Capital IQ Information Systems (India) Pvt.Ltd, R.R.Dist V. ACIT, Circle-1(2), Hyderabad

ITA 1961/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66504 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 24-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: G C SRIVASTAVA
• Keywords: Related party transaction; Transfer pricing; International transaction; Wholly owned subsidiary; Bad and doubtful debts
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMB ER ITA NO.1961/HYD/2011 : ASSESSM ENT YEAR 2007-08 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD (PAN AACCS 8657 G) V/S. DY. COMMISSIONER OF INCOME-TAX (INT. TAXATION), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.C. SRIVASTAVA RESPONDENT BY : SHRI V. S R INIVAS DA TE OF HEARING 2 6 .9 .2012 DATE OF PRONOUNCEMENT 23.11.2012 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ASS ESSMENT ORDER DATED 11.10.2011 PASSED UNDER S.143(3) READ WITH S. 144C OF THE ACT, ON THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL(DRP). T HE APPEAL PERTAINS TO THE ASSESSMENT YEAR 2007-08. 2. THE FACTUAL MATRIX AS EMANATES FROM THE RECORD ARE THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF CAPITAL IQ INC., TH E ASSOCIATED ENTERPRISE (AE), BEING A COMPANY BASED IN USA. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING IT-ENABLED SERVICES(ITES) AND BUSINESS SUPPORT SERVICES, SUCH AS FINANCIAL REPORTS/RELATED DOCUMEN TS, TECHNICAL SERVICE FOR DEVELOPMENT OF SOFTWARE AND OTHER SIMILAR SERVICES TO ITS AE ON A COST PLUS MARK UP BASIS. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSE SSEE FILED A ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 2 RETURN OF INCOME DECLARING THE TOTAL INCOME AT RS.8 ,29,06,660. DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE HAD THE FOLLO WING INTERNATIONAL TRANSACTIONS WITH ITS AE. (A) PROVISION OF IT ENABLED SERVICES RS.56,32,13 ,579 (B) PROVISION OF BUSINESS SUPPORT SERVICES RS . 4,19,34,643 FOR COMPUTING THE ARMS LENGTH PRICE (ALP) OF THE I NTERNATIONAL TRANSACTION, THE ASSESSEE ADOPTED THE TRANSACTIONAL NET MARGIN M ETHOD (TNMM). IN THE COURSE OF ASSESSMENT PROCEEDINGS UNDER S.143(3), T HE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS RECEIVED PAYMENT FRO M INTERNATIONAL TRANSACTIONS UNDERTAKEN WITH ITS AE MADE A REFERENC E TO THE TRANSFER PRICING OFFICER(TPO) UNDER S.92CA OF THE ACT, TO DETERMINE THE ALP. ON RECEIVING THE REFERENCE, THE TPO ISSUED A NOTICE UNDER S.92CA (2) CALLING UPON THE ASSESSEE TO SUBMIT THE DOCUMENTS MAINTAINED IN TERM S OF S.92B. AFTER RECEIVING THE COMPLIANCE OF THE ASSESSEE, THE TPO I SSUED ANOTHER LETTER REQUIRING THE ASSESSEES COMPLIANCE ON VARIOUS ISSU ES RAISED THEREIN. THE TPO NOTICED THAT THOUGH THE ASSESSEE IN ITS TRANSFE R PRICING DOCUMENT CLAIMED THE ITES AND BUSINESS SUPPORT SERVICES TO B E TWO SEPARATE SEGMENTS, IN THE PROFIT & LOSS ACCOUNT RECEIPT FROM BOTH HAVE BEEN AGGREGATED AND SHOWN AS INCOME FROM IT ENABLED AND BUSINESS SUPPORT SERVICES. EXPENDITURE WITH REGARD TO BOTH THE SER VICES HAVE ALSO BEEN AGGREGATED. IN RESPONSE TO THE QUERY MADE BY THE A SSESSING OFFICER, THE ASSESSEE EXPLAINED THAT SERVICES PERTAINING TO PROV ISION OF ITES AND PROVISION OF BUSINESS SUPPORT SERVICES ARE DIFFERENT. THE AS SESSING OFFICER HOWEVER, WAS OF THE VIEW THAT THE BUSINESS SUPPORT SERVICE R ENDERED BY THE ASSESSEE IS NOTHING BUT PROVIDING OFFICE SPACE AND OTHER AMENIT IES FOR PERFORMANCE OF BUSINESS, WHICH IS INCIDENTAL TO THE ITES RENDERED BY THE ASSESSEE TO ITS AE. THE TPO NOTICED THAT AS PER THE FUNCTIONS, ASSETS, RISKS (FAR) ANALYSIS DONE BY THE ASSESSEE, MAIN FUNCTION OF THE ASSESSEE WITH ITS AE IS PROVISION OF ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 3 ITES AND PROVISION OF BUSINESS SUPPORT SERVICES. D URING THE RELEVANT FINANCIAL YEAR, THE AE PURCHASED SOFTWARE LICENCES IN BULK FOR USE BY VARIOUS GROUP ENTITIES INCLUDING THE ASSESSEE. THE COST PE RTAINING TO THESE LICENCES WAS CROSS-CHARGED BY THE AE TO VARIOUS GROUP COMPAN IES, INCLUDING THE ASSESSEE AT COST. THE ASSESSEE ALSO DEPLOYED WELL QUALIFIED WORK-FORCE IN ITS BUSINESS. THE ASSESSEE ALSO OWNS COMPUTERS, SERVER , ETC. WHICH RE ESSENTIAL TO THE BUSINESS OF A COMPANY PROVIDING ITES. THE ASSESSEE HAS CLAIMED THAT BEING A CAPTIVE CONTRACT SERVICE PROVIDER, IT OPERA TES IN A RISK MITIGATED ENVIRONMENT ON A COST PLUS BASIS. ON EXAMINING THE TP STUDY REPORT SUBMITTED BY THE ASSESSEE, THE TPO NOTED THAT THE A SSESSEE HAS SELECTED ITSELF AS THE TESTED PARTY AND HAS ADOPTED TNMM AS THE MOST APPROPRIATE METHOD FOR ARRIVING AT THE ALP. THE ASSESSEE HAS S ELECTED UNCONTROLLED COMPARABLES BY USING INFORMATION AS AVAILABLE ON TH E PROWESS DATA BASE TILL 10.8.2007 AND CAPITALINE PLUS DATA BASE UPDATED TIL L 3.8.2007. THE ASSESSEE HAS CONSIDERED THE FINANCIAL RESULTS OF THE SELECTE D COMPARABLES FOR THE PERIOD ENDING BETWEEN 1.4.2005 AND 30.6.2007. WHERE DATA FOR THE FINANCIAL YEAR 2005-06 ARE NOT AVAILABLE EARLIER YEARS DATA WAS C ONSIDERED. WHILE SEARCHING FOR THE COMPARABLES, THE ASSESSEE HAS APP LIED THE FOLLOWING FILTERS. 1. COMPANIES FOR WHICH SUFFICIENT FINANCIAL INFORM ATION IS NOT AVAILABLE TO UNDERTAKE ANALYSIS WERE EXCLUDED 2. COMPANIES FOR WHICH SUFFICIENT DESCRIPTIVE INFOR MATION IS NOT AVAILABLE TO PERFORM ANALYSIS WERE EXCLUDED. 3. COMPANIES THAT HAVE CEASED BUSINESS OPERATIONS O R ARE CURRENTLY INACTIVE WERE EXCLUDED. 4. COMPANIES THAT ARE UNDERTAKING DIFFERENT FUNCTIO NS COMPARED TO THE TAX PAYER WERE EXCLUDED. 5. COMPANIES THAT DO NOT HAVE SIGNIFICANT (<25%) FO REIGN EXCHANGE EARNINGS. 6. COMPANIES WHICH HAVE BEEN MAKING PERTINENT OPERA TING LOSSES WERE EXCLUDED. ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 4 7. COMPANIES THAT HAVE SUBSTANTIAL (>25%) TRANSACTI ONS WITH RELATED PARTIES WERE EXCLUDED 8. COMPANIES WHICH HAVE BEEN IN THEIR FIRST YEAR OF OPERATIONS AND HAVE INCURRED OPERATING LOSES AND 9. COMPANIES THAT ARE DUPLICATED IN THE DATA BASE W ITH DIFFERENT NAMES OR MERGED TO FORM ANOTHER COMPANY. 4. ON THE BASIS OF THE SEARCH OF DATA BASE, THE A SSESSEE SELECTED 15 COMPARABLES WITH AN AVERAGE PROFIT MARGIN OF 21.15% ON COST. THEREFORE, THE MARGIN EARNED BY THE ASSESSEE AT 15.90% ON OPER ATING COST WAS TREATED AS AT ARMS LENGTH AS THE MARGIN IS WITHIN PLUS/MIN US 5% RANGE. AFTER ANALYZING THE TP STUDY REPORT OF THE ASSESSEE, THE TPO FOUND THE FOLLOWING DEFECTS/DEFICIENCIES- (A) THE ASSESSEE HAS ELIMINATED OVERWHELMING NUMBER OF COMPANIES BY NOT APPLYING THE QUANTITATIVE FILTERS (SUCH AS, RELATED PARTY TRANSACTIONS, INSIGNIFICANT FOREIGN EXCHANGE ETC.), BUT BY APPLYING SO CALLED QUALITATIVE FILTERS. OUT OF 800 COMPANIE S IN THE DATA BASE, 420 COMPANIES HAVE BEEN ELIMINATED BY APPLYIN G FUNCTIONALLY DIFFERENT FILTER. SUCH APPROACH OF THE ASSESSEE RAISED DOUBTS ABOUT THE OBJECTIVE NATURE OF THE ANA LYSIS AS THE COMPARABLES FINALLY SELECTED BY THE ASSESSEE WERE I NVOLVED IN DOMESTIC OPERATIONS, SUBSTANTIAL RELATED PARTY TRAN SACTIONS. THE ASSESSEE HAS NOT FILED ANY DETAILS IN THE TP REPORT AS TO WHAT WERE THE QUALITIES WHICH WERE COMPARED AND ON WHAT BASIS. (B) THERE IS DISCONNECTION BETWEEN THE SEARCH FOR COMPA RABLE AND THE COMPARABILITY ANALYSIS. THE ASSESSEE HAS APPRO ACHED IN A MECHANICAL MANNER IN SELECTING THE COMPARABLES FROM THE DATA BASE WITHOUT EXAMINING THE COMPARABILITY FACTORS CO NTAINED IN RULE 10B(2) OF THE I.T. RULES. ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 5 (C) THE ASSESSEE HAS NOT USED THE DATA PERTAINING TO FI NANCIAL YEAR 2006-07. IN CASE OF ALL THE FIFTEEN COMPARABLES, W HICH HAS LED TO USE OF INCORRECT DATA AND ALSO DOES NOT FULFIL THE CONDITION OF RULE 10B(4). ASSESSEES APPROACH IN APPLYING THE RELATE D PARTY TRANSACTION FILTER IS SELECTIVE. THOUGH THE ASSESS EE WHILE APPLYING THE AFORESAID FILTERS HAS REJECTED COMPARABLE COMPA NIES WHERE RELATED PARTY TRANSACTIONS WITH ITS AE EXCEEDED 25% OF THE OPERATING REVENUES, IT HAS ITSELF ADOPTED THE FOLLO WING COMPARABLES WHICH EXCEEDED 25% OF THE OPERATING COS T. (I) BNR UDYOG LTD. 83.73% (II)FORTUNE INFOTECH LTD. 67% (III)TRICOM INDIA LTD. 69.28% (D) ASSESSEE HAS TAKEN COMPANIES AS COMPARABLES, EVEN I F THEY DO NOT WORK IN THE SAME ECONOMIC CIRCUMSTANCES. AS PER RULE 10B(2),UNCONTROLLED TRANSACTIONS SHOULD BE JUDGED N OT ONLY WITH SPECIFIC CHARACTERISTICS OF THE SERVICES, RENDERED BY THE ASSESSEE (ITES), FUNCTIONS PERFORMED (FAR ANALYSIS), AND CON TRACTUAL TERMS, BUT ALSO WITH REFERENCE TO CONDITIONS PREVAI LING IN THE MARKET IN WHICH THE RESPECTIVE PARTIES TO THE INTER NATIONAL TRANSACTIONS OPERATE, INCLUDING GEOGRAPHICAL LOCATI ONS AND SIZE OF MARKET, THE LAWS AND GOVERNMENT ORDERS IN FORCE, CO ST OF LABOUR AND CAPITAL IN THE MARKET, OVERALL ECONOMIC DEVELOP MENT AND LEVEL OF COMPETITION ETC. AS MAJOR ATTRIBUTES OF EC ONOMIC CIRCUMSTANCES IN COMPARABILITY WAS IGNORED BY THE A SSESSEE, THE DEPARTMENT HAS TO APPLY ADDITIONAL QUANTITATIVE CRI TERIA SUCH AS EXPORT EARNING FILTERS, DIMINISHING REVENUE FILTER, ETC. TO MAKE THE ECONOMIC CIRCUMSTANCES COMPARABLE. ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 6 (E) MOST OF THE ASSESSEES COMPARABLES DO NOT STAND SCR UTINY OF FAR ANALYSIS. THE ASSESSEE HAS NOT SELECTED ON PROPER C OMPARABILITY ANALYSIS. THE TPO ON THE BASIS OF DEFICIENCIES POINTED OUT AS ABOVE PROPOSED TO REJECT TO REJECT THE TP STUDY OF THE ASSESSEE AND DETERMIN E THE ALP. THE ASSESSEE OBJECTED TO THE PROPOSED REJECTION OF THE TP STUDY DONE BY IT VIDE ITS LETTER DATED 25.6.2010 WHICH HAS BEEN SUMMARIZED BY THE TP O AS BELOW- (I) THE ALP IN THE CASE OF INTERNATIONAL TRANSACTION HA S BEEN DETERMINED BY APPLYING THE PRESCRIBED METHOD IN ACCORDANCE WIT H SUB-SECTION (1) AND (2) OF S.92C OF THE ACT. (II) ALL THE RELEVANT INFORMATION AND THE DOCUMENTS RELA TING TO THE INTERNATIONAL TRANSACTIONS HAVE BEEN MAINTAINED AS PRESCRIBED AND PROVIDED TO THE DEPARTMENT. (III) THE DATA USED IN THE COMPUTATION OF ALP HAS BEEN TAKEN FROM WIDELY RECOGNISED COMMERCIAL INFORMATION DATA-BASES FOR OBTAINING PUBLICLY AVAILABLE FINANCIAL INFORMATION IN INDIA, NAMELY PROWESS AND CAPITALINE. THE VERY SAME DATA BASE IS ALSO USED BY THE DEPARTMENT. CONTEMPORANEOUS DATA HAS BEEN USED FOR COMPUTATION OF ALP AS ON THE DATE OF FILING OF RETU RN OF INCOME ACCORDANCE WITH RULE 10D(4) AND THE DATA USED FOR C OMPUTATION OF ALP IS RELIABLE AND CORRECT. (IV) THE TRANSFER PRICING DOCUMENTATION AND THE DETAILED WORKINGS OF THE ECONOMIC ANLAYSIS AND ALL THE OTHER DOCUMENTS A S REQUIRED BY THE DEPARTMENT WERE SUBMITTED. THE ASSESSEE SUBMITT ED THAT THE COMPARABILITY ANALYSIS UNDERTAKEN IN THE TP STUDY R EPORT BEING ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 7 BASED ON WELL ACCEPTED TRANSFER PRICING PRINCIPLES AND IN ACCORDANCE WITH THE PROVISIONS OF THE ACT T AND RAT HER IT CAN NOT BE REJECTED WITHOUT ANY INFORMATION TO THE CONTRARY . THE TPO HOWEVER, CONSIDERING THE DATA USED BY THE A SSESSEE IN THE TP STUDY REPORT TO BE UNRELIABLE AS IT IGNORED THE USE OF RELEVANT FINANCIAL YEAR DATA, USE OF ENTERPRISE WITH UNCONTROLLED PARTIES, FUNCT IONALLY AND ECONOMIC CIRCUMSTANCES. 5. THE ASSESSEE HAD STATED BEFORE THE ASSESSING OF FICER THAT DATA FOR THE FINANCIAL YEAR 2006-07 WAS NOT AVAILABLE AT THE TIME OF DOCUMENTATION, AND THEREFORE, THE ASSESSEE HAS USED MULTIPLE YEAR DATA CONSIDERING THE FACT THAT USING SINGLE YEAR DATA OF COMPARABLE COMPANIES MAY NOT ADEQUATELY CAPTURE THE MARKET AND BUSINESS CYCLE REFLECTED IN THE INDUSTRY. THE ASSESSEE ALSO STATED THAT RULE 10B(2) (D) ALLOWS USE OF MULTIPLE YEAR DATA AND RULE 10B(4) WARRANTS USE OF EARLIER YEAR DATA. THE TPO REJECTING THE CONTENTION OF THE ASSESSEE CONCLUDED THAT THE TP REPORT SUBMITTED BY THE ASSESSEE IS ERRONEOUS BECAUSE OF U SE OF EARLIER YEARS DATA IN EXCLUSION OF THE CURRENT YEAR DATA. THE TPO ALS O FOUND SOME OF THE FILTERS APPLIED BY THE ASSESSEE TO BE NOT ACCEPTABLE. THE T PO, THEREFORE, APPLIED HIS OWN FILTERS FOR SELECTING THE COMPARABLES. THE FILT ERS APPLIED BY THE TPO ALSO INCLUDED FILTERS APPLIED BY THE ASSESSEE AND ACCEPT ED BY THE TPO. THE FILTERS ADOPTED BY THE TPO ARE- COMPANIES WHOSE DATA IS NOT AVAILABLE FOR THE FY 20 06-07 WERE EXCLUDED AND THE DATA FOR THE FY 2006-07 HAS BEEN C ONSIDERED FOR THE PERIOD FROM 01-04 2005 TO 31-03-2006 COMPANIES WHOSE IT ENABLED SERVICE INCOME ORATION LTD : 14 H C L COMNET SYSTEMS & 260.1 44.99% 55.99 21.52% 260.18 100.00% 1.7 0.65% PSEG SERVICES LID (SER.) 8 15 I C R A TECHNO ANALYTICS LTD 7.23 12.24% (*)0. (*) 1.85% (*) 7.7 (*) 83.64 0.02 0.28% P (SOIL) (SER.) ' - 17 16 INFORMED TECHNOLOGIES INDIA 4.08 35.56% 0.65 15.93% 4.08 100.00% 0.61 14.95% P LID , 17 INFOSYS B P 0 LTD 649.5 28.78% 48.3 7.44% 608.81 93.74% 41.49 6.39% P 6 ,; 18 ISERVICES INDIA PVT LTD 16.29 49.47% 0 0.0001 0 16.29 100.00% 02 1.23% C 19 MAPLE ESOLUTIONS LTD 12.21 34.05% 0 0.00% 12.21 100.00% 0.02 0.16% P 20 MOLD- TEK TECHNOLOGIES LTD 11.4 113.49% 0.12 1.05% 11.31 99.21% (**)0. 