TRAVELEX INDIA P.LTD, MUMBAI V. DCIT CIR 3(3), MUMBAI

ITA 3602/MUM/2015

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 6963 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2007-2008
• Appeal Filed On: 10-06-2015
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Department Lawyers: VATSALYA SAXENA
• Keywords: Transfer pricing; International transaction

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL “J” Bench, Mumbai Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM) I.T.A. No. 3602/Mum/2015 (Assessment Year 2007-08) Travelex India Private Limited B Wing, 7 th Floor, Eureka Towers, Mindspace, Link Road Malad West, Mumbai-400064. PAN : AACCR4942B Vs. DCIT-Circle 3(3) Mumbai (Appellant) (Respondent) Assessee by Shri Niraj D. Sheth Department by Shri Vatsalya Saxena Date of Hearing 22.09.2021 Date of Pronouncement 06 .12.2021 O R D E R Per Shamim Yahya (AM) : This appeal by the assessee is directed against the order of learned CIT(A) dated 3.3.2015 pertaining to A.Y. 2007-08. 2. The grounds of appeal read as under :- “1. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals)-58 ('CIT(A)') erred in upholding the action of the Assessing Officer ('AO')/Transfer Pricing Officer ('TPO') of making an adjustment to the income of the Appellant in respect of its international transactions for provision of Information Technology enabled Services and group audit services. The Appellant prays that the aforesaid adjustment be deleted. 2. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in : a. rejecting the methodical search process followed by the Appellant and carrying out a fresh search using non contemporaneous data; b. not providing search process including the relevant back up workings conducted by him for comparability analysis; c. rejecting multiple year data; Travelex India Private Limited 2 d. wrongly characterising the Appellant as an entrepreneur; e. including certain comparables , which were not comparable; f. not including certain comparables selected by the Appellant in its TP Study; g. not allowing adjustments in accordance with the provisions of Rule 10B(i)(e)(iii) of the Rules to account for differences in the functional and risk profiles of the IT enabled and audit services transaction and the alleged comparable uncontrolled transactions selected by the learned AO/TPO ; and h. Disregarding the fact that there was no intention of the Appellant to shift profits out of India and thereby erode the country's tax base. The Appellant prays that the appropriate relief be granted.” 3. Brief facts of the case are as under :- The assessee is a part of Travelex group, which is foreign exchange specialist and has established a reputation in the provision of retail corporate and commercial foreign exchange services. The assessee is a wholly owned subsidiary of Travelex Plc, UK, which is turn, is held by Travelex Holdings Ltd. The assessee commenced commercial operations from 1.10.2003 and this is the first full year of operation. The assessee's business is divided into four activities- a. IT enabled services, which include application development, and testing and IT support. b. Retail services, which include purchase and sale of foreign currency in its capacity as licensed full-fledged moneychanger. c. Distribution services which include undertaking sales and marketing of travelers cheques and prepaid cards among business partners such as banks and financial institutions in India. d. Group audit services, which include the performance of various internal audit functions. As submitted by the assessee, it leverages on all the valuable intellectual property rights and other commercial or marketing intangibles (brand names, trademarks, operating/quality standards) developed/owned by Travelex Group. Travelex India Private Limited 3 Provision of IT enabled services During the relevant year the assessee provided IT enabled services to its AE, which include IT support, application development and testing services. The assessee has benchmarked this transaction using TNMM as the most appropriate method and operating profit to total cost as the appropriate PLI. The assessee made a search on Prowess and Capitaline database and identified 12 comparables using data for FY 04-05, 05-06 and & 06-07 as under :- S.No. Name of the Company Data Source Mark-up on Total Cost 1 Ace Software Exports Ltd. P 10.91% 2 Ask Me Info Hubs Ltd. P -2.47% 3 C S Software Enterprise Ltd. P 14.97% 4 Cosmic Global Ltd. P 17.33% 5 Maple Esolutions Ltd. P 35.67% 6 Transworks Information Services Ltd. P 11.98% 7 Triton Corp Ltd. P 18.86% 8 Galaxy Commercial Ltd. C 20.47% 9 C M C Ltd. P-Seg 1 .84% 10 Datamatics Softworld Pvt. Ltd. P-Seg 2.04% 11 Goldstone Teleservices Ltd. P-Seg 12.89% 12 National Securities Depository Ltd. P-Seg 4.32% Arithmetic Mean 12.40% The margin on costs earned by the 12 comparables at 12.40% is lower than that of the assessee at 17.96%. The TPO rejected the assessee’s comparable analysis and selected twenty five comparables. The TPO held as under :- “In view of the above discussion, the final list of 25 comparables was selected by TPO as mentioned in his order as under:- S.No. Company Name OP/TC (in %) 1 Accentia Technologies Lid. (ITES seg) 38.26% Travelex India Private Limited 4 2 Aditya Birla Minacs Worldwide Ltd. (formerly known as Transworks Information Services Ltd) 11.98% 3 Allsec Technologies Ltd 27.31% 4 Apex Knowledge Solutions Pvt. Ltd. 12.83% 5 Appollo Healthstreet Ltd. 13.55% 6 Asit C. Mehta Financial Services Ltd. 24.21% 7 3odhtree Consulting Ltd. (Seg) 29.58% 8 Caliber Point Business Solutions Ltd. 21.26% 9 Cosmic Global Ltd. 12.40% 10 Datamatics Financial Services Ltd (Seg) 5.07% 11 Eclerx Services Ltd. 90.43% 12 Flextronics Software Systems Ltd (Seg) 14.54% 13 Genesys International Corporation Ltd. 13.35% 14 HCL Comnet Systems and Services Limited (Seg) 44.99% 15 ICRA Techno Analytics Ltd (Seg) 12.24% 16 Informed Technologies India Limited 35.56% 17 Infosys BPO Ltd. 28.78% 18 IServices India Ltd. 50.27% 19 Maple Esolutions Ltd. 34.05% 20 Muld-Tek technologies Ltd (Seg) 113.49% 21 R Systems International (Seg) 20.18% 22 Spanco Ltd (Seg) 25.81% 23 Triton Corp Ltd. 34.93% 24 Vishal Information technologies Ltd. 51.19% 25 Wipro Ltd (Seg) 29.70% Mean 30.75% TPO observed that, mentioned comparables have earned a margin of 30.75% which is to be adopted to determine the arm's length price of the international transactions of provision of ITES services. The arm's length price was accordingly determined by TPO in his order as under:- Particulars RS. Rs. A Sale Turnover 104,346,744 B Profit before tax C PBIT(OP) 15,891,029 D Total Costs(TC) 88,455,715 E OP/TC 17.96% Travelex India Private Limited 5 F Arm's length margin on Total Costs 30.75% G Arm's length Profit 27,200,132 H Value of Provision of services to the AE 104,346,744 I Arm's length value 115,655,847 J Difference between Arm's Length Profit and & Actual Profit (I-A) 11,309,103 K 95% of 1 109,373,054 TPO mentioned that while the assessee has earned a margin of 17.96%, the comparable have earned a margin of 30.75%. The assessee has received an amount of Rs 104,346,744/- for the provision of services. The arm's length value of the provision of services comes to Rs 115,655,847/-. 95% of the ALP comes to Rs. 109,873,054/-, while the difference between the arm's length price and the transfer price is Rs 11,309,103/-. As the AE transaction is not within 5% of the arm's length price, an adjustment of Rs. 11,309,103/- is being made to the income of the assessee on account of transaction of provision of services. Regarding the transaction related to audit services, TPO in his order mentioned that in the year under consideration, the assessee has provided group audit services to the AE vide services agreement. The assessee undertakes standalone or part of the wider group internal audit assignment; perform physical and remote audits of products and services within India; undertake audits as directed by Traveler Group in oilier countries. The assessee has benchmarked this transaction considering TNMM as the most appropriate method and operating profit to total cost as the appropriate PU along with ITES services. In AY 2006-07 the assessee has earned an OP/TC margin of 19.94% on the said services. The assessee has received Rs. 2,723,480 as fee from Group audit services. TPO mentioned that as admitted by the assesses, the comparable of ITES have been used to benchmark the aforesaid transaction of the assessee with respect to audit services rendered. As discussed in the earlier paragraph, the comparables of 1TES have been have earned a margin of 30.75%. This margin will be adopted to determine the arm's length price of the international transactions for provision of audit services. The arm's length price of this transaction was accordingly determined as under: Particulars Rs. Rs. Turnover 2,723,480 PBIT(OP) 543,062 Total Costs(TC) 2,180,418 OP/TC 19.94% Arm's length margin on Total Costs 30.75% Arm's length Profit 837,470 Travelex India Private Limited 6 Value of Provision of services to the AE 2,723,480 Ann's length value 3,017,888 Difference between Arm's Length Profit and & Actual Profit 294,408 95% of 3,017,888 2,866,994 While the assessee has earned a margin of 19.94%, the comparables have earned a margin of 30.75%. The assessee has received an amount of Rs 2,723,480/- for the provision of audit services. The arm's length value of the provision of services comes to Rs 3,017,888/-. 95% of the ALP comes lo Rs. 2,866,994/-, while the difference between the arm's length price and the transfer price is Rs 294,408/-. As the AK transaction is not within 5% of the arm's length price, an adjustment of Rs. 294,408/-is being made to the income of the assessee on account of transaction of provision of services. 4. Against the above order assessee is in appeal before learned CIT(A). Learned CIT(A) granted part relief, Ld. CIT(A) rejected the following comparables :- i) Caliber Point Business Solutions Ltd. ii) HCL Comnet Systems and Services Ltd. iii) R. Systems International He confirmed other aspect of TPO order 5. Before us, learned Counsel of the assessee pleaded that he would be restricting his submission that if following comparables selected by the TPO/learned CIT(A) should be excluded for the reasons as mentioned below :- “1. Re.: EClerx Services Ltd: Detailed arguments on why ECIerx Services Ltd should not be chosen to be a comparable were made before the TPO/CIT(A): a) On perusal of the annual report of ECIerx for the AY 2007-08 (pages 115-136 of factual paper book no. 2), it is observed that the company has earned a super normal profit of 90.43%. The Appellant submits that it is earning a return of less than 20% on its costs. Hence, it cannot be compared with companies having extra ordinary margins as such companies could be assuming significantly higher risks in their operations. b) Further, the Appellant would like to submit that the Hon'ble ITAT in Appellant's own case for AY 2008-09 rejected ECierx on the ground that EClerx has earned an extra-ordinary profit of 65.88%. The ITAT held that such profit is not representative of the industry. Hon'ble ITAT order for AY 2008-09 is at page 13-28 of the factual paper hook no. 2. The relevant extract of the order of the Hon'ble ITAT for AY 2008- 09 is reproduced below:- "9. We have heard the rival submission and perused the relevant materials on record. The reasons are recorded given below. We find that the DR vide order dated 30.07.2012 have directed at para 12 (ii): Travelex India Private Limited 7 "Mold tek has earned super normal profits of 96. 66%. Such profit is not representative of the industry. Similar is the case with Eclerx with a reported margin of 65.88%. These two companies, we agree, should he eliminated from the final list to make the comparison realistic. " We find merit in (he above directions given by the DRP and direct the AO to eliminate Mold-Tek Technologies Ltd. and Eclerx Services Ltd. from the final list of comparable." (Para 9 at Page no 19 of the factual pit per book no. 2) c) The Appellant relies on the following decisions wherein EClerx has been rejected on (he ground that it earns supernormal profits and hence is not comparable to routine ITES service provider entity: - M/s. Capital IQ Information Systems (India ) Pvt. Ltd. v Dy. Commissioner of Income-tax (Int. Taxation) (ITA No. 1961 /Hyd/2011)- For AY 2007-08 (Paras 14 and 15, page 235 of case law paper book) - Zavata India Private Limited v The DC1T. Cir-3(3) (ITA. No. 1781/Hyd/2011) - For AY 2007-08 (Paras 23 to 25, page 285 of case law paperbook) - M/s Avineon India Pvt. Ltd. v Dy. Commissioner of Income (ITA No. I989/Hyd/2011)For AY 2007-08 (Page 308 of case law paperbook) - Market Tools Research Pvt. Ltd.. v Asst. Commissioner of Income-tax (ITA No. 2066/H YD/2011) (Para 8, page 247 of case law paperbook) - Cognizant Technology Services Pvt. Ltd. v Asst. Commissioner of Income- tax (ITA.Nos. 2106 & 1864/Hyd/201 I) (Paras 11 to 13, pages 256-257 of case law paperbook) - Brintons Carpets Asia Pvt. Ltd., v DOT (ITA No.547/PUN/2016) (Paras 8 to 10, Pages 328 to 331 of case law paperbook) d) Based on the above, the Appellant prays that EClerx be excluded from the final set of the comparable companies. 2. Re.: Mold-Tek Technologies Ltd: Detailed arguments on why Mold-Tek Technologies Ltd ('Mold-Tek 1 ) should not be chosen to be a comparable were made before the TPO/CIT(A): a) The Appellant would like to submit that the TPO has selected KPO division of Mold-Tek as comparable to Appellant's transaction of provision of ITES. Mold- Tek is engaged in providing structural engineering consulting services under the KPO division, which are not comparable to the transaction of ITES rendered by Travelex India. The relevant extract from the Annual report for AY 2007-08 is reproduced below (page 148 of the factual paper book no. 2): Travelex India Private Limited 8 REVIEW OF OPERATIONS Your Company has maintained accelerated growth as envisaged in the previous report, both in terms of Revenues and Net Profits. Overall sales have gone up by 35.17% from Rs.70.87 crore to Rs.95.80 crore largely fuelled by growth of 204% in the IT (KPO) Division billings from Rs.375 lakhs in 2005-06 to fis.1140 lakhs in 2006-07. Apart from enhancing billings, IT (KPO) Division has contributed towards more than doubling the profitability of your Company. Your Company achieved a net profit of Rs.830.71 lakhs for the year as against a profit of Rs.354.97 lakhs in the previous year, registering a growth of 134%. Cash profit was Rs. 1098.36 lakhs, compared to Rs.557.74 (akhs in the previous year. IT (KPOJ Division net profit rose sharply from Rs.1.60 crore to Rs.5.75 crore, registering a growth of 259.4%. IT (KPO) Division During the current year, the IT (KPO) Division commenced engineering services to high-rise buildings for clients in US & Canada, which offer excellent growth prospects. In April 2007, your Company acquired Cross Road Detailing Inc. an engineering services KPO, located at Indiana, USA, which will enhance the IT (KPO) division footprint in developed markets. The manpower, which was 40 in the year 2005, is now more than 200. (Page148 of the Factual paperbook no.2). b) Furthermore, on perusal of the annual report of Mold-Tek for the AY 2007-08. It is observed that the company has earned a super normal growth of 204% in relation to the KPO division (compared to past year). Also, Mold-Tek has earned a super normal profit of I 13.49% for KPO division. The Appellant would like to submit that it is earning a return of less than 20% on its costs. Hence, it cannot be compared with companies having extra ordinary margins as such companies could be assuming significantly higher risks in their operations. Mold-Tek has been rejected by Hon'ble ITAT in several rulings on the ground that the company earns supernormal profit and therefore, should not be selected as comparable company to routine ITES service provider entity. c) The Appellant would like to submit that the Hon'ble ITAT in Appellant's own case for AY 2008-09 rejected Mold-Tek on the ground that it has earned an extra-ordinary profit of 96.66%. The ITAT held that such profit is not representative of the industry. The relevant extract of the order of the Ilon'ble ITAT for AY 2008-09 has been reproduced below: "9. We have heard the rival submissions and perused the relevant materials on record. The reasons are recorded given below: We find that the DRP vide order dated 30.07.2012 have directed at para 12 (ii): "Mold- tek has earned super normal profits of 96.66%. Such profit is not representative of the industry. Similar is the case with Eclerx with a reported margin of 65.88%. These two companies, we agree, should he eliminated from the final list to make the comparison realistic. " We find merit in the above directions given by the DRP and direct the AO) to eliminate Mold-Tek Technologies Ltd. and Eclerx Services Ltd. from the final list of comparables. " d) The Appellant relies on the following decisions wherein Mold-Tek has been rejected on the ground that it earns supernormal profits and hence is not comparable to routine ITES service provider entity: Travelex India Private Limited 9 M/s. Capital IQ Information Systems (India) Pvt. Ltd. v Dy. Commissioner of Income- tax (Int. Taxation) - For AY 2007-08 (Paras 12 and 13, pages 233 and 234 of case law paperbook) - Zavata India Private Limited v The DCIT. Cir-3(3) (ITA. No. 178l/Hyd/2011) - For AY 2007-08 (Paras 29 to 31, page 286 to 288 of case law paperbook) - M/s Avineon India Pvt. Ltd. v Dy. Commissioner of Income (ITA No. 1989/Hyd/2011) - For AY 2007-08 (Para 3, pages 308 and 309 of case law paperbook) e) In view of the above, the Appellant prays that Mold-Tek be rejected as comparable. 3. Re. : Accentia Technologies Ltd: Detailed arguments on why Accentia Technologies Ltd ("Accentia') should not be chosen to be a comparable were made before the TPO / CIT(A): a) Further, the Appellant would like to submit that on perusal of the annual report of Accentia for AY 2007-08, it is noted that Accentia is engaged in providing medical transcription, billing and coding services, application development and customization service. Further, the company does not have segmental information. The aforesaid services provided by Accentia are not comparable to the provision of ITES by Appellant. The relevant extract from the Annual report for AY 2007-08 is reproduced below (page 69 of factual paper book - 2): SCHEDULE: "M " INCOME PARTICULARS CURRENT YEAR AMOUNT (Rs.) Brokerage 285,000 Software Sales 52,902,569 Medical Transcription Division 69,873,212 Coding Division 257,235 Investment Subsidy Written Back 33,306 TOTAL 123,351,322 (Page 69 of the Factual Paperbook no. 2) b) Further, two companies viz. IRIDIUM TECHNOLOGIES (INDIA) PRIVATE LIMITED and GFEOSOFT TECHNOLOGIES (TRIVANDRUM) LIMITED) have amalgamated with Accentia with effect from 1 ST April 2006, which has impacted the financial result and profitability of the company. In this connection, reliance is placed on the following: 1. Board resolution of Accentia approving the amalgamation (pages 96 and 97 of factual paper book -2) 2. Order dated 13"' July 2007 passed by the Hon'ble Bombay High Court approving the amalgamation scheme with an appointed date of 1 s1 April 2006 (pages 98 to 114 of factual paper book - 2) The Hon'ble ITAT in Appellant's own case for AY 2008-09 held that Accentia is not comparable to Travelex India's transaction of provision of ITES. While concluding the same, the Hon'ble ITAT placed reliance on the ruling of the Bombay High Court in Travelex India Private Limited 10 Aptara Technology (P) Ltd, for AY 2008-09, wherein Accentia Technologies Ltd was rejected as comparable to the transaction of provision of ITES. The Hon'ble ITAT also observed that Accentia Technologies Ltd, a company selected by the TPO, has been rejected by the DRP in Appellant's own case in AY 2010-11. Also, the TPO excluded this company in Appellant's own case in AY 2009-10. Further, it was observed that the company has made various acquisitions /mergers which arc extra ordinary events and such economically different facts have impacted the margin of the company. The relevant extract of the order of the Hon’ble ITAT for AY 2008-09 has been reproduced below: "9.3 In respect of Accentia Technologies Ltd., it is found that the DRP rejected it in assessee 's own case in A Y 2010-11. Also the TPO excluded it in asaensee's own case in AY 2009-10. Further we observe that the company has made various acquisitions/mergers during FY 2007-08 which are extra ordinary events and such economically different facts have impacted the margin of the company. We further notice that in the case of in the case of Accentia Technologies Ltd. the Hon'ble Bombay High Court m Aptara Technology (P) Ltd. (supra) for A Y 2008-09 has held: "(I) Accentia Technologies Ltd. : (a) I he impugned order of the Tribunal excluded Accentia Technologies Ltd. from the list of comparables by rendering a finding of the fact that the services rendered by Accentia Technologies Ltd. is different from that offered by the Respondent to its AE. It found on facts that Accentia Technologies Ltd. was providing medical transaction, hilling and coding services, application development and customization service in respect of which segmental data was also not available while the Respondent provides E-Learning service. Thus, the impugned order of the Tribunal found that M/s. Accentia Technologies Ltd. is not comparable with the Respondent-Assessee. Besides, impugned order also records a finding of fact that during the year the profit ability of M/s. Accentia Technologies Ltd. had been impacted by merger/amalgamation and therefore, cannot he considered to be comparable. (b)The grievance of the Revenue before us is that the merger and/or amalgamation would have no impact on the profitability of M/s. Accentia Technologies Ltd. Therefore, it was urged to be an appropriate comparable as both are rendering ITES services. (c) We find that the impugned order of the Tribunal has after rendering a finding of fact that the activities of the tested party and comparable are functionally different also records finding of fact that extraordinary events such as merger/amalgamation would have an impact/effect on the profitability of M/s. Accentia Technologies Ltd. Therefore, on both the above grounds, it was held to be not a comparable to the transaction of the Respondent with its AE. (d) In fact on the issue of merger/amalgamation the Tribunal holds that it affected the profitability of M/s. Accentia Technologies Lid. Reliance for the above was placed on the decisions of its coordinate benches in Hyderabad and Bangalore, i.e.. Capital IQ Information Systems (India) Private Ltd. v. DCIT (2013) 32 Taxtnann.com 21 (Hyderabad) and Symphony Marketing Solutions India Pvt. Lid. v. ITO (2013) 38 Taxinann.com 55 (Bangalore). The Travelex India Private Limited 11 Revenue has not attempted to show either before the Tribunal or even before us that the merger/amalgamation which took place in the previous year relevant to subject assessment year did not have an impact on the profitability of the Accentia Technologies Ltd. Merely because both the tested and the comparable provide ITES services they do not become comparable. This is so as the nature of services provided by use of Informalion Technology is different. In any event, no challenge has been made to the finding of the Tribunal that the activities carried out by Accentia Technologies Ltd. and the Respondent-Assessee are functionally different and, therefore, not comparable. (d) Therefore, the view taken by the Tribunal in excluding Accentia Technologies Ltd. is a possible view more particularly in the absence of the same being shown to be perverse. Thus, no interference is warranted. " 9.3.1 As mentioned earlier the assessee-company in the instant case primarily provides foreign exchange services which include purchase and sale of foreign currency to individuals and corporate, in its capacity as a licensed full-fledged money changer. In addition the assessee -company also provides certain IT support services to its AE. In view of the above factual scenario and the decision of the Hon'ble Bombay High Court in Aptara Technology (P.) Ltd. (supra), we exclude Accentia Technologies Lid., from the list of comparable. " (Para 9.3 at pages 21 to 23 of factual paper book - 2) d) The Appellant relies on the decisions of the Hon'ble ITAT wherein it has been held that Accentia is functionally dissimilar to ITES business and has entered into extra ordinary events during the AY 2007-08 which have impacted the margin of the company for AY 2007-08. - M/s. Capital IQ Information Systems (India ) Pvt. Ltd. v D). Commissioner of Income-tax (Int. Taxation) (ITA No. l96l/Hyd/2011) - For AY 2007-08 (Paras 10 and 11, pages 231 to 233 of the case law paperbook) - Zavata India Private Limited v The DCIT. Cir-3(3) (ITA.No. 1781/Hyd/2011)- For AY 2007-08 (Paras 9 and 10, pages 278 to 280 of case law paperbook) - M/s Avineon India Pvt. Ltd. vs. Dy. Commissioner of Income (ITA No. 1989/Hyd/2011)- For AY 2007-08 (Para 1, Page 307 of case law paperbook) - Brimons Carpets Asia Pvt. Ltd. vs. DCIT ( ITA No.547/PUN/20l 6) (Paras 11 and 12, Pages 331 to 334 of case law paperbook) - Aptara Technology (P) Ltd. (supra); CIT v PTC Software (I) (P.) Ltd. (2016) 75 taxmann.com 3 1 (Bombay) - For AY 2008-09 (Para 3, Page 210 to 212 of the case law paperbook) f) In view of [he above, the Appellant prays that Accentia be rejected as comparable. 4. Re : Vishal Information Technologies Ltd.( now known as Coral Hubs Ltd.): a) On perusal of the annual report of Vishal for AY 2007-08, it is observed that the business model followed by Vishal is different from that of the Appellant. Vishal subcontracts most of it's ITES work to third parties and has made significant Travelex India Private Limited 12 payments to the vendors, i.e. 42.88% of sales. Further, it has incurred only 2.30% as personnel cost as a ratio of sales. A computation of the said ratio is provided below: Particulars Amount (INR) Data entry charges & Vendor Payments 13,12,07,282 Personnel cost 70,27,631 Sales 30,60,10,382 Vendor payments as a percentage of sales 42.88% Personnel cost as a percentage of sales 2.30% b. Further the said ratio for the Appellant have been computed from the annual report of AY 2007-08 (submitted in factual paperbook no. 1 as below: Particulars Reference Amount (INR) Personnel Cost Page 2 7.89.29.749 Sales Page 2 14,29,96,504 Personnel Cost as a percentage of Sales 55.20% c) As can be seen from the above mentioned computations, the business model followed by Vishal is different from that of the Appellant. d) The Hon'ble ITAT in Appellant's own case for AY 2006-07. 2008-09 and AY 2009-10 adjudicated that Coral Hubs Ltd. (formerly known as Vishal Information Technologies Ltd.) (‘Vishal') is not comparable to the business of Appellant company. In this regard, the ITAT has relied on the ruling of Bombay High Court in Aptara Technolog) (P) Ltd. The relevant extract of the Hon'ble ITAT order for AY 2008-09 is reproduced below: "9.2.1 Thus as per the above decision, M/s. Coral Hub Ltd. is engaged in ITES, particularly selling and purchasing of products and goods: further the business model adopted by it was different in as much as it outsources its work to such- vendors. As mentioned curlier the appellant Company in the instant case primarily provides foreign exchange services which include purchase and sale of foreign currency to individuals and corporate, in its capacity as a licensed full-fledged money changer. In addition the appellant - company also provides certain IT support services to its AE. In view of the above factual scenario and the decision of the Hon'ble Bombay High Court in Aptara Technology (P.) Ltd. (supra), we exclude Coral Hubs Ltd. (formerly known as Vishal Information Technologies Ltd.) from the list of compatibles. " (Para 9.2. (c) and 9.2.1 at page nos. 19 to 21 of factual paperbook no.2) e) The Appellant would also like lo place reliance on the following Hon'ble ITAT decisions, wherein Vishal has been rejected as not comparable lo ITI-S transaction: Travelex India Private Limited 13 - Aptara Technology (P) Ltd. (supra); CIT v PTC Software (I) (P.) Ltd. (2016)75 taxmann.com 31 (Bombay) - For AY 2008-09 (Page 212 and 213 of the case law paperbook) - M/s. Capital IQ Information Systems (India) Pvt. Ltd. v Dy. Commissioner of Income-tax (Int. Taxation) (ITA No.1961/Hyd/201l) - For AY 2007-08 (Paras 16 and 17, pages 235 Jo 237 of the case law paperbook) - Zavata India Private Limited v The DC IT. Cir-3(3)(ITA. No.1781/Hyd/ 2011) for AY 2007-08 (Paras 14 to 17, pages 281 to 283 of case law paperbook) f) In view of the above, the Appellant prays that Vishal be rejected as comparable. 6. Per contra, learned Departmental Representative relied upon the orders of authorities below. Re. Eclerx :- Upon careful consideration, we note that assessee has submitted that Eclerx is not a valid comparable in as much as it earns super abnormal profit of 90.43%. That ITAT in assessee’s own case for A.Y. 2008-09 has rejected this as valid comparable for the same reason. Several other case laws have also been cited above for this proposition. Accordingly, we direct that this entity should be excluded from list of comparables. Re : Mold Tek Technologies Ltd. : In this regard we note that ITAT in assessee’s own case has accepted in A.Y. 2008-09 that this is not a valid comparable as it earns abnormal super profit. Several other case laws have been referred above for the same proposition. Hence, we accept that this is not a valid comparable and is directed to be rejected. Re : Accential Technologies Ltd. :- As regard above ITAT in assessee’s own case has accepted this to be not a valid comparable. The services rendered by this comparable was different from that Travelex India Private Limited 14 of assessee. Moreover, there were extra ordinary events of acquisition and mergers. Hence on similar reasoning Hon'ble Bombay High Court in the case of Aptara Technologies P. Ltd. for A.Y. 2008-09 as detailed above has found it to be an invalid comparable. Hence, we accept this comparable is to be rejected. Re : Vishal Information Technologies (Now known as Coral Hubs Ltd.):- As detailed above the business model followed by Vishal Information Technologies is not comparable to assessee. It subcontracts most of its ITES work to third parties. Its payment to vendor is 42.88% of sales and has incurred only 2.3% as personal cost as a sale ratio. Moreover ITAT in assessee’s own case for A.Y. 2008-09 has accepted it to be not a valid comparable. Hence, we direct that this comparable should also be rejected. The TPO should make the computation afresh in light of our above direction. In the result, the appeal is allowed for statistical purposes. Pronounced in the open court on 06.12.2021 Sd/- Sd/- (AMARJIT SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 06/12/2021 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai