Infor (India) Private Limited , Hyderabad V. Dy.Commissioner of Income Tax, Cirlcle-2(1), Hyderabad

ITA 2307/Hyd/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6259 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2014-2015
• Appeal Filed On: 11-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Business income; Transfer pricing; International transaction; Retrospective amendment; Working capital adjustments; Bad and doubtful debts; Notional interest
• Section: 143(3); 92B; 10B

Judgement Text

ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 1 OF 41 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 161 AND 2307 /HYD/2018 ASSESSMENT YEARS : 2013-14 & 2014-15 M/S. INFOR (INDIA) P LTD (FORMERLY KNOWN AS INFOR GLOBAL SOLUTIONS (INDIA) P LTD HYDERABAD PAN:AAACB6197Q VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI SUNIL MOTI LALA REVENUE BY: SRI Y.V.S.T. SAI, CIT-DR DATE OF HEARING: 09/05/2019 DATE OF PRONOUNCEMENT: 06/08/2019 ORDER PER SMT. P. MADHAVI DEVI, J.M. BOTH ARE ASSESSEES APPEALS FOR THE A.Y 2013-14 AND 2014-15 RESPECTIVELY AGAINST THE FINAL ASSESSMENT O RDERS PASSED U/S 143(3) R.W.S. 144C (15) OF THE ACT. A.Y 2013-14 2. BRIEF FACTS OF THE CASE FOR THE A.Y 2013-14 ARE THAT THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER TO ITS AE, I NFOR GLOBAL SOLUTIONS INC. DURING THE RELEVANT A.Y, THE ASSESSE E HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AE: ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 2 OF 41 3. THEREFORE, THE DETERMINATION OF THE ARMS LENGTH PRICE (ALP) OF THESE TRANSACTIONS WAS REFERRED TO THE TPO U/S 92CA OF THE ACT. THE TPO IN PARA 5 OF HIS ORDER RECORDED TH E ASSESSEES SUBMISSIONS AS UNDER: 5. EXAMINATION OF TP STUDY CONDUCTED BY TAXPAYER: IN THE TP DOCUMENTATION, THE TAXPAYER HAS BENCHMARK ED THE TRANSACTIONS UNDER THREE SEGMENTS NAMELY; SOFTWARE DISTRIBUTION, SOFTWARE DEVELOPMENT (INCLUDING RELAT ED IT SERVICES) AND SHARED SERVICES (ITES). AS PER THE TA XPAYER ANALYSIS, THE PLI OF THE TAXPAYER IS HIGHER THAN TH E COMPARABLE COMPANIES RESULTS FOR THE TRANSACTIONS PERTAINING TO SOFTWARE DEVELOPMENT AND SOFTWARE DIS TRIBUTION SEGMENTS. NO ADJUSTMENT HAS BEEN PROPOSED TO THE TRANSACTIONS PERTAINING TO SOFTWARE DISTRIBUTION AN D SOFTWARE DEVELOPMENT SEGMENTS AS THE SAME MEETS THE ARMS LE NGTH PRICE. 4. AS REGARDS THE ITES SEGMENT, THE TPO OBSERVED TH AT THE ASSESSEE HAS SHORTLISTED 7 COMPANIES AS COMPARA BLE TO THE ASSESSEE, WHOSE ARITHMETIC MEAN PLI (OP/OC) WAS 11. 13% AS AGAINST THE ASSESSEES PLI OF 11.01% AND THEREFORE, THE ASSESSEE TREATED THIS TRANSACTION TO BE AT ARMS LENGTH. NAME OF THE INTERNATIONAL TRANSACTION AMOUNT (INR) MAM PLI MARGIN OF TAXPAYER (%) MARGIN OF COMPARABLES (%) SOFTWARE DISTRIBUTION AND RELATED SERVICES (PRODUCT SUPPLY FEE, ONE POINT SUPPORT, CUSTOMER SUPPORT AND MANAGEMENT FEE) 54,09,98,363 RPM GP/SALES 69.98% 16.20% SOFTWARE DEVELOPMENT SERVICES 34,03,33,789 TNMM OP/OC 15.33% 10.39% RELATED IT SERVICES 69,73,50,295 TNMM OP/OC 15.17% 10.39% SHARED S E RVICES 25,12,89,099 TNMM OP/OC 11.01% 11.13% RECOVERY OF EXPENSES 2,00,437 CUP METHOD NA NA NA REIMBURSEMENT OF EXPENSES 56,59,352 CUM METHOD NA NA NA ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 3 OF 41 5. THE TPO ANALYSED THE TRANSACTIONS AND OBSERVED T HAT THE TRANSACTION OF SOFTWARE DEVELOPMENT SERVICES WA S AT ALP BECAUSE THE MARGIN OF THE ASSESSEE WAS HIGHER THAN THE AVERAGE MARGIN OF THE COMPARABLES AND HENCE NO ADJUSTMENT W AS REQUIRED. 6. AS REGARDS SOFTWARE DISTRIBUTION SERVICES, THE T PO REJECTED THE RPM METHOD ADOPTED BY THE ASSESSEE AND APPLIED TNMM AS THE MOST APPROPRIATE METHOD AND ARRIVED AT 9 COMPANIES AS COMPARABLE TO THE ASSESSEE WHOSE AVERA GE MARGIN WAS 1.37% AS AGAINST THE MARGIN OF THE ASSESSEE AT -6.44%. THEREFORE, HE PROPOSED AN ADJUSTMENT OF RS.4,22,90, 359/- U/S 92CA OF THE ACT. 7. AS REGARDS THE ITES SEGMENT, THE TPO OBSERVED TH AT THE ASSESSEES TP ANALYSIS SUFFERS FROM VARIOUS DEF ECTS WHICH HAS RESULTED IN SELECTION OF INAPPROPRIATE COMPARABLES AND REJECTION OF APPROPRIATE COMPARABLES. THEREFORE, THE TPO REJECTE D THE ASSESSEES TP STUDY AND MADE AN INDEPENDENT ANALYSI S BY AGGREGATING ALL THE TRANSACTIONS UNDER TNMM. ON THE SELECTION OF FILTERS BY THE ASSESSEE AND THE ADDITIONAL FILTERS ADOPTED BY THE TPO, IT IS HELD AS UNDER: S.NO PARTICULARS REMARKS OF THE TPO 1 COMPANIES HAVING FINANCIALS AT LEAST 2 OUT OF 3 YEARS WERE SELECTED THIS IS NOT AN APPROPRIATE FILTER. THIS OFFICE HAS USED THE CONTEMPORANEOUS DATA WHICH IS SUBSEQUENTLY DISCUSSED 2 COMPANIES WITH POSITIVE NETWORTH A COMPANY CAN HAVE NEGATIVE NET WORTH DUE TO MANY OTHER REASONS NOT RELATING TO THE FACTORS AND ECONOMIC CIRCUMSTANCES PREVALENT DURING THE FINANCIAL YEAR 2012- 13. IF A COMPANY SATISFIES THE FUNCTIONAL ANALYSIS AND ALSO IS WORKING IN COMPARABLE ECONOMIC CIRCUMSTANCES, THEN THE SAME IS COMPARABLE EVEN THOUGH SUCH COMPANY HAS NEGATIVE NET WORTH DUE TO ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 4 OF 41 THE INFLUENCE OF EARLIER YEAR FACTORS LIKE LOSSES IN THE EARLIER YEARS ETC. HENCE, THIS MAY NOT BE APPROPRIATE FILTER. THIS FILTER IS TO BE APPLIED AND SEEN ON CASE BY CASE BASIS. MORE APPROPRIATE FILTER OF CONSISTENT LOSSES OF THE LAST THREE YEARS IS APPLIED BY THE TPO. THIS IS DISCUSSED IN DETAIL IN LATER PART OF THIS NOTICE. 3 COMPANIES REPORTING NET SALES >RS.1 CRORE THIS IS AN APPROPRIATE FILTER 4 COMPANIES REPORTING MANUFACTURING + TRADING SALES/NET SALES < 25% I.E. PREDOMINANTLY INTO RENDERING OF SERVICES THIS IS AN APPROPRIATE FILTER WHICH SIMILAR TO THE FILTER OF SERVICE INCOME USED BY THIS OFFICE 5 COMPANIES WITH FOREIGN EXCHANGE EARNING >25% THIS IS AN APPROPRIATE FILTER 6 SELECT COMPANIES HAVING RPT<25% THIS IS AN APPROPRIATE FILTER 7 COMPANIES WITH SIMILAR NATURE OF OPERATIONS THIS IS AN APPROPRIATE FILTER AS PER THE PROVISIONS OF SECTION 92C(3) R.W.S. 92CA WHERE DURING THE COURSE OF ANY PROCEEDING, THE TPO, ON THE BASIS OF MATERIAL OR IN FORMATION OR DOCUMENTS IN THE POSSESSION IS OF THE OPINION THAT THE INFORMATION O R DATA USED IN COMPUTATION OF THE ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT, THE TPO MAY PROCEED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS IN ACCORDANCE WITH SEC. 92C(1) AND 92C(2) ON THE BASIS OF SUCH MATERIA L OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM. AFTER REJECTING THE FILTERS APPLIED BY THE TAXPAYER , THE TPO HAS USED THE FOLLOWING FILTERS OR CRITERIA, WHICH LEAD TOWARDS SELECTING P ROPER COMPARABLES FUNCTIONALLY SIMILAR TO THAT OF THE TAXPAYER, APART FROM THE ABO VE FILTERS OR CRITERIA ACCEPTED BY THE DEPARTMENT:- I, COMPANIES WHOSE DATA IS NOT AVAILABLE FOR THE FY 2012-13 WERE EXCLUDED: II.. COMPANIES WHOSE IT ENABLED SERVICES INCOME 75% EXPORT REVENUE FILTER 3 DATAMATICS GLOBAL SERVICES LTD REJECTED FUNCTIONALLY DIFFERENT 4 INFORMED TECHNOLOGIES LTD REJECTED AS INSUFFICIEN T FINANCIAL INFORMATION 5 ACE BPO SERVICES (P) LTD REJECTED AS INSUFFICIENT FINANCIAL INFORMATION 6 JINDAL INTELLICOM LTD REJECTED AS INSUFFICIENT FINANCIAL INFORMATION 7 OMEGA HEALTHCARE MANAGEMENT SERVICES P LTD FAILS EMPLOYEE COST FILTER 9. THEREAFTER, BASED ON THE SEARCH OF PROWESS AND CAPITALINE DATABASES, THE TPO PROPOSED THE FOLLOWIN G 7 COMPANIES AS COMPARABLE TO THE ASSESSEE: 10. THE ASSESSEE SUBMITTED ITS OBJECTIONS TO THE AB OVE COMPANIES EXCEPT MICROLAND LTD. THE TPO REJECTED TH E ASSESSEES OBJECTIONS AND COMPUTED THE AVERAGE MEAN MARGIN OF THESE S.NO NAME OF THE COMPANY OR OC OP OP/OC 1 ACROPETAL T ECHNOLOGIES LTD (SEG.) 3 4839744 280613 62 6778382 24.17 2 MICROGENETICS LTD 19211589 16513486 2698103 16.34 3 INFOSYS BPO LTD 1831365498 7 14136657182 4176997805 29.55 4 MICROLAND LTD 2423900000 2231500000 192400000 8.6 2 5 CAPGEMINI BUSINESS SERVICES (I N DIA) LTD 5181918537 4087308886 1094609651 26.78 6 E4E HEALTHCARE BUSINESS SERVICES P LTD 1091819827 931110730 160709097 17.26 7 HARTRON COMMUNICATIONS LTD (S E G. ) 184308416 138132416 46176000 33.43 22.30 ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 6 OF 41 COMPANIES AT 22.30% AND AFTER ALLOWING WORKING CAPI TAL ADJUSTMENT, HE PROPOSED THE ADJUSTMENT OF RS.2,09,9 3,894/-. 11. THE TPO FURTHER OBSERVED THAT THE ASSESSEE HAS TRADE RECEIVABLES WHICH WAS NOT REPORTED IN ITS FORM 3CEB . OBSERVING THAT WITH RETROSPECTIVE AMENDMENT OF SECTION 92B OF THE ACT, RECEIVABLES FORM PART OF INTERNATIONAL TRANSACTION, HE PROPOSED TO CHARGE INTEREST @14.45% P.A. THE ASSESSEE OBJECTED TO THE SAME BY SUBMITTING THAT OUTSTANDING RECEIVABLES ARE CONSEQUENT TO THE INTERNATIONAL TRANSACTIONS OF PROVISION OF ITES AND NOT IN THE NATURE OF ANY ADVANCE/LOANS. SINCE THESE ARE CLOSELY LINKED WITH THE SALE OF SERVICES, THEY HAVE BEEN AGGREGATED WITH THE PRINCIPLE TRANSACTION OF SALES FOR THE PURPOSE OF ECONOMIC ANALYSIS. IT IS FULLY FUNDED ENTITY AND TH E SALES AND RECEIVABLES ARE RUNNING ACCOUNTS AND WCA DULY CONSIDERED THE IMPACT OF OUTSTANDING RECEIVABLES. THE TAXPAYER HAS RELIED ON VARIOUS CAS E LAWS OF VARIOUS TRIBUNALS IN THIS REGARD. IN THIS REGARD, ON GOING THROUGH TH E SUBMISSIONS MADE IT IS SEEN THAT THE TAXPAYER HAS PROJECTED THAT RECEIVABLES AT THE END OF YEAR ARE FORMING PART OF THE WCA COMPUTATION AND AS SUCH THE INTERES T IS ALREADY IMPACTED THEREIN. HOWEVER, THE RECEIVABLES ARE OFF-SET BY PA YABLES ALSO AND IN CASE TO CASE DIFFER. HOWEVER, THERE MAY BE A SITUATION WHER E THE TAXPAYER DOES NOT RECEIVE THE AMOUNTS DUE THROUGHOUT THE YEAR BUT THE ENTIRE PAYMENT IS RECEIVED IN MARCH ITSELF THEN IN THIS CASE THE RECEIVABLE AT THE END OF THE YEAR WOULD BE ALMOST NIL AND IT WOULD GIVE A FAVOURABLE WCA TO TH E TAXPAYER. ALSO, THE WCA TAKES INTO ACCOUNT THE PAYABLES AS WELL AS RECEIVAB LES AT THE END OF THE YEAR BUT DOES NOT TAKE INTO ACCOUNT THE RECEIVABLES WITH IN THE YEAR. THEREFORE, THE CONTENTION OF THE TAXPAYER IS NOT ACCEPTABLE. AS PER THE INTERCOMPANY AGREEMENTS FILED BY THE ASS ESSEE, WE HAVE NOTICED THAT THE PAYMENT TERMS IS 60 DAYS FROM THE END OF THE RELEVANT QUARTER AN IN SOME AGREEMENTS IT IS 90 DAYS FROM TH E END OF THE RELEVANT QUARTER ETC. WE HAVE CONSIDERED THE DUE DATE AS 60 DAYS FROM THE END OF THE RELEVANT QUARTER AS AN UNIFORM DUE DATE FOR THE SAL E OF CONSISTENCY. IN VIEW OF THE ABOVE, INTEREST IS CHARGED @ 14.45% ON THE RECE IVABLES RECEIVED BEYOND THE DUE DATE FOR THE INVOICES RAISED DURING THE YEAR UN DER CONSIDERATION. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 7 OF 41 12. HE ACCORDINGLY DETERMINED THE ALP INTEREST ON T HE RECEIVABLES AT RS.5,59,43,523/-. 13. IN ACCORDANCE WITH THE TP ORDER, THE DRAFT ASSE SSMENT ORDER DATED 5.12.2016 WAS PASSED, AGAINST WHICH THE ASSESSEE PREFERRED ITS OBJECTIONS BEFORE THE DRP, WHICH GRAN TED PARTIAL RELIEF TO THE ASSESSEE BY DIRECTING THE TPO TO EXCL UDE ACROPETAL TECHNOLOGIES LTD FROM THE FINAL LIST OF COMPARABLES ; AND TO EXCLUDE CAPEGEMINI BUSINESS SERVICES IF IT FAILS RPT FILTER AFTER CROSS- VERIFICATION OF THE SAME; AND TO EXCLUDE INFOSYS BP O IF IT FAILS EXPORT REVENUE FILTER. 14. THE DRP, HOWEVER, REJECTED THE ASSESSEES REQUE ST FOR INCLUSION OF THE COMPANIES SELECTED BY IT. 15. AS REGARDS THE ALP ADJUSTMENT ON TRADE RECEIVAB LES, THE DRP HELD THAT IT IS AN INTERNATIONAL TRANSACTIO N REQUIRING TP ADJUSTMENT. HOWEVER, THE AO WAS DIRECTED TO APPLY T HE APPLICABLE INTEREST RATES INSTEAD OF 14.45% APPLIED BY THE TPO ACCORDING TO THE NUMBER OF DAYS DELAY. IN ACCORDANCE WITH THE DR P ORDER, THE FINAL ASSESSMENT ORDER DATED 31.10.2017 WAS PASSED, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US BY RAISIN G THE FOLLOWING GROUNDS OF APPEAL: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, INFOR (INDIA) PRIVATE LIMITED (HEREINAFTER REFERRED TO AS 'THE APPELLANT') RESPECTFULLY CRAVES TO PREFER AN APPEAL AGAINST THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) READ W ITH SECTIONS 92CA(3) AND L44C (13) OF THE INCOME-TAX AC T, 1961 ('THE ACT') BY THE DEPUTY COMMISSIONER OF INCOME-TA X CIRCLE 2( 1), HYDERABAD (HEREINAFTER REFERRED TO AS THE 'ASSE SSING OFFICER' OR 'LD. AO') IN PURSUANCE OF THE DIRECTION S ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL - I, BENGALUR U (HEREINAFTER REFERRED TO AS THE HON'BLE ORP) ON THE FOLLOWING GROUNDS WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER: ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 8 OF 41 ADDITION TO TOTAL INCOME OF RS. 42,957,746 I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED TRANSFER PRICING OFFICER I.E. THE DEPUTY COMMISSIONER OF INCOME-TAX (TRANSFER PRICING OFFICE R)-2, (HEREINAFTER REFERRED TO AS 'THE LD. TPO') AND THE LD. AO UNDER THE DIRECTIONS ISSUED BY HON'BLE ORP, ERRED IN MAKI NG AN ADDITION TO THE APPELLANT'S TOTAL INCOME OF RS. 42, 957,746 (BASED ON THE PROVISIONS OF CHAPTER X OF THE INCOME -TAX ACT, ('THE ACT') AND THE SAID ADDITION BEING WHOLLY UNJU STIFIED ARE LIABLE TO BE DELETED. TRANSFER PRICING INCORRECT SELECTION OF COMPARABLES 2. HARTRON COMMUNICATIONS LIMITED 2.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE LD. TPO I N SELECTING HARTRON COMMUNICATIONS LIMITED AS A COMPARABLE. 2.2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE ORP FURTH ER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TPO IN SELECTING HARTRON COMMUNICATIONS LIMITED AS A COMPA RABLE, WITHOUT APPRECIATING THAT THE SAID COMPANY RENDERS DIVERSIFIED ACTIVITIES - BUSINESS PROCESS OUTSOURCI NG, LEGAL PROCESS OUTSOURCING, BACK OFFICE, SOFTWARE DEVELOPM ENT, TECH SOLUTIONS AND MEDICAL BILLING SERVICES WITHOUT ANY SEGMENTAL DATA. 2.3. WITHOUT PREJUDICE TO ABOVE GROUND OF APPEAL, T HE LD. TPO AND THE LD. AO ERRED IN NOT FOLLOWING THE DIRECTION S OF THE HON'BLE DR? IN CONSIDERING THE CORRECT MARGIN OF HA RTRON COMMUNICATIONS LIMITED. 3. MICROGENETICS SYSTEMS LIMITED 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DR? FURTH ER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TPO IN SELECTING MICROGENETICS SYSTEMS LIMITED AS A COMPAR ABLE. 3.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DR? FURTH ER ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE LD. TPO I N SELECTING MICROGENETICS SYSTEMS LIMITED AS A COMPARABLE, WITH OUT APPRECIATING THAT THE SAID COMPANY IS ENGAGED IN TH E BUSINESS OF PROVIDING BACK-OFFICE SERVICES TO HEALT H SECTOR WHICH ARE IN THE NATURE OF MEDICAL TRANSCRIPTION SE RVICES. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 9 OF 41 3.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DR? FURTH ER ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE LD. TPO I N SELECTING MICROGENETICS SYSTEMS LIMITED AS A COMPARABLE WITHO UT APPRECIATING THAT IT OPERATES UNDER A DIFFERENT BUS INESS MODEL I.E. OUTSOURCES ITS ACTIVITIES. 4. E4E HEALTHCARE BUSINESS SERVICES PRIVATE LIMITED 11.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DR? FURTH ER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TPO IN SELECTING E4E HEALTHCARE BUSINESS SERVICES PRIVATE LIMITED AS A COMPARABLE. 11.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DR? FURTH ER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TPO IN SELECTING E4E HEALTHCARE BUSINESS SERVICES PRIVATE LIMITED AS A COMPARABLE, WITHOUT APPRECIATING THAT THE SAID COMP ANY IS ENGAGED IN THE BUSINESS OF PROVIDING HEALTH CARE OU TSOURCING SERVICES FOR HEALTH CARE INDUSTRY. 11.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TPO IN SELECTING E4E HEALTHCARE BUSINESS SERVICES PRIVATE LIMITED AS A COMPARABLE, WITHOUT APPRECIATING THAT E4E HEAL THCARE BUSINESS SERVICES PRIVATE LIMITED IS ENGAGED IN THE FORWARD CONTRACT AND HEDGING ACTIVITIES WHICH HAVE AN IMPAC T ON THE MARGIN OF E4E HEALTHCARE BUSINESS SERVICES PRIVATE LIMITED. INCORRECT REJECTION OF COMPARABLES 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TPO IN REJECTING THE FOLLOWING COMPANIES AS A COMPARABLES, WITHOUT APPRECIATING THAT THE SAID COMPANIES WERE FUNCTIONA LLY COMPARABLE TO THE APPELLANT: CALIBER POINT BUSINESS SOLUTIONS INFORMED TECHNOLOGIES PRIVATE LIMITED ACE BPO SERVICES PRIVATE LIMITED JINDALLNTELLICOM LIMITED TECHPROCESS SOLUTIONS LIMITED INCORRECT REJECTION OF APPELLANT'S TRANSFER PRICING STUDY/ INCORRECT BENCHMARKING ANALYSIS BY TPO 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 10 OF 41 IN UPHOLDING/CONFIRMING THE ACTION OF THE LD. TPO I N REJECTING THE TRANSFER PRICING ANALYSIS/STUDY PREPARED BY THE APPELLANT, WITHOUT APPRECIATING THAT NONE OF THE CO NDITIONS MENTIONED IN CLAUSES (A) TO (D) OF SECTION 92C(3) O F THE ACT WERE SATISFIED. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO, LD. TPO ERRED IN AND THE HON'BLE D RP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE L D. TPO IN CLASSIFYING THE APPELLANT AS BEING ENGAGED IN PROVI DING A MIX OF HIGH END AND LOW END SERVICES WITHOUT APPRECIATING THAT THE APPELLANT WA S A CAPTIVE SERVICE PROVIDER, PROVIDING SHARED SERVICES (I.E. LOW END SERVICES) TO ITS ASSOCIATED ENTERPRISES AND CON SEQUENTLY ALL KPO COMPANIES / COMPANIES PROVIDING HIGH END SE RVICES (WHETHER SELECTED BY THE APPELLANT OR THE TPO) OUGH T TO HAVE BEEN REJECTED. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, LD. TPO ERRED IN AND THE HON'BLE DRP FURTHER E RRED IN UPHOLDING/CONFIRMING THE ACTION OF THE LD. TPO IN C ONDUCTING A FRESH BENCHMARKING WHICH WAS ERRONEOUS AND LIABLE TO BE REJECTED SINCE THE LD. TPO: I. USED LOWER TURNOVER FILTER WITHOUT THE APPLICATI ON OF AN UPPER TURNOVER FILTER, THEREBY DISREGARDING THE IMP ORTANCE OF TURNOVER IN THE BENCHMARKING OF COMPARABLES II. SELECTED CERTAIN COMPANIES WHEREIN PECULIAR ECO NOMIC CIRCUMSTANCES / EXTRA-ORDINARY EVENTS HAD OCCURRED DURING THE RELEVANT YEAR III. SELECTED COMPANIES WHICH WERE NOT COMPARABLE T O THE APPELLANT IV. SELECTED COMPANIES EARNING ABNORMAL PROFITS V. USED RELATED PARTY TRANSACTION FILTER OF25 PERCE NT AS AGAINST 10-15 PERCENT VI. USED ARBITRARY FILTER OF EXPORT SALES APPLYING A THRESHOLD LIMIT OF25 PERCENT VII. REJECTED OF COMPANIES HAVING A DIFFERENT FINAN CIAL YEAR ENDED WITHOUT APPRECIATING THAT THE RESULTS FOR THE RELEVANT FINANCIAL YEAR COULD BE REASONABLY EXTRAPOLATED FRO M THE FINANCIALS OF THE IMPUGNED COMPANIES, AVAILABLE IN PUBLIC DOMAIN VIII. REJECTED THE MULTIPLE YEAR DATA ADOPTED BY TH E APPELLANT ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 11 OF 41 INCORRECT COMPUTATION OF PROFIT LEVEL INDICATOR ('PLI' ) 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TPO IN CONSIDERING PROVISION FOR BAD AND DOUBTFUL DEBTS AS A NON- OPERATING EXPENDITURE WHILE COMPUTING THE PLI. RISK ADJUSTMENT 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TPO IN NOT ALLOWING RISK ADJUSTMENT IN ACCORDANCE WITH THE PRO VISIONS OF RULE 10B OF THE INCOME-TAX RULES, 1962 TO ACCOUNT F OR DIFFERENCES BETWEEN THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELLANT, BEING A CAPTIVE UNIT, AND THOSE UNDERTAKEN BY THE ALLEGED COMPARABLES. INTEREST ON OUTSTANDING RECEIVABLES 11. INTEREST ON OUTSTANDING RECEIVABLES 11.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED BY NOT FOLLOWING THE FAVOURABLE DIRECTIONS GIVEN BY THE HON'BLE ORP FOR ASSESSMENT YEAR 2011-12 AND ALSO CONFIRMED BY THE HON'BLE INCOME TAX APPELLATE TRIBU NAL IN APPELLANT'S OWN CASE APPEAL NO. BEARING ITA NO. I 13/HYD/2016, WHEREIN THE INTEREST ON OUTSTANDING RECEIVABLES WAS DELETED ON THE GROUND THAT DELAY IN RECEIVABLES AND PAYABLES ARE ADJUSTED IN THE WORKIN G CAPITAL ADJUSTMENT AS COMPUTED BY THE LD. TPO. 11.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE ORP FURTH ER ERRED IN CONSIDERING OUTSTANDING RECEIVABLES, WHICH IS AN OUTCOME OF THE PRINCIPAL INTERNATIONAL TRANSACTION, AS A SE PARATE AND DISTINCT INTERNATIONAL TRANSACTION AND FURTHER ERRE D IN CONFIRMING A TRANSFER PRICING ADJUSTMENT IN THE NAT URE OF INTEREST ON RECEIVABLES AMOUNTING TO RS. 25,164,907 . 11.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. AO ERRED IN NOT CONSIDERING THE FACT T HAT THE WORKING CAPITAL ADJUSTMENT EVALUATES THE OUTSTANDIN G RECEIVABLE IN A CONTROLLED SCENARIO VIS-A.-VIS UNCO NTROLLED SCENARIO AND THAT DIFFERENTIAL IMPACT OF WORKING CA PITAL OF THE APPELLANT VIS-A-VIS ITS COMPARABLES HAS ALREADY BEE N FACTORED IN THE PRICING! PROFITABILITY OF THE APPELLANT. AND HENCE, LEVYING INTEREST ON RECEIVABLES AMOUNTS TO DOUBLE A DJUSTMENT. WITHOUT PREJUDICE TO THE FACT THAT NO ARM'S LENGTH DETERMINATION AND CONSEQUENTIAL TRANSFER PRICING AD JUSTMENT IS WARRANTED ON OUTSTANDING RECEIVABLES, THE APPELL ANT WOULD ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 12 OF 41 LIKE TO RAISE THE FOLLOWING GROUNDS AGAINST THE COM PUTATION METHODOLOGY OF THE LD. AO: 11.4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. AO ERRED IN APPLYING THE CREDIT PERIOD AVAILABLE TO THE APPELLANT, AS PER THE INTERCOMPANY AGREEMENT , AS BENCHMARK FOR COMPUTING THE TRANSFER PRICING ADJUST MENT SINCE CREDIT PERIOD BASED ON INTERCOMPANY AGREEMENT DEFIES TRANSFER PRICING PROVISIONS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I 0 JAW. THE LD. TPO AND THE LD, AO ERRED IN BRINGING NOTIONAL INTEREST TO TAX WITHOUT CONSIDERI NG THE FACT THAT NEITHER THE AE NOR THE APPELLANT CHARGES ANY I NTEREST IN CASE OF DELAY IN PAYMENT LEVY OF INTEREST UNDER SECTION 234(3) OF THE ACT: 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. A 0 ERRED IN AND THE HON'BLE DRP FURTH ER ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE LD. AO IN LE VYING INTEREST ULS 2348 OF THE ACT AND THE SAID LEVY OF I NTEREST BEING WHOLLY UNJUSTIFIED, OUGHT TO BE DELETED. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL. AT ANY TIME B EFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENAB LE THE HON'BLE MEMBERS' TO DECIDE THIS APPEAL ACCORDING T O LAW. 16. AT THE TIME OF HEARING, THE COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE ASSESSEE IS NOT SEEKING EXCLUSIO N OF E4E HEALTHCARE BUSINESS SERVICES PVT LTD FROM THE FINAL SET OF COMPARABLES AND IS ALSO NOT SEEKING INCLUSION OF JI NDAL INTELLICOM LTD AND TECHPROCESS SOLUTIONS LTD IN THE FINAL LIST OF COMPARABLES THEREFORE, THE GROUNDS ON THESE COMPARABLES ARE REJ ECTED AS NOT PRESSED. 17. AS REGARDS THE INTEREST ON TRADE RECEIVABLES, T HE LEARNED COUNSEL FOR THE ASSESSEE, WHILE REITERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, SUBM ITTED THAT WORKING CAPITAL ADJUSTMENTS FACTOR IN THE IMPACT OF OUTSTANDING ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 13 OF 41 RECEIVABLES ON THE PROFITABILITY OF THE ASSESSEE AN D THEREFORE, NO SEPARATE/FURTHER ADJUSTMENT WAS REQUIRED TO BE MADE . IT IS FURTHER SUBMITTED THAT THE ASSESSEE IS A DEBT FREE COMPANY AND SINCE IT HAS NOT CHARGED INTEREST ON THE OUTSTANDIN G RECEIVABLES FROM AE AS WELL AS NON-AES, THERE CAN BE NO TP ADJU STMENT ON ACCOUNT OF NOTIONAL INTEREST. 18. AS REGARDS THE EXCLUSION OF HARTRON COMMUNICATI ONS LTD, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HARTRON COMMUNICATIONS IS FUNCTIONALLY DISSIMILAR TO THE AS SESSEE AS IT UNDERTAKES DIVERSIFIED BUSINESS ACTIVITIES WHEN COM PARED TO THE ASSESSEE AND ALSO THAT IT EVIDENCED ABNORMAL REVENU E PATTERN IN THE LAST 5 YEARS BECAUSE HARTRON COMMUNICATIONS REV ENUE GREW FROM RS.3.81 CRORES TO RS.18.43 CRORES COMPARED TO EARLIER YEAR. THEREFORE, HE SUBMITTED THAT IT FAILS PECULIAR CIRC UMSTANCES FILTER. WITHOUT PREJUDICE TO THIS GROUND, HE SUBMITTED THAT THE TPO HAS ERRED IN NOT COMPUTING THE CORRECT MARGIN OF HARTRO N COMMUNICATIONS I.E. 19.41%. IN SUPPORT OF HIS CONTE NTION THAT THE SAID COMPANY SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES, THE LEARNED COUNSEL FOR THE ASSESSEE R ELIED UPON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF S&P CAPITAL IQ INDIA (P) LTD VS. DY. CIT, REPORTED IN (2019) 55 CCH 0449 HYDTRIB. 19. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT HARTRON COMMUNICATIONS IS ALSO ENGAGED IN ITES AND THAT IT PASSES ALL THE FILTERS APPLIED BY THE TPO. IT WAS HELD THAT AS PER PAGE NO.20 OF THE ANNUAL REPORT OF HARTRON COMMUNICATIONS LTD, WH ICH GIVES ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 14 OF 41 SEGMENTAL REVENUE BREAK UP, REVENUE OF OFFICE BACK UP OPERATIONS IS RS.1084.083 LAKHS AND THE SAID SEGMENT FALLS UND ER ITES. HE ALSO RELIED UPON THE ORDERS OF THE TPO & DRP. THE L EARNED DR FURTHER SUBMITTED THAT THE ASSESSEE ALSO IS INTO RE NDERING HIGH END BPO SERVICES. HE SUBMITTED THAT AS SEEN FROM IT S PROFILE, ASSESSEE IS ALSO RENDERING HIGH END BPO SERVICES LI KE HARTRON COMMUNICATIONS LTD AND THEREFORE, BOTH THE COMPANIE S ARE COMPARABLE TO EACH OTHER. HE ALSO SUBMITTED THAT TH E EXTRA ORDINARY/PECULIAR CIRCUMSTANCES FILTER SHOULD BE PR OVED TO HAVE EFFECT ON THE OPERATIONAL INCOME OF THE ASSESSEE AN D WITHOUT ANY SUCH EVIDENCE, THE PECULIAR CIRCUMSTANCES FILTER CA NNOT BE APPLIED. 20. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS RENDERING V ARIOUS ACTIVITIES WHICH HAVE BEEN REPRODUCED BY THE TPO IN THE TP ORD ER. HOWEVER, THE TPO HAS CONSIDERED THE ASSESSEE TO BE RENDERING ITES SERVICES. AS SEEN FROM THE ANNUAL REPORT OF THE HAR TRON COMMUNICATIONS LTD AT PAGE 477, 481, 482 AND 522 OF THE PAPER BOOK, WE FIND THAT IT IS IN THE BUSINESS OF BOTH EX PORT AND DOMESTIC BPO SERVICES AND IS ALSO ENTERED INTO AN M OU WITH VECTOR FOR CONSTRUCTION OF A MODERN MULTISTOREY BUI LDING AND A NEW BUILDING IS UNDER CONSTRUCTION. FROM PARA 19 OF ITS ANNUAL REPORT, IT IS SEEN THAT HARTRON COMMUNICATIONS HAS REVENUE FROM THREE BUSINESS SEGMENTS NAMELY RENTAL INCOME, OFFIC E BACK UP OPERATIONS AND REAL ESTATE. IT IS ALSO RENDERING ME DICAL BILL SERVICES AND IS EARNING HUGE INCOME THEREFROM. AS R EGARDS ITES EXPORT FILTER IS CONCERNED, WE FIND THAT THE HARTRO N COMMUNICATIONS IS EARNING INCOME BOTH FROM EXPORT A S WELL AS DOMESTIC TRANSACTIONS AND THE SEGMENTAL DETAILS OF THE SAME ARE ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 15 OF 41 AVAILABLE. AT PAGE 482 OF THE PAPER BOOK, THE REVEN UE FROM RENT, EXPORT EARNING FROM BPO, DOMESTIC EARNING FROM BPO AND SALE OF FLATS ARE SEPARATELY GIVEN. FURTHER, FROM PAGE 478 OF THE PAPER BOOK, WE FIND THAT THE COMPANY HAS REPORTED TOTAL R EVENUE FOR THE YEAR TO BE AT RS.33.12 CRORES AS COMPARED TO PREVIO US YEAR WHERE IT WAS RS.21.38 CRORES WHICH SHOWS AN INCREASE IN O VERALL REVENUE TO THE EXTENT OF 154.8% OVER THE LAST YEAR. IT IS M ENTIONED THAT THE INCOME FROM BPO SERVICES BOTH EXPORT AND DOMESTIC F OR THE CURRENT YEAR IS RS.18.34 CRORES AS AGAINST PREVIOUS YEARS RS.3.81 CRORES WHICH SHOWS AN INCREASE TO THE TUNE OF RS.48 3.72% OVER THE LAST YEAR. THEREFORE, THERE IS AN ABNORMAL INCR EASE IN THE REVENUE OF THE COMPANY. AS SEEN FROM THE MARGIN OF THE SAID COMPANY TAKEN BY THE TPO, WE FIND THAT THE TPO HAS ONLY TAKEN THE SEGMENTAL RESULTS AND NOT THE TOTAL INCOME OF T HE ASSESSEE WHICH INCLUDES THE RENTAL INCOME AND INCOME FROM SA LE OF LAND ETC. THEREFORE, THOUGH THE SAID COMPANY IS INTO DIV ERSIFIED ACTIVITIES, ONLY SEGMENTAL RESULTS HAVE TAKEN BY TH E TPO AND THEREFORE, THE SAID RESULTS CANNOT BE SAID TO BE NO T COMPARABLE WITH THE ASSESSEE AS THE REVENUE FROM BOTH THE COMP ANIES IS FROM ITES SERVICES ONLY. AS REGARDS THE ARGUMENT THAT IT HAS EVIDENCED ABNORMAL REVENUE PATTERN, WE AGREE WITH THIS ARGUME NT OF THE ASSESSEE, BECAUSE AS REPORTED BY THE SAID COMPANY, IT IS INTO BPO SERVICES AND HAS SHOWN INCREASE TO THE TUNE OF 483. 72% OVER THE LAST YEAR. IN THE CASE OF S&P CAPITAL IQ INDIA P LT D (SUPRA), THE COORDINATE BENCH OF THE TRIBUNAL (TO WHICH BOTH OF US ARE SIGNATORIES) FOR THE VERY SAME A.Y I.E. 2013-14, HA S HELD THAT THIS COMPANY HAS TO BE EXCLUDED ON ACCOUNT OF EXCEPTIONA L YEAR OF PERFORMANCE. FOR THE SAKE OF CLARITY AND READY REFE RENCE, THE RELEVANT PARAS ARE REPRODUCED HEREUNDER: ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 16 OF 41 8. AS REGARDS, HARTRON COMMUNICATIONS LTD IS CONCER NED, THE ARGUMENT OF THE ASSESSEE IS THAT IT IS FUNCTIONALLY DIFFERENT BECAUSE IT INCLUDES BOTH ITES AS WELL AS OTHER SERV ICES LIKE SOFTWARE SERVICES AND THE SEGMENTAL RESULTS/INFORMA TION IS NOT AVAILABLE. HE ALSO SUBMITTED THAT IT IS AN EXCEPTIO NAL YEAR OF OPERATION WITH AN INCREASE IN REVENUE FROM BPO BUSI NESS TO THE TUNE OF 483.72% OVER THE LAST YEAR AND THERE IS A H UGE FLUCTUATION IN THE FINANCIAL RESULTS OF THE COMPANY IN THE EARLIER AND SUBSEQUENT A.YS. HE ALSO SUBMITTED THAT THE FLU CTUATION IS ON ACCOUNT OF DIFFERENCE IN TREATMENT OF INCOME AND EXPENDITURE. HE SUBMITTED THAT THE SAID COMPANY, ON ONE HAND, RE COGNIZES EXCEPTIONAL REVENUE ON CASH BASIS AND THE EXPENDITU RE ON ACCRUAL BASIS AND THUS IT VIOLATES THE CONCEPT OF M ERCANTILE SYSTEM OF ACCOUNTING. THEREFORE, IT CANNOT BE HELD AS A COMPARABLE. THE ASSESSEE ALSO REFERRED TO THE DECIS IONS OF THE TRIBUNAL AT DELHI IN THE CASE OF CIENA INDIA IN ITA NO.1453/DEL/2014 WHEREIN IT WAS HELD THAT COMPANIES WHOSE FINANCIAL RESULTS ARE NOT BASED ON MERCANTILE SYSTE M OF ACCOUNTING, SHOULD NOT BE TAKEN AS A COMPARABLE. IN SUPPORT OF THIS CONTENTION, THE LEARNED AR REFERRED TO THE ANN UAL REPORT OF THE SAID COMPANY. 9. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT SUFFICIENT INFORMATION WITH REGARD TO THE REVENUE FROM ITES IS AVAILABLE A ND HAS BEEN TAKEN BY THE TPO IN HIS ORDER. HE SUBMITTED THAT TH E SAID COMPANY IS ALSO FOLLOWING MERCANTILE SYSTEM OF ACCO UNTING EXCEPT FOR A FEW ITEMS AND THEREFORE, IT IS NOT COR RECT TO SAY THAT THE SAID COMPANY IS FOLLOWING CASH SYSTEM OF ACCOUN TING WHICH IS NOT ALLOWED TO BE FOLLOWED AFTER IT WAS MADE MAN DATORY TO MAINTAIN BOOKS OF ACCOUNT ON MERCANTILE SYSTEM OF A CCOUNTING. THEREFORE, ACCORDING TO HIM, HARTRON COMMUNICATIONS LTD IS ALSO A COMPARABLE COMPANY. 10. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT HARTRON COMMUNICATIONS LTD HAS REPORTED INCOME FROM BOTH THE EXPORT AND DOMESTIC SALES. AS SEEN FROM THE AUDITOR'S REPORT, THE ASSESSEE HAS MAINTAINED P ROPER BOOKS OF ACCOUNT AS REQUIRED BY LAW AND THERE IS NO QUALI FICATION BY THE AUDITORS. AT PARA 1.6 OF THE NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDING 31.03.2013, IT IS MENT IONED THAT ALL THE REVENUES ARE ACCOUNTED FROM ACCRUAL BASIS, EXCE PT FOR PROCESSING CHARGES (EXPORT INCOME), INTEREST ON CAL LS ARREARS, LISTING FEE AND LEAVE ENCASHMENT WHICH ARE ACCOUNTE D FOR ON CASH BASIS. AT PARA 12 OF THE SAID REPORT, IT IS ST ATED THAT THE INCOME FROM BPO SERVICES IS RS.17,99,52,212 WHICH H AS BEEN BOOKED ON THE BASIS OF INDIAN CURRENCY REALIZED. AT NOTE 17, THE REVENUE FROM OPERATIONS IS REPORTED, WE FIND THAT T HE EXPORT ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 17 OF 41 INCOME HAS BEEN REPORTED AT RS.17,99,52,211/-. FURT HER, FROM THE DATA PUBLISHED BY THE ASSESSEE, THIS YEAR IS AN EXCEPTIONAL YEAR OF OPERATION. THE FINANCIAL RESULTS OF HARTRON COMMUNICATIONS LTD CANNOT BE CONSIDERED FOR THE PRE CEDING AND SUCCEEDING FINANCIAL YEARS IS AS UNDER: F.Y 2009-10 (-) 22.07% F.Y 2010-11 (-) 97.56% F.Y 2011-12 (-) 37.15% F.Y 2012-13 25.05% F.Y 2013-14 (-) 2.52% F.Y 2014-15 (-) 26.02% THEREFORE, IT CAN BE SEEN THAT THIS YEAR HAS BEEN A N EXCEPTIONAL YEAR FOR THE SAID COMPANY. THEREFORE, WE ARE OF THE OPINION THAT HARTRON COMMUNICATION LTD CANNOT BE CONSIDERED AS A COMPARABLE COMPANY TO THE ASSESSEE. IN THIS VIEW OF THE MATTER, WITHOUT COMMENTING ON THE OTHER OBJECTIONS OF THE ASSESSEE, AGAINST THIS COMPANY, WE DIRECT THE AO/TP O TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARA BLES ONLY FOR THE GROUND OF EXCEPTIONAL PERFORMANCE DURING THE RE LEVANT YEAR. 21. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THAT HARTRON COMMUNICATIONS LTD BE EXCLUDED ON ACCOUNT OF EXCEPT IONAL YEAR OF PERFORMANCE I.E. PECULIAR CIRCUMSTANCES FILTER. 22. AS REGARDS THE COMPARABILITY OF MICROGENETICS S YSTEMS LTD IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSES SEE SUBMITTED THAT IT OPERATES UNDER DIFFERENT BUSINESS MODEL AS IT HAS INCURRED SIGNIFICANT OUTSOURCING COST. WE FIND THAT THE TPO HAS HELD THAT THE REVENUE FROM OPERATIONS OF THIS COMPANY IS ON A CCOUNT OF SALE OF MEDICAL TRANSCRIPTION SERVICES WHICH ALSO FALLS UNDER ITES AND THAT IT PASSES ALL THE FILTERS APPLIED BY THE TPO. THE DRP HAS CONFIRMED THE FINDINGS OF THE TPO. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 18 OF 41 23. THE LEARNED DR, THEREFORE, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND ALSO HE DREW OUR ATTENTION TO PAGE 489 OF THE PAPER BOOK WHEREIN THE MEDICAL TRANSCRIPTION CH ARGES ARE SHOWN AT RS.1,92,11,588/-. HE SUBMITTED THAT UNLESS AND UNTIL IT IS SHOWN THAT THE REVENUE FROM OUTSOURCING OF THE S ERVICES HAS AN IMPACT ON THE OPERATING MARGIN OF THE SAID COMPANY, THE SAME SHOULD NOT BE EXCLUDED AS LONG AS IT IS FUNCTIONALL Y SIMILAR TO THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE HAD RELIED UPON THE DECISION OF THE ITAT IN THE CASE OF AVINEON IND IA P LTD VS. DCIT IN ITA NO.238 & 257/HYD/2016 DATED 7.7.2017 WH EREIN THIS COMPANY WAS DIRECTED TO BE EXCLUDED. WE HAVE G ONE THROUGH THE SAID ORDER WHICH IS FOR THE A.Y 2011-12 WHEREIN AT PARAS 9 TO 11, THE TRIBUNAL HAS HELD AS UNDER: 9. AS REGARDS GROUND NO.5, THOUGH THE ASSESSEE HAS SOUGHT INCLUSION OF 3 COMPANIES AS COMPARABLE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOW SEEKING INCLUSIO N OF ONLY 'MICROGENETICS SYSTEMS LTD' AS COMPARABLE TO THE AS SESSEE. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE TPO, HIMS ELF HAS TAKEN THIS COMPANY AS A COMPARABLE IN HIS TP STUDY BUT THE DRP HAS DIRECTED ITS EXCLUSION ON THE GROUND THAT IN THE CASE OF MICROGE NETICS SYSTEMS LTD WHICH IS ENGAGED IN THE ACTIVITY OF MEDICAL TRANSCR IPTION, THE EXPENSES TO THE EXTENT OF 23% HAVE BEEN INCURRED ON OUTSOURCING OF MEDICAL TRANSCRIPTION ACTIVITY. THEREFORE, ACCORDING TO HIM , WHEN THE TPO HIMSELF HAS ACCEPTED THE SAID COMPANY AS A COMPARAB LE AND THE ASSESSEE HAS NOT CHALLENGED ITS INCLUSION, THE DRP OUGHT NOT TO HAVE DIRECTED ITS EXCLUSION. 10. THE LEARNED DR, HOWEVER, RELIED ON THE ORDER OF THE DRP AND SUBMITTED THAT THE P&L A/C OF THE MICROGENETICS SYS TEMS LTD AND SCHEDULE-F THEREOF SHOWS THE EXPENDITURE INCURRED T OWARDS MEDICAL TRANSCRIPTION ACTIVITY WHICH IS NOTHING BUT FOR OUT SOURCING OF MEDICAL TRANSCRIPTION ACTIVITY AND THOUGH IT MAY NOT BE EXA CTLY 23% OF THE EXPENSES, IT IS EVIDENTLY INCURRED ON OUTSOURCING O F THE MEDICAL TRANSCRIPTION ACTIVITY. 11. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, AND AFTER GOING THROUGH THE P&L A/C OF THE COMPARAB LE MICROGENETICS SYSTEMS LTD AND PARTICULARLY SCHEDULE-F THEREOF PLA CED IN PAPER BOOK FILED BY THE ASSESSEE RELATING TO PRODUCTION EXPENS ES, WE FIND THAT DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS INCURRE D RS.22,03,823 TOWARDS MEDICAL TRANSCRIPTION CHARGES. THOUGH, IT I S NOT 23% OF THE EXPENSES INCURRED BY THE ASSESSEE AS OBSERVED BY TH E DRP, THE PAYMENTS ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 19 OF 41 WERE FOR OUTSOURCING OF THE ACTIVITY AND HENCE IS I NVOLVED IN A DIFFERENT FUNCTIONAL MODEL AS COMPARED TO THE ASSESSEE. IN VI EW OF THE SAME, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DIRECTION OF THE DRP. THUS, ASSESSEE'S GROUND OF APPEAL NO.5 IS REJECTED. 24. WE FIND THAT MICROGENETICS SYSTEMS LTD HAS NOT CHANGED ITS ACTIVITIES IN THE A.Y 2013-14. THEREFOR E, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN S IMILAR SET OF FACTS, THIS COMPANY IS DIRECTED TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. THUS, THE ASSESSEES GROUNDS FOR EXCLU SION OF MICROGENETICS SYSTEMS LTD ARE ALLOWED. 25. AS REGARDS INCLUSION OF CALIBER POINT BUSINESS SOLUTIONS LTD IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH IT SATISFIES ALL THE FILTERS APPLIED BY THE TPO AND IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE, THE TPO & DRP HAVE EXCLUDED THE SAME ON THE GROUND THAT IT APPLIE D DIFFERENT FINANCIAL YEAR. HE PLACED RELIANCE UPON FOLLOWING D ECISIONS FOR INCLUSION OF THE SAID COMPANY: I) CAMERON MANUFACTURING INDIA P LTD V. DCIT (TS-1254- ITAT-2018 (CHNY)-TP II) MICROSOFT INDIA (R&D) P LTD V. DCIT 197 TAXMANN .COM 360 (DEL- TRIB) III) MAERSK GLOBAL SERVICE CENTERS (INDIA) PVT. LTD VS. ITO (TS-633- ITAT-2016)(MUM) 26. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS COMPANY HAS BEEN EXCLUDED BECAUSE ITS TURNOVER WAS LESS THA N RS.1.00 CRORE. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT REBUT THIS ARGUMENT OF THE LEARNED DR. THEREFORE, EVEN THOUGH IT SATISFIES THE FUNCTIONALITY TEST, BECAUSE IT DOES NOT QUALIFY THE TURNOVER FILTER OF LESS THAN RS.1.00 CRORE, WE CONFIRM THE O RDER OF THE TPO. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 20 OF 41 27. AS REGARDS INFOSYS TECHNOLOGIES LTD, THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT SATISFIE S ALL THE FILTERS APPLIED BY THE TPO AND IS FUNCTIONALLY COMPARABLE, BUT THE TPO SUMMARILY REJECTED IT ON THE GROUND THAT SUFFICIENT FINANCIAL INFORMATION IS NOT AVAILABLE. THE LEARNED COUNSEL F OR THE ASSESSEE ALSO DREW OUR ATTENTION TO THE DRPS FINDINGS THAT I T FAILS THE FILTER OF INCOME FROM ITES NOT BEING LESS THAN 75% OF THE TOTAL OPERATING REVENUE FILTER. HE SUBMITTED THAT THIS FINDINGS OF THE DRP IS FACTUALLY INCORRECT. HE ALSO DREW OUR ATTENTION TO THE ANNUAL REPORT OF THE INFOSYS TECHNOLOGIES LTD WHEREIN AT P ARA 5 OF PAGE 498 OF THE PAPER BOOK, IT IS CLEARLY MENTIONED THAT IT HAS ONLY ONE SEGMENT AND THE ENTIRE REVENUE IS FROM EXPORT OF SE RVICES. 