7.46% P (SEG.) (SEG.) 85 21 R SYSTEMS INTERNATIONAL LTD 17.34 20.18% 0.1 0.58% 17.34 100.00% 0.12 0.69% PSEG (SEG.) 22 SPANCO LID (SEG.) 35 25.81 % 1.76 5.03% 35 100.00% 0.61 1.74% PSEG 23 TRITON CORP LID 53.37 34.93% 0 0.00% 47.5 89.00% 0.08 0.15% C 24 VISHALLNFORMATION 30.6 51.19% 0 0.00% 30.6 100.00% 0 0.00% P TECHNOLOGIES LID 25 WIPRO LID (SEG.) 939.7 29.70% 21.41 2.28% 920.98 98.00% (*) (*) 0.31% PSEG 8 427.4 26. NITTANY OUTSOURCING SERVICES 23.23 11.50% 0.8 3.44% 23.23 100.00% 0.1 0.43% C . PVT LTD 27 ACCURATE DATA CONVERTERS LID 4.33 50.68% 0.05 1.18% 4.33 -L00.00% 0 0.00% C (SOFT) 28 APEX ADVANCED TECHNOLOGY 7.93 39.89% 0 0.00% 7.93 100.00% 0.01 0.13% LAXPA)'ER IS PVT LID I. ARITHMETICAL MEAN 30.55% 5.23O/ Q.., 95.26% 3.33% NOTE: THE WORKING O/PROFIT MARGINS O/THE ABOVE COMP ANIES IS ENCLOSED AS ANNEXURE-B TO THIS ORDER. * AT THE ENTERPRISE LEVEL ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 11 6. THE TPO ACCEPTED THE OPERATING PROFIT TO OPERA TING REVENUE AS CHOSEN BY THE ASSESSEE TO BE THE PROFIT LEVEL INDIC ATOR(PLI). THE TPO CONSIDERED THE PROFIT BEFORE INTEREST AND TAX FOR C OMPUTING OPERATING MARGINS. THE TPO CONSIDERED ONLY THE INCOMES AND EX PENDITURE RELATED TO THE OPERATIONS OF RELEVANT FINANCIAL YEAR FOR COMPUTING OPERATING MARGINS OF COMPARABLES AND IN THE PROCESS EXCLUDED NON-OPERATI NG NATURE OF INCOME LIKE INTEREST, DIVIDEND, PROVISIONS NO LONGER WRITTEN BA CK, GAIN ON SALE OF ASSETS/INVESTMENTS, FOREIGN EXCHANGE GAIN, INCOME F ROM INVESTMENTS, GAIN ON REVALUATION OF ASSETS. SIMILARLY, EXPENSES AND PROVISIONS WHICH ARE NON- OPERATING WERE EXCLUDED FORM OPERATING EXPENSES. TH ESE INCLUDED PROVISIONS OTHER THAN PROVISIONS FOR BAD DEBTS, LOSS ON SALE O F ASSETS/INVESTMENTS, FOREIGN EXCHANGE LOSS, LOSS ON REVALUATION OF ASSET S. THE TPO COMPUTED THE ALP OF THE ITES RENDERED BY THE ASSESSEE TO ITS AE IN THE FOLLOWING MANNER- ARITHMETIC MEAN PLI 30.55% LESS: WORKING CAPITAL ADJUSTED 2.84% ADJUSTED ARITHMETIC MEAN PLI 27.71% ARMS LENGTH PRICE:- OPERATING COST RS.52,24,11,557 ARMS LENGTH MARGIN 27.71% OF THE OPER ATING COST ARMS LENGTH PRICE @ 127.71% OF OPERATING COST RS.66,7171,799 PRICE CHARGED FOR THE INTERNATIONAL TRANSACTIONS RS.60,51,48,222 SHORT FALL BEING ADJUSTED UNDER S.92CA RS. 6,20 ,23,577 INCORPORATING THE ADJUSTMENTS OF ALP MADE BY THE TP O, A DRAFT ASSESSMENT ORDER WAS PASSED BY THE ASSESSING OFFICER, WHICH W AS CHALLENGED BY THE ASSESSEE BEFORE THE DRP. THE DRP HAVING CONFIRMED THE ORDER OF THE TPO ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 12 AND DIRECTED THE ASSESSING OFFICER TO FINALISE THE DRAFT ASSESSMENT ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE ASSESSEE HAS RAISED AS MANY AS TEN GROUNDS BEFORE US. GROUND NO.1 IS GENERAL IN NATURE AND GROUND NO.6 IS NOT PRESSED. SO FAR AS OTHER GROUNDS ARE CONCERNED, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE AT THE TIME OF HEARING AS WELL AS IN HIS W RITTEN SUBMISSIONS HAS RESTRICTED HIS ARGUMENTS TO GROUND NO.2 AND GROUND NO.8, WHICH RESPECTIVELY RELATES TO CERTAIN COMPARABLES SELECTED BY THE TPO AND NOT TAKING INTO CONSIDERATION FOREIGN EXCHANGE FLUCTUATION GAIN/LOS S. THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE WITH REGARD TO EACH OF THE OBJECTED COMPARABLE COMPANIES, AS TABULATED BY THE ASSESSEE IN THE WRITTEN SUBMISSIONS READ AS FOLLOWS- S. NO. COMPANY NAME REASON FOR NON- COMPARABILITY AND REJECTION PAGE NO. OF PAPER- BOOK(WHICH WAS ALSO BEFORE DRP) CASE LAW/DOCUMENT RELIED UPON 1. ACCENTIA TECHNOLOGIES LTD. (SEG). UNCOMPARABLE FINANCIAL RESULTS AS THERE IS AMALGAMA- TION IN COMPANY IN DEC. 2006 272 DRP ORDER OF APPELLANT FOR AY 2008-09. IN THE CASE OF THE MOLD TEK ALSO MERGER HAS TAKEN PLACE IN OCT 2006. 2. MOLD TEK TECHNLOLOGIES LIMITED UNCOMPARABLE FINANCIAL RESULTS AS THERE IS MERGER FROM 1 OCT 2006 SUPERNORMAL PROFIT OF 113% NON-COMPARABLE SERVICES AS IT IS INTO KPO 282 DRP ORDER OF APPELLANT FOR AY 2008-09 MUMBAI ITAT JUDGMENT IN TEVA INDIA PRIVATE LIMITED V/S. DCIT, MUMBAI( ITA NO.6107/MUM/2009) HOLDING THAT COMPANIES WITH SUPERNORMAL PROFITS SHOULD BE EXCLUDED AT PARA 32. ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 13 3. ECLERX SERVICES LIMITED SUPERNORMAL PROFIT OF 89% NON COMPARABLE SERVICES OF KPO BUSINESS 278 MUMBAI ITAT JUDGMENT IN TEVA INDIA PRIVATE LIMITED V/S. DCIT, MUMBAI(ITA NO.6107/MUM/2009) HOLDING THAT COMPANIES WITH SUPERNORMAL PROFITS SHOULD BE EXCLUDED . 4. CORAL HUB LIMITED (EARLIER KNOWN AS VISHAL INFORMATION TECHNOLOGIES LIMITED DIFFERENCE IN FUNCTIONALITY AND BUSINESS MODEL AS COMPANY OUTSOURCES ITS ACTIVITIES 284 DRP ORDER OF APPELLANT FOR AY 2008-09 WHERE DRP REJECTED THIS AS COMPARABLE COMPANY MUMBAI ITAT JUDGMENT IN THE CASE OF ACIT V/S. MAERSK GLOBAL SERVICE CENTRE INDIA PRIVATE LIMITED WHERE THIS COMPANY IS REJECTED AS COMPARABLE TO ITES FOR ASSESSMENT YEAR 2007-08.. 5. 6. MAPLE ESOLUTIONS LIMITED TRITON CORP LIMTIED DIRECTORS INVOLVED IN FRAUD AND HENCE FINANCIALS ARE UNRELIABLE THE ITAT JUDGMENT IS DELIVERED POST DRP HEARING (29 JUNE 2011) DELHI INCOME-TAX APPELLATE TRIBUNAL JUDGMENT IN THE CASE OF ITO V/S. CRM SERVICES INDIA PRIVATE LIMITED DATED 30 JUNE 2011 AT PARA 17.2 HOLDING THAT THE FINANCIALS OF THESE COMPANIES ARE UNRELIABLE. 7. 8. 9. HCL COMNET SYSTEMS & SERVICES LIMITED INFOSYS BPO LIMITED WIPRO LIMITED INDUSTRIAL GIANTS CANNOT BE COMPARED TO CAPTIVE SERVICE PROVIDERS TURNOVER GRATER THAN INR 200 CRORES WHEREAS TURNOVER OF CIQ INDIA IS RS.60 CRORES 280 282 287 DELHI ITAT JUDGMENT IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT LTD. AT PARA 5 HYDERABAD ITAT T JUDGMENT IN THE CASE OF TRINITI ADVANCED SOFTWARE LABS (P)LTD. BANGALORE INCOME-TAX APPELLATE TRIBUNAL JUDGMENT SIN THE CASE ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 14 OF GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. AT PARA 9 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMI TTED BEFORE US THAT THE TP STUDY REPORT OF THE ASSESSEE CANNOT BE SAID TO BE SHOWING THE CORRECT RESULTS AS HE HAS NOT USED THE CURRENT YEAR S DATA IN CASE OF THE COMPARABLES SELECTED BY HIM. THE LEARNED DEPARTME NTAL REPRESENTATIVE SUBMITTED THAT EVEN IN CASE OF THE RELEVANT COMPARA BLES SELECTED BY THE ASSESSEE, WHICH ARE ALSO ACCEPTED BY THE TPO, IF DA TA FOR FINANCIAL YEAR 2006- 07 IS TAKEN, THE AVERAGE PROFIT SHOWN BY THEM IS 26 %. REPLYING TO THE ARGUMENT OF THE LEARNED AUTHORISED REPRESENTATIVE F OR THE ASSESSEE THAT MOLD TEK TECHNOLOGIES LTD. AND ACCENTIA TECHNOLOGIE S LTD. CANNOT BE TREATED AS COMPARABLES DUE TO UNCOMPARABLE FINANCIAL RESULT S ARISING OUT OF AMALGAMATION. THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUBMITTED THAT THE FACT OF AMALGAMATION WAS NEVER PLACED BEFORE THE TP O. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DRP S ORDER RELIED UPON BY THE ASSESSEE WAS FOR THE ASSESSMENT YEAR 2008-09 AN D DOES NOT RELATE TO THE ASSESSMENT YEAR UNDER DISPUTE. HOWEVER, THE LEARNE D DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE MATTER CAN GO BAC K TO THE TPO FOR EXAMINING THE IMPACT OF MERGER ON FINANCIAL AFFAIRS FOR THE ASSESSMENT YEAR UNDER DISPUTE. SO FAR AS THE ISSUE OF FUNCTIONAL D ISSIMILARITY OF MOLD TEK TECHNOLOGIES LTD. IS CONCERNED, THE LEARNED DEPARTM ENTAL REPRESENTATIVE SUBMITTED THAT THE OBSERVATION MADE BY THE DRP IN I TS ORDER FOR THE ASSESSMENT YEAR 2008-09 CANNOT APPLY TO THE PRESENT ASSESSMENT YEAR. REPLYING TO THE OBJECTIONS OF THE ASSESSEE IN CASES OF HCL COMNET SYSTEMS AND SERVICES LTD., INFOSYS BPO LTD. AND WIPRO LTD., THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IN CASE OF THESE COMPARABLES, THE TPO HAS CONSIDERED ONLY THE MARGIN, BUT NOT THE TURNOVER. THEREFORE, THESE COMPARABLES CANNOT BE REJECTED ON THE GROUND OF HIGH TURNOVER. SO FAR ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 15 AS MAPLE E-SOLUTIONS LTD. AND TRITON CORPS LTD. ARE CONCERNED, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSE SSEE HAD NOT OBJECTED TO SELECTION OF THESE COMPARABLES BEFORE THE DRP. IN CASE OF CORAL HUB LTD. (EARLIER KNOWN AS VISHAL INFORMATION TECHNOLOGIES L TD.) AND APEX TECHNOLOGIES LTD., THE ASSESSEE ITSELF HAS SELECTED THEM AS COMPARABLES AND IT NEVER OBJECTED EVEN WHEN IT GOT OPPORTUNITY TO D O SO BEFORE THE TPO. THE LEARNED DEPARTMENTAL REPRESENTATIVE, SUPPORTING THE REASONING OF THE TPO, SUBMITTED THAT THE COMPARABLES SELECTED BY THE TPO CANNOT BE REJECTED FOR THE REASONS PUT FORTH BY THE LEARNED AUTHORISED REP RESENTATIVE FOR THE ASSESSEE. 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD, WHICH INCLUDES THE PAPERS SUBMITTED BY T HE ASSESSEE IN THE FORM OF PAPER-BOOK. WE HAVE ALSO EXAMINED THE DECISIONS CITED AT THE BAR. IT IS SEEN FROM THE ORDER OF THE TPO THAT HE HAS ACCEPTED THE METHOD, I.E. TNMM APPLIED BY THE ASSESSEE AS THE MOST APPROPRIATE MET HOD. THE TPO ALSO HAS NOT DISPUTED THE FACT THAT THE ASSESSEE HAS MAINTAI NED DOCUMENT IN ACCORDANCE WITH THE STATUTORY PROVISIONS. THE TPO HAS ALSO ACCEPTED THE TWO DATA BASES USED BY THE ASSESSEE FOR SELECTING THE C OMPARABLES. THE TPO HAS EVEN ACCEPTED AS MANY AS ELEVEN OUT OF FIFTEEN COMPARABLES SELECTED BY THE ASSESSEE. AS IS CLEAR FROM THE SUBMISSIONS OF T HE PARTIES BEFORE US, THE DISPUTE LIES WITHIN THE NARROW COMPASS OF THE COMPA RABLES SELECTED BY THE TPO, WHICH HAVE BEEN OBJECTED TO BY THE ASSESSEE. WE SHALL DEAL HEREIN BELOW WITH EACH OF THE COMPARABLES DISPUTED TO BY T HE ASSESSEE. I. ACCENTIA TECHNOLOGIES LTD. 10. IT IS THE SUBMISSION OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TREATED AS A COMPARABLE BECAUSE OF UNCOMPARABLE FIN ANCIAL RESULTS ARISING OUT OF AMALGAMATION IN THE COMPANY. IN THIS REGARD, TH E ASSESSEE HAS RELIED ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 16 UPON THE ORDER OF THE DRP FOR THE ASSESSMENT YEAR 2 008-09 IN ASSESSEES OWN CASE. IT IS SEEN THAT THE DRP WHILE CONSIDERIN G SIMILAR OBJECTION PLACED BY THE ASSESSEE IN THE CASE OF ANOTHER COMPANY, VIZ . MOLD TEK TECHNOLOGIES LTD., IN THE PROCEEDINGS RELATING TO THE ASSESSMENT YEAR 2008-09, HAS OBSERVED IN THE FOLLOWING MANNER- 17.5. IN ADDITION TO THE ABOVE, THE DIRECTORS RE PORT OF THE COMPANY FOR THE FY 2007-08 REVEALED THE MERGER AND THE DEMERGER. A COMPANY KNOWN AS TECHMEN TOOLS PVT. LTD. HAD AMALGA MATED WITH MOLD-TEK TECHNOLOGIES LTD. WITH EFFECT FORM 1 ST OCTOBER, 2006. THERE WAS A DE-MERGER OF PLASTIC DIVISION OF THE COMPANY AND THE RESULTING COMPANY IS KNOWN AS MOLDTEK PLASTICS LIMITED. THE DE-MERGER FROM THE MOLDTEK TECHNOLOGIES TOOK PLACE WITH EFFECT FRO M 1 ST APRIL, 2007. THE MERGER AND THE DE-MERGER NEEDED THE APPROVAL OF THE HONBLE HIGH COURT OF ANDHRA PRADESH AND ALSO THE APPROVAL OF THE SHAREHOLDERS. THE SHAREHOLDERS OF THE COMPANY GAVE APPROVAL FOR THE MERGER AND THE DE-MERGER ON 25.01.2008 AND THE HON BLE HIGH COURT OF ANDHRA PRADESH HAD APPROVED THE MERGER AND DE-M ERGER ON 25 TH JULY, 2008. SUBSEQUENTLY, THE ACCOUNTS OF MOLDTEK TECHNOLOGIES FOR FY 2007-08 WERE REVISED. ON A PERUSAL OF THE ANNU AL REPORT IT IS NOTICED THAT TECKMEN TOOLS PVT. LTD. AND THE PLASTI C DIVISION OF THE COMPANY WERE DEMERGED AND THE RESULTING COMPANY WAS NAMED AS MOLDTEK PLASTICS LTD. THE KPO BUSINESS REMAINED WI TH THE COMPANY. A PERUSAL OF THE ANNUAL REPORT REVEALED THAT TO GIV E EFFECT TO THE MERGER AND DEMERGER, THE FINANCIAL STATEMENTS WERE REVISED AND RESTATED AFTER SIX MONTHS FORM THE END OF THE FINAN CIAL YEAR 31.3. 2008. THE ASSESSEE FILED FORM NO.21 UNDER THE COMPA NIES ACT WITH THE REGISTRAR OF COMPANIES ON 26 TH AUGUST, 2008. THUS THE EFFECTIVE DATE OF THE SCHEME OF MERGER AND DEMERGER WAS 26 TH AUGUST, 2008. THE ANNUAL REPORT SUPPORTED THE ARGUMENT OF THE ASS ESSEE THAT THERE WERE MERGER AND DEMERGER IN THE FINANCIAL YEAR AND IT WAS AN EXCEPTIONAL YEAR OF PERFORMANCE AS FINANCIAL STATE MENTS WERE REVISED BY THIS COMPANY MUCH AFTER THE CLOSURE OF THE PREVI OUS YEAR. THE PANEL AGREES WITH THE CONTENTION OF THE ASSESSEE TH AT IT IS AN EXCEPTIONAL YEAR HAVING SIGNIFICANT IMPACT ON THE P ROFITABILITY ARISING OUT OF MERGER AND DEMERGER. 11. ON CAREFUL CONSIDERATION OF THE MATTER, WE AL SO AGREE WITH THE AFORESAID VIEW OF THE DRP THAT EXTRA-ORDINARY EVENT LIKE MERGER AND DE- MERGER WILL HAVE AN EFFECT ON THE PROFITABILITY OF THE COMPANY IN THE FINANCIAL YEAR IN WHICH SUCH EVENT TAKES PLACE. IT IS THE CO NTENTION OF THE ASSESSEE THAT IN CASE OF THE AFORESAID COMPANY, THERE IS AMA LGAMATION IN DECEMBER, 2006, WHICH HAS IMPACTED THE FINANCIAL RESULT. THI S FACT HAS TO BE VERIFIED BY ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 17 THE TPO. IF IT IS FOUND UPON SUCH VERIFICATION THA T THE AMALGAMATION IN FACT AHS TAKEN PLACE, THEN THE AFORESAID COMPARABLE HAS TO BE EXCLUDED. II. MOLD TEK TECHNOLOGIES LTD. 12. THE ASSESSEE HAS OBJECTED FOR THIS COMPANY BEI NG TAKEN AS COMPARABLE MAINLY ON THE GROUND THAT SINCE THERE IS A MERGER FROM 1 ST OCTOBER, 2006, THE FINANCIAL RESULTS OF THE COMPANY CANNOT BE TAKEN AS A COMPARABLE. THE ASSESSEE, RELYING UPON THE OBSERVA TIONS OF THE DRP, IN THE CASE OF THIS PARTICULAR COMPANY, IN THE PROCEEDING FOR THE ASSESSMENT YEAR 2008-09, WHICH HAS BEEN EXTRACTED IN PARA 10 HEREIN ABOVE, HAS SUBMITTED THAT THE ASSESSMENT YEAR UNDER DISPUTE ALSO, IS AN EXCEPTIONAL YEAR OF PERFORMANCE AS THERE IS IMPACT OF AMALGAMATION OF A COMPANY, NAMELY, TECHMAN TOOLS P. LTD., WITH EFFECT FROM 1 ST OCTOBER, 2006 AND THE CONCERNED COMPANY ALSO REVISED ITS FINANCIAL STATEMENT, AFTER CLOSURE OF THE PREVIOUS YEAR. IT HAS BEEN SUBMITTED BY THE AUTHORISED REPR ESENTATIVE FOR THE ASSESSEE THAT THE AMALGAMATION WAS ALSO APPROVED BY THE SHAREHOLDERS ON 25.1.2008 AND THE HIGH COURT HAS ALSO APPROVED THE SAME ON 25.7.2008. IN THIS CONTEXT, THE ASSESSEE RELIED UPON THE ANNUAL R EPORT OF THE COMPANY FOR THE FINANCIAL YEAR 2007-08. THE ASSESSEE HAS FURTH ER SUBMITTED THAT THE ACTIVITY OF THE COMPANY IS ALSO FUNCTIONALLY DIFFER ENT SINCE IT IS ENGAGED IN PROVIDING HIGH END ENGINEERING CONSULTING SERVICES AND STRUCTURAL ENGINEERING CONSULTING SERVICES, WHICH ARE IN THE N ATURE OF KNOWLEDGE PROCESS OUT-SOURCING (KPO) SERVICES . THE AUTHORIS ED REPRESENTATIVE FOR THE ASSESSEE HAS SUBMITTED THAT THE AFORESAID COMPANY I S PROVIDING HIGHLY TECHNICAL AND SPECIALIZED ENGINEERING SERVICES, AND USE OF INFORMATION TECHNOLOGY IS ONLY INCIDENTAL. LASTLY, IT HAS BEEN SUBMITTED THAT THE COMPANY WAS HAVING SUPERNORMAL PROFIT AT 113%. THEREFORE, IT CANNOT BE TAKEN AS A COMPARABLE. IN SUPPORT OF HIS CONTENTIONS, LEARNED AUTHORISED REPRESENTATIVE ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 18 FOR THE ASSESSEE HAS RELIED UPON THE ORDERS OF THE DRP FOR THE ASSESSMENT YEAR 2008-09 AND THE ORDERS OF THE ITAT MUMBAI BENC H IN THE CASE OF M/S. TEVA INDIA P.LTD. V/S. DCIT (2011-TII-28 ITAT- MUM- TP). 13. ON CAREFUL CONSIDERATION OF THE SUBMISSIONS OF THE ASSESSEE WE FIND THAT THE DRP, AS ALREADY STATED EARLIER, IN TH E PROCEEDINGS FOR THE ASSESSMENT YEAR 2008-09 HAS ACCEPTED THE ASSESSEES CONTENTION THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE BECAUSE OF EXCEPTIONAL FINANCIAL RESULT DUE TO MERGER/DE-MERGER. IN VIEW OF THE AFO RESAID, WE ACCEPT THE ASSESSEES CONTENTION THAT THIS COMPANY CANNOT BE T REATED AS COMPARABLE. THAT APART, IT IS ALSO A FACT THAT THIS COMPANY HAS SHOWN SUPER NORMAL PROFIT WORKING OUT TO 113%. THE INCOME-TAX APPELLATE TRIB UNAL, MUMBAI BENCH IN THE CASE OF TEVA INDIA PVT. LTD.(SUPRA) HAS OBSERV ED THAT COMPANIES SHOWING SUPERNORMAL PROFIT CANNOT BE TREATED AS COMPARABLE. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THAT CASE ARE EXTRA CTED HEREUNDER FOR CONVENIENCE- 32. WE HAVE HEARD THE ARGUM ENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBS ERVED THAT ALTHOUGH A DETAIL SUBMISSION WAS MADE ON BEHALF OF THE ASSES SEE BEFORE THE LEARNED CIT(A) ON THE BASIS OF FAR ANALYSIS TO SHO W THAT THE SELECTION OF M/S. VIMTA LABS AS COMPARABLE IS NOT JUSTIFIED, THE LEARNED CIT(A) HAS NOT ACCEPTED THE STAND OF THE ASSESSEE ON THE I SSUE WITHOUT GIVING ANY COGENT OR CONVINCING REASONS. IN ITS RECENT DE CISION RENDERED IN THE CASE OF ADOBE SYSTEMS INDIA PVT. LTD. (ITA NO. 5043/DEL/2000 DTD. 21.01.2011) + (2011-TII-13-ITAT-DEL-TP), DELHI BENCH OF ITAT HAS HELD THAT EXCLUSION OF COMPARABLES SHOWING SUPE RNORMAL PROFITS AS COMPARED TO OTHER COMPARABLE IS FULLY JUSTIFIED. WE, THEREFORE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION TO DECIDE THE SAME AFRESH AFTER TAKING INTO CONSIDERATION THE SUBMISSI ONS MADE BY THE ASSESSEE BEFORE THE LEARNED CIT(A) AND KEEPING IN V IEW THE DELHI BENCH OF ITA IN THE CASE OF ABODE SYSTEMS INDIA PVT . LTD. (SUPRA). IN THIS VIEW OF THE MATTER, WE ACCEPT THE CONTENTIO NS OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TREATED AS A COMPARABLE. ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 19 III. ECLERX SERVICES LTD. 14. THE ASSESSEE HAS OBJECTED FOR THIS COMPANY BEI NG TAKEN AS COMPARABLE MAINLY ON THE GROUND THAT IT WAS HAVING A SUPERNORMAL PROFIT OF 89%, AND AS SUCH IT CANNOT BE TAKEN AS A COMPARABLE IN VIEW OF THE DECISION OF THE MUMBAI BENCH FO THE TRIBUNAL IN THE CASE M/S . TEVA INDIA LTD. (SUPRA). THAT APART, RELYING UPON THE ANNUAL REPORT OF THE C OMPANY, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE HAS CONT ENDED THAT THAT THE CONCERNED COMPANY IS ENGAGED IN PROVIDING KNOWLEDGE PROCESS OUTSOURCING(KPO) SERVICES. 15. ON CONSIDERING THE OBJECTIONS OF THE ASSESSEE IN RELATION TO THIS COMPANY, WE ACCEPT THE CONTENTION OF THE ASSESSEE T HAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE BOTH FOR THE REASONS THAT IT WAS HAVING SUPERNORMAL PROFIT AND IT IS ENGAGED IN PROVIDING K PO SERVICES, WHICH IS DISTINCT FROM THE NATURE OF SERVICES PROVIDED BY TH E ASSESSEE. IV. CORAL HUB LIMITED (EARLIER KNOWN AS VISHAL INFORMAT ION TECHNOLOGIES LTD.): 16. THE ASSESSEE HAS OBJECTED FOR THIS COMPANY BEI NG TAKEN AS COMPARABLE MAINLY ON THE GROUND THAT THE ACTIVITIES OF THE COMPANY IS NOT ONLY FUNCTIONALLY DIFFERENT, BUT THE BUSINESS MODEL OF THE COMPANY IS ALSO DIFFERENT AS IT SUB-CONTRACTS MAJORITY OF ITS ITES WORKS TO THIRD PARTY VENDORS AND HAS ALSO MADE SIGNIFICANT PAYMENTS TO THOSE VEN DORS. THE PAYMENTS MADE TO VENDORS TOWARDS THE DATA ENTRY CHARGES ALSO SUPPORTS THE FACT THAT THE COMPANY OUTSOURCES ITS WORKS. IN THE CIRCUMSTA NCES, IT CANNOT BE TAKEN AS A COMPARABLE TO THE ITES FUNCTIONS PERFORMED BY THE ASSESSEE. SINCE ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 20 THIS COMPANY IS ACTING AS AGENT ONLY BY OUTSOURCING ITS WORKS TO THE THIRD PARTY VENDORS. IN THIS CONTEXT, THE ASSESSEE RELIE D UPON THE ORDER OF THE DRP IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008 -09, WHEREIN THE DRP, AFTER TAKING INTO CONSIDERATION, THE AFORESAID ASPE CT, HAS ACCEPTED THE CLAIM OF THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED TH AT THE INCOME-TAX APPELLATE TRIBUNAL MUMBAI BENCH IN THE CASE OF ACIT V/S. M/S. MAERSK GLOBAL SERVICE CENTRE(INDIA )PVT. LTD. (SUPRA), A COPY OF WHICH IS SUBMITTED BEFORE US, HAS ALSO DIRECTED FOR THE EXCLUSION OF THE AFO RESAID COMPANY SINCE IT HAS OUTSOURCED A CONSIDERABLE PORTION OF ITS BUSINESS. 17. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARN ED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE, WE FIND THAT THE D RP, IN THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2008-09 IN ASSESSEES OWN CASE, AFTER TAKING NOTE OF THE COMPOSITION OF THE VENDOR PAYMENTS OF CORAL HUB FOR THE LAST THREE YEARS, AND THE FACT THAT IT HAS ALSO COMMENCED A NEW LINE OF BUSINESS OF PRINTING ON DEMAND(POD), WHEREIN IT PRINTS UPON CLIENTS REQUEST , CONCLUDED AS FOLLOWS- 18.4. IN VIEW OF THIS MAJOR DIFFERENCE IN FUNCTI ONALITY AND THE BUSINESS MODEL, THIS PANEL IS OF THE VIEW THAT COR AL HUB IS NOT A SUITABLE COMPARABLE TO THE TAXPAYER AND HENCE NEEDS TO BE DROPPED FORM THE FINAL LIST OF COMPARABLES. IN CASE OF ACIT V/S. M/S. MAERSK GLOBAL SERVICE CEN TRE (SUPRA), THE ITAT MUMBAI BENCH HAS ALSO DIRECTED FOR EXCLUSION OF THE AFORESAID COMPANY, BY OBSERVING IN THE FOLLOWING MANNER- INSOFAR AS THE CASES OF TULSYAN TECHNOLOGIES LIMIT ED AND VISHAL INFORMATION TECHNOLOGIES LIMITED ARE CONCERNED, IT IS NOTICED FROM THEIR ANNUAL ACCOUNTS THAT THESE COMPANIES OUTSOURC ED A CONSIDERABLE PORTION OF THEIR BUSINESS. AS THE ASSESSEE CARRIED OUT ENTIRE OPERATIONS BY ITSELF, IN OUR CONSIDERED OPINION, THESE TWO CAS ES WERE RIGHTLY EXCLUDED. ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 21 IN VIEW OF THE OBSERVATIONS MADE BY THE DRP AS WELL AS THE DECISION OF THE ITAT MUMBAI IN THE CASE OF MAERSK GLOBAL SERVICE CE NTRE, (SUPRA), WE ACCEPT THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. V. MAPLE E-SOLUTIONS LTD. & VI. TRICOM CORP LTD. 18. THE ASSESSEE HAS OBJECTED FOR THESE COMPANIES BEING TAKEN AS COMPARABLES MAINLY ON THE GROUND THAT THE DIRECTORS WERE INVOLVED IN FRAUD AND HENCE FINANCIALS ARE UNRELIABLE. IN THIS REGAR D, LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE HAS RELIED UPON AND ORDER OF THE ITAT DELHI BENCH IN THE CASE OF ITO V/S. CRM SERVICES INDIA (P )LTD., NEW DELHI(ITA NO.4068/DEL/2009 FOR ASSESSMENT YEAR 2004-08 DATED 30.6.2011, WHEREIN IT WAS HELD THAT THE FINANCIAL RESULTS OF THESE VERY C OMPANIES, WHICH HAVE BEEN TAKEN AS COMPARABLE IN THE CITED CASE ALSO, CANNOT BE ACCEPTED AS COMPARABLES, WITH THE FOLLOWING OBSERVATIONS. 17.5 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE ADMITTED FACTS IN RESPECT OF GALAXY COMMERCIAL ARE THAT IT IS CARRYING ON THREE LINES OF BUSINESS AND SEGMENT PROFITABILITY IS NOT AVAILABLE . OBVIOUSLY, OVERALL PROFITABILITY OF THE COMPANY CANNOT BE APPL IED IN THE CASE OF THE ASSESSEE AS IT WILL AMOUNT TO COMPARING INCOMPARABLE CASES. FURTHER, THE BUSINESS REPUTATIO N OF RASTOGI GROUP, OWNING MAPLE E. SOLUTIONS AND TRITON CORPORA TION, IS UNDER SERIOUS INDICTMENT. THEY ARE ALSO CARRYING ON THE BUSINESS OF DATA PROCESSING SERVICES AND ITES SERVICES APART FORM BPO SERVICES. IN VIEW OF A QUESTION MARK ON THE REPUTAT ION OF THE OWNER, ALBEIT FOR EARLIER YEARS, IT WOULD BE UNSAFE TO TAKE THEIR RESULTS FOR COMPARISON OF THE PROFITABILITY OF THE ASSESSEE. .. ACCORDINGLY, IT IS HELD THAT NONE OF THESE CASES CA N BE TAKEN TO BE COMPARABLE CASE. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESE NTATIVE FOR THE ASSESSEE THAT SINCE THE ABOVE DECISION OF THE DELHI BENCH OF THE TRIBUNAL WAS DELIVERED ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 22 SUBSEQUENT TO THE IMPUGNED ORDER OF THE DRP, IT COU LD NOT HAVE BEEN RELIED UPON BY THE ASSESSEE BEFORE THE DRP. 19. WE HAVE CONSIDERED THE SUBMISSIONS OF THE ASS ESSEE IN RELATION TO THESE TWO COMPANIES. IN VIEW OF THE AFORESAID O RDER OF THE DELHI BENCH OF THE TRIBUNAL CITED ABOVE, WHEREIN THE COMPARABILITY OF THESE VERY SAME COMPANIES WAS EXAMINED, WE AGREE WITH THE CONTENTIO NS OF THE ASSESSEE AND HOLD, THAT THESE TWO COMPANIES CANNOT BE ACCEPTED A S COMPARABLES. VII. HCL COMNET SYSTEMS & SERVICES LIMITED: VIII. INFOSYS BPO LIMITED & IX WIPRO LIMITED 20. THE ASSESSEE HAS OBJECTED FOR THESE THREE CO MPANIES BEING TAKEN AS COMPARABLES MAINLY ON THE GROUND THAT THESE COMP ANIES ARE INDUSTRIAL GIANTS CONSIDERING THEIR TURNOVER COMPARED TO THAT OF THE ASSESSEE, WHOSE TURNOVER IS ONLY RS.60 CRORES. IN THIS CONTEXT, TH E ASSESSEE HAS REFERRED TO THE ANNUAL TURNOVER OF THESE THREE COMPANIES, WHICH ARE AS BELOW- COMPANY TURNOVER (IN RS.CRORES) (1) HCL COMNET SYSTEMS & SERVICES LIMITED 26 0.19 (2) INFOSYS BPO LIMITED 649.57 (3) WIPRO LIMITED 939.78 IT IS THE CONTENTION OF THE ASSESSEE THAT THESE THR EE COMPANIES ARE INDUSTRIAL GIANTS IN THE AREA OF SOFTWARE DEVELOPMENT AND SINC E THESE COMPANIES ASSUME ALL RISKS, THEY EARN HIGHER AMOUNT OF REVENU E RESULTING IN HIGHER PROFIT, WHEREAS THE ASSESSEE BEING A CAPTIVE UNIT O F ITS PARENT COMPANY IN THE USA, IT OPERATES IN A RISK MITIGATED ENVIRONMENT. THEREFORE, THE MARGIN OF ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 23 PROFIT IS ALSO LESS. IN THIS CONTEXT, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE DECISION OF THE ITAT D ELHI BENCH IN THE CASE OF AGNITY INDIA TECHNOLOGIES P. LTD. V/S. ITO IN ITA N O.3856/DEL/2010 DATED 4 TH NOVEMBER, 2010 AND IN THE CASE OF TRINITI ADVANCED SOFTWARE LABS(P)LTD.(2011-TII-92- ITAT-HYD-TP). THE AUTHORI SED REPRESENTATIVE FOR THE ASSESSEE FURTHER CONTENDED THAT WHEN THE TPO HA S REJECTED COMPANIES WITH TURNOVER OF LESS THAN RS.ONE CRORE, BY STATING THAT THESE COMPANIES MAY NOT BE REPRESENTING THE INDUSTRY TREND, BY APPLYING THE VERY SAME LOGIC, HE SHOULD NOT HAVE ALSO CONSIDERED THE COMPANIES HAVIN G TURNOVER OF MORE THAN RS.200 CRORES. IN THIS CONTEXT, THE LEARNED AUTHO RISED REPRESENTATIVE FOR THE ASSESSEE HAS RELIED UPON THE DECISION OF THE IT AT BANGALORE BENCH IN THE CASE OF M/S. GENESYS INTEGRATING SYSTEM(INDIA) P. L TD. (2011) 64 DTR 225. 21. ON CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN RELATION TO THESE THREE COMPANIES, WE FIND THAT THE TPO HAS EXC LUDED THE COMPANIES WHOSE TURNOVER IS LESS THAN RS.ONE CRORE, ON THE GR OUND THAT THEY MAY NOT BE REPRESENTING THE INDUSTRY TREND. THAT VERY LOGI C ALSO APPLIES TO THE COMPANIES HAVING HIGH TURNOVER OF OVER RS.200 CRORE S AS AGAINST THE ASSESSEES TURNOVER OF ONLY RS.60 CRORES, AND THERE FORE, IT WOULD BE FAIR ENOUGH TO EXCLUDE THOSE COMPANIES ALSO. IN THE CAS E OF AGNITY INDIA TECHNOLOGIES P. LTD. (SUPRA), THE DELHI BENCH OF TH E TRIBUNAL, WHILE CONSIDERING THE COMPARABILITY WITH COMPANIES WHICH ARE MARKET LEADERS IN THEIR FIELD, AND HAVING SUBSTANTIALLY HIGH TURNOVER , OBSERVED AS FOLLOWS- 5.2. VARIOUS ARGUMENTS, AS STATED EARLIER, WERE T AKEN BEFORE THE DRP WHICH INTER-ALIA INCLUDED REJECTION OF COMP ARABLE CASES; APPLICATION OF ARBITRARY FILTER OF WAGE TO SALES RA TIO; IGNORING THAT THE ASSESSEE IS A LIMITED RISK COMPANY; INCLUSION OF IN FOSYS TECHNOLOGIES LTD.; AND INCLUSION OF SATYAM COMPUTERS SERVICES LT D. IN SPITE OF THE FACT THAT ITS DATA IS NOT RELIABLE AS PUBLICLY KNOW N. ON THE BASIS OF THESE ARGUMENTS, THE DRP EXCLUDED THE CASE OF SATYA M COMPUTERS SERVICES LTD., THEREBY REDUCING THE ARMS LENGTH MA RGIN TO 25.6%. IT IS ARGUED THAT THE CASE OF THE ASSESSEE IS NOT COMP ARABLE WITH INFOSYS TECHNOLOGIES LTD., THE REASON BEING THAT THE LATER IS GIANT IN THE AREA ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 24 OF DEVELOPMENT OF SOFTWARE AND IT ASSUMES ALL RISKS , LEADING TO HIGHER PROFIT. ON THE OTHER HAND, THE ASSESSEE IS A CAPTI VE UNIT OF ITS PARENT COMPANY IN THE USA AND IT ASSUMES ONLY LIMITED CURR ENCY RISK. HAVING CONSIDERED THESE POINTS, WE ARE OF THE VIEW THAT TH E CASE OF THE AFORESAID INFOSYS AND THE ASSESSEE ARE NOT COMPARAB LE AT ALL AS SEEN FROM THE FINANCIAL DATA ETC. OF THE TWO COMPANIES M ENTIONED EARLIER IN THE ORDER. THEREFORE, WE ARE OF THE VIEW THAT THIS CASE IS REQUIRED TO BE EXCLUDED. SIMILAR VIEW HAS ALSO BEEN EXPRESSED BY THE HYDERAB AD BENCH OF THE TRIBUNAL IN THE CASE OF TRINITY ADVANCED LABS P. LTD. (SUPRA ). IN THE CASE OF M/S. GENESYS INTEGRATING INDIA P. LTD. (SUPRA), THE BANG ALORE BENCH OF THE TRIBUNAL HAS OBSERVED IN THE FOLLOWING MANNER- 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSI DERED THE RIVAL CONTENTIONS AND ALSO THE JURIDICAL PRECEDENTS ON TH E ISSUE, WE FIND THAT THE TPO HIMSELF HAS REJECTED THE COMPANIES WHICH AR E MAKING LOSSES AS COMPARABLES. THIS SHOWS THAT THERE IS A LIMIT FO R THE LOWER END FOR IDENTIFYING THE COMPARABLES. IN SUCH A SITUATION, WE ARE UNABLE TO UNDERSTAND AS TO WHY THERE SHOULD NOT BE AN UPPER L IMIT ALSO. WHAT SHOULD BE UPPER LIMIT IS ANOTHER FACTOR TO BE CONSI DERED. WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SIZE MATTERS IN BUSINESS. A BIG COMPANY WOULD BE I N A POSITION TO BARGAIN FOR THE PRICE AND ALSO ATTRACT MORE CUSTOME RS. IT WOULD ALSO HAVE A BROAD BASE OF SKILLED EMPLOYEES WHO ARE ABLE TO GIVE BETTER OUTPUT. A SMALL COMPANY MAY NOT HAVE THESE BENEFIT S AND THEREFORE, THE TURNOVER ALSO WOULD COME DOWN REDUCING PROFIT M ARGIN. THUS, AS HELD BY THE VARIOUS BENCHES OF THE TRIBUNAL WHEN CO MPANIES WHICH ARE LOSS MAKING ARE EXCLUDED FROM COMPARABLES, THEN THE SUPER PROFIT MAKING COMPANIES SHOULD ALSO BE EXCLUDED. FOR THE P URPOSE OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SAL ES OR TURNOVER, WE FIND THAT A REASONABLE CLASSIFICATION HAS TO BE MAD E. DUN & BRADSTREET AND NASSCOM HAS GIVEN DIFFERENT RANGES. TAKING THE INDIAN SCENARIO INTO CONSIDERATION, WE FEEL THAT THE CLASSIFICATION MADE BY DUN & BRADSTREET IS MORE SUITABLE AND REASONABLE. IN VIE W OF THE SAME, WE HOLD THAT THE TURNOVER FILTER IS VERY IMPORTANT AND THE COMPANIES HAVING A TURNOVER OF RS.1.00 CRORE TO 200 CRORES HA VE TO BE TAKEN AS A PARTICULAR RANGE AND THE ASSESSEE BEING IN THE RANG E HAVING TURNOVER OF 8.15 CRORES, THE COMPANIES WHICH ALSO HAVE TURNO VER OF 1.00 TO 200.00 CRORES ONLY SHOULD BE TAKEN INTO CONSIDERATI ON FOR THE PURPOSE OF MAKING TP STUDY. IN VIEW OF THE AFORESAID CONSISTENT DECISIONS OF TH E TRIBUNAL, WE ACCEPT THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT THE AFORESAID THREE COMPANIES CANNOT BE TREATED AS COMP ARABLE, CONSIDERING THEIR ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 25 SUBSTANTIALLY HIGH TURNOVER AS COMPARED TO THAT OF THE ASSESSEE. WE ALSO AGREE THAT THE TURNOVER FILTER OF RS.1 CRORE TO RS .200 CRORE AS APPLIED BY THE ITAT BANGALORE BENCH IN THE AFORESAID DECISION, SHO ULD ALSO APPLY TO THE FACTS OF THE PRESENT CASE, CONSIDERING THE ASSESSEES TUR NOVER OF MERE RS.60 CRORES. WE THEREFOR4E, HOLD THAT COMPANIES HAVIN G TURNOVER OF RS.1 CRORE TO RS.200 CRORE ALONE CAN BE CONSIDERED AS COMPARAB LE, IN THE CASE OF THE ASSESSEE. 22. WE FIND FROM THE ORDERS OF THE DRP THAT THO UGH THE ASSESSEE HAS MADE DETAILED ARGUMENTS, SPECIFICALLY OBJECTING TO THE SELECTION OF THE AFORESAID COMPANIES AS COMPARABLES, THE DRP HAS NOT PROPERLY CONSIDERED THE CONTENTIONS RAISED BY THE ASSESSEE AND HAS PASS ED A VERY CRYPTIC ORDERS BEREFT OF DETAILED REASONS IN SUPPORT OF THE CONCLU SIONS DRAWN. 23. TO SUM UP, OUR CONCLUSIONS ARE - (A) COMPANIES WITH EXTRA-ORDINARY CIRCUMSTANCES, LIKE THOSE WHICH SUFFERED EVENTS LIKE MERGER/DE-MERGER, IMPACTING THE FINANCIAL RESULTS, COULD NOT BE TREAT ED AS COMPARABLES. (B) COMPANIES HAVING SUPERNORMAL PROFIT CANNOT BE CONSIDERED AS COMPARABLE; (C) COMPANIES WHICH ARE FUNCTIONALLY DISSIMILAR CANNOT BE TAKEN AS COMPARABLES. (D) COMPANIES ACTING MERELY AS INTERMEDIARY HAVING OUTSOURCED ITS ACTIVITY CANNOT BE CONSIDERED AS COMPARABLE. ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 26 (E) COMPANIES WHOSE DIRECTORS WERE INVOLVED IN FRAUD CANNOT BE TAKEN AS COMPARABLE, AS THEIR FINANCIAL RESULTS ARE NOT RELIABLE. (F) COMPANIES, WHO ARE INDUSTRIAL GIANTS AND MARKET LEADERS HAVING SUBSTANTIALLY HIGH TURNOVER EXCEEDIN G RS.200 CRORES CANNOT BE TAKEN AS COMPARABLES. IN THE AFORESAID VIEW OF THE MATTER, WE SET ASIDE O RDERS OF THE DRP AS WELL AS THE ASSESSMENT ORDER PASSED UNDER S.143(3) READ WIT H S.144C OF THE ACT, AND RESTORE THE MATTER TO THE FILE OF THE TPO, WHO SHALL DETERMINE THE ALP AFRESH IN THE LIGHT OF OUR OBSERVATIONS/DIRECTIONS HEREINABOVE. 24. SO FAR AS THE GROUND NO.8 IS CONCERNED, THE IS SUE RELATES TO NON- CONSIDERATION OF GAIN/LOSS ON ACCOUNT OF FOREIGN EX CHANGE FLUCTUATION. THE TPO HAS NOT CONSIDERED THE FOREIGN EXCHANGE FLUCTUA TION GAIN/LOSS WHILE DETERMINING THE ALP, BY OBSERVING THAT THEY DO NOT RELATE TO THE BUSINESS OPERATION OF THE ASSESSEE, WHICH HAS ALSO BEEN CONF IRMED BY THE DRP. 25. IT IS THE CONTENTION OF THE LEARNED AUTHORIS ED REPRESENTATIVE FOR THE ASSESSEE THAT THE FOREIGN EXCHANGE LOSS/GAIN SH OULD NOT BE EXCLUDED WHILE COMPUTING THE MARGIN OF THE ASSESSEE AS WELL AS THE COMPARABLE COMPANIES, AS THE SAME IS ARISING IN THE NORMAL COU RSE OF BUSINESS OF THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE HAS SUBMITTED THAT IN ASSESSEES OWN CASE FOR THE ASSE SSMENT YEAR 2008-09, THE GAIN/LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIO N HAS BEEN TAKEN INTO ACCOUNT BY THE TPO, WHILE COMPUTING THE MARGIN OF COMPARABLE COMPANIES, WHICH HAS ALSO BEEN AFFIRMED BY THE DRP. IN THIS CO NTEXT, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE HAS ALS O RELIED UPON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SAP LABS INDIA PVT. ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 27 LTD.(2010) 6 ITR 81, AND THE ORDER OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF FOUR SOFT LTD. V/S. DCIT (2011-TII-92-I TAT-HYD-TP). 26. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON TH E OTHER HAND, SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 27. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PAR TIES IN THIS REGARD. THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SAP LABS INDIA P. LTD. (SUPRA), WHILE CONSIDERING A DISPUTE OF SIMILAR NAT URE, OBSERVED AS FOLLOWS- THE FOREIGN EXCHANGE FLUCTUATION GAINS IS NOTHING BUT AN INTEGRAL PART OF THE SALES PROCEEDS OF AN ASSESSEE CARRYING ON EX PORT BUSINESS. THE COURTS AND TRIBUNALS HAVE HELD THAT FOREIGN EXCHANG E FLUCTUATION GAINS FORM PART OF THE SALE PROCEEDS OF EXPORTER-ASSESSEE . THE FOREIGN EXCHANGE FLUCTUATIONS INCOME CANNOT BE EXCLUDED FRO M THE COMPUTATION OF THE OPERATING MARGIN OF THE ASSESSEE COMPANY. FOLLOWING THE AFORESAID DECISION OF THE BANGALORE B ENCH OF THE TRIBUNAL, THE HYDERABAD BENCH OF THE TRIBUNAL HELD IN THE CASE OF FOUR SOFT LTD. (SUPRA) IN THE FOLLOWING MANNER- 16. WITH REGARD TO THE EXCLUSION OF GAIN ON ACCOU NT OF FOREIGN EXCHANGE FLUCTUATION WHILE COMPUTING THE NET MARGIN , AS CLAIMED BY THE ASSESSEE, WE FIND THAT THE EXCHANGE FLUCTUATION GAINS ARISE OUT OF SEVERAL FACTORS, FOR INSTANCE, REALISATION OF EXPOR T PROCEEDS AT HIGHER RATE, IMPORT DUES PAYABLE AT LOWER RATE. SINCE THE GAIN OR LOSS ON ACCOUNT OF EXCHANGE RATE FLUCTUATION ARISES IN THE NORMAL COURSE OF BUSINESS TRANSACTION, THE SAME SHOULD BE CONSIDERED WHILE COMPUTING THE NET MARGIN FOR THE INTERNATIONAL TRANSACTIONS W ITH THE ASSOCIATED ENTERPRISES OF THE ASSESSEE. OUR VIEW IN THIS BEHA LF IS FORTIFIED BY THE DECISIONS OF THE BANGALORE BENCH OF THE TRIBUNAL I N THE CASE OF SAP LABS INDIA LTD. SUPRA AND BOMBAY BENCH OF THE TRIBU NAL IN THE CASE OF DEUTSCHE BANK A.G. V/S. D. CIT REPORTED IN 86 ITD 4 31 RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF T HE TRIBUNAL, AND CONSIDERING THE CONTENTION OF THE ASSESSEE THAT FOR THE ASSESSM ENT YEAR 2008-09 FOREIGN EXCHANGE FLUCTUATION GAIN/LOSS HAS BEEN CONSIDERED AS OPERATING MARGIN WHILE COMPUTING THE MARGIN OF COMPARABLE COMPANIES, WE HOLD THAT EVEN FOR ITA NO.1961/HYD/2011 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD., HYDERABAD 28 THE YEAR UNDER APPEAL ALSO THE SAME PRINCIPLE SHOUL D BE APPLIED, AND WHILE COMPUTING THE MARGIN FOR DETERMINING THE ALP FOR TH E ASSESSMENT YEAR UNDER APPEAL, THE FOREIGN EXCHANGE GAIN/LOSS HAS TO BE TA KEN AS PART OF THE OPERATING MARGIN. CONSEQUENTLY, WE ALLOW THE GROUN D OF THE ASSESSEE ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO TREAT THE FOREIGN EXCHANGE FLUCTUATION GAIN/LOSS AS PART OF THE OPERATING MARG IN OF THE COMPARABLE COMPANY. 28. IN VIEW OF OUR DECISION IN RELATION TO GROUNDS NO.2 AND 8, WE ARE NOT INCLINED TO GO INTO THE MERITS OF THE OTHER GRO UNDS, WHICH ARE ACCORDINGLY REJECTED. 29. IN THE RESULT, APPEAL OF THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 23.11.2012 SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED/- 23 RD NOVEMBER, 2012 COPY FORWARDED TO: 1. M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PRIVAT E LIMITED, SURVEY NO.12P, KONDAPUR VILLAGE, SERILINGAMPALLY MA NDAL, RANGA REDDY DISTRICT, HYDERABAD 2. 3. 4. ASST . COMMISSIONER OF INCOME - TAX CIRCLE 1 (2) , HYDERABAD DISPUTE RSOLUTION PANEL, HYDERABAD ADDITIONAL COMMISSIONER OF INCOME-TAX (TRANSFER PRI CING) HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S.