NCS Pearson India Ltd., New Delhi V. ACIT, New Delhi

ITA 2556/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3839 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 12-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 25-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY TRIPATHI SENI
• Assessee Lawyers: KHYATI OADHWAL
• Keywords: Transfer pricing; International transaction; Permanent establishment
• Section: 143(3); 234B; 144; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.2556/DEL./2014 (ASSESSMENT YEAR : 2009-10) NCS PEARSON INDIA PRIVATE LIMITED, VS. ACIT, 4 TH FLOOR, 18 TH RAMNATH HOUSE, CIRCLE 13 (1), YUSUF SARAI, COMMUNITY CENTRE, NEW DELHI. NEW DELHI 110 016. (PAN : AABCN7923R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VISHAL KALRA, ADVOCATE AND MS. KHYATI OADHWAL, ADVOCATE REVENUE BY : SHRI H.K. CHOUDHARY, CIT DR AND SHRI SANJAY TRIPATHI, SENIOR DR DATE OF HEARING : 07.09.2017 DATE OF ORDER : 25.10.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. NCS PEARSON INDIA PRIVATE LIMI TED (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 30.01.2014, PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH SECTION 144 C OF THE ITA NO.2556/DEL/2014 2 INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2009-10 ON THE GROUNDS INTER ALIA THAT :- 1. THE ASSESSMENT ORDER DATED JANUARY 30,2014, PASSED BY THE LEARNED ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 13(1), NEW DELHI ('THE AO') UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE INCOME-TAX ACT, 1961 ('THE ACT') IS NOT IN ACCORDANCE WITH THE LAW AND IS CONTRARY TO THE FACT S AND CIRCUMSTANCES OF THE PRESENT CASE. TRANSFER PRICING ADJUSTMENT 2. THE HONOURABLE DISPUTE RESOLUTION PANEL ('DRP') HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ADJUSTMENT TO THE ARM'S LENGTH PRICE MADE BY TH E LEARNED AO TO THE INCOME OF THE ASSESSEE, BASED ON THE ORDER, PURPORTEDLY UNDER SECTION 92CA OF THE ACT, PASSED BY ADDITIONAL DIRECTOR OF INCOME-TAX, TRANSFER PRICING OFFICER - II (1) ('TPO'). 3. REJECTION OF THE TRANSFER PRICING DOCUMENTATION OF THE APPELLANT 3.1 THE HONOURABLE DRP AND THE LEARNED TPO HAS ERRED IN LAW AND ON FACTS IN REJECTING THE TRANSFER PRICING ('TP') DOCUMENTATION WHICH HAS BEEN PREPARED BY THE APPELLANT IN THE MANNER AS CONTEMPLATED UNDER THE RELEVANT PROVISIONS OF THE ACT AND THE INCOME-TAX RULES,1962 ('THE RULES'). 3.2 THE HONOURABLE DRP AND LEARNED TPO HAS ERRED IN LAW AND ON FACTS IN DETERMINING AN ADJUSTMENT OF RS.848,162 TO THE INCOME OF NCS INDIA, WITHOUT FIRST ESTABLISHING THAT ANY OF THE CONDITIONS SPECIFIED IN CLAUSES (A) TO (D) TO SECTI ON 92C(3) OF THE ACT WERE ATTRACTED. 3.3 THE HONOURABLE DRP HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE TPO'S/AO'S FINDING THAT THER E ARE DEFECTS IN THE APPELLANT'S DETERMINATION OF ARM 'S LENGTH PRICE AND IN HOLDING THAT THE TRANSFER PRICI NG ITA NO.2556/DEL/2014 3 STUDY UNDERTAKEN BY THE APPELLANT IS 'UNRELIABLE OR INCORRECT', UNDER SECTION 92C(3) OF THE ACT. 3.4 THE HONOURABLE DRP AND THE LEARNED TPO HAVE ERRED IN LAW AND ON FACTS IN UNDERTAKING A NEW SEARCH AND SELECTING FRESH COM PARABLES. 4. USE OF MULTIPLE YEAR DATA 4.1 HONOURABLE DRP AND LEARNED AO/TPO HAVE ERRED IN LAW AND ON FACTS IN REJECTING THE USE OF MULTIPLE YEAR DATA, WITHOUT CONSIDERING THAT THE PA ST YEAR DATA HAD AN INFLUENCE ON THE DETERMINATION OF ARM'S LENGTH PRICE AND THAT THE APPELLANT HAD CONSIDERED CONTEMPORANEOUS DATA AVAILABLE AT THE TIME WHEN IT CARRIED OUT THE BENCHMARKING STUDY HAVING REGARD TO THE STATUTORY REQUIREMENT TO MAINTAIN THE TRANSFER PRICING DOCUMENTATION BY THE SPECIFIED DATE. 5. FILTERS AND QUANTITATIVE CRITERIA APPLIED BY TH E ASSESSEE 5.1. A) THE HONOURABLE DRP AND THE LEARNED AO / TPO ERRED IN LAW IN ADOPTING/MODIFYING THE ADDITIONAL FILTERS FOR CONDUCTING TP ANALYSIS, WITH OUT APPRECIATING THE TP DOCUMENTATION PREPARED BY THE ASSESSEE. B) THE HONOURABLE DRP AND THE LEARNED TPO HAS ERRED, IN LAW AND ON FACTS, BY REJECTING TH E FILTER ADOPTED BY NCS INDIA I.E. TO REJECT COMPANIE S HAVING NO SALES AND INSTEAD CONSIDERED A FILTER OF EXCLUDING COMPANIES HAVING SALES LESS THAN 5 CRORES . THE LEARNED TPO HAS FAILED TO APPRECIATE THAT NCS INDIA HAS A LOW TURNOVER WHEN COMPARED TO THE COMPARABLES SELECTED BY THE TPO. 5.2 HONORABLE DRP AND THE LEARNED TPO, HAS ERRED IN LAW AND ON FACTS, IN UPHOLDING THE INCLUSI ON OF THE FOLLOWING 4 ADDITIONAL COMPARABLE COMPANIES BY THE LEARNED TPO WITHOUT CONSIDERING THE DETAILED SUBMISSIONS OF THE APPELLANT: ITA NO.2556/DEL/2014 4 - ACCENTIA TECHNOLOGIES LIMITED - COSMIC GLOBAL LIMITED - GENESYS INTERNATIONAL LIMITED - CROSSDOMAIN SOLUTION PRIVATE LIMITED - INFOSYS BPO LIMITED 5.3 THE HONORABLE DRP AND THE LEARNED TPO HAVE ERRED IN LAW AND ON FACTS, IN INCLUDING ECLERX SERVICES LTD AS A COMPARABLE COMPANY WITHOUT CONSIDERING THE DETAILED SUBMISSIONS OF THE APPELLA NT AS WELL AS REQUEST OF THE APPELLANT THAT THE SAME H AS BEEN ERRONEOUSLY INCLUDED IN ITS TRANSFER PRICING DOCUMENTATION. 5.4. THE LEARNED TPO, HAS ERRED IN LAW AND ON FACTS, IN NOT INCLUDING THE FOLLOWING 5 COMPARABLE COMPANIES PROPOSED TO THE LEARNED TPO WITHOUT CONSIDERING THE DETAILED SUBMISSION OF THE APPELLAN T: - ALLSEC TECHNOLOGIES LIMITED - CG VAK SOFTWARE AND EXPORTS LIMITED - INFORMED TECHNOLOGIES LIMITED - MICROGENETICS SYSTEMS LIMITED 5.5 THE LEARNED AO HAS ERRED IN LAW AND ON FACTS BY UPHOLDING THE ADJUSTMENT TO THE INCOME OF NCS INDIA PROPOSED BY THE TP OFFICER CONSEQUENT TO INCORRECTLY COMPUTING THE ALP IN RESPECT OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY NCS INDIA WITH ITS ASSOCIATED ENTERPRISES. 6. RISK ADJUSTMENT AND WORKING CAPITAL ADJUSTMENT 6.1. THE HONOURABLE DRP AND THE LEARNED AO/ TPO HAVE ERRED IN NOT APPRECIATING THAT THE APPELLANT, BEING A CAPTIVE SERVICE PROVIDER OPERATE D AT LOWER RISK LEVELS AS COMPARED TO COMPARABLE COMPANIES, WHICH CARRY HIGHER RISKS AND ACCORDINGLY ERRED IN NOT GRANTING APPROPRIATE RISK ADJUSTMENTS TO THE MARGINS OF THE COMPARABLES. ITA NO.2556/DEL/2014 5 6.2. THE HONOURABLE DRP HAS ERRED IN UPHOLDING THE TPO'S/AO'S CONCLUSION THAT THERE EXISTS A SINGL E CUSTOMER AND POLITICAL RISK AND THAT SUCH A RISK NULLIFIES ANY RISK ADJUSTMENT THAT COULD BE PROVIDE D. OTHER CORPORATE TAX MATTERS 7. THE HONOURABLE DISPUTE RESOLUTION PANEL ('DRP') HAS ERRED, IN LAW AND ON FACTS, IN MAKING AN OBSERVATION THAT THE APPELLANT IS A PERMANENT ESTABLISHMENT OF NCS USA AND THAT THE APPELLANT WAS REQUIRED TO WITHHOLD TAXES ON THE REMITTANCE OF FEES TO NCS USA. 8. THE LD AO HAS ERRED, IN LAW AND ON FACTS, IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 9. THE LD AO HAS ERRED, IN LAW AND ON FACTS, IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT. 2. BY MOVING A SEPARATE APPLICATION, THE TAXPAYER S OUGHT TO RAISE ADDITIONAL GROUNDS ON THE GROUND THAT THE SAM E GO TO THE ROOT OF THE CASE WHICH ARE AS UNDER :- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE ASSESSING OFFICER HAS ERRED IN INCORRECTLY CONSIDERING THE TRANSFER PRICING ADJUSTMENT OF THE APPELLANT AT INR 82,20,908 AS AGAINST INR 8,48,162 DETERMINED BY THE TRANSFER PRICING OFFICER VIDE ITS ORDER DATED JANUARY 21, 2014, PASSED IN PURSUANCE T O THE DIRECTIONS OF DISPUTE RESOLUTION PANEL. 3. KEEPING IN VIEW THE FACT THAT THE ADDITIONAL GRO UND SOUGHT TO BE RAISED BY THE TAXPAYER, THOUGH NOT RAISED BEFORE THE LD. DRP, IS NECESSARY FOR COMPLETE ADJUDICATION OF THE CONTROVE RSY AT HAND, THE APPLICATION FOR ADDITIONAL GROUND IS HEREBY ALLOWED . ITA NO.2556/DEL/2014 6 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : THE TAXPAYER IS INTO THE BUSINESS OF PROVIDING ELECTRONICS TEST DELIVERY SERVICES TO CER TAIN INTERNATIONAL ENTITIES THAT HAVE ESTABLISHED LEVELS OF EDUCATION, TRAINING AND/OR TESTING EXPERIENCE. THESE INTERNATIONAL ENTITIES I SSUE SPECIFIED CERTIFICATION OR OTHER FORM OF RECOGNIZED POSITION, TITLE OR STATUS BASED ON THEIR ONLINE TEST CONDUCTED THROUGH NC INC . THE TAXPAYER ENTERED INTO INTERNATIONAL TRANSACTION WITH ASSOCIA TED ENTERPRISES (AE) DURING ASSESSMENT YEAR UNDER CONSIDERATION AS UNDER :- NO. NATURE OF TRANSACTION METHOD VALUE OF 1 PROVISION OF COLLECTION, CO-ORDINATION AND TECHNICAL SUPPORT TNMM 121,172,163 2 COLLECTION ON THE BEHALF OF AE CUP 134,681,883 3 REIMBURSEMENT OF AMOUNT RECEIVED ON SALES OF ASSETS BY NCS INDIA ON BEHALF OF NCS INC. USA CUP 20,400 4 REIMBURSEMENT OF COST INCURRED BY NCS INDIA ON BEHALF OF NCS INC. USA CUP 1,598,051 5 REIMBURSEMENT OF COST INCURRED BY NCS INDIA ON BEHALF OF EDEXCEL CUP 929,172 5. THE TAXPAYER IN ITS TP STUDY REPORT SHOWN TO HAV E ENGAGED IN PROVIDING COLLECTION, COORDINATION AND TECHNICAL SUPPORT TO ITS AE EARNING A MARGIN OF 15% ON COST. THE TAXPAYER I N ORDER TO BENCHMARK THIS TRANSACTION CHOSEN 15 COMPARABLES HA VING MARGIN OF 11.72% BY USING MULTIPLE YEAR DATA AND HAVE FOUN D ITS INTERNATIONAL TRANSACTIONS AT ARMS LENGTH. PURSUA NT TO THE SHOW- CAUSE NOTICE ISSUED BY LD. TPO, THE TAXPAYER FILED VARIOUS ITA NO.2556/DEL/2014 7 SUBMISSIONS, FROM WHICH TPO PROCEEDED TO CONCLUDE T HAT THE ASSESSEE HAS NOT GIVEN ANY BIFURCATION OF COST OF V ARIOUS SERVICES AS IT WAS PROVIDING ITES BUSINESS SUPPORT AND TECHNICA L SUPPORT SERVICES TO ITS AE. TPO ALSO NOTICED THAT THE TAXP AYER HAS ONLY SELECTED ITES AND SOFTWARE COMPANIES TO BENCHMARK I TS INTERNATIONAL TRANSACTIONS. 6. AFTER APPLYING VARIOUS FILTERS AND DURING THE TP PROCEEDINGS, A FRESH SEARCH WAS CONDUCTED ON THE BASIS OF FILTER S APPLIED BY TPO AND THE TAXPAYER HAS SELECTED 8 COMPARABLES. THE L D. TPO AFTER DISCUSSING ALL THE OBJECTIONS RAISED BY THE TAXPAYE R SELECTED 9 COMPANIES AS COMPARABLES FOR BENCHMARKING THE INTER NATIONAL TRANSACTIONS QUA ITES SEGMENT HAVING AVERAGE MARGIN OF 37.72%. SIMILAR SET OF COMPARABLES HAVE BEEN TAKEN BY THE L D. TPO FOR BENCHMARKING THE INTERNATIONAL TRANSACTION QUA BUSI NESS SUPPORT SERVICES SEGMENT HAVING AVERAGE MARGIN OF 22.35%. ACCORDINGLY, TPO PROCEEDED TO COMPUTE THE ARMS LENGTH PRICE (AL P) OF SUPPORT SERVICES FOR ITES SEGMENT AND ALP OF BUSINE SS SUPPORT SERVICES AT RS.11,49,090/- AND RS.73,72,746/- RESPE CTIVELY AS THE SHORT FALL BEING ADJUSTMENT U/S 92CA. 7. THE TAXPAYER CARRIED THE MATTER BY WAY OF FILING OBJECTIONS BEFORE THE LD. DRP WHO HAS PARTLY ALLOWED THE OBJEC TIONS. FEELING ITA NO.2556/DEL/2014 8 AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIB UNAL BY WAY OF FILING THE PRESENT APPEAL. 8. 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. GROUNDS NO.1 & 2 9. GROUNDS NO.1 & 2 ARE GENERAL IN NATURE AND DO NO T REQUIRE ANY ADJUDICATION. GROUNDS NO.3, 3.1, 3.2, 3.3 & 3.4, 10. GROUNDS NO.3, 3.1, 3.2, 3.3 & 3.4 ARE ACADEMIC IN NATURE AND DO NOT NEED ANY ADJUDICATION. GROUNDS NO.4, 4.1, 5, 5.1, 5.3, 5.4 & 5.5 11. GROUNDS NO.4, 4.1, 5, 5.1, 5.3, 5.4 & 5.5 ARE N OT PRESSED, HENCE DISMISSED AS NOT PRESSED. GROUNDS NO.5.2 & 5.3 12. UNDISPUTEDLY, FOR ITES SUPPORT SERVICES, THE TA XPAYER CHARGED COST + 15% AND FOR BUSINESS SUPPORT SERVICE S, THE TAXPAYER CHARGED COST + 5% FROM ITS AE. TNMM AS MOST APPROP RIATE METHOD USED BY THE TAXPAYER FOR BENCHMARKING INTERN ATIONAL ITA NO.2556/DEL/2014 9 TRANSACTIONS HAS BEEN ACCEPTED BY THE LD. TPO. IT IS ALSO NOT IN DISPUTE THAT THE LD. DRP UPHELD THE COMPARABLES CHO SEN BY THE LD. TPO BUT ALLOWED WORKED CAPITAL ADJUSTMENT. IT IS A LSO NOT IN DISPUTE THAT ADJUSTMENT MADE BY THE TPO/AO QUA BUSI NESS SUPPORT SERVICES IS NOT NOW SUSTAINABLE IN VIEW OF THE ORD ER PASSED U/S 154 OF THE ACT. 13. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRC UMSTANCES OF THE CASE, THE LD. AR FOR THE TAXPAYER TO CUT SHORT ITS ARGUMENTS BY CONTENDING THAT THE TAXPAYER ONLY SOUGHT EXCLUSION OF 3 COMPARABLES VIZ. (I) ACCENTIA TECHNOLOGIES LIMITED, (II) COSMIC GLOBAL LIMITED AND (III) ECLERX SERVICES LIMITED FROM THE FINAL SET OF COMPARABLES CHOSEN BY THE LD. TPO TO BENCHMARK I NTERNATIONAL TRANSACTIONS QUA ITES SEGMENT. WE WILL EXAMINE AFO RESAID COMPARABLES ONE BY ONE SO AS TO DETERMINE THEIR SUI TABILITY TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. ACCENTIA TECHNOLOGIES LTD. (ACCENTIA) 14. THE LD. AR FOR THE TAXPAYER CHALLENGED THE SUIT ABILITY OF ACCENTIA AS COMPARABLE TO THE TAXPAYER ON TWO GROUN DS : (I) IT IS FUNCTIONALLY DIFFERENT; AND (II) THAT IT HAS UNDERG ONE EXTRA ORDINARY EVENTS DURING THE RELEVANT YEAR AND DREW OUR ATTENT ION TOWARDS PAGES 33, 36 & 32 OF THE PAPER BOOK CONTAINING ITS ANNUAL REPORT. ITA NO.2556/DEL/2014 10 15. AS FAR AS FUNCTIONAL DISSIMILARITY OF ACCENTIA VIS--VIS THE TAXPAYER IS CONCERNED, PERUSAL OF THE ANNUAL REPORT AT PAGE 33 CATEGORICALLY SUPPORTS THE CONTENTION OF THE LD. AR FOR THE TAXPAYER THAT IT IS FUNCTIONALLY DISSIMILAR BECAUSE ACCENTIA SERVICES AND SOLUTIONS ARE FOCUSED IN TWO MAIN AREA : (I) HEALTH CARE RECEIVABLES CYCLE MANAGEMENT (HRCM) AND (II) SOFTWARE PRODUCTS FOR BUSINESS PROCESSING OUTSOURCING (BPO). 16. SO FAR AS QUESTION OF EXTRA ORDINARY EVENTS DUR ING THE YEAR UNDER CONSIDERATION IS CONCERNED, IT IS APPARENT FR OM PAGE 32 OF THE FINANCIALS OF ACCENTIA THAT ACCENTIA ACQUIRES 10% S TAKES IN TRANS SERVICES INC., USA LEADING TO ABNORMAL GROWTH IN SA LE (57%) DUE TO RESTRUCTURING ACTIVITIES. FURTHERMORE THE LD. A R FOR THE TAXPAYER CONTENDED THAT COMPLETE SEGMENTAL DATA IS NOT AVAIL ABLE AND DREW OUR ATTENTION TO PAGE 61 OF THE ANNUAL REPORT I.E. SCHEDULES FORMING PART OF PROFIT & LOSS ACCOUNT. 17. LD. DR FOR THE REVENUE TO REPEL THE ARGUMENTS A DDRESSED BY LD. AR FOR THE TAXPAYER ON FUNCTIONAL DISSIMILARITY CONTENDED THAT CODING IS BASICALLY A SOFTWARE DEVELOPMENT AND THAT INCOME FROM CODING IS TREATED AS INCOME FROM SOFTWARE AND DREW OUR ATTENTION TO PAGE 61 OF THE ANNUAL REPORT. NO DOUBT INCOME FROM CODING IS TREATED AS INCOME FROM SOFTWARE BUT IN THE ABSENCE OF INSUFFICIENT SEGMENTAL DATA, THIS CONTENTION CANNOT BE ACCEPTED. ITA NO.2556/DEL/2014 11 18. MOREOVER, ACCENTIA HAS BEEN EXCLUDED BY THE COO RDINATE BENCH OF THE TRIBUNAL AS COMPARABLE TO THE COMPANY RENDERING ITES SERVICES DURING AY 2009-10 IN THE CASES CITED AS CUMMINS TURBO TECHNOLOGIES LTD. VS. DCIT (2016) 68 TAXMAN N.COM 273 (PUNE TRIB.), MAXIMIZE LEARNING (P) LTD. VS. ACIT (2015) 58 TAXMANN.COM 169 (PUNE TRIB.) AND BNY MELLON INTER NATIONAL OPERATIONS (INDIA) (P.) LTD. VS. DCIT (2015) 41 I TR (T) 407 (PUNE) . 19. IN CUMMINS TURBO TECHNOLOGIES LTD. (SUPRA), ACCENTIA HAS BEEN ORDERED TO BE EXCLUDED BY FOLLOWING MAXIMIZE LEARNING (P) LTD. (SUPRA). IN MAXIMIZE LEARNING (P) LTD. (SUPRA), SUITABILITY OF ACCENTIA WITH COMPANIES RENDERING ITES HAS BEEN EXA MINED AND FOUND TO BE NOT A SUITABLE COMPARABLE ON GROUND OF EXTRA ORDINARY CIRCUMSTANCES I.E. AMALGAMATION AS WELL AS FUNCTION AL DISSIMILARITY. 20. SIMILARLY, IN BNY MELLON INTERNATIONAL OPERATIONS (INDIA) (P.) LTD. (SUPRA), ACCENTIA HAS BEEN ORDERED TO BE EXCLUDED AS A COMPARABLE VIS--VIS COMPANY RENDERING ITES SERVICE S ON THE GROUND THAT IT IS ENGAGED IN DEVELOPING ITS OWN SOF TWARE PRODUCT AND IS RENDERING MEDICAL TRANSCRIPTION SERVICES. 21. IN CASE OF MACQUARIE GLOBAL SERVICES (P.) LTD. VS. DCIT (2015) 39 ITR (T) 390 (DELHI-TRIB.) , ACCENTIA HAS BEEN ORDERED TO BE EXCLUDED FOR BENCHMARKING THE FUNCTIONAL TRANSAC TIONS FOR ITA NO.2556/DEL/2014 12 PURPOSE OF COMPARABILITY WITH COMPANY RENDERING ITE S SERVICES ON THE GROUND THAT ACCENTIA APART FROM BEING ENGAGE D IN ITES IS ALSO DEALING WITH SOFTWARE PRODUCTS AND ITS SEGMENT AL FIGURES ARE NOT AVAILABLE AND THE TPO HAS MERELY TAKEN ITS ENTI TY LEVEL FIGURES. 22. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, W E ARE OF THE CONSIDERED VIEW THAT THE ACCENTIA IS NOT A SUITABLE COMPARABLE VIS- -VIS THE TAXPAYER WHICH IS A CAPTIVE SERVICE PROVI DER FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS. HENCE , WE ORDER TO EXCLUDE ACCENTIA FROM THE FINAL SET OF COMPARABLES. COSMIC GLOBAL LIMITED (COSMIS) 23. THIS IS TAXPAYERS OWN COMPARABLE. HOWEVER, TH E TAXPAYER CANNOT BE ESTOPPED TO SOUGHT ITS EXCLUSION BEFORE A NY OF THE JUDICIAL OR QUASI-JUDICIAL AUTHORITY. ASSESSEE SOU GHT ITS EXCLUSION FROM THE FINAL SET OF COMPARABLES ON GROUND OF FUNC TIONAL DISSIMILARITY, DIFFERENT BUSINESS MODEL; EARNING SU PER-NORMAL PROFIT, ABNORMAL GROWTH IN SALES AND INSUFFICIENT S EGMENTAL DATA. LD. AR FOR THE TAXPAYER RELIED ON THE DECISION OF MACQUARIE GLOBAL SERVICES (P.) LTD. VS. DCIT (SUPRA). 24. LD. DR CONTENDED THAT TRANSCRIPTION AND TRANSLA TION SERVICES ARE BASICALLY ITES AND DOES NOT MAKE COSMIC FUNCTIO NALLY DIFFERENT. HOWEVER, THIS CONTENTION IS NOT TENABLE BECAUSE COSMIC ITA NO.2556/DEL/2014 13 OUTSOURCED ITS ACTIVITIES AND OUTSOURCING EXPENSES CONSTITUTE 57% OF THE TOTAL EXPENSES AND THIS COMPANY CANNOT BE CH OSEN AS A COMPARABLE ON ENTITY LEVEL. 25. PERUSAL OF THE ANNUAL REPORT OF COSMIC, AVAILAB LE AT PAGE 104 OF THE PAPER BOOK, IN SCHEDULE 13 I.E. NOTES FORMIN G PART OF FINANCIAL ACCOUNTS ENDING MARCH 31, 2009 CONTAINS T HE REVENUE RECOGNITION AS UNDER :- 1.2 REVENUE RECOGNITION: IN RESPECT OF MEDICAL TRANSCRIPTION SERVICES. AND TRANSLATION SERVICES THE COMPANY FOLLOWS THE PRACTI CE OF RAISING MONTHLY INVOICES JOB-WISE ON THE CLIENTS BASED ON THE NUMBER OF LINES AND NUMBER OF WORDS RESPECTIVELY, ETC., AS ACCEPTED BY THEM AND IN RESP ECT OF ACCOUNTS BPO SERVICES THE INVOICES ARE RAISED 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 COMPLETION 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 WRITING. REVENUE FROM OPERATIONS INCLUDES REVENUE EARNED THROUGH TRANSLATION SERVICES RS.6,99,35,756.45, THROUGH MEDICAL TRANSCRIPTION RS.9,90,737 AND THROUGH ACCOUNTS BPO SERVICES RS.27,76,090. 26. AFORESAID REVENUE RECOGNITION SHOWS THAT COSMIC HAS THREE SEGMENTS VIZ. MEDICAL TRANSCRIPTION RS.0.09 CRORE, TRANSLATION SERVICES RS.6.99 CRORES AND ACCOUNTS BPO SEGMENT RS .0.27 CRORES. ITA NO.2556/DEL/2014 14 HOWEVER, COMPLETE SEGMENTAL DATA IS NOT AVAILABLE. FURTHERMORE COSMIC IS HAVING ABNORMAL GROWTH OF SALES I.E. 106% AS IS EVIDENT FORM PROFIT & LOSS ACCOUNT, AVAILABLE AT PAGE 98 OF THE ANNUAL REPORT. 27. COMPARABILITY OF COSMIC HAS BEEN EXAMINED BY TH E COORDINATE BENCH OF THE TRIBUNAL IN MACQUARIE GLOBAL SERVICES (P.) LTD. VS. DCIT (SUPRA) FOR AY 2009-10 VIS--VIS COMPANY RENDERING ITES SERVICES AS IN THE CASE OF THE TAXPA YER AND ORDERED TO BE EXCLUDED ON THE GROUND THAT THIS COMPANY HAS OUTSOURCED ITS ACTIVITIES AND THE OUTSOURCING EXPENSES CONSTITUTE 57% OF THE TOTAL EXPENSES AND THAT THE ENTIRE OUTSOURCING IS CONFINE D TO TRANSLATION CHARGES PAID OF RS.3 CRORES. SO, IN VIEW OF ITS OU TSOURCED ACTIVITIES AND IN VIEW OF THE FACT THAT IT IS HAVING A DIFFERE NT BUSINESS MODEL AND THAT IT IS HAVING ABNORMAL GROWTH IN SALES I.E. 106%, WE ARE OF THE CONSIDERED VIEW THAT IT IS NOT A SUITABLE COMPA RABLE VIS--VIS THE TAXPAYER FOR BENCHMARKING INTERNATIONAL TRANSAC TION QUA ITES SERVICES, HENCE ORDERED TO BE EXCLUDED. ECLERX SERVICES LTD. (ECLERX) 28. THE TAXPAYER SOUGHT EXCLUSION OF ECLERX ON THE GROUNDS INTER ALIA THAT ECLERX IS A KPO PROVIDING DATA ANALYTICS PROCESS SOLUTION TO GLOBAL ENTERPRISE CLIENTS; THAT IT IS FUNCTIONAL LY DISSIMILAR; THAT IT ITA NO.2556/DEL/2014 15 IS EARNING SUPERNORMAL PROFIT; THAT IT IS HAVING SI GNIFICANT INTANGIBLES; THAT IT HAS INCURRED RS.26.65 CRORES T OWARDS CONTRACT FOR SERVICE WHICH AMOUNTS TO OUTSOURCING ITS SERVIC ES AND THAT IT IS HAVING DIFFERENT SET OF SKILLED EMPLOYEES. 29. DESPITE THE FACT THAT IT IS TAXPAYERS COMPARAB LE BUT IT CANNOT BE DEBARRED FORM SEEKING EXCLUSION OF THIS COMPARAB LE IF WRONGLY CHOSEN IN ITS TP STUDY AS HAS BEEN HELD IN QUARK SYSTEMS (P) LTD. VS. DCIT (2010) 38 SOT 307 (CHD)(SB) . 30. UNDISPUTEDLY, THE TAXPAYER IS A LOW END BPO REN DERING SERVICES AS A CAPTIVE SERVICE PROVIDER. COMPARABIL ITY OF ECLERX HAS BEEN EXAMINED BY THE COORDINATE BENCH OF THE TRIBUN AL IN MACQUARIE GLOBAL SERVICES (P.) LTD. VS. DCIT (SUPRA) FOR AY 2009-10- WHEREIN IT WAS ORDERED TO BE EXCLUDED AS A COMPARABLE TO THE COMPANIES PROVIDING BPO / LOW END SERVICES / IT ES HAVING SUPERNORMAL PROFIT. COORDINATE BENCH OF THE TRIBUN AL IN MACQUARIE GLOBAL SERVICES (P.) LTD. VS. DCIT (SUPRA) ORDERED TO EXCLUDE ECLERX BY RETURNING FOLLOWING FINDINGS :- 24. WE HAVE PERUSED THE ANNUAL REPORT OF THIS COMPANY , A COPY OF WHI C H S AVAILABLE ON PAGES 494 ONWARD OF THE PAPER BOOK , IT CAN BE SEEN THAT IT IS A KNOWLEDGE PROCESS OUTSOURCING (KPO) COMPANY PROVIDING DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO GLOBAL CLIENTS . THIS COMPANY PROVIDES END TO END SUPPORT THROUGH TRADE LIFECYCLE INCLUDING TRADE CONFIRMATION , SETTLEMENTS , ETC. IT ALSO PROVIDES SALES AND ITA NO.2556/DEL/2014 16 MARKETING SUPPORT SERVICES TO LEADING GLOBAL MANUFACTURING , RETAIL , TRAVEL AND LEISURE COMPANIES THROUGH ITS PRICING AND PROFITABILITY SERVICES . FROM THE ABOVE NARRATION OF THE NATURE OF BUSINESS DONE BY ECLERX SERVICES PVT . LTD . , IT IS OVERT THAT IT , BEING A KPO COMPANY, IS PROVIDING DATA PROCESS SOLUTIONS TO ITS CLIENTS , WHICH ACTIVITY IS WAY DIFFERENT FROM THAT OF THE ASSESSEE COMPANY, WHICH IS BASICALLY OF PROVIDING ACCOUNTS PAYABLE SERVICES AND GENERAL ACCOUNTING SERVICES TO ITS AES ALONE . NOT ONLY THAT , THIS COMPANY HAS SIGNIFICANT INTANGIBLES WHICH ITS USES FOR THE PURPOSES OF RENDERING KPO SERVICES . AS THE ASSESSEE IS A CAPTIVE UNIT RENDERING SERVICES TO ITS AES WITHOU T ANY INTANGIBLES , THERE CAN BE NO COMPARISON BETWEEN THE ASSESSEE AND ECLERX S E RVICES PVT. LTD. WE , THEREFORE , ORDER FOR THE EXCLUSION OF THIS COMPANY FROM THE FI NAL SET OF COMPARABLES. 31. SO, WHEN THE TAXPAYER IS A ROUTINE ITES I.E. LO W END SERVICE PROVIDER, IT CANNOT BE A SUITABLE COMPARABLE WITH E CLERX WHICH IS A KPO PROVIDING DATA ANALYTICS AND DATA PROCESS SOLUT IONS TO GLOBAL ENTERPRISE CLIENTS AND IT IS HAVING SIGNIFICANT INT ANGIBLES TO THE TUNE OF 7.24%. SO, HIGH END KPO CANNOT BE COMPARED WITH LOW END ROUTINE ITES SERVICE PROVIDER. ECLERX ALSO PROVIDE S SALES AND MARKETING SUPPORT SERVICES TO LEADING GLOBAL MANUFA CTURING, RETAIL, TRAVEL AND LEISURE COMPANIES THROUGH ITS PRICING AN D PROFITABILITY SERVICE WHICH MAKES IT FUNCTIONALLY DISSIMILAR WITH THE TAXPAYER. SO, IN VIEW OF THE MATTER, WE ORDER TO EXCLUDE ECLE RX FROM THE FINAL SET OF COMPARABLES. GROUNDS NO.6, 6.1 & 6.2 ITA NO.2556/DEL/2014 17 32. GROUNDS NO.6, 6.1 & 6.2 ARE NOT PRESSED, HENCE DISMISSED AS NOT PRESSED. GROUNDS NO.7 & 8 33. KEEPING IN VIEW OUR FINDINGS RETURNED ON THE TP ISSUES DECIDED IN THE PRECEDING PARAS, GROUNDS NO. 7 & 8 A RE ACADEMIC AND DO NOT NEED ANY ADJUDICATION AT THIS STAGE. GROUND NO.9 34. GROUND NO.9 IS PREMATURE AND DOES NOT REQUIRE A NY ADJUDICATION. 35. ADDITIONAL GROUND RAISED BY THE TAXPAYER NEEDS NO ADJUDICATION AS IT HAS SINCE BECOME INFRUCTUOUS IN VIEW OF THE ORDER PASSED BY AO U/S 154 OF THE ACT. 36. RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 25 TH DAY OF OCTOBER, 2017. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 25 TH DAY OF OCTOBER, 2017 TS ITA NO.2556/DEL/2014 18 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.