M/s.Marlabs Software Pvt. Ltd., Bangalore V. Deputy Commissioner of Income Tax, Bangalore

ITA 2029/BANG/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5694 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-07-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 23-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Set aside
• Section: 142(1); 133(6); 143(1); 143(2); 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.2029/BANG/2016 ASSESSMENT YEAR : 2013-14 MARLABS INNOVATIONS PVT. LTD., (SUCCESSOR OF MARLABS SOFTWARE PVT. LTD.,) NO.2, 1 ST FLOOR, SR COMPLEX, TAVAREKERE MAIN ROAD, SG PALYA, BENGALURU-560 029. PAN AACCM 6627 Q VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-4(2)(2), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI BHARATH L, C.A REVENUE BY : MS. NEERA MALHOTRA, CIT(DR) DATE OF HEARING : 22-07-2021 DATE OF PRONOUNCEMENT : 17-09-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST O RDER DATED 26/09/2016 PASSED BY THE LD. DCIT, CIRCLE-4(1 )(2), BANGALORE FOR ASSESSMENT YEAR 2012-13 ON FOLLOWING REVISED GROUNDS OF APPEAL: PAGE 2 OF 22 IT(TP)A NO.2029/BANG/2016 GROUNDS OF APPEAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE ORDER PASSED BY THE LAO BASED ON THE DIRECTIONS ISSUED BY THE HON'B LE DRP IS BAD IN LAW, TO THE EXTENT THE SAME ARE PREJUDICIAL TO THE APPEL LANT. 2. THE LAO, BASED ON THE DIRECTIONS OF HON'BLE DRP , ERRED IN CONFIRMING THE ORDER OF LEARNED TPO REJECTING THE TRANSFER PRICING DOCUMENTATION MAINTAINED BY THE APPELLANT: A. THE COMPANY HAS USED PRIOR YEAR DATA PERTAINING TO THE FY 2009-10 AND FY 2010-11 BESIDES THE CURRENT FY 2011-12 WHERE VER AVAILABLE BUT NO REASONS ARE GIVEN AS TO HOW THE EARLIER YEAR DATA H AS INFLUENCED THE PRICE CHARGED BY EITHER THE TAXPAYER OR THAT OF THE COMPA RABLE SO AS TO ATTRACT THE PROVISO TO RULE 1013(4). B. THE COMPANY HAS COMPUTED THE THREE-YEAR AVERAGE OF THE DATA FOR THE LAST THREE YEARS. C. THE COMPANY HAS NOT APPLIED EMPLOYEE COST > 25% FILTER. D. THE COMPANY HAS NOT APPLIED EXPORT REVENUE TO SA LES FILTER IN ITS SEARCH PROCESS. 3. THE HON'BLE DRP AND THE LAO ERRED IN CONFIRMING THE ORDER OF THE LEARNED TPO IN REJECTING THE FOLLOWING COMPARABLE C OMPANIES IDENTIFIED BY THE APPELLANT: 4. THE HON'BLE DRP AND THE LAO ERRED IN CONFIRMING THE ORDER OF THE LEARNED TPO WHICH INVOLVED ADOPTION OF THE FOLLOWIN G INAPPROPRIATE FILTERS FOR SELECTION OF COMPARABLE COMPANIES THEREBY MAKI NG THE ARM'S LENGTH PRICE DETERMINED BY THE LD. TPO INCORRECT IN LAW AN D IN FACT. A. EXCLUSION OF COMPANIES WHICH DID NOT HAVE FINANC IAL INFORMATION FOR FY 2011-12; B. EXCLUSION OF COMPANIES WITH EMPLOYEE COST LESS T HAN 25% OF TURNOVER; C. EXCLUSION OF COMPANIES HAVING DIFFERENT FY ENDIN G; OR WHOSE DATA OF COMPANY DOES NOT FALL WITHIN 12-MONTHS. 5. THE HON'BLE DRP AND THE LAO ERRED IN CONFIRMING THE ORDER OF THE LEARNED TPO WHICH INVOLVED HAD SELECTED THE FOLLOWI NG COMPARABLE COMPANIES THAT ARE FUNCTIONALLY DIFFERENT FROM THE APPELLANT: A. UNIVERSAL PRINT SYSTEMS LTD. B. TCS E-SERVE LTD. C. BNR UDYOG LTD. D. EXCEL INFOWAYS LTD. E. INFOSYS BPO LTD. PAGE 3 OF 22 IT(TP)A NO.2029/BANG/2016 6. THE HON'BLE DRP AND THE LAO ERRED IN CONFIRMING THE ORDER OF THE LEARNED TPO WHICH CONTAINED AN IMPROPER COMPUTATION OF THE WORKING CAPITAL ADJUSTMENT WHILE DETERMINING THE ARM'S LENG TH PRICE SINCE: A. IN COMPUTING THE ADJUSTMENT FOR WORKING CAPITAL DEPLOYED BY THE APPELLANT VIS--VIS THE COMPARABLES, THE UNBILLED R EVENUE, ADVANCES RECEIVED FROM THE ASSOCIATED ENTERPRISES TOWARDS PR OVISION OF SERVICES, UNEARNED REVENUE, PREPAID EXPENSE, ADVANCE TO SUPPL IERS, ADVANCE RECOVERABLE IN CASH OR IN KIND AND OTHER PAYABLES / RECEIVABLES ARE NOT CONSIDERED. B. BASED ON THE ABOVE, THE VALUE OF THE ACCOUNTS RE CEIVABLE AND ACCOUNTS PAYABLE OF THE COMPARABLE COMPANIES IS INC ORRECTLY COMPUTED. 7. THE HON'BLE DRP AND THE LAO ERRED IN CONFIRMING THE ORDER OF THE LEARNED TPO WHICH HAD FAILED TO PROVIDE ADEQUATE AD JUSTMENT TOWARDS DIFFERENCES IN RISK AS CLAIMED BY THE APPELLANT TO IMPROVE DEGREE OF COMPARABILITY. ON THE ABOVE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING YOUR APPELLANT PRAYS YOUR HONOUR TO CONSIDE R THE FACTS AND CIRCUMSTANCES OF THE CASE AND RENDER JUSTICE. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS INTO THE BUSINESS OF SOFTWARE DEVELO PMENT AND IT ENABLED SERVICES. 2.1 IT FILED ITS RETURN OF INCOME FOR YEAR UNDER CO NSIDERATION ON 30/11/2012 DECLARING TOTAL INCOME OF RS.8,31,01,610 /-. THE SAME WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY. N OTICE UNDER SECTION 143(2) WAS ISSUED TO ASSESSEE ALONG WITH NO TICE UNDER SECTION 142(1) OF THE ACT. IN RESPONSE TO STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE THE LD.A O AND FILED REQUISITE DETAILS AS CALLED FOR. 2.2 THE LD.AO OBSERVED THAT, ASSESSEE HAD INTERNATI ONAL TRANSACTION EXCEEDING RS.5 CRORES AND ACCORDINGLY T HE CASE WAS REFERRED TO TRANSFER PRICING OFFICER TO DETERMINED THE ARMS LENGTH PAGE 4 OF 22 IT(TP)A NO.2029/BANG/2016 PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED INT O BY ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. 2.3 ON RECEIPT OF REFERENCE UNDER SECTION 92CA OF T HE ACT, THE LD.TPO CALLED UPON ASSESSEE TO FILE ECONOMIC DETAIL S OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSEE WITH ITS ASSOCIATED ENTERPRISES IN FORM 3CEB. THE ASSESSEE F ILED RELEVANT INFORMATION BASED ON WHICH, THE LD.TPO OBSERVED FUN CTIONS PERFORMED BY ASSESSEE AS UNDER: 2. FUNCTIONAL ANALYSIS OF THE TAX PAYER: MARLABS INDIA IS ENGAGED IN THE PROVISION OF SOFTWA RE DEVELOPMENT SERVICES AND IT ENABLED SERVICES TO MARLAOS INC. A BRIEF SUMMARY OF THE SERVICES RENDERED UNDER BUSINESS SEGMENTS IS AS FOL LOWS: IT & ITES SERVICES: MARLABS INDIA IS MAINLY ENGAGED IN THE DEVELOPMENT OF CUSTOM SOFTWARE APPLICATIONS (SOFTWARE DEVELOPME NT) IT ALSO RENDERS E3PO SERVICES HAT MAINLY RELATED TO LEGAL ACCOUNTIN G AND HUMAN RESOURCE SERVICES MARLABS INDIA IS COMPENSATED ON A COST PLUS BASIS FOR THE SOFTWARE DEVELOPMENT SERVICES AND IT ENABLED SE RVICES PROVIDED TO MAT-LABS INC. IT CONSULTING SERVICES: THE IT CONSULTING SERVICES ARE SERVICES RELATING MAINLY TO PROVIDING OF STAFF AUGMENTATION TO IT COM PANIES. MARLABS INDIA PROVIDES IT CONSULTING SERVICES TO UNRELATED THIRD PARTY CUSTOMERS IN INDIA 2.1. AS PER TIP DOCUMENT MARLABS INC PROVIDES INNOVATIVE SOFTWARE SERVICES A ND BPO SERVICES THAT IMPROVE THE OPERATIONAL EFFICIENCY AND HELPS I TS CUSTOMERS TO GAIN COMPETITIVE ADVANTAGE IT CATERS TO THE BANKING AND FINANCIAL SERVICES, HEALTHCARE, INSURANCE, LIFE SCIENCES AIRLINE SERVIC ES, ENERGY AND UTILITIES, MEDIA, STATE AND LOCAL GOVERNMENT AND LEGAL SECTOR. SERVICES: APPLICATION DEVELOPMENT AND MAINTENANCE: INFORMATION SECURITY MANAGEMENT PRACTICE: MOBILE APPLICATIONS BUSINESS INTELLIGENCE ('B!') AND DATA WAREHOUSING: (ANALYSIS, DESIGN, IMPLEMENTATION) INDEPENDENT VERIFICATION AND VALIDA TION: BUSINESS PROCESS OUTSOURCING ENTERPRISE RESOURCE PLANNING (ERP'): INFRASTRUCTURE SERVICES CONSULTING SERVICES ORACLE HYPERION. PAGE 5 OF 22 IT(TP)A NO.2029/BANG/2016 DEVELOPMENT AND IMPLEMENTATION SERVICES MIGRATION AND UPGRADE SERVICES MAINTENANCE AND SUPPORT SERVICES TESTING SERVICES 2.4 THE LD.TPO OBSERVED THAT ASSESSEE HAD FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISE: 2.5 FROM THE TP DOCUMENTATION THE LD. TPO OBSERVED THAT ASSESSEE COMPUTED ITS MARGIN BY USING OP/OC AT 17.2 3% AND 17.3% BY USING TNMM AS MOST APPROPRIATE METHOD FOR SOFTWARE DEVELOPMENT SERVICE SEGMENT AND ITES SEGMENT RESPEC TIVELY. IT WAS OBSERVED THAT ASSESSEE USED 25 COMPARABLES FOR SOFTWARE DEVELOPMENT SERVICE SEGMENT HAVING AVERAGE MARGIN O F 9.06% AND 11 COMPARABLES FOR I T ENABLED SERVICE SEGMENT HAVING AVERAGE MARGIN OF 12.55%. 2.6 DISSATISFIED WITH THE TP DOCUMENTATION, THE LD. TPO REJECTED THE COMPARABLES SELECTED BY ASSESSEE AND THE FILTER S USED. THE LD.TPO THUS APPLIED FRESH FILTERS AND SEARCH BASED UPON WHICH FOLLOWING COMPARABLES WERE FINALISED UNDER ITES SEG MENT: ---- SPACE LEFT INTENTIONALLY --- PAGE 6 OF 22 IT(TP)A NO.2029/BANG/2016 2.7 THE LD.TPO REJECTED THE RISK ADJUSTMENT, HOWEVE R GRANTED WORKING CAPITAL ADJUSTMENT. THE LD.TPO OBSERVED THA T UNDER SOFTWARE DEVELOPMENT SERVICE SEGMENT THE SHORTFALL WAS COMPUTED TO BE WITHIN 5% OF THE INTERNATIONAL TRANS ACTION AND THEREFORE NO ADJUSTMENT WAS PROPOSED. HOWEVER AS REGARDS IT ENABLED SERVICE SEGMENT FOLLO WING SHORTFALL WAS PROPOSED TO BE THE ADJUSTMENT UNDER S ECTION 92CA OF THE ACT: PAGE 7 OF 22 IT(TP)A NO.2029/BANG/2016 2.8 ON RECEIPT OF THE TRANSFER PRICING ORDER, THE L D.AO PASSED DRAFT ASSESSMENT ORDER BY MAKING AN ADDITION COMPUT ED BY THE LD.TPO TOWARDS TRANSFER PRICING ADJUSTMENT. 2.9 AGGRIEVED BY THE DRAFT ASSESSMENT ORDER, THE LD . ASSESSEE PREFERRED OBJECTIONS BEFORE THE DRP. THE DRP UPHELD THE COMPARABLES SELECTED BY THE LD.TPO HOWEVER CONSIDER ED THE OBJECTIONS OF ASSESSEE IN RELATION TO FOREIGN EXCHA NGE LOSS TO BE OPERATING INCOME FOR COMPUTING THE MARGINS. 2.10 ON RECEIPT OF THE DRAFT ASSESSMENT ORDER, THE LD.AO PASSED THE FINAL ASSESSMENT ORDER BY MAKING ADDITION IN TH E HANDS OF ASSESSEE AT RS.71,78,720/-. 2.11 AGGRIEVED BY THE ORDER PASSED BY THE LD. AO, A SSESSEE IS IN APPEAL BEFORE US NOW. 3. AT THE OUTSET, THE LD.AR SUBMITTED THAT ASSESSEE DO NOT WISH TO PRESS GROUND NOS. 1-4 . ACCORDINGLY THESE GROUNDS ARE DISMISSED AS NOT PRES SED. 4. IN GROUND NO.5 , IT IS SUBMITTED THAT ASSESSEE WISHES TO ARGUE ONLY THREE COMPARABLES FOR EXCLUSION BEING; 1.UNIVERSAL PRINT SYSTEMS LTD. 2.TCS E-SERVE LTD. 3. INFOSYS BPO LTD. 4.1 IT HAS BEEN SUBMITTED BY THE LD.AR THAT THESE C OMPARABLES ARE FUNCTIONALLY NOT SIMILAR WITH THAT OF ASSESSEE. 4.2 ON THE CONTRARY THE LD. CIT DR PLACED RELIANCE ON OBSERVATIONS PASSED BY AUTHORITIES BELOW. PAGE 8 OF 22 IT(TP)A NO.2029/BANG/2016 BEFORE WE UNDERTAKE THE COMPARABILITY ANALYSIS, IT IS SINE QUA NON TO UNDERSTAND FUNCTIONS PERFORMED, ASSETS OWNED AND RISKS ASSUMED BY ASSESSEE UNDER ITES SEGMENT. FUNCTIONS: 4.3 MARLABS HAS ENTERED INTO A SERVICE AGREEMENT WI TH MARLABS INC TO PROVIDE IT ENABLED SERVICES. THIS AGREEMENT IS EFFECTIVE FROM 10 MARCH 2010. SOME OF THE SALIENT FEATURES OF THE AGREEMENT ARE: THE SERVICE PROVIDED BY MARLABS INDIA TO MARLABS IN C INCLUDES PROVISION OF SUPPORT SERVICES FOR THE CUST OMERS, STAFFING BUSINESS AND VARIOUS BUSINESS PROCESSES SU PPORT SERVICES, 3OUNTING AND RELATED SERVICES ETC. MARLABS INDIA WILL BE REMUNERATED ON A COST PLUS 15 PERCENT MARK UP BASIS. COSTS WOULD I-DUDE ALL DIRECT COSTS AND INDIRECT COSTS WHICH CAN BE DIRECTLY IDENTIFIED WIT H A PROJECT. NON OPERATING EXPENSES LIKE FOREIGN EXCHANGE GAIN ( LOSS), COST OF CAPITAL IMPROVEMENTS ARE SPECIFICALLY EXCLU DED FROM THE COSTS ELIGIBLE FOR COMPUTING MARK UP. INVOICES ARE RAISED ON A MONTHLY BASIS AND PAYMENT IS WITHIN 30 DAYS OF THE RECEIPT OF THE INVOICE. ALL S ERVICE FEES IS PAYABLE IN US DOLLARS BY MARLABS INC. MARLABS INC WOULD RETAIN TITLE, COPYRIGHT AND ALL O THER PROPRIETARY INFORMATION ALONG WITH THE OWNERSHIP OF INTELLECTUAL PROPERTY. MARLABS INDIA WOULD NOT OWN ANY INTELLECTUAL PROPERTY. ASSETS OWNED : PAGE 9 OF 22 IT(TP)A NO.2029/BANG/2016 4.4 ASSESSEE OWNS TANGIBLE ASSETS LIKE COMPUTER, OF FICE EQUIPMENT, FURNITURE & FIXTURES ETC. FOR DAY TODAY WORKING. RISKS ASSUMED : 4.5 MARLABS INDIA OPERATES UNDER A RISK MITIGATED E NVIRONMENT. MARLABS INDIA DOES NOT CARRY OUT SIGNIFICANT ENTRE PRENEURIAL ACTIVITIES NOR DOES IT BEAR SIGNIFICANT RISKS ASSOC IATED WITH SUCH ACTIVITIES. CHARACTERISATION : 4.6 MARLABS INDIA MAY BE CHARACTERISED AS A RISK MI TIGATED CONTRACT SERVICE PROVIDER FOR PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND IT ENABLED SERVICES. 4.7 WE NOTE THAT UNDER IDENTICAL CIRCUMSTANCES COOR DINATE BENCH OF THIS TRIBUNAL BY ORDER DATED 20/09/2019 IN CASE OF VWR LABS PRODUCTS PVT. LTD. VS ACIT REPORTED IN [2020] 116 TAXMANN.COM 244 OBSERVED AND HELD AS UNDER: 7. (A) UNIVERSALPRINTSYSTEMS LTD (SEGMENTAL) (BPO) ASSESSEE SOUGHT TO EXCLUDE THIS COMPARABLE FOR THE REASON THAT, IT FAILS EMPLOYEE COST FILTER AND HAS INSUFFICIENT COMPANY I NFORMATION. IT IS ALSO BEEN SUBMITTED THAT, FUNCTIONALLY THIS COMPANY IS P ROVIDING INTEGRATED PRINT SOLUTION TO ITS CUSTOMERS AND DOES NOT PROVIDES ROUTINE ITES SERVICES LIKE THAT OF ASSESSEE. IT HAS BEEN SU BMITTED THAT THIS COMPANY IS NOT A CAPTIVE SERVICE PROVIDER LIKE THAT OF ASSESSEE AND HAS PRODUCTS SALE AS WELL AS SERVICES SALE, WHICH IS EV IDENT FROM PAGE 1360 OF PAPER BOOK VOLUME 1 (INDEX FOR ANNUAL REPORTS). LD.CIT DR PLACED RELIANCE UPON ORDERS OF AUTHORITIE S BELOW AND SUBMITTED THAT THIS COMPARABLE IS FUNCTIONALLY COMP ARABLE WITH THAT OF ASSESSEE. WE HAVE HEARD SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORD PLACED BEFORE US. ON PERUSAL OF ANNUAL REPORT OF TH IS COMPANY PLACED IN PAPER BOOK, WE ARE OF CONSIDERED OPINION THAT THIS COMPARABLE IS BASICALLY INTO SALE OF PRODUCTS AND SERVICES UNLIKE A CAPTIVE SERVICE PROVIDER SUCH AS ASSESSEE, WHO WORKS ON COST PLUS B ASIS, PROVIDING SERVICES ONLY TO ITS AE'S. IT IS ALSO OBSERVED THAT THIS COMPARABLE IS BASICALLY PROVIDING BPO SERVICES FROM ITS PREPRESS UNITS. IN WRITTEN PAGE 10 OF 22 IT(TP)A NO.2029/BANG/2016 SUBMISSION FILED, ASSESSEE PLACED RELIANCE UPON DEC ISION OF THIS TRIBUNAL IN CASE OF ZYME SOLUTIONS (P.) LTD. V. ACIT [2019] 101 TAXMANN.COM 292 (BANG. - TRIB.), WHEREIN THIS COMPARABLE HAS BEEN E XCLUDED BY OBSERVING AS UNDER: 10.4 WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL ON RECORD. THE ISSUE OF COMPARABILITY OF UNIVERSALPRINTSYSTEMS LTD. WITH THAT OF THE ASSESSEE-COMPANY HAS BEEN DULY CONSIDERED BY TPO AF TER REFERRING TO INFORMATION CONTAINED IN ANNUAL REPORT. THE RELEVAN T FINDINGS OF THE TPO HAD NOT BEEN COUNTENANCED BY LEARNED AR OF THE ASSE SSEE. HOWEVER, THE ISSUE OF COMPARABILITY OF UNIVERSALPRINTSYSTEMS LTD. HAS ALSO BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNA L IN THE CASE OF CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTANTS PVT. L TD. (SUPRA) WHEREIN IT WAS HELD AS FOLLOWS: '47. THE NEXT SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS WITH REGARD TO EXCLUSION OF 2 COMPARABLE COMPANIES FROM THE LIST OF 7 COMPARABLE COMPANIES THAT REMAIN AFTER THE ORDER OF THE DRP. THE FIRST COMPARABLE COMPANY SOUGHT TO BE EXCLUDED IS UNIVERSALPRINTSYSTEMS LTD. THIS COMPANY WAS CHOS EN AS A COMPARABLE COMPANY BY THE TPO. IN REPLY TO THE PROP OSAL OF THE TPO TO INCLUDE THIS COMPANY AS A COMPARABLE COMPANY, THE A SSESSEE VIDE ITS LETTER DATED 22.12.2015 HAD POINTED OUT ITS OBJECTI ONS TO INCLUDING THIS COMPANY AS A COMPARABLE COMPANY. A COPY OF THE SAID OBJECTION IS AT PAGE-785 OF THE ASSESSEE'S PAPER BOOK. THE ASSESSEE POINTED OUT THAT THE OP TC OF THIS COMPANY AS WORKED OUT BY THE TPO AT 59.40% WAS WRONG AND UNALLOCATED COSTS AS PER THE ANNUAL REPOR T SHOULD BE ALLOCATED TO BPO SEGMENT AND IF THAT IS DONE THEN T HE OP TC OF THIS COMPANY WILL BE ONLY 51.80%. THE ASSESSEE FURTHER P OINTED OUT (PAGE 764 OF PAPER BOOK) THAT THE TPO HAD APPLIED REVENUE FILTER OF MORE THAN 75% BEING FROM NON-FINANCIAL SERVICE INCOME. THE AS SESSEE POINTED OUT THAT THE PERCENTAGE OF INCOME FROM ITES WAS ONLY 21 .6% OF THE TOTAL REVENUE FROM OPERATIONS OF THIS COMPANY AS PER ITS ANNUAL REPORT. THE .ASSESSEE ALSO POINTED OUT THAT IN THE PRE-PRESS BP O SEGMENT THIS COMPANY WAS PROVIDING INTEGRATED PRINT SOLUTIONS TO ITS CUSTOMERS, WHICH INCLUDES SCANNING, DESIGN/LAYOUT, TRAPPING, H AND-OUTLINED CLIPPING PATH AND IMAGE MASKING AND MAGAZINE AND CA TALOGUE PUBLISHING. THE ASSESSEE SUBMITTED THAT THE AFORESA ID SERVICES ARE NOT IN THE NATURE OF ITES. THE ASSESSEE POINTED OUT THA T AS PER THE SAFE HARBOUR RULES INTRODUCED BY THE CBDT ITES HAS BEEN DEFINED AS BUSINESS PROCESS OUTSOURCING SERVICES PROVIDED MAIN LY WITH THE ASSISTANCE OR USE OF INFORMATION TECHNOLOGY. IT WAS ALSO SUBMITTED THAT THIS COMPANY DOES NOT SATISFY THE DEFINITION OF ITE S AS CONTAINED IN RULE IOTA(E) OF THE RULES. SINCE USE OF INFORMATION TECH NOLOGY IS ABSENT .IN THE VARIOUS SERVICES PROVIDED BY THIS COMPANY, IT CANNO T BE REGARDED AS ITES COMPANY. THE ASSESSEE ALSO SUBMITTED THAT THIS COMPANY FAILS THE PAGE 11 OF 22 IT(TP)A NO.2029/BANG/2016 EMPLOYEE COST FILTER. THE EMPLOYEE COST FILTER REQU IRES THAT THE EMPLOYEES COST INCURRED BY THE COMPANY MUST BE MORE THAN 25% OF ITS REVENUE. 48. THE TPO AT PAGE-20 OF HIS ORDER HAS DEALT WITH THE ABOVE OBJECTIONS BY OBSERVING AS FOLLOWS: (A) PRE-PRESS BPO UNIT PROVIDES BACK OFFICE SUPPORT SER VICES. (B) THIS COMPANY HAS FOUR MAJOR SEGMENTS VIZ., REPRO, LABEL PRINTING, OFFSET PRINTING AND PRE- PRESS BPO. THE EMPLOYEE COST OF PRE-PRESS BPO WAS MORE THAN 25% OF THE REVENUE FROM PRE- PRESS BPO AND THEREFORE THE EMPLOYEE COST FILTER IS SATISFIED IN THE CASE OF THIS COMPANY. (C) ON THE SERVICE REVENUE FILTER VIZ., THE REQUIREMENT THAT A COMPARABLE COMPANY MUST HAVE REVENUE FROM RENDERING SERVICES OF MORE THAN 75% OF ITS TOTAL REVENUE, THE TPO AGAIN HELD THAT THE PRE- PRESS BPO SEGMENT'S ENTIRE INCOME IS FROM SERVICES AND THEREFORE THIS OBJECTION IS NOT T O BE ACCEPTED. 49. ON OBJECTIONS BY THE ASSESSEE BEFORE THE DRP, T HE DRP CONFIRMED THE ACTION OF THE TPO. ONE OF THE OBJECTION BEFORE THE DRP WAS THAT THIS COMPANY DID NOT FIGURE IN THE LIS T OF COMPANIES ENGAGED IN ITES. ON THIS OBJECTION THE DRP HELD THA T THOUGH THIS COMPANY DID NOT FIGURE IN THE LIST OF COMPANIES IN 1TES IN THE MAIN SEARCH OF CAPITAL LINE AND PROWESS DATABASE BUT ON A SEGMENTAL SEARCH THESE TWO COMPANIES SATISFIED THE REQUIREMENT OF BE ING CONSIDERED AS COMPANIES ENGAGED IN PROVIDING ITES. AGGRIEVED B Y THE DIRECTIONS OF THE DRP, THE ASSESSEE IS IN APPE AL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED SUBMISSIONS THAT WERE MADE BEFORE THE TPO/DRP. IN P ARTICULAR IT WAS SUBMITTED THAT THE SERVICE REVENUE FILTER WAS APPLI ED BY THE TPO HIMSELF AT THE ENTITY LEVEL AND ON SUCH SEARCH THIS COMPANY WAS NOT REGARDED AS ENGAGED IN PROVIDING ITES. AT THIS STAGE THE TPO OU GHT TO HAVE DROPPED THIS COMPANY AS A COMPARABLE COMPANY BECAUSE THIS F ILTER HAS TO BE APPLIED AT THE ENTITY LEVEL AND NOT AT THE SEGMENTA L LEVEL. THE LEARNED DR SUBMITTED THAT IF THE SERVICE REVENUE FILTER IS APP LIED AT THE SEGMENTAL LEVEL THERE CAN BE NO OBJECTION BY THE ASSESSEE. SH E RELIED ON THE ORDER OF THE DRP/TPQ. 50. THE REQUIREMENTS OF RULE 10B(1)(2) & (3) OF THE RULES IN THE MATTER OF COMPARABILITY OF COMPANIES UNDER TNMM NEEDS TO BE S EEN. THE SAME READS AS FOLLOWS: PAGE 12 OF 22 IT(TP)A NO.2029/BANG/2016 '10B. (1) FOR THE PURPOSES, OF SUB-SECTION (2) OF S ECTION 92C, THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING T HE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY : (A) TO (D)** (E ) TRANSACTIONAL-MARGIN METHOD, BY WHICH (I) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FR OM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSO CIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRE D OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY TH E ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT B ASE; (II) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COM PUTED HAVING REGARD TO THE SAME BASE; (III) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE (IF ) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONT ROLLED TRANSACTIONS, OR BETWEEN THE ENTERPRISES ENTERING I NTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMO UNT OF NET PROFIT MARGIN IN THE OPEN MARKET; (IV) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AN D REFERRED TO IN SUB-CLAUSE (I) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE (III) (V) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKE N INTO ACCOUNT AN ARM'S LENGTH PRICE IN RELATION TO THE IN TERNATIONAL TRANSACTION. 2. FOR THE PURPOSES OF SUB-RULE (1), THE COMP ARABILITY OF AN (A) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDE: EITHER TRANSACTION; (B) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT AS SETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, B Y THE RESPECTIVE PARTIES TO THE TRANSACTIONS (C) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY T RANSFERRED OR SERVICES PROVIDE: EITHER TRANSACTION (D) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT AS SETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, B Y THE RESPECTIVE PARTIES TO THE TRANSACTIONS (E) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERM S ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN E XPLICITLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENE FITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANS ACTIONS: PAGE 13 OF 22 IT(TP)A NO.2029/BANG/2016 (D) CONDITIONS PREVAILING IN THE MARKETS IN WHICH T HE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVE RNMENT ORDERS IN FORCE, COSTS OF LABOUR AND. CAPITAL IN TH E MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITI ON AND WHETHER THE MARKETS ARE WHOLESALE RETAIL (3) AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIORIAL (I) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TR ANSACTIONS BEING COMPARED OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM SUCH TRANSACTIONS IN THE OPEN MARKET; OR (II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES.' 5.2 THERE APPEARS TO BE NO BAR IN THE RULES REFERRE D TO ABOVE TO CONSIDERING SEGMENTAL DATA UNDER TNMM BECAUSE THE C OMPARISON IS OF 'NET PROFIT MARGIN REALIZED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION' WITH THE 'NET PROFIT REALIZED FROM A C OMPARABLE UNCONTROLLED TRANSACTION'. THEREFORE COMPARISON IS OF SIMILAR TR ANSACTION. WHEN SEGMENTAL INFORMATION IS AVAILABLE AND IS NOT DISPU TED, IT CANNOT BE ARGUED THAT FILTERS HAVE TO BE APPLIED AT ENTITY LE VEL. IT CANNOT BE ARGUED THAT WHEN THE TPO HIMSELF APPLIED THE FILTERS AT TH E ENTITY LEVEL HE WAS NOT ENTITLED TO APPLY THE FILTERS AT SEGMENTAL LEVE L. AS WE HAVE ALREADY STATED IF CLEAR SEGMENTAL INFORMATION IS AVAILABLE THE FILTERS CAN BE APPLIED AT THE SEGMENTAL LEVEL IN TNMM. THEREFORE T HE OBJECTION WITH REGARD TO THIS COMPANY FAILING THE EMPLOYEE COST FI LTER AND SERVICE REVENUE FILTER IN OUR VIEW WAS RIGHTLY REJECTED BY THE TPO AND DRP. IT IS HOWEVER SEEN THAT THIS COMPANY HAS FOUR SEGMENTS VI Z., REPRO. LABEL PRINTING, OFFSET PRINTING AND PRE-PRESS BPO. WHETHER THE LABEL PRINTING AND OFFSET PRINTING SEGMENTS SUPPLEM ENT THE FUNCTIONS PERFORMED IN THE PRE-PRESS BPO SEGMENT HAS TO BE SE EN. WE THEREFORE SET ASIDE THE ORDER OF THE DRP IN THIS REGARD AND REMAN D FOR FRESH CONSIDERATION BY THE TPO THE COMPARABILITY OF THIS COMPANY. IN TERMS OF RULE 10B(3) OF THE RULES THE PROFIT MARGINS OF PRE- PRESS BPO HAVE TO BE ADJUSTED TAKING INTO ACCOUNT THE FACT THAT TWO OTHE R SEGMENTS SUPPLEMENT THE PRE-PRESS BPO SEGMENT. IF SUCH ADJUS TMENT CANNOT BE REASONABLY OR ACCURATELY MADE THEN THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE TPO FOR THIS PURPOSE CAN USE HIS POWERS U/S. 133(6) OF THE ACT TO GET REQUIRED D ETAILS FROM THIS COMPANY. AS FAR AS THE ARGUMENT THAT THIS COMPANY F AILS FUNCTIONAL COMPARABILITY, WE FIND THAT NONE OF THE OBJECTIONS RAISED THE ASSESSEE IN PAGE 14 OF 22 IT(TP)A NO.2029/BANG/2016 THIS REGARD ABOUT LACK OF INFORMATION ABOUT ALLIED SERVICES PERFORMED BY THE PRE-PRESS BPO SEGMENT OF THIS COMPANY AND THE B REAK-UP OF THE REVENUE FROM SUCH ALLIED SERVICES HAVE BEEN DEALT W ITH SPECIFICALLY BY THE TPO OR DRP. SINCE THE COMPARABILITY OF THIS COM PANY IS BEING REMANDED TO BE TPO FOR CONSIDERATION OF ADJUSTMENTS AS MENTIONED ABOVE, THE OBJECTION WITH REGARD TO FUNCTIONAL COMP ARABILITY SHOULD ALSO BE LOOKED INTO BY THE TPO IN THE REMAND PROCEEDINGS ON THE BASIS OF MATERIALS WHICH HE MAY GATHER U/S. 133(6) OF THE AC T, THE ASSESSEE SHOULD BE GIVEN OPPORTUNITY OF BEING HEARD BY THE T PO BEFORE THE ISSUE IS DECIDED BY THE TPO.' RESPECTFULLY FOLLOWING THE DECISION, WE REMAND THIS COMPARABLE TO THE FILE OF THE TPO/AO FOR FRESH ADJUDICATION ON THE AB OVE LINES. RESPECTFULLY FOLLOWING AFORESAID DECISION, WE REMAN D THIS COMPARABLE TO FILE OF LD.AO/TPO, FOR FRESH ADJUDICATION, ON THE B ASIS OF DIRECTIONS REPRODUCED HEREINABOVE. NEEDLESS TO SAY THAT PROPER OPPORTUNITY SHALL BE GRANTED TO ASSESSEE AS PER LAW. ACCORDINGLY WE SET ASIDE THIS COMPARABLE BACK TO LD .TPO. 8. (B) INFOSYS BPO LTD. ASSESSEE OBJECTED FOR INCLUSION OF THIS COMPARABLE PRIMARILY ON THE BASIS OF FUNCTIONAL INCOMPATIBILITY AND PRESENCE OF INTAN GIBLES. IT HAS BEEN SUBMITTED THAT THIS COMPANY OWNS HUGE BRAND AND NOT A FIT COMPARABLES FOR COMPANY LIKE ASSESSEE, WHO PROVIDE CAPTIVE SERV ICE TO ITS AE'S. LD. CIT DR OPPOSED THE EXCLUSION AND PLACED RELIANC E UPON ORDERS PASSED BY AUTHORITIES BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. ASSESSEE PLACED RELIANCE UPON DECISION OF THIS TRIBUNAL IN CASE OF ZYME SOLUTIONS (P.) LTD. V. ASS TT. CIT [2019] 108 TAXMANN.COM 495 (BANG. - TRIB.), WHEREIN THIS COMPA RABLE HAS BEEN EXCLUDED BY OBSERVING AS UNDER: '5. WE HAVE HEARD THE RIVAL SUBMISSIONS ON THE COMP ARABILITY OF INFOSYS BPO AS A COMPARABLE COMPANY. THE DELHI ITAT IN THE CASE OF BAXTER INDIA PVT. LTD. V. ACIT ITA NO.6158/ DEL/2016 FOR AY 2012-13 IN THE CASE OF A COMPANY RENDERING ITES SUCH AS THE ASSESSEE, VIDE ORDER DATED 24.8.2017 PARAGRAPH 23 H ELD THAT INFOSYS BPO IS NOT COMPARABLE WITH A COMPANY RENDER ING ITES FOR THE FOLLOWING REASONS: '23. IN SO FAR AS EXCLUSION OF INFOSYS BPO LTD. IS CONCERNED, WE FIND FROM THE SUBMISSIONS MADE BY THE ASSESSEE BEFO RE THE ASSESSING OFFICER/TPO/DRP IS THAT INFOSYS BPO LTD. IS PREDOMINANTLY INTO AREAS LIKE INSURANCE, BANKING, F INANCIAL SERVICES, MANUFACTURING AND TELECOM WHICH ARE IN TH E NICHE AREAS, UNLIKE THE ASSESSEE. FURTHER IT WAS ALSO SUB MITTED THAT THE INFOSYS BPQ LTD. COMPRISES BRAND VALUE WHICH WI LL TEND TO INFLUENCE ITS BUSINESS OPERATION AND THE PRICING PO LICY THEREBY DIRECTLY IMPACTING THE MARGINS EARNED BY THE INFOSY S BPO LTD.. PAGE 15 OF 22 IT(TP)A NO.2029/BANG/2016 WE FIND THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE BEFORE TPO/DRP THAT IN ORDER TO MAINTAIN THE BRAND IMAGE OF INFOSYS BPQ LTD. IN THE MARKET, THE COMPANY INCURS SUBSTANTIAL SELLING AND MARKETING EXPENDITURE WHEREAS THE ASSES SEE BEING A CONTRACT SERVICE PROVIDER DOES NOT INCUR SUCH EXPEN SES TO MAINTAIN ITS BRAND HAS NOT BEEN CONTROVERTED BY THE M. FURTHER, INFOSYS BPO LTD. BEING A SUBSIDIARY OF INFOSYS HAS AN ELEMENT OF BRAND VALUE ASSOCIATED WITH IT. THIS CAN BE FURTHER CONFIRMED BY THE PRESENCE OF BRAND RELATED EXPENSES INCURRED BY INFOSYS BPO LTD. FURTHER, INFOSYS BPO LTD. HAS ACQUIRED AUSTRAL IAN BASED COMPANY M/S PORTLAND GROUP PTY LTD. DURING FINANCIA L YEAR 2011-12. THEY PROVIDE SOURCING AND CATEGORY MANAGEM ENT SERVICES IN SYDNEY, AUSTRALIA. THEREFORE, THIS COMP ANY ALSO FAILED THE TPO'S OWN FILTER OF REJECTING COMPANIES WITH PECULIAR CIRCUMSTANCES. IN VIEW OF THE ABOVE I.E. FUNCTIONAL LY NOT COMPARABLE, PRESENCE OF BRAND AND EXTRAORDINARY EVE NT THAT HAS TAKEN PLACE DURING THE YEAR ON ACCOUNT OF ACQUISITI ON OF AUSTRALIAN BASED COMPANY, WE ARE OF THE CONSIDERED OPINION THAT INFOSYS BPO LTD. SHOULD NOT BE INCLUDED IN THE LIST OF COMPARABLES. WE ACCORDINGLY DIRECT THE ASSESSING OF FICER/TPO TO EXCLUDE INFOSYS BPO LTD. FROM THE LIST OF COMPARABL ES FOR THE PURPOSE OF COMPUTING THE AVERAGE MARGIN.' 2. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE HON'B LE DELHI HIGH COURT IN ITA NO.260/2018 IN THE APPEAL FILED BY THE REVENUE AGAINST THE AFORESAID ORDER DISMISSED THE APPEAL AT THE ADMISSI ON STAGE OBSERVING THAT RATIONALE GIVEN BY THE ITAT FOR EXCLUSION WAS CORRECT. IN VIEW OF THE AFORESAID DECISION, WE DIRECT EXCLUSION OF INFOSYS BPO FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. FROM ABOVE, IT IS CLEAR THAT THIS COMPANY IS FUNCTI ONALLY NOT COMPARABLE WITH CAPTIVE SERVICE PROVIDER. RESPECTFULLY FOLLOWING THE SAME WE DIRECT THIS COMP ANY TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 9. (C) TCS E-SERVE LTD. LD. AR SUBMITTED THAT THIS COMPANY HAS BEEN OBJECTE D BY ASSESSEE FOR ITS FUNCTIONAL DISSIMILARITY AS IT RENDERS BOTH BPO AND KPO SERVICES WITHOUT SEGMENTAL REPORTING. IT IS SUBMITTED THAT T HIS COMPANY OWNS HUGE BRAND OF TATA GROUP AND HAS ALSO INCURRED BRAN D RELATED EXPENSES AND THEREFORE CANNOT BE ACCEPTED TO BE COM PARED WITH A CAPTIVE SERVICE PROVIDER LIKE ASSESSEE. LD.CIT DR ON THE CONTRARY OPPOSED ITS EXCLUSION AND PLACED RELIANCE UPON ORDERS PASSED BY AUTHORITIES BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. ASSESSEE PLACED RELIANCE UPON FOL LOWING DECISIONS IN SUPPORT OF ITS ARGUMENT FOR EXCLUSION OF THIS COMPA RABLE: PAGE 16 OF 22 IT(TP)A NO.2029/BANG/2016 ZYME SOLUTIONS (P.) LTD. (SUPRA) BAXTER INDIA (P.) LTD V. ACIT [2017] 85 TAXMANN.COM 285 (DELHI - TRIB) PR. CIT V. BC MANAGEMENT SERVICES (P.) LTD. [2018] 89 TAXMANN.COM 68/(DELHI) IT IS OBSERVED THAT THIS COMPARABLE HAS BEEN EXCLUD ED BY THIS TRIBUNAL. ASSESSEE PLACED RELIANCE UPON DECISION OF THIS TRIB UNAL IN CASE OF ZYME SOLUTIONS (P.) LTD. (SUPRA), BY OBSERVING AS UNDER: '11.3 WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED M ATERIAL ON RECORD. THE ISSUE OF COMPARABILITY OF THIS COMPANY WAS CONS IDERED BY THE CO- ORDINATE BENCH OF TRIBUNAL IN THE CASE OF XLHEALTH CORPN. INDIA (P.) LTD. (SUPRA). THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: '. . . . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. FROM THE PERUSAL OF THE ANNUAL REPORT OF TH IS ENTITY PLACED AT PAGE NOS. 583 TO 678 OF PAPER BOOK, AT PAGE NO. 604 IT IS STATED AS UNDER. '2. COMPANY OVERVIEW YOUR COMPANY, ALONG WITH ITS SUBSIDIARY COMPANIES - TCS E-SERVE INTERNATIONAL LIMITED AND TCS E-SERVE AMERICA INC., IS PRIMARILY ENGAGED IN THE BUSINESS OF PROVIDING BUSINESS PROCESS SERVI CES (BPO) FOR ITS CUSTOMERS IN BANKING, FINANCIAL SERVICES AND INSURA NCE DOMAIN. THE COMPANY'S OPERATIONS INCLUDE DELIVERING CORE BU SINESS PROCESSING SERVICES, ANALYTICS & INSIGHTS (KPO) AND SUPPORT SE RVICES FOR BOTH DATA AND VOICE PROCESSES. YOUR COMPANY IS AN INTEGRAL PART OF THE TATA CONSUL TANCY SERVICES' (TCS) STRATEGY TO BUILD ON ITS 'FULL SERVICES OFFERINGS' THAT OFFER GLOBAL CUSTOMERS AN INTEGRATED PORTFOLIO OF SERVICES RANGI NG FROM IT SERVICES TO BPO SERVICES. THE COMPANY PROVIDES ITS SERVICES FROM VARIOUS PROC ESSING FACILITIES, BACKED T) A ROBUST AND SCALABLE INFRASTRUCTURE NETW ORK TAILORED TO MEET CLIENTS' NEEDS. A DETAILED BUSINESS CONTINUITY PLAN HAS ALSO BEEN PUT IN PLACE TO ENSURE THE SERVICES ARE PROVIDED TO THE CU STOMERS WITHOUT ANY DISRUPTIONS. THUS, THIS COMPANY IS ALSO STATED TO BE A KNOWLEDGE PROCESS OUTSOURCING AND THEREFORE FOR I' - REASONS STATED B Y US WHILE DEALING WITH THIS ISSUE OF COMPARABILITY OF THE COMPANY INF OSYS BPO LTD. SHALL EQUALLY HOLD GOOD AND THEREFORE WE DIRECT THE AO/TP O TO EXCLUDE THIS COMPANY FROM LIST OF COMPARABLES SINCE THE APPELLAN T COMPANY IS INTO L OW END BPO, IT CANNOT BE COMPARED WITH KPO SERVICE PROVIDER. 11.4 RESPECTFULLY FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH OF TRIBUNAL, WE DIRECT FOR EXCLUSION THIS COMPANY FROM THE LIST OF COMPARABLE'. PAGE 17 OF 22 IT(TP)A NO.2029/BANG/2016 IT HAS BEEN OBSERVED THAT THIS COMPANY IS INTO HIGH -END KPO SERVICES AND AN ASSESSEE RENDERING LOW END BPO SERVICES CANN OT BE COMPARED WITH IT. FURTHER, THIS COMPANY HAS BEEN EXCLUDED DU E TO ABSENCE OF SEGMENTAL INFORMATION. RESPECTFULLY FOLLOWING AFORESAID DECISION, WE DIREC T LD.TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 10. (D) BNR UDYOG LTD. (SEGMENTAL) LD.AR SUBMITTED THAT THIS COMPANY FAILS RPT FILTER AND ALSO FAILS EXPORT FILTER APPLIED BY LD.TPO. IT IS SUBMITTED THAT THIS COMPANY IS INTO MEDICAL TRANSCRIPTION, CODING, BUSINESS SUPPORT SERVICES AN D E-GOVERNANCE PROJECTS AND THEREFORE FUNCTIONALLY NOT SIMILAR WIT H THAT OF ASSESSEE. LD. CIT DR HOWEVER CONTENDED THAT THIS COMPANY IS C OMPARED ONLY FOR SEGMENT OF MEDICAL TRANSCRIPTION AND THEREFORE SHOU LD NOT BE EXCLUDED. SHE PLACED RELIANCE UPON DECISION OF THIS TRIBUNAL IN CASE OF MOBILY INFOTECH INDIA (P) LTD. V. DY. CIT [2018] 97 TAXMAN .COM 2 (BANG. - TRIB.) IN SUPPORT. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. ASSESSEE IS CHALLENGING FUNCTIONAL DISSIMILARITY OF THIS COMPANY WITH THAT OF ASSESSEE AS IT IS INTO MEDICAL TRANSCRIPTIO N. WE HAVE OUR RESERVATION TO CONSIDER MEDICAL TRANSCRIPTION SERVI CES TO BE ONE OF KPO SERVICES. IN OUR CONSIDERED OPINION MEDICAL TRANSCR IPTION SERVICES IS BASICALLY BACK-OFFICE SERVICES PROVIDED BY GRADUATE S WHO ARE TRAINED FOR SHORT PERIOD OF 6 MONTHS TO ONE YEAR. THESE ARE SHO RT CRASH COURSES UNDERTAKEN BY GRADUATES WHO ARE TRAINED TO UNDERSTA ND AND SPEAK ENGLISH. THERE IS NO VALUE ADDITION IN THE SERVICES RENDERED BY PEOPLE IN MEDICAL TRANSCRIPTION. TO OUR UNDERSTANDING, BASICA LLY THESE PEOPLE WHO CARRY OUT MEDICAL TRANSCRIPTION SERVICES ARE TRAINE D TO UNDERSTAND LANGUAGE SPOKEN BY DOCTORS, OUTSIDE INDIA TO WHOM M EDICAL REPORTS OF PATIENCE ARE SENT FOR EXPERT OPINION. MEDICAL TRANS CRIPTIONIST SIMPLY REPRODUCES OPINION EXPRESSED BY DOCTOR, WHICH IS TH EN COMMUNICATED TO THE PATIENTS. IT IS OBSERVED FROM ANNUAL REPORT PLACED AT PAGE 74 5 OF PAPER BOOK VOLUME (INDEX TO ANNUAL REPORTS) THAT THIS COMPANY HAS SEGMENTAL INFORMATION OF MEDICAL TRANSCRIPTION AND REVENUE EA RNED UNDER THIS SEGMENT IS RS.147.40 LACS. IT IS ALSO BEEN OBSERVED THAT VARIOUS OTHER DECISIONS BY CO-ORDINATE BENCHES OF THIS TRIBUNAL H AS REMANDED THIS COMPARABLE BACK TO LD.TPO, FOR PROPER ANALYSIS AND FRESH CONSIDERATION. WE DRAW SUPPORT FOR SAME FROM INDEGENE (P.) LTD. V. ASSTT. CIT [2017] 85 TAXMANN.COM 60 (BANG. - TRIB.), WHEREIN IT HAS BEEN HELD AS UNDER: '9.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD INCLUDI NG THE JUDICIAL PRONOUNCEMENTS CITED. FROM THE DETAILS ON RECORD WE OBSERVE THAT WHILE THE ASSESSEE HAS CONTENDED THAT THE SERV ICES RENDERED BY THIS COMPANY M/S TCS E-SERVE LTD ARE HI GH END PAGE 18 OF 22 IT(TP)A NO.2029/BANG/2016 KPO SERVICES, IT HAS NOT BROUGHT OUT AS TO WHICH OF THESE ARE THE SERVICES THAT WOULD COME UNDER TECHNICAL SERVICES. ON THE OTHER HAND, W ALSO NOTICE THAT THAT THE TPO HAS HELD ALL THE SERVICES RENDERED BY THE ASSESSEE TO BE BPO SERVICES WITH AN Y PROPER ANALYSIS. IN THIS FACTUAL MATRIX OF THE CASE, WE FI ND THAT ON SIMILAR FACTS, THE CO-ORDINATE BENCH O ITAT BANGALO RE IN THE CASE OF INDEGENE (P) LTD., (SUPRA) HAS REMANDED THE MATTER OF COMPARABILITY OF THIS COMPANY TO THE FILE OF THE TP O FOR FRESH CONSIDERATION. IN VIEW OF THE FACTUAL MATRIX OF THE CASE ON HAND, AS LAID OUT ABOVE AND FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF INDEGENE (P) LTD. (SUPRA) WHIC H IS ALSO RENDERED ON SIMILAR FACTS, WE DEEM IT APPROPRIATE T O REMAND THE MATTER OF THE COMPARABILITY OF THIS COMPANY, TCS E- SERVE LTD. TO THE FILE OF THE TPO FOR FRESH CONSIDERATION IN THE LIGHT OF OUT ABOVE OBSERVATIONS. NEEDLESS TO ADD, THE TPO SHALL AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DETAILS/SUBMISSIONS IN THIS REGARD. IT IS ALSO BEEN OBSERVED THAT SIMILAR VIEW HAS BEEN TAKEN BY DECISION OF THIS TRIBUNAL IN CASE OF NIELSON SPORTS INDIA (P.) LTD. V. ACIT [IT(TP) APPEAL NO.196(BANG.) OF 2017, DATED 28-06-2019]. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THIS COMPARABLE BACK TO LD.TPO FOR CONSIDERING IT AFRESH. NEEDLESS TO SAY T HAT PROPER OPPORTUNITY SHALL BE GRANTED TO ASSESSEE AS PER LAW. 4.4 NOTHING HAS BEEN PLACED BEFORE US BY THE LD. CI T DR CONTRARY TO THE ABOVE OBSERVATIONS BY COORDINATE BE NCH OF THIS TRIBUNAL. RESPECTFULLY FOLLOWING THE SAME WE DIRECT EXCLUSION OF UNIVERSAL PRINT, TCS E-SERVE AND INFOSYS BPO FROM T HE LIST OF COMPARABLES AND REMAND BNR UDYOG LD. AO/TPO TO CONS IDER IT AFRESH IN LIGHT OF THE OBSERVATIONS MADE BY COORDIN ATE BENCH OF THIS TRIBUNAL REPRODUCED HEREINABOVE. IN THE RESULT THIS GROUND RAISED BY ASSESSEE STANDS PARTLY ALLOWED. 4.8 THE LD.AR SUBMITTED THAT DRP DIRECTIONS TO CONS IDER FOREIGN EXCHANGE AS OPERATING INCOME WHILE COMPUTING WORKIN G CAPITAL ADJUSTMENT MAY BE DIRECTED TO LD.AO/TPO. PAGE 19 OF 22 IT(TP)A NO.2029/BANG/2016 4.9 WE ACCORDINGLY DIRECT THE LD.AO/TPO TO CONSIDER FOREIGN EXCHANGE TO BE AN OPERATING INCOME WHILE COMPUTING WORKING CAPITAL ADJUSTMENT AS PER THE DIRECTIONS OF DRP. 4.10 NO OTHER GROUNDS RAISED IN THE REVISED GROUND OF APPEAL HAS BEEN ARGUED BY THE LD. A.R. AT THE BEHEST OF ASSESS EE AND ACCORDINGLY THE SAME IS DISMISSED AS NOT PRESSED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED. 5. GROUND NO.3(G): THE GRIEVANCE OF THE ASSESSEE IS WITH REGARD TO NEG ATIVE WORKING CAPITAL ADJUSTMENT CARRIED OUT BY THE LD.TPO WHICH WAS CONFIRMED BY THE DRP. IT IS THE PLEA OF THE ASSESSE E THAT THOUGH THE LD.TPO HAS OBSERVED THAT THE ASSESSEE HAS A HEA LTHY MARGIN, THE LD.TPO HAS ERRED IN MAKING AN ADJUSTMENT TOWARD S WORKING CAPITAL AND THE DRP FURTHER ERRED IN UPHOLDING THE SAME. 5.1 IT WAS SUBMITTED THAT WORKING CAPITAL ADJUSTME NT IS MADE FOR THE TIME VALUE OF MONEY LOST WHEN CREDIT TIME I S GIVEN TO THE CUSTOMERS. THE ASSESSEE HOWEVER DOES NOT BEAR ANY R ISK AND HAS NO WORKING CAPITAL CONTINGENCIES. THE ASSESSEE HAS NOT INCURRED ANY EXPENSES FOR MEETING THE WORKING APITAL REQUIRE MENT. THE ASSESSEE IS RUNNING THE BUSINESS WITHOUT ANY WORKIN G CAPITAL RISK AS COMPARED TO THE COMPARABLES. THE AS SESSEE DOES NOT BEAR ANY MARKET RISK AS THE SERVICES ARE PROVID ED ONLY TO ITS AE. THEREFORE, REQUIREMENT FOR ADJUSTMENT OF NEGATI VE WORKING CAPITAL DOES NOT ARISE. 5.2 THE LD. AR PLACED RELIANCE ON DECISION OF COORD INATE BENCH OF THIS TRIBUNAL IN CASE OF TAVANT TECHNOLOGIES INDIA (P.) PAGE 20 OF 22 IT(TP)A NO.2029/BANG/2016 LTD. V. DY. CIT [2020] 120 TAXMANN.COM 122/185 ITD 309 (BANG - TRIB) AND LAM RESEARCH INDIA (P.) LTD. V. DY. CIT [IT APPEAL NOS. 1473 & 1385 (BANG.) OF 2014, DATED 30-4-2015], TIVO TECH (P.) LTD. V. DY. CIT [2020] 117 TAXMANN.COM 259/185 ITD 209 (BANG - TRIB) AND DY. CIT V. SOFTWARE AG BANGALORE TECHNOLOGIES (P.) LTD. [IT APPEAL NO. 1628 OF 2014, DATED 31-3-2016], WHE RE IT HAS BEEN HELD THAT NEGATIVE WORKING CAPITAL ADJUSTMENT SHALL NOT BE MADE. 5.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT IN THE CASE OF LAM RESEARCH INDIA (P.) LTD. ( SUPRA ) AND SOFTWARE AG BANGALORE TECHNOLOGIES (P.) LTD. ( SUPRA ) PASSED BY THIS TRIBUNAL, IT HAS BEEN HELD THAT NEGATIVE WORKING CAPITAL ADJUSTM ENT SHALL NOT BE MADE IN CASE OF A CAPTIVE SERVICE PROVIDER AS TH ERE IS NO RISK AND IT IS COMPENSATED ON A TOTAL COST PLUS BASIS. W E THEREFORE DIRECT LD.TPO TO COMPUTE THE ALP IN ACCORDANCE WITH THE DIRECTIONS CONTAINED IN THIS ORDER AFTER AFFORDING ASSESSEE OPPORTUNITY OF BEING HEARD. ACCORDINGLY GROUND NO.3(G) RAISED BY ASSESSEE STAND S ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPT, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE, DATED, THE 17 TH SEPT, 2021. /VMS/ PAGE 21 OF 22 IT(TP)A NO.2029/BANG/2016 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 22 OF 22 IT(TP)A NO.2029/BANG/2016 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -9- 2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -9- 2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -9- 2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -9- 2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -9- 2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -9- 2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -9- 2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS