Akamai Technologies India Private Limited, Bangalore V. DCIT, Bangalore

ITA 307/BANG/2015

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8863 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 05-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SURYANARAYANA RE
• Keywords: Transfer pricing; Rectification of order; International transaction; Working capital adjustments; Wholly owned subsidiary; TDS; Set aside
• Section: 143(3); 244A; 234B; 144C; 64; 43; 48; 13; 92CA

Judgement Text

IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES : B , BANGALORE BEFORE SHRI N.V.VASUDEVAN, VICE PRESIDENT AND SHRI B.R.BASKARAN, ACCOUNTANT MEMBER IT(TP)A NO.307(BANG)/2015 (ASSESSMENT YEAR : 2010-11) M/S AKAMAI TECHNOLOGIES INDIA PVT.LTD., SALARPURIA SOFTZONE, 2 ND & 3 RD FLOOR, A WING, SURVEY NO.80/1, BELLANDUR VILLAGE, OUTER RING ROD, BANGALORE-560 10 3 PAN NO. AAICS 0905J APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BANGALORE. RES PONDENT IT(TP)A NO.200(BANG)/2015 (ASSESSMENT YEAR : 2010-11) BY DEPARTMENT & CO NO.100/BANG/2015 [IN IT(TP)A 200(BANG)2015] (ASSESSMENT YEAR : 2010-11) BY ASSESSEE ASSESSEE BY : SHRI SURYANARAYANA, ADVOCATE REVENUE BY : SHRI MUZAFFAR HUSSAIN, CIT-DR DATE OF HEARING : 23-07-2020 DATE OF PRONOUNCEMENT : 29-07-2020 O R D E R PER N.V.VASUDEVAN, VICE PRESIDENT IT(TP)A NO.307(B)/2015 IS AN APPEAL BY THE ASSESSE E WHILE IT(TP)A NO.200(B)/2015 IS AN APPEAL BY THE REVENUE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE FINAL ORDER OF ASSESSMENT DATE D 30-12-2014 OF THE DCIT, CIRCLE-1(10(1), BANGALORE PASSED U/S 143(3) R .W.S.144C OF THE IT ACT, 1961 (ACT) IN RELATION TO AY: 2009-10. THE ASSESSE E HAS ALSO FILED CROSS OBJECTION IN THE APPEAL FILED BY THE REVENUE. THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE CIT( A) AND THEREFORE, NEEDS NO SEPARATE ADJUDICATION. IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 2 2. THE ISSUES THAT ARISE FOR CONSIDERATION IN THE CROSS-APPEALS AND CROSS- OBJECTIONS PERTAINS TO : (A) TRANSFER PRICING ADJUSTMENT (TP ADJUSTMENT) O F RS. 5,62,77,751/- MADE BY THE TRANSFER PRICING OFFICER (THE TPO FOR SHORT) TOWARDS THE INTERNATIONAL TRANSACTION OF PROVISION OF INFORMATI ON TECHNOLOGY ENABLED SERVICES (ITES) TO THE APPELLANTS ASSOCI ATED ENTERPRISE (AE), WHICH WAS SUBSEQUENTLY ENHANCED TO RS. 6,07,73,624/- IN THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFI CER (AO) UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME -TAX ACT, 1961 (THE ACT); (B) RE-COMPUTATION OF DEDUCTION CLAIMED UNDER SECTI ON 10A OF THE ACT; (C) NON-GRANT OF CREDIT OF ENTIRE TDS DEDUCTED ON T HE BASIS OF FORM 16A AND CONSEQUENT ERRONEOUS LEVY OF INTEREST UNDER SEC TIONS 234B AND C OF THE ACT; AND (D) NON-GRANT OF INTEREST UNDER SECTION 244A OF THE ACT. 3. AS FAR AS THE ISSUE WITH REGARD TO TRANSFER PRI CING ADJUSTMENT AND CONSEQUENT ADDITION TO THE TOTAL INCOME IN RESPECT OF AN INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS ASSOCIATE ENTERPRISE IS CONCERNED, THE FACTS AND CIRCUMSTANCES UNDER WHICH THE SAID ISSUE ARISES FOR CONSIDERATION ARE THAT THE ASSESSEE IS A COMPAN Y INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS A WHOLLY OWNED SUBSIDIARY OF AKAMAI US. THE ASSESSEE IS ENGAGED INTER ALIA IN PROVIDING BACK-OFFICE SUPPORT SERVICES (IN THE NATURE OF ITES ) AND SOFTWARE DEVELOPMENT SERVICES TO AKAMAI US. DURING THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2010-11, THE RELEVANT INTERNATI ONAL TRANSACTION THAT TOOK PLACE BETWEEN AKAMAI US AND THE ASSESSEE WAS T HE PROVISION OF BACK-OFFICE SUPPORT SERVICES (IN THE NATURE OF ITES ) TO AKAMAI US AT A PRICE OF RS. 61,35,54,428/-. THE TRANSACTION OF RENDERIN G ITES TO HOLDING COMPANY WAS A TRANSACTION WITH AN ASSOCIATED ENTERP RISE (AE) AND WAS IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 3 THEREFORE AN INTERNATIONAL TRANSACTION. AS PER THE PROVISIONS OF SEC.92 OF THE ACT, INCOME FROM INTERNATIONAL TRANSACTION HAS TO BE COMPUTED HAVING REGARD TO ARMS LENGTH PRICE (ALP). 4. ON A REFERENCE MADE BY THE AO, THE TRANSFER PRI CING OFFICER (TPO) PASSED AN ORDER DATED 27.1.2014 UNDER SECTION 92CA OF THE ACT. IT IS NOT IN DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE THAT T HE TRANSACTION NET MARGIN METHOD (TNMM) WAS THE MOST APPROPRIATE METHO D (MAM) FOR DETERMINATION OF ALP AND THAT THE PROFIT LEVEL INDI CATOR TO BE ADOPTED FOR COMPARISON OF THE ASSESSEES PROFIT WITH THAT OF CO MPARABLE COMPANIES WAS OPERATING PROFIT/OPERATING COST (OP/OC). THE OP/OC OF THE ASSESSEE WAS 16%, WHICH WAS COMPUTED AS FOLLOWS: NET MARGIN ON COST EARNED BY THE ASSESSEE : OPERATING INCOME (EXCLUDING FOREIGN EXCHANGE GAIN) RS.61,35,54,428/- OPERATING COST RS.52,89,26,231/- OPERATING PROFIT (OP. INCOME OP. COST) RS.8,46,28 ,197/- OPERATING/NET MARGIN (OP/TC) 16.00% 5. THE ASSESSEE IN ITS TRANSFER PRICING STUDY (TP STUDY) SELECTED 9 COMPARABLE COMPANIES WHOSE ARITHMETIC MEAN OF OP/TC WAS ARRIVED AT 18.53%. SINCE THE PROFIT MARGIN OF THE ASSESSEE WA S WITHIN THE PERMITTED (+/-) PERCENTAGE IN TERMS OF PROVISIO TO SEC.92C(2) OF THE ACT, THE ASSESSEE CLAIMED THAT THE PRICE CHARGED BY IT IN THE INTERNA TIONAL TRANSACTION WAS AT ARMS LENGTH. THE TRANSFER PRICING OFFICER (TPO) TO WHOM THE DETERMINATION OF ALP WAS REFERRED BY THE AO, ACCEPT ED 4 OUT OF THE 9 COMPARABLE COMPANIES SUGGESTED IN THE TP STUDY BY T HE ASSESSEE AS COMPARABLE WITH THE ASSESSEE. 6. THE TPO ON HIS OWN SELECTED 6 OTHER COMPANIES A S COMPARABLE COMPANIES WITH THE ASSESSEE. THUS A FINAL SET OF10 COMPARABLE COMPANIES WAS CHOSEN BY THE TPO AS COMPARABLE COMPA NIES. THE IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 4 ARITHMETIC MEAN OF PROFIT MARGIN OF THESE COMPANIES AFTER AND BEFORE ADJUSTMENT TOWARDS WORKING CAPITAL ADJUSTMENT WAS A S FOLLOWS: COMPARABLES SELECTED BY TPO AND THEIR ARITHMETIC ME AN: SL. NO. NAME OF THE COMPANY MARK-UP ON TOTAL COSTS (WC UNADJ) (IN %) MARK-UP ON TOTAL COSTS (WC ADJ) (IN %) 1. ACCENTIA TECHNOLOGIES LTD. 43.06 39.17 2. ACROPETAL TECHNOLOGIES LTD. (SEG) 22.27 17.67 3. E-CLERX SERVICES LTD. 55.97 52.98 4. FORTUNE INFOTECH LTD. 22.80 20.05 5. ICRA ONLINE LTD. (SEG) 43.39 40.72 6. INFORMED TECHNOLOGIES INDIA LTD. 26.15 25.94 7. INFOSYS BPO 31.23 28.68 8. COSMIC GLOBAL LTD. 14.97 16.20 9. SUNDARAM BUSINESS SERVICES LTD. -12.31 -13.28 10. JEEVAN SCIENTIFIC TECHNOLOGY LTD. (SEG) 21.05 37.99 AVERAGE 26.86 26.61 7. THE COMPUTATION OF ARMS LENGTH PRICE BY THE TP O AND THE ADJUSTMENT MADE (AS PER THE ORDER DATED 27.01.2014): ARMS LENGTH MEAN MARGIN 26.87% LESS: WORKING CAPITAL ADJUSTMENT* 0.23% ADJUSTED MEAN MARGIN OF THE COMPARABLES 26.64% IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 5 OPERATING COST RS.52,89,26,231/- ARMS LENGTH PRICE - 126.64% OF OPERATING COST RS.61,35,54,428/- PRICE RECEIVED RS.20,61,11,246/- SHORT FALL BEING ADJUSTMENT U/S. 92CA RS.40,74,43,1 82/- IT MAY BE CLARIFIED THAT THE TPO RESTRICTED THE WOR KING CAPITAL ADJUSTMENT AT 0.23% THOUGH THE ACTUAL WORKING OF WORKING CAPITAL ADJUSTMENT WAS MUCH HIGHER THAN 0.23%. IF THE ACTUAL WORKING CAPITAL A DJUSTMENT AS COMPUTED BY THE TPO HAD BEEN ALLOWED THEN THE ADJUSTED MEAN PRO FIT MARGIN OF COMPARABLE COMPANIES FOR THE PURPOSE OF COMPARISON WITH THE ASSESSEES MARGIN WOULD BE LESS THAN 26.64% COMPUTED BY THE TP O. 8. THE ASSESSEE FILED APPLICATION FOR RECTIFICATION OF CERTAIN APPARENT ERRORS IN THE ORDER OF THE TPO IN COMPUTING THE ADJUSTMENT U/S.92CA OF THE ACT. THE TPO PASSED A RECTIFICATION ORDER DATED 10.2.201 4 WHEREBY HE COMPUTED THE ADJUSTMENT U/S.92CA AND CONSEQUENT ADD ITION TO THE TOTAL INCOME AT A SUM OF RS.5,62,77,751/-, AS FOLLOWS: ADJUSTMENT COMPUTED AS PER THE RECTIFICATION ORDER DATED 10.02.2014: ARMS LENGTH MEAN MARGIN 26.87% LESS: WORKING CAPITAL ADJUSTMENT 0.23% ADJUSTED MEAN MARGIN OF THE COMPARABLES 26.64% OPERATING COST RS.52,89,26,231/- ARMS LENGTH PRICE - 126.64% OF OPERATING COST RS.66,98,32,179/- PRICE RECEIVED RS.61,35,54,428/- SHORT FALL BEING ADJUSTMENT U/S. 92CA RS.5,62,77,75 1/- 9. AGGRIEVED BY THE ADDITION TO THE TOTAL INCOME B Y THE AO IN THE DRAFT ORDER OF ASSESSMENT, AS WAS SUGGESTED BY THE TPO, THE ASS ESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP ) U/S.144C OF THE ACT. THE DRP ISSUED DIRECTIONS TO THE AO TO EXCLUDE ACRO PETAL TECHNOLOGIES LTD., E-CLERX SERVICES LTD., ICRA ONLINE LTD., AND INFOSYS BPO LTD., FROM THE LIST OF FINAL COMPARABLE COMPANIES CHOSEN BY TH E TPO. THE DRP ALSO IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 6 SUO MOTO DIRECTED THE EXCLUSION OF SUNDARAM BUSINESS SERVICE S LTD., FROM THE LIST OF FINAL COMPARABLE COMPANIES CHOSEN BY TH E TPO. THE DRP DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE WITH RESP ECT TO THE EXCLUSION OF ACCENTIA TECHNOLOGIES LTD. THE DRP ACCEPTED THE CON TENTIONS OF THE ASSESSEE AND DIRECTED THE AO TO TREAT THE GAINS/LOS S ARISING FROM FLUCTUATION OF FOREIGN CURRENCY AS OPERATING IN NAT URE AND CONSEQUENTLY DIRECTED THE SAME TO BE TAKEN INTO CONSIDERATION WH ILE COMPUTING THE MARGINS OF THE ASSESSEE AND COMPARABLE COMPANIES. T HE DRP ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND DIRECTED THE AO TO RECOMPUTE THE MARGINS OF THE COMPARABLE COMPANIES BY GRANTING THE WORKING CAPITAL ADJUSTMENT ON ACTUAL BASIS WITHOUT ANY RESTRICTION. THE DRP ALSO, DIRECTED THE AO TO RECOMPUTE THE MARGINS AFTER RECTIFYING DE FECTS POINTED OUT BY THE ASSESSEE IN THE COMPUTATION OF SOME OF THE COMPARAB LE COMPANIES. 10. IT IS THE PLEA OF THE ASSESSEE THAT AS PER THE DIRECTIONS OF THE DRP, THE TP ADJUSTMENT OUGHT TO BE DELETED BUT IN THE ORDER PASSED BY THE AO GIVING EFFECT TO THE DIRECTIONS OF THE DRP I.E., THE FINAL ASSESSMENT ORDER WHICH IS SUBJECT MATTER OF THIS APPEAL, THE AO PASSED THE FI NAL ASSESSMENT ORDER DATED 30.12.2014 WITHOUT GIVING EFFECT TO THE DIREC TIONS GIVEN BY THE DRP. CONSEQUENTLY, THE ADDITION TO THE TOTAL INCOME PUR SUANT TO TP ADJUSTMENT STOOD ENHANCED TO RS. 6,07,73,624/-. 11. IN ITS APPEAL BEFORE THE TRIBUNAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL VIZ., (A) THAT THE AO ERRED IN UPHOLDING THE ADJUSTMENT MADE BY THE TPO WITHOUT GIVING EFFECT TO THE DIRECT IONS GIVEN BY THE DRP (GROUND NOS. 2 AND 3). (B) THAT THE TPO ERRED IN NOT EXCLUDING ACCENTIA TECHNOLOGIES LIMITED FROM THE LIST OF COMPARABLES A LTHOUGH IT FAILS THE TEST OF COMPARABILITY AND THE DRP ALSO ERRED IN CONFIRMI NG THE SAME (GROUND NO. 3A). 12. THE REVENUE IN ITS APPEAL HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 7 1. THE ORDER OF THE DISPUTE RESOLUTION PANEL IS OPPOSE D TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE DRP ERRED IN DIRECTING THE TPO TO APPLY 25% EMP LOYEES COST FILTER AND TO EXCLUDE M/S. ACCROPETAL TECHNOLO GIES LTD. AS THE COMPANY HAVING LESS THAN 25% EMPLOYEE COST FILT ER AND IT IS PREDOMINANTLY ENGAGED IN PROVIDING SERVICES ONSITE WITHOUT APPRECIATING THAT THE DIRECTIONS TO THE AO AMOUNTS TO SETTING ASIDE THE ISSUE WHICH IS OUTSIDE THE PURVIEW OF THE DRP U NDER THE PROVISION OF SECTION 144C AS THE DRP IS NOT EMPOWER ED TO SET ASIDE THE ISSUE IN TERMS OF SECTION 144C(8) OF THE ACT. 3. THE DRP ERRED IN DIRECTING THE TPO TO APPLY 75% EXP ERT EARNING FILTER CONSISTENTLY FOR ITES SEGMENT 'AND TO EXCLUD E M/S. ICRA ONLINE LTD., M/S. SUNDARAM BUSINESS SERVICES LTD FR OM COMPARABLES OF ITES SEGMENT WITHOUT APPRECIATING TH AT THE DIRECTIONS TO THE AO AMOUNTS TO SETTING ASIDE THE ISSUE WHICH IS OUTSIDE THE PURVIE W OF THE DRP UNDER THE PROVISION OF SECTION 144C AS THE DRP IS N OT EMPOWERED TO SET ASIDE THE ISSUE IN TERMS OF SECTION 144C(8) OF THE ACT. 4. THE DRP ERRED IN DIRECTING THE AO TO EXCLUDE M/S. E CLERX SERVICES LTD., M/S. INFOSYS BPO LTD., M/S. ICRA ONLINE LTD F ROM THE LIST OF COMPARABLES IN ITES SEGMENT AS BEING FUNCTIONALLY D IFFERENT WITHOUT APPRECIATING THE FACT THAT COMPANIES QUALIF Y ALL THE QUALITATIVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO. 5. THE DRP ERRED IN HOLDING THAT M/S. INFOSYS LTD. CAN NOT BE TAKEN AS COMPARABLE, BEING FUNCTIONALLY DIFFERENT, BIG BRAND VALUE BY RELYING ON THE DECISION OF ITAT BANGALORE IN THE CASE OF SY MPHONY MARKETING SOLUTIONS INDIA PVT. LTD. IN ITA NO.1316/ BANG/2012 AND HYDERABAD ITAT IN THE CASE OF MARKET TOOLS RESEARCH PVT. LTD. IN ITA NO.2066/HYD/2011 AND ZAVATA INDIA PVT. LTD. IN ITA NO.1781/HYD/2011 WITHOUT APPRECIATING THE FACT THAT THE COMPANY QUALIFY ALL THE QUALITATIVE AND QUANTITATIVE FILTER S APPLIED BY THE TPO. 6. THE DRP ERRED IN HOLDING THAT FOREIGN EXCHANGE LOSS / GAIN IS OPERATING IN NATURE WITHOUT ASCERTAINING THE NEXUS OF THE FOREX GAIN / LOSS WITH THE BUSINESS ACTIVITY OF THE TAXPAYER A ND WITHOUT APPRECIATING THAT SUCH LOSS / GAIN THOUGH ATTRIBUTA BLE TO THE OPERATING ACTIVITY IS NOT DERIVED FROM THE OPERATIN G ACTIVITY AND. 7. THE DRP ERRED IN CONCLUDING THAT FOREX GAIN / LOSS ARE TO BE TREATED AS OPERATING IN NATURE WITHOUT APPRECIATING THAT THOUGH THEY MAY BE INCIDENTAL TO THE OPERATING ACTIVITY, T HEY CANNOT BE DEEMED AS OPERATING IN NATURE SINCE, THEY ARE NOT C RITICAL TO OPERATIONAL ACTIVITIES OF THE BUSINESS CONDUCTED BY THE TAXPAYER. IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 8 8. THE DRP ERRED IN DIRECTING THE AO TO CARRY OUT THE WORKING CAPITAL ADJUSTMENT AS PER THE ACTUAL FIGURES WORKED OUT BY THE ASSESSEE WITHOUT PUTTING ANY CAP ON THE GROUND THAT THERE IS TIME VALUE OF MONEY WITHOUT APPRECIATING THE FACT THAT THE TPO HA D PUT A CAP ON THE BASIS OF THE AVERAGE COST OF WORKING CAPITAL OF THE COMPARABLES SELECTED BY THE TPO AND THAT THE ACCURATE DETAILS O F DEBTORS AND CREDITORS OF THE ASSESSEE AND THE COMPARABLES WERE NOT AVAILABLE. 9. THE DRP ERRED IN DIRECTING THE AO TO FOLLOW THE RAT IO LAID DOWN BY THE HON'BLE COURT IN THE CASE OF TATA ELXSI LIMITED 349 ITR 98 AND EXCLUDE TELECOMMUNICATION EXPENSES AND TRAVEL EXPEN SES INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOV ER ALSO WHILE COMPUTING THE DEDUCTION U/S 10A OF THE I.T. ACT, WI THOUT APPRECIATING THE FACT THAT THERE IS NO PROVISION IN SECTION 10A THAT SUCH EXPENSES SHOULD BE REDUCED FROM THE TOTAL TURN OVER ALSO, AS CLAUSE (IV) OF THE EXPLANATION TO SECTION 10A PROVI DES THAT SUCH EXPENSES ARE TO BE REDUCED ONLY FROM THE EXPORT TUR NOVER. 10. THE DRP ERRED IN NOT APPRECIATING THE FACT THAT THE JURISDICTIONAL HIGH COURT'S DECISION IN THE CASE OF 'TATA ELXSI LIMITED 349 ITR 98 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AMT, W\ APPEAL HAS BEEN FILED BEFORE THE HON'BLE SUPREME COURT. 11. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE DRP BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 12. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HE ARING OF THE APPEAL 13. THE SUM AND SUBSTANCE OF THE GROUNDS OF APPEAL OF THE REVENUE IS THAT (A) THE DRP ERRED IN DIRECTING THE TPO TO APPLY 25% EM PLOYEES COST FILTER AND TO EXCLUDE ACROPETAL TECHNOLOGIES LTD. AS THE C OMPANY FAILS THE FILTER AND IS PREDOMINANTLY ENGAGED IN PROVIDING SERVICES ONSITE WITHOUT APPRECIATING THAT THE DIRECTIONS TO THE AO AMOUNTS TO SETTING ASIDE THE ISSUE WHICH IS OUTSIDE THE PURVIEW OF THE DRP UNDER THE P ROVISIONS OF SECTION 144C OF THE ACT AS THE DRP IS NOT EMPOWERED TO SET ASIDE THE ISSUE IN TERMS OF SECTION 144C(8) OF THE ACT. SIMILARLY, THE DRP ERRED IN DIRECTING THE TPO TO APPLY 75% EXPORT EARNING FILTER AND DIRE CTED TO EXCLUDE ICRA IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 9 ONLINE LTD., AND SUNDARAM BUSINESS SERVICES LTD. (G ROUND NOS. 2 AND 3) (B) THE DRP ERRED IN DIRECTING THE AO TO EXCLUDE ICRA ONLINE LTD., INFOSYS BPO LTD., AND ECLERX SERVICES LTD. AS BEING FUNCTIO NALLY DIFFERENT WITHOUT APPRECIATING THAT THE COMPANIES PASS ALL THE FILTER S (GROUND NOS. 4 AND 5).; (C) THE DRP ERRED IN HOLDING THAT FOREIGN EXCHANGE LO SS/GAIN IS OPERATING IN NATURE WITHOUT ASCERTAINING THE NEXUS OF THE FOR EX GAIN/LOSS WITH THE BUSINESS ACTIVITY WITHOUT APPRECIATING THAT SUCH LO SS/GAIN THOUGH ATTRIBUTABLE TO THE OPERATING ACTIVITY IS NOT DERIVED FROM THE O PERATING ACTIVITY (GROUND NOS. 6 AND 7). (D) THE DRP ERRED IN DIRECTING THE AO TO CARRY OUT TH E WORKING CAPITAL ADJUSTMENT WITHOUT PUTTING ANY CAP ON THE GROUND THAT THERE IS TIME VALUE OF MONEY WITHOUT APPRECIATING THAT TH E TPO HAD PUT A CAP ON THE BASIS OF THE AVERAGE WORKING CAPITAL OF THE COM PARABLES AND THAT THE ACCURATE DETAILS OF DEBTORS AND CREDITOR OF THE ASS ESSEE AND THE COMPARABLE WERE NOT AVAILABLE (GROUND NO. 8). (E) THE DRP ERRED IN DIRECTING THE AO TO FOLLOW THE RATIO LAID DOWN IN T ATA ELXSI LIMITED AND EXCLUDE TELECOMMUNICATION AND FOREIGN TRAVEL EXPENS ES FROM THE EXPORT TURNOVER WITHOUT APPRECIATING THE FACT THAT THERE I S NO PROVISION IN SECTION 10A THAT SUCH EXPENSES SHOULD BE REDUCED FROM THE T OTAL TURNOVER ALSO. (GROUND NO. 9). 14. WE SHALL FIRST DEAL WITH THE APPEAL OF THE REV ENUE. AS FAR AS GROUND NO.2 RAISED BY THE REVENUE IS CONCERNED, THE GRIEVA NCE OF THE REVENUE PROJECTED IN THOSE GROUNDS IS THAT THE DRP HAS SET SIDE ISSUE FOR CONSIDERATION TO THE AO/TPO AND IN TERMS OF SEC.144 C(8) OF THE ACT, THE DRP HAS TO DECIDE ISSUES BEFORE IT AND CANNOT SET A SIDE ISSUES TO AO/TPO. IN THIS REGARD, WE HAVE PERUSED THE DIRECTIONS OF T HE DRP AND WE FIND THAT WITH REGARD TO EXCLUSION OF ACROPETAL TECHNOLOGIES AT PAGE-16 LAST PARAGRAPH AND PAGE-17 FIRST PARAGRAPH, THE DRP HAS HELD THAT THE EXPENSES INCURRED ON ON-SITE PROVISION OF ITES BY T HE ASSESSEE WAS 64% OF THE TOTAL EXPENSES AND THEREFORE THE COMPANY WAS TO BE REGARDED AS ONE PROVIDING ONSITE ITES AND CANNOT BE COMPARED WITH A COMPANY PROVIDING OFFSHORE ITES. SECONDLY IT HAS HELD THAT THE EMPLO YEE COST IS LESS THAN IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 10 25% OF THE TOTAL COST OF THE COMPANY. THE DRP HAS OBSERVED THAT IN SWD SEGMENT OF THE VERY SAME COMPANY THE TPO HAD EMPLOY ED A FILTER WHEREBY COMPANIES WHICH HAS LESS THAN 25% OF ITS TOTAL COST TOWARDS EMPLOYEE COST HAVE TO BE EXCLUDED AS SWD SERVICES ESSENTIALLY INV OLVE AND PREDOMINANTLY DEPENDENT ON EMPLOYEES. THE DRP THER EFORE UPHELD THE APPLICATION OF THE EMPLOYEE COST FILTER IN ITES SEG MENT ALSO. THE CONCLUDING OBSERVATIONS OF THE DRP WERE AS FOLLOWS: ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO AP PLY 25% EMPLOYEES COST FILTER AND ACCORDINGLY EXCLUDE ACROPETAL TECHNOLOGIES LIMITED THE ABOVE OBSERVATIONS OF THE DRP IS A FINDING THAT THE EMPLOYEE COST OF ACCROPETAL TECHNOLOGIES LTD., IS LESS THAN 25% OF I TS TOTAL COST. HOWEVER, WE FIND THAT IN FORM NO.35A (FORM OF OBJECTION BEFO RE DRP) THE ASSESSEE HAS RAISED PARA 6.4.2 (PAGE-40 OF FORM NO.35A), THE OBJECTION FOR EXCLUSION OF THIS COMPANY IS ONLY ON THE BASIS OF FUNCTIONAL COMPARABILITY AND REVENUE RECOGNITION METHOD FOLLOWED BY THIS COMPANY. BOTH THE FILTERS EMPLOYED BY THE DRP FOR EXCLUDING THIS COMPANY FROM THE LIST OF COMPARABLES DOES NOT FIGURE IN THE OBJECTION OF THE ASSESSEE AT ALL. HO WEVER, THIS ASPECT HAS NOT BEEN HIGHLIGHTED OR TAKEN AS A GROUND OF APPEAL BY THE REVENUE IN ITS APPEAL. THEREFORE THE ONLY GROUND OF APPEAL OF THE REVENUE AGAINST THE DIRECTIONS OF THE DRP IS THAT THE DIRECTIONS OF THE DRP AMOUNT TO A SET ASIDE OF THE ISSUE TO THE TPO/AO. SINCE WE HAVE CO ME TO THE CONCLUSION THAT THE DIRECTIONS OF THE DRP CANNOT BE CONSTRUED AS A SET ASIDE OF THE ISSUE TO THE TPO/AO, WE FIND NO MERITS IN GR.NO.2 R AISED BY THE REVENUE. 15. AS FAR AS GR.NO.3 RAISED BY THE REVENUE IS CON CERNED, THE GRIEVANCE OF THE REVENUE IS SIMILAR TO GR.NO.2 I.E., THE THE DRP HAS SET SIDE ISSUE FOR CONSIDERATION TO THE AO/TPO AND IN TERMS OF SEC.144 C(8) OF THE ACT, THE DRP HAS TO DECIDE ISSUES BEFORE IT AND CANNOT SET A SIDE ISSUES TO AO/TPO. THE DRP HAS EXCLUDED THESE TWO COMPANIES BY APPLYIN G THE FILTER OF THE FOREIGN CURRENCY REVENUE IS LESS THAN 75% OF THE TO TAL REVENUE. AS FAR AS ICRA ONLINE LTD., (ICRA) IS CONCERNED, THE OBJECTIO N OF THE ASSESSEE IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 11 BEFORE DRP WAS THAT THIS COMPANY WAS NOT FUNCTIONAL LY COMPARABLE WITH THE ASSESSEE (VIDE PAGE-53 OF FORM NO.35-A OF OBJEC TION BEFORE DRP). SUNDARAM BUSINESS SERVICES LTD., INCLUSION WAS NOT CONTESTED BY THE ASSESSEE AT ALL BEFORE DRP AND THE DRP SUO MOTTO CO NSIDERED EXCLUSION OF THIS COMPANY. IN RESPECT OF BOTH THE COMPANIES THE SPECIFIC DIRECTION OF THE DRP IS TO EXCLUDE BOTH THE AFORESAID TWO COMPAN IES. (VIDE PARAGRAPH-2 AT PAGE-18 AND PARAGRAPH-1 OF PAGE-19 OF THE DRPS DIRECTIONS). THE REVENUE IS NOT CORRECT IN CONTENDING THAT THE ISSUE HAS BEEN SET ASIDE TO THE TPO/AO CONTRARY TO THE PROVISIONS OF SEC.144C(8) OF THE ACT. SINCE WE HAVE COME TO THE CONCLUSION THAT THE DIRECTIONS OF THE DRP CANNOT BE CONSTRUED AS A SET ASIDE OF THE ISSUE TO THE TPO/AO , WE FIND NO MERITS IN GR.NO.3 RAISED BY THE REVENUE. 16. AS FAR AS GR.NO.4 & 5 RAISED BY THE REVENUE AR E CONCERNED, THE REVENUE IS CHALLENGING THE EXCLUSION ICRA, INFOSYS BPO LTD., AND ECLERX SERVICES LTD. 17. AS FAR AS EXCLUSION OF ICRA IS CONCERNED, BEFO RE THE DRP THE ASSESSEE SOUGHT EXCLUSION OF ICRA FROM THE LIST OF COMPARABLES ON THE GROUND THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. IT WAS SUBMITTED THAT ICRA IS ENGAGED IN PROVIDING SERVICE S WHICH ARE IN THE NATURE OF KPO SERVICES. IT PROVIDES FINANCIAL AND A NALYTICAL SERVICES AND SUPPORT TO CLIENTS IN THE AREA OF DATA EXTRACTION, AGGREGATION, ELECTRONIC CONVERSION OF FINANCIAL STATEMENTS, VALIDATION AND ANALYSIS, ACCOUNTING AND FINANCE, RESEARCH AND ANALYTICS WHICH ARE DISSI MILAR TO THE SERVICES RENDERED BY THE ASSESSEE. IT WAS SUBMITTED THAT OUT SOURCED SERVICES SEGMENT OF THE COMPANY IS ENGAGED IN THE PROVISION OF HIGH END CONSULTANCY SERVICES WHICH CANNOT BE COMPARED TO TH E ASSESSEE WHO IS INTO PROVISION OF LOW END IT ENABLED SERVICES WHICH ARE ROUTINE IN NATURE. FURTHER, THE SAFE HARBOUR RULES CLEARLY DISTINGUISH BETWEEN AN ITE SERVICE PROVIDER AND A KPO SERVICE PROVIDER. THE DRP HAS NO T CONSIDERED ANY OF THE ABOVE OBJECTIONS. IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 12 18. BEFORE THE TRIBUNAL, THE ASSESSEE HAS BROUGHT TO OUR NOTICE THAT THIS TRIBUNAL HAS HELD THAT A KPO SERVICE PROVIDER CANNO T BE COMPARED TO AN ITE SERVICE PROVIDER. RELIANCE IN THIS REGARD IS PL ACED ON THE DECISION IN THE CASE OF ARCTERN CONSULTING PVT. LTD. (SUPRA ) IT(TP)A NO.195/BANG/2015 & 302/BANG/2015 ORDER DATED 11.08.2017 FOR AY 2010-11 , & IN THE CASE OF OUTSOURCE PARTNERS INTERNATIONA (P) LTD. I.T(TP).A NO.337/BANG/2015 ORDER DATED 6.2.2017 FOR AY 2010-11, WHEREIN ON IDE NTICAL CIRCUMSTANCES, THE EXCLUSION OF THIS COMPANY CAME TO BE UPHELD/THE COMPANY WAS DIRECTED TO BE EXCLUDED. THE LEARNED DR REITERATED THE STAND OF THE REVENUE AS REFLECTED THE GROUNDS OF APPEAL OF THE REVENUE. 19. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. IN THE CASE OF OUTSOURCES PARTNERS INTERNATIONAL (P) LTD.,(SUPRA), THIS TRIBUNAL HAS ADJUDICATED IDENTICAL ISSUE AND HELD THAT THIS COMP ANY WAS NOT FUNCTIONALLY COMPARABLE TO AN ITES COMPANY SUCH AS THE ASSESSEE AND FOR THE REASON THAT THIS COMPANY FAILS THE EXPORT EARNING FILTER. RESPECTFULLY FOLLOWING THE SAID DECISION, WE UPHOLD EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES FOR THE REASONS GIVEN IN THIS PARAGRAPH. 20. AS FAR AS EXCLUSION OF INFOSYS BPO LTD., IS CO NCERNED, THE SAID COMPANY WAS EXCLUDED ON THE GROUND THAT THE COMPANY IS ENGAGED IN PROVIDING HIGH-END INTEGRATED SERVICES, AND WHEREAS , THE ASSESSEE IS ENGAGED IN PROVIDING LOW LEVEL BACK-OFFICE SUPPORT SERVICES. FURTHER, THE COMPANY HAS HUGE BRAND NAME AND OWNS SIGNIFICANT IN TANGIBLES. IT IS SUBMITTED THAT THE BRAND NAME THAT IS ASSOCIATED WI TH INFOSYS TECHNOLOGIES LTD. HAS AN IMPACT ON THE BUSINESS OPERATIONS OF IN FOSYS BPO. ALSO, DURING THE FINANCIAL YEAR 2009-10, THE COMPANY ACQUIRED AL L THE OUTSTANDING MEMBERSHIP INTERESTS OF MCCAMISH SYSTEMS LLC WHICH CONSTITUTES A PECULIAR ECONOMIC CIRCUMSTANCE FOR WHICH NO REASONA BLE ADJUSTMENT COULD BE MADE TO MITIGATE ITS EFFECT ON THE COMPANYS MAR GIN. ALSO, THE COMPANY HAS INCURRED HUGE SELLING AND MARKETING EXPENSES AN D THE SAME HAS BEEN IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 13 INCREASING YEAR ON YEAR. RELIANCE IN THIS REGARD W AS PLACED ON THE DECISION IN THE CASE OF ARCTERN CONSULTING PVT. LTD. (SUPRA) AND TESCO HIN DUSTAN SERVICE CENTRE (P.) LTD. (2017)77 TAXMANN.COM 48 (B ANGALORE) FOR AY 2010-11 , WHERE IN IDENTICAL CIRCUMSTANCES, THE EXCLUSION O F THE COMPANY CAME TO BE UPHELD/COMPANY WAS DIRECTED TO BE EXCLUD ED. THE LEARNED DR REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE GROUNDS OF APPEAL OF THE REVENUE. 21. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. IN THE CASE OF TESCO HINDUSTAN SERVICE CENTRE PVT.LTD.(SUPRA) VIDE PARAGRAPH 47 & 48 OF ITS ORDER, THE TRIBUNAL UPHELD EXCLUSION OF THIS CO MPANY FROM THE LIST OF COMPARABLE COMPANIES, ON THE GROUND OF PRESENCE OF BRAND VALUE AND OTHER FACTORS. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL, WE UPOHOLD THE ORDER OF DRP EXCLUDING THIS COMPANY FRO M THE LIST OF COMPARABLE COMPANIES. 22. AS FAR AS EXCLUISION OF ECLERX SERVICES LTD., IS CONCERNED, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THE DRP RIGHTLY EXCLUDED THIS COMPANY FROM THE FINAL LIST OF COMPARABLES AS THE SAME IS F UNCTIONALLY DISSIMILAR TO THE ASSESSEE. IN THIS REGARD, IT WAS SUBMITTED THAT THE COMPANY IS FUNCTIONALLY DISSIMILAR AS IT IS A KPO ENGAGED IN P ROVIDING DATA ANALYTICS AND DATA PROCESS SOLUTIONS. IT PROVIDES END-TO-END SUPPORT THROUGH THE TRADE LIFECYCLE, INCLUDING TRADE CONFIRMATION, SETT LEMENTS, TRANSACTION MAINTENANCE, RISK ANALYTICS AND REPORTING. THE DATA ANALYTICS SERVICES BEING PROVIDED BY ECLERX IS SIGNIFICANTLY DIFFERENT FROM THE ROUTINE ITE SERVICES PROVIDED BY THE ASSESSEE. RELIANCE IN THIS REGARD W AS PLACED ON THE DECISIONS IN THE CASES OF ARCTERN CONSULTING PVT. LTD. (SUPRA) AND TESCO HINDUSTAN SERVICE CENTRE (P.) LTD. (SUPRA) , WHERE IN IDENTICAL CIRCUMSTANCES, THE EXCLUSION OF THE COMPANY CAME TO BE UPHELD/THE COMPANY WAS DIRECTED TO BE EXCLUDED. THE LEARNED DR REITERATED THE STAND OF THE REVENUE AS IS REFLECTED IN THE GROUNDS OF AP PEAL RAISED BY THE REVENUE. IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 14 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. IN THE CASE OF TESCO HINDUSTAN SERVICE CENTRE (P) LTD. (SUPRA), TH IS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES IN T HE CASE OF A COMPANY RENDERING ITES SIMILAR TO THE SERVICES RENDERED BY THE ASSESSEE IN THIS APPEAL, OBSERVING AS FOLLOWS: 37. ECLERX SERVICES LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS COMPANY'S FUNCTION IS DISSIMILA R WITH THE ASSESSEE COMPANY AS IT PROVIDES INDUSTRY SPECIALISED SERVICES LIKE DATA AN ALYTICS, OPERATIONS MANAGEMENT AND AUDITS & RECONCILIATION SERVICES WHICH CANNOT B E COMPARED TO A BPO OR IT OFFSHORING COMPANY. IT WAS FURTHER CONTENDED THAT T HIS COMPANY HAS ABNORMAL PROFITS AND SALES FOR THE YEAR. THE LD. COUNSEL FUR THER CONTENDED THAT THIS COMPANY WAS EXAMINED BY THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. ( SUPRA )AND THE TRIBUNAL HAS HELD THAT EVEN THE COMPANY'S FUNCTIONS ARE DIFFERENT, THEREFORE IT CANNOT BE CONSIDERED AS COM PARABLE, FOLLOWING THE ORDER OF THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. V. ASSTT. CIT [2014] 43 TAXMANN.COM 100/147 ITD 83 (MUM.) (SB) . THEREFORE, THIS COMPANY MAY BE EXCLUDED FROM THE LI ST OF COMPARABLES. 38. THE LD. DR SIMPLY PLACED RELIANCE UPON THE ORDER O F THE AO. 39. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AUTH ORITIES IN THE LIGHT OF TRIBUNAL'S FINDING IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. ( SUPRA ), WE FIND THAT THE PROFILE OF THIS COMPANY WAS EXAMINED BY THE TRIBUNAL IN THIS CASE AND FOLLOWING THE ORDER OF THE SPECIAL BENCH OF THE TRI BUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. (SUPRA) , THE TRIBUNAL HELD THIS COMPANY TO BE NON- COMPARABLE. FOR THE SAKE OF REFERENCE, WE EXTRACT T HE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL: '( XI ) ECLERX SERVICES LTD. & MOLD-TEK TECHNOLOGIES LTD. :- FOR BOTH THESE COMPANIES, THE LD. COUNSEL FOR THE A SSESSEE STATED THAT THESE COMPANIES ARE FUNCTIONALLY DIFFERENT, THEREFORE, CA NNOT BE CONSIDERED AS COMPARABLES. WE FIND THAT THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. IN ITA NO. 7466/MUM/2012 HAS REJECTED ECLERX SERVICES LIMITED BECAUSE SOLUTIONS OFFERED BY THIS COMPANY INCLUDED DATA ANALYTICS, OPERATIONS, MANAGEMENT, AU DITS AND RECONCILIATION, METRICS MANAGEMENT AND REPORTING SERVICES. THE SPECIAL BENC H OPINED THAT IF THESE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPAN Y FOR ITS AES ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES LIMITED AND MOLD-TEK TECHNOLOGIES LTD., IT IS DIFFICULT TO FIND OUT ANY RELATIVELY EQUAL DEGREE OF COMPARABILITY AND THE SAID ENTITIES CANNOT BE TAKEN AS COMPARABLE FOR THE PURPOSE OF DETERMINING ALP OF THE TRANSACTIONS OF THE ASSES SEE COMPANY WITH ITS AES. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE O BSERVATIONS OF THE SPECIAL BENCH ( SUPRA ), WE DIRECT THAT THESE TWO ENTITIES BE EXCLUDED FR OM THE LIST OF FINAL COMPARABLES.' 40. SINCE THE TRIBUNAL HAS EXAMINED THIS ISSUE UNDER S IMILAR SET OF FACTS, WE FIND NO REASON TO TAKE A CONTRARY VIEW. ACCORDINGLY FOLLOWI NG THE ORDER OF THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. ( SUPRA ), WE HOLD THAT THIS IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 15 COMPANY IS NOT A GOOD COMPARABLE AND DIRECT THE AO/ TPO TO EXCLUDE IT FROM THE LIST OF COMPARABLES. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE U PHOLD THE ORDER DRP EXCLUDING THE AFORESAID COMPANY FROM THE LIST OF CO MPARABLE COMPANIES. 24. THUS GR.NO.4 & 5 RAISED BY THE REVENUE IS WITH OUT ANY MERIT. 25. AS FAR AS GR.NO.6 & 7 RAISED BY THE REVENUE IS CONCERNED, THE REVENUE HAS CHALLENGED THE ACTION OF THE DRP IN DIRECTING T HE AO TO CONSIDER THE GAINS/LOSS ARISING FROM FLUCTUATION OF FOREIGN CURR ENCY AS BEING OPERATING IN NATURE. IN THIS REGARD IT WAS SUBMITTED THAT THE GA INS ON ACCOUNT OF FLUCTUATION IN FOREIGN CURRENCY HAS ARISEN FROM THE INTERNATIONAL TRANSACTION OF PROVISION OF ITE SERVICES. THE GAINS ARE INEXTRI CABLY RELATED TO RENDERING OF THE MAIN SERVICES AND ARE NOT DERIVED INDEPENDEN TLY. AS THE GAINS RELATE TO THE RENDERING OF THE MAIN SERVICE, THE SAME OUGH T TO BE TREATED AS OPERATING IN NATURE. RELIANCE IN THIS REGARD WAS PL ACED ON THE FOLLOWING DECISIONS: - ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006- 07 ([2016] 74 TAXMANN.COM 188 (BANGALORE - TRIB.), AT PARA 48) - SAP LABS INDIA (P.) LTD. V. ACIT ([2011] 44 SOT 1 56 (BANGALORE) AT PARA 42); - PCIT V. B.C. MANAGEMENT SERVICES (P.) LTD. ([2018 ] 89 TAXMANN.COM 68 (DELHI), AT PARAS 7 AND 8); - PCIT V. AMERIPRISE INDIA PVT. LTD. (ORDER DATED 2 3.03.2016 PASSED IN ITA NO. 206/2016 AT PARAS 3 AND 4) THE LEARNED DR REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THIS REG ARD. 26. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS. THE HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS. B.C.MANAGEMENT SERVICES (P) LTD., (SUPRA) HELD THAT FOREIGN EXCHANGE GAIN HAS TO BE REGARDED AS PART OF OPERATING INCOME BY FOLLOWING ITS OWN ORDER IN PR. CIT V. CASHEDGE INDIA IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 16 (P.) LTD. [IT APPEAL NO. 279 OF 2016, DATED 4-5-2016.RESPECT FULLY FOLLOWING THE SAID DECISION, WE UPHOLD THE DIRECTIONS OF THE DRP AND DISMISS GR.NO.6 & 7 RAISED BY THE REVENUE. 27. AS FAR AS GR.NO.8 RAISED BY THE REVENUE IS CONC ERNED, THE REVENUE IS CHALLENGING THE ACTION OF THE DRP IN DIRECTING THE AO TO GRANT THE WORKING CAPITAL ADJUSTMENT WITHOUT ANY RESTRICTIONS. IN THI S REGARD, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT DRP HAS RIGHTLY HELD THAT WORKING CAPITAL ADJUSTMENT MUST BE GRANTED IN FULL WITHOUT THERE BE ING ANY ARBITRARY AND ADHOC UPPER CAP OR RESTRICTION TO THE SAME. IT WAS SUBMITTED THAT RULE 10B(3) OF THE INCOME-TAX RULES, 1962 (THE IT RULES FOR SHORT), PROVIDES THAT AN ADJUSTMENT OUGHT TO BE PROVIDED FOR ANY DIF FERENCES IN THE ECONOMIC FACTORS BETWEEN THE TESTED PARTY AND THE COMPARABLE S. A WORKING CAPITAL ADJUSTMENT IS ONE SUCH ADJUSTMENT WHICH IS TO BE AP PLIED IN ORDER TO ADJUST FOR THE DIFFERENCES BETWEEN THE WORKING CAPITAL POS ITIONS OF THE TESTED PARTY AND OF THE COMPARABLE. THE IT RULES DO NOT PROVIDE FOR ANY CAP OR UPPER LIMIT TO SUCH ADJUSTMENTS. THIS POSITION UNDER THE ACT AND THE IT RULES IS ALSO EVIDENT FROM THE OECD GUIDELINES. FURTHER, THE RE WAS NO BASIS FOR THE TPO TO RESTRICT THE ADJUSTMENT AND THE REVENUES CO NTENTION TO THAT EXTENT IS ILL-CONCEIVED. IN ANY EVENT, THE RESTRICTION IS PATENTLY NOT ON THE BASIS OF THE AVERAGE WORKING CAPITAL COST OF THE COMPANIES. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF THIS HONBLE TRIBUNAL IN THE CASE OF ARM EMBEDDED TECHNOLOGIES P. LTD V. DCIT REPORTED IN [2015] 64 TAXMANN.COM 445 (BANGALORE - TRIB.) WHEREIN THIS HONBLE TRIBUN AL DIRECTED GRANT OF THE ADJUSTMENT WITHOUT PUTTING ANY RESTRICTIONS. THE LE ARNED DR REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE GROUNDS OF APPEAL OF THE REVENUE. 28. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. SIMILAR ISSUE HAD COME FOR CONSIDERATION BEFORE THI S TRIBUNAL IN THE CASE OF ARM EMBEDDED TECHNOLOGIES P.LTD. (SUPRA) AND THIS T RIBUNAL HELD THAT WORKING CAPITAL ADJUSTMENT HAS TO BE ALLOWED ON ACT UAL BASIS WITHOUT ANY RESTRICTION. THE FOLLOWING WERE THE RELEVANT OBSER VATIONS: IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 17 24. NOW COMING TO THE ISSUE OF WORKING CAPITAL ADJUSTM ENT, FINDINGS OF THE TPO IN THIS REGARD AS IT APPEARS AT PARA 3.7, READS AS UND ER : '3.7 WORKING CAPITAL ADJUSTMENT: THE WORKING CAPITAL ADJUSTMENT IS COMPUTED AS PER T HE FORMULA GIVEN IN ANNEXURE TO THE OECD GUIDELINES, 2009. IN THIS CASE, THE AVE RAGE PLR ADOPTED BY SBI, THE LARGEST SCHEDULED BANK, FOR SHORT TERM WORKING CAPI TAL LOANS FOR THE RELEVANT FY 2008-09 IS CONSIDERED. THE AVERAGE PLR OF 12.50% P. A WAS ADOPTED BY THE TPO WHILE COMPUTING THE WORKING CAPITAL ADJUSTMENT. THE WORKING CAPITAL ADJUSTMENT IS RESTRICTED TO THE AVERAGE COST OF CAPITAL COMPUT ED AT 1.71% IN THE CASE OF THE UNCONTROLLED COMPARABLES SELECTED BY THE TPO. HENCE , THE WORKING CAPITAL ADJUSTMENT IN THE CASE OF THE TAXPAYER IS ALLOWED A S PER THE CALCULATION IN ANNEXURE-C OR THE AVERAGE COST OF CAPITAL TO THE CO MPARABLES WHICHEVER IS THE LEAST. THE DETAILED DISCUSSION ON THIS IS GIVEN IN THE ANN EXURE-D TO THE ORDER. THE COMPUTATION OF THE WORKING CAPITAL ADJUSTMENT IS AN NEXED TO THIS ORDER AS ANNEXURE C.' TPO HAD RESTRICTED THE COST OF CAPITAL TO 1.71%. RA TIONALITY FOR SUCH AN UPPER LIMIT BEING PLACED ON WORKING CAPITAL ADJUSTMENT WAS AN I SSUE WHICH HAD COME UP BEFORE THIS TRIBUNAL IN THE CASE OF RAMBUS CHIP TECHNOLOGIES (INDIA) (P.) LTD. V. DY. CIT [IT (TP) A. 23/BAN/2015, DT. 22.07.2015. COORDINAT E BENCH HAD HELD AS UNDER AT PARA 13 AND 14 OF ITS ORDER: '13. AS REGARDS GROUND NO. 3(F), LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE AO/TPO WHILE CONSIDERING THE WORKING CAPITAL AD JUSTMENT, HAS ARRIVED AT THE WORKING CAPITAL ADJUSTMENT IN THE CASE OF THE ASSES SEE AT 5.97%, BUT WHILE GIVING EFFECT TO THE WORKING CAPITAL ADJUSTMENT, HAS RESTR ICTED THE SAID ADJUSTMENT TO 1.71% IN CASE OF UNCONTROLLED COMPARABLES SELECTED BY THE TPO. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO HAS NOT GIVEN ANY BASIS FOR SUCH RESTRICTION OF THE WORKING CAPITAL ADJUSTMENT. HE S UBMITTED THAT THE CIT (A) ALSO HAS NOT APPLIED HIS MIND TO THIS ISSUE BUT HAS SUMM ARILY CONFIRMED THE ORDER OF THE AO AND THEREFORE IT HAS TO BE SET ASIDE. 14. ON GOING THROUGH THE TPO'S ORDER AS WELL AS ANN EXURE D REFERRED TO IN THE TRANSFER PRICING ORDER ON WORKING CAPITAL ADJUSTMEN T, WE FIND THAT THE AO HAS NOT GIVEN ANY BASIS FOR RESTRICTING THE ADJUSTMENT TO 1 .71%. IN ALL THE CASES RELATING TO TRANSFER PRICING ADJUSTMENT, THIS TRIBUNAL HAS BEEN DIRECTING TO GIVE WORKING CAPITAL ADJUSTMENT ON ACTUAL BASIS AND THE TPO HAVI NG ARRIVED AT 5.97% OUGHT TO HAVE ADOPTED THE SAME INSTEAD OF RESTRICTING IT TO 1.71 %. IN VIEW OF THE SAME, WE DEEM IT PROPER TO REMAND THIS ISSUE TO THE FILE OF THE AO/TPO FOR WORKING OUT THE ALP AFTER GIVING ADJUSTMENT OF WORKING CAPITAL AS P ER THE CALCULATION OF THE AO IN ANNEXURE D ANNEXED TO THE TRANSFER PRICING ORDER. T HIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED.' 25. ACCORDINGLY WE DIRECT THE AO/TPO TO CORRECTLY WORK OUT THE PLI OF THE FINAL COMPARABLES AFTER GIVING DUE ADJUSTMENT FOR THE WOR KING CAPITAL ON ACTUAL BASIS. RELATED GROUND OF THE ASSESSEE IS THEREFORE ALLOWED . RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE U PHOLD THE DIRECTIONS OF THE DRP IN THIS REGARD AND DISMISS GR.NO.8 RAISED BY THE REVENUE. IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 18 29. AS FAR AS THE APPEAL OF THE ASSESSEE IS CONCER NED, THE SAME IN SO FAR AS IT RELATES TO TRANSFER PRICING ADJUSTMENTS ARE CONCERNED, ARE PRO JECTED IN GR.NO. 2 AND 3 OF THE ASSESSEES APPEAL. IT IS THE PLEA OF THE ASSESSE E THAT THE TP ADJUSTMENT WOULD BE NIL IF PROPER EFFECT IS GIVEN TO THE DRPS DIRECT IONS. IT WAS SUBMITTED THAT IN THE EVENT THE DRPS DIRECTIONS ARE GIVEN EFFECT T O PROPERLY, THE ARITHMETICAL MEAN OF THE WORKING CAPITAL ADJUSTED R ECTIFIED MARGINS OF THE ABOVE COMPARABLES WOULD BE WITHIN +/- 5% OF THE ASS ESSEES MARGIN FOR PROVISION OF THE ITE SERVICES. CONSEQUENTLY, THE IN TERNATIONAL TRANSACTION OF PROVISION OF ITES SERVICES BY THE ASSESSEE TO ITS A E IN FY 2010-11 CAN BE CONCLUDED AS BEING AT ARMS LENGTH. IT WAS SUBMITT ED THAT THE ACTION OF THE AO IN PASSING THE FINAL ASSESSMENT ORDER CONTRARY T O THE DRPS DIRECTIONS IS ERRONEOUS AND UNSUSTAINABLE. IT WAS SUBMITTED THAT THE DIRECTIONS ISSUED BY THE DRP ARE BINDING ON THE AO IN TERMS OF SECTION 1 44C(5) OF THE ACT AND THEREFORE THE SAME OUGHT TO HAVE BEEN GIVEN EFFECT TO. THE FINAL ASSESSMENT ORDER PASSED CONTRARY TO THE BINDING DIR ECTIONS OF THE DRP WOULD RENDER IT NULL AND VOID. RELIANCE IN THIS REG ARD WAS PLACED ON THE FOLLOWING DECISIONS: - SOFTWARE PARADIGMS INFOTECH (P.) LTD. V. ACIT ([2 018] 89TAXMANN.COM 339, AT PARAS 3.3.1 AND 3.3.2 ); - FLEXTRONICS TECHNOLOGIES (INDIA) PVT. LTD. V. ACI T (ORDER DATED 31.12.2018 PASSED BY THE HONBLE TRIBUNAL IN IT(TP) A NO. 832/BANG/2017, AT PARAS 9 AND 10); AND - JULY SYSTEMS AND TECHNOLOGIES PVT. LTD. V. DCIT (COMMON ORDER DATED 31.10.2018 PASSED IN IT(TP)A N0. 368/BANG/2016 AND OTHERS AT PARAS 15 AND 16). WE ARE OF THE VIEW THAT A DIRECTION TO THE AO/TPO T O FOLLOW THE DIRECTIONS OF THE DRP ON ALL ASPECTS DEALT WITH THE REVENUES APP EAL AND OTHER DIRECTIONS OF THE DRP, WOULD BE JUST AND SUFFICIENT. WE HOLD AND DIRECT ACCORDINGLY. GR.NO.2 & 3 OF THE ASSESSEES APPEAL ARE ACCORDINGL Y TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 30. WE SHALL NOW TAKE UP FOR CONSIDERATION CORPORA TE TAX ISSUES IN THE REVENUES APPEAL, WHICH IS PROJECTED IN GRDS.NO.9 & 10 OF THE REVENUES IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 19 APPEAL. THESE GROUNDS OF APPEAL ARISE UNDER THE F OLLOWING FACTS AND CIRCUMSTANCES. WHILE COMPUTING THE DEDUCTION U/S.10A OF THE ACT, T HE AO NOTICED THAT DURING THE RELEVANT ASSESSMENT YEAR, T HE ASSESSEE HAD INCURRED TELECOMMUNICATION CHARGES AND TRAVEL EXPENSES IN FO REIGN EXCHANGE CURRENCY IN RESPECT OF SEC.10A UNIT WHICH WAS NOT REDUCED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT, 1961. THE AO THEREFORE EXCLUDED THE AFORESAID SUM FROM THE EXPOR T TURNOVER WITHOUT EXCLUDING THEM FROM THE TOTAL TURNOVER. AS A RESULT, THE DED UCTION CLAIMED U/S.10A OF THE ACT BY THE ASSESSEE WAS ALLOWED AT A LESSER SUM THAN WH AT WAS CLAIMED BY THE ASSESSEE. IT WAS THE PLEA OF THE ASSESSEE IN THE A PPEAL AGAINST THE ASSESSMENT ORDER BEFORE THE CIT(A) THAT AT ALL TIMES DURING TH E RELEVANT PREVIOUS YEAR, IT WAS ENGAGED IN DEVELOPMENT OF COMPUTER SOFTWARE AND NOT IN RENDERING ANY TECHNICAL SERVICES. COMMUNICATION EXPENSES AND TRAVEL EXPENS ES WERE INCURRED NOT FOR EXPORT OF COMPUTER SOFTWARE OUTSIDE INDIA AND THERE FORE THE EXCLUSION FROM EXPORT TURNOVER AS DONE BY THE AO WAS NOT CORRECT. WITHOU T PREJUDICE TO ITS CONTENTION THAT THE AFORESAID SUMS SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT, THE ASSESSE E HAS ALSO MADE AN ALTERNATE PRAYER THAT EXPENSES THAT ARE REDUCED FROM THE EXPO RT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER AND IN THIS REGARD HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) WHEREIN IT WAS HELD THAT WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT EXPENSES THAT ARE REDUCED FROM T HE EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER. THE DRP ACCEPT ED THE ALTERNATE PRAYER OF THE ASSESSEE TO EXCLUDE THE EXPENSES IN QUESTION BOTH F ROM THE EXPORT TURNOVER AND TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT. CIT(A) HOWEVER UPHELD THE ORDER OF THE AO. 31. TAKING INTO CONSIDERATION THE DECISION RENDERE D BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) , WE ARE OF THE VIEW THAT COMMUNICATION CHARGES AND E XPENSES INCURRED IN FOREIGN EXCHANGE SHOULD BE EXCLUDED BOTH FROM EXPORT TURNOV ER AND TOTAL TURNOVER. WE ARE OF THE VIEW THAT AS OF TODAY, LAW DECLARED BY T HE HON'BLE HIGH COURT OF KARNATAKA WHICH IS THE JURISDICTIONAL HIGH COURT IS BINDING ON US. MOREOVER, THE ORDER OF THE HONBLE KARNATAKA HIGH COURT HAS BEEN UPHELD BY THE HONBLE IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 20 SUPREME COURT IN THE CASE OF CIT V. HCL TECHNOLOGIES LTD. IN CIVIL APPEAL NO.8489-98490 OF 2013 & ORS. DATED 24.04.2018 . THE GROUNDS ARE DECIDED ACCORDINGLY DISMISSED. 32. THE OTHER CORPORATE TAX GROUNDS THAT REMAIN FO R CONSIDERATION ARE GR.NO. 4 & 5 IN THE ASSESSEES APPEAL. VIDE THESE GROUNDS, THE ASSESSEE HAS CHALLENGED THE ACTIONS OF THE AO IN (I) NOT GRA NTING FULL CREDIT OF TDS DEDUCTED AND CONSEQUENTLY LEVYING INTEREST UNDER SE CTION 234B AND C OF THE ACT; AND (II) NOT GRANTING INTEREST UNDER SECTI ON 244A OF THE ACT, CONTRARY TO THE DIRECTIONS OF THE DRP. WE ARE OF THE VIEW T HAT THESE GROUNDS ARE FACTUAL IN NATURE AND THEREFORE THE AO MUST BE DIRE CTED TO VERIFY THE SAME AND GRANT THEM/RECTIFY THE SAME IN ACCORDANCE WITH LAW. WE HOLD AND DIRECT ACCORDINGLY. 33. THE CROSS OBJECTION OF THE ASSESSEE BEING PURE LY SUPPORTIVE OF THE ORDER OF THE CIT(A) VIS-A-VIS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. SINCE THE APPEAL OF THE REVENUE, THE CO ALSO IS DIS MISSED AS SUPPORTIVE AND REQUIRING NO ADJUDICATION. 34. IN THE RESULT, APPEAL BY THE REVENUE IS DISMIS SED, WHILE THE APPEAL BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE WHILE THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 29 TH DAY OF JULY, 2020. SD/- SD/- (B.R.BASKARAN) ( N.V.VASUDEVAN) ACCOUNTANT MEMBER VICE- PRESIDENT BANGALORE DATED : 29-07-2020 *AM / DESAI S MURTHY IT(TP)A.NO.307/BANG/2015 & IT(TP)A.NO.200/BANG/2015 & CO 100/BANG/2015 AKAMAI TECHNOLOIGES (I) PVT.LTD. 21 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF BY ORDER ASST. REGISTRAR