M/s. H&S Software Development and Knowledge Management Centre Pvt. Ltd., Gurgaon V. ITO, New Delhi

ITA 2200/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3422 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 11-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 11-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VEENU AGARWAL
• Keywords: Transfer pricing; International transaction; Initiation of penalty proceedings
• Section: 143(3); 234B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 2 , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. KULDIP SINGH , JM ITA NO. 2200 /DEL/2014 : ASSTT. YEAR : 2009 - 10 M/S H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MAN AGEMENT CENTRE PVT. LTD., MVLI PARK, UNIT NO. 501 & 502, 5 TH FLOOR, NEAR RED CROSS SOCIETY, SECTOR - 15, PART - II, GURGAON, HARYANA - 122001 VS INCOME TAX OFFICER, WARD - 12(4), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A A BCH2697E ITA NO. 204/DEL/2016 : AS STT. YEAR : 2011 - 12 M/S H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD., MVLI PARK, UNIT NO. 501 & 502, 5 TH FLOOR, NEAR RED CROSS SOCIETY, SECTOR - 15, PART - II, GURGAON, HARYANA - 122001 VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 11(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AABCH2697E ASSESSEE BY : SH . MANONEET DALAL, ADV., SH. YISHU GOEL, AR , ARVINDER SINGH, CA & SH. VEENU AGARWAL, CA REVENUE BY : SH. H. K. CHOUDHARY, CIT DR DATE OF HEARING : 25.01 .201 8 DATE OF PRONOUNCE MENT : 15 .02 .201 8 ORDER PER N. K. SAINI, AM : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDER DATED 28. 01.2014 AND 16.11.2015 FOR THE ASSESSMENT YEARS 2009 - 10 AND 2011 - ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 2 12 RESPECTIVELY PASSED BY THE AO U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. SINCE, THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON AND THE AP PEALS WERE HEARD TOGETHER SO THESE ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. THE GROUNDS RAISED IN ITA NO. 2200/DEL/2 014 FOR THE ASSESSMENT YEAR 2009 - 10 READ AS UNDER: 1. THAT ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LD. ASSESSING OFFICER ('AO') IS BAD IN LAW AND VOID AB - INITIO. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE REFERENCE MADE BY THE LD. AO SUFFERS FROM JURISDI CTIONAL ERROR AS THE LD. AO DID NOT RECORD ANY REASONS IN THE ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS 'EXPEDIENT AND NECESSARY' TO REFER THE MATTER TO THE LD. TRANSFER PRICING OFFICER ('TPO') FOR COMPUTATION OF THE ARM'S LENGTH PRICE, AS IS REQUI RED UNDER SECTION 92CA(1) OF THE ACT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN DETERMINING THE ARM'S LENGTH PRICE ('ALP') OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS AT RS. 17,84,63,646 AS AGAINST RS. 16,93,48, 801 DETERMINED BY THE APPELLANT AND RECOMMENDING AN ADDITION OF RS. 91,14,845 ON THAT ACCOUNT TO THE APPELLANT'S INCOME. 4. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. AO/ LD. TPO ERR ED WHILE MAKING AN AFORESAID ADDITION OF RS. 91,14, 845 TO THE VALUE OF INT ERNATIONAL TRANSACTIONS BY: ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 3 4.1 MODIFYING THE COMPARABILITY ANALYSIS CONDUCTED IN THE TRANSFER PRICING DOCUMENTATION OF THE APPELLANT ON INAPPROPRIATE AND INADEQUATE GROUNDS; 4.2 REJECTING THE APPLICABILITY OF FUNC TIONAL FILTER APPLIED IN THE SEARCH PROCESS BY THE APPELLANT; 4.3 ADOPTING A NEW SEARCH CRITERION AND INCONSISTENTLY APPLYING CERTAIN ADDITIONAL QUANTITATIVE FILTERS; 4.4 REJECTING THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN THE TRANSFER PRICIN G DOCUMENTATION WITHOUT PROVIDING COGENT AND SUFFICIENT REASONING; 4.5 SELECTING COMPANIES WHICH WERE NOT COMPARABLE TO THE APPELLANT ON VARIOUS GROUNDS; 4.6 CONFIRMING THE SELECTION OF CURRENT YEAR (I.E. FINANCIAL YEAR 2008 - 09) DATA FOR COMPARABILITY; 4.7 ERRED IN NOT APPRECIATING THE FACT THAT THERE IS NO MOTIVE ON THE PART OF THE APPELLANT TO SHIFT THE PROFITS TO ANY OTHER JURISDICTION SINCE IT CLAIMS TAX HOLIDAY BENEFITS AS PER THE SOFTWARE TECHNOLOGY PARK OF INDIA. 5. THE LD. ASSESSING OFFICER ('A O') AS WELL AS THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP') HAVE ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN HOLDING THAT THE EXPENDITURE INCURRED BY THE APPELLANT IN FOREIGN CURRENCY TOWARDS COMMUNICATION CHARGES AMOUNTING TO RS, 2,00,327/ - HAS TO BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING THE AMOUNT OF DEDUCTION UNDER SECTION 10A OF THE INCOME - TAX ACT, 1961 ('ACT'), WITHOUT APPRECIATING THE FACT THAT THE SAID EXPENSES ARE NOT ATTRIBUTABLE TO DELIVERY OF ANY ARTICLE OR THING OR COMPUTER SOFTWARE OUTSIDE INDIA AND HAVE NOT BEEN INCURRED IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 4 5.1 WITHOUT PREJUDICE TO THE ABOVE GROUND, THE LD. AO AS WELL AS HON'BLE DRP HAVE ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE BY EXCLUDING TH E FOREIGN CURRENCY EXPENDITURE TOWARDS COMMUNICATION CHARGES AMOUNTING TO RS. 2,00,327/ - FROM 'EXPORT TURNOVER' WITHOUT CORRESPONDINGLY REDUCING THE SAME FROM THE 'TOTAL TURNOVER' FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10 A OF THE ACT. 6. TH E LD. AO AS WELL AS HON'BLE DRP HAVE ERRED IN LAW AS WELL AS ON FACTS OF THE CASE IN HOLDING THAT THE EXPENDITURE INCURRED BY THE APPELLANT IN FOREIGN CURRENCY TOWARDS DATABASE FEES AMOUNTING TO RS. 36,24,838/ - HAS TO BE EXCLUDED FROM THE EXPORT TURNOVER F OR THE PURPOSE OF COMPUTING THE AMOUNT OF DEDUCTION UNDER SECTION 10A OF THE ACT. WITHOUT APPRECIATING THE FACT THAT THE SAID EXPENSES HAVE NOT BEEN INCURRED IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. 6.1 WITHOUT PREJUDICE TO THE ABOVE GROUND, THE LD, AO AS WELL AS HON'BLE DRP HAVE ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE BY EXCLUDING THE FOREIGN CURRENCY EXPENDITURE TOWARDS DATABASE FEES AMOUNTING TO RS. 36,24,838/ - FROM 'EXPORT TURNOVER' WITHOUT CORRESPONDINGLY REDUCING THE SAME FROM THE 'TOT AL TURNOVER' FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. AO/ LD. TPO ERRED IN NOT EXAMINING THE VALIDITY OF INITIATION OF PENALTY PROCEEDINGS U/S 271 (1) (C) O F THE ACT. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN CHARGING AND COMPUTING INTEREST UNDER SECTION 234B AND 234D OF THE ACT. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OF APPEAL EI THER BEFORE OR AT THE ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 5 TIME OF HEARING OF THIS APPEAL AS THEY MAY BE ADVISED. THAT, THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 4 . V IDE GROUND NOS. 1 TO 4.7, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE ADDITION OF RS.91,14,845/ - MADE BY THE AO ON ACCOUNT OF ARM S LENGTH PRICE ADJUSTMENT. 5 . FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 19.09.2009 DECLARING TOTAL INCOME OF RS. 10,60,188/ - , WHICH WAS PROCESSED U/S 143(1) OF THE ACT . LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. M/S H&S KMC INDIA WAS INCORPORATED IN APRIL 2003 AND WAS ENGAGED IN PERFORMING BACK - OFFICE FUNCTIONS RELATED TO CREATION AND MAINTENANCE OF DATABASE OF PROSPECTIVE EMPLOYERS AND CANDIDATES WHO HAVE SENT THEIR RESUME S TO ITS ASSOCIATED ENTERPRISES (AES). IN THE PRESENT CASE, T HE DATABASE S EARCH P ALACE, AE S PROPRIETARY SOFTWARE TOOL WERE USED T O PERFORM ALL OF AE S SERVICES AND THE AE IS THE OWNER OF INTANGIBLES AS SOCIATED WITH THE SEARCH PALACE, I T IS ALSO RESPONSIBL E FOR MAINTAINING AND DEVELOPING THIS SOFTWARE TOOL AND OTHER RELATED TOOLS. THE AE S VARIOUS OPERATIONS HAVE SET - UP MAILBOXES, WHERE CANDIDATES SUBMIT THEIR RESUMES FOR ACTUAL OR POTENTIAL VACANCIES WITH AE S CLIENTS. THE ASSESSEE IS RESPONSIBLE FOR RETRI EVING THE APPLICATIONS FROM THE FOLLOWING MAILBOXES: ACTIVE CVS; JOB SEEKERS; SHORTLISTS; CANDIDATE REPORTS; ONE PAGERS; ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 6 BOARD CDM REQUESTS; CONTACT RESEARCH AND RESEARCH UPDATE 6 . THE ASSESSEE IS RESPONSIBLE FOR PROCESSING INFORMATION S CONTAINED IN THE RESUMES ACCORDING TO THE PRE - SET CRITERIA DEVELOPED BY AES AND INCLUDING IT INTO SEARCH PALACE. THE DATABASE OF RESUMES AND SEARCH PALACE ARE ACCESSIBLE BY AE S GLOBAL OPERATIONS. THE ASSESSEE IS ALSO RESPONSIBLE FOR ENSURING QUALITY AND CONSISTENCY IN DA TA ENTRY FOR SEARCH PALACE, DATABASE, MINIMIZE DUPLI CATION OF EFFORT AND RE USE OF INFORMATION AND TO MOVE INTO MORE PROACTIVE RESEARCH WORK FOR BUSINESS DEVELOPMENT. IN ADDITION TO MAINTAIN DATA FOR THE SEARCH PALACE DATABASE, THE ASSESSEE ALSO SUPPORTS IT S AE S IN PERFORMING ADHOC RESEARCH WORK AND NEWS ALERTS. THE ASSESSEE ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS: SR. NO. NATURE OF TRANSACTION ARM S LENGTH PRICE AS PER TAXPAYER (I) PROVISIONS OF SERVICES (ITES) RS.16,93,48,801 (II) DATABASE FE ES RS.52,57,385 7 . THE ASSESSEE FURNISHED THE TP STUDY AND SELECTED TNMM AS THE MOST APPROPRIATE METHOD TO BENCHMARK BOTH OF ITS INTERNATIONAL TRANSACTION S . THE TPO ACCEPTED THE ARM S LENGTH PRICE OF DATABASE FEES TRANSACTION. THE ASSESSEE SELECTED FOLLO WING 6 COMPARABLES WHOSE AVERAGE MARGIN WAS AT 14.04% : S. NO NAME OF THE COMPANY RETURN ON COST (3 YEAR WEIGHTED AVERAGE AS PER TP DOCUMENTATION) ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 7 1 ADITYA BIRLA MINACS WORLDWIDE LIMITED 3.39% 2 ALLSEC TECHNOLOGIES LIMITED 6.60% 3 COSMIC GLOBAL LI MITED 17.84% 4 MAPLE ESOLUTIONS LIMITED 25.64% 5 CALIBER POINT BUSINESS SOLUTIONS LIMITED 24.26% 6 MSOURCE INDIA PRIVATE LIMITED 6.54% ARITHMETIC MEAN 14.04% AS THE ASSESSEE EARNED OPERATING MARGIN ON COST AT 14.77% WHICH WAS WITHIN THE RANGE OF 5%, THEREFORE, IT WAS CONTENDED BY THE ASSESSEE THAT THIS TRANSACTION WAS AT ARM S LENGTH PRICE. THE TPO, HOWEVER, DID NOT AGREE WITH THE VARIOUS FILTERS USED BY THE ASSESSEE IN THE TP STUDY AN D BY USING CERTAIN MORE FILTERS, HE REJECTED 4 COMPAR ABLES CHOOSEN BY THE ASSESSEE AND SELECTED 5 NEW COMPARABLES. HE, THUS, SELECTED A SET OF FOLLOWING 7 COMPARABLES (2 FROM ASSESSEE S SET AND 5 NEW COMPANIE S) WHOSE AVERAGE MARGIN WAS 26.67%: S. NO COMPARABLE OP/OC 1. ADITYA BIRLA MINACS WORLDWIDE LIMITED 0.50% 2. COSMIC GLOBAL LIMITED 48.20% 3. GENESYS INTL. CORPORATION (SEG.) 58.45% 4. ECL ERX SERVICES LTD. 47.00% 5. MOTIF INDIA INFOTECH PVT. LTD. 10.41% 6. OMEGA HEALTHCARE MANAGEMENT SERVICES PVT. LTD. 15.43% 7. SPARSH BPO SERVICES LTD. 6.72%% AVERAGE 26.67 ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 8 THE TPO WORKED OUT AN ADDITION OF RS.1,75,54,795/ - IN THE ITES SEGMENT, THEREAFTER, THE AO PASSED THE DRAFT ASSESSMENT ORDER. AGAINST THE SAID ORDER, THE ASSESSEE FILED THE OBJECTION BEFORE THE LD. DRP. 8 . AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE , THE LD. DRP WAS OF THE VIEW THAT M/S A LLSEC TECHNOLOGIES LTD., M/S MA PLE ESOLUTIONS LTD., M/S MSOURCE INDIA PVT. LTD. AND M/S COSMIC GLOBAL LTD. SELECTED BY THE ASSESSEE AS COMPARABLES WERE RIGHTLY REJECTED BY THE TPO. AS REGARDS TO THE INCLUSION OF GENESYS INTERNATIONAL CORPORATION, THE LD. DRP WAS OF THE VIEW THAT THIS COMPAR ABLE WAS FUNCTIONALLY DIFFERENT , HENCE, IT WAS NOT A VALID COMPARABLE. HE, THEREFORE, DIRECTED THE TPO TO EXCLUDE THIS COMPANY FROM FINAL SET OF COMPARABLES. AS REG ARDS TO ECLERX SERVICES LTD. , T HE LD. DRP OBSERVED THAT THIS COMPANY WAS PROVIDING KP/BPO SERVIC ES WHICH IS IN THE NATURE OF ITES S ERVICES, T HEREFORE, IT IS GOOD COMPARABLE . ACCORDING TO THE LD. DRP, THE HIGH TURNOVER IS NO CRITERIA TO DETERMINE THE FUNCTI ONALLY COMPARABILITY AND THAT THE BIGGER SEIZE, MAY RESULT INTO HIGHER REVENUE AND NOT NECESSARILY HIGHER MARGINS. THE LD. DRP WAS OF THE VIEW THAT THE FUNCTIONALLY SIMILARITY, NATURE OF SERVICES RENDERED AND NOT THE BRAND, THE SI ZE OF THE COMPANY MATT ER S MOST IN THE SERVICE SECTOR, T HEREFORE, IT SHALL BE USED AS COMPARABLE. THEREAFTER, THE TPO PASSED THE ORDER BY GIVING EFFECT TO THE DIRECTION OF THE LD. DRP ON 21.01.2014 AND PROPOSED THE ADJUSTMENT OF RS.91,14,845/ - BY OBSERVING AS UNDER: ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 9 S. NO COMPARABLE ADJUSTED MARGINS (%) 1. ADITYA BIRLA MINACS WORLDWIDE LIMITED 0.52 2. COSMIC GLOBAL LIMITED 47.45 3. ECLERX SERVICES LTD. 45.68 4. MOTIF INDIA INFOTECH PVT. LTD 10.41 5. OMEGA HEALTHCARE MANAGEMENT SERVICES PVT. LTD. 15.25 6. SPARSH BPO SERVICES LTD. 6.37 AVERAGE 20.95 SINCE THE MARGIN IN RESPECT OF THE MARKETING SUPPORT SERVICES OF THE ASSESSEE IS 14.77% AND THE REVISED ADJUSTED MARGIN OF THE COMPARABLES IS 20.95%, WHICH IS MORE THAN 5% RANGE OF THE NET MARGIN OF THE MARGIN. ACCORDINGLY, THE ADJUSTMENT IS CALCULATED AS UNDER: OPERATING COST 14,75,51,588 ALP AT A MARGIN OF 20.95% 17,84,63,646 PRICE RECEIVED 16,93,48,801 ADJUSTMENT U/S 92CA 91,14,845 ACCORDINGLY, THE AO MADE THE ADDITION OF RS.91,14,845/ - ON ACCOUNT OF ARM S LENGTH PRICE. 9 . NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE CHALLENGED THE INCLUSION OF M/S ECLE RX SERVICES LTD. AS COMPARABLE FOR THE FOLLOWING REASONS: A) FUNCTIONALLY DISSIMILAR: THE COMPANY PERFORMS FUNCTIONS WHICH ARE NOT COMPARABLE WITH THAT OF THE APPELLANT. - ECLERX PROVIDES SERVICES THROUGH TWO BUSINESS UNITS - FINANCIAL SERVICES AND SALES AND MARKETING SERVICES. ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 10 - UNDER FINANCIAL SERVICES SEGMENT, IT PROVIDES PROFESSIONAL SERVICES INCLUDING CONSULTING, BUSINESS ANALYSIS AND SOLUTIONS TES TING. BROAD SERVICES PROVIDED IN THIS SEGMENT INCLUDES TRADE PROCESSING, REFERENCE DATA, ACCOUNTING AND FINANCE, AND EXPENSE MANAGEMENT ACTIVITIES. (REFER PAGE 52 OF CNV. PAPERBOOK) - UNDER SALES AND MARKETING SERVICES, IT PROVIDES ONLINE OPERATIONS & WEB A NALYTICS, CRN AND BUSINESS INTELLIGENCE, COMPETITOR BENCHMARKING AND PRICING ETC. (REFER PAGE 53 OF CNV. PAPER BOOK). - AS PER WEBSITE OF THE COMPANY IT PROVIDES 'THE COMPANY'S SERVICE PORTFOLIO SPANS THE RANGE OF DATA PROCESS AND ANALYTICS SERVICES AND INC LUDES ACTIVITIES SUCH AS REFERENCE DATA AND RISK MANAGEMENT SERVICES, AS WELL AS FINANCIAL CONTROL, ACCOUNTING AND REPORTING SERVICES, CONSULTING SERVICES RELATED TO EFFICIENCY RISK REDUCTION AND REGULATORY COMPLIANCE, WEB AND ECOMMERCE OPERATIONS SUPPORT, DATA MANAGEMENT SERVICES AND REPORTING, COMPETITIVE PRICING AND BENCHMARKING, ANALYTICS AND BUSINESS INTELLIGENCE, QUALITY COMPLIANCE AND GOVERNANCE AND PROCESS BENCHMARKING.' THUS, AS CAN BE SEEN FROM ABOVE THE BACK OFFICE SERVICES RENDERED BY THE APPEL LANT TO ITS AES IS COMPLETELY DIFFERENT FROM THE SERVICES PROVIDED/FUNCTIONS PERFORMED BY THE ABOVE COMPANY, THUS THE SAME CANNOT BE HELD COMPARABLE TO THE APPELLANT. B) EXTRAORDINARY EVENT: - ACQUIRED IGENTICA TRAVEL SOLUTIONS LTD. (ITS) DURING FY 20 07 - 08. - THE ACQUISITION HAS PROVIDED THE COMPANY WITH 28 LARGE CUSTOMERS, THEREBY INCREASING THE CUSTOMER BASE AND REVENUES OF THE COMPANY. ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 11 C) UNRELIABLE DATA: - DISCREPANCY IN THE REVENUE AS PER STANDALONE FINANCIAL STATEMENTS AND CONSOLIDATED FINANC IAL STATEMENT. - REVENUE IN THE CONSOLIDATED FINANCIALS IS NOT MERELY THE SUM OF REVENUE OF ECLERX (AS PER STANDALONE FINANCIALS) AND ITS SUBSIDIARIES. 10 . IT WAS SUBMITTED THAT IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08 IN ITA NO. 6455/DEL/20 12, VIDE ORDER DATED 18.01.2017, THIS COMPANY HAS BEEN DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IT WAS FURTHER SUBMITTED THAT IF M/S ECLERX SERVICES LTD. IS EXCLUDED FROM THE SET OF COMPARABLES THEN AVERAGE MARGIN OF THE ASSESSEE WILL BE WITHI N THE RANGE OF 5% AND NO ADJUSTMENT IS REQUIRED. 11 . IN HIS RIVAL SUBMISSIONS, THE LD. CIT DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE OBSERVATIONS MADE BY THE LD. DRP. 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES A ND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, I T IS NOTICED THAT IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08 , M/S ECLERX SERVICES LTD. IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES AND THE RELEVAN T FINDINGS ARE GIVEN IN PARAS 23 TO 27 OF THE ORDER DATED 18.01.2017 IN ITA NO. 6455/DEL/2012 (SUPRA) WHICH READ AS UNDER: ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 12 23. TPO USED THIS COMPANY AS A COMPARABLE ON THE BASIS OF INFORMATION OBTAINED U/S 133 (6) AND ANNUAL REPORT FOR FY 2006 - 07. ASSESSE E RAISED OBJECTION FOR THE INCLUSION OF THIS COMPANY IN THE LIST OF FINAL COMPARABLES ON GROUND OF FUNCTIONAL DIS - SIMILARITY AND RELIED UPON ORDER PASSED BY ITAT, DELHI BENCH IN THE CASE OF COPAL RESEARCH INDIA PVT. LTD. (ITA NO.1713/DEL.2014) (AVAILABLE A T PAGES 741 TO 757 OF THE PAPER BOOK - III). ASSESSEE ALSO RAISED OBJECTION THAT THIS COMPANY IS A KNOWLEDGE PROCESSING OUTSOURCING (KPO) COMPANY RATHER THAN ROUTINE SERVICE PROVIDER. 24. COMPARABILITY OF ECLERX HAS BEEN EXAMINED BY THE COORDINATE BENCH IN CASE OF COPAL RESEARCH INDIA PVT. LTD. (SUPRA) WHICH IS ALSO ENGAGED INTO ITES SERVICES SIMILAR TO THAT OF THE ASSESSEE. 25. WHEN WE EXAMINE THE FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY WHICH IS INTO PROVIDING INFORMATION TECHNOLOGY (IT) ENABLES BACK OFFICE SUPPORT SERVICES RELATED TO CREATION AND MAINTENANCE OF DATA BASE OF PROSPECTIVE EMPLOYERS AND CANDIDATES WHO SENT THEIR RESUMES TO HENDRICK & STRUGGLES INTERNATIONAL INC. (HSII), THE ASSESSEE PROVIDES SERVICES TO HSII ONLY HAVING MINIMAL RISKS WHER EAS AS PER THE INFORMATION SUPPLIED BY ECLERX U/S 133 (6), IT IS INTO DATA ANALYTICAL SERVICES; OPERATION MANAGEMENT SERVICES; ACCOUNTS RECONCILIATION SERVICES WHICH ARE AIMED AT REDUCING PROCESS ERRORS AND OPERATIONAL RISKS AND THAT IT IS KPO RATHER THAN ROUTINE SERVICE PROVIDER AS IS EVIDENT FROM THE ANNUAL REPORT. 26. COMPARABILITY OF ECLERX HAS BEEN EXAMINED BY THE COORDINATE BENCH WITH COPAL RESEARCH INDIA PVT. LTD. (SUPRA), A SIMILARLY SITUATED COMPANY, BY MAKING FOLLOWING OBSERVATIONS: - 11. WE H AVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 13 FIND THAT IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD., WHICH COMPANY WAS, INTER ALIA, ENGAGED IN THE BUSINESS AS SHARED SERVICE CENTRE AND RENDERING T RANSACTION PROCESSING, DATA ENTRY, RECONCILIATION OF STATEMENTS, AUDIT OF SHIPPING DOCUMENTS AND OTHER SIMILAR SUPPORT SERVICES; AND ALSO RENDERING I.T. SERVICES SUCH AS PROCESS SUPPORT, PROCESS OPTIMIZATION AND TECHNICAL SUPPORT SERVICES, THE TRIBUNAL IN PARA 82 OF ITS ORDER OBSERVED AS UNDER: IN SO FAR AS M/S ECLERX SERVICES LIMITED IS CONCERNED, THE RELEVANT FORMATION IS AVAILABLE IN THE FORM OF ANNUAL REPORT FOR FINANCIAL YEAR 2007 - 08 PLACED AT PAGE 166 TO 183 OF THE PAPER BOOK. A PERUSAL OF THE SAM E SHOWS THAT THE SAID COMPANY PROVIDES DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORLD AND IS RECOGNIZED AS EXPERTS IN CHOSEN MARKETS - FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE PROVIDING COMPLE TE BUSINESS SOLUTIONS BY COMBINING PEOPLE, PROCESS IMPROVEMENT AND AUTOMATION. IT IS CLAIMED TO HAVE EMPLOYED OVER 1500 DOMAIN SPECIALISTS WORKING FOR THE CLIENTS. IT IS CLAIMED THAT ECLERX IS A DIFFERENT COMPANY WITH INDUSTRY SPECIALIZED SERVICES FOR MEET ING COMPLEX CLIENT NEEDS, DATA ANALYTICS KPO SERVICE PROVIDER SPECIALIZING IN TWO BUSINESS VERTICALS - FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE ENGAGED IN PROVIDING SOLUTIONS THAT DO NOT JUST REDUCE COST, BUT HELP THE CLIENTS IN CREASE SALES AND REDUCE RISK BY ENHANCING EFFICIENCIES AND BY PROVIDING VALUABLE INSIGHTS THAT EMPOWER BETTER DECISIONS. M/S ECLERX SERVICES PVT. LTD. IS ALSO CLAIMED TO HAVE A SCALABLE DELIVERY MODEL AND SOLUTIONS OFFERED THAT INCLUDE DATA ANALYTICS, OPER ATIONS MANAGEMENT, AUDITS AND RECONCILIATION, METRICS MANAGEMENT AND REPORTING SERVICES. IT ALSO PROVIDES TAILORED PROCESS OUTSOURCING AND MANAGEMENT SERVICES ALONG WITH A MULTITUDE OF DATA ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 14 AGGREGATION, MINING AND MAINTENANCE SERVICES. IT IS CLAIMED THAT T HE COMPANY HAS A TEAM DEDICATED TO DEVELOPING AUTOMATION TOOLS TO SUPPORT SERVICE DELIVERY. THESE SOFTWARE AUTOMATION TOOLS INCREASE PRODUCTIVITY, ALLOWING CUSTOMERS TO BENEFIT FROM FURTHER COST SAVING AND OUTPUT GAINS WITH BETTER CONTROL OVER QUALITY. KEE PING IN VIEW THE NATURE OF SERVICES RENDERED BY M/S ECLERX SERVICES PVT. LTD. AND ITS FUNCTIONAL PROFILE, WE ARE OF THE VIEW THAT THIS COMPANY IS ALSO MAINLY ENGAGED IN PROVIDING HIGH - END SERVICES INVOLVING SPECIALIZED KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT BE COMPARED WITH THE ASSESSEE COMPANY WHICH IS MAINLY ENGAGED IN PROVIDING LOW - END SERVICES TO THE GROUP CONCERNS. 11.1. WE FIND THAT THE ASSESSEE ALSO CANNOT BE SAID TO HAVE RELATABLE DEGREE OF COMPARABILITY BECAUSE PRIMARILY ASSESSEE WAS ENGAGED IN PROVIDING PRIMARY DATA FOR VARIOUS FIELD OF ACTIVITIES BUT NOT COMPLETE BUSINESS SOLUTIONS. THEREFORE, THIS COMPANY COULD NOT BE TREATED AS COMPARABLE FOR THE PURPOSE OF DETERMINING ALP OF THE TRANSACTIONS BETWEEN THE ASSESSEE COMP ANY WITH ITS AES. WE, ACCORDINGLY, DIRECT THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLES FINALLY TAKEN BY THE AO/ TPO AS PER THE DIRECTION OF THE DRP. 27. SO, KEEPING IN VIEW THE FUNCTIONAL DIS - SIMILARITY OF ASSESSEE COMPANY WITH ECLERX, WHI CH IS A KNOWLEDGE PROCESS OUTSOURCING COMPANY ENGAGED IN PROVIDING CONSULTING SERVICES, PROCESS OUTSOURCING, PROCESS RE - ENGINEERING AND AUTOMATION SERVICES, WE DO NOT FIND ECLERX AS A VALID COMPARABLE FOR BENCHMARKING THE INTERNATIONAL TRANSACTION QUA ITES SERVICES UNDERTAKEN BY THE ASSESSEE. ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 15 13. SINCE, THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS INVOLVED IN THE ASSESSMENT YEAR 2007 - 08. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 18.01.2017 IN ITA NO. 6455/DEL/ 2012, WE DIRECT THE AO TO EXCLUDE M/S ECLERX SERVICES LTD. FROM THE SET OF COMPARABLES WHILE WORKING OUT THE ARM S LENGTH PRICE ADJUSTMENT FOR THE ITES SERVICES OF THE ASSESSEE. 14. THE NEXT ISSUE VIDE GROUND NOS. 5, 5.1, 6 & 6.1, RELATES TO THE GRIEVANCE OF THE ASSESSEE AGAINST THE ACTION OF THE AO IN EXCLUDING THE FOREIGN CURRENCY EXPENDITURE TOWARDS COMMUNICATION CHARGES AMOUNTING TO RS.2,00,327/ - AND DATABASE EXPENSES AMOUNTING TO RS.36,24,838/ - FROM THE EXPORT TURNOVER WITHOUT REDUCING THE SAME FROM T HE TOTAL TURNOVER FOR THE PURPOSE S OF COMPUTING THE DEDUCTION U/S 10A OF THE ACT. 15. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE HON BLE KARNATAKA HI GH COURT IN THE CASE OF CIT VS TATA ELXSI LTD. REPORTED AT 349 ITR 98 AND THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS GLOBAL LOGIC INDIA (P) LTD. REPORTED AT (2013) 56 SOT 373 WHEREIN IT HAS BEEN HELD THAT WHERE THE FREIGHT, TELECOMMU NICATION, INSURANCE CHARGES ARE REDUCED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER. RELIANCE WAS ALSO PLACED ON THE FOLLOWING CASE LAWS: DCIT VS BINA RY SEMATIC S LTD. (2007) 109 TTJ 556 (DEL.) ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 16 CIT VS GEM PLUS JEWELLERY (INDIA) LTD. (2011) 330 ITR 175 (BOM.) 16. IN HIS RIVAL SUBMISSIONS, THE LD. CIT DR ALTHOUGH SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 17. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE ITAT DELHI BENCH I , NEW DELHI IN THE CASE OF GLOBAL LOGIC INDIA (P.) LTD. VS DCIT (SUPRA) WHERE IN IT HAS BEEN HELD AS UNDER: 10.2 FURTHERMORE, WE NOTE THAT IN A CATENA OF DECISIONS OF THE TRIBUNAL, IT WAS HELD THAT FOR COMPUTATION OF DEDUCTION U/S. 10A OF THE ACT TOTAL TURNOVER IN THE DENOMINATOR AND EXPORT TURNOVER IN THE NUMERATOR HAVE TO BE READ IN THE SAME MANNER AND ACCORDINGLY WHEN THE EXPENSES INCURRED IN FOREIGN EXCHANGE ARE TO BE EXCLUDED FROM THE EXPORT TURNOVER IN THE NUMERATOR, THEN THE SAME TREATMENT HAVE TO BE GIVEN IN THE TOTAL TURNOVER IN THE DENOMINATOR. WE FURTHER NOTE THAT ITAT, D ELHI BENCH IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2005 - 06 RELYING UPON THE DECISION OF THE ITAT, SPECIAL BENCH IN THE CASE OF ITO V. SAK SOFT LTD. [2009] 30 SOT 55 ( CHENNAI) HAS ALLOWED THE APPEAL OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO RECOMPUTED THE DEDUCTION U/S. 10A AFTER REDUCING COMMUNICATION EXPENSES FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER. 18. SO, BY RESPECTFULLY FOLLOWING THE AFORE SAID REFERRED TO ORDER IN THE CASE OF DCIT VS GLOBAL LOGIC INDIA (P) LTD., WE DIRECT THE AO TO REDUCE THE AFORESAID EXPENSES OUT OF THE EXPORT TURNOVER AS WELL ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 17 AS THE TOTAL TURNOVER WHILE WORKING OUT THE DEDUCTION U/S 10A OF THE ACT. 19. NEXT ISSUE VIDE G ROUND NO. 7 RELATING TO INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT IS PRE - MATURELY RAISED, SO NO ADJUDICATION IS REQUIRED. 20. VIDE GROUND NO. 8, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE CHARGING OF INTEREST U/S 234B AND 234D OF THE AC T. AS REGARDS TO THIS ISSUE, IT WAS THE COMMON CONTENTION OF BOTH THE PARTIES THAT IT IS CONSEQUENTIAL IN NATURE. WE ORDER ACCORDINGLY. 21. NOW WE WILL DEAL WITH THE APPEAL OF THE ASSESSEE IN ITA NO. 204/DEL/2016 FOR THE ASSESSMENT YEAR 2011 - 12. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. ASSESSING OFFICER ('AO') ERRED IN ASSESSING THE TOTAL INCOME OF THE APPELLANT AT RS. 22,496,680/ - AS AGAINST INCOME OF RS. 2,045,594/ - RETURNED BY THE APPELLANT, AFTER MAKING TRANSFER PRICING ADJUSTMENT OF RS. 20,388,463/ - AND REDUCING EXPENDITURE AMOUNTING TO RS.62,623/ - FROM 'EXPORT TURNOVER' FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. FOR TRANSFER PRICING MA TTERS: 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE REFERENCE MADE BY THE LD. AO SUFFERS FROM JURISDICTIONAL ERROR AS THE LD. AO DID NOT RECORD ANY REASONS IN THE ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS 'EXP EDIENT AND NECESSARY' TO REFER THE MATTER TO THE LD. TRANSFER ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 18 PRICING OFFICER ('TPO') FOR COMPUTATION OF THE ARM'S LENGTH PRICE, AS IS REQUIRED UNDER SECTION 92 CA (1) OF THE ACT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO E RRED IN DETERMINING THE ARM'S LENGTH PRICE ('ALP') OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS AT RS. 183,234,434/ - AS AGAINST RS.162,845,971/ - DETERMINED BY THE APPELLANT AND RECOMMENDING AN ADDITION OF RS.20,388,463/ - ON THAT ACCOUNT TO THE APPELLANT'S INCOME BY: 3.1 MODIFYING THE COMPARABILITY ANALYSIS CONDUCTED IN THE TRANSFER PRICING DOCUMENTATION OF THE APPELLANT ON INAPPROPRIATE AND INADEQUATE GROUNDS; 3.2 REJECTING THE APPLICABILITY OF FUNCTIONAL FILTER APPLIED IN THE SEARCH PROCESS BY THE APPEL LANT; 3.3 ADOPTING A NEW SEARCH CRITERION AND INCONSISTENTLY APPLYING CERTAIN ADDITIONAL QUANTITATIVE FILTERS; 3.4 REJECTING OMEGA HEALTHCARE MANAGEMENT SERVICES PRIVATE LIMITED WHICH WAS COMPARABLE TO APPELLANT, ON GROUND OF UNAVAILABILITY OF RELIABLE F INANCIAL INFORMATION; 3.5 SELECTING COMPANIES SUCH AS ACCENTIA TECHNOLOGY LIMITED, ECLERX SERVICES LIMITED, INFOSYS BPO LIMITED AND TCS E - SERVE LIMITED WHICH WERE NOT COMPARABLE TO THE APPELLANT ON VARIOUS GROUNDS; 3.6 CONFIRMING THE SELECTION OF CURRENT YEAR (I.E. FINANCIAL YEAR 2010 - 11) DATA FOR COMPARABILITY; 3.7 ERRED IN NOT APPRECIATING THE FACT THAT THERE IS NO MOTIVE ON THE PART OF THE APPELLANT TO SHIFT THE PROFITS TO ANY OTHER JURISDICTION SINCE IT CLAIMS TAX HOLIDAY BENEFITS AS PER THE SOFTWARE TECHNOLOGY PARK OF INDIA. ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 19 FOR CORPORATE TAX MATTERS: 4. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN LAW AS WELL AS ON FACTS IN HOLDING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN FOREIGN CURRENCY TOWARDS COMMUNICATION CHARGES AMOUNTING TO RS.69,955/ - HAS TO BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING THE AMOUNT OF DEDUCTION UNDER SECTION 1OA OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE SAID EXPENSES ARE NOT ATTRIBUTABLE TO DELIVER ANY ARTICLE OR THING OR COMPUTER SOFTWARE OUTSIDE INDIA AND HAVE NOT BEEN INCURRED IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THE SAME RELATES ONLY TO THE INPUT SERVICES USED BY THE ASSESSEE FOR SOFTWARE DEVELOPMENT IN INDIA. 4.1 WITHOUT PREJUDICE TO THE ABOVE, BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE BY EXCLUDING THE FOREIGN CURRENCY EXPENDITURE TOWARDS COMMUNICATION CHARGES AMOUNTING TO RS.69,955/ - FROM 'EXPORT TURNOVER' WITHOUT REDUCING T HE SAME FROM THE 'TOTAL TURNOVER' FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 5. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN LAW AS WELL AS ON FACTS IN HOLDING THAT THE EXPENDITURE INCURRED BY THE ASS ESSEE IN FOREIGN CURRENCY TOWARDS DATABASE FEES AMOUNTING TO RS.5,47,874/ - HAS TO BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING THE AMOUNT OF DEDUCTION UNDER SECTION 10A OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE SAID EXPENSES H AVE NOT BEEN INCURRED IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THE SAME RELATES ONLY TO THE INPUT SERVICES USED BY THE ASSESSEE DURING THE COURSE OF ITS NORMAL OPERATIONS IN INDIA. ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 20 5.1 WITHOUT PREJUDICE TO THE ABOVE, BASED ON THE FACTS AND CIRCUMSTA NCES OF THE CASE, THE LD. AO HAS ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE BY EXCLUDING THE FOREIGN CURRENCY EXPENDITURE TOWARDS DATABASE FEES AMOUNTING TO RS.5,47,874 / - FROM 'EXPORT TURNOVER' WITHOUT REDUCING THE SAME FROM THE 'TOTAL TURNOVER' FOR T HE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 6 . THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. AO/ LD. TPO ERRED IN NOT EXAMINING THE VALIDITY OF INITIATION OF PENALTY PROCEEDINGS U/S 271 (1) (C) OF THE ACT. 7 . THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN CHARGING AND COMPUTING INTEREST UNDER SECTION 234B, 234C AND 234D OF THE ACT. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE O R AT THE TIME OF HEARING OF THIS APPEAL AS THEY MAY BE ADVISED. THAT, THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 22. GROUND NO. 1 IS GENERAL IN NATURE, GROUND NO. 2 WAS NOT ARGUED AND GROUND NOS. 6 IS PRE - MATURELY RAISED, SO THESE GROUNDS DO NOT REQUIRE ANY COMMENT ON OUR PART. 23. VIDE GROUND NOS. 3 TO 3.7, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE ADDITION OF RS.2,03,88,463/ - ON ACCOUNT OF ARM S LENGTH PRICE. 24. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASS ESSEE FILED TRANSFER PRICING REPORT IN FORM NO. 3CEB. SINCE, THE ASSESSEE ENTERED INTO AN INTERNATIONAL TRANSACTION WITH THE ASSOCIATED ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 21 ENTERPRISES TOTALING TO RS.16,48,33,926/ - . THE AO REFERRED THE MATTER TO THE TPO TO DETERMINE THE ARM S LENGTH PRICE. IN THE TP STUDY, THE ASSESSEE SELECTED 7 COMPARABLES ON WHICH THE TPO COMMENTED AS UNDER : SL. NO. NAME OF THE COMPANY REMARKS 1. ADITYA BIRLA MINACS WORLDWIDE LTD. THIS COMPANY FAILS EXPORT FILTER (60.51%). HENCE, NOT A SUITABLE COMPARABLE. 2. CALIBER POIN T BUSINESS SOLUTIONS LTD. THIS COMPANY IS HAVING DIFFERENT FINANCIAL YEAR ENDING I.E. DECEMBER. HENCE, CAN T BE CONSIDERED AS SUITABLE COMPARABLE. 3. COSMIC GLOBAL LTD. THIS COMPANY FAILS EXPORT FILTER (52.96%). HENCE, NOT A SUITABLE COMPARABLE. 4. FORTU NE INFOTECH LTD. THIS COMPANY IS HAVING SIGNIFICANT RPT (98.70%). HENCE, NOT A SUITABLE COMPARABLE. 5. JINDAL INTELLICOM PVT. LTD. THIS IS A SUITABLE COMPARABLE. 6. OMEGA HEALTHCARE MANAGEMENT SERVICES COMPLETE FINANCIAL INFORMATION IS NOT AVAILABLE. HEN CE, CAN T BE CONSIDERED AS A SUITABLE COMPARABLE. 7. R SYSTEMS INTERNATIONAL LTD. THIS COMPANY IS HAVING DIFFERENT FINANCIAL YEAR ENDING I.E. DECEMBER. HENCE, CAN T BE CONSIDERED AS SUITABLE COMPARABLE. ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 22 25. THE TPO RETAINED THE ONLY ONE COMPARABLE SELEC TED BY THE ASSESSEE I.E. M/S JINDAL INTELLICOM PVT. LTD. AND INTRODUCED 7 NEW COMPARABLES. HE FINALLY SELECTED THE FOLLOWING 8 COMPARABLES: SL. NO. NAME OF THE COMPANY OP/OC 1. ACCENTIA TECHNOLOGIES LTD. 29.18% 2. ACROPETAL TECHNOLOGIES LTD. (SEGMENT) 14 .36% 3. E4E HEALTHCARE BUSINESS SERVICES PVT. LTD. 9.77% 4. ECLERX SERVICES LTD. 56.82% 5. ICRA TECHNO ANALYTICS LTD. (SEGMENT) 25.54% 6. INFOSYS BPO LTD. 17.86% 7. JINDAL INTELLICOM LTD. 13.70% 8. TCS E - SERVE LTD. 69.31% AVERAGE 29.57% 26. THE T PO DETERMINED THE AVERAGE MARGIN AT 29.57% AND PROPOSED THE ADJUSTMENT OF RS.2,07,42,689/ - . THE ASSESSEE OBJECTED TO THE REJECTION OF COMPARABLE USED IN THE TP REPORT. THE TPO OBSERVED THAT ALL THE COMPARABLES WHICH WERE REJECTED WERE SO REJECTED BECAUSE T HE Y FAILED SOME FILTER OR THE OTHER, A S REGARDS TO THE OBJECTIONS OF THE ASSESSEE WITH REGARD TO THE ADDITIONAL COMPARABLE CHOOSEN BY THE TPO. THE TPO ACCEPTED THE OBJECTION WITH REGARD TO THE M/S ACROPETAL TECHNOLOGIES LTD. WHICH WAS ENGAGED IN ENGINEERIN G DESIGN SEGMENT , SO, IT WAS NOT CONSIDERED TO BE COMPARABLE. THE ASSESSEE ALSO SUGGESTED CERTAIN NEW COMPARABLE. THE TPO DID NOT ACCEPT THE INCLUSION OF M/S OMEGA HEALTHCARE PVT. LTD. AS COMPARABLE ON THE GROUND THAT RELIABLE INFORMATION AND ANNUAL REPORT OF THE SAID COMPANY WAS NOT ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 23 AVAILABLE. HOWEVER, HE HAS ACCEPTED M/S JINDAL INTELLICOM LTD. AND INTRODUCED M/S ZAVATA INDIA PVT. LTD. AS COMPARABLE. FINALLY, FOLLOWING 8 COMPARABLES WERE SELECTED WITH THE AVERAGE MARGIN AT 30.66%: SL. NO. NAME OF THE COMP ANY OP/OC 1. ACCENTIA TECHNOLOGIES LTD. 29.18% 2. ZAVATA INDIA PVT. LTD. 23.07% 3. E4E HEALTHCARE BUSINESS SERVICES PVT. LTD. 9.77% 4. ECLERX SERVICES LTD. 56.82% 5. ICRA TECHNO ANALYTICS LTD. (SEGMENT) 25.54% 6. INFOSYS BPO LTD. 17.86% 7. JINDAL IN TELLICOM LTD. 13.70% 8. TCS E - SERVE LTD. 69.31% AVERAGE 30.66% 27. THE TPO PROPOSED AN ADJUSTMENT OF RS.2,22,87,118/ - . THEREAFTER, T HE AO PASSED THE DRAFT ASSESSMENT ORDER AGAINST WHICH THE ASSESSEE FILED THE OBJECTION BEFORE THE LD. DRP. THE ASSESSEE HAS TAKEN UP THE ISSUE RELATING TO MODIFICATION/REJECTION OF ECONOMIC ANALYSIS. THE LD. DRP OBSERVED THAT THE TPO HAD SUFFICIENT REASON TO REJECT THE ECONOMIC ANALYSIS AND THAT THE ASSESSEE HAD CONDUCT ED A FRESH RESEARCH TO IDENTIFY APPROPRIATE COMPARABLE S TO BENCHMARK THE INTERNATIONAL TRANSACTION ENTERED INTO BY IT . THE LD. DRP ALSO WAS NOT INCLINED TO INTERFERE WITH THE ORDER OF THE AO/TPO ON ACCOUNT OF USE OF DATA, EVEN IF ACCOUNTS WERE NOT MAINTAINED IN TERMS OF FINANCIAL YEAR. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: TECHBOOKS INTERNATIONAL PVT. LTD. VS DCIT (2015) - TII - 282 - ITA T - DEL. - TP ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 24 HEWLLET PACKARD INDIA GLOBALSOFT PVT. LTD. VS DCIT (2015) - TII - 409 - ITAT - BANG - TP 28. THE LD. DRP OBSERVED THAT THE COMPANY M/S ICRA TECHNO ANALYTICS LTD. WA S NOT A VALID COMPARABLE FOR ITES SEGMENT ON THE GROUND THAT IT WAS NOT FUNCTIONALLY COMPARABLE. THE LD. DRP DID NOT FIND MERIT IN THE OBJECTIONS OF THE ASSESSEE RELATING TO ALL OTHER COMPARABLES. THEREAFTER, THE TPO C ONSEQUENT TO THE DIRECTION ISSUED BY THE LD. DRP VIDE LETTER DATED 30.10.2015 REVISED THE ALP ADJUSTMENT TO RS.2,03,88,463/ - AND ACCORDINGLY THE AO PASSED THE IMPUGNED ORDER BY MAKING THE AFORESAID ADDITION ON ACCOUNT OF TRANSFER PRICING. 29. NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT M/S ECLERX SERVICES PVT. LTD. AND M /S TCS E - SERVE LTD. REQUIRED TO BE EXCLUDED, SINCE, THOSE WERE NOT COMPARABLE AND WERE EXCLUDED BY THE VARIOUS BENCHES OF THE TRIBUNAL. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: AMERIP RISE INDIA PVT. LTD. VS ACIT IN ITA NO. 2010//DEL/2014, ORDER DATED 14.08.2015] PR. CIT VS COPAL RESEARCH INDIA PVT. LTD. IN ITA 894/2015, ORDER DATED 23.11.2015 (DEL.) AMERIPRISE INDIA PVT. LTD. VS DCIT IN ITA NO. 7014/DEL/2014, ORDER DATED 19.01.2016 EQU ANT SOLUTIONS INDIA PVT. LTD. VS DCIT IN ITA NO. 1202/DEL/2015, ORDER DATED 21.01.2016 GOLDMAN SACHS (INDIA) SECURITIES PVT. LTD. VS ACIT IN ITA(TP) NO. 927/MUM/2016, ORDER DATED 11.01.2017 H&S SOFTWARE DEVELOPMENT AND KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. VS ACIT IN ITA NO. 6455/DEL/2012, ORDER DATED 18.01.2017 ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 25 30. IN HIS RIVAL SUBMISSIONS, THE LD. CIT DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 31. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE O N THE RECORD. AS REGARDS TO THE COMPARABLE M/S ECLERX SERVICES PVT. LTD. IS CONCERNED. IT IS NOTICED THAT FOR THE ASSESSMENT YEAR 2009 - 10 ALSO, THE ASSESSEE ARGUED FOR EXCLUSION OF THIS COMPANY FROM THE SET OF THE COMPARABLE WHICH WE HAVE ALREADY ADJUDICAT ED IN THE FORMER PART OF THIS ORDER . FOR THE SAME REASONING, W E DIRECT THE AO TO EXCLUDE THIS COMPARABLE FROM THE SET OF THE COMPARABLES FOR THE YEAR UNDER CONSIDERATION ALSO. AS REGARDS TO M/S TCS E - SERVE LTD., IT IS NOTICED THAT IN THE CASE OF EQUANT SOL UTIONS INDIA (P.) LTD. VS DCIT (SUPRA), THE ITAT DELHI BENCH I , NEW DELHI IN ITA NO. 1202/DEL/2015 FOR THE ASSESSMENT YEAR 2010 - 11 DIRECTED TO EXCLUDE AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 24 WHICH READ AS UNDER: 24. TCS E SERVE LIMITED A. TPO INCLUDED THIS COMPARABLE, WHICH HAS A MARGIN OF 63.42%. THE LD . DRP HAS ALSO HELD THAT THE FAR PROFILE OF THE COMPANY IS SIMILAR. BEFORE US, LD. AR SUBMITTED THAT THE COMPANY IS DISSIMILAR FUNCTIONALLY. IN ADDITION TO BPO SERVICES, IT IS ALSO ENGAGED I N TECHNICAL SERVICES SUCH AS SOFTWARE TESTING, VERIFICATION AND VALIDATION. IT HAS ALSO DEVELOPED SOFTWARE SUCH AS TRANSPORT MANAGEMENT SOFTWARE. IT DOES NOT HAVE SEGMENTAL REPORTING TOO. IT WAS FURTHER SUBMITTED THAT THE COMPANY OWNS SUBSTANTIAL INTANGIBL E ASSETS IN FORM OF SOFTWARE LICENSES AND IT MAKES A PAYMENT FOR TATA BRAND AND THEREFORE IT GETS THE BENEFIT USE BRAND VALUE OF TATA. ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 26 B. LD. DR RELIED ON THE ORDERS OF LOWER AUTHORITIES AND SUBMITTED THAT ALL THE ABOVE REASONS FOR SELECTION OF THIS COMP ARABLE HAS BEEN CONSIDERED BY THE TPO. C. WE HAVE ALSO CONSIDERED THE RIVAL CONTENTION FOR EXCLUSION OF TCS E - SERVICE LTD. IT IS MAINLY INVOLVED IN TRANSACTION PROCESSING AND TECHNOLOGY SERVICES. IT CARRIES ON BUSINESS OF PROVIDING TECHNOLOGY SERVICE SUC H AS SOFTWARE TESTING, VERIFICATION AND VALIDATION. IT IS ALSO DEVELOPED A SOFTWARE SUCH AS TRANSPORT MANAGEMENT SOFTWARE THEREFORE FUNCTIONALLY THIS COMPANY IS DISSIMILAR TO THE ASSESSEE COMPANY. IT ALSO OWNS HUGE INTANGIBLE AND USE OF TATA BRAND, WHICH HAS DEFINITELY BENEFITED THIS COMPARABLE, IT IS DIRECTED TO BE EXCLUDED. 32. SIMILAR VIEW HAS BEEN TAKEN BY THE ITAT K BENCH MUMBAI IN THE CASE OF GOLDMAN SACHS (INDIA) SECURITIES PVT. LTD. VS ACIT IN ITA NO. 927/MUM/2016 VIDE ORDER DATED 11.01.2017 W HEREIN THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 4.2 TO 4.2.B WHICH READ AS UNDER: 4.2.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS BEFORE US. WE FIND THAT THE TPO HAD INCLUDED FIVE NEW COMPARABLES IN THE FINAL LIST AFTER REJECTING C OMPARABLES SELECTED BY THE ASSESSEE, THAT DRP HAD HELD THAT MGSL SHOULD BE INCLUDED IN THE FINAL LIST, THAT IT UPHELD THE EXCLUSION OF CPBSL, RSL, CVSEL, CVGL, ABMWL, THAT IT CONFIRMED THE INCLUSION OF EHBSPL, ESL, INFOSYS, TCS AND AT(E - SEGMENT ONLY) IN TH E FINAL LIST OF THE COMPARABLES. 4.2.A. WE WOULD LIKE TO DEAL WITH THE INCLUSION/EXCLUSION OF THE COMPARABLES BY THE DRP. WE FIND THAT THE TRIBUNAL HAD EXCLUDED AT AND ECL FROM THE LIST OF THE VALID COMPARABLES, WHILE DECIDING THE APPEAL FILED BY THE ASS ESSEE FOR THE EARLIER YEAR(SUPRA).WE ARE ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 27 REPRODUCING THE RELEVANT PARAGRAPHS OF THE ORDER AND SAME READ AS UNDER: 56.WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS PER THE ANNUAL REPORT OF THIS COMPANY, IT IS NOTED THAT THE COMPANY IS ENGAGED IN OFFERING SOLUTIONS IN THE FIELD OF DATA ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RE CONCILIATION, MATRICS MANAGEMENT AND REPORTING SERVICES. THE FUNCTIONALITY OF THE COMPANY WAS NOT ONLY CONSIDERED BY THE TR IBUNAL, MUMBAI SPECIAL BENCH, IN THE CASE OF MAERSK GLOBAL CENTRES INDIA PVT. LTD. (SUPRA), BUT A HOST OF OTHER DECISIONS REFERRED TO EARLIER, WHEREIN, IT HAS BEEN HELD THAT THE COMPANY IS INVOLVED IN PROVIDING HIGH END SERVICES WHICH IS IN THE NATURE OF K PO, HENCE, CANNOT BE COMPARED TO A GENERAL ITES PROVIDER. IN FACT, THE HON'BLE DELHI HIGH COURT IN RAMPGREEN SOLUTIONS PVT. LTD., ITA NO.102 O 2015, HAS HELD THAT THIS COMPANY BEING A KPO SERVICE PROVIDER CANNOT BE CONSIDERED AS A COMPARABLE TO ITES COMPAN IES. WE MAY FURTHER MENTION, MANY OF THE ORDERS PASSED BY THE CO ORDINATE BENCHES OF THE TRIBUNAL REJECTING ECLERX SERVICES LTD. AS A COMPARABLE TO ITES SERVICE PROVIDER IS FOR THE VERY SAME ASSESSMENT YEAR 2008 09. THEREFORE, RESPECTFULLY FOLLOWING THE VI EW EXPRESSED BY VARIOUS JUDICIAL AUTHORITIES, WE HOLD THAT ECLERX SERVICES LTD. BEING FUNCTIONALLY DIFFERENT CANNOT BE TREATED AS COMPARABLE TO THE ASSESSEE. 67.WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE HAVE NOTED THAT THE TRIBUNAL, BANGALORE BENCH, IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA), AFTER PERUSING THE ANNUAL REPORT OF THIS COMPANY FOUND THAT MAJOR SOURCE OF INCOME IS FROM PROVIDING ENGINEERING DESIGN SERVICE WHICH IS NOT COMPA RABLE TO ITES / BPO FUNCTIONS. THE BENCH OBSERVED, PROVISION OF ENGINEERING DESIGN SERVICE IS A HIGH END SERVICE AMONGST THE BPO WHICH REQUIRES HIGH SKILL, HENCE, IT CAN BE REGARDED AS KPO SERVICE. THE BENCH, ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 28 THEREFORE, EXCLUDED THE COMPANY AS A COMPARABLE TO ITES / BPO SEGMENT. THE TRIBUNAL, HYDERABAD BENCH, IN M/S. MARKET TOOLS RESEARCH PVT. LTD. V/S DCIT, FOLLOWING CO ORDINATE BENCH DECISION IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) HAS ALSO HELD THAT THE COMPANY CANNOT BE TREATED AS COMPAR ABLE TO A COMPANY PERFORMING ITES / BPO FUNCTIONS. AS THESE DECISIONS RENDERED BY THE TRIBUNAL ARE FOR THE VERY SAME ASSESSMENT YEAR, RESPECTFULLY FOLLOWING THE SAME, WE DIRECT EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. IT HAS BEEN SUBMITTED B EFORE US BY THE LEARNED SR. COUNSEL THAT ON EXCLUSION OF THESE COMPANIES, THE MARGIN OF THE ASSESSEE WOULD BE WITHIN +/ 5% TOLERANCE BAND OF THE ARITHMETIC MEAN OF THE COMPARABLE COMPANIES REQUIRING NO FURTHER ADJUSTMENT TO THE PRICE CHARGED. IN VIEW OF T HE AFORESAID SUBMISSIONS OF THE LEARNED SR. COUNSEL, WE DO NOT CONSIDER IT NECESSARY TO DEAL WITH THE OTHER COMPARABLES OBJECTED TO BY THE ASSESSEE AS IT IS MERELY OF ACADEMIC INTEREST. GROUND NO.2, RAISED BY THE ASSESSEE IS PARTLY ALLOWED. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT AT AND ECL HAVE TO BE EXCLUDED FROM THE LIST OF THE VALID COMPARABLES. 4.2.B. IN THE CASE OF CAPITIA INDIA PVT. LTD.(SUPRA)THE TRIBUNAL HAD HELD THAT TCS WAS NOT A VALID COMPARABLE FOR IT - E SERVICES IN FOLLOWING MANNER: I) M/S TCS E - SERVE: - FROM THE PERUSAL OF ITS ANNUAL REPORTS, IT IS SEEN THAT, THIS COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING ITES SERVICES AND BPO SERVICES PRIMARILY TO CITI GROUP ENTITIES GLOBALLY. IT OPERATIONS COMPRISED OF TRANSACTION PROCESSI NG INCLUDES THE BROAD SPECTRUM OF ACTIVITIES INVOLVING THE PROCESSING, COLLECTIONS, CUSTOMER CARE AND PAYMENTS IN RELATION TO THE SERVICES OFFERED BY CITIGROUP TO ITS CORPORATE AND RETAIL CLIENTS. TECHNICAL SERVICES INVOLVE SOFTWARE TESTING, VERIFICATION A ND VALIDATION OF ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 29 SOFTWARE AT THE TIME OF IMPLEMENTATION AND DATA CENTRE MANAGEMENT ACTIVITIES. FROM THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT, THE REVENUE SHOWN FROM TRANSACTION PROCESSING AND OTHER SERVICES IS APPROXIMATELY RS.1442.42 CRORES. THERE ARE N O SEGMENTAL DETAILS AND ANY OTHER BIFURCATION AS TO WHAT COMPRISED OF TRANSACTION PROCESSING CHARGES AND OTHER SERVICES. THAT APART, IT IS SEEN THAT, THIS COMPANY IS A PART OF TATA GROUP AND HAS A HUGE BRAND VALUE ACROSS THE WORLD AND ALSO OWNS HUGE INTANG IBLES. THUS, THERE IS A HUGE DIFFERENCE IN THE ASSETS EMPLOYED BY THIS COMPANY AS COMPARED TO THE ASSESSEE WHICH ALSO REFLECTS IN ITS REVENUE AND PROFIT MARGIN. ITS INTANGIBLE ASSETS ITSELF IS MORE THAN RS. 3337.4 CRORES AS ON 1ST APRIL, 2010 AND ADDITIONS DURING THE YEAR WERE MORE THAN RS.756.24 CRORES. THUS, THIS COMPANY HAVING HUGE INTANGIBLES ASSETS CANNOT BE COMPARED WITH THE ASSESSEE WHO HAS NO SIGNIFICANT INTANGIBLES. THAT APART, IT HAS BEEN POINTED OUT BY THE LD. COUNSEL THAT, THIS COMPANY HAS BEEN EMERGED WITH TCS IN THE YEAR 2009 WHICH HAS LED TO SHOOTING UP OF ITS PROFIT MARGIN TO 13% TO 68% - 70%. THIS FACTOR ITSELF POINTS OUT THAT ITS HIGH PROFIT MARGIN WERE DUE TO ITS HUGE BRAND VALUE, WHICH CANNOT BE HELD TO BE COMPARABLE WITH CAPTIVE SERVICE PR OVIDER LIKE ASSESSEE COMPANY. SO FAR AS THE DECISION OF ITAT DELHI BENCH IN THE CASE OF TECHBOOKS INTERNATIONAL PVT. LTD IS CONCERNED AS POINTED OUT BY THE LD. COUNSEL, WE FIND THAT THIS DECISION OF THE TRIBUNAL HAS BEEN DISTINGUISHED AND EXPLAINED BY TH E SUBSEQUENT THREE DECISIONS OF THE DELHI BENCH OF THE ITAT, WHEREIN, THE TRIBUNAL HAS CATEGORICALLY HELD THAT, IN ABSENCE OF ANY SEGMENTAL DETAILS AND SEGREGATION OF THE TOTAL REVENUE THIS COMPARABLE COMPANY CANNOT HELD TO BE COMPARABLE. THE RELEVANT OBSE RVATION OF THE TRIBUNAL IN THE CASE OF AMERIPRISE INDIA PVT. LTD (SUPRA) READS AS UNDER: - 12.5 WE HAVE GONE THROUGH THE ANNUAL REPORT OF COMPANY AND HAVE CAREFULLY CONSIDERED THE ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 30 REASONING GIVEN BY THE COORDINATE BENCH IN THE CASE OF TECHBOOK INTERNATION AL P LTD (SUPRA). ON PERUSAL OF SCHEDULE O NOTES TO ACCOUNTS OF THE STANDALONE FINANCIALS OF THE COMPANY, IT IS CLEAR THAT THE COMPANY IS ENGAGED IN TRANSACTION PROCESSING AND TECHNICAL SERVICES ACTIVITIES. NO SEPARATE SEGMENTAL DETAILS ARE AVAIL ABLE. ON A CAREFUL READING OF THE DECISION OF COORDINATE BENCH IN TECHBOOK INTERNATIONAL P TD (SUPRA) IT IS CLEAR THAT SCHEDULE O NOTES TO ACCOUNTS IN RESPECT TO CARRIED OUT BY COMPANY AND RELEVANT SEGMENTAL DETAILS WERE NEVER BROUGHT TO THE ATTENTION OF THE BENCH. WE FIND THAT IN THE ABSENCE OF AVAILABILITY OF ANY SUCH SEGREGATION OF THE TOTAL REVENUE OF THIS COMPANY, IT IS NOT POSSIBLE TO SEPARATELY CONSIDER ITS PROFITABILITY FROM RENDERING OF TRANSACTION PROCESSING SERVICES . THUS, THE ENTITY LEVEL FIGURES RENDER THIS COMPANY AS UNFIT FOR COMPARISON. FOLLOWING THE ABOVE REASONS ALSO TAKEN NOTE IN THE CASE OF TCS E - SERVICE INTERNATIONAL LIMITED, WE ORDER FOR THE ELIMINATION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES . SUBSEQUENTLY IN THE CASE OF EQUANT SOLUTIONS INDIA PVT. LTD ALSO THIS COMPANY HAS BEEN HELD TO BE UN - COMPARABLE ON THE FOLLOWING REASONING: WE HAVE ALSO CONSIDERED THE RIVAL CONTENTION FOR EXCLUSION OF TCS E - SERVICE TD. IT IS MAINLY INVOLVED IN TRANSACTION PROCESSING AND TECHN OLOGY SERVICES. IT CARRIES ON BUSINESS OF PROVIDING TECHNOLOGY SERVICE SUCH AS SOFTWARE TESTING, VERIFICATION AND VALIDATION. IT IS ALSO DEVELOPED A SOFTWARE SUCH AS TRANSPORT MANAGEMENT SOFTWARE THEREFORE FUNCTIONALLY THIS COMPANY IS DISSIMILAR TO THE ASS ESSEE COMPANY. IT ALSO OWNS HUGE INTANGIBLE AND USES OF TATA BRAND, WHICH HAS DEFINITELY BENEFITED THIS COMPARABLE, IT IS DIRECTED TO BE EXCLUDED . ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 31 THIS, IN VIEW OF OUR DISCUSSION AND ALSO FOLLOWING THE PRECEDENCE IN THE AFORESAID CASES, WE HOLD THAT TCS E - SERVE CANNOT BE HELD TO BE COMPARABLE COMPANY, ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLUDE THE SAME FROM COMPARABILITY LIST. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT TCE E - SERVICE CANNOT BE CONSIDERED A VALID COMPARABLE IN THE CASE OF THE ASSES SEE. 33. A SIMILAR VIEW HAS BEEN TAKEN BY THE ITAT DELHI BENCH I , NEW DELHI IN THE CASE OF AMERIPRISE INDIA PVT. LTD. VS DCIT (SUPRA) WHEREIN THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 12 TO 12.5 WHICH READ AS UNDER: 12. TCS E - SERVE LTD. 12.1 THE ASSESSEE OBJECTED TO ITS INCLUSION BY CONTENDING THAT THIS IS EXCEPTIONAL YEAR OF OPERATION FOR THIS COMPANY AS IT IS THE FIRST FULL YEAR OF OPERATIONS AFTER ITS TAKEOVER BY TCS. IT WAS ALSO CONTENDED THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR AND THE S EGMENTAL INFORMATION ARE INSUFFICIENT. THE TPO REPELLED THE ASSESSEE S OBJECTIONS AND INCLUDED IT IN THE FINAL SET OF COMPARABLES. 12.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. A COPY OF THE ANNUAL REPORT OF THIS COMPANY IS AVAILABLE ON PAGE 398 OF THE PAPER BOOK. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT LIKE TCS E - SERVE INTERNATIONAL LIMITED, THIS COMPANY IS ALSO ENGAGED IN PROVIDING TRANSACTION PROCESSING AND TECHNICAL SERVICES . BY REFERRING TO PROFIT & L OSS ACCOUNT IN STANDALONE FINANCIALS OF THE COMPANY IT WAS POINTED OUT THAT DURING THE RELEVANT FINANCIAL YEAR, THE COMPANY HAS RECEIVED INCOME OF RS. 1,35,94,110/ - FROM TRANSACTION PROCESSING AND OTHER SERVICES. ON REFERRING TO SCHEDULE O NOTES TO ACC OUNTS IT IS GIVEN THAT ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 32 BACKGROUND AND PRINCIPAL ACTIVITIES TCS E - SERVE LIMITED IS ENGAGED IN THE BUSINESS OF PROVIDING INFORMAITON TECHNOLOGY ENABLES SERVICES (ITES) / BUSINESS PROCESS OUTSOURCING (BPO) SERVICES, PRIMARILY TO CITIGROUP ENTITIES GLOB ALLY. THE COMPANY S OPERATIONS BROADLY COMPRISE OF TRANSACTION PROCESSING AND TECHNICAL SERVICES. TRANSACTION PROCESSING INCLUDES THE BROAD SPECTRUM OF ACTIVITIES INVOLVING THE PROCESSING, COLLECTIONS, CUSTOMER CARE AND PAYMENTS IN RELATION TO THE SERVIC ES OFFERED BY CITIGROUP TO ITS CORPORATE AND RETAIL CLIENTS. TECHNICAL SERVICES INVOLVE SOFTWARE TESTING, VERIFICATION AND VALIDATION OF SOFTWARE AT THE TIME OF IMPLEMENTATION AND DATA CENTRE MANAGEMENT ACTIVITIES. 12.3 WE ALSO NOTE THAT SEGMENTAL INFO RMATION GIVEN IN POINT NO. 8 OF SCHEDULE O NOTES TO ACCOUNTS IN STANDALONE FINANCIALS OF THE ANNUAL REPORT SHOWS THAT COMPANY IS ENGAGED IN BUSINESS PROCESS OUTSOURCING (TRANSACTION PROCESSING) SERVICES TO THE BANKING & FINANCIAL SERVICES INDUSTRY (BF SI), WHICH IS CONSIDERED AS A SINGLE SEGMENT. 12.4 IT WAS FAIRLY CONCEDED BY LD. AR THAT THIS COMPANY HAS BEEN CONSIDERED AS COMPARABLE BY THE DELHI BENCH OF TRIBUNAL IN TECHBOOK INTERNATIONAL P. LTD. (SUPRA), BY OBSERVING AS FOLLOWS: THE COMPANY S OVE RVIEW HAS BEEN DISCUSSED ON PAGE 467 OF THE PAPER BOOK, WHICH DIVULGES THAT THIS COMPANY : IS IN THE BUSINESS OF PROVIDING BUSINESS PROCESS MANAGEMENT SERVICES IN THE BANKING AND FINANCIAL SERVICES (BFSI), VERTICAL ( I.E. INDUSTRY VERTICAL) TO HELP ITS CU STOMERS ACHIEVE THEIR BUSINESS OBJECTIVES BY PROVIDING INNOVATIVE BEST - IN - CLASS SERVICES. WE FIND THAT THIS COMPANY IS ALSO PROVIDING ITES. UNLIKE TCS ESERVE INTERNATIONAL LTD., THIS COMPANY IS NOT PROVIDING ANY TECHNICAL SERVICES ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 33 INVOLVING SOFTWARE TESTI NG, VERIFICATION AND VALIDATION OF SOFTWARE ETC. SINCE THE FUNCTIONAL PROFILE OF THIS COMPANY ON A BROADER BASIS IS NO DIFFERENT FROM THAT OF THE ASSESSEE, BOTH BEING INVOLVED IN RENDERING ITES, WE ARE NOT INCLINED TO TREAT THIS COMPANY AS INCOMPARABLE. TH E LD. AR ARGUED THAT THE NATURE OF THE ITES PROVIDED BY THIS COMPANY IS DIFFERENT FROM THAT OF THE ASSESSEE AND HENCE THE SAME BE EXCLUDED. WE ARE DISINCLINED TO SUSTAIN THIS OBJECTION. MATCHING OF THE EXACT FUNCTIONAL SIMILARITY IS DISPENSED WITH UNDER TH E TNMM, WHICH IS NOT SO UNDER THE COMPARABLE UNCONTROLLED PRICE METHOD. THE TNMM APPROVES COMPARABILITY ON THE BASIS OF BROADER OVERALL SIMILARITY. WHEN WE CONSIDER THE NATURE OF SERVICES PROVIDED BY THIS COMPANY, BEING THE ITES, WHICH IS SIMILAR TO THAT O F THOSE RENDERED BY THE ASSESSEE, AGAIN THE ITES, WE CANNOT ORDER ITS EXCLUSION SIMPLY FOR THE REASON THAT THE VERTICALS OF ITES ARE SOMEWHAT DIFFERENT. IF ONE GOES TO MAKE A COMPARISON IN THE WAY SUGGESTED BY THE LD. AR UNDER THE TNMM, THEN IT WILL BE VER Y DIFFICULT, IF NOT IMPOSSIBLE, TO FIND OUT A DITTO COMPARABLE. A COMPANY WHICH SATISFIES THE BROADER PARAMETERS OF COMPARABILITY IN THE OVERALL SAME SEGMENT, CANNOT BE EXCLUDED DUE TO SOMEWHAT DIFFERENT NATURE OF SUCH OVERALL ACTIVITY. AN EXAMINATION OF T HE COMPARABLES CHOSEN BY THE ASSESSEE, WHICH HAVE BEEN ACCEPTED BY THE TPO, ALSO SATISFY ONLY THE TEST OF OVERALL SIMILARITY AND NOT THE PECULIAR SIMILARITY, AS HAS BEEN NOW CONTRASTLY CONTENDED FOR THE EXCLUSION OF THIS COMPANY. THIS ARGUMENT, THEREFORE, FAILS. 12.5 WE HAVE GONE THROUGH THE ANNUAL REPORT OF COMPANY AND HAVE CAREFULLY CONSIDERED THE REASONING GIVEN BY COORDINATE BENCH IN THE CASE OF TECHBOOK INTERNATIONAL P. LTD. (SUPRA). ON PERUSAL OF SCHEDULE O NOTES TO ACCOUNTS OF THE STANDALONE F INANCIALS OF THE COMPANY, IT IS CLEAR THAT THE COMPANY IS ENGAGED IN TRANSACTION PROCESSING AND TECHNICAL SERVICES ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 34 ACTIVITIES. NO SEPARATE SEGMENTAL DETAILS ARE AVAILABLE. ON A CAREFUL READING OF THE DECISION OF COORDINATE BENCH IN TECHBOOK INTERNATION AL P. LTD. (SUPRA) IT IS CLEAR THAT SCHEDULE O NOTES TO ACCOUNTS IN RESPECT TO CARRIED OUT BY COMPANY AND RELEVANT SEGMENTAL DETAILS WERE NEVER BROUGHT TO THE ATTENTION OF THE BENCH. WE FIND THAT IN THE ABSENCE OF THE AVAILABILITY OF ANY SUCH SEGREGATI ON OF THE TOTAL REVENUE OF THIS COMPANY, IT IS NOT POSSIBLE TO SEPARATELY CONSIDER ITS PROFITABILITY FROM RENDERING OF `TRANSACTION PROCESSING SERVICES . THUS, THE ENTITY LEVEL FIGURES RENDER THIS COMPANY AS UNFIT FOR COMPARISON. FOLLOWING THE ABOVE REASON S ALSO TAKEN NOTE IN THE CASE OF TCS E - SERVE INTERNATIONAL LIMITED, WE ORDER FOR THE ELIMINATION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. 34. SO, BY RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO DECISIONS RENDERED BY THE VARIOUS BENCHES OF T HE ITAT, WE DIRECT THE AO TO EXCLUDE M/S TCS E - SERVE LTD. FROM THE LIST OF THE COMPARABLE. 35. VIDE GROUND NOS. 4 & 4.1, 5 & 5.1, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE ACTION OF THE AO IN EXCLUDING THE FOREIGN CURRENCY EXPENDITURE TOWARDS COMMUNICA TION CHARGES AND DATABASE FEES AMOUNTING TO RS.69,955/ - AND RS.5,47,874/ - RESPECTIVELY FROM THE EXPORT TURNOVER WITHOUT REDUCING THE SAME FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE ACT. THIS ISSUE HAS ALREADY BEEN ADJUDIC ATED IN THE FORMER PART OF THIS ORDER WHILE DECIDING THE APPEAL IN ITA NO. 2200/DEL/2014 FOR THE ASSESSMENT YEAR 2009 - 10 . A S THE RIVAL CONTENTION FOR THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2011 - 12 WERE SIMILAR TO THE ASSESSMENT YEAR 2009 - 10. THE REFORE, OUR FINDINGS GIVEN IN THE ITA NO. 2200/DEL/2014 ITA NO. 204/DEL/2016 H&S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. 35 FORMER PART OF THIS ORDER SHALL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR ALSO. 36. IN THAT VIEW OF THE MATTER, WE DIRECT THE AO TO REDUCE THE AFORESAID EXPENSES OUT OF THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNO VER WHILE DETERMINING THE DEDUCTION U/S 10A OF THE ACT. 37. AS REGARDS TO GROUND NO. 7 RELATING TO CHARGING OF INTEREST U/S 234B, 234C AND 234D OF THE ACT , I T WAS THE COMMON CONTENTION OF BOTH THE PARTIES THAT IT IS CONSEQUENTIAL IN NATURE. WE ORDER ACCOR DINGLY. 38 . IN THE RESULT, THE APPEAL S OF THE ASSESSEE ARE PARTLY ALLOWED . (ORDER PRONOUNCED IN THE COURT ON 15 /0 2 /2018 ) SD/ - SD/ - ( KULDIP SINGH ) (N. K. SAINI) JUDICIAL MEMBER AC COUNTANT MEMBER DATED: 15 /02 /2018 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR