M/s Fiserv India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 333/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6134 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 20-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Question of law; Speculation loss
• Section: 133(6); 80G; 43(5); 201; 144C; 9(1); 9(1); 9(1); 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI KULDIP SINGH, JUDICIAL MEM BER ITA NO. 333/DEL/2017 [ASSESSMENT YEAR: 2012-13] M/S FISERV INDIA PVT LTD VS THE A.C.I.T REGUS ELEGANCE, LEVEL - 2 CIRCLE - 9(1) ELEGANCE JASOLA DISTT CENTRE NEW DELHI. OLD MATHURA ROAD, NEW DELHI. PAN : AACCR 0787 L [APPELLANT] [RESPONDENT] DATE OF HEARING : 22.09.2020 DATE OF PRONOUNCEMENT : 28.09.2020 ASSESSEE BY : SHRI SACHIT JOLLY. ADV REVENUE BY : SHRI SUKESH KUMAR JAIN, CIT-DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE CORRECTNESS OF THE ASSESSMENT ORDER DATED 26.12.2016 FRAMED U/S 14 3(3) R.W.S 144C OF THE [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SH ORT]. 2 2. THE GRIEVANCES OF THE ASSESSEE CAN BE SUMMARISED AS UNDER: A) TRANSFER PRICING ADDITION OF RS.20.29 CRORES IN RES PECT OF INTERNATIONAL TRANSACTION OF SOFTWARE DEVELOPMENT S ERVICES RENDERED BY THE ASSESSEE TO ITS PARENT COMPANY; B) ADDITION OF RS. 2,98,46,447/- BY TREATING FOREX LOS S AS SPECULATIVE LOSS; C) ADDITION OF RS.16,07,391/- BY DISALLOWING DEDUCTION FOR DONATION. 3. IN ADDITION TO THE ABOVE, THE ASSESSEE IS ALSO A GGRIEVED BY THE TREATMENT OF FOREX EXCHANGE GAIN AS NON-OPERATING I NCOME. 4. REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH, THE CASE RECORDS CAREFULLY PERUSED AND WITH THE ASSISTANCE O F THE LD. COUNSEL, WE HAVE CONSIDERED THE DOCUMENTARY EVIDENCES BROUGH T ON RECORD IN THE FORM OF PAPER BOOK IN LIGHT OF RULE 18(6) OF IT AT RULES AND HAVE ALSO PERUSED THE JUDICIAL DECISIONS RELIED UPON BY BOTH THE SIDES. 3 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE APPELLANT WAS INCORPORATED ON MAY 31 ST , 2002 IN INDIA AND IS A CLOSELY HELD COMPANY WITH 498,051 SHARES BEING HELD BY FISERVE WORLDWIDE SOLUTIONS INC. USA AND BALANCE 1% SHARE HELD BY ARTIUS INC. USA. THE A PPELLANT OPERATES FROM THREE SOFTWARE TECHNOLOGY PARK SCHEME UNITS LO CATED AT NOIDA, BANGALORE AND PUNE. 6. THE APPELLANT PROVIDES SOFTWARE DEVELOPMENT AND MAINTENANCE SERVICES AND ITES/BPO SERVICES TO ITS ASSOCIATED EN TERPRISES [AE]. BASED ON THE TERMS OF SERVICE AGREEMENT WITH THE AE S, THE APPELLANT IS COMPENSATED ON COST PLUS 15%. 7. THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY T HE APPELLANT ARE AS UNDER: SL. NO INTERNATIONAL TRANSACTION AMOUNT[RS] 1. PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND ITES/BPO SERVICES 3,07,63,99,034 2. REIMBURSEMENT OF EXPENSES TO AES 58,769,197 3. REIMBURSEMENT OF EXPENSES FROM AES 10,214,962 4. UNBILLED REVENUE 2,789,339 5. TRADE PAYABLES 5,848,182 4 8. FOR ITS SOFTWARE DEVELOPMENT SERVICES AND ITES/B PO SERVICES, THE APPELLANT HAS USED TNMM AS THE MOST APPROPRIATE MET HOD WITH OP/TC AS PLI. THE APPELLANT HAS ARRIVED AT A SET OF 12 CO MPANIES WITH AVERAGE MARGIN OF 14.04% USING MULTIPLE YEAR DATA AND WORKE D OUT ITS OWN MARGIN AT 14.13%. BASED ON SUCH ANALYSIS, THE APPEL LANT HAS RETURNED ITS INTERNATIONAL TRANSACTION AT ARMS LENGTH. 9. DURING THE TRANSFER PRICING ASSESSMENT PROCEEDIN GS, THE TPO NOTICED THAT THE ASSESSEE HAS CONSIDERED FOREX FLUC TUATION GAIN AS OPERATING ITEM OF INCOME, WHICH ACCORDING TO HIM, W AS NOT CORRECT AND EXCLUDING THE SAME, COMPUTATION OF MARGIN WAS RE-CO MPUTED AS UNDER: PARTICULARS SOFTWARE DEVELOPMENT OPERATING REVENUES 3,076,596,804 OPERATING COST 2,766,666,351 OPERATING PROFIT 309,930,453 OP/OC 11.20% METHOD TNMM 10. THE TPO NOTICED THAT THE ASSESSEE HAS USED THE FOLLOWING COMPANIES AS COMPARABLE COMPANIES: 5 SL. NO COMPANY NAME WEIGHTED AVERAGE OP/OC% 1 ACROPETAL TECHNOLOGIES LTD 26.19 2 R S SOFTWARE [I] LTD 14.09 3. AKSHAY SOFTWARE TECHNOLOGIES LTD - 1.25 4. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD 14.39 5. MAVERIC SYSTEMS LTD 0.40 6. SIGNTI TECHNOLOGIES LTD 8.10 7. SPRY RESOURCES LTD 26.97 8. INFORMED TECHNOLOGIES LTD 13.65 9. JINDAL INTELLICOM LTD 13.61 10. ICRA ONLINE LTD 24.01 11. CALIBER POINT BUSINESS SOLUTIONS 13.65 12. OMEGA HEALTHCARE MANAGEMENT SERVICES P LTD 14.69 MEAN 14.04% 11. THEREAFTER, THE TPO APPLIED THE FOLLOWING FILTE RS: A) USE OF CURRENT YEAR DATA; B) EXCLUDE COMPANIES HAVING DIFFERENT ACCOUNTING YEAR FROM THE FINANCIAL YEAR; C) COMPANIES WHERE THE TURNOVER IS LESS THAN RS. 1 CRO RE IS REJECTED; D) COMPANIES SELECTED HAVING RATIO OF SERVICE INCOME T O TOTAL INCOME IS AT LEAST 75%; 6 E) COMPANIES WHERE RELATED PARTY TRANSACTION EXCEEDS 2 5% SALES ARE REJECTED; F) COMPANIES THAT HAVE EMPLOYEE COST IS LESS THAN 25% OF SALES AND G) COMPANIES THAT ARE AFFECTED BY SOME PECULIAR ECONOM IC CIRCUMSTANCES ARE REJECTED. 12. BASED ON THE AFORE-MENTIONED FILTERS, THE ASSES SING OFFICER ANALYSED THE COMPARABLE COMPANIES USED BY THE APPEL LANT AS UNDER: S. NO C OMPANY NAME TPO'S OBSERVATION I. ACROPETAL TECHNOLOGIES LIMITED THIS IS AN APPROPRIATE COMPARABLE AS IT PASSES ALL THE FILTERS APPLIED BY THE TPO. IT IS BEING CONSIDERED AS COMPARABLE. II. R S SOFTWARE (INDIA) PRIVATE LIMITED THIS IS AN APPROPRIATE COMPARABLE AS IT PASSES ALL THE FILTERS APPLIED BY THE TPO. IT IS BEING CONSIDERED AS COMPARABLE. III. AKSHAY SOFTWARE TECHNOLOGIES LIMITED THIS IS AN APPROPRIATE COMPARABLE AS IT PASSES ALL THE FILTERS APPLIED BY THE TPO. IT IS BEING CONSIDERED AS COMPARABLE. 7 IV. HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED THE ANNUAL REPORT OF THE COMPANY IS AVAILABLE FOR FY 201 L- 12.LT IS SEEN THAT THE FINANCIALS ARE AVAILABLE FOR A PERIOD OF 12 MONTHS ENDING SEPTEMBER. ACCORDINGLY, THE 6 MONTHS PERIOD OF THE FY 2011-12 IS ONLY COVERED. SINCE REASONABLY ACCURATE ADJUSTMENTS CANT BE MADE FOR THE RELEVANT PERIOD, THIS COMPANY IS NOT BEING CONSIDERED AS A COMPARABLE. V. MAVERIC SYSTEMS LIMITED FOR THE UPDATED MARGIN, IT IS SUBMITTED THAT NO DETAILS ARE AVAILABLE FOR THIS ENTITY. SINCE, NO DATA IS AVAILABLE FOR THE F. Y. 2011-12, THIS IS REJECTED. VI. CIGNITI TECHNOLOGIES LIMITED THIS IS AN APPROPRIATE COMPARABLE AS IT PASSES ALL THE FILTERS APPLIED BY THE TPO. IT IS BEING CONSIDERED AS COMPARABLE. VII. SPRY RESOURCES LIMITED THIS IS AN APPROPRIATE COMPARABLE AS IT PASSES ALL THE FILTERS APPLIED BY THE TPO. IT IS BEING CONSIDERED AS COMPARABLE. VIII. INFORMED TECHNOLOGIES LIMITED THE ANNUAL REPORT OF THE COMPANY IS AVAILABLE. FROM PERUSAL OF THE SAME, IT IS SEEN THAT IT HAD EARNED NON OPERATING INCOME OF RS 14099852.IN EARLIER YEARS THERE WAS NO BIFURCATION OF EXPENSES PERTAINING TO THE INCOME AND THUS THE ENTITY WAS REJECTED. IN THIS YEAR THERE IS A CHANGE IN REPRESENTATION AND ONE NEW ITEM HAS APPEARE D. (BROKERAGE). ACCORDINGLY, THE INFORMATION WAS CALLED UNDER SECTION 133(6) AND ON THE BASIS OF INFORMATION SUBMITTED, THE COMPANY CAN BE CONSIDERED AS A COMPARABLE. 8 IX. JINDAL INTELLICOM LIMITED THIS COMPANY ENGAGED IN PROVIDING VOICE BASED SERVICES. IT IS STATED IN THE ANNUAL REPORT THAT THE ENTITY IS AN INTERNATIONAL CALL CENTRE. SINCE THE ASSESSES IS ENGAGED IN PROVIDING ITES SERVICES IN THE NATURE OF DATA PROCESSING, THIS ENTITY IS NOT BEING CONSIDERED AS A COMPARABLE. X. ICRA ONLINE LIMITED IN THE UPDATED MARGINS PROVIDED BY THE ASSESSEE, IT IS NOTED THAT NO DATA FOR F.Y 2011- 12 IS AVAILABLE. THIS COMPANY IS NOT BEING CONSIDERED AS A COMPARABLE DUE TO NON AVAILABILITY OF DATA. XI. CALIBER POINT BUSINESS SOLUTIONS THE DATA FOR THIS COMPANY IS AVAILABLE FOR DECEMBER ENDING. IN ORDER TO EXAMINE THE COMPARABILITY, THE DATA FOR MARCH ENDING IS REQUIRED. THE DATA WAS CALLED U/S 133(6) BUT IT WAS NOT SUBMITTED. SINCE THE DATA IS NOT AVAILABLE FOR MARCH ENDING, IT IS NOT CONSIDERED AS A COMPARABLE. XII. OMEGA HEALTHCARE MANAGEMENT SERVICES PRIVATE LIMITED THIS COMPANY HAS EMPLOYEE COST LESS THAN 25% OF THE TOTAL COST. THIS COMPANY IS NOT BEING CONSIDERED AS A COMPARABLE. 13. AFTER ANALYSING THE COMPARABLE COMPANIES OF THE ASSESSEE AS ABOVE, THE ASSESSING OFFICER ADDED SOME MORE COMPAR ABLE COMPANIES AND CAME TO THE FINAL SET OF COMPARABLES AS UNDER: 9 S.N O COMPANY NAME OP/OC(%) 1 ACROPETAL TECHNOLOGIES LIMITED 65.92 2 R S SOFTWARE (INDIA) LIMITED 15.43 3 AKSHAY SOFTWARE TECHNOLOGIES LIMITED 7.77 4 CIGNITI TECHNOLOGIES LIMITED 8.28 5 SPRY RESOURCES LIMITED 33.59 6 INFORMED TECHNOLOGIES LIMITED 19.11 7 INFOSYS LIMITED 42.15 8 LUCID SOFTWARES LIMITED 11.10 9 MINDTREE LIMITED 19.19 10 PERSISTENT SYSTEMS LIMITED 26.92 11 SANKHYA INFOTECH LTD. 5.68 12 SASKEN COMMUNICATION TECHNOLOGIES LTD. 14.58 13 TATA ELXSI LTD (SEG) 14.32 14 ZYIOG SYSTEMS LIMITED 33.01 15 ACCENTIA TECHNOLOGIES LTD. 11.95 16 ECLERX SERVICES LTD. 58.4 17 EXCEL INFOWAYS LTD.(SEG)(IT/BVPO) 41.48 18 TCS E SERVE LIMITED 63.69 AVERAGE 27.36% 14. ACCORDINGLY, THE ARMS LENGTH PRICE WAS COMPUTE D AS UNDER: 10 OPERATIONAL COST 2,76,66,66,351 ARMS LENGTH PRICE AT A MARGIN OF 27.36% 3,52,36,26,265 PRICE RECEIVED 3,07,65,96,804 105% OF THE PRICE RECEIVED 3,23,04,26,644 PROPOSED ADJUSTMENT U/S 92CA 44,70,29,461 15. AGGRIEVED BY THIS, THE ASSESSEE RAISED OBJECTIO NS BEFORE THE DRP BUT THE OBJECTIONS RAISED BY THE ASSESSEE WERE DISM ISSED BY THE DRP AND THE ASSESSING OFFICER FINALLY FRAMED THE ASSESS MENT ORDER BY MAKING ADDITION ON ACCOUNT OF ALP AT RS. 33,69,16,1 40/-. 16. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSIN G OFFICER NOTICED THAT THE ASSESSEE, IN ITS PROFIT AND LOSS ACCOUNT, HAS SHOWN NET INCOME OF RS. 8.09 CRORES ON ACCOUNT OF FOREIGN EXCHANGE T RANSACTIONS. THE ASSESSEE WAS ASKED TO FURNISH COMPLETE DETAILS AND BREAK-UP OF THE SAME. 17. IN ITS REPLY, THE ASSESSEE EXPLAINED THAT THE N ET FOREIGN EXCHANGE GAIN HAS BEEN DERIVED AFTER ADJUSTING FOREIGN EXCHA NGE LOSS OF RS.2,98,46,447/- PERTAINING TO LOSS ON MARKET TO MA RKET FORWARD 11 CONTRACTS AND RS. 27,10,161/- WHICH PERTAINS TO ADV ANCES GIVEN TO THE EMPLOYEES WHO WENT FOR TRAVEL OUTSIDE INDIA AND, AC CORDINGLY, BALANCE FOREIGN EXCHANGE FLUCTUATION GAIN OF RS.11,34,78,62 9/- WAS OFFERED TO TAX AFTER ADJUSTING THE FOREIGN EXCHANGE LOSS OF RS . 3,25,56,608/-. 18. THE ASSESSING OFFICER WAS NOT CONVINCED WITH TH E REPLY OF THE ASSESSEE AND WAS OF THE FIRM BELIEF THAT PROVISIONS OF SECTION 43(5) OF THE ACT, WHICH DEFINES SPECULATIVE TRANSACTION AN D THEREFORE, LOSS OF RS.2,98,46,447/- IS NOTHING BUT A SPECULATION LOSS AND, ACCORDINGLY, DISALLOWED THE SAME. 19. PROCEEDING FURTHER, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS CLAIMED DONATION OF RS.16,07,391/- ON WHICH IT CLAIMED DEDUCTION UNDER SECTION 80G OF THE ACT. THE ASSESSI NG OFFICER NOTICED THAT NEITHER THE ASSESSEE HAS CLAIMED SUCH DEDUCTIO N IN ITS RETURN OF INCOME NOR THE RETURN OF INCOME WAS REVISED BUT THE SAME HAS BEEN CLAIMED IN THE COMPUTATION OF INCOME. APPLYING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF GOETZ INDI A LTD 284 ITR 323, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DONAT ION AND COMPLETED THE ASSESSMENT PROCEEDINGS. 12 20. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE , AT THE VERY OUTSET, STATED THAT IN SO FAR AS FOREX GAIN IS CONC ERNED, THE CLAIM THAT IT IS PART OF OPERATING INCOME HAS BEEN SETTLED IN THE FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE IN ITA NO 602/2016 ORDER DATED 07.10.2016. THE RELEVANT FINDINGS OF T HE HON'BLE HIGH COURT READ AS UNDER: THE REVENUE IN THIS APPEAL URGES TWO SUBSTANTIAL Q UESTIONS OF LAW. THE FIRST PERTAINS TO EXCLUSION OF TWO COMPARABLES I.E. M/S INFOSYS LTD. AND M/S. PERSISTENT SYSTEMS LTD. THE SECOND QU ESTION URGED IS THE TREATMENT OF FOREIGN EXCHANGE GAIN OR LOSS IN T HE TRANSFER PRICE DETERMINATION OF ALP. IT IS URGED THAT FOREIG N EXCHANGE GAIN OR LOSS, AS THE CASE MAY BE, HAS TO BE INCLUDED. LE ARNED COUNSEL APPEARING ON THE ADVANCE NOTICE URGES THAT THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT. HE SUPPORT S THE CONCLUSIONS OF THE ITAT WITH RESPECT TO THE EXCLUSI ON OF TWO COMPARABLES IN QUESTION AND HIGHLIGHTS THAT M/S INF OSYS LTD. IS ENGAGED NOT MERELY IN SOFTWARE DEVELOPMENT BOTH OFF SITE AND ONSITE AND THAT IT RECEIVES THE SUBSTANTIAL REVENUE S ON ACCOUNT OF ONSITE SOFTWARE FINANCIAL DEVELOPMENT THE ACTIVIT Y WHICH THE ASSESSEE DOES NOT CARRY OUT. IT IS ALSO SUBMITTED T HAT BESIDES THIS, THE OTHER DISTINGUISHING FACTOR VIS-A-VIS THAT M/S INFOSYS LTD. IS THAT CONCERN ALSO OWNS BRAND INTANGIBLES- AN ADVANT AGE WHICH THE ASSESSEE DOES NOT POSSESS. LASTLY, THE ASSESSEE IS CAPTIVE AS OPPOSED TO STATUS OF M/S INFOSYS LTD. WITH RESPECT TO M/S 13 PERSISTENT TECHNOLOGIES, IT IS POINTED OUT THAT IN A PREVIOUS ORDER IN ITA NO. 279/2016 DATED 04.05.2016 (PRINCIPLE COMMIS SIONER OF INCOME TAX VS. M/S CASHEDGE INDIA PVT. LTD) HELD TH AT HAVING REGARD TO THE RULES I.E. RULE 10 B TO 10 E OF INCOM E TAX RULES, THE DATA OF M/S PERSISTENT SYSTEMS LTD- COULD NOT HAVE BEEN INCLUDED. HERE, IT IS URGED THAT THE ASSESSEE IS ALSO A MEMBE R OF THE CASHEDGE INDIA GROUP AND IS ENGAGED IN SAME AND IDE NTICAL BUSINESS. THE AY ALSO COINCIDES WITH THAT OF ASSESSEE I.E. AY 2010-2011. FOR THESE REASONS, WE ARE OF THE OPINION THAT NO SUBSTA NTIAL QUESTION OF LAW ARISES ON THE FIRST ISSUE URGED. AS FAR AS THE SECOND QUESTION I.E. FOREIGN EXCHANGE GAIN OR LOSS IS CONCERNED, TH E ITAT WAS OF THE OPINION THAT THE RELIANCE UPON THE SAFE HARBOUR NOTIFICATION DATED 18.09.2013 WAS NOT APPROPRIATE SINCE HAVING R EGARD TO THE FACT THAT THE RULE WAS INTRODUCED PROSPECTIVELY AND COULD NOT HAVE BEEN APPLIED TO AY 2010-2011. THE ASSESSEE ALSO REL IES UPON THE DECISION IN THE PREVIOUS ORDER FOR THE AY 2009-2001 0 IN ITA NO. 17/2016 (PR. COMMISSIONER OF INCOME TAX-3 VS. FISER V INDIA PVT. LTD.) WHERE THE IDENTICAL QUESTION WAS SETTLED IN I TS FAVOUR. FOR THIS REASON TOO, THE SECOND QUESTION URGED DOES NOT ARISE. IN VIEW OF THE ABOVE DISCUSSION, NO SUBSTANTIAL QUESTIONS O F LAW ARISE. THE APPEAL IS THEREFORE DISMISSED. 21. IN LIGHT OF THE AFORESAID SAID DECISIONS OF THE HON'BLE JURISDICTIONAL HIGH COURT, WE DIRECT THE ASSESSING OFFICER/TPO TO CONSIDER FOREX GAIN AS OPERATING ITEM OF INCOME. 14 22. IN SO FAR AS EXCLUSION OF THREE COMPANIES, NAME LY INFOSYS LTD, ZYLOG SYSTEM LTD AND PERSISTENT SYSTEMS LIMITED, WE FIND THAT THESE COMPANIES WERE EXCLUDED BY THE TRIBUNAL IN ASSESSEE S OWN CASE IN A.Y 2011-12 IN ITA 700/DEL/2016 ORDER DATED 31.8.2020. THE RELEVANT FINDINGS READ AS UNDER: INFOSYS LTD. 10. BEFORE THE LEARNED TPO, THE ASSESSEE OBJECTED I NCLUSION OF THIS COMPANY ON THE GROUND THAT THE COMPANY WAS ENG AGED IN DEVELOPING PRODUCTS, INCOME FROM SALE OF THE SOFTWA RE PRODUCTS, SALES BEING BRAND DRIVEN, AND HIGH SCALE OF OPERATI ONS/TURNOVER. THE LEARNED TPO REJECTED ALL THESE ARGUMENTS OF THE ASSESSEE. ACCORDING TO HIM, THE COMPANY IS PRIMARILY SOFTWARE DEVELOPMENT COMPANY, SALE OF PRODUCTS BEING MINISCULE (4.98%), NO IMPACT OF THE BRAND OF THE PROFITABILITY, AND NO IMPACT OF TH E TURNOVER ON THE PROFITABILITY. ACCORDING TO HIM BUSINESS MODEL USING SOFTWARE DEVELOPMENT SECTOR IN INDIA, THE OPERATIONAL SIZE I S NOT HAVING ANY IMPACT ON THE PROFIT MARGIN AS FOR PROVIDING SOFTWA RE DEVELOPMENT SERVICES, TEAMS OF SOFTWARE EMPLOYEES ARE FORMED, WHICH REMAIN SAME IN ALL THE COMPANIES AND ONLY DIF FERENCE IS THAT IN CASE OF THE GIANT COMPANIES THE TEAMS WILL BE MO RE THAN THE TAXPAYER, FOR RENDERING THE SOFTWARE DEVELOPMENT SE RVICES. THE LEARNED DRP UPHELD THE FINDING OF THE LEARNED TPO. 10.1 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED TO EXCLUDE THE COMPANY ON THE GROUND OF SEGMENT RESULT FOR THE SOFTWARE SERVICES NOT AVAILABLE, DIFFERENT FUNCTION AL PROFILE AND 15 DIFFERENT SCALE OF THE OPERATIONS. THE LEARNED COUN SEL SUBMITTED THAT THE COMPANY HAS BEEN REJECTED BY THE HONBLE D ELHI HIGH COURT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEA R 2009-10 AND 2010-11. ACCORDING TO HIM, NOT BEING SUBSTANTIAL CH ANGE IN THE FUNCTIONING OF THE ASSESSEE AS WELL AS THE COMPANY IN THE YEAR UNDER CONSIDERATION AS COMPARED TO ASSESSMENT YEAR 2010-11, THE COMPANY NEED TO BE REJECTED FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ASSESSEE ITSELF. 10.2 THE LEARNED DR, ON THE OTHER HAND, RELIED ON T HE ORDER OF THE LOWER AUTHORITIES. 10.3 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON RECORD . THE TRIBUNAL IN ITA NO.6737/DEL./2014 FOR ASSESSMENT YEAR 2010-1 1 ON THE ISSUE OF THE COMPARABILITY OF M/S. INFOSYS LTD HAS OBSERVED AS UNDER: 11.4 WE HAVE CONSIDERED RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON THE RECORD. IN THE CASE OF AGNITY TECHNOLOGIES, ITA NO.3856/DEL/2010, A COORDINATE BENCH HAS HELD AS UN DER:- 'IT IS ARGUED THAT THE CASE OF THE ASSESSEE IS NOT COMPARA BLE WITH INFOSYS TECHNOLOGIES LTD., THE REASON BEING THAT TH E LATTER IS GIANT IN THE AREA OF DEVELOPMENT OF SOFTWARE AND IT ASSUM ES ALL RISKS, LEADING TO HIGHER PROFIT. ON THE OTHER HAND, THE AS SESSEE IS A CAPTIVE UNIT OF ITS PARENT COMPANY IN THE USA AND I T ASSUMES ONLY LIMITED CURRENCY RISK. HAVING CONSIDERED THESE POIN TS, WE ARE OF THE VIEW THAT THE CASE OF AFORESAID INFOSYS AND THE ASSESSEE ARE 16 NOT COMPARABLE AT ALL AS SEEN FROM THE FINANCIAL DA TA ETC. OF THE TWO COMPANIES MENTIONED EARLIER IN THIS ORDER. THER EFORE, WE ARE OF THE VIEW THAT THIS CASE IS REQUIRED TO BE EXCLUD ED' 11.5 THE AFORESAID ORDER WAS UPHELD BY THE HON'BLE DELHI HIGH COURT AFTER TAKING NOTE OF THE CHART AS GIVEN BELOW : BASIC PARTICULAR INFOSYS TECHNOLOGIES LTD. ASSESSEE RISK PROFILE OPERATE AS FULL-FLEDGED RISK TAKING ENTREPRENEURS OPERATE A T MINIMAL RISKS AS THE 100 PERCENT SERVICES ARE PROVIDED TO AES NAT URE OF SERVICES DIVERSIFIED-CONSULTING, APPLICATION DESIGN, DEVELOP MENT, REENGINEERING AND MAINTENANCE SYSTEM INTEGRATION, P ACKAGE EVALUATION AND IMPLEMENTATION AND BUSINESS PROCESS MANAGEMENT, ETC. (REFER PAGE 117 OF THE PAPER BOOK) CONTRACT SO FTWARE DEVELOPMENT SERVICES TURNOVER 20,264 CRORES 209.83 CRORES OWNERSHIP BRANDED/PROP RIETARY PRODUCTS DEVELOPS/OW NS PROPRIETARY PRODUCTS LIKE FINACLE, INFOSYS ACTICE D ESK, INFOSYS IPROWE, INFOSYS MCONNECT. ALSO THE COMPANY DERIVES SUBSTANTIAL PORTION OF ITS PROPRIETARY PRODUCTS (INCLUDING ITS FLAGSHIP BANKING PRODUCT SUITE FINACLE) ONSITE VS. OFFISHORE AS MU CH AS HALF OF THE SOFTWARE DEVELOPMENT SERVICES RENDERED BY INFOSYS A RE ONSITE (I.E. SERVICES PERFORMED AT THE CUSTOMER'S LOCATION OVERS EAS). AND OFFSHORE (50.20 PER CENT) REFER P. 117 OF THE PAPER BOOK) THAN HALF OF ITS SERVICE, INCOME FROM ONSITE SERVICES. THE AP PELLANT PROVIDES ONLY OFFSHORE SERVICES (I.E. REMOTELY FROM INDIA) E XPENDITURE ON ADVERTISING/SAL ES PROMOTION AND BRAND BUILDING RS. 80 CRORES RS. NIL (AS THE 1-PERCENT SERVICES ARE PROVIDED TO AES) EXPENDITURE ON RESEARCH AND DEVELOPMENT RS. 236 CRORES RS. NIL OTH ER 100 PER CENT OFFSHORE (FROM INDIA) 17 11.6 ON THE BASIS OF THE ABOVE CHART, THE HON'BLE H IGH COURT AFFIRMED THE CONCLUSION THAT A CAPTIVE UNIT OF A CO MPARABLE COMPANY WHICH ASSUMED ONLY A LIMITED RISK, CANNOT B E COMPARED WITH A GIANT COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWARE WHO ASSUMES ALL TYPES OF RISKS LEADING TO HIGHER PROFIT S. THE FACTS OF THE APPELLANT ARE AKIN AND THEREFORE, DO NOT WARRAN T ANY DIFFERENT CONCLUSION. THE APPELLANT IS ALSO CAPTIVE SERVICE P ROVIDER TO ITS AE AND AS SUCH, M/S. INFOSYS LTD. IS NOT A VALID COMPA RABLE WITH THE APPELLANT. 10.4 THE HONBLE DELHI HIGH COURT IN ITA NO. 602/20 16 & CM NO.30032/2016 IN CASE OF ASSESSEE, ON THE ISSUE OF THE COMPARABILITY OF M/S. INFOSYS HAS OBSERVED AS UNDER : LEARNED COUNSEL APPEARING ON THE ADVANCE NOTICE URGES THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT. HE SUPPORTS THE CONCLUSIONS OF THE ITAT WITH RESPECT TO THE EXCLUSI ON OF TWO COMPARABLES IN QUESTION AND HIGHLIGHTS THAT M/S INF OSYS LTD. IS ENGAGED NOT MERELY IN SOFTWARE DEVELOPMENT BOTH OFF SITE AND ONSITE AND THAT IT RECEIVES THE SUBSTANTIAL REVENUE S ON ACCOUNT OF ONSITE SOFTWARE FINANCIAL DEVELOPMENT THE ACTIVIT Y WHICH THE ASSESSEE DOES NOT CARRY OUT. IT IS ALSO SUBMITTED T HAT BESIDES THIS, THE OTHER DISTINGUISHING FACTOR VIS-A-VIS THAT M/S INFOSYS LTD. IS THAT CONCERN ALSO OWNS BRAND INTANGIBLES- AN ADVANT AGE WHICH THE ASSESSEE DOES NOT POSSESS. LASTLY, THE ASSESSEE IS CAPTIVE AS OPPOSED TO STATUS OF M/S INFOSYS LTD. WITH RESPECT TO M/S PERSISTENT TECHNOLOGIES, IT IS POINTED OUT THAT IN A PREVIOUS ORDER IN ITA NO. 279/2016 DATED 04.05.2016 (PRINCIPLE COMMIS SIONER OF INCOME TAX VS. M/S CASHEDGE INDIA PVT. LTD) HELD TH AT HAVING REGARD TO THE RULES I.E. RULE 10 B TO 10 E OF INCOM E TAX RULES, THE 18 DATA OF M/S PERSISTENT SYSTEMS LTD- COULD NOT HAVE BEEN INCLUDED. HERE, IT IS URGED THAT THE ASSESSEE IS ALSO A MEMBE R OF THE CASHEDGE INDIA GROUP AND IS ENGAGED IN SAME AND IDE NTICAL BUSINESS. THE AY ALSO COINCIDES WITH THAT OF ASSESSEE I.E. AY 2010-2011. FOR THESE REASONS, WE ARE OF THE OPINION THAT NO SUBSTA NTIAL QUESTION OF LAW ARISES ON THE FIRST ISSUE URGED. 10.5 WE FIND THAT THE TRIBUNAL HAS REJECTED THE COM PANY MAINLY ON THE GROUND OF GIANT COMPANY VIS--VIS THE ASSESSEE BEING A CAPTIVE SERVICE PROVIDE. SINCE THIS GROUND OF THE REJECTION IS VALID IN THE YEAR UNDER CONSIDERATION ALSO, RESPECTFULLY FOLLOWI NG THE DECISION OF THE TRIBUNAL (SUPRA) AND DECISION OF HONBLE DEL HI HIGH COURT (SUPRA), WE DIRECT THE LEARNED AO/TPO TO EXCLUDE TH IS COMPANY FROM THE FINAL SET OF THE COMPARABLES. PERSISTENT SYSTEMS LTD. 13. THE LEARNED TPO HELD THE COMPANY AS FUNCTIONALL Y SIMILAR AND REJECTED THE OBJECTION OF THE ASSESSEE OF THE DIFFE RENT BUSINESS MODEL, INTANGIBLE AND INTELLECTUAL PROPERTY ETC. BE FORE THE LEARNED DRP, THE ASSESSEE SOUGHT EXCLUSION OF THE COMPANY O N THE GROUND OF FUNCTIONAL DIFFERENCE, SIGNIFICANTLY HIGH TURNOV ER AND SIGNIFICANT RELATED PARTY TRANSACTIONS (> 10%). THE LEARNED DRP OBSERVED THAT TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2010-11 HAS EXCLUDED THE COMPANY ON THE GROUND OF HIGH TURN OVER. BUT THE LEARNED DRP REFERRED TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHRYS CAPITAL INVESTMENT ADVIS ORS (INDIA) LTD 19 (SUPRA) AND RAMPGREEN SOLUTIONS PVT. LTD (SUPRA) AN D HELD THAT HIGH PROFIT ONLY CANNOT BE A GROUND FOR EXCLUSION OF THE COMPANY AS A COMPARABLE. THE LEARNED DRP OBSERVED THAT REVENUE F ROM LICENSING ROYALTY WAS MERELY 5% AND THIS COMPANY IS PRIMARILY A SOFTWARE SERVICE COMPANY PROVIDING DEVELOPMENT SERVICES AS P ER THE REQUIREMENT OF ITS CLIENTS AND, THEREFORE, IT WAS F UNCTIONALLY COMPARABLE TO THE ASSESSEE. 13.1 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE COMPANY HAS BEEN REJECTED BY THE HONBLE DELHI HIGH COURT AND THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESS MENT YEAR 2010- 11. THE LEARNED COUNSEL FURTHER REFERRED TO PAGE 55 3 OF THE PAPER BOOK AND SUBMITTED THAT THE COMPANY WAS FOCUSED ON SOFTWARE PRODUCT DEVELOPMENT. HE ALSO REFERRED TO PAGE 571 O F THE PAPER BOOK AND SUBMITTED THAT COMPANY HAS INCURRED RESEAR CH AND DEVELOPMENT EXPENDITURE DURING THE YEAR. HE ALSO RE FERRED TO PAY 656 OF THE PAPER BOOK TO DEMONSTRATE THAT THE COMPA NY HAS 26 ITA NO. 700/DEL./2016 EARNED REVENUE FROM SALE OF T HE SOFTWARE SERVICES AND THE PRODUCTS. IN VIEW OF THE ARGUMENTS , HE SUBMITTED TO EXCLUDE THIS COMPANY FROM THE SET OF THE COMPARA BLES. 13.2 THE LEARNED DR ON THE OTHER HAND RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 13.3 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT IN ASSESS MENT YEAR 2010- 11, THE COMPANY WAS REJECTED BY THE TRIBUNAL ON THE GROUND OF HIGH TURNOVER, BUT IN VIEW OF THE DECISION OF THE HONBL E DELHI HIGH 20 COURT CITED BY THE LEARNED DRP IN THEIR ORDER, WE A GREE WITH THE FINDING OF THE LEARNED DRP THAT HIGH TURNOVER CANNO T BE A GROUND FOR REJECTION OF THE COMPANY AS COMPARABLE IF IT IS OTHERWISE FUNCTIONALLY SIMILAR TO THE TAXPAYER. FURTHER, HON BLE DELHI HIGH COURT IN THE ASSESSMENT YEAR 2010-11 REJECTED THE C OMPANY MAINLY ON THE GROUND THAT PUBLISHED DATA WAS NOT AVAILABLE IN THE CASE OF THE COMPANY. BUT IN THE YEAR UNDER CONSIDERATION TH ERE ARE NO SUCH CIRCUMSTANCES AND THE ASSESSEE HAS FILED ANNUAL REP ORT ON PAGE 541 TO 732 OF THE PAPERBOOK. ON PERUSAL OF PAGE 656 OF THE PAPER- BOOK, WE FIND THAT REVENUE FROM SALE OF SOFTWARE SE RVICES AND PRODUCT HAS BEEN SHOWN THAT 6,101.27 MILLION. THE RE IS NO SEPARATE BIFURCATION OF THE REVENUE FROM THE SOFTWA RE SERVICES AND THEREFORE IN ABSENCE OF SEGMENTAL DATA OF SOFTW ARE SERVICES, THE COMPANY CANNOT BE INCLUDED AS A COMPARABLE AT E NTITY LEVEL. ACCORDINGLY, ON THE GROUND OF THE FUNCTIONAL DISSIM ILARITY OF THE ENTITY LEVEL, WE DIRECT THE LEARNED AO/TPO TO EXCLU DE THE COMPANY FROM THE FINAL SET OF THE COMPARABLES. ZYLOG SYSTEMS LTD. 15. BEFORE THE LEARNED TPO, THE ASSESSEE OBJECTED I NCLUSION OF THE COMPANY ON THE GROUND OF COMPANY ENGAGED IN SOFTWAR E DEVELOPMENT AS WELL AS SALE OF THE PRODUCT AND NO S EPARATE SEGMENT AVAILABLE FOR SOFTWARE DEVELOPMENT. THE ASS ESSEE ALSO SOUGHT REJECTION ON THE GROUND THAT DRP IN FINANCIA L YEAR 2009- 10 HAS REJECTED THIS COMPANY AS COMPARABLE. HOWEVER, T HE LEARNED TPO HELD THIS COMPANY TO BE FUNCTIONALLY COMPARABLE , IN VIEW OF THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF INTER RA INFORMATION 21 TECHNOLOGIES INDIA P. LTD VERSUS DCIT (2012) 27 TAX MANN.COM 1 WHEREIN IT IS HELD THAT WHILE ADJUDICATING TRANSFER PRICING CASES, THERE IS NO BINDING LEGAL PRECEDENCE. BEFORE THE LE ARNED DRP THE ASSESSEE SOUGHT EXCLUSION OF THIS COMPANY ON THE GR OUND OF THE FUNCTIONAL DIFFERENCE AND SIGNIFICANT INTANGIBLES. HOWEVER THE LEARNED DRP ACCEPTED THE COMPANY AS VALID COMPARABL E IN VIEW OF THE FUNCTIONAL SIMILARITY. 15. BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE COMPANY IS ENGAGED IN PROVISION OF THE VARIOUS BUSINESS ACTIVITIES AND NO SEGMENTAL RESULT FOR SOFTWARE DEV ELOPMENT SERVICES IS AVAILABLE. HE REFERRED TO ANNUAL REPORT OF THE COMPANY 33 ITA NO. 700/DEL./2016 FOR FINANCIAL YEAR 2010-11 . HE REFERRED TO PAGE 1022 AND 1051 OF THE PAPER BOOK VOLUME 3 AN D SUBMITTED THAT THE COMPANY EARNS IT REVENUE FROM SOFTWARE DEV ELOPMENT SERVICES AND PRODUCTS. HE ALSO REFERRED TO PAGE 106 1 OF THE PAPER BOOK AND SUBMITTED THAT COMPANY DERIVES ITS REVENUE PRIMARILY FROM SOFTWARE DEVELOPMENT SERVICES, CONSULTANCY SER VICES, PROJECTS AND E-GOVERNANCE PROJECTS. HE FURTHER SUBM ITTED THAT COMPANY DOES NOT MEET THE 75% SOFTWARE DEVELOPMENT SERVICES TO REVENUE FILTER ADOPTED BY THE LEARNED TPO. HE REFER RED TO PAGE 1024 OF THE PAPER BOOK AND SUBMITTED THAT CONTRIBUT ION OF THE REVENUE FROM SOFTWARE DEVELOPMENT IS ONLY 21.6%. HE SOUGHT TO EXCLUDE THIS COMPANY ON THESE GROUNDS. 15.1 THE LEARNED DR, ON THE OTHER HAND, RELIED ON T HE ORDER OF THE LOWER AUTHORITIES. 22 15.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. ON PERUSAL OF THE PROF IT AND LOSS ACCOUNT OF THE COMPANY WHICH IS AVAILABLE ON PAGE 1 051 OF THE PAPER-BOOK, WE FIND THAT THE REVENUE OF 899,11,06 ,874/- HAS BEEN SHOWN FROM SOFTWARE DEVELOPMENT SERVICES AND T HE PRODUCTS AND NO SEPARATE REVENUE OR SEGMENTAL RESULT FOR SOF TWARE DEVELOPMENT SERVICES HAVE BEEN REPORTED IN THE ANNU AL REPORT. IN ABSENCE OF ANY SEPARATE SEGMENTAL RESULT OF SOFTWAR E DEVELOPMENT SERVICES AVAILABLE IN PUBLIC DOMAIN, WE REJECT THE COMPANY AS COMPARABLE ON FUNCTIONAL DISSIMILARITY AT ENTITY LE VEL. ACCORDINGLY, WE DIRECT THE LD. AO/TPO TO EXCLUDE THIS COMPANY FR OM THE SET OF THE FINAL COMPARABLES. 23. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. DR, RESPECTFULLY FOLLOWING THE FINDINGS OF THE COORDINATE BENCH, WE DIRECT THE TPO/AO TO EXCLUDE THESE THREE COMPANI ES FROM THE FINAL SET OF COMPARABLES. 24. STRONG ARGUMENTS HAVE BEEN MADE FOR THE EXCLUSI ON OF ECLERX SERVICES LTD, TCS E-SERVE LTD AND EXCEL INFOWAYS L TD. 25. THE LD. DR HAS STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. IT IS THE SAY OF THE LD. DR THAT THESE COMPA NIES HAVE RIGHTFULLY BEEN INCLUDED BY THE TPO AS THEY ARE GOOD COMPARABL ES. 23 26. WE WILL NOW ADDRESS THESE COMPANIES ECLERX SERVICES LTD 27. IT WAS A STRONGLY CONTENDED THAT THIS COMPANY I S FUNCTIONALLY NOT COMPARABLE AS IT IS HAVING UNRELIABLE DATA AND HAS BEEN REJECTED BY THE TRIBUNAL IN SEVERAL CASES. 28. WE HAVE CAREFULLY PERUSED THE FINANCIAL REPORT OF THIS COMPANY. IN ITS FINANCIAL REPORT, PART OF WHICH IS EXHIBITED AT PAGE 1248 OF THE PAPER BOOK, UNDER THE HEADING WHO WE ARE, IT HAS BEEN MENTIONED THAT THE ECLERX SERVICES LTD IS A KNOWLEDGE PROCESS OUTSOURCING COMPANY PROVIDING DATA ANALYSIS AND PROCESS OF SALE S TO GLOBAL ENTERPRISE CLIENTS. IN OUR CONSIDERED OPINION, WHEN THIS COMPANY ITSELF CLAIMS THAT IT IS A KPO COMPANY, THE SAME SHOULD NO T BE USED AS A COMPARABLE COMPANY IN CASE OF BPO, LIKE THE ASSESSE E. 29. FOR SIMILAR REASONS, THIS COMPANY WAS EXCLUDED BY THE TRIBUNAL IN ITA NO. 86/DEL/2017VIDE ORDER DATED 29.05.2019 AND ALSO BY THE TRIBUNAL IN ITA NO 402/DEL/2017 ORDER DATED 01.01.2 018. IN LIGHT OF 24 THE FACT THAT THIS COMPANY IS A KPO A COMPANY, WE D IRECT FOR EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. TCS E- SERVE LIMITED 30. BEFORE THE TPO, OBJECTIONS WERE RAISED ON INCLU SION OF THIS COMPANY ON THE GROUND THAT IT IS FUNCTIONALLY NOT C OMPARABLE AND IS A GIANT COMPANY WITH PRESENCE OF BRAND. THE TPO INCLU DED THIS COMPANY STATING THAT IT IS PURELY A ITES COMPANY, FUNCTIONA LLY SIMILAR. 31. WE HAVE CAREFULLY PERUSED THE FINANCIAL REPORTS OF THIS COMPANY. IT IS AN UNDISPUTED FACT THAT THIS COMPANY HAS HUGE BRAND VALUE BEING PART OF TATA GROUP, WHICH IS EVIDENT FROM THE FACT THAT IN THE NOTES TO FINANCIAL STATEMENT UNDER THE HEAD OTHER EXPENSES , TATA BRAND CONTRIBUTION HAS BEEN SHOWN AT RS. 3.67 CRORES. FOR SIMILAR REASONS THE CO-ORDINATE BENCH IN THE CASE OF CADENCE DESIGN SYS TEM INDIA PVT LTD ITA NO. 86/DEL/2017 HAS DIRECTED FOR EXCLUSION OF T HIS COMPANY AND THE SAME WAS FOLLOWED IN THE CASE OF SAMSUNG HEAVY INDUSTRIES PVT LTD IN ITA NO. 402/DEL/2017. 25 32. CONSIDERING THE BRAND VALUE OF THIS COMPANY, IN LIGHT OF THE FINDINGS OF THE COORDINATE BENCH [SUPRA]WE DIRECT F OR EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. EXCEL INFOWAYS LTD 33. THE MAIN OBJECTIONS RAISED ARE THAT THIS COMPAN Y FAILS EMPLOYEE COST SALES FILTER AND ALSO FAILS SERVICE COST TO TO TAL INCOME FILTER. 34. TO VERIFY THE OBJECTIONS RAISED BY THE ASSESSEE , THE TPO ISSUED NOTICE UNDER SECTION 133(6) OF THE ACT ASKING THIS COMPANY FOR INFORMATION PERTAINING TO ITS OPERATIONS. IN ITS RE PLY, THIS COMPANY STATED THAT THE EMPLOYEE COST RS. 2.02 CRORES PERTA INS TO ONLY ITES/BPO SEGMENT. ACCORDINGLY, THE TPO CONCLUDED BY STATING THAT ITS EMPLOYEE COST IS MORE THAN 25%. 35. WE FIND FROM THE STATEMENT OF PROFIT AND LOSS O F ACCOUNT THAT THE NET REVENUE FROM OPERATIONS OF THIS COMPANY IS RS. 15.49 CRORES AND OTHER INCOME IS RS. 73.56 LAKHS. WE FURTHER FIND TH AT THE TOTAL FOREIGN EXCHANGE EARNED IS RS.7,07,63,822/-WHEREAS THE INCO ME IN FOREIGN CURRENCY RECEIVED FROM BPO/ITES IS SHOWN AT RS.1,36 ,93,935/-. IT IS NOT 26 CLEARLY COMING OUT FROM THE FINANCIAL REPORT AS TO HOW THE EARNINGS IN FOREIGN CURRENCY IN RELATION TO THE BPO/ITES IS HIG HER THAN ITES/BPO SEGMENTAL REVENUE AS MENTIONED HERE IN ABOVE. 36. WITH NO CLARITY ON SUCH A HUGE DIFFERENCE, WE A RE NOT INCLINED TO ALLOW THIS COMPANY IN THE FINAL SET OF COMPARABLES. WE, ACCORDINGLY, DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS CO MPANY FROM THE FINAL SET OF COMPARABLES. 37. THE INCLUSION OF OMEGA HAS BEEN ARGUED BEFORE U S. WE HAVE ALREADY MENTIONED THE FILTER ADOPTED BY THE TPO ELS EWHERE AND ONE OF SUCH FILTERS IS THAT THE COMPANIES THAT HAVE EMPLOY EE COST THAT IS LESS THAN 25% OF SALES ARE EXCLUDED, WHEREAS THIS COMPAN Y HAS BEEN EXCLUDED BY THE TPO BY STATING THAT THIS COMPANY HA S EMPLOYEE COST OF LESS THAN 25% OF THE TOTAL COST. WE FAIL TO UNDERST AND WHY THE TPO HAS ADOPTED AN ALTOGETHER DIFFERENT FILTER FOR THIS COM PANY. NOTHING HAS BEEN MENTIONED BY THE TPO ABOUT THE FAR ANALYSIS OF THIS COMPANY WITH THAT OF THE APPELLANT. IN THE INTEREST OF JUST ICE, WE DEEM IT FIT TO RESTORE THIS ISSUE TO THE FILE OF THE TPO. THE TPO IS DIRECTED TO DECIDE THE INCLUSION OR EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF 27 COMPARABLES ON THE BASIS OF FAR ANALYSIS AFTER GIVI NG REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 38. WE WILL NOW ADDRESS TO THE CORPORATE ISSUE. THE ASSESSING OFFICER HAS DISALLOWED CLAIM OF FOREX LOSS OF RS.2.98 CRORE S ON THE GROUND THAT IT IS A SPECULATION LOSS. 39. FACTS ON RECORDS SHOW THAT FOREX LOSS OF RS.2.9 8 CRORES AROSE ON SETTLEMENT OF FOREIGN EXCHANGE FORWARD CONTRACTS WH ICH WERE TAKEN BY THE ASSESSEE COMPANY TO COVER THE TRADE RECEIVABLES OF THE ASSESSEE. THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF BAD RIDAS GAURIDU PVT. LTD 261 ITR 256 HAS HELD THAT LOSS FROM FORWARD EXC HANGE CONTRACTS IS NOT SPECULATIVE BUSINESS. RELEVANT FINDINGS OF THE HONBLE HIGH COURT READ AS UNDER.: 3. THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHAN GE. THE ASSESSEE WAS A COTTON EXPORTER. THE ASSESSEE WAS AN EXPORT HOUSE. THEREFORE, FOREIGN EXCHANGE CONTRACTS WERE B OOKED ONLY AS INCIDENTAL TO THE ASSESSEE'S REGULAR COURSE OF B USINESS. THE TRIBUNAL HAS RECORDED A CATEGORICAL FINDING TO THIS EFFECT IN ITS ORDER. THE ASSESSING OFFICER HAS NOT CONSIDERED THE SE FACTS. UNDER SECTION 43(5) OF THE INCOME-TAX ACT, 'SPECULATIVE TRANSACTION' HAS BEEN DEFINED TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF A COMMODITY IS SETTLED 28 OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER O F SUCH COMMODITY. HOWEVER, AS STATED ABOVE, THE ASSESSEE W AS NOT A DEALER IN FOREIGN EXCHANGE. THE ASSESSEE WAS AN EXP ORTER OF COTTON. IN ORDER TO HEDGE AGAINST LOSSES, THE ASSES SEE HAD BOOKED FOREIGN EXCHANGE IN THE FORWARD MARKET WITH THE BANK. HOWEVER, THE EXPORT CONTRACTS ENTERED INTO BY THE A SSESSEE FOR EXPORT OF COTTON IN SOME CASES FAILED. IN THE CIRCU MSTANCES, THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION IN RESPECT OF RS. 13.50 LAKHS AS A BUSINESS LOSS. THIS MATTER IS SQUARELY C OVERED BY THE JUDGMENT OF THE CALCUTTA HIGH COURT, WITH WHICH WE AGREE, IN THE CASE OF CIT V. SOORAJMULL NAGARMULL [1981] 129 ITR 169. 4. IN THE CIRCUMSTANCES, THERE IS NO MERIT IN THE A PPEAL. THE APPEAL FAILS AND THE SAME IS DISMISSED WITH NO ORDE R AS TO COSTS. 40. CONSIDERING THE FACTS OF THE CASE IN HAND IN LI GHT OF THE AFORESAID DECISION OF THE HONBLE HIGH COURT OF BOMBAY, WE DI RECT THE ASSESSING OFFICER TO ALLOW CLAIM OF LOSS OF RS.2.98 CRORES. T HIS GROUND IS, ACCORDINGLY, ALLOWED. 41. NEXT GRIEVANCE RELATES TO DISALLOWANCE OF DONAT ION PAID. 42. WE FIND THAT THE ASSESSING OFFICER HAS DENIED T HE CLAIM OF DEDUCTION UNDER SECTION 80G OF THE ACT BY RELYING O N THE DECISION OF 29 THE HONBLE SUPREME COURT IN THE CASE OF GOETZ[SUPR A].IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE TO THE FILE OF TH E ASSESSING OFFICER. THE ASSESSEE IS DIRECTED TO FURNISH DOCUMENTARY EVIDENC ES IN RESPECT OF CLAIM OF DONATION ELIGIBLE UNDER SECTION 80 G OF TH E ACT AND THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE SAME A S PER PROVISIONS OF LAW. THIS GROUND IS, ACCORDINGLY, TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. 43. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 333/DEL/2017 IS ALLOWED IN PART FOR STATISTICAL PUR POSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28.09. 2020. SD/- SD/- [KULDIP SINGH] [N.K. BIL LAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28 TH SEPTEMBER, 2020 VL/ 30 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ` ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER