M/s 24/7 Customer Private Limited , Bangalore V. Deputy Commissioner of INCome TAx Circle-2(1)(1), Bangalore

ITA 2541/BANG/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9411 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-03-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 30-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Services rendered outside India
• Section: 271(1)(c); 92C; 143(3); 10AA; 234B; 133(6); 43D

Judgement Text

IT(TP)A.2541/BANG/2017 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T(TP).A NO.2541/BANG/2017 (ASSESSMENT YEAR : 2013-14) 24/7, CUSTOMER P. LTD, PRESTIGE TECH PLATINA 2, VARTHUR HOBLI, OUTER RING ROAD BETWEEN SARJAPUR AND MARATHAHALLI, BENGALURU 560087 .. APPELLANT PAN : AAACZ1014A V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 2(1)(1), BENGALURU .. RESPONDENT ASSESSEE BY : 1. SHRI. S. D. KAPILA, ADVOCATE 2. SHRI. SUSHIL KUMAR, ADVOCATE 3. SHRI. JEETAM NAGPAL, CA 4. SMT. PALLAVI SHARMA, CA REVENUE BY : SMT. NEERA MALHOTRA, CIT -DR HEARD ON : 18.03.2019 PRONOUNCED ON : .04.2019 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE DCIT, CIRCLE -2(1)(1), BENGALURU, DATED.26.09.2 017, PASSED U/S.143(3) R.W.S.144C(13) OF THE IT ACT, IN PURSUAN CE TO THE IT(TP)A.2541/BANG/2017 PAGE - 2 DIRECTIONS OF THE DRP, FOR THE ASSESSMENT YEAR 2013 -14 ON THE FOLLOWING GROUNDS : THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW - 1.THE ORDER OF THE LD. DRP PASSED U/S 144C(5) OF TH E ACT IS LACONIC AND DEVOID OF REASONING OR APPLICATION OF M IND. 2. THE FINAL ASSESSMENT ORDER DATED 26.9.2017 PASS ED BY THE LD. AO U/S 143(3) R.W.S. 114C(13) OF THE ACT IS BAD IN LAW AND ON THE FACTS OF THE CASE. GROUNDS OF APPEAL QUA THE TRANSFER PRICING MATTERS - 3. THE LD. DRP[FPO ERRED IN MAKING AN ADDITION OF R S.31,07,95,547 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACT IONS ENTERED BY THE APPELLANT. 4.THE LD. DRPPO HAVE ERRED IN ENHANCING THE TP ADJU STMENT FROM RS. 29,55,15,684 TO RS. 31,07,95,547 WITHOUT PUTTIN G THE APPELLANT TO NOTICE. 5. THE LD. DRP/TPO HAVE ERRED IN NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT AND SUO MOT O CONDUCTING A FRESH ECONOMIC ANALYSIS FOR DETERMI NATION OF ALP. 6. THE LD. DRP/TPO HAVE ERRED IN LAW AND ON FACTS IN ARBITRARILY SELECTING INFOSYS BPO LIMITED. HARTRON COMMUNICATIONS LIMITED AND CAPGEMINI BUSINESS SERVICES INDIA PVT. LTD. AS COMPARABLE EVEN THOUGH THEY ARE INCOMPARABLE OIL GROUND OF DISSIMILARIT Y OF FUNCTIONS PERFORMED. ASSETS EMPLOYED OR / AND RISK. 7. THE LD. DRP/TPO ERRED IN LAW AND OIL IN INCORRECTL Y COMPUTING OP/OC RATIO OF HARTRON COMMUNICATIONS LIMITED AND E4E HEALTHCARE BUSINESS SERVICES PRIVAT E LIMITED. 8. THE LD. DRP /TPO ERRED IN LAW IN REJECTING AND THUS EXCLUDING R SYSTEMS INTERNATIONAL LIMITED (SEG.) AND CALIBER POINT BUSINESS SOLUTIONS FOR THE SOLE REASO N THAT THESE COMPANIES FOLLOW CALENDAR YEAR AS THEIR ACCOU NTING YEAR AND IN REJECTING INFORMED TECHNOLOGIES INDIA L TD. FOR THE IT(TP)A.2541/BANG/2017 PAGE - 3 REASON THAT IT DOES NOT SATISF Y THE CORE SERVICE FILTER OR FILTER OF 'INCOME FROM NON-FINANCIAL SERVICES TO SALES OF >75 %'. 9. THE LD. DRP/TPO HAVE ERRED IN NOT GIVING THE BENEF IT OF +/-3% UNDER THE PROVISO OF SECTION 92C OF THE ACT. 10. THE LD. DRP/TPO HAVE ERRED IN BEING INCONSISTENT IN SELECTIVELY INVOKING POWER U/S 133(6) FOR COLLECTING INFORMATION FROM THE COMPANIES. 11. THE LD. DRP/TPO HAVE VIOLATED THE PRINCIPLES OF NAT URAL JUSTICE B Y NOT ALLOWING THE APPELLANT AN OPPORTUNITY TO CROSS EXAMINE PERSONS WHO HAVE FURNISHED THE INFORMATION U/S 133(6) OF THE ACT. 12. THE LD. DRP/TPO HAVE ERRED IN LAW IN IGNORING THE F ACT THAT SINCE THE INCOME OF THE APPELLANT FROM EXPORT OF IT ES IS HAVING A TAX HOLIDAY U/S 10AA, THERE IS NO MOTIVE O R REASON TO SHIFT PROFITS OUT OF INDIA. GROUND OF APPEAL QUA THE RE-COMPUTATION OF THE DEDU CTION U/S 10AA 13. THE LD. DRP/AO HAVE ERRED IN LAW AND ON FACTS IN AC TING CONTRAR Y TO THE JUDGMENT OF JURISDICTIONAL 1-UGH COURT B Y RESTRICTING THE DEDUCTION CLAIMED BY THE APPELLANT UNDER SECTION 1 OAA OF THE ACT BY REDUCING LEASED LINE CH ARGES INCURRED IN FOREIGN CURRENC Y AMOUNTING TO RS.55,95,413 ONL Y FROM EXPORT TURNOVER WITHOUT MAKING A CORRESPONDING REDUCTION I N THE TOTAL TURNOVER. 14. THAT WITHOUT PREJUDICE TO THE OTHER GROUNDS OF APP EAL THE LD. DRP/AO HAS ERRED IN LAW AND OF FACTS B Y NOT CONSIDERING THAT DEDUCTION UNDER SECTION 10AA OF THE ACT HAS TO BE C OMPUTED. AFTER TAKING INTO ACCOUNT DISALLOWANCE UNDER SECTIO N 30 TO 43D OF THE ACT. ACCORDINGL Y THE LD. DRP/AP OUGHT TO HAVE GIVEN EFFECT TO THE ABOVE DISALLOWANCE BEFORE ARRIV ING AT THE PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 1OAA OF THE AC T. GROUNDS OF APPEAL QUA THE DISALLOWANCE OF SOFTWARE DEVELOPMENT EXPENSES 15. THE LD. DRP/AO HAVE ERRED IN LAW AND ON FACTS IN DI SALLOWING EXPENDITURE ON PURCHASE OF SOFTWARE AMOUNTING TO RS .47,66,421 BE TREATING THE SAME TO BE CAPITAL IN NATURE. IT(TP)A.2541/BANG/2017 PAGE - 4 16. WITHOUT PREJUDICE, THE LD. DRP/AO HAVE ERRED IN LA W AND ON FACTS IN NOT GRANTING CONSEQUENTIAL DEPRECIATION AT THE RATE OF 60% ON THE SOFTWARE DISALLOWED AS CAPITAL IN NAT URE. 17. THE LD. DRP/AO HAVE ERRED IN LAW AND ON FACTS IN NOT GRANTING CURRENT Y EAR DEPRECIATION AT THE RATE OF 60% ON SOFTWARE EXPENDITURE DISALLOWED AS CAPITAL IN NATUR E IN THE EARLIER YEARS. OTHER GROUNDS 18. THE DRP/AO HAVE ERRED IN LAW AND ON FACTS IN LEVYING INTEREST OF RS.5.70.73,182 UNDER SECTION 234B AND 234C OF THE A CT. 19. THAT THE LD. DRP/AO HAVE ERRED IN LAW AND ON FACTS IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. ASSESSEE FILED THE FOLLOWING REVISED ADDITIONAL GRO UNDS OF APPEAL: 02. AT THE OUTSET THE LD. AR FOR THE ASSESSEE HAD S UBMITTED THAT THE GROUNDS 1, 2 AND 3 ARE GENERAL IN NATURE, WHERE AS GROUNDS 4, 5, 9, 10, 11, 12, 14 TO 19 ARE NOT PRESSED. IT WAS ALS O SUBMITTED BY THE LD. AR THAT THE ASSESSEE HAD FILED THE APPLICATION FOR ADDITIONAL GROUND FOR ADMITTING THE SAME VIDE LETTER DATED 18. 05.2018 AND IT WAS SUBMITTED THAT THE ASSESSEE HAD GIVEN ELABORATE REASON IN THE IT(TP)A.2541/BANG/2017 PAGE - 5 APPLICATION FOR ADMITTING THE ADDITIONAL GROUND. IT WAS SUBMITTED THAT THE GROUNDS NOW SOUGHT TO BE TREATED AS ADDITI ONAL GROUNDS ARE REQUIRED TO BE CONSIDERED AS SUFFICIENT MATERIAL, A S THE FRESH MATERIAL WOULD BE REQUIRED TO BE CONSIDERED BY THE TPO / DRP / TRIBUNAL, FOR ADJUDICATING. IT WAS PRAYED THAT THESE GROUND S MAY BE ADMITTED. 03. THE LD. DR HAD NOT OPPOSED TO THE ADMISSION OF ADDITIONAL GROUND. IN VIEW OF THE ABOVE ADDITIONAL GROUNDS NUM BER 1 TO 5 FILED VIDE APPLICATION DT.18.05.2018, ARE ADMITTED. 04. THE MAIN GROUNDS WHICH NOW REMAIN FOR ADJUDICAT ION WHICH ARE GROUND NOS.6, 7, 8 AND 13 AND THE ADDITIONAL GR OUNDS NOS.1 TO 5. 05. NOW WE WILL DEAL ONE AFTER THE OTHER. AT THE OUTSET THE LD. AR HAD SUBMITTED GROUND NO.6 PERTAINS TO EXCLUSION OF INFOSYS BPO, HARTRON COMMUNICATIONS LTD AND CAPGEMINI BUSIN ESS SERVICES INDIA P. LTD, IN THIS REGARD OTHER ATTENT ION WAS DRAWN TO OBJECTIONS RAISED BY THE ASSESSEE AND THE ORDER PAS SED BY THE DRP. THE DRP HAD AT PARA 12 DEALT WITH THE INFOSYS BPO I N PARA 4.1.2.4 AND HAD DECIDED TO INCLUDE THIS COMPANY. WHERE AS O UR ATTENTION WAS ALSO DRAWN TO THE GROUND RAISED BEFORE THE DRP AGAINST THE INCLUSION OF INFOSYS BPO AT PAGE 96, IT WAS MENTIO NED AS UNDER : SL NO. COMPARABLE COMPANIES ASSESSEES CONTENTIONS 6 INFOSYS BPO LTD USE OF 133(6) INFORMATION FUNCTIONALLY DIFFERENT MARKET LEADER SIGNIFICANT SELLING, MARKETING & BRAND BUILDING EXPENSES SIGNIFICANT BRAND VALUE AND OWNS SIGNIFICANT INTANGIBLES IT(TP)A.2541/BANG/2017 PAGE - 6 EXCEPTIONAL YEAR OF OPERATIONS (COMPLETED SEVERAL MERGERS AND ACQUISITIONS DURING THE YEAR) FALLS EXPORTS SERVICES FILTER (74.06% OF TOTAL TURNOVER) IT WAS SUBMITTED BY THE LD. AR THAT THE DRP WHILE A DJUDICATING GROUNDS HAVING CONSIDERED ALL THE OBJECTIONS RAISED BY THE ASSESSEE WITH RESPECT TO EXCLUSION OF THIS COMPARABLE. 06. SIMILARLY, THE LD. AR HAD ALSO DRAWN OUR ATTEN TION TO THE HARLTRON COMMUNICATIONS LTD. OUR ATTENTION WAS ALSO DRAWN TO THE ORDER OF THE DRP AT PAGE 14 WHERE IN PARA 4.1.2.5, THE DRP HAD RECORDED THIS AND OUR ATTENTION WAS ALSO DRAWN TO T HE OBJECTION RAISED BY THE ASSESSEE BEFORE THE DRP AT PAGE 97 WH ICH IS AS UNDER: SL NO. COMPARABLE COMPANIES ASSESSEES CONTENTIONS 7 HARLTRON COMMUNICATIONS LTD (SEGMENTAL) FUNCTIONALITY DIFFERENT AS THE COMPANY IS ENGAGED IN CUSTOM SOFTWARE DEVELOPMENT SERVICES, INTELLECTUAL PROPERTY SERVICES, WEB HOSTING, TECH SOLUTIONS, APART FROM BACK OFFICE SERVICES. EXCEPTIONAL YEAR OF OPERATION AS THE COMPANY HAS RECORDED A STEEP INCREASE IN THE REVENUE EARNED FROM BPO BUSINESS TO THE TUNE OF APPROX. 483.72% OVER LAST YEAR 07. IN RESPECT OF CAPGEMINI BUSINESS SERVICES INDIA P. LTD, THE LD. AR HAD DRAWN OUR ATTENTION TO PAGE 11 OF THE DR P ORDER WHERE THE ASSESSEES CONTENTIONS ARE RECORDED AS UNDER: IT(TP)A.2541/BANG/2017 PAGE - 7 2 CAPGEMINI BUSINESS SERVICES INDIA P. LTD FUNCTIONALITY DIFFERENT AS THE COMPANY IS ENGAGED IN PROVIDING BUSINESS PROCESS MANAGEMENT SERVICES AND ASSURANCE AND COMPLIANCE SERVICES. NO SEGMENTAL INFORMATION IS AVAILABLE. BRAND VALUE 08. ON THE BASIS OF THE ABOVE THE LD. AR SUBMITTED THAT THE TPO / DRP BOTH HAVE NOT DISCUSSED AND EXAMINED THE OBJECT IONS RAISED BY THE ASSESSEE ON THE BASIS OF WHICH THE ASSESSEE HAS SOUGHT EXCLUSION AND THE DRP IN A CRYPTIC AND STEREOTYPED MANNER HAD PASSED THE ORDER WITHOUT CONSIDERING IN DETAIL THE OBJECTIONS RAISED BY THE ASSESSEE. 09. PER CONTRA THE LD. DR HAD SUBMITTED THAT SHE RE LIED ON THE ORDERS PASSED BY THE LOWER AUTHORITIES. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. FROM A PERUSAL OF THE ORDER REPRODUCED HERE IN ABOVE AND THE OBJECTION RAISED BY THE ASSESSEE, IT IS CL EAR THAT THE ASSESSEE HAS RAISED MULTIPLE OBJECTIONS. BUT THE DRP WHILE P ASSING THE ORDER HAD RESTRICTED TO ADJUDICATION OF ONE OR TWO OBJECT IONS ONLY AND HAS NOT BOTHERED TO CONSIDER AND PASS AN ELABORATE AND REASONED ORDER ACCEPTING OR REJECTING THESE COMPARABLES. IN THE L IGHT OF THE ABOVE, WE DEEM IT APPROPRIATE TO REMAND THE MATTER BACK FO R EXAMINATION OF THESE COMPARABLES TO THE FILE OF THE TPO / AO BY CONSIDERING ALL THE OBJECTIONS RAISED BY THE ASSESSEE. NEEDLESS TO SAY WHILE DOING SO, THE TPO WILL ALSO CONSIDER THE BINDING PRECEDEN T OF THE JURISDICTIONAL TRIBUNAL IN THE MATTER OF CGI INFORM ATION SYSTEMS & IT(TP)A.2541/BANG/2017 PAGE - 8 MANAGEMENT CONSULTANTS P. LTD [101 TAXMANN.COM 294] AND SHALL ALSO CONSIDER THE OTHER DECISIONS OF THE COORDINATE BENCH INCLUDING THE DECISION OF THE HYDERABAD BENCH IN THE MATTER O F HYUNDAI MOTOR ENGINEERING P. LTD V. DCIT [102 TAXMANN.COM 1 0]. THE GROUND NO.6 IS ALLOWED FOR STATISTICAL PURPOSE. 11. GROUND NO.7 AND ADDITIONAL GROUNDS 2 AND 3 OF T HE ADDITIONAL GROUNDS IS WITH RESPECT TO EXCLUSION OF HARTON COMM UNICATION LTD, OMEGA HEALTHCARE MANAGEMENT AND E4E HEALTHCARE BUSI NESS SERVICES P. LTD, IT WAS THE SUBMISSION OF THE LD. AR THAT THESE THREE COMPARABLES WERE REQUIRED TO BE EXCLUDED BEIN G FUNCTIONALLY DISSIMILAR TO THE ASSESSEE . IN RESPECT OF E4E HEA LTHCARE BUSINESS SERVICES P. LTD, IT WAS MENTIONED THAT THIS IS COM PARABLE QUALIFY ALL THE FILTERS OF THE TPO. HOWEVER THE TPO HAS CONSIDE RED THE CURRENT YEAR DATA AND APPLIED THE PLI AS 17.26%. WITH RESP ECT TO OMEGA HEALTHCARE MANAGEMENT, IT WAS SUBMITTED THAT THE DA TA WAS NOT AVAILABLE IN PUBLIC DOMAIN. BEFORE THE DRP THE LD. AR HAD DRAWN OUR ATTENTION TO PARA 2.4.1.5 AT PAGE 69, WHEREIN I T WAS MENTIONED AS UNDER : 2.4.1.5. OMEGA HEALTHCARE MANAGEMENT SERVICES HAVING CONSIDERED THE SUBMISSIONS, WE NOTE THAT THE TPO HAS REJECTED STATING THAT NO DATA IS AVAILABLE IN P UBLIC DOMAIN. HOWEVER THE ASSESSEE HAS STATED THAT THE D ATA IS AVAILABLE IN PUBLIC DOMAIN AND THAT THE COMPANY IS ENGAGED IN MEDICAL CODING, BILLING, ACCOUNTS RECEIV ABLE MANAGEMENT AND CLAIMS PROCESS. THE ASSESSEE SUBMIT TED THE ANNUAL REPORT OF THIS COMPANY AND AT PAGE NO.2 AS PER THE STATEMENT OF PROFIT AND LOSS ACCOUNT & DIRECTOR S REPORT, REVENUE FROM SALE OF SERVICES WAS RS.13.91 CRORES AND THIS ENTIRE REVENUE IS FROM EXPORT OF SERVICES. WE ALSO IT(TP)A.2541/BANG/2017 PAGE - 9 NOTE THAT THIS COMPANY SATISFIES THE FILTERS APPLIE D BY THE TPO. CONSIDERING THESE, WE ARE OF THE VIEW THAT TH IS COMPANY IS FUNCTIONALLY COMPARABLE. ACCORDINGLY, W E DIRECT THE TPO TO TAKE THIS COMPANY AS COMPARABLE. 13. BY WAY OF ADDITIONAL GROUND IT WAS SUBMITTED TH AT THIS COMPANY IS NOT COMPARABLE AS THE ASSESSEE HAD SUBMI TTED BEFORE US THAT RPT OF THIS COMPARABLE IS 100% AND THEREFORE T HIS FACT WAS REQUIRED TO BE EXAMINED. HOWEVER WITH RESPECT TO E 4E HEALTHCARE BUSINESS SERVICES P. LTD, NO OBJECTION WAS RAISED O R ORDER WAS PASSED BY THE DRP. BEFORE US IT WAS SUBMITTED IN R ESPECT TO BOTH THE COMPARABLES THAT THESE WERE REQUIRED TO GO BACK TO THE TPO FOR EXAMINATION AS BOTH THE COMPANIES ARE INTO HEALTHCA RE SERVICES AND THE RPT IS MORE THAN 15% AND THEREFORE THESE COMPAN IES ARE TO BE EXCLUDED. SIMILARLY OUR ATTENTION WAS DRAWN TO PAGE 97 OF APB ( PAGE 12 OF ORDER ) WHERE THE DRP HAD DEALT WITH THIS COMPARABL E. LD AR RELIED UPON VARIOUS CASE LAWS FOR EXCLUDING THIS CO MPARABLE 14. ON THE OTHER HAND THE LD. DR HAD NO OBJECTION I F THE MATTER IS SENT BACK TO THE TPO FOR CONSIDERATION AFRESH. 15. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE MATE RIAL ON RECORD. FROM THE PERUSAL OF THE ABOVE SAID ORDER OF THE DRP AT PAGE 12 IT IS CLEAR THAT THE DRP HAD PASSED A CRYPTIC STEREO TYP E ORDER AND HAD NOT SPECIFICALLY DEALT WITH ALL THE OBJECTIONS RAIS ED BY THE ASSESSEE. IN VIEW OF THE ABOVE THE ORDER PASSED BY THE DRP IS CRYPTIC, STEREOTYPED AND IS WITHOUT ANY REASONING. AS THE O RDER WAS IT(TP)A.2541/BANG/2017 PAGE - 10 SILENT ON MATERIAL ASPECTS, THEREFORE WE REMAND THE GROUND NO 7 TO THE FILE OF TO AO / TPO TO DECIDE A FRESH . THE ADDITIONAL GROUNDS 2 & 3 ARE GENERAL IN NATURE AND ARE RELATED TO RPT ISSUE IN THE SAID GROUNDS. HOWEVER NONETHEL ESS THE FUNCTIONAL PROFILE OF THESE TWO COMPARABLES ARE REQ UIRED TO BE EXAMINED BY THE TPO AFRESH AFTER CONSIDERING THE DA TA OF THE CURRENT YEAR INTO ACCOUNT. ACCORDINGLY ADDITIONAL G ROUND NO 2 AND 3 ARE ALLOWED FOR STATISTICAL PURPOSE. 16. THE GROUND NO.8 PERTAINS TO 3 COMPARABLES NAMEL Y R SYSTEMS INTERNATIONAL LIMITED (SEG) AND CALIBER POINT BUSIN ESS SOLUTIONS AND INFORMED TECHNOLOGIES INDIA LTD DRP HAD EXCLUDE D THESE COMPARABLES ON THE PRETEXT THAT CURRENT YEAR DATA IS NOT AVAILABLE AND THE CALENDAR YEAR OF THESE THREE COMPANIES ARE DIFFERENT FROM THE CALENDAR YEAR OF THE ASSESSEE COMPANY. IT WAS S UBMITTED THAT IN TERMS OF THE DECISION OF THE HONOURABLE DELHI HIGH COURT IN THE FOLLOWING MATTERS : I) MICKINSEY KNOWLEDGE CENTER (PG.2222 AT 1121 / VO L-IV) II) MERCER CONSULTING [390 ITR 615] III) INDECOMM (BANG) THE ISSUE IS NO MORE RES INTEGRA. IT WAS FAIRLY SET TLED BY THE COORDINATE BENCH AS WELL AS THE HIGH COURT WITH FAI R CERTAINTY THAT IF THE DATA OF THE CURRENT FINANCIAL YEAR CAN BE INTER POLATED BY ADDING THE FIRST AND LAST QUARTER, THEN EVEN THESE COMPANI ES ARE REQUIRED TO BE CONSIDERED AS GOOD COMPARABLES IF OTHERWISE FUNC TIONALLY COMPARABLE WITH THE COMPANY. IT(TP)A.2541/BANG/2017 PAGE - 11 17. THE LD. DR HAD RELIED ON THE ORDERS PASSED BY T HE LOWER AUTHORITIES. 18. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE HONOURABLE DELHI HIGH COURT IN MICKINSEY KNOWLEDGE CENTER AFTER ELABORATE DISCUSSION HAD RECORDED A FINDING THAT IF THE CURRENT YEAR DATA CAN BE DERIVED / DEDUCED BY INCLU DING THE FIRST AND LAST QUARTER OF THE CALENDAR YEAR AND THE COMPANY I S AN OTHERWISE FUNCTIONALLY COMPARABLE WITH THE ASSESSEE THEN THE DATA SO DERIVED SHOULD BE UTILISED FOR THE PURPOSES OF CARRYING OUT THE FAR ANALYSIS. IN VIEW OF THE ABOVE, WE ALLOW THE GROUND NO.8 RAIS ED BY THE ASSESSEE AND REMAND THE MATTER BACK TO THE TPO / AO FOR THE PURPOSE OF RECALCULATING THE CURRENT YEAR DATA IN T HE MANNER LAID DOWN IN THE MATTER OF MICKINSEY KNOWLEDGE CENTER, MERCER CONSULTING AND IN DECOMM. 19. NOW WE ARE LEFT WITH ADDITIONAL GROUND NO.1, WH ICH PERTAINS TO RISK ADJUSTMENT. IN THIS REGARD, THE LD. AR HAD SUBMITTED THAT THE ASSESSEE IS ENTITLED TO RISK ADJUSTMENT IN TERMS O F THE LAW LAID DOWN IN THE MATTER OF HYUNDAI ROTEM COMPANY ITA NO 510/ DEL/ 2016, SONY INDIA (P) LTD 114 ITD 448 ETC. 20. THE LD. DR SUBMITTED THAT NO CALCULATION WAS PR OVIDED BY THE ASSESSEE BEFORE THE DRP OR THE TPO. THEREFORE ASSES SEE IS NOT ENTITLED TO RISK ADJUSTMENT. 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. SINCE WE ARE REMANDING THE MATTERS IN RESPECT OF NI NE COMPARABLES TO THE FILE OF TPO THEREFORE WE DEEM IT APPROPRIATE TO REMAND THIS IT(TP)A.2541/BANG/2017 PAGE - 12 MATTER ALSO BACK TO THE FILE OF THE AO / TPO WITH A DIRECTION THAT THE ASSESSEE SHALL PROVIDE DETAILED WORKING OF THE RISK ASSUMED BY THE ASSESSEE AND ALSO BY COMPARABLES ON THE BASIS OF TH E PARAMETERS LAID DOWN BY VARIOUS PRONOUNCEMENTS INCLUDING IN THE MAT TER OF MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA (P.) LTD [2018] 90 TAXMANN.COM 300 (BANGALORE - TRIB.) , WHEREIN THE B ENCH HAD HELD AS UNDER : 7.1 IN THIS GROUND, REVENUE ASSAILS THE ORDER OF THE D RP FOR GRANTING 1% RISK ADJUSTMENT ARBITRARILY WITHOUT APPRECIATING THE FACTS OF THE CASE AND THE COMPARABLES. ACCORDING TO THE LEARNED DEPAR TMENTAL REPRESENTATIVE SINCE, EXCEPT FOR MAKING THE CLAIM, NO WORKING OF THE ASSESSEE'S CLAIM FOR RISK ADJUSTMENT HAD BEEN FILED , THEREFORE THE ASSESSEE IS NOT ENTITLED FOR BEING GRANTED ANY RISK ADJUSTME NT. IN SUPPORT OF THIS, RELIANCE WAS PLACED ON THE DECISION OF THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL IN THE CASE OF SYNIVERSE TELEDATA SYSTEMS LTD. V. DY. CIT [2017] 80 TAXMANN.COM 196 (BANG. - TRIB.) (2017). 7.2 PER CONTRA, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE WORKING OF ASSESSEE'S CLAIM FOR RISK ADJUSTMENT WAS FILED BEFORE THE DRP. HOWEVER, IN THE COURSE OF PRO CEEDINGS, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT GROUND NO.11 OF THE ASSESSEE'S APPEAL RELATED TO RISK ADJUSTMENT IS NOT BEING PRESSED. 7.3.1 WE HAVE HEARD BOTH PARTIES, PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE DRP, AT PARA 1 4 OF ITS ORDER, HAD RELIED ON ITS DECISION IN THE EARLIER ASSESSMENT YE AR 2010-11 AND DIRECTED THE TPO TO ALLOW RISK ADJUSTMENT AND DECID E THE PERCENTAGE OF RISK ADJUSTMENT TO BE ALLOWED. AS A MATTER OF GUIDA NCE, THE DRP REFERRED TO A DECISION OF THE ITAT, HYDERABAD IN THE CASE OF DY. CIT V. HELLOSOFT (P.) LTD. [2013] 32 TAXMANN.COM 101/57 SOT 4 WHEREIN 1% RISK ADJUSTMENT WAS ALLOWED. FROM THE ABOVE, IT IS SEEN THAT THE DRP HAS MERELY REFERRED TO A DECISION IN WHICH 1% RISK ADJU STMENT WAS GRANTED AND IT IS NOT CORRECT TO SAY THAT DRP DIRECTED THAT 1% RISK ADJUSTMENT IS TO BE GRANTED IN THIS CASE. 7.3.2 THE BANGALORE BENCHES OF THE TRIBUNAL, WHILE ALLOW ING RISK ADJUSTMENT TO CAPTIVE SERVICE PROVIDERS, AS A MATTE R OF PRINCIPLE HAS HELD IN MANY CASES, ;INCLUDING THE ONE CITED (SUPRA), TH AT RISK ADJUSTMENT CANNOT BE GRANTED UNLESS THE ASSESSEE HAS SUBMITTED COMPUTATION OF THE SAME BEFORE THE AUTHORITIES BELOW. IN THE CASE ON H AND, WE FIND THAT THOUGH THE ASSESSEE IN FORM 35A SUBMITTED BEFORE TH E DRP, AT ANNEXURE/OBJECTION 13 THEREOF, MENTIONED RISK ADJUS TMENT AT 4.92%, NO SCIENTIFIC BASIS OR WORKING IN RESPECT OF THE ASSES SEE'S CLAIM VIS--VIS THE COMPARABLE COMPANIES HAD BEEN PROVIDED. EVEN ON PAG ES 890 & 891 OF PAPER BOOK (ANNEXURE 9-B), NO WORKING HAS BEEN GIVE N IN RESPECT OF RISK IT(TP)A.2541/BANG/2017 PAGE - 13 ADJUSTMENT CLAIMED AT 6.26% VIS--VIS THE COMPARABL E COMPANIES. SINCE THE ASSESSEE HAS NOT GIVEN THE COMPUTATION OF RISK ADJUSTMENT OF THE ASSESSEE VIS--VIS THE COMPARABLE COMPANIES, WE HOL D THAT THE ASSESSEE SHALL NOT BE ENTITLED TO ANY RISK ADJUSTMENT AND AC CORDINGLY REVERSE THE DRP'S DECISION GRANTING THE ASSESSEE RISK ADJUSTMEN T. IN COMING TO THIS VIEW, WE PLACE RELIANCE ON THE DECISION OF THE CO-O RDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SYNIVERSE TELEDATA SYSTEMS (P.) LTD. (SUPRA) WHICH COVERS THE ISSUE SQUARELY IN FAVOUR OF THE RE VENUE IN THE LIGHT OF THE FACTUAL MATRIX OF THE CASE. CONSEQUENTLY, GROUN D NO.4 OF REVENUE'S APPEAL FOR ASSESSMENT YEAR 2011-12 IS ALLOWED. SINCE IN PRESENT CASE COMPUTATION OF RISK ADJUSTM ENT IS NOT PROVIDED BY THE ASSESSEE, HENCE RESPECTFULLY FOLLOW ING THE DECISION OF THE BENCH IN THE MATTER OF MERCEDEZ(SUPRA) WE S END BACK ADDITIONAL GROUND NO.1, TO THE FILE OF TPO. 22. ADDITIONAL GROUND NOS.4 PERTAIN TO ERRORS IN COMPUTATION OF WORKING CAPITAL ADJUSTMENT. THE DRP HAD DIRECTED TH E TPO TO WORK OUT THE WORKING CAPITAL ADJUSTMENT AS PER ITS DIREC TION. HOWEVER THE TPO WHILE GIVING EFFECT TO THE DIRECTIONS OF THE DR P HAD REPEATED THE WORKING CAPITAL ADJUSTMENT PREVIOUSLY DONE BY T HE TPO. THE LD. DR HAD SUBMITTED THAT THIS GROUND MAY ALSO BE S ENT BACK TO THE TPO TO RECOMPUTE THE WORKING CAPITAL ADJUSTMENT, AF TER TAKING INTO ACCOUNT VARIOUS COMPARABLES NOW SOUGHT TO BE INCLUD ED / EXCLUDED BY THE ASSESSEE. 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN TERMS OF THE SUBMISSION MADE BY THE LD. DR, WE REMAND THIS ISSUE TO THE FILE OF THE TPO FOR THE CA LCULATING THE WORKING CAPITAL ADJUSTMENT, IF ANY, IN ACCORDANCE W ITH LAW AND THE TPO SHALL CONSIDER ALL THE BINDING DECISIONS OF THE HIGH COURT / COORDINATE BENCH. THESE GROUNDS ARE ALLOWED FOR ST ATISTICAL PURPOSE. IT(TP)A.2541/BANG/2017 PAGE - 14 24. ADDITIONAL GROUND NOS.5 PERTAIN TO WORKING C APITAL ADJUSTMENT AT INTEREST RATE APPLICABLE TO US CURREN CY. THE TPO HAD CONSIDERED AVERAGE PLR OF 14.58% WHILE COMPUTING T HE WORKING CAPITAL ADJUSTMENT. LD AR HAD SUBMITTED THAT THE AS SESSEE IS ONLY RECEIVING IN US CURRENCY THEREFORE RATE AS APPLICAB LE IN US SHOULD BE CONSIDERED FOR WORKING OUT WORKING CAPITAL ADJUS TMENT . HE RELIED UPON VARIOUS JUDGMENT INCLUDING COTTON NATUR AL 276 CTR 445, RAMPGREEN SOLUTIONS ETC THE LD. DR HAD SUBMITTED THAT THIS GROUND MAY ALSO BE SENT BACK TO THE TPO TO RECOMPUTE THE WORKING CAPITAL ADJUSTM ENT, AFTER TAKING INTO VARIOUS JUDGMENT RELIED UPON BY THE ASS ESSEE. 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN TERMS OF THE SUBMISSION MADE BY THE LD. DR, WE REMAND THIS ISSUE ALSO TO THE FILE OF THE TPO FOR R ECALCULATING THE WORKING CAPITAL ADJUSTMENT, IF ANY, IN ACCORDANCE W ITH COTTON NATURAL 276 CTR 445, RAMPGREEN SOLUTIONS ETC AND ANY OTHER DECISIONS AS FOUND APPLICABLE. TPO SHALL CONSIDER A LL THE BINDING DECISIONS OF THE HIGH COURT / COORDINATE BENCH. TH IS ADDITIONAL GROUND NO 5 IS ALLOWED FOR STATISTICAL PURPOSE. 26. GROUND NO.13 OF THE MAIN GROUNDS PERTAIN TO DED UCTION U/S.10A OF THE ACT. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THIS ISSUE IS PUT TO REST BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE MATTER OF CIT V. HCL TECHNOLOGIES LTD [(2018) 93 TAXMANN.COM 33], WHEREIN THE HONBLE SUPREME COURT HAS DECIDED THE ISSUE IN FAVO UR OF THE IT(TP)A.2541/BANG/2017 PAGE - 15 ASSESSEE HOLDING THAT THE EXPENSES BE REDUCED BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER. THE H ONBLE SUPREME COURT IN PARAS 20 AND 21, HELD AS UNDER : 20. EVEN IN COMMON PARLANCE, WHEN THE OBJECT OF THE FO RMULA IS TO ARRIVE AT THE PROFIT FROM EXPORT BUSINESS, EXPEN SES EXCLUDED FROM EXPORT TURNOVER HAVE TO BE EXCLUDED FROM TOTAL TURNOVER ALSO. OTHERWISE, ANY OTHER INTERPRETATION MAKES THE FORMULA UNWORKABLE AND ABSURD. HENCE, WE ARE SATISFIED THAT SUCH DEDUCTION SHALL BE ALLOWED FROM THE TOTAL TURNOVER IN SAME PROPORTION AS WELL. 21. ON THE ISSUE OF EXPENSES ON TECHNICAL SERVICES PRO VIDED OUTSIDE, WE HAVE TO FOLLOW THE SAME PRINCIPLE OF IN TERPRETATION AS FOLLOWED IN THE CASE OF EXPENSES OF FREIGHT, TELECOMMUNICATION ETC., OTHERWISE THE FORMULA OF CA LCULATION WOULD BE FUTILE. HENCE, IN THE SAME WAY, EXPENSES I NCURRED IN FOREIGN EXCHANGE FOR PROVIDING THE TECHNICAL SERVIC ES OUTSIDE SHALL BE ALLOWED TO EXCLUDE FROM THE TOTAL TURNOVER . RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE HONB LE SUPREME COURT, WE DIRECT THAT THE EXPENSES INCURRED SHALL B E DEDUCTED BOTH FROM THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNO VER FOR ARRIVING AT THE DEDUCTION U/S.10A OF THE ACT. 27. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON ___ DAY OF AP RIL , 2019. (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER BENGALURU DATED : 04.2019 MCN* IT(TP)A.2541/BANG/2017 PAGE - 16 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.