Evalueserve SEZ (Gurgaon) Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 2516/DEL/2015

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4376 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 29-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K MAHBOOB
• Keywords: Transfer pricing; International transaction; Working capital adjustments
• Section: 10B; 201; 48; 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1 NEW DLEHI BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO. 2516/DEL/2015 ASSESSMENT YEAR: 2009-10 EVALUESERVE SEZ (GURGAON) PVT. LTD., VS. ACIT, CIR CLE 8(2) 8 TH , 9 TH & 10 TH FLOOR, BUILDING NO. 4, NEW DELHI UNITECH REALTY PROJECTS LTD., SEZ TIKRI, SECTOR- 48, GURGAON. PAN :AAACE8812A ITA NO. 2966/DEL/2015 ASSESSMENT YEAR: 2009-10 DCIT, CIRCLE 8(1) VS. EVALUESERVE SEZ (GURGAON) PV T. LTD., NEW DELHI 701, GURU APARTMENTS, SECTOR 14, ROHINI, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : MS. ANANYA KAPOOR, ADV. REVENUE BY : SH. K. MAHBOOB, SR. DR DATE OF HEARING: 02.02.2021 DATE OF ORDER : 02.02.2021 ORDER PER K. NARASIMHA CHARY, J.M. CHALLENGING THE ORDER DATED 27.02.2015 PASSED BY LE ARNED COMMISSIONER OF INCOME-TAX (APPEALS)-44, NEW DELHI (CIT(A)) FOR 2 ASSESSMENT YEAR 2009-10, BOTH ASSESSEE AND REVENUE FILED THESE CROSS APPEALS. 2. BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A C OMPANY INCORPORATED ON 17.12.2007 AND BEGAN ITS OPERATION FROM AUGUST 2008. IT CARRIES ON IT ENABLED SERVICES[ITES] IN THE FORM OF RESEARCH ACTIVITIES ACCORDING TO THE TERMS OF ITS AGREEMENT WITH ITS AE WHICH IS DRIVEN BY BUSINESS INFORMATION, MARKET RESEARCH AND INTELLECT UAL PROPERTY RESEARCH. IT CARRIES ON PRECISELY THREE ACTIVITIES AND ITS FU NCTIONAL PROFILE, ASSETS EMPLOYED AND RISK ASSUME ARE- A) BUSINESS INFORMATION : EVS SEZ INDIA CARRIES OU T BUSINESS INFORMATION RESEARCH BASED ASSIGNMENTS OF THE FOLLOWING NATURE: PERIODIC RESEARCH: PERIODIC RESEARCH PROJECTS AR E ONGOING IN NATURE. THE PROJECTS INCLUDE DATABASE CONTENT CREATION, MA NAGEMENT AND UPDATION OF EXISTING RESEARCH. PROJECT RESEARCH: PROJECT RESEARCH INVOLVES RESE ARCH FROM SECONDARY SOURCES. IT ALSO MAKES USE OF FORECASTING , MODELLING AND FINANCIAL ANALYSIS. TYPICALLY, IT INVOLVES INDUSTRY STUDIES COVERING THE MARKET SIZE, VALUE CHAIR ANALYSIS, GROWTH RATES AND DEMAND AND SUPPLY PROJECTIONS. EVS SEZ INDIA HAS CONDUCTED STUDIES AN D PREPARED RESEARCH REPORTS FOR THE SECTORS LIKE THE TELECOM S ECTOR, PHARMACEUTICAL SECTORS, ETC. THE INTELLECTUAL PROPE RTY RIGHTS FOR THE REPORTS ARE OWNED BY THE END CUSTOMER. RAPID RESEARCH: RAPID RESEARCH ASSIGNMENTS TYPIC ALLY HAVE 24 HOURS AS TIE TURNAROUND TIME. THESE ARE MOSTLY BASED ON B RIEF CLIENT REQUESTS RECEIVED FROM AES. B) INVESTMENT RESEARCH AND FINANCIAL ANALYTICS: EV S SEZ INDIA HAS A TEAM OF EMPLOYEES EXCLUSIVELY DEDICATED TO TRACKING STOC KS AND MUTUAL FUNDS. TYPICALLY, AN INVESTMENT RESEARCH AND FINANCIAL ANA LYTICS ASSIGNMENT AS DISCUSSED ABOVE COULD ALSO BE PERIODIC OR PROJECT B ASED. EVS SEZ INDIA MAKES USE OF A VARIETY OF RESEARCH TO OLS INCLUDING THE WEB, DATABASES AND PUBLICATIONS APART FROM ANALYTICS AND FORECASTING. THE INDUSTRIES COVERED INCLUDE FINANCIAL SERVICES (BANKING AND INS URANCE), HI-TECH (SOFTWARE, 3 ELECTRONICS, ENGINEERING, NANO TECHNOLOGY, NETWORKI NG, BIOMEDICAL ENGINEERING), TELECOM EQUIPMENT AND OPERATORS, PHAR MACEUTICALS AND BIOTECH, CHEMICALS, ENERGY AND CONSUMER PRODUCTS. C) MARKET RESEARCH: THIS SEGMENT CATERS TO PRIMARI LY MARKET RESEARCH FIRMS BASED OVERSEAS. IT FOCUSES ON PRIMARY RESEARC H IN THE NATURE OF BUSINESS TO BUSINESS SURVEYS ONLY WHERE DATA IS COLLECTED VI A TELEPHONIC SURVEYS. THE SURVEYS ARE CARRIED OUT ON A CASE TO CASE BASIS AND AS PER THE SPECIFIC CLIENT REQUIREMENTS.THE EMPLOYEES COMPRISE MAINLY GRADUATE S, UNDERGRADUATES, AND MBA. THE SURVEYS CARRIED OUT BY THE MARKET RESEARCH SEGMENT INCLUDE SURVEYS LIKE ANALYZING THE TRENDS IN IT AND TELECOM SPENDIN G, ETC. THESE SURVEYS ARE NORMALLY CARRIED OUT ON THE BASIS OF A QUESTIONNAIR E RECEIVED FROM THE CLIENT. DEPENDING ON THE WORK LOAD AT TIMES, SOME EMPLOYEES MAY BE SHIFTED TO THE BUSINESS RESEARCH SEGMENT FOR SHORT TERM PROJECTS. D) INTELLECTUAL PROPERTY RESEARCH: THE INTELLECTUA L PROPERTY RESEARCH SERVICES INCLUDES RESEARCH ON PATENTS, DRAFTING OF PATENT APPLICATIONS, PRIOR ART SEARCH, ETC. ESSENTIALLY, EVS SEZ INDIA OFFERS THE FOLLOWING KIND OF SERVICES TO ITS AES: PATENT ASSESSMENT: THIS IS CONCERNED WITH EVALUA TING WHETHER A PRODUCT CAN BE PATENTED OR NOT. IT INVOLVES FINDING OUT WHETHER A PATENT EXISTS FOR A SIMILAR PRODUCT IN THE GLOBAL M ARKET. DRAFTING OF PATENT APPLICATIONS: THE AES ARE RES PONSIBLE FOR END TO END PATENT APPLICATION FILING THROUGH PATENT COUNSE LS IN THE RELEVANT JURISDICTION. EVS SEZ INDIA PREPARES A DRAFT AND SE NDS IT EITHER TO THE CLIENT OR PATENT ATTORNEY ASSOCIATED WITH AES, TO B E FILED .THEREAFTER, LAWYERS, ASSOCIATED WITH THE AE VET THE DRAFT AND F ILE IT. INTELLECTUAL PROPERTY ASSET MANAGEMENT: EVS SEZ INDIA OFFERS PATENT TO PRODUCT MAPPING, IP RESEARCH AND ANALYSIS AND PA TENT CONSULTING AS PART OF INTELLECTUAL PROPERTY RESEARCH. IT ASSISTS IN MAINTAINING A RELEVANT PORTFOLIO OF PATENTS, OFFERS CONSULTING IN OVERLAP AND INFRINGEMENT AND HELPS IN LOCATING POTENTIAL COMPAN IES THAT MAY BE INTERESTED IN LICENSING A PARTICULAR INVENTION. MARKETING AND AFTER SALES: EVS SEZ INDIA DOES NOT U NDERTAKE ANY MARKETING AND SALES EFFORTS AS IT CARRIES OUT OFFSHORE RESEAR CH ACTIVITIES ON BEHALF OF ITS AE. THE/AE IS RESPONSIBLE FOR THE BUSINESS DEVELOPM ENT, MARKETING ACTIVITIES AND QUALITY ASSURANCE FOR EVERY PROJECT UNDERTAKEN BY EVS SEZ INDIA. THE AES, BASED ON THE MARKET AND ECONOMIC SCENARIO PREPARES THE GENERAL WORLDWIDE MARKETING STRATEGY FOR THE GROUP. EVS SEZ INDIA SECURES CONTRACTS OWING TO THE BRAND NAME AND GOODWILL ENJOYED BY ITS AES. FOR PROVISION OF THE AFOREMENTIONED SERVICES, AES R EMUNERATE EVS SEZ INDIA ON AN HOURLY BASIS. ADDITIONALLY, AES ALSO REIMBURS E EVS SEZ INDIA AT A COST PLUS 4 6% FOR EXPENSES ON TELEPHONE CALLS, TRANSLATION CHA RGES, RESEARCH REPORTS PURCHASED, WEB HOSTING AND MISCELLANEOUS EXPENSES. ROUTINE FUNCTIONS: THESE BUSINESS SUPPORT FUNCTIONS ARE A PART OF THE NORMAL COURSE OF BUSINESS AND ARE INDISPENSABLE IN THE ECO NOMIC ENVIRONMENT. STRATEGIC POLICIES: ALL LONG-TERM POLICIES ARE DEVE LOPED AND FORMULATED BY EVS SEZ INDIA IN CONSENSUS WITH ITS AES. THE COMPANYS MANAGEMENT PERSONNEL HANDLE THE CORPORATE COMMUNICATIONS AND DEAL WITH T HE DIRECT CUSTOMERS, ASSOCIATE ENTERPRISES, ETC. FINANCE AND ACCOUNTING AND IT: EVS SEZ INDIA PREPAR ES ITS OWN FINANCIAL STATEMENTS. HUNAN RESOURCE MANAGEMENT: EVS SEZ INDIA PERFORMS R ECRUITMENT, SOFT SKILLS TRAINING, PERFORMANCE EVALUATION AND OTHER RELATED FUNCTIONS. THE EMPLOYEE STRENGTH OF EVS SEZ INDIA WAS ABOUT 61 6 PERSONNEL INCLUDING THE CORPORATE GROUP AS ON MARCH 31, 2010. ASSETS ANY BUSINESS REQUIRES ASSETS WITHOUT WHICH IT CANNO T CARRY OUT ITSACTIVITIES. THE ASSETS MIGHT BE CLEARLY RECOGNISABLE I.E. TANGIBLE (PLANT AND MACHINERY, EQUIPMENT, BUILDING ETC) OR THEY MIGHT BE INTANGIBL E ASSETS (BRAND-NAME, TRADEMARKS, TECHNICAL KNOW-HOW, PATENTS, ETC). FOLL OWING IS THE LIST OF ASSETS USED BY EVS SEZ INDIA: TANGIBLE ASSETS THE TANGIBLE ASSETS EMPLOYED IN EVS SEZ INDIA ARE C ONSIDERED ESSENTIAL FOR RUNNING THE BUSINESS. THEY ARE DESCRIBED BELOW: EVS SEZ INDIA BEING AN ITES SERVICE PROVIDER DOES N OT HAVE A SIGNIFICANT TANGIBLE ASSET BASE FOR CARRYING OUT ITS OPERATIONS . EVS SEZ INDIA DOES NOT OWN ANY LAND AND CARRIES OUT ITS OPERATIONS ON RENTED P REMISES. ITS TANGIBLE ASSET BASE COMPRISES COMPUTERS, OFFICE EQUIPMENT, FURNITU RE AND FITTINGS, ETC. INTANGIBLE ASSETS AS EVS SEZ INDIA OPERATES IN THE RESEARCH DOMAIN, HUMAN CAPITAL FORMS ITS CORE RESOURCE. HOWEVER, THE EMPLOYEES OF EVS SEZ IN DIA TYPICALLY ONLY COMPRISE UNDERGRADUATES, GRADUATES, ENGINEERS AND M BAS. THE BUSINESS OF THE EVALUESERVE GROUP DOES NOT RESU LT IN THE DEVELOPMENT OF ANY FORM OF INTELLECTUAL PROPERTY RIGHTS. THE COPYR IGHTS RELATING TO THE REPORTS, IF ANY ARE HELD BY THE CLIENT ONLY. FURTHER, THE MA RKETING INTANGIBLE IS OWNED BY THE ASSOCIATED ENTERPRISE - EVALUESERVE LIMITED, BE RMUDA. 5 ACCORDINGLY, EVS SEZ INDIA DOES NOT OWN ANY NON-ROU TINE INTANGIBLES ANA DOES NOT OWN TRADE SECRETS OR UNDERTAKE RESEARCH AND DEV ELOPMENT ACTIVITIES ON ITS ACCOUNT THAT WOULD LEAD TO THE DEVELOPMENT OF NON-R OUTINE INTANGIBLES. RISK ANALYSIS RISKS ARE THOSE BUSINESS FACTORS THAT MAY EXPOSE A COMPANY TO THE POSSIBILITY OF LOSS OR DAMAGE. IN OTHER WORDS, RISK IS THE PROB ABILITY THAT A PARTICULAR ADVERSE EVENT MAY OCCUR DURING A STATED PERIOD OF T IME, OR MAY RESULT FROM A PARTICULAR CHALLENGE. THE FOLLOWING SECTION DISCUSS ES THE RISK BORNE BY COMPANY VIS-A-VIS GROUP COMPANIES. CUSTOMER CREDIT RISK WHEN A COMPANY PROVIDES SERVICES TO A CUSTOMER IN A DVANCE OF CUSTOMER PAYMENT, THE COMPANY RUNS THE RISK THAT THE CUSTOME R WILL FAIL TO MAKE PAYMENT. THIS RISK IS KNOWN AS CUSTOMER CREDIT RISK . EVS SEZ INDIA IS ENGAGED IN THE PROVISION OF IT ENA BLED SERVICES TO ITS AES FOR WHICH IT GETS REMUNERATED ON THE BASIS OF THE SERVI CE AGREEMENT. ACCORDINGLY, EVS SEZ INDIA IS NOT EXPOSED TO THE CUSTOMER CREDIT RISK. THE AES CATER TO END CUSTOMERS AND ARE RESPONSIBLE FOR RECOVERY OF PAYMENTS. ACCORDINGLY, THEY ARE EXPOSED TO THE CUSTOMER CREDI T RISK. FOREIGN EXCHANGE RISK EXCHANGE RATE RISK RELATES TO THE POTENTIAL VARIABI LITY OF PROFITS THAT CAN ARISE BECAUSE OF CHANGES IN FOREIGN EXCHANGE RATES. SUCH RISKS ARISE WHEN DOING BUSINESS IN ANY MARKET THAT IS AFFECTED BY INTERNAT IONAL TRADE AND CAN ARISE EVEN IF A COMPANY DOES NOT CONDUCT ACTUAL TRANSACTI ONS IN A FOREIGN CURRENCY. EVS SEZ INDIA IS REMUNERATED BY ITS AES FOR SERVICE S PROVIDED TO IT IN US DOLLARS. HOWEVER, IN THE CASE OF THIRD PARTY DOMESTIC CONTRA CTS, EVS SEZ INDIA RECEIVESITSJJAYMSNTM INR. ACCORDINGLY, EVS SEZ INDI A IS EXPOSED TO FOREIGN CURRENCY RISK FOR THE AE SERVICES. THE AES DO NOT BEAR THIS RISK TO ANY SIGNIFICANT EX TENT WITH RESPECT TO EVS SEZ INDIAS OPERATIONS. ENTREPRENEURIAL RISK THERE ARE TWO DISTINCT SOURCES OF UNCERTAINTY IN EN TREPRENEURIAL VENTURES: 1) UNCERTAINTY REGARDING MARKET DEMAND, AND 2) UNC ERTAINTY REGARDING CAPABILITY. THE FIRST TYPE OF UNCERTAINTY IS CHARAC TERISED AS EXOGENOUS UNCERTAINTY BECAUSE IT EMERGES AS A STATE OF NATUR E. THE SECOND TYPE OF UNCERTAINTY IS REFERRED TO AS ENDOGENOUS UNCERTAI NTY BECAUSE ENTREPRENEURS REALISE THAT THERE IS HIGH RISK OF FAILURE AS IT IS TIED TO THEIR CAPABILITY. 6 AS EVS SEZ INDIA IS REMUNERATED ON AN HOURLY BASIS BY ITS AES, IT IS EXPOSED TO THIS RISK. THE AES ARE INDIRECTLY EXPOSED TO THIS RISK FOR THE INDIAN OPERATIONS. PRICE RISK THIS RISK ARISES DUE TO THE COMPETITIVE PRESSURES P REVAILING IN THE MARKET, WHICH LEAD TO PRICE UNDERCUTTING THEREBY ADVERSELY IMPACTING THE PROFITABILITY OF THE COMPANY. EVS SEZ INDIA IS COMPENSATED FOR THE SERVICES RENDE RED BY IT TO ITS AES, ON AN HOURLY RATE BASIS. AS THIS COMPENSATION IS SUBJECT TO MARKET DYNAMICS, THE COMPANY IS EXPOSED TO PRICE RISK. AS THE AES COMPETE IN THE OPEN MARKET, THEY ARE EXP OSED TO THIS RISK. MANPOWER RISK MANPOWER IS ONE OF THE MOST VALUABLE RESOURCES EMPL OYED BY AN ORGANISATION FOR CARRYING OUT ITS DAY-TO-DAY OPERATIONS. THE INC REASING COMPETITION IN THE MARKET PLACE COMBINED WITH OTHER UNCONTROLLED VARIA BLES RESULT IN EXPOSURE TO MANPOWER RISK. AS THE ITES INDUSTRY IS CHARACTERISED BY A HIGH LEV EL OF ATTRITION,, EVS SEZ INDIA IS EXPOSED TO THIS RISK. THE AES ARE INDIRECTLY EXPOSED TO THIS RISK FOR THE INDIAN OPERATIONS. 3. FOR THE ASSESSMENT YEAR 2009-10, THE ASSESSEE FI LED ITS RETURN OF INCOME ON 29.09.2009 DECLARING LOSS OF RS.2,10,68,6 13/-.THE ASSESSEE IS A SUBSIDIARY OF EVALUESERVE LIMITED (EVS BARMUDA) L OCATED AT BERMUDA PROVIDING KNOWLEDGE PROCESS OUTSOURCING (KPO) SER VICES (INTELLECTUAL PROPERTY, MARKET RESEARCH, BUSINESS RESEARCH, FINAN CIAL AND INVESTMENT RESEARCH AND DATA ANALYTICS SERVICES) TO ITS CLIENT S. EVS SEZ INDIA IS ENGAGED IN THE BUSINESS OF PROVIDING IT ENABLED SER VICES TO ITS AES. THE COMPANY IS A 100% EXPORT ORIENTED UNIT UNDER THE SP ECIAL ECONOMIC ZONE ACT GUIDELINES ISSUED BY THE GOVERNMENT OF IND IA. IN THE ACCOUNTANTS REPORT IN FORM 3CEB AND IN THE TRANSFE R PRICING STUDY REPORT FOLLOWING INTERNATIONAL TRANSACTIONS HAVE BEEN REPO RTED : 7 NATURE OF TRANSACTION VALUE OF INTERNATIONAL PROVISION OF IT ENABLED SERVICES 231,329,060 (ITES) COST OF REIMBURSEMENTS RECEIVED 2,136,683 THE FINANCIAL RESULTS OF THE TAXPAYER AND THE METHO D OF BENCHMARKING AS REPORTED IN THE TRANSFER PRICING REPORT IS AS UNDER : PARTICULARS ITES OPERATING REVENUES 236,696,941 OPERA TING EXPENSES 258,746,715 OPERATING PROFIT (22,049,7731) OP/SALES GP/SALES OP/OC 0.94% OP/OC AFTER UNDERTAKING A CAPACITY 2 3.28% ADJUSTMENT ON EVS SEZ INDIA METHOD USED TNMM PLI OP/OC NO. OF COMPARABLES 8 MEAN MARGIN OF COMPARABLE AFTER - 3.37% ADJUSTMENTS FOR WORKING CAPITAL AND CAPACITY MEAN MARGIN OF COMPARABLES AFTER 12.84% ADJ UST MENTS FOR WORKING CAPITAL LD TPO, HOWEVER, REJECTED THE TP STUDY OF THE APPEL LANT. LD. TPO HAS TAKEN TNMM AS THE MOST APPROPRIATE METHOD AND AGGRE GATED BOTH THE TRANSACTIONS FOR THE PURPOSE OF BENCHMARKING. THE M ARGINS OF COMPARABLES HAVE BEEN RECOMPUTED BY LD. TPO AFTER CONSIDERING FOREX GAIN/LOSS AS OPERATING IN NATURE AS UNDER: S.NO. COMPANY PBIT/COST(%) 1 ADITYA BIRLA MINACS WORLDWIDE LTD. 0.50% 2. COSMIC GLOBAL LTD. 48.20% 3. GENESYS INTERNATIONAL CORPORATION (SEG.) 58.45% 4 ECLERX SERVICES LTD. 47.00% 8 5 OMEGA HEALTHCARE MANAGEMENT SERVICES PVT. LTD. 15.43% 6 MICROGENETIC. SYSTEM LTD. 9.98% 7 MOTIF INDIA INFOTECH PVT. LTD. 10.41% AVERAGE 27.14% LD. TPO HAS DETERMINED THE TP ADJUSTMENT AS UNDER: OPERATIONAL COST 234,494,328 ARMS LENGTH PRICE AT A MARGIN OF 298,136,089 27.14% PRICE RECEIVED 236,696,941 105% OF INTERNATIONAL TRANSACTION 248,531,788 ADJUSTMENT U/S 92CA 61,439,148 4. PURSUANT TO THE ORDER OF TPO, LD. ASSESSING OFFI CER COMPLETED THE ASSESSMENT BY MAKING UPWARD ADJUSTMENT ON ACCOUNT O F ARMS LENGTH PRICE AT RS.6,14,39,148/-. 5. AGGRIEVED BY SUCH ADJUSTMENT, THE ASSESSEE PREFE RRED APPEAL BEFORE THE LD. CIT(A), WHO BY WAY OF IMPUGNED ORDER ALLOWED IT IN PART. IN THAT PROCESS, SO FAR AS RELEVANT TO THESE APPEALS, THE CIT(A) EXCLUDED THE ENTITIES ECLERX SERVICES LTD.AND GENESYS INTERNATIO NAL CORPORATION LTD. WHILE RETAINING THE COSMIC GLOBAL LTD.. LD. CIT(A) ALSO DIRECTED THE LD. A.O./TPO TO GRANT WORKING CAPITAL ADJUSTMENT BASED ON OECD FORMULA AND BY TAKING PLR AS WERE TAKEN BY STATE BANK OF IN DIA FOR ASSESSMENT YEAR 2008-09 FOR WORKING THE CAPITAL LOANS. IN THES E CIRCUMSTANCES, THE ASSESSEE FILED ITA NO. 2516/DEL/2015 CHALLENGING TH E INCLUSION OF COSMIC GLOBAL LIMITED IN THE LIST OF COMPARABLES WHEREAS T HE REVENUE FILED ITA NO. 2966/DEL/2015, CHALLENGING THE EXCLUSION OF ECL ERX SERVICES LTD AND GENESYS INTERNATIONAL CORPORATION LTD. APART FROM C HALLENGE IN RESPECT OF COMPARABLES, THE ASSESSEE ALSO COMPLAINS AGAINST CA PACITY 9 UNDERUTILIZATION ADJUSTMENT MADE BY TPO IN SPITE OF THE FACT THAT THERE WAS A DETAILED ANALYSIS IN THE TP STUDY. LD. TPO PR OCEEDED ON AN INCORRECT BASIS THAT THIS CLAIM WAS NOT MADE IN THE TP STUDY WHEREAS THE ORDER OF THE LD. CIT(A) IS SILENT ON THIS ASPECT. I N RESPECT OF THE WORKING CAPITAL ADJUSTMENT GRANTED BY CIT(A), THE REVENUE I S IN APPEAL. WE SHALL DEAL WITH THESE ASPECTS HEREUNDER. 6. FIRSTLY, COMING TO THE ENTITY RETAINED BY LD. CI T(A), I.E., COSMIC GLOBAL LTD, IT IS THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE THAT THIS COMPARABLE IS FUNCTIONALLY DISSIMILAR, INASMUCH AS COSMIC IS ENGAGED IN THE PROVISION OF MEDICAL TRANSCRIPTION SERVICES, TR ANSLATION SERVICES AND SOFTWARE DEVELOPMENT SERVICES; THAT IT IS ENGAGED I N MEDICAL TRANSCRIPTION AND TRANSLATION SERVICES AND HENCE NO T COMPARABLE WITH THE ASSESSEE; THAT IT HAS DIFFERENT BUSINESS MODEL-COSM IC IS ENGAGED IN OUTSOURCING MODEL- IT IS ENGAGED IN VENDOR OUTSOURC ING AS IT PAYS TRANSLATION CHARGES 57% OF THE TOTAL EXPENSES; THA T THERE ARE INSUFFICIENT SEGMENTAL DETAILS; THAT THERE WERE ABNORMAL GROWTH OF SALES (106%); THAT COSMIC HAS REVENUE FROM 3 SOURCES, I.E., MEDICAL TR ANSCRIPTION AND CONSULTANCY SERVICES, TRANSLATION AND BPO SERVICES- IT EARNS 95% OF THE REVENUE FROM TRANSLATION SERVICES WHICH ARE NOT COM PARABLE TO THE ASSESSEE THE REVENUE FROM BPO IS ONLY RS. 27.7 LA KHS (LESS THAN 75% AND LESS THAN RS. 5 CRORES) HENCE IT FAILS TWO FILTERS APPLIED BY LD. TPO HIMSELF.AT PG. 21 OF LD. TPO ORDER COMPANIES WHOSE ITES REVENUE IS <5 CRORES AND ITES REVENUE IS LESS THAN 75% OF TOTAL O PERATING REVENUES; AND THAT IT HAS VOLATILE PROFITS AT 23.4%, 23.4%, 48.2% , 18.28% AND 8.06% FOR F.YRS. 2006-07 TO 2010-11 RESPECTIVELY. IT IS THERE FORE, ARGUED ON BEHALF 10 OF THE ASSESSEE THAT THIS IS NOT A GOOD COMPARABLE AND NEEDS TO BE EXCLUDED. 7. ASSESSEE PLACED RELIANCE ON THIS ASPECT ON THE F OLLOWING DECISIONS (I). NCS PEARSON INDIA PVT. LTD.- ITA NO. 2556/DEL /2014, (II).UT STARCOM INC., ITA NO. 1829/DEL/2014 DELHI ITAT, ( III). PCIT VS. XCHANGING TECHNOLOGY SERVICES INDIA PVT. LTD.-ITA NO. 813/201 5 DELHI HIGH COURT AND (IV).QUARK SYSTEMS (2010) 132 TTJ (CHD) (SB) AN D SUBMITTED THAT HAVING REGARD TO THE FUNCTIONAL PROFILE OF THE ASSE SSEE IN ALL THESE CASES, IT IS EMPHATICALLY HELD BY HIGHER FORUMS THAT COSMIC G LOBAL LTD. IS NOT A GOOD COMPARABLE. 8. PER CONTRA, LD. DR SUBMITTED THAT THE ORDER OF L D. TPO ISSELF- EXPLANATORY ON THIS ASPECT HAVING REGARD TO THE FUN CTIONAL PROFIT OF THIS ENTITY, BY NO STRETCH OF IMAGINATION COULD IT BE SA ID THAT THIS IS NOT A GOOD COMPARABLE. 9. IN SO FAR AS THIS ENTITY IS CONCERNED, THE FUNCT IONAL PROFILE OF THE ASSESSEE SATED ABOVE IS CONCERNED, AND WE NEED TO C OMPARE THE PROFILE OF COSMIC GLOBAL LTD. IN RESPECT OF THE SAME ASSESS MENT YEAR, I.E., 2009- 10, PROFILE OF THIS COMPANY IS CONCERNED BY THE JUD ICIAL FORUMS. IT IS NOT IN DISPUTE THAT THIS COSMIC GLOBAL LTD. IS INTO THE TRANSCRIPTION AND TRANSLATION SERVICES BESIDES OTHER SERVICES. FURTH ER, A PERUSAL OF THE ANNUAL REPORT OF COSMIC, AVAILABLE IN SCHEDULE 13 I .E. NOTES FORMING PART OF FINANCIAL ACCOUNTS ENDING MARCH 31, 2009 CONTAIN S THE REVENUE RECOGNITION AS UNDER : 1.2 REVENUE RECOGNITION: 11 IN RESPECT OF MEDICAL TRANSCRIPTION SERVICES, AND T RANSLATION SERVICES THE COMPANY FOLLOWS THE PRACTICE OF RAISIN G MONTHLY INVOICES JOB-WISE ON THE CLIENTS BASED ON THE NUMBE R OF LINES AND NUMBER OF WORDS RESPECTIVELY, ETC., AS ACCEPTED BY THEM AND IN RESPECT OF ACCOUNTS BPO SERVICES THE INVOICES ARE R AISED AFTER ACCEPTANCE BY THE CLIENTS ON MUTUALLY AGREED BASIS. THIS YEAR THE COMPANY HAS RAISED THE BILL ON ALL TH E JOBS ACCEPTED AND HENCE THE APPLICATION OF PROPORTIONATE COMPLETI ON METHOD ACCORDING TO AS-9 HAS NOT ARISEN. EXPORT/CONSULTANCY SERVICES ARE BILLED AT MUTUALLY DISCUSSED RATES WHEREVER THE TERMS HAVE NOT BEEN REDUCED TO W RITING. REVENUE FROM OPERATIONS INCLUDES REVENUE EARNED THR OUGH TRANSLATION SERVICES RS.6,99,35,756.45, THROUGH MED ICAL TRANSCRIPTION RS.9,90,737 AND THROUGH ACCOUNTS BPO SERVICES RS.27,76,090. 10. AFORESAID REVENUE RECOGNITION SHOWS THAT COSMI C HAS THREE SEGMENTS VIZ. MEDICAL TRANSCRIPTION RS.0.09 CRORE, TRANSLATION SERVICES RS.6.99 CRORES AND ACCOUNTS BPO SEGMENT RS.0.27 CRO RES. HOWEVER, COMPLETE SEGMENTAL DATA IS NOT AVAILABLE. FURTHERMO RE, COSMIC IS HAVING ABNORMAL GROWTH OF SALES I.E. 106% AS IS EVIDENT FR OM PROFIT & LOSS ACCOUNT, AVAILABLE IN THE ANNUAL REPORT. 11. IT IS NOTICED BY THETRIBUNAL IN THE CASE OF NCS PEARSON INDIA PVT. LTD IN ITA NO. 2556/DEL/2014 FOR ASSESSMENT YEAR 20 09-10 THAT THIS COMPANY HAS OUTSOURCED ITS ACTIVITIES AND THE OUTSO URCING EXPENSES CONSTITUTE 57% OF THE TOTAL EXPENSES AND THAT THE E NTIRE OUTSOURCING IS CONFINED TO TRANSLATION CHARGES PAID OF RS.3 CRORES AND IN VIEW OF SUCH ACTIVITIES, OF OUTSOURCING AND HAVING A DIFFERENT B USINESS MODEL APART FROM HAVING THE ABNORMAL GROWTH OF SALE AT 106%, TH IS COSMIC GLOBAL IS NOT A GOOD COMPARABLE WITH THE ASSESSEE WHICH IS CO NFINED TO ITES ALONE. 12 12. FURTHER, IN THE CASE OF UTSTARCOM INC. VS. DDIT IN ITA NO. 1829/DEL/2014 FOR THE ASSESSMENT YEAR 2009-10, THE PROFILE OF THIS COSMIC GLOBAL LTD. IS CONSIDERED BY THE TRIBUNAL AN D AFTER EXAMINING THE FINANCIALS OF COSMIC GLOBAL LTD., THE TRIBUNAL OBSE RVED THAT THE ACTIVITIES OF OUTSOURCING THE TRANSLATION SERVICES AND PAYMENT OF RS.3 CRORES FOR SUCH PURPOSE, WHICH CONSTITUTED SIGNIFICANT PORTION OF ITS SERVICES, MAKES THIS COMPANY NOT A GOOD COMPARABLE. IN THIS PROCESS , THE TRIBUNAL PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN MACQUAR IE GLOBAL SERVICES (P) LTD. VS. DCIT FOR A.Y. 2009-10 TO REACH SUCH A CONC LUSION. 13. IN PCIT VS. EXCHANGE TECHNOLOGY SERVICES INDIA LTD. IN ITA NO. 813/2015, HONBLE JURISDICTIONAL HIGH COURT CONSIDE RED THIS COSMIC GLOBAL LTD. VIS A VIS, THE ENTITY DEALING WITH ITES AND HELD THAT OUTSOURCING OF MAJOR ACTIVITIES BY THIS COMPANY RENDERS IT NOT A GOOD COMPARABLE TO THE ENTITY LIKE ASSESSEE IN THIS CASE, WHO HAS BEEN IN THE BUSINESS IN HOUSES. IT IS, THEREFORE, CLEAR THAT COSMIC GLOBAL IS AN ENTITY WHICH HAS BEEN DERIVING A SIGNIFICANT PORTION OF ITS RECEIPTS FROM OUTSOURCING THE TRANSLATION WORK AND MAKING PAYMENT OF ABOUT RS. 3 CRORES AND AS HAS BEEN HELD BY THE HIGHER JUDICIAL FORUMS STATED SUPR A, THIS COSMIC GLOBAL LTD. IS NOT A GOOD COMPARABLE AND NEEDS TO BE EXCLU DED. CONSIDERING ALL THESE ASPECT, WE ARE OF THE OPINION THAT THIS IS NO T A GOOD COMPARABLE WITH THE ASSESSEE AND, THEREFORE, DIRECT THE LD. AO /TPO TO EXCLUDE THIS COMPANY FROM FINAL LIST OF COMPARABLES. 14. NEXT GRIEVANCE OF THE ASSESSEE IS IN RESPECT OF THE CAPACITY UNDERUTILIZATION ADJUSTMENT, IN RESPECT OF WHICH LD . TPO AT PAGE NO. 31 AT PARAGRAPH NO. 16 MADE AN OBSERVATION THAT THE CLAI M OF ADJUSTMENT OF LOW CAPACITY UTILIZATION FOR THE IDEAL CAPACITY, IN THE TP STUDY, THE 13 ASSESSEE HAS NOT MADE ANY SUCH ADJUSTMENT AND IF TH E CLAIM WAS CORRECT, IT WOULD HAVE MADE IN THE TP STUDY ITSELF AND NOT T O MEET THE GOAL OF ALP. BUT WITH REFERENCE TO TP STUDY DOCUMENT AT PAGE NO. 29, IT IS DEMONSTRATED BEFORE US THAT THERE WAS A REFERENCE T O THE CAPACITY UNDERUTILIZATION ADJUSTMENT WHICH MISSED THE ATTENT ION OF THE LD. TPO. ON EXAMINATION OF PARA 5.3 AND 5.4 OF THE TP STUDY, WE ARE CONVINCED THAT THIS MISSING OF THE DETAILS RELATING TO THE CA PACITY UNDERUTILIZATION ADJUSTMENT RESULTED IN THE OBSERVATION OF LD. TPO T HAT THE TP STUDY OF THE ASSESSEE HAS NOT MADE ANY SUCH ADJUSTMENT. FURT HER, THE ORDER OF THE LD. CIT(A) IS SILENT ON THIS ASPECT. LD. DR SUB MITTED THAT THE OBSERVATIONS OF THE LD. TPO IN PARA NO. 16 THAT CER TAIN DETAILS AND DATA IN SUPPORT OF THE CLAIM OF ASSESSEE ARE REQUIRED AND T HE ASSESSEE MAY BE DIRECTED TO PRODUCE SUCH DETAILS BEFORE THE ASSESSI NG OFFICER/TPO. WHILE RECORDING THE SAME, WE REMAND THE ISSUE TO THE FILE OF LD. A.O./TPO FOR CONSIDERING THE CAPACITY UNDERUTILIZATION ADJUSTMEN T IN THE LIGHT OF THE TP STUDY AND BY REQUIRING THE DETAILS, IF ANY, FROM TH E ASSESSEE. 15. IN RESPECT OF ECLERX SERVICES LTD., EXCLUSION O F WHICH IS CHALLENGED BY THE REVENUE, ACCORDING TO THE REVENUE, THIS IS A GOOD COMPARABLE AND RELIANCE IS PLACED ON THE REPORT OF LD. TPO, WHEREA S ACCORDING TO THE ASSESSEE, THIS ENTITY IS FUNCTIONALLY DISSIMILAR, I NASMUCH AS IT IS A KPO, ENGAGED IN FINANCIAL SERVICES; THAT IT IS ENGAGED I N DATA ANALYTICS AND DATA PROCESS SOLUTIONS; THAT IT PROVIDES VERY HIGH-END S ERVICES; THAT IT IS RECOGNISED AS EXPERT IN CHOSEN MARKET FINANCIAL SER VICES AND RETAIL AND MANUFACTURING; THAT THE YEAR OF ACQUISITIONS IS EXT RA-ORDINARY EVENTS; AND THAT IT HAS ABNORMAL MARGINS EARNED DUE TO EXTRA-OR DINARY CIRCUMSTANCES. 14 16. APART FROM THIS, IT IS BROUGHT TO OUR NOTICE TH AT IN THE ASSESSMENT YEAR 2010-11 IN ASSESSEES OWN CASE, THIS COMPARABL E IS CONSIDERED BY THE TRIBUNAL IN ITA NO. 1467/DEL/2015 AND WAS REJEC TED WITH THE FOLLOWING OBSERVATIONS : 12. THE NEXT COMPARABLE BY THE ASSESSEE IS THAT E CLARX SERVICES SUBMITTING THAT IT IS A KNOWLEDGE PROCESS OUTSOURCI NG (KPO) UNIT AND THEREFORE CANNOT BE COMPARED WITH THE ITES SERVICE PROVIDER LIKE ASSESSEE. THE ASSESSEE HAS RELIED ON THE DECISION O F HON'BLE DELHI HIGH COURT OF RAMGREEN SOLUTIONS PVT. LTD VS. CIT. 13. THE LD DR SUBMITTED THAT THE ASSESSEE IS ALSO A KNOWLEDGE PROCESS OUTSOURCING UNIT AS IT EMPLOYS 616 PERSONNE L. HE REFERRED TO PAGE NO. 6 OF THE ORDER OF THE LD TRANSFER PRICING OFFICER FOR THIS. HE SUBMITTED THAT ASSESSEES CASE FALLS INTO ALL THREE HORIZONTAL SEGMENTS OF ITES INDUSTRIES SUCH AS CALL CENTRE AND TECHNICAL S UPPORT, PAYMENT SUPPLY CHAIN AND ANALYTICS. HE THEREFORE, STATED THAT ECLA RX IS THE RIGHT COMPARABLE 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS AND PERUSED THE ANNUAL REPORT OF THE COMPARABLE FOR AY 2010-11 AT PAGE NO. 734 TO 83.7 OF THE PAPER BOOK. THE FUNCTIONS OF THE COMPAN Y ARE DESCRIBED AT PAGE NO. 23 OF ITS ANNUAL REPORT UNDER MANAGEMENT D ISCUSSION AND ANALYSIS. IT PROVIDES THAT ECLERX SUPPORTS ITS CLIE NTS THROUGH ITS TWO BUSINESS UNITS- CAPITAL MARKETS AND SALES AND MARKE TING SUPPORT. ACROSS BOTH THESE UNITS, THE COMPANY SUPPORTS AND IMPROVES PROCESSES THAT ARE CORE OF ITS CUSTOMERS DAY TO DAY BUSINESS OPERATION S. THE COMPANY CONTINUES TO FOCUS ON ENGAGEMENTS WHERE IT CAN TAP THE LARGEST PERCENTAGE OF CLIENT SPEND BY LEVERAGING ITS DOMAIN EXPERTISE AND BY BRINGING TOGETHER CONSULTING, PROJECT MANAGEMENT AN D SOLUTION BASED SERVICE DELIVERY. IN THE CAPITAL MARKETS DIVISION, THE COMPANY TODAY PROVIDES END-TO- END FINANCIAL TRANSACTION SUPPORT SERVICES SUCH AS TRADE BOOKING, TRADE CONFIRMATION, ASSET SERVICING CASH S ETTLEMENTS, CLIENT SERVICING RISK MANAGEMENT AND REFERENCE DATA INTEGR ITY ACROSS ALL ASSET CLASSES, AND ITS SERVICES SPAN BOTH SELL SIDE ( THE LARGE BANKS) AND BUY SIDE ( THE FUNDS AND ASSETS MANAGERS) FURTHERMORE, THE COMPANY PROVIDES STRATEGIC AND PROCESS CONSULTING SERVICES HELPING CLIENTS DEVISE SOLUTIONS TO IMPROVE EFFICIENCY,REDUCE RISK AND MEE T REGULATORY AND MARKET DEMANDS. SIMILARLY IN THE SALES AND MARKETIN G SUPPORT DIVISION, THE COMPANY TODAY SUPPORTS CLIENTS IN ALL ELEMENTS OF PRODUCT AND SERVICES MARKETING AND SALES WITH A FOCUS ON ONLINE SUPPORT TO INCLUDE 15 CONTENT DEVELOPMENT AND MANAGEMENT, SEARCH ENGINE M ANAGEMENT, WEB OPERATIONS, PRICING AND CUSTOMER ANALYTICS, PRO DUCT DATABASE MANAGEMENT AND CATALOG AUDITS. THE COMPANY IS ALSO PURSUING A STRATEGY OF CREATING A PORTFOLIO OF PLATFORM ATTACH ED SERVICES, BY CREATING A SUITE OF SERVICES THAT ARE COMPLEMENTARY TO INDUSTRY STANDARD IT PLATFORMS. A GLANCE AT THE FUNCTIONAL PROFILE OF THIS COMPANY DIVULGES THAT IT IS BASICALLY A KNOWLEDGE PROCESS OUTSOURCIN G (KPO) COMPANY PROVIDING DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO GLOBAL CLIENTS. THIS COMPANY PROVIDES END TO END SUPPORT THROUGH TRADE L IFE CYCLE INCLUDING TRADE CONFIRMATIONS AND SETTLEMENTS ETC. IT ALSO PR OVIDES SALES AND MARKETING SUPPORT SERVICES TO LEADING GLOBAL MANUFA CTURING, RETAIL, TRAVEL AND LEISURE COMPANIES THROUGH ITS PRICING AN D PROFITABILITY SERVICES. FURTHER THIS COMPANY HAS ALSO DEVELOPED I T TOOL AND PROCESS AUTOMATION. FROM THE ABOVE DISCUSSED NATURE OF BUSI NESS CARRIED ON BY E- CLERX SERVICES LTD., IT IS PATENT THAT THE SAME BEING A KPO COMPANY, IS QUITE DIFFERENT FROM THE ASSESSEE, PROVIDING ONLY I T ENABLED SERVICES TO ITS AE, WHICH FALL IN THE REALM OF BPO SERVICES. AP ART FROM THAT, IT IS FURTHER OBSERVED THAT THIS COMPANY HAS SIGNIFICANT INTANGIBLES WHICH IT USES IN RENDERING KPO SERVICES, AGAINST WHICH THE A SSESSEE DOES NOT HAVE ANY INTANGIBLES. THE HON'BLE JURISDICTIONAL HIGH CO URT IN RAMPGREEN SOLUTIONS (P.) LTD. V. CIT [2015] 234 TAXMAN 573/60 TAXMANN.COM 355 (DELHI), HAS HELD THAT E-CLERX SERVICES LTD., BEING ENGAGED IN KPO, CANNOT BE TREATED AS COMPARABLE OF AN ASSESSEE ENGAGED IN RENDERING BPO SERVICES. IN VIEW OF THE DIRECT JUDGMENT OF THE HON 'BLE JURISDICTIONAL HIGH COURT ON THE POINT, WE DIRECT TO ELIMINATE E-CLERX FROM THE LIST OF COMPARABLES. AS SUCH, E-CLERX SERVICES LTD. CANNOT BE CONSIDERED AS COMPARABLE. 17. IT IS NOT THE CASE OF THE REVENUE THAT THERE IS ANY CHANGE IN FACTS AND CIRCUMSTANCES OF THE CASE TO RENDER THIS VIEW T AKEN BY THE TRIBUNAL IN THE CASE OF ASSESSEE AS PERVERSE. WHEN THE FACTS RE MAIN SAME, WE FIND IT DIFFICULT TO TAKE A DIFFERENT VIEW FOR THIS ASSESSM ENT YEAR, IN AS MUCH AS THE FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY STAN DS UNCHANGED WHILE RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE CO-ORD INATE BENCH, WE HOLD THAT ECLERX SERVICES LTD. IS NOT A GOOD COMPARABLE AND THE LD. CIT(A) RIGHTLY DIRECTED ITS DELETION. 16 18. NOW, COMING TO THE GENESYS INTERNATIONAL CORPOR ATION LTD, (GIS) THE ASSESSEE HAS SUBMITTED THAT GENESYS IS MAINLY E NGAGED IN THE AREA OF GEOGRAPHICAL INFORMATION SYSTEM SERVICES AND THE CO MPANY PROVIDES HIGH END GIS SERVICES A' WHICH INCLUDE THE GENERATI ON, PROCESSING, MANAGEMENT AND MAINTENANCE OF DATA FOR GIS AND OTHE R INFORMATION MANAGEMENT SYSTEMS AND ALL OTHER SERVICES NECESSARY FOR SUCCESSFUL GEOSPATIAL DATA IMPLEMENTATION. THE GIS SERVICES PE RFORMED BY GENESYS IS FUNCTIONALLY DIFFERENT FROM THE FUNCTIONS PERFOR MED BY THE APPELLANT UNDER IT ENABLED SERVICES SEGMENT. IN THIS REGARD, THE ASSESSEE HAD SUBMITTED AS UNDER : GENESYS INTERNATIONAL CORPORATION LTD. ('GENESYS): SHOULD BE REJECTED THE LD. TPO HAS CONSIDERED GENESYS AS AN ITBS/BPO CO MPARABLE. THE APPELLANT DOES NOT AGREE TO THE SELECTION OF GENESY S AS A COMPARABLE AND THE CONTENT.ION(S) OF THE APPELLANT IN THIS REGARD, ARE DETAILED BELOW APPELLANT'S CONTENTIONS: 4.3.5.] FUNCTIONALLY DIFFERENT: ENGAGED IN GEOGRAPHI CAL INFORMATION SERVICES, ENGINEERING SERVICES AND SOFTWARE PRODUCT DEVELOPMENT SERVICES THE APPELLANT WOULD LIKE TO BRING TO YOUR GOODSELFS NOT ICE THAT GENESYS IS NOT FUNCTIONALLY COMPARABLE TO THE APPELLAN T. IT IS ENGAGED, IN PROVIDING GEOGRAPHICAL INFORMATION SERVICES COMPRISING OF PHOTOGRAMMETRY, REMOTE SENSING, CARTOGRAP HY, DATA CONVERSION AND OTHER COMPUTER BASED RELATED ACTIVITIES . THE BUSINESS MODEL OF GENESYS IS DIFFERENT FROM THAT OF T HE APPELLANT. GEOGRAPHICAL INFORMATION SERVICES (GIS): YOUR GOODSELF S ATTENTION IS DRAWN TO THE FOLLOWING EXTR ACT OF THE ANNUAL REPORT FOR FY 2008-09 (PAGE 39) WHICH EVIDENCE S THE FACT 17 THAT THE BUSINESS MODEL OF GENESYS IS DIFFERENT FROM THAT OF THE APPELLANT AND HENCE SHOULD BE REJECTED:.... FURTHER, AS MENTIONED ON PAGE XVI AND XVII OF THE ANN UAL REPORT OF GENESYS, THE COMPANY IS ENGAGED IN FOLLOWING RANGE OF ACTIVITIES > GIS CONSULTING: OFFERS CONSULTANCY SERVICES FOR NE EDS ASSESSMENT, SYSTEM REQUIREMENT, ANALYSIS AND DESIGN , GEOSPATIAL DATA SERVICES AND APPLICATION DEVELOPMENT; > 3D MAPPING: LARGE SCALE .3D CONTENT BUILDING; > NAVIGATION MAPS: CREATED DATA, BASE FOR MAPS NAVIG ATION AND RUNNING AN OFFSHORE PRODUCTION CENTRE'FOR DATA U PDATES AND ENHANCEMENTS; > LIDAR: INCLUDES GROUND POINT CLASSIFICATION, BUIL DING AND POWER LINE CLASSIFICATION VECTORIZATION AND VEGETATION CLASSIFICATION; > PHOTOGRAMMETRY REMOTE SENSING SERVICES: OFFERS COMPLETE RANGE OF PHOTOGRAMMETRIC SERVICES FOR MUNICI PAL MAPPING, UTILITIES MAPPING, ROAD AND HIGHWAY PLANNIN G, CADASTRAL MAPPING ETC.; UTILITY SERVICES: OFFERS END TO END SERVICES INCLUD ING CONSULTING TO BUILD ENTERPRISE-WIDE GIS TO ENHANCE LIFECYCLE MANA GEMENT OF BOTH THE PHYSICAL NETWORK AND CUSTOMERS' WORK PROCESSES, NET WORK DATA BUILDING & MAINTENANCE, MAPPING & SURVEY, INT EGRATION SERVICES, NETWORK PLANNING, LAND-BASE CONFLATION TO UT ILITY COMPANIES; IMAGE PROCESSING: SATELLITE DATA PROCESSING FOR GEOSPA TIAL DOMAIN; SURVEYING: SURVEYING THROUGH ELECTRONIC TOTAL STATION (ETS), DIFFERENTIAL GLOBAL POSITIONING SYSTEM' (DGPS)&OTHER CONTEMPORARY SURVEYING TECHNIQUES FOR MAPPING IN AD DITION TO MANAGEMENT LARGE HUMAN RESOURCE FOR COLLECTION OF POIN T OF INTEREST (POI) ATTRIBUTES; BUSINESS GEOGRAPHIES AND LOGISTICS: DECISION SUPPORT, SYSTEM, THAT CAN BE CUSTOMIZED, TO SUIT THE REQUIREMENTS OF THE E ND-USER; 18 CADASTRAL MAPPING; CITY SPACE: PROVIDES UNIQUE GEO DATA CONTENT FOR MOST URBAN AREAS OF INDIA, AND TELECOMMUNICATION ENGINEERING SERVICES: FURTHER, GENESYS IS ENGAGED IN OFFERING LIDAR (LIGH T DETECTION AND RANGING) ENGINEERING SERVICES INCLUDING MOBILE MAPP ING SURVEY IN INDIA AND HAS THE COUNTRY'S LARGEST FLEET OF MOBILE M APPING UNITS INCLUDING SIZEABLE NUMBER OF HIGH DEFINITION (LIDAR) SCANNING SYSTEMS. IT OFFERS THE FOLLOWING ENGINEERING SERVICE S: (SOURCE: HTTP://WWW.IGENESYS.COM/LIDAR_ENGINEERING.HTML) SURVEY AND MAPPING COMPREHENSIVE 2D / 3D TOPOGRAPHIC FEATURE MAPS CONTOUR MAPS (AT USER DEFINED INTERVALS) 3D DATA SETS (DSM, DEM, DTM) ENGINEERING DRAWINGS CROSS/LONG SECTIONS 3D ANIMATION/FLY THROUGH 19. LD. CIT(A) ANALYSED THE FUNCTIONAL PROFILE OF T HE ASSESSEE AS WELL AS GENESYS INTERNATIONAL CORPORATION LTD IN THE LIGHT OF DECISION OF HYDERABAD TRIBUNAL IN THE CASE OF PAREXEL INTERNATI ONAL (INDIA) PRIVATE LIMITED TO REACH A CONCLUSION THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT IN AS MUCH AS IT IS PROVIDING DATA MANAGEMENT AND D ATA PROCESSING SERVICES WHICH ARE IN THE NATURE OF LOW END SERVICE S AND IN VIEW OF FUNCTIONAL DISSIMILARITY, GENESYS INTERNATIONAL COR PORATION LTD CANNOT BE A GOOD COMPARABLE WITH THE COMPANY LIKE ASSESSEE. F URTHER, THIS GENESYS INTERNATIONAL CORPORATION LTD IS CONSIDERED IN THE CASE OF MERCER 19 CONSULTING (INDIA) VS. DCIT IN ITA NO. 966/DEL/2014 FOR ASSESSMENT YEAR 2009-10. 20. THE TRIBUNAL CONSIDERED THE ISSUE IN THE LIGHT OF CBDT CIRCULAR SO 890 (E) DATED 26.9.2000 IN PARA 14.3 OF THE ORDER AS UNDER : LD. TPO ON PAGE 48 OF HIS ORDER HAS EXAMINED CBDT C IRCULAR SO 890(E) DATED 26.09.2000 WHICH PROVIDES A DETAILED LI ST OF PRODUCTS OR SERVICES THAT CAN BE COVERED UNDER THE ITES FOR THE PURPOSES OF SECTION 10A AND 10B OF THE ACT. IN THIS CIRCULAR, TH E INFORMATION TECHNOLOGY ENABLED PRODUCTS/SERVICES HAVE BEEN DIVID ED INTO FIFTEEN CATEGORIES, STARTING WITH BANK OFFICE OPERA TIONS, CALL CENTRES ETC. AND ENDING WITH WEBSITE SERVICES. FROM THE VERY DESCRIPTION OF SUCH SERVICES, IT IS PALPABLE THAT E VEN THOUGH THESE FALL UNDER THE OVERALL ITES CATEGORY, BUT SOME OF THE M ARE QUITE DIFFERENT FROM EACH OTHER. TO CITE, SERVICE AT SI.NO. (VI) OF THIS CIRCULAR IS 'GEOGRAPHIC INFORMATION SYSTEM SERVICES A ND AT SI. NO. (VII) IS 'HUMAN RESOURCES SERVICES.' NO DOUBT, ALL TH ESE FIFTEEN CATEGORIES OF PRODUCTS/SERVICES HAVE BEEN INCLUDED UNDER THE MAJOR HEAD OF 'INFORMATION TECHNOLOGY ENABLED SERVICES' (ITES), BUT MOST OF THEM ARE QUITE DISTINGUISHABLE FROM OTHER S. IN OUR CONSIDERED OPINION, THE FIFTEEN BROAD CATEGORIES SET O UT IN THIS CIRCULAR CANNOT PER SE BE CLAIMED AS SIMILAR TO EACH OTHER. A CURSORY LOOK AT THESE PRODUCTS/SERVICES TRANSPIRES THA T SOME OF THEM ARE FUNCTIONALLY QUITE DIFFERENT FROM EACH OTHER. FURTHER THE LEVEL OF INVESTMENT REQUIRED FOR PROVIDING SUCH SERV ICES IS ALSO NOT CONSISTENT. IN OUR CONSIDERED OPINION, THE MERE FACT THAT TWO SERVICES ARE PLACED UNDER THIS CATEGORY DO NOT BECOME AUTOMATICALLY COMPARABLE. IF A CASE PROVIDING ONE CATE GORY OF SERVICES UNDER ITES IS CLAIMED AS COMPARABLE WITH AN OTHER IN THE CATEGORY OF SERVICE UNDER ITES AS PER THIS CIRCULAR , THEN IT MUST BE SHOWN EX FACIE THAT IT IS BROADLY SIMILAR. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE SERVICES RENDERE D BY GENESYS FALL UNDER CLAUSE (VI) WITH THE HEADING 'GEOGRAPHICAL INF ORMATION SYSTEMS SERVICES', WHEREAS THOSE RENDERED BY THE AS SESSEE FALL PARTLY UNDER CLAUSE (VII) WITH THE HEADING 'HUMAN R ESOURCES SERVICES' AND PARTLY UNDER CLAUSE (XI) WITH THE HEA DING 'PAYROLL'. ON JUXTAPOSITION EXAMINATION OF THESE TWO SETS OF SERVIC ES, WE FIND 20 THAT THERE IS A VAST DIFFERENCE WHICH MAKE ONE QUITE DISTINCT FROM THE OTHER. IN VIEW OF SUCH FUNCTIONAL INCOMPARABILITY BETWEEN THE ASSESSEE AND GENESYS, WE HOLD THAT THIS COMPANY CANN OT BE TREATED AS COMPARABLE. WE, THEREFORE, DIRECT TO EXCL UDE THIS CASE FROM THE LIST OF COMPARABLES. 21. AFTER CONSIDERING THE FUNCTIONAL PROFILE OF THI S GENESYS INTERNATIONAL CORPORATION LTD, THE TRIBUNAL OBSERVE D THAT GEO SPECIAL SERVICES PROVIDED BY THIS GENESYS INTERNATIONAL COR PORATION LTD RELATE TO THE RELATIVE POSITION OF THINGS ON THE EARTHS SURF ACE. THESE BASICALLY INCLUDE 3D MAPPING, NAVIGATION MAPS, IMAGE PROCESSI NG, CADASTRAL MAPPING ETC. AND DO NOT MATCH WITH THE SERVICES PRO VIDED BY THE ENTITY LIKE ASSESSEE WHICHARE INTO ITES SERVICES. FURTHER, FOR THE ASSESSMENT YEAR 2009-10, HONBLE PUNJAB & HARYANA HIGH COURT C ONSIDERED THIS COMPANY IN THE CASE OF CIT VS. M/S. MERCER CONSULTI NG FOR A.Y. 2009-10 TO REACH A CONCLUSION THAT GENESYS INTERNATIONAL CORPO RATION LTD. PROVIDES A FULL RANGE OF GEOSPATIAL SERVICES TO ITS CLIENTS. G EOSPATIAL SERVICES RELATE TO THE RELATIVE POSITION OF THINGS ON THE EARTHS SURF ACE. THIS INCLUDES 3D MAPPING, NAVIGATION MAPS, IMAGE PROCESSING AND CADA STRAL MAPPING ETC. AND SUCH SERVICES ARE ENTIRELY DIFFERENT FROM ITES. ON A CAREFUL CONSIDERATION OF THE FUNCTIONAL PROFILE OF THE ASSE SSEE AS NOTED SUPRA VIS A VIS THE SERVICES PROVIDED BY GENESYS INTERNATIONA L CORPORATION LTD, WE HAVE NO HESITATION TO HOLD THAT IT IS NOT A GOOD CO MPARABLE TO THE ASSESSEE AND RIGHTLY EXCLUDED BY THE LD. CIT(A). WE DECLINE TO INTERFERE WITH THE EXCLUSION OF ECLERX SERVICES LTD. AND GENE SYS INTERNATIONAL CORPORATION LTD AND TO THAT EXTENT, REVENUES CASE IS REJECTED. 21 22. LASTLY COMING TO THE WORKING CAPITAL ADJUSTMENT , LD. CIT(A) GAVE A VERY DETAILED REASONING VIDE PARAGRAPH NO. 5.5 OF H IS ORDER. FOR THE SAKE OF COMPLETENESS, WE EXTRACT SUCH OBSERVATIONS HEREU NDER : 5.5 AS REGARDS WORKING CAPITAL ADJUSTMENT, THE APP ELLANT HAS SUBMITTED AS UNDER: FROM AN ECONOMIC PERSPECTIVE, THE APPELLANT WOULD LIKE TO SUBMIT THAT, IN TERMS OF BUSINESS AND RISK COMPARABILITY, A SIGN IFICANT ASPECT FOR ALL ENTITIES IS THE REQUIREMENT OF WORKING CAPITAL. THE RE ARE THREE CRITICAL ELEMENTS IN THE WORKING CAPITAL POLICY OF A FIRM: ( A) LAGS BETWEEN THE TIME PRODUCTS ARE SOLD AND PAYMENTS ON THESE SALES ARE RECEIVED, WHICH CREATE ACCOUNTS RECEIVABLE, (B) LAGS BETWEEN THE TI ME INPUTS ARE PURCHASED AND PAYMENTS ON THESE PURCHASES BECOME DU E, WHICH CREATE ACCOUNTS PAYABLE AND (C) LAGS IN THE PHYSICAL PROCE SS OF PRODUCTION AND SALE, WHICH CREATE INVENTORIES. BY ALLOWING CUSTOME RS/ CREDITORS TO DEFER PAYMENT FOR A CERTAIN PERIOD, ANY COMPANY FOREGOES THE RIGHT TO RECEIVE ITS REVENUES IMMEDIATELY AND TO EARN, ADDITIONAL IN COME BY REINVESTING THESE REVENUES OVER THE DEFERRAL PERIOD. ALL COMPAN IES HAVE THEIR OWN LIMITS FOR DEFERRING SUCH PAYMENTS AND THESE LIMITS DETERMINE THAT WORKING CAPITAL CYCLES. SUCH CYCLES WOULD HAVE A DI RECT IMPACT ON THE REVENUE AND COST OF ANY ENTITY. ACCORDINGLY FOR A D UE ECONOMIC ANALYSIS, IT BECOMES IMPORTANT TO MAKE AN ADJUSTMENT FOR DIFF ERENT WORKING CAPITAL POSITIONS SO AS TO ELIMINATE THE IMPACT OF SUCH FACTORS FROM AN ARMS LENGTH COMPARISON. IN VIEW OF THE ABOVE IT IS HUMBLY SUBMITTED THAT AD EQUATE ADJUSTMENT NEEDS TO BE MADE FOR DIFFERENCES IN WORKING CAPITAL POSITION OF THE APPELLANT VIS-A-VIS COMPARABLE COMPANIES. IN THIS REGARD, THE APPELLANT WOULD LIKE TO PLACE R ELIANCE ON THE FOLLOWING CASE LAWS: ..FURTHER, IN CASE OF QUALCOMM INDIA PVT. LTD. VS. ACIT (ITA NO. 5239/DEL/2010), IT WAS HELD : QUOTE .....IN THE PRESENT CASE THE ASSESSEE IS ENGAGED I N THE BUSINESS OF SOFTWARE DEVELOPMENT AND PROVIDING MARKETING SERVIC ES, HENCE THERE IS NO DISPUTE THAT APPROPRIATE ADJUSTMENT TO ACCOUNT F OR DIFFERENCE IN WORKING CAPITAL EMPLOYED BY THE ASSESSEE VIS. A VIS . THE COMPARABLE 22 COMPANIES FOR SOFTWARE DEVELOPMENT SERUUES IS REQUI RED TO BE CONSIDERED. SIMILARLY MAKING OF SUITABLE ADJUSTMENT S TO (WIUUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE ASSESSEE VIS . A VIS. THE COMPARABLE COMPANIES FOR SOFTWARE DEVELOPMENT SERVICES IS ALSO REQUIRED TO BE CONSIDERED UNQUOTE FURTHER. N WAS HELD IN CAPGEMIM INDIA PRIVATE LIMIT ED CASE (ITA NO 786 1 MUM/ 201 I): QUOTE ..IN OUR VIEW, WORKING CAPITAL ADJUSTMENTS ARE REQ UIRED, TO BE MADE BECAUSE THESE DO IMPACT THE PROFITABILITY OF THE CO MPANY.,,, . ...WORKING CAPITAL CANNOT BE DENIED TO THE ASSESSEE ONLY ON GR OUND THAT THE ASSESSEE HAD NOT MADE ANY CLAIM IN THE TRP STUDY IF IT IS POSSIBLE TO MAKE SUCH ADJUSTMENT. IN OUR VIEW, WORKING CAPITAL ADJUSTMENT WILL IMPROVE THE COMPARABILITY. UNQUOTE [EMPHASIS SUPPLIED] THUS, THE APPROACH OF ADOPTED BY THE APPELLANT WHER EIN, IT MADE WORKING CAPITAL ADJUSTMENTS TO ACCOUNT FOR THE DIFF ERENCES IN WORKING CAPITAL POSITIONS OF THE COMPARABLE COMPANIES VIS-A -VIS THE APPELLANT HAD A VALID SANCTION OF THE LAW........... THE APPELLANT, WISHES TO SUBMIT THAT THE APPELLANT HAS DEMONSTRATED THAT THE DIFFERENCE IN WORKING CAPITAL IS RESULTING IN A DIFFERENCE IN THE MARGINS EARNED BY THE APPELLANT AND THE COMPARABLES . AS MENTIONED ABOVE THE APPELLANT RELIED ON THE AVAI LABLE GUIDANCE FROM, THE OECD'S GUIDELINES 2010 AND PERFORMED WORK ING CAPITAL ADJUSTMENTS TO THE COMPARABLE COMPANIES AS PER THE FORMULA PROVIDED IN OECD. I HAVE EXAMINED THE ISSUE OF WORKING CAPITAL ADJUST MENT. FOR THE PURPOSES OF PROPER COMPARABILITY DIFFERENCES IN THE PRICES CHARGED BY THE APPELLANT AND THE COMPARABLES ARISING ON ACCOUN T OF DIFFERENT LEVELS OF WORKING CAPITAL ARE REQUIRED TO BE ELIMINATED. T HE OECD GUIDELINES ALSO SUPPORT, THIS VIEW, IN A COMPETITIVE ENVIRONME NT THE PRICE SHOULD INCLUDE AN ELEMENT TO REFLECT THE DIFFERENT PAYMENT AND RECEIPT TERMS AND COMPENSATE FOR THE TIMING EFFECT. GUIDELINES FU RTHER SAY THAT MAKING A WORKING CAPITAL ADJUSTMENT IS AN ATTEMPT T O ADJUST FOR THE DIFFERENCE IN TIME VALUE OF MONEY BETWEEN THE TESTE D PARTY AND POTENTIAL COMPARABLES WITH AN ASSUMPTION THAT THE D IFFERENCE SHOULD BE 23 REFLECTED IN PROFITS. THOUGH GUIDELINES SAY THAT AS A MATTER OF ROUTINE SUCH ADJUSTMENT SHOULD NOT BE MADE BUT ALSO STATE T HAT THE SAME SHOULD BE RESORTED TO IF IT IMPROVES THE COMPARABIL ITY. THE PROVISIONS CONTAINED IN RULE 1QB(3) ALSO MANDATE ADJUSTMENTS W HEREVER THERE ARE MATERIAL DIFFERENCES IN THE SITUATIONS OF COMPARABL ES AND THE TAXPAYER, THE DIFFERENT BENCHES OF THE ITATS HAVE UPHELD SUCH ADJUSTMENT [VEDARIS TECHNOLOGY ITAT (DEL); SONY INDIA 1114ITD4 48(DEL)J, MENTOR GRAPHICS, E GAIN COMMUNICATION 2008-TIOL-282-ITAT-P UNE, GLOBAL VANTEDGE 2010-TOP-24 ITAT-DEL, TNT INDIA P LTD 2011 -TII-39-ITAT- BANG-TP ETC. ACCORDINGLY, THE AO/TPO IS THEREFORE D IRECTED TO GRANT WORKING CAPITAL ADJUSTMENT BASED ON THE OECD FORMUL A AND BY TAKING THE PLR AS ADOPTED BY THE SLATE BANK OF INDIA IN FY 2008-09 FOR WORKING CAPITAL LOANS 23. IN VIEW OF THE CONSIDERED OBSERVATIONS OF THE L D. CIT(A), WE ARE OF THE CONSIDERED OPINION THAT NO INTERFERENCE IS REQU IRED AND WHILE UPHOLDING THE SAME, WE REJECT THE CHALLENGE OF THE REVENE ON THIS ASPECT. 24. FOR THE ABOVE REASONS, THE APPEAL OF THE ASSESS EE IS ALLOWED IN PART FOR STATISTICAL PURPOSES AND APPEAL OF THE REV ENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 02 ND DAY OF FEBRUARY, 2021 IMMEDIATELY AFTER THE CONCLUSION OF THE HEARING OVER VIRTUAL MODE. SD/- SD/- (ANIL CHATURVEDI) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 02/02/2021 AKS