TNS India Pvt. Ltd., Hyd, Hyderabad V. ACIT, Circle-2(2), Hyd, Hyderabad

ITA 407/HYD/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1528 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-10-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 1 OF 17 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.407/HYD/2015 (ASSESSMENT YEAR: 2010-11) TNS INDIA PRIVATE LTD HYDERABAD PAN: AABCN2278F VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI J. SIRI KUMAR, DR FOR ASSESSEE: SHRI RAVI BHARADWAJ O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2010-11 AGAIN ST THE FINAL ASSESSMENT ORDER DATED 25.02.2015 PASSED BY THE AO U/S 143(3) R.W.S. 92CA (4) R.W.S. 144C(13) OF THE A CT. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED ASSESSING OFFICER (' AO') / LEARNE D TRANSFER PRICING OFFICER ('TPO') AND THE HON'BLE DI SPUTE RESOLUTION PANEL ('DRP') ERRED IN: TRANSFER PRICING MATTERS: REJECTION OF TP DOCUMENTATION MAINTAINED AND UNDERT AKING FRESH ECONOMIC ANALYSIS 1. REJECTING THE TRANSFER PRICING DOCUMENTATION MAI NTAINED BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME-TAX ACT, 1961 ('ACT') READ WITH THE INCOME T AX RULES, 0/ 1962 ('RULES') AND MAKING AN ADJUSTMENT OF RS. DATE OF HEARING : 04.10.2018 DATE OF PRONOUNCEMENT : 28.11.2018 ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 2 OF 17 12,85,58,406 TO THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES (' AE'S'). AGGREGATING MARKET RESEARCH BUSINESS AND ITES TRANSACTIONS 2. A) AGGREGATING MARKET RESEARCH ('MR') BUSINESS W ITH INFORMATION TECHNOLOGY ENABLED SERVICES ('ITES') BUSINESS OF THE APPELLANT WHICH A RE DISTINCT AND SEPARATE, FOR DETERMINING THE ALP OF THE SERVIC ES TO THE AE'S. B) REJECTING THE SEGMENTAL FINANCIALS OF THE APPELL ANT FOR MR SERVICES AND ITES TRANSACTIONS. REJECTION OF INTERNAL TRANSACTIONAL NET MARGIN METH OD ('TNMM') FOR DETERMINING ALP 3. WITHOUT PREJUDICE TO GROUND 2, NOT APPLYING TNMM TO THE INTERNAL UNCONTROLLED TRANSACTIONS OF THE APPELLANT FOR DETERMINING THE ALP. ALP FOR MANAGEMENT FEES AND LICENSE FEES 4. DETERMINING THE ALP OF MANAGEMENT FEES AND LICEN SE FEES PAID TO ITS AES AS 'NIL'. REJECTION OF USE OF MULTIPLE YEAR DATA 5. REJECTING THE USE OF MULTIPLE YEAR DATA AND USIN G DATA FOR FY 2009-10 ONLY. USE OF ADDITIONAL FILTERS 6. INTER-ALIA USE OF THE FOLLOWING ADDITIONAL FILTE RS IN UNDERTAKING THE COMPARATIVE ANALYSIS AND REJECTING COMPARABLE COMPANIES HAVING: A) DIMINISHING REVENUE/PERSISTENT LOSS FILTER; AND B) DIFFERENT FINANCIAL YEAR-END FILTER. SELECTION OF COMPANIES 7. NOT UNDERTAKING AN OBJECTIVE COMPARATIVE ANALYSI S AND INTER-ALIA SELECTING THE FOLLOWING COMPANIES AS COM PARABLE: A) ACCENTIA TECHNOLOGIES LTD; B) ACROPETAL TECHNOLOGIES LTD (SEG); ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 3 OF 17 C) CROSSDOMAIN SOLUTIONS PVT. LTD. D) ECLERX SERVICES LTD; E) INFOSYS BPO LTD; F) TCS E-SERVE INTERNATIONAL LTD; G) TCS E-SERVE LTD; AND 8. DIRECTING THE TPO/ AO TO REJECT TWO COMPANIES NA MELY M/S INFOSYS TECHNOLOGIES LTD AND L&T INFOTECH LTD W ITHOUT APPRECIATING THE FACT THAT THE SAID COMPANIES WERE NOT SELECTED BY THE TPO. REJECTION OF COMPARABLES 9. NOT UNDERTAKING AN OBJECTIVE COMPARATIVE ANALYSI S AND INTER-ALIA REJECTING THE FOLLOWING COMPARABLE ITES COMPANIES: A) CC-YAK SOFTWARE AND EXPORTS LTD (SEG); B) CALIBER POINT BUSINESS SOLUTIONS LIMITED (SEG); C) R SYSTEMS INTERNATIONAL LIMITED (SEG); AND D) MICROLAND LTD. MARGIN COMPUTATION OF COMPARABLES 10. EXCLUDING PROVISION FOR BAD AND DOUBTFUL DEBTS IN COMPUTING THE NET MARGIN UNDER TNMM FOR CERTAIN COMPARABLES. NEGATIVE WORKING CAPITAL ADJUSTMENT 11. A) MAKING A NEGATIVE WORKING CAPITAL ADJUSTMENT BY CONSIDERING INCORRECT RECEIVABLES AND PAYABLES. B) WITHOUT PREJUDICE, MAKING A NEGATIVE WORKING CAP ITAL ADJUSTMENT WITHOUT APPRECIATING THE FACT THAT THE A PPELLANT DOES NOT BEAR ANY WORKING CAPITAL RISKS. ADJUSTMENT FOR RISK DIFFERENCES 12. NOT ADJUSTING THE NET MARGINS OF THE COMPARABLE COMPANIES TAKING INTO ACCOUNT THE FUNCTIONAL AND RI SK DIFFERENCES BETWEEN THE INTERNATIONAL TRANSACTION O F THE APPELLANT AND THE COMPARABLE TRANSACTIONS IN ACCORD ANCE WITH THE PROVISIONS OF RULE LOB(L)(E) OF THE RULES. ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 4 OF 17 NO INCENTIVE TO SHIFT PROFITS 13. IGNORING THE FACT THAT THE APPELLANT IS AVAILIN G TAX HOLIDAY U/S LOA OF THE ACT IN RESPECT OF PART OF IT S OPERATIONS AND THERE IS NO MOTIVE OR REASON TO SHIFT PROFITS O UT OF INDIA, WHICH IS THE BASIC INTENTION OF INTRODUCING TRANSFE R PRICING PROVISIONS. CORPORATE TAX MA TIERS CAPITALIZING EXPENSES ON SOFTWARE LICENCE FEE 14. (A) DISALLOWING THE EXPENDITURE OF RS. 3,45,18, 636 ON SOFTWARE LICENSE FEES, BY CONSIDERING THE SAME AS C APITAL IN NATURE; AND (B) WITHOUT PREJUDICE TO THE ABOVE, IN GRANTING DEP RECIATION ON SOFTWARE LICENCE FEES AT 25% INSTEAD OF 60%. DISALLOWING ADVANCES WRITTEN OFF 15. DISALLOWING THE AMOUNT OF RS. 2,07,53,684 CLAIM ED AS ADVANCES WRITTEN OFF. TDS CREDIT 16. ALLOWING CREDIT OF TDS OF RS. 6,54,93,323 INSTE AD OF RS. 6,87,39,406 AS CLAIMED IN THE RETURN OF INCOME. IMPOSITION OF INTEREST 17. CALCULATION OF INTEREST U/S 234D OF THE ACT ON THE EXCESS REFUND ISSUED U/S 143(1). INITIATING PENALTY PROCEEDINGS 18. INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 2. IN ADDITION TO THE ABOVE, THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL: GROUND NO.19. WITHOUT PREJUDICE TO GROUND NO.14, T HE LEARNED AO ERRED IN LAW AND ON FACTS IN NOT ALLOWIN G DEDUCTION U/S 10A OF THE ACT ON THE EXPENDITURE TOW ARDS SOFTWARE LICENSE FEES DISALLOWED IN THE ASSESSMENT ORDER OF RS.2,14,19,008 RELATING TO THE STPI UNIT OF THE COMPANY. ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 5 OF 17 3. AT THE TIME OF HEARING, THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS PRESSING ONLY GROUNDS OF APPEAL NO.7 AN D THE GROUNDS NOS.14 TO 19. ALL OTHER GROUNDS ARE THEREFORE, REJE CTED AS NOT PRESSED. 4. WITH REGARD TO GROUND NO.7 I.E. SEEKING EXCLUSIO N OF CERTAIN COMPANIES FROM THE FINAL LIST OF COMPARABLE S, THE ASSESSEE HAS FILED A CHART AND THEREFORE, WE ARE PROCEEDING TO DISPOSE OF THE APPEAL ON THE BASIS OF THE MATERIAL BEFORE US AND T HE CONTENTIONS OF THE ASSESSEE MADE IN THE CHART. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MARKET RESEARCH AND DATA PROCESSING. DU RING THE RELEVANT A.Y, THE ASSESSEE ENTERED INTO THE FOLLOWI NG INTERNATIONAL TRANSACTIONS: PROVISION OF MARKET RESEARCH SERVICES 18,55,67,790 GLOBAL/REGIONAL MANAGEMENT OVERHEAD ALLOCATION FEE 5,23,16,379 PAYMENT FOR TRADE MARK LICENSE FEE 1,18,23,639 PROVISION OF IT ENABLED SERVICES 58,08,59,426 REIMBURSEMENT TO AES 6,22,27,185 5. THE ASSESSEE CONDUCTED ITS OWN TP STUDY AND REPO RTED MARGIN OF 9.92% OF OP/OC. THE TPO HOWEVER, WAS NOT CONVINCED WITH THE ASSESSEES TP STUDY AND REJECTED THE SAME. THEREAFTER, HE PROCEEDED TO AGGREGATE ALL THE TRANSACTIONS AND ADO PTED TNMM AS THE MOST APPROPRIATE METHOD AND PROPOSED 11 COMPANI ES AS COMPARABLE TO THE ASSESSEE. THE ASSESSEE SUBMITTED ITS OBJECTIONS TO ALL THE 11 COMPANIES. HOWEVER, THE TPO HELD THAT ALL THE 11 COMPANIES ARE COMPARABLE TO THE ASSESSEE AND THEREF ORE, WORKED OUT THE AVERAGE MEAN MARGIN OF THESE COMPANIES AT 2 7.50% AND PROPOSED THE ADJUSTMENT ACCORDINGLY AFTER GIVING TH E WORKING ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 6 OF 17 CAPITAL ADJUSTMENT. IN CONSEQUENCE THEREOF, THE AO PROPOSED THE DRAFT ASSESSMENT ORDER AGAINST WHICH THE ASSESSEE P REFERRED ITS OBJECTIONS TO THE DRP. THE DRP CONFIRMED THE ASSESS MENT ORDER EXCEPT FOR DIRECTING THE EXCLUSION OF TWO COMPANIES M/S INFOSYS TECHNOLOGIES LTD AND L&T INFOTECH FROM THE FINAL LI ST OF COMPARABLES. HOWEVER, IT IS SEEN THAT THESE TWO COM PANIES WERE NOT TAKEN AS COMPARABLE EITHER BY THE ASSESSEE OR B Y THE TPO. THEREFORE, THE EFFECT OF DRP DIRECTING THE EXCLUSIO N OF THESE COMPANIES IS NIL. THEREFORE, EXCEPT FOR THE 4 COMPA NIES OUT OF THE 11 COMPANIES TAKEN BY THE TPO, THE ASSESSEE IS SEEK ING EXCLUSION OF THE FOLLOWING 7 COMPANIES: I) ACCENTIA TECHNOLOGIES LTD II) ACROPETAL TECHNOLOGIES LTD (SEG.) III) ECLERX SERVICES LTD IV) INFOSYS BPO LTD V) TCS E-SERVE INTERNATIONAL LTD VI) TCS E-SERVVE LTD VII) CROSSDOMAIN SOLUTIONS PVT LTD. 6. WHILE THE LEARNED COUNSEL FOR THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. W E ARE THEREFORE, NOW PROCEEDING TO DISCUSS THE COMPARABIL ITY OF EACH OF THE COMPANIES AS UNDER: 6.1 ACCENTIA TECHNOLOGIES LTD: THE ASSESSEE HAD OBJECTED TO CONSIDER THIS COMPANY AS COMPARABLE TO THE ASSESSEE ON THE GROUND THAT IT IS ENGAGED IN 4 STREAM OF SER VICES (MEDICAL TRANSCRIPTION, MEDICAL CODING, MEDICAL BILLING AND RECEIVABLE MANAGEMENT) AND NO SEGMENTAL INFORMATION WAS AVAILA BLE. IT WAS ALSO SUBMITTED THAT IT POSSESSES SIGNIFICANT INTANG IBLE ASSETS AND ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 7 OF 17 THEREFORE, IS FUNCTIONALLY DIFFERENT. IT IS ALSO SU BMITTED THAT THERE WAS AN EXTRA ORDINARY EVENT OF AMALGAMATION WITH AS SENT INFOSERVE LTD WHICH HAD AN IMPACT ON THE FINANCIAL MARGIN OF THIS COMPANY AND HENCE THIS COMPANY SHOULD BE EXCLUDED. 6.2 THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. HYUNDAI MOTOR ENGINEER ING LTD IN ITA NO.1743/HYD/2014 AND ITA NO.1917/HYD/2014 FOR T HE A.Y 2010-11 WHEREIN VIDE ORDERS DATED 13.11.2015, THESE VERY CONTENTIONS WERE CONSIDERED BY THE TRIBUNAL FOR DIR ECTING THAT THE COMPANY BE EXCLUDED FROM THE FINAL LIST OF COMPARAB LES. RELEVANT PARAGRAPH IS REPRODUCED HEREUNDER FOR THE SAKE OF R EADY REFERENCE: 18. AS REGARDS M/S. ACCENTIA TECHNOLOGIES LTD., IS CON CERNED, WE FIND THAT THE DRP HAS DIRECTED TO EXCLUDE THIS COMPANY B Y PLACING RELIANCE UPON THE ORDER OF THE ITAT IN THE ASSESSEE'S OWN CA SE FOR THE A.Y. 2009- 10 BY HOLDING THAT THIS COMPANY OPERATES IN A DIFFE RENT BUSINESS STRATEGY OF ACQUIRING COMPANIES FOR INORGANIC GROWT H AS ITS STRATEGY AND CONSIDERING THE PROFIT MARGINS OF THE COMPANY A ND INSUFFICIENT SEGMENTAL DATA, HELD THAT THIS COMPANY CANNOT BE SE LECTED AS A COMPARABLE. IT WAS ALSO HELD BY THE DRP THAT ON THE VERY SAME REASON OF ACQUISITION OF VARIOUS COMPANIES, BEING AN EXTRA ORDINARY EVENT, IT HAD AN IMPACT ON THE PROFIT OF THE COMPANY AND THE SAID COMPANY WAS DIRECTED TO BE EXCLUDED. 18.1. FOR THE RELEVANT A.Y. 2010-11, THE LD. COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE INFORMATION AVAILABL E ON ACCENTIA TECHNOLOGIES LTD., TO DEMONSTRATE THAT THE SAID COM PANY IS INTO DIVERSIFIED KNOWLEDGE PROCESS OUTSOURCING ACTIVITIE S. IT IS SEEN THEREFROM THAT THE SAID COMPANY IS INVOLVED IN HEAL THCARE DOCUMENTATION AS WELL AS RECEIVABLES, MANAGEMENT SE RVICES INCLUDING INSTALLATION AND MAINTENANCE OF ALL SOFTWARE, HARDW ARE AND BAND WIDTH INFRASTRUCTURE REQUIRED FOR THE SAME, DEPLOYMENT OF MAN POWER AND SERVICE DELIVERY IN ALL THESE AREAS. IT IS ALSO SEE N THAT IT IS ENGAGED IN LEGAL PROCESS OUTSOURCING. FROM SCHEDULE-IV SHOWING THE FIXED ASSETS OF THE ASSESSEE, IT IS ALSO SEEN THAT THE SAID COMP ANY OWNS GOODWILL/BRAND/IPRS (INTELLECTUAL PROPERTY RIGHTS). FROM THE NOTES TO THE ACCOUNTS, IT IS ALSO SEEN THAT A SUBSIDIARY OF THE COMPANY ASSCENT INFOSERVE PVT. LTD., HAS BEEN AMALGAMATED WITH THE COMPANY CONSEQUENT TO WHICH, ASSETS AND LIABILITIES OF THE ERSTWHILE COMPANY ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 8 OF 17 WERE TRANSFERRED AND VESTED IN THE COMPANY W.E.F. 1 ST APRIL, 2008 AND THE SCHEME HAS BEEN GIVEN EFFECT TO IN THE ACCOUNTS OF THE YEAR. THEREFORE, IT IS CLEAR THAT THERE IS AN EXTRAORDINA RY EVENT IN THE CASE OF ACCENTIA TECHNOLOGIES LTD., DURING THE RELEVANT FIN ANCIAL YEAR PARTICULARLY SINCE THE APPROVAL FOR AMALGAMATION HA S BEEN GIVEN BY THE HON'BLE HIGH COURT OF MUMBAI VIDE ORDERS DATED 21ST AUGUST, 2009 AND BY THE HON'BLE KARNATAKA HIGH COURT VIDE ORDERS DATED 6TH FEBRUARY, 2010. THIS EVENT WOULD DEFINITELY HAVE AN EFFECT ON THE PROFIT MARGINS OF THE SAID COMPANY AND THEREFORE, HAS TO B E EXCLUDED FROM THE LIST OF COMPARABLES AS RIGHTLY DONE BY THE DRP. THE REFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE D RP ON THIS COMPANY ALSO. ACCORDINGLY, GROUND NO.3 OF THE REVENUE IS DI SMISSED. 6.3 SINCE THE FACTS AND CIRCUMSTANCES IN THE CASE B EFORE US ARE THE SAME, RESPECTFULLY FOLLOWING THE ABOVE D ECISION, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE FIN AL LIST OF COMPARABLES. 7. SIMILARLY, WE FIND THAT THE OTHER COMPARABLES WH ICH ARE CHALLENGED BY THE ASSESSEE WERE ALSO TAKEN BY T HE TPO IN THE CASE OF HYUNDAI ENGINEERING MOTOR INDIA (P) LTD AND THE TABLE WITH REGARD TO IT IS REPRODUCED BY THE ITAT AT PAGE 8 OF THE ORDER WHICH IS ALSO REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENCE: S.NO NAME OF THE COMPANY OR OP/OC 1 ACCENTIA TECHNOLOGIES LTD 93,12,44, 808 49.02 2 ACROP ETAL TECHNOLOGIES LTD (SEG.) 46,39,36,810 10.12 3 AXIS - I.T&T LTD 20,29,67,892 11.89 4 COSMIC GLOBAL LTD 5,86,37,419 16.59 5 ECLERX SERVICES LTD 2,57,02,10,000 42.17 6 INFOSYS BPO LTD 11,30,05,01,306 31.63 7 TCS E - SERVE INTERNATIONAL LTD 1,49,29,56,000 51.51 8 TCS E - SERVE LTD., 14,05,10,05,000 67.58 9 JEEVAN SOFTECH LTD (SEG.) 1,74,43,000 8.04 10 MICROGENETICS SYSTEMS LTD 2,40,42,539 6.60 11 CROSSDOMAIN SOLUTIONS P LTD 37,69,57,428 17.13 TOTAL 312.28 AVERAGE 28.39 ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 9 OF 17 7.1 WE FIND THAT SIMILAR OBJECTIONS WERE RAISED BY THE ASSESSEE THEREIN AND THE ITAT HAD CONSIDERED THEM T O DIRECT THE AO TO EXCLUDE THOSE COMPANIES. FOR THE SAKE OF READ Y REFERENCE, THE RELEVANT PARAGRAPHS ARE REPRODUCED HEREUNDER: TCS E-SERVE INTERNATIONAL LTD., AND TCS E-SERVE LIM ITED 11. WE FIND THAT THE ASSESSEE HAD RAISED ITS OBJECTION S IN DETAIL AGAINST THE ADOPTION OF THESE TWO COMPANIES AS COMPARABLES BOTH BEFORE THE TPO AS WELL AS DRP, BUT ITS OBJECTIONS WERE REJECTE D. BEFORE US ALSO, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THESE O BJECTIONS AND RELIED UPON THE T.P. ORDER IN THE CASE OF IGS IMAGING SERV ICES (INDIA) (P.) LTD., FOR A.Y. 2010-2011, WHERE TPO HAS EXCLUDED BO TH OF THESE COMPANIES BY HOLDING THAT THEY ARE ENGAGED IN BPO A CTIVITY AND THAT THEY HAVE REPORTED EXCEPTIONAL CIRCUMSTANCES IN THE IR ANNUAL REPORT FOR THE RELEVANT FINANCIAL YEAR. 11.1. THE LD. D.R. ON THE OTHER HAND, SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW. 11.2. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MAT ERIAL ON RECORD, WE FIND THAT DURING THE RELEVANT FINANCIAL YEAR, THE TCS E-SERVE INTERNATIONAL LTD., HAD ACQUIRED THE CITI GROUP IND IA BASED CAPTIVE BUSINESS PROCESSING OUTSOURCING (BPO) ARM FOR AN AL L-CASH CONSIDERATION AND IN RETURN, HAD ACQUIRED THE BUSIN ESS OF AN AGGREGATE AMOUNT OF $ 2.5 BILLION OVER A PERIOD OF 9.5 YEARS. THIS DEFINITELY IS AN EXCEPTIONAL CIRCUMSTANCE WHICH HAS BEEN TAKEN NOTE OF BY THE TPO IN THE CASE OF M/S. IGS IMAGING SERVICES (INDIA) P. LT D., TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLE. THIS EXCEPTIONAL CIRCUMSTANCE WAS NOT TAKEN NOTE OF BY THE TPO AND THE DRP FAILED TO APPRECIATE THE OBJECTION OF THE ASSESSEE IN PROPER PERSPECTIVE. AN Y CIRCUMSTANCE WHICH WOULD INFLUENCE OR RESULT IN ABNORMAL RESULT IN THE FINANCIALS OF A COMPANY HAVE TO BE ADJUSTED OR WHERE NO ADJUSTMENT CAN BE DONE TO MAKE IT COMPARABLE TO THE TESTED PARTY, SUCH A COMP ANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THIS TRIBUNA L IN A NUMBER OF DECISIONS HELD THAT EXCEPTIONAL CIRCUMSTANCE IS A R EASONABLE FILTER TO EXCLUDE A COMPANY FROM THE LIST OF COMPARABLES. THE REFORE, WE DIRECT THE A.O./TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 11.2.1. AS REGARDS TCS E-SERVE LIMITED IS CONCERNED, WE FI ND THAT IT POSSESSES BRAND VALUE AS IS EVIDENT FROM THE SCHEDU LE-N (OPERATION AND OTHER EXPENSES) TO THE P & L A/C OF THE ANNUAL REPORT FOR THE FINANCIAL YEAR 2009-10 OF RS.46,065 THOUSANDS AND A LSO THAT IT POSSESSES INTANGIBLES IN THE FORM OF SOFTWARE LICEN SES WHICH HAVE NOT BEEN TAKEN NOTE OF BY THE AUTHORITIES BELOW WHILE A DOPTING ITS MARGIN. IT IS ALSO THE CASE OF THE ASSESSEE THAT THIS COMPANY HAS A TURNOVER OF RS.1405.10 CRORES WHICH IS 25 TIMES OF THE TURNOVER OF THE ASSESSEE AND HENCE, IS NOT COMPARABLE TO THE ASSESSEE. THE LD. C OUNSEL FOR THE ASSESSEE HAD ALSO PLACED RELIANCE UPON THE TPO'S OR DER IN THE CASE OF M/S. IGS IMAGING SERVICES INDIA LTD., TO HOLD TH AT THERE ARE ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 10 OF 17 EXCEPTIONAL CIRCUMSTANCES DURING THE RELEVANT FINAN CIAL YEAR DUE TO WHICH THIS COMPANY IS NOT COMPARABLE TO THE ASSESSE E. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND HENCE, HAS TO BE EXCL UDED ON THIS COUNT ALSO. 11.2.2. WE FIND THAT THE ASSESSEE'S CONTENTIONS ABOUT THE PRESENCE OF 'BRAND VALUE' AND OWNING OF 'INTANGIBLES' IS SUPPOR TED BY THE EVIDENCE ON RECORD. HOWEVER, AS REGARDS THE EXTRAORDINARY EV ENT OR EXCEPTIONAL CIRCUMSTANCE THERE IS NO MATERIAL PLACED BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE. THEREFORE, MERELY BECAUSE THE TPO IN ANOTHER CASE HAS HELD THAT THERE IS AN EXTRAORDINARY EVENT FOR W HICH THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES, IT CANNOT BE EXCLUDED. SUCH CLAIM HAS TO BE SUPPORTED BY EVIDENCE ON RECOR D. AS REGARDS THE FUNCTIONAL DISSIMILARITY AND HUGE TURNOVER AND BRAN D VALUE IS CONCERNED, WE FIND THAT THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2009-10 WHILE CONSIDERING THE COMPARABILITY OF THE ASSESSEE WITH INFOSYS BPO LTD., HAS TAKEN NOTE OF THE POSSESSION OF THE BRAND VALUE AND INTANGIBLES WHICH INFLUENCED THE FINANCIAL RESU LTS OF THIS COMPANY. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. AGNITY INDIA TECHNOLOGIES (P.) LTD., [2013] 219 TAXMAN 26/36 TAXMANN.COM 289 , HELD THAT HUGE TURNOVER COMPANIES LIKE INFOSYS AND WIPRO CANNOT BE CONSIDERED AS COMPARABLE TO SMALLER COMPANIES LIKE ASSESSEE THEREIN. IN THE CASE BEFORE THE HON'BLE HIGH COURT (SUPRA), THE TURNOVER OF THE ASSESSEE WAS ABOUT RS.15.79 CRORES AS AGAINST THE T URNOVER OF RS.1016 CRORES OF THE INFOSYS. CONSIDERING THESE FACTS, THE HON'BLE HIGH COURT HAD DIRECTED FOR EXCLUSION OF INFOSYS BPO BECAUSE O F ITS BRAND VALUE AND ALSO ON THE GROUNDS OF FUNCTIONAL DISSIMILARITY AND HUGE TURNOVER. THOUGH, THE COMPANY BEFORE US IS TCS E-SERVICE LTD. , AND NOT INFOSYS BPO, WE FIND THAT THE TURNOVER OF THE ASSESSEE COMP ANY FOR THIS ASSESSMENT YEAR IS AROUND RS.50 CRORES AS AGAINST T HE TURNOVER OF TCS E-SERVE LIMITED OF RS.1405.10 CRORES. THEREFORE, FO LLOWING THE TURNOVER FILTER AS WELL AS TAKING NOTE OF THE FACT THAT IT O WNS AND POSSESSES BRAND VALUE AND INTANGIBLES AS COMPARED TO THE ASSESSEE W HICH DOES NOT OWN SUCH ASSETS, WE DIRECT THAT THIS COMPANY BE EXCLUDE D FROM THE LIST OF FINAL COMPARABLES. ACCORDINGLY, ASSESSEE'S GROUNDS OF APPEAL NO.6 IS PARTLY ALLOWED. 16. AS REGARDS M/S. ECLERX SERVICES LTD., IS CONCERNED , WE FIND THAT THIS COMPANY WAS ALSO DIRECTED TO BE EXCLUDED BY FOLLOWI NG THE DECISION OF ITAT IN ASSESSEE'S OWN CASE FOR THE A.Y. 2009-2010 ON THE GROUND THAT IT IS A KPO. THE LD. COUNSEL FOR THE ASSESSEE HAS D RAWN OUR ATTENTION TO THE ANNUAL REPORT OF THE SAID COMPANY TO DEMONSTRAT E THAT THE FACTS AND CIRCUMSTANCES AND THE NATURE OF THE ACTIVITIES CARRIED ON BY THE SAID COMPANY IN THE A.Y. 2010-11 ARE ALSO SAME. 17. LD. D.R. HAS NOT BEEN ABLE TO REBUT THIS FACTUAL A SPECTS OF THE SAID COMPANY WITH ANY EVIDENCE TO THE CONTRARY. THE ONLY GROUND RELIED ON BY THE REVENUE IS THAT IN THE CASE OF AGILENT TECHN OLOGIES INTERNATIONAL P. LTD., THE ITAT, DELHI BENCH HAS UPHELD SELECTION OF M/S. ECLERX SERVICES LTD. A COPY OF THE SAID ORDER IS FILED BEF ORE US. ASSESSEE'S CONTENTIONS THEREIN THAT THE KPO SERVICES ARE DISTI NCT FROM BPO SERVICES AND ARE NOT COMPARABLE, HAS BEEN REJECTED BY THE TRIBUNAL. ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 11 OF 17 HOWEVER, SINCE A UNIFORM AND CONSISTENT STAND HAS T O BE TAKEN IN THE CASE OF THE SAME ASSESSEE ON SIMILAR FACTS AND CIRC UMSTANCES, WE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN ASSESSEE'S OWN CASE, DO NOT SEE ANY REASON TO INTER FERE WITH THE ORDER OF THE DRP. GROUND NO.2 IS ACCORDINGLY REJECTED. 18. AS REGARDS M/S. ACCENTIA TECHNOLOGIES LTD., IS CON CERNED, WE FIND THAT THE DRP HAS DIRECTED TO EXCLUDE THIS COMPANY B Y PLACING RELIANCE UPON THE ORDER OF THE ITAT IN THE ASSESSEE'S OWN CA SE FOR THE A.Y. 2009- 10 BY HOLDING THAT THIS COMPANY OPERATES IN A DIFFE RENT BUSINESS STRATEGY OF ACQUIRING COMPANIES FOR INORGANIC GROWT H AS ITS STRATEGY AND CONSIDERING THE PROFIT MARGINS OF THE COMPANY A ND INSUFFICIENT SEGMENTAL DATA, HELD THAT THIS COMPANY CANNOT BE SE LECTED AS A COMPARABLE. IT WAS ALSO HELD BY THE DRP THAT ON THE VERY SAME REASON OF ACQUISITION OF VARIOUS COMPANIES, BEING AN EXTRA ORDINARY EVENT, IT HAD AN IMPACT ON THE PROFIT OF THE COMPANY AND THE SAID COMPANY WAS DIRECTED TO BE EXCLUDED. 18.1. FOR THE RELEVANT A.Y. 2010-11, THE LD. COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE INFORMATION AVAILABL E ON ACCENTIA TECHNOLOGIES LTD., TO DEMONSTRATE THAT THE SAID COM PANY IS INTO DIVERSIFIED KNOWLEDGE PROCESS OUTSOURCING ACTIVITIE S. IT IS SEEN THEREFROM THAT THE SAID COMPANY IS INVOLVED IN HEAL THCARE DOCUMENTATION AS WELL AS RECEIVABLES, MANAGEMENT SE RVICES INCLUDING INSTALLATION AND MAINTENANCE OF ALL SOFTWARE, HARDW ARE AND BAND WIDTH INFRASTRUCTURE REQUIRED FOR THE SAME, DEPLOYMENT OF MAN POWER AND SERVICE DELIVERY IN ALL THESE AREAS. IT IS ALSO SEE N THAT IT IS ENGAGED IN LEGAL PROCESS OUTSOURCING. FROM SCHEDULE-IV SHOWING THE FIXED ASSETS OF THE ASSESSEE, IT IS ALSO SEEN THAT THE SAID COMP ANY OWNS GOODWILL/BRAND/IPRS (INTELLECTUAL PROPERTY RIGHTS). FROM THE NOTES TO THE ACCOUNTS, IT IS ALSO SEEN THAT A SUBSIDIARY OF THE COMPANY ASSCENT INFOSERVE PVT. LTD., HAS BEEN AMALGAMATED WITH THE COMPANY CONSEQUENT TO WHICH, ASSETS AND LIABILITIES OF THE ERSTWHILE COMPANY WERE TRANSFERRED AND VESTED IN THE COMPANY W.E.F. 1 ST APRIL, 2008 AND THE SCHEME HAS BEEN GIVEN EFFECT TO IN THE ACCOUNTS OF THE YEAR. THEREFORE, IT IS CLEAR THAT THERE IS AN EXTRAORDINA RY EVENT IN THE CASE OF ACCENTIA TECHNOLOGIES LTD., DURING THE RELEVANT FIN ANCIAL YEAR PARTICULARLY SINCE THE APPROVAL FOR AMALGAMATION HA S BEEN GIVEN BY THE HON'BLE HIGH COURT OF MUMBAI VIDE ORDERS DATED 21ST AUGUST, 2009 AND BY THE HON'BLE KARNATAKA HIGH COURT VIDE ORDERS DATED 6TH FEBRUARY, 2010. THIS EVENT WOULD DEFINITELY HAVE AN EFFECT ON THE PROFIT MARGINS OF THE SAID COMPANY AND THEREFORE, HAS TO B E EXCLUDED FROM THE LIST OF COMPARABLES AS RIGHTLY DONE BY THE DRP. THE REFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE D RP ON THIS COMPANY ALSO. ACCORDINGLY, GROUND NO.3 OF THE REVENUE IS DI SMISSED. 7.2 FURTHER, IN THE ASSESSEES OWN CASE FOR THE A.Y 2009- 10, THE TRIBUNAL HAS CONSIDERED THE COMPARABILITY O F ACROPETAL TECHNOLOGIES LTD AND HAS HELD AS UNDER: ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 12 OF 17 (5) ACROPETAL TECHNOLOGIES LTD. (SEG.) 20. THE OBJECTION OF ASSESSEE WITH REFERENCE TO THI S COMPANY IS THAT THE COMPANY IS INVOLVED IN ENGINEERING DESIGN SERVICES AND HIGH END SERVICES AND HAS PRODUCTS IN ITS INVENTORY. IT IS ALSO INVOLVED IN R&D ACTIVITY AND DEVELOPING SOPHISTICATED DELIVERY SYSTEM. IT WAS FURTHER SUBMI TTED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE AT SEGMENT LEVEL ALSO, AS E NGINEERING DESIGN SERVICES ARE HIGH END SERVICES, AS CONSIDERED IN OTHER CASES . IT IS FURTHER SUBMITTED THAT ALLOCATION OF EXPENSES BETWEEN SEGMENTS IS NOT POSS IBLE AND DEPRECIATION WAS NOT ALLOCATED BETWEEN THE SEGMENTS. THERE ARE EXTRA -ORDINARY EVENTS WHICH IMPACT PROFIT ALSO, AS CAN BE SEEN FROM THE ANNUAL REPORTS. IT IS FURTHER SUBMITTED THAT THIS COMPANY IS NOT SELECTED IN THE LIST OF COMPARABLES SELECTED IN THE CASE OF MERCER CONSULTING (INDIA) PVT. LTD. AND THEREFORE, SELECTION OF THE COMPANY BY THE TPO IN THIS CASE, WHICH IS ALSO IN S IMILAR ITES SERVICES, IS NOT PROPER. 20.1 AFTER CONSIDERING THE RIVAL CONTENTIONS, WE AG REE WITH THE OBJECTIONS RAISED BY ASSESSEE. AS SEEN FROM THE ANNUAL REPORT, THIS COMPANY IS INVOLVED IN ENGINEERING DESIGN SERVICES AND HAS PRODUCTS ALSO, WHICH MAKES IT FUNCTIONALLY NOT COMPARABLE. EVEN AT THE SEGMENTAL LEVEL, IT PRO VIDES ENGINEERING DESIGN SERVICES, WHICH WAS CONSIDERED AS HIGH END BY THE C OORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF HYUNDAI MOTORS INDIA ENGINE ERING (SUPRA) IN EARLIER YEAR. THEREFORE, WE ARE OF THE OPINION THAT THIS CO MPANY CANNOT BE SELECTED AS A COMPARABLE. WE ACCORDINGLY DIRECT THE ASSESSING OFF ICER/TPO TO EXCLUDE THIS COMPANY . 7.3 IN THE CASE OF M/S. MARKET TOOLS RESEARCH PVT L TD, THE TRIBUNAL CONSIDERED THE COMPARABILITY OF CROSS DOMA IN SOLUTIONS TO THE ASSESSEE TO HOLD AS UNDER: (H) CROSSDOMAIN SOLUTIONS: 11.1 THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSE SSEE, ARGUING AGAINST SELECTION OF THE AFORESAID COMPANY AS A COMPARABLE, SUBMITTED THAT THE SAID COMPANY IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN THE KNOWLEDGE PROCESS OUTSOURCING(KPO) SERVICES AND IS ONE OF THE LEADING KPO SERVICE PROVIDER, RENDERING A WIDE RANGING VALUE BASED SERVICES IN TH E AREAS OF PAY-ROLL AND HR, FINANCE AND ACCOUNTING, ADMINISTRATION AND TAX PROCESSES, INSURANCE PROCESS FOR LEADING COMPANIES IN US, EUROPE AND IND IAN MARKETS. IN THIS CONTEXT, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE, REFERRED TO THE RELEVANT EXTRACTS FROM THE WEBSITE OF THE SAID COMPANY, AND IT WAS FURTHER SUBMITTED THAT BESIDES THE KPO SERVICES, THE SAID C OMPANY WAS ALSO ENGAGED IN PROVIDING NICHE SERVICES. HE FURTHER SUBMITTED T HAT THE SAID COMPANY HAS BRAND PRESENCE IN THE MARKET UNLIKE THE ASSESSEE WH ICH DOES NOT OWN ANY INTANGIBLE AND DOES NOT ALSO TAKE ANY OF THE ENTREP RENEURIAL RISK TAKEN BY THE SAID COMPANY. HE THEREFORE, SUBMITTED THAT THE AFOR ESAID COMPANY BEING FUNCTIONALLY DIFFERENT, CANNOT BE TAKEN AS A COMPAR ABLE FOR DETERMINING ALP. IN SUPPORT OF THESE CONTENTIONS, HE PLACED RELIANCE ON THE DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH IN TH E CASE OF SYMPHONY MARKETING SOLUTIONS (INDIA) (P.) LTD. (SUPRA). ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 13 OF 17 11.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OT HER HAND, SUBMITTED THAT THE COMPANY IS IN DATA PROCESSING AND INSURANC E CLAIM PROCESSING SERVICES, WHICH ARE CLASSIFIED UNDER ITES/BPO SERVI CES. THEREFORE, THE COMPANY HAS BEEN CORRECTLY SELECTED AS A COMPARABLE . 12. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND P ERUSED THE MATERIAL ON RECORD WITH REGARD TO THE AFORESAID COMPANY. AS CAN BE SEEN FROM THE WEBSITE EXTRACT OF THE AFORESAID COMPANY, IT IS ENGAGED IN PROVIDING SERVICES WHICH ARE IN THE NATURE OF KPO. FURTHER, ON PERUSAL OF TH E ANNUAL REPORT OF THE COMPANY, FURNISHED IN THE PAPER-BOOK, IT IS SEEN TH AT THE SAID COMPANY IS ENGAGED IN PROVIDING NICHE SERVICES, AS WELL AS DEV ELOPED ITS OWN BRAND 'EXDION' TO TARGET THE INSURANCE INDUSTRY IN US. TH E ANNUAL REPORT FURTHER REVEALS THAT THE COMPANY HAS BEEN RUNNING MARKETING CAMPAIGNS IN THE US FOR EXPANDING ITS PLANT BASE IN RELATION TO THE BRA ND DEVELOPED BY IT. THE ASSESSEE HOWEVER, IS ONLY PROVIDING IT ENABLED SERV ICES TO ITS AE AND DOES NOT HAVE THE DIVERSIFIED ACTIVITIES LIKE THE AFORES AID COMPANY. THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SYMPHONY MARKE TING SOLUTIONS INDIA (P.) LTD. (SUPRA), WHILE CONSIDERING THE ISSUE OF AFORES AID COMPANY AS A COMPARABLE ACCEPTED THE ASSESSEE'S CONTENTION THAT CROSSDOMAIN CANNOT BE COMPARED TO A ROUTINE ITES PROVIDER AND DIRECTED FO R EXCLUSION OF THE SAME FROM THE LIST OF COMPARABLES. RESPECTFULLY FOLLOWIN G THE AFORESAID DECISION OF INCOME-TAX APPELLATE TRIBUNAL BANGALORE IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA (P.) LTD. (SUPRA), WE ALSO DIRECT T HE ASSESSING OFFICER TO EXCLUDE THE AFORESAID COMPANY FROM THE LIST OF COMP ARABLES FOR THE PURPOSE OF DETERMINING ALP. 7.4 RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE TPO TO EXCLUDE ALL THESE COMPANIES FROM THE FINAL LIST OF COMPARABLES AND RECOMPUTE THE ALP OF THE ASSESSEE. 8. AS REGARDS THE OTHER GROUNDS OF APPEAL I.E. GROU ND NO.14 REGARDING THE RATE OF DEPRECIATION TO BE ALLO WED ON SOFTWARE LICENSE FEE, THE LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE IN THE EARLIER A.Y. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PARA OF THE TRIBUNALS ORDER IS REPRODUCE D HEREUNDER: 14. GROUND NO. 19: CAPITALISATION OF LICENSE FEES DISALLOWANCE THE LICENSE FEES OF RS. 34,23,815 BY C ONSIDERING THE SAME CAPITAL IN NATURE 14.1 THIS GROUND PERTAINS TO THE DISALLOWANCE OF LICENSE FEES OF RS. 34,23,815/- BY CONSIDERING THE SAME AS CAPITAL IN N ATURE. ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 14 OF 17 14.2 IT WAS SUBMITTED THAT THIS ISSUE IS COVERED BY THE DIRECTIONS OF THE ITAT IN THE CASE OF TNS INDIA (P.) LTD., V. DY. CIT [2015] 57 TAXMANN.COM 165 (HYD.-TRIB.)VIDE PARAS 21 TO 23. TH E DECISION OF THE CO-ORDINATE BENCH IS AS UNDER: '21. THE ISSUE RAISED IN GROUND NO. 17 IS WITH REGA RD TO TREATING THE SOFTWARE LICENCE FEE PAID AS CAPITAL EXPENDITURE AN D ALLOWING DEPRECIATION @ 25%. 22. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PR OCEEDING, AO NOTICED THAT IN THE PROFIT & LOSS A/C, ASSESSEE HAS DEBITED AN AMOUNT OF RS. 2,21,29,855 TOWARDS COMPUTER MAINTENANCE CHARGE S. FROM THE BREAK-UP SUBMITTED BY ASSESSEE, IT WAS NOTICED BY A O THAT ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 1,00,99,916 ON ACCOUNT OF LICENCE FEE. AO ASKED ASSESSEE TO EXPLAIN WHY THE EXPENDITURE CL AIMED SHOULD NOT BE DISALLOWED AS IT IS IN THE NATURE OF CAPITAL EXP ENDITURE. THOUGH ASSESSEE OBJECTED TO SUCH VIEW OF AO, BUT, AO REJEC TING THE OBJECTIONS OF ASSESSEE DISALLOWED THE EXPENDITURE C LAIMED AND ADDED THE AMOUNT OF RS. 1,00,99,916 BY TREATING IT AS CAP ITAL EXPENDITURE. ASSESSEE OBJECTED TO THE ADDITION MADE BEFORE DRP. LD. DRP, THOUGH, UPHELD AO'S DECISION THAT THE EXPENDITURE I NCURRED IS CAPITAL IN NATURE, BUT, DIRECTED AO TO ALLOW DEPRECIATION A T APPROPRIATE RATE. THE AO WHILE COMPLETING FINAL ASSESSMENT IN PURSUAN CE TO THE DIRECTIONS OF LD. DRP, ALLOWED DEPRECIATION @ 25% O N THE SOFTWARE LICENCE FEE BY MENTIONING THAT IT FALLS IN THE BLOC K OF INTANGIBLE ASSETS. 23. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. IT IS VERY MUCH EVIDENT FROM R ECORD THAT THE SOFTWARE LICENCE FEE HAS BEEN PAID TOWARDS OPERATIO N AS WELL AS APPLICATION SOFTWARE. THAT BEING THE CASE, THE RATE OF DEPRECIATION APPLICABLE IS 60% (AS APPLICABLE TO COMPUTER) AND N OT 25% AS ALLOWED BY AO. MOREOVER, THIS ISSUE IS MORE OR LESS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEE'S OWN CASE FOR THE AY 2009-10. THE COORDINATE BENCH IN IT A NO. 604/HYD/14 WHILE DECIDING THE ISSUE HELD AS UNDER: 37. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE DECISIONS RELIED UPON BY LD. AR. AS FAR AS ASSESSEE'S CLAIM THAT THE EXPENDITURE CLAIME D HAS TO BE TREATED AS REVENUE EXPENDITURE, WE ARE OF THE VIEW THAT AS PER THE ITAT SPECIAL BENCH DECISIONS IN CASE OF AMWAY INDIA LTD. V. DCIT (SUPRA), WHETHER A PARTICULAR EXPENDIT URE IN RELATION TO ACQUISITION OF SOFTWARE WILL BE REVENUE OR CAPITAL, CANNOT BE DECIDED BY EITHER THE OWNERSHIP TEST OR ENDURING BENEFIT TE ST. THE FUNCTIONAL TEST HAS ALSO TO BE APPLIED. ITAT SPECIAL BENCH WEN T ON TO LAY DOWN CERTAIN TESTS FOR DECIDING WHETHER THE EXPENDITURE INCURRED HAS TO BE TREATED AS REVENUE OR CAPITAL. IN THE PRESENT CASE, ASSESSEE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO ESTABLISH THAT BY APPLYING THE FUNCTIONAL TEST, THE EXPENDITURE CAN BE SAID TO BE OF A REVENUE NATURE. MOREOVER, AFTER 01/04/2003 COMPUTER SOFTWARE HAS BE EN SPECIFICALLY BROUGHT INTO THE SCHEDULE AT PAR WITH COMPUTER AS F AR AS ELIGIBILITY OF DEPRECIATION IS CONCERNED. THEREFORE, AFTER 01/04/2 003, COMPUTER SOFTWARE IN THE NATURE OF APPLICATION SOFTWARE AND NOT MERE LICENCE FOR RENEWAL HAVE TO BE TREATED AS CAPITAL ASSETS ELIGIB LE FOR DEPRECIATION AT ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 15 OF 17 THE SAME RATE AS OF COMPUTER. THEREFORE, EXPENDITUR E INCURRED FOR ACQUIRING SUCH ASSET WILL BE CAPITAL EXPENDITURE. H OWEVER, WE ACCEPT LD. AR'S ALTERNATIVE CONTENTION THAT DEPRECIATION S HOULD BE ALLOWED AT 60%. AS PER THE NEW APPENDIX APPLICABLE FROM AY 200 6-07, DEPRECIATION ON COMPUTER AND COMPUTER SOFTWARE IS T O BE ALLOWED AT 60%. AS AO HAS NOT BROUGHT ANY MATERIAL ON RECORD T O SHOW THAT COMPUTER SOFTWARE ACQUIRED BY ASSESSEE IS NOT IN TH E NATURE OF SOFTWARE AS MENTIONED IN THE APPENDIX, IN OUR VIEW, AO IS NOT JUSTIFIED IN ALLOWING DEPRECIATION AT 25%. WE, THER EFORE, DIRECT AO TO ALLOW DEPRECIATION ON THE COMPUTER SOFTWARE AT 60%. THIS GROUND IS PARTLY ALLOWED. IN VIEW OF THE ABOVE, WE DIRECT AO TO ALLOW DEPRECI ATION @ 60% ON THE SOFTWARE LICENCE FEE. THIS GROUND IS PARTLY ALL OWED'. 14.3 IN VIEW OF THAT, WE UPHOLD THE DIRECTION OF THE DRP TO TREAT THE AMOUNT AS 'CAPITAL IN NATURE' TO ALLOW THE DEPRECIA TION. HOWEVER, THE RATE OF DEPRECIATION IS TO BE DETERMINED AT 60%. WI TH THE ABOVE DIRECTIONS, THE GROUND IS CONSIDERED PARTLY ALLOWED . 8.1 THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 9. AS REGARDS GROUND OF APPEAL NO.15, THE ASSESSEE S CONTENTION HAS BEEN THAT THE ADVANCES WRITTEN OFF A MOUNTING TO RS.2,07,56,784 IN THE P&L A/C OF THE COMPANY REPRES ENTS THE TDS DEDUCTION BY THE CUSTOMERS OF THE COMPANY IN TH E EARLIER YEARS IN WHICH THE COMPANY DID NOT RECEIVE TDS CERT IFICATE AND HENCE THE COMPANY COULD NOT CLAIM THE CREDIT FOR SU CH TDS, WHICH RESULTED IN A LOSS TO THE COMPANY AND THEREFO RE, THE COMPANY RECEIVED THE TDS RECEIVABLES OF RS.2,07,56, 784 AS ADVANCE WRITTEN OFF/BAD DEBT AND THE SAME HAS ACCOR DINGLY BEEN CLAIMED. THE AO OBSERVED THAT THOUGH THE ASSESSEE H AS CLAIMED IT AS ADVANCES WRITTEN OFF, IT HAS NOT GIVEN FULL DETA ILS AND THEREFORE, HE DISALLOWED THE SAME AND BROUGHT TO TAX. EVEN BEF ORE US ALSO, THE ASSESSEE HAS NOT FILED ANY EVIDENCE. THE LEARNE D COUNSEL FOR THE ASSESSEE REQUESTED THAT THIS ISSUE MAY BE REMAN DED TO THE TPO TO GIVE ANOTHER OPPORTUNITY OF FILING ALL THE E VIDENCE. BUT SINCE THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY EVIDENCE ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 16 OF 17 BEFORE US, WE DO NOT SEE ANY REASON TO REMAND THE I SSUE AT THIS JUNCTURE WITHOUT ANY EVIDENCE. IN VIEW OF THE SAME, THIS GROUND OF APPEAL IS REJECTED. 10. AS REGARDS GROUND NO.16 WITH REGARD TO CREDIT F OR RS. 6,54,93,323 INSTEAD OF RS. 6,87,39,406 AS CLAIMED I N THE RETURN OF INCOME, WE REMAND THIS ISSUE TO THE FILE OF THE AO FOR VERIFICATION AND ALLOWING THE SAME IN ACCORDANCE WITH LAW. 11. AS REGARDS GROUND NO.17, WE FIND THAT IT IS CONSEQUENTIAL IN NATURE AND THEREFORE, THE AO IS DI RECTED TO GIVE THE CONSEQUENTIAL RELIEF, IF ANY, TO THE ASSESSEE. 12. AS REGARDS GROUND NO.18 REGARDING INITIATING PE NALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, IT IS PREMATU RE IN NATURE. THEREFORE, THIS GROUND IS ALSO REJECTED. 13. AS REGARDS THE ADDITIONAL GROUNDS OF APPEAL, WE FIND THAT THIS IS COVERED IN FAVOUR OF THE ASSESSEE BY V ARIOUS DECISIONS, PARTICULARLY, THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD REPORTED IN (2010) 194 TAXMANN.COM 192 (BOMBAY) WHEREIN IT WAS HELD THAT T HE EXEMPTION U/S 10A SHOULD BE GRANTED EVEN ON THE INC OME WHICH IS ENHANCED DUE TO THE DISALLOWANCE OF CERTAIN EXPE NDITURE. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO T O ALLOW THE DEDUCTION U/S 10A OF THE ACT TO THE ASSESSEE ON ENH ANCED INCOME AS WELL. ITA NO 407 OF 2015 TNS INDIA P LTD HYDERABAD. PAGE 17 OF 17 14. IN THE RESULT, ADDITIONAL GROUND OF APPEAL IS A LLOWED. 15. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH NOVEMBER, 2018. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 28 TH NOVEMBER, 2018. VINODAN/SPS COPY TO: 1 M/S. TNS INDIA (P) LTD, 7 TH FLOOR, ORION BLOCK, THE V ASCENDS IT PARK, PLOT NO.17, SOFTWARE UNITS LAYOUT MADHAPUR, H YDERABAD 500081 2 3 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(2) 5 TH FLOOR, ROOM NO.513, SIGNATURE TOWERS, KOTHAGUDA, KONDAPUR, HYDE RABAD TPO/ADDL. CIT (TP) HYDERABAD 500004 4 CIT (INTERNATIONAL TAXATION) IT TOWERS, 10-2-3, A C GUARDS, HYDERABAD 5 CIT 5, HYDERABAD 500004 6 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER