M/s Future First Info. Servicees Pvt. Ltd, Gurgaon V. DCIT, New Delhi

ITA 3328/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6684 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 06-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBHAKANT SAHU SR DRS
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts
• Section: 271(1)(c); 92C; 234B; 143(1); 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1: NEW DELHI BEFORE, SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI O.P.KANT, ACCOUNTANT MEMBER ITA NO.3328/DEL/2016 (ASSESSMENT YEAR-2010-11) M/S FUTURES FIRST INFO SERVICES PRIVATE LIMITED, 303, MANSAROVAR BUILDING, 90 NEHRU PLACE, NEW DELHI-110019 PAN AAACF 8545J VS. DY. CIT, CIRCLE- 11(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY SH. PRASHANT MEHAR CHANDANI, ADV., S/SH. KAMAL SAWHNEY, ADV. MS. PRITI GUPTA, CA MR. SHUBHAM SINGH, CA MR. DIVYANSH SINGH ADV. RESPONDENT BY MS. MAIMUN ALAM, & SH. SUBHAKANT SAHU, SR. DRS ORDER PER SUDHANSHU SRIVASTAVA, JM: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST OR DER DATED 28.01.2019 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-44, NEW DELHI {CIT(A)} FOR ASSESSMENT YEAR 2010-11. 2 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE I.E., FUTURE FIRST INFO SERVICES LTD. IS A SUBSIDIARY OF GHF HOLDING LTD. MAURITIUS. IT PROVIDES IT ENABLED SERVICES (ITES) T O ITS ASSOCIATED ENTERPRISES (AES) THROUGH THE USE OF IT INFRASTRU CTURE WHICH INCLUDES USE OF ONLINE SOFTWARE, LIVE INFORMATION SE RVICES, RESEARCH ON INTERNATIONAL DATABASE SUCH AS BLOOMBERG AND REU TERS AND HIGH SPEED INTERNET NETWORKS TO PERFORM ITS FUNCTIONS. T HE RETURN OF INCOME WAS FILED DECLARING A TOTAL INCOME OF RS.16,6 2,49,964/-. THE SAME WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) AND SUBSEQUENTLY, TH E CASE WAS SELECTED FOR SCRUTINY. 2.1 THE INTERNATIONAL TRANSACTION(S) UNDER TAKEN B Y THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS FOR THE PROVISION OF SUPPORT SERVICES AS PER THE FOLLOWING CHART: SR. NO. NAME OF ADDRESS OF THE ASSOCIATED ENTERPRISE WITH WHOM THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO DESCRIPTION OF SERVICES PROVIDED TO THE ASSOCIATED ENTERPRISES AMOUNT RECEIVED/RECEIVABLE FOR THE SERVICES PROVIDED METHOD USED FOR DETERMINING THE ARMS LENGTH [SEE SECTION 92C (1)] AS PER BOOKS OF ACCOUNT AS COMPUTED BY THE ASSESSEE HAVING REGARD TO THE ARMSS LENGTH PRICE (RS.) (RS.) CLAUSE 10(A) CLAUSE 10(B) CLAUSE 10(C) CLAUSE 10(D) 3 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT 1 LINUS SERVICES LIMITED 1 ST FLOOR, HSBC CENTRE, 18 CYBERCITY, EBENE, MAURITIUS PROVISION OF IT ENABLED SERVICES 512,185,530 512,185,530 TRANSACTIONAL NET MARGIN METHOD (REFER TO NOTE AND A BELOW) 2 INDUS DERIVATIVES LIMITED 1 ST FLOOR, HSBC CENTRE, 18 CYBERCITY, EBENE, MAURITIUS PROVISION OF IT ENABLED SERVICES 420,444,257 420,444,257 TOTAL 932,629,787 932,629,787 2.2 SINCE, THE ASSESSEE HAD ENTERED INTO INTERNATI ONAL TRANSACTIONS DURING THE ASSESSMENT YEAR UNDER CONSI DERATION, A REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) U/S 92CA(3 ) OF THE ACT. THE FUNCTIONAL PROFILE OF THE ASSESSEE WAS ACCEPTED BY THE TPO AS IS APPARENT FROM HIS OBSERVATION, ..THE MAIN INTERNATIONAL TRANSACTION OF THE ASSESSEE IS THE PROVISION OF IT ENABLED SERV ICES WHICH WERE IN THE NATURE OF ECONOMIC AND FINANCIAL RESEARCH, SOFT WARE SUPPORT AND TRANSACTIONS SUPPORT FUNCTIONS TO ASSIST AES TO PER FORM ITS CORE ACTIVITIES OF TRADING IN DERIVATIVES. THE TRANSFER PRICING REPORT (TP REPORT) HAS DESCRIBED THE FUNCTIONS OF THE ASSESS EE AND ITS AE AND FUNCTIONS OF THE ASSESSEE AS SUBMITTED IN THE TP RE PORT ARE FOUND TO BE IN ORDER. 4 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT 2.3 THE TPO PROPOSED AN ADJUSTMENT OF RS.5,70,19,1 66/- BEING UPWARD ADJUSTMENT TO THE ALP OF THE INTERNATIO NAL TRANSACTION. THUS, THE TPO DETERMINED THE ALP AT RS.98,96,48,933/- AS AGAINST RS.93,26,29,767/- AS D ETERMINED BY THE ASSESSEE. THE ASSESSEE HAD ADOPTED TNMM AS THE MOST APPROPRIATE METHOD. THE ASSESSEE HAD TAKEN A SET OF 9 COMPANIES WITH AN AVERAGE MARGIN OF 15.17% AND HAD USED MULTIP LE YEAR DATA. THE ASSESSEES OWN MARGIN WAS WORKED AT 18.96% AND, T HEREFORE, IT WAS THE ASSESSEES CONTENTION THAT ITS INTERNATIONAL TRANSACTIONS WERE AT ARMS LENGTH. THE ASSESSEES PROFIT LEVEL IN DICATOR (PLI) WAS RE-CASTED BY THE TPO BY TAKING OUT NON-OPERATIONAL ITEMS AND THE SAME WAS RECOMPUTED AT 20.02% BY THE TPO AFTER CALL ING FOR ASSESSEES OBJECTIONS AND CONSIDERING THE SAME, THE TPO FINALLY SELECTED FOUR COMPARABLES I.E., (I) COSMIC GLOBAL L TD. (II) E4E HEALTHCARE BUSINESS SERVICES PVT. LTD. (III) ICRA T ECHNO ANALYTICS LTD. (SEGMENT) AND (IV) INFOSYS BOP LTD., AND COMPU TED THEIR MEAN MARGIN AT 27.35% AND, ACCORDINGLY, PROPOSED THE UPW ARD ADJUSTMENT OF RS.5,70,19,166/- WITH RESPECT TO THE I NTERNATIONAL 5 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT TRANSACTIONS. SUBSEQUENTLY, THE FINAL ASSESSMENT OR DER WAS PASSED BY MAKING THE AFORESAID ADJUSTMENT AND THE ASSESSME NT WAS COMPLETED AT RS.22,32,69,130/-. 2.4 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. FIR ST APPELLATE AUTHORITY, CHALLENGING THE ADJUSTMENT, WHO PARTLY ALLOWED THE ASSESSEES APPEAL AND THE AVERAGE MARGIN OF THE FOUR COMPARABLES IN THE FINAL SET WAS RECOMPUTED AT 26.86 % THEREBY REDUCING THE ADJUSTMENT TO 5.32 CRORES. 2.5 NOW, THE ASSESSEE IS BEFORE THIS TRIBUNAL CHALL ENGING ORDER OF THE LD. CIT (A) BY RAISING THE FOLLOWING GR OUNDS OF APPEAL. 1. ON THE FACTS AND IN LAW, THE HON'BLE COMMISSIO NER OF INCOME TAX (APPEALS)- 44 ('LD. CIT(A)') ERRED IN PA RTIALLY CONFIRMING THE ADDITION MADE BY THE LEARNED TRANSFE R PRICING OFFICER (HEREINAFTER REFERRED TO AS 'LD. TPO) AND THE LEARNED ASSESSING OFFICER (HEREINAFTER REFERRED TO AS LD. AO) UNDER SECTION 92CA OF THE INCOME TAX ACT, 1961 (THE ACT ) 2. ON THE FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO / LD. TPO ERRED IN VIOLATING THE PROVISIONS OF RULE 10B(2) OF THE INCOME TAX RULES, 1962 (THE RULES) IN REJECTING CALIBER POIN T BUSINESS SOLUTIONS LTD. 3. ON THE FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO / LD. TPO ERRED IN VIOLATING THE PROVISIONS OF RULE 10B(2) OF THE RULES IN REJECTING DATAMATICS FINANCIAL SERVICES LTD. 6 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT 4. ON THE FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO / LD. TPO ERRED IN VIOLATING THE PROVISIONS OF RULE 10B(2) OF THE RULES IN REJECTING R SYSTEMS INTERNATIONAL LTD. 5. ON THE FACTS AND IN LAW, THE LD. CIT(A)/ LD. AO / LD. TPO ERRED IN VIOLATING THE PROVISIONS OF RULE 10B(2) OF THE RULES BY CONSIDERING INFOSYS BPO LTD. AS COMPARABLE TO THE A PPELLANT. 6. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ON FACT S AND IN LAW, THE LD. AO/ LD. TPO ERRED IN INCORRECTLY COMPU TING THE OPERATING PROFIT MARGIN OF E4E HEALTHCARE BUSINESS SERVICES PRIVATE LIMITED AS 31.03% INSTEAD OF CORRECT OPERAT ING PROFIT MARGIN OF 19.52% BY TREATING (1) PROVISION FOR BAD DEBTS AND (2) BANK CHARGES AS NON-OPERATING IN NATURE. EVEN THOUG H THE LD. CIT(A) HAS DECIDED THE ISSUE RELATING TO TREATMENT OF BANK CHARGES IN THE FAVOUR OF THE APPELLANT, LD. AO/ LD. TPO HAVE NOT CORRECTED THE SAME YET. 7. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ON FACT S AND IN LAW THE LD. CIT(A)/LD. AO/ LD. TPO ERRED IN INCORRE CTLY COMPUTING THE OPERATING PROFIT MARGIN OF ICR A TECH NO ANALYTICS LIMITED AS 28.66% INSTEAD OF CORRECT OPERATING PROF IT MARGIN OF 24.96%. 8. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ON FACT S AND IN LAW, THE LD. C1T(A)/ LD. AO/ LD. TPO ERRED IN INCOR RECTLY COMPUTING THE OPERATING PROFIT MARGIN OF COSMIC GLO BAL LIMITED AS 18.28% INSTEAD OF CORRECT OPERATING PROFIT MARGI N OF 16.59% BY TREATING BANK CHARGES AS NON-OPERATING IN NATURE . EVEN THOUGH THE LD. CIT (A) HAS DECIDED THE ISSUE RELATI NG TO TREATMENT OF BANK CHARGES IN THE FAVOUR OF THE APPE LLANT, LD. AO/LD. TPO HAVE NOT CORRECTED THE SAME YET. 9. ON FACTS AND IN LAW, THE LD. AO ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 7 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT 10. ON THE FACT AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDING U/S 271(1 )(C) OF THE ACT. 3.0 THE LD. AUTHORIZED REPRESENTATIVE (AR) SUBMITT ED THAT THE ASSESSEE WAS AGGRIEVED WITH ERRONEOUS INCLUSION/E XCLUSION OF SEVERAL COMPARABLES. IT WAS SUBMITTED THAT THE ASSE SSEE IS PRAYING FOR EXCLUSION OF INFOSYS BPO LTD. AND INCLUSION OF R-SYSTEM INTERNATIONAL LTD., CALIBER POINT BUSINESS SOLUTION S LTD. (SEGMENT). IT WAS ALSO SUBMITTED THAT THE ASSESSEE WAS ALSO CHAL LENGING THE INCORRECT COMPUTATION OF OPERATING PROFIT MARGIN OF E4E HEALTH CARE BUSINESS SERVICE PVT. LTD. AND ICRA TECHNO ANALYTIC S LTD. THE ARGUMENTS OF THE LD. AUTHORIZED REPRESENTATIVE WITH RESPECT TO THE VARIOUS COMPARABLES ARE AS UNDER: (I). INFOSYS BPO LTD. THE LD. AUTHORIZED REPRESENTATIVE FAIRLY ADMITTED THAT THIS WAS ASSESSEES COMPARABLE IN THE TRANSFER PRICING STUDY BUT THE ASSESSEE HAD THE RIGHT TO PRA Y FOR ITS EXCLUSION AS IT WAS INADVERTENTLY INCLUDED BY IT IN ITS TRANSFER PRICING STUDY. THE LD. AUTHORIZED REPRESENTATIVE SU BMITTED THAT IT WAS SETTLED LAW THAT A TAX PAYER IS ALLOWED TO REVISI T ITS POSITION TAKEN IN THE TRANSFER PRICING DOCUMENTATION IF THE SAME IS FOUND TO 8 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT BE INCORRECT. IT WAS ALSO ARGUED THAT THE PURPOSE O F INCOME TAX ASSESSMENT IS TO DETERMINE THE CORRECT INCOME OF TH E ASSESSEE AND ALTHOUGH THE REVENUE CANNOT ALLOW AN ASSESSEE TO DEP RESS ITS INCOME, IN THE SAME MANNER, IT IS NOT PERMISSIBLE F OR THE REVENUE TO TAKE ADVANTAGE OF THE MISTAKE OF THE ASSESSEE IN OFFERING MORE THAN DUE INCOME TO TAX. THE LD. AR SUBMITTED THAT I NFOSYS LTD. COULD NOT BE INCLUDED IN THE FINAL LIST OF COMPARAB LES AS IT IS A GIANT AS COMPARED TO THE ASSESSEE COMPANY AND HAVING A TURNOVER OF MORE THAN 12 TIMES THE TURN OVER THE AS SESSEE. IT WAS SUBMITTED THAT INFOSYS BPO LTD. WAS AMONG THE TOP 1 0 THIRD-PARTY BPO COMPANIES IN INDIA, WHEREAS THE ASSESSEE DID NOT STAND ANYWHERE CLOSE TO THE SIZE OF THIS COMPANY. THE ASSE SSEE ALSO POINTED OUT THAT THE ASSETS OF INFOSYS PBO LTD. WERE ALMOST 18 TIMES MORE THAN THAT OF THE ASSESSEE COMPANY AND IN ADDITION TO THIS, THE ASSESSEE COMPANY HAD LESS THAN 400 EMPLOY EES AS COMPARED TO APPROXIMATELY 17,000 PERSONS EMPLOYED B Y INFOSYS BPO LTD. THE LD. AR ALSO PLACED RELIANCE ON NUMEROU S JUDICIAL 9 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT PRECEDENTS WHEREIN INFOSYS BPO LTD WAS DIRECTED TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. (II) R-SYSTEM INTERNATIONAL LTD . WITH RESPECT TO THIS COMPARABLE, BEING GROUND NO.4 OF THE APPEAL, IT WAS SUBMITTED THAT THE ASSESSEE WAS PRAYING FOR INCLUSION OF THIS COMPARABLE AS THIS HAS BEEN EXCLUDED BY THE TPO ON THE GROUND THA T IT WAS FOLLOWING A DIFFERENT ACCOUNTING YEAR. THE LD. AUTHO RIZED REPRESENTATIVE REFERRED TO NUMEROUS CASE LAWS WHEREIN IT HAD BEEN HELD BY THE TRIBUNAL THAT R-SYSTEMS COULD NOT BE REJECTED ON THE GROUND OF A DIFFERENT FINANCIAL YEAR. THE LD. A UTHORIZED REPRESENTATIVE SUBMITTED THAT R-SYSTEM INTERNATIONA L LTD. WAS FUNCTIONALLY SIMILAR TO THE ASSESSEE COMPANY AND TH E FUNCTIONAL COMPARABILITY OF THIS COMPANY HAD NOT BEEN DISPUTED EITHER BY THE TPO OR BY THE LD. CIT (A). IT WAS SUBMITTED THAT R-S YSTEM INTERNATIONAL LTD. WAS A PROVIDER OF IT SOLUTIONS AN D BUSINESS PROCESSING OUTSOURCING SERVICES AND WAS, THUS, FUNCT IONALLY SIMILAR TO THE ASSESSEE COMPANY. 10 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT (III) CALIBER POINT BUSINESS SOLUTIONS LTD.- THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE WAS PRAYI NG FOR INCLUSION OF THIS COMPARABLE IN GROUND NO.2 OF THE APPEAL. IT WAS SUBMITTED THAT THIS COMPARABLE WAS ALSO REJECTED ON THE GROUND THAT THIS COMPANY FOLLOWED A DIFFERENT ACCOUNTING Y EAR. IT WAS SUBMITTED THAT ALTHOUGH THE LD. CIT (A) HELD THAT WH ERE IT WAS POSSIBLE TO RECAST THE FINANCIAL RESULTS OF THE, SU CH COMPARABLE MAY BE ACCEPTED BUT ALL THE SAME HELD THAT WHEREIN THE A CCOUNTING PERIODS UNDER CONSIDERATION ARE AFFECTED BY EXTRAOR DINARY EVENTS, SUCH RECASTING OF FINANCIAL WAS NOT PERMISSIBLE. IT WAS SUBMITTED THAT THE LD. CIT (A) HAD OBSERVED THAT NET MARGIN I N THIS COMPANY FOR THE YEAR ENDED 31 ST DECEMBER, 2019 WAS 21.16% WHEREAS FOR YEAR ENDED 31 ST DECEMBER, 2010 IT WAS 11.04% AND, THEREFORE, THE DECREASE IN PROFITABILITY FROM 21.16% TO 11.04% WAS A SUFFICIENT EXTRAORDINARY EVENT. THE LD. AR SUBMITTED THAT ALTH OUGH THIS COMPANY HAS BEEN EXCLUDED ON THE GROUND OF EXTRAORD INARY EVENT, NO SUCH SPECIFIC EXTRAORDINARY EVENT HAS BEEN POINT ED OUT BY THE LD. CIT (A). THE LD. AUTHORIZED REPRESENTATIVE HIGH LIGHTED THE FACT 11 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT THAT THERE WAS NO DISCLOSURE OF ANY EXTRAORDINARY/EX CEPTIONAL ITEMS REQUIRING A SEPARATE DISCLOSURE IN THE STATEMENT OF PROFIT AND LOSS OF THE SAID COMPANY. THE LD. AR ALSO ARGUED THAT THIS COMPANY WAS FUNCTIONALLY SIMILAR TO THE ASSESSEE COMPANY AND TH AT THE FUNCTIONAL SIMILARITY OF THIS COMPANY WITH THE ASSES SEE COMPANY HAD NOT BEEN DISPUTED EITHER BY THE TPO OR BY THE L D. CIT (A). (IV) THE LD. AR SUBMITTED THAT AS PER THE APPEAL M EMO, THE COMPANY DATAMATICS FINANCIAL SERVICES LTD. WAS BEIN G CHALLENGED FOR NON INCLUSION IN GROUND NO.3 BUT THE SAME WAS NO T BEEN PRESSED IN VIEW OF THE FACT THAT THE SAME HAD BECAME ACADEMIC IN NATURE. (V) THE LD. AUTHORIZED REPRESENTATIVE FURTHER ARGU ED THAT IN GROUND NO. 6, THE ASSESSEE WAS CHALLENGING THE INCOR RECT COMPUTATION OF OPERATING MARGIN OF E4E HEALTH CARE BUSINESS SERVICES PVT. LTD. AT 31.03% INSTEAD OF 19.52%. THE LD. AR SUBMITTED THAT AT THE TPO IN THE CASE OF THIS COMPA NY TREATED PROVISION FOR BAD DEBTS AS NON-OPERATING IN NATURE AND THE LD. CIT (A) HAD AFFIRMED THE ACTION OF THE TPO. IT WAS SUBM ITTED THAT THE 12 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT LOWER AUTHORITIES HAD PLACED RELIANCE ON RULE 10 TA OF SAFE HARBOR RULES, 2013 TO HOLD THAT THE PROVISION FOR ASCERTAI NED LIABILITY WAS SPECIFICALLY EXCLUDED FROM THE DEFINITION OF OPERAT ING EXPENSES UNDER THE SAID RULE. IT WAS SUBMITTED THAT SAFE HAR BOR RULES WERE NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDE RATION I.E. ASSESSMENT YEAR 2010-11 AS THEY ARE TO APPLY FROM A SSESSMENT YEAR 2013-14 ONWARDS ONLY. THE LD. AR ALSO ARGUED TH AT THE TREATMENT OF PROVISIONS OF DOUBTFUL DEBTS AS NON-OP ERATING IN NATURE WAS NOT TENABLE IN LIGHT OF GENERAL ACCEPTED ACCOUNTING PRINCIPLES. THE AUTHORIZED REPRESENTATIVE PLACED RE LIANCE ON NUMEROUS ORDERS OF THE TRIBUNAL TO BUTTRESS THAT PR OVISION FOR DOUBTFUL DEBTS IS A PART OF NORMAL OPERATING ACTIVI TIES OF BUSINESS. THE LD. AUTHORIZED REPRESENTATIVE REFERRED TO A CHA RT PLACED AT PAGE 23 OF HIS WRITTEN SUBMISSIONS AND SUBMITTED THAT IF THE PROVISION FOR BAD DEBTS AS TREATED AS OPERATING IN NATURE, TH E PROFIT MARGIN OF THIS COMPANY WOULD COME TO 19.52% ONLY. (VI) THE LD. AUTHORIZED REPRESENTATIVE FURT HER SUBMITTED THAT IN GROUND NO.7 OF THE APPEAL, THE ASSESSEE WAS CHALL ENGING THE 13 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT ERRONEOUS COMPUTATION OF THE MARGIN IN THE CASE OF ICRA TECHNO ANALYTICS LTD. IT WAS SUBMITTED THAT THE SAME HAD BE EN COMPUTED AT 28.66% INSTEAD OF 24.96% BY DEDUCTING LOSS ON AC COUNT OF FOREIGN EXCHANGE FLUCTUATION TWICE. IT WAS SUBMITTED THAT THE TPOS ACTION OF SEPARATELY REDUCING THE FOREIGN EXCHANGE LOSS FROM TOTAL EXPENSES AMOUNTED TO DOUBLE DEDUCTION THEREBY RESUL TING IN HIGHER MARGINS OF THE COMPARABLES. (VII) WITH RESPECT TO GROUND NO.8, CHALLENGING THE ERRONEOUS COMPUTATION OF MARGIN IN THE CASE OF COSMIC GLOBAL LTD., THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE SAME WA S NOT BEING PRESSED. 4.0 IN RESPONSE, THE SR. DEPARTMENTAL REPRESENTAT IVE (DR) SUBMITTED THAT INFOSYS BPO LTD. WAS ASSESSEES OWN COMPARABLE AND, THEREFORE, THE ASSESSEE SHOULD NOT BE PERMITTED TO SEEK EXCLUSION OF THESE COMPARABLES AT THIS STAGE. IT WAS SUBMITTED THAT INFOSYS BPO LTD. CANNOT BE EXCLUDED ON THE GRO UND OF HIGH TURNOVER AS APPLICATION OF TURN OVER FILTER (UPPER LIMIT) IS NOT RELEVANT IN THE SERVICE SECTOR. 14 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT (II) WITH RESPECT TO ASSESSEES ARGUMENTS ON INC LUSION OF R-SYSTEM INTERNATIONAL LTD., THE LD. SR. DR SUBM ITTED THAT ALTHOUGH COMPANIES WITH DIFFERENT ACCOUNTING YEAR CA N BE ACCEPTED, THE LD. CIT (A) HAS RAISED CONCERNS ON THE AUTHENTI CITY OF THE AUDITED FINANCIAL RESULTS OF THE COMPANY. (III) WITH RESPECT TO CALIBER POINT BUSINES S SOLUTIONS LTD., THE LD. SR. DR SUBMITTED THAT ALTHOUGH NO EXTRAORDINARY EVENT HAS BEEN SPECIFICALLY POINTED OUT, FALL IN PROFITABILIT Y FROM 21.16% TO 11.04% INDICATED A SUFFICIENT EXTRAORDINARY EVENT. (IV) WITH RESPECT TO ASSESSEES CLAIM OF INCOR RECT COMPUTATION OF MARGINS IN THE CASE OF ICRA TECHNO ANALYTICS LTD., AND E4E HEALTH CARE BUSINESS SERVICES PVT. LTD., THE SR. DR PLACED RELIANCE ON THE FINDINGS OF THE LD. CIT (A). 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO P ERUSED THE MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH T HE RELEVANT PORTIONS OF THE PAPER BOOKS FILED BY THE ASSESSEE. WE NOW TAKE UP GROUNDS ONE BY ONE FOR ADJUDICATION: 15 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT (I) GROUND NO.1 IS GENERAL IN NATURE, NOT REQUIRIN G ANY SEPARATE ADJUDICATION. (II) GROUND NO.2 CHALLENGES THE REJECTION OF THE C OMPARABLE CALIBER POINT BUSINESS SOLUTIONS LTD. IN THIS REGAR D, IT IS SEEN THAT THIS COMPARABLE, SELECTED BY THE ASSESEE COMPANY, WA S REJECTED BY THE TPO ON THE GROUND THAT THIS COMPANY FOLLOWED A D IFFERENT ACCOUNTING YEAR. THE LD. CIT (A) HAS UPHELD THE REJ ECTION BY NOTING THAT ALTHOUGH COMPANIES WITH DIFFERENT ACCOUNTING YE AR MAY BE ACCEPTED BUT A COMPARABLE CANNOT BE CONSIDERED AS A GOOD COMPARABLE IF IN THE YEAR UNDER CONSIDERATION THERE ARE EXTRAORDINARY EVENTS. THE LD. CIT (A) OBSERVED THAT THERE WAS A FALL IN THE RATE OF PROFITABILITY FROM 21.16% IN THE PRE CEDING ASSESSMENT YEAR TO 11.04% IN THE PRESENT YEAR WHICH INDICATED T HAT THERE WAS AN EXTRAORDINARY EVENT. HOWEVER, WE NOTE THAT THERE IS NO REFERENCE TO ANY EXTRAORDINARY EVENT IN THE ANNUAL REPORT OF THIS COMPANY. IT IS WELL KNOW THAT THE EXTRAORDINARY/EXCEPTIONAL ITEM S REQUIRE A SEPARATE DISCLOSURE. HOWEVER, NO SUCH DISCLOSURE IS APPARENT IN THE ANNUAL REPORT OF THE COMPANY AND, THEREFORE, WE ARE OF THE 16 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT CONSIDERED OPINION THAT THIS COMPANY CANNOT BE EXCL UDED ONLY ON AN INFERENCE THAT SOME EXTRAORDINARY EVENT MIGHT HA VE OCCURRED. WE ALSO NOTE THAT THE FUNCTIONAL COMPARABILITY OF T HIS COMPANY HAS NOT BEEN DISPUTED EITHER BY THE TPO OR BY THE LD. C IT (A). FURTHER, IT IS NOW SETTLED LAW THAT A COMPANY CANNOT BE EXCLUD ED AS A COMPARABLE SOLELY FOR THE REASON THAT ITS FINANCIAL YEAR IS DIFFERENT WITHOUT CONSIDERING WHETHER THE DATA FOR THE FINANCIA L YEAR ADOPTED BY THE ASSESSEE CAN BE COMPILED FROM THE AUDITED ST ATEMENTS OF SUCH COMPANY. THE ITAT DELHI BENCH IN THE CASE OF XCHANGING TECHNOLOGY SERVICES INDIA PVT. LTD. VS. DCIT (ITA NO.1222/DEL/2015) DIRECTED THAT THIS COMPANY BE INCLUDED AS A COMPARA BLE WHEREIN IT HAD BEEN REJECTED ONLY ON THE GROUND OF HAVING DIFF ERENT FINANCIAL YEAR ANY. ACCORDINGLY, THIS COMPANY IS DIRECTED TO BE INCLUDED IN THE FINAL SET OF COMPARABLES AFTER VERIFYING THAT T HE MARGIN CAN BE RECOMPUTED TO WORK OUT THE PROPORTIONATE WORKING MAR GINS IF THE FINANCIAL DATA ARE DULY AUDITED AND ARE AVAILABLE I N THE PUBLIC DOMAIN, OF COURSE WITH THE RIDER THAT DURING THAT PE RIOD THERE WERE 17 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT NO OTHER FACTORS AFFECTING THE OPERATING MARGIN, TH US, GROUND NO.2 STANDS ALLOWED FOR STATISTICAL PURPOSES. (III). GROUND NO.3 CHALLENGES THE REJECTION OF THE COMPARABLE DATA MATICS FINANCIAL SERVICES LTD.. IT HAS BEEN SU BMITTED BY THE LD. AUTHORIZED REPRESENTATIVE THAT THIS GROUND IS N OT BEING PRESSED IN VIEW OF IT BECOMING ACADEMIC. ACCORDINGLY, GROUND NO.3 IS DISMISSED AS NOT PRESSED. (IV). IN GROUND NO.4, THE ASSESSEE HAS CHALLENGED THE REJECTION OF THE COMPARABLE R-SYSTEM INTERNATIONAL LTD. IT IS SEEN THAT THIS COMPANY WAS ALSO REJECTED ON THE GROUND TH AT THIS COMPANY FOLLOWED A DIFFERENT ACCOUNTING YEAR. THE L D. CIT (A), HOWEVER, ACCEPTED THE ASSESSEES CONTENTION THAT CO MPANIES WITH A DIFFERENT ACCOUNTING YEAR MAY BE ACCEPTED BUT HE RA ISED CONCERNS ON THE AUTHENTICITY OF THE AUDITED FINANCIAL RESULT S OF THE COMPANY. THE LD. CIT (A), HOWEVER, HAS NOT POINTED OUT HAS T O HOW THE AUTHENTICITY OF THE FINANCIAL RESULTS OF THIS COMPA NY WAS BEING DOUBTED. THUS, THE REJECTION OF THE COMPARABLE BY T HE LD. CIT (A) IS MORE ON SOME KIND OF SUSPICION RATHER THAN BEING SU PPORTED BY ANY 18 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT COGENT DATA. AS WE HAVE ALREADY MENTIONED IN THE PR ECEDING PARAGRAPHS, A COMPARABLE CANNOT BE REJECTED MERELY BECAUSE OF A DIFFERENT FINANCIAL YEAR ENDING AND NOW THERE ARE NU MEROUS ORDERS OF THE TRIBUNAL IN THIS REGARD. WE AGAIN REFER TO O RDER OF THE ITAT DELHI BENCH IN THE CASE OF XCHANGING TECHNOLOGY SERVICES INDIA PRIVATE LIMITED VS. DCIT (ITA NO.1222/DEL/2015) WHEREIN THIS COMPANY WAS DIRECTED TO BE INCLUDED. SINCE, THE LD. CIT (A) HAS NOT INDICATED ANY BASIS FOR SUSPECTING THE RELIABILITY OF THE FINANCIAL RESULTS FOR THIS COMPANY, WE DIRECT THAT THIS COMPA NY BE INCLUDED IN THE FINAL SET OFF COMPARABLES SUBJECT TO THE VER IFICATION THAT THE RELEVANT DATA CAN BE EASILY COMPILED FROM THE AUDIT ED STATEMENTS OF THE COMPANY, OF COURSE WITH THE RIDER THAT DURING TH AT PERIOD THERE ARE NO OTHER FACTORS AFFECTING THE OPERATING MARGIN . ACCORDINGLY, GROUND NO.4 STANDS ALLOWED FOR STATISTICAL PURPOSES . (V) IN GROUND NO.5, THE ASSESEE IS PRAYING FOR EXC LUSION OF INFOSYS BPO AS A COMPARABLE. UNDISPUTEDLY, THIS COM PARABLE WAS SELECTED BY THE ASSESSEE IN ITS ORIGINAL SET OF COM PARABLES BUT NOW THE ASSESSEE IS SEEKING ITS EXCLUSION ON THE GROUND THAT THIS 19 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT COMPANY IS A GIANT AS COMPARED TO THE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) HAS ARGUED THAT TH E COMPARABLE WHICH HAS INITIALLY BEEN SELECTED BY THE ASSESEE CA NNOT BE EXCLUDED SUBSEQUENTLY BY THE ASSESSEE. HOWEVER, WE NOTE THAT THE MUMBAI BENCH OF THE ITAT IN THE CASE OF STREAM INTERNATIONAL SERVICES (P.) LTD. VS. ADIT (INTERNATIONAL TAXATION), 7(2), MUMBA I ITA NO.8997/ MUM/2010 HELD THAT THERE CAN BE NO ESCAPE FROM THE PROPOSIT ION THAT THE ASSESSEE IS ENTITLED TO ARGUE AT LEAST BEF ORE THE APPELLATE AUTHORITIES THAT A WRONG STAND TAKEN AT THE TIME OF FILING OF THE RETURN SHOULD BE ALLOWED TO BE MODIFIED. SIMILARLY, THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS (P.) LTD. [2010] 38 SOT 307 (CHD.) ALSO ALLOWED THE ASSESSEE TO CLAIM EXCLUSION OF CERTAIN COMPANIES FROM THE LIST OF COM PARABLES WHICH WERE INADVERTENTLY INCLUDED BY IT IN ITS TRANSFER PR ICING STUDY. THEREFORE, WE AGREE WITH THE CONTENTION OF THE LD. A UTHORIZED REPRESENTATIVE THAT ASSESSEE HAS A RIGHT TO ARGUE F OR THE EXCLUSION OF COMPARABLE EVEN IF ORIGINALLY IT WAS INCLUDED BY THE ASSESSEE IN THE TRANSFER PRICING STUDY. COMING TO THE ARGUMENTS FOR EXCLUSION OF 20 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT THIS COMPANY, IT IS THE ASSESSEES CONTENTION THAT THIS COMPANY IS A GIANT AS COMPARED TO THE ASSESSEE COMPANY HAVING IT S REVENUE MORE THAN 12 TIMES OF THE REVENUE OF THE ASSESSEE C OMPANY. APART FROM THIS IT HAD ALSO BEEN ARGUED THAT THIS COMPANY HAS FIXED ASSETS WHICH ARE 18 TIMES MORE THAN ASSETS OF THE AS SESSEE COMPANY. THE EMPLOYEES STRENGTH IS ALSO 44 TIMES M ORE THAN THAT OF THE ASSESSEE COMPANY. WE NOTE THAT NOW THERE ARE NUMEROUS CASE LAWS TO SUPPORT THE VIEW THAT INFOSYS BPO LTD. I S NOT TO BE TAKEN AS A COMPARABLE ON THE GROUND OF BEING A GIAN T COMPANY. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SANVIH INFO GROUP PVT. LTD. IN ITA 420/2019, FOR THE SAME ASSESSMENT YEAR AS THE CAPTIONED ASSESSMENT YEAR, UPHELD THE ORDER OF THE ITAT IN REJECTING INFOSYS BPO LTD. AS A COMPARABLE ON THE GROUND OF B EING A GIANT COMPANY. IN THIS CASE, THE TRIBUNAL, WHILE ORDERING EXCLUSION OF THIS COMPANY, HAD RELIED ON DECISION OF THE HONBLE DELH I HIGH COURT IN AGNITY INDIA TECHNOLOGIES PVT. LTD. THE HONBLE DE LHI HIGH COURT NOTED THAT INFOSYS BPO LTD. WAS A GIANT CORPORATION. SIMILAR OBSERVATIONS WERE MADE BY THE HONBLE DELHI HIGH CO URT IN THE CASE 21 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT OF AVAYA INDIA PVT. LTD. (ITA NO.532/2019 FOR ASST. YEAR 2010-11) WHEREIN M/S TCS E-SERVE LIMITED AND M/S TCS E-SERVE INTERNATIONAL LIMITED WERE HELD TO BE HAVING HIGH B RAND VALUE AND OPERATING ON A HUGE ECONOMIC UPSCALE AND WERE, THER EFORE, ABLE TO COMMAND AND GENERATE BETTER PROFITS MAKING THEM FUN CTIONALLY DISSIMILAR TO THE ASSESEE. THE HONBLE DELHI HIGH C OURT NOTED THAT INFOSYS BPO LTD. HAD BEEN EXCLUDED BY THE ITAT FOR THE VERY SAME REASON. SIMILARLY, ITAT DELHI BENCH IN THE CASE OF CENGAGE LEARING INDIA PVT. LTD. VS. DCIT (ITA NO.6484/DEL/2012) HELD THAT INFOSYS BPO LTD. HAD HUGE TURNOVERS, OWNS IPR AND BRAND VALU E ON PRODUCTS AND PROVIDES SERVICES TO VAST CLIENTELE. U NDER SUCH CIRCUMSTANCES THIS COMPANY CANNOT BE ACCEPTED TO BE A FIT COMPARABLE IN CASE OF ASSESSEE WHO IS A CAPTIVE SERV ICE PROVIDER PROVIDING SERVICES ONLY TO ITS GROUP CONCERNS. THE JUDICIAL PRECEDENTS WHERE INFOSYS BPO LTD. HAS BEEN EXCLUDED FOR THE REASON OF BEING A GIANT COMPANY, HAVING HUGE TURNOV ER, BRAND VALUE, OWNERSHIP OF IPRS ETC. CAN BE MULTIPLIED. THE REFORE, IN OVER ALL VIEW OF THE MATTER, CONSIDERING THE SIZE AND SER VICE BEING 22 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT RENDERED BY THE ASSESSEE COMPANY AS COMPARED TO INF OSYS BPO LTD., WE HOLD THAT THIS COMPANY IS NOT A GOOD COMPAR ABLE. ACCORDINGLY, WE DIRECT THE EXCLUSION OF THIS COMPAN Y FROM THE FINAL SET OF COMPARABLES. THUS GROUND NO.5 STANDS ALLOWED . (VI). IN GROUND NO.6, THE ASSESSEE IS CHALLENGING THE INCORRECT COMPUTATION OF OPERATING PROFIT MARGIN OF E4E HEALT HCARE BUSINESS SERVICES PVT. LTD. IT IS THE ASSESSEES CONTENTION THAT THE MARGINS HAVE BEEN INCORRECTLY COMPUTED AS THE PROVISION FOR DOUBTFUL DEBTS HAS BEEN TREATED AS NON-OPERATING IN NATURE BY CONS IDERING IT AS AN UNASCERTAINED LIABILITY. HOWEVER, WE NOTE THAT THE D ELHI BENCH OF THE ITAT IN THE CASE OF SONY INDIA PVT. LTD. VS. DC IT, (ITA NO.1189/DEL/2005, 815/DEL/ 2007 AND 820/DEL/2007) H AS HELD THAT PROVISION FOR DOUBTFUL DEBTS IS PART OF NORMAL OPERATING ACTIVITY OF THE BUSINESS AND, SIMILARLY, ANY WRITE BACK OF PR OVISION IS ALSO TO BE TREATED AS OPERATING IN NATURE. SIMILAR VIEWS HA VE BEEN TAKEN BY THE BENGALURE BENCH OF ITAT IN THE CASE OF OUTSOURCE PARTNERS INTERNATIONAL (P.) LTD. VS. DCIT (IT (TP) APPEAL N O.337 (BANG.) OF 2015 ) AND HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE O F SUM 23 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT TOTAL SYSTEMS INDIA PVT. LTD. (ITA NO.255/HYD/2015) . ACCORDINGLY, WE DIRECT THAT THE PROVISION FOR BAD AND DOUBTFUL DE BTS OF THIS COMPANY BE TREATED AS A PART OF THE OPERATING EXPEN SES AND THE MARGINS OF THIS COMPANY BE RECOMPUTED AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. TH US, GROUND NO.6 STANDS ALLOWED FOR STATISTICAL PURPOSES. (VII) IN GROUND NO.7, THE ASSESSEE SUBMITS THAT TH E OPERATING PROFIT MARGIN OF ICRA TECHNO ANALYTICS LIMITED HAS BEEN INCORRECTLY COMPUTED AT 28.66% INSTEAD OF THE CORRECT OPERATING PROFIT MARGIN OF 24.96%. IT IS THE ASSESSEE CONTENTION THAT THIS COMPUTATIONAL ERROR OCCURRED BECAUSE THE FOREIGN EXCHANGE FLUCTUA TION LOSS WAS DEDUCTED TWICE BY THE TPO. IN THIS REGARD A CHART HA S ALSO BEEN SUBMITTED. IN OUR CONSIDERED OPINION THIS CLAIM OF THE ASSESSEE NEEDS TO BE RE-EXAMINED BY THE TPO AFTER GIVING PRO PER OPPORTUNITY TO THE ASSESSEE. ACCORDINGLY, GROUND NO.7 IS RESTOR ED TO THE FILE OF TPO FOR VERIFICATION OF THE ASSESSEES CLAIM AND PA SS ORDER IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY TO T HE ASSESSEE. GROUND NO.7, THUS STANDS ALLOWED FOR STATISTICAL PU RPOSES. 24 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT (VIII). WITH RESPECT TO GROUND NO.8 CHALLENGING THE INCORRECT COMPUTATION OF OPERATING PROFIT MARGIN OF COSMIC GL OBAL LIMITED, SINCE IT HAS BEEN SUBMITTED BY LD. AUTHORIZED REPR ESENTATIVE THAT THIS GROUND IS NOT BEING PRESSED, THE SAME IS BEING DISMISSED AS NOT PRESSED. (IX). GROUND NO.9 CHALLENGES THE ACTION OF THE LEVYING INTEREST U/S 234B OF THE ACT. THIS GROUND IS CONSEQ UENTIAL NOT REQUIRING ANY SPECIFIC ADJUDICATION. (X) GROUND NO.10 CHALLENGES THE INITIATION OF P ENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THIS GROUND I S DISMISSED AS BEING PREMATURE AT THIS STAGE. 6.0 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSE E STANDS PARTLY ALLOWED. ORDER PRONOUNCED ON 22/06/2020 SD/- SD/- (O.P.KANT) (SUDHANSHU SRIVASTAVA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22/06/2020 PK/PS 25 ITA NO.3328/DEL/2016 M/S FUTURES FIRST INFO SERVICES PVT. LTD. VS. DY. CIT COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI