IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2380/PN/2012 (ASSESSMENT YEAR 2008-09) BNY MELLON INTERNATIONAL OPERATIONS (INDIA) PVT. LTD., TOWER-III, LEVEL III, CYBERCITY, MAGARPATTA CITY, HADAPSAR, PUNE - 411013 .. APPELLANT PAN NO.AADCM9640E VS. ACIT, CIRCLE-1(1), PUNE .. RESPONDENT ASSESSEE BY : SHRI KETAN VED & SHRI DHANRAJ DANGI REVENUE BY : SHRI A.K. MODI DATE OF HEARING : 07-10-2014 DATE OF PRONOUNCEMENT : 10-10-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 27-09-2012 OF THE DCIT(TP)-IV, PUNE PASSED U/ S.143(3) R.W.S. 144C FOR THE ASSESSMENT YEAR 2008-09. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF PROVIDIN G IT ENABLED SERVICES/BUSINESS PROCESS OUTSOURCING SERVICES. IT FILED ITS RETURN OF INCOME ON 30-09-2008 DISCLOSING TOTAL INCOME OF RS. 69,85,276/-. ON THE BASIS OF A REFERENCE MADE BY THE AO U/S.92CA (1) OF THE I.T. ACT, THE TPO ISSUED NOTICE TO THE ASSESSEE ALONG WI TH A 2 QUESTIONNAIRE ASKING THE ASSESSEE TO MAKE ITS SUBMI SSION TO SUPPORT THE ALP COMPUTED BY IT IN THE FORM OF 3CEB. FROM T HE VARIOUS DETAILS FURNISHED BY THE ASSESSEE THE TPO NOTED THA T THE COMPANY PROVIDES BUSINESS PROCESS OUTSOURCING SERVICES, TRA NSACTION PROCESSING EXCLUSIVELY TO ITS GROUP COMPANIES. THE COMPANY IS REGISTERED UNDER THE SOFTWARE TECHNOLOGY PARKS OF I NDIA AS A 100% EOU. FROM THE TP STUDY DOCUMENTS FILED BY THE ASSE SSEE, THE TPO NOTED THAT THE ASSESSEE HAS ENTERED INTO THE FOLLOW ING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES : SR.NO. NATURE OF TRANSACTION AMOUNT (RS.) METHOD USED 1 PROVISION OF BPO SERVICES 54,28,45,900 TNMM 2 PURCHASE OF FIXED ASSETS 1,00,34,697 CUP 3 RECOVERY OF EXPENSES INCURRED BY THE COMPANY ON BEHALF OF THE AE 1,02,19,774 -- 4 REIMBURSEMENT OF EXPENSES INCURRED BY THE AE ON BEHALF OF THE COMPANY 3,77,30,209 -- 2.1 THE TPO NOTED THAT THE ALP OF THE INTERNATIONAL TRANSACTIONS REPRESENTING ITES/BPO PROVIDED TO THE AES HAS BEEN DETERMINED BY APPLYING TNMM METHOD STATING THE SAME TO BE THE MOST APPROPRIATE METHOD UNDER THE FACTS AND CIRCUMSTANCE S OF THE CASE. HE NOTED THAT THE ASSESSEE HAS TAKEN OPERATING PROF IT AND OPERATING COST RATIO AS THE PLI IN TNMM ANALYSIS. THE ASSESS EE WAS REMUNERATED AT COST PLUS MARK UP OF 15% ON THE ENTI RE COST INCURRED FOR RENDERING SUCH ITES. THE PLI OF THE ASSESSEE H AS BEEN ARRIVED 3 AT 17.45% WHEREAS THE AVERAGE PLI OF THE COMPARABLE S HAS BEEN ARRIVED AT 14.86% AS PER THE ANALYSIS OF THE TP DOC UMENT. HOWEVER, THE PLI OF THE COMPARABLES HAS BEEN ARRIVE D AT BY CONSIDERING WEIGHTED AVERAGE MARGIN OF 2 YEARS DATA FOR THE F.YRS. 2006-07 AND 2007-08. ALTHOUGH THE TPO ACCEPTED THE TNMM METHOD FOLLOWED BY THE ASSESSEE AS THE MOST APPROPR IATE METHOD, HOWEVER, HE DID NOT AGREE WITH THE ADOPTION OF WEIG HTED AVERAGE MARGIN OF 2 YEARS DATA. HE, THEREFORE, ASKED THE A SSESSEE TO FURNISH SINGLE YEAR DATA FOR THE COMPARABLES WHICH THE ASSE SSEE SUBMITTED IN CASE OF THE 12 COMPANIES, THE DETAILS OF WHICH A RE AS UNDER : SR.NO. COMPANY NAME OP/OC (%) 1 ALLSEC TECHNOLOGIES LTD. -13.76 2 APEX KNOWLEDGE SOLUTIONS PVT. LTD. 2.28 3 COSMIC GLOBAL LTD., 23.32 4 CALIBER POINT BUSINESS SOLUTIONS LTD. 34.02 5 FIRSTSOURCE SOLUTIONS LTD. 10.33 6 INFORMED TECHNOLOGIES INDIA LTD., 6.09 7 SPARSH BPO SERVICES LTD., 8.61 8 SPANCO TELESYSTEMS & SOLUTION LTD., 13.38 9 TRANSWORKS INFORMATION SERVICES LTD. (NOW KNOWN AS ADITYA BIRLA MINACS WORLDWIDE LTD.,) -4.36 10 TRITON CORP. LTD., 20.42 11 R SYSTEMS INTERNATIONAL LIMITED 9.54 12 NITTANCY OUTSOURCING SERVICES PVT. LTD., 19.38 MEAN 10.77 4 2.2 AFTER GOING THROUGH THE ACCEPT REJECT MATRIX AD OPTED BY THE ASSESSEE THE TPO NOTED THAT THERE WERE CERTAIN DEFE CTS IN THE APPROACH FOLLOWED BY THE ASSESSEE. HE NOTED THAT I N CERTAIN CASES THE ASSESSEE HAD SELECTED COMPANIES WHICH WERE ACTU ALLY NOT SUITABLE AS COMPARABLES AND IN SOME CASES THE ASSES SEE HAD OMITTED COMPANIES WHICH WERE FOUND TO BE SUITABLE AS COMPAR ABLE AFTER A PROPER FAR ANALYSIS. AFTER CONSIDERING THE VARIOUS OBJECTIONS MADE BY THE ASSESSEE, THE TPO REJECTED 8 OUT OF THE 12 C OMPARABLES AND FINALLY ARRIVED AT A FRESH SET OF 7 COMPARABLES HAV ING MEAN MARGIN ON COST OF 31.94%, THE DETAILS OF WHICH ARE AS UNDE R : SR.NO. COMPANY NAME OP/OC (%) 1 ACCENTIA TECHNOLOGIES LTD., 44.34 2 CORAL HUBS LTD. (FORMERLY VISHAL INFORMATION TECHNOLOGIES LTD.) 51.79 3 COSMIC GLOBAL LTD., (SELECTED BY THE ASSESSEE) 23 .30 4 CROSSDOMAIN SOLUTIONS LTD., 27.59 5 E4E HEALTH CARE SOLUTIONS LTD., (EARLIER KNOWN AS NITTANY OUTSOURCING SERVICES PVT. LTD.,) 19.38 6 MAPLE ESOLUTIONS LTD., 20.67 7 TRITON CORP. LTD., (SELECTED BY THE ASSESSEE) 25. 26 ARITHMETIC MEAN 31.94 ACCORDINGLY, THE TPO PROPOSED AN ADJUSTMENT OF RS.7 .38 CRORES. 2.3 THE ASSESSEE CHALLENGED THE MATTER BEFORE THE D RP WHO DIRECTED THE TPO TO INCLUDE 2 COMPANIES, I.E. CALIB ER POINT BUSINESS SOLUTIONS LTD. AND R SYSTEMS INTERNATIONAL LTD AS C OMPARABLES. 5 SIMILARLY, THE DRP ALSO DIRECTED THE AO TO INCLUDE INCOME IN NATURE OF OTHER INCOME AND ALSO TO EXCLUDE FOREIG N EXCHANGE LOSS/GAIN. THE DRP ALSO DIRECTED THE AO TO CARRY O UT WORKING CAPITAL ADJUSTMENT. SIMILARLY, THE DRP DIRECTED TH E AO TO CARRY OUT THE REQUIRED RECTIFICATION IN MAKING INCORRECT COMP UTATION OF MARGIN ON COST OF COMPARABLE COMPANIES FOR A.Y. 200 7-08. 2.4 BASED ON THE DIRECTION OF THE DRP, THE AO TOOK REVISED SET OF COMPARABLES AFTER RECTIFICATION OF MARGIN AND AFTER INCLUDING THE 2 COMPANIES, I.E. CALIBER POINT BUSINESS SOLUTIONS LT D. AND R SYSTEMS INTERNATIONAL LTD. AND DETERMINED THE ARITHMETIC ME AN AT 28.43%, THE DETAILS OF WHICH ARE AS UNDER : SR.NO. COMPANY NAME OP/OC (%) 1 ACCENTIA TECHNOLOGIES LTD., 44.34 2 CORAL HUBS LTD. (FORMERLY VISHAL INFORMATION TECHNOLOGIES LTD.) 51.79 3 COSMIC GLOBAL LTD., (SELECTED BY THE ASSESSEE) 23 .30 4 CROSSDOMAIN SOLUTIONS LTD., 27.59 5 E4E HEALTH CARE SOLUTIONS LTD., (EARLIER KNOWN AS NITTANY OUTSOURCING SERVICES PVT. LTD.,) 19.38 6 MAPLE ESOLUTIONS LTD., 20.67 7 TRITON CORP. LTD., (SELECTED BY THE ASSESSEE) 25. 26 8 CALIBER POINT BUSINESS SOLUTIONS 34.02 9 R SYSTEM INTERNATIONAL LTD. 9.54 ARITHMETIC MEAN 28.43 6 2.5 AFTER EXCLUDING THE FOREIGN EXCHANGE LOSS/GAIN AND THE WORKING CAPITAL ADJUSTMENT AT 2.60% THE TPO DETERMI NED THE ARMS LENGTH MEAN MARGIN AT 25.83% AND MADE ADJUSTMENT OF RS.3,82,20,721/- CRORES TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED WITH SUCH ORDER OF THE AO THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : THE APPELLANT OBJECTS TO THE ORDER DATED SEPTEMBER 27, 2012 PASSED BY THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX , CIRCLE 1(1), PUNE ('ACIT') UNDER SECTION 143(3) R.W. S. 144C (13) OF THE INCOME-TAX ACT, 1961 ('THE ACT') IN PURSUANCE OF THE DIRECTIONS DATED AUGUST 24, 2012 OF THE LEARNED DISPUTE RESOLUTIO N PANEL, PUNE ('DRP') FOR THE ASSESSMENT YEAR 2008-09 ON THE FOL LOWING AMONG OTHER GROUNDS: 1. GENERAL: THE LEARNED ACIT ERRED IN LAW AND ON THE FACTS AND I N CIRCUMSTANCES OF THE CASE PURSUANT TO THE DIRECTIONS OF THE HON'BLE DRP IN MAKING AN ADJUSTMENT AMOUNTING TO INR 3,86,20 ,721 TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY T HE APPELLANT WITH ITS ASSOCIATED ENTERPRISE ('AE') WITH RESPECT TO EX PORT OF SERVICES. 2. ERRONEOUS COMPUTATION OF OPERATING M ARGIN OF CALIBER POINT BUSINESS SOLUTIONS LTD. ('CALIBER ') IN THE FINAL SET OF COMPARABLE THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF THE HO N'BLE DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND OUGHT TO HAVE CONSIDERED THE PROFIT % AS PER THE ANNU AL REPORT OF CALIBER. THE LEARNED ACIT ERRED IN CONSIDERING PROFI T % AS 34.02%. 3. ERRONEOUS SELECTION OF COMPARABLE COMPANIES THE LEARNED ACIT ERRED IN FACTS AND CIRCUMSTANCES OF T HE CASE PURSUANT TO THE DIRECTIONS OF THE HON'BLE DRP IN CONF IRMING THE FOLLOWING AS COMPARABLE COMPANIES: 3.1 ACCENTIA TECHNOLOGIES LIMITED 3.2 CORAL HUB LIMITED 4. ERRONEOUS REJECTION OF COMPARABLE COMPANY THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF THE HO N'BLE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN REJECTING TRANSWORKS INFORMATION SERVICES LIMITED AS A COMPARABLE COMPANY. 7 5. ERRONEOUS CALCULATION OF OPERATING MARGIN O F COMPANIES SELECTED BY THE LEARNED TPO THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF THE HO N'BLE DRP HAS ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN COMPUTING THE OPERATING MARGIN OF TWO COMPANIES (NAMELY CROSSDOM AIN SOLUTIONS LTD. AND MAPLE ESOLUTIONS LTD.) SELECTED B Y THE LEARNED TPO WHILE ARRIVING AT A TRANSFER PRICING ADJUSTMENT. 6. ERRONEOUS SELECTION OF ITES COMPANIES UNLIK E BPO COMPANIES AS COMPARABLE TO THE APPELLANT WHICH IS I NTO BPO SERVICES THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF HON'B LE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN SELECTION OF ITES COMPANIES UNLIKE THE APPELLANT WHIC H IS INTO BPO SEGMENT. 7. ERRONEOUS SELECTION OF OUTLIERS COMPANIES A S COMPARABLE TO THE APPELLANT THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF HON'B LE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN SELECTION OF OUTLIERS COMPANIES E.G. ACCENTIA TECHNOLO GIES LTD. AND CORAL HUBS LTD. (WITH OPERATING MARGIN ON COST OF 42. 70% AND 51.79% RESPECTIVELY), WHILE REJECTING TRANSWORKS INFOR MATION SERVICES LIMITED WITH OPERATING MARGIN ON COST OF NEG ATIVE 4.36%. 8. SEARCH MATRIX AND FAR ANALYSIS OF SEARCH CARRIED OU T BY THE LEARNED TRANSFER PRICING OFFICER ('TPO') NOT SH ARED THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF HON'B LE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN NOT SHARING WITH THE APPELLANT THE SEARCH MATRIX AND FUNCTIONAL ASSET AND RISK ANALYSIS ('FAR') CARRIED OUT BY THE LEARNED TPO FOR FRESH SEARCH OF CO MPARABLE COMPANIES DONE BY HIM. 9. INCORRECT CALCULATION OF WORKING CAPITAL AD JUSTMENT THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF THE HO N'BLE DRP HAS ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN COMPUTING THE WORKING CAPITAL ADJUSTMENT. 10. NON- CONSIDERATION OF RISK ADJUSTMENT TO THE APPELLANT THE LEARNED ACIT ERRED ON THE FACTS AND IN CIRCUMSTAN CES OF THE CASE PURSUANT TO THE DIRECTIONS OF THE HON'BLE DRP IN NON-GRANTING RISK ADJUSTMENT TO THE APPELLANT. 11. TRANSFER PRICING ADJUSTMENT WITHOUT GIVING B ENEFIT OF+/- 5 PER CENT THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF HON'B LE DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT GRANTING THE BENEFIT OF +/- 5 PERCENT AS PER PRO VISO TO SECTION 92C(2) OF THE ACT. 8 12. INITIATION OF PENALTY PROCEEDINGS. THE LEARNED ACIT ERRED ON THE FACTS AND IN LAW IN PR OPOSING TO INITIATE PENALTY PROCEEDINGS SECTION 271(1)(C) OF THE ACT, WITHOUT CONSIDERING THE FACTS OF THE CASE. 13.1 THE LEARNED ACIT HAS ERRED ON THE FACTS AND IN L AW BY LEVYING INTEREST UNDER SECTION 234B OF THE ACT, ON ACCOUNT OF THE UNANTICIPATED TRANSFER PRICING ADJUSTMENT MADE BY THE LEARNED TPO. 13.2 THE APPELLANT PLEADS THAT THE SHORTFALL IN ADVAN CE TAX HAS RESULTED IN VIEW OF THE TRANSFER PRICING ADJUSTMENT WH ICH HAVE BEEN OBJECTED IN THE GROUNDS ABOVE. 14. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PR EJUDICE TO THE OTHER. 15. THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR A DD TO THE GROUNDS OF APPEAL. 4. GROUNDS OF APPEAL NO.1, 12, 13, 14 AND 15 BEING GENERAL IN NATURE ARE DISMISSED. 5. SO FAR AS GROUNDS OF APPEAL NO.2 IS CONCERNED, T HE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO WHI LE COMPUTING THE OPERATING MARGIN OF CALIBER POINT BUSINESS SOLU TIONS LTD., HAS NOT REDUCED/APPORTIONED UNALLOCATED COST OF RS.3,96 ,39,162/- FOR WHICH THE MARGIN OF THE COMPARABLE HAS GONE UP TO 1 8.55% AS COMPARED TO THE CORRECT WORKING OF 8.70%. SINCE TH E UNALLOCATED COST OF RS.3,96,39,162/- HAS NEITHER BEEN REDUCED N OR APPORTIONED HE SUBMITTED THAT THE ISSUE MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO PASS APPROPRI ATE ORDERS BY APPORTIONING THE UNALLOCATED COST. 6. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJEC TION FOR THE SAME. WE ACCORDINGLY RESTORE GROUNDS OF APPEAL NO. 2 TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO APPORTI ON THE 9 UNALLOCATED COST OF RS.3,96,39,162/- AND DETERMINE THE WORKING OF MARGIN OF COMPARABLE AS PER LAW AFTER GIVING DUE OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND OF APPEAL NO.2 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7. SO FAR AS GROUNDS OF APPEAL NO. 3 IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ACCENTIA TE CHNOLOGIES LTD. AND CORAL HUBS LTD. HAVE DIFFERENT FUNCTIONALITY. WHILE ACCENTIA TECHNOLOGIES LTD. OFFERS SAAS SOFTWARE IN THE HRC A REA (HEALTH CARE RECEIVABLE CYCLE MANAGEMENT), AND CORAL HUBS L TD. IS ENGAGED IN THE BUSINESS OF DATA CONVERSION, E-PUBLI SHING AND CUSTOM APPLICATION DEVELOPMENT SERVICE. 7.1 REFERRING TO THE DECISION OF THE BANGALORE BENC H OF THE TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTION S INDIA PVT.LTD. VS. ITO VIDE ITA NO.1316/BANG/2012 FOR A.Y . 208-09 AND THE DECISION OF THE HYDERABAD BENCH OF THE TRIB UNAL IN THE CASE OF HYUNDAI MOTORS INDIA ENGINEERING PVT. LTD. VS. I TO VIDE ITA NO.1850/HYD/2012 FOR A.Y. 2008-09 HE SUBMITTED THAT ACCENTIA TECHNOLOGIES LTD. HAS BEEN HELD AS NOT A COMPARABLE COMPANY. SIMILARLY, REFERRING TO THE DECISION IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA LTD., (SUPRA) AND THE DEC ISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF UNITED H EALTH GROUP INFORMATION SERVICES PVT. LTD. VS. ACIT VIDE ITA NO.6312/DEL/2012 FOR A.Y. 2008-09 HE SUBMITTED THAT CORAL HUBS LTD., (FORMERLY KNOWN AS VISHAL INFORMATION TECHNOL OGIES LTD.,) HAS BEEN HELD TO BE NOT A COMPARABLE. HE SUBMITTED THAT IN CASE THE 10 ABOVE 2 COMPANIES ARE EXCLUDES FROM THE LIST OF COM PARABLES, THE ASSESSEE FALLS WITHIN +/- 5% AND THEREFORE THERE WI LL BE NO ADDITION. 8. THE LD. DEPARTMENTAL REPRESENTATIVE WHILE SUPPOR TING THE ORDER OF THE ASSESSING OFFICER FAIRLY CONCEDED THAT THE ABOVE 2 COMPANIES HAVE BEEN HELD TO BE NOT COMPARABLE BY TH E DECISIONS OF VARIOUS BENCHES OF THE TRIBUNAL. 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER/ TPO/DRP. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BE FORE US. WE FIND THE BANGALORE BENCH OF THE TRIBUNAL, FOLLOWING THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF CAPI TAL IQ INFORMATION SYSTEMS INDIA PVT. LTD. HELD THAT CERTA IN EXTRAORDINARY EVENTS TOOK PLACE IN THE CASE OF ACCENTIA TECHNOLOG IES LTD. FOR WHICH IT WARRANTS EXCLUSION OF THIS COMPANY AS A CO MPARABLE. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PAGES 6 TO 9 OF THE ORDER READ AS UNDER : (1) ACCENTIA TECHNOLOGIES LTD. (SEG.) 10. THIS WAS CONSIDERED AS A COMPARABLE BY THE TPO AND LISTED AT SL.NO.1 OF THE COMPARABLE COMPANIES CHOSEN BY THE TP O. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE FACT THAT THERE ARE EXTRA ORDINARY EVENTS THAT OCCURRED DURING THE P REVIOUS YEAR IN THIS COMPANY. OUR ATTENTION WAS DRAW TO THE ANNUAL RE PORT OF THIS COMPANY FOR THE A.Y. 2007- 08 WHEREIN THE FACT THAT THIS COMPANY HAD ACQUIRED THUNGA SOFTWARE PVT. LTD., GSR PHYSICIA NS BILLING SERVICES INC., GSR SYSTEMS INC. AND DENMED INC. IS MENT IONED. OUR ATTENTION WAS ALSO DRAWN TO THE DECISION OF THE HYDERA BAD ITAT BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS I NDIA ITA NO.1316/BANG/2012 PVT. LTD. V. DCIT [ 2013] 32 TAXM AN.COM 21 (HYD. TRIB). IN THE AFORESAID DECISION, THE HYDERABAD BENCH OF THE TRIBUNAL HAD TO DEAL WITH A CASE OF DETERMINATION OF ALP IN THE CASE OF AN ASSESSEE WHO WAS PROVIDING ITES BUSINESS SUPPORT SERVIC ES FOR THE A.Y. 2007-08. THE TPO HAD CONSIDERED ACCENTI A TECHNOLOGIES LTD. AS A COMPARABLE. THE DRP HOWEVER HE LD THAT THE 11 SAID COMPANY CANNOT BE COMPARED AS A COMPARABLE OWING TO EXTRA ORDINARY EVENTS THAT TOOK PLACE DURING THE PREVIOUS Y EAR. THE TRIBUNAL UPHELD THE ORDER OF THE DRP OBSERVING AS FOL LOWS:- 'I. ACCENTIA TECHNOLOGIES LTD. 10. IT IS THE SUBMISSION OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TREATED AS A COMPARABLE BECAUSE OF UNCOMPARABLE FINANCIAL RESULTS ARISING OUT OF AMALGAMATION IN THE COMPANY. IN THIS REGARD, THE ASSESSEE HAS RELIED UPON THE ORDER OF THE DRP FOR T HE ASSESSMENT YEAR 2008-09 IN ASSESSEE'S OWN CASE. IT IS SEEN THA T THE DRP WHILE CONSIDERING SIMILAR OBJECTION PLACED BY THE ASSESSE E IN THE CASE OF ANOTHER COMPANY, VIZ. MOLD TEK TECHNOLOGIES LTD., I N THE PROCEEDINGS RELATING TO THE ASSESSMENT YEAR 2008-09, HAS OBSERV ED IN THE FOLLOWING MANNER- '17.5. IN ADDITION TO THE ABOVE, THE DIRECTOR'S RE PORT OF THE COMPANY FOR THE FY 2007-08 REVEALED THE MERGER AND THE DEME RGER. A COMPANY KNOWN AS TECHMEN TOOLS PVT. LTD. HAD AMALGAMATED WI TH MOLD-TEK TECHNOLOGIES LTD. WITH EFFECT FORM 1ST OCTOBER, 200 6. THERE WAS A DE- MERGER OF PLASTIC DIVISION OF THE COMPANY AND THE R ESULTING COMPANY IS KNOWN AS MOLDTEK PLASTICS LIMITED. THE DE-MERGER FR OM THE MOLDTEK TECHNOLOGIES TOOK PLACE WITH EFFECT FROM 1ST APRIL, 2007. THE MERGER AND THE DE- MERGER NEEDED THE APPROVAL OF THE HON'B LE HIGH COURT OF ANDHRA PRADESH AND ALSO THE APPROVAL OF THE SHAREHO LDERS. THE SHAREHOLDERS OF THE COMPANY GAVE APPROVAL FOR T HE MERGER AND THE DE-MERGER ON 25.01.2008 AND THE HON'BLE HIGH CO URT OF ANDHRA PRADESH HAD APPROVED THE MERGER AND DE-MERGER ON 25 TH JULY, 2008. SUBSEQUENTLY, THE ITA NO.1316/BANG/2012 ACCOUNTS OF MOLDTEK TECHNOLOGIES FOR FY 2007-08 WERE REVISED. ON A PERU SAL OF THE ANNUAL REPORT IT IS NOTICED THAT TECKMEN TOOLS PVT. LTD. A ND THE PLASTIC DIVISION OF THE COMPANY WERE DEMERGED AND THE RESULTING COMP ANY WAS NAMED AS MOLDTEK PLASTICS LTD. THE KPO BUSINESS REMAINED WITH THE COMPANY. A PERUSAL OF THE ANNUAL REPORT REVEALED TH AT TO GIVE EFFECT TO THE MERGER AND DEMERGER, THE FINANCIAL STATEMENTS W ERE REVISED AND RESTATED AFTER SIX MONTHS FORM THE END OF THE FINAN CIAL YEAR 31.3. 2008. THE ASSESSEE FILED FORM NO.21 UNDER THE COMPANIES A CT WITH THE REGISTRAR OF COMPANIES ON 26TH AUGUST, 2008. THUS T HE EFFECTIVE DATE OF THE SCHEME OF MERGER AND DEMERGER WAS 26TH AUGUS T, 2008. THE ANNUAL REPORT SUPPORTED THE ARGUMENT OF THE ASSESSE E THAT THERE WERE MERGER AND DEMERGER IN THE FINANCIAL YEAR AND IT WA S AN EXCEPTIONAL YEAR OF PERFORMANCE AS FINANCIAL STATEMENTS WERE RE VISED BY THIS COMPANY MUCH AFTER THE CLOSURE OF THE PREVIOUS YEAR . THE PANEL AGREES WITH THE CONTENTION OF THE ASSESSEE THAT IT IS AN EXCEPTIONAL YEAR HAVING SIGNIFICANT IMPACT ON THE PROFITABILITY ARISING OUT OF MERGER AND DEMERGER.' 11. ON CAREFUL CONSIDERATION OF THE MATTER, WE ALS O AGREE WITH THE AFORESAID VIEW OF THE DRP THAT EXTRA-ORDINARY EVENT LIKE MERGER AND DE-MERGER WILL HAVE AN EFFECT ON THE PROFITABILITY OF THE COMPANY IN THE FINANCIAL YEAR IN WHICH SUCH EVENT TAKES PLACE. IT IS THE CONTENTION OF THE ASSESSEE THAT IN CASE OF THE AFORESAID COMPANY, THERE IS AMALGAMATION IN DECEMBER, 2006, WHICH HAS IMPACTED THE FINANCIAL RESULT. THIS FACT HAS TO BE VERIFIED BY THE TPO. IF IT IS FOUND UPON SUCH VERIFICATION THAT THE AMALGAMATION IN FACT HAS TAKE N PLACE, THEN THE AFORESAID COMPARABLE HAS TO BE EXCLUDED.' 11. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUN SEL FOR THE ASSESSEE AND ARE OF THE VIEW THAT THE RATIO LAID DO WN BY THE HYDERABAD BENCH OF THE ITAT IS SQUARELY APPLICABLE TO THE PRESENT CASE ALSO. IT IS CLEAR THAT DURING THE PREVIOUS YEAR T HERE WERE EXTRA ORDINARY EVENTS THAT TOOK PLACE IN THIS COMPANY WHICH WARRANTS 12 EXCLUSION OF THIS COMPANY AS A ITA NO.1316/BANG/2012 COMPARABLE. WE THEREFORE HOLD THA T THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. 9.1 SIMILARLY, WE FIND THE HYDERABAD BENCH OF THE T RIBUNAL IN THE CASE OF HYUNDAI MOTORS INDIA ENGINEERING PVT. L TD. (SUPRA) FOLLOWING THE DECISION OF THE BANGALORE BENCH OF TH E TRIBUNAL HAS HELD THAT ACCENTIA TECHNOLOGIES LTD. WARRANTS EXCLU SION AS A COMPARABLE DUE TO THE HAPPENING OF CERTAIN EXTRAORD INARY EVENTS IN THIS COMPANY DURING THE IMPUGNED ASSESSMENT YEAR. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PAGES 7 TO 9 OF TH E ORDER READ AS UNDER : I. ACCENTIA TECHNOLOGIES LTD. (SEG.) THIS WAS CONSIDE RED AS A COMPARABLE BY THE TPO AND LISTED AT SL.NO.1 OF THE C OMPARABLE COMPANIES CHOSEN BY THE TPO. THE LD. COUNSEL FOR THE A SSESSEE DREW OUR ATTENTION TO THE FACT THAT THERE ARE EXTRA ORDINARY EVENTS THAT OCCURRED DURING THE PREVIOUS YEAR IN THIS COMPAN Y. OUR ATTENTION WAS DRAWN TO THE ANNUAL REPORT OF THIS COMP ANY FOR THE A.Y. 2007- 08 WHEREIN THE FACT THAT THIS COMPANY HA D ACQUIRED THUNGA SOFTWARE PVT. LTD., GSR PHYSICIANS BILLING SER VICES INC., GSR SYSTEMS INC. AND DENMED INC. WAS MENTIONED. OUR ATTENT ION WAS ALSO DRAWN TO THE DECISION OF THE HYDERABAD ITAT BENC H IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS INDIA ITA NO.1316/B ANG/2012 PVT. LTD. V. DCIT [ 2013] 32 TAXMAN.COM 21 (HYD. TR IB). IN THE AFORESAID DECISION, THE HYDERABAD BENCH OF THE TRIBUN AL HAD TO DEAL WITH A CASE OF DETERMINATION OF ALP IN THE CASE OF AN ASSESSEE WHO WAS PROVIDING ITES BUSINESS SUPPORT SERVICES FOR THE A.Y. 2007-08. THE TPO HAD CONSIDERED ACCENTIA TECHNOLOGIES LTD. AS A COMPARABLE. THE DRP HOWEVER HELD THAT THE SAID COMPA NY CANNOT BE COMPARED AS A COMPARABLE OWING TO EXTRA ORDINARY EVENTS THAT TOOK PLACE DURING THE PREVIOUS YEAR. THE TRIBUNAL UP HELD THE ORDER OF THE DRP OBSERVING AS FOLLOWS :- 'I. ACCENTIA TECHNOLOGIES LTD. 10. IT IS THE SUBMISSION OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TREATED AS A COMPARABLE BECAUSE OF UNCOMPARABLE FINANCIAL RESULTS ARISING OUT OF AMALGAMATION IN THE COMPANY. IN THIS REGARD, THE ITA.NO.1850/HYD/2012 HYUNDAI MOTORS INDIA ENGIN EERING P. LTD. ASSESSEE HAS RELIED UPON THE ORDER OF THE DRP FOR T HE ASSESSMENT YEAR 2008-09 IN ASSESSEE'S OWN CASE. IT IS SEEN THA T THE DRP WHILE CONSIDERING SIMILAR OBJECTION PLACED BY THE ASSESSE E IN THE CASE OF ANOTHER COMPANY, VIZ. MOLD TEK TECHNOLOGIES LTD., I N THE PROCEEDINGS RELATING TO THE ASSESSMENT YEAR 2008-09, HAS OBSERV ED IN THE FOLLOWING MANNER- 13 '17.5. IN ADDITION TO THE ABOVE, THE DIRECTOR'S RE PORT OF THE COMPANY FOR THE FY 2007-08 REVEALED THE MERGER AND THE DEME RGER. A COMPANY KNOWN AS TECHMEN TOOLS PVT. LTD. HAD AMALGAMATED WI TH MOLD-TEK TECHNOLOGIES LTD. WITH EFFECT FORM 1ST OCTOBER, 200 6. THERE WAS A DE- MERGER OF PLASTIC DIVISION OF THE COMPANY AND THE R ESULTING COMPANY IS KNOWN AS MOLDTEK PLASTICS LIMITED. THE DE-MERGER FR OM THE MOLDTEK TECHNOLOGIES TOOK PLACE WITH EFFECT FROM 1ST APRIL, 2007. THE MERGER AND THE DE- MERGER NEEDED THE APPROVAL OF THE HON'B LE HIGH COURT OF ANDHRA PRADESH AND ALSO THE APPROVAL OF THE SHAREHO LDERS. THE SHAREHOLDERS OF THE COMPANY GAVE APPROVAL FOR THE M ERGER AND THE DE- MERGER ON 25.01.2008 AND THE HON'BLE HIGH COURT OF ANDHRA PRADESH HAD APPROVED THE MERGER AND DE-MERGER ON 25TH JULY, 2008. SUBSEQUENTLY, THE ITA NO.1316/BANG/2012 ACCOUNTS OF MOLDTEK TECHNOLOGIES FOR FY 2007-08 WERE REVISED. ON A PERU SAL OF THE ANNUAL REPORT IT IS NOTICED THAT TECKMEN TOOLS PVT. LTD. A ND THE PLASTIC DIVISION OF THE COMPANY WERE DEMERGED AND THE RESULTING COMP ANY WAS NAMED AS MOLDTEK PLASTICS LTD. THE KPO BUSINESS REMAINED WITH THE COMPANY. A PERUSAL OF THE ANNUAL REPORT REVEALED TH AT TO GIVE EFFECT TO THE MERGER AND DEMERGER, THE FINANCIAL STATEMENTS W ERE REVISED AND RESTATED AFTER SIX MONTHS FORM THE END OF THE FINAN CIAL YEAR 31.3. 2008. THE ASSESSEE FILED FORM NO.21 UNDER THE COMPANIES A CT WITH THE REGISTRAR OF COMPANIES ON 26TH AUGUST, 2008. THUS T HE EFFECTIVE DATE OF THE SCHEME OF MERGER AND DEMERGER WAS 26TH AUGUS T, 2008. THE ANNUAL REPORT SUPPORTED THE ARGUMENT OF THE ASSESSE E THAT THERE WERE MERGER AND DEMERGER IN THE FINANCIAL YEAR AND IT WA S AN EXCEPTIONAL YEAR OF PERFORMANCE AS FINANCIAL STATEMENTS WERE RE VISED BY THIS COMPANY MUCH AFTER THE CLOSURE OF THE PREVIOUS YEAR . THE PANEL AGREES WITH THE CONTENTION OF THE ASSESSEE THAT IT IS AN EXCEPTIONAL YEAR HAVING SIGNIFICANT IMPACT ON THE PROFITABILITY ARISING OUT OF MERGER AND DEMERGER.' 11. ON CAREFUL CONSIDERATION OF THE MATTER, WE ALSO AGREE WITH THE AFORESAID VIEW OF THE DRP THAT EXTRA-ORDINARY EV ENT LIKE MERGER AND DE-MERGER WILL HAVE AN EFFECT ON THE PROFITABIL ITY OF THE COMPANY IN THE FINANCIAL YEAR IN WHICH SUCH EVENT TA KES PLACE. IT IS THE CONTENTION OF THE ASSESSEE THAT IN CASE OF THE AFORE SAID COMPANY, THERE IS AMALGAMATION IN DECEMBER, 2006, WH ICH HAS IMPACTED THE FINANCIAL RESULT. THIS FACT HAS TO BE VER IFIED BY THE TPO. IF IT IS FOUND UPON SUCH VERIFICATION THAT THE A MALGAMATION IN FACT AHS TAKEN PLACE, THEN THE AFORESAID COMPARABLE H AS TO BE EXCLUDED.' WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND ARE OF THE VIEW THAT THE RATIO LAID DOWN B Y THE HYDERABAD BENCH OF THE ITAT IS SQUARELY APPLICABLE TO THE PRESENT CASE ALSO. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF SY MPHONY MARKETING SOLUTIONS INDIA(P) LTD (SUPRA) BY THE BANGA LORE BENCH. IT IS CLEAR THAT DURING THE PREVIOUS YEAR THERE WERE EXT RA ORDINARY EVENTS THAT TOOK PLACE IN THIS COMPANY WHICH WARRANTS EXCLUSION OF THIS COMPANY AS A COMPARABLE. WE THEREFORE HOLD THAT THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. 9.2 RESPECTFULLY FOLLOWING THE DECISIONS OF THE BAN GALORE AND HYDERABAD BENCHES OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, WE HOLD THAT ACCENT IA TECHNOLOGIES 14 LTD. CANNOT BE TAKEN AS A COMPARABLE DUE TO HAPPENI NG OF CERTAIN EXTRAORDINARY EVENTS DURING THE IMPUGNED ASSESSMENT YEAR. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO EXCLUDE THE SAID COMPANY AS A COMPARABLE. 9.3 SO FAR AS CORAL HUBS LTD. (FORMERLY KNOWN AS VI SHAL INFORMATICS TECHNOLOGIES LTD.,) IS CONCERNED WE FIN D THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SYMPHONY MARKE TING SOLUTIONS INDIA PVT. LTD. (SUPRA) HAS HELD CORAL HU BS LTD. CANNOT BE CONSIDERED AS A COMPARABLE. THE RELEVANT OBSERV ATION OF THE TRIBUNAL FROM PAGES 10 TO 14 READ AS UNDER : (3) CORAL HUBS LTD. 14. THIS COMPANY IS LISTED AT SL.NO.6 OF THE LIST OF CO MPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CO NCERNED, IT IS SEEN THAT THIS COMPANY WAS EARLIER KNOWN AS VISH AL INFORMATION TECHNOLOGIES LTD. THE COMPARABILITY OF T HIS COMPANY IN THE CASE OF AN ITES COMPANY BY NAME 24 X 7 CUSTOM ER.COM PVT. LTD. WAS CONSIDERED BY ITA NO.1316/BANG/2012 THE TRIB UNAL IN ITA NO.227/BANG/2010 AND BY ORDER DATED 09.11.2012 THE TRIBUNAL HELD THAT THIS COMPANY IS NOT FUNCTIONALLY C OMPARABLE WITH ITES FOR THE FOLLOWING REASON:- '17.3 VISHAL INFORMATION TECHNOLOGIES LTD. (VIT) - IN THE CASE OF THIS COMPARABLE, WE FIND THAT THE MUMBAI TRIBUNAL IN THE CASE OF MEARSK GLOBAL SERVICES (I) PVT LTD IN ITA NO.3774/MU M/2011 BY ORDER DT.9.11.2011 HAS HELD THAT SINCE VISHAL INFORMAT ION TECHNOLOGIES LTD IS OUTSOURCING MOST OF ITS WORK IT HAS TO BE EXCLUDED FROM THE LIST WHEREAS THE ASSESSEE IN THE CITED CASE WAS CARRYING OUT THE WORK BY ITSELF. IN THE INSTANT CASE OF THE ASSESSEE ALSO THE ASSESSEE WAS CARRYING OUT ITS WORK BY ITSELF WHERE AS IN THE CASE OF VITL, IT IS OUTSOURCING MOST OF ITS WORK. WE ARE THEREFORE OF THE CONSIDERED OPINION THAT THE DECISION OF THE ITAT, MUMBAI IN THE CITED CASE ON THE ISSUE OF EXCLUDING VITL AS A COMPARAB LE SQUARELY APPLIES. THIS DECISION WAS FOLLOWED BY THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NETLI NX INDIA(P) LTD IN ITA NO.454/BANG/2011 DT.19.10.2012 WHEREIN IT WAS HE LD THAT VISHAL INFORMATION TECHNOLOGIES LTD CANNOT BE CONSIDER ED AS A COMPARABLE. WE, THEREFORE, RESPECTFULLY FOLLOWING TH E DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF MEARSK GLOBAL SERV ICES (I) PVT LTD, DIRECT THE ASSESSING OFFICER / TPO TO EXCLUDE VISH AL INFORMATION TECHNOLOGIES LTD. FROM THE LIST OF COMPAR ABLES.' 15 15. FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE HOLD THAT CORAL HUBS LTD. CANNOT BE CONSIDERED AS A C OMPARABLE. IT MAY ALSO BE RELEVANT TO POINT OUT THAT THE TPO IN HI S ORDER HAS OBSERVED THAT THIS COMPANY IS RETAINED AS A COMPARABLE ON THE BASIS OF DETAILED DISCUSSION IN THE TP ORDER FOR THE A. Y. 2007-08. IN FACT IN A.Y. 2007-08, THERE WAS NO DETERMINATION OF ALP AND THEREFORE THERE WAS NO OCCASION FOR ANY ORDER BEING P ASSED BY THE TPO. IT IS ALSO SEEN THAT THIS COMPANY ENTERED INTO AN AREA OF BUSINESS KNOWN AS NEW VERTICAL DIGITAL LIBRARY & PRINT ON DEMAND IN F.Y. 2007-08. IN THE CASE OF CAPITAL IQ INFORMATI ON SYSTEMS INDIA PVT. LTD. (SUPRA), THE ITAT HYDERABAD BENCH IN THE C ASE OF ITES COMPANY CONSIDERED THE COMPARABLE OF THIS COMPANY AS A N ITES COMPANY AND HELD AS FOLLOWS:- 'IV. CORAL HUB LIMITED (EARLIER KNOWN AS VISHAL INFO RMATION TECHNOLOGIES LTD.): 16. THE ASSESSEE HAS OBJECTED FOR THIS COMPANY BEING TAKE N AS COMPARABLE MAINLY ON THE GROUND THAT THE ACTIVITIES OF THE COMPANY IS NOT ONLY FUNCTIONALLY DIFFERENT, BUT THE BUSINESS MO DEL OF THE COMPANY IS ALSO DIFFERENT AS IT SUB-CONTRACTS MAJORITY O F ITS ITES WORKS TO THIRD PARTY VENDORS AND HAS ALSO MADE SIGNIFICA NT PAYMENTS TO THOSE VENDORS. THE PAYMENTS MADE TO VENDORS TOWARDS THE DATA ENTRY CHARGES ALSO SUPPORTS THE FACT T HAT THE COMPANY OUTSOURCES ITS WORKS. IN THE CIRCUMSTANCES, IT C ANNOT BE TAKEN AS A COMPARABLE TO THE ITES FUNCTIONS PERFORMED BY THE ASSESSEE. SINCE THIS COMPANY IS ACTING AS AGENT ONLY BY OU TSOURCING ITS WORKS TO THE THIRD PARTY VENDORS. IN THIS CONTEXT, THE ASSESSEE RELIED UPON THE ORDER OF THE DRP IN ASSESSEE'S OWN CASE F OR THE ASSESSMENT YEAR 2008-09, WHEREIN THE DRP, AFTER TAKING INTO CONSIDERATION, THE AFORESAID ASPECT, HAS ACCEPTED THE C LAIM OF THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED THAT THE INCOME-TAX APPELLATE TRIBUNAL MUMBAI BENCH IN THE CASE OF ASSTT. CIT V. MAERSK GLOBAL SERVICE CENTRE (INDIA) (P.) LTD. [2011 ] 133 ITD 543/16 TAXMANN.COM 47 (MUM.), A COPY OF WHICH IS SUBM ITTED BEFORE US, HAS ALSO DIRECTED FOR THE EXCLUSION OF THE AFORESAID COMPANY SINCE IT HAS OUTSOURCED A CONSIDERABLE PORTION OF ITS BUSINESS. 17. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNED AUT HORISED REPRESENTATIVE FOR THE ASSESSEE, WE FIND THAT THE DRP, I N THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2008-09 IN ASSESSEE'S OW N CASE, AFTER TAKING NOTE OF THE COMPOSITION OF THE VEN DOR PAYMENTS OF CORAL HUB FOR THE LAST THREE YEARS, AND THE FACT T HAT IT HAS ALSO COMMENCED A NEW LINE OF BUSINESS OF PRINTING ON DEMAND (POD), WHEREIN IT PRINTS UPON CLIENTS REQUEST, CONCLUDED AS FO LLOWS- '18.4. IN VIEW OF THIS MAJOR DIFFERENCE IN FUNCTIONA LITY AND THE BUSINESS MODEL, THIS PANEL IS OF THE VIEW THAT 'CORAL H UB' IS NOT A SUITABLE COMPARABLE TO THE TAXPAYER AND HENCE NEEDS T O BE DROPPED FROM THE FINAL LIST OF COMPARABLES.' IN CASE OF MAERSK GLOBAL SERVICE CENTRE INDIA (P.) LTD . (SUPRA), THE ITAT MUMBAI BENCH HAS ALSO DIRECTED FOR EXCLUSION OF T HE AFORESAID COMPANY, BY OBSERVING IN THE FOLLOWING MANNER- 'INSOFAR AS THE CASES OF TULSYAN TECHNOLOGIES LIMITED A ND VISHAL INFORMATION TECHNOLOGIES LIMITED ARE CONCERNED, IT IS NOTICED FROM 16 THEIR ANNUAL ACCOUNTS THAT THESE COMPANIES OUTSOURCED A CONSIDERABLE PORTION OF THEIR BUSINESS. AS THE ASSESSEE CARR IED OUT ENTIRE OPERATIONS BY ITSELF, IN OUR CONSIDERED OPINION , THESE TWO CASES WERE RIGHTLY EXCLUDED.' IN VIEW OF THE OBSERVATIONS MADE BY THE DRP AS WELL AS THE DECISION OF THE ITAT MUMBAI IN THE CASE OF MAERSK GLOBAL SERVI CE CENTRE, (SUPRA), WE ACCEPT THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE.' 16. IT IS ALSO FURTHER NOTICED THAT THE EMPLOYEE COST/ OPERATING SALES OF THIS COMPANY IS A MERE 3%, WHEREAS THE THRESHOLD LI MIT FOR ACCEPTANCE AS A COMPARABLE ON THE BASIS OF EMPLOYEE CO ST TO SALES SHOULD BE AT LEAST 25%. THIS TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES LTD. V. CIT, IT(TP)A NO.1086/BANG/2 011, ORDER DATED 30.4.2013, HAS TAKEN THE FOLLOWING VIEW:- '36. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THEIR RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIN D THAT THIS ISSUE HAD ARISEN IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2006-07. THIS TRIBUNAL HAS HELD THAT EMPLOYEE COST FIL TER IS TO BE THE SAME EVEN FOR ITES SEGMENT ALSO. THE LEARNED DR'S A RGUMENT THAT THE EMPLOYEE COST FILTER IS APPLICABLE ONLY TO SO FTWARE DEVELOPMENT SEGMENT AND NOT TO ITES SEGMENT IS NOT ACC EPTABLE. THOUGH IT IS WITHOUT ANY DISPUTE THAT THE SOFTWARE DEV ELOPMENT WOULD REQUIRE SKILLED EMPLOYEES AND, THEREFORE, THE E MPLOYEE COST WOULD DEFINITELY BE MORE THAN 25% OF THE TOTAL EXPE NSES, IT CANNOT BE SAID THAT THE SAID FILTER IS NOT APPLICABLE TO ITES SEGMENT, WHERE COMPARABLY LESS SKILLED EMPLOYEES ARE EMPLOYED. IN THE ITES SEGMENT, THE ENTIRE WORK IS TO BE DONE BY THE EMPLOYE ES AND, THEREFORE, EVEN THOUGH THEY MAY BE LESS SKILLED COMPAR ED TO SOFTWARE DEVELOPMENT SEGMENT, THE NUMBER OF EMPLOYEES WOULD DEFINITELY BE MORE AND THUS THE EMPLOYEE COST WOULD B E HIGH AND THUS APPLICATION OF EMPLOYEE COST FILTER TO THE ITES SECTOR IS ALSO JUSTIFIED. IN VIEW OF THE SAME, WE DIRECT THE TPO TO APPLY THE EMPLOYEE COST FILTER TO EXCLUDE COMPANIES WITH EMPLOY EE COST OF LESS THAN 25% FROM THE LIST OF COMPARABLES FOR THE COMP UTATION OF ALP.' 17. APPLYING THE AFORESAID DECISIONS, WE ARE OF THE V IEW THAT CORAL HUBS LTD. CANNOT BE CONSIDERED AS A COMPARABLE. 9.4 SIMILARLY, THE DELHI BENCH OF THE TRIBUNAL IN T HE CASE OF UNITED HEALTH GROUP INFORMATION SERVICES PVT. LTD., (SUPRA) HAS ALSO HELD VISHAL INFORMATIONAL TECHNOLOGIES LTD. (N OW CORAL HUBS LTD.,) AS NOT COMPARABLE SINCE IT IS ENGAGED IN E-P UBLISHING BUSINESS. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM AT PAGES 9 AND 10 OF THE ORDER READ AS UNDER : 17 VISHAL INFORMATICS 12.1. THE TPO INCLUDED THIS COMPANY IN THE LIST OF C OMPARABLES BY NOTICING THAT IT WAS ENGAGED IN PROVIDING BPO SERVICE S. THE ASSESSEE FAILED TO CONVINCE HIM AND THE DRP THAT IT WAS INCOMPARABLE. 12.2. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL REPORT OF THIS COMPANY THAT IT IS MAINLY ENGAGED IN E-PUBLISHING BUSINESS. IT H AS MORE THAN 10,000 CLASSIC BOOKS TO ITS CREDIT WHICH ARE ALSO CONVER TED INTO LARGE FONT TITLES FOR VISUALLY CHALLENGED. APART FROM E-PUBLISHING, THIS COMPANY IS ALSO ENGAGED IN DOCUMENTS SCANNING & IND EXING. IT CAN BE SEEN FROM THE FINANCIAL RESULTS OF THIS COMPANY THAT BOTH THE SEGMENTS VIZ., E-PUBLISHING AND DOCUMENTS SCANNING ETC. HAVE BEEN COMBINED AND THERE ARE NO SEPARATE FINANCIAL RESULTS I N RESPECT OF DOCUMENTS SCANNING WORK, WHICH MAY BE COMPARABLE WITH THE ASSESSEE TO SOME EXTENT. AS THE ASSESSEE IS NOT ENGAGED IN AN Y E- PUBLISHING BUSINESS AND THE FINANCIALS GIVEN BY THIS COMP ANY ARE ON CONSOLIDATED BASIS, WE DIRECT TO EXCLUDE THIS COMPANY F ROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS. 9.5 SINCE THE ASSESSEE IN THE INSTANT CASE IS ADMIT TEDLY NOT ENGAGED IN E-PUBLISHING BUSINESS, THEREFORE, CORAL HUBS LTD. IN OUR OPINION CANNOT BE CONSIDERED AS COMPARABLE. IN VIE W OF THE 2 DECISIONS CITED (SUPRA) WE HOLD THAT CORAL HUBS LTD . CANNOT BE CONSIDERED AS A COMPARABLE. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO EXCLUDE CORAL HUBS LTD. ALSO FROM THE LI ST OF COMPARABLES. THE ASSESSING OFFICER IS DIRECTED TO DETERMINE THE ALP ACCORDINGLY. GROUNDS OF APPEAL NO.3 BY THE ASS ESSEE IS ACCORDINGLY ALLOWED. 10. GROUNDS OF APPEAL NO.4, 6, 8 TO 11 WERE NOT PRE SSED BY THE LD. COUNSEL FOR THE ASSESSEE BEING ACADEMIC IN NATU RE FOR WHICH THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCORDINGLY, THE ABOVE GROUNDS ARE DISMISSED BEING ACADEMIC IN N ATURE. 18 11. SO FAR AS GROUNDS OF APPEAL NO. 5 IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PARA 9.1 AND 9 .2 OF THE ORDER OF THE DRP WHICH READ AS UNDER : 9.1 THE ASSESSEE SUBMITTED THAT THE TPO HAS ERRONEOUSLY CONSIDERED NON-OPERATING EXPENDITURE OF FOREIGN EXCH ANGE LOSS AS OPERATING IN NATURE AND NON-OPERATING INCOME OF MI SCELLANEOUS INCOME AS OPERATING IN NATURE. WITH THE RESULT, NET COST PLUS MARKUP OF THE COMPARABLE NEEDS CORRECTION. THE ASSESSEE HAS RELIED ON THE FOLLOWING CASE LAWS. I. DHL EXPRESS INDIA PRIVATE LIMITED VS. ACIT (MUMBAI ITAT). II. CORDYS R&D (INDIA) PVT. LTD. VS. ACIT (HYDERABAD ITAT) 9.2 WE HAVE CONSIDERED THE OBJECTION OF THE ASSESSEE. WE AGREE WITH THE CONTENTION OF THE ASSESSEE THAT MISCELLANEOUS INCOME., OTHER INCOME, INTEREST ON FD, PROVISIONS WRITTEN BACK AND FOREIGN EXCHANGE/INCOME LOSS DO NOT FORM PART OF OP ERATING INCOME. WE DIRECT THE AO TO EXCLUDE ALL SUCH INCOME FROM COMPUTATION. 11.1 HE ACCORDINGLY SUBMITTED THAT SINCE MISCELLANE OUS INCOME OF CROSS DOMAIN SOLUTIONS LTD., AND FOREIGN EXCHANGE G AINS IN CASE OF MAPLE SOLUTIONS LTD., HAS BEEN CONSIDERED AS PAR T OF THE OPERATING REVENUE BY THE ASSESSING OFFICER/TPO DESP ITE THE DIRECTION GIVEN BY THE DRP TO EXCLUDE THE SAME FROM THE OPERATING INCOME, THEREFORE, APPROPRIATE DIRECTIONS MAY BE GI VEN TO THE ASSESSING OFFICER TO EXCLUDE THE SAME FROM THE OPER ATING INCOME. 12. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO FAIRLY CONCEDED THAT THE ASSESSING OFFICER IS BOUND TO OBEY THE DIR ECTION OF THE DRP. 12.1 IN VIEW OF THE DIRECTION OF THE DRP WHICH IS B INDING ON THE ASSESSING OFFICER, WE DIRECT HIM TO EXCLUDE THE MIS CELLANEOUS INCOME AND FOREIGN EXCHANGE GAINS FROM THE OPERATIN G INCOME OF 19 THE RESPECTIVE COMPANIES. GROUNDS OF APPEAL NO.5 B Y THE ASSESSEE IS ACCORDINGLY ALLOWED. 13. SO FAR AS GROUNDS OF APPEAL NO.7 IS CONCERNED, WE HAVE ALREADY DIRECTED THE ASSESSING OFFICER TO EXCLUDE A CCENTIA TECHNOLOGIES LTD. AND CORAL HUBS LTD., FROM THE LIS T OF COMPARABLES, THEREFORE, THIS GROUND IN OUR OPINION BECOMES INFRUCTUOUS. ACCORDINGLY, THIS GROUND BY THE ASSES SEE IS DISMISSED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 10-10-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEM BER PUNE DATED: 10 TH OCTOBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE DRP, PUNE 4. THE CIT-I, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE