MIDLAND CREDIT MANAGEMENT INDIA PVT. LTD., NEW DELHI V. ADDL. CIT, SPECIAL RANGE- 6, NEW DELHI

ITA 3892/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6781 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 15-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Business income; Transfer pricing; International transaction; Commercial expediency; Revised return
• Section: 115JB; 10B; 13; 92CA; 56; 92

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 SUDHANSHU SRIVASTAVA, JUDI CIAL MEMBER ITA NO. 3892/DEL/2017 [ASSESSMENT YEAR: 2010-11] M/S MIDLAND CREDIT MANAGEMENT VS. THE AD DL. C.I.T INDIA PVT LTD SPECIAL RANGE - 6 C/O REGUS BUSINESS CENTRE NEW DELHI EROS CORPORATE TOWERS, NEHRU PLACE, NEW DELHI PAN: AAECM 3260 F ITA NO. 3765/DEL/2017 [ASSESSMENT YEAR: 2010-11] THE ADDL. C.I.T VS. M/S MIDLAND CREDIT MANAGEMENT SPECIAL RANGE - 6 INDIA PVT LTD NEW DELHI C/O REGUS BUSINESS CENTRE EROS CORPORATE TOWERS, NEHRU PLACE, NEW DELHI PAN: AAECM 3260 F [APPELLANT] [RESPONDENT] DATE OF HEARING : 10.09.2020 DATE OF PRONOUNCEMENT : 14.09.2020 ASSESSEE BY : SHRI NAGESHWAR RAO, ADV REVENUE BY : SHRI SURENDRA PAL, CIT - DR - 2- ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THE ABOVE CROSS APPEALS BY THE ASSESSEE AND THE REV ENUE ARE PREFERRED AGAINST THE ORDER OF THE CIT(A) 44, NEW DELHI DATED 28.12.2016 PERTAINING TO A.Y 2010 11. BOTH THESE A PPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. WE WILL FIRST TAKE UP ASSESSEES APPEAL IN ITA N O. 3892/DEL/2017. 3. AT THE VERY OUTSET, LET US UNDERSTAND THE BUSINE SS PROFILE OF THE ASSESSEE.THE MAIN FUNCTION PERFORMED BY THE ASSESSE E PERTAINS TO MAKING OUTBOUND COLLECTION CALLS TO DEBTORS FOR REC OVERY OF US CONSUMER DEBTS WHILE ADHERING TO THE NECESSARY LAWS AND REGULATIONS THAT ARE RELEVANT TO DEBT COLLECTION ACTIVITIES. FU RTHER, THE ASSESSEE ALSO RENDERS SERVICES FOR THE BANKRUPTCY VERTICAL O F ENCORE US AND UNDERTAKES CERTAIN TASKS PERTAINING TO BANKRUPTCY M ANAGEMENT SERVICES RENDERED BY ENCORE US. - 3- 4. INTERNATIONAL TRANSACTIONS REPORTED BY THE ASSES SEE ARE AS UNDER: I) PROVISION OF ITES RS. 6,53,19,30,694/- II) PURCHASE OF FIXED ASSET AND OTHER GOODS R S. 38,63,381/- 5. THE ASSESSEE HAS USED TNMM WITH OP/TC AS THE PLI AND HAS ARRIVED AT A SET OF 7 COMPANIES UNDER ITES SEGMENT WITH AN AVERAGE MARGIN OF 7.41%. THE ASSESSEE WORKEDOUT ITS OWN MAR GIN AT 21.87%. BASED ON THE ANALYSIS, INTERNATIONAL TRANSACTION WA S REPORTED AT ARM'S LENGTH. 6. DURING THE TRANSFER PRICING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REJECTED THE FOLLOWING COMPARABLES USED BY THE ASSESSEE: 1. R SYSTEM INTERNATIONAL LIMITED - FOR THE REASON THA T THIS COMPANY IS HAVING FINANCIAL YEAR ENDING OTHER THAN MARCH. 2. ADITYA BIRLA MINACS WORLDWIDE LTD. - THIS COMPANY W AS FOUND HAVING SIGNIFICANT SEGMENT RPT AT 33.5% AND ALSO FA ILED THE EXPORT SALES FILTER. 3. CG VAK SOFTWARE AND EXPORTS LTD - THIS COMPANY WAS REJECTED ON THE GROUND THAT UNDER THE ITES SEGMENT, SALE WAS JUST RS. 82.78 LAKHS AND HENCE SEGMENT DOES NOT PASS TURNOVE R FILTER. - 4- 4. THE CEFA IMAGING PVT LTD - THIS COMPANY WAS REJECTE D FOR THE REASON THAT IT WAS ENGAGED IN SEVERAL E-PUBLISHING SERVICES. 5. INFORMED TECHNOLOGIES INDIA LTD - THIS COMPANY DID NOT PASS TURNOVER FILTER AND HENCE REJECTED. 7. AFTER REJECTING THE AFORE-MENTIONED COMPARABLES OF THE ASSESSEE, THE ASSESSING OFFICER FINALLY DETERMINED THE ALP OF THE INTERNATIONAL TRANSACTION BY INCLUDING OTHER COMPAR ABLE COMPANIES AS UNDER: SL. NO. COMPANY NAME OP/TC 1. ACCENTIA TECHNOLOGY LIMITED 43.07% 2. COSMIC GLOBAL LTD 18.28% 3. E4E HEALTHCARE LTD 31.03% 4. FORTUNE INFOTECH LIMITED 22.80% 5. I GATE GLOBAL SOLUTIONS LIMITED 24.54% 6. INFOSYS B P O LTD. , 31.44% 7. JINDAL INTELLICOM LIMITED 13.62% 8. T C S E - SERVE INTERNATIONAL LTD. 54.03% 9. T CSE - SERVE LED. 63.42% - 5- 10. ACROPETAL TECHNOLOGY LTD 44.46% 11. E CIERX SERVICES 55.84% 12. ICRA TECHNO ANALYTICS LIMITED [SEGMENT] 28.77% AVERAGE 35. 94% 8. THE ASSESSING OFFICER COMPUTED THE ARMS LENGTH ADJUSTMENT AS UNDER: OPERATIONAL COST RS. 53,60,18,772 / - ARM'S LENGTH PRICE AT A MARGIN OF. 35.94% RS. 72,86,63,919 / - PRICE RECEIVED RS. 65 , 32 , 24 , 145 / - PROPOSED ADJUSTMENT U/S 92CA RS. 7,54,39,774 / - 9. PROCEEDING FURTHER, THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT WAS DENIED BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEES BUSINESS IS NOT ELIGIBLE FOR THE CLAIM O F DEDUCTION UNDER SECTION 10A OF THE ACT. THE ASSESSING OFFICER FURTH ER DENIED THE CLAIM OF INTEREST INCOME AND MISCELLANEOUS INCOME ON THE GROUND THAT SUCH INCOME DOES NOT CONSTITUTE BUSINESS INCOME, AS ENVI SAGED UNDER SECTION 10A OF THE ACT AND SIMULTANEOUSLY, ADJUSTME NTS WERE MADE IN THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. - 6- 10. THE ASSESSEE CARRIED THE MATTER BEFORE THE CITA . 11. THE LD. CIT(A) DIRECTED FOR EXCLUSION OF THE CO MPANY ACCENTIA TECHNOLOGY PRIVATE LIMITED AND REJECTED THE CLAIM O F INCLUSION OF R SYSTEMS INTERNATIONAL LTD, CG VAK SOFTWARE TECHNOLO GIES LTD BUT ACCEPTED THE INCLUSION OF MICRO LAND LTD. THE LD. C IT(A) FURTHER ALLOWED THE CLAIM OF DEDUCTION U/S 10A OF THE ACT. 12. AGGRIEVED BY THIS, BOTH THE PARTIES ARE BEFORE US. 13. BEFORE US, THE COUNSEL FOR THE ASSESSEE ARGUED FOR THE EXCLUSION OF TCS E-SERVE LTD AND TCS E-SERVE INTERNATIONAL LT D. 14. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY STATED THAT BOTH THESE COMPANIES ARE FUNCTIONALLY DISSIMILAR AN D ARE PART OF TATA GROUP AND BECAUSE OF THAT, THESE COMPANIES HAVE HUG E BRAND VALUE HAVING BEEN ASSOCIATED WITH TATA BRAND. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER STATED THAT THESE COMPANIES BEAR H IGH RISKS AND ARE FUNCTIONALLY DISSIMILAR AS THEY ARE ENGAGED IN SOFT WARE TESTING, VERIFICATION AND VALIDATION OF SOFTWARE. - 7- 15. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE LOWER AUTHORITIES. THE LD. DR VEHEMENTLY STATED THA T THE APPELLANT IS ALSO PART OF A GLOBAL GROUP AND ITS AES HAVE PRESEN CE IN 15 COUNTRIES AND HAVE HUGE BRAND VALUE, WHICH IS COMPARABLE TO T HESE COMPARABLES. IT IS THE SAY OF THE LD. DR THAT THE PARENT COMPANY OF THE ASSESSEE ARE HANDLING DEBT ACCOUNTS OF MORE THAN 7 MILLION CONSU MERS WITH LARGE NUMBER OF EMPLOYEES, AROUND 8300, ACROSS THE GLOBE IN VARIOUS COUNTRIES. THE RISKS TAKEN BY THE PARENT COMPANY AR E SUBSTANTIAL AS THE ASSESSEE TAKES OVER THE DOUBTFUL DEBT ACCOUNT, WHICH ARE HIGHLY RISKY AND THE TURNOVER OF THE PARENT COMPANY IS IN EXCESS OF 140 BILLION DOLLARS. THEREFORE, THE TPO HAS RIGHTLY INCLUDED TH E COMPARABLES. 16. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT ALTH OUGH TCS E-SERVE AND TCS E-SERVE INTERNATIONAL LIMITED ARE ALSO INCL UDED IN THE SOFTWARE TESTING, VERIFICATION AND VALIDATION OF SOFTWARE AT THE TIME OF IMPLEMENTATION AND DATA CENTER MANAGEMENT ACTIVITIE S, IT IS ALSO TRUE THAT NO SEGMENTAL INFORMATION IS AVAILABLE. MOREOVE R, BOTH THESE COMPANIES HAVE HUGE BRAND VALUE FOR HAVING BEEN ASS OCIATED WITH TATA BRAND. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF AVAYA INDIA PRIVATE LIMITED HAS HELD AS UNDER: - 8- 15. THE ABOVE SUBMISSIONS HAVE BEEN CONSIDERED. IN A LARGE NUMBER OF DECISIONS THIS COURT HAS EMPHASIZED, THAT FOR THERE TO BE RELIABLE BENCHMARK STUDIES FOR DETERMINING ALP N OT ONLY THE COMPARABLES HAVE TO BE FUNCTIONALLY SIMILAR BUT SHO ULD HAVE SIMILAR BUSINESS ENVIRONMENT AND RISKS AS THE TESTED PARTY. A DETAILED EXPOSITION OF THE LEGAL POSITION WITH SPECIFIC REFE RENCE TO RULE 10 B (2) OF THE INCOME TAX RULES, 1962 IS FOUND IN THIS COURT S DECISION IN CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) PVT. LT D. V. DCIT 376 ITR 183 (DEL) AS UNDER: 30. THE REASONING ADOPTED IN VARIOUS JUDGMENTS NOTICED ABOVE, SHOWS THAT FUNCTIONAL ANAL YSIS SEEKS TO IDENTIFY AND COMPARE THE ECONOMICALLY SIGNIFICANT A CTIVITIES AND RESPONSIBILITIES UNDERTAKEN, ASSETS USED AND RISKS ASSUMED BY THE PARTIES TO THE TRANSACTION. QUANTITATIVE AND QUALIT ATIVE FILTERS/CRITERIA HAVE BEEN USED IN DIFFERENT CASES TO INCLUDE OR EXCLUDE COMPARABLES. THE INTUITIVE LOGIC FOR EXCLUD ING BIG COMPANIES FROM THE LIST OF COMPARABLES WHILE UNDERT AKING THE FAR ANALYSIS OF A SMALLER COMPANY IS ATTRACTIVE, GIVEN THAT SUCH BIG COMPANIES PROVIDE SERVICES TO DIVERSE CLIENTELE, PE RFORM MULTIFARIOUS FUNCTIONS, OFTEN ASSUME RISKS AND EMPL OY INTANGIBLE ASSETS WHICH ARE SPECIALLY DESIGNED, UNLIKE IN THE CASE OF SMALLER COMPANIES. THE BIGGER COMPANIES HAVE AN 9 ITA 532/2 019 PAGE 10 OF 21 ESTABLISHED REPUTATION IN THE SEGMENT, ARE WE LL KNOWN AND EMPLOY ECONOMIES OF SCALE TO A TELLING END. ON THE OTHER HAND, THESE OBVIOUS - AND APPARENT FEATURES SHOULD NOT BL IND THE TPO FROM THE OBLIGATION TO CARRY OUT THE TRANSFER PRICI NG EXERCISE WITHIN THE STRICT MANDATE OF SECTION 92 C AND RULES 10-A TO 10-E. 31. ARM'S LENGTH PRICE DETERMINATION, IN RESPECT OF AN INTERNATIONAL TRANSACTION HAS NECESSARILY TO CONFIRM TO THE MANDA TE OF RULE 10B. - 9- IN THIS CASE, THE METHOD FOLLOWED FOR DETERMINING T HE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION ADOPTED BY T HE ASSESSEE AND THE REVENUE IS THE TNMM. THE COMPARABILITY OF AN IN TERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION HAS, I N SUCH CASES, TO BE SEEN WITH REFERENCE TO THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT THE ASSETS EMPLOYED OR TO BE EMPLOYED AND T HE RISKS ASSUMED BY THE RESPECTIVE PARTIES TO THE TRANSACTIO N AS PER RULE 10B(2)(B). THE SPECIFIC CHARACTERISTICS OF THE PROP ERTY TRANSFERRED OR SERVICES PROVIDED (CONTEMPLATED BY R ULE 10B(2)(A)) IN EITHER TRANSACTIONS MAY BE SECONDARY, FOR JUDGIN G COMPARABILITY OF AN INTERNATIONAL TRANSACTION IN THE TNMM, BECAUS E THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICE S PROVIDED AND THE DIRECT AND INDIRECT COST OF PRODUCTION INCURRED BY THE ENTERPRISE IN RESPECT OF PROPERTY TRANSFERRED OR SE RVICES PROVIDED GO INTO RECKONING COMPARABILITY ANALYSIS IN THE TRA NSACTION METHODS, I.E. THE COMPARABLE UNCONTROLLED PRICE, RESALE PRIC E AND COST PLUS WHEREAS THE PROFIT BASED METHOD SUCH AS TRANSACTION AL NET MARGIN METHOD TAKES INTO ACCOUNT, THE NET MARGIN REALISED. IN TNMM, COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION IS TO BE SEEN WITH REFERENCE TO FUNCTIO NS PERFORMED AS PROVIDED IN SUB-RULE (2)(B) OF RULE 10B READ WITH S UB-RULE (1)(E) OF THAT RULE AFTER TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED BY THE RESPECTIVE PA RTIES TO THE TRANSACTION. AS NOTICED EARLIER, RULE 10B(3) MANDAT ES THAT A GIVEN OR SELECT UNCONTROLLED TRANSACTION SELECTED IN TERM S OF RULE 10B(2) 'SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTIO N' IF NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE COMPARED TRANSACTI ONS, OR 10 ITA 532/2019 PAGE 11 OF 21 BETWEEN ENTERPRISES ENTERING INTO SUCH - 10- TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE P RICE OR COST CHARGED OR PAID OR THE PROFIT ARISING FROM SUCH TRA NSACTION IN THE OPEN MARKET OR REASONABLY ACCURATE ADJUSTMENT CAN B E MADE TO ELIMINATE THE EFFECTS OF SUCH DIFFERENCE. 32. NOW, THE SEQUITUR OF RULE 10B (2) AND (3) IS THAT IF THE COMPARABLE ENTI TY OR ENTITY S TRANSACTIONS BROADLY CONFORM TO THE ASSESSEE S FUNCTIONING, IT HAS TO ENTER INTO THE MATRIX AND BE APPROPRIATELY CONSI DERED. THE CRUCIAL EXPRESSION GIVING INSIGHT INTO WHAT WAS INT ENDED BY THE PROVISION CAN BE SEEN BY THE USE OF THE EXPRESSION: NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACT IONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR P AID IN, .. SUCH TRANSACTIONS IN THE OPEN MARKET. THE OTHER EXERCIS E WHICH THE TPO HAS TO NECESSARILY PERFORM IS THAT IF THERE ARE SOME DIFFERENCES, AN ATTEMPT TO 'ADJUST' THEM TO 'ELIMIN ATE THE MATERIAL EFFECTS' SHOULD BE MADE: (II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH D IFFERENCES. 33. SUCH BEING THE CASE, IT IS CLEAR THAT EXCLUSION OF SOME COMPANIES WHOSE FUNCTIONS ARE BROADLY SIMILAR AND WHOSE PROFI LE - IN RESPECT OF THE ACTIVITY IN QUESTION CAN BE VIEWED INDEPENDE NTLY FROM OTHER ACTIVITIES- CANNOT BE SUBJECT TO A PER SE STANDARD OF LOSS MAKING COMPANY OR AN 'ABNORMAL' PROFIT MAKING CONCERN OR H UGE OR 'MEGA' TURNOVER COMPANY. AS EXPLAINED EARLIER, RULE 10B (2 ) GUIDES THE SIX METHODS OUTLINED IN CLAUSES (A) TO (F) OF RULE 10B( 1), WHILE JUDGING COMPARABILITY. RULE 10B (3) ON THE OTHER HAND, INDI CATES THE APPROACH TO BE ADOPTED WHERE DIFFERENCES AND DISSIM ILARITIES ARE APPARENT. THEREFORE, THE MERE CIRCUMSTANCE OF A COM PANY - OTHERWISE CONFORMING TO THE STIPULATIONS IN RULE 10 B (2) IN ALL - 11- DETAILS, PRESENTING A PECULIAR FEATURE - SUCH AS A HUGE PROFIT OR A HUGE TURNOVER, IPSO FACTO DOES NOT LEAD TO ITS EXCL USION. THE TPO, FIRST, HAS TO BE SATISFIED THAT SUCH DIFFERENCES DO NOT MATERIALLY AFFECT THE PRICE...OR COST; SECONDLY, AN ATTEMPT T O 11 ITA 532/2019 PAGE 12 OF 21 MAKE REASONABLE ADJUSTMENT T O ELIMINATE THE MATERIAL EFFECT OF SUCH DIFFERENCES HAS TO BE M ADE. 34. THE COURT IS ALSO AWARE OF THE FACTORS MENTIONED IN RUL E 10B (2), I.E. CHARACTERISTICS OF THE SERVICE PROVIDED, FUNCTIONS PERFORMED TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOY ED AND THE RISKS ASSUMED, BY THE RESPECTIVE PARTIES TO THE TRA NSACTIONS; CONTRACTUAL TERMS OF THE TRANSACTIONS INDICATING HO W THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVI DED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRAN SACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SI ZE OF THE MARKETS, THE LAWS AND THE GOVERNMENT ORDERS IN FORC E; COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS ARE WH OLESALE OR RETAIL. THESE ELEMENTS COMPREHEND THE SIMILARITIES AND DISSIMILARITIES; CLAUSE (F) OF RULE 10C(2) SPECIFIC ALLY PROVIDES THAT THE EXTENT TO WHICH RELIABLE AND ACCURATE ADJUSTME NTS CAN BE MADE TO ACCOUNT FOR DIFFERENCES, IF ANY, BETWEEN TH E INTERNATIONAL TRANSACTION OR THE SPECIFIED DOMESTIC TRANSACTION A ND THE COMPARABLE UNCONTROLLED TRANSACTION OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS AND THE NATURE, EXT ENT AND RELIABILITY OF ASSUMPTIONS REQUIRED TO BE MADE IN A PPLICATION OF A METHOD HAVE TO BE TAKEN INTO CONSIDERATION BY THE TPO. 36. THIS COURT HOLDS THAT IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS - 12- INCORRECT, BOTH IN ITS RELIANCE PLACED UPON PREVIOU S YEARS DATA AS WELL AS THE MANNER OF SUCH RELIANCE. FIRST, THE ASS ESSEE S JUSTIFICATION FOR RELYING ON SUCH DATA IS THE VOLAT ILITY IN THE COMPARABLES PROFIT MARGINS AND THE CONSEQUENT INABILITY TO TRANSACT AT A CONSISTENT ALP. HOWEVER, THIS IS NOT WARRANTED HEREIN. WHILST THERE MAY BE A WIDE FLUCTUATION IN T HE PROFIT MARGINS OF COMPARABLES FROM YEAR-TOYEAR, THIS BY IT SELF DOES NOT JUSTIFY THE NEED TO TAKE INTO ACCOUNT PREVIOUS YEAR S PROFIT MARGINS. THE TRANSFER PRICING MECHANISM PROVIDED IN THE ACT AND THE RULES PRESCRIBES THAT WHILE 12 ITA 532/2019 PAG E 13 OF 21 DETERMINING THE ALP, THE ARITHMETIC MEAN OF ALL COM PARABLES IS TO BE ADOPTED. THIS IS TO OFFSET THE CONSEQUENCE OF AN Y EXTREME MARGINS THAT COMPARABLES MAY HAVE AND ARRIVE AT A B ALANCED PRICE. SIMILARLY, THE WIDE FLUCTUATIONS IN PROFIT MARGINS OF THE SAME ENTITY ON A YEAR-TO-YEAR BASIS WOULD BE OFFSET BY T AKING THE ARITHMETIC MEAN OF ALL COMPARABLES FOR THE ASSESSME NT YEAR IN QUESTION. IN ANY CASE, IN THE EVENT THAT THE VOLATI LITY IS ON ACCOUNT OF A MATERIALLY DIFFERENT ASPECT INCAPABLE OF BEING ACCOUNTED FOR, THE ANALYSIS UNDER WOULD RULE 10B (3) WOULD EXCLUDE SUCH AN ENTITY FROM BEING CONSIDERED AS A COMPARABLE. SECONDLY, AS REGARDS THE MANNER OF USING PREVIOUS YEARS DATA, THE ASSESSEE HAS TAKEN THE ARITHMETIC MEAN OF THE COMPARABLES PROFIT MARGINS FOR THE ASSESSMENT YEAR IN QUESTION AND TWO PREVIOUS YEARS. THIS COURT DISAGREES. THE PROVISO TO RULE 10B(4), READ WITH TH E SUB-RULE, ITSELF INDICATES THAT THE PURPOSE FOR WHICH PREVIOUS YEARS DATA MAY BE CONSIDERED IS - ANALYSING THE COMPARABILITY OF AN U NCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION. IT D OES NOT PRESCRIBE THAT ONCE AN UNCONTROLLED TRANSACTION HAS BEEN HELD TO BE A - 13- COMPARABLE , IN ORDER TO OBVIATE AN APPARENT VOLATILITY IN THE DATA, THE ARITHMETIC MEAN OF THREE YEARS (THE ASSESSMENT YEAR IN QUESTION AND TWO PREVIOUS YEARS) MAY BE TAKEN. THAT WOULD AMOUNT TO ASSIGNING EQUAL WEIGHT TO THE DATA FOR EACH OF T HE THREE YEARS, WHICH IS AGAINST THE MANDATE OF RULE 10B(4). THE US E OF THE WORD SHALL IN RULE 10B(4) AND, NOTICEABLY, MAY IN TH E PROVISO, IMPLIES THAT THE RELEVANT ASSESSMENT YEAR S DATA IS OF PRIMARY CONSIDERATION, AS OPPOSED TO PREVIOUS YEARS DATA. 39. THIS COURT PROCEEDS ON THE BASIS THAT THERE IS SUFFICIENT GUID ANCE AND CLARITY IN RULE 10B ON THE PRINCIPLES APPLICABLE FOR DETERM INATION OF ALP. THESE INCLUDE THE VARIOUS FACTORS TO BE TAKEN INTO CONSIDERATION, APPROACH TO BE ADOPTED (FUNCTIONS PERFORMED, TAKING INTO ACCOUNT RISKS BORNE AND ASSETS EMPLOYED, SIZE OF THE MARKET , THE NATURE OF COMPETITION, TERMS OF LABOUR, EMPLOYMENT AND COST O F CAPITAL, GEOGRAPHICAL LOCATION ETC). THE EXTENT OF ACCURATE ADJUSTMENTS POSSIBLE, TOO, IS A FACTOR TO BE CONSIDERED. RULE 1 0B (3) THEN UNDERLINES WHAT THE ALP DETERMINING EXERCISE ENTAIL S, IF THERE ARE DISSIMILARITIES 13 ITA 532/2019 PAGE 14 OF 21 WHICH MATERIALLY AFFECT THE PRICE CHARGED ETC: THE FIRST ATTEMPT HAS TO BE TO ELIMINATE THE COMPONENTS WHICH SO MATERIALLY AFFECT THE PRICE OR COST. IN OTHER WORDS, GIVEN THE DATA AVAILABLE, IF THE DISTORTING FACTOR CAN BE SEVERED AND THE OTHER DATA USED, THAT COURSE HAS TO BE NECESSARILY ADOPTED. (ALL EMPHASIS IN ORIGINAL) 16. IN RAMPGREEN SOLUTIONS PVT. LTD. V. CIT (2015) 377 ITR 533 THIS COURT FURTHER DISCUSSED RULE 10-B (2) OF THE IT RULES. THIS COURT POINTED OUT HOW ALTHOUGH BOTH THE KNOWLEDGE PROCESS OUTSOURCING (KP O) SERVICES AND THE BUSINESS PROCESS OUTSOURCING (BPO) SERVICES FALL WITHIN THE BROAD DEFINITION OF ITES, COMPANIES ENGAGED IN KPO SERVICES - 14- CANNOT BE USED AS COMPARABLES FOR THE TP STUDY OF A COMPANY ENGAGED IN PROVIDING BPO SERVICES. IN THAT PROCESS, IT WAS OBSERVED BY THIS COURT AS UNDER: 20. IN ORDER FOR THE BENCH MARKING STUDIES TO BE RELIABLE FOR THE PURPOSES OF DETERMINING THE ALP, IT WOULD BE ESSENTIAL THAT THE ENTITIES SELECTED AS COMPARABLES ARE FUNCTIONALLY SIMILAR AND ARE SUBJECT TO THE SIMILAR BUSINESS ENV IRONMENT AND RISKS AS THE TESTED PARTY. IN ORDER TO IMPUTE AN AL P TO A CONTROLLED TRANSACTION, IT WOULD BE ESSENTIAL TO ENSURE THAT T HE INSTANCES OF UNCONTROLLED ENTITIES/TRANSACTIONS SELECTED AS COMP ARABLES ARE SIMILAR IN ALL MATERIAL ASPECTS THAT HAVE ANY BEARI NG ON THE VALUE OR THE PROFITABILITY, AS THE CASE MAY BE OF THE TRANSA CTION. ANY FACTOR, WHICH HAS AN INFLUENCE ON THE PLI, WOULD BE MATERIAL AND IT WOULD BE NECESSARY TO ENSURE THAT THE COMPARABLES A RE ALSO EQUALLY SUBJECTED TO THE INFLUENCE OF SUCH FACTORS AS THE T ESTED PARTY. THIS WOULD, OBVIOUSLY, INCLUDE BUSINESS ENVIRONMENT ; THE NATURE AND FUNCTIONS PERFORMED BY THE TESTED PARTY AND THE COM PARABLE ENTITIES; THE VALUE ADDITION IN RESPECT OF PRODUCTS AND SERVICES PROVIDED BY PARTIES; THE BUSINESS MODEL; AND THE AS SETS AND RESOURCES EMPLOYED. IT CANNOT BE DISPUTED THAT THE FUNCTIONS PERFORMED BY AN ENTITY WOULD HAVE A MATERIAL BEARIN G ON THE VALUE AND PROFITABILITY OF THE ENTITY. IT IS, THEREFORE, OBVIOUS THAT THE COMPARABLES SELECTED 14 ITA 532/2019 PAGE 15 OF 21 AND THE TESTED PARTY MUST BE FUNCTIONALLY SIMILAR FOR ASCER TAINING A RELIABLE ALP BY TNMM. RULE 10B (2) OF THE INCOME TAX RULES, 1962 ALSO CLEARLY INDICATES THAT THE COMPARABILITY OF CONTROL LED TRANSACTIONS WOULD BE JUDGED WITH REFERENCE TO THE FACTORS AS IN DICATED THEREIN. CLAUSE (A) AND (B) OF RULE 10B (2) EXPRESS LY INDICATE THAT THE SPECIFIC CHARACTERISTICS OF THE SERVICES PROVID ED AND THE - 15- FUNCTIONS PERFORMED WOULD BE FACTORS FOR CONSIDERIN G THE COMPARABILITY OF UNCONTROLLED TRANSACTIONS WITH CON TROLLED TRANSACTIONS. 30. AS INDICATED ABOVE, IN ORDER T O DETERMINE THE ALP IN RELATION TO A CONTROLLED TRANSACTION, THE AN ALYSIS MUST INCLUDE COMPARABLES WHICH ARE SIMILAR IN ALL ASPECT S THAT HAVE A MATERIAL BEARING ON THEIR PROFITABILITY. PARAGRAPH 1.36 OF THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' PUBLISHED IN 2010 (HEREAFT ER 'OECD GUIDELINES') INDICATES THE 'COMPARABILITY FACTORS' WHICH ARE IMPORTANT WHILE CONSIDERING THE COMPARABILITY OF UN CONTROLLED TRANSACTIONS/ENTITIES WITH THE CONTROLLED TRANSACTI ONS/ENTITIES. SUB-RULE (2) OF RULE JOB OF THE INCOME TAX RULES, 1 962 ALSO MANDATES THAT THE COMPARABILITY OF INTERNATIONAL TR ANSACTIONS WITH UNCONTROLLED TRANSACTIONS WOULD BE JUDGED WITH REFE RENCE TO THE FACTORS INDICATED UNDER CLAUSES (A) TO (D) OF THAT SUB-RULE, WHICH ARE SIMILAR TO THE COMPARABILITY FACTORS AS INDICAT ED UNDER THE OECD GUIDELINES. .. 36. AS POINTED OUT EARLIER, TH E TRANSFER PRICING ANALYSIS MUST SERVE THE BROAD OBJECT OF BEN CHMARKING AN INTERNATIONAL TRANSACTION FOR DETERMINING AN ALP. T HE METHODOLOGY NECESSITATES THAT THE COMPARABLES MUST BE SIMILAR I N MATERIAL ASPECTS. THE COMPARABILITY MUST BE JUDGED ON FACTOR S SUCH AS PRODUCT/SERVICE CHARACTERISTICS, FUNCTIONS UNDERTAK EN, ASSETS USED, RISKS ASSUMED. THIS IS ESSENTIAL TO ENSURE TH E EFFICACY OF THE EXERCISE. THERE IS SUFFICIENT FLEXIBILITY AVAILABLE WITHIN THE STATUTORY FRAMEWORK TO ENSURE A FAIR ALP'. 17. THE ABOVE DICTUM WAS FOLLOWED AND REITERATED IN AVENUE ASIA ADVISORS 15 ITA 532/2019 PAGE 16 OF 21 PVT. LTD. V. DY CIT (2017) 3 98 ITR 320 (DEL) WHERE THIS COURT, INTER ALIA, OBSERVED THAT THOUGH IN THE - 16- TNMM METHOD THERE IS SUFFICIENT TOLERANCE, MERE BRO AD FUNCTIONALITY IS BY ITSELF INSUFFICIENT. 18. ON TH E ASPECT OF EXCLUSION OF COMPARABLES THAT HAVE A HIGH ECONOMIC UPSCALE VIZ., INFOSYS, TCS AND WIPRO, PARTICULAR REFERENCE MAY BE MADE TO THE DECISION OF THIS COURT IN PCIT V. BC MANAGEMENT SER VICES PVT. LTD. (SUPRA) WHERE A PARTICULAR REFERENCE WAS MADE TO TC S E-SERVE AS UNDER: 13. ...THE THIRD COMPARABLE THAT THE AO/TPO EXCLUDED IS TCS E-SERVE. THE ITAT OBSERVED THAT THOUGH THERE IS A CLOSE FUNCTIONAL SIMILARITY BETWEEN THAT ENTITY AND THE A SSESSEE, HOWEVER, THERE IS A CLOSE CONNECTION BETWEEN TCS E- SERVE AND TATA CONSULTANCY SERVICE LTD. WHICH WAS HIGH BRAND VALUE: THAT DISTINGUISHED IT AND MARKED IT OUT FOR EXCLUSION. T HE ITAT RECORDED THAT THE BRAND VALUE ASSOCIATED WITH TCS C ONSULTANCY REFLECTED IMPACTED TCS E-SERVE PROFITABILITY IN A V ERY POSITIVE MANNER. THIS INFERENCE TOO IN THE OPINION OF COURT, CANNOT BE TERMED AS UNREASONABLE. THE RATIONALE FOR EXCLUSION IS THEREFORE UPHELD. 19. THE SAME DECISION ALSO NOTED THAT ONE REASON FOR EXCLUSION WAS THE UNAVAILABILITY OF THE SEGMENTAL DATA FOR THE ABOVE COMPARABLE. 20. IN M/S. ORACLE (OFSS) BPO SER VICES PVT. LTD. (DECISION DATED 5TH FEBRUARY 2018 IN ITA 124 O F 2018) WHILE UPHOLDING THE EXCLUSION OF M/S.WIPRO LTD. FROM THE LIST OF COMPARABLES IT WAS NOTED THAT THE ITAT TOOK INTO AC COUNT THE RELATED PARTY TRANSACTIONS (RPT ).THE FILTER ADOPTED WAS TO EXCLUDE COMPARABLES WITH UNRELATED PARTY TRANSACTIO NS EQUAL TO OR IN EXCESS OF 75% OF THEIR BUSINESS. THE ITAT DID TH AT ON THE BASIS THAT WIPRO 16 ITA 532/2019 PAGE 17 OF 21 LTD. HAD A SIGNIFICANT BRAND PRESENCE IN THE MARKET AND COULD, THEREFORE, NOT BE DEEMED TO BE A COMPARABLE ENTITY. THIS COURT EXPLAINED THE RPT FILTER AS - 17- UNDER: THE RPT FILTER, IS RELEVANT AND FITS IN WIT H THE OVERALL SCHEME OF A TRANSFER PRICING STUDY WHICH IS PREMISE D PRIMARILY ON COMPARING LIGHT ENTITIES HAVING SIMILAR IF NOT IDEN TICAL FUNCTIONS. THEREFORE, IF A PARTICULAR ENTITY PREDOMINANTLY HAS TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISE - IN EXCESS OF A CERT AIN THRESHOLD PERCENTAGE, ITS PROFIT MAKING CAPACITY MAY RESULTED IN A DISTORTED PICTURE, EITHER WAY. 21. A REFERENCE MAY NEXT BE M ADE TO THE DECISION IN THE PRINCIPAL COMMISSIONER OF INCOME TA X-3 V. EVALUESERVE SEZ (GURGAON) PVT. LTD. (SUPRA) WHERE A REFERENCE IS MADE TO THE EARLIER DECISION TO THE BC MANAGEMENT S ERVICES PVT. LTD. (SUPRA). THIS DECISION DEALT WITH THE EXCLUSIO N OF THREE SPECIFIC COMPARABLES, WHICH HAVE ALSO INVOLVED IN T HE PRESENT CASE NAMELY M/S.TCS E-SERVE LTD., M/S.TCS E-SERVE INTERN ATIONAL LTD. AND M/S. INFOSYS BPO LTD. THIS COURT UPHELD THE EXC LUSION OF ALL THREE COMPARABLES AND IN PARTICULAR SINCE THE ENTIT IES HAD A HIGH BRAND VALUE AND THEREFORE WERE ABLE TO COMMAND GREA TER PROFITS; BESIDES THEY OPERATED ON ECONOMIC UPSCALE. 17. A SIMILAR VIEW WAS TAKEN BY THE COORDINATE BENC H IN THE CASE OF AMERICAN EXPRESS [I] PVT LTD IN ITA NO. 1426/DEL/20 15 AND FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COU RT THESE COMPANIES WERE DIRECTED TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. - 18- 18. SAME VIEW WAS TAKEN BY THE COORDINATE BENCH IN THE CASE OF UNITED HEALTH GROUP ITA 1038/DEL/2015 RELATING TO A .Y 2010-11. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT [SUPRA], WE DIRECT FOR EXCLUSION OF THESE TWO COMPANIES FROM THE FINAL SET OF COMPATIBLES. 19. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO PLEAD ED FOR INCLUSION OF R SYSTEMS AND CG VAK SOFTWARE. WE FIND THAT R SYSTE M INTERNATIONAL WAS REJECTED ON THE GROUND THAT IT HAS DIFFERENT AC COUNTING YEAR. WE ARE OF THE CONSIDERED VIEW THAT IF THE AUDIT RESULT S ARE AVAILABLE, THEN THE TPO CAN EXTRAPOLATE QUA THE FIGURE TO FIT INTO FINANCIAL YEAR ENDING IN MARCH. SINCE R SYSTEMS IS FUNCTIONALLY SIMILAR T O THE ASSESSEE, WE DIRECT THE TPO TO ADJUST THE AUDITED QUARTERLY FIGU RES BY EXTRAPOLATING THEM IN THE FY OF THE ASSESSEE AND INCLUDE THIS COM PANY IN THE FINAL SET OF COMPATIBLES. 20. IN SO FAR AS CG VAK IS CONCERNED, THOUGH THIS C OMPANY IS FUNCTIONALLY SIMILAR TO THAT OF THE ASSESSEE BUT IT S TURNOVER IS LESS THAN RS. 5 CRORES AND DOES NOT PASS THE TURNOVER FILTER. HOWEVER, BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT TH IS COMPANY PASSES - 19- TURNOVER FIGURE AS THE ENTITY WIDE TURNOVER OF RS. 594 CRORES AND SEGMENTS ARE REPORTED TO COMPLY WITH REQUIREMENTS O F AS-17. THE LEARNED COUNSEL FURTHER POINTED OUT THAT THIS COMPA NY WAS ACCEPTED BY THE TPO IN A.Y 200910. WE ARE OF THE CONSIDERED V IEW THAT THE TPO SHOULD LOOK INTO THE FINANCIALS OF THIS COMPANY ONC E AGAIN AND DECIDE WHETHER IT PASSES THE TURNOVER FILTER AND DECIDE AF RESH THE INCLUSION OR OTHERWISE OF THIS COMPANY IN THE FINAL SET OF COMPA TIBLES. GROUNDS RELATING TO TP ADJUSTMENTS ARE DECIDED ACCORDINGLY. 21. NEXT GRIEVANCE RAISED RELATES TO DENIAL OF DEDU CTION UNDER SECTION 10A OF THE ACT ON ADDITIONAL RECEIPTS CLAIM ED BY FILING THE REVISED RETURN OF INCOME. 22. FACTS ON RECORD SHOW THAT AFTER THE CLOSURE OF ACCOUNTS FOR THE YEAR UNDER CONSIDERATION, DURING THE COURSE OF AUDI T, IT WAS BROUGHT TO THE NOTICE OF THE ASSESSEE THAT CERTAIN INVOICES RA ISED IN SUBSEQUENT YEAR PERTAINS TO F.Y. 2009-10 AND SINCE INCOME HAS ACCRUED IN 2009-10, THE SAME SHOULD BE INCORPORATED IN THE INCOME OF FY 2009-10. 23. SINCE THE ASSESSING OFFICER HAS DENIED CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT, HE DID NOT CONSIDER THIS CL AIM OF THE ASSESSEE. - 20- HOWEVER, BEFORE THE LD. CITA THE ASSESSEE RAISED TH IS ISSUE OF CLAIMING DEDUCTION UNDER SECTION 10A OF THE ACT ON TWO ADDIT IONAL INVOICES WHICH WERE RAISED DURING THE YEAR UNDER CONSIDERATI ON. CLAIM WAS DENIED BY THE LD. CIT[A] WHO WAS OF THE OPINION THA T THE APPELLANT HAS RAISED THESE INVOICES AFTER CLOSURE OF BOOKS OF ACC OUNT AND HAS NOT REVISED ITS BOOKS OF ACCOUNT AND ONLY THROUGH COMPU TATION OF INCOME CLAIM HAS BEEN MADE AND CONFIRMED THE FINDINGS OF T HE ASSESSING OFFICER BY HOLDING THAT ANY INCOME ACCRUING TO SEPA RATE YEAR ON ACCOUNT OF ERROR IN ACCOUNTING ENTRIES CANNOT BE RE VISED WITHOUT CHANGING THE BOOKS OF ACCOUNT. THE LD. CIT(A) FURTH ER OBSERVED THAT THE ASSESSEE HAS NOT COMPLIED WITH THE PROVISIONS O F THE ACT AND HAS NOT FURNISHED ANY CERTIFICATES IN SUPPORT OF ITS CL AIM. 24. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE CERTIFICATES WHICH ARE PLACED AT PAGES 283 A ND 284 OF THE PAPER BOOK AND POINTED OUT THAT THE LD. CIT[A] HAS GROSSL Y ERRED IN NOT CONSIDERING THESE CERTIFICATES WHICH WERE PART OF T HE RECORD BEFORE HIM. THE COUNSEL FURTHER STATED THAT THE ASSESSEE C OULD NOT HAVE REVISED THE AUDITED BOOKS OF ACCOUNT AND COULD ONLY CLAIM DURING THE ASSESSMENT PROCEEDINGS BY WAY OF COMPUTATION OF INC OME AND, THEREFORE, THE CLAIM IS BONAFIDE AND DESERVES TO BE ALLOWED. - 21- 25. PER CONTRA THE LD. DR STRONGLY SUPPORTED THE AS SESSMENT ORDER. 26. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND HAVE ALSO GONE THROUGH THE CERTIFICATES PLACED AT PAGES 283 AND 284 OF THE PAPER BOOK. THOUGH THE ASSESSEE COULD NO T HAVE REVISED ITS BOOKS OF ACCOUNT BUT HAS FURNISHED CERTIFICATES FRO M THE CHARTERED ACCOUNTANT, AS PER PROVISIONS OF THE LAW, THE SAME CANNOT BE BRUSHED ASIDE LIGHTLY. WE ARE OF THE CONSIDERED VIEW THAT S INCE THE ASSESSEE HAS BEEN ALLOWED DEDUCTION UNDER SECTION 10A OF THE ACT BY THE FIRST APPELLATE AUTHORITY [AGAINST WHICH REVENUE IS IN AP PEAL] THE ASSESSEE IS ENTITLED FOR CLAIM OF DEDUCTION UNDER SECTION 10A O F THE ACT ON ADDITIONAL RECEIPTS CLAIMED BY FILING REVISED RETUR N OF INCOME. WE, ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION UNDER SECTION 10A OF THE ACT ON ADDITIONAL RECEIPTS. 27. SECOND GRIEVANCE RELATING TO THIS ISSUE IS THAT INTEREST INCOME ON FIXED DEPOSITS AMOUNTING TO RS. 59,664/- AND MISCE LLANEOUS INCOME OF RS. 30,451/- WERE DENIED FOR DEDUCTION UNDER SECTIO N 10A OF THE ACT ON THE GROUND THAT SUCH INCOME DOES NOT CONSTITUTE BUSINESS INCOME AS ENVISAGED UNDER SECTION 10A OF THE ACT. - 22- 28. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF RIVIERA HOME FURNISHINGS IN 9 ITR OL 401 HAS ALLOWED THE INTERES T EARNED ON FIXED DEPOSIT AS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT, WHERE THE ASSESSEE SHOWED THAT THE FIXED DEPOSIT RECEIPTS WERE UNDER LIEN TO THE BANK FOR FACILITATING LETTER OF CREDIT AND BANK GUARANTEE FACILITIES. 29. THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF HEWLETT PACKARD GLOBAL SOFT LTD 403 ITR 453 HAD THE OCCASIO N TO CONSIDER A SIMILAR CLAIM AND HELD IN FAVOUR OF THE ASSESSEE TH E RELEVANT FINDINGS OF THE HON'BLE HIGH COURT READ AS UNDER: THE INCIDENTAL ACTIVITY OF PARKING OF SURPLUS FUND S WITH THE BANKS OR ADVANCING OF STAFF LOANS BY SUCH SPECIAL C ATEGORY OF ASSESSEES COVERED UNDER SECTION 10-A OR 10-B OF THE ACT IS INTEGRAL PART OF THEIR EXPORT BUSINESS ACTIVITY AND A BUSINESS DECISION TAKEN IN VIEW OF THE COMMERCIAL EXPEDIENCY AND THE INTEREST INCOME EARNED INCIDENTALLY CANNOT BE DE-LI NKED FROM ITS PROFITS AND GAINS DERIVED BY THE UNDERTAKING ENGAGE D IN THE EXPORT OF ARTICLES AS ENVISAGED UNDER SECTION 10-A OR SECTION 10-B OF THE ACT AND CANNOT BE TAXED SEPARATELY UNDE R SECTION 56 OF THE ACT. - 23- 30. IN LIGHT OF THE AFOREMENTIONED DECISION OF THE HON'BLE HIGH COURT, WE DIRECT THE ASSESSING OFFICER TO ALLOW CLAIM OF D EDUCTION UNDER SECTION 10A OF THE ACT ON INTEREST INCOME. NO DETAI LS OF MISCELLANEOUS INCOME HAS BEEN GIVEN AND, THEREFORE, WE ARE NOT IN A POSITION TO EXAMINE THE NEXUS WITH THE BUSINESS INCOME OF THE A SSESSEE. THEREFORE, THE CLAIM OF DEDUCTION FOR RS. 30,451/- IS DENIED, 31. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. 32. COMING TO THE REVENUES APPEAL IN ITA NO. 3765/ DEL/2017, THE GROUNDS RELATING TO TRANSFER PRICING RELATES TO EXC LUSION OF ACCENTIA TECHNOLOGY PVT LTD AND INFOSYS BPO LTD BY THE LD. C IT(A) 33. BEFORE US, THE LD. DR REITERATED WHAT HAS BEEN OBSERVED BY THE TPO IN HIS ORDER THE LEARNED COUNSEL FOR THE ASSESS EE RELIED UPON THE FINDINGS OF THE LD. CIT(A). 34. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. IN SO FAR AS ACCENTIA TECHNOLOGY IS CONCERNED, WE F IND THAT THERE IS AN EXTRAORDINARY EVENT OF MERGER WITH ACCENTIA INFO SE RVE PVT. LTD. PURSUANT TO THIS EVENT, EFFECT ON OVERALL PROFIT FR OM PROFITABILITY AND - 24- TURNOVER CANNOT BE RULED OUT. THIS SINGLE FACTOR AL ONE IS SUFFICIENT FOR EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COM PARABLES AND NO INTERFERENCE IS CALLED FOR. 35. IN SO FAR AS INFOSYS BPO IS CONCERNED, WE ARE O F THE OPINION THAT THIS COMPANY IS A GIANT COMPANY IN THE AREA OF DEVE LOPMENT OF SOFTWARE AND IT ASSUMES ALL RISKS LEADING TO HIGHER PROFIT. THIS COMPANY ALSO HAS SUBSTANTIAL INTANGIBLES. THIS COMPANY HAS ALSO BEEN INCLUDED BY THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT V. AGNITY INDIA TECHNOLOGIES PRIVATE LIMITED (2013) 36 TAXMANN.COM 289 AND FURTHER BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF AVAY A INDIA PRIVATE LIMITED [SUPRA]. IN THE CASE OF CADENCE DESIGN SSTE MS INDIA PVT LTD 333 OF 2019, THIS COMPANY HAS BEEN EXCLUDED FROM TH E FINAL SET OF COMPARABLES IN ITES SEGMENT. RESPECTFULLY FOLLOWING THE JURISDICTIONAL HIGH COURT DECISION WE DECLINE TO INTERFERE WITH TH E FINDINGS OF THE LD. CIT(A). 36. GROUNDS RELATING TO TP ADJUSTMENTS ARE, ACCORDI NGLY, DISMISSED. 37. NEXT GRIEVANCE OF THE REVENUE RELATES TO ALLOWI NG THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT. - 25- 38. CLAIM WAS DENIED BY THE ASSESSING OFFICER ON TH E GROUND THAT THE ASSESSEE IS RUNNING CALL CENTRE FOR PARENT COMPANY AND THERE IS NO EXPORT OF COMPUTER SOFTWARE OR ITES. WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER HAS BLOWN HOT AND COLD I N THE SAME BREATH. THE TPO COMPLETED THE TP PROCEEDINGS TREATING THE A SSESSEE UNDER THE ITES SEGMENT. THE ASSESSING OFFICER HIMSELF HAS ASS ESSED THE ASSESSEE UNDER THE ITES SEGMENT AND WHEN IT CAME TO THE CLAI M OF DEDUCTION UNDER SECTION 10A OF THE ACT THE ASSESSING OFFICER SAYS THAT THE ASSESSEE IS MERELY RUNNING A CALL CENTRE. 39. IN NOTIFICATION NO. SO 890E DATED 26.09.2000, I T HAS BEEN MENTIONED THAT ITES INCLUDE CALL CENTRES AND, THERE FORE, WE DO NOT FIND ANY REASON WHY THE ASSESSEE WAS DENIED DEDUCTI ON UNDER SECTION 10A OF THE ACT BY THE ASSESSING OFFICER. HOWEVER TH E LD CIT(A) HAS RIGHTLY CONSIDERED THE FACTS OF THE CASE IN TRUE PE RSPECTIVE AND ALLOWED THE CLAIM AND, THEREFORE, WE DO NOT ANY REASON TO I NTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THIS GROUND IS ACCORDIN GLY DISMISSED. 40. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. - 26- 41. BEFORE PARTING, THE ASSESSEE BY WAY OF ADDITION AL GROUND HAS CLAIMED DEDUCTION OF CESS ON THE GROUND THAT THE SA ME IS NOT COVERED UNDER SECTION 40(A)(II) OF THE ACT. 42. THOUGH THIS CLAIM WAS NOT MADE BEFORE THE LOWER AUTHORITIES, BUT BEING A STATUTORY CLAIM, WE ADMIT THE ADDITIONAL GR OUND. 43. THE HON'BLE HIGH COURT OF BOMBAY AT PANAJI BENC H IN THE CASE OF SESA GOA 423 ITR 426 HAD THE OCCASION TO CONSIDER A SIMILAR ISSUE AND HAS HELD AS UNDER: IN RELATION TO TAXING STATUTE, CERTAIN PRINCIPLES OF INTERPRETATION ARE QUITE WELL SETTLED. IN NEW SHORR OCK SPINNING AND MANUFACTURING CO. LTD. VS RAVAL, 37 IT R 41 (BOM.), IT IS HELD THAT ONE SAFE AND INFALLIBLE PRI NCIPLE, WHICH IS OF GUIDANCE IN THESE MATTERS, IS TO READ THE WORDS THROUGH AND SEE IF THE RULE IS CLEARLY STATED. IF THE LANGU AGE EMPLOYED GIVES THE RULE IN WORDS OF SUFFICIENT CLARITY AND P RECISION, NOTHING MORE REQUIRES TO BE DONE. INDEED, IN SUCH A CASE THE TASK OF INTERPRETATION CAN HARDLY BE SAID TO ARISE :ABSOLUTA SENTENTIA WWW.TAXGURU.IN 10 TXA17&18-13 DT.28.02.20 20 EXPOSITORE NON INDIGET. THE LANGUAGE USED BY THE LE GISLATURE BEST DECLARES ITS INTENTION AND MUST BE ACCEPTED AS DECISIVE OF IT. 19. BESIDES, WHEN IT COMES TO INTERPRETATION OF THE IT - 27- ACT, IT IS WELL ESTABLISHED THAT NO TAX CAN BE IMPO SED ON THE SUBJECT WITHOUT WORDS IN THE ACT CLEARLY SHOWING AN INTENTION TO LAY A BURDEN ON HIM. THE SUBJECT CANNOT BE TAXED UNLESS HE COMES WITHIN THE LETTER OF THE LAW AND THE ARGUMENT THAT HE FALLS WITHIN THE SPIRIT OF THE LAW CANNOT BE AVAILE D OF BY THE DEPARTMENT. [SEE CIT VS MOTORS & GENERAL STORES 66 ITR 692 (SC)]. 20. IN A TAXING ACT ONE HAS TO LOOK MERE LY AT WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDMEN T. THERE IS NO EQUITY ABOUT A TAX. THERE IS NO PRESUMPTION AS T O A TAX. NOTHING IS TO BE READ IN, NOTHING IS TO BE IMPLIED, INTO THE PROVISIONS WHICH HAS NOT BEEN PROVIDED BY THE LEGIS LATURE [SEE CIT VS RADHE DEVELOPERS 341 ITR 403 ]. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE USED. NO TAX CAN BE IMPOSED BY INFERENCE OR ANALOGY. IT IS ALSO NOT PERMISSIBLE TO CONSTRUE A TAXING STATUTE BY MAKING ASSUMPTIONS AND PRESUMPTIO NS [SEE GOODYEAR VS STATE OF HARYANA 188 ITR 402(SC)]. 21. THERE ARE SEVERAL DECISIONS WHICH LAY DOWN RULE THAT THE PROVISION FOR DEDUCTION, EXEMPTION OR RELIEF SHOULD BE INTERP RETED WWW.TAXGURU.IN 11 TXA17&18-13 DT.28.02.2020 LIBERAL LY, REASONABLY AND IN FAVOUR OF THE ASSESSEE AND IT SHO ULD BE SO CONSTRUED AS TO EFFECTUATE THE OBJECT OF THE LEGISL ATURE AND NOT TO DEFEAT IT. FURTHER, THE INTERPRETATION CANNO T GO TO THE EXTENT OF READING SOMETHING THAT IS NOT STATED IN T HE PROVISION [SEE AGS TIBER VS CIT 233 ITR 207]. 22. A PPLYING THE AFORESAID PRINCIPLES, WE FIND THAT THE LEGISLAT URE, IN SECTION 40(A)(II) HAS PROVIDED THAT ANY RATE OR TA X LEVIED ON - 28- PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER T HE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THER E IS NO REFERENCE TO ANY CESS. OBVIOUSLY THEREFORE, THERE IS NO SCOPE TO ACCEPT MS. LINHARES'S CONTENTION THAT CES S BEING IN THE NATURE OF A TAX IS EQUALLY NOT DEDUCTABLE IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND G AINS OF BUSINESS OR PROFESSION. ACCEPTANCE OF SUCH A CONTE NTION WILL AMOUNT TO READING SOMETHING IN THE TEXT OF THE PROV ISION WHICH IS NOT TO BE FOUND IN THE TEXT OF THE PROVISI ON IN SECTION 40(A)(II) OF THE IT ACT. 23. IF THE LEGISLA TURE INTENDED TO PROHIBIT THE DEDUCTION OF AMOUNTS PAID BY A ASSESSEE TOWARDS SAY, EDUCATION CESS OR ANY OTHER CESS, THEN, THE LEGISLATURE COULD HAVE EASILY INCLUDED RE FERENCE TO CESS IN CLAUSE (II) OF SECTION 40(A) OF THE IT AC T. THE FACT THAT THE LEGISLATURE HAS NOT DONE SO MEANS THAT THE LEGISLATURE DID NOT INTEND TO PREVENT THE WWW.TAXGU RU.IN 12 TXA17&18-13 DT.28.02.2020 DEDUCTION OF AMOUNTS PAID BY A ASSESSEE TOWARDS THE CESS, WHEN IT COMES TO COMPU TING INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 44. RESPECTFULLY FOLLOWING THE DECISION OF THE HONO URABLE HIGH COURT OF BOMBAY WE DIRECT FOR ALLOWING DEDUCTION FOR CESS . ACCORDINGLY, ADDITIONAL GROUND IS ALLOWED. - 29- 45. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED IN PART ON THE GROUNDS ARGUED BEFORE US WHEREAS THE APPEAL OF THE REVENUE STANDS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14.09 .2020. SD/- SD/- [ SUDHANSHU SRIVASTAVA,] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 14 TH SEPTEMBER, 2019. VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI - 30- 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 WEBSITE 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 REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER