M/s. BNY International Operations (I) Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 23/PUN/2014

• Counselvise Citation: 2324514 RSA 2014
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 06-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: KETAN VED VISHAL SOLANKI
• Keywords: Related party transaction; Transfer pricing; International transaction; Initiation of penalty proceedings
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.23/PN/2014 (ASSESSMENT YEAR : 2009-10) BNY MELLON INTERNATIONAL OPERATIONS (INDIA) PRIVATE LIMITED, TOWER S-III, LEVEL III, CYBERCITY, MAGARPATTA CITY, HADAPSAR, PUNE 411 013. PAN : AADCM9640E . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE. . RESPONDENT ASSESSEE BY : MR. KETAN VED / VISHAL SOLANKI DEPARTMENT BY : MR. RAJESH DAMOR DATE OF HEARING : 16-12-2014 DATE OF PRONOUNCEMENT : 11-02-2015 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL HAS BEEN PREFERRED BY THE ASSE SSEE PERTAINING TO THE ASSESSMENT YEAR 2009-10, WHICH IS DIRECTED AGAI NST THE ORDER OF THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE ( IN SHORT THE ASSESSING OFFICER) PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 14.11.2013, WHICH IS IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL, PUNE (IN SHO RT THE DRP) DATED 12.11.2013. 2. IN THIS APPEAL, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER: - THE APPELLANT OBJECTS TO THE ORDER DATED 14 NOVEMB ER 2013 PASSED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX, C IRCLE 1(1), PUNE ('DCIT') UNDER SECTION 143(3) R.W.S. 144C(13) OF TH E INCOME-TAX ACT, 1961 ('THE ACT') IN PURSUANCE OF THE DIRECTIONS OF THE L EARNED DISPUTE RESOLUTION ITA NO.23/PN/2014 PANEL, PUNE ('DRP') FOR THE ASSESSMENT YEAR ('AY') 2009-10 ON THE FOLLOWING AMONG OTHER GROUNDS: 1. GENERAL: THE LEARNED DCIT, PURSUANT TO THE DIRECTIONS OF THE HON'BLE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN MAKING AN ADJUSTMENT AMOUNTING TO INR 9,56,21,498 T O THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPE LLANT WITH ITS ASSOCIATED ENTERPRISE ('AE') WITH RESPECT TO EXPORT OF TRANSACTION PROCESSING SERVICES. 2. ERRONEOUS SELECTION OF COMPARABLE COMPANIES THE LEARNED DCIT, PURSUANT TO THE DIRECTIONS OF THE HON'BLE DRP HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE FOLLOWING COMPANIES AS THE COMPARABL E COMPANIES: 2.1 ACCENTIA TECHNOLOGIES LIMITED 2.2 CORAL HUB LIMITED 2.3 ECLERX SERVICES LIMITED 2.4 COSMIC GLOBAL LIMITED 2.5 CROSSDOMAIN SOLUTIONS LIMITED 3. ERRONEOUS REJECTION OF COMPARABLE COMPANIES THE LEARNED DCIT, PURSUANT TO THE DIRECTIONS OF THE HON'BLE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN REJECTING FOLLOWING COMPANIES AS COMPARABLE COMPANI ES: 3.1 TRANSWORKS INFORMATION SERVICES LIMITED 3.2 ALLSEC TECHNOLOGIES LIMITED 3.3 PROFESSIONAL MANAGEMENT CONSULTANTS PRIVATE LIMI TED 3.4 SUNDARAM BUSINESS SERVICES LIMITED 3.5 TELETECH SERVICES (INDIA) PVT LIMITED 4. ERRONEOUS SELECTION OF INFORMATION TECHNOLOGY EN ABLED SERVICES (ITES) AND KNOWLEDGE PROCESS OUTSOURCING (KPO) COMP ANIES UNLIKE BUSINESS PROCESS OUTSOURCING (BPO) COMPANIES AS COMPARABLE TO THE APPELLANT WHICH IS INTO BPO SERVI CES THE LEARNED DCIT, PURSUANT TO THE DIRECTIONS OF HON 'BLE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN SELECTION OF ITES AND KPO COMPANIES UNLIKE THE APPELLANT WHICH I S INTO BPO SEGMENT. 5. ERRONEOUS SELECTION OF OUTLIERS COMPANIES AS COM PARABLE TO THE APPELLANT THE LEARNED DCIT, PURSUANT TO THE DIRECTIONS OF HON 'BLE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN SELECTION OF OUTLIERS COMPANIES E.G. ACCENTIA TECHNOLOGIES LTD., COSMIC GLOBAL LTD., ECLERX SERVICES LTD. AND CORAL HUBS LTD. (WIT H OPERATING MARGIN ON COST OF 48.40%, 48.12%, 48.43% AND 36.93% RESPEC TIVELY). 6. INCORRECT CALCULATION OF WORKING CAPITAL ADJUSTM ENT THE LEARNED DCIT, PURSUANT TO THE DIRECTIONS OF THE HON'BLE DRP HAS ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN COMPUTING THE WORKING CAPITAL ADJUSTMENT. ITA NO.23/PN/2014 7. SEARCH MATRIX AND FAR ANALYSIS OF SEARCH CARRIED OUT BY THE LEARNED TRANSFER PRICING OFFICER (TPO) NOT SHARED THE LEARNED DCIT, PURSUANT TO THE DIRECTIONS OF HON 'BLE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN NOT SHARING WITH THE APPELLANT THE SEARCH MATRIX AND FUNCTIONAL ASSET AND RISK ANALYSIS (FAR) CARRIED OUT BY THE LEARNED TPO FOR FRESH SEARCH OF COMPARABLE COMPANIE S DONE BY HIM. 8. REJECTION OF THE MULTIPLE YEAR DATA OF COMPARABL E COMPANIES THE LEARNED DCIT, PURSUANT TO THE DIRECTIONS OF HON 'BLE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT ACCEPTING THE USE OF MULTIPLE YEAR DATA FOR COMPUTI NG THE PROFIT LEVEL INDICATOR OF THE COMPARABLES. 9. NON- CONSIDERATION OF RISK ADJUSTMENT TO THE APP ELLANT THE LEARNED DCIT, PURSUANT TO THE DIRECTIONS OF THE HON'BLE DRP HAS ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NON-GRANTING RISK ADJUSTMENT TO THE APPELLANT. 10. TRANSFER PRICING ADJUSTMENT WITHOUT GIVING BENE FIT OF +/- 5 PER CENT THE LEARNED DCIT, PURSUANT TO THE DIRECTIONS OF HON 'BLE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT GRANTING THE BENEFIT OF +/- 5 PERCENT AS PER PROVISO TO SECT ION 92C(2) OF THE ACT. 11. INITIATION OF PENALTY PROCEEDINGS THE LEARNED DCIT, ERRED ON THE FACTS AND IN LAW IN PROPOSING TO INITIATE PENALTY PROCEEDINGS SECTION 271(1)(C) OF THE ACT, W ITHOUT CONSIDERING THE FACTS OF THE CASE. 12. LEVYING OF INTEREST 12.1 THE LEARNED DCIT, HAS ERRED ON THE FACTS AND IN LA W BY LEVYING INTEREST UNDER SECTIONS 234B AND 234D OF THE ACT. 12.2 THE APPELLANT PLEADS THAT THE SHORTFALL IN ADVANCE TAX AND EXCESS REFUND HAS RESULTED IN VIEW OF THE TRANSFER PRICING ADJUSTMENT WHICH HAVE BEEN OBJECTED IN THE GROUNDS ABOVE. 13. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 14. THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR ADD TO THE GROUNDS OF APPEAL. 3. ALTHOUGH, ASSESSEE HAS RAISED MULTIPLE GROUNDS O F APPEAL BUT THE SOLITARY ADDITION IN DISPUTE IS A SUM OF RS.9,56,21 ,498/- MADE BY THE ASSESSING OFFICER WHILE DETERMINING THE ARM'S LENGT H PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE WITH ITS ASSOC IATED ENTERPRISES. ITA NO.23/PN/2014 4. IN BRIEF, THE RELEVANT FACTS ARE THAT THE ASSESS EE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 IN JUNE, 2004 AS A SUBSIDIARY OF MBC INVESTMENTS CORPORATION, USA . MBC INVESTMENTS CORPORATION, USA IS A SUBSIDIARY OF ERSTWHILE MELLO N FINANCIAL CORPORATION, USA, WHICH HAS SINCE MERGED WITH THE BANK OF NEW YO RK, USA. AS A CONSEQUENCE, THE BANK OF NEW YORK MELLON CORPORATIO N, USA IS THE ULTIMATE HOLDING COMPANY OF THE ASSESSEE. THE ASSESSEE-COMP ANY IS ENGAGED IN THE BUSINESS OF PROVIDING BUSINESS PROCESS OUTSOURCING (BPO) SERVICES EXCLUSIVELY TO ITS AFFILIATED COMPANIES. THE UNIT OF THE ASSESSEE IS REGISTERED UNDER THE SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI) AS A 100% EXPORT ORIENTED UNIT (EOU). DURING THE YEAR UNDER CONSIDE RATION, ASSESSEE HAD RENDERED ITS IT ENABLED SERVICES (ITES) I.E. BPO SE RVICES TO ITS ASSOCIATED ENTERPRISES FOR A STATED CONSIDERATION OF RS.82,42, 39,503/-. IN ITS TRANSFER PRICING STUDY, ASSESSEE SELECTED THE TRANSACTIONAL NET MARGIN (TNM) METHOD AS THE MOST APPROPRIATE METHOD IN ORDER TO DETERMIN E THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS RELATING TO THE PROV ISIONS OF ITES TO THE ASSOCIATED ENTERPRISES. THE PROFIT LEVEL INDICATOR (PLI) WAS TAKEN AS OPERATING PROFIT/OPERATING COST WHILE CARRYING OUT THE COMPARABILITY ANALYSIS UNDER THE TNM METHOD. ASSESSEE WAS RENDERING CAPTI VE SERVICES TO ITS ASSOCIATED ENTERPRISES AND WAS BEING REMUNERATED AT COST PLUS MARKUP OF 15% ON THE ENTIRE COST ENTERED FOR RENDERING SUCH I TES. THE ASSESSEE APPLIED CERTAIN FILTERS AND THE SEARCH ANALYSIS REV EALED A SET OF COMPARABLES BASED ON THE USE OF MULTIPLE YEARS FINANCIAL DATA O F THE COMPARABLES. SINCE THE AVERAGE PLI OF THE COMPARABLES WAS ARRIVED AT 1 0.08% AND THE PLI OF THE ASSESSEE WAS ARRIVED AT 16.33%, THE CONTENTION OF T HE ASSESSEE WAS THAT THE TRANSACTION OF ITES RENDERED TO THE ASSOCIATED ENTE RPRISES WERE AT AN ARM'S LENGTH PRICE. THE INCOME-TAX AUTHORITIES HAVE DIFF ERED WITH THE ASSESSEE AS ACCORDING TO THEM, AN ADJUSTMENT OF RS.9,56,21,498/ - IS REQUIRED TO BE MADE TO THE STATED VALUE OF THE INTERNATIONAL TRANSACTIO NS SO AS TO BRING IT TO THE LEVEL ITA NO.23/PN/2014 OF THEIR ARM'S LENGTH PRICE. AS A CONSEQUENCE, THE TOTAL INCOME RETURNED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS B EEN ENHANCED BY THE SAID AMOUNT, WHICH IS THE SUBJECT-MATTER OF CONTROVERSY BEFORE US. 5. NOTABLY, THE ASSESSING OFFICER WAS REQUIRED TO C OMPUTE THE INCOME ARISING FROM THE INTERNATIONAL TRANSACTION OF ITES SEGMENT HAVING REGARD TO THE ARM'S LENGTH PRICE, AS REQUIRED BY THE PROVISIONS O F SECTION 92(1) OF THE ACT. AS A CONSEQUENCE, THE ASSESSING OFFICER REFERRED TH E COMPUTATION OF THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION OF ITES TO THE TRANSFER PRICING OFFICER (IN SHORT THE TPO) IN TE RMS OF SECTION 92CA(1) OF THE ACT. THE TPO AFTER ALLOWING THE ASSESSEE AN OPPORT UNITY OF BEING HEARD PASSED AN ORDER U/S 92CA(3) OF THE ACT DATED 28.01. 2013 DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION S OF ITES AT A FIGURE HIGHER THAN THE STATED CONSIDERATION BY A SUM OF RS.9,56,2 1,498/-. AS A CONSEQUENCE, THE ASSESSING OFFICER PASSED A DRAFT A SSESSMENT ORDER U/S 143(3) R.W.S. 144C(1) OF THE ACT CONFORMITY WITH TH E ORDER OF THE TPO. ASSESSEE RAISED OBJECTIONS BEFORE THE DISPUTE RESOL UTION PANEL (IN SHORT THE DRP) WHO VIDE ITS DIRECTIONS U/S 144C(5) OF THE AC T DATED 12.11.2013 DISMISSED THE OBJECTIONS OF THE ASSESSEE. AS A CON SEQUENCE, THE ASSESSING OFFICER PASSED AN ASSESSMENT ORDER U/S 143(3) R.W.S . 144C(13) OF THE ACT DATED 14.11.2013 AFTER MAKING AN ADDITION OF RS.9,5 6,21,498/- ON ACCOUNT OF THE TRANSFER PRICING ADJUSTMENT. 6. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE F OR THE ASSESSEE HAS MADE ARGUMENTS ONLY ON A SINGLE ISSUE RELATING TO T HE INCLUSION OF FOLLOWING FIVE CONCERNS BY THE TPO IN THE FINAL SET OF COMPAR ABLES, NAMELY, (I) ACCENTIA TECHNOLOGIES LIMITED; (II) CROSSDOMAIN SOLUTIONS LI MITED.; (III) COSMIC GLOBAL LIMITED; (IV) ECLERX SERVICES LIMITED; AND, (V) COR AL HUBS LIMITED. ITA NO.23/PN/2014 7. IN THIS CONTEXT, IT IS NOTICED THAT THE TPO ACCE PTED THE SELECTION OF TNM METHOD BY THE ASSESSEE AS THE MOST APPROPRIATE METH OD IN ORDER TO CARRY OUT THE COMPARABILITY ANALYSIS FOR THE PURPOSES OF COMP UTING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF ITES. HOWEVER , THE TPO CARRIED OUT A FRESH SEARCH ANALYSIS AND AFTER APPLYING CERTAIN FI LTERS HAS DETERMINED THE FINAL SET OF COMPARABLES ALONG WITH THEIR PLIS AS UNDER : - SR. NO. NAME OF THE COMPANY OP/OC OP/OC AFTER WC ADJUSTMENT 1 ACCENTIA TECHNOLOGIES LTD. 48.40 46.73 2 CROSS DOMAIN SOLUTIONS LTD. 24.71 30.57 3 E4E-HEALTH SOLUTIONS LTD. (FORMERLY KNOWN AS NITTANY OUTSOURCING SERVICES PVT. LTD.) 30.67 30.67 4 MICROGENETICS SYSTEM LTD. -0.33 1.29 5 COSMIC GLOBAL LTD. 43.13 48.45 6 ECLERX SERVICES LTD. 48.43 47.00 7 CORAL HUBS LTD. (FORMERLY VISHAL INFORMATION TECHNOLOGIES LTD.) 36.93 28.28 8 R SYSTEMS INTERNATIONAL LTD. 8.97 8.97 AVERAGE 30.24 8. THE TPO CONSIDERED SINGLE YEAR DATA OF THE COMPA RABLES RELATING TO THE FINANCIAL YEAR UNDER CONSIDERATION AS AGAINST THE A SSESSEE APPROACH OF USING THE MULTIPLE YEARS DATA OF THE COMPARABLES. THIS ASPECT OF THE CONTROVERSY IS NOT DISPUTED BEFORE US. FURTHER, THE TPO HAS ALSO NOT DISPUTED THE PLI OF THE ASSESSEE DETERMINED AT 16.33%. AFTER CONSIDERING T HE AVERAGE MARGIN OF THE AFORESAID EIGHT COMPARABLES AT 30.24%, THE TPO DETE RMINED THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF PROVISIO NS OF ITES TO THE ASSOCIATED ENTERPRISES AT RS.91,99,81,498/- AS AGAINST THE STA TED VALUE OF THE INTERNATIONAL TRANSACTIONS OF RS.82,43,60,000/- THE REBY RESULTING IN AN ADJUSTMENT OF RS.9,56,21,498/-. 9. BEFORE US, THE LD. REPRESENTATIVE HAS CONTENDED THAT THAT TPO ERRED IN ACCEPTING ACCENTIA TECHNOLOGIES LTD. AS A COMPARABL E DISREGARDING THE ASSESSEES PLEA FOR ITS EXCLUSION FROM THE LIST OF COMPARABLES. BEFORE THE TPO, ASSESSEE HAD CONTENDED THAT THE SAID CONCERN W AS SHOWING AN ITA NO.23/PN/2014 ABNORMAL TREND OF PROFITABILITY. SECONDLY, IT WAS ALSO CANVASSED THAT THE SAID CONCERN WAS HAVING DIFFERENT STREAMS OF INCOME, NAM ELY, (I) MEDICAL TRANSCRIPTION BILLING; (II) CODING; AND, (III) SOFT WARE DEVELOPMENT AND IMPLEMENTATION SERVICES; AND, THAT THERE WAS NO SEP ARATE SEGMENTAL INFORMATION AVAILABLE IN THE ANNUAL FINANCIAL STATE MENTS. THIRDLY, IT WAS CANVASSED THAT FUNCTIONALLY THE SAID CONCERN WAS CA RRYING OUT DIFFERENT FUNCTIONS THAN THE ASSESSEE. AS PER THE ASSESSEE, THE MAIN SEGMENT OF THE SAID CONCERN IS IT ENABLED SERVICES IN HEALTH CARE RECEIVABLES CYCLE MANAGEMENT (MEDICAL TRANSCRIPTION, MEDICAL CODING, BILLING AND COLLECTIONS IN THE MEDICAL TRANSCRIPTION INDUSTRY) USING MOSTLY TH IRD PARTY SOFTWARE AND IN SOME CASES PROPRIETARY SOFTWARE ALSO. THE SAID CON CERN WAS ALSO INTO LEGAL PROCESS OUTSOURCING. THE SAID CONCERN WAS ALSO OFF ERING SAAS MODEL IN THE HEALTH CARE RECEIVABLE CYCLE MANAGEMENT AREAS AND I N THIS CONNECTION, A TYPICAL SOFTWARE WAS DEPLOYED BY THE SAID CONCERN. THE AFORESAID WAS CANVASSED BEFORE THE TPO ON THE BASIS OF THE ANNUAL FINANCIAL STATEMENTS OF THE SAID CONCERN. IN CONTRAST, THE CLAIM OF THE AS SESSEE WAS THAT IT WAS FUNCTIONALLY DIFFERENT AS IT WAS ONLY A BPO SERVICE PROVIDER. THE AFORESAID ARGUMENTS OF THE ASSESSEE HAVE BEEN REJECTED BY THE TPO PRIMARILY ON THE GROUND THAT THE CATEGORY OF IT ENABLED SERVICES AS CLASSIFIED BY THE CBDT INCLUDES A VARIETY OF FUNCTIONS AND THEREFORE IT CO ULD NOT BE SAID THAT THE ACCENTIA TECHNOLOGIES LTD. WAS NOT COMPARABLE TO TH E ASSESSEE. 10. IN THIS BACKGROUND, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PTC SOFTWARE (INDIA) PRIVATE LIMITED VS. DCIT VIDE ITA NO.336/PN/2014 DATED 31.1 0.2014 PERTAINING TO THE ASSESSMENT YEAR 2009-10 HAS CONSIDERED M/S ACCENTIA TECHNOLOGIES LTD. AS NON-COMPARABLE. IT WAS POINTED OUT THAT THE DECISI ON OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PTC SOFTWARE (INDIA) PRIVAT E LIMITED (SUPRA) HAS BEEN RENDERED IN THE CONTEXT OF THE PROVIDER OF IT ENABL ED SERVICES, WHICH ARE ITA NO.23/PN/2014 SIMILAR TO THE FUNCTIONS OF THE ASSESSEE. OUR ATTE NTION HAS BEEN DRAWN TO PARA 47 OF THE ORDER OF THE TRIBUNAL DATED 31.10.2014 (S UPRA) WHICH READS AS UNDER :- 47. THE NEXT OBJECTION OF THE LEARNED AUTHORIZED R EPRESENTATIVE FOR THE ASSESSEE WAS WITH REGARD TO THE INCLUSION OF M/ S. ACCENTIA TECHNOLOGIES LTD. WHICH ADMITTEDLY WAS ENGAGED IN DEVELOPING ITS OWN SOFTWARE PRODUCTS AND WAS RENDERING MEDICAL TRANSCRIPTION SERVICES. FURTHER, THE SAID COMPANY DURING THE YEAR UNDER CONSIDERATION HAD MADE CERTAI N ACQUISITIONS WHICH IN TURN AFFECTED THE MARGINS OF THE YEAR OF THE ACQUIS ITION. WE FIND THAT HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF CAPI TAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. (SUPRA) HAD REJECTED ACCE NTIA TECHNOLOGIES LTD. FOR HAVING EXTRA-ORDINARY CIRCUMSTANCES I.E. AMALGAMATI ON. FOLLOWING THE PARITY OF REASONING AS ADOPTED BY THE HYDERABAD BENCH OF T HE TRIBUNAL, WE HOLD THAT THE SAID COMPANY HAD DIFFERENT FUNCTIONAL PROFILE A S COMPARED TO THE ASSESSEE, WHICH IN TURN EXPLAINED THE ABNORMALLY HI GH PROFIT MARGINS EARNED BY THE SAID COMPANY AS COMPARED TO THE ASSESSEE. A CCORDINGLY, WE ACCEPT THE PLEA OF THE ASSESSEE AND HOLD THAT THE SAID COM PANY IS NOT TO BE USED AS COMPARABLE IN ITES SEGMENTS OF THE ASSESSEE. 11. THE AFORESAID DISCUSSION BY THE TRIBUNAL REVEAL S THAT FOR THE VERY SAME ASSESSMENT YEAR M/S ACCENTIA TECHNOLOGIES LTD. HAS NOT BEEN FOUND TO BE COMPARABLE TO A CONCERN RENDERING IT ENABLED SERVIC ES. THE ARGUMENTS PUT- FORTH BY THE TPO, WHICH HAS BEEN REITERATED BEFORE US, DO NOT JUSTIFIABLY MEET WITH THE ASSESSEES PLEA FOR EXCLUSION OF M/S ACCEN TIA TECHNOLOGIES LTD. FROM THE FINAL SET OF COMPARABLES. THE PLEA OF THE ASSE SSEE IS QUITE POTENT AND IS IN-FACT BASED ON THE DISCUSSION AVAILABLE IN PUBLIC DOMAIN IN THE FORM OF ANNUAL FINANCIAL STATEMENT OF THE SAID CONCERN. MO REOVER, IN THE LIGHT OF THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF PTC SOFTWARE (INDIA) PRIVATE LIMITED (SUPRA), WE FIND NO REASON TO NEGAT E THE PLEA RAISED BY THE ASSESSEE FOR EXCLUSION OF ACCENTIA TECHNOLOGIES LTD . FROM THE FINAL SET OF COMPARABLES. WE HOLD SO. 12. ANOTHER PLEA RAISED BY THE ASSESSEE IS FOR EXCL USION OF CROSSDOMAIN SOLUTIONS LTD. FROM THE FINAL SET OF COMPARABLES. IN THIS REGARD, ASSESSEE CANVASSED BEFORE THE TPO THAT THE SAID CONCERN WAS FUNCTIONALLY NOT COMPARABLE TO THE ACTIVITY OF IT ENABLED SERVICES B EING CARRIED OUT BY THE ITA NO.23/PN/2014 ASSESSEE. IT WAS POINTED OUT BY THE ASSESSEE BEFOR E THE TPO THAT THE SAID CONCERN WAS INVOLVED IN VARIOUS ACTIVITIES WHICH IN VOLVED OUTSOURCING, HUMAN RESOURCES, INSURANCE, HEALTHCARE/ACCOUNTING AND CON SULTING, BUSINESS EXCELLENCE, MARKET RESEARCH/ANALYSIS AND IT SERVICE S. IT WAS POINTED OUT THAT THE ABOVE FUNCTIONS BEING PERFORMED BY THE SAID CON CERN WERE NOT COMPARABLE TO THE ACTIVITY OF AN IT ENABLED SERVICE PROVIDER U NDERTAKEN BY THE ASSESSEE. IT WAS ALSO CANVASSED THAT THERE WAS NO SEGMENTAL P ROFITABILITY AVAILABLE FROM THE ANNUAL FINANCIAL STATEMENT OF THE ASSESSEE AND THE SAID CONCERN WAS NOT A COMPARABLE CONCERN ON THE ENTITY LEVEL. THE TPO HA S REJECTED THE PLEA OF THE ASSESSEE ON SIMILAR GROUNDS AS TAKEN BY HIM FOR REJ ECTING THE ASSESSEES PLEA FOR EXCLUSION OF ACCENTIA TECHNOLOGIES LTD.. 13. BEFORE US, THE LD. REPRESENTATIVE HAS RELIED UP ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS . M/S WILLIS PROCESSING SERVICES (INDIA) PVT. LTD. VIDE ITA NO.2152/MUM/201 4 DATED 10.10.2014 IN ORDER TO JUSTIFY THE EXCLUSION OF CROSSDOMAIN SOLUT IONS LTD.. 14. WE FIND THAT M/S WILLS PROCESSING SERVICES (IND IA) PVT. LTD. (SUPRA) WAS A CONCERN WHERE THE TESTED PARTY WAS PROVIDING IT E NABLED SERVICES TO ITS VARIOUS GROUP CONCERNS AND ACTIVITIES WERE QUITE SI MILAR TO THE ACTIVITY OF IT ENABLED SERVICES RENDERED BY ASSESSEE TO ITS AFFILI ATES. IN THIS CONTEXT, THE CONCERN, M/S CROSSDOMAIN SOLUTIONS LTD. WAS FOUND T O BE FUNCTIONALLY NOT COMPARABLE BY THE DRP AND SUCH DECISION WAS AFFIRME D BY THE TRIBUNAL BY MAKING THE FOLLOWING DISCUSSION :- 3. M/S CROSSDOMAIN SOLUTIONS LTD. THIS COMPANY HAS BEEN REJECTED BY THE DRP ON THE GR OUND THAT IT IS INDULGED IN HIGH SKILL IT SERVICES WHICH ARE NOT COMPARABLE TO THE ROUTINE I.T. ENABLED SERVICES. THE TRIBUNAL HYDERABAD BENCH IN THE CASE OF M/S MARKET TOOLS RESEARCH PVT. LTD. IN ITA NO.1811/HYD/2012 HAS HELD THAT THIS COMPANY IS PROVIDING SERVICES WHICH ARE IN THE NATURE OF KPO. FURTHER, THE COMPANY IS ENGAGED IN PROVIDING NICHE SERVICES AS WELL AS DEVE LOPED ITS OWN BRAND EXDION TO TARGET THE INSURANCE INDUSTRY IN US. T HE TRIBUNAL FOLLOWED THE FINDINGS OF THE BANGALORE BENCH IN THE CASE OF M/S SYMPHONY MARKETING ITA NO.23/PN/2014 SOLUTIONS INDIA PVT. LTD. IN ITA NO.1316/BANG/2012 WHILE REJECTING THE ISSUE OF THIS COMPANY IN THE FINAL SET OF COMPARABLES. RESP ECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDINATE BENCH, WE UPHOLD THE DI RECTIONS OF THE DRP FOR THE REJECTION OF THIS COMPANY FROM THE FINAL LIST OF CO MPARABLE. 15. FOLLOWING THE AFORESAID PRECEDENT, WHICH HAS BE EN RENDERED IN THE CONTEXT OF THE SAME ASSESSMENT YEAR, WE UPHOLD ASSE SSEES PLEA FOR EXCLUSION OF CROSSDOMAIN SOLUTIONS LTD. FROM THE FI NAL SET OF COMPARABLES. WE HOLD SO. 16. THE THIRD CONCERN, WHICH IS SOUGHT TO BE EXCLUD ED BY THE ASSESSEE IS COSMIC GLOBAL LTD.. BEFORE THE TPO ALSO, ASSESSEE HAD CANVASSED THAT THE SAID CONCERN WAS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE. IT WAS POINTED OUT THAT THE SAID CONCERN IS ENGAGED INTO TRANSLATI ON, TRANSCRIPTION OF DATA WHICH IS ENTIRELY DIFFERENT FROM THE FUNCTIONS BEIN G PERFORMED BY THE ASSESSEE. THE TPO HAS REJECTED THE PLEA OF THE ASSESSEE BY ME RELY NOTICING THAT IN THE PRECEDING ASSESSMENT YEAR 2008-09, THE STATED CONCE RN WAS SELECTED BY THE ASSESSEE AS A COMPARABLE CONCERN. 17. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT THE PLEA OF THE ASSESSEE FOR EXCLUSION OF COSMIC GLOBAL LTD. IS SUPPORTED BY THE DECISION OF THE PTC SOFTWARE (INDIA) PRIVATE LIMITE D (SUPRA), WHICH HAS ALSO BEEN RENDERED IN THE CONTEXT OF A CONCERN RENDERING SIMILAR SERVICES AS THE ASSESSEE. THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL DATED 31.10.2014 IS RELEVANT IN THIS REGARD :- 50. THE NEXT COMPANY AS PER THE ASSESSEE WHICH SHO ULD NOT BE TAKEN AS COMPARABLE IS COSMIC GLOBAL LTD. ADMITTED LY, THE ASSESSEE HAD NOT OBJECTED TO ITS INCLUSION EITHER BEFORE THE TPO OR DRP. HOWEVER, THE ASSESSEE CHALLENGED THE EXCLUSION OF THE SAID COMPA NY AS COMPARABLE BEFORE THE TRIBUNAL. 51. WE FIND THAT THE SPECIAL BENCH OF CHANDIGARH TR IBUNAL IN THE CASE OF QUARK SYSTEMS PVT. LTD. (SUPRA) HAD HELD TH AT EVEN IF THE ASSESSEE HAD NOT CHALLENGED THE INCLUSION OF THE COMPARABLE BEFORE THE AUTHORITIES BELOW, THE SAME COULD BE CHALLENGED BEFORE THE TRIB UNAL FOR THE FIRST TIME. ITA NO.23/PN/2014 ACCORDINGLY, WE HOLD THAT THE ASSESSEE AT THIS POIN T CAN RAISE THE SAID ISSUE. NOW, THE SECOND PART OF THE OBJECTION WAS THAT THE COMPANY HAD OUTSOURCED ITS VENDOR AND WAS MAKING HIGH VENDOR PAYMENTS AS C OMPARED TO THE SALES AND HENCE WAS NOT COMPARABLE. WHILE ADJUDICATING T HE EXCLUSION OF M/S. VISHAL INFORMATION TECHNOLOGIES LTD., WE HAVE IN PA RAS HEREINABOVE ALREADY CONSIDERED THIS ASPECT OF THE COMPANIES OUTSOURCING TO VENDORS AND HELD M/S. VISHAL INFORMATION TECHNOLOGIES LTD. TO BE NOT FUNC TIONALLY COMPARABLE. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THA T M/S. COSMIC GLOBAL LTD. IS NOT FUNCTIONALLY COMPARABLE. 18. APART FROM THE DECISION IN THE CASE OF PTC SOFT WARE (INDIA) PRIVATE LIMITED (SUPRA), THE DECISION OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. VS. ADDL.CIT VIDE ITA NO.124/HYD/2014 DATED 31.07.2014 HAS ALSO BEEN RELI ED UPON BY THE ASSESSEE TO JUSTIFY THE EXCLUSION OF M/S COSMIC GLO BAL LTD. FROM THE FINAL SET OF COMPARABLES. THE HYDERABAD BENCH OF THE TRIBUNAL C ONSIDERED AN EARLIER DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF M/S MERCER CONSULTING (INDIA) P. LTD. VS. DCIT VIDE ITA NO.966 /DEL/2014 DATED 06.06.2014 WHEREIN ALSO THE SAID CONCERN WAS FOUND TO BE INCOMPARABLE WITH AN ITES PROVIDER. THE FOLLOWING DISCUSSION IN THE ORDER OF THE HYDERABAD BENCH OF THE TRIBUNAL IS WORTHY OF NOTICE :- 19. THE MAIN OBJECTION OF ASSESSEE WITH REFERENCE TO THE INCLUSION OF THIS COMPANY IS WITH REFERENCE TO OUTSOURCING OF ITS MAIN ACTIVITY. EVEN THOUGH THIS COMPANY IS IN ASSESSEE'S TP STUDY, IT H AS RAISED OBJECTION BEFORE THE TPO THAT THIS COMPANY'S EMPLOYEE COST IS LESS T HAN 21.30% AND MOST OF THE COST IS WITH REFERENCE TO THE OUTSOURCING CHARG ES OR TRANSLATION CHARGES, AND AS SUCH THIS IS NOT A COMPARABLE COMPANY. THE T PO, THOUGH CONSIDERED THESE SUBMISSIONS, REJECTED THE SAME, ON THE REASON THAT THIS DOES NOT IMPACT THE PROFIT MARGIN OF THE COMPANY. OPPOSING THE VIEW TAKEN BY THE TPO, IT IS SUBMITTED THAT THIS COMPANY CANNOT BE SELECTED AS C OMPARABLE, AS SIMILAR ISSUE WAS DISCUSSED BY THE COORDINATE BENCH OF THE TRIBUNAL(DELHI) IN THE CASE OF MERCER CONSULTING (INDIA) P. LTD. (SUPRA), VIDE PARAS 13.2 TO 13.3 WHICH READ AS UNDER- '13.2. NOW COMING TO THE FACTUAL MATRIX OF THIS CAS E, WE FIND FROM THE MATERIAL ON RECORD THAT OUTSOURCING CHARGES OF THIS CASE CONSTITUTE 57.31% OF THE TOTAL OPERATING COSTS. THIS DOES NOT APPEAR TO US TO BE A VALID REASON FOR ELIMINATING THIS CASE FROM THE LIS T OF COMPARABLES. ON GOING THROUGH THE ANNUAL ACCOUNTS OF COSMIC GLOBAL LIMITED, A COPY OF WHICH HAS BEEN PLACED ON RECORD, WE FIND THAT IT S TOTAL REVENUE FROM OPERATIONS ARE AT RS.7.37 CRORE DIVIDED INTO THREE SEGMENTS, NAMELY, MEDICAL TRANSCRIPTION AND CONSULTANCY SERVICES AT R S.9,90 LACS, TRANSLATION CHARGES AT RS.6.99 CRORE AND ACCOUNTS B PO AT RS.27.76 LAC. THE ID. AR HAS MADE OUT A CASE THAT OUTSOURCIN G ACTIVITY CARRIED ITA NO.23/PN/2014 OUT BY THIS COMPANY CONSTITUTES 57% OF TOTAL EXPENS ES. THE REASON FOR WHICH WE ARE NOT AGREEABLE WITH THE ID. AR IS THAT WE HAVE TO EXAMINE THE REVENUE OF THIS CASE ONLY FROM ACCOUNTS BPO SEG MENT AND NOT ON THE ENTITY LEVEL, BEING ALSO FROM MEDICAL TRANSCRIP TION AND TRANSLATION CHARGES. WHEN WE ARE EXAMINING THE RESULTS OF THIS COMPANY FROM THE ACCOUNTS BPO SEGMENT ALONE, THERE IS NO NEED TO EXA MINE THE POSITION UNDER OTHER SEGMENTS. THE ENTIRE OUTSOURCI NG IS CONFINED TO TRANSLATION CHARGES PAID AT RS.3.00 CRORE, WHICH IS STRICTLY IN THE REALM OF THE TRANSLATION SEGMENT, REVENUES FROM WHICH ARE TO THE TUNE OF RS.6.99 CRORE. IF THIS SEGMENT OF TRANSLATION IS NO T UNDER CONSIDERATION FOR DECIDING AS TO WHETHER THIS CASE IS COMPARABLE OR NOT, WE CANNOT TAKE RECOURSE TO THE FIGURES WHICH ARE RELEVANT FOR SEGMENTS OTHER THAN ACCOUNTS BPO. THUS IT IS HELD THAT THIS CASE CANNOT BE EXCLUDED ON THE STRENGTH OF OUTSOURCING ACTIVITY, WHICH IS ALIEN TO THE RELEVANT SEGMENT. 13.3. HOWEVER, WE FIND THIS CASE TO INCOMPARABLE ON THE ALTERNATIVE ARGUMENT ADVANCED BY THE ID. AR TO THE EFFECT THAT TOTAL REVENUE OF THE ACCOUNTS BPO SEGMENT OF COSMIC GLOBAL LIMITED IS VE RY LOW AT RS.27.76 LACS. WE HAVE DISCUSSED THIS ASPECT ABOVE IN THE CONTEXT OF CG-VAK'S CASE AND HELD THAT A CAPTIVE UNIT CANNOT B E COMPARED WITH A GIANT CASE AND THUS EXCLUDED CG-VAK WITH TURNOVER FROM ACCOUNTS BPO SEGMENT AT RS.86.10 LACS. AS THE SEGMENTAL REVE NUE OF BPO SEGMENT OF COSMIC GLOBAL LIMITED AT RS.27.76 LAC IS STILL ON MUCH LOWER SIDE, THE REASONS GIVEN ABOVE WOULD FULLY APP LY TO HOLD COSMIC GLOBAL LIMITED AS INCOMPARABLE. THIS CASE IS, THERE FORE, DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. ' IN VIEW OF THE DETAILED ANALYSIS OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE ABOVE REFERRED CASE, IN THIS CASE ALSO WE AC CEPT THE CONTENTIONS OF ASSESSEE AND DIRECT THE ASSESSING OFFICER/TPO TO EX CLUDE THIS COMPARABLE FOR THE SAME REASONS. 19. THE AFORESAID DISCUSSION MADE BY THE RESPECTIVE BENCHES OF THE TRIBUNAL REVEALS THAT IN RELATION TO THE FINANCIAL YEAR UNDER CONSIDERATION, THE BUSINESS MODEL IN WHICH M/S COSMIC GLOBAL LTD. HAS FUNCTIONED IS QUITE DISSIMILAR TO THE BUSINESS MODEL OF THE ASSESSEE WH ILE CARRYING OUT THE ACTIVITY OF AN ITES PROVIDER. MOREOVER, NONE OF THE OBJECTI ONS RAISED BY THE ASSESSEE HAVE BEEN MET BY THE TPO ON THE BASIS OF ANY COGENT REASONING. ON THAT COUNT ALSO, WE FIND THAT THE PLEA OF THE ASSESSEE T O EXCLUDE M/S COSMIC GLOBAL LTD. FROM THE FINAL SET OF COMPARABLES IS JU STIFIED. THE OBJECTION OF THE TPO THAT THE SAID CONCERN WAS FOUND COMPARABLE BY T HE ASSESSEE IN EARLIER YEAR CANNOT BE THE SOLE BASIS TO INCLUDE THE SAID C ONCERN IN THE LIST OF COMPARABLES, IN VIEW OF THE AFORESAID DISCUSSION. THUS, ASSESSEE SUCCEEDS ON THIS ASPECT. ITA NO.23/PN/2014 20. THE NEXT CONCERN WHOSE INCLUSION HAS BEEN OBJEC TED BY THE ASSESSEE IS ECLERX SERVICES LTD.. IN THIS REGARD, ASSESSEE SUBMITTED BEFORE THE TPO THAT THE SAID CONCERN WAS CARRYING OUT FUNCTIONALLY DIFFERENT BUSINESS ACTIVITIES AND THEREFORE IT WAS NOT A COMPARABLE CONCERN. THE DETAILED SUBMISSIONS IN THIS REGARD HAVE BEEN REPRODUCED BY THE TPO IN PARA 30 OF HIS ORDER. IT WAS POINTED OUT THAT THE SAID CONCERN WAS ENGAGED IN TH E PROVISION OF SALE AND MARKETING SERVICES, ONLINE OPERATIONS SUPPORT, DATA MANAGEMENT SERVICES, PRICING OPERATIONS SUPPORT, REPORTING, ANALYTICS AN D BUSINESS INTELLIGENCE SERVICES, ETC.. IT WAS THUS CANVASSED THAT THE AFO RESAID FUNCTIONS ARE QUITE DIFFERENT FROM FUNCTIONS OF AN ITES PROVIDER. THE TPO HAS REJECTED THE AFORESAID PLEAS OF THE ASSESSEE. 21. BEFORE US, THE LD. REPRESENTATIVE HAS RELIED UP ON THE DECISIONS OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PTC SOFTW ARE (INDIA) PRIVATE LIMITED (SUPRA) AND THE HYDERABAD BENCH OF THE TRIB UNAL IN THE CASE OF M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. (S UPRA) TO POINT OUT THAT THE PLEA REGARDING THE FUNCTIONAL DISSIMILARITY OF THE SAID CONCERN HAS BEEN AFFIRMED. THE PUNE BENCH OF THE TRIBUNAL IN THE CA SE OF PTC SOFTWARE (INDIA) PRIVATE LIMITED (SUPRA) HAS DEALT WITH THE NATURE O F SERVICES BEING RENDERED BY ECLERX SERVICES LTD. IN FOLLOWING MANNER :- 48. THE NEXT OBJECTION OF THE ASSESSEE WAS THAT WI TH REGARD TO INCLUSION OF ECLERX SERVICES LTD. WHICH ADMITTEDLY WAS ENGAGED IN PROVIDING KPO SERVICES I.E. KNOWLEDGE PROCESS OUTSOURCING, WH EREAS THE ASSESSEE WAS ENGAGED IN BPO SERVICES. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. (SUPRA) VIDE ORDER DATED 21.08.2014 HAD EXCLUDED THE SAID COMPANY AS A COMPARABLE WHILE DETERMINING THE MARGINS UNDER ITES SEGMENTS. THE SPECIAL BENCH OF THE TRIBUNAL VIDE PARAS 82 AND 83 AT PAGES 73 AND 74 OF THE ORDER, HAD OBSE RVED AS UNDER:- KEEPING IN VIEW THE NATURE OF SERVICES RENDERED BY M/S ECLERX SERVICES PVT. LTD. AND ITS FUNCTIONAL PROFILE, WE A RE OF THE VIEW THAT THIS COMPANY IS ALSO MAINLY ENGAGED IN PROVIDING HIGH-EN D SERVICES INVOLVING SPECIALIZED KNOWLEDGE AND DOMAIN EXPERTIS E IN THE FIELD AND THE SAME CANNOT BE COMPARED WITH THE ASSESSEE COMPA NY WHICH IS MAINLY ENGAGED IN PROVIDING LOW-END SERVICES TO THE GROUP CONCERNS. ITA NO.23/PN/2014 49. FOLLOWING THE SAME PARITY OF REASONING, WE DIRE CT THE TPO TO EXCLUDE M/S. ECLERX SERVICES LTD. AS COMPARABLE. 22. SIMILARLY, THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. (S UPRA) HAS DISCUSSED THE NATURE OF SERVICES RENDERED BY M/S ECLERX SERVICES LTD. IN THE FOLLOWING MANNER :- 18. THE OBJECTION OF ASSESSEE TO THIS COMPARABLE I S THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR. IT IS IN THE BU SINESS OF CONSULTANCY AND ADVISORY SERVICE AND PROVIDES ONLY ANALYTICAL DATA. IT IS ALSO INVOLVED IN QUALITY MONITORING. IT IS THE STAND OF THE ASSESSEE THAT TH IS COMPANY OFFERS SOLUTIONS THAT INCLUDE DATA ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RECONCILIATION AND THEREFORE HAS TO BE CLASSIFIED AS HIGH END KPO. IN SUPPORT OF THE STAND OF THE ASSESSEE, EXTRACTS FROM THE ANNUAL REPORT OF TH IS COMPANY HAVE BEEN POINTED OUT. THEREFORE, THE FUNCTIONS OF THE ABOVE COMPANY ARE DISSIMILAR TO ASSESSEE, WHICH IS A CAPTIVE SERVICE PROVIDER. ON T HE PRINCIPLES LAID DOWN BY THE HON'BLE SPECIAL BENCH OF THE ITAT (MUMBAI) IN T HE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. V/S. ACIT (ITA NO.7466/MU M/2012 FOR ASSESSMENT YEAR 2008-09 DATED 7.3.2014) AND THE PRINCIPLES LAI D DOWN BY THE COORDINATE BENCH OF THE TRIBUNAL (DELHI) IN THE CASE OF M/S. M ERCER CONSULTING (INDIA) PVT. LTD. (SUPRA), ASSESSEE SUBMITS THAT THIS COMPANY CA NNOT BE SELECTED AS A COMPARABLE. 18.1 THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, SUBMITTED THAT HAVING ACCEPTED ADITYA BIRLA MINACS WORLDWIDE LTD., AS A COMPARABLE COMPANY, THIS COMPANY SHOULD ALSO BE INC LUDED, AS OTHERWISE, BOTH THE COMPANIES SHOULD BE EXCLUDED. 18.2 WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE ANNUAL REPORT AND THE OBJECTIONS OF ASSESSEE. AS SEEN FR OM THE ANNUAL REPORT, THE ABOVE COMPANY IS INVOLVED IN DIVERSE NATURE OF SERV ICES AND THERE WAS NO SEGMENTAL DATA FOR DIVERSIFIED SERVICE PORT FOLIO. MOREOVER THIS COMPANY BE CONSIDERED AS KPO AND WE ARE OF THE OPINION THAT TH IS COMPANY IS NOT COMPARABLE TO ASSESSEE'S SERVICES. WE THEREFORE, D IRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. 23. THE AFORESAID DISCUSSION BY THE RESPECTIVE BENC HES OF THE TRIBUNAL CLEARLY SHOW THAT THE PLEA OF THE ASSESSEE THAT THE SAID CONCERN IS FUNCTIONALLY DISSIMILARLY TO THE ASSESSEE, HAS BEEN WRONGLY REJE CTED BY THE TPO. EVEN BEFORE US, THERE IS NO COGENT REASONING BROUGHT OUT BY THE REVENUE TO ASSAIL ASSESSEES PLEA FOR EXCLUSION OF M/S ECLERX SERVICE S LTD. FROM THE FINAL SET OF COMPARABLES. WE DIRECT ACCORDINGLY. ITA NO.23/PN/2014 24. THE NEXT OBJECTION OF THE ASSESSEE IS WITH REGA RD TO THE INCLUSION OF CORAL HUBS LTD. (FORMERLY KNOWN AS VISHAL INFORMATI ONAL TECHNOLOGIES LTD.) IN THE FINAL SET OF COMPARABLES. THE PLEA OF THE ASSE SSEE IN THIS REGARD HAS BEEN NOTED BY THE TPO IN PARA 29 OF HIS ORDER. IT WAS C ANVASSED BY THE ASSESSEE THAT THE SAID CONCERN WAS FUNCTIONALLY DISSIMILAR T O THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE. IT WAS POINTED OUT THAT THE SAID CON CERN WAS INVOLVED IN DIGITIZATION ACTIVITY AND WAS ALSO IN E-PUBLISHING ARENA. IT WAS ALSO POINTED OUT THAT IT HAD ENTERED INTO A NEW BUSINESS OF DIGITAL LIBRARY & PRINT ON DEMAND (POD) ACTIVITIES, WHICH ARE QUITE DIFFERENT FROM TH E ACTIVITIES OF BPO UNDERTAKEN BY THE ASSESSEE. BY ANALYZING THE EMPLO YEE COST RATIO TO SALES OF THE SAID CONCERN, ASSESSEE ALSO POINTED OUT BEFORE THE TPO THAT THE SAID CONCERN WAS OPERATING WITH A DIFFERENT BUSINESS MOD EL. IN THE CASE OF CORAL HUBS LTD., THE EMPLOYEE COST AS A PERCENTAGE OF SAL ES STOOD AT 1.22% FOR THE FINANCIAL YEAR UNDER CONSIDERATION WHEREAS THE EMPL OYEE COST AS A PERCENTAGE OF SALES STOOD AT 54.22% IN THE CASE OF THE ASSESSEE. IT WAS ALSO POINTED OUT THAT, M/S CORAL HUBS LTD. WAS HAVING MA JOR VENDOR PAYMENTS WHICH SHOWED THAT IT WAS OUTSOURCING ITS ACTIVITIES TO THIRD PARTIES ON A SUBSTANTIAL LEVEL, WHEREAS ASSESSEE WAS OPERATING T HROUGH ITS EMPLOYEES. ALL THE AFORESAID PLEAS OF THE ASSESSEE HAVE BEEN SUMMA RILY REJECTED BY THE TPO. 25. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSES SEE HAS REITERATED THE SUBMISSIONS PUT-FORTH BEFORE THE TPO AND HAS ALSO P OINTED OUT THAT IN A SIMILAR SITUATION, THE PUNE BENCH OF THE TRIBUNAL IN THE CA SE OF PTC SOFTWARE (INDIA) PRIVATE LIMITED (SUPRA) HAS FOUND THE SAID CONCERN TO BE FUNCTIONALLY DISSIMILAR TO A CONCERN ENGAGED IN RENDERING OF BPO SERVICES ( ITES). THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL IN THE CASE OF PTC SOFTWARE (INDIA) PRIVATE LIMITED (SUPRA) HAS BEEN RENDERED TO :- ITA NO.23/PN/2014 45. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. IN THE TP STUDY CARRIED OUT BY THE TPO IN THE ITES SEGMENTS, FRESH SEARCH CRITERIA WERE APPLIED BY THE TPO AND LIST OF COMPAR ABLES WHICH WERE NOT SELECTED BY THE ASSESSEE WERE PICKED UP IN THE TP S TUDY AND THE MARGINS OF THE SAID COMPARABLES WERE APPLIED TO DETERMINE THE ARMS LENGTH PRICE OF THE TRANSACTIONS OF THE ASSESSEE IN ITES SEGMENTS. THE ASSESSEE WAS AGGRIEVED BY THE SELECTION OF THE SAID COMPARABLES AND THE PL EA OF THE ASSESSEE WAS THAT IN CASE SAID COMPARABLES WERE NOT INCLUDED IN THE TP STUDY, THE MARGINS SHOWN BY THE ASSESSEE WOULD BE AT ARMS LENGTH. TH E FIRST COMPARABLE REFERRED TO BY THE LEARNED AUTHORIZED REPRESENTATIV E FOR THE ASSESSEE WAS M/S. VISHAL INFORMATION TECHNOLOGIES LTD. THE SAID COMPANY WAS PROVIDING IT ENABLED SERVICES AND WAS ALSO ENGAGED IN OTHER DIVE RSIFIED ACTIVITIES. FURTHER, IT HAS OUTSOURCED ITS SERVICES TO THIRD PARTY VENDO R AND ACTED AS INTERMEDIARY BETWEEN THE FINAL CUSTOMER AND THE VENDOR. THE ASS ESSEE ON THE OTHER HAND WAS ENGAGED IN THE RUNNING OF A CALL CENTRE AND WAS PROVIDING TECHNICAL SUPPORT TO ITS AES. WE FIND THAT THE TRIBUNAL IN A SSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2006-07 IN ITA NO.1346/PN/2010 A ND IN ASSESSMENT YEAR 2007-08 IN ITA NO.1605/PN/2011 HAD EXCLUDED THE SAI D COMPARABLES OBSERVING AS UNDER: 30. THE NEXT POINT RAISED BY THE ASSESSEE IS AGAIN ST THE INCLUSION OF VISHAL INFORMATION TECHNOLOGIES LTD., APPEARING AT ITEM (10) IN THE TABULATION IN PARA 25 AS A COMPARABLE CASE. THE TP O HAS DISCUSSED THE ISSUE IN PARA 6.9.6. OF THE ORDER. AS PER THE TPO, THE SAID CONCERN IS FUNCTIONALLY COMPARABLE TO THE IT-ENABLED SERVIC ES SEGMENT OF THE ASSESSEE AND FOR THAT REASON, THE SAID CONCERN HAS BEEN INCLUDED AS A COMPARABLE FOR THE PURPOSES OF COMPARABILITY ANALYS IS. IN THIS CONNECTION, THE PLEA SET UP BY THE ASSESSEE IS THAT THE SAID CONCERN IS ENGAGED IN NOT ONLY IT-ENABLED SERVICES, BUT ALSO I N PROVIDING QUALITY PRODUCTS AND IN THE CREATION OF ANIMATED FILMS AND BOOKS. IT HAS ALSO BEEN ASCERTAINED BY REFERRING TO THE ANNUAL REPORT OF THE SAID CONCERN THAT IT IS ENGAGED IN PROVIDING AGENCY SERVICES BY WAY OF OUTSOURCING THE SERVICES TO THIRD PARTY VENDORS AND ACTING AS A N INTERMEDIARY BETWEEN THE FINAL CUSTOMER AND THE VENDOR. THE ASS ESSEE FURNISHED DETAILED SUBMISSIONS IN THIS REGARD BEFORE THE LOWE R AUTHORITIES, COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK AT PAGE S 420.8 TO 420.31. BY REFERRING TO THE WRITTEN SUBMISSIONS, IT IS ALSO SOUGHT TO BE POINTED OUT THAT THE INTERMEDIARY FUNCTIONS PERFORM ED BY THE SAID CONCERN CAN BE COMPARED TO THAT OF A DISTRIBUTOR WH ICH TAKES TITLE TO SERVICE/PRODUCT FOR RESALE TO THE CUSTOMERS. THE A FORESAID ASSERTION IS SOUGHT TO BE SUBSTANTIATED BY THE DETAILS OF PAYMEN TS MADE BY THE SAID CONCERN FOR DATA ENTRY AND VENDOR PAYMENTS, PE RSONNEL COSTS AND SALES. IT IS, THEREFORE, CONTENDED THAT THE SAID C ONCERN IS FUNCTIONALLY DISSIMILAR TO THAT OF THE IT-ENABLED SERVICES SEGME NT OF THE ASSESSEE. IT HAS ALSO BEEN ARGUED THAT THE SAID CONCERN HAS E ARNED SUPERNORMAL PROFITS AS HIGH AS 59.19% AND THEREFORE, THE SAME I S NOT INCLUDIBLE IN THE LIST OF COMPARABLES SO AS TO AVOID SKEWING OF T HE COMPARABILITY ANALYSIS. ON THE OTHER HAND, THE STAND OF THE REVEN UE AS BROUGHT OUT BY THE TPO IN PARA 6.9.6. OF THE ORDER IS TO THE EF FECT THAT THE SAID CONCERN BEING CATEGORIZED AS AN IT-ENABLED SERVICES CONCERN, THE SAME IS LIABLE TO BE INCLUDED. 31. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS ON THIS ASPECT. AT THE OUTSET, WE MAY REFER TO PAGE 810 OF THE PAPER BOOK, WHEREIN THE NOTES TO ACCOUNTS FOR THE YEAR ENDED 31 .3.2007 OF THE SAID CONCERN HAVE BEEN PLACED. AS PER THE AVAILABL E INFORMATION, THE ITA NO.23/PN/2014 SAID CONCERN HAS RELATED PARTY TRANSACTIONS AS REPO RTED BY THE CONCERN AT PARA 7 OF THE SAID NOTES AT 86.92%, WHICH BREACH ES THE RPT FILTER. FURTHERMORE, THE FUNCTIONAL PROFILE OF THE SAID CON CERN BROUGHT OUT BY THE ASSESSEE ALSO REVEALS DIFFERENTIATION IN THE AC TIVITY PROFILE. THE TPO, IN OUR VIEW, HAS NOT APPRECIATED THE QUALITATI VE DIFFERENCE IN THE FUNCTIONS PERFORMED BY THE SAID CONCERN AS SOUGHT O UT TO BE BROUGHT OUT BY THE ASSESSEE. CONSIDERING THE AFORESAID, WE THEREFORE, FIND THAT THE ASSESSEE WAS JUSTIFIED IN ASCERTAINING THAT THE SAID CONCERN BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE REASO NS CANVASSED. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. 46. THE TRIBUNAL IN THE ASSESSEES OWN CASE HAD HEL D THAT THE SAID CONCERN WAS FOUND TO BE OPERATING IN DIFFERENT FUNC TIONAL ENVIRONMENT AND THE SAME WAS EXCLUDED FOR THE PURPOSE OF COMPARABILITY ANALYSIS. FOLLOWING THE RATIO LAID DOWN BY THE TRIBUNAL IN ASSESSEES OWN C ASE IN ASSESSMENT YEARS 2006-07 AND 2007-08 (SUPRA), WE UPHOLD THE PLEA OF THE ASSESSEE IN EXCLUDING THE MARGINS OF THE SAID CONCERN M/S. VISH AL TECHNOLOGIES LTD. 26. IN THE CONTEXT OF THE AFORESAID PRECEDENT, NO C OGENT REASONING HAS BEEN ADVANCED BY THE LD. DEPARTMENTAL REPRESENTATIV E AND THEREFORE, WE UPHOLD ASSESSEES PLEA FOR EXCLUSION OF CORAL HUBS LTD. (FORMERLY KNOWN AS VISHAL INFORMATIONAL TECHNOLOGIES LTD.) FROM THE FI NAL SET OF COMPARABLES. 27. AT THE TIME OF HEARING, IT WAS STATED BY THE LD . REPRESENTATIVE FOR THE APPELLANT THAT IF ASSESSEE WAS TO SUCCEED ON ITS PL EA OF THE EXCLUSION OF (I) ACCENTIA TECHNOLOGIES LIMITED; (II) CROSSDOMAIN SOL UTIONS LIMITED.; (III) COSMIC GLOBAL LIMITED; (IV) ECLERX SERVICES LIMITED ; AND, (V) CORAL HUBS LIMITED FROM THE FINAL SET OF COMPARABLES, THEN THE VARIATION BETWEEN THE ARMS LENGTH PRICE SO DETERMINED AND THE STATED VALUE OF THE INTERNATIONAL TRANSACTIONS WOULD FALL WITHIN THE +/- 5% AND THERE FORE IN TERMS OF SECTION 92C(2) OF THE ACT NO ADJUSTMENT WOULD BE REQUIRED T O BE MADE. SINCE WE HAVE UPHELD THE PLEA OF THE ASSESSEE FOR EXCLUSION OF (I) ACCENTIA TECHNOLOGIES LIMITED; (II) CROSSDOMAIN SOLUTIONS LI MITED.; (III) COSMIC GLOBAL LIMITED; (IV) ECLERX SERVICES LIMITED; AND, (V) COR AL HUBS LIMITED FROM THE FINAL SET OF COMPARABLES, THE OTHER GROUNDS OF APPEAL RAI SED BY THE ASSESSEE IN ORDER TO ASSAIL THE ADDITION OF RS.9,56,21,498/- ON ACCOUNT OF TRANSFER PRICING ITA NO.23/PN/2014 ADJUSTMENT ARE RENDERED ACADEMIC AND ARE NOT BEING ADJUDICATED FOR THE PRESENT. 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON 11 TH FEBRUARY, 2015. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 11 TH FEBRUARY, 2015. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE DRP, PUNE; 4) THE DIT (INTERNATIONAL TAXATION), PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE