Proseed India Ltd., (formerly Green Fire Agri.Commodities Ltd), Hyd, Hyderabad V. ACIT, Cirlce-2(2), Hyd, Hyderabad

ITA 209/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2303 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 24-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P CHANDRA SEKHAR
• Keywords: Transfer pricing; International transaction; Proportionate interest; Wholly owned subsidiary; Notional interest; Commercial expediency
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 209/HYD/2016 ASSESSMENT YEAR: 2011-12 PROSEED INDIA LTD., HYDERABAD. (FORMERLY GREEN FIRE AGRI COMMODITIES LTD.) PAN AABCN 7753PQ VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 2(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.V.S.S. PRASAD REVENUE BY : SHRI P. CHANDRA SEKHAR DATE OF HEARING 14-06-2017 DATE OF PRONOUNCEMENT 31-07-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER PASSED U/S 143(3) R.W.S. 92CA(4) R.W.S.144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) DATED 31-12-2015 RELATIN G TO AY 2011-12. 2. BRIEF FACTS OF THE CASE ARE, THE ASSESSEE COMPA NY IS ENGAGED IN THE BUSINESS OF EXPORT OF INFORMATION TECHNOLOGY ENABLED SERVICES, FURNISHED ITS RETURN OF INCOME FOR THE AY 2011-12 O N 29/11/2011 ADMITTING LOSS OF RS. 24,38,074/-. SUBSEQUENTLY, TH E CASE WAS SELECTED FOR SCRUTINY. AS THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AES EXCEEDING RS. 15 CRORES, THE CASE WAS REFERRED TO TRANSFER PRICING OFFICER (TPO) FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE. 2 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. 2.1 THE TP PROCEEDINGS WERE TAKEN UP AND STATUTORY NOTICES WERE ISSUED AGAINST WHICH THE AR OF THE ASSESSEE WAS ASK ED TO EXPLAIN THE CASE AND FILE SUBMISSIONS. 2.2 PROFILE OF THE TAXPAYER: THE GROUP IS INTO ITES SUCH AS COMPREHENSIVE ADVERTISING SOLUTIONS TO THE ADVERTIS ERS. THE TAXPAYER IS PRIMARILY ENGAGED IN PROVIDING WEB DEVELOPMENT, WEB MAINTENANCE AND SUPPORT SERVICES. THE TAXPAYER IS SUBSIDIARY OF NORTHGATE INDIA WHICH IS HAVING 51% STAKE IN THIS COMPANY. THE NAME OF THE COMPANY WAS SUBSEQUENTLY CHANGED TO GREEN FIRE AGRI COMMODI TIES P. LTD. ON 20/04/2010 AND SUBSEQUENTLY TO THE PRESENT NAME. T HE COMPANY IS ENGAGE IN COMMODITIES TRADING ACTIVITY IN INDIA. 2.3 DURING THE RELEVANT PY, AS PER THE 3CEB REPORT/ TP DOCUMENT, THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE REFL ECTED AS UNDER: A.E. NATURE OF TRANSACTION AMOUNT (RS.) GLOBE7 PTE LTD. PROVISION OF ITES 4,30,24,994 NORTHGATE INVESTMENT PTE LTD. INVESTMENT IN WOS 24,42,37,077 GLOBE7 (UK) LTD. INVESTMENT IN WOS 41,35,200 GLOBE HK LTD. REVERSAL OF REIMBURSEMENT PAID FOR 2008-09 82,29,827 AXIL EUROPE LTD. REVERSAL OF REIMBURSEMENT PAID FOR 2008-09 75,73,677 GLOBE7 PTE LTD. REIMBURSEMENT OF EXPENSES PAID 1,99,792 GLOBE7 PTE LTD. REIMBURSEMENT OF EXPENSES RECEIVED 62,318 30,74,62,885 2.4 THE ASSESSEE HAS CARRIED OUT THE ECONOMIC ANALY SIS AND HAS SUMMARIZED IT AS UNDER: NATURE OF INTERNATIONAL TRANSACTION AMOUNT MAM PLI MARGIN OF TAXPAYER MARGIN OF COMPARABLES PROVISION OF ITES 4,30,24,994 TNMM OP/OC 15.58 14.02 INVESTMENT IN WOS 24,83,72,277 NA NA NA NA 3 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. REVERSAL OF REIMBURSEMENT PAID FOR 2008- 09 1,58,03,504 NA NA NA NA REIMBURSEMENT OF EXPENSES PAID 1,99,792 NA NA NA NA REIMBURSEMENT OF EXPENSES RECEIVED 62,318 NA NA NA NA 2.5 THE ASSESSEE HAS CARRIED OUT THE ECONOMIC ANALY SIS IN SEARCH FOR COMPARABLES WHICH IS AT PAGES 29 TO 44 OF THE T P DOCUMENTATION. THE TAXPAYER HAS USED PROWESS AND CAPITALINE DATA B ASE IN SEARCH FOR COMPARABLE COMPANIES. FOR THE IT ENABLED SERVIC ES, AFTER APPLYING CERTAIN FILTERS, THE ASSESSEE HAS SHORT-LI STED 7 COMPARABLES, WHOSE ARITHMETIC MEAN PLI (OP/TC) WAS COMPUTED AT 1 4.04% AS AGAINST THE PLI OF THE TAXPAYER AT 15.58%. WITH RE GARD TO THE TRANSACTION RELATING TO INVESTMENT IN WOS, IT IS ST ATED THAT THE INVESTMENTS IN SHARES OF SUBSIDIARIES WERE MADE AT PAR VALUE OF THE SHARE. ACCORDINGLY, THE ASSESSEE HELD THAT THE TRAN SACTIONS ARE WITHIN ARMS LENGTH. 2.5 FINANCIAL RESULTS FOR THE AY 2011-12 ARE AS UND ER: DESCRIPTION AMOUNT (RS.) OPERATING REVENUE 4,47,55,654 OPERATING COST 3,97,31,246 OPERATING PROFIT 50,24,408 OP/OR (%) 11.23 OP/OC (%) 12.65 2.6 TPO NOTICED THAT THE COMPANY HAD THE FOLLOWING TRANSACTION, WHICH WAS NOT REPORTED IN FORM 3CEB AND NO BENCH MA RKING ANALYSIS HAS BEEN DONE IN THE TP STUDY: A.E. NATURE OF TRANSACTION AMOUNT (RS.) GLOBE7 PTE RECEIVABLES 2,12,08,303 4 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. LTD. 2.7 ON GOING THROUGH THE TP DOCUMENT, THE TPO NOTED THE SEARCH PROCESS IS NOT IN CONFIRMITY WITH THE TP REGULATION S AS ALSO THE CHOICE OF FILTERS WHICH RESULTED IN SELECTION OF INAPPROPR IATE COMPARABLES. IN VIEW OF THE SAME, THE TP DOCUMENT OF THE TAXPAYER W AS REJECTED AND AN INDEPENDENT ANALYSIS WAS MADE BY AGGREGATING ALL