Cognizant Technology Services Private Limited, Hyderabad V. ACIT, Circle 1(2), Hyderabad

ITA 2106/HYD/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2898 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 21-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M RAVINDER SAI
• Assessee Lawyers: M G RAMACHANDRAN
• Keywords: Related party transaction; Transfer pricing; International transaction; Bad and doubtful debts
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A : HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NOS. 2106 & 1864/HYD/2011 ASSESSMENT YEARS: 2007-2008 & 2008-09 COGNIZANT TECHNOLOGY SERVICES PVT. LTD., HYDERABAD. ( PAN A ADCR0712J VS. ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 1(2), HYDERABAD. (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI M.G. RAMACHANDRAN FOR RESPONDENT : SHRI M. RAVINDER SAI DATE OF HEARING : 25/03/2013 DATE OF PRONOUNCEMENT : /05/2013 ORDER PER SAKTIJIT DEY, J.M. THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST THE ASSESSMENT ORDER PASSED U/S 143(3) READ WITH SECTIO N 144C OF THE ACT ON THE DIRECTION OF THE DISPUTE RESOLUTION PANEL ( IN SHORT DRP), HYDERABAD PERTAINING TO THE ASSESSMENT YEARS 2007-0 8 AND 2008-09. SINCE THE ASSESSEE IS SAME AND ISSUES ARE COMMON, B OTH THE APPEALS WERE CLUBBED AND HEARD TOGETHER, THEREFORE, A COMMO N ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. ITA NO. 2106/HYD/2011 FOR AY 2007-09 2. BRIEFLY THE FACTS ARE, THE ASSESSEE EARLIER KNOW N AS M/S UBS SERVICE CENTRE (INDIA) PVT. LTD IS A WHOLLY OWNED S UBSIDIARY OF UBS AG, ZURICH, ITS ASSOCIATED ENTERPRISE (AE). THE ASS ESSEE IS ENGAGED IN 2 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. PROVIDING IT ENABLED BACK OFFICE SUPPORT SERVICES T O ITS AE AS WELL AS OTHER COMPANIES IN THE GROUP. THE SERVICES PROVIDED BY THE ASSESSEE ARE IN THE NATURE OF BACK OFFICE SUPPORT WHICH INCL UDE FINANCIAL PROCESSORS, FINANCE & ACCOUNTING, PRESENTATIONS AND WEB SERVICES AND REMOTE INFORMATION TECHNOLOGY INFRASTRUCTURE SERVIC ES ETC. THE ASSESSEE IS 100% EOU BEING REGISTERED UNDER THE SOF TWARE TECHNOLOGY PARK OF INDIA( STPI) SCHEME OF GOVERNMENT OF INDIA. FOR THE ASSESSMENT YEAR UNDER DISPUTE THE ASSESSEE FILED IT S RETURN OF INCOME ON 31/10/2007 DECLARING INCOME OF RS. 35,99,243/-. DURING THE SCRUTINY ASSESSMENT PROCEEDING THE ASSESSING OFFICE R NOTICED THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION WITH ITS AE REFERRED THE MATTER TO THE TPO FOR DETERMINING THE ALP. DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDE R DISPUTE THE ASSESSEE EARNED REVENUE OF RS. 151,24,44,000/- FROM INTERNATIONAL TRANSACTION OF PROVIDING IT ENABLED BACK OFFICE SUP PORT SERVICE TO ITS AE. IN COURSE OF THE PROCEEDING BEFORE THE TPO THE ASSESSEE SUBMITTED ITS TP STUDY. IN THE TP STUDY THE ASSESSEE ADOPTED TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD . FOR COMPARABILITY ANALYSIS THE ASSESSEE SELECTED 12 COM PANIES ENGAGED IN IT ENABLED BACK OFFICE SERVICES WHICH WERE FOUND FU NCTIONALLY COMPARABLE TO THE ASSESSEE AS COMPARABLES HAVING AN AVERAGE PROFIT MARGIN OF 12.40%. SINCE THE ASSESSEES OPERATING CO ST AT 23.90% WAS FOUND TO BE HIGHER THE PRICE CHARGED FOR THE INTERN ATIONAL TRANSACTION WAS FOUND TO BE AT ARMS LENGTH. 3. THE TPO, HOWEVER, REJECTED THE TP STUDY OF THE A SSESSEE AND UNDERTOOK A FRESH SEARCH OF THE DATA BASES FOR SELE CTING COMPARABLES. IN THE PROCESS, THE TPO SELECTED 27 COMPANIES AS CO MPARABLES INCLUDING FIVE COMPANIES SELECTED BY THE ASSESSEE W ITH ARITHMETIC MEAN PLI OF 30.21% WHICH WAS ENHANCED TO 34.62% AFT ER WORKING 3 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. CAPITAL ADJUSTMENT AND DETERMINED THE ALP AT RS. 16 4,33,09,033/-. THIS RESULTED IN AN UPWARD TP ADJUSTMENT OF RS. 13, 08,64,590/-. THE ASSESSING OFFICER PASSED A DRAFT ASSESSMENT ORDER I NCORPORATING THE TP ADJUSTMENT MADE BY THE TPO. THE ASSESSEE CHALLEN GED THE DRAFT ASSESSMENT ORDER BEFORE THE DISPUTE RESOLUTION PANE L (DRP). THE DRP HOWEVER REJECTED ALL THE OBJECTIONS RAISED BY THE A SSESSEE. AS A RESULT, THE DRAFT ASSESSMENT WAS MADE FINAL. 4. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US. 5. THE ASSESSEE HAD RAISED 8 GROUNDS IN THE REVISED GROUNDS OF APPEAL. AT THE TIME OF HEARING, THE LEARNED AR SUBM ITTED THAT HE WOULD ONLY PRESS GROUND NOS. 2, 3, 7 & 8. IN VIEW O F SUCH SUBMISSION OF LEARNED AR GROUND NOS. 1, 4, 5 AND 6 ARE DISMISS ED AS NOT PRESSED. 6. GROUND NOS. 2 & 3 ARE RELATING TO TRANSFER PRICI NG ISSUES. 7. THE LEARNED AR WHILE ARGUING ON THE TRANSFER PRI CING ISSUE CONFINED HIS SUBMISSION TO CERTAIN COMPANIES BEING SELECTED AS COMPARABLES BY THE TPO AND SOUGHT FOR THEIR EXCLUSI ON. HEREINAFTER WE WILL DEAL WITH THE CONTENTION OF THE PARTIES WIT H REGARD TO ACCEPTABILITY OR OTHERWISE OF THE COMPANIES DISPUTE D BY THE ASSESSEE TO BE TREATED AS COMPARABLE AND RECORD OUR FINDING IN RESPECT OF EACH OF THESE COMPANIES. 8. MOLD-TEK TECHNOLOGIES LTD. : THE LEARNED AR OBJECTING TO THE AFORESAID COMPANY TO BE TREATED AS COMPARABLE SUBMITTED THAT THE THE MARK UP ON COS T OF 113% EARNED BY MOLD-TEK IS ABNORMALLY HIGH AND EXTRAORDINARY AS COMPARED TO THE MARK UP ON COST OF OTHER COMPARABLES. HE SUBMITTED THAT EVEN THE TPO DURING THE TRANSFER PRICING PROCEEDING HAD ISSU ED A SHOW CAUSE NOTICE INVITING ASSESSEES OBJECTION ON REJECTING M OLD-TEK AS COMPARABLE BY STATING THAT THE COMPANY HAS A HIGH M ARGIN. THE 4 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. LEARNED AR RELYING UPON THE DECISION OF THE INCOME- TAX APPELLATE TRIBUNAL, HYDERABAD BENCH IN CASE OF CAPITAL IQ INF ORMATION SYSTEMS INDIA PVT. LTD. V/S DCIT ITA NO. 1961/HYD/2011 DAT ED 23/11/2012 SUBMITTED THAT COMPANIES HAVING EXTRAORDINARILY HIG H PROFIT CANNOT BE TREATED AS COMPARABLE. HE FURTHER SUBMITTED THAT AP ART FROM HAVING A SUPER NORMAL PROFIT MOLD-TEK IS ALSO FUNCTIONALLY D IFFERENT AS IT OPERATES IN TWO SEGMENTS, VIZ., PLASTIC DIVISION AN D IT KNOWLEDGE PROCESS OUTSOURCING (KPO) DIVISION. THE KPO DIVISIO N ALSO RENDERS THREE DIFFERENT SERVICES, WHICH ARE A) ENGINEERING SERVICES, B) BPO SERVICES, AND C) DATA PROCESSING SERVICES. THEREFOR E, EXCEPTING BPO SERVICES, WHICH IS COMPARABLE WITH THE ASSESSEE THE OTHER TWO ACTIVITIES ARE NOT COMPARABLE. HE FURTHER SUBMITTED THAT IN THE INFORMATION OBTAINED BY THE TPO U/S 133(6) OF THE A CT, MOLD-TEK ITSELF HAS ACKNOWLEDGED THAT IT IS ENGAGED IN STRUCTURAL E NGINEERING SERVICES, WHICH CANNOT BE COMPARED TO THE ITES PROV IDED BY THE ASSESSEE. THE LEARNED AR AGAIN REFERRED TO THE DECI SION OF THE INCOME- TAX APPELLATE TRIBUNAL, HYDERABAD BENCH IN CASE OF CAPITAL IQ INFORMATION SYSTEMS INDIA PVT. LTD. ((SUPRA)) WHERE IN MOLD-TEK HAS BEEN REJECTED AS A COMPARABLE BEING FUNCTIONALLY DI FFERENT. THE LEARNED AR FURTHER SUBMITTED THAT IN FACT THE DRP I N ASSESSEES OWN CASE FOR AY 2008-09 HAS EXCLUDED MOLD-TEK AS COMPAR ABLE BY HOLDING THE COMPANY IS FUNCTIONALLY DISSIMILAR TO THE ASSES SEE. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. 10. WE HAVE HEARD CONTENTIONS OF THE PARTIES AND PE RUSED THE MATERIAL ON RECORD WITH REGARD TO THE AFORESAID COM PANY BEING TREATED AS A COMPARABLE. IT IS A FACT ON RECORD THAT THE AF ORESAID COMPANY 5 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. DURING THE YEAR HAD SHOWN SUPER NORMAL PROFIT OF 11 3%. THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S CA PITAL IQ INFORMATIONS SYSTEMS INDIA PVT. LTD. (SUPRA) HELD T HAT COMPANIES HAVING EXTRAORDINARILY HIGH PROFIT CANNOT BE TREATE D AS COMPARABLE. THAT BESIDES THE ACTIVITIES OF M/S MOLD-TEK IS ALSO FOUND TO BE FUNCTIONALLY DIFFERENT AS IT IS INVOLVED IN PROVIDI NG ENGINEERING SERVICES IN THE NATURE OF PRODUCING DESIGN, DRAWING S, DETAILED STRUCTURAL ENGINEERING DRAWINGS USING 3D AND 2D SOF TWARE. IT IS ALSO A FACT ON RECORD THAT THE DRP IN ASSESSEES OWN CASE FOR THE AY 2008-09 HAS EXCLUDED M/S MOLD-TEK FROM THE SET OF COMPARABL ES FINDING ITS ACTIVITIES TO BE FUNCTIONALLY DIFFERENT FROM THE AS SESSEE. IN AFORESAID VIEW OF THE MATTER, WE HOLD THAT M/S MOLD-TEK CANNO T BE TREATED AS A COMPARABLE AND HAS TO BE EXCLUDED. 11. ECLERX SERVICES LTD. OBJECTING TO THE AFORESAID COMPANY BEING TREATED A S COMPARABLE, THE LEARNED AR SUBMITTED THAT THE COMPANY HAS SHOWN EXTRAORDINARILY HIGH MARGIN AS IT HAS EARNED OPERATING MARGIN OF 83 .93%. IN THIS CONTEXT, THE LEARNED AR RELIED UPON A DECISION CAPI TAL IQ (SUPRA). THE LEARNED AR FURTHER SUBMITTED THAT THE INFORMATION O BTAINED BY THE TPO U/S 133(6) OF THE ACT REVEALS THAT ECLERX IS EN GAGED IN DATA ANALYTICS, OPERATIONS, MANAGEMENT & AUDITS, AND REC ONCILIATION SERVICES. THE LEARNED AR REFERRING TO THE ANNUAL RE PORT OF ECLERX SUBMITTED THAT IN ITS ANNUAL REPORT ECLERX HAS CATE GORICALLY STATED THAT IT IS NOT A BPO OR AN IT OFF-SHORING COMPANY A ND CANNOT BE COMPARED WITH SUCH COMPANIES. ON THE OTHER HAND, IT HAS STATED THAT IT IS A KNOWLEDGE PROCESS OUTSOURCING (KPO) SERVICE PROVIDER IN TWO BUSINESS VERTICALS VIZ., FINANCIAL SERVICES AND RET AIL & MANUFACTURING. IT WAS SUBMITTED THAT THE AFORESAID FACT MAKES IT C LEAR THAT ECLERX IS 6 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. FUNCTIONALLY NON-COMPARABLE WITH THE ASSESSEE WHO I S ENGAGED IN ONLY PROVIDING BACK OFFICE SUPPORT SERVICES. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. 13. WE HAVE HEARD SUBMISSIONS OF THE PARTIES AND P ERUSED THE MATERIAL ON RECORD. IN CASE OF CAPITAL IQ (SUPRA) T HE COORDINATE BENCH OF THIS TRIBUNAL HELD THAT THIS COMPANY CANNOT BE T REATED AS A COMPARABLE AS IT WAS EARNING SUPER NORMAL PROFIT AN D IS ALSO FUNCTIONALLY DISSIMILAR AS IT IS ENGAGED IN PROVIDI NG KPO SERVICES. THESE FACTS HAVE NOT BEEN CONTROVERTED BY THE LEARN ED DEPARTMENTAL REPRESENTATIVE. HENCE, FOLLOWING THE DECISION OF TH E COORDINATE BENCH IN CASE OF CAPITAL IQ (SUPRA) WE HOLD THAT THIS COM PANY CANNOT BE TREATED AS A COMPARABLE. 14. ACCURATE DATA CONVERTERS PVT. LTD. THE LEARNED AR OBJECTING TO THE AFORESAID COMPANY BEING TREATED AS COMPARABLE SUBMITTED THAT TPO HAS SELECTED THIS COMPANY AS A COMPARABLE IN THE TP ORDER AT THE FAG END OF THE PR OCEEDING. NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO EXAMINE WH ETHER THIS COMPANY IS COMPARABLE TO THE ASSESSEE. HE FURTHER S UBMITTED THAT THE TPO ONLY RELYING UPON THE INFORMATION OBTAINED FROM THE ANNUAL REPORT CONCLUDED THAT THE AFORESAID COMPANY IS FUNC TIONALLY COMPARABLE TO THE ASSESSEE. 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES IN SELECTING THE AFORESAID COMPANY AS A COMPARABLE. 16. WE HAVE HEARD THE CONTENTIONS OF THE PARTIES AN D PERUSED THE MATERIAL ON RECORD. ON A PERUSAL OF THE OBSERVATION MADE BY THE TPO 7 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. IN PARA 14.27 OF HIS ORDER, IT IS CLEAR THAT THE AF ORESAID COMPANY WAS INITIALLY NOT SELECTED AS A COMPARABLE BY THE TPO. SUBSEQUENTLY, THE TPO CONDUCTED SEARCH IN THE DATA BASES FOR FINDING ADDITIONAL COMPARABLES ON APPLYING 25% EMPLOYEE COST FILTER. A FTER EXAMINING THE INFORMATION OBTAINED FROM THE COMPANY THE TPO TREAT ED IT AS A COMPARABLE BY OBSERVING THAT THE SAID COMPANY IS EN GAGED IN DATA PROCESSING WHICH IS IN THE NATURE OF IT ENABLED SER VICES SIMILAR TO THE ASSESSEE. IT IS VERY MUCH CLEAR FROM THE ORDER OF T HE TPO THAT THE AFORESAID COMPANY WAS SELECTED AS A COMPARABLE WITH OUT INVITING OBJECTIONS OF THE ASSESSEE. THE TPO IS EMPOWERED UN DER THE PROVISIONS OF THE ACT, TO OBTAIN INFORMATION WHILE SELECTING COMPARABLES. HOWEVER, BEFORE UTILIZING THE INFORMAT ION OBTAINED HE HAS TO GIVE A FAIR OPPORTUNITY TO THE ASSESSEE TO H AVE HIS SAY IN THE MATTER. SINCE THE TPO HAS NOT GIVEN ANY OPPORTUNITY TO THE ASSESSEE TO RAISE HIS OBJECTION WITH REGARD TO THE AFORESAID COMPANY WE ARE INCLINED TO REMIT THIS ISSUE TO THE FILE OF THE ASS ESSING OFFICER WHO SHALL DECIDE THE ACCEPTABILITY OR OTHERWISE OF THE COMPANY AS COMPARABLE AFTER CONSIDERING THE ASSESSEES OBJECTI ON. 17. VISHAL INFORMATION TECHNOLOGIES LTD. ((NOW KNOWN A S CORAL HUB LTD). THE LEARNED AR ARGUING FOR EXCLUSION OF THE AFORES AID COMPANY FROM THE LIST OF COMPARABLES SUBMITTED THAT THE ACT IVITIES OF THE AFORESAID COMPANY, AS REVEALED FROM THE ANNUAL REPO RT, IS PROVIDING AGENCY SERVICES BY WAY OF OUTSOURCING THE SERVICES TO THE THIRD PARTY VENDOR AND ACTING AS AN INTERMEDIARY BETWEEN THE FI NAL CUSTOMER AND VENDOR. THE COMPANY HAS MADE PAYMENT OF RS. 13,12,0 7,282/- TO VENDORS, WHICH FORMS 43% OF THE TOTAL REVENUE OF TH E COMPANY. THE LEARNED AR IN A TABULAR FORM SUBMITTED THE VENDOR P AYMENT CHARGES AS A PERCENTAGE OF SALES AND ALSO THE PERSONAL COST AS A PERCENTAGE OF 8 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. SALES FOR THE PRECEDING THREE YEARS TO DEMONSTRATE THE AFORESAID FACT. IT WAS SUBMITTED THAT THE COMPANY SHOULD BE REJECTE D AS COMPARABLE AS IT HAS INCURRED 2.3% OF THE REVENUE DURING FINAN CIAL YEAR 2006-07 TOWARDS EMPLOYEE EXPENDITURE AND ABOUT 43% OF REVEN UE IS EXPENDED TOWARDS PAYMENT TO VENDOR, WHEREAS, IN CASE OF THE ASSESSEE PAYMENT TO EMPLOYEES WERE 36% OF THE REVENUE. THE LEARNED A R IN SUPPORT OF SUCH CONTENTION RELIED UPON THE DECISION OF THE COO RDINATE BENCH OF THE TRIBUNAL IN THE CASE OF CAPITAL IQ (SUPRA) AND ACIT V/S. MAERSK GLOBAL SERVICE CENTRE (INDIA) PVT. LTD., ITA NO. 37 74/MUM/2011. THE LEARNED AR FURTHER SUBMITTED THAT THE DRP IN ASSESS EES OWN CASE FOR AY 2008-09 HAS DIRECTED FOR EXCLUDING THE AFORESAID COMPANY FROM THE SET OF COMPARABLES AS THERE ARE MAJOR DIFFERENCES I N FUNCTIONALITY AND BUSINESS MODEL. 18. THE LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVER SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. 19. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON PERUSAL OF THE ORDER PASSED BY THE DRP I N CASE OF THE ASSESSEE FOR AY 2008-09 IT IS SEEN THAT THE DRP HAS DIRECTED EXCLUSION OF THE AFORESAID COMPANY BY HOLDING IT TO BE FUNCTI ONALLY DIFFERENT. FURTHER IN CASE OF CAPITAL IQ INFORMATION SYSTEMS ( SUPRA) THE COORDINATE BENCH WHILE CONSIDERING THE ACCEPTABILIT Y OF THE AFORESAID COMPANY AS COMPARABLE HELD IN THE FOLLOWING MANNER: 17. AFTER CONSIDERING THE SUBMISSIONS OF THE LEAR NED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE, WE FIND THAT THE D RP, IN THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2008-09 IN ASSESSEES OWN CASE, AFT ER TAKING NOTE OF THE COMPOSITION OF THE VENDOR PAYMENTS OF CORAL HUB FOR THE LAST THREE YEARS, AND THE FACT THAT IT HAS ALSO COMMENCED A NEW LINE OF BUSIN ESS OF PRINTING ON DEMAND(POD), WHEREIN IT PRINTS UPON CLIENTS REQUEST , CONCLUDED AS FOLLOWS- 9 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. 18.4. IN VIEW OF THIS MAJOR DIFFERENCE IN FUNCTI ONALITY AND THE BUSINESS MODEL, THIS PANEL IS OF THE VIEW THAT CORAL HUB I S NOT A SUITABLE COMPARABLE TO THE TAXPAYER AND HENCE NEEDS TO BE DROPPED FORM THE FINAL LIST OF COMPARABLES. IN CASE OF ACIT V/S. M/S. MAERSK GLOBAL SERVICE CEN TRE (SUPRA), THE ITAT MUMBAI BENCH HAS ALSO DIRECTED FOR EXCLUSION OF THE AFORES AID COMPANY, BY OBSERVING IN THE FOLLOWING MANNER- INSOFAR AS THE CASES OF TULSYAN TECHNOLOGIES LIMIT ED AND VISHAL INFORMATION TECHNOLOGIES LIMITED ARE CONCERNED, IT IS NOTICED FROM THEIR ANNUAL ACCOUNTS THAT THESE COMPANIES OUTSOURCED A C ONSIDERABLE PORTION OF THEIR BUSINESS. AS THE ASSESSEE CARRIED OUT ENTIRE OPERATIONS BY ITSELF, IN OUR CONSIDERED OPINION, THESE TWO CASES WERE RIGHTLY EX CLUDED. IN VIEW OF THE OBSERVATIONS MADE BY THE DRP AS WELL AS THE DECISION OF THE ITAT MUMBAI IN THE CASE OF MAERSK GLOBAL SERVICE CENTRE, (SUPRA), WE ACCEPT THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. 20. AS FACTS ARE MATERIALLY IDENTICAL, WE FOLLOW TH E ORDER OF THE COORDINATE BENCH IN CASE OF CAPITAL IQ (SUPRA) AND HOLD THAT THE AFORESAID COMPANY I.E VISHAL INFORMATION TECHNOLOGY CANNOT BE TAKEN AS A COMPARABLE AND DIRECT FOR EXCLUDING THE SAME F OR DETERMINING THE ALP. 21. HCL COMNET SYSTEMS & SERVICES LTD. THE LEARNED AR OBJECTING TO THE AFORESAID COMPANY TO BE TREATED AS COMPARABLE SUBMITTED THAT THE ASSESSEE WAS NOT P ROVIDED WITH ANY INFORMATION ABOUT THE AFORESAID COMPANY. FURTHER, T HE ANNUAL REPORT PROVIDED BY THE TPO WAS RELATING TO THE FY 2008-09. THE LEARNED AR FURTHER SUBMITTED THAT THE AFORESAID COMPANY FOR HA VING RELATED PARTY TRANSACTIONS TO THE EXTENT OF 21.52% OF THE TOTAL R EVENUE PERTAINING TO IT ENABLED SEGMENT. THEREFORE, IT CANNOT BE CONSIDE RED AS A COMPARABLE. IN SUPPORT OF SUCH CONTENTION, THE LEAR NED AR RELIED UPON A DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL, DE LHI BENCH IN CASE OF SONY INDIA PVT. LTD. [315 ITR 150] AND IN CASE OF ABHAYA INDIA PVT. 10 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. LTD. ACIT, [TS-89-INCOME-TAX APPELLATE TRIBUNAL-201 1]. THE LEARNED AR FURTHER SUBMITTED THAT HCL HAS EARNED A REVENUE OF RS. 260.18 CRORES DURING THE FY 2006-07. IT WAS SUBMITTED THAT SINCE THE COMPANY IS NOT COMING WITHIN THE RANGE OF RS. 1 TO 200 CRORES, IT SHOULD BE REJECTED AS A COMPARABLE. 22. THE LEARNED DEPARTMENTAL REPRESENTATIVE OBJECTI NG TO THE CONTENTION OF THE LEARNED AR SUBMITTED THAT WHEN TH E ASSESSEE ITSELF IS HAVING TURNOVER OF RS. 151 CRORES THE UPPER LIMI T OF RS. 200 CRORES CANNOT BE APPLIED FOR REJECTING COMPANIES AS COMPAR ABLE. 23. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. SO FAR AS ASSESSEES CONTENTION THAT HCL CO MNET SYSTEMS SHOULD BE EXCLUDED AS A COMPARABLE AS IT IS HAVING A TURNOVER OF MORE THAN RS. 200 CRORES, WE ARE UNABLE TO ACCEPT THE SA ME IN VIEW OF OUR REASONING GIVEN IN CASE OF INFOSYS BPO LTD AND WIPR O LTD. HEREUNDER. HOWEVER, SO FAR AS THE OTHER CONTENTION OF THE ASSE SSEE WITH REGARD TO NOT PROVIDING DETAILS TO THE ASSESSEE IT IS SEEN FR OM THE RECORD THAT THE TPO HIMSELF HAS ADMITTED THE FACT RELEVANT INFO RMATION WAS NOT PROVIDED TO THE ASSESSEE. IT IS FURTHER REVEALED FR OM THE OBSERVATIONS MADE BY THE TPO IN HIS ORDER DURING THE FY RELEVANT TO THE AY UNDER DISPUTE HCL COMNET HAD RELATED PARTY TRANSACTIONS O F 21.52% OF THE REVENUE. IN CASE OF SONY INDIA LTD. (SUPRA) THE INC OME-TAX APPELLATE TRIBUNAL DELHI BENCH HELD IN THE FOLLOWING MANNER: WE ARE FURTHER OF THE VIEW THAT AN ENTITY CAN BE TA KEN AS UNCONTROLLED IF ITS RELATED PARTY TRANSACTION DO NO T EXCEED 10 TO 15 PER CENT OF TOTAL REVENUE. WITHIN THE ABOVE LIMIT, TRANSACTIONS CANNOT BE HELD TO BE SIGNIFICANT TO INFLUENCE THE P ROFITABILITY OF COMPARABLE. FOR THE PURPOSES OF COMPARISON, WHAT IS TO BE JUDGED IS THE IMPACT OF THE RELATED PARTY TRANSACTION VIS- -VIS SALES AND 11 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. NOT PROFIT SINCE PROFIT OF AN ENTERPRISE IS INFLUEN CED BY LARGE NUMBER OF OTHER FACTORS. 24. THE SAME VIEW WAS ALSO EXPRESSED BY THE DELHI B ENCH OF THE INCOME-TAX APPELLATE TRIBUNAL IN CASE OF ABHAYA IND IA LTD. (SUPRA). ALL THESE FACTS COULD HAVE BEEN PLACED BEFORE THE TPO H AD HE PROVIDED RELEVANT INFORMATION TO THE ASSESSEE. THEREFORE, CO NSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFIC ER WHO SHALL CONSIDER THE ACCEPTABILITY OR OTHERWISE OF THE AFORESAID COM PANY AFTER CONSIDERING ALL THE CONTENTIONS AND ARGUMENTS OF TH E ASSESSEE. 25. MAPLE E SOLUTION LTD. & TRITON CORP LTD. THE LEARNED AR OBJECTING TO THE AFORESAID TWO COMP ANIES BEING TREATED AS COMPARABLES SUBMITTED THAT THE DIRECTORS OF THE AFORESAID TWO COMPANIES WERE FOUND TO BE INVOLVED IN FRAUD, H ENCE, FINANCIAL RESULTS OF THE AFORESAID COMPANY CANNOT BE TRUSTED AS RELIABLE. IN SUPPORT OF SUCH CONTENTION, THE LEARNED AR RELIED U PON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF CAPITAL IQ (SUP RA), ITO V/S. CRM SERVICES INDIA PVT. LTD. (SUPRA) AND STREAM INTERNA TIONAL SERVICES ITA NO. 8997/MUM/2010. 26. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE MATERIAL ON RECORD. ON PERUSAL OF THE ORDER OF THE COORDINATE BENCH IN CASE OF CAPITAL IQ (SUPRA) WE FIND THAT AFTER CONSI DERING THE SUBMISSIONS WITH REGARD TO THE AFORESAID COMPANIES THE COORDINATE BENCH HELD IN THE FOLLOWING MANNER: - 18. THE ASSESSEE HAS OBJECTED FOR THESE COMPANIES BEING TAKEN AS OMPARABLES MAINLY ON THE GROUND THAT THE DIRECTORS WERE INVOLVED IN FRAUD AND HENCE FINANCIALS ARE UNRELIABLE. IN THIS REGARD, L EARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE HAS RELIED UPON AND ORDER OF THE I TAT DELHI BENCH IN THE CASE OF 12 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. ITO V/S. CRM SERVICES INDIA (P)LTD., NEW DELHI(ITA NO.4068/DEL/2009 FOR ASSESSMENT YEAR 2004-08 DATED 30.6.2011, WHEREIN IT WAS HELD THAT THE FINANCIAL RESULTS OF THESE VERY COMPANIES, WHICH HAVE BEEN TA KEN AS COMPARABLE IN THE CITED CASE ALSO, CANNOT BE ACCEPTED AS COMPARABLES, WITH THE FOLLOWING OBSERVATIONS. 17.5 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE ADMITTED FACTS IN RESPECT OF GALAXY COMMERCIAL ARE THAT IT IS CARRYING ON THREE LINES O F BUSINESS AND SEGMENT PROFITABILITY IS NOT AVAILABLE. OBVIOUSLY, OVERALL PROFITABILITY OF THE COMPANY CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE AS IT WILL AMOUNT TO COMPARING INCOMPARABLE CASES. FURTHER, TH E BUSINESS REPUTATION OF RASTOGI GROUP, OWNING MAPLE E. SOLUTI ONS AND TRITON CORPORATION, IS UNDER SERIOUS INDICTMENT. THEY ARE ALSO CARRYING ON THE BUSINESS OF DATA PROCESSING SERVICES AND ITES S ERVICES APART FORM BPO SERVICES. IN VIEW OF A QUESTION MARK ON THE REP UTATION OF THE OWNER, ALBEIT FOR EARLIER YEARS, IT WOULD BE UNSAFE TO TAKE THEIR RESULTS FOR COMPARISON OF THE PROFITABILITY OF THE ASSESSEE . .. ACCORDINGLY, IT IS HELD THAT NONE OF THESE CASES CAN BE TAKEN TO BE COMPARABLE CASE. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESE NTATIVE FOR THE ASSESSEE THAT SINCE THE ABOVE DECISION OF THE DELHI BENCH OF THE TRIBUNAL WAS DELIVERED SUBSEQUENT TO THE IMPUGNED ORDER OF THE DRP, IT COU LD NOT HAVE BEEN RELIED UPON BY THE ASSESSEE BEFORE THE DRP. 19. WE HAVE CONSIDERED THE SUBMISSIONS OF THE ASS ESSEE IN RELATION TO THESE TWO COMPANIES. IN VIEW OF THE AFORESAID ORDE R OF THE DELHI BENCH OF THE TRIBUNAL CITED ABOVE, WHEREIN THE COMPARABILITY OF THESE VERY SAME COMPANIES WAS EXAMINED, WE AGREE WITH THE CONTENTIONS OF THE ASSE SSEE AND HOLD, THAT THESE TWO COMPANIES CANNOT BE ACCEPTED AS COMPARABLES. 27. IN VIEW OF THE AFORESAID OBSERVATION OF THE CO ORDINATE BENCH, WE HOLD THAT THE AFORESAID TWO COMPANIES CANNOT BE TRE ATED AS COMPARABLE, HENCE, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE SAME FOR DETERMINING THE ALP. 28. INFOSYS BPO LTD. & WIPRO LTD. (SEG.) THE LEARNED AR OBJECTING TO THE AFORESAID TWO COMPA NIES BEING TREATED AS COMPARABLES SUBMITTED THAT THESE TWO COM PANIES ARE HAVING TURNOVER OF MORE THAN 200 CRORES, HENCE, THE Y CANNOT BE TREATED AS COMPARABLES. IN SUPPORT OF SUCH CONTENT ION THE LEARNED AR RELIED UPON THE FOLLOWING DECISIONS: 13 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. 1. GENISYS INTEGRATING [2011-TII-96-INCOME-TAX APPELLA TE TRIBUNAL-BANG-TP] 2. DELOITTE CONSULTING [ ITA NO. 1082 & 1084/HYD/2010] 3. AGNITY [ ITA NO. 3856/DEL/2010] 4. DHL [ITA NO. 7360/MUM/2010] 5. TELECORDIA [ITA NO. 7821/MUM/2011] 6. KODIAK NETWORKS [ITA NO. 1413/BANG/2010] 29. THE LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVER SUBMITTED THAT THE ASSESSEES TURNOVER IS ALSO EQUALLY HIGH A MOUNTING TO ABOUT RS. 151 CRORES, HENCE, THE UPPER LIMIT OF RS. 200 C RORES WILL NOT APPLY TO THE FACTS OF THE PRESENT CASE. 30. WE HAVE CONSIDERED SUBMISSIONS OF THE PARTIES A ND PERUSED THE MATERIAL ON RECORD. WE FIND FORCE IN THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE UPPER LIMIT OF RS. 200 CRORE WILL NOT APPLY UNIFORMLY WHILE APPLYING THE TURNOVER FIL TER. THE UPPER LIMIT HAS TO BE FIXED KEEPING IN VIEW THE TURNOVER OF THE ASSESSEE. IT IS SEEN FROM RECORD THAT DURING THE ASSESSMENT YEAR UNDER D ISPUTE THE ASSESSEE WAS HAVING A TURNOVER OF MORE THAN RS. 151 CRORE. THEREFORE, THE UPPER LIMIT OF RS. 200 CRORE FOR EXCLUDING COMP ANIES AS COMPARABLES WILL NOT APPLY SO FAR AS THE PRESENT AS SESSMENT YEAR IS CONCERNED. IT IS FURTHER FOUND FROM RECORD WHILE TH E TURNOVER OF INFOSYS BPO LTD. IS RS. 649.56 CRORES THAT OF WIPRO LTD.(SEG.) IS RS. 939.78 CRORES. HENCE, THE TURNOVER OF THE AFORESAID TWO COMPANIES ARE WITHIN ACCEPTED LIMIT, HENCE, THEY CANNOT BE EXCLUD ED ON ACCOUNT OF EXTRAORDINARILY HIGH TURNOVER. WE, THEREFORE, REJEC T THE CONTENTION OF THE ASSESSEE AND UPHOLD THE ORDER OF THE REVENUE AU THORITIES WITH REGARD TO THE AFORESAID TWO COMPANIES. 31. IN AFORESAID VIEW OF THE MATTER, WE DIRECT THE ASSESSING OFFICER TO DETERMINE THE ALP KEEPING IN VIEW THE DIRECTIONS GI VEN BY US IN THE PRECEDING PARAGRAPHS RELATING TO COMPARABLES SPECIF ICALLY OBJECTED BY THE ASSESSEE. THE GROUNDS RAISED BY THE ISSUE ARE P ARTLY ALLOWED. 14 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. 32. IN GROUND NOS. 7 & 8 THE ASSESSEE HAS CHALLENGE D THE REDUCTION OF COMMUNICATION CHARGES FROM EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. 33. AT THE TIME OF HEARING OF APPEAL, THE LEARNED A R SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CASE OF M/S GEM PLUS JEWELLERY LTD., 330 ITR 175 AND THE SPECIAL BENCH OF THE INCO ME-TAX APPELLATE TRIBUNAL IN CAKE OF ITO V/S. SAKSOFT LTD., 121 TTJ 865 (CHENNAI). 34. WE HAVE HEARD SUBMISSIONS OF THE PARTIES ON THI S ISSUE. THE HONBLE BOMBAY HIGH COURT IN CASE OF JEMPLUS JEWELL ERY AND THE INCOME-TAX APPELLATE TRIBUNAL SPECIAL BENCH IN CASE OF ITO V/S. SAKSOFT LTD. (SUPRA), HAVE HELD THAT COMMUNICATION CHARGES THOUGH HAS TO BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE ACT, THE SAME HA S ALSO TO BE REDUCED FROM THE TOTAL TURNOVER. WE, THEREFORE, DIR ECT THE ASSESSING OFFICER TO COMPUTE THE DEDUCTION U/S 10A AFTER REDU CING THE COMMUNICATION EXPENSES BOTH FROM THE EXPORT TURNOVE R AS WELL AS TOTAL TURNOVER. ACCORDINGLY, THESE GROUNDS OF THE A SSESSEE ARE PARTLY ALLOWED. 35. IN THE RESULT, APPEAL BEING ITA NO. 2106/H/11 I S PARTLY ALLOWED. ITA NO. 1864/HYD/2012 FOR AY 2008-09 36. THE FACTS INVOLVED IN THIS APPEAL ARE IDENTICAL TO THE FACTS DEALT WITH IN ASSESSEES APPEAL BEING ITA NO. 2106/HYD/20 11 PERTAINING TO THE AY 2008-09. THOUGH THE ASSESSEE HAS RAISED 15 G ROUNDS, AT THE TIME OF HEARING THE LEARNED AR SUBMITTED THAT HE WO ULD LIKE TO PRESS GROUND NOS. 4, 6, 12, 13, 14 & 15 ONLY. IN VIEW OF SUCH SUBMISSION OF 15 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. LEARNED AR GROUND NOS. 1, 2, 3, 5, 7, 8, 9, 10 & 11 ARE DISMISSED AS NOT PRESSED. 37. GROUND NOS. 4 & 6 ARE ON TRANSFER PRICING ISSUE S. THE LEARNED AR WHILE ARGUING ON THESE GROUNDS CONFINED HIS SUBMISS IONS TO SELECTION OF CERTAIN COMPANIES BEING TREATED AS COMPARABLES. THE COMPANIES BEING OBJECTED TO ARE AS UNDER: 38. ECLERX SERVICES LTD. WE HAVE DEALT WITH THIS COMPANY IN ITA NO. 2106/HYD /11 (SUPRA), IN VIEW OF OUR CONCLUSIONS DRAWN THEREIN I N PARAGRAH 13 OF THE ORDER, WE HOLD THAT THIS COMPANY CANNOT BE TREA TED AS A COMPARABLE. 39. INFOSYS BPO LTD. AND WIPRO LTD.(SEG). THE LEARNED AR SOUGHT FOR EXCLUSION OF THESE TWO C OMPANIES AS THEIR TURNOVER IS MORE THAN 200 CRORES. HOWEVER, AS SESSEES TURNOVER FOR THE IMPUGNED ASSESSMENT YEAR IS RS. 252.73 CROR ES. THEREFORE, IN VIEW OF OUR REASONING WITH REGARD TO THE AFORESAID TWO COMPANIES IN PARAGRAPH 30 OF THE ORDER, WE UPHOLD THE ORDER OF T HE REVENUE AUTHORITIES WITH REGARD TO THESE TWO COMPANIES. 40. HCL COMNET SYSTEMS & SERVICES LTD. IN VIEW OF OUR FINDING WITH REGARD TO THE AFORESAI D COMPANY IN ITA NO. 2106/HYD/11 (SUPRA), WE REMIT THIS ISSUE TO THE FILE OF THE AO WITH IDENTICAL DIRECTIONS. 41. GENEYSIS INTERNATIONAL CORPORATION LTD. THE LEARNED AR OBJECTING TO THE SELECTION OF THE A FORESAID COMPANY AS COMPARABLE SUBMITTED THAT THE INFORMATIO N AVAILABLE FROM 16 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. THE ANNUAL REPORT OF THAT COMPANY CLEARLY REVEALS T HE FACT THAT THE SAID COMPANY IS RENDERING DATA CONVERSION, DATA MIG RATION, DATA MAINTENANCE, APPLICATION DEVELOPMENT, PHOTO GRAMMET RY, OUTSOURCING SERVICES AND OFFERS THE FULL RANGE OF SERVICES NECE SSARY FOR SUCCESSFUL GEOSPATIAL DATA IMPLEMENTATION SERVICES TO VARIOUS LOCAL, STATE AND FEDERAL GOVERNMENT AGENCIES, LARGE UTILITY COMPANIE S AND THE PRIVATE SECTOR. HE FURTHER SUBMITTED THAT GENEYSIS IS ALSO ENGAGED IN RENDERING IN GEO ENGINEERING SERVICES WHICH ARE IN THE NATURE OF CIVIL ENGINEERING AND LAND DEVELOPMENT SERVICES. THESE SE RVICES INCLUDE LAND DEVELOPMENT/CONCEPTUAL/SUB-DIVISION PLANS, PLA TTING AND DESIGN, TOPOGRAPHIC PLANS, ROADWAY DESIGN, SOIL EROSION AND SEDIMENTATION CONTROL PLANS, SITE GRADING DESIGNS, STORM & SANITA RY SEWER DESIGN, SITE AND SURVEY PLANS, SITE UTILITY PLANS, STORM WA TER MANAGEMENT PLAN, WET LAND PLANS, GOOGLE EARTH OVERLAY. IT WAS SUBMITTED THAT UNDER ITS IT DIVISION, GENYSIS RENDER SUPPORT SERVI CES FOR APPLICATION OF DEVELOPMENT MAINTENANCE AND SUPPORT SERVICES AND TESTING SERVICES FOR THE ABOVE SPECIFIED SERVICES. IT WAS FURTHER S UBMITTED THAT GENYSIS IS ALSO ENGAGED IN R&D ACTIVITIES IN THE AREA OF IM AGE INTELLIGENCE AND RECOGNITION, MOBILE MAPPING AS WELL AS LIDAR WHE REAS THE ASSESSEE IS A CAPTIVE LOW RISK ENTERPRISE WHICH DOES NOT UND ERTAKE ANY R&D ACTIVITY. HE FURTHER SUBMITTED THAT FROM REPLY SUB MITTED BY GENYSIS TO THE NOTICE U/S 133(6) IT IS TO BE SEEN THAT THE SAID COMPANY HAS MADE A TRADE MARK APPLICATION TO THE TRADE MARKS DI VISION INTELLECTUAL PROPERTY FOR REGISTRATION TRADE AND ME RCHANDISE MARKS ACT, 1989, WHICH MAKES IT CLEAR THAT THE COMPANY IS ENGAGED INTO CREATING INTANGIBLE ASSETS. THE LEARNED AR FURTHER SUBMITTED THAT THE FOREX GAIN HAS TO BE EXCLUDED FROM THE OPERATING RE VENUE AS THE SAME DOES NOT ARISE ON ACCOUNT OF A BUSINESS OPERATIONS OF A COMPANY BUT ARISES ON ACCOUNT OF MACRO ECONOMIC CONDITIONS. HE FURTHER SUBMITTED THAT THE PROVISIONS FOR DOUBTFUL DEBTS HAS BEEN EXC LUDED AS A PART OF 17 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. THE OPERATING COST. HE SUBMITTED THAT PROVISION FOR DOUBTFUL DEBT IS CLOSING INTERLINKED WITH THE BUSINESS OPERATIONS OF EACH YEAR AND THEREFORE CONSTITUTE AN OPERATING EXPENSE. HE SUBMI TTED THAT THE TPO IN HIS ORDER HAD STATED THAT PROVISION OF DOUBTFUL DEBT HAS BEEN TAKEN INTO CONSIDERATION ONLY IF IT INCURRED ON A REGULAR BASIS ESPECIALLY FOR THE LAST PRECEDING YEARS. THE LEARNED AR IN THIS CO NTEXT HAD SUBMITTED A WORKOUT OF THE COMPOSITION OF PROVISIONS OF DOUBT FUL DEBTS AS A PERCENTAGE OF TURNOVER OF GENYSIS FOR THE PRECEDING THREE YEARS. THE LEARNED AR RELYING UPON A DECISION OF THE INCOME-TA X APPELLATE TRIBUNAL DELHI BENCH IN CASE OF SONY INDIA PVT. LTD . IN ITA NO. 1189/DEL/2005, 819/DEL/2007 AND 820/DEL/2007 AND IN CASE OF TRIOLOGY E BUSINESS SOFTWARE INDIA PVT. LTD. V/S. DCIT SUBMITTED THAT GENYSIS SHOULD NOT BE TAKEN AS A COMPARABLE FOR DET ERMINING THE ALP. 42. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE. 43. WE HAVE HEARD THE CONTENTIONS OF THE PARTIES AN D PERUSED THE MATERIAL ON RECORD. ON GOING THROUGH THE ANNUL REPO RT OF GENYSIS AS WELL AS OTHER MATERIALS AS SUBMITTED IN THE PAPER B OOK, IT APPEARS THAT GENYSIS IS HAVING DIVERSIFIED ACTIVITIES. MANY OF T HE ACTIVITIES CARRIED ON BY GENYSIS ARE FUNCTIONALLY DISSIMILAR TO THE AS SESSEE, WHICH IS ENGAGED IN PROVIDING IT ENABLED BACK OFFICE SUPPORT SERVICES TO ITS AE AND OTHER GROUP COMPANIES. THAT BESIDES, THE ASSESS EES CONTENTION WITH REGARD TO PROVISION FOR BAD DEBTS TO BE MADE P ART OF OPERATING EXPENSES HAS CERTAINLY SOME FORCE AND DESERVES TO B E CONSIDERED IN PROPER PERSPECTIVE. THEREFORE, ON CONSIDERING THE T OTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO SHALL CONSIDER AFRESH THE ASS ESSEES CONTENTION WITH REGARD TO ACCEPTABILITY OR OTHERWISE OF GENYSI S AS A COMPARABLE AND TAKE A DECISION ON THE SAME AFTER CONSIDERING A LL THE FACTS AND 18 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. MATERIALS BEFORE HIM IN THE LIGHT OF THE DECISIONS WHICH MAY BE RELIED UPON BY THE ASSESSEE. 44. ACCENTIA TECHNOLOGIES LTD. THE LEARNED AR SUBMITTED THAT THIS COMPANY CANNOT BE TREATED AS A COMPARABLE AS DURING THE YEAR EXCEPTIONAL EVEN TS HAD TAKEN PLACE, WHICH HAD AN IMPACT ON THE FINANCIALS OF THE COMPANY. HE SUBMITTED THAT ACCENTIA HAD AN AMALGAMATION OF ITS UNITS AS WELL AS ACQUIRED A COMPANY. REFERRING TO THE ANNUAL REPORT OF THE ACCENTIA FOR THE AY 2008-09, A COPY OF WHICH IS ALSO SUBMITTED I N THE PAPER BOOK, THE LEARNED AR SUBMITTED THAT TWO UNITS I.E. IRIDIU M TECHNOLOGIES AND GEOSOFT TECHNOLOGIES WERE AMALGAMATED WITH ACCENTIA DURING THE FY 2007-08. THAT BESIDES, ACCENTIA ALSO ACQUIRED A COM PANY, NAMELY, TUNGA SOFTWARE PVT. LTD. AN 8 YEAR OLD COMPANY HAVI NG BUSINESS OF MEDICAL TRANSCRIPTION AND CODING. IT ALSO PURCHASED THE BUSINESS IN GSR SYSTEMS INC. WHICH BECAME A FULLY OWNED SUBSIDI ARY OF ACCENTIA AFTER ACQUISITION OF 100% OUTSTANDING EQUITY SHARES ON 23 RD NOVEMBER, 2007. THE LEARNED AR SUBMITTED THAT DUE TO THESE EX CEPTIONAL EVENTS LIKE AMALGAMATION AND ACQUIRING OF COMPANIES THE RE VENUE OF THE COMPANY SHOWED A GROWTH TO THE TUNE OF 78% AND THE PROFITABILITY GREW BY 100%, WHICH RESULTED IN INCREASE IN THE MAR K UP OF THE COMPANY FROM 32% TO 42.11%. IN SUPPORT OF SUCH CONT ENTION THE LEARNED AR RELIED UPON THE DECISION OF THE COORDINA TE BENCH IN THE CASE OF CAPITAL IQ (SUPRA), STREAM INTERNATIONAL IT A NO. 8997/MUM/2010 AND CRM SERVICES ITA NO. 4068/DEL/200 9. THE LEARNED AR FURTHER SUBMITTED THAT THE ANNUAL REPORT OF THE ACCENTIA FOR THE FY 2007-08 FURTHER REVEALS THAT THE SAID CO MPANY IS ENGAGED IN RENDERING ITES IN THE FIELDS OF MEDICAL TRANSCR IPTION, BILLING & CODING AS WELL AS UNDERTAKING DEVELOPMENT OF SOFTWA RE AND ITS IMPLEMENTATION. THE REVENUE FROM SOFTWARE BUSINESS AS PER THE 19 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. AUDITED FINANCIAL REPORT FOR MARCH 31, 2008 IS 19% OF TOTAL REVENUE. THE ANNUAL REPORT FURTHER REVEALED THAT THE SAID CO MPANY IS ENGAGED IN PRODUCT DEVELOPMENT ALSO. THEREFORE, IT IS ALSO NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. 45. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 46. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. WE FIND THAT IN CASE OF CAPITAL IQ (SUPRA) OBJECTION WITH REGARD TO THE VERY SAME COMPANY WAS RAISED BY THE ASSESSEE. THE COORDINATE BENCH AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIES OBSERVED IN THE FOLLOWING MANNER: 10. IT IS THE SUBMISSION OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TREATED AS A COMPARABLE BECAUSE OF UNCOMPARABLE FIN ANCIAL RESULTS ARISING OUT OF AMALGAMATION IN THE COMPANY. IN THIS REGARD, THE A SSESSEE HAS RELIED UPON THE ORDER OF THE DRP FOR THE ASSESSMENT YEAR 2008-09 IN ASSESSEES OWN CASE. IT IS SEEN THAT THE DRP WHILE CONSIDERING SIMILAR OBJECTI ON PLACED BY THE ASSESSEE IN THE CASE OF ANOTHER COMPANY, VIZ. MOLD TEK TECHNOLOGIES LTD., IN THE PROCEEDINGS RELATING TO THE ASSESSMENT YEAR 2008-09, HAS OBSERV ED IN THE FOLLOWING MANNER- 17.5. IN ADDITION TO THE ABOVE, THE DIRECTORS RE PORT OF THE COMPANY FOR THE FY 2007-08 REVEALED THE MERGER AND THE DEME RGER. A COMPANY KNOWN AS TECHMEN TOOLS PVT. LTD. HAD AMALGAMATED WI TH MOLD-TEK TECHNOLOGIES LTD. WITH EFFECT FORM 1 ST OCTOBER, 2006. THERE WAS A DE- MERGER OF PLASTIC DIVISION OF THE COMPANY AND THE R ESULTING COMPANY IS KNOWN AS MOLDTEK PLASTICS LIMITED. THE DE-MERGER F ROM THE MOLDTEK TECHNOLOGIES TOOK PLACE WITH EFFECT FROM 1 ST APRIL, 2007. THE MERGER AND THE DE-MERGER NEEDED THE APPROVAL OF THE HONBLE HIGH C OURT OF ANDHRA PRADESH AND ALSO THE APPROVAL OF THE SHAREHOLDERS. THE SHAR EHOLDERS OF THE COMPANY GAVE APPROVAL FOR THE MERGER AND THE DE-MERGER ON 2 5.01.2008 AND THE HONBLE HIGH COURT OF ANDHRA PRADESH HAD APPROVED THE MERGER AND DE- MERGER ON 25 TH JULY, 2008. SUBSEQUENTLY, THE ACCOUNTS OF MOLDTE K TECHNOLOGIES FOR FY 2007-08 WERE REVISED. ON A PER USAL OF THE ANNUAL REPORT IT IS NOTICED THAT TECKMEN TOOLS PVT. LTD. A ND THE PLASTIC DIVISION OF THE COMPANY WERE DEMERGED AND THE RESULTING COMPANY WAS NAMED AS MOLDTEK PLASTICS LTD. THE KPO BUSINESS REMAINED WI TH THE COMPANY. A PERUSAL OF THE ANNUAL REPORT REVEALED THAT TO GIVE EFFECT TO THE MERGER AND DEMERGER, THE FINANCIAL STATEMENTS WERE REVISED AND RESTATED AFTER SIX MONTHS FORM THE END OF THE FINANCIAL YEAR 31.3. 200 8. THE ASSESSEE FILED 20 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. FORM NO.21 UNDER THE COMPANIES ACT WITH THE REGISTR AR OF COMPANIES ON 26 TH AUGUST, 2008. THUS THE EFFECTIVE DATE OF THE SCHEM E OF MERGER AND DEMERGER WAS 26 TH AUGUST, 2008. THE ANNUAL REPORT SUPPORTED THE ARGUMENT OF THE ASSESSEE THAT THERE WERE MERGER AND DEMERGER IN THE FINANCIAL YEAR AND IT WAS AN EXCEPTIONAL YEAR OF PERFORMANCE AS FINANCIAL STATEMENTS WERE REVISED BY THIS COMPANY MUCH AFTER THE CLOSURE OF THE PREVIOUS YEAR. THE PANEL AGREES WITH THE CONTENTION OF THE ASSESSEE THAT IT IS AN EXCEPTIONAL YEAR HAVING SIGNIFICANT IMPACT ON THE PROFITABILITY ARISING OUT OF MERGER AND DEMERGER. 11. ON CAREFUL CONSIDERATION OF THE MATTER, WE AL SO AGREE WITH THE AFORESAID VIEW OF THE DRP THAT EXTRA-ORDINARY EVENT LIKE MERGER AND DE-MERGER WILL HAVE AN EFFECT ON THE PROFITABILITY OF THE COMPANY IN THE FINANCIAL YEAR IN WHICH SUCH EVENT TAKES PLACE. IT IS THE CONTENTION OF THE ASS ESSEE THAT IN CASE OF THE AFORESAID COMPANY, THERE IS AMALGAMATION IN DECEMBER, 2006, W HICH HAS IMPACTED THE FINANCIAL RESULT. THIS FACT HAS TO BE VERIFIED BY THE TPO. IF IT IS FOUND UPON SUCH VERIFICATION THAT THE AMALGAMATION IN FACT AHS TAKE N PLACE, THEN THE AFORESAID COMPARABLE HAS TO BE EXCLUDED. 47. FACTS BEING IDENTICAL, WE REMIT THE MATTER TO T HE ASSESSING OFFICER TO VERIFY THE FACT OF AMALGAMATION AND ACQU ISITION AND TAKE A DECISION IN THE MATTER AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE. THE ASSESSING OFFICER WHILE DECIDING THE ACCEPTABILITY OF THE AFORESAID COMPANY SHALL ALSO CONSIDER THE CONTENTIO NS OF THE ASSESSEE WITH REGARD TO FUNCTIONAL DIFFERENCE BETWEEN THE TW O. 48. IN AFORESAID VIEW OF THE MATTER, WE DIRECT THE ASSESSING OFFICER TO DETERMINE THE ALP KEEPING IN VIEW THE DIRECTIONS GI VEN BY US IN THE PRECEDING PARAGRAPHS. THE GROUNDS RAISED BY THE ASS ESSEE ARE PARTLY ALLOWED. 49. IN GROUND NOS. 12 & 13 THE ASSESSEE HAS RAISED THE ISSUE OF REDUCTION OF COMMUNICATION CHARGES AMOUNTING TO RS. 1,63,74,206/- FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT WITHOUT REDUCING IT FROM THE TOTAL TURNOVER. 50 IN VIEW OF OUR DECISION IN GROUND NOS. 7 AND 8 I N ITA NO. 2106/HYD/11 FOR AY 2007-08 (SUPRA), WE DIRECT THE A SSESSING OFFICER 21 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. TO REDUCE THE COMMUNICATION CHARGES OF RS. 1,63,74, 206/- BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNO VER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. THESE GROUNDS ARE PAR TLY ALLOWED. 51. IN GROUND NO. 14 THE ASSESSEE HAS RAISED A ISSU E OF NON- CONSIDERATION IN EXPORT TURNOVER AN AMOUNT OF RS. 1 0,80,43,605/- WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. 52. THE LEARNED AR SUBMITTED THAT THOUGH THE ASSESS EE HAD SUBMITTED THE COPIES OF FOREIGN EXCHANGE INWARD RE MITTANCE CERTIFICATES (FIRCS) AND DETAILS OF INVOICES THE SA ME HAS NEITHER BEEN CONSIDERED BY THE DRP NOR BY THE ASSESSING OFFICER. 53. WE HAVE HEARD CONTENTIONS OF THE PARTIES. ON PE RUSAL OF RECORD WE FIND THAT THE ORDER PASSED BY THE DRP IS TOTALLY SILENT ON THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIES, WE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL VERIFY THE ASSESSEES C LAIM AND PASS APPROPRIATE ORDER. THIS GROUND IS ALLOWED FOR STATI STICAL PURPOSES. 54. IN GROUND NO. 15 THE ASSESSEE HAS RAISED THE I SSUE OF NOT GRANTING THE CREDIT OF ADVANCE TAX AND TDS AMOUNTIN G TO RS. 3,73,97,845/-. AFTER HEARING THE SUBMISSIONS OF THE PARTIES, WE ARE INCLINED TO REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL VERIFY THE CLAIM OF THE ASSESSEE AND PASS APP ROPRIATE ORDER. 55. IN THE RESULT, APPEAL BEING ITA NO. 1864/H/11 I S PARTLY ALLOWED. 22 ITA NOS. 2106/H/11 & 1864/H/12 COGNIZANT TECHNOLOGY SERVICES PVT. LTD. 56. TO SUM UP, THE APPEAL BEING 2106/HYD/11 FOR AY 2007-08 AND ITA NO. 1864/HYD/11 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT, ON 22/05/2013. SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATE 22 ND MAY, 2013. KV COPY TO 1. COGNIZANT TECHNOLOGY SERVICES PVT. LTD., PLOT NO. 2 4,25 AND 26, FINANCIAL DISTRICT, NANAKRAMGUDA, HYDERABAD 500 0 81. 2. THE ACIT, CIRCLE 1(2), HYDERABAD 3. THE DRP, HYDERABAD 4. 5. D.R. A BENCH, I.T.A.T. HYDERABAD 6. GUARD FILE