DCIT, Bangalore V. M/s EMC Software and Services (India) Pvt. Ltd., Bangalore

ITA 273/BANG/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4846 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 26-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Scheme of amalgamation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N.V VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P.BOAZ ACCOUNTANT MEMBER ITA NOS.273/BANG/2016 (ASST. YEAR 2011-12) THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1)(2), 2 ND FLOOR, BMTC DEPOT 80 FEET ROAD, 6 TH BLOCK, KORAMANGALA, BENGALURU-560095. . APPELLANT VS. M/S EMC SOFTWARE AND SERVICES (INDIA) PVT. LTD., (EARLIER KNOWN AS EMC DATA STORAGE (INDIA) PVT.LTD. PRIOR TO SCHEME OF AMALGAMATION APPROVED BY THE HONBLE HIGH COURT OF KARNATAKA) BAGMANE CONSTRUCTION PVT.LTD., SEZ, OUTER RING ROAD , K.R.PURAM, DODDANEKUNDI VILLAGE,BENGALURU-560 048. PAN AABCE09892. .. RESPONDENT CO NO.76/BANG/2016 (BY ASSESSEE) APPELLANT BY : SHRI C.H SUNDAR RAO, CIT RESPONDENT BY : SMT.TANMAYEE, ADVOCATE DATE OF HEARING : 17-04-2018 DATE OF PRONOUNCEMENT : -04-2018 O R D E R PER SHRI N.V VASUDEVAN, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 30/12/2015 OF DY. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1)(2), BANGALO RE RELATING TO ASSESSMENT YEAR 2011-12 IN RESPECT OF AN ORDER PASSED BY THE D CIT, CIRCLE 2(1)(1), BANGALORE, U/S 143(3) R.W.S 144C(13) OF THE INCOME TAX ACT, 1961 (ACT). THE IT(TP)A NO.502/B/16 CO NO.01/B/17 2 ASSESSEE HAS ALSO FILED A CROSS OBJECTION AGAINST T HE VERY SAME ORDER. THE CROSS- OBJECTION IS PARTLY SUPPORTIVE OF THE ORDER OF THE DRP. 2. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF EM C CORPORATION, USA. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING CO NTRACT SOFTWARE DEVELOPMENT SERVICES(SWD SERVICES) AND INFORMATION TECHNOLOGY E NABLED SERVICES (ITES) AND MARKETING SUPPORT SERVICES TO ITS ASSOCIATED EN TERPRISES (AE). IN THE APPEAL BY THE REVENUE AND THE C.O. BY THE ASSESSEE THE DIS PUTES RELATE TO DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF PROVISION OF SWD SERVICES AND ITES TO THE AE. 3. SOFTWARE DEVELOPMENT SERVICES SEGMENT: GROUNDS NO. 1 TO 6 RAISED BY THE REVENUE RELATE TO THE ADDITION M ADE CONSEQUENT TO DETERMINATION OF TRANSFER PRICE BY THE TRANSFER PRICING OFFICER(T PO) IN THE SWD SERVICES SEGMENT, WHICH ADDITION WAS DELETED BY THE DRP IN I TS DIRECTIONS ON THE ADJUSTMENT TO ARMS LENGTH PRICE (ALP) SUGGESTED BY THE TPO. WE HAVE ALREADY SEEN THAT DURING THE RELEVANT PREVIOUS YEAR, ONE OF THE INTERNATIONAL TRANSACTIONS THAT TOOK PLACE BETWEEN THE ASSESSEE AND ITS AES WA S THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES (SWD SERVICES FOR SHORT) TO T HEM AT A PRICE OF RS.223,06,23,932/-. SINCE THE TRANSACTION OF PROVI SION OF SOFTWARE SERVICE BY THE ASSESSEE WAS AN INTERNATIONAL TRANSACTION, INCOME F ROM SUCH INTERNATIONAL TRANSACTION HAS TO BE DETERMINED HAVING REGARD TO A RMS LENGTH PRICE (ALP) AS LAID DOWN IN THE PROVISIONS OF SEC.92 OF THE ACT. 4. THE TPO TO WHOM THE QUESTION OF DETERMINATION O F ALP OF THE INTERNATIONAL TRANSACTION OF PROVIDING SOFTWARE DEVELOPMENT SERVI CES BY THE ASSESSEE TO ITS AE SUGGESTED AN ADDITION TO THE TOTAL INCOME OF THE AS SESSEE CONSEQUENT TO DETERMINATION OF TRANSFER PRICE OF A SUM OF RS.20,32,27,064/-. IT(TP)A NO.502/B/16 CO NO.01/B/17 3 5. THE ASSESSEE IN SUPPORT OF ITS STAND THAT THE P RICE PAID TO THE AE FOR RENDERING SOFTWARE DEVELOPMENT SERVICES WAS AT ARMS LENGTH F ILED A TRANSFER PRICING ANALYSIS CONTAINING THE FOLLOWING DETAILS: RATING IN OPERATING INCOME RS.223,06,23,932/- OPERATING COST RS.197,04,10,457/- OPERATING PR OPERATING PROFIT (OP. INCOME OP. COST) RS. 26,02,13,475/- OPERATING/NET MARK-UP (OP/TC) 13.21% THE ASSESSEE AS WELL AS THE TPO ADOPTED TRANSACTION NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD FOR DETERMINATION OF ALP AN D THE PROFIT LEVEL INDICATOR FOR COMPARISON WAS OPERATING PROFIT TO TOTAL COST ( OP/TC) 6. THE ASSESSEE SELECTED 16 COMPANIES AS COMPARABL E COMPANIES AND COMPUTED THE ARITHMETIC MEAN OF THE PROFIT MARGINS OF THOSE COMPANIES AT 13% WHICH WAS MUCH LOWER THAN THE PROFIT MARGIN OF THE ASSESSEE W HICH WAS 13.21%. THE ASSESSEE THEREFORE CLAIMED THAT THE PRICE RECEIVED IN THE INTERNATIONAL TRANSACTION WAS HIGHER THAN THE ARITHMETIC MEAN OF PROFIT MARGI N OF COMPARABLE COMPANIES AND THEREFORE THE PRICE RECEIVED IS AT ARMS LENGTH . 7. THE TPO ACCEPTED ONLY TWO OF THE 16 COMPANIES S ELECTED AS COMPARABLE COMPANIES BY THE ASSESSEE VIZ., MINTREE LTD. AND PE RSISTENT SYSTEMS & SOLUTIONS LTD. THE TPO IDENTIFIED 11 OTHER COMPANIES AS COMP ARABLE COMPANIES AND ARRIVED AT A SET OF 13 COMPARABLE COMPANIES WITH TH AT OF THE ASSESSEE AND ARRIVED AT ARITHMETIC MEAN OF THE PROFIT MARGIN OF THOSE 13 COMPANIES AT 24.82% BEFORE WORKING CAPITAL ADJUSTMENT AND 23.52% AFTER WORKING CAPITAL ADJUSTMENT. THE FOLLOWING CHART WILL SHOW THE LIST OF 13 COMPARABLE COMPANIES ULTIMATELY CHOSE BY THE TPO AND THE ARITHMETIC MEAN OF THE PROFIT MA RGIN OF THOSE COMPANIES. NAME OF THE COMPANY MARK-UP ON TOTAL COSTS (W (WC -UNADJ) MARK-UP ON TOTA TOTAL COSTS ( (WC -ADJ) IT(TP)A NO.502/B/16 CO NO.01/B/17 4 (IN %) ACROPETAL T ACROPETAL TECHNOLOGIES LTD. (SEG) 31 31.98 28.33 ZEST SOLUTI E-ZEST SOLUTIONS LTD. 2 21.03 18.74 INFOCHIPSE E -INFOCHIPS LTD. 56.44 55.38 EVOKE TECHN EVOKE TECHNOLOGIES PVT. LTD. 8.11 7.91 ICRA TECHN ICRA TECHNO ANALYTICS LTD. 2 2 2.54 INFOSYS LTD. 43.39 4 42.89 LARSEN & TO LARSEN & TOUBRO INFOTECH LTD. 19.83 19.61 MINDTREE LTD. MINDTREE LTD.(SEG) 10.66 9.15 PERSISTENT SY PERSISTENT SYSTEMS & SOLUTIONS 22.12 20.92 PERSISTENT SY PERSISTENT SYSTEMS LTD. 22.84 11 21.35 R S SOFTWARE R.S.SOFTWARE (INDIA) LTD. 16.37 16.02 SASKEN COM SASKEN COMMUNICATION TECHNOLOGIES TECHNOLOGIES LTD. 24.13 24.20 TATA ELXSI LT TATA ELXSI LTD.(SEG) 20.91 18.71 AVERAGE MARK-UP 24.82 2 2 3.52 8. THE TPO THEREAFTER COMPUTED THE ARMS LENGTH PR ICE AS FOLLOWS: ARMS LENGTH MEAN MARK-UP 24.82% LESS: WORKING CAPITAL ADJUSTMENT 1.30%* ADJUSTED M ADJUSTED MEAN AN MARK-UP OF THE COMPARABLES 23.52% OPERATING COST RS. 197,04,10,457/- ARMS LENGTH PRICE H PRICE 123.19% OF OPERATING C OST RS. 243,38,50,996/- PRICE RECEIVE PRICE RECEIVED RS.223,06,23,932/- SHORTFALL BEING ADJUSTMENT U/S. 92CA RS.20,32,27,064 /- 9. THE ASSESSEE OBJECTED TO THE MANNER OF DETERMI NATION OF ALP BY THE TPO BEFORE THE DRP. BRIEFLY, THE DIRECTIONS ISSUED BY T HE DRP ARE AS FOLLOWS: FUNCTIONALITY FILTER: THE FOLLOWING COMPANIES WERE DIRECTED TO BE EXCLUDE D BY ACCEPTING THE CONTENTIONS OF THE ASSESSEE: IT(TP)A NO.502/B/16 CO NO.01/B/17 5 (I) ACROPETAL TECHNOLOGIES LTD. (II) E-INFOCHIPS LIMITED (III) ICRA TECHNO ANALYTICS LTD. (IV) INFOSYS LTD. (V) TATA ELXSI LTD. THE DRP, HOWEVER, REJECTED THE CONTENTIONS OF THE A SSESSEE THAT PERSISTENT SYSTEMS LTD. AND SASKEN COMMUNICATION TECHNOLOGIES LTD. WERE NOT FUNCTIONALLY COMPARABLE TO IT AND CONSEQUENTLY UPHE LD THEIR INCLUSION IN THE FINAL LIST OF COMPARABLES. THE DRP ALSO SUO MOTO DIRECTED THE EXCLUSION OF L&T INFOTECH LTD., R S SOFTWARE (INDIA) LTD., MINDTREE LTD., AND EVOKE TEC HNOLOGIES PVT. LTD. ONSITE SOFTWARE DEVELOPMENT ACTIVITIES: IN ADDITION TO THE ABOVE, THE DRP REJECTED THE FOLL OWING COMPANIES SELECTED BY THE TPO ON THE BASIS THAT THEY WERE PREDOMINANTLY E NGAGED IN ONSITE ACTIVITIES, ALTHOUGH NO ONSITE REVENUES FILTER HAD BEEN APPLIED BY THE TPO: (A) ACROPETAL TECHNOLOGIES LTD. (REJECTED BY DRP ON OTH ER GROUNDS ALSO); (B) L & T INFOTECH LTD. (REJECTED BY DRP SUO MOTO ON OTHER GROUNDS ALSO); (C) RS SOFTWARE (INDIA) LTD. (REJECTED BY DRP SUO MOTO ONLY ON THIS GROUND); AND (D) MINDTREE LTD. (REJECTED BY DRP SUO MOTO ON OTHER GROUNDS ALSO) LIST OF COMPARABLES POST THE DRPS DIRECTIONS: ON GIVING EFFECT TO THE ABOVE DIRECTIONS ISSUED BY THE DRP, THE FINAL LIST OF COMPARABLES IS AS FOLLOWS: SL SL . NO. NAME OF THE COMPANY IT(TP)A NO.502/B/16 CO NO.01/B/17 6 1. E-ZEST SOLUTIONS LIMITED 2. PERSISTENT SYS PERSISTENT SYSTEMS & SOLUTIONS LTD. 3. PERSISTENT SYS PERSISTENT SYSTEMS LTD. 4. SASKEN COMMUNICATION TECHNOLOGIES LTD. 5. L&T INFOTECH LIMITED 10. PURSUANT TO THE DIRECTIONS OF THE DRP, AS THE ARITHMETICAL MEAN OF THE WORKING CAPITAL ADJUSTED MARGINS OF THE ABOVE COMPA RABLES WAS WITHIN THE +/-5% RANGE OF THE ASSESSEES NCP MARK-UP FOR PROVISION O F SWD SERVICES, THE TP ADJUSTMENT MADE TOWARDS THE SAID INTERNATIONAL TRAN SACTION CAME TO BE DELETED IN THE FINAL ASSESSMENT ORDER. 11. AGGRIEVED BY THE DIRECTIONS OF THE DRP WHICH W ERE INCORPORATED BY THE AO IN THE FINAL ORDER OF ASSESSMENT, THE REVENUE HAS P REFERRED APPEAL BEFORE THE TRIBUNAL. BRIEFLY, THE GROUNDS IN REVENUES APPEAL ARE AS FOLLOWS: (I) THAT THE DRP ERRED IN DIRECTING THE EXCLUSION OF RS SOFTWARE (INDIA). LTD., ACROPETAL TECHNOLOGIES LTD., DESPITE THE SAID COMPA NIES SATISFYING THE QUANTITATIVE AND QUALITATIVE FILTERS APPLIED BY THE TPO. ( GROUND NO.1 & 2) (II) THAT THE DRP ERRED IN DELETING E-INFOCHIPS LTD. ON THE GROUND THAT IT FAILS THE FILTER OF SERVICE REVENUE INCOME LESS THAN 75% OF THE SALES. ( GROUND NO.4 ) 12. THE GROUNDS IN THE CROSS-OBJECTIONS WHICH ARE BEI NG PRESSED ARE AS FOLLOWS: (I) THAT THE TPO ERRED AND THE DRP FURTHER ERRED IN INC LUDING TWO COMPANIES, VIZ. PERSISTENT SYSTEMS LTD. AND SASKEN COMMUNICATI ONS TECHNOLOGIES LTD., IN THE LIST OF COMPARABLES ALTHOUGH THEY FAIL THE TEST OF COMPARABILITY. ( GROUND NO.1.6 ) IT(TP)A NO.502/B/16 CO NO.01/B/17 7 (II) THAT THE DRP ERRED IN SUO MOTO REJECTING RS SOFTWARE PVT. LTD., MINTREE LTD., AND EVOKE TECHNOLOGIES LTD., FROM THE LIST OF COMPARABLES ( GROUND NO.2 ). 13. AS FAR AS GR.NO.2 IS REVENUES APPEAL IS CONCERNED, THE SUM AND SUBSTANCE OF THE GROUND OF APPEAL IS THAT THE DRP OUGHT NOT TO HAVE EXCLUDED 2 COMPARABLE COMPANIES FROM THE LIST OF FINAL COMPARABLE COMPANIES CHOSEN BY THE TPO FOR COMPARISON OF PROFIT MARGIN OF THE ASSESSEE WITH COMPARABLE COMPA NIES. THE TWO COMPANIES THAT WERE EXCLUDED BY THE DRP WHICH IS IN CHALLENGE BY T HE REVENUE BEFORE THE TRIBUNAL ARE (I) ACROPETAL TECHNOLOGIES LTD., AND (II) RS SOFTWARE (INDIA) LTD. 14. ACROPETAL TECHNOLOGIES LIMITED - AS FAR AS EXCLUSION OF THIS COMPANY AS A COMPARABLE COMPANY IS CONCERNED, IT IS SEEN FROM TH E DIRECTIONS OF THE DRP THAT THIS COMPANY WAS EXCLUDED ON THE GROUNDS THAT: (I) THE SEGMENTAL INFORMATION CONTAINING THE BREAK-UP OF ITS EXPORT SALES AND EMP LOYEE COSTS, WAS NOT AVAILABLE AND IT WAS NOT POSSIBLE TO ASCERTAIN IF IT PASSED T HE EXPORT EARNINGS AND / OR EMPLOYEE COSTS FILTERS; AND (II) A SUBSTANTIAL PORT ION OF ITS SOFTWARE DEVELOPMENT ACTIVITIES HAVE BEEN OUTSOURCED ON SUB-CONTRACT AND IT COULD, THEREFORE, NOT BE RETAINED AS A COMPARABLE. THE DRP IN DIRECTING EXC LUSION OF THIS COMPANY FOLLOWED DECISION OF HYDERBAD BENCH OF ITATL IN TH E CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. (ITA NO.1961/HYD/2011) . THE DRP ALSO OBSERVED THAT THIS COMPANY WAS PREDOMINANTLY DOING ON-SITE DEVELOPMENT OF SOFTWARE AND THEREFORE CANNOT BE COMPARED WITH A CO MPANY WHICH DEVELOPS SOFTWARE OFF-SHORE. ONE OF THE FILTERS APPLIED BY THE TPO WAS THAT COMPANIES WHERE EMPLOYEE COSTS ARE LESS THAN 25% OF TURNOVER CANNOT BE REGARDED AS COMPARABLE. IN THE ABSENCE OF SEGMENTAL INFORMATIO N, IT WAS NOT POSSIBLE TO ASCERTAIN AS TO WHETHER THIS COMPANY PASSES THE TES T ADOPTED BY THE TPO HIMSELF FOR COMPARISON. THE LEARNED DR SUBMITTED THAT THE REQUIRED DATA CAN BE CULLED OUT FROM THE INFORMATION AVAILABLE IN THE PUBLIC DO MAIN OR BY RESORTING TO A PROCESS OF CALLING FOR INFORMATION FROM THIS COMPAN Y U/S.133(6) OF THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD POI NTED OUT THAT THE HONBLE DELHI IT(TP)A NO.502/B/16 CO NO.01/B/17 8 HIGH COURT REJECTED A SIMILAR ARGUMENT BY THE REVEN UE IN THE CASE OF PRL.CIT VS. SAXO INDIA PVT. LTD. ITA 682/16 ORDER DATED 28.9.20 16. IN THE CIRCUMSTANCES, THIS COMPANY WAS RIGHTLY HELD BY THE DRP TO BE NOT COMPA RABLE. WE ARE OF THE VIEW THAT ONCE A COMPANY BECOMES NOT COMPARABLE FOR THE REASON THAT SEGMENTAL INFORMATION TO APPLY FILTERS, WE NEED NOT CONSIDER ANY OTHER ASPECT OF COMPARABILITY. THE LEARNED COUNSEL FOR THE ASSESSE E MADE SUBMISSIONS BEFORE US THAT THIS COMPANY WAS RIGHTLY DIRECTED TO BE EXCLUD ED BY THE DRP ON THE ABOVE BASIS AND FURTHER CONTENDED THAT EVEN OTHERWISE, TH IS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. AS ALREADY STATED, WE D O NOT WISH TO GO INTO THIS ASPECT AS THIS COMPANY GOES OUT OF COMPARABILITY ON OTHER REASONS. 15. AS FOR RS SOFTWARE (INDIA) LTD. , IT WAS REJECTED BY THE DRP SOLELY ON THE BASIS THAT IT WAS ALLEGEDLY PREDOMINANTLY ENGAGED I N THE ONSITE DEVELOPMENT OF SOFTWARE IN FY 2010-11. IN THIS REGARD, IT IS SEEN THAT THIS COMPANY WAS SELECTED BY THE TPO AND ACCEPTED BY THE ASSESSEE AS A COMPAR ABLE, AND IT WAS ACCORDINGLY INCLUDED BY THE TPO IN THE LIST OF COMPARABLES. IN THE PROCEEDINGS BEFORE THE DRP, THE ASSESSEE DID NOT OBJECT TO ITS INCLUSION I N THE LIST OF COMPARABLES. HOWEVER, DESPITE THE ABOVE, THE DRP ON ITS OWN DIRE CTED ITS EXCLUSION. WE ARE OF THE VIEW THAT SINCE THE REVENUE AS WELL AS THE ASSE SSEE WANTS TO RETAIN THIS COMPANY AS A COMPARABLE COMPANY, THIS COMPANY SHOUL D BE REGARDED AS COMPARABLE COMPANY. 16. AS FAR AS GROUND NO.4 RAISED BY THE REVENUE IS CONCERNED, THE REVENUE SEEKS TO CHALLENGE THE EXCLUSION OF E-INFOCHIPS LTD. ON THE GROUND THAT IT FAILED THE SOFTWARE SERVICE INCOME FILTER AT 75%. AT THE OUTSE T, THE ASSESSEE SUBMITS THAT E- INFOCHIPS LTD. WAS EXCLUDED BY THE DRP ON THE GROUN D THAT: (I) NO SEGMENTAL INFORMATION REGARDING ITS DIVERSE FUNCTIONS IS AVAI LABLE; (II) IT FAILED THE SOFTWARE SERVICE INCOME FILTER AT 75%; (III) THERE WERE MAJO R FLUCTUATIONS IN PROFIT AND TURNOVER EVERY YEAR WHICH SEEMS TO BE INFLUENCED BY EXTRAORDINARY/PECULIAR CIRCUMSTANCES; AND (IV) THERE IS A PRESENCE OF INVE NTORY (PAGE 10 AND 11 OF THE IT(TP)A NO.502/B/16 CO NO.01/B/17 9 DRPS DIRECTION). THE REVENUE, IN ITS APPEAL, HAS C HALLENGED ITS EXCLUSION ONLY THE SECOND GROUND. IN OTHER WORDS, THE REVENUE HAS NOT CHALLENGED ITS EXCLUSION ON THE OTHER GROUNDS STATED HEREINABOVE AND THUS IT S EXCLUSION ON THESE GROUNDS HAVE ATTAINED FINALITY AND CANNOT BE DISTURBED BY T HIS HONBLE TRIBUNAL. EVEN OTHERWISE, WE ARE OF THE VIEW THAT THE DRP RIGHTLY ARRIVED AT THE FINDING THAT THE COMPANYS SOFTWARE DEVELOPMENT SERVICE REVENUE FOR FY 2010-11 WAS LESS THAN 75% OF ITS TOTAL OPERATING REVENUE FOR THAT YEAR. T HUS, THE ABOVE ACTION OF THE DRP IN REJECTING THE ABOVE COMPANY IS CORRECT. 17. AS FAR AS GROUND NO. 1 & 2 IN THE REVENUES AP PEAL IS CONCERNED, THE REVENUE IN THIS GROUND HAS CHALLENGED THE ORDER OF THE DRP ON THE GROUND THAT THE DRP SUO MOTO INTRODUCED A NEW FILTER I.E. ONSITE SOFTWARE DEVEL OPMENT FILTER AND THEREBY REJECTED COMPANIES ON THE BASIS THAT THEY W ERE PREDOMINANTLY ENGAGED IN THE ONSITE DEVELOPMENT OF SOFTWARE IN FY 2010-11. 18. IN THIS REGARD, WE ARE OF THE VIEW THAT ON-SIT E REVENUE FILTER IS AN ACCEPTED FILTER TO BE APPLIED FOR CHOOSING COMPARABLE COMPAN IES ENGAGED IN SOFTWARE DEVELOPMENT AND FALLS WITHIN THE PARAMETERS OF RULE 10B(2) OF THE INCOME TAX RULES, 1961 (RULES). IN ANY EVENT, THE THREE COMPA NIES WHOSE EXCLUSION FROM THE LIST OF COMPARABLE COMPANIES IS CHALLENGED BEFORE T HE TRIBUNAL, GO OUT OF COMPARABILITY FOR OTHER REASONS AND NOT SOLELY ON T HE APPLICATION OF ON-SITE REVENUE FILTER. THEREFORE, WE FIND NO MERIT IN GR. NO.1 & 2 RAISED BY THE REVENUE. 19. AS FAR AS GROUND NO.3 & 5 ARE CONCERNED, THESE GROUNDS RAISED BY THE REVENUE ARE TO THE EFFECT THAT THE DRP SHOULD NOT E XACTLY COMPARE COMPARABLE COMPANIES WITH THE ASSESSEE AND SHOULD ONLY COMPARA BLE SIMILAR COMPANIES AND THAT UNDER TNMM ONLY IF THERE IS MATERIAL DIFFERENC ES IN THE COMPARABILITY BETWEEN THE COMPARABLE COMPANIES AND THE ASSESSEE T HEY SHOULD BE REGARDED AS NOT COMPARABLE. ACCORDING TO THE REVENUE THE DRP F AILED TO NOTICE THIS LEGAL IT(TP)A NO.502/B/16 CO NO.01/B/17 10 POSITION IN ITS ORDER. THESE GROUNDS ARE VAGUE AND DOES NOT SET OUT ANY PARTICULAR INSTANCE OF SUCH VIOLATION AND ARE THEREFORE HELD T O BE WITHOUT ANY MERIT. 20. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED TO THE EXTENT OF ITS PRAYER FOR INCLUSION OF R.S.SOFTWARE PVT.LTD., AS A COMPARABLE COMPANY AND IN ALL OTHER RESPECTS GR.NO.1 TO 6 RAISED BY THE REVENUE ARE DIS MISSED. 21. SINCE, THE INCLUSION OF R.S.SOFTWARE PVT.LTD., WILL NOT HAVE ANY IMPACT ON THE UPWARD REVISION OF ALP OF THE INTERNATIONAL TRANSAC TION, WE ARE OF THE VIEW THAT THERE IS NO NECESSITY TO DECIDE THE VARIOUS GROUNDS RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION IN SO FAR AS IT RELATES TO DETERMIN ATION OF ALP OF SWD SERVICES SEGMENT. THE CROSS-OBJECTION IS THEREFORE DISMISSE D AS INFRUCTUOUS IN RESPECT OF SWD SERVICES SEGMENT. 22. ITES SEGMENT: AS FAR AS ITES SEGMENT IS CONCERNED, THE FINAL LIST OF COMPANIES CHOSEN BY THE TPO WAS 10 AND THE ADDITION ON ACCOUNT OF ALP BASED ON THE AVERAGE PROFIT MARGIN OF THESE 10 COMPANIES WAS A SUM OF RS.3,66,42,275/-. PURSUANT TO THE DIRECTIONS OF TH E DRP ONLY 4 COMPANIES REMAIN IN THE LIST OF COMPARABLE COMPANIES VIZ., (I) ACCEN TIA TECHNOLOGIES LTD., (II) ICRA ONLINE LTD. (SEG.) (III) JINDAL INTELLICOM PVT .LTD. AND (IV) MINDTREE LTD. 23. THE REVENUE IN ITS APPEAL HAS CHALLENGED THE O RDER OF THE AO INCORPORATING THE DIRECTIONS OF DRP EXCLUDING ACROPETAL TECHNOLOG IES FROM THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO (GR.NO.7 & 8 ). IN ITS CROSS-OBJECTION THE ASSESSEE HAS OBJECTED TO INCLUSION OF ACCENTIAL TECHNOLOGIES LTD., IN THE LIST OF COMPARABLE COMPANIES BY THE DRP (GR.NO.1.6). 24. AS FAR AS GROUND NOS. 7 AND 8 IN THE REVENUE S APPEAL IS CONCERNED, THE SAME RELATES TO EXCLUSION OF ACROPETAL TECHNOLOGIES LTD., AS A COMPARABLE COMPANY. THE SUBMISSIONS OF THE LD DR WAS THAT THE ACROPETAL TECHNOLOGIES IT(TP)A NO.502/B/16 CO NO.01/B/17 11 LTD., SATISFIES ALL THE QUALITATIVE AND QUANTITATIV E FILTERS ADOPTED BY THE TPO. DESPITE THAT THE DRP EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES FOR THE REASON THAT THIS COMPANY WAS ENGA GED IN DIVERSE ACTIVITIES FOR WHICH NO SEGMENTAL INFORMATION IS AVAILABLE. THE D RP ALSO HELD THAT THERE WAS UNALLOCATED EXPENSES TO THE EXTENT OF RS.21.52 CROR ES AND, THEREFORE CAME TO THE CONCLUSION THAT THIS COMPANY MAY NOT BE FUNCTIONALL Y COMPARABLE WITH THAT OF THE ASSESSEE. THE DRP HAD RELIED ON THE DECISION OF BAN GALORE ITAT IN THE CASE OF SYMHPONY MARKETING SOLUTIONS INDIA PVT. LTD., VS. I TO, IN IT(TP)A NO.1316/BANG/2012, WHEREIN THE ITAT TOOK THE VIEW T HAT THIS COMPANY PERFORMS ENGINEERING DESIGNS SERVICES AND THEREFORE NOT COMP ARABLE WITH THE ITES COMPANY. 25. THE LD DR SUBMITTED THAT SEGMENTAL REVENUE OF T HIS COMPANY IS AVAILABLE AT PAGE 554 OF THE ASSESSEES PAPER BOOK AND IT REA DS AS FOLLOWS:- BUSINESS SEGMENT ENGINEERING DESIGN SERVICE INFORMATION TECHNOLOGY SERVICE HEALTH CARE TOTAL INCOME 494,399,332 814,016,893 108,112,712 1,416,52 8,937 EXPENDITURE 269,038,397 381,803,492 48,365,066 699, 206,956 ALLOCATED GENERAL EXPENSES 88,532,609 161,353,308 22,427,745 272,313,662 SEGMENT OPERATING INCOME 136,828,326 270,860,093 37,319,901 445,008,320 UNALLOCATED EXPENSES 215,288,393 OPERATING INCOME 229,719,927 OTHER INCOME 1,275,052 IT(TP)A NO.502/B/16 CO NO.01/B/17 12 NET PROFIT BEFORE TAXES 230,994,979 INCOME TAXES 24,341,319 NET PROFIT AFTER TAX 206,653,660 26. ACCORDING TO HIM, THEREFORE THE CONCLUSION OF T HE DRP CANNOT BE SUSTAINED. 27. WE HAVE CONSIDERED THE SUBMISSION OF THE LD DR AND WE FIND THAT THIS COMPANY HAS BEEN EXCLUDED ON SEVERAL GROUNDS BY THE DRP WHICH ARE AS FOLLOWS:- HAVING CONSIDERED THE SUBMISSIONS, ON PERUSAL OF T HE ANNUAL REPORT, IT IS NOTICED BY US THAT THE ASSESSING OFFICER HAS CONSID ERED THE REVENUE FROM THE ENGINEERING DESIGN SEGMENT, WHICH IS NOT COMPARABLE WITH THE FUNCTION OF THE ASSESSEE COMPANY. IT IS ALSO NOTICED BY US FROM PAGE 9 OF THE ANNUAL REPORT THAT THE COMPANY'S SERVICES FACILITATE REDUC ED PRODUCT DESIGN CYCLE TIME AND COST. IT IS ALSO NOTICED FROM PAGE 12 THAT THE COMPANY IS COMMITTED TO DELIVER THE COST EFFECTIVE SOFTWARE PRODUCTS, SE RVICES AND SOLUTIONS TO ITS CUSTOMERS FOR WHICH NO SEGMENTAL INFORMATION IS AVA ILABLE. IT IS ALSO NOTICED THAT IN THE PROFIT AND LOSS A/C, SOFTWARE D EVELOPMENT EXPENSES OF 7 69.92 CRORE HAS BEEN DEBITED OUT OF WHICH RS. 55.77 CRORE HAS BEEN INCURRED ON TECHNICAL SUB CONTRACT. IN RESPECT OF S UCH ON-SITE EXPENSE, SEGMENTAL INFORMATION IS NOT AVAILABLE, FURTHER, IN THE SEGMENTAL INFORMATION, THE UNALLOCATED EXPENSES ARE TO THE EX TENT OF RS. 21,52 CRORE. ALL THESE DIFFERENCES MAKES IT CLEAR THAT EVEN IF T HE ENGINEERING DESIGN SEGMENT IS CONSIDERED AS COMPARABLE, THE CORRECT MA RGIN AND COMPARABILITY CANNOT BE ARRIVED AT, FURTHER, DUE TO THE FUNCTIONAL DIFFERENCES, HON'BLE BENGALURU ITAT IN THE CASE OF - SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. VS. ITO (IT (TP) A NO. 13 16/BANG/2012), HELD THAT ACROPETAL CANNOT BE CONSIDERED AS COMPARABLE AS IT PERFORMS ENGINEERING DESIGN SERVICES IN ADDITION TO OTHER JUDICIAL PRONO UNCEMENTS RELIED BY THE ASSESSEE, ACCORDINGLY WE DIRECT THE ASSESSING OFFIC ER TO EXCLUDE THE COMPANY FROM THE COMPARABLES. 28. THE FACT THAT SEGMENTAL DETAILS ARE NOT AVAILAB LE IS NOT THE ONLY REASON FOR EXCLUSION OF THIS COMPANY. APART FROM THE ABOVE, A CO-ORDINATE BENCH OF THE IT(TP)A NO.502/B/16 CO NO.01/B/17 13 TRIBUNAL IN THE CASE OF SYMPHONY SOLUTIONS INDIA PV T.LTD., (SUPRA) HAS CONSIDERED THIS COMPANY AS PERFORMING FUNCTIONS OF ENGINEERING DESIGN SERVICES. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL, WE, HOLD THAT THE DRP WAS JUSTIFIED IN EXCLUDING TH IS COMPANY FROM THE LIST OF COMPARABLE COMPANIES. WE THEREFORE DO NOT FIND ANY MERITS IN GROUND NOS. 7 AND 8 BY THE REVENUE. 29. AS FAR AS THE CROSS-OBJECTION OF THE ASSESSEE I S CONCERNED, IN GROUND 1.6 THE ASSESSEE HAS SOUGHT EXCLUSION OF ACCENTIA TECHN OLOGY LTD., FROM THE FINAL LIST OF COMPARABLES, AFTER THE ORDER OF THE DRP. THE GR OUND ON WHICH THE ASSESSEE SEEKS EXCLUSION OF THIS COMPANY IS THAT THIS COMPAN Y IS ENGAGED IN PROVIDING HIGH END SERVICES IN THE NATURE OF KNOWLEDGE PROCES SING OUT SOURCING. ACCORDING TO THE ASSESSEE IT WAS ENGAGED IN BACK OFFICE SERVI CES WHICH ARE ONLY SUPPORTIVE AND CANNOT BE COMPARED WITH SERVICES PERFORMED BY A CCENTIA TECHNOLOGY LTD. BESIDES THE ABOVE, THIS COMPANY IS ALSO STATED TO H AVE INCOME FROM CODING WHICH IS SUBSTANTIAL. THE LD COUNSEL FOR THE ASSESSEE PL ACED RELIANCE ON THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF M/S SWISS R E SHARED SERVICES INDIA PVT. LTD., VS. ACIT IN IT(TP)A NO.380/BANG/2016 ORD ER DATED 8/7/2016 FOR ASSESSMENT YEAR 2011-12. OUR ATTENTION WAS DRAWN T O THE ORDER OF THE PARAS 9 TO 20 OF THE ORDER OF THE TRIBUNAL, WHEREIN THE TRIBUN AL HAS CONSIDERED COMPARABILITY OF THIS COMPANY IN THE ITES SEGMENT A ND HAS HELD AS FOLLOWS:- 09. ADVERTING TO ACCENTIA TECHNOLOGIES LTD, LD. AR SUBMITTED THAT THE SAID COMPANY HAD INORGANIC GROWTH DURING T HE RELEVANT PREVIOUS YEAR DUE TO CREATION OF A US BASED LOCALIS ED FRONT-END COMPANY. AS PER THE LD. AR, ACCENTIA TECHNOLOGIES LTD, WAS DOING OUTSOURCING WORK AS WELL AS CODING. CODING W ORK FELL WITHIN THE REALM OF SOFTWARE DEVELOPMENT ONLY. ACCORDING TO THE LD. AR, MEDICAL TRANSCRIPTION EARNINGS OF ACCENTIA TECHNOLO GIES LTD, COMPRISED OF PREPARATION OF CUSTOMISED NOTES OF PAT IENTS, RECORD KEEPING OF PATIENTS, INSURANCE VERIFICATION OF PATI ENTS, APPOINTMENT SCHEDULING OF PATIENTS, PROVIDING ACCESSIBLE PRACTI CE MANAGEMENT IT(TP)A NO.502/B/16 CO NO.01/B/17 14 SYSTEM, PROVIDING EMR SYSTEMS INCLUDING EMR CODING, BILLING, BILL PAYMENT MANAGEMENT SYSTEM, ADHOC REPORTING ETC., A S PER THE LD.AR, SAID COMPANY CATERED TO THE HEALTH CARE INDU STRY AND THEIR PRODUCTS WERE CUSTOMISED AND NOT SIMILAR TO WHAT AS SESSEE WAS DOING. AS PER THE LD. AR THE WORK DONE BY ACCENTIA TECHNOLOGIES LTD, REQUIRED SKILLED KNOWLEDGE AND ADVANCED ANALYT ICS. LD. AR SUBMITTED THAT DURING THE RELEVANT PREVIOUS YEAR, T HE SAID COMPANY HAD INVESTED IN ANOTHER COMPANY WHICH HAD AN EXPERT ISE IN EMR SOFTWARE AND SAAS. IN ANY CASE, AS PER THE LD. AR, SEGMENTAL RESULTS OF ACCENTIA WAS NOT AVAILABLE IN BETWEEN VA RIOUS SEGMENTS LIKE MT BILLING COLLECTION AND CODING. WHEN SEGMEN TAL RESULTS WERE NOT AVAILABLE, AS PER THE LD. AR IT WAS NOT PR OPER TO CONSIDER ACCENTIA TECHNOLOGIES LTD, AS A GOOD COMPARABLE. R ELIANCE WAS ALSO PLACED ON DECISION OF DELHI BENCH OF THE TRIBU NAL IN THE CASE OF EQUANT SOLUTIONS INDIA P. LTD V. DCIT [ITA.1202 /DEL/2015, DT.21.01.2016] AND THAT OF COORDINATE BENCH IN THE CASE OF AMBA RESEARCH (INDIA) P. LTD, V. DCIT [IT(TP)A.286/BANG/ 2015, DT.09.03.2016]. AS PER THE LD. AR THOUGH THE ABOVE DECISIONS WERE FOR A. Y. 2010-11, ACCENTIA TECHNOLOGIES LTD, WAS DOING THE VERY SAME ACTIVITIES DURING THE RELEVANT PREVIOUS Y EAR ALSO. HENCE ACCORDING TO HIM THESE DECISIONS COULD BE TAKEN AS A PRECEDENCE FOR EXCLUDING THE SAID COMPANY FROM THE LIST OF COM PARABLES. 10. PER CONTRA, LD. DR SUBMITTED THAT 80% OF THE RE VENUE OF ACCENTIA TECHNOLOGIES LTD, WERE FROM MEDICAL TRANSC RIPTION, WHICH FELL WITHIN ITES ONLY. AS PER THE LD. DR, AC TUAL ACTIVITIES OF THE ASSESSEE COMPARED FAVOURABLE WITH ACCENTIA TECH NOLOGIES LTD. WHEN 80% OF THE INCOME WAS FROM ITES SERVICES, AS P ER THE LD. DR FURTHER SEGMENTATION WAS NOT REQUIRED. AS FOR T HE RELIANCE PLACED ON THE DECISIONS OF DELHI BENCH IN THE CASE OF EQUANT SOLUTIONS INDIA P. LTD, (SUPRA) AND COORDINATE BENC H IN THE CASE OF AMBA RESEARCH INDIA P. LTD (SUPRA), LD. DR SUBMITTE D THAT THESE WERE FOR A. Y. 2010-11 AND THERE WAS A CLEAR FINDIN G BY THE TRIBUNAL THAT RESULTS OF ACCENTIA TECHNOLOGIES LTD, WERE SKEWED BECAUSE OF ACQUISITION OF A BUSINESS DURING THAT YE AR AND ALSO DUE TO INORGANIC GROWTH. 11. IN REPLY LD. AR SUBMITTED THAT EVEN WITHIN THE SAME ITES SEGMENT DIFFERENTIATION COULD BE MADE BASED ON HIGH -END AND LOW- END SERVICES. RELYING ON JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS P. LTD V. CIT [ITA. 102/2015, DT.10.08.2015], LD. AR SUBMITTED THAT THERE COULD B E HIGH-END AND LOW-END SERVICES WHICH MAY NOT BE COMPARABLE. AS P ER LD. AR IN THE CASE OF ASSESSEE, IT WAS DOING LOW-END BPO SERV ICES IN THE FIELD IT(TP)A NO.502/B/16 CO NO.01/B/17 15 OF INSURANCE AND COULD NOT BE COMPARED WITH A HIGH- END SERVICE PROVIDER IN THE MEDICAL FIELD. 12. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. TWENTIETH ANNUAL REPORT OF ACENTIA TE CHNOLOGIES LTD, FOR FINANCIAL YEAR 2010-11 HAS BEEN FILED AT PAPER BOOK PAGE 491 TO 568. IN THE PART CAPTIONED MANAGEMENT DISCUSSI ON AND ANALYSIS, THE COMPANY MENTIONED ITS MEDICAL TRANSC RIPTION BUSINESS BEING MOVED FROM A LOW-END CATEGORY TO A H IGH-END CATEGORY. MANAGEMENT OF THE SAID COMPANY HAD DECID ED TO ACQUIRE NECESSARY SKILLS INORGANICALLY SO THAT IT C OULD DO MEDICAL CODING AND PROVIDE END TO END SERVICES IN HRCM. IN WHAT IS CALLED BY THE SAID COMPANY AS EMR METHOD, IT CAPTU RED AND STORED ALL DEMOGRAPHIC AND CLINICAL DATA IN DATA BA SE FORMAT RATHER THAN KEEPING PHYSICAL REPORTS AS DONE IN ORT HODOX MEDICAL TRANSCRIPTION METHODS. THAT M/S. ACCENTIA TECHNOLO GIES LTD, WAS PROVIDING INTEGRATED END TO END SOFTWARE SERVICES A ND REMODELLING ITS OWN BUSINESS IS CLEAR FROM PAGE 25 OF ITS ANNUA L REPORT WHICH IS REPRODUCED HEREUNDER : IT(TP)A NO.502/B/16 CO NO.01/B/17 16 13. TYPE OF WORK DONE BY THE SAID COMPANY HAS BEEN EXPLAINED IN DETAIL AT PAGES 24 AND 25 OF ANNU AL REPORT. THIS IS REPRODUCED HEREUNDER : IT(TP)A NO.502/B/16 CO NO.01/B/17 17 IT(TP)A NO.502/B/16 CO NO.01/B/17 18 IT(TP)A NO.502/B/16 CO NO.01/B/17 19 14. IF WE HAVE A LOOK AT THE BILLINGS MADE BY M/S. ACCENTIA TECHNOLOGIES LTD, ITS INCOME FOR THE RELEVANT PREVI OUS YEAR READ AS UNDER : NOT ONLY WAS THE MEDICAL TRANSCRIPTION WORK DONE BY IT OF A HIGH- END VARIETY, IT ALSO HAD SUBSTANTIAL INCOME FROM CO DING COMING TO ABOUT 16% GROSS RECEIPTS. NO SEGMENTAL RESULTS WER E ALSO AVAILABLE. ITS AUDITED FINANCIAL STATEMENTS AT PAR A 7 OF THE NOTES TO ACCOUNTS MENTIONED AS UNDER : 15. AS AGAINST THE ABOVE, ASSESSEE WAS PROVIDING BACK OFFICE SUPPORT TO ITS GROUP COMPANIES AND AFFILIATES, IN T HE FIELD OF REINSURANCE, WHICH ITS AFFILIATES WERE ENGAGED IN. WORK DONE BY THE ASSESSEE HAS BEEN CAPTURED BY US AT PARA THREE ABOVE. THIS IN OUR OPINION WAS ENTIRELY DIFFERENT FROM THE TYPE OF ACTIVITIES THAT ACCENTIA TECHNOLOGIES LTD, WAS INTO. TYPE OF SERVI CES RENDERED BY THE ASSESSEE IS ALSO CLEAR FROM THE SERVICE AGREEME NT ENTERED WITH ITS AE CALLED SWISS RE, ZURICH, DT.01.02.2009. ANN EXURE-1 TO THIS AGREEMENT, IS REPRODUCED HEREUNDER : IT(TP)A NO.502/B/16 CO NO.01/B/17 20 16.A READING OF THE ABOVE WOULD SHOW THAT ASSESSEE WAS FUNCTIONING IN A FIELD DIFFERENT FROM M/S. ACCENTIA TECHNOLOGIES LTD. WHAT IT WAS PROVIDING MAY NOT BE LOW-END SERVI CES, NEITHER WAS IT OF A HIGH-END VARIETY. THE DELIVERABLES THA T ASSESSEE WAS EXPECTED TO GIVE ITS AE ABROAD IS MENTIONED IN SCHE DULE 2 OF ITS AGREEMENT WHICH IS REPRODUCED HEREUNDER : 17. THUS THE FUNCTIONS WHICH WERE DONE BY ACCENTIA TECHNOLOGIES LTD, AND THE FUNCTIONS WHICH WERE REND ERED BY THE IT(TP)A NO.502/B/16 CO NO.01/B/17 21 ASSESSEE WERE ENTIRELY DIFFERENT. WE CANNOT SAY TH AT THE TYPE OF SERVICES DONE BY THE ASSESSEE WAS OF A LEVEL AS SOP HISTICATED AS THE ONE WHICH WAS BEING PROVIDED BY ACCENTIA TECHNOLOGI ES LTD. IN THE CASE OF RAMPGREEN SOLUTIONS P. LTD (SUPRA), HON BLE DELHI HIGH COURT MENTIONED AS UNDER AT PARA 31 OF ITS ORD ER, WHICH READS AS UNDER : 31. IN THE PRESENT CASE, THE TRIBUNAL NOTED THAT VISHAL AND ECLERX WERE BOTH ENGAGED IN RENDERING ITES. THE TRIBUNAL HELD THAT, 'ONCE A SERVICE FALLS UNDER THE CATEGORY OF ITES, THEN THERE IS NO SUB-CLASSIFICATION OF SEGMENT'. THUS, ACCORDING TO THE TRIBUNAL, NO DIFFERENTIATION COULD BE MADE BETWEEN THE ENTITIES RENDERING ITES. WE FIND IT DIFFICULT TO ACCEPT THIS VIEW AS IT IS CONTRARY TO THE FTC1AMENTAT RATIONALE OF DETERMINING ALP BY COMPARING CONTROLLED TRANSACTIONS/ENTITIES WITH SIMILAR UNCONTROLLED TRANSACTIONS/ENTITIES. ITES ENCOMPASSES A WIDE SPECTRUM OF SERVICES THAT USE INFORMATION TECHNOLOGY BASED DELIVERY. SUCH SERVICES COULD INCLUDE RENDERING HIGHLY TECHNICAL SERVICES BY QUALIFIED TECHNICAL PERSONNEL. INVOLVING ADVANCE D SKILLS AND KNOWLEDGE, SUCH AS ENGINEERING, DESIGN AND SUPPORT. WHILE, ON THE OTHER END OF THE SPECTRU M ITES WOULD ALSO INCLUDE VOICE-BASED CALL CENTERS THAT RENDER ROUTINE CUSTOMER SUPPORT FOR THEIR CLIENTS. CLEARLY, CHARACTERISTICS OF THE SERVICE RENDERED WOULD BE DISSIMILAR. FURTHER, BOTH SERVICE PROVIDERS CANNOT BE CONSIDERED TO BE FUNCTIONALLY SIMILAR. THEIR BUSINESS ENVIRONMENT WOULD BE ENTIRELY DIFFERENT, THE DEMAND AND SUPPLY FOR THE SERVICES WOULD BE DIFFERENT, THE ASSETS AND CAPITAL EMPLOYED WOULD DIFFER, THE COMPETENCE REQUIRED TO OPERATE THE TWO SERVICES WOULD BE DIFFERENT. EACH OF THE AFORESAID FACTORS WOULD HAVE A MATERIAL BEARING ON THE PROFITABILITY OF THE TWO ENTITIES. TREATING THE SAID ENTITIES TO BE COMPARABLES ONLY FOR THE REASON THAT THEY USE INFORMATION IT(TP)A NO.502/B/16 CO NO.01/B/17 22 TECHNOLOGY FOR THE DELIVERY OF THEIR SERVICES, WOUL D, IN OUR OPINION, BE ERRONEOUS. 18. THUS WHEN CHARACTERISTICS OF SERVICES RENDERED WERE DISSIMILAR AND THE COMPETENCE REQUIRED TO OPERATE T HE SERVICES WERE DIFFERENT, IT WILL NOT BE CORRECT TO COMPARE T HE RESULTS OF TWO COMPANIES. 19. IN THE CASE OF AMBA RESEARCH INDIA P. LTD (SUPR A), THIS TRIBUNAL HAD DIRECTED EXCLUSION OF ACCENTIA TECHNOL OGIES LTD, FOR COMPARISON PURPOSES. ASSESSEE IN THE SAID CASE WAS PROVIDING ITES SERVICES TO ITS HOLDING COMPANY AT BRITISH VIR GIN ISLANDS. OBSERVATION OF THE TRIBUNAL AT PARA 8 OF THE ORDER DT.09.03.2016, IS REPRODUCED HEREUNDER : 08. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. NO DOUBT ACCENTIA TECHNOLOGIES LTD, F ORMED A PART OF THE LIST OF COMPARABLES CONSIDERED BY THE A SSESSEE IN ITS TP STUDY. HOWEVER ASSESSEE HAD OBJECTED TO ITS INCLUSION CITING FUNCTIONAL DISSIMILARITY BEFORE THE AO AS WE LL AS THE DRP. QUESTION REGARDING COMPARABILITY OF ACCENTIA TECHNOLOGIES IN THE ITE SEGMENT FOR A. Y. 2010-11 H AD COME UP BEFORE THIS TRIBUNAL IN THE CASE OF NOVO NORDISK INDIA P. LTD (SUPRA). IT WAS HELD AS UNDER AT PARAS 31 AND 32 OF THE ORDER DT.30.07.2015 : 31. WE DEAL WITH THE COMPARABLE COMPANIES WHICH THE ASSESSEE SEEKS EXCLUSION. 1. ACCENTIA TECHNOLOGY LT D., 2. INFOSYS BPO LTD. THE COMPARABILITY OF THESE COMPANY WITH A ITES COMPANY WAS CONSIDERED BY THIS TRIBUNAL IN THE CASE OF PARAXEL INTERNATIONAL (INDIA) PVT. LTD. (SUPRA) AND THE TRIBUNAL HELD AS FOLLOWS ON THE COMPARABILI TY OF THE AFORESAID COMPANIES WITH A COMPANY PROVIDING IT ES IN THE FOLLOWING MANNER:- 10. IN GROUNDS NO.4 TO 6, THE ASSESSEE HAS CHALLEN GED THE COMPARABLES SELECTED BY THE TPO FOR THE PURPOSE OF TP ANALYSIS AND AS SUBMITTED BY THE LEARNED COUNSEL OR THE ASSESSEE, THE ASSESSEE IS OBJECTING TO THE SELE CTION OF ONLY THE FOLLOWING FIVE COMPARABLES, OUT OF THE TWE LVE COMPANIES SELECTED AS COMPARABLES- SL. NO. COMPANY NAME 1. ACCENTIA TECHNOLOGIES LIMITED IT(TP)A NO.502/B/16 CO NO.01/B/17 23 2. COSMIC GLOBAL LTD. 3. ECLERX SERVICES LTD. 4. GENESYS INTERNATIONAL LTD. 5. INFOSYS B P O LTD. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THE ISSUE OF INCLUSION/EXCLUSION OF THE ABOVE FIVE COMP ANIES AS COMPARABLES AND ALSO PERUSED THE RELEVANT MATERI AL ON RECORD INCLUDING THE VARIOUS DECISIONS OF THE COORD INATE BENCHES OF THE TRIBUNAL CITED BY THE LEARNED COUNSE L FOR THE ASSESSEE. ACCENTIA TECHNOLOGIES LIMITED 12. AS REGARDS THE SELECTION OF ACCENTIA TECHNOLOGI ES LIMITED AS COMPARABLE, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISIONS OF THIS TRIBUN AL IN THE CASES OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT . LTD. V/S. ADDL./DY. COMMISSIONER OF INCOME-TAX, CIRCLE 1 (2), HYDERABAD AND VICE VERSA (ITA NO.124 AND 170/HYD/2014 DATED 31.7.2014); EXCELLENCE DATA RESEARCH PVT. LTD., HYDERABAD V/S. ITO WARD 2(1), HYDERABAD (ITA NO.159/HYD/2014 DATED 31.7.2014); AN D HYUNDAI MOTORS INDIA ENGINEERING P. LTD., HYDERABAD V/S. DCIT, CIRCLE 2(2), HYDERABAD (ITA NHO.255/HYD/2014 DATED 31.7.2014), WHEREIN M/S. ACCENTIA TECHNOLOGIES LIMITED(SEG) WAS EXCLUDED BY THE TRIBUNAL FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT WAS A CASE OF MERGERS AND ACQUISITION, AND THE COMPANY WAS ALSO FOUND TO BE FUNCTIONALLY DIFFERENT . THE RELEVANT OBSERVATIONS OF THE TRIBUNAL AS RECORDED I N PARA 19.2 OF THE ORDER PASSED IN THE CASE OF EXCELLENCE DATA RESEARCH PVT. LTD., HYDERABAD (SUPRA), BEING RELEVA NT IN THIS CASE, ARE REPRODUCED BELOW- 19.2 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND NOTICED THAT THIS COMPANY OPERATES IN A DIFFERENT BUSINESS STRATEGY OF ACQUIRING COMPANIES FOR INORGANIC GROWTH AS ITS STRATEGY. IN EARLIER YEARS ON THE REASON OF ACQUISITION OF VARIOUS COMPANIES, BEING AN EXTRAORDINARY EVENT WHICH HAD AN IMPACT ON THE PROFIT, THIS COMPANY WAS EXCLUDED. AS SUBMITTED BY THE LEARNED COUNSEL, THIS YEAR ALSO, THE ACQUISITION OF SOME COMPANIES BY IT(TP)A NO.502/B/16 CO NO.01/B/17 24 THAT COMPANY MAY HAVE IMPACT ON THE PROFIT. CONSIDERING THE PROFIT MARGINS OF THE COMPANY AND INSUFFICIENT SEGMENTAL DATA, WE ARE OF IT(TP)A NO.146/BANG/2015 PAGE 42 OF 52 THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. MOREOVER, THIS IS ALSO NOT A COMPARABLE IN THE CASE OF M/S. MERCER CONSULTING (INDIA) P. LTD. (SUPRA), WHICH INDICATES THAT THE TPO THEREIN HAS EXCLUDED IT AT THE OUTSET. IN VIEW OF THIS, WE DIRE CT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPARABLE, FROM THE LIST OF COMPARABLES SELECTED. 13. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, THERE WAS ACQUISITION OF A COMPANY BY M/S. ACCENTIA TECHNOLOGIES LIMITED DURING THE RELEVANT YEAR, AND THE SAID COMPANY, THEREFORE, CANNOT BE CONSIDERED AS COMPARABLE DUE TO THIS EXTRAORDINARY EVENT WHICH OCCURRED IN THE RELEVANT YEAR AS RIGHTLY HELD BY THE TRIBUNAL INTER ALIA IN THE CASE OF EXCELLENCE DATA RESEARCH P. LTD. (SUPRA). ALTHOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SOUGHT TO CONTEND THAT THE ACQUISITION OF A COMPANY BY M/S. ACCENTIA TECHNOLOGIES LTD. TOOK PLACE AT THE FAG END OF THE YEAR UNDER CONSIDERATION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT THE PROCESS OF ACQUISITION HAD STARTED ON 15.5.2008 ITSELF, I.E. IN THE EARLIER PART OF THE YEAR UNDER CONSIDERATION. WE, THEREFORE, FOLLOW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CAS E OF EXCELLENCE DATA RESEARCH SERVICES PVT. LTD. (SUPRA) AND DIRECT THE AO/TPO TO EXCLUDE THE ACCENTIA TECHNOLOGIES LIMITED FROM THE LIST OF COMPARABLES. .. INFOSYS BPO 20. AS REGARDS SELECTION OF INFOSYS BPO AS A COMPARABLE COMPANY, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE SAID COMPANY CANNOT BE TAKEN AS COMPARABLE BECAUSE OF ITS UNCOMPARABLE SIZE OF OPERATIONS. HE HAS CONTENDED THAT THE TURNOVER OF THE SAID COMPANY IT(TP)A NO.502/B/16 CO NO.01/B/17 25 WAS MANY TIMES HIGHER THAN THAT OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ALTHOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS CONTENDED THAT THE SIZE OF OPERATIONS DOES NOT MATTER AS FAR AS SELECTION OF COMPARABLES IS CONCERNED ESPECIALLY IN THE SECTOR OF IT ENABLED SERVICES, IT IS OBSERVED THAT SIMILAR ISSUE HAS BEE N DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S. AGNITY TECHNOLOGIES PVT. LTD. (219 TAXMAN 26) HOLDING THAT HUGE TURNOVER COMPANIES LIKE INFOSYS AND WIPRO CANNOT BE CONSIDERED AS COMPARABLES WITH SMALLER COMPANIES LIKE THE ASSESSEE IN THE PRESENT CASE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF AGNITY TECHNOLOGIES P. LTD. (SUPRA), WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE INFOSYS BPO FROM THE LIST OF COMPARABLES. 32. AS FAR AS ACCENTIA TECHNOLOGY LTD., IS CONCERNE D, EVEN DURING THE PREVIOUS YEAR RELEVANT TO AY 2010-1 1, THERE WAS AMALGAMATION OF ASCENT INFOSERVE PRIVATE LIMITED WITH ACCENTIA TECHNOLOGY LTD., AND CONSEQUE NT THERETO THE ASSETS AND LIABILITIES AND ACCUMULATED RESERVES AND THE FINANCIAL RESULTS FOR THE YEAR END ED 31ST MARCH, 2010, OF THE AMALGAMATING COMPANY WERE INCORPORATED IN THE AMGALAMATED COMPANY. AS FAR AS INFOSYS BPO LTD., IS CONCERNED, THE OBSERVATIONS MA DE BY THE TRIBUNAL IN THE DECISION REFERRED IN THE EAR LIER PARAGRAPH WILL HOLD GOOD FOR THE PRESENT AY 2010-11 ALSO. RESPECTFULLY FOLLOWING THE DECISION OF THE TR IBUNAL REFERRED TO ABOVE, WE DIRECT THAT THE AFORESAID 2 COMPANIES BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES FOR THE PURPOSE OF COMPUTING ARITHMETIC MEAN FOR COMPARABILITY PURPOSE. THE TPO IS DIRECTED TO GIVE EFFECT ACCORDINGLY. EVEN AFTER EXCLUSION OF ACCENTIA TECHNOLOGIES LTD, ALONG WITH THE EXCLUSION OF FOUR COMPARABLE COMPAN IES DIRECTED BY DRP, THERE WILL BE FOUR COMPANIES LEFT IN THE LIST OF COMPARABLES WHICH, IN OUR OPINION, CANNOT B E CONSIDERED AS TOO SMALL A SAMPLE FOR AN EFFECTIVE T P STUDY. IN THE CIRCUMSTANCES, WE DIRECT EXCLUSION O F IT(TP)A NO.502/B/16 CO NO.01/B/17 26 ACCENTIA TECHNOLOGIES LTD ALSO FROM THE LIST OF COMPARABLES. ORDERED ACCORDINGLY. 20. NO DOUBT THE SAID DECISION WAS FOR A. Y. 2010-1 1, BUT THE CONDITIONS WHICH PREVAILED IN THE SAID PREVIOUS YEA R MORE OR LESS EXISTED IN THE IMPUGNED ASSESSMENT YEAR ALSO. CONS IDERING ALL THESE ASPECTS, WE ARE THEREFORE OF THE OPINION THAT ACCENTIA TECHNOLOGIES LTD, WAS NOT A GOOD COMPARABLE FOR THE PURPOSE OF ALP STUDY OF THE ASSESSEE. 30. THE LEARNED DR BROUGHT TO OUR NOTICE THE DECISI ON OF THE DRP AT PARA-25 OF ITS ORDER ON THE COMPARABILITY OF THIS COMPANY. HE BROUGHT TO OUR NOTICE THAT THIS COMPANY WAS FOUND COMPARABLE IN ITES SEGMENT W ITH THE ASSESSEE IN ASSESSEES OWN CASE FOR AY 2007-08 IN IT (TP) A.NO. 973/BANG/2010. THE LEARNED DR SUBMITTED THAT THE FUNCTIONAL PROFILE OF THIS COMPANY AND THE ASSESSEE WAS HELD TO BE SAME BY THE TRIBUNAL IN THE AFORESAID DECISION. 31. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSION. IT IS TRUE THAT THE TRIBUNAL FOUND THIS COMPANY TO BE COMPARABLE WI TH THE ASSESSEE IN AY 2007-08. BUT THE DECISION OF THE TRIBUNAL REFERRED TO BY THE LEARNED DR IN THE CASE OF SWISS RE SHARED SERVICES (SUPRA) RELATES TO AY 2010-11. THE TRIBUNAL HAS GIVEN ELABORATE REASONS FOR EXCLUSION OF THIS COMPA NY AS A COMPARABLE COMPANY AND CONCLUDED AT PARAGRAPH 17 OF ITS ORDER THAT THI S COMPANY WAS NOT COMPARABLE WITH A LOW END OR MID END SERVICE PROVIDER IN ITES AS IT WAS IN HIGH END SERVICE PROVIDER IN ITES. IN VIEW OF THE ABOVE DECISION OF THE TRIBUNAL, WE ARE OF THE VIEW THAT ACCENTIA TECHNOLOGY LTD., SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE COMPANIES. THE AO IS DIRECTED TO COMPUT E THE ALP AFTER EXCLUDING ACCENTIA TECHNOLOGY LTD., FROM THE LIST OF COMPARAB LES THAT REMAINS AFTER THE ORDER OF THE DRP. IT(TP)A NO.502/B/16 CO NO.01/B/17 27 31. IN THE RESULT, THE GROUNDS RELATING TO ITES RAI SED BY THE REVENUE IS DISMISSED WHILE THAT RAISED BY THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 25TH APRIL, 2018 . SD/- SD/- (JASON P.BOAZ) (N.V VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE DATED : 25/4/2018 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETARY , ITAT, BANGALORE IT(TP)A NO.502/B/16 CO NO.01/B/17 28 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR. P. S... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. 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 GOES 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 DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..