28. THE LEARNED DR, HOWEVER, SUBMITTED THAT THOUGH IT IS ADMITTED THAT INFOSYS TECHNOLOGIES LTD IS ALSO INTO ITES SERVICES AND IS ONLY INTO ONE SEGMENT, IT HAS ALSO SHOWN NON -OPERATING INCOME OF RS.1.64 CRORES IN THE ANNUAL REPORT AND T HEREFORE, IT DOES NOT GIVE THE CORRECT PICTURE/CORRECT FIGURE OF THE OPERATING REVENUE OF COMPANY AND THEREFORE, HAS BEEN RIGHTLY EXCLUDED. 29. AFTER HEARING BOTH THE PARTIES, WE FIND THAT IN FOSYS TECHNOLOGIES LTD IS INTO ITES AND ITS ENTIRE REVENU E IS FROM BPO SERVICES ONLY. THEREFORE, FACTUAL FINDINGS OF THE D RP THAT IT FALLS INCOME OF LESS THAN 75% OF THE TOTAL OPERATING REVE NUE FILTER IS NOT CORRECT. THEREFORE, WE REMAND THIS ISSUE OF COMPARA BILITY OF THIS COMPANY TO THE TPO FOR RECONSIDERATION OF THE ISSUE BY CONSIDERING ONLY THE OPERATING REVENUE. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 21 OF 41 30 AS REGARDS INCLUSION OF ACE BPO SERVICES LTD IS CONCERNED, IT IS THE CASE OF THE ASSESSEE THAT THIS COMPANY SATISFIES ALL THE FILTERS APPLIED BY THE TPO AND TH EREFORE, IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE COMPANY. HE POINTED OUT THAT THE TPO AND THE DRP HAVE REJECTED THIS COMPANY ON THE GROUND THAT NO INFORMATION AS TO THE RPT FILTER HAS BEEN REPORTED IN ITS ANNUAL REPORT AND THEREFORE, COMPLETE INFORM ATION IS NOT AVAILABLE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO PAGE 507 AND 508 OF THE PAPERBOOK WHER EIN DETAILS OF THE RPT TRANSACTIONS ARE GIVEN. 31. THE LEARNED DR WAS ALSO HEARD WHO RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW. 32. HAVING REGARD TO THE FACT THAT THE DETAILS WITH REGARD TO THE RPT TRANSACTION OF THE COMPANY HAVE BEEN GIV EN, WE ARE OF THE OPINION THAT THE FINDINGS OF THE DRP & TPO ARE FACTUALLY INCORRECT. THEREFORE, WE REMAND THE COMPARABILITY O F THIS COMPANY ALSO TO THE AO/TPO FOR RECONSIDERATION. NEE DLESS TO MENTION THAT THE ASSESSEE SHOULD BE GIVEN A FAIR OP PORTUNITY OF HEARING. A.Y 2014-15 33. DURING THE FINANCIAL YEAR RELEVANT TO A.Y 2014- 15, THE ASSESSEE HAS ENTERED INTO THE FOLLOWING INTERNATION AL TRANSACTIONS: AE NATU RE OF TRANSACTION AMOUNT (IN RS.) SOFTWARE DISTRIBUTION AND RELATED SERVICES SOFTWARE DISTRIBUTION AND RELATED SERVICES 26,59,18,189 SOFTWARE DEVELOPMENT SERVICES SOFTWARE DEVELOPMENT SERVICES 41,90,07,650 RELATED IT SERVICES RELATED IT SERVICES 74,40,98,0 80 SHARED SERVICES SHARED SERVICES 26,57,72,0 35 ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 22 OF 41 34. THE TAXPAYER HAS CARRIED OUT THE ECONOMIC ANALY SIS AND HAS SUMMARIZED THE INTERNATIONAL TRANSACTIONS A S UNDER: NATURE OF TRANSACTION AMOUNT (RS.) MAM PLI MARGIN OF TAXPAYER MARGIN OF COMPANIES SOFTWARE DISTRIBUTION AND RELATED SERVICES 26,59,18,189 RPM GPM 51.79% 4.77% SOFTWARE DE VELOPMENT SERVICES 41,90,07,650 TNMM OP/OC 14.68% 11.02% RELATED IT SERVICES 74,40,98,080 TNMM OP/OC 15.29% SHARED SERVICES 26,57,72,035 TNMM OP/OC 10.74% 6.04 % 35. THE TPO ALSO OBSERVED THAT THE ASSESSEE HAS NOT REPORTED THE TRADE RECEIVABLES OF RS.75,05,40,379/- AS AN INTERN ATIONAL TRANSACTION IN ITS FORM 3CEB. 36. THE TPO ACCEPTED THE RPM METHOD ADOPTED BY THE ASSESSEE AS THE MOST APPROPRIATE METHOD TO BENCHMAR K THE TRANSACTIONS UNDER SOFTWARE DISTRIBUTION SEGMENT AN D THEREFORE, NO ADJUSTMENT WAS PROPOSED. HOWEVER, HE REJECTED TH E ASSESSEES TP STUDY WITH REGARD TO SOFTWARE DEVELOPMENT SEGMEN T AND ITES SEGMENT. AS REGARDS THE SOFTWARE DEVELOPMENT SEGMEN T, THE TPO OBSERVED THE FOLLOWING DEFECTS IN ITS CHOICE OF FIL TERS: S.NO FILTER S USE D Y THE TAXP AYER REMARKS OF THE TPO 1 USE OF MULTIPLE YEAR DATA THIS IS NOT AN APPROPRIATE FILTER 2 COMPANIES FOR WHICH SUFFICIENT FINANCIAL OR DESCRIPTIVE INFORMATION IS NOT AVAILABLE TO UNDERTAKE ANALYSIS ARE REJECTED THIS IS AN APPROPRIATE FILTER 3 COMPANIES THAT HAVE BEEN DECLARED SICK OR HAVE PERSISTENT NEGATIVE NET WORTH ARE REJECTED THIS IS AN APPROPRIATE FILTER 4 COMPANIES HAVING FINANCIALS FOR AT LEAST 2 OUT OF 3 YEARS THIS IS NOT AN APPROPRIATE FILTER 5 COMPANIES THAT HAVE SUBSTANTIAL (EXCESS OF 25%) TRANSACTIONS WITH RELATED PARTIES ARE REJECTED/ THIS IS AN APPROPRIATE FILTER 6 COMPANIES THAT HAVE EXCEPTIONAL YEARS OF OPERATI ONS THIS IS NOT AN A PPROPRIATE FILTER 7 SELECTION OF COMPANIES ENGAGED IN DISTRIBUTION OF SOFTW ARE PRODUCTS THIS IS AN A PPROPRIAT E FILTER ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 23 OF 41 37. THE TPO THEREFORE, ADOPTED THE FOLLOWING FILTER S: STAGE-1 ADOPTION OF APPROPRIATE FILTERS A. USE OF CURRENT YEAR DATA B. COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I .E. NOT MARCH 31, 2014) OR DATA OF THE COMPANY WHICH DOES N OT FALL WITHIN 12 MONTH PERIOD I.E. 01-04-2013 TO 31-03-201 4 WERE REJECTED. C. COMPANIES WHOSE INCOME WAS LESS THAN RS.1 CRORE WER E EXCLUDED D. COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE INCOME IS LESS THAN 75% OF ITS TOTAL OPERATING RECEIVES WERE EXCLU DED. E. COMPANIES WHO HAVE MORE THAN 25% RELATED PARTY TRANSACTIONS WERE EXCLUDED. F. COMPANIES WHO HAVE EXPORT SERVICE INCOME LESS THAN 75% OF THE SALES WERE EXCLUDED. G. COMPANIES WITH EMPLOYEE COST LESS THAN 25% OF TURNO VER WERE EXCLUDED. 38. APPLYING THE ABOVE FILTERS, THE TPO REJECTED 9 COMPANIES OUT OF 11 COMPANIES SELECTED BY THE ASSES SEE AS COMPARABLES FOR THE FOLLOWING REASONS: S.NO NAME OF THE COMPANY (M/S.) MARGIN (%) REMARKS 1 AKSHAY SOFTWARE TECHNOLOGIES LTD 6.09% AKSHAY SOFTWARE TECHNOLOGIES LTD (THE PARENT) IS ENGAGED IN PROVIDING PROFESSIONAL SERVICES, PROCUREMENT, INSTALLATION, IMPLEMENTATION, SUPPORT AND MAINTENANCE OF ERP PRODUCTS AND SERVICES, IN INDIA AND OVERSEAS. AS REPORTED IN NOTE 27 OF THE ANNUAL REPORT, THE COMPANY HAS INCURRED FOREIGN BRANCH EXPENDITURE OF RS.19.32 CR AGAINST TOTAL EXPENDITURE OF RS.22.73 CR DURING THE YEAR (85%). HENCE OPERATING MODEL OF THE COMPANY IS DIFFERENT FROM THE TAXPAYER. FUNCTIONALLY DIFFERENT. HENCE REJECTED 2 CG-VAK SOFTWARE & EXPORTS LTD 2.49% THE COMPANY IS ENGAGED IN THE DEVELOPMENT OF COMPUTER SOFTWARE PROVIDING SERVICES IN IT AND ITES (PAGE 38 OF AR) AND NO SEGMENTAL INFORMATION AVAILABLE 3 CIGNITI TECHNOLOGIES LTD 19.83% ACCEPTED AS COMPARABLE 4 GOLDSTONE TECHNOLOGIES 9.97% FAILS EXPORT SALES/SALES >75% FILTER. HENCE REJECTED 5 R.S.SOFTWARE 19.59% ACCEPTED AS COMPARABLE ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 24 OF 41 (INDIIA) LTD 6 SANKHYA INFOTECH LTD (S E G. ) 4.73% FAILS FOREX FILTER 7 AJEL LTD 10.16% FAILS FOREX FILTER 8 DCM LTD (SEG.) 0.13% FAILS FOREX FILTER 9 PRISM INFORMATICS LTD 7.28% FAILS FOREX FILTER 10 SPRY RESOURCES INDIA P LTD 27.33% INFORMATION NOT AVAILABLE ARITHMETIC MEAN 11.02% 39. THEREAFTER, THE TPO CONDUCTED FRESH ANALYSIS AN D SELECTED 13 COMPANIES AS COMPARABLES INCLUDING THE TWO COMPANIES SELECTED BY THE ASSESSEE AND ACCEPTED BY THE TPO. THE ASSESSEE OBJECTED TO THE COMPANIES SELECTED BY THE TPO. HOWEVER, THE TPO REJECTED THE ASSESSEES OBJECTIONS AND SELE CTED THE FOLLOWING 12 COMPANIES AS FINAL COMPARABLES: S.NO COMPANY NAME OR OC OPERATING PROFIT OP/OC % 1 SQS INDIA BFSL L T D 20060 78494 1640933805 365144689 22 .25 2 MIN DTREE LTD 30434000000 2837111000 5415000000 21.6 4 3 RS SOFTWARE (INDIA) LTD 3518820000 2837111000 681 709000 24.03 4 E-INFOCHIPS LTD 2056112437 1135989199 920123238 8 1.00 5 LARSEN & TOUBRO INFOTE CH LTD 45480371882 36665102339 8815269543 24.04 6 CIGNITI TECHNOLOGIES LTD 556298162 435838603 1204 59559 27.64 7 INFOSYS LTD 446500000000 327410 000000 1190 4000 0000 0 36.36 8 PERSISTENT SYST EMS LTD 11851170000 8710090000 3141080000 36.06 9 INFOBEANS TECH LTD 330156390 232374867 97781523 4 2.09 10 THIRDWARE SOLUTIONS LTD 2067574000 1373708000 693866000 50.51 11 TECH MAHINDRA (S E G. ) 170139000000 13 73935000000 0 32 7455000000 23.83 12 TATA ELXSI LTD (SEG.) 6827022000 5582594000 1244 428000 22.29 AVERAGE 34.31 40. THUS, THE AVERAGE MEAN MARGIN OF THE FINAL SET OF COMPARABLES WAS ARRIVED AT 34.31% AS AGAINST THE AS SESSEES MARGIN OF 14.68%. THEREAFTER, THE TPO ALSO CONSIDER ED THE ADDITIONAL COMPARABLES PROPOSED BY THE ASSESSEE, BU T REJECTED ALL OF THEM AND ALSO REJECTED THE ASSESSEES REQUEST FO R WORKING CAPITAL ADJUSTMENT. HE PROPOSED THE ADJUSTMENT OF RS.19,44,89,544/- IN RESPECT OF SOFTWARE DEVELOPMEN T SERVICES OF THE ASSESSEES INTERNATIONAL TRANSACTIONS. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 25 OF 41 41. FURTHER, WITH REGARD TO ITES SEGMENT, THE TPO R EJECTED THE ASSESSEES TP STUDY AND ADOPTING THE FOLLOWING FILTERS, HE CONDUCTED FRESH SEARCH FOR COMPARABLES: I) COMPANIES WHOSE DATA IS NOT AVAILABLE FOR THE FI NANCIAL YEAR 2013-14 WERE EXCLUDED. II) COMPANIES WHOSE REVENUE FROM IT ENABLED SERVICE IS LESS THAN RS.1.CR. ARE EXCLUDED. III) COMPANIES WHOSE REVENUE FROM IT ENABLED SERVIC E IS LESS THAN 75% OF THE TOTAL OPERATING REVENUES ARE EXCLUDED. IV) COMPANIES WHO HAVE MORE THAN 25% RELATED PARTY TRANSACTIONS (SALES AS WELL AS EXPENDITURE COMBINED ) OF THE SALES WERE EXCLUDED. V) COMPANIES WHICH HAVE EXPORT SALES LESS THAN 25% OF THE SALES WERE EXCLUDED. VI) COMPANIES WHO HAVE DIMINISHING REVENUES/PERSIST ENT LOSSES FOR THE LAST THREE YEARS UPTO AND INCLUDING FINANCI AL YEAR 2013- 14 WERE EXCLUDED. VII) COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDI NG (I.E. NO MARCH 31, 2013) OR DATA OF THE COMPANY DOES NOT FAL L WITHIN 12 MONTH PERIOD I.E. 01-04-2013 TO 31.03-2014 WERE REJECTED. VIII) COMPANIES THAT ARE FUNCTIONALLY DIFFERENT FRO M THE TAXPAYER WERE EXCLUDED. IX) COMPANIES THAT ARE HAVING PECULIAR ECONOMIC CIR CUMSTANCES WERE EXCLUDED. X) COMPANIES THAT ARE HAVING NEGATIVE NETWORTH WERE EXCLUDED. 42. THUS, HE REJECTED THE ASSESSEES COMPARABLES FO R THE FOLLOWING REASONS: S.NO NAME OF THE COMPANY (M/S.) MARGIN (%) REMARKS 1 ACE BPO SERVICES P LTD 2.87% COMPLETE SET OF FINA NCIALS ARE NOT AVAILABLE IN PUBLIC DOMAIN 2 CALIBER POINT BUSINESS SOLUTIONS LTD (SEG.) 4.74% DIFFERENT FINANCIAL YEAR COMPARED TO THAT OF TAXPAYER. HENCE REJECTED 3 TATA BUSINESS SUPPORT SER VICES 10.25% FAILS FOREX EARNINGS FILTER 4 INFORMED TECHNOLOGIES INDIA LTD 5.96% THE COMPANY HAS HIGH NON-CURRENT INVESTMENTS. HENCE, REJECTED 5 ULTRAMARINE & PIGMENTS LTD 11.74% THIS COMPANY IS FUNCTIONALLY DIFFERENT AND IS NOT ENGAGED IN ITES ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 26 OF 41 6 JINDAL INTELLICOM P LTD 2.34% THE COMPANY IS INTO SOFTWARE DEVELOPMENT, DATA ANALYTICS IN A BIG WAY THAN OPERATING AS CALL CENTRE AND NO SEGMENTAL INFORMATION IS AVAILABLE. HENCE REJECTED. 7 R. SYSTEMS INTERNATIONAL LTD (SEG.) 9.61% DIFFERENT FINANCIAL YEAR COMPARED TO THAT OF TAXPAYER. HENCE REJECTED. 43. THEREAFTER, HE ADOPTED 8 COMPANIES AS COMPARABL E TO THE ASSESSEE. THE ASSESSEE SUBMITTED ITS OBJECTIONS TO THE SAID COMPARABLES. THE TPO REJECTED THE ASSESSEES OBJECT IONS AND ARRIVED AT THE FOLLOWING 7 COMPANIES AS FINAL SET O F COMPARABLES TO THE ASSESSEE: S.NO COMPANY NAME OR OC OPERA TING PROF IT OP/ OC % 1 MICROGENETICS SYSTEMS LTD 22596701.58 19140553.44 3456148.14 18.06 2 INFOSYS BPO LTD 23470000000 18120000000 53500000000 29.53 3 MICROLAND LTD 3447100000 2870900000 5762000000 20.07 4 ECLERX S E RVICES LTD 7152910000 4189020000 2963890000 70 .75 5 B N R UDYOG LTD 14259000 11421000 2838000 24.85 6 CROS SDOMAIN SOLUTIONS P LTD 746275406 616399666 129875740 21.07 7 MPS LTD 1882921000 1275935000 606986000 47.57 AVERAGE 33.13 44. THUS, HE ARRIVED AT THE AVERAGE MARGIN OF THE COMPARABLES AT 33.13% AS AGAINST THE ASSESSEES MAR GIN OF 10.74% AND REJECTING THE WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT, HE PROPOSED AN ADJUSTMENT OF RS.5,37,30 ,633/-. 45. FURTHER, THE TPO ALSO PROPOSED ALP ADJUSTMENT O F RS.1,81,13,140/- TOWARDS INTEREST ON TRADE RECEIVAB LES AFTER ALLOWING CREDIT PERIOD OF 30 DAYS AND BY APPLYING T HE APPLICABLE SBI INTEREST RATES AS SHORT TERM DEPOSITS. IN ACCOR DANCE WITH THE DIRECTIONS OF THE DRP, THE AO PASSED THE DRAFT ASSE SSMENT ORDER, AGAINST WHICH THE ASSESSEE PREFERRED ITS OBJECTIONS TO THE DRP, WHICH CONFIRMED THE DRAFT ASSESSMENT ORDER AND ACCO RDINGLY FINAL ASSESSMENT ORDER WAS PASSED AGAINST WHICH THE ASSES SEE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS O F APPEAL. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 27 OF 41 46. AS FAR AS ALP OF ITES SEGMENT IS CONCERNED, WE FIND THAT THE ASSESSEE IS SEEKING EXCLUSION OF THE FOLLO WING COMPANIES: I) INFOSYS BPO SERVICES LTD II) E CLEREX SERVICES LTD III) CROSS DOMAIN SOLUTIONS LTD IV) MICROGENETICS SYSTEMS LTD V ) MICROLAND LTD VI) NPS LTD. 47. THE ASSESSEE IS SEEKING INCLUSION OF THE FOLLOW ING COMPANIES: I) CALIBER POINT BUSINESS SOLUTIONS LTD II) ACE BPO SERVICES LTD III) ALLSEC TECHNOLOGIES LTD IV) JINDAL INTELLICOM LTD V) INFORMED TECHNOLOGIES LTD. 48. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT PRESSIN G FOR INCLUSION OF ALLSEC TECHNOLOGIES LTD AND JINDAL INTELLECOM LT D. THEREFORE, GROUNDS RELATING TO THESE TWO COMPANIES ARE REJECTE D AS NOT PRESSED. 49. AS REGARDS THE OTHER COMPANIES WHICH ARE SOUGHT TO BE INCLUDED, WE FIND THAT THE COMPARABILITY OF THESE C OMPANIES HAVE BEEN CONSIDERED BY US IN THE EARLIER A.Y 2013-14 IN THE ABOVE PARAGRAPHS AND FOR THE DETAILED REASONS GIVEN THERE IN, THESE COMPANIES ARE DIRECTED TO BE CONSIDERED BY THE TPO AFRESH. THEREFORE, THE GROUNDS RELATING TO THESE COMPANIES ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 28 OF 41 50. AS REGARDS THE EXCLUSION OF COMPANIES FROM THE FINAL LIST OF COMPARABLES COMPANIES IS CONCERNED, WE FIND THAT THE COMPARABILITY OF MICROGENETICS SYSTEMS LTD HAD ARIS EN IN THE A.Y 2013-14 ALSO AND FOR THE DETAILED REASONS GIVEN ABO VE, THIS COMPANY IS DIRECTED TO BE EXCLUDED. 51. AS REGARDS THE COMPARABILITY OF INFOSYS BPO SER VICES LTD IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSES SEE SUBMITTED THAT IT IS A LARGE COMPANY OPERATING AT HIGH ECONOM IES OF SCALE WITH TURNOVER OF INR 2023 CRORES COMPARED TO THE AS SESSEE HAVING TURNOVER OF RS.26.25 CRORES ONLY. FURTHER, IT IS SU BMITTED THAT IT HAS A BRAND VALUE AND IT EMPLOYS SUBSTANTIAL PORTIO N OF ITS FIXED ASSETS IN INTANGIBLE ASSETS. HE SUBMITTED THAT THE COMPARABILITY OF THE SAID COMPANY HAD COME UP FOR CONSIDERATION IN T HE ASSESSEES OWN CASE FOR THE EARLIER A.Y 2011-12 AND ALSO IN 20 13-14. IN A.Y 2011-12, THE TRIBUNAL HAD DIRECTED ITS EXCLUSION WH ILE IN 2013- 14, THE DRP ITSELF HAD DIRECTED ITS EXCLUSION AND T HE REVENUE HAS NOT FILED ANY APPEAL AS AGAINST THE SAME. HE PLACED RELIANCE UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF AGINITY INDIA LTD WHEREIN THE SAID COMPANY HAS BEEN DIRECTE D TO BE EXCLUDED. 52. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. HE ALSO SUBMITTED THAT THE ASSESSEE IS ALSO INTO DIVERSIFIED ACTIVITIES AND UN TIL AND UNLESS IT PROVES THAT THE EXISTENCE OF BRAND OR HIGH TURNOVER HAS AN IMPACT ON ITS OPERATING MARGIN, INFOSYS BPO SERVICES LTD, SHOULD NOT BE EXCLUDED. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 29 OF 41 53. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS COMPANY IS INTO DIVERS IFIED ACTIVITIES AND IT ALSO HAS BRAND VALUE AND HUGE TURNOVER OF RS .2023 CRORES. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGINITY INDIA LTD (SUPRA) HAS HELD THAT SUCH A COMPANY CANNOT BE COMPARED WITH ANY OTHER COMPANY IN THE MARKET. THEREFORE, RE SPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 54. AS REGARDS ECLEREX SERVICES LTD IS CONCERNED, T HE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS RENDERING KPO SERVICES, SUCH AS, DATA MANAGEMENT AND ANALYTIC S SOLUTIONS AND HAS EARNED SUPER NORMAL PROFIT DURING THE YEAR UNDER ASSESSMENT I.E. 70.26%. HE ALSO RELIED UPON THE ASS ESSEES OWN CASE FOR THE A.Y 2011-12 WHEREIN THE TRIBUNAL HAD H ELD IT TO BE A KPO AND NOT COMPARABLE TO THE ASSESSEE. 55. THE LEARNED DR HOWEVER, SUBMITTED THAT THE ASSE SSEE IS ALSO DOING HIGH END BPO SERVICES WHICH ARE AKIN TO KPO SERVICES AND THEREFORE, THE SAID COMPANY SHOULD BE RETAINED AS A COMPARABLE. 56. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS COMPANY HAS BEEN HELD TO BE A KPO SERVICE PROVIDER WHEREAS THE ASSESSEE HAS BEEN CATE GORISED AS A BPO BY THE TPO & DRP. HAVING HELD SO, THE SAID COMP ANY CANNOT BE TREATED AS A COMPARABLE TO THE ASSESSEE. FURTHER , IN THE ASSESSEES OWN CASE FOR THE EARLIER A.Y (TO WHICH B OTH OF US ARE SIGNATORIES), WE HAVE HELD THAT THIS COMPANY CANNOT BE A ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 30 OF 41 COMPARABLE TO THE ASSESSEE. SINCE THERE IS NO CHANG E IN THE ACTIVITIES OF THE SAID COMPANY, WE DO NOT FIND ANY REASON TO TAKE ANY OTHER VIEW AND THEREFORE, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 57. AS REGARDS CROSS DOMAIN SOLUTIONS LTD IS CONCER NED, THE CASE OF THE ASSESSEE IS THAT IT IS FUNCTIONALLY DISSIMILAR AS IT RENDERS KPO SERVICES. THE LEARNED DR, HOWEVER, SUPP ORTED THE ORDERS OF THE TPO & DRP. 58. AS REGARDS THE SERVICES RENDERED BY THIS COMPAN Y, WE FIND THAT AT PAGE 172 OF THE PAPER BOOK WHICH IS TH E WEBSITE PRINTOUT, IT IS SHOWN AS A KNOWLEDGE CENTER. THE LEARNED DR HAD SUBMITTED THAT IF THE CONTENTS OF A WEBSITE GIVEN B Y A COMPANY IS TAKEN INTO CONSIDERATION, THEN EVEN THE ASSESSEE WO ULD BE FALLING IN THE SAME CATEGORY I.E. KNOWLEDGE PROCESS OUTSOUR CING. THE LEARNED DR, EXCEPT FOR RELYING UPON HIS ARGUMENT TH AT THE ASSESSEE IS ALSO INTO HIGH-END BPO SERVICES, HAS NO T BEEN ABLE TO POINT OUT THAT CROSS DOMAIN SOLUTIONS LTD IS NOT A BPO. THEREFORE, WE DIRECT EXCLUSION OF THIS COMPANY ALSO FROM THE FINAL LIST OF COMPARABLES. 59. AS REGARDS MICROGENETICS SYSTEMS LTD IS CONCERN ED, WE HAVE ALREADY CONSIDERED THE COMPARABILITY OF THIS C OMPANY WITH THE ASSESSEE IN THE EARLIER A.Y 2013-14 AND WE HAVE DIRECTED ITS EXCLUSION ON THE GROUND OF ITS OUTSOURCING ACTIVITI ES. FOR THE SAME REASONS GIVEN, THIS COMPANY IS DIRECTED TO BE EXCLU DED. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 31 OF 41 60. AS REGARDS MICROLAND LTD IS CONCERNED, THE CASE OF THE ASSESSEE IS THAT IT IS INTO BUSINESS OF RENDERING H YBRID IT INFRASTRUCTURE AND IT ALSO UNDERTAKES R&D ACTIVITIE S AND HAS ACHIEVED ABNORMAL GROWTH OF 149% DURING THE CURRENT A.Y. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE ALSO S UBMITTED THAT THE CORRECT MARGIN OF THIS COMPANY SHOULD BE CONSID ERED. 61. THE LEARNED DR, HOWEVER, SUBMITTED THAT THIS COMPANY WAS TAKEN UP BY THE ASSESSEE ITSELF AS COMP ARABLE BEFORE THE TPO AND FURTHER THAT IN THE EARLIER A.Y 2013-14 THIS COMPANY HAS BEEN ACCEPTED AS A COMPARABLE. THEREFOR E, HE SUBMITTED THAT IT SHOULD BE RETAINED AS A COMPARABL E. 62. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS COMPANY IS INTO R&D AC TIVITIES AND HAS ACHIEVED ABNORMAL GROWTH DURING THE CURRENT A.Y . IN THE CASE OF S&P CAPITAL IQ (INDIA) LTD, WE HAVE CONSIDERED T HE COMPARABILITY OF THIS COMPANY TO ITES COMPANY AND H AS DIRECTED ITS EXCLUSION. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT ITS EXCLUSION FOR THIS A.Y AS WELL. 63. AS REGARDS COMPARABILITY OF MPS LTD IS CONCERNE D, IT IS A CASE OF THE ASSESSEE THAT THIS COMPANY IS A PUBLI SHING COMPANY AND IS TOTALLY INTO A DIFFERENT BUSINESS MODEL AND THEREFORE, CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSE E COMPANY. 64. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTH ORITIES BELOW. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 32 OF 41 65. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE COMPARABILITY OF THIS C OMPANY TO AN ITES COMPANY HAD ARISEN FOR THE VERY SAME A.Y IN TH E CASE OF HYUNDAI MOTOR INDIA ENGINEERING (P) LTD. IN THE SAI D CASE, WE HAVE HELD THIS COMPANY TO BE COMPARABLE TO THE ASSE SSEE THEREIN. RELEVANT PARAGRAPHS ARE REPRODUCED HEREUNDER FOR RE ADY REFERENCE: 34. AS REGARDS MPS LTD, THOUGH WE FIND THAT IT HAS HUGE PLANT & MACHINERY AND HAS INCURRED HUGE EXPENSES TOWARDS REPAIRS AND MAINTENANCE, WE ALSO FIND THAT IT HAS DESCRIBED ITSELF AS AN ITES SERVIC E PROVIDER, AND THAT ITS OUTSOURCING COST IS RS.10.78 CRORES ONLY. THEREFORE, IT IS FUNCTIONALLY SIMILAR TO THE ASSESSEE AND THEREFORE, CANNOT BE EXCLUDED. 66. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THIS C OMPANY TO BE COMPARABLE TO THE ASSESSEE. 67. IN THE RESULT, GROUNDS RELATING TO THE EXCLUSIO N OF COMPARABLES ARE TREATED AS ALLOWED. 68. AS REGARDS SDS SEGMENT IS CONCERNED, THE ASSESS EE IS SEEKING EXCLUSION OF THE FOLLOWING COMPARABLES FROM THE FINAL LIST OF COMPARABLES: I) INFOSYS LTD II) LARSEN & TOUBRO INFOTECH LTD III) INFOBEANS TECHNOLOGIES LTD IV) RS SOFTWARE (INDIA) LTD V) TATA ELXSI LTD VI) E-INFOCHIPS LTD VII) THIRDWARE SOLUTIONS LTD VIII) PERSISTENT SYSTEMS LTD IX) MINDTREE LTD 69. THE ASSESSEE IS ALSO SEEKING INCLUSION OF THE F OLLOWING COMPANIES AS COMPARABLE TO THE ASSESSEE: ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 33 OF 41 I) ISUMMATION TECHNOLOGIES P LTD II) MAVERIC SYSTEMS LTD III) AKSHAY SOFTWARE TECHNOLOGIES LTD IV) EVOKE TECHNOLOGIES P LTD V) E-ZEST SOLUTIONS LTD VI) GOLDSTONE TECHNOLOGIES LTD VII) SANKHYA INFOTECH LTD 70. HOWEVER, AT THE TIME OF HEARING, THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT PRESSING FOR INCLUSION OF ISUMMATION TECHNOLOGIES PVT LTD, AKSHA Y SOFTWARE TECHNOLOGIES LTD, E-ZEST SOLUTIONS LTD, GOLDSTONE T ECHNOLOGIES LTD AND SANKHYA INFOTECH LTD. THEREFORE, THE GROUND S OF APPEAL FOR INCLUSION OF THESE COMPANIES IN THE FINAL LIST OF COMPARABLES ARE REJECTED. NOW ONLY TWO COMPANIES REMAIN FOR INC LUSION. THEY ARE MAVERIC SYSTEMS LTD AND EVOKE TECHNOLOGIES LTD. AS FAR AS MAVERIC SYSTEMS LTD IS CONCERNED, THE TPO AND DRP H AVE REJECTED THIS COMPANY ON THE GROUND THAT IT INCURRE D SIGNIFICANT R&D EXPENSES (6% OF ITS TURNOVER). THE LEARNED COUN SEL FOR THE ASSESSEE ARGUED THAT THIS COMPANY SATISFIES ALL THE FILTERS ADOPTED BY THE TPO AND HENCE IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. 71. THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ANNU AL REPORT OF MAVERIC SYSTEMS LTD, WHEREIN, IT IS REPORTED THAT 6 % OF THE TURNOVER HAS BEEN SPENT TOWARDS R&D. 72. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE ARE SATISFIED THAT THOUGH THIS COMPAN Y IS FUNCTIONALLY SIMILAR, IT FAILS THE R&D FILTER OF LE SS THAN 3% OF THE TURNOVER AND HENCE CANNOT BE TAKEN AS A COMPARABLE TO THE ASSESSEE. ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 34 OF 41 73. AS REGARDS EVOKE TECHNOLOGIES IS CONCERNED, THE CONTENTIONS OF THE ASSESSEE ARE THAT THIS COMPANY I S FUNCTIONALLY SIMILAR TO THE ASSESSEE, WHEREAS THE TPO & DRP HAVE HELD THAT THE FINANCIALS OF THIS COMPANY INCLUDE THE REVENUE OF ONE BRANCH OUTSIDE INDIA WHICH ARE UNAUDITED AND HENCE ARE NOT RELIABLE. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEVER, DREW OUR ATTENTION TO PAGE 963 OF THE PAPER BOOK, WHICH IS PART OF THE AN NUAL REPORT OF EVOKE TECHNOLOGIES LTD WHEREIN THE REVENUE OF INDIA N BRANCH OF ASSESSEE IS SEPARATELY SHOWN. TAKING THE SAME INTO CONSIDERATION, WE DIRECT THE AO/TPO TO RECONSIDER THE COMPARABILIT Y OF THIS COMPANY BY TAKING THE REVENUE FROM INDIAN BRANCH ON LY. THUS, THE GROUND FOR MAVERIC SYSTEMS LTD IS REJECTED AND FOR EVOKE TECHNOLOGIES LTD IS ALLOWED FOR STATISTICAL PURPOSE S. 74. AS REGARDS EXCLUSION OF INFOSYS LTD, LARSEN & T OUBRO INFOTECH LTD AND MINDTREE LTD, THE COMMON GROUND OF THE ASSESSEE IS THAT THEY HAVE HUGE TURNOVER OF RS.42,5 31 CRORES, RS.4,648.38 CRORES AND RS.3,031.6 CRORES RESPECTIVE LY AS AGAINST THE ASSESSEES TURNOVER OF RS.116.00 CRORES ONLY. T HE LEARNED COUNSEL FOR THE ASSESSEE ALSO ARGUED THAT THEY ARE FUNCTIONALLY DISSIMILAR AND OWN INTANGIBLES ETC. 75. THE LEARNED DR ARGUED THAT UNLESS THE ASSESSEE DEMONSTRATES AS TO HOW THE HUGE TURNOVER IMPACTS TH E MARGIN OF THE SAID COMPANIES, THEY SHOULD NOT BE EXCLUDED FRO M THE FINAL LIST OF COMPARABLES. 76. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE HON'BLE DELHI HIGH COUR T IN THE CASE OF ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 35 OF 41 CIT VS. AGNITY INDIA TECHNOLOGIES (P) LTD(2013) 36 TAXMANN.COM 289 (DELHI H.C) HAS HELD INFOSYS LTD AS NOT COMPARA BLE AS IT IS A GIANT COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWAR E. THE SAME RATIO APPLIED TO BOTH L&T AND MINDTREE AS WELL. THU S, WE DIRECT EXCLUSION OF ALL THESE THREE COMPANIES ON ACCOUNT O F HUGE TURNOVER. 77. AS REGARDS TATA ELXSI LTD, THIRDWARE SOLUTIONS LTD AND PERSISTENT SYSTEMS LTD ARE CONCERNED, WE FIND THAT THEIR COMPARABILITY TO THE ASSESSEE HAS BEEN CONSIDERED I N THE ASSESSEES OWN CASE FOR THE A.Y 2007-08 AND IT IS S UBMITTED THAT THERE IS NO CHANGE OF ACTIVITIES OF EITHER THE ASSE SSEE OR THE COMPARABLES DURING THE RELEVANT A.Y BEFORE US I.E. A.Y 2014-15. 78. THE LEARNED DR HAS NOT REBUTTED THIS CONTENTION OF THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH AT MUMBAI IN ITA NO.520/MUM/2012 D ATED 4.12.2018, IN THE CASE OF INFOR GLOBAL SOLUTIONS INDIA (P.) LTD. V. DEPUTY COMMISSIONER OF INCOME TAX, WE DIRECT THE EXCLUSION OF THESE THREE COMPANIES FROM THE FINAL LIST OF COMPAR ABLES. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PARAS ARE REP RODUCED HEREUNDER: 29. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED M ATERIALS ON RECORD. THE PRIMARY AND FUNDAMENTAL REASON ON THE B ASIS OF WHICH ASSESSEE SEEKS REJECTION OF THE AFORESAID COMPARABL E IS, IT IS ALSO ENGAGED IN THE DEVELOPMENT OF PRODUCT AND SEGMENTAL DETAILS ARE NOT AVAILABLE. NOTABLY, IN CASE OF LSI TECHNOLOGIES IND IA (P.) LTD. (SUPRA), THE CO-ORDINATE BENCH WHILE EXAMINING THE COMPARABI LITY OF THE AFORESAID COMPANY TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, HAS REJECTED THIS COMPANY AS A COMPARABLE CONSIDERING T HE FACT THAT IT IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN S ERVICES. THE SAME VIEW HAS BEEN REITERATED BY THE TRIBUNAL IN TH E OTHER DECISIONS CITED BY THE LEARNED AUTHORISED REPRESENTATIVE. SIN CE, MANY OF THESE DECISIONS PERTAIN TO THE IMPUGNED ASSESSMENT YEAR, RESPECTFULLY ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 36 OF 41 FOLLOWING THE AFORESAID DECISIONS OF THE TRIBUNAL, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 35. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED M ATERIALS ON RECORD. ON A PERUSAL OF THE DOCUMENTS PLACED IN THE PAPER BOOK IT APPEARS THAT THIS COMPANY IS ENGAGED IN VARIOUS ACT IVITIES INCLUDING DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVIC ES. THUS, THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE . CONSIDERING THE AFORESAID ASPECT, THE CO-ORDINATE BENCH IN CASE OF TELCORDIA TECHNOLOGIES INDIA (P.) LTD. (SUPRA), WHICH IS FOR THE VERY SAME ASSESSMENT YEAR, HAS EXCLUDED THIS COMPANY AS A COM PARABLE. SIMILAR VIEW HAS ALSO BEEN EXPRESSED IN THE OTHER DECISIONS CITED BY THE LEARNED AUTHORISED REPRESENTATIVE. THUS, KEEPING IN VIEW TH E DECISIONS OF THE TRIBUNAL REFERRED TO ABOVE, WE HOLD THAT THIS COMPA NY CANNOT BE A COMPARABLE TO THE ASSESSEE. 38. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED M ATERIALS ON RECORD. THOUGH, IT MAY BE A FACT THAT THE ASSESSEE MAY NOT HAVE OBJECTED TO SELECTION OF THIS COMPANY BEFORE THE TR ANSFER PRICING OFFICER, HOWEVER, THE ASSESSEE RAISED OBJECTIONS AG AINST SELECTION OF THIS COMPANY BEFORE THE DRP AS WELL AS BEFORE US. T HE GRIEVANCE OF THE ASSESSEE IS, THE COMPANY BEING INVOLVED IN DEVELOPM ENT OF PRODUCTS AND SINCE NO SEGMENTAL DETAILS ARE AVAILABLE IN THE ANNUAL REPORT, IT CANNOT BE TREATED AS COMPARABLE. THE CO-ORDINATE BE NCH IN TECH MAHINDRA LTD. (SUPRA) HAVING FOUND THIS COMPANY TO BE INVOLVED IN DEVELOPMENT OF SOFTWARE PRODUCT AND TRADING IN SOFT WARE LICENSES HAS HELD THAT IT CANNOT BE A COMPARABLE TO A SOFTWARE D EVELOPMENT SERVICE PROVIDER. SIMILAR VIEW HAS BEEN EXPRESSED IN THE OT HER DECISIONS CITED BEFORE US BY THE LEARNED AUTHORISED REPRESENTATIVE. SINCE, MANY OF THESE DECISIONS RELATE TO VERY SAME ASSESSMENT YEAR , FOLLOWING THE RATIO LAID DOWN IN THESE DECISIONS, WE HOLD THAT THIS COM PANY CANNOT BE A COMPARABLE TO THE ASSESSEE. 79. AS REGARDS INFOBEANS TECHNOLOGIES LTD, THE ARGU MENT OF THE ASSESSEE IS THAT IT IS FUNCTIONALLY DIVERSIF IED, BUT DOES NOT GIVE THE SEGMENTAL INFORMATION FOR PRODUCTS AND SER VICES. THE FINDINGS OF THE TPO AND DRP ARE THAT THE ENTIRE REV ENUE OF THIS COMPANY IS ONLY FROM SOFTWARE SERVICES AND THAT THE ASSESSEE HAS NOT ESTABLISHED THAT THIS COMPANY IS FUNCTIONALLY D ISSIMILAR. 80. AS REGARDS INFOBEANS TECHNOLOGIES LTD IS CONCER NED, THE ARGUMENT OF THE ASSESSEE IS THAT IT RENDERS HIG H END SERVICES LIKE AUTOMATION ENGINEERING WHICH CANNOT BE CONSIDE RED AS ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 37 OF 41 COMPARABLE TO THE ASSESSEE RENDERING SOFTWARE DEVEL OPMENT SERVICES ONLY TO ITS AES. IT IS ALSO SUBMITTED THAT IT DOES NOT HAVE SEGMENTAL INFORMATION FOR PRODUCTS AND SERVICES AND THAT IT HAS EARNED ABNORMAL PROFITS DURING THE YEAR UNDER CONSI DERATION I.E. 42.08%. WITHOUT PREJUDICE TO THESE ARGUMENTS, IT IS ALSO SUBMITTED THAT THE TPO HAS ERRED IN NOT COMPUTING T HE CORRECT MARGIN OF INFOBEANS TECHNOLOGIES LTD I.E. 41.85%. 81. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW AND SUBMITTED THAT THERE IS NO ER ROR IN THE COMPUTATION OF MARGIN OF THE COMPANY AND THAT IT PA SSES ALL FILTERS AND HENCE CANNOT BE REJECTED MERELY DUE TO HIGH MARGIN. HE ALSO DREW OUR ATTENTION TO THE DRPS FINDING THAT THE ENTIRE REVENUE DERIVED BY THIS COMPANY WAS FROM SOFTWARE S ERVICES ONLY AND THAT THERE ARE NO PRODUCTS AS CONTENDED BY THE ASSESSEE. 82. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEVER, P LACED RELIANCE UPON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PUBMATIC INDIA LTD VS. ACIT (2018) 91 T AXMANN.COM 356 WHEREIN THIS COMPANY WAS DIRECTED TO BE EXCLUDE D. 83. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS RELYING UPO N THE ANNUAL REPORT OF THE SAID COMPANY WHEREIN UNDER THE HEAD REVENUE FROM OPERATIONS, IT IS MENTIONED AS SALE OF SOFTW ARE AND UNDER THE HEAD EARNING IN FOREIGN EXCHANGE, THERE IS A MENTION OF GOODS/EXPORT OF SERVICES, TO IMPRESS UPON US THAT T HIS COMPANY IS ALSO INTO PRODUCTS. HOWEVER, AS RIGHTLY POINTED OUT BY THE LEARNED DR, THERE IS NO SALE OF ANY PRODUCTS AND THIS COMPA NY IS INVOLVED ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 38 OF 41 IN EXPORT OF SOFTWARE SERVICES ONLY. MERE MENTION O F PRODUCTS IN THE ANNUAL REPORT WITHOUT ANY PRODUCTS IN EFFECT CA NNOT MAKE THIS COMPANY A PRODUCT COMPANY. THEREFORE, THIS COMPANY IS COMPARABLE TO THE COMPANY AND NEED NOT BE EXCLUDED. THE ASSESSEES GROUND WITH REGARD TO THIS COMPANY IS RE JECTED. 84. AS REGARDS R S SOFTWARE (INDIA) LTD, THE ASSESS EE IS SEEKING ITS EXCLUSION ON THE GROUND THAT ITS ONSITE EXPENDITURE IS 57.80% OF THE TOTAL SALES AND THAT IT IS ENGAGED IN THE LICENSING ACTIVITY I.E. IT HAS EMPLOYED INTANGIBLE SUCH AS SO FTWARE SERVICES AND THUS, IT IS ALSO PRODUCT BASED COMPANY. THE TPO AND DRP HAVE REJECTED THE ASSESSEES CONTENTION ON THE GROU ND THAT THIS COMPANY IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND THAT ONSITE AND OFFSITE EXPENDITURE ARE NOT DETERMINING FACTORS FOR COMPARABILITY OF THIS COMPANY WITH THE ASSESSEE. AS REGARDS THE LICENSING ACTIVITY, IT WAS HELD THAT THE SAID LICEN SES ARE USED FOR DEVELOPMENT OF SOFTWARE SOLUTIONS AND LICENSES AND IT DOES NOT AMOUNT TO RENDERING OF ANY OTHER ACTIVITIES. THOUGH THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON TWO CASE L AW, WE ARE NOT INCLINED TO ACCEPT THAT THIS COMPANY IS A PRODUCT D EVELOPMENT COMPANY AS CLAIMED BY THE ASSESSEE. THOUGH THE SAID COMPANY ALLEGEDLY POSSESSES BRAND VALUE AND IS ALLEGED TO B E FOCUSING ON INNOVATION AND R&D ACTIVITIES, WE AGREE WITH THE FI NDINGS OF THE TPO THAT THIS R&D ACTIVITIES ARE ONLY TO MAKE SERVI CE DELIVERY MORE EFFICIENT AND THERE IS NO SPECIFIC DEBIT TOWAR DS R&D IN THE P&L A/C. THEREFORE, THE ASSESSEES OBJECTIONS TO TH IS COMPANY ARE REJECTED. 85. AS REGARDS E-INFOCHIPS LTD IS CONCERNED, THE CONTENTION OF THE ASSESSEE IS THAT IT IS FUNCTIONAL LY DIFFERENT AS IT IS ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 39 OF 41 ENGAGED TO SOFTWARE DEVELOPMENT OF SOFTWARE PRODUCT S AND ITES AND THAT THERE IS NO SEGMENTAL DATA. THE TPO & DRP HAVE REJECTED THE OBJECTIONS OF THE ASSESSEE. THE LEARNE D COUNSEL FOR THE ASSESSEE HAS REFERRED TO THE DISCLOSURE OF SEGM ENTS EXPLANATORY WHEREIN THE COMPANY HAS DISCLOSED ITSEL F AS PRIMARILY ENGAGED IN SOFTWARE DEVELOPMENT AND ITES SERVICES A ND PRODUCTS, AS REPORTABLE AS PER AS17. FURTHER, AT PAGE 897, TH ERE IS AN INVENTORY IN THE BALANCE SHEET AND AT PAGE 899 THER E IS CLASSIFICATION OF INVENTORIES. HOWEVER, WE DO NOT F IND ANY REVENUE FROM SALE OF PRODUCTS. THEREFORE, IT CANNOT BE ACCE PTED THAT THIS COMPANY IS INTO PRODUCT DEVELOPMENT. THE OTHER OBJE CTION OF THE ASSESSEE IS THAT IT HAS ABNORMAL PROFIT OF 79.76% D URING THE RELEVANT A.Y AND THEREFORE, IT HAS WITNESSED SUPER NORMAL PROFIT OF 38% ON A YEAR ON YEAR BASIS. THIS OBJECTION OF THE ASSESSEE IS ACCEPTABLE BECAUSE, IN THE OTHER CASES OF INFOSYS L TD, L&T INFOTECH LTD AND MINDTREE LTD, WE HAVE HELD THAT NO T ONLY HIGH TURNOVER BUT EVEN WHERE THE COMPARABLES HAVE EARNED SUPER NORMAL PROFIT, THEY ALSO AHVE TO BE EXCLUDED. RESPE CTFULLY FOLLOWING THE SAME, WE DIRECT THE TPO TO EXCLUDE TH IS COMPANY FROM THE FINAL LIST OF COMPARABLES. THUS, THE ASSES SEES GROUNDS OF APPEAL ON EXCLUSION OF THE COMPANIES ARE PARTLY ALL OWED. 86. THE COMMON GROUNDS OF APPEAL FOR THE A.YS 2013- 14 AND 2014-15 ARE AGAINST THE ALP ADJUSTMENT OF INTER EST ON TRADE RECEIVABLES. THOUGH THE LEARNED COUNSEL FOR THE ASS ESSEE HAS RELIED UPON THE ASSESSEES OWN CASE FOR THE A.Y 201 1-12, WE FIND THAT AFTER THE AMENDMENT TO SECTION 92B OF THE ACT, THE INTEREST ON TRADE RECEIVABLES HAS BECOME AN INTERNATIONAL TR ANSACTION AND THEREFORE, THE ALP ADJUSTMENT IS REQUIRED TO BE MAD E. THE ASSESSEES CONTENTION THAT IT HAS NOT PAID ANY INTE REST ON ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 40 OF 41 OUTSTANDING PAYABLES AND THEREFORE, THE INTEREST SH OULD NOT BE CHARGED ON THE TRADE RECEIVABLES IS NOT SUSTAINABLE FOR THESE A.YS. THE ARGUMENT THAT IT IS A DEBT FREE COMPANY AND THE REFORE, NO INTEREST IS ALSO TO BE CHARGED IS NOT ACCEPTABLE. 87. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON VARIOUS CASE LAW. HOWEVER, WE FIND TH AT THEY ARE RELATING TO THE A.YS PRIOR TO THE AMENDMENT OF SECT ION 92B OF THE ACT. HOWEVER, THE INTEREST ON TRADE RECEIVABLES SHO ULD BE CALCULATED AT THE INTEREST RATE APPLICABLE FOR THE RELEVANT PERIOD AS IS CHARGED BY SBI ON THE SHORT TERM DEPOSITS. THE A O HAS ALLOWED THE CREDIT PERIOD OF 60 TO 90 DAYS AS PER THE AGREE MENT FOR A.Y 2013-14 BUT FOR THE A.Y 2014-15 HE HAS ALLOWED ONLY 30 DAYS AS CREDIT PERIOD. THIS ACTION OF THE AO CANNOT BE UPHE LD. IF THERE IS A CLAUSE IN THE AGREEMENT ABOUT CREDIT PERIOD, THE IN TEREST SHOULD BE CALCULATED ONLY ON THE PERIOD EXCEEDING SUCH CRE DIT PERIOD IN THE AGREEMENT, BUT IF THERE IS NO CREDIT PERIOD SPE CIFIED IN THE AGREEMENT, THEN THE CREDIT PERIOD OF 90 DAYS OR THE INDUSTRY AVERAGE CREDIT PERIOD SHOULD BE CONSIDERED WITH THE ASSESSEES OWN CREDIT PERIOD AND ANY DEVIATION ALONE SHOULD BE CONSIDERED FOR ALP ADJUSTMENT. THE AO/TPO IS DIRECTED ACCORDIN GLY. THE ASSESSEES GROUNDS OF APPEAL FOR BOTH THE A.YS 2013 -14 AND 2014- 15 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES ACCORDINGLY. 88. THE OTHER GROUNDS OF APPEALS ARE AGAINST NON ALLOWANCE OF RISK ADJUSTMENT AND WORKING CAPITAL AD JUSTMENT TO THE ASSESSEE. WE FIND THAT THE TPO/AO HIMSELF HAS A LLOWED WORKING CAPITAL ADJUSTMENT FOR THE A.Y 2013-14 BUT HAS DISALLOWED THE SAME FOR THE A.Y 2014-15. WE FIND TH AT ALL THE ITA NOS 161 AND 2307 OF 201 8 INFOR INDIA P LTD HYDERABAD. PAGE 41 OF 41 NECESSARY ADJUSTMENTS TO BRING THE ASSESSEE AND THE COMPARABLES AT PAR HAVE TO BE MADE BY THE AO/TPO. THE WORKING C APITAL ADJUSTMENT IS ALSO TO BE MADE ACCORDINGLY. AO/TPO A RE THEREFORE, DIRECTED TO GRANT WORKING CAPITAL ADJUSTMENT TO THE ASSESSEE. 89. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PR ESS THE GROUNDS WITH REGARD TO TREATING THE PROVISIONS FOR BAD AND DOUBTFUL DEBT AS PART OF THE OPERATING INCOME. THER EFORE, THE SAID GROUND IS REJECTED AS NOT PRESSED. 90. IN THE RESULT, THE ASSESSEES APPEALS FOR THE A .YS 2013- 14 AND 2014-15 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH AUGUST, 2019. SD/- SD/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 6 TH AUGUST, 2019. VINODAN/SPS COPY TO: 1 M/S. INFOR (INDIA) P LTD, 4 TH FLOOR, BLOCK-B, Q-CITY, SURVEY NO.109, 110, 111/2 NANAKRAMGUDA (V) SERILINGAMPALLY (M) RR DISTT. HYDERABAD 500032 2 DY. CIT, CIRCLE 2(1) ROOM NO.514, 5 TH FLOOR, SIGNATURE TOWERS, OPP: BOTANICAL GARDEN, KONDAPUR, HYDERABAD 500084 3 DRP-1, KENDRIYA SADAN, 4 TH FLOOR, C WING, BENGALURU 560034 4 5 PR. CIT 2 HYDERABAD C.CIT (IT) (SZ) BENGALURU 6 THE DR, ITAT HYDERABAD 7 GUARD FILE BY ORDER