THE TRANSACTIONS UNDER TNMM. 2.8 THE FINAL COMPARABLES SELECTED BY TRANSFER PRIC ING OFFICER (TPO) WITH OP TO OC ARE AS UNDER: SL.NO. NAME OF THE COMPANY OP/OC 1. ACCENTIA TECHNOLOGIES LTD. 29.29 2. ACROPETAL TECHNOLOGIES LTD. (SEG.) 15.57 3. COSMIC GLOBAL LTD. 9.81 4. CROSSDOMAIN SOLUTIONS P. LTD. 16.60 5. E4E HEALTHCARE 69.78 6. ECLERX SERVICES LTD. 9.24 7. INFORMED TECHNOLOGIES LTD. 18.85 8. INFOSYS BPO 28.93 9. JEEVAN SCIENTIFIC TECHNOLOGIES LTD. 13.54 10. JINDAL INTELLICOME LTD. 21.78 11. MASTIFF TECH P LTD. 76.28 12. MICROGENTIC SYSTEMS LTD. 25.04 13. TCS E-SERVE LTD. -0.22 TOTAL 334.49 ARITHMETIC MEAN 25.73 2.9. AFTER COMPARING THE AVERAGE MARGINS OF THE COM PARABLES TO THE FINANCIALS OF THE ASSESSEE, THE TPO COMPUTED THE AD JUSTED ARMS LENGTH MARGIN AS UNDER: DESCRIPTION AMOUNT ARMS LENGTH MARGIN 25.73% LESS: WCA -9.63% ADJUSTED ARMS LENGTH MARGIN 35.36% 5 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. OPERATION COST (OC) 3,97,31,246 ADJUSTED ARMS LENGTH MARGIN (%) (AALM) 35.36% ARMS LENGTH PRICE = (100+AALM)*OC 5,37,80,215 PRICE RECEIVED (OR) 4,47,55,654 ADJUSTMENT U/S 92CA 90,24,561 2.10. ACCORDINGLY, THE TPO WHO PASSED AN ORDER U/S 92CA(3) OF THE ACT ON 30/12/2014, RECOMMENDED ADJUSTMENT OF RS. 90 ,24,561/-. THE SAME WAS INCORPORATED BY THE AO IN THE DRAFT ASSESS MENT ORDER. ASSESSEE PREFERRED A PETITION BEFORE THE DISPUTE RE SOLUTION PANEL (DR) RAISING VARIOUS OBJECTIONS. 3. THE DRP VIDE ORDER DATED 10/12/2015 DIRECTED TPO TO EXCLUDE THE FOLLOWING COMPARABLE COMPANIES SELECTED BY THE TPO. OUT OF 13 COMPARABLES SELECTED BY TPO, DRP EXCLUDED 7 COMPARA BLES AND RETAINED 6 COMPARABLES, OUT OF WHICH, 3 COMPARABLES WERE ACCEPTABLE TO ASSESSEE. FOR BALANCE 3 COMPARABLES, ASSESSEE IS IN APPEAL BEFORE US, WHICH ARE: SL.NO. NAME OF THE COMPANY 1. ACCENTIA TECHNOLOGIES LTD. 2. CROSSDOMAIN SOLUTIONS P. LTD. 3. ECLERX SERVICES LTD. HOWEVER, ON GIVING EFFECT TO THE REJECTION OF THE A BOVE COMPARABLES, THE MEAN MARGIN WORKED OUT TO MORE THAN THE MEAN MA RGIN COMPUTED BY THE TPO, THE DRP UPHELD THE ALP DETERMINED BY TH E TPO. 3.1 CONSIDERING THE ABOVE FINDINGS OF DRP, THE AO HAS KEPT THE ADJUSTMENT U/S 92CA AT RS. 90,24,561/-. 4. IN THE DRAFT ASSESSMENT ORDER, A DISALLOWANCE OF RS. 62,23,081/- WAS MADE U/S 37(1) OF THE ACT, BY OBSER VING AS UNDER: 6 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. 4.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 2010-11, IT WAS OBSERVED THAT THE ASSESSEE OBTAINED A UNSECURED LOAN (INTER CORPORATE LOAN) OF RS. 11,20,23,500/- FROM ONE OF I TS STEP-DOWN SUBSIDIARY M/S SOCIAL MEDIA INDIA LTD. (SMIL) AND T HE ASSESSEE INVESTED THE ENTIRE LOAN AMOUNT IN ITS WHOLLY OWNED SUBSIDIARIES AS FOLLOWS: S.NO. NATURE OF INVESTMENT SUBSIDIARY IN WHICH THE ASSESSEE INVESTED AMOUNT IN RS. 1 INVESTMENTS M/S NORTH GATE INVESTMENTS PTE LTD., SINGAPORE 10,40,23,500 2 INVESTMENTS M/S VAR QUANT TECH SECURITIES PVT. LTD. 10,00,000 3 SHARE APPLICATION MONEY M/S VAR QUANT TECH/SECURITIES (P) LTD. 70,00,000 TOTAL 11,20,23,500 THE AO NOTED THAT AS EVIDENT FROM THE ABOVE, THE EN TIRE BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF MAKING INVES TMENT IN SUBSIDIARY COMPANIES. ON ONE HAND, THE ASSESSEE IS PAYING HUGE INTERESTS TO ITS SUBSIDIARY M/S. SMIL AND ON THE OTHER HAND THE ASSE SSEE IS NOT EARNING ANY INCOME FROM THE SUBSIDIARIES TO WHICH L OAN WAS GRANTED OUT OF THE ABOVE MENTIONED BORROWED FUNDS. THUS, IT IS EVIDENT THAT THE ASSESSEE IS NOT THE ULTIMATE BENEFICIARY OF THE LOAN BUT IT WAS MERELY A CONDUIT THROUGH WHICH THE LOAN WAS PASSED FROM SMIL TO OTHER SUBSIDIARIES. 4.2 THE AO OBSERVED THAT THE ASSESSEE IS ENGAGED IN EXPORT OF INFORMATION TECHNOLOGY ENABLED SERVICES. THE BORROW ED FUNDS WERE NOT UTILIZED FOR THE PURPOSE OF THE EXPORT OF ITES. THE LOAN AMOUNT WAS SIMPLY PASSED ON TO SUBSIDIARY COMPANIES AND TH E ASSESSEE COMPANY WAS MADE TO PAY A HUGE AMOUNT OF INTEREST O N THE AMOUNTS BORROWED AND INVESTED IN THESE COMPANIES. THUS THE BURDEN OF INTEREST HAS BEEN SHIFTED FROM THOSE COMPANIES TO T HE ASSESSEE COMPANY. THUS IT IS EVIDENT THAT THE UNSECURED LOAN BORROWED FROM SMIL HAS NOT BEEN UTILIZED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF 7 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. BUSINESS OF THE ASSESSEE. THEREFORE, INTEREST PAID BY THE ASSESSEE TO AN EXTENT OF RS. 96, 62, 706 ON THE UNSECURED LOAN RECEIVED FROM SMIL HAS NOT BEEN LAID OUT OR EXPENDED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 4.3 FURTHER, THE AO OBSERVED THAT THE ASSESSEE COMP ANY HAS AVAILED UNSECURED LOAN FROM M/S. SMIL WHICH IS A 10 0% SUBSIDIARY COMPANY OF GLOBE 7 PVT. LTD WHICH IS A 100% SUBSIDI ARY COMPANY OF M/S. NORTHGATE INVESTMENTS PVT. LTD, SINGAPORE. M/S . NORTHGATE INVESTMENTS PVT. LTD., SINGAPORE IS A HOLDING COMPA NY OF M/S. NORTHGATE TECHNOLOGIES LTD AND SO ALSO IN VARQUANT TECH SECURITIES LTD WHICH IS A SUBSIDIARY COMPANY OF M/S. NORTHGATE TECHNOLOGIES LTD. THUS IT IS CLEAR THAT THE AMOUNTS TAKEN AS UNS ECURED LOANS FROM A SUBSIDIARY COMPANY HAS AGAIN BEEN INVESTED IN A PAR ENT COMPANY AND NOT USED IT FOR ANY BUSINESS PURPOSES. 4.4 IN VIEW OF THE ABOVE FINDINGS, THE AO ASKED THE AR VIDE ORDER SHEET ENTRY DT:25.02.2015 TO SHOW CAUSE AS TO WHY R S. 96,62,706 BEING THE INTEREST PAID ON THE UNSECURED LOAN WHICH WAS PASSED ON TO THE SUBSIDIARIES SHOULD NOT BE DISALLOWED U/ S. 37( 1) OF THE ACT. 4.5 IN REPLY, THE ASSESSEE SUBMITTED THAT DURING TH E FY 2010-11, OUT OF THE UNSECURED LOAN OF RS. 11,20,23,500/- AN AMOUNT OF RS. 3,61,58,790/- WAS REPAID TO M/S. SMIL AND HENCE THE INTEREST DISALLOWANCE ON THE SAME WORKS OUT TO RS. 62,23,081 /-. 4.6 THE AO OBSERVED THAT DURING THE YEAR THE LOAN A MOUNT REMAINS IN EXISTENCE AND REPAID AN AMOUNT OF RS. 3,61,58,79 0/- DURING THE YEAR 2011-12 AND, THEREFORE, PROPORTIONATE AMOUNT O F INTEREST OF RS. 62,23,081/- NEEDS TO BE CONSIDERED AS DISALLOWANCE. ACCORDINGLY, HE DISALLOWED THE SAME. 4.7 WHEN THE ASSESSEE PREFERRED APPEAL BEFORE THE D RP, THE DRP FOLLOWING ITS ORDER IN AY 2010-11, CONFIRMED THE AC TION OF THE AO. 8 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US R AISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED (LD.) ASSESSING OFFICER (AO)/LD. DIS PUTE RESOLUTION PANEL (DRP) ARE ERRONEOUS IN LAW AND ON THE FACTS OF THE CASE. 2. THE LD. TPO/DRP ERRED IN ACCEPTING THE FOLLOWING COMPANIES AS COMPARABLES WHICH WERE REJECTED BY THE ASSESSEE ON THE GROUNDS THAT THEY WERE FUNCTIONALLY DISSIMILAR I.E. (A) ACCENTIA TECHNOLOGIES LTD- (B) CROSS DOMAIN SOLUTIONS P LTD. , AND ON THE GROUNDS OF BEING FUNCTIONALLY DISSIMILAR AND HAVING HIGH PROFITS IS (C) ECLERX SERVICES LTD. 3. THE LD DRP ERRED IN REJECTING THE FOLLOWING COMP ANIES AS COMPARABLES WHEN THE SAME WAS ACCEPTED BY BOTH THE TPO AS WELL AS THE APPELLANT-(A) INFORMED TECHNOLOGIES LTD (B) MICROGENETICS LTD (C) COSMIC GLOBAL LTD. 4. THE LD. DRP OUGHT TO HAVE ACCEPTED THAT PROFIT M ARGIN OF ASSESSEE IS AT ARM'S LENGTH AS THE SAME FALLS WITHI N TOLERANCE BAND OF 5% OF ARM'S LENGTH MARGIN OF 21.46% OF THE COMPARABLE COMPANIES. 5. THE LD. AO/DRP ARE NOT JUSTIFIED IN LAW IN CONSI DERING WRONG COMPARABLES AND CONSEQUENTLY ARRIVING AT A TRANSFER PRICING ADJUSTMENT OF RS 90,24,561/-. 6. THE LD. DRP ERRED IN DISALLOWING INTEREST OF RS 62,23,081/- ON UNSECURED LOAN TAKEN FROM M/S SOCIAL MEDIA INDIA LTD ITS 100% SUBSIDIARY ON THE GROUND THAT THE SAME WAS NOT INCURRED FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS. 7. THE LD. DRP OUGHT TO HAVE TREATED THE INTEREST P AID AS HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. 6. GROUND NOS. 1 & 7 ARE GENERAL IN NATURE, NEED NO ADJUDICATION. 7. WITH REGARD TO GROUND NO.2, LD. AR SUBMITTED THA T HIS ARGUMENT IS ON COMPARABLE CASES, WHICH ARE AS UNDER: 7.1 ACCENTIA TECHNOLOGIES LTD.: 1. LD. AR SUBMITTED THAT THIS COMPANY IS A DIVERSIF IED KPO COMPANY, OPERATING FROM MULTIPLE LOCATIONS IN INDIA , USA, UK, AND THE MIDDLE EAST. ACCENTIA IS ENGAGED IN THE BUSINESS OF HEALTHCARE DOCUMENTATION (MEDICAL TRANSCRIPTION, HEALTHCARE RE CEIVABLES CYCLE 9 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. MANAGEMENT (HRCM) AND SOFTWARE. ACCENTIA ADOPTED EM R SUITE WHICH HAS OPENED UP AVENUES FOR AN INTEGRATED END-T O END. HE SUBMITTED THAT THE TURNOVER OF ACCENTIA FOR THE FY 2010-11 IS RS. 107,22,96,564/-. IN COMPARISON TO THE SAME, THE REV ENUE ARISING FOR PROVIDING IT ENABLES SERVICES BY THE ASSESSEE COMPA NY IS RS. 4,30,24,994/- WHICH IS ONLY 3% OF THE REVENUE OF AC CENTIA. THIS WOULD NOT FORM AN APPROPRIATE BASIS FOR COMPARISON. 2. LD. AR SUBMITTED THAT ACCENTIA TECHNOLOGIES LTD. IS TO BE REJECTED AS IT IS FUNCTIONALLY DIFFERENT FROM THE A SSESSEE AND ALSO ON THE BASIS THAT IT IS NOT CORRECT TO COMPARE ASSESSE E WITH COMPANIES HAVING VERY HIGH TURNOVER. IT HAS A TURNOVER OF RS . 107.22 CRORES AND IT HAS VENTURED INTO PROVIDING HRCM SERVICES OF AN INTEGRATED END TO END SAAS MODEL. HE RELIED ON THE FOLLOWING CASES T O SUBMIT THAT THE TRIBUNAL HAS EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES IN THESE CASES: 1. S&P CAPITAL IQ (INDIA) LTD. VS. DCIT, [2016] 72 TAXMANN.COM 326 (HYD. TRIB.). 2. ORANGE BUSINESS SERVICES INDIA SOLUTIONS (P) LTD . VS. DCIT, [2016] 71 TAXMANN.COM 206 (DELHI TRIB.) AY 2011-12. 3. SWISS RE SHARED SERVICES INDIA PVT. LTD. VS. ACI T, 76 TAXMANN.COM 22 ( BANG. TRIB. ) AY 2011-12. 3. FINALLY HE SUBMITTED THAT THE FUNCTION WHICH WER E DONE BY ACCENTIA AND THE FUNCTIONS WHICH WERE RENDERED BY T HE ASSESSEE WERE ENTIRELY DIFFERENT. ONE CANNOT SAY THAT THE TY PE OF SERVICES DONE BY THE ASSESSEE WAS OF A LEVEL AS SOPHISTICATED AS THE ONE WHICH WAS BEING PROVIDED BY ACCENTIA TECHNOLOGIES LTD. 7.2 CROSS DOMAIN SOLUTIONS LTD. 1. LD. AR SUBMITTED THAT THIS COMPANY IS INTO OUTS OURCING, CONSULTING AND IT SERVICES. THE COMPANY THOUGH SPEC IFIES THAT IT IS INTO BUSINESS PROCESSING, UPON DETAIL ANALYSIS OF S ERVICES PROVIDED, IT CAN BE SAID THAT THE COMPANY IS MORE THAN JUST BUSI NESS PROCESS MANAGEMENT. THE SERVICES OF THE COMPANY ARE VARIED AND ALSO 10 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. INCLUDE MARKET RESEARCH. EVEN THE OUTSOURCING SERVI CES ARE DIVERSIFIED AND INCLUDE MANY INDUSTRIES. THE COMPAN Y CONDUCTS ITS OWN ANALYSIS AND PROVIDES SERVICES WITH INNOVATION. HE SUBMITTED THAT ON COMPARISON WITH CROSSDOMAIN, NORTHGATE INDIA IS ONLY INTO BACK END OFFICE SUPPORT AND DOES NOT INNOVATE ANY PRODUC T. ITS SERVICES ARE PROVIDED TO ONLY ONE CLIENT AND DOES NOT COVER VARI OUS INDUSTRIES LIKE THAT OF CROSSDOMAINS. HE RELIED ON THE FOLLOWING CA SES TO SUBMIT THAT THE TRIBUNAL HAS EXCLUDED THIS COMPANY FROM THE LIS T OF COMPARABLES IN THESE CASES: 1. S&P CAPITAL IQ (INDIA) LTD. VS. DCIT, [2016] 72 TAXMANN.COM 326 (HYD. TRIB.). 2. GLOBAL E BUSINESS OPERATIONS PVT. LTD. VS. DCIT, ITA NO. 1678/BANG/2012 3. SYMPHONY MARKETING SOLUTIONS [2013] 38 TAXMANN.C OM 55 (BANG. TRIB). 4. MARKET TOOLS, [2013] 40 TAXMANN.COM 390 (HYD. TR IB.) 7.3 ECLERX SERVICES LTD. 1. LD. AR SUBMITTED THAT THIS COMPANY PARTNERS WITH FINANCIAL SERVICES FIRMS TO INCREASE CONTROL, EXECUTE ONGOING FUNCTIONS WITH A SIGNIFICANT REDUCTION IN COST AND ACCELERATE CHANGE INITIATIVES BY PROVIDING DOMAIN SPECIFIC RE-ENGINEERING EXPERTISE. IT PROVIDES A BROAD SUITE OF SERVICES THAT ALLOW CLIENTS TO OPERA TE ON A DAY-TO-DAY BASIS INCLUDING TRADE PROCESSING, REFERENCE DATA, A CCOUNTING AND FINANCE AND EXPENSE MANAGEMENT ACTIVITIES. THE PROF ESSIONAL SERVICES PRACTICE INCLUDES CONSULTING, BUSINESS ANA LYSIS AND SOLUTION TESTING. HE SUBMITTED THAT THIS COMPANY ALSO COMPE TES WITH COMPANIES WHICH ARE LARGER, BETTER FINANCED AND BET TER KNOWN, COMPANIES OF THE SAME SIZE AND STRENGTH AS WELL AS CAPTIVES. ECLERX HOLDS INTANGIBLE ASSETS IN THE FORM OF COMPUTER SOF TWARE. 2. HE SUBMITTED THAT HOWEVER, THE ASSESSEE NEITHER PROVIDES ANY EXPERTISE NOR DOES IT PROVIDE A HOST OF SERVICES TO IT'S CLIENTS. IT'S ONLY CLIENT IS GLOBE 7 PTE AND IT ONLY PROVIDES BACK END SUPPORT SERVICES 11 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. BY UTILIZING THEIR IPRS. THE COMPANY DOES NOT FACE ANY COMPETITION AND CHARGES ONLY PROFIT MARGIN TO GLOBE 7 PTE. HE R ELIED ON THE FOLLOWING CASES TO SUBMIT THAT THE TRIBUNAL HAS EXC LUDED THIS COMPANY FROM THE LIST OF COMPARABLES IN THESE CASES: 1. S&P CAPITAL IQ (INDIA) LTD. VS. DCIT, [2016] 72 TAXMANN.COM 326 (HYD. TRIB.). THE TRIBUNAL HAS OBSE RVED IN THIS CASE AS UNDER: 8. LD. DR SUBMITTED THAT THE ASSESSEE IS ALSO A KPO AND IS PRIMARILY ENGAGED IN PROVIDING WEB DEVELOPMENT, WEB MAINTENANCE AND SUPPORT SERVICES. HE SUBMITTED THAT THE COMPAN Y IS DEALING IN WEB DEVELOPMENT AND MAINTENANCE IS NOTHING BUT DEAL ING WITH HIGH END MARKET. THIS COMPANY FALLS INTO CATEGORY OF KPO . HE SUBMITTED THAT THE ASSESSEE HAS NOT PROPERLY SELECTED THE COM PARABLES AND DID NOT ANALYSE FAR ANALYSIS OF THE COMPARABLES EITHER HORIZONTALLY OR VERTICALLY. MOREOVER, THE CASE LAWS RELIED UPON BY THE LD. AR ARE NOT RELEVANT TO THE PRESENT CASE AS VARIOUS JUDICIAL FO RUMS HAVE ADJUDICATED THAT ITES SERVICES CANNOT BE COMPARED W ITH KPO. HE SUBMITTED THAT THE LD. AR IS PRIMARILY RELYING ON T HESE CASE LAWS, WHICH HAVE NO RELEVANCE TO THE PRESENT CASE SIMPLY BECAUSE THE ASSESSEE ITSELF A KPO. 9. IN THE REJOINDER, LD. AR SUBMITTED THAT, NO DOUB T, ASSESSEES PROFILE IS DEVELOPMENT OF WEB AND MAINTENANCE. HOWE VER, THE ASSESSEE COMPANY IS INTO PROVIDING BACK END SUPPORT SERVICES TO ITS OVERSEAS SUBSIDIARY. THE ASSESSEE COMPANY PROVIDES WEBSITES SERVICES WHICH IS INFORMATION TECHNOLOGY ENABLED SERVICES (ITES). THE SAME IS DEMONSTRATED BY THE ORDER PASSED BY THE TPO WHEREIN THE TPO HAS ACKNOWLEDGED THE FACT THAT THE GROUP IS INTO ITES. ALSO IN THE FUNCTIONS PERFORMED BY THE ASSESSEE AS MENTI ONED IN THE TP ORDER, THE TPO HAS MENTIONED THAT THE ASSESSEE IS I N PROVIDING BACK OFFICE SUPPORT SERVICES. HENCE, THE ASSESSEE COMPAN Y IS A LOW END SERVICE PROVIDER. 12 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. 10. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL FACTS ON RECORD. LD. DR SUBMITTED THAT THE ASSESSEE IS K PO COMPANY AS THE COMPANYS MAIN FUNCTIONS ARE WEB DEVELOPMENT AN D WEB MAINTENANCE. THIS CAN BE CATEGORIZED AS KPO. WE H AVE NOTICED THAT IN THE ORDER OF TPO, THE PROFILE OF THE TAXPAY ER, MENTIONED AS TAXPAYER IS PRIMARILY ENGAGED IN PROVIDING WEB DEV ELOPMENT, WEB MAINTENANCE AND SUPPORT SERVICES. BUT AT THE SAME TIME, IN FAR ANALYSIS, THE TPO HAS EXTRACTED THE FUNCTIONS PERFO RMED BY THE ASSESSEE ARE AS FOLLOWS: NORTHGATE INDIA IS ENGAGED IN PROVIDING BACK OFFICE SUPPORT SERVICES TO GLOBE7 PTE ON AN EXCLUSIVE BASIS, BASED ON TERMS STIPULATED IN THE INTER-COMPANY SERVICES AGREEMENT EXECUTED BETWEEN NORTHGAGE INDIA AND GLOBE7 PTE. THE SUPPORT ACTIVITIES OF THE TAXPAYER INCLUDE RENDERING OF SERVICES THROU GH THE WEBSITE WHICH INCLUDES THE TRACKING THE CONVERSIONS , IP FRAUD CONTROL (BOTH MANUAL AND AUTOMATE), DATA BASE MAINT ENANCE SUCH AS THE ACCOUNT MANAGEMENT, DELIVERY OF THE MAI LS, MAINTENANCE OF THE CUSTOMER SPECIFIC DATA, DETERMIN ATION OF THE ELIGIBILITY OF THE USES FOR THE PURPOSE OF TIME CAL CULATION, FREEBIES, IF ANY, AND INCLUDE MAINTENANCE AND UPGRA DATION OF THE WEBSITES BELONGING TO GLOBE7 PTE LTD. ITS BACK OFFICE SUPPORT SERVICES INCLUDE MAINTAINING THE NETWORKS, COMPUTERS, COMMUNICATION LINKS AND ENSURING CONFIGURATION OF T HE SYSTEMS. THE TAXPAYER ALSO TAKES PART IN CORPORATE STRATEGY DETERMINATION, FINANCE, ACCOUNTING, TREASURY AND LE GAL FUNCTIONS AND HUMAN RESOURCE MANAGEMENT FUNCTIONS. QUALITY ASSURANCE, DATA EXTRACTION AND ANALYSIS, SO FTWARE MAINTENANCE AND SUPPORT FUNCTION AND IT SUPPORT SER VICES ARE THE FUNCTIONS PERFORMED BY NORTHGATE INDIA. BY CONSIDERING THE FUNCTIONS PERFORMED BY THE ASSES SEE, IT IS CLEAR THAT THE ASSESSEE HAS CARRIED ON THE SERVICES OF SU PPORT ONLY THIS YEAR. IT IS NOT IMPORTANT WHAT THE PROFILE OF THE A SSESSEE DESCRIBES BUT WHAT ARE THE ACTUAL FUNCTIONS CARRIED ON BY THE ASS ESSEE DURING THE YEAR. DURING THE YEAR, THE ASSESSEE CARRIED ON SERV ICES LIKE RENDERING SERVICES THROUGH WEB SITE. THE ASSESSEE COMPANY IS INTO PROVIDING BACK END SUPPORT SERVICES TO ITS OVERSEAS SUBSIDIAR Y. THE ASSESSEE COMPANY PROVIDES WEBSITES SERVICES WHICH IS INFO RMATION TECHNOLOGY ENABLED SERVICES (ITES). THE SAME IS DE MONSTRATED BY 13 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. THE ORDER PASSED BY THE TPO WHEREIN THE TPO HAS ACK NOWLEDGED THE FACT THAT THE GROUP IS INTO ITES. ALSO IN THE FUNCT IONS PERFORMED BY THE ASSESSEE AS MENTIONED IN THE TP ORDER, THE TPO HAS MENTIONED THAT THE ASSESSEE IS IN PROVIDING BACK OFFICE SUPPO RT SERVICES. HENCE, THE ASSESSEE COMPANY IS A LOW END SERVICE PROVIDER. 10.1 THE SUPPORT SERVICES CARRIED ON BY THE ASSESSE E AND HAS NOT CARRIED ON THE WEB DEVELOPMENT NOR WEB MAINTENANCE. THESE ARE THE FINDINGS OF THE TPO AND THE SAME WAS NOT CONTROVERT ED BY DRP. THE LD. DR CANNOT EXPAND THE ISSUE WHICH WAS ALREADY AC CEPTED AND FINAL ORDERS WERE ISSUED BY TPO/DRP. ACCORDINGLY, WE CANN OT CONSIDER THE ASSESSEE AS KPO AND PROVIDER OF SUPPORT SERVICES DU RING THIS AY. CONSIDERING THE ABOVE DISCUSSION, LET US ANALYZE TH E COMPARABLES OBJECTED BY THE ASSESSEE. ALL THESE COMPANIES WERE HELD TO BE KPO AND NOT COMPARABLE DUE TO HIGH TURNOVER BY THE COOR DINATE BENCHES. THE COORDINATE BENCH OF ITAT, HYDERABAD IN THE CASE OF S&P CAPITAL IQ (INDIA) LTD. VS. DCIT, [2016] 72 TAXMANN.COM 326 (HYD. TRIB.) AS REGARDS ACCENTIA TECHNOLOGIES LTD., HELD AS UNDER: 11.2. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE ABOVE ARGUMENTS. AS SEEN FROM THE ANNUAL REPOR T OF ASSESSEE-COMPANY PLACED ON RECORD, ASSESSEE IS ENGA GED IN HIGH END KPO SERVICES AND THESE SERVICES ARE NOT SI MILAR TO ASSESSEES BPO SERVICES WHERE IT ONLY COMPILES DATA AND SUBMITS THE EXCEL SHEETS AND OTHER FORMS OF DATA IN VARIOUS STRUCTURES BUT DOES NOT GIVE ANY ANALYTICAL IMPUTS. DATA BASE MANAGEMENT IS NOT BASED ON ANY KNOWLEDGE BASED SERVICES. THEREFORE, THE COMPANY, ACCENTIA TECHNOL OGIES LTD., IS FUNCTIONALLY DIFFERENT FROM ASSESSEES FUNCTIONS . IN VIEW OF THE PRINCIPLES LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN RAMPGREEN SOLUTIONS PVT. LTD., VS. CIT IN ITA NO. 1 02/2015 (SUPRA), AND ALSO ON THE FACT THAT THIS COMPANY IS EXCLUDED IN EARLIER YEARS NOT ONLY BY THE ITAT BUT ALSO BY THE DRP IN LATER YEAR AND IN THIS YEAR ITSELF BY THE CO-ORDINATE BEN CH AT DELHI AS STATED ABOVE, WE ARE OF THE OPINION THAT THIS CO MPANY IS FUNCTIONALLY DIFFERENT AND HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 14 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. 10.2 AS REGARDS CROSS DOMAIN SOLUTIONS LTD., THE CO ORDINATE BENCH HAS HELD AS UNDER: 14.2. WE HAVE KEENLY PERUSED THE ANNUAL REPORT PLACED ON RECORD AND BUSINESS PROFILE OF THE COMPAN Y. IT IS ALSO CONSIDERED IN EARLIER YEAR IN THE CASE OF HYUN DAI MOTORS ENGINEERING (ITA NO. 1850/HYD/2012). THE RELEVANT PARA OF THE ORDER IS AS UNDER: III. CROSSDOMAIN SOLUTIONS LTD. : THIS COMPANY WAS CONSIDERED AS A COMPARABLE AND LIS TED AT SL.NO.7 OF THE COMPARABLES CHOSEN BY THE TPO. IT IS THE STAND OF THE ASSESSEE THAT THIS COMPANY IS NOT FUNCTIONALLY COMP ARABLE. IT IS SEEN THAT THE BUSINESS PROFILE OF THIS COMPANY IS RE-ENGINEER ED PAYROLL SERVICE. THIS COMPANY IS ALSO ENGAGED IN THE DEVELOPMENT OF INFOR MATION SYSTEMS. THE REVIEW AND BUSINESS FUNCTIONS OF CROSS DOMAIN IS AS FOLLOWS:- 'WITH A DECADE OF EXPERIENCE IN PAYROLL OUTSOURCING , CROSSDOMAIN. HAS CREATED A RE-ENGINEERED PAYROLL SERVICE EFFIPAY - THAT PROCESSES AND DELIVERS ACCURATE PAYROLL TO CLIENTS WITH HEADCOUNT UP TO 1000 EMPLOYEES IN JUST 4 HOURS*. WITH EFFIPAY LITE AND EFFIPAY LITE P LUS, OUR BOUQUET OF SERVICES COVER END TO END PAYROLL, RETRIALS, REIMBU RSEMENT, TAX PROOF VERIFICATIONS UPTO ISSUE OF FORM 16 FOR EMPLOYEES O F OUR CLIENTS ACROSS DIFFERENT INDUSTRY VERTICALS. OUR PROCESSES ARE HIG HLY SCALABLE AND PROVIDE END TO END PAYROLL SOLUTIONS TO CLIENTS WITH HEADCO UNT RANGING FROM 5 TO 65,000. ' 'CROSSDOMAIN'S IT KNOWLEDGE AND DOMAIN COMPETENCE H AS PROVIDED THE EDGE TO DEVELOP INFORMATION SYSTEMS TO IMPLEMEN T PROCESS INNOVATION AND CONTINUOUSLY INCREASE EFFICIENCY AND TURN-A ROUND-T IME FOR BUSINESS CRITICAL PROCESSES. ' AS CAN BE SEEN FROM THE ABOVE, THE BUSINESS OF CROS S DOMAIN RANGES FROM HIGH END KPO SERVICES, DEVELOPMENT OF P RODUCT SUITES AND ROUTINE LOW END ITES SERVICE. HOWEVER, THERE IS NO BIFURCATION AVAILABLE FOR SUCH VERTICALS OF SERVICES. THEREFORE THE ASSESSEE CONTENDS THAT CROSS DOMAIN CANNOT BE COMPARED TO A ROUTINE ITES SERVICE PROVIDER. III. I. WE ARE OF THE VIEW THAT IN THE ABSENCE OF A NY REASONS GIVEN TO THE CONTRARY EITHER BY THE TPO OR THE DRP FOR RE GARDING THIS C9MPANY AS A COMPARABLE, THIS COMPANY SHOULD BE EXC LUDED FROM THE LIST OF COMPARABLES, ACCEPTING THE PLEA OF THE ASSESSEE. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF SYMPHONY MARKETI NG SOLUTIONS INDIA(P) LTD (SUPRA) BY THE BANGALORE BENCH. WE HOL D ACCORDINGLY. 14.3. FACTS ARE BEING SIMILAR IN THIS YEAR, THE SAME HAS TO BE EXCLUDED. MOREOVER THE WEB REPORT PLACED INDICATES THAT THIS COMPANY IS IN MARKET RESEARCH AND ANALYSIS AND IT SERVICES WHICH INCLUDE 15 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. SOFTWARE DEVELOPMENT AND MAINTENANCE. THERE IS NO SEGMENTAL INFORMATION. IN THE ABSENCE OF SEGMENTAL DATA, IT CANNOT BE STATED THAT THE COMPANY IS FUNCTIONALLY SIMILAR. IN VIEW OF THE ORDER IN EARL IER YEAR AND BASED ON ANNUAL REPORT AND WEB DATA OF THIS YEA R, IT IS BETTER THE SAME IS EXCLUDED. WE ACCORDINGLY DIRECT THE TPO/AO TO EXCLUDE THE SAME. 10.3 AS REGARDS ECLERX SERVICES LTD., THE COORDINAT E BENCH HAS HELD AS UNDER: 16. THIS COMPANY IS INCLUDED BY TPO BUT EXCLUDED BY DRP FOR THE FOLLOWING REASONS: HAVING CONSIDERED THE SUBMISSION, RESPECTFULLY FOL LOWING THE DECISION OF HON'BLE THE ITAT FOR THE AY 200910 IN ASSESSEE'S OWN CASE, AS THE FUNCTIONAL PROFILE OF THE ASSESSEE COM PANY AND THE ABOVE COMPANY REMAIN THE SAME, WE DIRECT THE AO TO EXCLUDE THE ABOVE COMPANY FROM COMPARABLES. 16.1. WE DO NOT SEE ANY REASON TO DIFFER FROM THE FINDINGS OF DRP AS IT IS PROVIDING HIGH END KPO SER VICES AND IS FUNCTIONALLY DIFFERENT. THE ORDER OF EXCLUSION IS THEREFORE, UPHELD. 10.4 FOLLOWING THE OBSERVATIONS OF THE COORDINATE B ENCH, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAID COMPANIES AS CO MPARABLES AND REWORK THE PLI ACCORDINGLY. THIS GROUND OF THE ASS ESSEE IS ALLOWED. 11. WITH REGARD TO GROUND NO. 3, LD. AR SUBMITTED T HAT DRP EXCLUDED COMPARABLES, VIZ., (A) INFORMED TECHNOLOGI ES LTD (B) MICROGENETICS LTD (C) COSMIC GLOBAL LTD. AS ACCORDI NG TO HIM, THE DRP SHOULD HAVE CONSIDERED ALL THE THREE COMPANIES AS COMPARABLES SINCE THESE COMPANIES WERE SELECTED BY THE TPO IN H IS FRESH SEARCH PROCESS AND OUT OF THESE COMPANIES, TWO COMPANIES W ERE ORIGINALLY SELECTED BY THE ASSESSEE IN ITS TP STUDY. HE FURTHE R SUBMITTED THAT ALL THE THREE COMPANIES ARE FUNCTIONALLY COMPARABLE TO THAT OF ASSESSEE COMPANY. 12. LD. DR SUBMITTED THAT DRP HAS EXCLUDED THESE TH REE COMPANIES AS THEY ARE NOT COMPARABLE TO THAT OF ASS ESSEE COMPANY REASON BEING THAT IN CASE OF COSMIC GLOBAL LTD., IT WAS NOTICED THAT 16 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. THE EXPENSES TO THE EXTENT OF 41% ON SUB-CONTRACTIN G SUGGEST A DIFFERENT WORKING MODEL WHICH MAY HAVE SIGNIFICANT EFFECT ON THE MARGIN AND THEREFORE, THE COMPANY CANNOT BE RETAINE D AS COMPARABLE. IN THE CASE OF INFORMED TECHNOLOGIES, T HE DRP OBSERVED THAT ON PERUSAL OF THE ANNUAL REPORT, IT WAS NOTICE D FROM PAGE NO. 6 THAT THE COMPANY IS OPERATING AS IT ENABLED SERVICE S, KNOWLEDGE BASED BACK OFFICE PROCESSING. IT WAS ALSO NOTICED T HAT OUT OF THE GROSS REVENUE OF RS. 4,07,73,057/- THE SALES AND SERVICE INCOME IS ONLY RS. 1,75,39,22/- AND THEREFORE, IT FAILS THE SERVICE RE VENUE FILTER OF 75% APPLIED BY THE TPO. THEREFORE, THIS COMPANY CANNOT BE RETAINED AS COMPARABLE. IN THE CASE OF MICROGENETICS, THE DRP O BSERVED THAT ON PERUSAL OF ANNUAL REPORT, IT WAS NOTICED THAT OUT O F THE TOTAL EXPENSES OF RS. 1,07,91,015/- DEBITED IN P&L A/C, THE EXPENS ES TO THE EXTENT OF RS. 24,98,323/- HAS BEEN INCURRED AS MEDICAL TRANSC RIPTION CHARGES, WHICH INDICATES THAT THE EXPENSES TO THE EXTENT OF RS. 23% HAS BEEN INCURRED IN OUTSOURCING OF THE MEDICAL TRANSCRIPTIO N ACTIVITY. THEREFORE, IT WILL NOT BE APPROPRIATE TO RETAIN THE ABOVE COMPANY AS COMPARABLE. REFERRING TO THE ABOVE OBSERVATIONS OF DRP, THE LD. DR SUBMITTED THAT THE COMPARABLES EXCLUDED BY THE DRP IS PROPER AND JUST. 13. CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MA TERIAL FACTS ON RECORD. ON CAREFUL CONSIDERATION OF THE SUBMISSIONS OF LD. AR AND LD. DR, IT WAS NOTICED THAT FROM THE FINDING OF DRP THA T COSMIC GLOBAL LTD. HAS SUB-CONTRACTED THE ITES SERVICES TO THE EX TENT OF 41% WHEREAS ASSESSEE HAS NOT DEALT WITH ANY OF THE SUB- CONTRACT WORK OF ITS ITES SERVICES AND HENCE IT CANNOT BE COMPARED W ITH THE ASSESSEE. WITH REGARD TO INFORMED TECHNOLOGIES, DRP HAS NOTI CED THAT SALES AND SERVICES INCOME IS ONLY RS. 1.75 CRORES TO THAT OF GROSS REVENUE OF RS. 4.08 CRORES OF THE COMPANY WHICH FAILS THE S ERVICES REVENUE FILTER OF 75% APPLIED BY THE TPO. WITH REGARD TO MI CROGENETICS, THE DRP NOTICED THAT TOTAL EXPENSES OF RS. 1.08 CRORES DEBITED TO P&L A/C. THE COMPANY HAS INCURRED RS. 24.98 LAKHS IN OU TSOURCING ON MEDICAL TRANSCRIPTION ACTIVITY, WHICH IS 23% OF THE TOTAL EXPENDITURE. 17 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. SINCE THE ASSESSEE HAS NOT ENTERED INTO ANY SUB-CON TRACTING BUSINESS, THIS COMPANY ALSO CANNOT BE COMPARED WITH THE ASSESSEE. IN OUR CONSIDERED VIEW, DRP HAS EXCLUDED ALL THE AB OVE THREE COMPANIES AS NON-COMPARABLES WITH THE PROPER JUSTIF ICATION THAT THESE COMPANIES CANNOT BE CONSIDERED AS COMPARABLES TO TH AT OF THE ASSESSEE. ACCORDINGLY, WE SUSTAIN THE FINDING OF TH E DRP FOR EXCLUSION OF ABOVE THREE COMPANIES. 14. WITH REGARD TO GROUND NO. 4 THAT PROFIT MARGIN OF THE ASSESSEE IS AT ARMS LENGTH AS THE SAME FALLS WITHIN TOLERAN CE BAND OF 5% OF ARMS LENGTH MARGIN OF 21.46% OF THE COMPARABLE COM PANIES, IT IS OBSERVED THAT WHEN THE TPO ARRIVES THE ALP, IF IT F ALLS WITHIN THE RANGE OF +/- 5%, HE HAS TO GIVE ADVANTAGE TO THE A SSESSEE. THEREFORE, WE DIRECT THE TPO/AO TO EXTEND THIS BENE FIT TO THE ASSESSEE AS PER TP GUIDELINES. 15. GROUND NO. 5 IS CONSEQUENTIAL IN NATURE TO GROU ND NO. 3. 15. GROUND NO. 6 IS REGARDING DISALLOWANCE OF INTER EST OF RS. 62,23,081/- ON UNSECURED LOAN TAKEN FROM M/S SOCIAL MEDIA INDIA LTD., ITS 100% SUBSIDIARY AND EXTENDING TO ITS STEP DOWN FOREIGN SUBSIDIARY. 16. LD. AR SUBMITTED THAT DURING THE AY 2010-11, TH E ASSESSEE HAS AVAILED AN UNSECURED LOAN FROM SOCIAL MEDIA INDIA L TD., A STEP DOWN SUBSIDIARY TO THE TUNE OF RS. 11,20,23,500/- AND IN VESTED THE ENTIRE LOAN AMOUNT IN ITS WHOLLY OWNED SUBSIDIARIES AS UND ER: 1. NORTHGATE INVESTMENT PTE LTD., SINGAPORE RS. 1 0,40,23,500 2. VAR QUANT TECH SECURITIES PVT. LTD., HYD. 80,00,000 16.1 LD. AR SUBMITTED THAT I N AY 2011-12, OF THE UNSECURED LOAN OF RS.11,20,23,500/- AN AMOUNT OF RS.3,61,58,790/- WAS REPAID TO M/S. SOCIAL MEDIA INDIA LIMITED AND FOR THE BALANCE AMOU NT OF RS.7,58,64,710/- PROPORTIONATE INTEREST OF RS. 62,2 3,081/- WAS CONSIDERED TO BE PAID AND THE SAME WAS DISALLOWED B Y THE AO. HE 18 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. SUBMITTED THAT THE AO TREATED THE LOAN BORROWED AS NOT INCURRED FOR THE ASSESSEE'S BUSINESS BUT FOR MAKING INVESTMENT I N ITS WHOLLY OWNED SUBSIDIARY COMPANIES. HOWEVER THE SAME IS INC URRED FOR BUSINESS PURPOSES ONLY. 16.2 LD. AR RELIED ON THE DECISION OF DELHI HIGH C OURT IN THE CASE OF EKL APPLIANCES[2012J 24 TAXMANN.COM 199 (DELHI) WHE REIN IT WAS HELD THAT 'IT IS NOT FOR THE REVENUE AUTHORITIES T O DICTATE TO THE ASSESSEE AS TO HOW HE SHOULD CONDUCT HIS BUSINESS A ND IT IS NOT FOR THEM TO TELL THE ASSESSEE AS TO WHAT EXPENDITURE TH E ASSESSEE CAN INCUR'. 16.3 IN THE CASE OF HILL COUNTY PROPERTIES LTD. V. ACIT [2014J 48 TAXMANN.COM 94 (HYDERABAD TRIB.) THE HON'BLE HYDERA BAD HELD AS UNDER: '34. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. THE REVENUE AUTHORITIES DISALLOWED THE NOTIONAL INT EREST ON THE AMOUNTS ADVANCED TO SISTER CONCERNS ON THE REASON T HAT INTEREST BEARING BORROWED FUNDS WERE USED BY THE AS SESSEE FOR NON-BUSINESS PURPOSES. HOWEVER, THE ASSESSEE MADE A PLEA BEFORE US THAT IT IS HAVING ENOUGH OWN FUNDS IN THE FORM OF SHARE CAPITAL, RESERVES AND SURPLUS, INTEREST FREE ADVANCE FROM CUSTOMERS AND DEPOSITS AND THE FUNDS WERE DIVERTED TO THE SISTER CONCERN FOR BUSINESS PURPOSE WHICH ARE IN TH E SIMILAR NATURE OF BUSINESS OF THE ASSESSEE. BEING SO, IT CA NNOT BE CONSIDERED THAT THE ASSESSEE USED THE INTEREST BEAR ING FUNDS FOR NON-BUSINESS PURPOSES. THE ASSESSEE ALSO PLACED RELIANCE ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SA BUILDERS LTD. (SUPRA). IN OUR OPINION, BEFORE DI SALLOWANCE OF NOTIONAL INTEREST IT IS INCUMBENT UPON AO TO ESTABL ISH THAT THERE IS A NEXUS BETWEEN THE AMOUNT DIVERTED AND INTEREST INCURRED BY THE ASSESSEE. EVEN IF ASSESSEE HAS DIVERTED INTE REST BEARING FUNDS TO THE SISTER CONCERN THEN IT IS BUSINESS DEC ISION TAKEN B THE ASSESSEE TO MAKE SUCH AN INVESTMENT AND EVEN IF IT HAS RESULTED NO INCOME TO THE ASSESSEE, NOTIONAL INTERE ST CANNOT BE DISALLOWED ON THE REASON THAT ASSESSEE SHOULD HAVE USED ITS NON INTEREST BEARING FUNDS FOR THE PURPOSE OF BUSIN ESS INSTEAD OF USING BORROWED FUNDS. THE AO CANNOT SIT IN THE A RM CHAIR OF BUSINESSMAN AND DECIDE WHAT THE ASSESSEE HAS TO DO TO MAXIMIZE ITS PROFIT. IN OUR OPINION, THE JUDGMENT R ELIED UPON BY THE LEARNED AR OF THE ASSESSEE IN THE CASE OF SA BU ILDERS LTD. (SUPRA) AND ALSO COORDINATE BENCH DECISION IN THE C ASE OF SSPDL LTD. V. DY. CIT [2013] 59 SOT 68 (URO)/33 19 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. TAXMANN.COM 447 (HYD.) ALSO SUPPORT THE CASE OF THE ASSESSEE. ACCORDINGLY, THIS GROUND IS ALLOWED.' 16.4 RELYING ON THE RATIOS LAID DOWN IN THE AFORESA ID CASES, LD. AR SUBMITTED THAT THE AMOUNT INVESTED INTO SUBSIDIARIE S WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND CONSEQU ENTLY THE INTEREST PAID WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF THE BUSINESS. ACCORDINGLY, HE PRAYED THE HON'BLE BENCH TO ALLOW THE INTEREST AMOUNT CLAIMED. 17. THE LD. DR SUBMITTED THAT THE ASSESSEE IS HEAVI LY RELYING ON THE CASE OF SA BUILDERS WHEREAS THAT CASE WILL NOT BE A PPLICABLE TO THE CASE OF ASSESSEE. HE SUBMITTED THAT THE ASSESSEE HA S TAKEN LOAN FROM INDIAN SUBSIDIARY COMPANY AND INVESTED IN FORE IGN SUBSIDIARY COMPANY AND DO NOT KNOW THE WHOLE FUNDS WERE UTILIZ ED BY THE FOREIGN COMPANY. HE RELIED ON THE ORDERS OF AO/DRP AND ALSO RELIED ON THE FOLLOWING CASE LAWS: 1. K. SOMASUNDARAM & BROTHERS VS. CIT, [1999] 238 I TR 939 (MAD.) 2. CIT VS. VI BAY & CO., [2002] 123 TAXMAN 894 (KER .) 18. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. IT IS OBSERVED THAT THE ASSESSEE HAS TAK EN LOAN FROM ONE OF ITS SUBSIDIARY AND INVESTED THE SAME FUNDS IN THE S TEP DOWN FOREIGN SUBSIDIARIES AS INVESTMENT IN SHARES AND IN APPLICA TION MONEY. THE LD. DR HAS RELIED ON THE DECISION OF MADRAS AND KER ALA HIGH COURTS. IN THE CASE OF K. SOMASUNDARAM & BROS VS. CIT, THE ASSESSEE IS A PARTNERSHIP FIRM DIVERTED BORROWED FUNDS TO THE REL ATIVES AND PARTNERS. SINCE THE DIVERSION IS NOT RELATED TO THE BUSINESS, THE HONBLE MADRAS HIGH COURT HAS PROPERLY DISALLOWED T HE INTEREST CHARGES CLAIMED BY THE ASSESSEE. IN THE CASE OF CI T VS. V.I. BABY, THE ASSESSEE IS A FIRM PAID HUGE INTEREST TO THE BA NK ON BORROWINGS BUT ADVANCED INTEREST FREE LOANS TO THE PARTNERS, T HEIR RELATIVES AND SISTER CONCERNS. THE HONBLE HIGH COURT OF KERALA H AS CONSIDERED 20 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. THESE TRANSACTIONS AS NOT RELATED TO THE BUSINESS O F THE ASSESSEE AND ACCORDINGLY, CONFIRMED THE ADDITION. IN OUR CONSIDE RED VIEW, THE CASE UNDER CONSIDERATION IS OF THE COMPANY WHICH IS TAKE N LOAN FROM ITS SISTER CONCERN AND INVESTED IN THE FOREIGN SUBSIDIA RY COMPANIES. THE CASES REFERRED BY THE LD. DR WILL NOT APPLY TO THE ASSESSEE' CASE AS THESE ARE RELATING TO THE CONCERNS WHICH ARE FIRMS NOT COMPANIES. SECONDLY, THE FUNDS WERE DIVERTED TO THE RELATIVES OF THE PARTNERS OR PARTNERS OR TO THE SISTER CONCERNS, WHICH IS NOT IN THE NATURE OF INVESTMENT NOR HAS ANY RELATION TO THE BUSINESS OF THE CONCERNED ASSESSEES. HOWEVER, THE CASE OF SA BUILDERS [2007] 288 ITR 1(SC), IN WHICH THE HONBLE SUPREME COURT HAS HELD THAT W E WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPINION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER- CONCERN. IT ALL DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER-CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONE Y WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MONEY CAN BE SAID T O BE ADVANCED TO A SISTER- CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OTHER CIR CUMSTANCES (WHICH NEED NOT BE ENUMERATED HERE). HOWEVER, WHERE IT IS OBVIOUS T HAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE H OLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PURPOSES, THE ASSESSEE WOULD, IN OUR OPINI ON, ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. THIS CASE IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE , AS THE ASSESSEE HAS BORROWED FROM THE INDIAN SISTER CONCERN AND INV ESTED IN FOREIGN SISTER CONCERN AS IN SHARE CAPITAL AND SHARE APPLIC ATION MONEY. THE MONEY INVESTED IN THE SISTER CONCERNS ARE CONSIDERE D TO BE FOR THE PURPOSE OF BUSINESS AS PER THE RATIO OF HONBLE SUP REME COURT BECAUSE THE HOLDING COMPANY HAS DEEP INTEREST IN TH E SUBSIDIARY COMPANY, AND HENCE, BORROWED FUNDS INVESTED BY THE ASSESSEE IN THE SISTER CONCERN ARE TO BE CONSIDERED TO BE FOR THE P URPOSE OF BUSINESS. THEREFORE, THE AO CANNOT DISALLOW ANY EXPENDITURE O N THE GROUND THAT THE SAME IS NOT RELATED TO BUSINESS OF THE ASSESSEE COMPANY. ACCORDINGLY, THIS GROUND IS ALLOWED. 21 ITA NO. 209 /HYD/2016 PROSEED INDIA LTD. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR R AHMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 31 ST JULY, 2017 KV COPY TO:- 1) PROSEED INDIA LTD., C/O PRASAD & PRASAD, CAS, F LAT NO. 301, MJ TOWERS, 8-2-698, ROAD NO. 12, BANJARA HILLS, HYDERABAD 34. 2) ACIT, CIRCLE 2(2), HYDERABAD. 3) DRP, HYDERABAD 4) PR. CIT 2, HYD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE