FUNCTIONS PERFORMED BY THE ASSESSEE AS PART OF DATA MANAGEMENT SERVICES PROVIDED TO AE ARE AS FOLLOWS: A AA A) )) ) DATA MANAGEMENT SERVICES DATA COLLECTION: VALIDOR INDIA GATHERS DATA PERTAIN ING TO THE NON-PERFORMING ASSETS/DEBTORS FROM HFO IRELAND. SUCH DATA RELATED TO THE DEFAULTED CUSTOMER RECEIVA BLES OWNED BY HFO IRELAND. ALL DATA RECEIVED IN RAW FORM AT IS LOADED ON TO THE CRM SYSTEM BY VALIDOR INDIA. DATA ORGANIZATION: AFTER COLLECTION OF DATA, VALIDO R INDIA STRUCTURES, ORGANIZES AND CATEGORIZES THE SAME INTO LEGIBLE FORMAT. DATA VALIDATION: THE INFORMATION COLLECTED IS VALID ATED BY USE OF CREDIT BUREAU TOOLS TO LOCATE THE DEBTORS. I N THE PROCESS, ANY ADDITIONAL INFORMATION FOUND IN RELATI ON TO THE DEBTOR ACCOUNTS IS ALSO FED INTO THE SYSTEM TO UPDATE THE RECORDS. ADDITIONAL ANALYSIS: VALIDOR INDIA FURTHER ANALYZES THE AVAILABLE DATA TO ESTABLISH THE HOME OWNERSHIP, EMPLOYMENT AND OTHER DETAILS OF THE DEBTORS. THIS A IDS IN BUILDING AN ACCURATE RECORD OF ALL ACCOUNTS IN A STRUCTURED FASHION, FILTERING OF ACCOUNTS: AS A FINAL STAGE TO THE ANAL YSIS, VALIDOR INDIA ANALYZES THE INFORMATION COLLATED BY WAY OF THE ABOVE MENTIONED KEY FUNCTIONS IN ORDER TO CATEGORIZE THE ACCOUNTS ON A PRIORITY BASIS. THIS A IDS IN MAKING DECISIONS WITH RESPECT TO WHICH ACCOUNTS NEE D TO BE PURSUED AND IN WHAT MANNER. B BB B) )) ) CALL CENTER SERVICES PAGE 4 OF 18 VALIDOR INDIA ACTS AS A COMMUNICATION LINK FOR HFO IRELAND IN CONNECTION WITH THE COLLECTION OF DEBTS/ NON- PERFORMING ASSETS. ONCE THE ACCOUNTS FOR DOUBTFUL DEBTS/NON- PERFORMING ASSETS ARE ROUTED TO VALIDOR INDIA, VALIDOR INDIA PERFORMS THE FOLLOWING FUNCTIO N: FILTERING: ACCOUNTS WITH A HIGHER LIKELIHOOD OF COL LECTION ASSUME PRIORITY. IMMEDIATELY ALL SUCH ACCOUNTS ARE SENT TO THE COLLECTORS WORK QUEUE. VALIDOR INDIA CONTACT S THE DEBTORS EITHER MANUALLY OR VIA A PROGRESSIVE AUTOMA TED DIALER. REPAYMENT ARRANGEMENT: VALIDOR INDIA PERFORMS THE FOLLOWING FUNCTION: > THE TERM AND CONDITIONS FOR COLLECTION ARE PRE-SET BY HFO IRELAND AND VALIDOR INDIA COMMUNICATIONS SUCH TERMS TO THE DEBTORS. > THE FEEDBACK RECEIVED FROM THE DEBTORS IS COMMUNIC ATED TO HFO IRELAND. > HFO IRELAND DEPENDING ON THE FEEDBACK RECEIVED FRO M THE DEBTORS AND ITS INTERNAL TERMS AND CONDITIONS F OR DEBT COLLECTION COMMUNICATES ITS DECISION ON THE AMOUNT OF SETTLEMENT TO VALIDOR INDIA. THE DECISION / APPROV AL OF HFO IRELAND FOR THE SETTLEMENT ARE COMMUNICATED TO THE DEBTORS. > ON ACCEPTANCE, THE DEBTOR DIRECTLY PAYS THE AMOUNT TO THE ACCOUNT OF HFO IRELAND OUTSIDE INDIA AND NO PAYMENT S ARE RECEIVED IN THE INDIAN ACCOUNTS OR BY VALIDOR I NDIA. > POST PAYMENT, VATIDOR INDIA UPDATES ITS RECORDS FO R COLLECTION OF THE DOUBTFUL DEBT/NON-PERFORMING ASSE T. > TRACE/ISSUES: ANY ISSUES RELATING TO BANKRUPTCY, M EDICAL URGENCY OF THE DEBTOR IS FED INTO THE SYSTEM TO UPD ATE THE PAGE 5 OF 18 ACCOUNT RECORDS. C CC C) )) ) INFRASTRUCTURE SERVICES VALIDOR INDIA RENDERS CERTAIN IT INFRASTRUCTURE SUP PORT SERVICES TO HFO IRELAND. THE FUNCTIONS PERFORMED BY THIS DIVISION ESSENTIALLY ENTAIL THE FOLLOWING. 1. TECHNICAL SUPPORT SERVICES 2. TROUBLESHOOTING OF APPLICATION SERVICES 3. INFRASTRUCTURE SET UP AND MAINTENANCE 4. DISASTER RECOVERY SET UP 5. MAINTENANCE OF DATABASES CHARACTERIZATION BASED ON THE FACTS AS PRESENTED IN THE ABOVE ANALYS IS OF FUNCTIONS PERFORMED, RISKS BORNE AND ASSETS USED, T HE ASSESSEE COMPANY HAS BEEN CHARACTERIZED AS AN INFORMATION TECHNOLOGY (IT') ENABLED SERVICE PROVI DER WITH LIMITED RISK AND ASSUMING MINIMAL RISKS. THE ASSESSEE COMPANY HAS BEEN MADE THE TESTED ENTERPRI SE FOR THE PURPOSE OF COMPARABILITY ANALYSIS. 03 THE ASSESSEE HAS ENTERED INTO THE INTERNATIONAL TRANSACTIONS OF PROVISIONS OF IT ENABLED SERVICES OF R S. 15,33,09,068/-. THE ASSESSEE BENCHMARKED IT BY APPL YING TRANSACTIONAL NET MARGIN METHOD (TNMM) AND ADOPTED PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT / OPERATI NG COST ( OP/OC) AT 18.03%. THE ASSESSEE SELECTED 9 COMPARABLES COMPANIES USING MULTIPLE YEAR DATA AND DETERMINE THEIR PLI AT 13.10% AND HELD THAT INTERNATIONA L TRANSACTION OF THE ASSESSEE IS AT ARMS LENGTH. PAGE 6 OF 18 04 THE LD. TPO REJECTED THE TP STUDY OF THE ASSESSEE HOLD ING THAT IT HAS USED MULTIPLE YEAR DATA. HE CARRIED OUT T HE FRESH SEARCH APPLYING VARIOUS FILTERS USING CURRENT YEAR DATA AND ULTIMATELY SELECTED THE 10 COMPARABLES COMPUTING THEIR PLI OF OP/OC AT 32.72% . THE MARGIN OF THE ASSESSEE WAS ALSO RECOMPUTED HOLDING THAT PROF IT OF EXCHANGE FLUCTUATION IS NOT PART OF OPERATING PROFIT AMOUNTING TO RS. 39,74,862/- RECOMPUTED THE PLI OF TH E ASSESSEE AT 23.39% AND THEN DETERMINE THE ALP ON THE TOTAL COST OF RS. 12,99,27,574 @ 32.72% AND DETERMINE THE ALP OF 17,24,39,840/- OF THE INTERNATIONAL TRANSAC TION OF RS. 15,33,09,068/- AND THEREBY PROPOSING THE ADJUSTMENT OF RS. 1,91,30,772/-. A DRAFT ASSESSMENT ORDER PASSED ON THIS WAS PASSED BY THE AO ON 11.2.2014 AG AINST WHICH ASSESSEE SUBMITTED OBJECTIONS BEFORE THE LD. DR P AND CONSEQUENTLY, THE ADJUSTMENT OF ALP WAS DETERMINE D AT RS. 1,36,34,837/- AND ASSESSMENT U/S. 143(3) OF T HE ACT WAS MADE. 05 THE FIRST ISSUE IS WITH RESPECT TO THE INCLUSION O F FOREIGN EXCHANGE GAIN RECEIVED BY THE ASSESSEE DURING THE YE AR WHETHER PART OF THE OPERATING PROFIT OF THE ASSESSEE O R NOT. DURING THE YEAR THE ASSESSEE HAS RECEIVED THE FO REIGN EXCHANGE GAIN AND INCLUDED THE SAME AS OPERATING INC OME AND COMPUTED ITS MARGIN. THE LD. TPO REJECTED THE SAME VIDE PAGE NO. 67 OF HIS ORDER. THE MAIN CONTENTION O F THE TPO IS THAT IT DOES NOT HAVE ANY BEARING UPON THE TRANSACTIONS WHICH HAS ALREADY BEEN UNDERTAKEN. THE PAGE 7 OF 18 MAIN CONTENTION OF THE ASSESSEE BEFORE THE LD. DRP WIT H RESPECT TO THIS ASPECT WAS ALSO REJECTED VIDE PARA NO. 16 OF THE ORDER OF THE LD. DRP. THE LD. DRP RELYING UPON THE SAFE HABOUR RULES ISSUED ON 18.9.2013 WHERE THE FOREIG N EXCHANGE GAIN OR LOSS WAS NOT INCLUDED AS OPERATING INCOME UPHELD THE ACTION OF THE LD. TPO. 06 THE LD. AR SUBMITTED THAT THIS ISSUE HAS NOW BEEN C OVERED IN FAVOR OF THE ASSESSEE BY THE DECISION OF THE HONB LE DELHI HIGH COURT IN THE CASE OF ASSESSEE IN RAMPGREEN SOLUTIONS PVT. LTD CS. CIT 234 TAXMAN 573 (DELHI). HE FURTHER STATED THAT IN PR. CIT VS. AMERIPRISE INDIA (P) L TD IN ITA NO. 461/2016 VIDE ORDER DATED 19.10.2016 THIS ISS UE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. 07 THE LD. DR RELIED ON SAFE HARBOUR RULES AND THE ORDERS O F THE LOWER AUTHORITIES. 08 WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND HOLD THAT FOREIGN EXCHANGE GAIN BY THE ASSESSEE IS ON ACCOUNT OF EXPORT OF SERVICES. THEREFORE, THE SAME IS PART OF THE OPERATING INCOME OF THE ASSESSEE. THIS ISSUE HAS ALREADY BEEN DECIDED BY THE HONBLE DELHI HIGH COURT IN VIEW OF THE DECISION CITED BY THE LD. AR WHICH COVE RS THE ISSUE IN FAVOUR OF THE ASSESSEE. FURTHER THE SAFE HARBO R RULES ARE LIKE PRESUMPTIVE TAXATION AND HAS BEEN MA DE APPLICABLE ONLY FROM 18 TH SEPTEMBER, 2013 AND THEREFORE, SAME ARE NOT APPLICABLE TO THE PRESENT ASSESSMENT YE AR. EVEN OTHERWISE THEY ARE TO BE OPTED BY THE ASSESSEE AND IF NOT OPTED THOSE ARE NOT BINDING ON ASSESSEE. IN VIEW OF PAGE 8 OF 18 THIS WE ALLOW GROUND NO. 5 OF THE APPEAL OF THE ASSE SSEE AND DIRECT THE AO /TPO TO CONSIDER THE FOREIGN EXCHANG E FLUCTUATION GAIN AS OPERATING INCOME FOR COMPUTING TH E PLI OF THE ASSESSEE. 09 THE GROUND NO. 6 OF THE APPEAL IS WITH RESPECT TO NO T GRANTING THE WORKING CAPITAL ADJUSTMENT OF THE ASSESS EE. THE LD. AR REFERRED THE PARA NO. 12 OF THE ORDER OF THE LD. TPO WHERE AT PAGE NO. 73 THE TPO HIMSELF HAS STATED T HAT ASSESSEE IS ENTITLED TO THE WORKING CAPITAL ADJUSTME NT. HOWEVER, IN THE FINAL ORDER SAME ADJUSTMENT WAS NOT GIVEN. THEREFORE, HE REQUESTED FOR DIRECTION TO THE TPO /AO TO GRANT WORKING CAPITAL ADJUSTMENT. THE LD. DR ALSO OF THE SAME VIEW. 10 VIDE PARA NO. 12 AT PAGE NO. 73 OF THE ORDER OF TPO, LD TPO HIMSELF STATED THAT WORKING CAPITAL ADJUSTMENT IS REQUIRED TO BE GRANTED TO THE ASSESSEE AND HE HAS ALS O MENTIONED THE METHODOLOGY OF THE SAME. HOWEVER, IN TH E COMPUTATION OF ALP SAME ADJUSTMENT WAS NOT GIVEN. IN VIEW OF THIS, WE DIRECT THE TPO/AO TO GRANT THE WORKING CAPITAL ADJUSTMENT TO THE ASSESSEE IN ACCORDANCE WI TH LAW. GROUND NO. 6 OF THE APPEAL OF THE ASSESSEE IS ALLOWE D ACCORDINGLY. 11 GROUND NO. 1, 2 AND 7 ARE NOT PRESSED BEFORE US. SIMILARLY, THE PART OF THE GROUND NO. 6 WITH RESPECT TO THE RISK MANAGEMENT IS ALSO NOT PRESSED BEFORE US AND THEREFORE, THE SAME ARE DISMISSED AS SUCH. PAGE 9 OF 18 12 THIS LEAVE US WITH ONLY GROUND NO. 3 & 4 WHICH REJECT S THE CERTAIN COMPARABLES SELECTED BY THE ASSESSEE AND ALSO INCLUDES CERTAIN FRESH COMPARABLES SELECTED BY THE LD TPO OBJECTED BY ASSESSEE, AND CONFIRMED BY DRP. 13 THE FIRST OBJECTION OF THE ASSESSEE IS THAT THE LD. TPO HAS EXCLUDED R SYSTEMS INTERNATIONAL LTD. WHICH HAVE BEE N INCLUDED BY THE ASSESSEE IN ITS TP STUDY REPORT, BUT REJECTED BY THE LD. TPO HOLDING THAT COMPANY FOLLOWS THE CALENDAR YEAR WHEREAS THE ASSESSEE FOLLOWS THE FINANC IAL YEAR AS ITS ACCOUNTING PERIOD. THE LD. AR SUBMITTED THAT R SYSTEMS INTERNATIONAL LTD. HAS BEEN EXCLUDED BY THE REVENUE ON THE IDENTICAL LINES. HOWEVER, IN THE SEVE RAL DECISIONS OF THE COORDINATE BENCHES IT HAS BEEN HELD THAT IF THE ASSESSEE FURNISHES THE QUARTERLY PUBLISHED RESULTS OF THIS COMPANY THEN THE SAME MAY BE INCLUDED FOR THE REASON THAT IT IS FUNCTIONAL SIMILAR TO THE ASSESSE E. LD. DR ALSO ACCEPTED THE ABOVE PROPOSITION. AND STATED THAT IF THE ASSESSEE PRODUCES THE AUTHENTIC AND RELIABLE INFORMATION WITH RESPECT TO THE RELEVANT QUARTERS AND IF THE RESULT CAN BE CO-RELATED FOR THE FINANCIAL YEAR THE N THE SAME MAY BE CONSIDERED FOR COMPARABILITY ANAYLSIS. 14 WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS A ND ALSO FIND THAT IF THE R SYSTEMS INTERNATIONAL LTD. IS FUNCTIONALLY COMPARABLE, IT SHOULD NOT BE EXCLUDED M ERELY FOR THE REASONS OF THAT COMPANY FOLLOWING DIFFERENT ACCOUNTING PERIOD, IF THE RELIABLE AND AUTHENTIC DATA IS AVAILABLE WITH RESPECT TO MISSING QUARTERS . IN THE PAGE 10 OF 18 PRESENT CASE IF THE ASSESSEE SUBMITS RELIABLE AND AUT HENTIC DATA OF THE RELEVANT QUARTERS TO RECONSTRUCT THE RESULTS OF THAT COMPARABLE FOR THE FINANCIAL YEAR SIMILAR TO TH E ACCOUNTING YEAR OF THE ASSESSEE, THEN THE SAME SHOUL D BE CONSIDERED FOR COMPARABILITY ANALYSIS. ACCORDINGLY, TH IS COMPARABLE IS DIRECTED TO BE INCLUDED PROVIDED ASSESS EE SUBMITS THE ABOVE INFORMATION. 15 THE NEXT COMPARABLE WAS ACCENTIA TECHNOLOGIES LTD. CONTESTED BY THE ASSESSEE. THIS COMPARABLE HAS BEEN SELECTED BY THE TPO ON FRESH SEARCH. BEFORE THE TPO THE ASSESSEE OBJECTED THAT THE COMPARABLE IS ENGAGED IN DIFFERENT SEGMENT AND FUNCTIONALLY NOT COMPARABLE. THE LD. TPO REJECTED THE CONTENTION OF THE ASSESSEE AND HE LD THAT ACCENTIA TECHNOLOGIES LTD. THAT THE COMPANY HAS ONE SEGMENT OF HEALTHCARE MANAGEMENT AND RECEIVABLE HENCE SEGMENT REPORTING IS NOT APPLICABLE. HENCE, ACCORDING TO HIM IT IS COMPARABLE. THE LD. DRP WAS ALSO OF THE VIEW THAT WHERE ASSESSEE POINTED OUT THAT ASSESSEE HAS UNDERTAKEN THE EXTRAORDINARY ACTIVITY OF AMALGAMATION DURING THE YEAR, HELD THAT THE MERGER HA S NO IMPACT ON THE COMPANY AS THE MERGED COMPANY IS ALSO ENGAGED IN THE SIMILAR LINE OF ACTIVITY. IT WAS ALS O HELD THAT INTANGIBLE ASSETS ARE ALSO OF NO SIGNIFICANCE IN THI S CASE. 16 LD. AR SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2010-11 BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN TH E CASE OF PR. CIT VS. AMERIPRISE INDIA (P) LTD. IN ITA NO. 461/ 2016 PAGE 11 OF 18 VIDE ORDER DATED 19.10.2016 WHERE IN DELETION OF AC CENTIA TECHNOLOGIES LTD. AS A COMPARABLE DUE TO CERTAIN EXTRAORDINARY EVENTS WHICH DISTORTED THE PROFITABILITY OF THAT COMPANY TO BE EXCLUDED. THE HONBLE HIGH COU RT UPHELD THE SAME. 17 LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 18 WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AN D ALSO PERUSED THE BALANCE SHEET OF THE COMPANY PLACED AT PAGE NO. 538 TO 481 OF THE PAPER BOOK. ACCORDING TO THE MANAGEMENT DISCUSSIONS AND ANALYSIS COMPARABLE IS ENGAGED IN THE BUSINESS HEALTHCARE RECEIVABLES MANAGEMENT AND IT WAS THE PIONEER TO OFFER SAAS MODEL IN THAT FIELD. DURING THE YEAR, THE COMPANY HAS ACQUIRED ACQUISITION OF IQ GROUP OF COMPANIES IN UNITED KING DOM AND ENTERED INTO THE LEGAL PROCESS OUTSOURCING SEGMEN T. THESE FACTS ARE AMENABLE AT PAGES 556 OF THE ANNUAL ACCOUNTS. VIDE SCHEDULE-8 THE INCOME STREAMS ARE MEDI CAL TRANSCRIPTIONS AND CODING ALOGNWITH BILLS AND CALCULA TIONS SYSTEMS. AS PER SCHEDULE NO. 10-B IT IS MENTIONE D THAT IT IS THE SUBSIDIARY OF THE COMPANY WHICH WAS ENGA GED IN THE BUSINESS OF MEDICAL TRANSCRIPTION AND CODING AND HAS THE SOFTWARE WHICH ARE USED BY THE COMPANY IN SERVI NG END TO END RESULTS IS AMALGAMATED IN THE ASSESSEE COMPANY. THE AMALGAMATION IS EFFECTIVE FROM 1.4.2 008 AND THEREFORE, FY 2010-11 IS THE SECOND YEAR OF OPE RATION. LOOKING TO THE REVENUES STREAM ALSO AS PER SCHEDULE-8 OF PAGE 12 OF 18 THE BALANCE SHEET THERE IS NO CHANGE IN THE REVENUE S STREAMS OF THE COMPARABLE COMPANY FOR IN 31.3.2009 AND 31.3.2010. THEREFORE, ON READING OF NOTE NO. 10B PLA CED AT PAGE NO. 571 OF THE PAPER BOOK AS FINANCIAL RESUL TS OF THE COMPANY ARE IMPACTED FOR FY 2008-09 RELEVANT TO AY 2009-10, BUT THERE IS NO IMPACT OF FINANCIAL RESULT S DURING THE YEAR ( AY 2010-11 ) OF ANY EXTRAORDINARY EVENTS . THEREFORE, ON THIS GROUND THIS COMPANY CANNOT BE EXCL UDED AS COMPARABLE. THE FUNCTIONS OF THE ASSESSEE STATED THAT PAGE NO. 195 OF THE PB AS PER TRANSFER PRICING STUDY REPORT ARE ALSO THE DATA COLLECTION, DATA ORGANIZATIO N, DATA VALIDATION AND FILTERING OF ACCOUNTS. IN VIEW OF THI S, IT CANNOT BE SAID THAT ACCENTIAL TECHNOLOGIES PVT. LTD. IS PERFORMING ANY FUNCTION, WHICH IS DISSIMILAR TO THE A SSESSEE COMPANY. WE HAVE ALSO PERUSED THE DECISION OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF PR. CIT VS. AMERIPRISE I NDIA (P) LTD. THE MAIN REASONS FOR DISMISSING THE APPEAL O F THE REVENUE IS THAT THE ORDER OF THE TRIBUNAL DEALEING W ITH 03 COMPARABLES WAS NOT FOUND REASONABLE AND FURTHER EVE N IF THE COMPARABLES ARE TO BE ACCEPTED THEN THE MARG IN OF THE RESPONDENT IN THAT CASE FELL WITHIN THE SAFE HARB OUR RULES. THE HONBLE DELHI HIGH COURT DID NOT COMMENT ON THE SPECIFIC COMPARABLE OF ACCENTIA TECHNOLOGIES. E VEN OTHERWISE, THE ONE COMPANY IF HELD NOT BE COMPARABLE WITH ANOTHER COMPANY, IT CANNOT BE SAID THAT THE SAME I S NOT AT ALL COMPARABLE WITH THE WHOLE WORLD. IN VIEW OF THI S THE ACTION OF THE AO IN INCLUDING ACCENTIA TECHNOGLOEI S CANNOT PAGE 13 OF 18 BE FAULTED WITH. FURTHER THE DECISION OF THE HONBLE B OMBAY HIGH COURT IN THE CASE OF PR. CIT VS. APTARA TECHNOLOG Y PVT. LTD. (2018) 92 TAXMANN.COM 240 (BOM) IS PERTAININ G TO AY 2008-09 WHEREIN, THE AMALGAMATION IN ACCENTIA TECHNOLOGIES HAPPENED. EVEN OTHERWISE, THE MERGER I N THE CASE OF ACCENTIA TECHNOLOGIES IS OF THE SIMILAR N ATURE OF BUSINESS AS THE INCOME STREAMS AS WELL AS FUNCTIONAL ITY OF THE COMPANY HAS NOT CHANGED. EVEN OTHERWISE, WHEN O NE ADD ONE BOX WITH ANOTHER IDENTICAL BOX, THEN THE NA TURE OF THE FUNCTIONS OF THE BOXES DO NOT CHANGE. 19 THE SECOND COMPARABLE CONTESTED BY THE ASSESSEE EXCLUSION OF E4E HEALTHCARE. THE LD. TPO INCLUDED THE ABOVE COMPANY HAVING MARGIN OF 32.67% WHICH WAS OBJECTED BY THE ASSESSEE BEFORE THE TPO. HOWEVER, ASSESSEE DID NOT OBJECT BEFORE THE TPO AS WELL AS B EFORE THE LD. DRP. THE LD. AR HAS ALSO NOT SUBMITTED THE FINANCIAL ACCOUNTS OF THE ABOVE COMPANY. HE HAS MERE LY RELIED UPON DECISIONS. THE COMPARABILITY ANALYSIS IS FACTUAL ANALYSIS OF THE FUNCTIONS, ASSETS AND RISK OF ONE COMPANY WITH THE OTHER COMPANY. THEREFORE, THE JUDICIAL PREC EDENT OF EXCLUDING THE ONE COMPANY AGAINST THE OTHER CANN OT BE JUDGED AS SUCH WITHOUT COMPARING FUNCTIONS OF TH AT COMPARABLE COMPANY WITH THE ASSESSEE COMPANY. IN THI S VIEW, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. TPO AND LD. DRP IN INCLUDING THE E4E HEALTHCARE AS A COMPARABLE COMPANY. PAGE 14 OF 18 20 THE NEXT COMPARABLE IS TCS E-SERVE LTD.. THIS COMPANY IS INCLUDED BY THE TPO AFTER TAKING THE FRESH SEARCH. AS SESSEE OBJECTED THE SAME BEFORE THE TPO. THE ASSESSEE OBJECT ED AND PRESSED ON THE ANNUAL REPORT EXTRACTION STATING T HE SAME WAS TAKEOVER OVER BY THE TCS LTD. IN THE YEAR 20 09- 10. THE TPO REJECTED THE SAME HOLDING THAT THE COMPA NY WAS TAKEN-OVER BY TCS IN THE PRECEDING YEAR AND NOT DURING THE RELEVANT YEAR I.E. AY 2010-11. THEREFORE, ACCORDING TO THE TPO THE SAME IS TO BE INCLUDED. BEFO RE THE LD. DRP THE ASSESSEE OBJECTED THE INCLUSION STATING THAT ITS FUNCTIONS ARE DIFFERENT. THE LD. DRP REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT FUNCTIONAL SIMILARITY ARE THERE AND EXCEPTIONAL EVENTS ARE N OT RELEVANT AS IT WAS TAKEN OVER BY TCS IN THE EARLIER YEA R AND NOT IN THIS YEAR. 21 THE LD. AR VEHEMENTLY STATED THAT TCS E SERVE LTD IS NOT FUNCTIONALLY COMPARABLE AS IT IS ENGAGED IN PROVIDIN G OF BUSINESS PROCESS OUTSOURCING SERVICES ALONG WITH IT ES SERVICES AND ALSO PROVIDING TECHNICAL SERVICES INVOLVI NG SOFTWARE TESTING, VERIFICATION AND VALIDATION OF SOFT WARE FOR IMPLEMENTATION AND DATA CENTRE MANAGEMENT ACTIVITIE S. IT ALSO HAS TATA BRAND AND SOFTWARE LICENSE OF RS. 24.30 CRORES. IT WAS FURTHER STATED THAT THERE IS NO SEGMENTA L ACCOUNTING IS AVAILABLE. 22 THE LD. DR SUPPORTED THE ORDERS OF THE TPO AND DRP. 23 WE HAVE CAREFULLY CONSIDER THE RIVAL CONTENTIONS AND A LSO PERUSED THE BALANCE SHEET OF TCS E-SERVE LTD. SUBMIT TED PAGE 15 OF 18 AT PAGE NO. 693 TO 735 OF THE PAPER BOOK FOR THE YEA R ENDED ON 31.3.2010. THE FUNCTIONS SHOWN BY THE COMP ANY ARE AT SCHEDULE-O WHICH SHOWS THAT THE COMPANY IS ENGAGED IN IT ENABLE SERVICE AND BPO SERVICES. IT IS ALSO ENGAGED IN TECHNICAL SERVICES OF SOFTWARE TESTING VERIFICATION AND VALIDATION SOFTWARE. THESE FUNCTION S ITSELF SHOWS THAT THIS COMPARABLE IS NOT TO BE TAKEN IN COMPARABILITY ANALYSIS OF THE ASSESSEE. FURTHER, THE GROSS REVENUE OF THE COMPARABLE COMPANY IS RS. 1359 CRORES WHEREAS THE ASSESSEES TURNOVER IS MERELY RS. 15 CRORE S. FURTHER, THE ASSESSEE WAS ALSO CONTRIBUTING TO THE TAT A BRAND AS PER SCHEDULE-N OF THE BALANCE SHEET. FURTHER A LL THE BUSINESS OF THE COMPANY IS CONSIDERED AS SINGLE SEGMENT AND SEGMENTAL ANALYSIS WAS NOT AVAILABLE OF SOFTWARE TESTING AND OTHER ITES SERVICES. IN VIEW O F THIS LOOKING TO THE FUNCTIONAL ANALYSIS OF THE COMPANY, SIZE OF THE BUSINESS OF THE ASSESSEE AND BRAND VALUE OF THE COMPARABLE, IT DESERVES TO BE EXCLUDED. 24 THE OTHER COMPARABLE IS TCS E-SERVE INTERNATIONAL LTD . FOR WHICH SIMILAR ARGUMENTS WERE RAISED BY BOTH THE PARTIE S. WE HAVE PERUSED THE BALANCE SHEET AT PAGE NO. 617 TO 692 OF THE PAPER BOOK OF THAT COMPANY. THIS COMPANY ALSO CONTRIBUTES TO THE TATA BRAND, HAS A TURNOVER OF RS. 150 CRORES AND IS ENGAGED IN TECHNICAL SERVICES OF SOFTWARE TESTING ETC. THEREFORE, FOR SIMILAR REASONS AS WE HAV E GIVEN FOR EXCLUSION OF TCS E-SERVE LTD.. WE ALSO DIRE CT THE TPO TO EXCLUDE THE TCS E-SERVE INTERNATIONAL LTD. PAGE 16 OF 18 25 THE NEXT COMPARABLE OBJECTED BY THE ASSESSEE IS INF OSYS BPO LTD. THIS COMPARABLE WAS INCLUDED BY THE ASSESSE E IN ITS TRANSFER PRICING STUDY REPORT THEREBY ITS FUNCTIONA L COMPARABLE WITH THE ASSESSEE COMPANY. BEFORE THE TPO ASSESSEE TRIED TO RESILE FROM THE ABOVE COMPARABLE ST ATING THAT ITS FUNCTIONALLY DISSIMILAR AND ITS SERVICE LIN ES IS BPO/KPO. THE TPO REJECTED THE ARGUMENT OF THE ASSESSEE ABOUT THE FUNCTIONAL DISSIMILARITY. IT WAS FURTHER SUB MITTED THAT THERE IS AN ACQUISITION BY COMPANY OF BRAZIL IAN COMPANY AND THEREFORE, THERE IS AN EXTRAORDINARY EVENTS. THE TPO ALSO REJECTED THE SAME AS THE ACQUIRED COMPA NY WAS ALSO IN THE SIMILAR LINES OF BUSINESS. THE ASSES SEE ALSO OBJECTED TO THE BRAND VALUE WHICH WAS ALSO NOT ACC EPTED, THE ASSESSEE BEFORE THE LD. DRP REITERATED THE SAME ARGUMENTS. THE LD. DRP UPHELD THE REASONS OF THE TPO. 26 THE LD. AR SUBMITTED IT HAS A DIVERSE BUSINESS ACT IVITIES, HUGE GOODWILL AND EXCLUDED BY MANY DECISIONS OF COORDINATE BENCHES IN COMPARABILITY ANALYSIS. 27 THE LD. DR VEHEMENTLY STATED THAT THE SAME IS ALREA DY INCLUDED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY REPORT STATING FUNCTIONALLY COMPARABLE BUT IS NOW CANNOT BE PRAYED FOR EXCLUSION. 28 WE HAVE CAREFULLY CONSIDERED THE RIVALS CONTENTIONS AND ALSO PERUSED THE BALANCE SHEET OF THE COMPANY AT PAG E NO. 1 TO 582 OF THE PAPER BOOK. ACCORDING TO THE ANNUAL ACCOUNTS THE COMPANY IT PROVIDES THE BUSINESS PROCE SS MANAGEMENT SERVICES AND FURTHER IS WHOLLY OWNED AND PAGE 17 OF 18 CONTROLLED SUBSIDIARY OF INFOSYS , WHICH HAS A HUGE B RAND. THEREFORE, IT HAS A DIFFERENT ASSET BASIS. AT PAGE N O. 607 THE SEGMENTAL ANALYSIS OF THE COMPANY IS ALSO PERUSE D. THE SEGMENTS OF THE COMPANY PREPARED ON THE BASIS O F CUSTOMERS RELATED TO A PARTICULAR INDUSTRY AND NOT ACCORDING TO THE FUNCTIONS. ON PERUSAL OF THE FIXED ASSETS, IT HAS A HUGE GOODWILL AND FURTHER BEING THE SUBSIDIA RY OF SOFTWARE GIANT INFOSYS ASSETS USED WERE ALSO DIF FERENT. THE COMPANY DERIVES ITS REVENUE FROM BUSINESS PROCESS MANAGEMENT SERVICES AT PAGE NO. 593 OF THE PAPER BOOK WHICH ARE NEITHER SHOWN BY THE ASSESSEE NOR BY THE L D. TPO THAT WHAT KIND OF SERVICES ARE PROVIDED BY THE COMPARABLE COMPANY. THE SAME IS ALSO NOT COMING OUT OF THE ANNUAL ACCOUNTS OF THE COMPANY AS WELL AS THE SEGMENTAL ACCOUNTS. THEREFORE, FOR THE SIMPLE REASON OF NOT HAVING PROVED BY THE TPO HOW THIS COMPANY IS FUNCTIONALLY COMPARABLE WITH THE ASSESSEE COMPANY WH EN ASSESSEE ITSELF HAS OBJECTED LATER ON BEFORE HIM, IT CANNOT ENTER INTO THE COMPARABILITY ANALYSIS FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS. EVEN OTHERWISE, IT HAS A HUGE BRAND VALUE AND THE HUGE ASSET BASE OF INTANGIBLE AS SETS. THEREFORE, THE SAME IS NOT COMPARABLE. THE RISK OF TH E INFOSYS BPO LTD. IS ALSO RANGING OVER VARIOUS INDUSTRIAL SEGMENTS OF CUSTOMERS AND ACROSS GEOGRAPHIES. THEREFORE , IT BEARS HIGHER RISK. HENCE, IN THE ABSENCE OF THE SPEC IFIC FUNCTIONS, HUGE ASSET BASE INCLUDING BRAND VALUE AN D HIGHER RISK, THIS COMPARABLE IS TO BE EXCLUDED. PAGE 18 OF 18 29 IN VIEW OF THE ABOVE FACTS, THE APPEAL OF THE ASSES SEE IS DECIDED WITH RESPECT TO VARIOUS CLAIMS PRESSED BEFORE US. HENCE, IT IS PARTLY ALLOWED. ORDER PRONOUNCED ON 22-11-2018. SD/- SD/- [PRASHANT MAHARISHI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE:22/11/2018 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT (A) 5. DR , ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES