M/s. Transcend India Pvt. Ltd., Bangalore V. DCIT, New Delhi

ITA 2388/DEL/2015

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2699 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 22-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VISHAL KALRA SHRI ANKIT SAHNI
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Wholly owned subsidiary; Set aside
• Section: 92C; 143(3); 92F; 234B; 144C; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.2388/DEL./2015 (ASSESSMENT YEAR : 2010-11) M/S. TRANSCEND INDIA PVT. LTD., VS. DCIT, CIRCLE 2 5 (2), (FORMERLY KNOWN AS SPRYANCE (INDIA) NEW DELHI. PVT. LTD.), PLOT 1/1, ARAKERE, BANNERGHATTA ROAD, BANGALORE 560 076. (PAN : AAGCS9759K) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI VISHAL KALRA, ADVOCATE SHRI ANKIT SAHNI, ADVOCATE REVENUE BY : SHRI ANUPAM KANT GARG, CIT DR DATE OF HEARING : 03.11.2020 DATE OF ORDER : 25.11.2020 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. TRANSCEND INDIA PVT. LTD. (TIPL) (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 28.01.2015 PASSED BY THE ASSESSING OFFICER (AO) IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH ITA NO.2388/DEL./2015 2 SECTION 144C OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2010-11 ON THE GROUNDS INTER AL IA THAT :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO HAS ERRED IN COMPLETING THE ASSESSMENT O F THE APPELLANT UNDER SECTION 143(3) READ WITH SECTION 14 4C(13) OF THE ACT, AT AN INCOME OF RS 4,32,10,640 AS AGAINST RETURNED INCOME OF RS 2,70,33,386 BY THE APPELLANT. 2. THE DRP, FURTHER, ERRED IN UPHOLDING THE SAID AC TION OF THE AO/ TRANSFER PRICING OFFICER ('TPO'). THAT ON T HE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, REFERENCE MADE BY THE AO TO THE TPO IS VOID AB-INITIO AND BAD IN LAW AS THE AO FAILED TO PROVIDE COPY OF APPROVAL GRANTED BY THE COMMISSIONER OF INCOME TAX AND AFFORDING ANY OPPORT UNITY OF BEING HEARD TO THE APPELLANT, IN VIOLATION OF THE P RINCIPLE OF NATURAL JUSTICE. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO ERRED IN MAKING A TRANSFER PRICING ADJUSTMENT OF INR 1,58,54,643 ON ACCOUNT OF PROVISI ON OF MEDICAL TRANSCRIPTION SERVICES ALLEGING THE SAME NO T TO BE AT ARM'S LENGTH IN TERMS OF THE PROVISIONS OF SECTION 92C OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 196 2 ('THE RULES'). 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO ERRED IN ARBITRARILY REJECT ING THE COMPARABLE COMPANIES AND MODIFYING THE COMPARABLE S ET SELECTED BY THE APPELLANT IN RELATION TO PROVISION OF MEDICAL TRANSCRIPTION SERVICES ALLEGING THEM TO BE FUNCTION ALLY INCOMPARABLE. 4.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AO / DRP / TPO ERRED IN ARBITRARILY REJECT ING/ MODIFYING THE SEARCH PROCESS AND THE FILTERS FOR TH E PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTION PERTAINI NG TO PROVISION OF MEDICAL TRANSCRIPTION SERVICES. 4.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AO / DRP / TPO ERRED IN ARBITRARILY SELECT ING COMPANIES WHICH WERE FUNCTIONALLY NOT COMPARABLE IN RELATION TO MEDICAL TRANSCRIPTION SERVICES, AND INTER ALIA H AVE HIGH TURNOVERS, ABNORMALLY HIGH MARGINS / SUPER PROFITS, ABNORMAL OR PECULIAR CIRCUMSTANCES AND/OR SUBSTANTIAL RELATE D PARTY TRANSACTIONS DURING THE GIVEN YEAR. ITA NO.2388/DEL./2015 3 5. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE AO / DRP / TPO HAVE ERRED IN NOT PROVID ING APPROPRIATE WORKING CAPITAL, COMPARABILITY, RISK AN D OTHER ECONOMIC ADJUSTMENTS AS REQUIRED UNDER RULE 10B(1)( E)(III) OF THE RULES. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO HAVE ERRED BY IGNORING THE PROVISIONS OF RULE 10B(4) OF THE RULES AND JUDICIAL PRONOUNCEM ENTS, WHICH ADVOCATES THE USAGE OF MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINATION OF THE ARM'S LENGTH PRICE AS DEFINED UNDER SECTION 92F OF THE AC T. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO FAILED TO UNDERSTAND AND AP PRECIATE INTENT AND SPIRIT OF RULE 10B(1)(E)(II) OF THE RULE S. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO ERRED IN NOT PROVIDING THE APPELLANT THE BENEFIT OF (+/-) 5% RANGE AS PROVIDED BY THE PR OVISO TO SECTION 92C(2) OF THE ACT. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN DIRECTING AND / OR CHARGIN G INTEREST UNDER SECTION 234B OF THE ACT. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. TRANSCEND INDIA PVT. LTD., THE TAXPAYER IS A WHOLLY OWNED SUBSIDIARY OF SPRYANCE I NC. (SPRYANCE USA) AND IS ENGAGED IN PROVIDING COORDINATION AND Q UALITY ASSURANCE SERVICES FOR THE MEDICAL TRANSCRIPTION WO RK OUTSOURCED TO HOME BASED MEDICAL TRANSCRIPTIONIST (HMTS) AND THIR D PARTY MEDICAL TRANSCRIPTION SERVICE PROVIDERS (SUPPLIERS) BY SPRYANCE USA. FOR THE SAID SERVICES, THE TAXPAYER WAS REMUN ERATED ON A TOTAL COST PLUS BASIS. ITA NO.2388/DEL./2015 4 3. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER E NTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (AE) AS UNDER :- S.NO. NATURE OF TRANSACTION VALUE (RS.) METHOD APPLIED 1 MEDICAL TRANSCRIPTION, QUALITY ASSURANCE AND RELATED SERVICES 217,958,433 TNMM 2 RECOVERY OF EXPENSES 259.193 CUP 4. THE TAXPAYER TO BENCHMARK ITS INTERNATIONAL TRAN SACTION APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH OPERATING PROFIT/OPERATING COST (OP/OC) AS THE PROF IT LEVEL INDICATOR (PLI) SELECTED SIX COMPARABLES WITH MEAN MARGIN OF 11.86% AS AGAINST TESTED PARTY MARGIN OF 24.08% AND FOUND ITS TRANSCRIPTION QUA MEDICAL TRANSACTION, QUALITY INSU RANCE AND RELATED SERVICES AT ARMS LENGTH. 5. LD. TPO, AFTER APPLYING VARIOUS FILTERS, DISCUSS ED IN PARA 9 OF THE TP ORDER ACCEPTED TNMM WITH OP/OC AS THE PLI AS THE MOST APPROPRIATE METHOD (MAM), REJECTED FIVE COMPARABLES CHOSEN BY THE TAXPAYER OUT OF SIX AND INTRODUCED TEN NEW COMP ARABLES TO BENCHMARK THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE TAXPAYER WITH ITS AE QUA PROVISIONS OF IT ENABLED S ERVICES (ITES). LD. TPO COMPUTED THE MEAN MARGIN OF FINALLY SELECTE D 11 COMPARABLES AT 35.13% AND PROPOSED UPWARD ADJUSTMEN T OF RS.1,94,02,855/-. ITA NO.2388/DEL./2015 5 6. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. D RP BY WAY OF FILING OBJECTIONS WHO HAS PARTLY ALLOWED THE SAM E AND HAVE ALSO CREDITED COMPUTATIONAL ERROR IN THE COMPUTATIONAL M ARGIN OF SEVEN COMPARABLES FROM 63.38% AS PER TRANSFER PRICING ORD ER TO 61.22%. LD. DRP ALSO PROVIDED WORKING CAPITAL ADJUSTMENT TO THE TAXPAYER. CONSEQUENTLY, THE AO MADE UPWARD ADJUSTMENT ON ACCO UNT OF ARMS LENGTH PRICE QUA PROVISION OF ITES TO THE TUN E OF RS.1,58,54,643/-. FEELING AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE APPEAL. 7. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUND NO.1 8. GROUND NO.1 IS GENERAL IN NATURE, HENCE DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. GROUND NO.2 9. GROUND NO.2 IS DISMISSED HAVING NOT BEEN PRESSED DURING THE COURSE OF ARGUMENTS. GROUNDS NO.3 & 4 10. UNDISPUTEDLY, TNMM WITH OP/TC AS THE PLI APPLIE D BY THE TAXPAYER TO BENCHMARK ITS INTERNATIONAL TRANSACTION S QUA PROVISION ITA NO.2388/DEL./2015 6 OF ITES HAS BEEN ACCEPTED BY THE TPO. AFTER DRP OR DER, FOLLOWING COMPANIES HAVE BEEN FINALLY SELECTED AS C OMPARABLE TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS WHICH ARE AS UNDER :- S.NO. COMPANY OP/OC (%) ADJUSTED OP/TC (%) 1 ACCENTIA TECHNOLOGY LTD. 43.07 46.62 2 COSMIC GLOBAL LTD. 18.29 26.71 3 E4E HEALTHCARE 31.03 37.98 4 FORTUNE INFOTECH LTD. 22.78 27.80 5 I-GATE GLOBAL LTD. 24.54 30.52 6 INFOSYS BPO LTD. 31.45 36.58 7 JINDAL INTELLICOM LTD. 13.62 21.38 8 MICROLAND LIMITED -3.11 4.14 9 OMEGA HEALTHCARE 15.31 21.15 10 TCS E-SERVE INTERNATIONAL LTD. 53.80 61.85 11 TCS E-SERVE LTD. 63.38 71.69 MEAN MARGIN 28.56 35.13 11 BY TAKING ADJUSTMENT OF OP/TC AT 35.13%, THE ARM S LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS PE RTAINING TO ITES IS DETERMINED AS UNDER :- OPERATING COST 17,56,54,028 ARMS LENGTH OP/TC MARGIN (%) 35.13% ARMS LENGTH MARGIN (RS.) 6,17,07,260 ARMS LENGTH PRICE 23,73,61,288 PRICE CHARGED BY THE ASSESSEE 21,79,58,433 105% OF PRICE CHARGED IN INTERNATIONAL TRANSACTION 22,88,56,355 ADJUSTMENT TO BE MADE 1,94,02,855 12. BY WAY OF FILING PRESENT APPEAL, THE TAXPAYER H AS SOUGHT EXCLUSION OF FIVE COMPANIES VIZ. ACCENTIA TECHNOLOGIES LIMITED, I-GATE GLOBAL SOLUTIONS LTD., INFOSYS BPO LTD., TCS ITA NO.2388/DEL./2015 7 E-SERVE INTERNATIONAL LTD. & TCS E-SERVE LTD. AND SOUGHT INCLUSION OF R. SYSTEM INTERNATIONAL LTD. ON GROUND OF FUNCTIONAL DISSIMILARITY, EXTRA ORDINARY EVENTS, NON-AVAILABIL ITY OF SEGMENTAL DATA, PRESENCE OF BRAND, ABNORMAL GROWTH ETC. WE W OULD DISCUSS THE SUITABILITY OF THE COMPARABLES SOUGHT TO BE EXC LUDED/INCLUDED BY THE TAXPAYER ONE BY ONE AS UNDER. COMPARABLES SOUGHT TO BE EXCLUDED ACCENTIA TECHNOLOGIES LTD. (ACCENTIA) 13. THE TAXPAYER SOUGHT TO EXCLUDE ACCENTIA AS A CO MPARABLE ON THE GROUNDS INTER ALIA THAT IT IS FUNCTIONALLY DISS IMILAR VIS--VIS THE TAXPAYER; THAT ITS SEGMENTAL FINANCIALS ARE NOT AVA ILABLE; THAT DURING THE YEAR UNDER ASSESSMENT, EXTRA ORDINARY EVENTS TO OK PLACE DUE TO AMALGAMATION OF ASSCENT INFOSERVE PRIVATE LTD.; AND THAT THIS COMPARABLE HAS BEEN EXCLUDED IN TAXPAYERS OWN CASE BY THE TRIBUNAL IN AYS 2007-08 AND 2009-10 ON ACCOUNT OF F UNCTIONAL DISSIMILARITY, EXTRA ORDINARY EVENTS AND NON-AVAILA BILITY OF FINANCIAL DATA. 14. WHEN WE EXAMINE ANNUAL REPORT OF ACCENTIA, AVAI LABLE AT PAGES 430, 431 & 469 OF THE PAPER BOOK, UNDER A SIN GLE SEGMENT OF ITES, IT RENDERS NUMEROUS SERVICES VIZ. MEDICAL TRA NSCRIPTION, ITA NO.2388/DEL./2015 8 BILLING, CODING, ALONG WITH PROVISION OF DEVELOPMEN T OF SOFTWARE PRODUCTS AND IT ALSO RENDERS SOFTWARE AS A SERVICE. 15. LD. DR FOR THE REVENUE SOUGHT TO RETAIN THIS CO MPARABLE ON THE GROUND THAT ITS MAJOR INCOME IS FROM MEDICAL PR ESCRIPTION AND ALSO REFERRED TO DATA OF LAST THREE YEARS, AVAILABL E AT PAGE 131 OF THE APPEAL SET CONTAINING TP ORDER AT PAGE 25, WHICH SH OWS THAT MERGER HAS NOT SIGNIFICANTLY IMPACTED THE BUSINESS OF THE ACCENTIA, WHICH IS EXTRACTED AS UNDER :- FINANCIAL YEAR 2009-2010 2008-2009 2007-2008 TOTAL OPERATING INCOME (OR 927621875 787207652 503631675 TOTAL OPERATING EXPENSES (OC) 648415415 516206651 348908824 OPERATING PROFIT (OP) 279206460 271001001 154722851 (OP) / (OC) 43.07% 52.50% 44.34% 16. SO, IN THESE CIRCUMSTANCES, WE ARE OF THE CONSI DERED VIEW THAT FINANCIAL RESULTS OF ACCENTIA FOR THE LAST THR EE YEARS SHOWS THAT MERGER ITSELF HAS NOT IMPACTED ITS PROFIT SIGNIFICA NTLY AND AS SUCH, IS NOT A GROUND IN ITSELF TO DISREGARD THIS COMPARABLE . 17. HOWEVER, ITS FUNCTIONAL DISSIMILARITY VIS--VIS TAXPAYER DOES MAKE IT INCOMPARABLE TO THE TAXPAYER BECAUSE IT IS RENDERING NUMEROUS SERVICES UNDER SINGLE SEGMENT OF ITES BUT SEGMENTAL FINANCIALS ARE NOT AVAILABLE AS IS APPARENT FROM TH E ANNUAL REPORT AVAILABLE AT PAGE 469 OF THE PAPER BOOK. MOREOVER, IN ASSESSMENT YEARS 2007-08 & 2009-10, SINCE THERE IS NO CHANGE IN THE BUSINESS ITA NO.2388/DEL./2015 9 PROFILE OF THE ASSESSEE COMPANY, THIS COMPARABLE WA S REJECTED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ITA NOS.2754/DEL/2015 & 2122/DEL/2015 FOR AYS 2007-08 & 2008-09 ORDER DATED 10.12.2018 & 03.07.2019 RESPECTIVELY ON GROUND OF FUNCTIONAL DISSIMILARITY, NON-AVAILABILITY OF SEGMENTAL DATA A ND HIGH TURNOVER. SO FAR AS CONTENTIONS RAISED BY THE LD. DR FOR THE REVENUE THAT ITS MAJOR INCOME IS FROM MEDICAL TRANSCRIPTION, IS NOT SUSTAINABLE BECAUSE THAT INCOME ACCOUNTS FOR ONLY 64% OF THE TO TAL INCOME BUT REMAINING INCOME IS FROM OTHER SERVICES LIKE BILLIN G, CODING AND DEVELOPMENT OF SOFTWARE PRODUCT IS SUFFICIENT TO IM PACT ITS PROFITABILITY, WHOSE SEGMENTAL FINANCIALS ARE NOT A VAILABLE. SO, WE ARE OF THE CONSIDERED VIEW THAT ACCENTIA IS NOT A S UITABLE COMPARABLE VIS--VIS THE TAXPAYER WHICH IS INTO PRO VIDING ROUTINE LOW END SERVICES OF COORDINATION AND RELATED SERVIC ES FOR MEDICAL TRANSCRIPTION WORK OF ITS AE ON COST PLUS MODEL, HE NCE ORDERED TO BE EXCLUDED. I-GATE GLOBAL SOLUTIONS LTD. (I-GATE) 18. THE TAXPAYER SOUGHT EXCLUSION OF I-GATE ON GROU NDS OF FUNCTIONAL DISSIMILARITY, HAVING HUGE TURNOVER, NON -AVAILABILITY OF ITA NO.2388/DEL./2015 10 SEGMENTAL FINANCIALS AND EXTRA ORDINARY EVENTS. LD . DR RELIED UPON THE ORDER PASSED BY THE TPO/LD.DRP. 19. WHEN WE EXAMINE ANNUAL REPORT OF I-GATE, AVAIL ABLE AT PAGE 343 OF THE PAPER BOOK, IT SHOWS THAT I-GATE IS INTO THE BUSINESS OF SOFTWARE DEVELOPMENT AND SERVICES, CONTACT CENTRE S ERVICES AND ITES WHEREAS NO SEGMENTAL FINANCIALS ARE AVAILABLE FOR DRIVING REVENUE OR PROFIT ATTRIBUTABLE TO THE VARIOUS SEGME NTS TO BE UNDER ITES, AS IS APPARENT FROM ANNUAL REPORT AT PAGES 34 3 AND 354 OF THE PAPER BOOK. 20. WHEN WE EXAMINE THE TURNOVER OF I-GATE FROM THE ANNUAL REPORT, AVAILABLE AT PAGES 343 & 354 OF THE PAPER B OOK, ITS TURNOVER OF RS.932.19 CRORES AS AGAINST RS.21 CRORES OF THE TAXPAYER WHICH IS 42.77 TIMES MORE THAN THE TAXPAYER AND AS SUCH I S NOT A VALID COMPARABLE AS THE HIGH TURNOVER CERTAINLY ENHANCED ITS REVENUE AND PROFITS AS HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT IN PCIT VS. AGNITY INDIA TECHNOLOGIES IN ITA 447/DEL/2018 O RDER DATED 13.04.2018. 21. FURTHERMORE, DURING THE YEAR UNDER ASSESSMENT , I-GATES WHOLLY OWNED SUBSIDIARY OF I-GATE GLOBAL SOLUTIONS SDN BHD, MALAYSIA GOT MERGED WITH I-GATE WHICH HAS IMPACTED ITS FINANCIAL RESULTS AS IS APPARENT FROM ANNUAL REPORT AVAILABLE AT PAGE 329 OF THE PAPER BOOK. SO, IN THESE CIRCUMSTANCES, WE ARE OF THE ITA NO.2388/DEL./2015 11 CONSIDERED VIEW THAT I-GATE IS NOT A VALID COMPARAB LE VIS--VIS THE TAXPAYER WHO IS INTO PROVIDING ROUTINE LOW END MEDI CAL TRANSCRIPTION SERVICES AT COST PLUS MODEL TO ITS AE , HENCE ORDERED TO BE EXCLUDED. INFOSYS BPO LTD. (INFOSYS BPO) 22. THE TAXPAYER CHALLENGED THIS COMPARABLE ON GROU NDS OF SIGNIFICANT HIGH TURNOVER, PRESENCE OF HUGE BRAND A ND EXTRA ORDINARY EVENTS. THE TPO AS WELL AS LD. DRP REJECT ED THE CONTENTIONS OF THE TAXPAYER ON THE GROUND THAT TURN OVER IS NOT A RELEVANT CRITERIA TO EXAMINE COMPARABILITY. LD. DR FOR THE REVENUE RELIED UPON THE ORDERS OF THE TPO AND LD. D RP. 23. WHEN WE EXAMINE ANNUAL REPORT OF INFOSYS BPO, A VAILABLE AT PAGE 531 OF THE PAPER BOOK, TURNOVER OF INFOSYS BPO IS RS.1,126 CRORES WHICH IS 52 TIMES MORE OF THE TAXPAYER. MOR EOVER, INFOSYS BPO IS HAVING HUGE BRAND VALUE WHICH CERTAINLY INFL UENCE THE PRICING POLICY TO IMPACT THE MARGINS EARNED BY THE COMPANY. MOREOVER, WHEN WE EXAMINE FINANCIALS OF INFOSYS BPO , AVAILABLE AT PAGE 532 OF THE PAPER BOOK, ITS ADVERTISING AND MARKETING EXPENSES TO OPERATING COST IS OF 9.13% AS AGAINST N IL OF THE TAXPAYER. ITA NO.2388/DEL./2015 12 24. HONBLE DELHI HIGH COURT IN PCIT VS. AGNITY INDIA TECHNOLOGIES (SUPRA) EXCLUDED INFOSYS BPO AS A COMPARABLE VIS- -VIS ROUTINE ITES PROVIDER ON GROUND OF ITS HUGE T URNOVER AND BRAND VALUE. 25. HONBLE HIGH COURT OF DELHI IN CASE OF PCIT VS. NEW RIVER SOFTWARE SERVICES PVT. LTD. (2017) 85 TAXMANN.COM 3 02 (DELHI HC) ALSO EXCLUDED INFOSYS BPO AS A COMPARABLE VIS--VI S ROUTINE ITES SERVICE PROVIDER ON GROUNDS OF SIGNIFICANTLY H IGH TURNOVER AND HUGE BRAND VALUE BY RETURNING FOLLOWING FINDING S :- 12. WIPRO BPO IS MORE OR LESS ON THE SAME FOOTING AS INFOSYS BPO AS FAR AS THE SIZE AND SCALE ARE CONCER NED. CONSEQUENTLY THE COURT FINDS NO LEGAL INFIRMITY IN THE IMPUGNED ORDER OF THE ITAT, WHICH HAS, APART FROM E XCLUDING THE ABOVE COMPARABLES, REMANDED THE MATTER TO THE T PO ON THE QUESTION OF WORKING CAPITAL ADJUSTMENT. 26. IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERE D VIEW THAT INFOSYS BPO IS NOT A VALID COMPARABLE VIS--VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDED. TCS E-SERVE INTERNATIONAL LTD. (TCS E-SERVE INTERNATIONAL) 27. THE TAXPAYER SOUGHT EXCLUSION OF TCS E-SERVE IN TERNATIONAL ON THE GROUNDS INTER ALIA THAT IT HAS PRESENCE OF B IG BRAND BEING PART OF TATA GROUP; THAT IT IS FUNCTIONALLY DIFFERENT; T HAT IT HAS HUGE ABNORMAL GROWTH IN OPERATION DURING THE ASSESSMENT YEAR; THAT ITS PROFIT AFTER TAX INCREASED BY 227% AND OPERATING IN COME INCREASED ITA NO.2388/DEL./2015 13 BY 161%. HOWEVER, TPO/LD. DRP HAVE RETAINED THIS C OMPARABLE BY REJECTING THE CONTENTIONS RAISED BY THE TAXPAYER . 28. WHEN WE EXAMINE ANNUAL REPORT OF TCS E SERVE INTERNATIONAL, AVAILABLE AT PAGES 746 OF THE PAPER BOOK, ITS PRINCIPAL ACTIVITIES ARE :- 'TCS E-SERVE INTERNATIONAL LIMITED IS ENGAGED IN TH E BUSINESS OF PROVIDING INFORMATION TECHNOLOGY ENABLE D SERVICES (ITES)/BUSINESS PROCESSING OUTSOURCING (BP O) SERVICES, PRIMARILY TO CITIGROUP ENTITIES GLOBALLY. THE COMPANY'S OPERATIONS BROADLY COMPRISE OF TRANSACTION PROCESSING AND TECHNICAL SERVICES. TRANSACTION PROCESSING INCLUDES THE BROAD SPECTRUM OF ACTIVITIES INVOLVING THE PROCESSING, COLLECTIONS, C USTOMER CARE AND PAYMENTS IN RELATION TO THE SERVICES OFFER ED BY CITIGROUP TO ITS CORPORATE AND RETAIL CLIENTS. TECH NICAL SERVICES INVOLVE SOFTWARE TESTING, VERIFICATION AND VALIDATION OF SOFTWARE AT THE TIME OF IMPLEMENTATIO N AND DATA CENTRE MANAGEMENT ACTIVITIES.' 29. MOREOVER TCS E SERVE INTERNATIONAL IS ENGAGED I N THE BUSINESS OF PROVIDING ITES/BPO SERVICES PRIMARILY T O CITI GROUP ENTITY GLOBALLY MEANING THEREBY IT IS INTO RELATED PARTY TRANSACTIONS. TCS E SERVE INTERNATIONAL IS HAVING HUGE BRAND VALU E ON ACCOUNT OF ITS ACQUISITION BY TATA GROUP WHICH HAS IMPACTED ITS PRICING POLICY AND MARGIN EARNED. WHEN WE EXAMINE FINANCIA L RESULTS OF TCS E SERVE INTERNATIONAL FOR THE YEAR UNDER ASSESS MENT AT PAGE 722 OF THE PAPER BOOK, IT HAS SHOWN HUGE ALL ROUND GROWTH IN VOLUMES OF BUSINESS AND PROFITABILITY DURING THE YE AR UNDER ITA NO.2388/DEL./2015 14 ASSESSMENT. FURTHERMORE, TCS E SERVE INTERNATIONAL IS INTO ITES/ BPO SERVICES AND TECHNICAL SERVICES (WHICH ARE IN T HE NATURE OF SOFTWARE TESTING, VERIFICATION AND VALIDATION) BUT THERE IS NO SEGMENTAL INFORMATION TO BIFURCATE THE INCOME AND E XPENDITURE QUA BOTH THE SEGMENTS. 30. TCS E SERVE INTERNATIONAL HAS BEEN FOUND TO BE NOT A SUITABLE COMPARABLE VIS--VIS ROUTINE ITES PROVIDER BY THE HON'BLE DELHI HIGH COURT IN CASE OF AVAYA INDIA PVT. LIMITED VS. ACIT IN ITA 532/2019 IN AY 2010-11 ON GROUND OF HAVING GIVEN HUGE AMOUNT TO TATA SONS LTD. TOWARDS BRAND EQUITY; HAVING NO SEGMENTAL BIFURCATION BETWEEN TRANSACTION PROCESSIN G AND TECHNICAL SERVICES; HAVING HUGE INTANGIBLE IN THE FORM OF BRA ND VALUE HAVING CONSIDERABLE EFFECT ON ITS PLI. 31. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT TCS E-SERVE INTERNATIONAL IS N OT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDED. TCS E-SERVE LTD. (TCS E-SERVE) 32. THE TAXPAYER SOUGHT EXCLUSION OF TCS E-SERVE IN TERNATIONAL ON THE GROUNDS INTER ALIA THAT TCS E-SERVE IS A HUG E COMPANY HAVING HUGE PRESENCE OF BRAND BEING PART OF THE TAT A GROUP; THAT IT IS FUNCTIONALLY DISSIMILAR VIS--VIS THE TAXPAYER; THAT THE YEAR UNDER ITA NO.2388/DEL./2015 15 ASSESSMENT IS AN EXCEPTIONAL YEAR OF PERFORMANCE; T HAT IT HAS EARNED SUPERNORMAL PROFIT AND THAT IT HAS ABNORMAL FLUCTUATION IN THE PROFIT. 33, WHEN WE EXAMINE THE FUNCTIONAL PROFILE OF TCS E SERVE, AT PAGE 746 OF THE PAPER BOOK VOLUME III ANNUAL REPORT , IT READS AS UNDER :- 'TCS E-SERVE LIMITED IS ENGAGED IN THE BUSINESS OF PROVIDING INFORMATION TECHNOLOGY - ENABLED SERVICES (ITES) / BUSINESS PROCESS OUTSOURCING (BPO) SERVICE S, PRIMARILY TO CITIGROUP ENTITIES GLOBALLY. THE COMPANY'S OPERATIONS BROADLY COMPRISE OF TRANSACTION PROCESSING AND TECHNICAL SERVICES. TRANSACTION PROCESSING INCLUDES THE BROAD SPECTRUM OF ACTIVITIES INVOLVING THE PROCESSING, COLLECTIONS , CUSTOMER CARE AND PAYMENTS IN RELATION TO THE SERVICES OFFERED BY CITIGROUP TO ITS CORPORATE AND RETAIL CLIENTS. TECHNICAL SERVICES INVOLVE SOFTWARE TESTING, VERIFICATION AND VALIDATION OF SOFTWARE AT THE TIME OF IMPLEMENTATION AND DATA CENTRE MANAGEMENT ACTIVITIES.' 34. TCS E SERVE IS ENGAGED IN THE BUSINESS ITES/BPO SERVICES PRIMARILY TO CITI GROUP ENTITIES GLOBALLY. SO, WHEN TCS E SERVE IS ENGAGED IN HIGH END TRANSACTION PROCESSING, TECHNIC AL SERVICES INVOLVING SOFTWARE TESTING, VERIFICATION AND VALIDA TION OF SOFTWARE AT THE TIME OF IMPLEMENTATION AND DATA CENTRE MANAG EMENT ACTIVITIES, IT IS FUNCTIONALLY DISSIMILAR TO THE TA XPAYER WHICH IS A ROUTINE ITES PROVIDER. ITA NO.2388/DEL./2015 16 35. MOREOVER, TCS E SERVE IS HAVING HUGE TURNOVER O F RS.1359 CRORES WHICH IS 62.37 TIMES THE TURNOVER OF THE TAX PAYER, AVAILABLE AT PAGE 669 OF THE PAPER BOOK. FURTHERMORE, TCS E SERVE IS A HUGE BRAND HAVING SUPPORTED BY TATA GROUP IN TERMS OF ITS LARGE SCALE OPERATIONS AND CLIENTELE AND IT HAS PAID TO T ATA SONS LTD. AS TATA BRAND LOYALTY. EVEN THERE IS NO SEGMENTAL INFO RMATION TO BIFURCATE THE INCOME AND EXPENSES BETWEEN ITES/BPO SERVICES AND TECHNICAL SERVICES. 36. HON'BLE DELHI HIGH COURT IN CASE OF AVAYA INDIA PVT. LTD. VS. ACIT (SUPRA) HAS FOUND TCS E SERVE AS NOT A SUITABLE COMPARABLE VIS--VIS ROUTINE ITES SERVICE PROVIDER ON GROUNDS OF ITS LARGE SCALE OF OPERATION AND CLIENTELE BASE HAV ING HUGE TURNOVER AND HAVING GIVEN HUGE AMOUNT TO TATA SONS LTD. TOWA RDS BRAND LOYALTY AND HAVING NO SEGMENTAL BIFURCATION BETWEEN TRANSACTION PROCESSING AND TECHNICAL SERVICES. 37. DURING THE YEAR UNDER ASSESSMENT, TCS E-SERVE P ROFIT HAS BEEN INCREASED BY 5.74% AND GROWTH BY 226% AND IT H AS EARNED SUPER NORMAL PROFIT DURING THE YEAR UNDER ASSESSMEN T I.E. 60.49% ON COST. 38. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT TCS E-SERVE IS NOT A VALID COM PARABLE VIS-- VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDED. ITA NO.2388/DEL./2015 17 COMPARABLE SOUGHT TO BE INCLUDED R SYSTEM INTERNATIONAL LTD. (R SYSTEM) 39. TPO REJECTED R SYSTEM, WHICH IS TAXPAYERS COMP ARABLE, ON THE GROUND THAT IT HAS DIFFERENT FINANCIAL YEAR AND CANNOT BE TAKEN AS A COMPARABLE. LD. DRP HAS ALSO RATIFIED THE FIN DINGS OF THE TPO. 40. WE ARE OF THE CONSIDERED VIEW THAT WHEN THE TAX PAYER HAS SUBMITTED RESULT FOR THE PERIOD 01.01.2009 TO 31.03 .2009 AND 01.01.2020 TO 31.03.2010 WHICH ARE ALSO IN THE PUBL IC DOMAIN, THERE WAS NO REASON WITH THE TPO/DRP TO REJECT THIS COMPARABLE. 41. COORDINATE BENCH OF THE TRIBUNAL IN CIT VS. MERCER CONSULTING (INDIA) (P) LTD. (2014) 150 ITD 1 (DEL.- TRIB.), WHICH IS AFFIRMED BY THE HONBLE DELHI HIGH COURT REPORTE D IN (2017) 390 ITR 615 (P&H), HELD THAT MERELY ON THE GROUND THAT COMPANY HAS A DIFFERENT FINANCIAL YEAR CANNOT BE REJECTED A S A COMPARABLE. 42. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT THIS COMPARABLE IS REMITTED BA CK TO THE TPO TO DECIDE AFRESH IN VIEW OF THE LAW LAID DOWN, AFTE R PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. ITA NO.2388/DEL./2015 18 GROUNDS NO.5, 6 & 7 43. GROUND NO.5, 6 & 7 ARE DISMISSED HAVING NOT BEE N PRESSED DURING THE COURSE OF ARGUMENTS GROUNDS NO.8 & 9 44. GROUNDS NO.8 & 9 BEING CONSEQUENTIAL IN NATURE NEED NO SPECIFIC FINDINGS. 45. RESULTANTLY, THE APPEAL FILED BY THE TAXPAYER I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 25 TH DAY OF NOVEMBER , 2020. SD/- SD/- (ANIL CHATURVEDI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 25 TH DAY OF NOVEMBER, 2020 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.DRP 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.