GD Research Center Pvt.Ltd. Hyd, Hyderabad V. ACIT, Circle-2(2), Hyd, Hyderabad

ITA 411/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6267 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 15-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Related party transaction; Transfer pricing; International transaction; Bad and doubtful debts
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 411/HYD/2015 ASSESSMENT YEAR: 2010-11 G.D. RESEARCH CENTER PVT. LTD., HYDERABAD. (FORMERLY KNOWN AS DMV BUSINESS & MARKET RESEARCH PVT. LTD.,) PAN AACCD 4075B VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 2(2), HYDERABAD. (ASSESSEE) (RESPONDENT) ASSESSEE BY : SHRI K.R. VASUDEVAN REVENUE BY : SHRI V. SRINIVAS DATE OF HEARING 01-08-2016 DATE OF PRONOUNCEMENT 24-08-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER PASSED U/S 143(3) R.W.S. 92CA(4) R.W.S.144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) DATED 12/02/2015 RELATIN G TO AY 2010-11. 2. BRIEF FACTS OF THE CASE ARE, M/S DMV BUSINESS & MARKET RESEARCH PVT. LTD., IS RENDERING BACK OFFICE DATA C REATION, CONTENT DEVELOPMENT AND SUPPORT SERVICES IN RELATION TO ANA LYSIS, CONTENT SEARCH AND PROJECTIONS FOR ALL TYPES OF BUSINESS IN FORMATION. THE GROUP IS A PREMIUM BUSINESS INFORMATION PUBLICATION AND MARKETING COMPANY BASED IN THE UK, PROVIDING ITS CLIENTS WITH UNBIASED EXPERT ANALYSIS AND IN-DEPTH FORECASTS FOR VARIOUS INDUSTR Y SECTORS. THE 2 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. TAXPAYER PROVIDES BUSINESS SUPPORT SERVICES, DATA C REATION, CONTENT DEVELOPMENT IN RELATION TO CONTENT SEARCH AND ANALY SIS TO THE VARIOUS BUSINESS UNITS WITHIN THE GROUP. IT ALSO ASSISTS IN BUILDING AND DEVELOPING SOFTWARE TOOLS AND SYSTEMS TO FACILITATE DELIVERY OF GROUP COMPANIES REPORT AND DATABASE SUBSCRIPTION SERVICES AND TO PROVIDE DATA PROCESSING AND AUTOMATIC SUPPORT TO POPULATE T HE GROUPS SUBSCRIPTION DATABASES. THE TAXPAYER IS WHOLLY OWN ED SUBSIDIARY OF GLOBAL DATA LTD., U.K. 2.1 DURING THE RELEVANT PY, AS PER THE 3CEB REPORT/ TP DOCUMENT, THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE REFL ECTED AS UNDER: A.E. NATURE OF TRANSACTION AMOUNT (RS.) GLOBAL DATA LTD. PROVISION OF ITES 42,86,13,172 42,86,13,172 2.2 THE TAXPAYER HAS CARRIED OUT THE ECONOMIC ANALY SIS AND HAS SUMMARIZED IT AS UNDER: NATURE OF INTERNATIONAL TRANSACTION AMOUNT MAM PLI MARGIN OF TAXPAYER MARGIN OF COMPARABLES PROVISION OF ITES 42,86,13,172 TNMM OP/ OC 16.4 14.27 2.3 THE TAXPAYER HAS CARRIED OUT THE ECONOMIC ANALY SIS FOR COMPARABLES AT PAGES 21 TO 26 OF THE TP DOCUMENTATI ON. THE TAXPAYER HAS USED PROWESS AND CAPITALINE PLUS DATA BASE IN SEARCH FOR COMPARABLE COMPANIES. AFTER APPLYING CERTAIN FI LTERS, THE TAXPAYER HAS SHORT-LISTED 15 COMPARABLES FOR ARRIVING AT ALP OF IT ENABLED SERVICES WITH ARITHMETIC MEAN PLI (OP/OC) WAS COMPU TED AT 14.27% AS AGAINST THE PLI OF THE TAXPAYER AT 16.40%. ACCOR DINGLY, IT IS STATED THAT THE INTERNATIONAL TRANSACTIONS ARE AT ARMS LE NGTH. 3 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. 2.4 FINANCIAL RESULTS FOR THE AY 2010-11 ARE AS UND ER: DESCRIPTION AMOUNT (RS.) OPERATING REVENUE 42,86,13,172 OPERATING COST 37,40,19,725 OPERATING PROFIT 5,45,93,447 OP/OR (%) 12.74 OP/OC (%) 14.60 2.5 TPO NOTICED THAT THE COMPANY HAD THE FOLLOWING TRANSACTION, WHICH WAS NOT REPORTED IN FORM 3CEB OR BUT NO BENCH MARKING ANALYSIS HAS BEEN DONE IN THE TP STUDY: A.E. NATURE OF TRANSACTION AMOUNT (RS.) GLOBAL DATA LTD. RECEIVABLES 3,98,91,093 2.6 ON GOING THROUGH THE TP DOCUMENT, THE TPO NOTED THAT THE METHOD OF THE SEARCH PROCESS SUFFERS FROM DEFECTS W HICH RESULTED IN SELECTION OF INAPPROPRIATE COMPARABLES AND REJECTIO N OF COMPANIES THAT ARE APPROPRIATE COMPARABLES. HE, THEREFORE, RE JECTED THE TP DOCUMENT AND AN INDEPENDENT ANALYSIS HAS BEEN MADE BY AGGREGATING ALL THE TRANSACTIONS UNDER TNMM. 2.7 THE FINAL COMPARABLES SELECTED BY TRANSFER PRIC ING OFFICER (TPO) WITH OP TO OC ARE AS UNDER: SL.NO. NAME OF THE COMPANY OP TO TOTAL COST 1. ACCENTIA TECHNOLOGIES LTD. 49.02 2. ACROPETAL TECHNOLOGIES LTD. (SEG.) 10.12 3. AXIS-IT & T LTD. 11.89 4. COSMIC GLOBAL LTD. 16.59 5. ECLERX SERVICES LTD. 42.17 6. INFOSYS BPO LTD. 31.63 7. TCS E-SERVE INTERNATIONAL LTD. 51.51 8. TCS E-SERVE LTD. 67.58 9. JEEVAN SOFTECH LTD. (SEG.) 8.04 10. MICROGENETICS SYSTEMS LTD. 6.60 11. CROSSDOMAIN SOLUTIONS PVT. LTD. 17.13 4 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. TOTAL 312.28 AVERAGE 28.39 2.8 ASSESSEE HAS SELECTED TRANSACTION NET MARGIN ME THOD (TNMM) AS THE MOST APPROPRIATE METHOD AND ALSO APPLIED MUL TIPLE YEAR DATA TO SELECT THE COMPARABLES. IT HAD SELECTED 15 COMPARAB LES. THOUGH, TPO HAS ACCEPTED THE TNMM AS THE MOST APPROPRIATE M ETHOD, HE REJECTED THE TP STUDY OF ASSESSEE AND HAS MADE FRES H TP STUDY WITH DATA FOR THE FY 2010-11. TPO HAD SELECTED THE ABOVE 11 COMPARABLES. 2.9 AFTER COMPARING THE AVERAGE MARGINS OF THE COMP ARABLES TO THE FINANCIALS OF THE ASSESSEE, THE TPO COMPUTED THE AD JUSTED ARMS LENGTH MARGIN AS UNDER: DESCRIPTION AMOUNT ARMS LENGTH MARGIN 27.90% LESS: WCA 1.20% ADJUSTED ARMS LENGTH MARGIN 26.70% OPERATION COST (OC) 37,40,19,725 ADJUSTED ARMS LENGTH MARGIN (%) (AALM) 26.70% ARMS LENGTH PRICE = (100+AALM)*OC 47,38,82,992 PRICE RECEIVED (OR) 42,86,13,172 ADJUSTMENT U/S 92CA 4,52,69,820 2.10 ACCORDINGLY, THE TPO WHO PASSED AN ORDER U/S 9 2CA(3) OF THE ACT ON 31/10/2013, RECOMMENDED ADJUSTMENT OF RS. 4, 52,69,820/-. THE SAME WAS INCORPORATED BY THE AO IN THE DRAFT AS SESSMENT ORDER. ASSESSEE PREFERRED A PETITION BEFORE THE DISPUTE RE SOLUTION PANEL (DR) RAISING VARIOUS OBJECTIONS. 5 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. 3. DRP HAS GIVEN PARTIAL RELIEF TO THE ASSESSEE AS UNDER: 3.1 THE DRP HAS ELIMINATED THE COMPANIES M/S INFOSY S BPO LTD. AND M/S TCS E-SERVICE LTD. AS COMPARABLES, AFTER C ONSIDERING THE SUBMISSIONS OF THE ASSESSEE THAT THESE TWO COMPANIE S SHOULD NOT BE INCLUDED IN VIEW OF THEIR BRAND VALUE AND HIGH TURN OVER AS WELL AS RELYING ON THE DECISION OF THE ITAT TO EXCLUDE THES E COMPANIES. 3.2 CONSIDERING THE ABOVE FINDINGS OF DRP, THE AO H AS REDUCED THE ADJUSTMENT U/S 92CA TO RS. 2,69,05,451/-. 4. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE IS IN A PPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE FINAL ASSESSMENT ORDER DATED 12 FEBRUARY 2015 PASSED BY T HE ASSESSING OFFICES ('AO') U/S 143(3) OF THE INCOME-T AX ACT, 1961(ACT') READ WITH ORDER DATED 31 OCTOBER 2013 IS SUED BY TRANSFER PRICING OFFICER ('TPO') U/S 92CA(3) OF THE ACT PURSUANT TO THE DIRECTIONS DATED 24 DECEMBER 2014 BY DISPUTE RESOLUTION PANEL ('DRP') U/S 144C(5) OF THE ACT IS BAD IN LAW AND VOID AB- INITIO. TRANSFER PRICING GENERAL 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO IDRP ERRED IN CONFIRMING TRANSFER PRICING AD JUSTMENT OF RS. 2,69,05,451 TOWARDS PROVISION OF INFORMATION TE CHNOLOGY ENABLED SERVICES ('ITES') BY THE APPELLANT TO ITS A SSOCIATED ENTERPRISE. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO IDRP ERRED IN REJECTING TRANSFER PRICING DOC UMENTATION MAINTAINED BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME-TAX RULES, 1962 (RULES ') AND UNDERTAKING A FRESH ECONOMIC ANALYSIS DURING THE CO URSE OF ASSESSMENT PROCEEDINGS AND THEREBY MAKING AN ADJUST MENT OF RS. 2,69,05,451 TO THE INTERNATIONAL TRANSACTIONS. ERROR IN COMPUTATION OF NET MARGIN OF THE APPELLANT 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO IDRP ERRED IN CONSIDERING FOREIGN EXCHANGE L OSS AMOUNTING TO RS. 57,91,063 INCURRED BY THE APPELLAN T, AS 6 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. OPERATING IN NATURE WHILE COMPUTING THE NET MARGIN OF THE APPELLANT UNDER TRANSACTIONAL NET MARGIN METHOD ('T NMM'). SELECTION OF UNCOMPARABLE COMPANIES 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO IDRP ERRED IN ACCEPTING FOLLOWING AS COMPARA BLE COMPANIES AS SELECTED BY THE TPO: A) ACCENTIA TECHNOLOGIES LTD; B) E-CLERX SERVICES LTD; C) TCS E-SERVE INTERNATIONAL LIMITED; D) COSMIC GLOBAL LTD; AND E) CROSSDOMAIN SOLUTIONS LIMITED. ERROR IN COMPUTATION OF MARGIN OF THE COMPARABLE CO MPANIES 6. THAT THE AO I DRP ERRED IN CONFIRMING THE TPO'S STAND OF TREATING THE PROVISION FOR DOUBTFUL DEBTS AND BAD D EBTS AS NON- OPERATING EXPENSES FOR THE PURPOSE OF MARGIN COMPUT ATION OF COMPARABLE COMPANIES AS SELECTED BY TPO. REJECTION OF COMPARABLE COMPANIES 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO IDRP ERRED IN CONFIRMING THE REJECTION OF TH E FOLLOWING COMPARABLE COMPANIES, AS REJECTED BY THE TPO: (I) ACE SPO SERVICES LIMITED; (II) R SYSTEMS INTERNATIONAL LIMITED; (III) ICRA TECHNO ANALYTICS LIMITED; (IV) AOK IN HOUSE SPO SERVICES LTD; (V) CAMEO CORPORATE SERVICES LTD; (VI) DELTA SERVICES INDIA PVT. LTD; (VII) INFORMED TECHNOLOGIES INDIA LTD; (VIII) OPTIMUS GLOBAL SERVICES LTD; (IX) SPARSH SPO SERVICES LTD; (X) IN-HOUSE PRODUCTION LTD; AND (XI) TIMEX GROUP INDIA LTD. USE OF FILTERS 7 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO IDRP ERRED IN UPHOLDING THE USE OF THE FOLLO WING ADDITIONAL FILTERS IN UNDERTAKING THE COMPARATIVE A NALYSIS: (I) RELATED PARTY TRANSACTIONS FILTER (SHOULD BE RE STRICTED TO 10% _ 15%); (II) EXPORT SALES FILTER; (III) DIFFERENT FINANCIAL YEAR-END FILTER; (IV) PERSISTENT LOSS FILTER; (V) DIMINISHING REVENUE FILTER; AND (VI) COMPANIES HAVING EXTREME PROFIT MARGIN. REJECTION OF USE OF MULTIPLE YEAR DATA 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO IDRP ERRED IN REJECTING THE USE OF MULTIPLE YEAR DATA AND USING DATA FOR THE FY 2009-10 ONLY. ERROR IN COMPUTATION OF WORKING CAPITAL ADJUSTMENT 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ITPO ERRED IN ADOPTING INCORRECT SSI PRIME L ENDING RATE AT 10.25% INSTEAD OF 1225% RELEVANT TO THE FY 2009- 10 AND COMPUTED WORKING CAPITAL ADJUSTMENT. ADJUSTMENT FOR RISK DIFFERENCES 11. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO IDRP ERRED IN DISREGARDING THE RISK PROFILE OF THE APPELLANT VIS-A-VIS ALLEGED COMPARABLE COMPANIES SE LECTED BY THE TPO AND NOT ALLOWING RISK ADJUSTMENT AS PER THE PROVISIONS OF RULE 10B(1)(E) OF THE RULES. CORPORATE TAX ISSUES 12. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED REDUCING THE ENTIRE COMMUNICATION EXPENSES OF RS. 52,44,300 FROM EXPORT TURNOVER FOR THE PURPO SE OF COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT, W HEREAS THE ACTUAL LEASED LINE - INTERNET CHARGES INCURRED BY T HE APPELLANT WAS RS. 15,81,279. 13. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORP ERRED IN STATING THAT THE APPELLANT HAS INC URRED AN AMOUNT OF RS. 24,68,377 AS CONFERENCE / WEBCAST EXP ENSES AND DIRECTED AO TO REDUCE THE SAME FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A 8 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. OF THE ACT. WHEREAS, THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE TOWARDS CONFERENCE / WEBCAST EXPENSES. 14. WITHOUT PREJUDICE TO OUR SUBMISSIONS FILED BEFO RE AO/ORP THAT COMMUNICATION EXPENSES ARE NOT TO BE REDUCED F ROM EXPORT TURNOVER; IF AT ALL ANY COMMUNICATION EXPENSES ARE TO BE REDUCED, ONLY LEASED LINE - INTERNET CHARGES OF RS. 15,81,279 ARE TO BE REDUCED FROM THE EXPORT TURNOVER AND TOTAL TU RNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 15.1 THE AO ERRED IN CHARGING INTEREST UNDER SECTIO N 234A OF THE ACT. 15.2 THE AO OUGHT TO HAVE APPRECIATED THAT THE RETU RN OF INCOME WAS FILED BY THE APPELLANT WITHIN THE DUE DATE AND INTEREST UNDER SECTION 234A OF THE ACT IS NOT APPLICABLE. 16. THE AO ERRED IN NOT GRANTING CREDIT FOR TAX DED UCTED AT SOURCE OF RS. 11,000 AS CLAIMED IN THE RETURN OF IN COME. 17. THE APPELLANT CRAVES, TO CONSIDER EACH OF THE A BOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVE S LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOV E GROUNDS OF APPEAL. 5. GROUND NOS. 1, 2, 3, AND 17 ARE GENERAL IN NATU RE, HENCE, NEED NO ADJUDICATION. 5.1 GROUND NOS. 6, 7, 8, 9, AND 11 HAVE NOT BEEN PR ESSED BY THE LD. AR OF THE ASSESSEE AT THE TIME OF HEARING BEFORE US , THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED. 6. AS REGARDS GROUND NO. 4 PERTAINING TO ERROR IN C OMPUTATION OF NET MARGIN OF THE ASSESSEE, THE LD. AR SUBMITTED TH AT THE FOREIGN EXCHANGE LOSS SHOULD BE TREATED AS NON-OPERATING IN NATURE. WITHOUT PREJUDICE TO THE ABOVE, HE SUBMITTED THAT FOREIGN E XCHANGE LOSS TO THE EXTENT OF REINSTATEMENT SHOULD BE CONSIDERED AS NON -OPERATING IN NATURE. THE REVISED OPERATING MARGIN OF THE ASSESSE E, AFTER EXCLUDING THE FOREIGN EXCHANGE LOSSES, WORKS OUT TO BE 15.09% . 7. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED THE MATERIAL FACTS ON RECORD. WE OBSERVE THAT VARIO US DECISIONS OF THIS BENCH AS WELL AS OTHER BENCHES OF THE TRIBUNAL HAVE TREATED THE 9 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. FOREIGN EXCHANGE LOSSES AS OPERATING IN NATURE. HEN CE SUCH ITEMS OF EXPENDITURE OR GAIN ARE TO BE CONSIDERED AS OPERATI ONAL IN NATURE IN CASE OF COMPARABLES ALSO. WE RELY ON THE FOLLOWING DECISIONS: 1. INDIGRA EXPORTS (P) LTD. VS. DCIT [2016] 70 TAX MANN.COM 273 (BANG. TRIBUNAL) 2. KENEXA TECHNOLOGIES (P) LTD. VS. DCIT [2014] 51 TAXMANN.COM 282 (HYD. TRIB.) 8. AS REGARDS GROUND NO. 5 PERTAINING TO SELECTION OF UNCOMPARABLE COMPANIES, THE LD. AR SUBMITTED THAT T HE AO/DRP ERRED IN ACCEPTING FOLLOWING AS COMPARABLE COMPANIE S AS SELECTED BY THE TPO: A) ACCENTIA TECHNOLOGIES LTD., B) E-CLERX SERVICES LTD. C) TCS E- SERVE INTERNATIONAL LTD. D) COSMIC GLOBAL LTD., AND E) CROOSDOMAIN SOLUTIONS LTD., IN THE ABOVE COMPARABLES, LD. AR HAS NOT PRESSED TH E ITEMS AT D) & E), HENCE, THESE COMPARABLES ARE EXCLUDED FOR ADJUD ICATION. A) ACCENTIA TECHNOLOGIES LTD., I) OBJECTING TO THE AFORESAID COMPANY AS COMPARABLE , THE AR OF THE ASSESSEE SUBMITTED THAT THE COORDINATE BENCH OF THIS TRIBUNAL REJECTED THE SAID COMPANY IN ASSESSEES OWN CASE FO R AY 2009-10 FOR EXTRAORDINARY EVENTS OF ACQUISITION. ALSO THE SAID COMPANY HAS INORGANIC GROWTH, FUNCTIONALLY DISSIMILAR, PRESENCE OF INTELLECTUAL PROPERTY RIGHTS AND EXTRA-ORDINARY EVENTS. HE ALSO SUBMITTED THAT THE COORDINATE BENCH OF THIS TRIBUNAL REJECTED THE SAID COMPANY IN THE CASE OF HYUNDAI MOTORS INDIA ENGG. P. LTD., IN ITA NO. 1743/HYD/2014 FOR AY 2010-11 VIDE ORDER DATED 13/11/2015, WHEREIN THE TRIBUNAL HAS HELD AS FOLLOWS: FOR THE RELEVANT A.Y. 2010-11, THE LD. COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE INFORMATION AVAILABLE ON ACCENTIA TECHNOLOGI ES LTD., TO DEMONSTRATE THAT THE SAID COMPANY IS INTO DIVERSIFIED KNOWLEDGE PROCESS OUTSO URCING ACTIVITIES. IT IS SEEN THEREFROM 10 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. THAT THE SAID COMPANY IS INVOLVED IN HEALTHCARE DOC UMENTATION AS WELL AS RECEIVABLES, MANAGEMENT SERVICES INCLUDING INSTALLATION AND MAIN TENANCE OF ALL SOFTWARE, HARDWARE 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 ASS ETS OF THE ASSESSEE, IT IS ALSO SEEN THAT THE SAID COMPANY OWNS GOODWILL/BRAND/IPRS (INT ELLECTUAL PROPERTY RIGHTS). FROM THE NOTES TO THE ACCOUNTS, IT IS ALSO SEEN THAT A SUBSI DIARY OF THE COMPANY ASSCENT INFOSERVE PVT. LTD., HAS BEEN AMALGAMATED WITH THE COMPANY CO NSEQUENT TO WHICH, ASSETS AND LIABILITIES OF THE ERSTWHILE COMPANY WERE TRANSFERR ED AND VESTED IN THE COMPANY W.E.F. 1ST APRIL, 2008 AND THE SCHEME HAS BEEN GIVEN EFFEC T 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 FINANCIAL YE AR PARTICULARLY SINCE THE APPROVAL FOR AMALGAMATION HAS BEEN GIVEN BY THE HONBLE HIGH COU RT OF MUMBAI VIDE ORDERS DATED 21ST AUGUST, 2009 AND BY THE HONBLE 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 22 BE EXCLUDED F ROM THE LIST OF COMPARABLES AS RIGHTLY DONE BY THE DRP. THEREFORE, WE DO NOT SEE A NY REASON TO INTERFERE WITH THE ORDER OF THE DRP ON THIS COMPANY ALSO. ACCORDINGLY, GROUN D NO.3 OF THE REVENUE IS DISMISSED. II) THE LD. DR ON THE OTHER HAND RELIED ON THE ORDE RS OF REVENUE AUTHORITIES. III) CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. FOLLOWING THE SAID DEC ISION OF THE COORDINATE BENCH, WE DIRECT THE AO/TPO TO EXCLUDE T HE SAID COMPANY AS COMPARABLE FROM THE LIST OF COMPARABLES. B) E-CLERX SERVICES LTD. I) OBJECTING TO THE AFORESAID COMPANY AS COMPARABLE , THE AR OF THE ASSESSEE SUBMITTED THE SAID COMPANY IS REJECTED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009-10 FOR FUNCTIONAL DISSIMILARITY, DIVERSE PORTF OLIO AND LACK OF SEGMENTAL DATA. ALSO IT HAS ABNORMAL PROFITS AND EX TRAORDINARY EVENTS AND UNRELIABLE DATA. HE SUBMITTED THAT THE COORDINA TE BENCH OF THIS TRIBUNAL REJECTED THE SAID COMPANY IN THE CASE OF H YUNDAI MOTORS INDIA ENGG. P. LTD., (SUPRA) WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 17. LD. D.R. HAS NOT BEEN ABLE TO REBUT THIS FACTUA L ASPECTS 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 TECHNOLOGIES INTERNATIONAL P. LTD., THE ITA T, DELHI BENCH HAS UPHELD SELECTION OF M/S. ECLERX SERVICES LTD. A COPY OF THE SAID ORDER IS FILED BEFORE US. ASSESSEES 11 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. CONTENTIONS THEREIN THAT THE KPO SERVICES ARE DISTI NCT FROM BPO SERVICES AND ARE NOT COMPARABLE, HAS BEEN REJECTED BY THE TRIBUNAL. HOWE VER, SINCE A UNIFORM AND CONSISTENT STAND HAS TO BE TAKEN IN THE CASE OF THE SAME ASSES SEE ON SIMILAR FACTS AND CIRCUMSTANCES, WE, RESPECTFULLY FOLLOWING THE DECIS ION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE, DO NOT SEE ANY REASON TO INTER FERE WITH THE ORDER OF THE DRP. GROUND NO.2 IS ACCORDINGLY REJECTED. II) LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORIT IES. III) CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. FOLLOWING THE SAID DEC ISION OF THE COORDINATE BENCH, WE DIRECT THE AO/TPO TO EXCLUDE T HE SAID COMPANY AS COMPARABLE FROM THE LIST OF COMPARABLES. C) TCS E- SERVE INTERNATIONAL LTD. I) OBJECTING TO THE AFORESAID COMPANY AS COMPARABLE , THE AR OF THE ASSESSEE SUBMITTED THAT NO SEGMENTAL INFORMATIO N AVAILABLE FOR THE SAID COMPANY AND IT HAS EXTRA-ORDINARY EVENTS D URING THE YEAR AND PRESENCE OF BRAND VALUE IS ALSO THERE. HE SUBMITTED THAT THE COORDINATE BENCH OF THIS TRIBUNAL REJECTED THE SAID COMPANY IN THE CASE OF HYUNDAI MOTORS INDIA ENGG. P. LTD., (SUPRA) WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 11.2.2. WE FIND THAT THE ASSESSEES CONTENTIONS AB OUT THE PRESENCE OF BRAND VALUE AND OWNING OF INTANGIBLES IS SUPPORTED BY THE EVIDENC E ON RECORD. HOWEVER, AS REGARDS THE EXTRAORDINARY EVENT OR EXCEPTIONAL CIRCUMSTANCE THE RE 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 WHICH THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES, IT CANNOT BE EXCLUDED. SUC H CLAIM HAS TO BE SUPPORTED BY EVIDENCE ON RECORD. AS REGARDS THE FUNCTIONAL DISSI MILARITY AND HUGE TURNOVER AND BRAND VALUE IS CONCERNED, WE FIND THAT THIS TRIBUNAL IN A SSESSEES 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 INTANGIBLE S WHICH INFLUENCED THE FINANCIAL RESULTS OF THIS COMPANY. THE HONBLE DELHI HIGH COU RT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES P. LTD., (2013) 219 TAXMAN 26 (DEL.), HELD THAT HUGE TURNOVER COMPANIES LIKE INFOSYS AND WIPRO CANNOT BE CONSIDERED AS COMP ARABLE TO SMALLER COMPANIES LIKE ASSESSEE THEREIN. IN THE CASE BEFORE THE HONBLE HI GH 16 COURT (SUPRA), THE TURNOVER OF THE ASSESSEE WAS ABOUT RS.15.79 CRORES AS AGAINST T HE TURNOVER OF RS.1016 CRORES OF THE INFOSYS. CONSIDERING THESE FACTS, THE HONBLE HIGH COURT HAD DIRECTED FOR EXCLUSION OF INFOSYS BPO BECAUSE OF 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 THE TURNOVER OF TCS E-SERVE LIMITED OF RS.1405.10 CRORES. THEREFORE, FOLLOWING THE TURNOVER FILTER AS WELL AS TAKING NOTE OF THE FACT THAT IT OWNS AND 12 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. POSSESSES BRAND VALUE AND INTANGIBLES AS COMPARED T O THE ASSESSEE WHICH DOES NOT OWN SUCH ASSETS, WE DIRECT THAT THIS COMPANY BE EXCLUDE D FROM THE LIST OF FINAL COMPARABLES. II) LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORIT IES. III) CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. FOLLOWING THE SAID DEC ISION OF THE COORDINATE BENCH, WE DIRECT THE AO/TPO TO EXCLUDE T HE SAID COMPANY AS COMPARABLE FROM THE LIST OF COMPARABLES. 9. WE THEREFORE DIRECT THE ASSESSING OFFICER /TPO T O DETERMINE THE ALP KEEPING IN VIEW OF OUR DIRECTIONS GIVEN HEREINA BOVE AND IF ON SUCH DETERMINATION THE PRICE CHARGED BY THE ASSESSE E FOR ITS INTERNATIONAL TRANSACTION IS FOUND TO BE WITHIN THE ARMS LENGTH THEN NO ADJUSTMENT IS REQUIRED TO BE MADE. 10. AS REGARDS GROUND NOS. 12 TO 14 PERTAINING TO C ORPORATE TAX ISSUES, THE LD. AR OF THE ASSESSEE SUBMITTED THAT T HE AO/DRP ERRED IN REDUCING THE ENTIRE COMMUNICATION EXPENSES OF RS . 52,44,300/- FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTI NG DEDUCTION U/S 10A OF THE ACT, WHERE AS THE ACTUAL LEASED LINE I NTERNET CHARGES INCURRED BY THE ASSESSEE WAS RS. 15,81,279/-. 11. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIE S AND PERUSING THE MATERIAL FACTS ON RECORD, WE REMIT THIS ISSUE T O THE FILE OF THE AO/TPO TO VERIFY AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THESE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 12. AS REGARDS GROUND NOS. 15.1 & 15.2 REGARDING CH ARGING INTEREST U/S 234A OF THE ACT, THE LD. AR OF THE ASSESSEE SUB MITTED THAT THE AO OUGHT TO HAVE APPRECIATED THAT THE RETURN OF INCOME WAS FILED BY THE ASSESSEE WITHIN THE DUE DATE AND INTEREST U/S 234A IS NOT APPLICABLE. 13. AFTER CONSIDERING THE PARTIES AND PERUSING THE MATERIAL FACTS ON RECORD, WE REMIT THIS ISSUE BACK TO THE FILE OF THE AO/TPO TO VERIFY THE 13 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. RECORD WHETHER THE ASSESSEE HAS FILED THE RETURN OF INCOME WITHIN THE DUE DATE OR NOR AND DECIDE ISSUE ACCORDINGLY. 14. AS REGARDS THE GROUND NO. 16, THE LD. AR SUBMIT TED THAT THE AO ERRED IN NOT GRANTING CREDIT FOR TAX DEDUCTED AT SO URCE OF RS. 11,000/- AS CLAIMED IN THE RETURN OF INCOME. THE AO IS DIREC TED TO VERIFY THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW. 15 IN THE RESULT, ASSESSEES APPEAL IS TREATED AS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 24 TH AUGUST, 2016 KV COPY TO:- 1) M/S GD RESEARCH CENTRE PVT. LTD., H.NO. 1-89/3B /40 TO 42/KS/305, 3 RD FLOOR,.KRISHE SAPPHIRE BUILDING, SY NO. 88, MADHAPUR, SERILINGAMPALLY MANDAL, HYD 500 081. 2) ACIT, CIRCLE 2(2), 8 TH FLOOR, B. BLOCK, IT TOWERS, AC GUARDS, HYD. 500 004. 3) DRP, HYDERABAD 4. CIT, INTERNATIONAL TAXATION, INCOME TAX TOWERS, 10-2-3, AC GUARDS, HYDERABAD 500 004. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 14 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER 15 ITA NO. 411 /HYD/2015 GD RESEARCH CENTER PVT. LTD., HYD.