Appeal details
Counselvise Citation
29522514 RSA 2014
Assessee PAN
Bench
Appeal Number
Duration Of Justice
11 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-02-2015
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
B
Next Hearing Date
05-02-2015
Assessment Year
2009-2010
Appeal Filed On
25-02-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 247/HYD/2014 ASSESSMENT YEAR: 2009-10 HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD., , HYDERABAD PAN AAACH8235M VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(2), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 295/HYD/2014 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(2), HYDERABAD. VS. HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD., , HYDERABAD PAN AAACH8235M (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI RAJAN R VORA & RAVI BHARDWAG REVENUE BY : SHRI D. SUDHAKAR RAO DATE OF HEARING 05-02-2015 DATE OF PRONOUNCEMENT 18-02-2015 O R D E R PER SAKTIJIT DEY, J.M.: THESE CROSS APPEALS ARE AGAINST THE DIRECTIONS OF T HE DISPUTE RESOLUTION PANEL (DRP) U/S 144C(5) AND THE ASSESSME NT ORDER PASSED U/S 143(3) READ WITH SECTION 144C(13) IN CON SEQUENCE THERETO. THE APPEALS ARE PERTAINING TO AY 2009-10. 2 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. 2. BRIEFLY THE FACTS ARE ASSESSEE AN INDIAN COMPANY IS WHOLLY OWNED SUBSIDIARY OF HSBC HOLDINGS PLC (TOGETHER WIT H ITS ASSOCIATES REFERRED TO AS HSBC GROUP), ONE OF THE LEADING BA NKING AND FINANCIAL SERVICES ORGANIZATIONS IN THE WORLD. ASSE SSEE PROVIDES A RANGE OF BACK OFFICE SERVICES INCLUDING CONTACT CEN TRE, DATA ENTRY, DATA PROCESSING AND RELATED SERVICES (BPO SERVICES) TO ITS GROUP COMPANIES/ASSOCIATED ENTERPRISES (AE) ACROSS THE GL OBE. ASSESSEES SERVICE CENTRES IN INDIA ARE REGISTERED AS 100% EXP ORT ORIENTED UNIT UNDER THE SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI) SCHEME. ASSESSEE HAS ALSO ESTABLISHED A BRANCH IN THE UK TO FACILITATE THE IDENTIFICATION AND EFFECTIVE MIGRATION OF WORK TO I NDIA FROM AES. ASSESSEE RENDERS SERVICES AS A CAPTIVE CONTRACT SER VICE PROVIDER AND IS REMUNERATED ON A FULL TIME EQUIVALENT/COST BUDGE TED PLUS MARK-UP BASIS FOR PROVIDING SERVICES TO ITS AES. FOR THE AY UNDER CONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME ON 29/09/2009 DECLARING TOTAL INCOME OF RS. 38,81,449 AFTER CLAIM ING DEDUCTION U/S 10A OF THE ACT IN RESPECT OF THE PROFITS FROM EXPOR T OF SERVICES FROM THE STPI UNITS. ASSESSEE ALSO DECLARED BOOK PROFIT OF RS. 226,59,06,197 UNDER MAT PROVISIONS. DURING THE ASSE SSMENT PROCEEDING, AO WHILE VERIFYING THE DETAILS, NOTICED THAT ASSESSEE HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIO NS WITH ITS AES.: PROVISION OF BPO SERVICES RS. 16,64,69,21,643 INTEREST RECEIVED ON FIXED DEPOSITS RS. 2,74,14,81 4 RECOVERY OF EXPENSES RS. 23,18,25,837 SHARE APPLICATION MONEY RECEIVED RS. 48,60,00,000 PAYMENT OF BANK CHARGES RS. 60,55,129 INTEREST PAID RS. 9,39,912 PAYMENT OF GUARANTEE COMMISSION RS.1,56,415 AND REIMBURSEMENT TO AES RS. 53,51,58,517 3. NOTICING THAT ASSESSEE HAS ENTERED INTO INTERNAT IONAL TRANSACTIONS WITH ITS AES, TO FIND WHETHER PRICE CH ARGED BY ASSESSEE 3 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. IS WITHIN ARMS LENGTH, AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING ARMS LENGTH PRICE (A LP) OF INTERNATIONAL TRANSACTIONS. IN COURSE OF PROCEEDING BEFORE TPO, ASSESSEE FURNISHED ITS TP STUDY, BOOKS OF ACCOUNT A ND OTHER INFORMATIONS AS WERE CALLED FOR. AFTER VERIFYING TH E INFORMATIONS FURNISHED, TPO FOUND THAT FOR ESTABLISHING ALP OF I TS INTERNATIONAL TRANSACTIONS WITH AES, ASSESSEE HAD UNDERTAKEN TP S TUDY CARRIED OUT THROUGH AN INDEPENDENT EXTERNAL CONSULTANT. AS PER THE ANALYSIS MADE, ASSESSEE BEING A RISK MITIGATED CONTRACT SERV ICE PROVIDER WAS SELECTED AS TESTED PARTY. TRANSACTION NET MARGIN M ETHOD (TNMM) WAS ADOPTED AS THE MOST APPROPRIATE METHOD FOR DETE RMINING THE ALP WITH OPERATING PROFIT TO OPERATING COST AS THE PROF IT LEVEL INDICATOR (PLI). BY APPLYING CERTAIN FILTERS, A SEARCH WAS CO NDUCTED IN PROWESS AND CAPTALINE DATA BASES AND TAKING INTO CONSIDERAT ION THE FINANCIAL DATA OF FY 2006-07 & 2007-08, 12 COMPARABLES WITH W EIGHTED AVERAGE ARITHMETIC MEAN OF 9.82% WERE SELECTED. AS ASSESSEES NET MARGIN FROM THE PROVISION OF SERVICES TO ITS AES DU RING THE YEAR WAS SHOWN AT 16.75%, THE PRICE CHARGED WAS FOUND TO BE WITHIN ARMS LENGTH REQUIRING NO FURTHER ADJUSTMENT. TPO, THOUGH , ACCEPTED SELECTION OF TNMM AS MOST APPROPRIATE METHOD WITH O PERATING PROFIT TO OPERATING COST AS PLI, BUT, HE DID NOT ACCEPT TH E ECONOMIC ANALYSIS IN THE TP STUDY, INTER-ALIA, ON THE GROUND THAT ASS ESSEE HAS USED MULTIPLE YEAR DATA IN STEAD OF CONTEMPORANEOUS, WHI CH HAVE MADE ANALYSIS DEFECTIVE. FURTHER, HE OBSERVED THAT ASSES SEE HAS SELECTIVELY APPLIED FILTERS WHICH HAS RESULTED IN SELECTION OF UNCOMPARABLES AS COMPARABLES WHEREAS COMPARABLES HAVE BEEN EXCLUDED. AFTER REJECTING TP STUDY, TPO UNDERTOOK A SEARCH IN THE D ATA BASES INDEPENDENTLY BY APPLYING CERTAIN ADDITIONAL FILTER S WHICH YIELDED 12 COMPANIES INCLUDING TWO SELECTED BY ASSESSEE WITH A VERAGE MARGIN OF 28.06% AFTER MAKING A NEGATIVE WORKING CAPITAL ADJU STMENT OF 0.64%. AS A RESULT, ALP WAS DETERMINED AT RS. 1928,12,74,9 56 AS AGAINST THE PRICE SHOWN BY ASSESSEE OF RS. 1742,63,06,354. THE RESULTANT SHORTFALL OF RS. 185,49,68,602 WAS TREATED AS ADJUS TMENT TO BE MADE 4 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. U/S 92CA. IN TERMS WITH THE ADJUSTMENT MADE BY TPO U/S 92CA(3) TO THE PRICE CHARGED FOR INTERNATIONAL TRANSACTION, AO PASSED A DRAFT ASSESSMENT ORDER PROPOSING ADDITIONS ON ACCOUNT OF TP ADJUSTMENT. FURTHER, AO ALSO RECOMPUTED THE DEDUCTION CLAIMED U /S 10A OF THE ACT, AS A RESULT OF WHICH, EXEMPTION WAS REDUCED TO A LESSER FIGURE. BEING AGGRIEVED OF THE DRAFT ASSESSMENT ORDER, ASSE SSEE FILED OBJECTIONS BEFORE THE DRP BY RAISING VARIOUS ISSUES ON TRANSFER PRICING ADJUSTMENT AS WELL AS CORPORATE MATTERS. 4. THE DRP AFTER CONSIDERING THE SUBMISSIONS OF ASS ESSEE, HOWEVER, DID NOT FIND MERIT IN ANY OF THE OBJECTION S RAISED WITH REGARD TO TRANSFER PRICING ISSUES. HOWEVER, AS FAR AS CORP ORATE TAX ISSUES ARE CONCERNED, DRP GRANTED RELIEF TO ASSESSEE BY DIRECT ING AO TO REDUCE LEASE-LINE CHARGES FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING EXEMPTION U/S 10A. IT ALSO DIRECTED AO TO ALLOW SET OFF OF LOSSES. AO, THOUGH, COMPLIED TO THE DIRECTIONS OF D RP IN SO FAR AS EXCLUSION OF LEASE-LINE CHARGES FROM TOTAL TURNOVER , HOWEVER, AS FAR AS THE ISSUE OF SET OFF OF LOSSES IS CONCERNED, AO DID NOT COMPLY TO THE DIRECTION OF DRP ON THE PRETEXT OF CBDT CIRCULAR DA TED 16/07/2013. BEING AGGRIEVED WITH THE DIRECTIONS OF DRP AS WELL AS ASSESSMENT ORDER, BOTH ASSESSEE AND DEPARTMENT ARE BEFORE US. ITA NO. 247/HYD/2014 BY ASSESSEE 5. ASSESSEE HAS RAISED AS MANY AS 14 GROUNDS. WHILE GROUND NOS. 1 TO 11 ARE ON TRANSFER PRICING ISSUES, GROUND NOS. 12 TO 14 ARE ON CORPORATE ISSUES. AT FIRST WE PROPOSE TO DEAL WI TH TP ISSUES. AS FAR AS TP ISSUES ARE CONCERNED, LD. AR CONFINED HIS ARGUMENT TO GROUND NOS. 6 & 9 ONLY. IN VIEW OF THIS, THE OTHER GROUNDS RAISED BY ASSESSEE ON TP ISSUES ARE DISMISSED AS NOT PRESSED . 6. AS FAR AS GROUND NO. 6 IS CONCERNED, OUT OF THE 12 COMPARABLES SELECTED BY TPO AND CONFIRMED BY DRP, ASSESSEE RAIS ED OBJECTIONS WITH REGARD TO THE FOLLOWING FIVE COMPANIES: 5 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. 1. ACCENTIA TECHNOLOGIES LTD. 2. ACROPETAL TECHNOLOGIES LTD. (SEG.) 3. COSMIC GLOBAL LTD. 4. ECLERX SERVICES LTD. 5. GENESYS INTERNATIONAL LTD. 7. THE SUBMISSIONS OF THE PARTIES IN RELATION TO SE LECTION OF AFORESAID COMPARABLES ARE AS UNDER: 7.1 ACCENTIA TECHNOLOGIES LIMITED. I) THIS COMPANY WAS OBJECTED TO BY ASSESSEE ON THE REASON, THERE WERE MULTIPLE ACQUISITIONS AND AMALGAMATIONS BY THE COMP ANY DURING THE YEAR INDICATING EXCEPTIONAL FACTORS, WHICH IMPACTED THE FINANCIAL RESULTS OF THE COMPANY. IN THIS CONTEXT, HE REFERRED TO THE ANNUAL REPORT O F THE COMPANY PLACED IN THE PAPER BOOK. THE LD. AR SUBMITTED, FOR THE VERY SAME REASON TPO HAS REJECTED ALLSEC TECHNOLOGIES LTD., SELECTED BY ASSESSEE. 7.2 ACROPETAL TECHNOLOGIES LTD. (SEG.) LD. AR REFERRING TO THE ANNUAL REPORT OF THIS COMP ANY FOR THE FY 2008-09 SUBMITTED, IT IS FUNCTIONALLY DIFFERENT AS THE COMPANY IS ENGAGED IN THE BUSINESS OF ENGINEERING DESIGN SERVI CES. HENCE, CANNOT BE A COMPARABLE TO ASSESSEE. FURTHER, IT WAS SUBMITTED, 65% OF THE OPERATING COST OF THE COMPANY IS IN FOREIGN CURRENCY UNDER THE HEAD ONSITE DEVELOPMENT EXPENSES, INDICATING THAT T HE COMPANY PROVIDES SUBSTANTIAL ONSITE SERVICES AND ALSO COULD HAVE OUTSOURCED SERVICES. 7.3 COSMIC GLOBAL LTD. OBJECTING TO SELECTION OF THIS COMPANY, LD. AR SUB MITTED, A REFERENCE TO THE ANNUAL REPORT OF THE COMPANY FOR F Y 2008-09 WILL INDICATE, THE COMPANY HAS OUTSOURCED ITS WORK AND D OES NOT UNDERTAKE THE BPO SERVICES BY ITSELF WHICH IS PROVE D FROM THE LOW EMPLOYEE COST. HENCE, IT CANNOT BE TREATED AS A COM PARABLE. 6 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. 7.4 ECLERX SERVICES LTD. WITH REFERENCE TO THIS COMPANY, LD. AR SUBMITTED, IT SHOULD BE REJECTED ON THE FUNCTIONALITY TEST AS IT IS ENGAGED IN PROVIDING HIGH END KPO SERVICES IN THE FIELD OF DATA ANALYTICS OPE RATIONS MANAGEMENT AND AUDIT RECONCILIATION SERVICES. IN SU PPORT OF HIS CONTENTION, LD. AR REFERRED TO THE ANNUAL REPORT OF THE COMPANY FOR THE FY 2008-09. 7.5 GENESYS INTERNATIONAL LTD. LD. AR REFERRING TO THE ANNUAL REPORT OF THIS COMP ANY SUBMITTED, IT CANNOT BE SELECTED AS COMPARABLE AS IT IS ENGAGED IN THE B USINESS OF GEOGRAPHICAL INFORMATION SERVICES COMPRISING PHOTOGRAMMETRY, REM OTE SENSING, CARTOGRAPHY, DATA CONVERSION, RELATED COMPUTER BASED SERVICES AN D OTHER RELATED SERVICES. 8. LD. AR SUBMITTED, IN VARIOUS RULINGS OF THE ITAT FOR THE SAME AY, FUNCTIONALITY OF THESE COMPANIES WERE EXAMINED AND IT WAS HELD THAT THESE COMPANIES CANNOT BE TREATED AS COMPARABLE TO ITE SE RVICE PROVIDERS. IN SUPPORT, LD. AR RELIED ON THE FOLLOWING DECISIONS: 1. CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD ., ITA NO. 124/HYD/2014. 2. EXCELLENCE DATA RESEARCH, ITA NO. 159/HYD/2014 3. HYUNDAI MOTOR INDIA ENGINEERING P. LTD., ITA NO . 255/HYD/2014. 9. LD. DR, THOUGH, AGREED THAT ISSUE RELATING TO CO MPARABILITY OF COMPANIES OBJECTED BY ASSESSEE ARE MORE OR LESS COVERED BY TH E DECISIONS OF THE TRIBUNAL, BUT, HE NEVERTHELESS RELIED UPON THE REASONINGS OF THE TPO. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES WITH REFERENCE TO THE MATERIALS ON RECORD AS WELL AS DECISIONS OF THE COO RDINATE BENCHES PLACED BEFORE US BY LD. AR. AS COULD BE SEEN, TPO HAS CLASSIFIED THE ASSESSEE AS ITE SERVICE PROVIDER. FURTHER, COMPARABILITY OF AFORESAID COMPA NIES OBJECTED BY ASSESSEE CAME UP FOR CONSIDERATION BY THE COORDINATE BENCH O F THIS TRIBUNAL IN CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. VS . ADDL. CIT (SUPRA) FOR AY 2009-10. THE TRIBUNAL AFTER EXAMINING THE FUNCTIONA LITY OF THESE COMPANIES HELD THEM NOT TO BE COMPARABLE WITH ITE SERVICE PROVIDER . THE RELEVANT EXTRACT FROM THE ORDER OF THE TRIBUNAL IS REPRODUCED HEREUNDER F OR READY REFERENCE: 7 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. (2) GENESYS INTERNATIONAL LTD. 17. IT WAS THE CONTENTION THAT THIS COMPANY FUNCTIONS IN TWO HORIZONTALS, AND IS HAVING SUPER PROFITS. IT WAS F URTHER SUBMITTED THAT THIS COMPANY IS NOT ONLY IN SOFTWARE DEVELOPMENT BUT ALS O IN GEOSPATIAL SERVICES, WHICH ARE HIGHLY TECHNICAL. IT ALSO INVO LVES IN CONSULTING ACTIVITY. IT WAS THE CONTENTION THAT THIS COMPANY WAS ANALYSE D BY THE COORDINATE BENCH OF THE TRIBUNAL AT DELHI IN THE CASE OF M/S. MERCER CONSULTING (INDIA) LTD. V/S DCIT (VIDE ORDER DATED 6 TH JUNE, 2014 IN ITA NO.966/DEL/2014), WHEREIN THIS COMPANY WAS EXCLUDED IN THAT CASE. LE ARNED COUNSEL FOR ASSESSEE RELIED UPON THE FINDINGS OF THE TRIBUNAL V IDE PARAS 14.2 AND 14.3, IN THAT CASE, WHICH READ AS FOLLOWS- 14.2. WE HAVE HEARD THE RIVAL SUBMISSIONS A ND PERUSED THE RIVAL MATERIALS ON RECORD. IT HAS BEEN NOTICED SUP RA THAT ASSESSEE IS BASICALLY PROVIDING VARIOUS SERVICES TO THE CU STOMERS OF ITS AES IN RELATION TO HUMAN RESOURCES WHICH ARE MORE OR LESS CENTERED AROUND THE EMPLOYEES OF THE PROSPECTIVE CLIENTS. WHE N WE CONSIDER THE NATURE OF SERVICES PROVIDED BY GENESYS INTERN ATIONAL CORPORATION LTD., IT COMES TO THE FOREFRONT THAT THEY ARE PROVI DING FULL RANGE OF GEOSPATIAL SERVICES TO ITS CUSTOMERS. IN SIMPLE TERMS, GEOSP ATIAL SERVICES MEANS THE SERVICES RELATING TO THE RELATIVE POSITION OF THINGS ON THE EARTHS SURFACE. THESE BASICALLY INCLUDE 3D MAPPING, NAVIGATION MAPS, IMAGE PROCESSING, CADASTRAL MAPPING, ETC. IF WE TA KE INTO ACCOUNT THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE, BEING FINANCIAL AND RETIREMENT SECURITY, HEALTH, PRODUCTIVITY OF E MPLOYEES AND EMPLOYMENT RELATIONSHIPS AND THEN TRY TO COMPARE THEM W ITH THOSE RENDERED BY GENESYS, IT IS MANIFESTED THAT BOTH ARE TOTA LLY INCOMPARABLE. 14.3. THE TPO ON PAGE 48 OF HIS ORDER HAS EXAMINED CBDT CIRCULAR SO 890 (E) DATED 26.9.2000 WHICH PROVIDES A DETAILED LIST OF PRODUCTS OR SERVICES THAT CAN BE COVERED UNDER THE ITES FOR THE PURPOSES OF SECTION 10A AND 10B OF THE ACT. IN THIS CIR CULAR, INFORMATION TECHNOLOGY ENABLED PRODUCTS/SERVICES HAVE BEEN DIVIDED INTO FIFTEEN CATEGORIES, STARTING WITH BANK OFFICE OPERATIO NS, CALL CENTRES ETC. AND ENDING WITH WEBSITE SERVICES. FROM THE VERY D ESCRIPTION OF SUCH SERVICES, IT IS PALPABLE THAT EVEN THOUGH THESE FALL UNDER THE OVERALL ITES CATEGORY, BUT SOME OF THEM ARE QUITE DIFFERENT FROM EACH OTHER. TO CITE, SERVICE AT SL.NO. (VI) OF THIS CIRCULAR IS GEOGRAPHIC INFORMATION SYSTEM SERVICES AND AT SL. NO. (VII) IS HUM AN RESOURCES SERVICES. NO DOUBT, ALL THESE FIFTEEN CATEGORIES OF PRODUCTS/ SERVICES HAVE BEEN INCLUDED UNDER THE MAJOR HEAD OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES), BUT MOST OF THEM ARE QUITE DISTINGUISHABLE FROM OTHERS. IN OUR CONSIDERED OPINION, THE FIFTEEN BROA D CATEGORIES SET OUT IN THIS CIRCULAR CANNOT PER SE BE CLAIMED AS SIMILAR TO EAC H OTHER. A CURSORY LOOK AT THESE PRODUCTS/SERVICES TRANSPIRES THAT SOME OF THE M ARE FUNCTIONALLY QUITE 8 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. DIFFERENT FROM EACH OTHER. FURTHER THE LEVEL OF INV ESTMENT REQUIRED FOR PROVIDING SUCH SERVICES IS ALSO NOT CONSISTENT . IN OUR CONSIDERED OPINION, THE MERE FACT THAT TWO SERVICES ARE PLACED UNDER THIS CATEGORY DO NOT BECOME AUTOMATICALLY COMPARABLE. IF A CAS E PROVIDING ONE CATEGORY OF SERVICES UNDER ITES IS CLAIMED A S COMPARABLE WITH ANOTHER IN THE CATEGORY OF SERVICE UNDER ITES AS PE R THIS CIRCULAR, THEN IT MUST BE SHOWN EX FACIE THAT IT IS BROADLY S IMILAR. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE SERVICES RENDERED BY GENESYS FALL UNDER CLAUSE (VI) WITH THE HEADIN G GEOGRAPHICAL INFORMATION SYSTEMS SERVICES, WHEREAS THOSE RE NDERED BY THE ASSESSEE FALL PARTLY UNDER CLAUSE (VII) WITH THE HEADING HUMAN RESOURCES SERVICES AND PARTLY UNDER CLAUSE (XI) WITH THE HEADING PAYROLL. ON JUXTAPOSITION EXAMINATION OF THESE TWO SETS OF SE RVICES, WE FIND THAT THERE IS A VAST DIFFERENCE WHICH MAKE ONE QUITE DISTI NCT FROM THE OTHER. IN VIEW OF SUCH FUNCTIONAL INCOMPARABILITY BETWEEN A SSESSEE AND GENESYS, WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE. WE, THEREFORE, DIRECT TO EXCLUDE THIS CASE FROM THE LIS T OF COMPARABLES. 17.1. ON CAREFUL CONSIDERATION OF THE MATTER, RES PECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH, WE ARE ALSO OF THE OPINION THAT THERE IS VAST DIFFERENCE BETWEEN THE FUNCTIONS OF T HE ABOVE COMPANY AND THAT OF ASSESSEE. THIS COMPANY AS SUCH, CANNOT BE T REATED AS COMPARABLE ON FAR ANALYSIS. WE THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. (3) ECLERX SERVICES LTD. 18. THE OBJECTION OF ASSESSEE TO THIS COMPA RABLE IS THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR. IT IS IN THE B USINESS OF CONSULTANCY AND ADVISORY SERVICE AND PROVIDES ONLY ANALYTICAL DATA. IT IS ALSO INVOLVED IN QUALITY MONITORING. IT IS THE STAND OF THE ASSESSE E THAT THIS COMPANY OFFERS SOLUTIONS THAT INCLUDE DATA ANALYTICS, OPERATIONS M ANAGEMENT, AUDITS AND RECONCILIATION AND THEREFORE HAS TO BE CLASSIFIED A S HIGH END KPO. IN SUPPORT OF THE STAND OF THE ASSESSEE, EXTRACTS FROM THE ANN UAL REPORT OF THIS COMPANY HAVE BEEN POINTED OUT. THEREFORE, THE FUNC TIONS OF THE ABOVE COMPANY ARE DISSIMILAR TO ASSESSEE, WHICH IS A CAPT IVE SERVICE PROVIDER. ON THE PRINCIPLES LAID DOWN BY THE HONBLE SPECIAL BEN CH OF THE ITAT (MUMBAI) IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. L TD. V/S. ACIT (ITA NO.7466/MUM/2012 FOR ASSESSMENT YEAR 2008-09 DATED 7.3.2014) AND THE PRINCIPLES LAID DOWN BY THE COORDINATE BENCH OF THE TRIBUNAL(DELHI) IN THE CASE OF M/S. MERCER CONSULTING (INDIA) PVT. LTD., ( SUPRA), ASSESSEE SUBMITS THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABL E. 18.1 THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWE VER, SUBMITTED THAT HAVING ACCEPTED ADITYA BIRLA MINACS WORLDWIDE LTD., AS A COMPARABLE COMPANY, THIS COMPANY SHOULD ALSO BE INCLUDED, AS O THERWISE, BOTH THE COMPANIES SHOULD BE EXCLUDED. 9 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. 18.2 WE HAVE CONSIDERED THE ISSUE AND EXAMINED TH E ANNUAL REPORT AND THE OBJECTIONS OF ASSESSEE. AS SEEN FROM THE A NNUAL REPORT, THE ABOVE COMPANY IS INVOLVED IN DIVERSE NATURE OF SERVICES AND THERE WAS NO SEGMENTAL DATA FOR DIVERSIFIED SERVICE PORT FOLIO. MOREOVER THIS COMPANY CAN BE CONSIDERED AS KPO AND WE ARE OF THE OPINION THA T THIS COMPANY IS NOT COMPARABLE TO ASSESSEES SERVICES. WE THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. (4) COSMIC GLOBAL LTD. 19. THE MAIN OBJECTION OF ASSESSEE WITH REFERENCE TO THE INCLUSION OF THIS COMPANY IS WITH REFERENCE TO OUTSOURCING OF ITS MAIN ACTIVITY. EVEN THOUGH THIS COMPANY IS IN ASSESSEES TP STUDY, IT H AS RAISED OBJECTION BEFORE THE TPO THAT THIS COMPANYS EMPLOYEE COST IS LESS T HAN 21.30% AND MOST OF THE COST IS WITH REFERENCE TO THE OUTSOURCING CHARG ES OR TRANSLATION CHARGES, AND AS SUCH THIS IS NOT A COMPARABLE COMPANY. THE T PO, THOUGH CONSIDERED THESE SUBMISSIONS, REJECTED THE SAME, ON THE REASON THAT THIS DOES NOT IMPACT THE PROFIT MARGIN OF THE COMPANY. OPPOSING THE VIEW TAKEN BY THE TPO, IT IS SUBMITTED THAT THIS COMPANY CANNOT BE S ELECTED AS COMPARABLE, AS SIMILAR ISSUE WAS DISCUSSED BY THE COORDINATE B ENCH OF THE TRIBUNAL(DELHI) IN THE CASE OF MERCER CONSULTING (I NDIA) P. LTD. (SUPRA), VIDE PARAS 13.2 TO 13.3 WHICH READ AS UNDER- 13.2. NOW COMING TO THE FACTUAL MATRIX O F THIS CASE, WE FIND FROM THE MATERIAL ON RECORD THAT OUTSOURCING CHARGES OF THIS CASE CONSTITUTE 57.31% OF THE TOTAL OPERATING COSTS. THIS DOES NOT APPEAR T O US TO BE A VALID REASON FOR ELIMINATING THIS CASE FROM THE LIST OF COMPARABL ES. ON GOING THROUGH THE ANNUAL ACCOUNTS OF COSMIC GLOBAL LIMITED, A COPY OF WHICH HAS BEEN PLACED ON RECORD, WE FIND THAT ITS TOTAL REVENUE FROM OPERATIONS ARE AT RS.7.37 CRORE DIVIDED INTO THREE SEGMENTS, NAMELY, MEDICAL T RANSCRIPTION AND CONSULTANCY SERVICES AT RS.9.90 LACS, TRANSLATION CHARGES AT RS.6.99 CRORE AND ACCOUNTS BPO AT RS.27.76 LAC. THE LD. AR HAS MADE OUT A CASE THAT OUTSOURCING ACTIVITY CARRIED OUT BY THIS COMPANY CONSTITUTES 57% O F TOTAL EXPENSES. THE REASON FOR WHICH WE ARE NOT AGREEABLE WITH THE LD. AR IS T HAT WE HAVE TO EXAMINE THE REVENUE OF THIS CASE ONLY FROM ACCOUNTS BPO S EGMENT AND NOT ON THE ENTITY LEVEL, BEING ALSO FROM MEDICAL TRANSCRIPTION AND TRANSLATION CHARGES. WHEN WE ARE EXAMINING THE RESULTS OF THIS COMPANY FROM THE ACCOUNTS BPO SEGMENT ALONE, THERE IS NO NEED TO EXAMINE T HE POSITION UNDER OTHER SEGMENTS. THE ENTIRE OUTSOURCING IS CONFINED TO TRANSLATION CHARGES PAID AT RS.3.00 CRORE, WHICH IS STRICTLY INTHE REALM OF THE TRANSLATION SEGMENT, REVENUES FROM WHICH ARE TO THE TUNE OF RS.6.99 CRORE. IF THIS SEGMENT OF TRANSLATION IS NOT UNDER CONSIDERATION FOR DECIDING AS TO WHETHER THIS CASE IS COMPARABLE OR NOT, WE CANNOT TAKE RECOURSE TO THE F IGURES WHICH ARE RELEVANT FOR SEGMENTS OTHER THAN ACCOUNTS BPO. THUS IT IS HELD THAT THIS CASE CANNOT BE EXCLUDED ON THE STRENGTH OF OUTSOURCING ACTIV ITY, WHICH IS ALIEN TO THE RELEVANT SEGMENT. 13.3. HOWEVER, WE FIND THIS CASE TO INCOM PARABLE ON THE ALTERNATIVE ARGUMENT ADVANCED BY THE LD. AR TO THE EFFE CT THAT TOTAL REVENUE OF THE ACCOUNTS BPO SEGMENT OF COSMIC GLOBAL LIMITED IS VERY LOW AT RS.27.76 LACS. WE HAVE DISCUSSED THIS ASPECT ABOVE IN THE C ONTEXT OF CG-VAKS CASE AND HELD THAT A CAPTIVE UNIT CANNOT BE COMPARED WITH A GIANT CASE AND THUS EXCLUDED CG-VAK WITH TURNOVER FROM ACCOUNTS B PO SEGMENT AT RS.86.10 LACS. AS THE SEGMENTAL REVENUE OF BPO SEGMENT OF C OSMIC GLOBAL LIMITED AT 10 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. RS.27.76 LAC IS STILL ON MUCH LOWER SIDE, THE REAS ONS GIVEN ABOVE WOULD FULLY APPLY TO HOLD COSMIC GLOBAL LIMITED AS INCOMP ARABLE. THIS CASE IS, THEREFORE, DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARAB LES. IN VIEW OF THE DETAILED ANALYSIS OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE ABOVE REFERRED CASE, IN THIS CASE ALSO WE ACCEP T THE CONTENTIONS OF ASSESSEE AND DIRECT THE ASSESSING OFFICER/TPO TO EX CLUDE THIS COMPARABLE FOR THE SAME REASONS. (5) ACROPETAL TECHNOLOGIES LTD. (SEG.) 20. THE OBJECTION OF ASSESSEE WITH REFERENCE TO TH IS COMPANY IS THAT THE COMPANY IS INVOLVED IN ENGINEERING DESIGN SERVICES AND HIGH END SERVICES AND HAS PRODUCTS IN ITS INVENTORY. IT IS ALSO INVOLVED IN R&D ACTIVITY AND DEVELOPING SOPHISTICATED DELIVERY SYSTEM. IT W AS FURTHER SUBMITTED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE AT SEG MENT LEVEL ALSO, AS ENGINEERING DESIGN SERVICES ARE HIGH END SERVICES, AS CONSIDERED IN OTHER CASES. IT IS FURTHER SUBMITTED THAT ALLOCATION OF EXPENSES BETWEEN SEGMENTS IS NOT POSSIBLE AND DEPRECIATION WAS NOT A LLOCATED BETWEEN THE SEGMENTS. THERE ARE EXTRA-ORDINARY EVENTS WHICH IMP ACT PROFIT ALSO, AS CAN BE SEEN FROM THE ANNUAL REPORTS. IT IS FURTHER SUBM ITTED THAT THIS COMPANY IS NOT SELECTED IN THE LIST OF COMPARABLES SELECTED IN THE CASE OF MERCER CONSULTING (INDIA) PVT. LTD. AND THEREFORE, SELECT ION OF THE COMPANY BY THE TPO IN THIS CASE, WHICH IS ALSO IN SIMILAR ITES SERVICES, IS NOT PROPER. 20.1 AFTER CONSIDERING THE RIVAL CONTENTIONS, WE A GREE WITH THE OBJECTIONS RAISED BY ASSESSEE. AS SEEN FROM THE ANN UAL REPORT, THIS COMPANY IS INVOLVED IN ENGINEERING DESIGN SERVICES AND HAS PRODUCTS ALSO, WHICH MAKES IT FUNCTIONALLY NOT COMPARABLE. EVEN A T THE SEGMENTAL LEVEL, IT PROVIDES ENGINEERING DESIGN SERVICES, WHICH WAS CON SIDERED AS HIGH END BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF HYUNDAI MOTORS INDIA ENGINEERING (SUPRA) IN EARLIER YEAR . THEREFORE, WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. (6) ACCENTIA TECHNOLOGIES LIMITED. 21. THIS COMPANY WAS OBJECTED TO BY ASSESSEE ON T HE REASON OF SUPER PROFITS AS WELL AS EXTRA-ORDINARY EVENTS. IT WAS SUBMITTED THAT ACQUISITION OF OAK TECHNOLOGIES & TRANS SERVICES HA S IMPACT ON THE PROFITS OF THE COMPANY AND HAS TAKEN INORGANIC GROWTH AS ST RATEGY TO INCREASE THE PROFITS BECAUSE OF THE PECULIAR ECONOMIC CIRCUMSTAN CES AND BRAND VALUE. THE SAME IN THESE CIRCUMSTANCES CANNOT BE SELECTED. IT WAS SUBMITTED THAT ASSESSEE WAS IN MEDICAL TRANSCRIPTION SERVICES. 21.1. THE DEPARTMENTAL REPRESENTATIVE HOWEVER, OBJ ECTED TO THE PLEAS OF ASSESSEE STATING THAT THE EXTRAORDINARY E VENTS OCCURRED IN EARLIER YEAR AND THEREFORE, THE SAME CANNOT BE CONSIDERED A S HAVING ANY IMPACT IN THE YEAR UNDER CONSIDERATION. 11 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. 21.2 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 Y EARS ON THE REASON OF ACQUISITION OF VARIOUS COMPANIES, BEING AN EXTRAORD INARY 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 THAT COMPANY MAY HAVE IMPACT ON THE PROFIT. CONSIDERING THE PROFIT MARGINS OF THE COMPANY AND INSUFFICIENT SEGMENTAL DATA, WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. MOREOV ER, 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 I T AT THE OUTSET. IN VIEW OF THIS, WE DIRECT THE ASSESSING OFFICER/TPO TO EXC LUDE THIS COMPARABLE, FROM THE LIST OF COMPARABLES SELECTED. SAME VIEW HAS ALSO BEEN EXPRESSED IN THE OTHER DECI SIONS ALSO. LD. DR HAS NOT BROUGHT ANY NEW FACTS OR MATERIALS TO SH OW THAT THE VIEW EXPRESSED IN AFORESAID DECISIONS WILL NOT APPLY TO THE FACTS OF ASSESSEES CASE. 11. MOREOVER, IN ASSESSEES OWN CASE FOR AY 2008-09 , THE COORDINATE BENCH OF THIS TRIBUNAL WHILE CONSIDERING THE ISSUE OF COMPARABILITY OF THE AFORESAID COMPANIES TO ASSESSE E IN ITA NO. 1647/HYD/2012 DATED 24/10/2014 HAS ALSO HELD THAT T HESE COMPANIES ARE NOT COMPARABLE TO ASSESSEE FOR THE REASONS STAT ED THEREIN. THE LD. DR WAS NOT ABLE TO BRING TO OUR NOTICE ANY MATE RIAL DIFFERENCE BETWEEN FACTS AS INVOLVED IN AY 2008-09 AND THE IMP UGNED AY. THEREFORE, FOLLOWING THE DECISIONS OF ITAT AS WELL AS RULE OF CONSISTENCY, THESE COMPANIES HAVE TO BE EXCLUDED FR OM THE LIST OF COMPARABLES. IN VIEW OF THE ABOVE, WE DIRECT AO/TP O TO EXCLUDE THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLES. 12. THE NEXT ISSUE AS RAISED IN GROUND NO. 9 IS WIT H REGARD TO INCLUSION OF REIMBURSEMENT TRANSACTIONS AS PART OF OPERATIONAL COST. 13. LD. AR SUBMITTED THAT DURING THE YEAR, ASSESSEE HAD PAID CERTAIN AMOUNTS TOWARDS TRAVEL AIR FARE AND STAY EX PENSES RELATING TO EMPLOYEES OF ALL AES FOR TRAVELLING TO INDIA FOR BU SINESS PURPOSES. SIMILARLY, AE HAS ALSO PAID CERTAIN EXPENSES OF ASS ESSEE AND THE SAME HAS BEEN REIMBURSED TO AE ON COST TO COST BASI S. LD. AR 12 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. SUBMITTED THAT THE PAYMENTS/RECEIPTS WERE MADE AT C OST WITHOUT MARK- UP FOR THE REASON THAT ASSESSEE/AE HAS FOR ADMINIST RATIVE CONVENIENCE PAID FOR THE AMOUNTS ON BEHALF OF CLIEN T/AE, NO SIGNIFICANT ADDITIONAL FUNCTION BEING PERFORMED OR RISKS ASSUMED FOR THE TRANSACTION EITHER BY ASSESSEE OR BY AE. IT WAS SUBMITTED, THE PAYMENTS ARE IN THE NATURE OF OUT OF POCKET EXPENSE S PAID TO THIRD PARTY VENDOR, WHICH ARE NORMAL INDUSTRY PRACTICE W HEREIN INCIDENTAL PAYMENTS ARE REIMBURSED AT COST. IT WAS SUBMITTED, WITHOUT BRINGING ANY INSTANCES WHEREIN OUT OF POCKET EXPENSES ARE MA RKED-UP IN AN UNCONTROLLED TRANSACTIONS INCLUDED PAYMENTS IN THE OPERATING COST FOR DETERMINING ALP OF THE PROVISION OF SERVICES. IT WA S SUBMITTED, TPO FAILED TO APPRECIATE UNDER NO CIRCUMSTANCES THIRD P ARTY CUSTOMER WOULD AGREE TO REIMBURSE SUCH COSTS AT A MARK-UP. L D. AR SUBMITTED, IN ASSESSEES OWN CASE FOR AY 2008-09, HYDERABAD BE NCH OF TRIBUNAL HAS HELD THAT REIMBURSEMENT OF COST SHOULD BE EXCLU DED FROM THE OPERATIONAL COST WHILE COMPUTING MARGIN. A COPY OF THE ORDER PASSED BY THE TRIBUNAL IN ITA NO. 1647/HYD/12 (SUPRA) WAS PLACED ON RECORD. LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF TPO/DRP. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. AS CAN BE SEEN, IN ASSESSEES OWN CASE FOR AY 2008- 09, SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BEN CH IN ITA NO. 1647/HYD/12 (SUPRA), THE COORDINATE BENCH HELD AS U NDER: 16.1 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND F OLLOWING THE PRINCIPLES LAID DOWN IN THE DECISIONS OF THE TRIBUN AL CITED ABOVE, WE ARE OF THE OPINION THAT REIMBURSEMENT COS TS SHOULD BE EXCLUDED AS THEY DO NOT INVOLVE ANY FUNCTIONS TO BE PERFORMED SO AS TO CONSIDER IT FOR PROFITABILITY PU RPOSES. IN THE CASE OF FOUR SOFT LTD., SUPRA, HYDERABAD BENCH OF T HE TRIBUNAL CONSIDERED THIS ISSUE AND HELD AS UNDER: 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FIRST, WE WILL TAKE UP THE ISSUE RELATING TO THE ADJUSTMENTS MADE BY THE ASSES SING 13 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. OFFICER IN RESPECT OF THE INTERNATIONAL TRANSACTION S WITH FOUR SOFT LIMITED, HYDERABAD VS ASSESSEE ON 9 SEPTEMBER, 2011ITS ASSOCIATED ENTERPRISES IN THE SO FTWARE DEVELOPMENT SERVICES. IT IS THE CONTENTION OF THE A SSESSEE THAT BAD DEBTS INCURRED BY THE ASSESSEE COMPANY ARE IN RESPECT OF TRANSACTIONS, WHICH ARE NOT RELATED TO ASSOCIATED ENTERPRISES. THIS CONTENTION OF THE ASSE SSEE HAS NOT BEEN CONTROVERTED BY THE REVENUE BY BRINGIN G ANY MATERIAL ON RECORD BEFORE US. IT IS THE CONTENT ION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SUCH BAD DEBTS CANNOT BE TAKEN INTO ACCOUNT FOR COMPUTING THE MARG IN OF THE ASSESSEE FROM THE TRANSACTIONS WITH THE ASSOCIA TED ENTERPRISES IN RESPECT OF SOFTWARE DEVELOPMENT SERV ICES. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO FILED BEFORE US A COMPARATIVE CHART EXPLAINING THE COMPUT ATION OF NET MARGIN, EXCLUDING THE BAD DEBTS AND CLEARLY DEMONSTRATED BEFORE US THAT IF THE BAD DEBTS/REIMBURSEMENTS ARE EXCLUDED FOR THE PURPOSE O F COMPUTING THE MARGINS ON THE TRANSACTIONS RELATING TO THE ASSOCIATED ENTERPRISES, THE NET MARGIN COMES TO 19. 07%, WHICH IS WELL COMPARABLE WITH THE ARMS LENGTH MARGI N OF 19% DETERMINED BY THE TRANSFER PRICING OFFICER. IN OUR CONSIDERED VIEW, FOR COMPUTING THE NET MARGIN OF TH E ASSESSEE FOR THE PURPOSES OF TRANSFER PRICING, ONLY THE COST RELATED TO THE TRANSACTION WITH THE ASSOCIATED ENTERPRISES HAS TO BE CONSIDERED AND ACCORDINGLY, W E APPROVE THAT SEGMENTAL FINANCIALS IS TO BE CONSIDER ED FOR THE PURPOSE OF ARRIVING AT THE NET MARGIN ON THE INTERNATIONAL TRANSACTION WITH THE ASSESSEE'S ENTER PRISE IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES. IN THAT PROCESS, BAD DEBTS/REIMBURSEMENTS HAS TO BE EXCLUDE D AND SEGMENTAL PROFITABILITY HAS TO BE ADOPTED. WE F IND SUPPORT IN THIS BEHALF FROM VARIOUS DECISIONS OF TH E TRIBUNAL RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE DULY FILING COPIES THEREOF IN THE PAPER-BO OK, WHICH HAVE BEEN NOTED HEREINABOVE. THAT BEING SO, T HE TPO SHOULD HAVE DETERMINED THE ARMS LENGTH PRICE FO R THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTE RPRISES CONSIDERING ONLY THE OPERATING COST ALLOCABLE TO TH E ASSOCIATED ENTERPRISES SEGMENT. SINCE THE ASSESSING OFFICER HAD NO OCCASION TO VERIFY THE VERACITY OF T HE SEGMENTAL FINANCIALS PREPARED BY THE ASSESSEE COMPA NY, FOR LIMITED PURPOSE, WE DIRECT THE ASSESSING OFFICE R TO VERIFY THE SEGMENTAL FINANCIALS PREPARED BY THE ASS ESSEE COMPANY AND ADOPT THE SAME FOR ARRIVING AT THE NET MARGIN ON THE INTERNATIONAL TRANSACTION WITH AES IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES. WE DIRECT ACCORDINGLY. 14 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. SIMILAR VIEW WAS ALSO TAKEN IN ASSESSEES OWN CASE IN AY 2006-07. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO/TPO TO EXCLUDE THE REIMBURSEMENT COSTS WHILE WOR KING OUT THE OPERATING COSTS. THIS GROUND IS CONSIDERED ALLO WED. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE COORDI NATE BENCH IN ASSESSEES OWN CASE, WE DIRECT AO/TPO TO EXCLUDE RE IMBURSEMENT COST WHILE WORKING OUT THE OPERATING COST. IN VIEW OF ABOVE, WE DIRECT AO/TPO TO RECOMPUTE ALP AFRESH AND IF WARRANTED, MA KE NECESSARY ADJUSTMENT TO THE PRICE CHARGED BY ASSESSEE FOR THE INTERNATIONAL TRANSACTION. 15. AS FAR AS CORPORATE TAX ISSUES ARE CONCERNED, G ROUND NO. 12 IS ON THE ISSUE OF INTEREST CHARGED U/S 234B OF THE AC T. SINCE CHARGEABILITY OF INTEREST U/S 234B OF THE ACT, WILL ULTIMATELY DEPEND UPON THE OUTCOME OF THE ADJUSTMENT TO BE MADE TO TH E ALP, IT IS PREMATURE TO DECIDE THIS ISSUE AT THIS STAGE. ACCOR DINGLY, THIS GROUND BEING INFRUCTUOUS IS DISMISSED. 16. GROUND NO. 13 IS NOT PRESSED, HENCE, DISMISSED AS NOT PRESSED. 17. IN GROUND NO. 14, ASSESSEE HAS RAISED THE ISSUE OF SET OFF OF LOSSES FROM THE INCOME ASSESSED. 18. BRIEFLY, FACTS RELATING TO THE ISSUE ARE, IN TH E RELEVANT AY, ASSESSEE HAS INCURRED LOSS IN RELATION TO ITS GURGA ON UNIT. ASSESSEE WHILE COMPUTING DEDUCTION U/S 10A, CLAIMED 10A EXEM PTION IN RESPECT OF OTHER STPI UNITS. IN SO FAR AS LOSS PERTAINING T O GURGAON UNIT AND UK BRANCH IS CONCERNED, THE SAME WAS SET OFF AGAINS T OTHER INCOME WHILE COMPUTING TOTAL INCOME. AO WHILE COMPUTING DE DUCTION U/S 10A 15 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. OF THE ACT SET OFF LOSSES RELATING TO GURGAON UNIT AGAINST PROFITS OF OTHER 10A UNITS AND THEREAFTER COMPUTED DEDUCTION U/S 10A. ASSESSEE OBJECTED TO THE AFORESAID ACTION OF AO BEF ORE THE DRP. THE DRP AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE A ND EXAMINING THE DECISIONS RELIED UPON BY ASSESSEE, DIRECTED AO TO SET OFF OF LOSSES AGAINST OTHER INCOME. AO, HOWEVER, WHILE COM PLETING ASSESSMENT AS PER THE DIRECTIONS OF DRP HELD THAT S ET OFF OF LOSSES RELATING TO 10A UNIT AGAINST OTHER INCOME CANNOT BE ALLOWED IN VIEW OF CBDT CIRCULAR DATED 16/07/13. 19. LD. AR SUBMITTED BEFORE US THAT AO WAS TOTALLY WRONG IN NOT ALLOWING SET OFF OF LOSSES AS INCOME OF SECTION 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GR OSS TOTAL INCOME. THEREFORE, QUESTION OF SETTING OFF OF LOSS OF THE C URRENT YEAR AS WELL AS BROUGHT FORWARD BUSINESS LOSSES AGAINST THE PROFITS OF 10A UNITS WILL NOT ARISE. FURTHER, LD. AR SUBMITTED THAT AS PER SE CTION 144C(10), AO HAS TO PASS ASSESSMENT ORDER IN COMPLIANCE TO THE D IRECTIONS OF DRP. THEREFORE, AO CANNOT OVERRIDE THE DIRECTIONS OF DRP IN THE MATTER OF SET OFF OF LOSSES. 20. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT D RP WHILE ISSUING THE AFORESAID DIRECTIONS HAS NOT FOLLOWED CBDT CIRC ULAR , WHICH IS BINDING ON THE DEPARTMENTAL AUTHORITIES, THEREFORE, AO WAS JUSTIFIED IN NOT ALLOWING SET OFF OF LOSSES AGAINST OTHER INCOME . LD. DR SUBMITTED THAT IN FACT AO HAS ALSO FILED AN APPLICATION FOR R ECTIFICATION OF THE DIRECTION BEFORE THE DRP, WHICH IS STILL PENDING. 21. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. AFTER EXAMINING VARIOUS DE CISIONS RELIED UPON BY LD. AR, WE FIND MERIT IN THE CONTENTION ADVANCED ON BEHALF OF ASSESSEE THAT INCOME OF SECTION 10A UNIT HAS TO BE EXCLUDED AT 16 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL IN COME, HENCE, QUESTION OF SETTING OFF OF LOSS AGAINST SUCH PROFITS OF 10A UNITS WILL NOT ARISE. IN FACT, ITAT, BANGALORE BENCH IN CASE OF CLEAR WATER TECHNOLOGY SERVICES IN ITA NO. 1146/BANG/13 DATED 12/09/2014 A FTER TAKING INTO CONSIDERATION OF CBDT CIRCULAR NO. 7, DATED 16/07/1 3 DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. IN THAT VIEW OF THE MA TTER, WE HOLD THAT ASSESSEES CLAIM OF SET OFF OF LOSSES OF THE STPI U NIT AGAINST OTHER INCOME HAS TO BE ALLOWED. THE DIRECTION OF THE DRP IN THE PARTICULAR CIRCUMSTANCES OF THE CASE IS CORRECT. ONE MORE ASPE CT WE NEED TO OBSERVE THAT WHILE IMPLEMENTING DIRECTIONS OF THE D RP, AO HAS TO ACT STRICTLY IN ACCORDANCE WITH THE PROVISIONS CONTAINE D U/S 144C. AS PER SUB-SECTION (10) OF SECTION 144C, EVERY DIRECTION O F DRP IS BINDING ON AO. THEREFORE, AO CANNOT AND SHOULD NOT DEVIATE FRO M THE DIRECTIONS OF DRP. IN THE AFORESAID VIEW OF THE MATTER, WE UPH OLD THE DIRECTION OF DRP AND ALLOW ASSESSEES CLAIM. THIS GROUND IS CONS IDERED TO BE ALLOWED. ITA NO. 295/HYD/14 BY REVENUE 22. THE EFFECTIVE GROUNDS RAISED BY DEPARTMENT ARE 2, 3 & 4. GROUND NO. 2 IS ON THE DIRECTION OF DRP TO EXCLUDE COMMUNICATION CHARGES BOTH FROM THE EXPORT AND TOTAL TURNOVER. TH IS ISSUE IS NO MORE RES-INTEGRA IN VIEW OF A NUMBER OF DECISIONS NOT ON LY OF DIFFERENT HIGH COURTS BUT ALSO DIFFERENT BENCHES OF THE TRIBUNAL I NCLUDING ITAT, CHENNAI SPECIAL BENCH IN CASE OF ITO VS. SAKSOFT, 3 0 SOT 55. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF I TAT CHENNAI SPECIAL BENCH AND THE DECISION OF HONBLE MUMBAI HIGH COURT IN CASE OF CIT VS. GEMPLUS JEWELLERY INDIA LTD., 330 ITR 175, WE U PHOLD THE DIRECTION OF DRP BY DISMISSING THE GROUND. 23. GROUND NOS. 3 & 4 ARE IN RELATION TO THE DIRECT ION OF DRP WITH REGARD TO ASSESSEES CLAIM OF SET OFF OF LOSS. IN V IEW OF OUR FINDING WHILE DECIDING GROUND NO. 14 IN ASSESEES APPEAL, T HESE GROUNDS HAVE BECOME INFRUCTUOUS, HENCE, DISMISSED. 17 ITA NO. 247 & 295/HYD/2014 HSBC ELECTRONIC DATA PROCESSING INDIA P. LTD. 24. IN THE RESULT, ASSESSEES APPEAL IN ITA NO. 247 /HYD/14 IS PARTLY ALLOWED AND THE DEPARTMENTS APPEAL IN ITA NO. 295/ HYD/14 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 18/02/2015. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 18 TH FEBRUARY, 2015 KV COPY TO:- 1) M/S HSBC ELECTRONIC DATA PROCESSING INDIA PVT. L TD., HSBC HOUSE, PLOT NO. 8, SURVEY NO. 64 (PART), HITECH CITY LAYOUT, MADHAPUR, HYDERABAD 500 081 2) DCIT,CIRCLE 2(2), HYDERABAD 3)DRP, HYDERABAD 4) TPO, HYDERABAD 4) DIT (INTERNATIONAL TAXATION), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.
