Excellence Data Research Pvt. Ltd., Hyderabad, Hyderabad V. ACIT, Circle-17(1), Hyderabad, Hyderabad

ITA 310/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6258 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 27-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Business income; Transfer pricing; International transaction; Working capital adjustments; Notional interest; Capital expenditure
• Section: 92C; 143(3)

Judgement Text

ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 1 OF 31 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER & SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.310/HYD/2015 (ASSESSMENT YEAR: 2010-11) M/S. EXCELLENCE DATA RESEARCH PVT. LTD HYDERABAD PAN: AABCE 4933 C VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 17(1) HYDERABAD (APPELLANT) (RESPONDENT) ITA NO.292/HYD/2015 (A.Y 2010-11) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 17(1) HYDERABAD VS. M/S. EXCELLENCE DATA RESEARCH PVT. LTD HYDERABAD PAN: AABCE 4933 C (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.R. VASUDEVAN FOR REVENUE : SMT. NIVEDITA BISWAS, DR DATE OF HEA R ING : 13/07/2016 DATE OF PRONOUNCEMENT : 12 /0 9 /2016 O R D E R PER SMT. P. MADHAVI DEVI, J.M. ITA NO.310/HYD/2015: THIS IS ASSESSEES APPEAL FOR THE A.Y 2010-11 AGAIN ST THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) R.W.S. 92CA(4) R.W.S. 144C(1) OF THE I.T. ACT. ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 2 OF 31 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WHICH IS PROVIDING BACK OFFICE DATA CREATIONS, CONTENT DE VELOPMENT SERVICES WITH ITS AE, FILED ITS RETURN OF INCOME FO R THE AYM2010- 11 ON 13.10.2010 DECLARING NIL INCOME AFTER CLAIMIN G DEDUCTION U/S 10A OF THE ACT, AMOUNTING TO RS.5,24,16,660/-. OBSERVING THAT THE ASSESSEE COMPANY, HAS ENTERED INTO INTERNA TIONAL TRANSACTIONS FOR AN AMOUNT OF RS.40.01 CRORES DURIN G THE RELEVANT PERIOD, THE AO MADE REFERENCE TO THE TPO F OR DETERMINATION OF THE ALP U/S 92CA(4) OF THE ACT. TH E TPO VIDE HIS ORDER DATED 31.10.2013 PROPOSED AN ADJUSTMENT O N ACCOUNT OF PROVISIONS OF ITES FOR RS.7,69,69,407 AND INTERE ST RECEIVABLE OF RS.88,17,946 TOTALLING TO A SUM OF RS.8,57,87,35 3 U/S 92CA(3) OF THE I.T. ACT AND ALSO HELD THAT AS PER THE PROVI SO TO SUB- SECTION (4) OF SECTION 92C, NO DEDUCTION IS ALLOWAB LE U/S 10A ON THE ENHANCED ARMS LENGTH PRICE ADJUSTMENT. AGGRIEVE D, THE ASSESSEE PREFERRED ITS OBJECTION BEFORE THE DRP AND THE DRP VIDE ITS ORDER DATED 8.12.2015, DETERMINED THE AVERAGE M ARGIN OF THE COMPARABLES FOR EXCLUDING THREE COMPARABLES I.E. IN FOSYS BPO LTD, TCS E-SERVE LTD AND M/S. E-CLERX SERVICES LTD. THE DRP ALSO DIRECTED THE AO TO EXCLUDE ACCENTIA TECHNOLOGI ES LTD FROM THE LIST OF COMPARABLES, IF ON VERIFICATION IT IS F OUND THAT THE EXTRA ORDINARY EVENT OF AMALGAMATION DURING THE YEAR IS F OUND TO HAVE ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 3 OF 31 IMPACT ON THE PROFITS OF THE COMPANY. AFTER EXCLUDI NG THE ABOVE 3 COMPANIES FROM THE LIST OF 11 COMPARABLES, THE AV ERAGE MARGIN OF THE 8 COMPARABLES CAME TO 20.69%. AFTER VERIFICA TION OF EXTRA ORDINARY EVENT AND ITS IMPACT, PROFIT IN THE CASE O F ACCENTIA TECHNOLOGIES LTD, THAT THE TPO COULD NOT FIND ANY E FFECT OF AMALGAMATION ON THE MARGINS OF THE COMPARABLES. HE, THEREFORE, HELD THAT ACCENTIA TECHNOLOGIES LTD NOT TO BE EXCLU DED FROM THE SET OF COMPARABLES. HE, THEREFORE, AFTER DETERMININ G THE ARMS LENGTH ADJUSTMENT AT RS.5,03,47,511. THEREAFTER THE PROCEDURE TO CONSIDER THE WORKING CAPITAL EXPENDITURE RELATIN G TO PLR @ 12.25% FOUND THAT THE WORKING CAPITAL ADJUSTMENT HA S COME TO -2%. AFTER SUCH ADJUSTMENT, THE ARMS LENGTH MARGIN CAME TO 22.69%. FURTHER, AS REGARDS INTERESTS OUTSTANDING R ECEIVABLE ON RS.88,17,946, THE DRP HAD DIRECTED TO ADOPT INTERES T @ LIBOR + TWO PERCENTAGE ON THE INTER COMPANY RECEIVABLES AS AGAINST 12% ADOPTED BY THE TPO. AO OBSERVED THAT DURING THE YEA R, THE LIBOR RATE FOR 1 YEAR WAS 1.34% AND HE ACCORDINGLY WORKED OUT THE INTEREST AT 3.34 AND RECOMPUTED THE INTERESTS @ 3.4% ON THE OUTSTANDING AT RS.24,54,328 AND TREATED THE ADJUSTM ENT U/S 92CA OF THE I.T. ACTG. AS REGARDS THE ASSESSEES CL AIM OF DEDUCTION OF RS.54,24,16,660 U/S 10A OF THE ACT, TH E AO OBSERVED THAT THE ASSESSEE HAS NOT COMPUTED THE DED UCTION AS ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 4 OF 31 PROVIDED FOR IN SUB-SECTION (4) OF SECTION 10A AND ALSO HAS NOT ADOPTED THE CORRECT TURNOVER AS PROVIDED IN CLAUSE (IV) TO EXPLANATION-2 OF SUB SECTION. HE THEREFORE, ADDED T HE T.P. ADJUSTMENT BE THE INCOME OF THE ASSESSEE AND FURTHE R REDUCED A SUM OF RS.40,44,693 BEING INTERNET EXPENSES/TELEPHO NE CHARGES FOR THE PURPOSE FO COMPUTATION OF INCOME U/S 10A OF THE ACT. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE ASSESSEE HAS RAISED AS MANY AS 20 GROUNDS OF APPEAL AND HAS ALSO FILED AN APPLICATION FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL WHICH IS NUMBERED AS GROUND NOS.6 .1 AND 6.2. AT THE TIME OF HEARING THE LEARNED COUNSELF OR THE ASSESSEE SUBMITTED THAT GROUND NOS. 1 TO 3 ARE GENERAL IN NA TURE, HENCE NO NEED FOR ADJUDICATION. HE ALSO SUBMITTED THAT GR OUND NOS. 7, 9, 10 & 13 ARE NOT PRESSED. THESE GROUNDS ARE ACCOR DINGLY REJECTED AS NOT PRESSED. 4. AS REGARDS GROUND NO.4 AGAINST THE ORDER OF THE AO/DRP IN CONSIDERING FOREIGN EXCHANGE LOSS AMOUNTING TO RS.1,12,94,338 INCURRED BY THE ASSESSEE AS OPERATIV E IN NATURE WHILE COMPUTING THE NET MARGIN OF THE ASSESSEE UNDE R THE TNNM METHOD, THE LEARNED COUNSEL FOR THE ASSESSEE FAILRL Y ADMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDERS OF THIS TRIBUNAL. WE FIND THAT THE DRP AT PAGE NO.10 A ND PARA 17 ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 5 OF 31 HAS FOLLOWED THE DECISION OF THE COORDINATE BENCHES OF THIS TRIBUNAL IN REJECTING THE ASSESSEES OBJECTIONS. FO R THE SAKE OF READY REFERENCE THE RELEVANT PARAGRAPH IS REPRODUCE D HEREUNDER: 17.0 GROUND OF OBJECTION NO.13 FOREIGN EXCHANGE INCOME/EXPENSES SHOULD BE CONSIDERED AS NON- OPERATING FOR COMPUTATION OF MARGINS-THE ASSESSEE SUBMITTED THAT FOREIGN EXCHANGE GAIN/LOSS SHOULD BE CONSIDERED AS NON-OPERATING FOR COMPUTATION OF MARGIN OF THE ASSESSEE AND THE COMPARABLES. IN THIS REGARD, THE ASSESSEE CONTENDED THE STAND TAKEN BY THE LEARNED TPO AND PLACES RELIANCE ON THE DECISION OF MUMBAI TRIBUNAL IN CASE OF DHL EXPRESS (INDIA) PVT. LTD (ITA NO.7360/MUM/2010) WHEREIN IT WAS HELD THAT FOREIGN EXCHANGE FLUCTUATIONS DO NOT FORM PART OF THE OPERATIONAL INCOME BECAUSE THESE ITEMS HAVE NOTHING TO DO WITH THE MAIN OPERATIONS OF THE ASSESSEE. DECISION: THE TPO HAS CLEARLY STATED IN THE TP ORDE R THAT THE FOREIGN EXCHANGE LOSS FORMS PART OF THE OPERATING MARGINS FOR THE REASON THAT AS PER THE REQUIREMENTS OF AS-11 ISSUED BY ICAI, FOREIGN EXCHANGE GAIN/LOSS OF ANY NATURE RELATING TO ANY ITEM WHATSOEVER IS REQUIRED TO BE CHARGED OFF TO TH E P&L A/C. THIS POSITION HAS BEEN CONSISTENT WITH THE EXTANT PRACTICE. HE ALSO STATED THAT THE HON'BLE JURISDICTIONAL ITAT IN THE CASES OF FOURSOFT LTD AN D CAPITAL IQ INFORMATION SYSTEMS PVT. LTD HAVE HELD THAT FOREIGN EXCHANGE FLUCTUATION IS PART OF THE OPERATING MARGIN, MORE SO WHEN SUCH FLUCTUATIONS HAVE BEEN CONSIDERED AS PART OF OPERATING MARGINS IN THE CASES OF COMPARABLES. HE ALSO NOTED THAT EVE N VARIOUS OTHER TRIBUNALS (MUMBAI AND BANGALORE) HAVE HELD THAT FOREIGN EXCHANGE FLUCTUATION IS OPERATING IN NATURE. IN VIEW OF THE OVERWHELMING JUDICIAL DECISIONS, THE TPOS ACTION IS CONFIRMED A ND THE OBJECTION IS REJECTED. ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 6 OF 31 IN VIEW OF THE ABOVE AND ALSO IN VIEW OF THE DECISI ON IN THE CASE OF HYUNDAI MOTORS WHEREIN FOLLOWING THE DECISION RELIE D UPON BY THE DRP, WE HAVE DISMISSED THE ASSESSEES GROUNDS T HEREIN. RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISIO N CITED (SUPRA) IN THE ORDER OF THE DRP, THIS GROUND OF APP EAL OF THE ASSESSEE IS REJECTED. 5. AS REGARDS GROUND NO.5, IT IS AGAINST THE ORDER OF THE AO/DRP IN CONSIDERING THE OPERATING MARGIN OF THE A SSESSEE AT AN OVERALL ENTITY LEVEL INTEREST OF CONSIDERING THE SEGMENTAL RESULTS OF THE AE, WHILE COMPUTING THE NET MARGINS OF THE ASSESSEE UNDER THE TNNM METHOD, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. ASTRIX LABORATORIES LTD VS. ACI T IN ITA NO.2181/HYD/11 & 312/HYD/12, DATED 29.01.2016 FOR T HE A.Y 2007-08 RESPECTIVELY. THE LEARNED DR HOWEVER, SUPPO RTED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE A SSESSEE HAS RAISED OBJECTION BEFORE THE DRP THAT THE MARGIN HAS TO BE PAID AT SEGMENTAL LEVEL AND ADJUSTMENT SHOULD BE MADE ONLY TO AES. THE DRP HAS ONLY CONFIRMED THE ORDER OF THE TPO HOLDING THAT THE TPO HAS COUNTERED THE OBJECTIONS OF THE ASSESSEE. I N THE CASE OF M/S ASTRICS LAB LTD, THIS TRIBUNAL AT PARA 26 OF IT S ORDER HAS ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 7 OF 31 DIRECTED THE AO/TPO TO TAKE INTO ACCOUNT THE TURNOV ER OF THE TRANSACTION WITH THE AE ONLY FOR THE PURPOSE OF DET ERMINING THE ALP. FOR THE SAKE OF READY REFERENCE, PARA 26 IS RE PRODUCED HEREUNDER: 26. AS REGARDS THE ASSESSEES GROUND NO.3 AND 4, W E FIND THAT THE ASSESSEE HAS ALSO TRANSACTIONS WITH N ON- AES AND THE TPO HAS TAKEN THE TOTAL TURNOVER INCLUDING TRANSACTIONS WITH NON-AE COMPANIES, FOR T HE PURPOSE OF DETERMINATION OF ALP. IT HAS BEEN HELD I N A CATENA OF CASES THAT IT IS ONLY THE TRANSACTIONS OR THE TURNOVER INVOLVED IN THE TRANSACTIONS WITH AES ALON E, WHICH HAVE TO BE CONSIDERED FOR COMPUTATION OF ALP. THE AO/ TPO ARE ACCORDINGLY DIRECTED TO TAKE INTO ACCOUNT THE TURNOVER OF THE TRANSACTIONS WITH AE ON LY FOR THE PURPOSE OF COMPUTING THE ALP. ACCORDINGLY, GROUNDS NO.3 AND 4 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH TO WHICH BOTH OF US ARE SIGNATORY, WE DIRECT THE AO/TP O OF THE ASSESSEE HEREIN ALSO TO TAKE INTO ACCOUNT THE TURNO VER OF THE TRANSACTIONS WITH AE ONLY FOR THE PURPOSE OF COMPUT ING THE ALP. GROUND NO.5 IS TREATED AS ALLOWED FOR STATISTICAL P URPOSES. 6. AS REGARDS GROUND NO.6, THE ASSESSEE IS CHALLENG ING THE INCLUSION OF THE FOLLOWING COMPANIES IN THE FINAL L IST OF COMPARABLES: A) ACCENTIA TECHNOLOGIES LTD ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 8 OF 31 B) COSMIC GLOBAL LTD C) TCS E-SERVE INTERNATIONAL LIMITED & D) CROSSDOMAIN SOLUTIONS PVT. LTD. IN ADDITION TO THE ABOVE, ASSESSEE VIDE ADDITIONAL GROUNDS OF APPEAL (6.1 AND 6.2) IS ALSO CHALLENGING THE COMPAR ABILITY OF COSMIC GLOBAL LTD AND CROSSDOMAIN SOLUTIONS PVT. LT D AS COMPARABLES WITH THE ASSESSEE. IT IS STATED IN THE APPLICATION FOR ADMISSION OF ADDITIONAL GROUNDS THAT THE ASSESSEE H AD SELECTED THESE COMPANIES AS THE COMPARABLES TO THE ASSESSEE AS ONE OF THE RELEVANT MATERIAL WAS NOT AVAILABLE IN THE PUBL IC DOMAIN AT THE TIME OF PREPARATION OF TPO ORDER, BUT SINCE IT HAS CAME TO THE NOTICE OF THE ASSESSEE THAT THE HON'BLE TRIBUNAL IN VARIOUS DECISIONS HAVE HELD THAT THESE COMPANIES ARE FUNCTI ONALLY DIFFERENT FROM I.T. TECHNOLOGY ENABLED SERVICE PROV IDERS AND ALSO COMPARABLES TO THE ASSESSEE IN I.T., ASSESSEE IS RA ISING THE OBJECTION BEFORE US. 7. AFTER HEARING THE LEARNED DR, WE ADMIT THE ADDIT IONAL GROUNDS OF APPEAL. BRIEF FACTS RELATING TO THIS ISS UE ARE THAT DURING THE TRANSFER PRICING STUDY, THE ASSESSEE HAS RETURNED THE OPERATIVE COST AT 9.91% AND THE RESULT OF THE AE TR ANSACTION AT 11%. HE HAS DRAWN OUR ATTENTION TO THE PAGE 11 OF T HE TPOS ORDER WHEREIN THE TABLE OF THE FINAL COMPARABLES SE LECTED BY THE TPO IS GIVEN. HE SUBMITTED THAT THE ASSESSEE HAS RA ISED ITS ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 9 OF 31 OBJECTION AGAINST THE ACCENTIA TECHNOLOGIES LTD AND CROSSDOMAIN SOLUTIONS PVT. LTD. AS REGARDS ACCENTIA COMPARABLE IS CONCERNED THAT THE SAID COMPANY HAS FUNCTIONAL D IFFERENCE FROM THE ASSESSEE AS THE SAID COMPANY DEVELOPS FOR THE BUSINESS PRODUCTS OUTSOURCING. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON THE ANNUAL REPORT OF ACCENTIA TO SUBST ANTIATE HIS ARGUMENT THAT THE SERVICES PROVIDED BY ACCENTIA INC LUDING SOFTWARE AND HARDWARE PRODUCTS. HE ALSO DRAWN OUR A TTENTION TO THE EXTRACTS OF THE ANNUAL REPORTS WHICH SHOW THAT THE ACCENTIA OWNS INTELLECTUAL PROPERTY AND THERE WERE EXTRA ORD INARY EVENTS DURING THE YEAR SUCH AS STRATEGIC AND AMALGAMATION DURING THE FINANCIAL YEAR 2009-10. HE SUBMITTED THAT IN THE AS SESSEES CASE FOR A.Y 2009-10, ASSESSEE HAS REJECTED THE SAID COM PANY ON THE GROUND THAT THE ACCENTIA HAS MADE ABNORMAL PROFITS DUE TO EXTRA ORDINARY EVENT. HE ALSO PLACED RELIANCE UPON THE DE CISION OF THE ITAT IN THE CASE OF HYUNDAI MOTOR INDIA ENGINEERING IN ITA NO.1743/HYD/2015, WHEREIN AFTER DISCUSSING THE ISSU E AT LENGTH, HAS DIRECTED THE AO TO EXCLUDE THIS COMPANY AS A COMPARABLE. THE LEARNED DR, ON THE OTHER HAND, SUPP ORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE DECISION OF THE ITAT IN HYUNDAI MOTOR ENGINEERING LTD WHICH IS ENGAGED IN THE BUSINESS OF AUTOMOBILES WITH THE ASSESSEE HE REIN IS IN ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 10 OF 31 ITES SERVICES. THEREFORE, ACCORDING TO HIM THE SAID DECISION CANNOT BE APPLIED HEREIN. FURTHER, HE SUBMITTED THA T THE TPO HAS CONSIDERED ALL THE RELEVANT FACTS BEFORE HOLDIN G THAT THE SAID COMPANY IS COMPARABLE TO THE ASSESSEE. 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE DRP HAS DIRECTED THE AO TO CONSIDER WHETHER THE EXTRA ORDINARY EVENT OF AMALGAMATION DU RING THE YEAR IS FOUND TO HAVE AN IMPACT ON THE PROFITS OF T HE COMPANY. WE FIND THAT INSTEAD OF CARRYING OUT THE EXERCISE, THE AO HAS SIMPLY FOLLOWED THE ORDER OF THE TPO IN HOLDING THA T THE FACT OF AMALGAMATION ON THE MARGIN OF THE SAID COMPANY HAS NO EFFECT ON THE MARGIN OF THE SAID COMPANY. THIS, IN OUR OPI NION, IS NOT A CORRECT APPROACH OF THE AO. WHERE A DIRECTION HAS B EEN GIVEN BY THE DRP TO FOLLOW A CERTAIN PROCEDURES, THE AO HAS SIMPLY FOLLOWED THE TPO ORDER. THEREFORE, ORDER OF THE AO ON THIS ISSUE NEEDS TO BE SET ASIDE. IN THE CASE OF HYUNDAI MOTOR S WHICH IS ALSO ENGAGED IN RENDERING OF ITES TO ITS AES, THE T RIBUNAL HAS TAKEN NOTE OF THE SAME AT PARA 9.1 AND 9.3 OF ITS O RDER. THEREFORE, THE DECISION OF THE TRIBUNAL IN THE SAID CASE IS APPLICABLE TO THE CASE ON HAND, MORE PARTICULARLY S INCE THE COMPARABLES ADOPTED BY THE TPO IN THE SAID CASE ARE THE SAME ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 11 OF 31 IN THE ASSESSEES CASE ALSO. IN THE CASE OF HYUNDAI MOTORS AT PAGE 20, PARA 18, THE TRIBUNAL HAS HELD AS UNDER: 18. AS REGARDS M/S. ACCENTIA TECHNOLOGIES LTD., IS CONCERNED, WE FIND THAT THE DRP HAS DIRECTED TO EXCLUDE THIS COMPANY BY PLACING RELIANCE UPON THE ORDER OF THE ITAT IN THE ASSESSEE'S OWN CASE FOR TH E A.Y. 2009-10 BY HOLDING THAT THIS COMPANY OPERATES IN A DIFFERENT BUSINESS STRATEGY OF ACQUIRING COMPANIE S FOR INORGANIC GROWTH AS ITS STRATEGY AND CONSIDERIN G THE PROFIT MARGINS OF THE COMPANY AND INSUFFICIENT SEGMENTAL DATA, HELD THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. IT WAS ALSO HELD BY THE D RP THAT ON THE VERY SAME REASON OF ACQUISITION OF VARI OUS COMPANIES, BEING AN EXTRAORDINARY EVENT, IT HAD AN IMPACT ON THE PROFIT OF THE COMPANY AND THE SAID COMPANY WAS DIRECTED TO BE EXCLUDED. 18.1. FOR THE RELEVANT A.Y. 2010-11, THE LD. COUNSE L FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE INFORMATION AVAILABLE ON ACCENTIA TECHNOLOGIES LTD. , TO DEMONSTRATE THAT THE SAID COMPANY IS INTO DIVERSIFI ED KNOWLEDGE PROCESS OUTSOURCING ACTIVITIES. IT IS SEE N THERE FROM THAT THE SAID COMPANY IS INVOLVED IN HEALTHCARE DOCUMENTATION AS WELL AS RECEIVABLES, MANAGEMENT SERVICES INCLUDING INSTALLATION AND MAINTENANCE OF ALL SOFTWARE, HARDWARE AND BAND WIDTH INFRASTRUCTURE REQUIRED FOR THE SAME, DEPLOYMENT OF MAN POWER AND SERVICE DELIVERY IN ALL THESE AREAS. IT IS ALSO SEEN THAT IT IS ENGAGED IN LEGAL PROCESS OUTSOURCING. FROM SCHEDULE-IV SHOWING THE FIXED ASSETS OF THE ASSESSEE, IT IS ALSO SEEN THAT THE SAID COMPANY OWNS GOODWILL/BRAND/IPRS (INTELLECTUAL PROPERTY RIGHTS). FROM THE NOTES TO THE ACCOUNTS, IT IS ALSO SEEN THAT A SUBSIDIARY OF THE COMPANY ASSCENT INFOSERVE PVT. LTD., HAS BEEN AMALGAMATED WITH THE COMPANY CONSEQUENT TO WHICH, ASSETS AND LIABILITIES OF THE ERSTWHILE COMPANY WERE TRANSFERRED AND VESTED I N THE COMPANY W.E.F. 1ST APRIL, 2008 AND THE SCHEME HAS BEEN GIVEN EFFECT TO IN THE ACCOUNTS OF THE YEA R. THEREFORE, IT IS CLEAR THAT THERE IS AN EXTRAORDINA RY EVENT IN THE CASE OF ACCENTIA TECHNOLOGIES LTD., DU RING ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 12 OF 31 THE RELEVANT FINANCIAL YEAR PARTICULARLY SINCE THE APPROVAL FOR AMALGAMATION HAS BEEN GIVEN BY THE HON'BLE HIGH COURT OF MUMBAI VIDE ORDERS DATED 21 ST AUGUST, 2009 AND BY THE HON'BLE KARNATAKA HIGH COURT VIDE ORDERS DATED 6TH FEBRUARY, 2010. THIS EVENT WOULD DEFINITELY HAVE AN EFFECT ON THE PROFIT MARGINS OF THE SAID COMPANY AND THEREFORE, HAS TO B E EXCLUDED FROM THE LIST OF COMPARABLES AS RIGHTLY DO NE BY THE DRP. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE DRP ON THIS COMPANY ALSO. ACCORDINGLY, GROUND NO.3 OF THE REVENUE IS DISMISSED. SINCE THE ORDER OF THE TRIBUNAL IN THE CASE OF HYUN DAI MOTORS FOR THE SAME A.Y, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 9. AS REGARDS THE COMPARABILITY OF COSMIC GLOBAL IT IS THE CASE OF THE ASSESSEE THAT THIS COMPANY IS PRIMARILY ENGA GED IN THE ACTIVITIES PERTAIN TO TRANSACTIONS, MEDICAL TRANSCR IPTION AND CONSULTANCY SERVICES AND IS SIGNIFICANTLY DIFFERENT FROM ITES ACTIVITIES PERFORMED BY THE ASSESSEE. HE HAS DRAWN OUR ATTENTION TO THE ANNUAL REPORT OF COSMIC GLOBAL LTD WHEREIN T HE MAJOR REVENUE FROM MEDICAL TRANSCRIPTION AND CONSULTANCY SERVICES AND TRANSLATION CHARGES AS AGAINST A MEAGER RS.26,9 7,430 FROM THE ACCOUNTS. ACCORDING TO THE ASSESSEE, THE COSMIC GLOBAL LTD EARNS ONLY 4.66% OF TOTAL SALES FROM ITES ACTIVITIE S AND IN THE ASSESSEES OWN CASE FOR THE A.Y 2009-10, THIS COMPA NY WAS REJECTED BY THE ITAT DUE TO INSIGNIFICANT REVENUE F ROM ITES ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 13 OF 31 SEGMENT. WITHOUT PREJUDICE TO THE ABOVE ARGUMENT, T HE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE CO SMIC GLOBAL LTD CANNOT BE COMPARED TO THE ASSESSEE AS NO SEGMEN TAL SPLIT OF FINANCIAL INFORMATION IS AVAILABLE FOR THE FINANCIA L YEAR 2010. IN SUPPORT OF THE ABOVE CONTENTION THE LEARNED COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE UPON THE DECISION OF THE ITAT IN THE CASE OF HYUNDAI MOTOR INDIA ENGINEERING CITED S UPRA. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 10. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT IN THE CASE OF HYUNDAI MOTOR I NDIA ENGINEERING FOR THE A.Y 2010-11, THIS TRIBUNAL HAS CONSIDERED SIMILAR CIRCUMSTANCES TO EXCLUDE THE SAID COMPANY F ROM THE LIST OF COMPARABLE OF THE ASSESSEE THEREIN. AT PARA 10.3 AND 10.4 OF ITS ORDER, THE TRIBUNAL HAS HELD AS UNDER: 10.3. HAVING REGARD TO THE RIVAL CONTENTIONS AND T HE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAD RAISED OBJECTIONS AGAINST THIS COMPANY IN THE EARLI ER A.Y. 200910 ON A SIMILAR GROUND I.E., THE INCOME FR OM TRANSLATION SERVICES WHICH IS OUTSOURCED IS MUCH HIGHER AND THEREFORE, SHOULD NOT BE CONSIDERED AS A COMPARABLE. THE TRIBUNAL, BY RELYING ON THE DECISIO N OF THE TRIBUNAL AT DELHI IN THE CASE OF MERCER CONSULT ING (INDIA) P. LTD., ITA.NO.966/DEL/2014 DATED 06.07.2014 HAS HELD AS UNDER: '(4) COSMIC GLOBAL LTD. ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 14 OF 31 14. THE MAIN OBJECTION OF ASSESSEE WITH REFERENCE T O THE INCLUSION OF THIS COMPANY IS WITH REFERENCE TO OUTSOURCING OF ITS MAIN ACTIVITY. EVEN THOUGH THIS COMPANY WAS SELECTED AS COMPARABLE IN ASSESSEE'S TP STUDY, IT HAS RAISED OBJECTION BEFORE THE TPO TH AT THIS COMPANY'S EMPLOYEE COST IS LESS THAN 21.30% AN D MOST OF THE COST IS WITH REFERENCE TO THE OUTSOURCI NG CHARGES OR TRANSLATION CHARGES, AND AS SUCH THIS IS NOT A COMPARABLE COMPANY. THE TPO, 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 SELECTED AS COMPARABLE, AS SIMILAR ISSUE WAS DISCUSSED BY THE COORDINATE BENCH OF THE TRIBUNAL(DELHI) IN THE CASE OF MERCER CONSULTING (INDIA) P. LTD. (SUPRA), VIDE PAR AS 13.2 TO 13.3 WHICH READ ASS UNDER- '13.2. NOW COMING TO THE FACTUAL MATRIX OF 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 TO US TO BE A VALID REASON FOR ELIMINATING THIS CASE FROM THE LIST OF COMPARABLES. 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 TRANSCRIPTION AND CONSULTANCY SERVICES AT RS. 9. 90 LACS, TRANSLATION CHARGES AT RS.6.99 CRORE AND ACCOUNTS BPO AT RS.27.76 LAC. THE ID.AR HAS MADE OUT A CASE THAT OUTSOURCING ACTIVITY CARRIED OUT BY THIS COMPANY CONSTITUTES 57% OF TOTAL EXPENSES. THE REASON FOR WHICH WE ARE NOT AGREEABLE WITH THE ID. AR IS THAT WE HAVE TO EXAMINE THE REVENUE OF THIS CASE ONLY FROM ACCOUNTS BPO SEGMENT 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 THE POSITION UNDER OTHER SEGMENTS. THE ENTIRE OUTSOURCING IS CONFINED TO TRANSLATION CHARGES ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 15 OF 31 PAID AT RS.3.00 CRORE, WHICH IS STRICTLY IN THE 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 FIGURES WHICH ARE RELEVANT FOR SEGMENTS OTHER THAN ACCOUNTS BPO. THUS IT IS HELD THAT THIS CASE CANNOT BE EXCLUDED ON THE STRENGTH OF OUTSOURCING ACTIVITY, WHICH IS ALIEN TO THE RELEVANT SEGMENT. 13.3. HOWEVER, WE FIND THIS CASE TO BE INCOMPARABLE ON THE ALTERNATIVE ARGUMENT ADVANCED BY THE ID. AR TO THE EFFECT THAT TOTAL REVENUE OF THE ACCOUNTS SPO SEGMENT OF COSMIC GLOBAL LIMITED IS VERY LOW AT RS.27.76 LACS. WE HAVE DISCUSSED THIS ASPECT ABOVE IN THE CONTEXT OF CG-VAK'S CASE AND HELD THAT A CAPTIVE UNIT CANNOT BE COMPARED WITH A GIANT CASE AND THUS EXCLUDED CG-VAK WITH TURNOVER FROM ACCOUNTS SPO SEGMENT AT RS.86.10 LACS. AS THE SEGMENTAL REVENUE OF SPO SEGMENT OF COSMIC GLOBAL LIMITED AT RS. 27.76 LAC IS STILL ON MUCH LOWER SIDE, THE REASONS GIVEN ABOVE WOULD FULLY APPLY TO HOLD COSMIC GLOBAL LIMITED AS INCOMPARABLE. THIS CASE IS, THEREFORE, DIRECTED TO BE EXCLUDED FROM THE LIST OF COM PARABLES. IN VIEW OF THE DETAILED ANALYSIS OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE ABOVE REFERRED CASE, IN THIS CASE ALSO WE ACCEPT THE CONTENTIONS OF ASSESSEE AND DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPARABLE FOR THE SAME REASONS. 10.4. WE FIND THAT IN THE A.Y. 2010-2011 ALSO AS OBSERVED BY US ABOVE, THE FACTS ARE SIMILAR AND THE SEGMENTAL REVENUE IS ON THE LOWER SIDE. FURTHER, THOUGH THE ASSESSEE HAD ACCEPTED THIS COMPANY AS COMPARABLE BEFORE THE TPO, IT HAD RAISED DETAILED OBJECTION BEFORE THE DRP AND THE DRP OUGHT TO HAVE CONSIDERED THE OBJECTIONS OF THE ASSESSEE AS THE ASSESSEE IS ENTITLED TO RAISE THE OBJECTION BEFORE THE APPELLATE AUTHORITY FOR FACTUAL DIFFERENCES TO BE ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 16 OF 31 CONSIDERED. FURTHER, SINCE THE TRIBUNAL IN ASSESSEE 'S OWN CASE FOR THE EARLIER YEAR HELD THIS COMPANY TO BE NOT COMPARABLE TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE ASSESSEES OWN CASE FOR A.Y 2009-10, W E DIRECT THE AO/TPO TO EXCLUDE THIS COMPARABLE FROM T HE FINAL LIST FOR THE SAME REASON AS THE FACTS AND CIRCUMSTANCES BEFORE US ARE ALSO S IMILAR AND ARE FOR THE SAME A.Y 2010-11, WE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH DIRECT THE AO/TPO TO EXCLUD E THIS COMPANY FROM THE PRIME LIST OF COMPANIES. 11. TCS E-SERVE INTERNATIONAL LTD: AS REGARDS THE COMPARABILITY OF THIS COMPANY WITH THE ASSESSEE, THE LEARNED COUN SEL FOR THE ASSESSEE SUBMITTED THAT THE TCS INTERNATIONAL ALSO PROVIDES SOFTWARE TESTING, VERIFICATION AND VALIDATION WHICH ARE DIFFERENT FROM ITES SERVICES PROVIDERS BY THE ASSESSEE. IT IS ALSO SUBMITTED THAT THE SEGMENTAL INFORMATION OF TCS INTERNATIONAL ARE NOT AVAILABLE IN THE ANNUAL REPORT. THE EXCEPTIONAL CIR CUMSTANCES OF THE COMPANY REPORTED IN ANNUAL REPORT SUCH AS ACQUI SITION OF INDIA BASED CAPTIVE BUSINESS OUTSOURCING ARM, RESUL TING IN ACQUISITION OF AN AGGREGATE AMOUNT OF $ 2.5 BILLION OVER A PERIOD OF 9.5 YEARS AND ITS IMPACT ON THE FINANCIAL IMPLIC ATIONS OF THE COMPANY ALSO BROUGHT TO OUR NOTICE. IT IS SUBMITTED THAT THESE PECULIAR CIRCUMSTANCES HAVE BEEN CONSIDERED BY THE COORDINATE ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 17 OF 31 BENCH OF THIS TRIBUNAL IN THE CASE OF HYUNDAI MOTOR INDIA ENGINEERING FOR EXCLUSION OF THE LIST OF COMPARABLE S. WE FIND THAT IN THE CASE OF HYUNDAI MOTORS AT PARA 11 OF ITS ORD ER READ AS UNDER: 11. WE FIND THAT THE ASSESSEE HAD RAISED ITS OBJECTIONS IN DETAIL AGAINST THE ADOPTION OF THESE TWO COMPANIES AS COMPARABLES BOTH BEFORE THE TPO AS WELL AS DRP, BUT ITS OBJECTIONS WERE REJECTED. BEFO RE US ALSO, THE LD. COUNSEL FOR THE ASSESSEE REITERATE D THESE OBJECTIONS AND RELIED UPON THE T.P. ORDER IN THE CASE OF M/S. IGS IMAGING SERVICES (INDIA) P. LTD., FOR A.Y. 2010-2011, WHERE TPO HAS EXCLUDED BOTH OF THESE COMPANIES BY HOLDING THAT THEY ARE ENGAGED IN BPO ACTIVITY AND THAT THEY HAVE REPORTED EXCEPTIONA L CIRCUMSTANCES IN THEIR ANNUAL REPORT FOR THE RELEVA NT FINANCIAL YEAR. 11.1. THE LD. D.R. ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 11.2. HAVING REGARD TO THE RIVAL CONTENTIONS AND TH E MATERIAL ON RECORD, WE FIND THAT DURING THE RELEVAN T FINANCIAL YEAR, THE TCS E-SERVE INTERNATIONAL LTD., HAD ACQUIRED THE CITI GROUP INDIA BASED CAPTIVE BUSINES S PROCESSING OUTSOURCING (BPO) ARM FOR AN ALL-CASH CONSIDERATION AND IN RETURN, HAD ACQUIRED THE BUSINESS OF AN AGGREGATE AMOUNT OF $ 2.5 BILLION OV ER A PERIOD OF 9.5 YEARS. THIS DEFINITELY IS AN EXCEPT IONAL CIRCUMSTANCE WHICH HAS BEEN TAKEN NOTE OF BY THE TP O IN THE CASE OF M/S. IGS IMAGING SERVICES (INDIA) P. LTD., TO EXCLUDE THE SAME FROM THE LIST OF COMPARAB LE. THIS EXCEPTIONAL CIRCUMSTANCE WAS NOT TAKEN NOTE OF BY THE TPO AND THE DRP FAILED TO APPRECIATE THE OBJECTION OF THE ASSESSEE IN PROPER PERSPECTIVE. AN Y CIRCUMSTANCE WHICH WOULD INFLUENCE OR RESULT IN ABNORMAL RESULT IN THE FINANCIALS OF A COMPANY HAVE TO BE ADJUSTED OR WHERE NO ADJUSTMENT CAN BE DONE TO MAKE IT COMPARABLE TO THE TESTED PARTY, SUCH A COMPANY HAS TO BE EXCLUDED FROM THE LIST OF ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 18 OF 31 COMPARABLES. THIS TRIBUNAL IN A NUMBER OF DECISIONS HELD THAT EXCEPTIONAL CIRCUMSTANCE IS A REASONABLE FILTER TO EXCLUDE A COMPANY FROM THE LIST OF COMPARABLES. THEREFORE, WE DIRECT THE A.O./TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 11.2.1. AS REGARDS TCS E-SERVE LIMITED IS CONCERNED , WE FIND THAT IT POSSESSES BRAND VALUE AS IS EVIDENT FROM THE SCHEDULE-N (OPERATION AND OTHER EXPENSES) TO THE P & L AI C OF THE ANNUAL REPORT FOR THE FINANCI AL YEAR 2009-10 OF RS.46,065 THOUSANDS AND ALSO THAT I T POSSESSES INTANGIBLES IN THE FORM OF SOFTWARE LICEN SES WHICH HAVE NOT BEEN TAKEN NOTE OF BY THE AUTHORITIE S BELOW WHILE ADOPTING ITS MARGIN. IT IS ALSO THE CAS E OF THE ASSESSEE THAT THIS COMPANY HAS A TURNOVER OF RS.1405.10 CRORES WHICH IS 25 TIMES OF THE TURNOVER OF THE ASSESSEE AND HENCE, IS NOT COMPARABLE TO THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE HAD ALSO PLACED RELIANCE UPON THE TPO'S ORDER IN THE CASE OF M/S. IGS IMAGING SERVICES INDIA LTD., TO HOLD THAT THERE ARE EXCEPTIONAL CIRCUMSTANCES DURING THE RELEVANT FINANCIAL YEAR DUE TO WHICH THIS COMPANY I S NOT COMPARABLE TO THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND HENCE , HAS TO BE EXCLUDED ON THIS COUNT ALSO. 11.2.2. WE FIND THAT THE ASSESSEE'S CONTENTIONS ABO UT THE PRESENCE OF 'BRAND VALUE' AND OWNING OF 'INTANGIBLES' IS SUPPORTED BY THE EVIDENCE ON RECOR D. HOWEVER, AS REGARDS THE EXTRAORDINARY EVENT OR EXCEPTIONAL CIRCUMSTANCE THERE IS NO MATERIAL PLACE D BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE. THEREFORE, MERELY BECAUSE THE TPO IN ANOTHER CASE HAS HELD THAT THERE IS AN EXTRAORDINARY EVENT FOR W HICH THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES, IT CANNOT BE EXCLUDED. SUCH CLAIM HAS TO BE SUPPORTED BY EVIDENCE ON RECORD. AS REGARDS THE FUNCTIONAL DISSIMILARITY AND HUGE TURNOVER AND BRAN D VALUE IS CONCERNED, WE FIND THAT THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2009-10 WHILE ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 19 OF 31 CONSIDERING THE COMPARABILITY OF THE ASSESSEE WITH INFOSYS BPO LTD., HAS TAKEN NOTE OF THE POSSESSION OF THE BRAND VALUE AND INTANGIBLES WHICH INFLUENCED TH E FINANCIAL RESULTS OF THIS COMPANY. THE HON'BLE DELH I HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES P. LTD., (2013) 219 TAXMAN 26 (DEL.), HELD THAT HUGE TURNOVER COMPANIES LIKE INFOSYS AND WIPRO CANNOT BE CONSIDERED AS COMPARABLE TO SMALLER COMPANIES LIKE ASSESSEE THEREIN. IN THE CASE BEFORE THE HON'BLE HIGH COURT (SUPRA), THE TURNOVER OF THE ASSESSEE WAS ABOUT RS.15.79 CRORES AS AGAINST THE TURNOVER OF RS. 1016 CRORES OF THE INFOSYS. CONSIDE RING THESE FACTS, THE HON'BLE HIGH COURT HAD DIRECTED FO R EXCLUSION OF INFOSYS BPO BECAUSE OF ITS BRAND VALUE AND ALSO ON THE GROUNDS OF FUNCTIONAL DISSIMILARITY AND HUGE TURNOVER. THOUGH, THE COMPANY BEFORE US IS TCS E-SERVICE LTD., AND NOT INFOSYS BPO, WE FIND THAT T HE TURNOVER OF THE ASSESSEE COMPANY FOR THIS ASSESSMEN T YEAR IS AROUND RS.50 CRORES AS AGAINST THE TURNOVER OF TCS E-SERVE LIMITED OF RS.1405.10 CRORES. THEREFORE , FOLLOWING THE TURNOVER FILTER AS WELL AS TAKING NOT E OF THE FACT THAT IT OWNS AND POSSESSES BRAND VALUE AND INTANGIBLES AS COMPARED TO THE ASSESSEE WHICH DOES NOT OWN SUCH ASSETS, WE DIRECT THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES. ACCORDINGLY, ASSESSEE'S GROUNDS OF APPEAL NO.6 IS PARTLY ALLOWED. RESPECTFULLY FOLLOWING THE DECISION OF THE BENCH, T HESE TWO COMPARABLES TCS E-SERVE INTERNATIONAL LTD AND TCS E -SERVE LTD DIRECTED TO BE EXCLUDED. 12. AS REGARDS CROSSDOMAIN SOLUTIONS LTD, THE LEARN ED COUNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT IN THE CASE O F HYUNDAI MOTORS, COMPARABILITY OF THIS COMPANY HAS BEEN UPHE LD BY THE TRIBUNAL. THEREFORE, HE HAS NO OBJECTION TO THE SAI D COMPANY BEING INCLUDED IN THE FINAL LIST OF COMPARABLES. WE FIND THAT AT ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 20 OF 31 PARA 8 OF THE ORDERS IN THE CASE OF HYUNDAI MOTORS, THE TRIBUNAL HAS HELD AS UNDER: 8. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE COMPANY CROSSDOMAIN SOLUTINOS P. LTD., HAS BEEN CONSIDERED AS A COMPARA BLE TO THE ASSESSEE IN ASSESSEE'S OWN CASE FOR THE EARL IER ASSESSMENT YEAR AND THE ITAT HAS UPHELD THE CONTENTION OF THE REVENUE THAT THE SAID COMPANY IS COMPARABLE. HE THEREFORE, FAIRLY ADMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE IN ASSESSEE'S OWN C ASE. IN VIEW OF THE SAID SUBMISSION OF THE ASSESSEE, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE A.G. I N CONSIDERING CROSSDOMAIN SOLUTIONS P. LTD., AS A COMPARABLE TO THE ASSESSEE. AS REGARDS THE OTHER TH REE COMPARABLES CHALLENGED BY THE ASSESSEE AND THE T.P. ADJUSTMENT PROPOSED BY THE TPO, THE BRIEF FACTS ARE AS UNDER : 9.1. THE ASSESSEE M/S. HYUNDAI MOTOR INDIA ENGINEERING P. LTD., IS ENGAGED IN PROVIDING/RENDER ING R & D SUPPORT SERVICE IN RESPECT OF CAD AND CAE, IN DESIGNING AUTOMOBILE PARTS AND IN MODELING AND ITERATIVE SIMULATION. IT RECEIVES THE BASIC DESIGN FROM ITS GROUP COMPANY. IT ENTERED THE FOLLOWING INTERNATION AL TRANSACTIONS WITH ITS AES. AE NATURE OF TRANSACTION AMOUNT (IN RS.) HYUNDAI AUTOEVER CORPORATION PURCHASE OF COMPUTERS 2,02,32,916 HYUNDAI AUTOEVER CORPORATION PURCHASE OF COMPUTER SOFTWARE 32,78,246 HYUNDAI MOTOR COMPANY PROVISION OF ITES 29,70,07,50 3 KIA MOTOR CORPORATION PROVISION OF ITES 16,13,19,52 3 HYUNDAI AUTOEVER CORPORATION REIMBURSEMENT OF EXPENSES PAID 7,72,927 ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 21 OF 31 48,25,10,845 AS PER THE AUDITED STATEMENT OF ACCOUNTS, THE FINANCIA LS OF THE TAX-PAYER/ASSESSEE ARE AS UNDER: NATURE OF TRANSACTION NATURE OF INTERNATIONAL TRANSACTION MAM PLI MARGIN OF TAX PAYER MARGIN OF COMPARABLES PROVISION OF ITES 458,326,756 TNMM OP/OC 11.47 9.97 PURCHASE OF COMPUTERS 20,232,916 TNMM OP/OC 11.47 9.97 PURCHASE OF COMPUTER SOFTWARE 3,178,246 TNMM OP/OC 11.47 9.97 REIMBURSEMENT OF EXPENSES PAID 772,927 NA NA NA NA 9.2. ON GOING THROUGH THE T.P. DOCUMENT OF THE ASSE SSEE, THE TPO WAS OF THE OPINION THAT THE SEARCH PROCESS OF THE ASSESSEE SUFFERS FROM DEFECTS WHICH HAS RESULTED IN SELECTION OF INAPPROPRIATE COMPARABLES AND REJECTIO N OF COMPARABLES THAT ARE APPROPRIATE COM PARABLES. HE, THEREFORE, REJECTED THE T.P. DOCUMENT OF THE ASSESS EE AND PROCEEDED TO MAKE INDEPENDENT ANALYSIS BY AGGREGATI NG ALL THE TRANSACTIONS UNDER TNMM. 9.3. THE TPO CONDUCTED THE FAR ANALYSIS AND AS REGARDS THE ITES SERVICES CARRIED OUT BY THE ASSESS EE, HE ADOPTED THE TNMM AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ARMS LENGTH PRICE. THEREAFTER, HE CONDUCTED FRESH SEARCH ON THE DATABASES 'PROWESS' A ND 'CAPITALINE' AND SELECTED THE FOLLOWING 11 COMPANIE S AS FINAL COMPARABLES AND ARRIVED AT THE AVERAGE MARGIN OF THE COMPARABLES AT 28.39%. S.NO NATURE OF THE COMPANY OR OP/OC ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 22 OF 31 1 ACCENTIA TECHNOLOGIES LTD 93,12,44,808 49.02 2 ACROPETAL TECHNOLOGIES LTD (SEG.) 46,39,36,810 10.12 3 AXIS-I.T. & T LTD 20,29,67,892 11.89 4 COSMIC GLKOBAL LTD 5,86,37,419 16.59 5 ECLERX SERVICES LTD 2,57,02,10,000 42.17 6 INFOSYS BPO LTD 11,30,05,01,306 31.63 7 TCS E-SERVE INTERNATIONAL LTD 1,49,29,56,000 51.51 8 TCS E-SERVE LTD 14,05,10,05,000 67.58 9 JEEVAN SOFTECH LTD (SEG.) 1,74,43,000 8.04 10 MICROGENETICS SYSTEMS LTD 2,40,42,539 6.60 11 CROSSDOMAIN SOLUTIONS PVT LTD 37,69,57,428 17.13 TOTAL 312.28 AVERAGE 28.39 9.4. THE ASSESSEE RAISED ITS OBJECTIONS TO THE ADOP TION OF THE ABOVE COMPARABLES. HOWEVER, TPO DID-NOT ACCEPT THE ASSESSEE'S CONTENTIONS AND AFTER GIVING THE RISK AN D WORKING CAPITAL ADJUSTMENT, HE ADJUSTED THE ARMS LE NGTH PRICE AT 26.81 % AND SHORT FALL OF RS.10,38,23,246 IS TREATED AS ADJUSTMENT UNDER SECTION 92CA OF THE LT. ACT, 19 61. ON THE BASIS OF THE T.P. ORDER, THE A.O. PROPOSED THE DRAFT ASSESSMENT ORDER. AGGRIEVED BY THE SAME, ASSESSEE R AISED ITS OBJECTIONS BEFORE THE DRP WHICH WAS PARTLY ALLO WED. IN CONSONANCE WITH THE DIRECTIONS OF THE DRP, THE FINA L ASSESSMENT ORDER DATED 17.10.2014 WAS PASSED AGAINS T WHICH, BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. LET US NOW DEAL WITH THE OBJECTIO NS OF THE ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 23 OF 31 ASSESSEE ON EACH OF THE THREE COMPANIES CHALLENGED BY THE ASSESSEE AS NOT COMPARABLE BEFORE US. 13. SINCE THE ASSESSEE IS NOT AGITATING THE COMPA RABILITY OF THIS COMPANY BEFORE US, WE REJECT THE ASSESSEES GROUND OF APPEAL AGAINST THIS COMPANY. IN THE RESULT, ASSESSEES GRO UND OF APPEAL NO.6, 6.1 AND 6.2 ARE TREATED AS PARTLY ALLOWED. 14. AS REGARDS GROUND NO.8, ASSESSEE IS SEEKING IN CLUSION OF 11 COMPANIES IN ITS GROUND OF APPEAL, BUT AT THE TI ME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS SERIOUS ABOUT INCLUSION OF ITEM (1) AND (2) I.E. ACE BPO SERVICES LTD AND R SYSTEMS INTERNATIONAL LTD. FURTH ER, HE HAS ALSO SUBMITTED THAT IF GROUND NO.6 IS ALLOWED, THEN THE GROUND BECOME ACADEMIC AS HELD BY THE TRIBUNAL IN THE CASE OF HYUNDAI MOTOR INDIA ENGINEERING. 15. HAVING REGARD TO THE RIVAL CONTENT IONS AND THE DECISION OF THE COORDINATE BENCH IN THE CASE OF HYUNDAI MOTOR I NDIA ENGG. THERE IS NO REASON TO ADJUDICATE THE GROUND AT THIS STAGE. ACCORDINGLY GROUND 89(I) AND 8(II) ARE REJECTED. 16. AS REGARDS GROUND NO.11, THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE NEGATIVE WORKING CAPITA L ADJUSTMENT SHOULD NOT BE MADE AS THE ASSESSEE IS FULLY FUNDED BY THE AE ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 24 OF 31 AND DOES NOT BEAR ANY WORKING CAPITAL, MORE PARTICU LARLY AS IT IS BEING COMPENSATED WITH A COST + BASIS. THE LEARN ED COUNSEL PLACED RELIANCE UPON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ADAPTEC INDIA P LTD IN ITA NO.206/HYD/2014 WHEREIN IT WAS HELD THAT THE NEGATI VE WORKING CAPITAL SHOULD NOT BE MADE IN THE CASE OF CAPITAL S ERVICES PROVIDED. WITHOUT PREJUDICE TO THE ABOVE, IT IS FUR THER SUBMITTED THAT THE TPO HAD TAKEN INCORRECT AMOUNT AS ITS ACCO UNT RECEIVABLE/PAYABLE AND ARRIVE AT NEGATIVE CAPITAL W ORKING OF MINUS(2) WHEREAS CORRECT WORKING CAPITAL WORKING IS 0.12% ONLY. 17. GROUND NO.12 IS DISMISSED AS INFRUCTUOUS. 18. AS REGARDS GROUND NOS. 14 TO 17, WE FIND THAT T HE ASSESSEE HAS NOT CHARGED INTEREST ON OUTSTANDING RECEIVABLES FROM ITS AES AS WELL AS NON AES. THE TPO CONSIDERED THE RECEIVAB LES AS WELL AS INTERNATIONAL TRANSACTIONS AND MADE AN ADJUSTMEN T OF RS.24,54,328 ON ACCOUNT OF AMOUNT REALIZED WITH DEL AY DURING THE YEAR AND ON ACCOUNT OF OUTSTANDING AS ON 31.03. 2010. IT IS THE CASE OF THE ASSESSEE THAT THE RECEIVABLES HAVE BECOME INTERNATIONAL TRANSACTIONS ONLY BY VIRTUE OF THE AM ENDMENT MADE VIDE FINANCE ACT 2012 AND HENCE MAKING AN ADJUSTMEN T FOR THE YEAR 2010-11 IS NOT WARRANTED. FURTHER HE ALSO STAT ED THAT THE ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 25 OF 31 AVERAGE DATABASE AND THE COST OF THE COMPARABLE COM PANIES IS 94 AS AGAINST THE 83 DAYS IN THE CASE OF THE ASSESS EE. THEREFORE, THIS ADJUSTMENT IS NOT WARRANTED IN THE CASE OF THE ASSESSEE. WITHOUT PREJUDICE TO THE ABOVE ARGUMENTS, THE LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO HAS CHARGED INTEREST FOR THE PERIOD BEYOND 31.03.2010 AND FURTHER THAT THE L ITIGATION OF INTEREST HAS BEEN CHARGED ON THE ENTIRE OUTSTANDING RECEIVABLES AS ON 31.03.2010 WITHOUT CONSIDERING THE ACTUAL DEL AY. IN SUPPORT OF HIS CONTENTION THAT THE RECEIVABLE CANNO T BE EQUATED WITH CAPITAL FUNDS AS PROVIDED FOR IN THE EXPLANATI ON BY THE AMENDMENT BY THE FINANCE ACT OF 2012, HE PLACED REL IANCE UPON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUN AL IN THE CASE OF PEGASYSTEMS WORLDWIDE INDIA PRIVATE LIMITED IN I TA NOS.1758 AND 1936/HYD/2014. AS REGARDS THECONTENTION THAT IN TERESTS CAN BE CHARGED ONLY BY THE YEAR END I.E. 31.3.2010, HE PLACED RELIANCE UPON THE DECISION OF THE TRIBUNAL AT MUMBA I IN THE CASE OF TECNIMONT ICB PRIVATE LTD IN ITA NO.487/MUM/2014 . THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE AUT HORITIES BELOW AND RELIED UPON THE ORDER OF THE DRP, IT HELD THAT THE TPO IS GIVEN VALID REASONS TO COUNTER THE OBJECTIONS OF THE ASSESSEE. ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 26 OF 31 19. HAVING REGARD TO THE RIVAL CONTENTIONS, WE FIND THAT IN THE CASE OF PEGASYSTEMS WORLDWIDE (SUPRA) WHEREIN THE T RIBUNAL AT PARA 17 HELD AS UNDER: 17. GROUND NO. 7 PERTAINS TO INTEREST ON OUTSTANDIN G RECEIVABLES AND 8 ON INCORRECT COMPUTATION OF INTEREST. ASSESSEE RA ISED THE ISSUE ON SEPARATE ADJUSTMENT MADE FOR RECEIVABLES. TPO NOTIC ED THAT ASSESSEE HAS RECEIVABLES OF RS. 21,07,53,864/- AT THE END OF THE YEAR. ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF RAISING THE INVO ICE AND SUBSEQUENT RECEIPTS. TPO PROPOSED TO CHARGE INTEREST AT 12% ON THE OUTSTANDING RECEIVABLES. WHILE REPLYING THAT ASSESSEE IS A FULL Y FUNDED ENTITY OF THE AE AND THE AMOUNTS OUTSTANDING ARE ON SERVICES BUT NOT LOAN OR ADVANCES GIVEN. IT ALSO DOES NOT HAVE ANY WORKING C APITAL RISK AND THERE IS NO INTEREST PAYMENT ALSO. IT RELIED ON THE ORDER OF THE ITAT IN THE CASE M/S. EVONIK DEGUSSA INDIA PRIVATE LIMITED IN ITA NO. 7653/MUM/2011, WHEREIN IT WAS HELD THAT TP ADJUSTME NT CANNOT BE DONE ON HYPOTHETICAL ISSUES. ASSESSEE ALSO FURTHER RELIED ON THE DECISION OF LOGIX MICRO SYSTEMS LTD V. ACIT [42 SOT 525] (BANG) WHEREIN ITAT HELD THAT A REASONABLE PERIOD SHOULD B E PROVIDED AS INTEREST FREE PERIOD AND NO INTEREST SHOULD BE CALC ULATED FOR SUCH PERIOD. HOWEVER, WHILE CALCULATING THE INTEREST OF 12%, TPO NEITHER CONSIDERED THE ABOVE DECISIONS NOR GAVE ANY INTERES T FREE PERIOD. NOT ONLY THAT EVEN THOUGH ASSESSEE REALIZED THE AMOUNTS IN LATER YEAR, I.E., AFTER 31-03-2010, INTEREST WAS CHARGED FOR WH OLE OF THE PERIOD. AS CAN BE SEEN FROM THE TABLE IN PAGE 45 OF THE TP ORDER, TPO CHARGED INTEREST FOR THE SUPPOSED DELAY NOT ONLY DU RING THE YEAR BUT ALSO FOR THE PERIOD BEYOND THE ASSESSMENT YEAR CONC ERNED. THUS, HE MADE A PROPOSAL TO MAKE ADJUSTMENT OF RS. 1,26,40,5 92/- AS AN ADJUSTMENT U/S. 92CA AND TOTAL INCOME WAS ENHANCED ACCORDINGLY. BEFORE THE DRP, ASSESSEE OBJECTED TO THE SAME AND S UBMITTED THAT: THE OUTSTANDING RECEIVABLES RELATE TO THE PROVISI ON OF SERVICES AND NOT IN THE NATURE OF ANY ADVANCE/LOANS. THESE ARE C LOSELY LINKED TO THE PROVISION OF SERVICES AND HENCE HAVE TO BE AGGREGAT ED FOR THE PURPOSE OF ECONOMIC ANALYSIS. THE COMPANY HAS BEEN FULLY FUNDED BY ITS AE SINCE ITS INCEPTION FOR ALL ITS WORKING CAPITAL REQUIREMENTS AND RECEIVABLE S ARE RUNNING ACCOUNTS. ANY FUND REQUIREMENT BEING MADE GOOD BY T HE AES. 17.1. IT IS ALSO SUBMITTED THAT COMPANY DOES NOT BE AR WORKING CAPITAL RISK. IT RELIED ON THE SAME OBJECTIONS AS RELIED BE FORE TPO. DRP HOWEVER, VIDE ITS PARA 17, REJECTED ASSESSEES CONT ENTIONS BUT ACCEPTED ALTERNATE PLEA OF CHARGING INTEREST AT LIB OR PLUS 2 POINTS ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 27 OF 31 ON THE INTER-COMPANY RECEIVABLES FROM THE OVERSEAS AE. ASSESSEE IS AGGRIEVED. 17.2. LD. COUNSEL SUBMITTED THAT THE ISSUE OF CHARG ING OF INTEREST BEYOND THE PERIOD WAS NOT ADJUDICATED AND DRP REDUC ED THE RATE OF INTEREST FROM 12% LIBOR PLUS 2.5 POINTS. IT WAS SUB MITTED THAT ASSESSEE WAS A DEBT FREE COMPANY, AE TAKES CARE OF FUNDING, NO INTEREST WAS CHARGED AND THERE IS NO LIABILITY OF I NTEREST AND THEREFORE, NOTIONAL INTEREST INCOME CANNOT BE BROUGHT TO TAX. ASSESSEE RELIED ON THE PRINCIPLES LAID DOWN BY CO-ORDINATE BENCH AT MU MBAI IN THE CASE OF LINTAS INDIA PVT. LTD., IN ITA NO. 2024/MUM/2007 DT. 09-11-2012 AND ALSO MASTEK LTD., VS. ACIT IN ITA NO. 3120/AHD/ 2010 THEN REFERRING TO THE PROVISIONS OF THE ACT THE EXPLANAT ION BROUGHT BY AMENDMENT IN 2012 FINANCE ACT. IT WAS SUBMITTED THA T EVEN THOUGH RETROSPECTIVE, IT DOES NOT COVER ASSESSEES TRANSAC TION AS THE WORD CAPITAL FINANCING USED THERE PARTICULARLY REFERS TO LOANS OR ADVANCES GIVEN FOR CAPITAL FINANCING, WHEREAS IN ASSESSEES CASE, THESE ARE OUTSTANDING SERVICES RENDERED BUT NOT CAPITAL FINAN CING. THE WORDS ARE TO BE INTERPRETED INVOKING THE PRINCIPLES EJUSD EM GENERIS AND SO THE OUTSTANDING RECEIVABLES CANNOT BE EQUATED TO CA PITAL FINANCING AS AMENDED BY THE PROVISIONS OF THE ACT. IT WAS FURTHE R SUBMITTED THAT WORKING CAPITAL ADJUSTMENTS ARE BEING MADE WHILE AN ALYZING THE OPERATIONAL PERFORMANCE OF THE COMPANIES, THEREFORE , OUTSTANDING AMOUNT GETS ADJUSTED IN WORKING CAPITAL ADJUSTMENTS AND ANOTHER SEPARATE ADDITION IS NOT REQUIRED UNDER THE TP PROV ISIONS. THUS, IT WAS CONTENDED THAT THE OUTSTANDING AMOUNTS ARE NOT TO BE CONSIDERED FOR ADJUSTMENT. 17.3. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RIVAL CONTENTIONS. IN THE CASE OF EVONIK DEGUSSA INDIA P. LTD., IN ITA NO. 7653/MUM/2011, IT WAS ALREADY HELD THE TP ADJUSTMEN T CANNOT BE MADE ON HYPOTHETICAL AND NOTIONAL BASIS, UNTIL AND UNLESS THERE IS SOME MATERIAL ON RECORD THAT THERE HAS BEEN UNDER C HARGING OF REAL INCOME. THUS ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT ADDITION ON ACCOUNT OF NOTIONAL IN TEREST RELATING TO ALLEGED DELAYED PAYMENT IN COLLECTION OF RECEIVABLE S FROM THE AES IS UNCALLED FOR ON THE FACTS OF THE PRESENT CASE. EVEN THOUGH DRP TRIED TO DISTINGUISH THE ABOVE DECISION ON FACTS, AS SEEN FROM THE FACTS IN BOTH THE CASES, WE ARE OF THE OPINION THAT THE ABOV E DECISION WILL EQUALLY APPLY TO ASSESSEES CASE. ASSESSEE HAS OUTS TANDING SERVICE CHARGES RECEIVABLES AND AS SEEN FROM THE ORDER OF T PO, THE OUTSTANDING IS ONLY FROM 31-07-2009. THERE SEEMS TO BE NO SUCH DELAY IN EARLIER MONTHS. ASSESSEE HAS NO INTEREST LIABILI TY AT ALL SO NOTIONAL INTEREST CANNOT BE BROUGHT TO TAX UNDER THE PROVISI ONS OF TP. AS RIGHTLY POINTED OUT BY THE LD. COUNSEL, THE OUTSTAN DING RECEIVABLES ON ACCOUNT OF SERVICES CANNOT BE EQUATED WITH CAPITAL FINANCING AS PROVIDED FOR IN THE EXPLANATION BY THE AMENDMENT BY FINANCE ACT, 2012 RETROSPECTIVELY. EVEN OTHERWISE, AS RIGHTLY HE LD BY THE LOGIX ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 28 OF 31 MICRO SYSTEMS LTD V. ACIT [42 SOT 525] (SUPRA), TPO SHOULD HAVE ALLOWED SOME INTEREST FREE PERIOD FOR RECEIVING THE OUTSTANDING SERVICE CHARGES. WHILE ACKNOWLEDGING THE ORDER OF T HE ITAT, TPO DID NOT EVEN BOTHER TO EXCLUDE THE REASONABLE PERIOD AN D LEVIED INTEREST NOT ONLY FROM THE DATE OF INVOICE TO THE DATE OF RE ALIZATION DURING THE YEAR BUT ALSO FOR THE PERIOD BEYOND 31-03-2010 IN L ATER YEAR. WE WERE INFORMED THAT NO SUCH ADDITION WAS MADE IN THE LATER YEAR ON ASSESSEES RECEIVABLES. WE ARE OF THE OPINION THAT BOTH ON THE FACTS OF THE CASE AND PRINCIPLES OF LAW, THERE IS NO NEED FO R BRINGING TO TAX THE NOTIONAL INTEREST ON THE OUTSTANDING RECEIVABLES. A CCORDINGLY, WE ALLOW THE GROUNDS 7 & 8 OF ASSESSEE AND DIRECT AO/T PO TO DELETE THE SAID ADDITION MADE. SINCE IN THE CASE BEFORE US, THE FACTS AND CIRCUMST ANCES ARE SIMILAR AND MORE PARTICULARLY THE TPO HAS NOT TAKEN INTO CONSIDERATION THAT THE FACT THAT THE ASSESSEE HAS A LSO NOT CHARGED THE INTEREST NOT RECEIVABLE FROM THE NON AE , WE COMPLY THE ASSESSEES PLEA ON THIS GROUND. ACCORDINGLY GRO UND NO. 14 TO 17 ARE ALLOWED. 20. AS REGARDS GROUND NO.8, WE DIRECT THE AO/TPO TO REWORK THE PROFIT MARGIN OF THE ASSESSEE IN ACCORDANCE WIT H THE PROVISO TO SECTION 92C AND THIS GROUND IS ACCORDINGLY TREAT ED AS ALLOWED FOR STATISTICAL PURPOSES. 21. GROUND NO.19 BEING THE COMPUTATION OF INTERESTS , WE DIRECT THE AO/TPO TO GIVE CONSEQUENTIAL RELIEF TO THE ASSE SSEE, IF ANY. 22. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 29 OF 31 ITA NO292/HYD/2015 (REVENUES APPEAL) 23. AS REGARDS REVENUES APPEAL, THE REVENUE IS AGGRIEVED BY THE DIRECTIONS OF THE DRP TO DELETE M/S. E-CLERK SE RVICES LTD FROM THE FINAL LIST OF COMPARABLES AND ALSO IN DIRE CTING THE AO TO REDUCE THE TELECOMMUNICATION CHARGES AND OTHER EXPE NDITURE, BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE T OTAL TURNOVER FOR COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. AS REGARDS THE EXCLUSION OF M/S. E-CLERX SERVICES LTD, WE FIND THA T THE DRP HAS FOLLOWED ITAT ORDER WHEREIN IT WAS HELD THAT THE SA ID COMPANY HAS BEEN REGARDED AS KPO AND NOT COMPARABLES TO THE ITES. THE LEARNED DR RELIED UPON THE ORDER OF THE TPO, WHILE THE LEARNED COUNSEL SUBMITTED THAT M/S. E-CLERX SERVICES LTD IS FUNCTIONALLY SIMILAR WITH THE ASSESSEE AND NO SEGMENTAL INFORMAT ION IS AVAILABLE. IT IS SUBMITTED THAT E-CLERX IS AN INDIA PROCESS OUTSOURCES COMPANY ENGAGED IN PROVIDING DATA ANALYT ICAL AND DATA MANAGEMENT AND PROCESS IMPROVEMENT SOLUTION, W HEREIN IT WOULD COLLATE RAW DATA AND ANALYZE SUCH DATA WITH T HE PURPOSE OF DRAWING CONCLUSION ABOUT THAT INFORMATION. HE SU BMITTED THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF GL OBAL (P) LTD HAS HELD THAT THE BUSINESS ACTIVITIES AND FUNCTIONS PERFORMED BY THE E-CLERX FOR THE FINANCIAL YEAR 2007-08 ARE NOT COMPARABLE TO LOW END SERVICE PROVIDERS. ACCORDING TO HIM THE BUS INESS ACTIVITY ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 30 OF 31 AND FUNCTIONS PERFORMED, E-CLERX HAS BROADLY NOT TO OK FOR THE FINANCIAL YEAR 2009 AND THEREFORE, FOR THE RELEVANT A.Y ALSO THE SAID COMPANY CANNOT BE COMPARABLE ENTITY. HE HAS AL SO SUBMITTED THAT THERE HAS BEEN EXTRA ORDINARY EVENT DURING THE FINANCIAL YEAR 2009-10 OF ABNORMAL GROWTH AS ADMITT ED BY E- CLERX, ITS IN THE ANNUAL REPORT ON ACCOUNT OF VARIO US FACTORS. THUS, ACCORDING TO HIM, THE SAID COMPANY HAS BEEN R IGHTLY DIRECTED TO BE EXCLUDED BY THE DRP. 24. HAVING REGARD TO THE RIVAL CONTENTIONS AND TH E MATERIAL ON RECORD, WE FIND THAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10, IT HAS BEEN HELD NOT COMPA RABLE TO THE ASSESSEE ON ACTIVITIES AND THERE IS NO CHANGE I N THE ACTIVITIES OF E-CLERX FOR THE RELEVANT A.Y FOR THE VERY SAME R EASON WE UPHOLD THE FINDING OF THE DRP TO EXCLUDE THIS COMPA NY FROM THE LIST OF COMPARABLES. 25. AS REGARDS GROUND NOS. 2 & 3, WE FIND THAT THE ALTERNATE CONTENTION OF THE ASSESSEE THAT THE TELECOMMUNICATI ON CHARGES AND OTHER EXPENDITURE SHOULD BE EXCLUDED FROM THE E XPORT TURNOVER AS WELL AS TOTAL TURNOVER IS CONCERNED, WE FIND THAT THE ORDER OF THE DRP IS IN ACCORDANCE WITH THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF TATA EL XIS AND ITA 310 OF 2015 EXCELLENCE DATA RESEARCH PVT LTD HY DERABAD PAGE 31 OF 31 RESPECTFULLY FOLLOWING THE SAME, WE SEE NO REASON T O INTERFERE WITH THE ORDER OF THE DRP. 26. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 27. TO SUM UP, ASSESSEES APPEAL IS TREATED AS PAR TLY ALLOWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER, 2016. S D/ S D/ - (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 12 TH SEPTEMBER, 2016. VNODAN/SPS COPY TO: 1. M/S.EXCELLENCE DATA RESEARCH (P) LTD. THE V PARK, PLOT NO.17, VEGA BLOCK, 8 TH FLOOR, SOFTWARE UNITS LAYOUT, MADHAPUR, HYDERABAD 500081 2. ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE 17(1) 6 TH FLOOR, ROOM NO.622, IT TOWERS, B BLOCK, AC GUARDS, HYDERAB AD 500004 3. DRP, HYDERABAD 4. DCIT (T.P)-II HYDERABAD 500004 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER