H&S Software Development and Knowledge Management Centre Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 436/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2801 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 11-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 24-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VEENU AGARWAL CAS; MANONEET DALA
• Keywords: Related party transaction; Transfer pricing; Principle of natural justice; International transaction; Rule of consistency; Initiation of penalty proceedings; Wholly owned subsidiary
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.436/DEL./2013 (ASSESSMENT YEAR : 2008-09) M/S. H & S SOFTWARE DEVELOPMENT VS. DCIT, CIRCLE 10 (1), AND KNOWLEDGE MANAGEMENT CENTRE NEW DELHI. PVT. LTD., 301, E BLOCK, INTERNATIONAL TRADE TOWER, NEHRU PLACE, NEW DELHI-110 019. (PAN : AABCH2697E) ITA NO.496/DEL./2013 (ASSESSMENT YEAR : 2008-09) DCIT, CIRCLE 10 (1), VS. M/S. H & S SOFTWARE DEVELO PMENT NEW DELHI. AND KNOWLEDGE MANAGEMENT CENTRE PVT. LTD., 301, E BLOCK, INTERNATIONAL TRADE TOWER, NEHRU PLACE, NEW DELHI-110 019. (PAN : AABCH2697E) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI MANONEET DALA & VISHNU GOEL, A RS S/SHRI GAURAV BHUTANI & VEENU AGARWAL, CAS REVENUE BY : SHRI H.K. CHOUDHARY, CIT DR DATE OF HEARING : 25.01.2018 DATE OF ORDER : 20.03.2018 O R D E R ITA NO.436 & 496/DEL/2013 2 PER KULDIP SINGH, JUDICIAL MEMBER : PRESENT CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE ARE BEING DISPOSED OF BY WAY OF CONSOLIDATE D ORDER TO AVOID REPETITION OF DISCUSSION. 2. THE APPELLANT, M/S. H & S SOFTWARE DEVELOPMENT A ND KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 23.11.2012, PASSED BY THE LD. CIT (APPEALS)- XX, NEW DELHI QUA THE ASSESSMENT YEAR 2008-09 ON TH E GROUNDS INTER ALIA THAT :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ORDER PASSED BY THE LD. CIT (A ) IS BAD IN LAW AND VOID AB-INITIO. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE JURISDICTIONAL ERROR OF THE LD. ASSESSI NG OFFICER ('AO') WHEREBY HE DID NOT RECORD ANY REASON S IN THE ASSESSMENT ORDER BASED ON WHICH HE REACHED T HE CONCLUSION THAT IT WAS 'EXPEDIENT AND NECESSARY' TO REFER THE MATTER TO THE LD. TRANSFER PRICING OFFICE R ('TPO') FOR COMPUTATION OF THE ARM'S LENGTH PRICE, AS IS REQUIRED UNDER SECTION 92CA(1) OF THE ACT. 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN MAKING AN ADJUSTMEN T TO THE ARM'S LENGTH PRICE OF THE APPELLANT'S INTERNATIONAL TRANSACTION IN THE FOLLOWING MANNER:- A. LD. CIT (A) ERRED IN UPHOLDING REJECTION OF THE APPELLANT'S TP DOCUMENTATION, / COMPARABLE COMPANIES AND ANALYSIS THEREOF. ITA NO.436 & 496/DEL/2013 3 B. THE LD. CIT (A) ERRED IN PERMITTING THE USE OF UNAUDITED DATA REQUISITIONED BY TAKING RECOURSE TO THE PROVISIONS OF SECTION 133(6) OF THE ACT. THE SAID ACTION IS IN COMPLETE VIOLATION OF THE FUNDAMENTAL PRINCIPLES OF NATURAL JUSTICE AS (A) INFORMATION WHICH WAS NOT AVAILABLE WITH THE APPELLANT HAS BEEN USED; AND (B) THE APPELLANT WAS NOT GIVEN ANY OPPORTUNITY TO CROSS-EXAMINE THE COMPANIES WHOSE INFORMATION HAS BEEN USED BY THE LD. TPO. C. THE LD. CIT (A) ERRED IN CONFIRMING COMPANIES, SELECTED BY LD. TPO/ AO, WHICH WERE NOT FUNCTIONALLY COMPARABLE TO THE APPELLANT AND ON THE BASIS OF APPLICATION OF ADDITIONAL/ MODIFIED QUANTITATIVE FILTERS AND IN REJECTING COMPARABLE COMPANIES SELECTED BY THE APPELLANT. D. THE LD. CIT (A) ERRED IN CONFIRMING THE INCORRECT COMPUTATION MARGINS OF COMPARABLE COMPANIES, SELECTED BY THE LD. TPO/ AO. E. THE LD. CIT (A) ERRED IN CONFIRMING THE SELECTIO N OF CURRENT YEAR (I.E. FINANCIAL YEAR 2007-08) DATA FOR COMPARABILITY. F. THE LD. CIT (A) ERRED IN NOT APPRECIATING THE FA CT THAT THERE IS NO MOTIVE ON THE PART OF THE ASSESSEE TO SHIFT THE PROFITS TO ANY OTHER JURISDICTION SINC E IT CLAIMS TAX HOLIDAY BENEFITS AS PER THE SOFTWARE TECHNOLOGY PARK OF INDIA. 4. THE LD. CIT (A) ERRED IN NOT EXAMINING THE VALIDITY OF INITIATION OF PENALTY PROCEEDINGS U/S 2 71 (1) (C) OF THE ACT. 3. THE APPELLANT, DEPUTY COMMISSIONER OF INCOME-TAX , CIRCLE 10 (1), NEW DELHI (HEREINAFTER REFERRED TO AS THE TAX PAYER) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED ITA NO.436 & 496/DEL/2013 4 23.11.2012, PASSED BY THE LD. CIT (APPEALS)-XX, NEW DELHI QUA THE ASSESSMENT YEAR 2008-09 ON THE GROUNDS INTER ALIA T HAT :- 1. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DIRECTING T O EXCLUDE M/S MOLD-TEK TECHNOLOGIES LTD FROM THE LIST OF COMPARABLES? 2. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN RESTRICTING THE ADDITION FROM RS.2,08,34,850/- TO RS.1,63,19,800/-, MADE IN THE INCOME OF THE ASSESSEE BEING DIFFERENCE BETWEEN THE ARM'S LENGTH PRICE? 3. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW DIRECTING THE AO TO EXCLUDE THE TELECOMMUNICATION EXPENSES AMOUNTING TO RS.9,15,422/- FROM THE TOTAL TURNOVER WHILE CALCULATING THE DEDUCTION U/S 10A? 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. H & S SOFTWARE DEVEL OPMENT AND KNOWLEDGE MANAGEMENT CENTRE PVT. LTD., THE TAXPAYER IS A WHOLLY OWNED SUBSIDIARY OF HEIDRICK & STRUGGLES INC., USA (HSI) WHICH IN TURN IS A SUBSIDIARY OF HEIDRICK & STRUGGL ES INTERNATIONAL INC., USA (HSII). THE TAXPAYER IS INTO PROVIDING INFORMATION TECHNOLOGY ENABLED BACK OFFICE SUPPORT SERVICES REL ATING TO CREATION AND MAINTENANCE OF DATABASE OF PROSPECTIVE EMPLOYERS AND CANDIDATES WHO HAVE SENT THEIR RESUMES TO HSII. TH E TAXPAYER IS TO PERUSE INFORMATION CONTENT IN THE RESUMES IN ACCORD ANCE WITH THE ITA NO.436 & 496/DEL/2013 5 PRESET CRITERIA DEVELOPED BY HSII AND INCLUDING THE SAME INTO ITS DATABASE. 5. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER E NTERED INTO INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTER PRISES (AE) AS REPORTED IN A REPORT UNDER SECTION 92CE OF THE INCO ME-TAX ACT, 1961 (FOR SHORT THE ACT) AS UNDER :- S.NO. DESCRIPTION OF THE TRANSACTIONS AMOUNT (IN RS.) 1 DATABASE SUPPORT AND RESEARCH SERVICES 16,64,21,910 2 INTEREST ON INTER-COMPANY LOAN 7,45,950 3 REIMBURSEMENT OF EXPENSES (PAID/PAYABLE) 92,13,585 4 REIMBURSEMENT OF EXPENSES (RECEIVED / RECEIVABLE) 33,77,669 6. THE TAXPAYER IN ITS TP STUDY APPLIED TRANSACTION AL NET MARGIN METHOD (TNMM) AS MOST APPROPRIATE METHOD (MA M) WITH OPERATING PROFIT / OPERATING COST (OP/OC) AS P ROFIT LEVEL INDICATOR (PLI) TO BENCHMARK ITS INTERNATIONAL TRAN SACTIONS. THE TAXPAYER SELECTED 10 COMPARABLES WITH WEIGHTED AVER AGE MARGIN OF 14.28% AS AGAINST TAXPAYERS MARGIN OF 10.64% AND F OUND ITS INTERNATIONAL TRANSACTIONS AT ARMS LENGTH. HOWEVE R, TPO BY APPLYING VARIOUS FILTERS FINALLY SELECTED 20 COMPAR ABLES HAVING ITA NO.436 & 496/DEL/2013 6 AVERAGE OF 29.16% BY MAKING ADDITION OF 15 COMPARAB LE COMPANIES. TPO FURTHER GRANTED WORKING CAPITAL ADJ USTMENT TO THE COMPARABLES AND FOR THAT PURPOSE COMPUTED MARGIN AT 26.97% AND THEREBY MADE ALP ADJUSTMENT OF RS.259,82,473/-. 7. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. C IT (A) BY WAY OF FILING APPEAL WHO HAS REJECTED MOLDTEK TECHN OLOGIES LIMITED AS A SUITABLE COMPARABLE, HOWEVER CONCURRED WITH THE REMAINING FINDINGS RETURNED BY THE TPO AND CONSEQUE NTLY AVERAGE MARGIN OF COMPARABLES COMES TO 23.56%. FEELING AGG RIEVED, NOW THE TAXPAYER IS BEFORE THE TRIBUNAL BY WAY OF PRESE NT APPEAL SEEKING EXCLUSION OF (I) ACCENTIA TECHNOLOGIES LTD., (II) ACROPETAL TECHNOLOGIES LTD., (III) CROSS DOMAIN SOLUTION PVT. LTD., (IV) ECLERX SERVICES LTD., (V) HCL COMNET SYSTEMS & SERV ICES LTD., (VI) GENESYS INTERNATIONAL LTD., (VII) INFOSYS BPO LTD., (VIII) VISHAL INFORMATION TECHNOLOGIES LTD., AND (IX) WIPR O LTD.. ON THE OTHER HAND, THE REVENUE HAS ALSO FILED CROSS AP PEAL SEEKING INCLUSION OF MOLDTEK TECHNOLOGIES LIMITED REJECTED AS COMPARABLE BY THE LD. CIT (A). 8. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.436 & 496/DEL/2013 7 TAXPAYERS APPEAL (ITA NO.436/DEL/2013) GROUND NO.1 9. GROUND NO.1 IS GENERAL IN NATURE, HENCE DOES NOT REQUIRE ANY ADJUDICATION. GROUND NO.3B & 3D. 10. GROUNDS NO.3B & 3D ARE DISMISSED HAVING NOT BEEN PRESSED DURING THE COURSE OF ARGUMENTS. GROUNDS NO.3A, 3C, 3E & 3F 11. THE TAXPAYER IS PROVIDING BACK OFFICE SERVICES RELATING TO CREATION AND MAINTENANCE OF DATABASE OF PROSPECTIVE EMPLOYERS AND CANDIDATES WHO HAVE SENT THEIR RESUMES TO HSII IN A CCORDANCE WITH THE PRESET CRITERIA DEVELOPED BY HSII AND INCLUDING INTO SEARCH PALACE. HOWEVER, THE LD. DR FOR THE REVENUE CONTEN DED THAT THE TAXPAYER IS NOT A LOW END BPO RATHER IT IS HIGH END BPO AS IT IS RESPONSIBLE FOR MAINTAINING AND DEVELOPING THIS SOF TWARE TOOL AND OTHER RELATED TOOLS. HOWEVER, WE ARE OF THE CONSID ERED VIEW THAT WHEN THE TAXPAYER IS ONLY PROVIDING BACK OFFICE SER VICES RELATED TO SOFTWARE DEVELOPMENT AND MAINTENANCE IN ACCORDANCE WITH THE PRESET CRITERIA DEVELOPED BY HSII AND INCLUDING IT INTO SEARCH PALACE TO WHICH HSII GLOBAL OPERATIONS HAVE THE ACC ESS AND IT DOES NOT OWN ANY INTANGIBLE, IT CANNOT BE TREATED AS A H IGH END BPO. ITA NO.436 & 496/DEL/2013 8 12. UNDISPUTEDLY, TNMM WITH OP/OC AS PLI APPLIED BY THE TAXPAYER FOR BENCHMARKING ITS INTERNATIONAL TRANSAC TIONS HAS BEEN ACCEPTED BY THE TPO. SO, THE TPO AFTER REJECTING 5 OF THE COMPARABLES CHOSEN BY THE TAXPAYER OUT OF 10 COMPAR ABLES FOR ITS TP STUDY INTRODUCED 15 NEW COMPARABLES AFTER APPLYI NG VARIOUS FILTERS FINALLY SELECTED 20 COMPARABLES HAVING AVER AGE MEAN 29.16%, WHICH ARE AS UNDER :- SL. NO. COMPANY NAME REVENUES (RS. CR.) OP/TC (%) 1 ACCENTIA TECHNOLOGIES LTD. 50.48 44.50 2 ACROPETAL TECHNOLOGIES LTD (SEG) 20.80 35.30 3 ADITYA BIRLA MINACS WORLDWIDE 183.07 -0.55 4 ASIT C MEHTA 4.28 9.42 5 CALIBER POINT BUSINESS SOLUTION LTD. (SEG) 53.13 10.97 6 CORAL HUB (VISHAL LNFO) 38.08 51.84 7 COSMIC GLOBAL 5.86 24.30 8 CROSSDORNAIN SOLUTION PVT. LTD. 26.60 26.96 9 DATAMATICS FINANCIAL (BPO DIV) 6.19 34.87 10 E4C (EARLIER KNOWN NITANNY OUTSOURCING) 25.81 16.87 11 ECLERX 122.19 66.25 12 GENESYS INTERNATIONAL 47.19 48.15 13 HCL COMNET SYSTEMS & SERVICES LTD. (SEG) 388.73 32.97 14 ICRA ONLINE LTD.(SEG) 8.23 11.22 15 INFOSYS BPO 825.08 20.03 16 L - SERVICE INDIA PVT. LTD. 13.39 9.73 17 MOLD TEK TECHNOLOGIES LIMITED 17.85 96.66 18 R SYSTEM INTERNATIONAL LTD(SEG) 21.33 4.30 19 SPANCO LTD (SEG) 41.70 8.94 20 WIPRO BPO 1, 158.80 30.13 ARITHMETICAL MEAN 29.16 ITA NO.436 & 496/DEL/2013 9 13. ON THE BASIS OF AFORESAID ANALYSIS, THE TPO PRO POSED THE ALP ADJUSTMENT AS UNDER :- ARITHMETIC MEAN PLI 29.16% LESS : WORKING CAPITAL ADJUSTMENT 2.19% ARMS LENGTH PRICE (ALP) 26.97% OPERATING COST RS.151535310 ARMS LENGTH MARGIN 26.97% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) RS.192404383 PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS RS.166421910 SHORTFALL BEING ADJUSTMENT U/S 92CA RS.25982473 14. LD. CIT (A) CONCURRED WITH THE PROPOSED ADJUSTM ENT MADE BY TPO EXCEPT REJECTING MOLDTEK TECHNOLOGIES LTD., ONE OF THE COMPARABLES CHOSEN BY THE TPO AND THEREBY MARGIN OF THE COMPARABLES COMES DOWN TO 23.56%. 15. THE TAXPAYER CHALLENGED THE INCLUSION OF (I) ACCENTIA TECHNOLOGIES LTD., (II) ACROPETAL TECHNOLOGIES LTD. , (III) CROSS DOMAIN SOLUTION PVT. LTD., (IV) ECLERX SERVICES LTD ., (V) HCL COMNET SYSTEMS & SERVICES LTD., (VI) GENESYS INTERN ATIONAL LTD., (VII) INFOSYS BPO LTD., (VIII) VISHAL INFORMATION T ECHNOLOGIES LTD., AND (IX) WIPRO LTD AS COMPARABLES SELECTED BY TPO AND ACCEPTED BY LD. CIT (A) FOR BENCHMARKING THE INTERN ATIONAL ITA NO.436 & 496/DEL/2013 10 TRANSACTIONS. WE WOULD TAKE AFORESAID COMPARABLES ONE BY ONE TO EXAMINE THEIR SUITABILITY VIS--VIS THE TAXPAYER. ACCENTIA TECHNOLOGIES LTD. (ACCENTIA 16. THE TAXPAYER CHALLENGED INCLUSION OF ACCENTIA O N GROUNDS INTER ALIA THAT IT HAS UNDERGONE EXTRA ORDINARY EVE NTS DURING THE YEAR UNDER ASSESSMENT; THAT SUFFICIENT SEGMENTAL DA TA IS NOT AVAILABLE; THAT IT FAILS EMPLOYEE COST FILTER AND R ELIED UPON ASSESSEES OWN CASE FOR AY 2007-08 IN ITA NO.6455/D EL/2012 (AVAILABLE AT PAGES 130-131 OF CONVENIENCE PAPER BO OK), AMERIPRISE INDIA PVT. LTD. IN ITA NO.7014/DEL/2014 FOR AY 2010- 11 (AVAILABLE AT PAGES 46 TO 48 OF THE CONVENIENCE PAPER BOOK) AND EQUANT SOLUTIONS INDIA PVT. LTD. IN ITA NO.1202 /DEL/2015 FOR AY 2010-11 (AVAILABLE AT PAGES 83 TO 87 OF THE CONVENIENCE PAPER BOOK) . 17. PERUSAL OF TP ORDER AT PAGE 286 OF THE PAPER BO OK SHOWS THAT THE REVENUE OF ACCENTIA FROM ITES IS 80.87%, HENCE PASSED 75% REVENUE FILTER APPLIED BY THE TPO. 18. PERUSAL OF THE SCHEDULE FORMING PART OF THE PRO FIT & LOSS ACCOUNT, AVAILABLE AT PAGES 118 AND 119 OF THE PAPE R BOOK, WHICH IS PART OF THE ANNUAL REPORT SHOWS THAT SUFFICIENT SEG MENTAL DATA TO WORK OUT PROFITS FROM ITES IS NOT AVAILABLE. FURTH ERMORE, ACCENTIA FAILS EMPLOYEE COST FILTER AS IT HAS INCUR RED 11.23% OF ITS ITA NO.436 & 496/DEL/2013 11 REVENUE ON EMPLOYEE COST VIS--VIS 54.40% OF THE TA XPAYER AS AGAINST THE THRESHOLD LIMIT OF 25% OF THE REVENUE. COMPLETE DETAILS HAVE BEEN GIVEN BY THE TAXPAYER IN ITS TP STUDY AVA ILABLE AT PAGE 390 OF THE PAPER BOOK-2. 19. FURTHERMORE, DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER UNDERGONE EXTRA ORDINARY EVENTS LEADING TO 75% INCR EASE IN ITS REVENUE BECAUSE OF MERGERS AND TAKEOVERS WHICH HAVE BEEN HIGHLIGHTED IN THE ANNUAL REPORT AVAILABLE AT PAGE 116 & 117 OF THE PAPER BOOK, THE SNAPSHOT OF WHICH IS REPRODUCED AS UNDER FOR READY PERUSAL:- ACQUIRED THUNGA SOFTWARE PVT LTD. AN 8-YEAR OLD MEDICAL TRANSCRIPTION & CODING COMPANY WITH MORE THAN 8 YEARS' TRACK RECORD IN BANGALORE. CONSOLIDATED THE OPERATIONS OF ASSCENT INFOSERVE PVT LTD, THE SUBSIDIARY OF ACCENTIA IN BANGALORE, BY ADDING NEW CLIENTS AND ADDING MANPOWER. BY HAVING TWO PRODUCTIONS CENTRES IN BANGALORE, ACCENTIA HAS BECOME A MAJOR PLAYER IN THIS SPACE IN THE IT CAPITAL OF INDIA ACQUIRED GSR PHYSICIAN'S BILLING SERVICE, SPECIALISED IN BILLING AND COLLECTIONS, BASED IN FLORIDA, USA ACQUIRED GSR SYSTEMS, A SOFTWARE COMPANY SPECIALISING IN HRCM, BASED IN FLORIDA, USA ACQUIRED DENMED LNC., A MEDICAL TRANSCRIPTION COMPANY BASED IN SALEM, OREGON, USA, SERVING THE PORTLAND AREA ITA NO.436 & 496/DEL/2013 12 LISTED GLOBAL DEPOSITORY RECEIPTS IN THE SINGAPORE STOCK EXCHANGE. THIS LISTING WAS RECEIVED WITH HIGH ENTHUSIASM BY THE INVESTOR COMMUNITY GLOBALLY. COMPLETELY REVAMPED THE DEVELOPMENT CENTRE AT KOCHI, THE COMMERCIAL CAPITAL OF KERALA, BY ADDING NEW STARE-OF-THE-ART INFRASTRUCTURE AND INCREASED THE MAN-POWER STRENGTH FOUR-FOLD ACCENTIA HAS ACQUIRED A NEW FACILITY AT THE TECHNOPARK CAMPUS TO ACCOMMODATE 500 PEOPLE. THIS FACILITY HAS STARTED ALREADY STARTED FUNCTIONING IN THE CURRENT FINANCIAL YEAR. IN THE FIRST HALF OF THE FINANCIAL YEAR 2008-2009, ACCENTIA HAS ACQUIRED A VERY LARGE MT COMPANY IN HYDERABAD, WITH OVER 700 EMPLOYEES SPREAD ACROSS MULTIPLE LOCATIONS IN THE CITY AND A UNIT IN BHUBANESWAR. THIS ACQUISITION HAS GIVEN A BIG BOOST TO ACCENTIA'S PLANS OF HAVING MAJOR PRESENCE IN ALL THE FOUR SOUTHERN STATES OF INDIA. ESTABLISHED AN OFFICE AT THE RAS AI KHAIMAH FREE TRADE ZONE, TO SPEARHEAD THE MARKETING OPERATIONS IN THE MIDDLE EAST MARKET. THE MIDDLE EAST IS ONE OF THE MARKETS WHICH HAVE A HUGE POTENTIAL IN THE HRCM SEGMENT, AND ACCENTIA IS ONE OF THE FIRST COMPANIES IN THE WORLD TO RECOGNIZE THIS OPPORTUNITY. WE ARE CONFIDENT OF HAVING A SIZABLE SHARE OF OUR REVENUES FROM THIS GEOGRAPHICAL AREA IN THE COMING YEARS. 20. MOREOVER, ACCENTIA HAS BEEN EXCLUDED AS A COMPA RABLE IN TAXPAYERS OWN CASE FOR AY 2007-08 (SUPRA). KEEPING IN VIEW THE AFORESAID DISSIMILARITIES VIS--VIS THE TAXPAYER, A CCENTIA IS ORDERED TO BE EXCLUDED AS A COMPARABLE. ITA NO.436 & 496/DEL/2013 13 ACROPETAL TECHNOLOGIES LTD. (ACROPETAL) 21. ACROPETAL IS TPOS COMPARABLE SELECTED ON THE B ASIS OF INFORMATION COLLECTED U/S 133 (6) OF THE ACT. THE TAXPAYER SOUGHT EXCLUSION OF ACROPETAL ON GROUND OF FUNCTIONAL DISS IMILARITY AND ALSO RELIED UPON THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. IN IT(TP) A.NO.1316/BANG/2912 FOR AY 2008 -09 (AVAILABLE AT PAGES 33 TO 58 OF THE CONVENIENCE PAP ER BOOK). 22. UNDISPUTEDLY, ACROPETAL HAS TWO SEGMENTS : ONE, ITES AND ANOTHER, ENGINEERING DESIGN SERVICES AND TPO HAS TA KEN ENGINEERING DESIGN SERVICE SEGMENT AS A COMPARABLE TO THE TAXPAYER. 23. THE LD. AR FOR THE TAXPAYER DREW OUR ATTENTION TO SAFE HARBOUR RULES NOTIFIED BY DEPARTMENT OF REVENUE, CE NTRAL BOARD OF DIRECT TAXES, RELEVANT PAGE 18 OF THE PAPER BOOK , WHEREIN ENGINEERING AND DESIGN SERVICES HAVE BEEN CONSIDERE D AS KNOWLEDGE PROCESS OUTSOURCING. FOR FACILITY OF REF ERENCE, RELEVANT PART OF SAFE HARBOUR RULES IS REPRODUCED A S UNDER :- '(G) KNOWLEDGE PROCESS OUTSOURCING SERVICES' MEANS THE FOLLOWING BUSINESS PROCESS OUTSOURCING SERVICES PROVIDED MAINLY WITH THE ASSISTANCE OR USE OF INFORMATION TECHNOLOGY REQUIRING APPLICATION OF KNOWLEDGE AND ADVANCED ANALYTICAL AND TECHNICAL SKI LLS, NAMELY:- (I) GEOGRAPHIC INFORMATION SYSTEM; (II) HUMAN RESOURCES SERVICES; ITA NO.436 & 496/DEL/2013 14 (III) ENGINEERING AND DESIGN SERVICES; (IV) ANIMATION OR CONTENT DEVELOPMENT AND MANAGEMENT; (V) BUSINESS ANALYTICS; (VI) FINANCIAL ANALYTICS; OR (VII) MARKET RESEARCH. 24. SO, WHEN IT IS PROVED ON RECORD THAT THE TAXPAY ER IS A LOW END BPO, THE ACROPETAL BEING A KPO (BEING INTO ENGINEER ING DESIGN SERVICES) CANNOT BE A SUITABLE COMPARABLE. COMPARA BILITY OF ACROPETAL HAS BEEN EXAMINED BY THE COORDINATE BENCH OF THE TRIBUNAL SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA), RELEVANT PAGE 41 OF THE CONVENIENCE PAPER BOOK, WHE REIN ACROPETAL HAS BEEN HELD TO BE NOT A SUITABLE COMPARABLE VIS- -VIS SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) WHICH IS ALSO A LOW END BPO. OPERATIVE PART OF THE FINDINGS OF THE COO RDINATE BENCH OF THE TRIBUNAL IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) ARE REPRODUCED BELOW :- 13. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. ON A PERUSAL OF T HE NOTE NO.15 OF NOTES TO ACCOUNTS WHICH GIVES SEGMENT AL REVENUE OF THIS COMPANY, IT IS CLEAR THAT THE MAJOR SOURCE OF INCOME FOR THIS COMPANY IS FROM PROVIDING ENGINEERING DESIGN SERVICE AND INFORMATION TECHNOLOGY SERVICES. THE FUNCTIONS PERFORMED BY THE ENGINEERING DESIGN SERVICES SEGMENT OF THE COMPANY CANNOT BE CONSIDERED AS COMPARABLE TO THE ITES/BPO FUNCTIONS PERFORMED BY THE ASSESSEE. THE PERFORMANC E OF ENGINEERING DESIGN SERVICES IS REGARDED AS PROVIDING HIGH END SERVICES AMONG THE SPO WHICH REQUIRES HIGH SKILL WHEREAS THE SERVICES PERFORMED BY THE ASSESSEE ARE ROUTINE LOW END ITES FUNCTIONS. W E ITA NO.436 & 496/DEL/2013 15 THEREFORE HOLD THAT THIS COMPANY COULD NOT HAVE BEE N SELECTED AS A COMPARABLE, ESPECIALLY WHEN IT PERFOR MS ENGINEERING DESIGN SERVICES WHICH ONLY A KNOWLEDGE PROCESS OUTSOURCING {KPO] WOULD DO AND NOT A BUSINESS PROCESS OUTSOURCING (BPO). 25. IN VIEW OF FUNCTIONAL DISSIMILARITY, WE ARE OF THE CONSIDERED VIEW THAT ACROPETAL IS NOT A SUITABLE COMPARABLE VI S--VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDED. CROSS DOMAIN SOLUTION PVT. LTD. (CROSS DOMAIN) 26. CROSS DOMAIN IS A TPOS COMPARABLE. THE TAXPAY ER SOUGHT ITS EXCLUSION ON GROUND OF FUNCTIONAL DISSIMILARITI ES. IT BEING INTO THE BUSINESS OF PROVISION OF HIGH END KPO SERVICES AND DEVELOPMENT OF PRODUCT SUITES FOR PAYROLL PROCESSIN G SERVICES AND RELIED UPON THE CASES OF MARKIT TOOL RESEARCH PVT. LTD. IN ITA NO.1811/HYD/2012 FOR AY 2008-09 AND SYMPHONY MARKETING SOLUTIONS PVT. LTD. (SUPRA). 27. PERUSAL OF THE INFORMATION BROUGHT ON RECORD BY THE TAXPAYER FROM THE WEBSITE OF THE CROSS DOMAIN, AVAILABLE AT PAGES 156 TO 163 OF THE PAPER BOOK, SHOWS THAT CROSS DOMAIN IS I NTO COMBINING EXTENSIVE INDUSTRY KNOWLEDGE AND ADVANCED TECHNICAL EXPERTISE TO ENABLE ENTERPRISES TO REALIZE SIGNIFICANT RETURN ON INVESTMENT; THAT CROSS DOMAIN HAS MORE THAN A DECADE OF EXPERTISE IN SOFTWARE ITA NO.436 & 496/DEL/2013 16 DEVELOPMENT AND DELIVERY IN PAYROLL, HR AND PROCESS AUTOMATION/BPM DOMAIN; THAT CROSS DOMAIN SOLUTIONS HAVE ENABLED CLIENTS TO REDUCE TURNAROUND TIME, IMPROVE PRODUCTIVITY AND SAVE ON COSTS YEAR AFTER YEAR AND IS OFFERING S OLUTIONS IN SOFTWARE DEVELOPMENT & MAINTENANCE, SOFTWARE TESTIN G, INFRASTRUCTURE SETUP & MANAGEMENT, CONSULTING, ARCH ITECTURE CONFIGURATION & INSTALLATION.. SO, AFORESAID PROFI LE OF THE CROSS DOMAIN SHOWS THAT IT IS A KPO AND ALSO DEVELOPING P RODUCT SUITES FOR PAYROLL PROCESSING SERVICES AND AS SUCH IS NOT A VALID COMPARABLE VIS--VIS TAXPAYER WHICH IS A LOW END BP O. 24. SO, WHEN IT IS NOT IN DISPUTE THAT THE TAXPAYER IS A LOW END BPO, THE CROSS DOMAIN BEING A HIGH END KPO AND INTO DEVELOPING OF PRODUCT SUITES, IT CANNOT BE A SUITABLE COMPARAB LE. COMPARABILITY OF CROSS DOMAIN HAS BEEN EXAMINED BY THE COORDINATE BENCH OF THE TRIBUNAL SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA), RELEVANT PAGE 4 OF THE CONVENIENCE PAPER BOOK, WHEREIN CROSS DOMAIN HAS BEEN HELD TO BE NOT A SUITABLE COMPARABLE VIS--VIS SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) WHICH IS ALSO LOW END BPO. OPERATIVE PART OF THE FINDINGS OF THE COORDINATE BENCH OF THE TRIBUNAL IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) IS REPRODUCED BELOW :- ITA NO.436 & 496/DEL/2013 17 AS CAN BE SEEN FROM THE ABOVE, THE BUSINESS OF CRO SS DOMAIN RANGES FROM HIGH END KPO SERVICES, DEVELOPMENT OF PRODUCT SUITES AND ROUTINE LOW END ITES SERVICE. HOWEVER, THERE IS NO BIFURCATION AVAI LABLE FOR SUCH VERTICALS OF SERVICES. THEREFORE THE ASSES SEE CONTENDS THAT CROSS DOMAIN CANNOT BE COMPARED TO A ROUTINE ITES SERVICE PROVIDER. 19. WE ARE OF THE VIEW THAT IN THE ABSENCE OF ANY REASONS GIVEN TO THE CONTRARY EITHER BY THE TPO OR THE DRP FOR REGARDING THIS COMPANY AS A COMPARABLE, THI S COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES, ACCEPTING THE PLEA OF THE ASSESSEE. WE HOLD ACCORDINGLY. 25. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND MO RE PARTICULARLY IN VIEW OF FUNCTIONAL DISSIMILARITY, W E ARE OF THE CONSIDERED VIEW THAT CROSS DOMAIN IS NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDE D. ECLERX SERVICES LIMITED (ECLERX) 26. ECLERX IS AGAIN TPOS COMPARABLE INCLUDED ON TH E BASIS OF INFORMATION OBTAINED U/S 133 (6) OF THE ACT. THE T AXPAYER SOUGHT TO EXCLUDE ECLERX ON GROUNDS INTER ALIA THAT IT IS FUNCTIONALLY DISSIMILAR AND THAT IT HAS UNDERGONE EXTRA ORDINARY EVENTS DUE TO ACQUISITION. 27. PERUSAL OF THE EXTRACT OF THE ANNUAL REPORT, AV AILABLE AT PAGES 124 TO 127 OF THE PAPER BOOK, GOES TO PROVE THAT EC LERX IS A KPO COMPANY PROVIDING DATA ANALYTICS/PROCESS SOLUTIONS TO SOME OF THE ITA NO.436 & 496/DEL/2013 18 LARGEST BRAND OF THE WORLD. ECLERX IS ALSO INTO PR OVIDING FINANCIAL SERVICES AND RETAIL AND MANUFACTURING BY PROVIDING A UNIQUE BLEND OF CONSULTING SERVICES AND PROCESS OUTSOURCING. 28. THE LD. AR FOR THE TAXPAYER DREW OUR ATTENTION TO SAFE HARBOUR RULES NOTIFIED BY DEPARTMENT OF REVENUE, CE NTRAL BOARD OF DIRECT TAXES, RELEVANT PAGE 18 OF THE PAPER BOOK , WHEREIN ENGINEERING AND DESIGN SERVICES HAVE BEEN CONSIDERE D AS KNOWLEDGE PROCESS OUTSOURCING. FOR FACILITY OF REF ERENCE, RELEVANT PART OF SAFE HARBOUR RULES IS REPRODUCED A S UNDER :- '(G) KNOWLEDGE PROCESS OUTSOURCING SERVICES' MEANS THE FOLLOWING BUSINESS PROCESS OUTSOURCING SERVICES PROVIDED MAINLY WITH THE ASSISTANCE OR USE OF INFORMATION TECHNOLOGY REQUIRING APPLICATION OF KNOWLEDGE AND ADVANCED ANALYTICAL AND TECHNICAL SKI LLS, NAMELY:- (I) GEOGRAPHIC INFORMATION SYSTEM; (II) HUMAN RESOURCES SERVICES; (III) ENGINEERING AND DESIGN SERVICES; (IV) ANIMATION OR CONTENT DEVELOPMENT AND MANAGEMENT; (V) BUSINESS ANALYTICS; (VI) FINANCIAL ANALYTICS; OR (VII) MARKET RESEARCH. 29. FURTHERMORE, ECLERX ALSO PROVED TO HAVE UNDERGO NE EXTRA ORDINARY EVENT DUE TO ACQUISITION, EXTRACT OF THE R ELEVANT INFORMATION OF THE ANNUAL REPORT, AVAILABLE AT PAGE 121 OF THE PAPER BOOK, PROVES THAT ECLERX HAS ACQUIRED UK BASED IGEN TICA TRAVEL SOLUTIONS LIMITED ON JULY 27, 2007, WHICH HAS PROVI DED ECLERX ITA NO.436 & 496/DEL/2013 19 WITH A SET OF 28 LARGE CUSTOMERS PRIMARILY IN EUROP E, THUS STRENGTHENING THE COMPANYS PRESENCE IN THAT GEOGRA PHY. ACQUISITION ALSO GIVEN AN ENTRY PLATFORM INTO NEW V ERTICAL VIZ. TRAVEL AND HOSPITALITY BESIDES CONSULTING THE COMPA NYS POSITION IN RETAIL AND MANUFACTURING SPACES AND THE INTEGRATION WAS ON TRACK AS ON MARCH 2008. SO, BECAUSE OF THE ACQUISITION, THE REVENUE OF ECLERX DURING THE YEAR UNDER ASSESSMENT SWELLED FRO M RS.861.2 MILLION TO RS.1216.57 MILLION AS PER ANNUAL REPORT, FINANCIAL HIGHLIGHTS AVAILABLE AT PAGE 122 OF THE PAPER BOOK. FURTHERMORE, THE LD. AR FOR THE TAXPAYER ALSO POINTED OUT THAT E CLERX HAS SPENT 12.50% OF ITS SALES TO ADVERTISEMENT AS AGAINST THE TAXPAYER WHO IS A CAPTIVE SERVICE PROVIDER. 30. SUITABILITY OF ECLERX WAS EXAMINED BY THE COORD INATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2007-08 (SUPRA) AND WAS FOUND TO BE NOT A VALID COMPARABLE BY RETURNING FOLLOWING FINDINGS :- 25. WHEN WE EXAMINE THE FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY WHICH IS INTO PROVIDING INFORMATIO N TECHNOLOGY (IT) ENABLES BACK OFFICE SUPPORT SERVICE S RELATED TO CREATION AND MAINTENANCE OF DATA BASE OF PROSPECTIVE EMPLOYERS AND CANDIDATES WHO SENT THEIR RESUMES TO HENDRICK & STRUGGLES INTERNATIONAL INC. (HSII), THE ASSESSEE PROVIDES SERVICES TO HSII ONLY HAVING MINIMAL RISKS WHEREAS AS PER THE INFORMATION SUPPLIED BY ECLERX U/S 133 (6), IT IS INTO DATA ANALYTICAL SERVICES; OPERATION MANAGEMENT SERVICES; ACCOUNTS RECONCILIATION SERVICES WHICH ARE AIMED AT ITA NO.436 & 496/DEL/2013 20 REDUCING PROCESS ERRORS AND OPERATIONAL RISKS AND T HAT IT IS KPO RATHER THAN ROUTINE SERVICE PROVIDER AS I S EVIDENT FROM THE ANNUAL REPORT. 31. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND FO LLOWING THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TR IBUNAL, WE ARE OF THE CONSIDERED VIEW THAT BECAUSE OF FUNCTIONAL D ISSIMILARITY OF ECLERX WHICH IS A KPO ENGAGED IN CONSULTING SERVICE , PROCESS OUTSOURCING AND AUTOMATION SERVICES AND THE FACT TH AT IT HAS UNDERGONE ACQUISITION SIGNIFICANTLY IMPACTING ITS P ROFIT, IT IS NOT A VALID COMPARABLE VIS--VIS TAXPAYER FOR BENCHMARKIN G THE INTERNATIONAL TRANSACTIONS QUA ITES UNDERTAKEN BY T HE TAXPAYER. HCL COMNET SYSTEMS & SERVICES LTD. (HCL COMNET) 32. AGAIN, HCL COMNET IS A TPOS COMPARABLE WHICH I S ON THE BASIS OF INFORMATION OBTAINED U/S 133 (6) OF THE AC T. THE TAXPAYER SOUGHT EXCLUSION OF HCL COMNET ON GROUNDS INTER ALI A THAT HCL IS HAVING DIFFERENT FINANCIAL YEAR ENDING; THAT IT HAS SIGNIFICANT RELATED PARTY TRANSACTIONS; THAT IT HAS SIGNIFICANT HIGH TU RNOVER AND RELIED UPON THE ASSESSEES OWN CASE FOR AY 2007-08 (SUPRA) AND MOTOROLA SOLUTIONS INDIA PRIVATE LIMITED VS. ACIT I N ITA NO.5637/DEL/2011 FOR AY 2007-08 . ITA NO.436 & 496/DEL/2013 21 33. WHEN WE PERUSE TP ORDER, RELEVANT PAGES 297 TO 299 OF THE PAPER BOOK, THE TAXPAYER RAISED OBJECTION THAT HCL HAS FAILED RELATED PARTY TRANSACTION FILTER AS WELL AS IT HAS HAVING DIFFERENT FINANCIAL YEAR ENDING AND THE DATA OBTAINED U/S 133 (6) IS UNRELIABLE. HOWEVER, THE TPO HAS NOT DISPOSED OF A LL THESE OBJECTIONS. WHEN APPARENTLY HCL HAS FINANCIAL YEAR FROM JULY 1 TO JUNE 30, IT FAILS THE FILTER NOT TO ADOPT COMPAN Y HAVING DIFFERENT FINANCIAL YEAR APPLIED BY THE TPO HIMSELF. FURTHER MORE, TPO HAS APPLIED RPT FILTER. THE TAXPAYER HAS GIVEN COMPLET E DETAILS OF RELATED PARTY TRANSACTIONS CARRIED OUT BY THE TAXPA YER AT PAGE 417 OF THE PAPER BOOK WHICH IS 27.12% AS AGAINST TPOS OWN FILTER OF LESS THAN 25%. 34. COMPARABILITY OF HCL FOR BENCHMARKING THE INTER NATIONAL TRANSACTION WAS EXAMINED IN TAXPAYERS OWN CASE FOR AY 2007-08 (SUPRA) AND IT WAS HELD TO BE AN INVALID COMPARABLE BY RETURNING FOLLOWING FINDINGS :- 29. IDENTICAL ISSUE HAS COME UP BEFORE THE COORDIN ATE BENCH IN MOTOROLA SOLUTIONS INDIA PRIVATE LIMITED (SUPRA) WHEREIN IT IS HELD THAT BY APPLYING THE THR ESHOLD LIMIT OF 15% OF RPT TRANSACTION SUFFICIENT COMPARAB LES ARE AVAILABLE THEN THERE IS NO REASON TO FURTHER EX TEND THE LIMIT TO 25%. IN THE INSTANT CASE, UNDISPUTEDL Y, 25 COMPARABLES HAVE BEEN CHOSEN BY THE ASSESSEE HAVING RPT FILTER OF 15%, OUT OF WHICH THE TPO CAN GET SUFFICIENT NUMBER OF COMPARABLES FOR BENCHMARKING INTERNATIONAL TRANSACTIONS. SO FAR AS GROUND OF HI GH TURNOVER AS RAISED BY THE ASSESSEE FOR EXCLUSION OF THIS ITA NO.436 & 496/DEL/2013 22 COMPARABLE IS CONCERNED, THE SAME HAS NOT BEEN PRESSED DURING THE COURSE OF ARGUMENT. 30. MOREOVER, INFORMATION SUPPLIED BY HCL U/S 133(6) IS INCONSISTENT WITH THE ANNUAL REPORT AS TO ADOPTING A DIFFERENT FINANCIAL YEAR BEGINNING FROM JULY 1 TO JUNE 30 WHICH DOES NOT PASS THE TPOS FILTER O F COMPARABLE COMPANIES HAVING DIFFERENT FINANCIAL YEA RS. SO, WE DIRECT TO EXCLUDE HCL FROM THE LIST OF COMPARABLES. 35. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT BECAUSE OF DIFFERENT FINANCIAL YEARS, SIGNIFICANT RELATED PARTY TRANSACTIONS AS PER TPOS OWN FILTER, HCL IS NOT A VALID COMPARABLE FOR BENCHMARKING THE INTE RNATIONAL TRANSACTION, SO WE ORDER TO EXCLUDE HCL AS A SUITAB LE COMPARABLE. GENESYS INTERNATIONAL LTD. (GENESYS) 36. TPO RETAINED GENESYS AS A COMPARABLE DESPITE TA XPAYERS OBJECTIONS ON THE GROUND THAT IN THE PRECEDING YEAR S, THE TAXPAYER HAS ITSELF NOT RAISED ANY OBJECTION TO TAKE GENESYS AS A COMPARABLE. HOWEVER, THE TAXPAYER SOUGHT EXCLUSION OF GENESYS O N THE GROUNDS INTER ALIA THAT IT IS FUNCTIONALLY DIFFERENT; THAT GENESYS HAS DIFFERENT EMPLOYEE SCALE SET; THAT IT HAS SIGNIFICANT INTANGI BLES AND ENGAGED IN R&D ACTIVITIES AND HAVING HIGH FLUCTUATION MARGI NS AND RELIED UPON SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA). 37. WHEN WE EXAMINE FUNCTIONAL PROFILE OF GENESYS F ROM THE ANNUAL REPORT, RELEVANT AT PAGE 144 OF THE PAPER BO OK. IT IS PROVED ITA NO.436 & 496/DEL/2013 23 THAT GENESYS IS ENGAGED IN PROVIDING GEOGRAPHICAL I NFORMATION SERVICES COMPRISING PHOTOGRAMMETRY, REMOTE SENSING, CARTOGRAPHY, DATA CONVERSION, RELATED COMPUTER BASE D SERVICES AND OTHER RELATED SERVICES, WHICH ARE CERTAINLY NOT ROUTINE ITES. MOREOVER, GENESYS HAS BEEN REJECTED BY THE DRP IN T AXPAYERS OWN CASE FOR AY 2009-10 ORDER DATED 23.12.2013 ON G ROUND OF FUNCTIONAL DISSIMILARITY BY RETURNING FOLLOWING FIN DINGS : 7.3.4 GENESYS INTERNATIONAL CORPORATION THIS COMPARABLE IS FUNCTIONALLY DIFFERENT HENCE IT IS NOT A VALID COMPARABLE. FOR SAKE OF DARITY DIFFERENT EXTRACTS FROM AR IS EXTRACTED BELOW:- AS PER PAGE-5 OF ANNUAL REPORT- 'WE ARE PROGRESSING WELL TOWARDS OUR GOAL TO BE AN INNOVATION AND IP-LED GEOSPATIAL SOLUTIONS PROVIDER TOUCHING A/L CORE AREAS OF THE ECONOMY.' FURTHER, AS PER PAGE-6 OF AR:- 'YOUR COMPANY IS THE EXCLUSIVE RESELLER FOR NAVTEQ DATA FOR THE ENTERPRISE SPACE IN INDIA NAVTEQ IS THE WORLD LEADER IN NAVIGABLE MAPS AND SHEET DATA' FURTHER, AS PER PAGE-14 OF AR - 'GENESYS IS TODAY ONE OF INDIA'S FASTEST GROWING GEOSPATIAL SERVICES AND CONTENT PROVIDERS THE COMPANY CATERS TO THE NEEDS OF CONSUMER MAPPING, NAVIGATION, INTERNET ITA NO.436 & 496/DEL/2013 24 PORTALS AS WELL AS INFRASTRUCTURE PLAYERS INCLUDING STATE AND LOCAL GOVERNMENTS. FURTHER, AS PER PAGE-16 OF AR :- 'OUR CAPABILITIES 1. GIS CONSULTING, 2. 3D MAPPING, 3. NAVIGATION MAPS, 4. LIDAR. 5. PHOTOGRAMMETRY REMOTE SENSING SERVICES, 6. UTILITY SERVICES, 7. IMAGE PROCESSING, 8. SURVEYING, 9. BUSINESS GEOGRAPHIES & LOGISTICS, 10. CADASTRAL MAPPING, 11 CITY SCAPE, 12 TELECOMMUNICATIONS FROM THE ABOVE, IT IS OBSERVED THAT THE FUNCTIONALITY OF THIS COMPANY IS SIGNIFICANTLY DIFF ERENT FROM THAT OF THE ASSESSEE. THE TPO IS DIRECTED TO EXCLUDE THIS COMPANY FROM FINAL SET OF COMPARABLES. 38. FURTHERMORE, GENESYS IS ENGAGED IN R&D ACTIVITI ES AND CREATING SIGNIFICANT INTANGIBLES AS IS EVENT FROM P AGES 146 & 147 OF THE ANNUAL REPORT. MOREOVER, THE GENESYS IS HAVING HIGH FLUCTUATING MARGIN DULY DETAILED AT PAGE 415 OF THE PAPER BOOK BY THE TAXPAYER; IN FY 2006-07 GENESYSS MARGIN WAS 13 .35% AND IN FY 2007-08 IT WAS 51.91% AND 145.92% IN THE YEAR UN DER ASSESSMENT. SO, HIGH FLUCTUATING MARGIN IS ALSO A GROUND TO REJECT A COMPARABLE FOR BENCHMARKING THE INTERNATIONAL TRANS ACTION. 39. COORDINATE BENCH OF THE TRIBUNAL IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) HAS REJECTED GENESYS AS A COMPARABLE VIS--VIS ROUTINE ITES COMPANY ON GROUND OF ITA NO.436 & 496/DEL/2013 25 FUNCTIONAL DISSIMILARITY. SO, IN VIEW OF THE MATTE R, WE ORDER TO EXCLUDE GENESYS AS A COMPARABLE ON GROUND OF ITS FU NCTIONAL DISSIMILARITY HAVING SIGNIFICANT INTANGIBLES AND HA VING BEEN ENGAGED IN R&D ACTIVITIES AND HAVING HIGH FLUCTUATI NG MARGIN AND HAVING HIGHLY SKILLED MANPOWER. INFOSYS BPO LIMITED (INFOSYS BPO) 40. TPO RETAINED INFOSYS BPO AS A COMPARABLE DESPIT E TAXPAYERS OBJECTION THAT IT HAS HIGH BRAND VALUE A ND IN CASE INFOSYS BPO IS TO BE CONSIDERED AS A COMPARABLE THE N THE REVISED MARGIN CALCULATION OF 19.66% SHOULD BE CONSIDERED. THE TAXPAYER SOUGHT EXCLUSION OF INFOSYS BPO FOR BENCHMARKING TH E INTERNATIONAL TRANSACTION ON THE GROUNDS INTER ALIA THAT INFOSYS BPO POSSESSES SIGNIFICANT BRAND VALUE; THAT IT IS A LAR GE AND DIVERSIFIED SERVICE PROVIDER; THAT TPO USED SEGMENTAL INFORMATI ON OVER ENTITY LEVEL AND RELIED UPON ASSESSEES OWN CASE FOR AY 2007-08 (SUPRA). 41. PERUSAL OF PAGE 135 OF THE PAPER BOOK SHOWS THA T THE INFOSYS BPO HAS SIGNIFICANT EXPENDITURE ON R&D AND MARKETIN G TO MAKE ITS BRAND HIGHLY VALUABLE, SO THE BRAND VALUE OF TH E INFOSYS BPO IS RS.31863 CRORES. MOREOVER BECAUSE OF HIGH BRAND VA LUE, THE INFOSYS BPOS REVENUE IS ABNORMALLY HIGHER HAVING T URNOVER OF RS.825.09 CRORES VIS--VIS TAXPAYERS TURNOVER OF R S.16.64 CRORES. ITA NO.436 & 496/DEL/2013 26 COMPARABILITY OF INFOSYS BPO HAS BEEN EXAMINED BY T HE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2007-08 (SUPRA) AND IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) AND HAS BEEN ORDERED TO BE EXCLUDED AS A C OMPARABLE BECAUSE OF SIGNIFICANT BRAND VALUE HAVING SIGNIFICA NT EXPENDITURE ON R&D AND THAT INFOSYS BPO IS A MARKET LEADER IN I TES VIS--VIS THE TAXPAYER WHICH IS A CAPTIVE SERVICE PROVIDER TA KING MINIMAL RISK AS AGAINST INFOSYS BPO WHICH IS A FULL-FLEDGED RISK BEARING COMPANY HAVING DIVERSIFYING BUSINESS. SO, WE ORDER TO EXCLUDE INFOSYS BPO FROM THE FINAL LIST OF COMPARABLES. VISHAL INFORMATION TECHNOLOGIES LIMITED (VISHAL) 42. TPO RETAINED VISHAL AS A COMPARABLE ON THE BASI S OF INFORMATION U/S 133 (6) OF THE ACT DESPITE THE OBJE CTIONS RAISED BY THE TAXPAYER; THAT IT IS FUNCTIONALLY DIFFERENT; TH AT ERRONEOUS MARGINS HAVE BEEN CALCULATED BY THE TPO AND RELIED UPON THE DECISION OF TAXPAYERS OWN CASE FOR AY 2007-08 (SUPRA), SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) AND RAMPGREEN SOLUTIONS PVT. LTD. IN ITA NO.102/2015 FO R AY 2008- ITA NO.436 & 496/DEL/2013 27 09 (RELEVANT PARAS 14 TO 17, AVAILABLE AT PAGES 42 TO 46 OF THE CONVENIENCE PAPER BOOK) 43. NOW, THE TAXPAYER HAS SOUGHT EXCLUSION OF VISHA L ON GROUNDS INTER ALIA THAT IT IS FUNCTIONALLY DIFFEREN T AND THAT IT FAILS EMPLOYEE COST FILTER APPLIED BY THE TPO. PERUSAL O F PAGE 138 OF THE ANNUAL REPORT SHOWS THAT VISHAL HAS INCURRED EX PENDITURE ON DATA ENTRY CHARGES AND VENDORS PAYMENT AS PART OF O PERATING COST WHICH IS ABOUT 85.58% OF THE TOTAL OPERATING COST I NCURRED BY THE VISHAL. MOREOVER, VISHAL HAS INSIGNIFICANT EMPLOYE E COST OF SALES I.E. 2.93% AS AGAINST EMPLOYEES COST/SALES RATIO OF 54.40% OF THE TAXPAYER. VISHAL HAS BEEN ORDERED TO BE EXCLUDED I N TAXPAYERS OWN CASE FOR AY 2007-08 (SUPRA) ON GROUND OF FUNCTIONAL DISSIMILARITY, IT BEING INTO THE BUSINESS OF OUTSOU RCING SERVICES. MOREOVER, WHEN WE EXAMINE EMPLOYEES COST TO SALES, IT IS ONLY 2.93% AS AGAINST 54.40% OF THE TAXPAYER. VISHAL HA S ALSO BEEN ORDERED TO BE EXCLUDED IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) ON GROUND OF FUNCTIONAL DISSIMILARITY AND ON GROUND OF THE FACT THAT IT ALSO OUTSOURCED MOST OF ITS SERVICES TO THE PRIVATE VENDORS. SO, IT ALSO FAILS EMPLOYEE COST T O SALES FILTER APPLIED BY THE TPO HIMSELF. CONSEQUENTLY, WE ORDER ED TO EXCLUDE VISHAL FROM FINAL SET OF COMPARABLES. ITA NO.436 & 496/DEL/2013 28 WIPRO LIMITED (WIPRO) 44. TPO RETAINED WIPRO AS A COMPARABLE DESPITE OBJE CTIONS RAISED BY THE TAXPAYER. THE TAXPAYER SOUGHT EXCLUS ION OF WIPRO FROM THE FINAL SET OF COMPARABLES ON GROUNDS INTER ALIA THAT WIPRO HAS SIGNIFICANT OWNERSHIP OF INTELLECTUAL PROPERTY; THAT IT HAS HIGH TURNOVER OF RS.17492.62 CRORES AND THAT IT HAS UNDE RGONE EXTRA ORDINARY EVENTS DURING THE YEAR UNDER ASSESSMENT AN D IS HAVING DIVERSIFIED BUSINESS AND RELIED UPON THE DECISION O F THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2007-08 AND SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA). 45. PERUSAL OF PAGE 140 OF THE PAPER BOOK PROVES TH AT THE WIPRO IS INTO DIVERSIFIED BUSINESS ACTIVITIES AND EXCELLE D IN AREAS OF TECHNOLOGIES AND INDUSTRY AND INCUBATE NEW PRACTICE S FOR BUSINESS GROWTH; IT IS MANAGING 60COES ACROSS DIFFERENT TEC HNOLOGIES AND INDUSTRY VERTICALS, VIZ., SERVICE ORIENTED ARCHITEC TURE, VIRTUALISATIN, UNIFIED COMMUNICATION SAAS (SOFTWARE AS A SERVICE), DATA PRIVACY & PROTECTION, IMS (IP MULTIM EDIA SUBSYSTEM), REMOTE PATIENT MONITORING, IMAGE PROCES SING, SUPPLY CHAINS, RETAIL INSTORE, RETAIL PHARMACY, AUTOMOTIVE , OPEN SOURCE AND GAMING. ITA NO.436 & 496/DEL/2013 29 46. FURTHERMORE, WIPRO HAS SIGNIFICANT OWNERSHIP OF IPR WHEREAS THE TAXPAYER HAS NO SUCH OWNERSHIP OF IPR. FURTHERMORE, WIPRO IS A GIANT COMPANY HAVING TURNOVER OF RS.1749 2.62 CRORES AS AGAINST TAXPAYERS TURNOVER OF RS.16.64 CRORES. FURTHERMORE THE WIPRO HAS UNDERGONE EXTRA ORDINARY EVENTS, DULY DET AILED AT PAGE 440 OF THE PAPER BOOK BY THE TAXPAYER BY WAY OF AMA LGAMATION OF THE COMPANIES VIZ. WIPRO INFRASTRUCTURE ENGINEERING LIMITED, WIPRO HEALTHCARE IT LIMITED, QUANTECH GLOBAL SERVIC ES LIMITED (SUBSIDIARY COMPANIES) WITH WIPRO LIMITED, APPROVED DURING THE FY 2007-08 BY THE HONBLE HIGH COURT OF KARNATAKA A ND THE HONBLE HIGH COURT OF ANDHRA PRADESH. 47. WIPRO WAS ORDERED TO BE EXCLUDED BY THE COORDIN ATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2007-08 (SUPRA) AND IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) ON THE GROUND THAT IT HAS A SIGNIFICANT BRAND VALUE HAVING HIGH TURNOVER AND A MARKET LEADER IN ITS FIELD WHEREAS THE TAXPAY ER IS A TINY COMPANY AND HAVING DIVERSIFIED BUSINESS AND HUGE EX PENDITURE ON R&D. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND FOLLOWING THE DECISIONS RENDERED BY THE COORDINATE BENCH OF T HE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2007-08 (SUPRA) AND IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA), WE DO NOT FIND WIPRO AS A SUITABLE COMPARABLE, HENCE ORDERED TO BE EXCLU DED. ITA NO.436 & 496/DEL/2013 30 GROUND NO.4 48. GROUND NO.4 QUA INITIATION OF PENALTY PROCEEDIN GS U/S 271(1)(C) OF THE ACT BEING CONSEQUENTIAL IN NATURE NEEDS NO SPECIFIC FINDINGS. REVENUES APPEAL (ITA NO.496/DEL/2013) GROUNDS NO.1 & 2 49. THE REVENUE CHALLENGED THE IMPUGNED ORDER PASSE D BY THE LD. CIT (A) RESTRICTING THE ADDITION ON ACCOUNT OF ALP TO RS.1,63,19,800/- FROM RS.2,08,34,850/- PROPOSED BY THE TPO BY EXCLUDING M/S. MOLDTEK TECHNOLOGIES LTD. (MOLDTEK) FROM THE LIST OF COMPARABLES. 50. LD. DR FOR THE REVENUE CHALLENGING THE EXCLUSIO N OF MOLDTEK BY THE LD. CIT (A) BY RELYING UPON TP ORDER CONTENDED THAT MOLDTEK BEING MAINLY ENGAGED IN ITES; ITS IT D IVISION HAS BEEN CONSIDERED AS FUNCTIONALLY COMPARABLE AS IT QU ALIFIES ALL OTHER FILTERS APPLIED BY THE TPO. HOWEVER, LD. CIT (A) A FTER ACCEPTING THE OBJECTIONS RAISED BY THE TAXPAYER ORDERED TO EX CLUDE MOLDTEK FROM THE FINAL SET OF COMPARABLES ON GROUND OF FUNC TIONAL DISSIMILARITY; THAT THE MOLDTEK HAS INSIGNIFICANT E MPLOYEE COST TO SALES RATIO VIS--VIS TAXPAYER AND ON GROUND OF EXT RA ORDINARY PROFIT WHICH IS 96.66% FOR FY 2007-08. ITA NO.436 & 496/DEL/2013 31 51. HOWEVER, THE TAXPAYER JUSTIFIED THE EXCLUSION O F MOLDTEK MADE BY LD. CIT (A) ON THE GROUNDS INTER ALIA THAT MOLDTEK IS FUNCTIONALLY DISSIMILAR; THAT IT HAS UNDERGONE EXTR A ORDINARY CIRCUMSTANCES DURING THE YEAR UNDER ASSESSMENT; THA T IT HAS ABNORMAL HIGH MARGIN AND ABNORMAL GROWTH IN ITS REV ENUE AND RELIED UPON COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE IN ACIT VS. H&S SOFTWARE DEVELOPMENT AND KNOWL EDGE MANAGEMENT CENTRE PVT. LTD. IN ITA NO.6509/DEL/2012 FOR AY 2007-08 AND IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA). 52. UNDISPUTEDLY, THERE IS NO CHANGE IN BUSINESS MO DEL OF THE TAXPAYER IN THE YEAR UNDER ASSESSMENT. DURING THE COURSE OF ARGUMENT, LD. DR FOR THE REVENUE HAS FAILED TO POIN T OUT ANY COGENT REASON AS TO WHY THE RULE OF CONSISTENCY SHO ULD NOT BE FOLLOWED IN THIS CASE IN THE GIVEN CIRCUMSTANCES AS MOLDTEK HAS BEEN FOUND TO BE UNSUITABLE COMPARABLE IN TAXPAYER S OWN CASE FOR AY 2007-08 (SUPRA). COORDINATE BENCH OF THE TRIBUN AL DIRECTED TO EXCLUDE MOLDTEK FROM THE FINAL SET OF COMPARABLES I N TAXPAYERS OWN CASE IN ITA NO.6509/DEL/2012 FOR AY 2007-08 (SUPRA) BY RETURNING FOLLOWING FINDINGS :- 11. WHEN WE EXAMINE THE FUNCTIONAL PROFILE OF ASSESSEE COMPANY VIS--VIS MOLD-TEK TECHNOLOGIES LTD., BOTH ARE FUNCTIONALLY DIS-SIMILAR. UNDISPUTE DLY, ITA NO.436 & 496/DEL/2013 32 ASSESSEE COMPANY IS INTO ITES SERVICES AS A CAPTIVE SERVICE PROVIDERS WHEREAS MOLD-TEK IS OPERATING IN TWO BUSINESS SEGMENT I.E. (I) PLASTIC DIVISIONS WHICH IS INTO MANUFACTURING OF LUBE AND OILS, PAINTS, PET PROJECTS, CONSUMER PRODUCTS ETC.; AND (II) IT DIVISION SPECIALIZED IN PROVIDING STRUCTUR AL DESIGN AND DETAILING SERVICES WHICH COULD BE CATEGORIZED AS STRUCTURAL ENGINEERING SERVICES. CIT (A) HAS ALSO EXCLUDED THIS COMPANY AS COMPARABL E ON GROUND OF ABNORMAL GROWTH WHICH IS 204% IN FY 2006-07 WITH A CAGR OF 113% FOR 3 YEARS. 12. ASSESSEE RELIED UPON THE DECISIONS RENDERED BY ITAT, HYDERABAD BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PRIVATE LTD. (ITA NO.1961/HYD/2011) (AVAILABLE AT PAGES 812 TO 839 OF THE PAPER BOOK-III, WHEREIN COMPARABILITY OF MOLD-TEK TECHNOLOGIES LTD. HAS BEEN EXAMINED WITH CAPITAL IQ INFORMATION SYSTEMS (INDIA) PRIVATE LTD. (SUPRA) AN D ITES COMPANY ALMOST ON IDENTICAL ITES COMPANY. COORDINATE BENCH IN CAPITAL IQ INFORMATION SYSTEMS (INDIA) PRIVATE LTD. (SUPRA) WHILE TAKING INTO CONSIDERATION THE FACTUM OF MERGER FROM 01.10.2006 IMPACTING RESULTS OF THE COMPANY AND ALSO THAT THE ACTIVITY OF THE COMPANY IS FUNCTIONALLY DIFFERENT, IT BEING ENGAGED IN PROVIDING HIGH END ENGINEERING CONSULTIN G SERVICES AND STRUCTURAL ENGINEERING CONSULTING SERV ICES WHICH ARE IN THE NATURE OF KPO SERVICES AND THAT TH E COMPANY WAS HAVING SUPER-ABNORMAL PROFIT AT 113% AND BY FOLLOWING THE DECISION RENDERED BY ITAT, DEL HI BENCH IN ADOBE SYSTEMS INDIA PVT. LTD. (ITA NO.5043/DEL/2000 DATED 21.01.2011), ORDER TO EXCLUD E THIS COMPANY FROM THE LIST OF COMPARABLES. 13. THE CONTENTION OF THE LD. DR THAT THE FINDINGS OF THE CIT (A) ARE BASED UPON CONJECTURES AND SURMISES IS NOT TENABLE IN THE LIGHT OF THE FACTS DISCUSSED HER EIN ABOVE. SO, KEEPING IN VIEW THE FUNCTIONAL DISPARIT Y AND FACTUM OF SUPER ABNORMAL PROFIT AND BY FOLLOWING TH E ITA NO.436 & 496/DEL/2013 33 DECISION RENDERED BY ITAT, HYDERABAD BENCH IN CASE CITED AS CAPITAL IQ INFORMATION SYSTEMS (INDIA) PRI VATE LTD. (SUPRA), WE HEREBY UPHOLD THE ORDER PASSED BY CIT (A). 53. SO, KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE THAT THE MOLDTEK HAS ABNORMAL GROWTH OF 56% FOR FY 2007-08 WITH CAGR OF 210% FOR THREE YEARS AND IT IS FUNCTIONALL Y DISSIMILAR AND FOLLOWING THE DECISION RENDERED BY THE COORDINA TE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE IN ITA NO.6509/DEL/2012 FOR AY 2007-08 (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT LD. CI T (A) HAS RIGHTLY ORDERED TO EXCLUDE MOLDTEK FROM THE FINAL S ET OF COMPARABLES. SO, GROUNDS NO.1 & 2 ARE DETERMINED A GAINST THE REVENUE. GROUND NO.3 54. THE REVENUE CHALLENGED THE EXCLUSION OF TELECOM MUNICATION EXPENSES AMOUNTING TO RS.9,15,422/- FROM THE TOTAL TURNOVER IN ORDER TO CALCULATE DEDUCTION U/S 10A BY THE LD. CIT (A) BY RELYING UPON THE ORDER PASSED BY THE AO. UNDISPUTEDLY, THE TAXPAYER HAS SOUGHT TO EXCLUDE THE EXPENDITURE TOWARDS COMMUNICA TION CHARGES AMOUNTING TO RS.10,73,642/- FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER. HOWEVER, THE AO HAS EXCLUDED THE SAME FO RM EXPORT TURNOVER ONLY. PERUSAL OF FINDINGS RETURNED BY AO AT PAGE 5 OF THE ITA NO.436 & 496/DEL/2013 34 ASSESSMENT ORDER SHOWS THAT THE AO HAS NOT DISPUTED THE EXPENDITURE BUT DISALLOWED THE SAME TO BE EXCLUDED FROM THE TOTAL TURNOVER FOR NON-FURNISHING OF THE COMMUNICATION EX PENDITURE ATTRIBUTABLE TO THE DELIVERY OF THE GOODS. 55. THE LD. CIT (A) AFTER THRASHING THE CONTROVERSY AT HAND AT LENGTH IN THE LIGHT OF THE SETTLED PROPOSITION OF L AW IN VARIOUS JUDGMENTS RENDERED BY THE TRIBUNAL AS WELL AS HONB LE HIGH COURT PARTICULARLY IN DCIT VS. BINAY SEMANTICS LTD. (2007) 109 TTJ 556 RETURNED THE FOLLOWING FINDINGS :- 7.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AS WELL AS THE ORDER OF THE AO. THE AO IS NOT RIGHT IN EXCLUDING OTHER INCOME WHILE COMPUTING THE PROFIT ELIGIBLE FOR DEDUCTION U/S 10A ONCE AGAIN WH EN THE APPELLANT ITSELF HAD DEDUCTED IT WHILE COMPUTIN G THE ELIGIBLE DEDUCTION U/S 10A. THIS AMOUNTS TO DOUBLE DISALLOWANCE. THEREFORE, THE AO IS DIRECTED TO DELE TE THE DEDUCTION OF RS.1,41,274/- WHILE CALCULATING 10A DEDUCTION. THERE IS MERIT IN EXCLUDING THE 20% OF THE TELECOMMUNICATION EXPENSES AS CALCULATED BY HIM FRO M THE TOTAL TURNOVER A WELL. THIS ISSUE HAS BEEN DECI DED BY THE HIGHER AUTHORITIES IN TATA ELXSI AND OTHER CASE S (SUPRA). THEREFORE, AO IS DIRECTED TO EXCLUDE THE TELECOMMUNICATION EXPENSES AMOUNTING TO RS.5,307,691/- (PERTAINING TO THIS ASSESSMENT YEAR) FROM THE TOTAL TURNOVER WHILE CALCULATING THE DEDUCTION U/S 10A OF THE IT ACT. TO THIS EXTENT, RELIEF IS GIVEN TO THE ASSESSEE . 56. WHEN IT IS NOT IN DISPUTE THAT FOR THE PURPOSE OF SECTION 10A, THE TERM TOTAL TURNOVER IS TO BE INTERPRETED BY C OMPUTING THE ITA NO.436 & 496/DEL/2013 35 ENTIRE EXPORT TURNOVER AS WELL AS DOMESTIC TURNOVER AND IN CASE, EXPENSES ARE TO BE EXCLUDED FROM EXPORT TURNOVER, T HE SAME ARE TO BE EXCLUDED FROM THE TOTAL TURNOVER ALSO FOR THE PU RPOSE OF COMPUTING THE DEDUCTION U/S 10A OF THE ACT. SO, WE ARE OF THE CONSIDERED VIEW THAT LD. CIT (A) HAS RIGHTLY DIRECT ED THE AO TO EXCLUDE THE TELECOMMUNICATION EXPENSES AMOUNTING TO RS.9,15,422/- FROM TOTAL TURNOVER FOR THE PURPOSE OF CALCULATING THE DEDUCTION U/S 10A OF THE ACT. GROUND NO.3 IS DETER MINED AGAINST THE REVENUE. 56. RESULTANTLY, THE APPEAL FILED BY THE TAXPAYER I S PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 20 TH DAY OF FEBRUARY, 2018. SD/- SD/- (N.K. SAINI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 20 TH DAY OF MARCH, 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-XX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.