Nirvana Business Solutions Private Limited, Bangalore V. ITO, Bangalore

ITA 265/BANG/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0332 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 11-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P CHANDRASHEKAR
• Assessee Lawyers: ANAND MURTHY B N
• Keywords: Related party transaction; Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER IT (TP) A NO.265 (BANG) 2011 (ASSESSMENT YEAR 2006-07) M/S NIRVANA BUSINESS SOLUTIONS PVT. LTD., NIRVANA TOWERS, SIGMA TECHNOLOGIES PARK, NO.7, WHITEFIELD MAIN ROAD, BANGALORE-560 066 PAN NO.AABCN5508L APPELLANT VS THE INCOME TAX OFFICER, WARD-12(1), BANGALORE RESPONDENT ASSESSEE BY: SHRI ANAND MURTHY, B.N. REVENUE BY: SHRI P. CHANDRASHEKAR, CIT DATE OF HEARING : 04-05-2016 DATE OF PRONOUNCEMENT: : 17-06-2016 O R D E R PER SHRI A.K.GARODIA, AM THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORDE R OF AO DATED 18- 11-2010 AND DRP DATED 27-09-2010 FOR ASSESSMENT YEA R 2006-07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. ON T H E FA CT S A ND C I R C UM S TANCE S OF TH E CA SE , T HE R E I S N O J U STIFICA T IO N FO R THE AO T O M AKE A N A D D ITI O N OF R S . 9 , 41 . 68 . 778 RE PR ESE NT I N G A D J U S TM E NT T O T HE ARMS LEN G T H P RICE IN RESPECT O F IN TER N AT I O N A L T R A N SAC TI ONS OF T HE ASSESS E E WI TH ITS AE . . 2 T H E LE A R N E D T RANSFE R PRI C IN G O F FICER (T PO ) AND THE A O E RRED I N N OT A PP RECIAT IN G TH A T : IT(TP)A NO.265(B)2011 2 A . C H A PT E R X O F THE A CT ON LY P RO VIDES FO R C O MPUTATI O N OF IN CO M E ; B. T HERE I S NO AM E NDME N T T O THE D E FIN IT I O N O F THE TERM 'I NC OM E ' T O IN C L UDE A M OU N TS CO MPUTED UNDER CH A PT E R X ; C. T H E C H A R G IN G O R CO MPUT A TI O N P R O VISIONS RELATIN G T O I NC O M E UNDER TH E H EA D ' PR OF IT S & GA I NS OF BU S IN ESS O R PR OFESS I O N ' D O N O T R EFE R T O OR I N CL U DE A M O UNT S C O MP U T E D UND E R C H A PT ER X' . D. TH E R E I S N O PR OVIS I O N IN C H A PT E R X INDI CA T I N G T H AT IT W O UL D OVE R RI D E T H E C O MPU T A T I O N PR O V IS I O N S OF BU SI NES S I N CO ME O R N O RM A L UN DER S TA N DI N G OF TH E TERM 'I N CO M E '. E. T H E C H A R G IN G SEC TI O N A N D CO MPU TA T IO N PRO V ISI O NS TOGET H E R C O N S TITUTE A N IN T EG R A T E D CO D E. I F TH E C H A R G IN G SECTI O N I S NO T AT T R A C T E D . I N COME WILL BE O U TSI D E TH E A M BI T OF T AXA TI O N . WH E N T H E RE I S A CAS E T O WH IC H T H E CO M PU T A TI ON P R OVISIO N S C A NN O T A PPL Y , S UCH A C ASE I S N O T INT E ND E D TO F A LL W ITHIN TH E C H ARGI N G S ECTI O N AN D THEREF O R E CAN N O T BE BROU G HT T O TAX . 3. T H E LE A RNED AO A ND T PO ERR E D IN N O T APPR E C IA TIN G T HAT T H E ASSESSEE IS ELIG I B L E F O R C L A IMIN G B EN E F IT S UNDER S ECTI O N 1OA O F THE AC T A ND THU S H AS N O M OT I VE O F TAX EVA SI O N A ND THEREF O RE CHAPTER X FO UND E D O N T H E P R EM IS E O F T AX EVAS I O N A ND LA B ELE D AS ' ANTI AVO ID A N CE' PR OV I S I O N S I S NOT ATTR A C T ED . 4.O N TH E FACTS A ND C IR C UM S T A N C E S OF THE CASE . THERE IS N O J U S TI F I CA TI O N FO R T HE AO TO DI S R EGA RD TH E O P E RATIN G COS T S FURNI S H E D BY TH E A SSE S SEE IN R ES P E C T O F ITS IN TE RN AT I O N A L T R A N S A CTI O N S W I T H I T S AES A M O UNTIN G T O R S. 10 , 50 . 45 , 6 9 5 1 - A N D S UB S T IT U TE T H E SAME W I T H A S UM OF R S. 1 7 , 63.93. 9 6 7 V ID E OR D ER UND E R SE CTI ON 9 2CA OF TH E AC T P ASSE D BY TH E T PO. IN T ERM S OF A G RE E M E NT E NT E RED I NT O W I T H AE , TH E N E T C OS T DI REC T LY A TTR I BUT A B L E O R AL L O CATE D T O T HE TRAN S A C TI O NS O F AE W ILL C O N S TITUTE TH E C OS T B AS E FOR DE TE RMINA T IO N O F C O N S IDE RA T IO N P AYA BL E B Y IT . A E D O E S N O T CO MP E N SA TE THE ASSESSEE F A R C O ST S I N C URRED BY IT FOR OTHER CUSTOMERS ORDERS OR THE IDLE/UNPRODUCTIVE COSTS. THE TPO AND AO ERRED IN NO T APPRECIATING THE CONTENTIONS OF THE ASSESSEE THAT I T HAD SIGNIFICANT IDLE AND UNPRODUCTIVE COSTS WHICH CANNO T BE CONSIDERED AS A PART OF COST BASE INCURRED IN RESPE CT OF INTERNATIONAL TRANSACTIONS WITH ITS AE AND PROCEEDI NG TO COMPUTE THE SAME BASED ON TOTAL COSTS AND PROPORTIO N OF TURNOVER WITH AE TOT AL TURNOVER. IDLE TIME AND U NPRODUCTIVE COSTS DO NOT REPRESENT THE COSTS OF EXECUTION OF AN Y PARTICULAR ORDER BUT A LOSS INCURRED BY AN ASSESSEE ON ACCOUNT OF INADEQUATE ORDERS IN RELATION TO THE INFRASTRUCTURE SET UP BY IT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE TPO ERRED IN REJECTING THE TRANSFER PRICING STUDY CONDU CTED BY THE IT(TP)A NO.265(B)2011 3 ASSESSEE AND ADOPTING ONE SIDED CRITERIA IN SELECTI NG COMPANIES AS COMPARABLE, BASED N PARAMETERS SET BY HIM. THE TPO AND AO ERRED IN NOT APPRECIATING THE CONTEN TIONS OF THE ASSESSEE THAT COMPANIES SELECTED BY THEM AS COM PARABLE PERFORM SIGNIFICANTLY MORE COMPLEX FUNCTION AS COMP ARED TO IT. THE COMPANIES SELECTED BY THEM ARE INDEPENDENT SOFT WARE TECHNOLOGY AND BPO COMPANIES WHO PERFORM WIDE VARIE TIES OF FUNCTIONS AS COMPARED TO THE ASSESSEE. THESE INDEPE NDENT COMPANIES ARE FULLY RESPONSIBLE FOR SALES AND MARKE TING OF SOFTWARE, TECHNOLOGY AND BPO SERVICES. ON THE OTHER HAND, THE ASSESSEE DOES NOT PERFORM ANY SALES OR MARKETING AC TIVITY OF ITS OWN AND HAS NO SALES OR MARKETING TEAM OF ANY KIND. NO ADJUSTMENTS HAVE BEEN MADE BY THE TPO FOR DIFFERENC ES IN FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED BETWEEN THE ASSESSEE AND THESE INDEPENDENT SOFTWARE , TECHNOLOGY AND BPO COMPANIES. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH ERE IS NO JUSTIFICATION FOR THE TPO AND AO TO ADOPT ONE SI DED TURNOVER FILTER BY ELIMINATING COMPANIES WITH TURNOVER BELOW ONE CRORE BUT AT THE SAME TIME INCLUDING LARGE COMPANIES WITH SCALE AND SIZE OF OPERATIONS AS COMPARABLE. THE COMPARABILITY ANALYSIS CARRIED OUT BY THE TPO IS VITIATED AND FLAWED. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE RE IS NO JUSTIFICATION FOR TPO TO ARRIVE AT RS.21,49,71,327/ - AS THE ARMS LENGTH PRICE IN TERMS OF THE TRANSACTION NET MARGIN METHOD FOLLOWED BY HIM. THE ARMS LENGTH PRICE DETERMINED B Y THE ASSESSEE IS FAIR AND OUGHT NOT TO HAVE BEEN DISREGA RDED BY THE AO AND TPO. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HERE IS NO JUSTIFICATION FOR THE TPO AND AO FOR NOT GRANTING T HE BENEFIT OF 5% IN TERMS OF THE PROVISO TO SEC.92CA OF THE ACT. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THER E IS NO JUSTIFICATION FOR THE AO TO LEVY INTEREST U/S 234C OF THE ACT AMOUNTING TO RS.50,17,245/ . YOUR APPELLANT SEEKS LEAVE TO ADD, TO AMEND ANY OF THE FOREGOING GROUNDS AS AND WHEN CONSIDERED NECESSARY/ AT THE TIME OF HEARING. 3. THE ASSESSEE HAS ALSO RAISED THREE ADDITIONAL G ROUNDS WHICH ARE AS UNDER; IT(TP)A NO.265(B)2011 4 1.THE LOWER AUTHORITIES HAVE ERRED IN SELECTING M APLE ESOLUTIONS LTD DESPITE ITS FINANCIALS BEING UNRELIA BLE DUE TO TAINTED MANAGEMENT DURING THE YEAR UNDER CONSIDERAT ION. 2. THE LOWER AUTHORITIES HAVE ERRED IN SELECTING DATAMATICS FINANCIAL SERVICES LTD., (SEG.) DESPITE THE COMPANY HAVING SUBSTANTIAL RELATED PARTY TRANSACTIONS DURIN G THE YEAR UNDER CONSIDERATION; AND 3. THE LOWER AUTHORITIES HAVE ERRED IN SELECTING V ISHAL INFORMATION TECHNOLOGIES LTD., AS COMPARABLES DESPI TE IT BEING FUNCTIONALLY DIFFERENT FROM THE APPELLANT. 4. THIS APPEAL WAS FIXED FOR HEARING FOR THE FIRST TIME ON 13-03-2013 AND THEREAFTER, THE APPEAL WAS FIXED FOR HEARING ON SEVERAL DATES SUCH AS 10/06/2013, 21/10/2014, 05/02/2015, 24/06/2015, 05/ 11/2015 AND ON ALL THESE DATES, THE HEARING WAS ADJOURNED ON TH E REQUEST OF THE LEARNED AR OF THE ASSESSEE EXCEPT ON 05/11/2015, WH EN THE HEARING WAS ADJOURNED FOR WANT OF TIME. THIS IS A VERY OLD APPE AL AND SO MANY OPPORTUNITIES WERE PROVIDED TO THE ASSESSEE AND THE REFORE, THE REQUEST OF THE LD. AR OF THE ASSESSEE FOR ADJOURNMENT ON THIS DATE I.E. 04-05-2016 WAS REJECTED AND THE APPEAL OF THE ASSESSEE WAS HEA RD EX-PARTE QUA THE ASSESSEE. 5. THE LD. DR OF THE REVENUE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. HE ALSO SUBMITTED THAT AS PER THE CHAR T SUBMITTED BY THE LD. AR OF THE ASSESSEE ON 05-02-2015, HE HAS OBJECTED T O INCLUSION OF 5 COMPARABLES OUT OF THE TOTAL 13 COMPARABLE SELECTED BY THE TPO I.E. M/S MAPLE ESOLUTIONS, M/S DATAMATICS FINANCIAL SERVICES LTD.(SEG.) AND M/S IT(TP)A NO.265(B)2011 5 VISHAL INFORMATION TECHNOLOGIES LTD, M/S GOLDSTONE INFRATECH LTD (SEG.) AND M/S APEX KNOWLEDGE SOLUTIONS PVT. LTD. HE SUBM ITTED THAT THERE IS NO MERIT IN ANY OF THESE OBJECTIONS. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. D R OF THE REVENUE AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE CHART AVAILABLE ON RECORD HAVING BEEN SUBMITTED BY THE LD . AR OF THE ASSESSEE ON 05-02-2015. WE FIND THAT AS PER TAX PAYERS PRO FILE NOTED BY THE TPO IN PARA-2 OF HIS ORDER, THE ASSESSEE PROVIDES BACK OFFICE AND CALL CENTRE SERVICES TO THE COSTUMERS OF NBS INTERNATIONAL IN A CCORDANCE WITH STATEMENT OF WORK ISSUED BY NBS INTERNATIONAL FROM TIME TO TIME. AS PER THIS CHART, THE TPO HAS SELECTED 13 COMPARABLES OUT OF WHICH THE ASSESSEE IS PLEADING FOR EXCLUSION OF ONE COMPARABLE I.E. M/ S MAPLE E-SOLUTIONS LTD. ON THIS BASIS THAT THE MANAGEMENT IS TAINTED A ND THE ASSESSEE IS ALSO PLEADING FOR EXCLUSION OF M/S DATAMATICS FINANCIAL SERVICES LTD (SEG.) ON THIS BASIS THAT THIS COMPANY FAILS IN RPT FILTER, B UT IN THE TPOS ORDER, THE PERCENTAGE OF RPT OVER SALES OF M/S DATAMATICS FINA NCIAL SERVICES LTD.,(SEG.) IS NOTED AT 4.33% AND THEREFORE, THE SA ME IS LESS THAN 15% AND THEREFORE, ON THE BASIS OF THIS FILTER, THIS COMPAN Y CANNOT BE EXCLUDED FROM THE LIST OF COMPARABLES AND THERE IS NO OTHER ARGUMENT FOR EXCLUSION OF THIS COMPANY. THEREFORE, THE REQUEST FOR EXCLUSI ON OF M/S DATAMATICS FINANCIAL SERVICES LTD.,(SEG.) IS REJECTED. 7. REGARDING M/S MAPLE E-SOLUTIONS LTD., RRELIANCE HAS BEEN PLACED ON THE FOLLOWING TRIBUNAL ORDERS IN SUPPORT OF HIS CONTENTION THAT THE IT(TP)A NO.265(B)2011 6 MANAGEMENT OF THE COMPANY IS TAINTED AND THEREFORE, THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE; COMPARABLE AT SL.NO.1 (MAPLE) IS TO BE REJECTED DUE TO TAINTED MANAGEMENT IN VIEW OF FOLLOWING DECISION:- 1. ITO VS CRM SERVICES INDIA PVT.LTD.,(2011) 14 TAX MANN.OM 96 (DELHI)(AY: 06-07) 2.STREAM INTERNATIONAL SERVICES PVT.LTD. VS ADIT IT A NO.899/MUM/2010(AY:06-07) 3. CES PVT.LTD. VS DCIT TS-322-ITAT-2013(MUM)-TP(AY : 06-07) 4. AVINEON INDIA PVT.LTD. VS DCIT TS-165-ITAT-2014( HYD_-TP(AY:06-07)5. 5. HSBC ELECTRONIC DATA PROCESSING PVT.LTD.VS ADDD. CIT TS-174-ITAT-2013(HYD)- TP(AY:06-07) 6. M/S FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD.IT A NO.IT(TP)A NO.1086/BANG/2011 7. M/S CAPITAL IQ INFORMATION SYSTEMS (IND.) PVT.LT D. ITA NO.1961/HYD/2011 8. THESE TRIBUNAL ORDERS ARE AVAILABLE IN THE COMPILATION OF CASE LAWS. IN THE CASE OF M/S STREAM INTERNATIONAL SERVICES PV T.LTD(SUPRA), THE MUMBAI BENCH OF THE TRIBUNAL HAD CONSIDERED TWO TRI BUNAL ORDERS RENDERED IN THE CASE OF M/S CRM SERVICES INDIA PVT.LTD.,(2011) AND M/S CAPITAL IQ INFORMATION SYSTEMS (IND.) PVT.LTD (SUPR A) AND IN LINE WITH THESE TWO TRIBUNAL ORDERS OF DELHI AND HYDERABAD BE NCHES RESPECTIVELY, IT WAS HELD BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S STREAM INTERNATIONAL SERVICES PVT.LTD.(SUPRA) THAT THIS CO MPARABLE SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. IN THE CASE OF M/S CRM SERVICES INDIA PVT.LTD.,(2011, IT WAS HELD THAT IN VIEW OF THE QUESTION MARK ON THE REPUTATION OF THE OWNER OF M/S MAPLE E SOLUT IONS IT WOULD BE UNSAFE TO TAKE THEIR RESULTS FOR COMPARISON OF THE PROFITABILITY OF THE ASSESSEE COMPANY. HENCE, RESPECTIVELY FOLLOWING THE TRIBUNAL ORDERS OF MUMBAI BENCH, DELHI BENCH AND HYDERABAD BENCH, WE HOLD THAT IN THE IT(TP)A NO.265(B)2011 7 PRESENT CASE ALSO, THIS COMPANY I.E. M/S MAPLE E-SO LUTIONS LTD. SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. 9. IN THE SAME CHART, LD. AR OF THE ASSESSEE HAS P LEADED FOR THE EXCLUSION OF THREE COMPANIES ON THE BASIS OF FUNCTI ONAL DISSIMILARITIES. THESE THREE COMPANIES ARE M/S VISHAL INFORMATION TE CHNOLOGIES LTD., M/S GOLDSTONE INFRATECH LTD (SEG.)AND M/S APEX KNOWLEDG E SOLUTIONS PVT.LTD. IN SUPPORT OF THIS CONTENTION, RELIANCE HAS BEEN PL ACED ON A TRIBUNAL ORDER RENDERED IN THE CASE OF M/S STREAM INTERNATIO NAL SERVICES LTD.(SUPRA) IN ITA NO.8997/MUM/2010, COPY AVAILABLE ON PAGES 23 TO 43 OF THE PAPER BOOK IN RESPECT OF EXCLUSION OF TWO CO MPANIES I.E. M/S VISHAL INFORMATION TECHNOLOGIES LTD AND M/S GOLDSTONE INFR ATECH LTD(SEG.) AND FOR INCLUSION OF REMAINING COMPANY M/S APEX KNOWLED GE SOLUTIONS PVT.LTD., RELIANCE HAS BEEN PLACED ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF MS/S GOOGLE INDIA (P)LTD VS DCIT 55 SOT 489 , COPY AVAILABLE ON PAGE NO. 9 TO 22 OF THE PAPER BOOK. 10. NOW WE EXAMINE THE APPLICABILITY OF THESE JUDGM ENTS. 10.1 FIRST WE EXAMINE THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S STREAM INTERNATIONAL SERVICES PVT. LTD (SUPRA) AND WE FIND THAT PARA 19 TO 21 OF THIS TRIBUNAL ORDER ARE RELEVANT REGARDING M/ S VISHAL INFORMATION TECHNOLOGIES LTD. AND REGARDING THIS COMPANY, IT WA S HELD BY THE TRIBUNAL THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE AO/TPO FOR A FRESH DECISION AS PER VARIOUS OBSERVATIONS IN THE TRIBUNA L ORDER. THESE PARAS ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENC E. IT(TP)A NO.265(B)2011 8 19. LAST CASE WHICH THE LD. AR ANTS TO BE EXCLUDED IS THAT OF VISHAL INFORMATION TECHNOLOGIES LTD.(VITL). THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF PROVIDING IT ENABLED SER VICES AT ITS OWN, WHEREAS VITL WAS OUTSOURCING SUCH SERVI CES FOR PROVISION TO ITS CUSTOMERS. THIS ARGUMENT WAS SOUGHT TO BE TENDERED ON THE STRENGTH OF ANNUAL ACCOUNTS O F VITL SHOWING DATA ENTRY CHARGES AND VENDOR PAYMENTS TO T HE TUNE OF RS.11.49 CRORE AS AGAINST THE PERSONNEL CO ST AT RS.32.01 LAKH. THESE FIGURES IN THE OPINION OF THE LD. AR AMPLY DEMONSTRATED THAT VITL WAS OUTSOURCING THE IT ENABLED SERVICES. RELYING ON AN ORDER PASSED BY THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V S MAERSK GLOBAL SERVICES CENTRS (IND.) PVT.LTD. (2012 ) 145 TTJ (MUM) (SB) 64). THE LEARNED AR CONTENDED THAT THE TRIBUNAL IN THIS CASE HAS HELD THAT SINCE VITL OUTS OURCED A CONSIDERABLE PORTION OF ITS BUSINESS , THE S AME WAS TO BE IGNORED WHEN THE ASSESSEE IN THAT CASE WAS CAR R YING ON ENTIRE OPERATIONS BY ITSEL F. SIMILAR VIEW WAS SHOWN TO HA V E BEEN T A KEN BY THE BANGALORE BENCH OF THE TRIBUNAL IN 2417 CUS T OMER. COM P V T. LTD . V. DCIT [IT ANO.227IBANG/2010] DIRECTING THE EXCLUSION OF VITL 'S CASE . TH E BANGALORE BENCH ALSO FOLLOWED THE DECISION RENDERED BY THE MUMBAI BENCH I N THE CASE OF MA E RSK G LO B AL SE RVICES C ENT R ES ( I N DIA ) P VT . L TD. (SUPRA) TO DIRECT THE EXCLUSION O F THE CASE ON THE GROUND THAT VITL WAS OUT S OURCING THE SERVICES . SIM I LAR V IE W WA S SHO W N TO HA V E BEE N T A KEN BY THE HYDERABAD BENCH O F THE TR I BUNAL I N THE CASE OF BRIGAD E GLOBAL SERVICES PVT. LTD.(ITANO.1494/HYD/2010). VIDE ORDER DATED 26.11.2012, THE BENCH HAS DIRECTED THE EXCLUSION OF THE IT(TP)A NO.265(B)2011 9 CASE OF VITL FOR THE SAME REASON. IN THE OPPOSITIO N, THE LEARNED DR SUBMITTED THAT THE CASE OF VITL SHOULD B E ALLOWED TO REMAIN IN THE LIST OF COMPARABLES FOR TH E TWO REASONS. FIRST, THAT THE ASSESSEE ITSELF INCLUDED T HIS CASE IN ITS TRANSFER PRICING STUDY AND SECOND. HYDERAB AD BENCH OF THE TRIBUNAL IN THE CASE OF DELOITTE CONSU LTING INDIA PVT.LTD. VS DCIT(ITA NO.1082/HYD/2010) DIRECT ED THE INCLUSION OF THE CASE OF VITL IN THE LIST OF CO MPARABLE COMPANIES. THE LD. DR ARGUED THAT WHEN AN ENTITY OUTSOURCES THE SERVICES, ITS PROFIT IS LIKELY TO BE LESS VIS-- VIS AN ENTITY WHICH RENDERS SUCH SERVICES AT ITS OW N. GOING BY THAT LOGIC, THE LD. DR STATED THAT THE CAS E OF VITL SHOULD CONTINUE TO BE INCLUDED AS IT IS LIKELY TO SHOW LESSER PERCENTAGE OF PROFITS THAN THE ASSESSEE, WHI CH IS RENDERING THE SERVICES AT ITS OWN. 20. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, WE FIND THAT THE PREDOMINANT VIEW TAKEN BY THE VARIOUS BENCH OF THE TRIBUNAL INCLUDIN G MUMBAI, BANGALORE AND HYDERABAD IS TO EXCLUDE THE CASE OF VITL ON THE REASONING THAT PROFIT MARGIN IN SELF- PROVISION AND OUTSOURCING THE SERVICES IS DIFFERENT . THE LD. DR HAS FOCUSED ON THE INCLUSION OF THIS CASE ON THE GROUND THAT THE PROFIT MARGIN IN THE CASE OF ENTITI ES OUTSOURCING SERVICES IS LESS THAN THAT OF THE PROVI DING IN HOUSE SERVICES. IN OUR CONSIDERED OPINION THE CON TENTION OF THE LD. DR HAS THE EFFECT OF CHANGING THE VERY C RITERION FOR SELECTION OF COMPARABLE CASES. COMPARABILITY I S JUDGED PRIMARILY BY SEEING THE FUNCTIONAL SIMILARIT Y AND THEN THE CAPITAL EMPLOYED AND RISKS UNDERTAKEN. HI GHER OR LOWER PROFIT RATE IS NOT AND CAN NEVER BE A RELE VANT CRITERIA TO JUDGE THE COMPARABILITY. IN FACT, UND ER THE TNMM, IT IS THE EVENTFUL PROFIT WHICH IS SOUGHT TO BE IT(TP)A NO.265(B)2011 10 DETERMINED AT AN ARMS LENGTH BY CONSIDERING ALL TH E RELEVANT COMPARABLE CASES. IT IS THE SIMILARITY O F THE FUNCTIONAL PROFILE WHICH NEEDS TO BE TAKEN INTO CONSIDERATION AS A FIRST STEP IN THE PROCESS OF SEL ECTION OF COMPARABLE CASES. IF THE TWO COMPANIES ARE FUNCTIO NALLY DIFFERENT AND INCAPABLE OF COMPARISON, THEN THE SIM ILARITY OF THE ORDER FACTORS IS OF NO CONSEQUENCE. 21. THE RELEVANT FACTOR IN CHOOSING COMPARABLE CAS ES IS TO FIND OUT SIMILARITY IN THE NATURE OF SERVICES RENDERED. IN THAT VIEW OF THE MATTER A CASE IN WHICH SERVICES ARE OUTSOURCED AND THEN PROVIDED TO ITS CUSTOMERS CANNO T BE COMPARED WITH THE RENDERING OF IN-HOUSE SERVICES. THE PERTINENT CRITERIA FOR SELECTION OF COMPARABLE CASE S LOWER MARGIN OF PROFIT IN ONE CASE VIS--VIS THE OTHER. AS THERE IS A VAST DIFFERENCE IN THE CASES WHERE THE SERVICE S ARE OUTSOURCES OR PROVIDED IN-HOUSE, IN OUR CONSIDERED OPINION, THERE CANNOT BE ANY COMPARISON BETWEEN SUC H TYPES OF CASES. WE, THEREFORE, FOLLOW THE VIEW T AKEN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MAE RSK GLOBAL SERVICE CENTRES (IND.) PVT.LTD. (SUPRA) THE BANGALORE BENCH IN THE CASE OF 24/7 CUSTOMER.COM PVT.LTD AND HYDERABAD BENCH IN THE CASE OF BRIGADE GLOBAL SERVICES PV.LTD. IN SO FAR AS THE CONTENTI ON OF THE LD. DR FOR NOT PERMITTING THE EXCLUSION OF THIS CAS E BECAUSE OF THE ASSESSEE VOLUNTARILY INCLUDING THIS CASE IN THE LIST OF COMPARABLES IS CONCERNED, WE REFUSE TO ACCEPT THE SAME BECAUSE OF DISCUSSION MADE ABOVE IN PARA-1 6 OF THIS ORDER. RESULTANTLY THE ASSESSMENT ORDER ON THIS COMPARABLE CASE IS ALSO SET ASIDE AND THE MATTER IS DIRECTED TO BE DECIDED AFRESH BY THE AO/TPO IN CONSONANCE WITH OUR IBID OBSERVATIONS. IT(TP)A NO.265(B)2011 11 11. IN LINE WITH THIS TRIBUNAL ORDER, IN THE PRESE NT CASE ALSO, WE RESTORE THE MATTER BACK TO THE FILE OF THE AO/TPO FOR A FRE SH DECISION WITH SIMILAR DIRECTIONS IN RESPECT OF CLAIM OF EXCLUSION OF M/S VISHAL INFORMATION TECHNOLOGIES LTD. 12. REGARDING M/S GOLDSTONE INFRATECH LTD (SEG.), T HE TRIBUNAL DECISION IS CONTAINED IN PARA-14 TO 16 OF THIS TRIBUNALS OR DER WHEREIN IT WAS HELD BY THE TRIBUNAL THAT THE MATTER SHOULD BE DECIDED A FRESH BY THE AO/TPO KEEPING IN MIND THE FILTER OF COMPANIES WHOSE EXPOR T REVENUES ARE MORE THAN 25% OF THE REVENUE. FOR THE SAKE OF READY REF ERENCE, THESE PARA-14 TO 16 ARE REPRODUCED HERE UNDER; 14. THE INCLUSION OF SECOND CASE OBJECTED TO BY T HE LD. AR IS THAT OF GOLDSTONE INFRATECH LIMITED (SEG) (EARLIER KNOWN AS GOLDSTONE TELESERVICES LIMITED). HERE IT I S RELEVANT TO NOTE THAT THE TPO, INTER ITA NO.8997/MUM/2010. M/S.STREAM INTERNATIONAL SERVICES PVT.LTD. 12 ALIA, APPLIED FILTER OF `COMPANIES WITH EXPORT REVENUES MORE THAN 25% OF THE REVENUES. ANNUAL ACCOUNTS OF GOLDSTONE TELESERVICES LIMITED INDICATE TOTAL REVENUE OF THE COMPANY AT RS.30.89 CRORE FROM THREE SEGMENTS, VIZ., TELECOMMUNICATION AT RS.13.63 CRORE , BPO AT RS.5.02 CRORE AND INSULATOR AT RS.12.23 CROR E. THE BREAKUP OF SUCH REVENUE OF GOLDSTONE TELESERVICES LIMITED HAS BEEN PROVIDED AT PAGE 236 OF THE PAPER BOOK. SCHEDULE FORMING PART OF THE ANNUAL ACCOUNTS OF GOLDSTONE TELESERVICES LIMITED DIVULGES EARNINGS IN FOREIGN CURRENCY AT RS.4.24 LAKH. SUCH DETAIL IS AV AILABLE AT PAGE 239 OF THE PAPER BOOK. WHEN WE COMPARE EARN ING IN FOREIGN CURRENCY AT RS.4.24 LAKH WITH THE EARNIN GS OF IT(TP)A NO.265(B)2011 12 BPO AT RS.5.02 CRORE OR FOR THAT PURPOSE OF THE ENT ITY AS A WHOLE AT RS.30.89 CRORE, IT BECOMES MANIFEST THAT T HIS CASE DOES NOT PASS THROUGH THE FILTER ADOPTED BY TH E TPO, BEING, THE `COMPANIES WHOSE EXPORT REVENUES ARE MOR E THAN 25% OF THE REVENUES. 15. AT THIS STAGE IT IS RELEVANT TO MENTION THAT TH E ASSESSEE EARLIER INCLUDED THE CASE OF GOLDSTONE INF RATECH LIMITED WITHIN ITS TRANSFER PRICING STUDY AND THE T PO ALSO INCLUDED THE SAME IN HIS FINAL LIST OF COMPARA BLES. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THIS CASE WAS INADVERTENTLY INCLUDED BY THE ASSESSEE IN ITS LIST OF COMPARABLES, WHICH DESERVES TO BE EXCLUDED. THE LD. DR OPPOSED THIS CONTENTION BY STATING THAT IT I S NOT OPEN TO THE ASSESSEE TO ARGUE FOR THE EXCLUSION OF ANY CASE FROM THE LIST OF COMPARABLES, WHICH WAS INCLUD ED BY THE ASSESSEE ITSELF IN SUCH LIST. 16. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE P URPOSE OF INCOME TAX ASSESSMENT IS TO DETERMINE CORRECT IN COME OF THE ASSESSEE. AS THE REVENUE CANNOT ALLOW AN ASSESSEE TO DEPRESS HIS INCOME, IN THE SAME MANNER, IT IS NOT PERMISSIBLE TO THE REVENUE TO TAKE ADVANTAGE OF THE IGNORANCE OR MISTAKE OF THE ASSESSEE IN OFFERING MO RE THAN DUE INCOME. IT IS TRITE THAT NO TAX CAN BE COL LECTED EXCEPT AS PER LAW. CIRCULAR NO. 14(XI-35) OF 1955 D ATED 1.4.1955 CAUTIONS THE OFFICERS OF THE DEPARTMENT FR OM TAKING ADVANTAGE OF IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS. THE HONBLE BOMBAY HIGH COURT IN COURT IN T HE CASE OF NIRMALA L. MEHTA V. A. BALASUBRAMANIAM, CIT [2004] 269 ITR 1 HAS HELD THAT THERE CANNOT BE ANY ESTOPPEL AGAINST THE STATUTE. ARTICLE 265 OF THE CONSTITUTION OF INDIA CLEARLY PROVIDES THAT NO TAX SHALL BE IT(TP)A NO.265(B)2011 13 LEVIED OR COLLECTED EXCEPT BY AUTHORITY OF LAW. SIM ILAR VIEW HAS BEEN TAKEN RECENTLY BY THE HONBLE JURISDICTIONAL HIGH COURT IN SANCHETI SOFTWARE AND SOLUTIONS P. LTD. VS. CIT (2012) 349 ITR 404 (BOM). IN OUR CONSIDERED OPINION THERE CAN BE NO ESCAPE FROM THE PROPOSITION THAT THE ASSESSEE IS ENTITLED TO ARGUE AT LEAST BEFORE THE APPELLATE AUTHORITIES THAT A WRONG STAND TAKEN AT THE TIME OF FILING THE RETURN OF INCOME SHOULD B E ALLOWED TO BE MODIFIED. THE LD. AR HAS RIGHTLY RELI ED ON ORDER PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S A.M.TOD COMPANY INDIA PVT. LTD. V. ITO (ITA NO.492/MUM/2006). VIDE ORDER DATED 24.06.2009, THE TRIBUNAL ACCEPTED THE ASSESSEES CONTENTION FOR EXC LUSION OF CERTAIN CASES ITA NO.8997/MUM/2010. M/S.STREAM INTERNATIONAL SERVICES PVT.LTD. 14 WHICH WERE WRONG LY INCLUDED IN THE TRANSFER PRICING STUDY BUT WERE ACT UALLY NOT COMPARABLE. IT IS OBSERVED THAT THE SPECIAL BEN CH OF THE TRIBUNAL IN THE CASE OF DCIT V. QUARK SYSTEMS ( P) LTD. [(2010) 132 TTJ (CHD.) (SB) 1] ALSO ALLOWED THE ASS ESSEE TO CLAIM EXCLUSION OF CERTAIN CASES FROM THE LIST O F COMPARABLES WHICH WERE INADVERTENTLY INCLUDED BY IT IN ITS TRANSFER PRICING STUDY. IN VIEW OF THE AFORE-NO TED DISCUSSION AND THE RATIO OF THE THESE PRECEDENTS, W E DIRECT THE AO / TPO TO EXAMINE THE CORRECTNESS OF T HE FIGURES PLACED ON RECORD BY THE ASSESSEE IN SUPPORT OF ITS CONTENTION THAT THE CASE OF GOLDSTONE TELESERVICES LIMITED WAS WRONGLY INCLUDED BY IT IN THE LIST OF COMPARABL ES, WHICH IS ACTUALLY NOT COMPARABLE. WE WANT TO MAKE I T CLEAR THAT THE ABOVE DISCUSSION MADE BY US CONSIDER ING THE FIGURES GIVEN BY THE LEARNED AR IS ONLY FOR A P RIMA FACIE ASCERTAINMENT AS TO WHETHER THIS CASE IS PASS ING THROUGH THE FILTER CHOSEN BY THE TPO. THE AO / TPO IN THE IT(TP)A NO.265(B)2011 14 FRESH PROCEEDINGS WILL DECIDE THE QUESTION OF INCLU SION OR EXCLUSION OF THIS CASE AFRESH INDEPENDENT OF OUR AB OVE OBSERVATIONS, ALBEIT KEEPING IN MIND THE AFORE-QUOT ED FILTER OF `COMPANIES WHOSE EXPORT REVENUES ARE MORE THAN 25% OF THE REVENUES. 13. IN LINE WITH THIS TRIBUNALS DECISION, WE HOLD THAT IN THE PRESENT CASE ALSO, THE MATTER REGARDING THIS COMPANY I.E. M /S GOLSTONE INFRATECH LTD.,(SEG.)(SUPRA) IS TO BE DECIDED AFRESH BY THE A O/TPO KEEPING IN MIND THE DIRECTIONS OF TRIBUNAL IN THAT CASE. 13.1 THE LAST COMPARABLE FOR WHICH OBJECTION HAS BE EN RAISED BY THE ASSESSEE IN THE CHART IS M/S APEX KNOWLEDGE SOLUTIO NS PVT.LTD. THIS COMPANY HAS BEEN OBJECTED ON THE BASIS THAT IT IS F UNCTIONALLY DIFFERENT AND IN SUPPORT OF HIS CONTENTION, RELIANCE HAS BEEN PLACED ON TRIBUNAL ORDER RENDERED IN THE CASE OF M/S GOOGLE INDIA PVT. LTD. ABOUT THIS COMPANY, DECISION IS AVAILABLE IN PARA-16 OF THIS T RIBUNAL ORDER RENDERED IN THE CASE OF M/S GOOGLE INDIA PVT.LTD.(SUPRA. FO R THE SAKE OF READY REFERENCE, PARA-16 OF THIS TRIBUNAL ORDER IS RE-PRO DUCED BELOW; 16. AS FAR AS (4) APEX KNOWLEDGE SOLUTIONS PVT.LTD IS CONCERNED, WE FIND THAT THE ASSESSEE HAD TAKEN OBJE CTIONS BEFORE THE TPO THAT IT IS FUNCTIONALLY DIFFERENT, A S IT IS PROVIDES SERVICES SUCH AS E-PUBLISHING KNOWLEDGE BA SED SERVICES ETC. BUT TPO HAS REJECTED THE OBJECTION ON THE GROUND THE ASSESSEE HAS NOT CONSIDERED THE VERTICAL S OR FUNCTIONAL LINES DURING THE SEARCH PROCESS CONDUCTE D BY IT AND , THEREFORE, IT IS NOT PROPER TO MAKE ANY OBJECTION O N THIS BASIS NOW. WE ARE NOT ABLE TO AGREE WITH THE F INDING OF THE TPO AS CONFIRMED BY THE DRP ON THIS ISSUE. MERE LY BECAUSE, THE ASSESSEE ITSELF HAS NOT CONSIDERED THE SAID FILTER WHILE MAKING ITS TP STUDY; IT CANNOT BE SAID THAT IT CANNOT RAISE SUCH AN OBJECTION BEFORE THE T PO. IT IS IT(TP)A NO.265(B)2011 15 THE TPO WHO HAS ADOPTED THIS COMPANY AS COMPARABLE. ON SUCH ADOPTION, THE ASSESSEE HAS EVERY RIGHT TO RAIS E THE OBJECTIONS AS REGARDS THE FUNCTIONAL DIFFERENCES BE TWEEN THE ASSESSEE AND COMPARABLE. IT IS THE BOUNDEN DUTY OF THE TPO TO CONSIDER THE SAID OBJECTIONS IN ACCORDANCE W ITH LAW. AS BROUGHT OUT BY THE ASSESSEE, THE ASSESSEE IS IN THE IT ENABLED SERVICES, WHEREAS THE SAID COMPANY APEX KNOWLEDGE SALUTATION PVT . LTD., IS IN THE BUSINESS OF E-PUBLISHING WHICH CANNOT BE SAID TO BE IN THE SAME LINE OF BUSINESS. THE FUNCTIONAL DIFFERENCES ARE LIKELY TO AFFECT THE PROFIT MARKING CAPACITY OF BOTH THE COMPANIES. IN V IEW OF THE SAME , WE ARE OF THE OPINION THAT THIS COMPANY IS ALSO TO BE EXCLUDED FROM THE LIST OF COMPARABLES. AS REGARDS THE OTHER TWO COMPARABLES I.E. (5) DATAM ATICS FINANCIAL BECAUSE THERE WERE EXTRAORDINARY EVENTS DURING THE FINANCIAL YEAR, WITHOUT DEMONSTRATING AS TO HOW THESE EXTRAORDINARY EVENTS HAVE INFLUENCED THE PROFIT MAR GIN OF THE COMPANY, THEY CANNOT BE EXCLUDED FROM THE LIST OF COMPARABLES, BUT THE ADJUSTMENTS FOR SUCH EXTRAORDI NARY EVENTS HAVE TO BE MADE TO THE PROFITS OF THE COMPAN IES TO BRING THEM ON PAR WITH THE ASSESSEE BEFORE COMPARIN G THEM WITH THE ASSESSEE. THEREFORE, WE REMAND THIS I SSUE TO THE FILE OF THE AO TO CONSIDER THE ADJUSTMENTS T O BE MADE TO THESE TWO COMPARABLES BEFORE ARRIVING AT THE ALP . NEEDLESS TO MENTION THAT THE ASSESSEE SHALL BE GIVE N A FAIR OPPORTUNITY OF HEARING 14. FROM THE ABOVE PARA, IT IS SEEN THAT IT WAS HEL D BY THE TRIBUNAL IN THIS CASE THAT M/S APEX KNOWLEDGE SOLUTIONS PVT.LTD . IS IN THE BUSINESS OF E-PUBLISHING WHICH CANNOT BE SAID TO BE THE SAME LI NE OF BUSINESS. BECAUSE, IN THIS LINE OF BUSINESS, THE PROFIT MAKIN G CAPACITY OF THE COMPANY IS DIFFERENT AND THEREFORE, THIS COMPANY IS EXCLUDED FROM THE LIST OF COMPARABLES. IT(TP)A NO.265(B)2011 16 15. IN THE PRESENT CASE, THE ASSESSEE COMPANY PROVI DES BACK OFFICE AND CALL CENTRE SERVICES TO THE CUSTOMERS OF M/S NBS IN TERNATIONAL HENCE AND HENCE, IN OUR CONSIDERED OPINION, IN THE PRESENT CA SE ALSO, THIS COMPANY I.E. M/S APEX KNOWLEDGE SOLUTIONS LTD IS FUNCTIONAL LY DIFFERENT AND THEREFORE, SHOULD BE EXCLUDED FROM THE FINAL LIST O F COMPARABLES. WE HOLD ACCORDINGLY. 16. AS AGAINST THE OBJECTION OF THE LD. AR OF THE A SSESSEE IN THE CHART FOR EXCLUSION OF FIVE COMPARABLES, WE HAVE HELD IN THE ABOVE PARAS THAT M/S MAPLE E-SOLUTIONS SHOULD BE EXCLUDED AND SIMILARLY, M/S APEX KNOWLEDGE SOLUTIONS PVT.LTD SHOULD ALSO BE EXCLUDED WHEREAS W E HAVE REJECTED THE CLAIM OF THE ASSESSEE REGARDING EXCLUSION OF M/S DA TAMATICS FINANCIAL SERVICES LTD(SEG.) AND FOR REMAINING TWO COMPANIES I.E. M/S VISHAL INFORMATION TECHNOLOGIES LTD., AND M/S GOLSTONE INF RATECH LTD (SEG.), WE HAVE HELD THAT THE MATTER SHOULD BE DECIDED AFRESH BY THE AO/TPO IN LINE WITH THE DIRECTIONS OF THE TRIBUNAL IN THE CASE OF M/S STREAM INTERNATIONAL SERVICES PVT. LTD(SUPRA). THERE IS NO OTHER OBJECT ION OF THE LD. AR OF THE ASSESSEE IN THE CHART AVAILABLE ON RECORD. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (VIJAY PAL RAO) SD/- (A.K. GARODIA) JUDICAL MEMBER AC C OUNTANT MEMBER BANGALORE: D A T E D : 17/06/2016 AM* IT(TP)A NO.265(B)2011 17 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APP ROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 11 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER