Visual Graphics Computing Services India (p) Ltd, CHENNAI V. ACIT CO Cle III (4), CHENNAI

ITA 2340/CHNY/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7997 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 06-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 28-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PATHLANTHA PRIYA
• Assessee Lawyers: SONIA AGRAWAL
• Keywords: Business income; Transfer pricing; International transaction; Working capital adjustments
• Section: 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , !' . #$#% , & '' ( [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NO.2340/MDS/2012 / ASSESSMENT YEAR : 2008-2009 VISUAL GRAPHICS COMPUTING SERVICES INDIA PRIVATE LIMITED, 1-4, 10 TH FLOOR, ZENITH, ASCENDAS INTERNATIONAL PARK, CSIR ROAD, TARAMANI, CHENNAI 600 113. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(4) CHENNAI. [PAN AAACV 3342H] ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : SHRI. NISHANT THAKKAR, ADV & SHRI. SONIA AGRAWAL, C.A. /RESPONDENT BY : SHRI. PATHLANTHA PRIYA, CIT. /DATE OF HEARING : 06-02-2017 ! /DATE OF PRONOUNCEMENT : 10-02-2017 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST AN ASSESSMENT ORDER DATED 30.12.2012 PASSED BY THE ASS ISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(4), CHENNAI PURSUANT ITA NO. 2340/MDS/2012 :- 2 -: TO DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANE L (IN SHORT THE LD. DPR) U/S.144C OF THE INCOME TAX ACT, 1961 (HERE IN AFTER REFERRED TO AS THE ACT). IT HAS ALTOGETHER RAISED ELEVEN GROU NDS APART A FROM SET OF ADDITIONAL GROUNDS NUMBERED AS 12 & 13. 2. OUT OF THESE GROUNDS, GROUND NO.1 IS GENERAL IN NAT URE. GROUND NO.10 IS ON LEVY OF INTEREST U/S.234B OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE. LD. COUNSEL FOR THE ASSESS EE SUBMITTED BEFORE THE BENCH THAT HE WAS NOT PRESSING GROUND NO.11, ON LEVY OF INTEREST U/S.234C OF THE ACT. THIS LEAVES US GROUND NOS.2 TO 9, OF WHICH GROUND NO.8 IS ON ISSUES RELATING TO TRANSFER PRICING. ADD ITIONAL GROUND NOS. 12 AND 13 ARE ALSO ON TRANSFER PRICING. GROUNDS RELATI NG TO TRANSFER PRICING WILL BE DEALT WITH IN THE LATER PART OF THI S ORDER. 3. VIDE ITS GROUNDS 2 & 3, ASSESSEE ASSAIL EXCLUSION O F TELECOMMUNICATION AND FOREIGN TRAVEL EXPENDITURE FR OM ITS EXPORT TURNOVER WHILE COMPUTING THE ELIGIBLE DEDUCTION UND ER SECTION 10A OF THE ACT. THERE IS ALSO AN ALTERNATIVE CLAIM THAT SU MS EXCLUDED FROM EXPORT TURNOVER WERE TO BE EXCLUDED FROM TOTAL TURN OVER ALSO. CLAIM OF THE ASSESSEE THAT TELECOMMUNICATION EXPENDITURE AND FOREIGN TRAVEL EXPENDITURE INCURRED IN FOREIGN CURRENCY COULD NOT BE EXCLUDED FROM EXPORT TURNOVER CANNOT BE ACCEPTED IN VIEW OF DEFIN ITION OF EXPORT ITA NO. 2340/MDS/2012 :- 3 -: TURNOVER GIVEN IN EXPLANATION 2(IV) TO SEC. 10A O F THE ACT. HOWEVER, VIZ-A-VIZ ITS ALTERNATIVE CLAIM THAT THESE EXPENDIT URE IF EXCLUDED FROM EXPORT TURNOVER WERE TO BE DEDUCTED FROM TOTAL TURN OVER ALSO , IS ACCEPTABLE BY VIRTUE OF JUDGMENT OF HONBLE KARNATA KA HIGH COURT IN THE CASE OF CIT VS. TATA ELXSI LIMITED 349 ITR 98 . ACCORDINGLY, WE DIRECT EXCLUSION OF THESE EXPENDITURE FROM TOTAL TU RNOVER ALSO WHILE COMPUTING DEDUCTION AVAILABLE TO THE ASSESSEE U/S. 10A OF THE ACT. GROUND NOS. 2 & 3 ARE PARTLY ALLOWED FOR STATISTIC AL PURPOSE. 4. VIDE ITS GROUND NO.4, GRIEVANCE RAISED BY THE ASSES SEE IS THAT DEDUCTION AVAILABLE U/S.10A OF THE ACT HAD TO BE GIVEN WITHOUT SETTING OFF LOSSES OF ITS OTHER STPI UNIT. 5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSE E HAD A UNIT AT THIRUVANTHAPURAM ON WHICH DEDUCTION G2.94 C RORES WAS CLAIMED U/S.10A OF THE ACT. AS PER LD. AUTHORISED REPRESENTATIVE, LD. ASSESSING OFFICER HAD REDUCED THE LOSS OF G55 LAKHS INCURRED BY IT IN ONE OF ITS UNITS IN CHENNAI CALLED GFA WHILE COMP LETING THE DEDUCTION. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT BY VIRTUE OF JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. YOKAGAWA INDIA LTD 77 TAXMANN.COM 4 1 LOSS OF A STPI UNIT COULD NOT BE SET OFF AGAINST THE PROFIT OF THE UNIT ON WHICH DEDUCTION U /S.10A OF THE ACT WAS BEING CLAIMED. ITA NO. 2340/MDS/2012 :- 4 -: 6. CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT PROFIT SHOULD BE COMPUTED AFTER SET OFF OF ALL BUSI NESS LOSS WHILE ALLOWING DEDUCTION U/S.10A OF THE ACT. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. HONBLE SUPREME C OURT IN THE CASE OF YOKOGAWA INDIA LTD (SUPRA ) HAD HELD AT PARA 17 OF ITS JUDGMENT AS UNDER:- 17. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIRST PROVISO TO SECTIONS 10A(1); 10A (1A) AND 10A (4)] T HAT THE UNIT THAT IS CONTEMPLATED FOR GRANT OF BENEFIT OF DEDUCTION IS THE ELIGIBLE UNDERTAKING AND THAT IS A LSO HOW THE CONTEMPORANEOUS CIRCULAR OF THE DEPARTMENT (NO.794 DATED 09.08.2000) UNDERSTOOD THE SITUATION, IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUC TION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBL E UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND, THEREFORE, IMMEDIATELY AFTER THE STAGE OF DETERMINA TION OF ITS PROFITS AND GAINS. AT THAT STAGE THE AGGREGA TE OF THE INCOMES UNDER OTHER HEADS AND THE PROVISIONS FO R SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70, 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICATIO N. THE DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRIOR TO THE COMMENCEMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF THE ASSESSEE FROM THE GROSS TOT AL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION TOTAL INCOME OF THE ASSESSEE IN SECTIO N 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCENARIO UNFOLDED BY THE PROVISIONS OF SECT ION 10A THE AFORESAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION TOTAL INCOME OF THE ASSESSEE IN SECTION 10A AS TOTAL INCOME OF THE UNDERTAKING. ITA NO. 2340/MDS/2012 :- 5 -: ACCORDINGLY, WE ARE OF THE OPINION THAT LOSS INCUR RED BY THE ASSESSEE IN ITS CHENNAI GFA UNIT SHALL NOT BE SET OFF AGAINS T THE PROFIT OF ITS THIRUVANATHAPURAM UNIT WHILE CALCULATING DEDUCTION AVAILABLE TO THE ASSESSEE U/S. 10A OF THE ACT. GROUND NO.4 OF THE AS SESSEE STANDS ALLOWED. 8. VIDE ITS GROUND NO.5, GRIEVANCE RAISED BY THE ASSES SEE IS THAT THE LOWER AUTHORITIES DID NOT ALLOW SET OFF OF ITS LOSS IN ITS STPI UNIT AGAINST PROFITS OF NON STPI UNIT. LOWER AUTHORITIE S HAD DENIED THE SET OFF TREATING THE STPI UNIT AS A STAND ALONE ONE. THE ISSUE IN OUR OPINION IS COVERED IN FAVOUR OF THE ASSESSEE BY VIR TUE OF THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LIMITED VS. DCIT 325 ITR 102 . PARA 24 OF THIS JUDGMENT IS REPRODUCED HEREUNDER:- THERE IS MERIT IN THE SUBMISSION WHICH HAS BEEN U RGED ON BEHALF OF THE ASSESSEE THAT THE ASSESSING OFFICER H AS WHILE REOPENING THE ASSESSMENT EX FACIE PROCEEDED ON THE ERRONEOUS PREMISE THAT SECTION 10B IS A PROVISION I N THE NATURE OF AN EXEMPTION. PLAINLY, SECTION 10B AS IT STANDS IS NOT A PROVISION IN THE NATURE OF AN EXEMPTION BUT P ROVIDES FOR A DEDUCTION. SECTION 10B WAS SUBSTITUTED BY THE FINANCE ACT OF 2000 WITH EFFECT FROM APRIL 1, 2001. PRIOR T O THE SUBSTITUTION OF THE PROVISION, THE EARLIER PROVISIO N STIPULATED THAT ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE F ROM A 100 PER CENT. EXPORT ORIENTED UNDERTAKING, TO WHICH THE SECTION APPLIES 'SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE'. THE PROVISION, THEREFORE, AS IT EARL IER STOOD WAS IN THE NATURE OF AN EXEMPTION. AFTER THE SUBSTI TUTION OF SECTION 10B BY THE FINANCE ACT OF 2000, THE PROVISI ON AS IT NOW STANDS PROVIDES FOR A DEDUCTION OF SUCH PROFITS AND ITA NO. 2340/MDS/2012 :- 6 -: GAINS AS ARE DERIVED BY A 100 PER CENT. EXPORT ORIE NTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE FOR TEN CONSECUTIVE ASSESSMENT YEARS BEGIN NING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PROD UCE. CONSEQUENTLY, IT IS EVIDENT THAT THE BASIS ON WHICH THE ASSESSMENT HAS SOUGHT TO BE REOPENED IS BELIED BY A PLAIN READING OF THE PROVISION. THE ASSESSING OFFICER WAS PLAINLY IN ERROR IN PROCEEDING ON THE BASIS THAT BECAUSE TH E INCOME IS EXEMPTED, THE LOSS WAS NOT ALLOWABLE. ALL THE FO UR UNITS OF THE ASSESSEE WERE ELIGIBLE UNDER SECTION 10B. THREE UNITS HAD RETURNED A PROFIT DURING THE COURSE OF THE ASSE SSMENT YEAR, WHILE THE CRAB STICK UNIT HAD RETURNED A LOSS . THE ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE PROFITS OF THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FOURTH UNIT COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. IN THESE CIRCUMSTANCES, THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED IS CONTRARY TO THE PLAIN LANGUAGE OF SECTION 10B. THEIR LORDSHIP CLEARLY OBSERVED THAT LOSS SUSTAINE D BY AN UNIT WHICH WAS ELIGIBLE FOR DEDUCTION U/S. 10B OF THE ACT COU LD BE SET OFF AGAINST NORMAL BUSINESS INCOME. WE ARE THEREFORE OF THE OP INION THAT ASSESSEE HAS TO SUCCEED IN GROUND NO.5. GROUND NO. 5 STANDS ALLOWED. 9. VIDE ITS GROUND NO.6, GRIEVANCE OF THE ASSESSEE IS THAT A PORTION OF ITS PROVISION MADE FOR EXPENDITURE WAS DISALLOWED BY THE LD. ASSESSING OFFICER. 10. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT LD. AS SESSING OFFICER IN THE DRAFT ASSESSMENT ORDER HAD DISALLOWE D PROVISIONS TOTALING G2,00,24,664/- FOR A REASON THAT THERE WAS NO CHARG E OF THE SAID ITA NO. 2340/MDS/2012 :- 7 -: AMOUNT IN THE PROFIT AND LOSS ACCOUNT. AS PER LD. AUTHORISED REPRESENTATIVE ASSESSEE HAD OBJECTED THIS BEFORE TH E LD. DRP AND LD. DRP HAD ALLOWED THIS GROUND VIDE PARAGRAPH 16(VI) O F ITS ORDER. HOWEVER, AS PER LD. AUTHORISED REPRESENTATIVE, LD. ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER DID NOT ALLOW A PORTION OF SUCH PROVISIONS MADE FOR CHENNAI VA UNIT, THIRUVANATHAPURAM UNIT AN D CHENNAI GFA UNIT BASED ON A WRONG PRESUMPTION THAT ASSESSEE COU LD NOT PRODUCE ANY SUPPORTING DOCUMENTS. AS PER LD. AUTHORISED RE PRESENTATIVE ASSESSEE HAD PRODUCED BREAK-UP OF SUCH EXPENDITURE BEFORE LD. ASSESSING OFFICER. RELIANCE WAS PLACED ON PAPER BOO K PAGE NOS.179 TO 184 WHICH GAVE THE BREAK-UP OF THE PROVISION. 11. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT LD. DRP WAS OBLIGED TO ARRIVE AT A SPECIFIC CONCLU SION. ACCORDING TO HIM, LD.DRP DID NOT HAVE POWER TO ISSUE DIRECTIONS FOR FURTHER ENQUIRY. RELIANCE WAS PLACED ON SUB SECTION (8) TO SEC. 144C OF THE ACT. 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. DIRECTIONS OF THE LD. DRP AS IT APPEAR AT PARAGRAPH 16(VI) OF ITS ORDER IS REPRODUCED HER EUNDER:- DISALLOWANCE OF PROVISIONS OF LEAVE ENCASHMENT, BONUS AND OTHER EXPENSES BY THE ASSESSING OFFICER THE DRP FINDS ITSELF IN AGREEMENT WITH THE CONTENTI ON OF THE ASSESSEE COMPANY IN PRINCIPLE AND DIRECTS TH E ASSESSING OFFICER TO VERIFY THE RELEVANT FACTS AND TO ITA NO. 2340/MDS/2012 :- 8 -: MODIFY THE DRAFT ASSESSMENT ORDER TO THE EXTENT REQUIRED. SECTION 144C(8) OF THE ACT ON WHICH RELIANCE IS PLA CED BY LD. DEPARTMENTAL REPRESENTATIVE IS REPRODUCED HEREUNDE R:- THE DISPUTE RESOLUTION PANEL MAY CONFIRM, REDUCE OR ENHANCE THE VARIATIONS PROPOSED IN THE DRAFT ORDER SO, HOWEVER, THAT IT SHALL NOT SET ASIDE ANY PROPOSED VARIATION OR ISSUE ANY DIRECTION UNDER SUB-SECTION (5) FOR FURTHER ENQUIRY AND PASSING OF THE ASSESSMENT ORDER . WE ARE OF THE OPINION THAT LD. DRP WAS OBLIGED TO G IVE SPECIFIC FINDINGS WITH REGARD TO THE CLAIM OF THE ASSESSEE AFTER GOIN G THROUGH THE RECORDS. WE ARE OF THE OPINION THAT THE MATTER REQU IRES A FRESH LOOK BY THE LD. DRP. WE THEREFORE SET ASIDE THE ORDERS OF THE LD. ASSESSING OFFICER AND LD. DRP ON THE ISSUE REGARDING PROVISI ON FOR EXPENDITURE AND REMIT IT BACK TO THE LD. DRP FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. GROUND NO.6 ALLOWED FOR STATISTICAL PURP OSE. 13. VIDE ITS GROUND NO.7, ASSESSEE IS AGGRIEVED THAT LD . DRP HAD FAILED TO GIVE DIRECTIONS ON ITS CLAIM FOR ENHANCED DEDUCTION U/S.10A OF THE ACT, IF THE PROVISION FOR EXPENDITURE WAS DISAL LOWED. 14. WE FIND THAT ABOVE GROUND IS RELATED TO GROUND NO.6 OF THE ASSESSEE RELATING TO DISALLOWANCE OF PROVISION. SIN CE WE HAVE SET ASIDE THE MATTER REGARDING DISALLOWANCE OF PROVISION BACK TO LD. DRP FOR ITA NO. 2340/MDS/2012 :- 9 -: CONSIDERATION AFRESH, WE ARE OF THE OPINION THAT TH IS ISSUE CAN ALSO TO BE DEALT BY LD. DRP, IN CASE THEY FIND THAT DISALL OWANCE OF ANY PART OR WHOLE OF THE PROVISIONS WERE JUSTIFIED. GROUND NO. 7 IS THEREFORE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 15. VIDE GROUND NO.9, ASSESSEE IS AGGRIEVED ON SHORT CR EDIT OF TDS OF G2,220/-. 16. AS PER THE ASSESSEE, TDS WAS CORRECTLY CLAIMED BY IT IN ITS RETURN OF INCOME BUT STILL CREDIT IS NOT GIVEN. WE ARE OF THE OPINION THAT LD. ASSESSING OFFICER HAS TO VERIFY THE FACT WHETHE R TAX HAS BEEN DEDUCTED AND CLAIMED BY THE ASSESSEE IN ITS RETURN AND DECIDE ACCORDINGLY. GROUND NO.9 IS ALLOWED FOR STATISTICA L PURPOSE. 17. THIS LEAVES US WITH GROUND NO.8 OF THE ORIGINAL GRO UNDS AND GROUND NOS.12 & 13 OF ADDITIONAL GROUNDS WHICH ARE ON TRANSFER PRICING RELATED MATTERS. 18. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE WAS SEEKING EXCLUSION OF M/S. INFOSYS BPO LTD AND COSMIC GLOBAL LIMITED FROM THE LIST OF COMPARABLES CONSIDERED BY LD. TRANSFER PRIC ING OFFICER FOR BENCH MARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSES SEE WITH ITS ASSOCIATED ENTERPRISE ABROAD. ACCORDING TO HIM, I N CASE, M/S. COSMIC ITA NO. 2340/MDS/2012 :- 10 -: GLOBAL LIMITED WAS CONSIDERED TO BE A GOOD COMPARAB LE, THEN ONE ANOTHER COMPARABLE SUGGESTED BY THE ASSESSEE NAMEL Y M/S. MCS LTD ALSO NEEDED TO BE INCLUDED IN THE LIST OF COMPARABL ES. IN SUPPORT OF THE ABOVE PLEADINGS, LD. AUTHORISED REPRESENTATIVE RELI ED ON THE PROFILE OF THE ASSESSEE WHICH HAS BEEN EXTRACTED BY THE LD. T PO AT PARA 2 OF ITS ORDER AT 12.09.2011 IN WHICH HE HAS CLASSIFIED TH E ASSESSEE AS AN IT ENABLED SERVICE PROVIDER. 19. CONTINUING HIS SUBMISSION, LD. AUTHORISED REPRESE NTATIVE STATED THAT ASSESSEE WAS PROVIDING SERVICES TO ITS ASSOCIATED ENTERPRISE IN THE FORM OF POWER POINT PRESENTATIONS WHICH INCL UDED PREPARATION OF VARIOUS VISUAL AID COMMUNICATION MATERIALS SUCH AS GRAPHICS, CHARTS, EXHIBITS, OVERHEAD TRANSPARENCIES AND ON-SCREEN ANI MATED PRESENTATIONS. AS PER LD. AUTHORISED REPRESENTATIV E ITS ASSOCIATED ENTERPRISE, NAMELY M/S. MCKINSEY & COMPANY WAS SITU ATED IN USA. AGAIN AS PER LD. AUTHORISED REPRESENTATIVE THE FI NAL SET OF TEN COMPARABLES CONSIDERED BY THE LD. TPO INCLUDED M/S . INFOSYS BPO LTD AND M/S. COSMIC GLOBAL LTD. AS PER LD. AUTHORISED REPRESENTATIVE THOUGH M/S. COSMIC GLOBAL LTD WAS ASSESSEES OWN CO MPARABLE IT HAD OBJECTED BEFORE LD. DRP AND SOUGHT EXCLUSION OF THE SAID COMPANY FROM THE LIST OF COMPARABLES, DUE TO ITS VERY LOW EMPLOYEE COST TO ITA NO. 2340/MDS/2012 :- 11 -: TOTAL COST RATIO. AS PER LD. AUTHORISED REPRESENTA TIVE SUCH LOW RATE OF EMPLOYEE COST TO TOTAL COST PROVED THAT IT WAS OUTS OURCING ITS WORK AND THUS ITS FUNCTIONAL PROFILE WAS DIFFERENT FROM THAT OF THE ASSESSEE, WHICH WAS NOT DOING ANY OUTSOURCING. CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT M/S. COSMIC GLOBAL LTD HAD EMPLOYEE COST WHICH WAS 25.2% OF THE TOTAL COST AND WAS NOTED BY LD. TPO HIMSELF. IF ITS OUTSOURCING TRANSLATION WORK WAS ALSO CONSID ERED, AS PER LD. AUTHORISED REPRESENTATIVE SUCH RATIO WOULD BE STILL LOWER. ACCORDING TO HIM, M/S. COSMIC GLOBAL LIMITED COULD NOT BE TAKEN AS A GOOD COMPARABLE TO THAT OF THE ASSESSEE. RELIANCE WAS PL ACED ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF MAXIMIZE LEARNING PRIVATE LIMITED VS. ACIT ( ITA NO.2235/PN /2012, DATED 02.02.2015 FOR ASSESSMENT YEAR 2007-08 ) AND ALSO THE JUDGMENT OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. M/S. MARKET TOOLS RESEARCH (P) LTD ( I.T.T.A. NO.471 OF 2014, D ATED 25.07.2014). 20. IN SO FAR AS M/S. INFOSYS BPO LIMITED WAS CONCERNED , LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IT HAD A T URNOVER WHICH WAS MORE THAN G850 CRORES WHEREAS THAT OF ASSESSEE WAS ONLY G64.27 CRORES. CONTENTION OF THE LD. AUTHORISED REPRESENT ATIVE WAS THAT M/S. ITA NO. 2340/MDS/2012 :- 12 -: INFOSYS BPO WAS WORKING AT A MUCH HIGHER SCALE THA N THE ASSESSEE. AS PER THE LD. AUTHORISED REPRESENTATIVE BY VIRTUE OF HONBLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF CIT VS. M/S. PENTAIR WATER INDIA PVT. LTD, (2016) 381 ITR 216 M/S. INFOSYS BPO LIMITED COULD NOT BE CONSIDERED AS A GOOD COMPARABLE. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD (2013) 93 DTR 375. 21. CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT M/S. COSMIC GLOBAL LIMITED WAS ASSESSEES OWN COMPARABLE AND THEREFORE ASSESSEE COULD NOT NOW SEEK EXCLUSION. VIZ-A-VIZ M/ S. INFOSYS BPO LIMITED, SUBMISSION OF THE LD. AUTHORISED REPRESE NTATIVE WAS THAT VOLUME OF ACTIVITY WAS NOT RELEVANT WHEN FUNCTIO NAL PROFILES WERE SIMILAR. THUS, HE SUPPORTED THE ORDERS OF THE LOW ER AUTHORITIES. 22. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. NO DOUBT M/S. COSM IC GLOBAL LIMITED WAS ONE OF THE COMPARABLES CONSIDERED BY THE ASSESS EE IN ITS OWN TP STUDY. HOWEVER, ASSESSEE HAD BEFORE THE LD. TPO IT SELF POINTED OUT THAT M/S. COSMIC GLOBAL LIMITED HAD VERY LOW EMPLOY EE COST TO TOTAL COST RATIO, PROVING THAT IT WAS GETTING ITS WORK DO NE THROUGH OUTSOURCING. ASSESSEE HAD RAISED THIS ISSUE BEFORE LD. DRP AS WELL. BY VIRTUE OF DECISION OF SPECIAL BENCH IN THE CASE OF DY. CIT VS. QUARK ITA NO. 2340/MDS/2012 :- 13 -: SYSTEMS P. LTD (2010) 42 DTR 414 WHICH WAS UPHELD BY HONBLE PUNJAB AND HARYANA HIGH COURT (62 DTR 182 ) , AN ASSESSEE CANNOT BE ESTOPPED FROM SEEKING EXCLUSION OF A COMPARABLE W HICH WAS ON ITS OWN LIST. ASSESSEE HAD SPECIFICALLY POINTED OUT TH AT M/S. COSMIC GLOBAL LIMITED HAD EMPLOYEE COST WHICH WAS 25.2% OF THE T OTAL COST. HOWEVER, LD. TPO AS WELL AS LD. DRP HAS HELD THAT I F THE OUTSOURCING TRANSLATION WORK OF G2.86 CRORES INCURRED BY THE SA ID COMPANY WAS CONSIDERED AS A PART OF ITS EMPLOYEES COST, THEN TH E EMPLOYEES COST WOULD SWELL TO 85%. IN OUR OPINION EXPENDITURE INCU RRED ON BY M/S. COSMIC GLOBAL LTD FOR OUTSOURCING TRANSLATION CANN OT BE CONSIDERED AS PART OF ITS EMPLOYEE COST. WE ALSO FIND THAT PUNE BENCH OF THE TRIBUNAL IN THE CASE OF MAXIMIZE LEARNING PRIVATE LIMITED (SUPRA) WHERE ALSO THE CONCERNED ASSESSEE WAS INTO ITES SER VICE, HAD WITH REGARD TO COMPARABILITY OF M/S. COSMIC GLOBAL LTD H ELD AS UNDER IN PARA 24 OF ITS ORDER:- WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE PERTINENT POINT MADE OUT BY THE LD. REPRESENTATIVE FOR THE ASSESSEE IS THAT THE SAID CONCERN IS OPERATING IN A DIFFERENT BUSINESS MODEL WHEREIN MUCH OF ITS ACTIVITIES ARE OUTSOURCED WHEREAS THE BUSINESS MODEL OF THE ASSESSEE IS DIFFE RENT. IN AN OUTSOURCING BUSINESS MODEL OBVIOUSLY THE EXPENDITUR E INCURRED ON EMPLOYEE COSTS WOULD BE LOW IN COMPARISON TO THE EX PENDITURE INCURRED ON OUTSOURCING. OSTENSIBLY, WHERE IT ENABL ED SERVICES ARE OUTSOURCED TO A THIRD PARTY VENDOR THEN THE MAR GIN DERIVED BY THE SAID CONCERN WOULD BE ATTRIBUTABLE TO SERVICES RENDERED BY THE OUTSOURCED VENDOR. PER CONTRA, WHERE IT ENABLED SER VICES ARE BEING RENDERED BY A CONCERN THROUGH ITS OWN EMPLOYE ES, THE MARGINS FROM RENDERING OF SERVICES BY THE SAID CONC ERN WOULD BE ATTRIBUTABLE TO ITS OWN EMPLOYEES. OBVIOUSLY, THE L EVEL OF MARGINS IN THE TWO BUSINESS MODELS WOULD NOT BE COMPARABLE. THE ITA NO. 2340/MDS/2012 :- 14 -: HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF CAPI TAL IQ INFORMATION SYSTEMS (INDIA) PRIVATE LIMITED (SUPRA) HAS HELD THAT CONCERNS WHO ACT AS INTERMEDIATERIES HAVING OUTSOUR CED IT ACTIVITY CANNOT BE SAID TO BE COMPARABLE WITH A CONCERN WHO IS RENDERING SERVICES THROUGH ITS OWN EMPLOYEES. THE SAID PROPOS ITION HAS ALSO BEEN UPHELD BY THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF BRIGADE GLOBAL SERVICES PRIVATE LIMITED (SUPRA). HAVING REGARD TO THE AFORESAID DISCUSSION, IN OUR VIEW, THE SAID CONCERN IS NOT A GOOD COMPARABLE TO BE INCLUDED FOR THE PURPOSES OF COMPARABILITY ANALYSIS AS IT OPERATES UNDER A DIFFERENT BUSINESS MODEL WHICH IMPACTS OPERATING MARGINS. AS A CONSEQUENCE, WE DIR ECT THE ASSESSING OFFICER TO EXCLUDE THE SAID CONCERN FROM THE FINAL SET OF COMPARABLES . WE ARE THEREFORE OF THE OPINION THAT M/S. COSMIC GL OBAL LIMITED HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. ORDERE D ACCORDINGLY. 23. COMING TO THE COMPARABILITY OF M/S.INFOSYS BPO LIMI TED, HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. PENTAIR WATER INDIA PVT. LTD, (SUPRA) HAD UPHELD THE ORDER OF THE TRIBUNAL IN THE CASE, WHEREIN IT WAS OBSERVED AS UNDER:- INFOSYS BPO LTD. :- IN THIS CASE ALSO WE NOTED TH E TURNOVER IN RESPECT OF THIS COMPANY IS RS.649.56 CR ORES WHILE THE TURNOVER OF THE ASSEESSEE COMPANY IS AROU ND RS. 11 CRORES WHICH IS MUCH MORE THAN 65 TIMES OF T HE ASSESSEE'S TURNOVER. WE, THEREFORE, DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER OF CIT(A) IN E XCLUDING THIS COMPANY OUT OF THE COMPARABLES. ACCORDINGLY, W E CONFIRM THE ORDER OF THE CIT(A). NO DOUBT HERE TURNOVER OF THE ASSESSEE WAS G64.27 CRORES. HOWEVER THE TURNOVER OF M/S.INFOSYS BPO LTD FOR THE IMPUGNE D ASSESSMENT YEAR WAS G850 CRORES WHICH WAS MORE THAN TEN TIMES THAT OF ASSESSEE. ITA NO. 2340/MDS/2012 :- 15 -: THEREFORE WE ARE OF THE OPINION THAT M/S. INFOSYS B PO LTD WAS OPERATING AT A DIFFERENT LEVEL AND COULD NOT HAVE B EEN COMPARED WITH ASSESSEE. WE, THEREFORE DIRECT THE LD. ASSESSING O FFICER TO EXCLUDE M/S. INFOSYS BPO LTD FROM THE LIST OF COMPARABLES. ORDERED ACCORDINGLY. 24. SUBMITTING HIS ARGUMENTS ON ASSESSEES GRIEVANCES REGARDING WORKING CAPITAL ADJUSTMENT, LD. AUTHORISE D REPRESENTATIVE STATED THAT LD. DRP HAD GIVEN A SPECIFIC DIRECTION TO VERIFY THE WORKING CAPITAL POSITION BETWEEN THE ASSESSEE AND T HE COMPARABLES. HOWEVER, ACCORDING TO LD. AUTHORISED REPRESENTATIVE WORKING CAPITAL ADJUSTMENT FOR ADVANCES FROM CUSTOMERS RECOVERABLE IN CASH OR KIND FROM FOUR COMPANIES WERE NOT CONSIDERED. AS PER LD. AUTHORISED REPRESENTATIVE OBSERVATION OF THE LD. ASSESSING OFF ICER WAS THAT BREAK UP WAS NOT AVAILABLE FROM THE DOWNLOADED FINANCIALS OF THE FOUR COMPANIES NAMELY SPARSH BPO SERVICE LTD, ADITYA BIR LA MINACS WORLDWIDE LTD, PROFESSIONAL MANAGEMENT CONSULTANTS PVT LTD AND SUNDARAM BUSINESS SERVICES LTD. RELYING ON PAPER B OOK II, PAGE NOS. 14 TO 23, LD. AUTHORISED REPRESENTATIVE SUBMITTED T HAT THESE DETAILS WERE READILY AVAILABLE BUT STILL NOT CONSIDERED. 25. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 2340/MDS/2012 :- 16 -: 26. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. GRIEVANCE OF THE A SSESSEE IS THAT ADVANCE RECOVERABLE IN CASH OR KIND OF THE FOUR COM PANIES MENTIONED ABOVE WERE PART OF THE AUDITED ACCOUNT AND ANNUAL R EPORT OF THESE COMPANIES BUT STILL NOT CONSIDERED. WE FIND THAT SCHEDULE 8 OF BALANCE SHEET OF SPARSH BPO SERVICES LTD DOES GIVE THE BREAKUP OF LOANS AND ADVANCES AND OTHER CURRENT ASSET WHICH IN TERALIA INCLUDE ADVANCES OF G61,69,150/- RECOVERABLE IN CASH OR KIN D OR THE VALUE TO BE RECEIVED. SUCH DETAILS ARE AVAILABLE AT SCHEDULE 9 OF THE AUDITED ACCOUNTS OF THE ADITYA BRILA MINACS WORLDWIDE LIMIT ED, SCHEDULE 6 OF SUNDARAM BUSINESS SERVICES LIMITED AND SCHEDULE 7 O F PROFESSIONAL MANAGEMENT CONSULTANTS PRIVATE LIMITED. ACCORDINGL Y, WE ARE OF THE OPINION THAT LD. ASSESSING OFFICER /TPO HAS TO REWO RK THE WORKING CAPITAL ADJUSTMENT, NECESSARY AFTER CONSIDERING TH E VALUE OF ADVANCE AND DEPOSITS RECOVERABLE IN CASH OR KIND OR FOR THE VALUE TO BE RECEIVABLE FROM THE ABOVE FOUR COMPANIES ALSO. OR DERED ACCORDINGLY. 27. THUS, OUT OF THE VARIOUS GROUNDS RAISED BY THE ASS ESSEE IN RELATION TO TRANSFER PRICING ISSUE, WE ALLOW THE G ROUNDS SEEKING EXCLUSION OF INFOSYS BPO LTD AND M/S. COSMIC GLOBAL LTD FROM THE LIST OF COMPARABLES AND ALSO DIRECT THE LD. ASSESSING OF FICER TO REWORK THE WORKING CAPITAL ADJUSTMENTS CONSIDERING THE ADVANCE S/DEPOSITS ITA NO. 2340/MDS/2012 :- 17 -: RECOVERABLE IN CASH OR KIND OR VALUE TO BE RECEIVE D FROM THE FOUR COMPANIES LISTED AT PARA 26 ABOVE. LD. COUNSEL FO R THE ASSESSEE DID NOT ADVANCE ARGUMENTS ON ANY OTHER GROUNDS RELATING TO THE TRANSFER PRICING ISSUE. ACCORDINGLY, GROUND NO.8 OF THE ORI GINAL GROUND AND THE GROUNDS NO.12 & 13 IN THE ADDITIONAL GROUND ARE TRE ATED AS PARTLY ALLOWED. 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON FRIDAY, THE 10TH DAY OF FEBRUA RY, 2017, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 10TH FEBRUARY, 2017. KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF