M/s. MPS Technologies Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2031/CHNY/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7959 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 08-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 12-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , !' . #$#% , & '' ( [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A.NO. 2031/MDS/2011 / ASSESSMENT YEAR : 2007-2008. M/S. MPS TECHNOLOGIES LTD, (SINCE MERGED WITH MPS LTD) 27, G.N. CHETTY ROAD, T. NAGAR, CHENNAI 600 017. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(3) CHENNAI. [PAN AAECM 0205A] ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : SHRI. VIKRAM VIJAYARAGHAVAN, ADV. /RESPONDENT BY : SHRI. PATHCLAVATH PEEREJA, CIT /DATE OF HEARING : 08-02-2017 ! /DATE OF PRONOUNCEMENT : 14-02-2017 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST AN ASSESSMENT ORDER DATED 11.10.2011 OF ASSISTANT CO MMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(3), CHENNAI PURSUANT TO DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (IN SHORT TH E LD. DPR) U/S.144C OF THE INCOME TAX ACT, 1961 (HEREIN AFTE R REFERRED TO AS ITA NO.2031/MDS/2011 :- 2 -: THE ACT). IT HAS ALTOGETHER RAISED THREE GROUNDS OF WHICH GROUND NO.1 IS GENERAL IN NATURE NEEDING NO SPECIFIC ADJUDICATI ON. LD. COUNSEL AT THE OUTSET SUBMITTED THAT HE WAS NOT PRESSING GROUN D NO.3 WHICH IS REGARDING RESTRICTION OF DEPRECIATION ON SITE LICE NCE. ACCORDINGLY GROUND NO. 3 IS DISMISSED AS NOT PRESSED. 2. GROUND NO.2, RELATES TO TRANSFER PRICING. WITHIN THIS GROUND THERE ARE LARGE NUMBER OF SUB GROUNDS STARTING FRO M 2.1 TO 2.7. EVEN WITHIN THESE SUB GROUNDS, THERE ARE FURTHER DIVISI ONS. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT HE WAS PRESSING ONLY GROUNDS NO.2.4 AND 2.6.2, TO GROUND NO.2.6.5 AMONG VARIOUS GROUND S RELATING TO TRANSFER PRICING. ACCORDINGLY ALL OTHER GROUNDS RE LATING TO TRANSFER PRICING ARE DISMISSED AS NOT PRESSED. 3. INITIATING HIS ARGUMENTS IN CONNECTION WITH GROUND 2.6.2, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT ASSESSEE W AS A LOW END PROVIDER OF IT ENABLED SERVICE. AS PER LD. AUTHORIS ED REPRESENTATIVE, ASSESSEE AS WELL AS LD. TPO HAD FOLLOWED TNMM METHO D FOR BENCH MARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSES SEE WITH ITS ASSOCIATED ENTERPRISE. AS PER LD. AUTHORISED REPRES ENTATIVE, LD. TPO HAD FINALLY ARRIVED AT TEN COMPARABLES COMPANY FOR BENCH MARKING PURPOSES. AMONG THESE TEN COMPANIES THERE WERE FOU R COMPANY NAMED ECLERX SERVICES LTD, INFOSYS BPO LTD, MAPLE E SOLUTIONS LTD AND ITA NO.2031/MDS/2011 :- 3 -: MPHASIS LTD. AS PER THE LD. AUTHORISED REPRESENTATI VE HE WAS SEEKING EXCLUSION OF THESE FOUR COMPANIES FROM THE LIST OF COMPARABLES. WITH REGARD TO M/S. ECLERX SERVICES LTD SUBMISSION OF T HE LD. AUTHORISED REPRESENTATIVE WAS THAT IT WAS INTO HIGH END KNOW LEDGE PROCESS OUTSOURCING AND NOT COMPARABLE TO WHAT ASSESSEE WA S DOING. AS PER LD. AUTHORISED REPRESENTATIVE ASSESSEE WAS MAINTAIN ING SCHOLARLYSTATS PLATFORM AND PROVIDING BACK OFFICE SERVICES TO ITS CUSTOMERS NAMED MACMILLAN INDIA LTD . CONTINUING HIS SUBMISSION, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT SERVICES OF THE ASSE SSEE WERE IN THE NATURE OF SUBSCRIBER FULFILLMENT OF CLIENTS ENGAGE D IN PUBLISHING PERIODICALS. SUCH SERVICES OFFERED, AS PER THE LD. AUTHORISED REPRESENTATIVE INCLUDED PROCESSING SUBSCRIPTIONS, MAINTAINING AND UPDATING THE DATABASE OF SUBSCRIBERS AND OTHER RELA TED SERVICES. AS PER LD. AUTHORISED REPRESENTATIVE IT WAS PURELY A BACK OFFICE PROCESSING AND WAS IN THE NATURE OF LOW END ITE/BPO SERVICES. SCHOLARLYSTATS SERVICES AS PER LD. AUTHORISED REPRESENTATIVE ONLY MEANT COLLECTION AND COLLATION OF USAGE REPORT FROM VARIOUS PLATFORMS A ND MAKING SUCH REPORTS AVAILABLE TO THE CUSTOMERS ON THE PORTAL. I N SO FAR AS CONTENT DEVELOPMENT PLATFORM WAS CONCERNED AS PER THE LD. A UTHORISED REPRESENTATIVE THERE WAS NO HIGH END PROCESS WORK D ONE BY THE ASSESSEE. AS PER LD. AUTHORISED REPRESENTATIVE, A SSESSEE BEING ONLY A LOW LEVEL BPO, COULD NOT BE COMPARED WITH ECELRX SERVICES LTD. FOR ITA NO.2031/MDS/2011 :- 4 -: THIS RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF RAMP GREEN SOLUTIONS P. LTD VS. CIT 377 ITR 533 . 4. VIZ-A-VIZ INFOSYS BPO LIMITED, LD. AUTHORISED REPR ESENTATIVE SUBMITTED THAT IT HAD A TURNOVER OF E650 CRORES. AS PER LD. AUTHORISED REPRESENTATIVE ASSESSEES TURNOVER WAS ONLY E33.5 C RORES. RELYING ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. M/S. PENTAIR WATER INDIA PVT. LTD, (2016) 381 ITR 2 16 AND THAT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD (2013) 93 DTR 375, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT INFOSYS BPO LTD HAD T O BE EXCLUDED FROM THE LIST OF COMPARABLES. 5. ARGUING FOR THE EXCLUSION OF M/S. MAPLE ESOLUTIONS LTD, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT DIRECTORS OF THE SAID COMPANY WAS INVOLVED IN A FRAUD. AS PER LD. AUTHOR ISED REPRESENTATIVE, DIRECTORS OF THE SAID COMPANY WERE RASTOGI BROTHERS WHO WERE ARRESTED BY FBI AND UK AUTHORITIES FOR VA RIOUS FRAUDULENT DEALS. AS PER LD. AUTHORISED REPRESENTATIVE IN THE CASE OF ITO VS. CRM SERVICES INDIA (P) LTD (ITA NO.4068/DEL/2009, DATED 30.06.2011 FOR ASSESSMENT YEAR 2004-2005) COMPARABILITY OF THE ABOVE COMPANY WAS DEALT WITH BY THE DELHI BENCH OF THIS TRIBUNAL AT PARA 17.5 OF ITS ORDER. AS PER LD. AUTHORISED REPRESENTATIVE BENCH HAD OBSE RVED THAT CONSIDERING THE QUESTION MARK ON THE REPUTATION OF THE OWNERS OF THE ITA NO.2031/MDS/2011 :- 5 -: SAID COMPANY, IT WAS UNSAFE TO TAKE IT AS A COMPA RABLE. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ABOVE DECISION WAS CONSIDERED BY THE HYDERABAD BENCH OF THE TRIBUNAL I N THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) P. LTD VS. D CIT (2013) 25 ITR(TRIB) 185 , WHICH WAS ALSO FOR THE VERY SAME ASSESSMENT YEAR. AS PER LD. AUTHORISED REPRESENTATIVE THE HYDERABAD BEN CH HAD HELD THAT MAPLE ESOLUTIONS LTD WAS NOT A PROPER COMPARABLE A T PARA 19 OF ITS ORDER AFTER CONSIDERING THE DECISION OF THE DELHI B ENCH IN THE CASE OF CRM SERVICES INDIA (P) LTD (SUPRA). 6. ARGUING FOR EXCLUSION OF MPHASIS LTD, LD. AUTHORISE D REPRESENTATIVE SUBMITTED THAT THE SAID COMPANY HAD A TURNOVER OF E1,103 CRORES AND WAS A INDUSTRIAL GIANT. ACCORDING TO HIM FOR THE VERY SAME REASON FOR WHICH HE WAS SEEKING EXCLUSION OF INFOSYS BPO LTD, MPHASIS LTD ALSO WOULD GO OUT OF THE LIST OF COMPAR ABLES. 7. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTING THE ORDERS OF THE LOWER AUTHORITIES SUBM ITTED THAT ASSESSEE WAS NOT INTO LOW END KNOWLEDGE PROCESS OUTSOURCING. AS PER LD. DEPARTMENTAL REPRESENTATIVE, THE DIRECTORS REPORT OF THE ASSESSEE CLEARLY POINTED OUT THE HIGH END NATURE OF ITS SER VICES. THUS ACCORDING TO HIM, ECELRX SERVICES LTD COULD NOT BE EXCLUDED F ROM THE LIST OF COMPARABLES. COMING TO MAPLE ESOLUTIONS LTD, LD. D EPARTMENTAL ITA NO.2031/MDS/2011 :- 6 -: REPRESENTATIVE SUBMITTED THAT ASSESSEE HAD NOT RAI SED ANY GROUND REGARDING FRAUDULENT TRANSACTIONS OF ITS DIRECTORS WHILE SEEKING EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARA BLES BEFORE ANY OF THE LOWER AUTHORITIES. AS PER LD. DEPARTMENTAL REP RESENTATIVE EVEN BEFORE THE TRIBUNAL THERE WAS NO SPECIFIC GROUND I N THIS REGARD. IN SO FAR AS MPHASIS LTD WAS CONCERNED, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT HERE ALSO ASSESSEE HAD NOT PLEADED E XCLUSION OF THE SAID COMPANY BEFORE ANY OF THE LOWER AUTHORITIES CI TING ITS MAMMOTH NATURE. AS PER LD. DEPARTMENTAL REPRESENTATIVE NO SUCH GROUND HAS BEEN RAISED BY THE ASSESSEE BEFORE THIS TRIBUNAL AL SO. THUS ACCORDING TO HIM, ASSESSEE WAS RAISING FRESH GROUNDS BEFORE T HIS TRIBUNAL WHICH WERE NOT TAKEN BEFORE LOWER AUTHORITIES. IN ANY CAS E, AS PER LD. DEPARTMENTAL REPRESENTATIVE HIGHER GROWTH RATE OR EXTREME HIGH PROFIT MARGIN COULD NOT BE A REASON FOR EXCLUSION. FOR THIS, RELIANCE WAS PLACED ON THE DECISION OF BANGALORE BENCH OF TH E TRIBUNAL IN THE CASE OF DCIT VS. AKAMAL TECHNOLOGIES INDIA (P) LTD, (2016) 68 TAXMANN.COM 371 . 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. WHAT WE NOTICE IS THAT ASSESSEE HAS FILED A COMPARABILITY ANALYSIS AS THE FIRST PAGE O F ITS PAPER BOOK VOLUME 2. IN THIS CHART, ASSESSEE HAS SOUGHT EXCL USION OF ECELRX SERVICES LTD, ICRA ONLINE LTD, INFOSYS BPO LTD, M APLE ESOLUTIONS LTD, ITA NO.2031/MDS/2011 :- 7 -: MPHASIS LTD AND TRITON CORP. LTD. HOWEVER, ARGUMENT S HAS BEEN ADVANCED BY THE LD. AUTHORISED REPRESENTATIVE ONLY WITH REGARD TO ECELRX SERVICES LTD, INFOSYS BPO LTD, MAPLE ESOL UTIONS LTD AND MPHASIS LTD. IN OTHER WORDS, NO ARGUMENTS WERE ADV ANCED FOR EXCLUSION OF ICRA ONLINE LTD AND TRITON CORP. LTD. THEREFORE, WE ARE CONFINING OURSELF TO COMPARABILITY OF ECELRX SERVIC ES LTD, INFOSYS BPO LTD, MAPLE ESOLUTIONS LTD AND MPHASIS LTD ARGUED B Y THE LD. AUTHORISED REPRESENTATIVE. 9. IN SO FAR AS ECELRX SERVICES LTD IS CONCERNED, CONT ENTION OF THE LD. AUTHORISED REPRESENTATIVE IS THAT THE SAID COMPANY WAS A HIGH END KNOWLEDGE PROCESS OUTSOURCING PROVIDES AND NO T COMPARABLE TO THE ASSESSEE WHICH WAS DOING LOW END KNOWLEDGE PR OCESSING. NO DOUBT IN THE CASE OF RAMP GREEN SOLUTIONS P. LTD (SUPRA) IT HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT THAT A BPO AN D A KPO WERE NOT COMPARABLE SINCE BPO DID NOT NECESSARY INVOLVE ADVA NCED SKILL AND KNOWLEDGE WHEREAS KPO EMPLOYED ADVANCE SKILL AND K NOWLEDGE FOR PROVIDING ITS SERVICES. THEIR LORDSHIP HAD APPROVE D THE DECISION OF HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) P. LTD (SUPRA). THERE CAN BE NO QUARREL ON THIS. HOWEVER QUESTION BEFORE US, IS WHETHER ASSESSEE WAS DOING LOW END BPO OR HIGH END BPO. IN THE SECOND ANNUAL REPORT O F THE COMPANY FOR ITA NO.2031/MDS/2011 :- 8 -: THE YEAR ENDING 31 ST DECEMBER, 2006 PROGRESS OF THE COMPANY HAS BEEN SUMMARIZED AS UNDER BY ITS DIRECTORS. YEAR 2006 SOW ON IMPRESSIVE GROWTH IN TERMS OF NU MBER OF CLIENTS AND VOLUME OF SOLES. THE COMPANY'S SOLES TU RNOVER DURING THE YEAR REGISTERED A SUBSTANTIAL GROWTH FROM RS. 956 LACS TO RS. 3,325 LACS, WHILE THE NUMBER OF CLIENTS WENT UP TO 90 AT THE CLOSE OF THE FINANCIAL YEAR. SCHOLARLYSTA TS LAUNCHED DURING LOST YEAR CONTINUED TO SHOW STRONG PERFORMAN CE WITH SOME OF THE WORLD'S BIGGEST AND MOST FAMOUS ACADEMI C LIBRARIES AND INSTITUTIONS SIGNING UP. THE YEAR END ED WITH THE 'BEST LIBRARY PRODUCT' OF THE YEAR AWARD FOR SCHOLA RLYSTATS AT THE ANNUAL INTERNATIONAL INFORMATION INDUSTRY AWARDS. FULFILMENT AND PUBLISH ERSTATS PRODUCTS CONTINUED TO SHOW GROWTH. THE COMPANY ALSO SHOWCASED 'BOOKSTORE', ITS LATEST PRODUCT OFFERING AT THE ANNUAL FRANKFURT BOOKFAIR. BUSINESS OUTLOOK LONG TERM OUTLOOK FOR BUSINESS REMAINS POSITIVE IN VIEW OF THE GOOD RESPONSE FOR 011 THE PRODUCT OFFERINGS OF THE COMPANY. THE COMPANY'S LATEST PRODUCT OFFERING- BOO KSTORE IS ALSO SHOWING 0 LOT OF PROMISE AND INTEREST FROM THE PUBLISHERS. THE COMPANY HAS ALREADY BOGGED 0 CONTRACT FROM BOERSENVEREIN-GERMAN BOOK PUBLISHER'S ASSOCIAT ION TO BUILD AND DEVELOP THEIR ONLINE BOOK PLATFORM FOR TH EIR MEMBERS. SCHOLARLYSTATS CONTINUES TO RECEIVE BUOYON T RESPONSE FROM THE LIBRARY MORKET AND IS GROWING RAP IDLY. THE OUTLOOK FOR OTHER PRODUCT OFFERINGS OF THE COMPANY IS ALSO POSITIVE. THE COMPANY PLANS TO TAKE BENEFITS OF GLOBAL OUTSO URCING OPPORTUNITY OFFERED IN THE INFORMATION INDUSTRY SPA CE BY MAINTAINING ITS FOCUS ON HIGH VALUE ADDED PRODUCT O FFERINGS AIMED AT PUBLISHING & LIBRARY MARKET IN PARTICULAR. BESIDES, STRONG SUPPORT FROM THE PARENT COMPANY CONTINUES TO OFFER GOOD GROWTH POTENTIAL. UNDER THE SAME CAPTION THE DIRECTORS REPORT FOR YEA R ENDING 31 ST DECEMBER, 2007 STATES AS UNDER:- YOUR DIRECTORS ARE PLEASED TO REPORT THAT THE COMPANY SHOWED A SUBSTANTIALLY IMPROVED PERFORMANCE FOR THE YEAR. THE TOTAL INCOME INCREASED TO RS.3919.57 LACS AS AGAINST RS.3325.44 LACS THUS LOGGING A GROWTH OF 17.30%. ITA NO.2031/MDS/2011 :- 9 -: THE NET PROFIT AFTER TAX WAS RS.1025.98 LACS AS AGAINST A LOSS OF RS.223.53 LACS LAST YEAR. THE IMPROVED PROFITABILITY HAS HELPED TO WIPE OFF THE ACCUMULATED LOSSES AGGREGATING TO RS.753.58 LACS RESULTING IN A NET ACCUMULATED PROFIT TO THE TUNE OF RS.272.39 LACS. THE NET EPS RECORDED FOR THE EAR WAS 23.87 AS AGAINST A NEGATIVE EPS OF 5.59 IN THE LAST YEAR. THE COMPANY WILL CONTINUE TO MAINTAIN THE SCHOLARLYSTATS PLATFORM AND WILL ALSO PROVIDE BACK OFFICE SERVICES TO EXISTING SCHOLARLYSTATS CUSTOMER S THEREBY ENSURING A STEADY REVENUE STREAM IN FUTURE AS WELL. FURTHER, A NEW ON LINE CONTENT DELIVERY PLATFORM WAS LAUNCHED DURING THE YEAR. ALSO, THE FIRST FULL SCALE EBOOK SITE USING THE GROUND BREAKING BOOKSTORE PLATFORM WAS LAUNCHED DURING THE YEAR. BOOKSTORE SERVICES ARE BEING MADE AVAILABLE TO MAJOR US PUBLISHING CLIENTS. THE COMPANY ALSO SHOWCASED ITS GERMAN BOOK PLATFORM LIBREKAL AT THE FRANKFURT BOOK FAIR DURING THE YEAR WHICH INVITED AN ENCOURAGING RESPONSE THOUGH THE DEAL WITH BOERSEVEREIN DID NOT GO THROUGH AS EXPECTED EARLIER. THE BOARD OF DIRECTORS HAS DECIDED THAT IT IS IN THE INTERESTS OF THE COMPANY AND THE GROUP AS A WHOLE TO TRANSFER THE FULFILLMENT SERVICES OF THE COMPANY TO THE PARENT COMPANY MACMILLAN INDIA LTD. THIS WOULD HELP INTEGRATE THE OPERATIONS OF THE COMPANY AND RENDER BETTER SERVICE TO ITS CUSTOMERS. THIS TRANSFER IS BEING EFFECTED AS ON MARCH 31, 2008 ON A SLUMP SALE BASIS. BUSINESS OUTLOOK OF THE COMPANY WAS ALSO CAPTURED I N THE SAID ANNUAL REPORT WHICH IS REPRODUCED HEREUNDER:- LONG TERM OUTLOOK FOR BUSINESS REMAINS POSITIVE IN VIEW OF THE GOOD RESPONSE FOR ALL THE PRODUCT OFFERINGS OF THE COMPANY. HOWEVER THE YEAR 2008 IS EXPECTED TO BE A CHALLENGING YEAR IN TERMS OF PRODUCT OFFERINGS AS WELL AS THE MARKET CONDITIONS IN VIEW OF FALLING DOLLAR AND A PROLONGED SALES CYCLE FOR BOOKSTORE. THE COMPANY PLANS TO TAKE BENEFITS OF GLOBAL OUTSOURCING OPPORTUNITY OFFERED IN THE INFORMATION ITA NO.2031/MDS/2011 :- 10 -: INDUSTRY SPACE BY MAINTAINING ITS FOCUS ON HIGH VALUE ADDED PRODUCT OFFERINGS AIMED AT PUBLISHING & LIBRARY MARKET IN PARTICULAR. BESIDES, STRONG SUPPORT FROM THE PARENT COMPANY CONTINUES TO OFFER GOOD GROWTH POTENTIAL. 10. A READING OF THE ABOVE, IN OUR OPINION GOES AGAINST ASSESSEES CONTENTION THAT IT WAS A LOW-END BPO PRO VIDER. BUSINESS OUTLOOK SPECIFICALLY STATES THAT ASSESSEE WAS SEEKI NG TO MAINTAIN ITS FOCUS ON HIGH VALUE ADDED PRODUCT OFFERINGS. THAT S CHOLARLYSTATS SOFTWARE WAS LAUNCHED BY THE ASSESSEE IN THE CALE NDAR YEAR ENDING 31 ST DECEMBER, 2006 IS CLEAR FROM ITS ANNUAL REPORT. W HAT IS MEANT BY SCHOLARLYSTATS IS SPECIFICALLY MENTIONED BY THE ASS ESSEE IN ITS WRITTEN SUBMISSION BEFORE US WHICH IS REPRODUCED HEREUNDER :- SCHOLARLYSTATS SERVICES MEANS COLLECTION AND COLLATION OF USAGE REPORT FROM PLATFORMS, PREPARATION OF SCHOLARLYSTATS REPORTS AND MAKING SUCH REPORTS AVAILABLE TO THE CUSTOMER ON THE PORTAL. IN OUR OPINION, IT IS CLEAR FROM THE ABOVE THAT ASS ESSEE WAS NOT DOING LOW END BPO. IT WAS PROVIDING KNOWLEDGE AND SKILL BASED PROCESS OUTSOURCING SERVICES. HENCE, ASSESSEE WAS ONLY A K PO AND NOT A BPO. THIS WAS ALSO A VIEW TAKEN BY THE LOWER AUTHORITIES . THUS, ECELRX SERVICES LTD WHICH WAS ALSO DOING HIGH END KPO SER VICE WAS A PROPER COMPARABLE TO THAT OF ASSESSEE. WE DO NOT FIND ANY REASON TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES. ITA NO.2031/MDS/2011 :- 11 -: 11. COMING TO THE CASE OF INFOSYS BPO LTD, IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD (SUPRA) HONBLE DELHI HIGH COURT HAD CLEARLY HELD THAT INFOSYS BPO LTD HAD TO BE EXCLUDE D FROM THE LIST OF COMPARABLES SINCE IT WAS A GIANT COMPANY. SAME VIEW WAS TAKEN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. PENTAIR WATER INDIA PVT. LTD (SUPRA) WHERE COMPARABILITY OF INFOSYS BPO LTD WAS AN ISSUE . THEREFORE ASSESSEES CONTENTION THAT INFOSYS BPO LTD HAD A BRAND VALUE WHICH HAD DRIVEN ITS HIGH TURNOVER IS ACCEPTA BLE. WE DIRECT EXCLUSION OF INFOSYS BPO LTD FROM THE LIST OF COMPA RABLES. 12. COMING TO M/S. MAPLE ESOLUTIONS LTD, RELIANCE HAS B EEN PLACED BY THE ASSESSEE ON THE DECISION OF DELHI BEN CH OF THE TRIBUNAL IN THE CASE OF CRM SERVICES INDIA PRIVATE LTD (SUPRA ) WHICH WAS IN TURN RELIED BY THE HYDERABAD BENCH OF THE TRIBUNAL IN TH E CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD (SUPRA) . NO DOUBT IT WAS OBSERVED BY THE DELHI BENCH IN THE CASE OF CRM SERV ICES INDIA PRIVATE LTD (SUPRA) THAT RASTOGI BROTHERS WERE DIRECTORS OF MAPLE E SOLUTIONS AND TRITON CORPORATION AND WERE INVOLVED IN FRAUDU LENT DEALS IN EARLIER YEARS. HOWEVER WHAT WE FIND IS THAT ASSESS EE HAD NOT RAISED ANY GROUND IN THIS REGARD BEFORE LD. DRP. THERE IS NO SPECIFIC GROUND TAKEN BEFORE US ALSO. NOW THE QUESTION IS WHETHER A SSESSEE CAN SEEK EXCLUSION OF MAPLE ESOLUTIONS LTD BASED ON A DIFFER ENT REASON. BY VIRTUE OF DECISION OF SPECIAL BENCH IN THE CASE OF DY. CIT VS. QUARK ITA NO.2031/MDS/2011 :- 12 -: SYSTEMS P. LTD (2010) 42 DTR 414, WE ARE OF THE OPINION THAT ASSESSEE CANNOT BE STOPPED FROM RAISING A FRESH PLE A ON THESE LINES. CONSIDERING THE FACTS AND CIRCUMSTANCES , WE ARE OF THE OPINION THAT THE ISSUE WHETHER MAPLE ESOLUTIONS LTD CAN BE INCLU DED AS A GOOD COMPARABLE REQUIRES A FRESH LOOK BY THE LOWER AUTHO RITIES. SO, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS C OMPARABLE AND REMIT IT BACK TO THE LD. ASSESSING OFFICER/TPO FOR CONSID ERATION AFRESH IN ACCORDANCE WITH LAW. 13. COMING TO MPHASIS LTD CLAIM OF THE ASSESSEE IS THAT IT HAD VERY HIGH TURNOVER AND WAS NOT A COMPARABLE TO TH E ASSESSEE WHICH WAS HAVING TURNOVER OF E33.5 CRORES. HERE ALSO ASSE SSEE HAD NOT RAISED A SPECIFIC GROUND BEFORE LOWER AUTHORITIES OR BEFORE US CITING THE MAMMOTH NATURE OF MPHASIS LTD AS A REASON FOR S EEKING ITS EXCLUSION. WE ARE OF THE OPINION THAT THIS CAN ALSO BE LOOKED BY THE LD. ASSESSING OFFICER/TPO. ASSESSEE CANNOT BE ESTOPPED FROM RAISING SUCH ISSUE FOR THE FIRST TIME BEFORE US BY THE VIRTUE OF THE DECISION OF SPECIAL BENCH IN THE CASE OF QUARK SYSTEMS P. LTD (SUPRA). ACCORDINGLY, WE REMIT THE QUESTION OF COMPARABILITY OF MPHASIS LTD ALSO BACK TO THE LD. ASSESSING OFFICER/TPO FOR CONSIDERATION AFRESH IN A CCORDANCE WITH LAW. 14. HOWEVER, CONTENTION OF THE ASSESSEE THAT COMPANIES HAVING HIGHER GROWTH RATE OR EXTREME HIGH PROFIT MARGIN SH OULD BE EXCLUDED ITA NO.2031/MDS/2011 :- 13 -: CANNOT BE ACCEPTED, SINCE BANGALORE BENCH OF THE TR IBUNAL IN THE CASE OF AKAMAL TECHNOLOGIES INDIA (P) LTD (SUPRA) HAS CLEARLY HELD THAT SUCH A FILTER CANNOT BE APPLIED WHILE SELECTING COMPARAB LE. 15. IN THE RESULT, GROUND 2.6.2 TO 2.6.5 OF THE ASSESSE E ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 16. THIS LEAVES US WITH GROUND NO.2.4 WHICH ASSAILS REJ ECTION OF ADJUSTMENT DONE BY THE ASSESSEE, WHILE WORKING OUT ITS OPERATING PROFIT TO OPERATING COSTS RATIO, FOR WHAT THE ASSES SEE TERMS AS HUGE MARKETING AND ACCOUNTING MANAGEMENT COST. 17. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT ASSESS EE HAD WORKED OUT ITS OPERATING PROFIT TO OPERATING COSTS RATIO AT 25.46%. AS PER LD. AUTHORISED REPRESENTATIVE THE OPERATING EXP ENDITURE WAS COMPUTED BY THE ASSESSEE CONSIDERING THE RATIO OF OPERATING EXPENSES TO SALES OF THE COMPARABLE COMPANIES SELECTED BY IT . AS PER THE LD. AUTHORISED REPRESENTATIVE, LD. TPO ON THE OTHER HAN D HAD TAKEN THE PLI OF THE ASSESSEE AT (-) 1.01%. CONTENTION OF T HE LD. AUTHORISED REPRESENTATIVE WAS THAT ASSESSEE WAS IN ITS INITIAL YEAR OF OPERATION AND HAD TO INCUR HUGE MARKETING AND ACCOUNTING MANA GEMENT COST. AS PER LD. AUTHORISED REPRESENTATIVE ASSESSEE WAS IN ITS START UP PHASE. NONE OF THE COMPARABLE SELECTED BY THE ASSESSEE HA D INCURRED ITA NO.2031/MDS/2011 :- 14 -: MARKETING AND ACCOUNTING MANAGEMENT COST COMPARABL E TO THAT OF ASSESSEE. HENCE AS PER LD. AUTHORISED REPRESENTATIV E SUCH ADJUSTMENT WAS REQUIRED. ACCORDING TO HIM, GENERAL MANAGEMENT AND ADMINISTRATIVE COST INCURRED BY THE ASSESSEE FOR T HE RELEVANT PREVIOUS YEAR WAS E16.42 CRORES AND THIS HAD GONE DOWN TO E1 0.45 CRORES BY THE FINANCIAL YEAR ENDING 31 ST MARCH, 2009. AS PER LD. AUTHORISED REPRESENTATIVE ASSESSEE HAD SET UP TEAM OF EMPLOYEE S IN OVERSEAS JURISDICTION TO MARKETS ITS SERVICE. HENCE IT HAD TO INCUR HUGE MARKETING EXPENDITURE. ACCORDING TO HIM AN ADJUSTME NT FOR STARTUP EXPENDITURE WAS REQUIRED TO BE GIVEN AND LOWER AUTH ORITIES HAD FAILED TO CONSIDER THIS. ACCORDING TO HIM, ASSESSEE HAD M ADE AN ADJUSTMENT OF ITS OWN OPERATING COST TO OFFSET THIS. AS PER T HE LD. AUTHORISED REPRESENTATIVE THIS WAS AN ACCEPTABLE METHOD BUT NO T ACCEPTED BY THE LOWER AUTHORITIES. 18. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 19. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. COMPUTATION OF THE OPERATING PROFIT ON OPERATING COST DONE BY THE ASSESSEE IS REPRODUCED HEREUNDER:- ITA NO.2031/MDS/2011 :- 15 -: PARTICULARS AMOUNT(RS) SALES AS PER AUDITED FINANCIAL STATEMENTS 334,272,627 OPERATING EXPENSES (CONSIDERED ON THE BASIS OF THE OPERATING EXPENSES/SALES RATIO OF 58.91% BASED ON THE COMPARABLE COMPANIES) 196,920,005 EMPLOYEE COST AS PER AUDITED FINANCIAL STATEMENTS 52,233,747 TOTAL COST 249,153,752 OPERATING PROFIT 85,118,875 OPERATING PROFIT/COST 25.46% IT IS NOT DISPUTED THAT LD. ASSESSING OFFICER HAD C ONSIDERED OPERATIVE PROFIT TO OPERATIVE COST MARGIN OF THE ASSESSEE AT (-)1.01% BASED ON THE PUBLISHED RESULTS OF THE COMPANY. THE PUBLISHE D PROFIT AND LOSS ACCOUNT OF THE COMPANY GIVES ITS RESULT AS UNDER:- MPS TECHNOLOGIES LIMITED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2007 SCHEDULE REF YEAR ENDED 31.03.2007 (E) INCOME:- 1. SALE OF SERVICES 2. OTHER INCOME 9 334,272,627 588,477 334,861,104 EXPENDITURE:- 1. STAFF COSTS 2. GENERAL AND ADMINISTRATION EXPENSES 3. DEPRECATION LESS: AMOUNT CAPITALIZED TOWARDS SOFTWARE DEVELOPMENT COSTS LOSS BEFORE TAX 8 8 57,715,606 261,029,975 18,944,960 337,690,541 337,690,541 (2,829,437) ITA NO.2031/MDS/2011 :- 16 -: OBVIOUSLY, ASSESSEE HAD REPORTED AN OPERATING LOSS. THE GENERAL AND ADMINISTRATIVE EXPENDITURE CLAIMED BY THE ASSESSEE APPEARS AT SCHEDULE 8 WHICH IS REPRODUCED HEREUNDER:- GENERAL AND ADMINISTRATION EXPENSES (A) TECHNICAL AND PROFESSIONAL SERVICES 124,678,234 (B) PRODUCT SUPPORT CHARGES 96,876,217 (C) AGENCY COMMISSIONS CHARGES 7,794,600 (D) RENT AND HIRE CHARGES 6,694,526 (E) REPAIRS AND MAINTENANCE: OFFICE BUILDING COMPUTERS EQUIPMENT 2,701,859 2,118,824 2,684 (F) ELECTRICITY EXPENSES 958,888 (G) COMPUTER CONSUMABLES 258,467 (H) COMMUNICATION EXPENSES 3,111,342 (I) TRAVELLING AND CONVEYANCE 10,948,728 (J) RATES AND TAXES 192,500 (K) LEGAL AND PROFESSIONAL CHARGES 1,595,257 (I) INSURANCE 147,982 (M) FOREIGN EXCHANGE FLUCTUATION - (O) OTHER EXPENSES 2,949,867 261,029,975 TOTAL OPERATING AND OTHER EXPENSES 318,745,581 ASSESSEE ITSELF HAD TERMED ITS EXPENDITURE AS TOTAL OPERATING AND OTHER EXPENDITURE. IT THEREFORE CANNOT SAY THAT PART OF THE EXPENDITURE ALONE SHOULD BE TAKEN OUT FOR A SEPARATE TREATMENT, WHEN BENCH MARKING IS BASED ON TNMM METHOD. TNMM METHOD ITSEL F IS USED SO AS ITA NO.2031/MDS/2011 :- 17 -: TO EVEN OUT THE DIFFERENCE IN NATURE AND QUANTUM OF EXPENDITURE AND SMALL DISSIMILARIES IN FUNCTIONAL PROFILE. HENCE A TTEMPT MADE BY THE ASSESSEE TO REWORK ITS OPERATING COST BASED ON A SE PARATE COMPARABILITY ANALYSIS IS NOT WARRANTED UNDER TNMM METHOD. WE ARE THEREFORE OF THE OPINION THAT LOWER AUTHORITIES WER E JUSTIFIED IN COMPUTING OPERATING COST TO OPERATING PROFIT BASED ON THE PUBLISHED ACCOUNTS OF THE ASSESSEE. WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AUTHORITIES IN THIS REGARD. GROUND NO.2.4 OF THE ASSESSEE STANDS DISMISSED. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON TUESDAY, THE 14TH DAY OF FEBRUA RY, 2017, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 14TH FEBRUARY, 2017 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF