M/s.Mobily Infotech India Pvt. Ltd., Bangalore V. Deputy Commissioner of Income-Tax, Bangalore

ITA 2055/BANG/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5033 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 25-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P C KHINCHA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Bad and doubtful debts
• Section: 92C; 143(3); 92D; 234B; 133(6); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N.V VASUDEVAN , JUDICIAL MEMBER SHRI JASON P BOAZ, ACCOUNTANT MEMBER IT(TP)A NO.2055/BANG/2 016 (ASST. YEAR 2012-13 ) M/S MOBILY INFOTECH INDIA PVT. LTD., 1 ST FLOOR, RMZ NEXT, CAMPUS 2A, WHITEFIELD ROAD, WHITEFIELD, BANGALORE. . APPELLANT PAN AAFCM0601F VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-4(1)(2), BANGALORE. . RESPONDENT APPELLANT BY : SHRI P.C KHINCHA, C .A RESPONDENT BY : MS. NEERA MALHOTRA, CIT DATE OF HEARING : 28-6-2018 DATE OF PRONOUNCEMENT : 8-8-2018 O R D E R PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGISNTST T HE FINAL ORDER OF ASSESSMENT FOR ASST. YEAR 2012-13 PASSED U /S 143(3) R.W.S 144C(13) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), VIDE ORDER DATED 28/9/2016, PURSUANT TO THE DIRECTIONS I SSUED BY THE DISPUTE RESOLUTION PANEL-2 (DRP) U/S 144C(5) OF T HE ACT ON 2/9/2016. IT(TP)A NO.2055/B/1 6 2 2. BRIEFLY STATED, THE FACTS OF THE CASE AS UNDER:- 2.1 THE ASSESSEE COMPANY IS ENGAGED IN TWO BUSINESS SEGMENTS, NAMELY:- (I) SOFTWARE DEVELOPMENT SERVICES AS A SERVICE PROV IDER FOR MOBILE PHONES, AND (II) ITES SEGMENT WHICH INCLUDES CALL CENTRE AND OT HER ALLIED SUPPORT SERVICES. 2.2 FOR ASST. YEAR 2012-13, THE ASSESSEE FILED ITS RETURN OF INCOME ON 27/11/2012 DECLARING TOTAL INCOME OF RS.7,96,90, 377/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY. THE ASSESSING OFFICER MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) U /S 92CA OF THE ACT FOR DETERMINATION OF THE ARMS LENGTH PRICE (A LP) OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE DURING THE YEAR UNDER CONSIDERATION. IN THE COURSE OF THESE P ROCEEDINGS, THE TPO REJECTED THE ASSESSEES TP ANALYSIS IN RESPECT OF ITS ITES SEGMENT, PERFORMED A FRESH T.P ANALYSIS AND PROPOSE D TP ADJUSTMENT OF RS.1,27,18,746/- IN THE ORDER PASSED U/S 92CA OF THE ACT ON 29/1/2016. THE AO PASSED THE DRAFT ORDER OF ASSESSMENT U/S 143(3) R.W.S 144C OF THE ACT ON 29/2/2016; WHER EIN THE ASSESSEES INCOME WAS DETERMINED AT RS.9,24,09,123/ - BY INCORPORATION THEREIN OF THE TP ADJUSTMENT OF RS.1, 27,18,746/-. IT(TP)A NO.2055/B/1 6 3 2.3 AGGRIEVED BY THE DRAFT ORDER OF ASSESSMENT DATE D 29/2/2016 FOR ASST. YEAR 2012-13, THE ASSESSEE FILED ITS OBJE CTIONS THERETO BEFORE THE DRP. THE DRP ISSUED ITS DIRECTIONS U/S 144C(5) OF THE ACT VIDE ORDER DATED 2/9/2016, DIRECTING FOR EXCLUS ION OF CERTAIN COMPARABLE COMPANIES, WHICH LED TO AN ENHANCEMENT O F THE TP ADJUSTMENT TO RS.1,58,79,279/- . PURSUANT TO THE DR PS DIRECTION THE AO COMPLETED THE ASSESSMENT U/S 143(3) R.W.S 14 4(13) OF THE ACT VIDE ORDER DATED 28/9/2016 WHEREIN THE ASSESSEE S INCOME WAS DETERMINED AT RS.9,55,69,656/- AFTER INCLUSION OF THE TP ADJUSTMENT OF RS.1,58,79,279/-. 3. AGGRIEVED BY THE FINAL ORDER OF ASSESSMENT DATED 28/9/2016 FOR ASST. YEAR 2012-13, THE ASSESSEE HAS FILED THIS APPEAL, WHEREIN IT HAS RAISED THE FOLLOWING GROUNDS:- A. THE ORDER OF THE LEARNED ASSESSING OFFICER, PURSUANT TO THE DIRECTIONS OF THE HONOURABLE DRP IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE APP ELLANT IS BAD-IN-LAW AND BAD-IN-FACTS.. B. THE DIRECTIONS OF THE HONOURABLE DRP IN SO FAR AS THE SAME ARE PREJUDICIAL TO THE INTEREST OF THE APPELLANT ARE BAD-IN-LAW AND BAD-INFACTS. C. AS REGARDS REFERENCE MADE UNDER SECTION 92CA (1) BY THE LEARNED ASSESSING OFFICER IS WITHOUT SATISFYING THE CONDITIONS OF SECTION 92CA (1) AND IT(TP)A NO.2055/B/1 6 4 LEARNED COMMISSIONER OF INCOME TAX IS NOT JUSTIFIED IN APPROVING SUCH REFERENCE MECHANICALLY: THE LEARNED ASSESSING OFFICER IS NOT JUSTIFIED IN M AKING REFERENCE TO THE LEARNED TPO UNDER SECTION 92CA (1) OF THE IT ACT WITHOUT SATISFYING THE CONDITIONS PROVID ED THEREIN, WITHOUT APPLICATION OF MIND, CONTRARY TO INSTRUCTION NO. 15/ 2015. D. AS REGARDS REJECTING INFORMATION AND DOCUMENT (T P DOCUMENT) MAINTAINED BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92D OF THE IT ACT: 1. THE HONOURABLE DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED TPO IN INVOKING THE PROVISIONS OF SECTI ON 92C (3) (C) OF THE IT ACT ITHOUT SATISFYING THE CON DITIONS LAID OUT THEREIN. 2. THE HONOURABLE DRP ERRED IN IMPLIEDLY UPHOLDING THE ACTION LEARNED TPO IN PERVERSELY STATING THAT T HE APPELLANT'S DATA RELIABLE OR CORRECT & THE ERRONEOU S REASONS STATED FOR HOLDING THAT DATA ARE NOT RELIAB LE OR CORRECT. E. AS REGARDS TRANSFER PRICING ADJUSTMENT OF RS. 1,58,79,279/- MADE UNDER SECTION 92CA OF THE IT ACT IN RESPECT OF INTERNATIONAL TRANSACTION ENTERED BY THE APPELLANT IN THE ITES SEGMENT: IT(TP)A NO.2055/B/1 6 5 1. THE HONOURABLE DRP ERRED IN ISSUING DIRECTIONS RESULTING IN TRANSFER PRICING ADJUSTMENT OF RS.1,58,79,279/- UNDER SECTION 92CA OF THE IT ACT I N RESPECT OF INTERNATIONAL TRANSACTION ENTERED BY THE APPELLANT IN THE ITES SEGMENT. 2. THE LEARNED ASSESSING OFFICER AND THE LEARNED TP O ARE NOT JUSTIFIED IN NEITHER GIVING AN OPPORTUNITY TO THE APPELLANT WHILE DETERMINING ADJUSTMENT GIVING EFFEC T TO THE DIRECTIONS OF HONOURABLE DRP NOR FURNISHING A C OPY OF SUCH DETERMINATION TO THE APPELLANT. 3. THE HONOURABLE DRP ERRED IN REJECTING CERTAIN COMPANIES SELECTED BY THE APPELLANT ON THE BASIS OF PARAMETERS LAID DOWN IN RULE 1OB(2) OF INCOME TAX RULES, 1962 WHICH PASSED ALL THE QUANTITATIVE AND QUALITATIVE FILTERS APPLIED BY THE LEARNED TPO IN A FRESH SEARCH UNDERTAKEN BY HIM. IN DOING SO, THE HONOURAB LE PANEL REJECTED THE FOLLOWING COMPARABLE COMPANIES: ACCENTIA TECHNOLOGIES LIMITED JINDAL INTELLICOM LIMITED 4. THE HONOURABLE DRP ERRED IN UPHOLDING THE ACTION THE LEARNED TPO IN FAILING TO APPLY THE TURNOVER FI LTER (I.E. UPPER LIMIT) WITHOUT APPRECIATING THE FACT TH AT TURNOVER OF THE ASSESSEE WAS MERELY INR 16.46 CRORE S. IT(TP)A NO.2055/B/1 6 6 IN DOING SO, THE HONOURABLE DRP PANEL SELECTED THE FOLLOWING COMPANIES: 5. THE HONOURABLE DRP ERRED IN ACCEPTING THE COMPARABLE COMPANIES WHICH FAILED THE FAR ANALYSIS AS THEIR FUNCTIONAL & RISK PROFILE WERE DIFFERENT A S COMPARABLE TO THE RISK PROFILE OF THE APPELLANT. IN DOING SO, THE HONOURABLE DRP PANEL ERRED IN CONFIRMING TH E INCLUSION OF FOLLOWING COMPANIES: INFOSYS BPO LIMITED; TCS E-SERVE LIMITED; 6. THE HONOURABLE DRP ERRED IN UPHOLDING THE ACTION THE LEARNED TPO IN CHOOSING CERTAIN COMPANIES AS COMPARABLES WHICH FAILED THE QUANTITATIVE FILTERS APPLIED BY THE LEARNED TPO WHILE CONDUCTING FRESH BENCHMARKING FOR SELECTION OF COMPARABLE COMPANIES. IT(TP)A NO.2055/B/1 6 7 IN DOING SO, THE HONOURABLE DRP PANEL ERRED IN CONFIRMING THE INCLUSION OF FOLLOWING COMPANIES: EMPLOYEE COST / OPER ATING REVENUE = 13.05% 3 BNR UDYOG LTD., FAILS RELATED PARTY / OPERATING ______________________________________________ ____ 7. THE HONOURABLE DRP ERRED IN ACCEPTING THE COMPARABLE COMPANIES WHICH HAD ABNORMALLY HIGH PROFITS MARGIN. IN DOING SO, THE HONOURABLE DRP PAN EL ERRED IN CONFIRMING THE INCLUSION OF FOLLOWING COMPANIES: IT(TP)A NO.2055/B/1 6 8 8. WITHOUT PREJUDICE TO THE ABOVE, THE HONOURABLE DRP ERRED IN NOT APPRECIATING THAT LEARNED TPO OUGHT TO HAVE ALLOWED ADJUSTMENT TOWARDS ENTREPRENEURIAL RISK, CREDIT RISK AND OTHER RISKS ASSUMED BY THE COMPARABLE COMPANIES. 9. THE HONOURABLE DRP AND THE LEARNED TPO ERRED IN RESTRICTING THE WORKING CAPITAL RISK ADJUSTMENT TO - 0.31%. 10. THE HONOURABLE DRP AND THE LEARNED TPO ERRED IN TREATING PROVISION FOR BAD AND DOUBTFUL DEBTS AN D LOANS AND ADVANCE AS NON-OPERATING EXPENSES WHILE COMPUTING THE PLI FOR COMPARABLE COMPANIES 11. WITHOUT PREJUDICE TO THE ABOVE, THE HONOURABLE DRP ERRED IN NOT APPRECIATING THAT WHILE DETERMININ G ARM'S LENGTH PRICE UNDER TNMM THE APPELLANT IS IT(TP)A NO.2055/B/1 6 9 ELIGIBLE FOR THE BENEFIT OF SECOND PROVISO TO SECTI ON 92C (2) OF THE IT ACT. F. THE ACTION OF THE LEARNED ASSESSING OFFICER IN DENYING THE MAT CREDIT UNDER SECTION 115JAA OF THE IT ACT. G. THE HONOURABLE DRP ERRED IN UPHOLDING THE LEVY O F INTEREST UNDER SECTION 234B OF THE IT ACT WHEN THE CONDITIONS FOR LEVYING SUCH INTEREST DID NOT EXIST IN THE PRESENT CASE. H. THE ASSESSEE MAY BE ALLOWED TO ADD, AMEND, ALTER OR RAISE ADDITIONAL GROUNDS OF APPEAL. I. THE ASSESSEE PRAYS FOR JUSTICE. TRANSFER PRICING (GROUND D 1 TO 11) 4.1 IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS A SSOCIATED ENTERPRISES (AE). PARTICULARS AMOUNT (RS.) IT ENABLED SERVICES RENDERED 16,46,35,357 SOFTWARE DEVELOPMENT SERVICES RENDERED 37,60,08,678 REIMBURSEMENT OF BANK CHARGES RECEIVED 5,73,18,078 IT(TP)A NO.2055/B/1 6 10 4.2 THE SEGMENTAL MARGIN COMPUTATION OF THE ASSESSE E WITH RESPECT TO THE ABOVE TWO SEGMENTS AS COMPUTED BY T HE TPO IN THE ORDER PASSED U/S 92CA OF THE ACT ARE TABULATED HERE UNDER:- PARTICULARS SOFTWARE DEVELOPMENT ITES SEGMENT OPERATING REVENUES RS.37,60,08,678/- RS.16,46,35,357/- OPERATING COST RS.32,98,07,104/- RS.13,81,04,678/- OPERATING PROFIT RS.4,62,01,574 RS.2,65,30,679 OP/PC 14.01% 19.2% 4.3 WITH RESPECT TO THE SOFTWARE DEVELOPMENT SEGMEN T AND REIMBURSEMENT OF EXPENSES, THE TPO HAS NOT DRAWN AN Y ADVERSE INFERENCE AND THEREFORE THE SAME HAVE BEEN HELD TO BE AT ARMS LENGTH. TP ADJUSTMENT HAS ONLY BEEN SUGGESTED BY T HE TPO IN THE ITES SEGMENT. TP ADJUSTMENT WITH RESPECT TO ITES SEGMENT 5.1 AS PER THE ASSESSEES TP STUDY, IT HAS SELECTED THE FOLLOWING 7 COMPANIES AS COMPARABLE FOR ITS ITES SEGMENT. IT(TP)A NO.2055/B/1 6 11 S.NO. NAME OF THE COMPANY OP. MARGIN OR COST % 1. ACCENTIA TECHNOLOGIES LTD., 11.79% 2. ACE BPO SERVICE P. LTD., 4.13% 3. BNR UDYOG LTD., 30.73% 4. COSMIC GLOBAL LTD., 38.93% 5. JINDAL INTELLICOM LTD., 3.58% 6. TRICOM INDIA LTD., 37.48% 7. SUNDARAM BUSINESS SERVICES LTD., 3.14% ARITHMETIC MEAN 18.54% SINCE THE AVERAGE MEAN MARGIN OF THE COMPARABLE COMPANIES COMPUTED AT 18.54% WAS LESS THAN THE ASSE SSEES MARGIN AT 18.84%, THE INTERNATIONAL TRANSACTION IN THIS ITES SEGMENT WERE CONSIDERED TO BE AT ARMS LENGTH BY THE ASSESSEE. 5.2 IN THE COURSE OF PROCEEDINGS BEFORE THE TPO U/S 92CA OF THE ACT, THE TPO REJECTED THE ASSESSEES TP ANALYSIS AN D UNDERTOOK A FRESH TP ANALYSIS. AFTER CONSIDERING THE ASSESSEE S SUBMISSIONS/OBJECTIONS, THE TPO SELECTED A FINAL SE T OF 10 COMPARABLE COMPANIES WHICH HAD AN AVERAGE MARGIN O F 28.11%, THE DETAILS OF WHICH ARE EXTRACTED IT(TP)A NO.2055/B/1 6 12 S.NO. NAME OF CASE OP/OC (%) 1. ACCENTIA TECHNOLOGIES LTD., 11.75% 2. UNIVERSAL PRINT SYSTEMS LTD. (SEG)(BPO) 52.46% 3. INFORMED TECHNOLOGIES INDIA LTD. 6.08% 4. INFOSYS BPO LTD., 36.% 5. JINDAL INTELLICOM LTD., -0.05 6. MICROGENETIC SYSTEMS LTD., 19.61 7. TCS E-SERVE LTD., 63.69% 8. BNR UDYOG LTD. (SEG) (MEDICAL TRANSCRIPTION) 50.61% 9. EXCEL INFOWAYS LTD. (SEG)(IT/BVPO) 29.79 10. E4E HEALTHCARE SERVICES LTD., 19.85% AVERAGE PLI 28.11% 5.2 THE TPO THEN PROPOSED/COMPUTED A TP ADJUSTMENT IN THE ITES SEGMENT OF RS.1,27,18,746/- AS UNDER:- IT(TP)A NO.2055/B/1 6 13 ARMS LENGTH MEAN MARGIN ON COST 28.11% LESS: WORKING CAPITAL ADJUSTMENT -0.31% ADJUSTED MEAN MARGIN 28.42% OPERATING COST (A) RS.13,81,04,678 ALP 128.42% OF OPERATING COST (B) RS.17,73,54,103 TOTAL OPERATING REVENUE (C) RS.16,46,35,352 SHORTFALL BEING ADJUST- MENT U/S 92CA (B-C) RS.1,27,18,746 5.4 AGGRIEVED BY THE DRAFT ORDER OF ASSESSMENT DATE D 29/2/2016 FOR ASST. YEAR 2012-13, WHEREIN THE PROPOSED TP ADJ USTMENT OF RS.1,27,18,746/- WAS INCORPORATED, THE ASSESSEE FIL ED ITS OBJECTIONS THERETO BEFORE THE DRP. THE DRP IN DIRECTION ISSUE D U/S 144C(5) OF THE ACT ON 2/9/2016 REJECTED/DIRECTED EXCLUSION OF TWO COMPARABLES SELECTED BY BOTH THE ASSESSEE IN ITS TP STUDY AND THE TPO FOR THE ITES SEGMENT. THE DRP ALSO DIRECTED T HAT FOREIGN EXCHANGE GAIN/LOSS BE TREATED AS OPERATING IN NATUR E WHILE COMPUTING THE MARGINS. PURSUANT THERETO, THE AO PA SSED THE FINAL ORDER OF ASSESSMENT DATED 28/9/2016 FOR ASST. YEAR 2012-13, WHEREIN THE TP ADJUSTMENT IN THE ITES SEGMENT WAS C OMPUTED AT THE ENHANCED FIGURE OF RS.1,58,79,279/-. IT(TP)A NO.2055/B/1 6 14 5.5 BEFORE US, THE LD AR OF THE ASSESSEE SEEKS THE EXCLUSION OF THE FOLLOWING 5 COMPANIES FROM THE FINAL SET OF 7 C OMPARABLES CHOSEN BY THE TPO. (1) UNIVERSAL PRINT SYSTEMS LTD., (SEG. BPO) (2) INFOSYS BPO LTD., (3) TCS E-SERVE LTD., (4) BNR UDYOG LTD. (SEG. MEDICAL TRANSCRIPTION); A ND (5) EXCEL INFOSYS LTD. (SEG. IT/BPO) 5.6 FURTHER, THE LD AR OF THE ASSESSEE SEEKS INCLUS ION OF THE FOLLOWING TWO COMPANIES IN THE LIST OF COMPARABLES BY THE DRP; WHICH WERE SELECTED AND APPROVED BY BOTH THE ASSESS EE AND THE TPO. (1) ACCENTIA TECHNOLOGIES LTD., AND (2) JINDAL INTELLICOM LTD., EXCLUSION OF COMPANIES AS COMPARABLES SOUGHT FOR BY THE ASSESSEE 6. UNIVERSAL PRINT SYSTEMS LTD., (SEG: BPO) 6.1 THE LD AR FOR THE ASSESSEE SUBMITTED THAT THIS COMPANY SHOULD BE REJECTED AS A COMPARABLE FOR THE FOLLOWIN G REASONS. (I) FAILS THE EMPLOYEES COST FILTER IT(TP)A NO.2055/B/1 6 15 ACCORDING TO THE LD AR, THIS COMPANY FAILS THE EMP LOYEE FILTER OF RS.25% APPLIED AT THE ENTITY LEVEL. THE EMPLOYEE COST FILTER OF THE ASSESSEE WORKS OUT TO 18.56% (VIZ. EM PLOYEE COST OF RS.5,27,11,884/- / BY TOTAL OPERATING REVENUE OF RS.28,40,79,094/-). IT IS SUBMITTED THAT SINCE DETAILS RELATING TO EMPLOYE E COST ALLOWABLE TO SPECIFIC SEGMENTS IS NOT AVAILABLE, THE SAME IS TAKEN AT ENTITY LEVEL. (II) FUNCTIONALLY DIFFERENT THE LD AR SUBMITS THAT AS PER PAGE 69 OF ITS ANNUA L REPORT, THIS COMPANY IS ENGAGED IN PRE-PRESS SERVICES AND A S PRE-PRESS ACTIVITY IS CONNECTED TO THE PRINTING INDUSTRY/PROC ESS, IT IS NOT COMPARABLE TO CALL ENTIRE SERVICES RENDERED BY THE ASSESSEE. THEREFORE, IT REQUIRES TO BE REJECTED AS A COMPARAB LE TO THE ASSESSEE SINCE IT IS FUNCTIONALLY DIFFERENT FROM COMPANIES P ROVIDING ITES. IN SUPPORT OF THIS PROPOSITION, THE LD AR PLACED RE LIANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S XL HEALTH CORPORATION INDIA PVT. LTD., IN IT(TP )A NO.2311/BANG/2016 FOR ASST. YEAR 2012-13. 6.2 THE LD DR FOR REVENUE SUPPORTED THE ORDERS OF T HE AUTHORITIES BELOW. ACCORDING TO THE LD DR, IN SIM ILAR FACTS AND CIRCUMSTANCES A CO-ORDINATE BENCH IN THE CASE OF CG I INFORMATION SYSTEMS & MANAGEMENT CONSULTATION PVT. LTD., IN IT( TP)A NO.183/BANG/2017 DATED 11/4/2018 FOR ASST. YEAR 201 2-13, AT PARA 47 TO 52 THEREOF HAS REMANDED BACK THE ISSUE OF COM PARABILITY IT(TP)A NO.2055/B/1 6 16 ANALYSIS AT THE SEGMENTAL LEVEL TO THE FILE OF THE TPO FOR EXAMINATION AND VERIFICATION OF THE ASSESSEES CLAI M. IT IS PRAYED THAT THE SAME BE FOLLOWED IN THIS CASE ALSO. 6.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE FACTUAL MATERIAL ON RECORD ; INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED. IN THE FACTS AND C IRCUMSTANCES OF THE CASE, AS NARRATED ABOVE, WE ARE OF THE CONSIDER ED VIEW THAT ON SIMILAR FACTS, AS IN THE CASE ON HAND A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTATION PVT. LTD., ALSO FOR ASST. YEAR 2012-1 3 (SUPRA), HAS REMANDED THE ISSUE OF COMPARABILITY ANALYSIS AT THE SEGMENTAL LEVEL TO THE FILE OF THE TPO FOR EXAMINATION AND VERIFICA TION, BY HOLDING AS UNDER AT PARAS 47 TO 52 AS THEREOF:- 47. THE NEXT SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS WITH REGARD TO EXCLUSION OF 2 COMPARAB LE COMPANIES FROM THE LIST OF 7 COMPARABLE COMPANIES T HAT REMAIN AFTER THE ORDER OF THE DRP. THE FIRST COMPA RABLE COMPANY SOUGHT TO BE EXCLUDED IS UNIVERSAL PRINT SY STEMS LTD. THIS COMPANY WAS CHOSEN AS A COMPARABLE COMPA NY BY THE TPO. IN REPLY TO THE PROPOSAL OF THE TPO TO INCLUDE THIS COMPANY AS A COMPARABLE COMPANY, THE ASSESSEE VIDE ITS LETTER DATED 22.12.2015 HAD POINTED OUT ITS OBJ ECTIONS TO INCLUDING THIS COMPANY AS A COMPARABLE COMPANY. A COPY OF THE SAID OBJECTION IS AT PAGE-785 OF THE ASSESSE ES PAPER BOOK. THE ASSESSEE POINTED OUT THAT THE OP/TC OF T HIS COMPANY AS WORKED OUT BY THE TPO AT 59.40% WAS WRON G AND UNALLOCATED COSTS AS PER THE ANNUAL REPORT SHOU LD BE IT(TP)A NO.2055/B/1 6 17 ALLOCATED TO BPO SEGMENT AND IF THAT IS DONE THEN T HE OP/TC OF THIS COMPANY WILL BE ONLY 51.80%. THE AS SESSEE FURTHER POINTED OUT (PAGE764 OF PAPER BOOK) THAT TH E TPO HAD APPLIED REVENUE FILTER OF MORE THAN 75% BEING F ROM NON-FINANCIAL SERVICE INCOME. THE ASSESSEE POINTED OUT THAT THE PERCENTAGE OF INCOME FROM ITES WAS ONLY 21.63% OF THE TOTAL REVENUE FROM OPERATIONS OF THIS COMPANY AS PE R ITS ANNUAL REPORT. THE ASSESSEE ALSO POINTED OUT THAT IN THE PRE-PRESS BPO SEGMENT THIS COMPANY WAS PROVIDING INTEGRATED PRINT SOLUTIONS TO ITS CUSTOMERS, WHICH INCLUDES SCANNING, DESIGN/LAYOUT, TRAPPING, HAND-OUTLINED CL IPPING PATH AND IMAGE MASKING AND MAGAZINE AND CATALOGUE PUBLISHING. THE ASSESSEE SUBMITTED THAT THE AFORES AID SERVICES ARE NOT IN THE NATURE OF ITES. THE ASSESS EE POINTED OUT THAT AS PER THE SAFE HARBOR RULES INTRODUCED BY THE CBDT ITES HAS BEEN DEFINED AS BUSINESS PROCESS OUTSOURCING SERVICES PROVIDED MAINLY WITH THE ASSIS TANCE OR USE OF INFORMATION TECHNOLOGY. IT WAS ALSO SUBMITT ED THAT THIS COMPANY DOES NOT SATISFY THE DEFINITION OF ITE S AS CONTAINED IN RULE 10TA(E ) OF THE RULES. SINCE USE OF INFORMATION TECHNOLOGY IS ABSENT IN THE VARIOUS SER VICES PROVIDED BY THIS COMPANY, IT CANNOT BE REGARDED AS ITES COMPANY. THE ASSESSEE ALSO SUBMITTED THAT THIS COM PANY FAILS THE EMPLOYEE COST FILTER. THE EMPLOYEE COST FILTER REQUIRES THAT THE EMPLOYEES COST INCURRED BY THE CO MPANY 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: IT(TP)A NO.2055/B/1 6 18 (A) PRE-PRESS BPO UNIT PROVIDES BACK OFFICE SUPPOR T SERVICES. (B) THIS COMPANY HAS FOUR MAJOR SEGMENTS VIZ., REPR O, 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 EMPLOY EE COST FILTER IS SATISFIED IN THE CASE OF THIS COMPAN Y. (C ) ON THE SERVICE REVENUE FILTER VIZ., THE REQUIR EMENT 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 SEGMENTS ENTIRE INCOME IS FROM SERVICES AND THEREFORE THIS OBJECTION IS NO T TO BE ACCEPTED. 49. ON OBJECTIONS BY THE ASSESSEE BEFORE THE DRP, THE DRP CONFIRMED THE ACTION OF THE TPO. ONE OF THE OBJECT ION BEFORE THE DRP WAS THAT THIS COMPANY DID NOT FIGURE IN THE LIST OF COMPANIES ENGAGED IN ITES. ON THIS OBJECTI ON THE DRP HELD THAT THOUGH THIS COMPANY DID NOT FIGURE IN THE LIST OF COMPANIES IN ITES IN THE MAIN SEARCH OF CAPITAL LINE AND PROWESS DATABASE BUT ON A SEGMENTAL SEARCH THESE TW O COMPANIES SATISFIED THE REQUIREMENT OF BEING CONSID ERED AS COMPANIES ENGAGED IN PROVIDING ITES. 50. AGGRIEVED BY THE DIRECTIONS OF THE DRP, THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED SUBMISSIONS THAT WERE MADE BEFO RE THE TPO/DRP. IN PARTICULAR IT WAS SUBMITTED THAT THE S ERVICE REVENUE FILTER WAS APPLIED BY THE TPO HIMSELF AT TH E ENTITY LEVEL AND ON SUCH SEARCH THIS COMPANY WAS NOT REGAR DED AS ENGAGED IN PROVIDING ITES. AT THIS STAGE THE TPO O UGHT TO IT(TP)A NO.2055/B/1 6 19 HAVE DROPPED THIS COMPANY AS A COMPARABLE COMPANY BECAUSE THIS FILTER HAS TO BE APPLIED AT THE ENTITY LEVEL AND NOT AT THE SEGMENTAL LEVEL. THE LEARNED DR SUBMITT ED THAT IF THE SERVICE REVENUE FILTER IS APPLIED AT THE SEGMEN TAL LEVEL THERE CAN BE NO OBJECTION BY THE ASSESSEE. SHE REL IED ON THE ORDER OF THE DRP/TPO. 51. THE REQUIREMENTS OF RULE 10B (1) (2) & (3) OF THE RULES IN THE MATTER OF COMPARABILITY OF COMPANIES UNDER T NMM NEEDS TO BE SEEN. THE SAME READS AS FOLLOWS: 10B. (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SECTION 92C, THE ARMS LENGTH PRICE IN RELATION TO AN INTER NATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLO WING METHODS, BEING THE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY : (A) TO ( D) . (E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH, (I)THE NET PROFIT MARGIN REALISED BY THE ENTERPRIS E FROM 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 ENTERPRI SE 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-CLAU SE (II) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWE EN THE IT(TP)A NO.2055/B/1 6 20 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 ENTERPRI SE AND REFERRED TO IN SUB-CLAUSE (I) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE (II I); (V)THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELAT ION TO THE INTERNATIONAL TRANSACTION. (2) FOR THE PURPOSES OF SUB-RULE (1), THE COMPARABI LITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRAN SACTION SHALL BE JUDGED WITH REFERENCE TO THE FOLLOWING, NA MELY: (A)THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TR ANSFERRED OR SERVICES PROVIDED IN 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 CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERM S ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE P ARTIES TO THE TRANSACTIONS; (D)CONDITIONS PREVAILING IN THE MARKETS IN WHICH T HE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INC LUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAP ITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF IT(TP)A NO.2055/B/1 6 21 COMPETITION AND WHETHER THE MARKETS ARE WHOLESALE O R RETAIL. (3) AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF (I) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPR ISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATER IALLY 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. 52. THERE APPEARS TO BE NO BAR IN THE RULES REFERR ED TO ABOVE TO CONSIDERING SEGMENTAL DATA UNDER TNMM BECA USE THE COMPARISON IS OF NET PROFIT MARGIN REALIZED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION WITH THE NET PROFIT REALIZED FROM A COMPARABLE UNCONTROLLED TRANSACTION. THEREFORE COMPARISON IS OF SIMILAR TRANSACTION. WHEN SEGMENTAL INFORMATION IS AVAILA BLE AND IS NOT DISPUTED, IT CANNOT BE ARGUED THAT FILTERS H AVE TO BE APPLIED AT ENTITY LEVEL. IT CANNOT BE ARGUED THAT WHEN THE TPO HIMSELF APPLIED THE FILTERS AT THE ENTITY LEVEL HE WAS NOT ENTITLED TO APPLY THE FILTERS AT SEGMENTAL LEVEL. AS WE HAVE ALREADY STATED IF CLEAR SEGMENTAL INFORMATION IS AV AILABLE THE FILTERS CAN BE APPLIED AT THE SEGMENTAL LEVEL I N TNMM. THEREFORE THE OBJECTION WITH REGARD TO THIS COMPANY FAILING THE EMPLOYEE COST FILTER AND SERVICE REVENUE FILTER IN OUR VIEW WAS RIGHTLY REJECTED BY THE TPO AND DRP. IT I S HOWEVER SEEN THAT THIS COMPANY HAS FOUR SEGMENTS VI Z., REPRO, LABEL PRINTING, OFFSET PRINTING AND PRE PRES S BPO. IT(TP)A NO.2055/B/1 6 22 WHETHER THE LABEL PRINTING AND OFFSET PRINTING SEGM ENTS SUPPLEMENT THE FUNCTIONS PERFORMED IN THE PRE-PRESS BPO SEGMENT HAS TO BE SEEN. WE THEREFORE SET ASIDE THE ORDER OF THE DRP IN THIS REGARD AND REMAND FOR FRESH CONSIDE RATION BY THE TPO THE COMPARABILITY OF THIS COMPANY. IN T ERMS OF RULE 10B(3) OF THE RULES THE PROFIT MARGINS OF PRE- PRESS BPO HAVE TO BE ADJUSTED TAKING INTO ACCOUNT THE FAC T THAT TWO OTHER SEGMENTS SUPPLEMENT THE PRE-PRESS BPO SEG MENT. IF SUCH ADJUSTMENT CANNOT BE REASONABLY OR ACCURATE LY 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 DE TAILS FROM THIS COMPANY. AS FAR AS THE ARGUMENT THAT THIS COMPANY FAILS FUNCTIONAL COMPARABILITY, WE FIND THAT NONE O F THE OBJECTIONS RAISED BY THE ASSESSEE IN THIS REGARD AB OUT LACK OF INFORMATION ABOUT ALLIED SERVICES PERFORMED BY T HE PRE- PRESS BPO SEGMENT OF THIS COMPANY AND THE BREAK-UP OF THE REVENUE FROM SUCH ALLIED SERVICES HAVE BEEN DEALT W ITH SPECIFICALLY BY THE TPO OR DRP. SINCE THE COMPARAB ILITY OF THIS COMPANY IS BEING REMANDED TO BE TPO FOR CONSIDERATION OF ADJUSTMENTS AS MENTIONED ABOVE, TH E OBJECTION WITH REGARDED TO FUNCTIONAL COMPARABILITY SHOULD ALSO BE LOOKED INTO BY THE TPO IN THE REMAND PROCEE DINGS ON THE BASIS OF MATERIALS WHICH HE MAY GATHER U/S.1 33(6) OF THE ACT. THE ASSESSEE SHOULD BE GIVEN OPPORTUNITY OF BEING HEARD BY THE TPO BEFORE THE ISSUE IS DECIDED BY THE TPO. 6.3.2 RESPECTFULLY FOLLOWING THE DECISION OF THE CO -ORDINATE BENCH IN THE CASE OF CGI INFORMATION SYSTEMS AND MANAGEME NT CONSULTANTS PVT. LTD., ALSO FOR ASST. YEAR 2012-13, TO WHICH ONE OF IT(TP)A NO.2055/B/1 6 23 US IS PARTY, WE REMAND THE ISSUE OF THE COMPARABILI TY OF THIS COMPANY; UNIVERSAL PRINT SYSTEMS LTD., BACK TO THE FILE OF THE TPO FOR EXAMINATION AND VERIFICATION OF ISSUES RAISED B Y THE ASSESSEE OF FUNCTIONAL COMPARABILITY AND EMPLOYEES COST FILTER OF 25% AT SEGMENTAL LEVEL, WHICH THE AO MAY GATHER INFORMATIO N U/S 133(6) OF THE ACT. NEEDLESS TO ADD THE ASSESSEE SHALL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DETAILS/SUBM ISSIONS REQUIRED, WHICH SHALL BE DULY CONSIDERED BY TPO BEFORE DECIDI NG THE ISSUE. 7. INFOSYS BPO LTD., 7.1 THE LD AR FOR THE ASSESSEE SUBMITTED THAT THIS COMPANY, INFOSYS, BPO LTD., SHOULD BE REJECTED/EXCLUDED FROM THE LIST OF COMPARABLES FOR THE FOLLOWING REASONS:- (I) BRAND VALUE, INTANGIBLES, FUNCTIONALLY DIFFERE NT ACCORDING TO THE LD AR, THIS COMPANY HAS ITS DELIV ERY CENTRES AROUND THE GLOBE, WHEREAS THE ASSESSEE REND ERS SERVICES ONLY FROM INDIA. IT IS SUBMITTED THAT WHILE THE AS SESSEE ONLY PROVIDES CALL CENTRE SERVICES, INFOSYS BPO LTD., HA S MULTIPLE LINES OF BUSINESS AND RENDERS HIGH END SERVICES IN THE NA TURE OF KPO SERVICES. IT IS ALSO SUBMITTED THAT INFOSYS BPO LT D., HAS HUGE INTANGIBLE AMOUNTS AND HIGH BRAND VALUE. AS PER T HE FAR ANALYSIS, INFOSYS BPO LTD., BEARS FULL FLEDGED RISK , WHEREAS THE ASSESSEE OPERATES AT MINIMAL RISK. IT IS SUBMITTED THAT ON THE BASIS OF THE ABOVE FACTS, INFOSYS BPO LTD., IS FUNCTIONAL LY DIFFERENT AND IT(TP)A NO.2055/B/1 6 24 NOT COMPARABLE TO THE ASSESSEE AND THEREFORE SHOULD BE REJECTED AS A COMPARABLE. (II) EXTRAORDINARY EVENT DURING THE YEAR THE AR SUBMITTED THAT DURING THE YEAR, INFOSYS BPO LTD., ACQUIRED THE PORTLAND GROUP PTY LTD., WHICH IS AN E XTRAORDINARY EVENT AND COULD AFFECT ITS COMPARABILITY. IN SUPPORT OF ASSESSEES CLAIM FOR REJECTION/EXCL USION OF M/S INFOSYS BPO LTD., FROM THE LIST OF COMPARABLES, THE LD AR PLACED RELIANCE ON, INTER ALIA, THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF (I) CGI INFORMATION SYSTEMS & MANAGE MENT CONSULTATION PVT. LTD., IN ITA NO.183/BANG/2017 DAT ED 11/4/2018 FOR ASST. YEAR 2012-13. 7.2 PER CONTRA, THE LD DR FOR REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW IN INCLUDING THIS COMPANY IN THE FINAL SET OF COMPARABLES. 7.3 WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING JUDICIAL PRONOUNCEMENT CITED. WE FIND THAT ON SIMILAR FACTS , A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CGI INFORMAT ION SYSTEMS & MANAGEMENT CONTROLS PVT. LTD., FOR ASST. YEAR 2012- 13 (SUPRA) DIRECTED THAT INFOSYS BPO LTD., BE EXCLUDED FROM TH E FINAL LIST OF COMPARABLES AS IT IS NOT COMPARABLE WITH A COMPANY MERELY PROVIDING ITES, BECAUSE OF ITS BRAND VALUE AND EXTR AORDINARY IT(TP)A NO.2055/B/1 6 25 EVENTS IN THE PREVIOUS YEARS RELEVANT TO ASST. YEAR 2012-13 VIZ., THE ACQUISITION OF AN AUSTRALIA BASED COMPANY WHICH HAD EFFECT ON ITS PROFITS. FOLLOWING THE AFORESAID DECISION OF THE C O-ORDINATE BENCH IN THE CASE OF CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTANTS PVT. LTD., FOR ASST. YEAR 2012-13, WE HOLD AND DIRECT THAT M/S INFOSYS BPO LTD., BE EXCLUDED FROM THE FI NAL SET OF COMPARABLES. 8. BNR UDYOG LTD., (SEG- MEDICAL TRANSCRIPTION) 8.1 THE LD AR FOR THE ASSESSEE SUBMITTED THAT BNR U DYOG LTD., (SEG MEDICAL TRANSCRIPTION) (BNR) SHOULD BE REJ ECTED AND EXCLUDED FROM THE FINAL SET OF COMPARABLES FOR THE FOLLOWING REASONS:- (I) FUNCTIONALLY DIFFERENT ACCORDING TO THE LD AR FOR THE ASSESSEE, THIS COMP ANY BNR IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN MULTIPLE BUSINESS LINES, I.E IT & ITES, E-GOVERNANCE AND CONSTRUCTION ACTIVITIES. (II) FAILS THE RPT FILTER OF 25% ON ENTITY BASIS A S SEGMENTAL TRANSACTION DETAILS OF MEDICAL TRANSCRIPTION ARE NO T AVAILABLE. (III) INCORRECT MARGIN COMPUTATION WITHOUT PREJUDICE, THE LD AR SUBMITS THAT AS PER SE GMENTAL INFORMATION THE MEDICAL TRANSCRIPTION SEGMENT HAS E ARNED REVENUES OF RS.147.40 LAKHS WHEREAS IN NOTES 2-19, SUB SCHED ULE TO THE IT(TP)A NO.2055/B/1 6 26 PROFIT AND LOSS ACCOUNT, REVENUE FROM MEDICAL TRANS CRIPTION SERVICES IS SHOWN AT RS.138.55 LAKHS THE MARGINS TH EREFORE NEED TO BE CORRECTED. 8.2 THE LD DR FOR REVENUE SUPPORTED THE ORDERS OF T HE AUTHORITIES BELOW AND SUBMITTED THAT IN SIMILAR FAC T SITUATION AND ON SIMILAR CONTENTIONS BY THE ASSESSEE, A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF INDEGENE PVT. LTD., IN ITS ORDER IN IT(TP)A NO.591/BANG/2017 FOR ASST. YEAR 2012-13 DATED 2/8/2 017 HAD REMANDED THE ISSUE OF COMPARABILITY OF THIS COMPANY BNR TO THE FILE OF THE TPO FOR FRESH EXAMINATION. 8.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL PRONOUNCEMENTS CITED. FROM THE DETAILS ON RECORD, IT IS SEEN THAT THE CONTENTIONS OF THE ASSESSEE THAT THE COMPANY U/ S BNR UDYOG LTD., IS FUNCTIONALLY DIFFERENT AND FAILS THE RPT FILTER AT THE ENTITY LEVEL. WE FIND FROM THE RECORD THAT THE BENCH MARK ING OF BNR HAS BEEN DONE ONLY AT THE MEDICAL TRANSCRIPTION SE GMENT AND ISSUE OF RPT HAS NOT BEEN URGED BEFORE THE AO/DRP. FROM A PERUSAL OF THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN THE CASE OF INDEGENE PVT. LTD., IN IT(TP)A NO.591/BANG/2017 FOR ASST. YEAR 2012-13, WE FIND THAT THE ISSUE OF COMPARABILITY OF BNR HAS BEEN REMANDED TO THE FILE FOR THE TPO FOR FRESH CONSIDER ATION IN TUNE WITH ITS OBSERVATIONS AT PARA 10.3.2 THEREOF, THE RELEVANT PORTION OF WHICH ARE EXTRACTED HEREUNDER:- IT(TP)A NO.2055/B/1 6 27 SINCE IN THE YEAR UNDER CONSIDERATION, THERE ARE 3 SEGMENTS, HOW MUCH OF THE RPT EXPENSES PERTAIN TO EACH OF THE SEGMENTS REQUIRES EXAMINATION AND WE FIND THAT THIS ASPECT HAS NOT BEEN ANALYZED BY EITHER THE TPO OR THE ASSESSEE. WHILE IT IS CLEAR FROM THE TPO'S ORDER THAT IF THE BENCHRNARKING IS DONE ONLY FOR THE MEDICAL TRANSCRIPTION SEGMENT, THEN THE RPT PERTAINING TO THAT SEGMENT ONLY SHOULD BE CONSIDERED. HOWEVER, SINCE HOW MUCH OF THE RPT PERTAIN TO THE MEDICAL TRANSCRIPTION SEGMENT HAS NOT BEEN DETERMINED BY EITHER THE TPO OR THE ASSESSEE, WE DEEM IT APPROPRIATE AND PROPER TO REMAND THE MATTER OF COMPARABILITY OF THIS COMPANY MIS BNR UDYOG LTD., TO THE FILE OF THE TPO FOR DETERMINATION OF THE ISSUE AFRESH IN LINE WITH OUR OBSERVATION ABOVE. NEEDLESS TO ADD, THE ASSESSEE SHALL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER AND TO FIL E SUBMISSIONS/DETAILS IN THIS REGARD WHICH SHALL BE DULY CONSIDERED BY THE TPO BEFORE DECIDING THE ISSUE WE HOLD AND DIRECT ACCORDINGLY. 8.3.2 FOLLOWING THE ABOVE DECISION OF THE COORDINAE BENCH IN THE CASE OF INDEGENE PVT. LTD., FOR A.Y. 2012-13 (SUPRA ) TO WHICH ONE OF US IS PARTY, AND CONSIDERING THE FACTUAL MATRIX INVOLVED, THAT HOW MUCH RPT PERTAINS TO THE MEDICAL TRANSCRIPTION HAS NOT BEEN IT(TP)A NO.2055/B/1 6 28 DETERMINED BY EITHER THE TPO OR THE ASSESSEE, WE DE EM IT APPROPRIATE AND PROPER TO REMAND THE ISSUE OF COMPA RABILITY OF THIS COMPANY, M/S BNR UDYOG LTD., TO THE FILE OF THE TPO FOR DETERMINATION AFRESH IN LINE WITH THE OBSERVATIONS ABOVE. NEEDLESS TO ADD, THE ASSESSEE SHALL BE AFFORDED ADEQUATE OPP ORTUNITY OF BEING HEARD IN THE MATTER AND TO FILE DETAILS/SUBMISSIONS IN THIS REGARD, WHICH SHALL BE DULY CONSIDERED BY THE TPO BEFORE DE CIDING THE ISSUE. THE TPO IS ACCORDINGLY DIRECTED. 9. TCS E-SERVE LTD., (TCS) 9.1 BEFORE US, THE LD AR FOR THE ASSESSEE SUBMITTED THAT THIS COMPANY TCS E-SERVE LTD (TCS) SHOULD BE REJECTED AND EXCLUDED FROM THE FINAL LIST OF COMPARABLES FOR THE FOLLOWING REASONS:- (1) FUNCTIONALLY DIFFERENT THE ASSESSEE CONTENDS THAT THIS COMPANY DEALS WITH VARIOUS VERTICALS OF BUSINESS, IE., IT RENDERS BPO SERVICES TO CUSTOMERS IN THE BANKING, FINANCIAL SERVICES AND INSURANCE DOMAI N, AND ALSO PROVIDES HIGH END KPO SERVICES AND THEREFORE IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND. IT IS ALSO CONTENDED THAT TCS BEARS FULL FLEDGED RISK, WHEREAS THE ASSES SEE BEARS ONLY MINIMUM RISK. IN SUPPORT OF THE CONTENTION THAT THI S COMPANY IS FUNCTIONALLY DIFFERENT AND THEREFORE OUGHT TO BE RE JECTED AS A COMPARABLE, THE ASSESSEE, INTER ALIA, PLACED RELIAN CE ON THE FOLLOWING ITAT DECISIONS :- IT(TP)A NO.2055/B/1 6 29 (I) BAXTER INDIA PVT. LTD [TS-694-ITAT-2017(DEL)-TP] AN D (II) XL HEALTH CORPORATION INDIA P LTD IN IT(TP)A NO.2311/BANG/2016. 9.2 THE LD DR FOR REVENUE PLACED RELIANCE ON THE OR DERS OF THE AUTHORITIES BELOW. THE LD DR SUBMITTED THAT, IN ALL FAIRNESS IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE MATTER OUG HT TO BE REMANDED TO THE FILE OF THE TPO FOR FRESH COORDINAT ION, AS WAS HELD IN THE DECISION OF THE CO-ORDINATE BENCH IN THE CAS E OF INDEGENE PVT. LTD., IN IT(TP)A NO: 591/BANG/2013 DATED 2/8/2 017 FOR AY 2012-13. 9.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUD ING THE JUDICIAL PRONOUNCEMENTS CITED. FROM THE DETAILS ON RECORD WE OBSERVE THAT WHILE THE ASSESSEE HAS CONTENDED THAT THE SERVICES RENDERED BY THIS COMPANY, M/S TCS E-SERVE LTD, ARE HIGH END KPO SERV ICES, IT HAS NOT BROUGHT OUT AS TO WHICH OF THESE ARE THE SERVIC ES THAT WOULD COME UNDER TECHNICAL SERVICES. ON THE OTHER HAND, W E ALSO NOTICE THAT THE TPO HAS HELD ALL THE SERVICES RENDERED BY THE ASSESSEE TO BE BPO SERVICES WITH ANY PROPER ANALYSIS. IN THIS F ACTUAL MATRIX OF THE CASE, WE FIND THAT ON SIMILAR FACTS, THE CO-ORD INATE BENCH OF ITAT-BANGALORE IN THE CASE OF INDEGENE PVT LTD FOR A.Y. 2012-13 (SUPRA) HAS REMANDED THE MATTER OF COMPARABILITY OF THIS COMPANY TO THE FILE OF THE TPO FOR FRESH CONSIDERATION. IN VIEW OF THE FACTUAL MATRIX OF THE CASE ON HAND, AS LAID OUT ABOVE AND FOLLOWING THE IT(TP)A NO.2055/B/1 6 30 DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF M/ S INDEGENE PVT LTD., (SUPRA) WHICH IS ALSO RENDERED ON SIMILAR FAC TS, WE DEEM IT APPROPRIATE TO REMAND THE MATTER OF THE COMPARABILI TY OF THIS COMPANY, TCS E-SERVE LTD., TO THE FILE OF THE TPO F OR FRESH CONSIDERATION IN THE LIGHT OF OUR ABOVE OBSERVATIO NS. NEEDLESS TO ADD, THE TPO SHALL AFFORD THE ASSESSEE ADEQUATE OPP ORTUNITY OF BEING HEARD AND TO FILE DETAILS/SUBMISSIONS IN THIS REGARD. 10. EXCEL INFOWAYS LTD (SEG-IT/BPO) (EXCEL) 10.1 THE LD AR FOR THE ASSESSEE SUBMITTED THAT THIS COMPANY, M/S EXCEL INFOWAYS LTD., (EXCEL) SHOULD BE REJECTED A ND EXCLUDED FROM THE LIST OF COMPARABLES FOR THE FOLLOWING REAS ONS:- (I) FAILS EMPLOYEE COST FILTER OF 25% THE LD AR SUBMITTED THAT IN THE SEGMENTAL REPORT, THE DETAILS RELATING TO EMPLOYEE COST ALLOWABLE TO EACH SEGMENT IS NOT AVAILABLE AND THEREFORE THE FILTER IS TO BE APPLIED AT THE ENTITY LEVEL, WHERE IT FAILS THE EMPLOYEE COST FILTER OF 25% SINC E ITS EMPLOYEE COST/OPERATING REVENUE IS APPROX 13.05%. (III) PECULIAR ECONOMIC CIRCUMSTANCES IT IS SUBMITTED THAT AS PER THE ANNUAL REPORT OF TH IS COMPANY, EXCEL, IT HAS PECULIAR ECONOMIC CONDITIONS IMPACT ING THE EARNINGS OF THE YEAR UNDER CONSIDERATION AND CONSEQUENT ABNO RMAL VOLATILITY IN PROFITS. IT(TP)A NO.2055/B/1 6 31 IN SUPPORT OF THE ASSESSEES CONTENTIONS FOR EXCLU SION OF THIS COMPANY FROM THE LIST OF COMPARABLES, THE LD AR PLA CED RELIANCE, INTER ALIA, ON THE DECISIONS OF CO-ORDINATE BENCH O F THE TRIBUNAL IN THE CASE OF CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTATIONS P LTD., FOR AY 2012-13 (SUPRA) AND OF ITAT DELHI IN THE CASE OF M/S BAXTER INDIA P LTD V ACIT IN ITA NO . 6158/DEL/2016 FOR A.Y. 2012-13. 10.2 PER CONTRA, THE LD DR FOR REVENUE SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. RELIANCE WAS PLACED ON THE D ECISION OF THE CO-ORDINATE BENCH IN THE CASE OF XL HEALTH CORPORAT ION INDIA P LTD., IN IT(TP)A NO. 2311/BANG/2016 DT 9/2/2018 FOR A.Y. 2012- 13. 10.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND P ERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL DECISIONS CITED. THE ASSESSEE SEEKS EXCLUSION OF TH IS COMPANY M/S EXCEL INFOWAYS LTD., ON GROUNDS OF FAILING THE EMPL OYEE FILTER COST FILTER OF 25% AT THE ENTITY LEVEL IN THE ABSENCE OF DETAILS OF SUCH TRANSACTIONS AT THE SEGMENTAL LEVEL AND ALSO FOR TH E REASON THAT THERE WERE ABNORMALLY HIGH PROFIT MARGINS OVER THE YEARS. IN THE CASE OF CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTANTS PV T. LTD., FOR 2012-13 (SUPRA), CITED BY THE ASSESSEE, THIS CO MPANY WAS REJECTED AS A COMPARABLE ON THE GROUNDS OF CONSISTE NT DIMINISHING REVENUE AND IT WAS ALSO ENGAGED IN THE BUSINESS OF SOFTWARE TESTING, VERIFICATION AND VALIDATION OF SOFTWARE AT THE TIME OF IMPLEMENTATION AND DATA CENTRE MANAGEMENT ACTIVITIE S. IN THE CASE IT(TP)A NO.2055/B/1 6 32 OF XL HEALTH CORPORATION INDIA P LTD., ALSO FOR A.Y . 2012- 13(SUPRA), RELIED ON BY THE LD DR, THIS COMPANY WAS RETAINED AS A COMPARABLE SINCE THE COORDINATE BENCH OBSERVED THAT THE ASSESSEE IN THAT CASE HAD NOT LED OR FILED ANY EVIDENCE TO S UPPORT ITS CONTENTION THAT THIS COMPANY EXCEL HAD FAILED THE EMPLOYEE COST FILTER. THESE TWO DECISIONS (SUPRA), IN OUR VIEW, W OULD NOT APPLY TO THE FACT SITUATION PREVAILING IN THE CASE ON HAND. 10.3.2 IN THE CASE ON HAND, FROM A CAREFUL PERUSAL OF THE FACTUAL MATERIAL BEFORE US, WE FIND THAT THE ASSESS EES CONTENTIONS THAT THIS COMPANY, EXCEL HAD FAILED THE EMPLOYEE COST FILTER OF 25% HAS NOT BEEN EXAMINED, EITHER BY THE TPO OR ADM ITTEDLY BY THE ASSESSEE, AT THE SEGMENTAL LEVEL. SIMILAR IS TH E POSITION WITH REGARD TO VOLATILITY OF PROFITS/PECULIARITY OF ECON OMIC CIRCUMSTANCES. IN THIS VIEW OF THE MATTER, WE DEEM IT APPROPRIATE TO REMAND THE ISSUE OF COMPARABILITY OF THIS COMPANY, M/S EXCEL INFOWAYS BACK TO THE FILE OF THE TPO FOR EXAMINATIO N AND VERIFICATION OF THE ASSESSEES CONTENTIONS ON THE I SSUE OF ABNORMALITY OF PROFITS AND OF FAILING OF THE EMPLOY EES COST FILTER OF 25% AT SEGMENTAL LEVEL, FOR WHICH THE AO MAY GATHE R INFORMATION U/S 133(6) OF THE ACT. NEEDLESS TO ADD, THE ASSESSE E SHALL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DETAILS/SUBMISSIONS REQUIRED, WHICH SHALL BE DULY C ONSIDERED BY THE TPO BEFORE DECIDING THE ISSUE. 11 (I) ACCENTIA TECHNOLOGIES LTD ., (ACCENTIA) IT(TP)A NO.2055/B/1 6 33 (II) JINDAL INTELLICOM LTD. , (JINDAL) 11.1 BOTH THESE COMPANIES ACCENTIA AND JINDAL W ERE SELECTED BY THE ASSESSEE IN ITS TP STUDY. IN PROCEEDINGS U/S 92CA OF THE ACT, THE TPO ALSO ACCEPTED AND SELECTED BOTH THESE COMPA NIES AS BEING FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS CAN BE S EEN AT PG 17 AND 18 OF THE TPOS ORDER. ACCORDING TO THE ASSESSEE, N O OBJECTIONS WERE RAISED AGAINST THEIR INCLUSION IN THE FINAL SE T OF COMPARABLES BEFORE THE DRP, BUT HOWEVER THE DRP SUO MOTO REJECT ED AND EXCLUDED THESE TWO COMPANIES FROM THE LIST OF COMPA RABLES. 11.2 WE HAVE HEARD BOTH THE PARTIES IN THE MATTER A ND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. THE BA SIC FACTS NOT IN DISPUTE ARE THAT THE ABOVE TWO COMPANIES, ACCENTIA AND JINDAL WERE SELECTED AS COMPARABLES BOTH BY THE ASSESSEE I N ITS TP STUDY AND THE TPO AS PER HIS ORDER U/S 92CA OF THE ACT. W E FIND THAT, AS CONTENDED, THE DRP HAS SUO MOTO REJECTED THESE TWO COMPANIES AS COMPARABLE WITHOUT THE ASSESSEE HAVING RAISED ANY O BJECTIONS TO THEIR INCLUSION IN THE FINAL SET OF COMPARABLES. WE HAVE CAREFULLY PERUSED PARAS 3.20 AND 3.21 OF THE DRPS ORDER AND FIND THAT THE DRP HAS NOT ADDUCED ANY PROPER REASONING AS TO WHY THESE COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMPA RABLES, IN SPITE OF THE FACT THAT NO OBJECTIONS TO THEIR INCLU SION HAS BEEN RAISED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, WE DEEM IT APPROPRIATE TO SET ASIDE THE DRPS ORDER EXCLUDING THESE TWO COMPA NIES FROM THE LIST OF COMPARABLES AND RESTORE THE ISSUE OF COMPAR ABILITY OF THESE TWO COMPANIES TO THE FILE OF THE TPO FOR FRESH ADJU DICATION. IT(TP)A NO.2055/B/1 6 34 NEEDLESS TO ADD, THAT THE ASSESSEE WILL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER AND TO FIL E SUBMISSIONS/DETAILS REQUIRED, WHICH SHALL BE CONSID ERED BY THE TPO BEFORE DECIDING THE MATTER. 12 IN RESPECT OF THE TRANSFER PRICING GROUNDS RAISED AT D-1 TO 11 (SUPRA), THE LD AR OF THE ASSESSEE URGED AND PRESS ED BEFORE US IN THE COURSE OF HEARING ONLY FOR (I) EXCLUSION OF 5 C OMPARABLE COMPANIES FROM THE LIST OF COMPARABLES AND (II) INC LUSION OF 2 COMPANIES IN THE LIST OF COMPARABLES. THEREFORE ALL OTHER GROUNDS RAISED ON TP ISSUES IN THE AFORESAID GROUNDS NOT BEING PRESSED OR URGED BEFORE US ARE RENDERED INFRUCTUOUS AND ACCORDINGLY DISMISSED AS N OT PRESSED. 13 GROUNDS A,B,C, H AND I WERE NOT PRESSED OR URGED BEFORE US AND ARE THEREFORE RENDERED INFRUCTUOUS AND CONSEQUE NTLY DISMISSED AS NOT PRESSED. 14 GROUND F MAT CREDIT U/S 115JA 14.1 THE LD AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD C L A I M E D M A T C R E D I T U / S 1 1 5 J A O F T H E ACT FOR A.YS 2009-10 TO 2011-12 WHICH HAS NOT BEEN ALLOWED BY THE AO BOTH IN THE DRAFT ORDER OF ASSESSMENT AND TH E IMPUGNED FINAL ORDER OF ASSESSMENT. IT WAS PRAYED TO GRANT T HE MAT CREDIT CLAIMED. IT(TP)A NO.2055/B/1 6 35 14.2 WE HAVE HEARD BOTH PARTIES IN THE MATTER AND P ERUSED THE MATERIAL ON RECORD. WE DIRECT THE AO TO EXAMINE AND VERIFY THE RECORD IN RESPECT OF THE ASSESSEES CLAIM FOR MAT C REDIT AND ALLOW THE SAME IN ACCORDANCE WITH LAW. 15. GROUND NO:G INTEREST U/S 234 B OF THE ACT 15.1 IN THIS GROUND (SUPRA), THE ASSESSEE DENIES IT SELF LIABLE TO BE CHARGED INTEREST U/S 234B OF THE ACT. THE CHARGE OF INTEREST IS CONSEQUENTIAL AND MANDATORY AND THE ASSESSEE HAS NO DISCRETION IN THE MATTER. THIS PROPOSITION HAS BEEN UPHELD BY THE HONBLE APEX COURT IN THE CASE OF ANJUM H. GHASWALA (252 ITR 1) (SC) AND WE, THEREFORE UPHOLD THE AOS ACTION IN CHARGING THE AS SESSEE, THE SAID INTEREST. THE AO IS, HOWEVER, DIRECTED TO RE-COMPUT E THE INTEREST CHARGEABLE U/S 234B OF THE ACT WHILE GIVING EFFECT TO THIS ORDER. 16. IN THE RESULT, THE ASSESSES APPEAL FOR A.Y. 201 2-13 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH AUGUST, 2018 . SD/- SD/- (N.V VASUDEVAN) ( JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE DATED : 8/8/2018 VMS IT(TP)A NO.2055/B/1 6 36 COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGAL ORE IT(TP)A NO.2055/B/1 6 37 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR. P.S... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WE BSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT.. 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..