Blackrock Services India Pvt. Ltd., Gurgaon V. ACIT, Gurgaon

ITA 441/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6657 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 28-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANDEEP KR MISHRA
• Keywords: Related party transaction; Transfer pricing; International transaction; Scheme of amalgamation; Notional interest
• Section: 143(3); 92D; 27

Judgement Text

BLACK ROCK SERVICES INDIA PRIVATE LTD VS . INCOME TAX OFFICER ITA NO 1671 & 441/ DEL/2015 - 16 AY 2010 - 11 & 2011 - 12 1 | P A G E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 1 : NEW DELHI BEFORE SHRI H. S. SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 1671/DEL/2015 (ASSESSMENT YEAR: 2010 - 11 ) BLACK ROCK SERVICES INDIA PRIVATE LIMITED, 3 RD FLOOR, ROLTA CORPORATE TOWERS, 187, PHASE - I, UDYOG VIHAR, GURGAON PAN: AABCH4449Q VS. THE INCOME TAX OFFICER, 5 TH FLOOR, HSIDC BUILDING VANIJYA NIKUNJ, UDYOG VIHAR, PHASE - V, GURGAON (APPELLANT) (RESPONDENT) ITA NO. 441/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) BLACK ROCK SERVICES INDIA PRIVATE LIMITED, 3 RD FLOOR, ROLTA CORPORATE TOWERS, 187, PHASE - I, UDYOG VIHAR, GURGAON PAN: AABCH4449Q VS. THE ASSISTANT COMMISSIONER OF INCOME TAX , CIRCLE - 1(1), GURGAON (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. M. GUPTA, ADV SHRI ANUBHAV RASTOGI, ADV REVENUE BY: SHRI SANDEEP KR. MISHRA, SR. DR DATE OF HEARING 13/02/2019 DATE OF PRONOUNCEMENT 0 6 /05/2019 O R D E R PER PRASHANT MAHARISHI, A. M. ITA NO. 1671/DEL/2015 (ASSESSMENT YEAR: 2010 - 11) 1. THIS APPEAL IS FILED BY BLACK ROCK SERVICES INDIA PRIVATE LIMITED IN ITA NUMBER 1671/ DEL /2015 FOR ASSESSMENT YEAR 2010 11 AGAINST THE ORDER OF THE INCOME TAX OFFICER, WARD 1 (1), GURGAON [THE LD AO ] PASSED U/S 143 (3) READ WITH SECTION 144C OF THE INCOME TAX ACT [ THE ACT] ON 24/2/2015 WHEREIN THE TRANSFER PRICING ADJUSTMENT OF INR 1 4283265/ PURSUANT TO THE DIRECTION OF THE DISPUTE RESOLUTION PANEL III, NEW DELHI [ THE LD DRP ] DATED 22/12/2014 UND ER SECTION 144C (5) OF THE ACT WAS I NCORPORATED WHEREIN PAGE | 2 OBJECTIONS WERE FILED BY THE ASSESSEE AGAINST THE DRAFT OF THE PROPOSED ASSESSMENT PASSED BY THE LEARNED AO WHEREIN ADJUSTMENT PROPOSED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, TRANSFER PRICING , CHANDIGARH [ THE LD TPO] AS PER ORDER PASSED U/S 92CA (3) OF THE ACT DATED 24/1/2014 THE ADJUSTMENT OF INR 1 5891990/ WAS PROPOSED TO THE INTERNATIONAL TRANSACTION OF INR 1 38558316/ WAS I NCORPORATED. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 1671/DEL/2015 FOR THE ASSESSMENT YEAR 2010 - 11: - 1. THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER (LD. AO) PURSUANT TO THE DIRECTIONS OF LEARNED DISPUTE RESOLUTION PANEL (LD. DRP) BASED ON THE FACTS AND IN THE CIRCUMSTA NCE OF THE CASE IS BAD IN LAW AND VOID AB - INITIO. 2. THE LD. DRP AND THE LD. TRANSFER PRICING OFFICER (LD. TPO) / LD. AO (FOLLOWING THE DIRECTIONS OF THE LD. DRP), ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITION TO THE EXTENT OF RS. 1,42,83,265 HOLDING THAT THE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF ROUTINE IT ENABLED SERVICES DO NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO HAVE GROSSLY ERRED BY: 2.1 NOT FINDING ANY MERIT IN THE OBJECTIONS OF THE APPELLANT THAT NONE OF THE CONDITIONS SET OUT IN SECTION 92(1(3) OF THE ACT ARE SATISFIED IN THE PRESENT CASE; 2.2 REJECTING THE TRANSFER PRICING (TP) DOCUMENTATION MAINTAINED BY THE APPELLANT UNDER SECTION 92D OF THE ACT AND RULE 10D OF THE RULES AND DISREGARDING THE ARMS LENGTH PRICE (ALP) AS DETERMINED BY THE APPELLANT IN THE TP DOCUMENTATION; 2.3 DISREGARDING THE FACT THAT THE APPELLANT IS A CAPTIVE IT ENABLED SERVICE PROVIDER WHICH DOES NOT BEAR SUBSTANTIAL RISKS ASSOCIATED WITH ITS FUNCTIONS A ND THEREFORE CANNOT BE COMPARED TO FULL FLEDGED ENTREPRENEUR SERVICE PROVIDERS; 2.4 DISREGARDING MULTIPLE YEAR/PRIOR YEARS DATA USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. FINANCIAL YEAR (FY) 2009 - 10) DATA FOR COMPA RABLE COMPANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; 2.5 REJECTING COMPARABILITY ANALYSIS UNDERTAKEN BY THE APPELLANT IN THE TP DOCUMENTATION/FRESH SEAR CH AND CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION OF THE FOLLOWING ADDITIONAL/REVISED FILTERS IN DETERMINING THE ALP: (I) EXCLUSION OF COMPANIES WHOSE DATA FOR FY 2009 - 10 WAS NOT AVAILABLE; (II) EXCLUSION OF COMPANIES WITH RELATED PARTY TRANSACTIONS GREATER THAN 25% OF THEIR SALES; (III) EXCLUSION OF COMPANIES WITH EXPORT SALES THAT ARE LESS THAN 25% OF THEIR TOTAL REVENUE; (IV) EXCLUSION OF COMPANIES WITH DIMINISHING REVENUES/PERSISTENT LOSSES FOR LAST THREE YEARS UPTO AND INCLUDING F Y 2009 - 10; (V) EXCLUSION OF COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I.E. NOT MARCH 31, 2010); PAGE | 3 AND REJECTING, IN PARTICULAR, THE FOLLOWING FILTERS APPLIED BY THE APPELLANT IN ITS FRESH SEARCH: (I) COMPANIES HAVING OTHER OPERATING INCOME (I.E. INC OME OTHER THAN MANUFACTURING AND TRADING INCOME) TO SALES GREATER THAN 50% WERE ACCEPTED; (II) COMPANIES HAVING RESEARCH & DEVELOPMENT COSTS TO SALES LESS THAN 3% WERE ACCEPTED; (III) COMPANIES HAVING ADVERTISING, MARKETING AND DISTRIBUTION COSTS TO SALES LESS THAN 3% WERE ACCEPTED. 2.6 INCLUDING HIGH - PROFIT MAKING COMPANIES WITH DIFFERENT SCALE OF OPERATIONS AND HIGH TURNOVER IN THE FINAL COMPARABLES SET FOR BENCHMARKING A CAPTIVE SERVICE PROVIDER SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEMEN TS ON THE ISSUE); 2.7 INCLUDING CERTAIN COMPANIES THAT ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 2.8 INCLUDING CERTAIN COMPANIES IN THE COMPARABLES SET THAT HAD ACHIEVED SUPERNORMAL GROWTH AS A RESULT OF EXTRAORDINARY CIRCUMSTANCES DURING THE YEAR, THEREBY INCORRECTLY COMPARING SUCH COMPANIES TO THE APPELLANT WHICH OPERATES AS A CAPTIVE SERVICES PROVIDER AND HAS STABLE GROWTH UNDER NORMAL CIRCUMSTANCES; 2.9 EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRIVOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 2.10 IGNORING THE BUSINESS/ COMMERCIAL REALITY THAT SINCE THE APPELLANT IS RE MUNERATED ON AN A COST PLUS BASIS, (I.E. IT IS COMPENSATED FOR ALL ITS OPERATING COSTS PLUS A PRE - AGREED MARK - UP) THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL - FLEDGED RISK TAKING ENTREPRENEURS, AND BY NOT AL LOWING A RISK ADJUSTMENT TO THE APPELLANT ON ACCOUNT OF THIS FACT; 2.11 NOT PROVIDING FOR WORKING CAPITAL ADJUSTMENT CLAIMED BY THE ASSESSEE AND THUS CONSEQUENTLY ARRIVING AT AN ERRONEOUS MARK - UP ON COST FOR THE COMPARABLE COMPANIES SELECTED IN THE TP ORD ER. 3. THE LD. TPO/ LD. AO/ LD. DRP HAVE GROSSLY ERRED ON FACTS AND IN LAW BY DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT. 4. THE LD. TPO/ LD. AO HAS GROSSLY ERRED ON FACTS AND IN LAW BY INITIATING PENALTY UNDER SECTION 2 71 (I)(C) OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY SATISFACTION FOR ITS INITIATION. 5. THE LD. TPO/ LD. AO HAS GROSSLY ERRED ON FACTS AND IN LAW BY PROPOSING TO COMPUTE INTEREST UNDER SECTION 234A, 234B, 234C AND 234D OF THE ACT MECHANICALLY AND W ITHOUT RECORDING ANY SATISFACTORY REASONS FOR THE SAME. 3. THE BRIEF FACTS OF THE CASE SHOW THAT ASSESSEE IS ENGAGED IN RENDERING BACK - OFFICE INFORMATION TECHNOLOGY ENABLED SERVICES [ ITES] AND RELATED SERVICES TO ITS ASSOCIATED ENTERPRISE AND THIRD - PARTY CUSTOMERS IN INDIA. THE BACK - OFFICE SERVICES AND THE RELATED SERVICES PERFORMED BY THE APPELLANT INCLUDED WEB SEARCH, DATA ENTRY, DATA MANAGEMENT, ASSISTANCE IN FINANCIAL AND ECONOMIC EVALUATION ANALYTICAL SERVICES AND OTHER SERVICES. THE ASSESSEE WAS RE MUNERATED AT THE RATE OF COST +12% MARKUPS BY ITS ASSOCIATED ENTERPRISE. THE ASSESSEE PAGE | 4 ENTERED INTO AN INTERNATIONAL TRANSACTION OF THE PROVISION OF THESE I TES SERVICES AMOUNTING TO INR 1 22569557/ AMONGST THE OTHER INTERNATIONAL TRANSACTION OF REIMBURSEME NT OF EXPENSES AND ADVANCES RECEIVED WHICH ARE NOT IN DISPUTE BEFORE US. THE ASSESSEE BENCHMARKED THE PROVISION OF ITES SERVICES BY SELECTING 12 COMPARABLES WHOSE AVERAGE MEAN MARGIN OF PLI OF OP /TC WAS CONSIDERED TO BE 11.85% AND AS ASSESSEE HAS EA RNED THE MARGIN OF 12% OVER THE COST , THE ASSESSEE STATED THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARMS - LENGTH. 4. THE ASSESSEE FURNISHED ITS RETURN OF INCOME ON 13/10 /2010 DECLARING INCOME OF INR 4 652993/ . AS ASSESSEE HAS ENTERED INTO AN INTERNATIONAL TRANSACTION THE LEARNED AO REFE RRED THE MATTER TO THE LEARNED TPO FOR DETERMINING THE ARMS - LENGTH PRICE [ ALP] U/S 92CA (3) OF THE ACT IN RESPECT OF THE INTERNATIONAL TRANSACTION. THE LEARNED T PO EXAMINED THE NATURE OF THE BUSINESS OF THE ASSESSEE AND THE FUNCTIONAL ANALYSIS CARRIED ON. HE NOTED THAT ASSESSEE CHARACTERIZED ITSELF AS A PROVIDER OF IT ENABLED SERVICES, SELECTED TRANSACTIONAL NET MARGIN METHOD [ TNMM] AS THE MOST APPROPRIATE MET HOD [ MAM ] AND CARRIED OUT SEARCH USING PRO W ESS AND CAPITAL INE DATABASES SELECTING 10 COMPARABLES WHOSE WEIGHTED AVERAGE OF PROFIT LEVEL INDICATOR WAS 11.85 PERCENTAGE BY CONSIDERING MULTIPLE YEAR DATA. THE TPO ASKED THE ASSESSEE TO SUBMIT THE UPDATED MARGINS USING ONLY THE DATA FOR FINANCIAL YEAR 2009 10 . ASSESSEE SUBMITTED THE SAME WHERE THE AVERAGE PLI OF OPERATING PROFIT TO OPERATING COST OF ALL THESE 10 COMPARABLES WAS CALCULATED AT 5.3% AGAINST THE ASSESSEES OWN PROFIT LEVEL INDICATOR OF 12% . THE LEARNED TRANSFER PRICING OFFICER FURTHER VERIFIED THE ACCEPT/REJECT METRICS OF THE ASSESSEE AND NOTED THAT VERTICAL OF THE IT ENABLED INDUSTRY WAS NOT A CRITERIA FOR REJECTION/ACCEPTANCE OF A COMPANY AS A COMPARABLE. THEREFORE HE NOTED THAT THE CO MPANIES ENGAGED IN IT ENABLED SERVICES WERE TREATED AS COMPARABLES IRRESPECTIVE OF THE VERTICALS THAT IS THE INDUSTRY TO WHICH IT CATERS , H ORIZONTAL VERTICALS SUCH AS FUNCTIONS LIKE BACK - OFFICE OPERATIONS, MEDICAL TRANSCRIPTION ET CETERA. HE ACCEPTED THE TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD SELECTED BY THE ASSESSEE. HE THEREFORE ON EXAMINATION OF THE TRANSFER PRICING STUDY REPORT FOUND THAT IT HAS SEVERAL DEFECTS, FURTHER THE COMPARABLE SELECTED BY THE ASSESSEE WERE ALSO NOT PROP ER AND THEREFORE HE CARRIED OUT THE FRESH SEARCH AND INCLUDED FURTHER 7 COMPARABLE S . THOSE COMPARABLES WERE OFFERED FOR THE COMMENT OF THE ASSESSEE AND FINALLY AFTER CONSIDERING IT , AND UPDATING VARIOUS MARGIN OF THOSE COMPARABLES, HE SELECTED 11 COMPARABLES WHOSE OPERATING PROFIT TO OPERATING COST AVERAGE MARGIN WAS 26.61% . HE APPLIED THE ABOVE MARGIN ON THE OPERATIONAL COST OF THE ASSESSEE OF INR 10 9437104/ AND FOUND THAT AGAINST THE PRI CE RECEIVED OF INR 122666327/ THE AL P IS RS. 13855831 7/ AND THEREFORE HE PROPOSED AN ADJUSTMENT U/S 92CA (3) OF INR 15891990/ . PAGE | 5 5. THE ASSESSEE AGAINST THE DRAFT OF THE PROPOSED ASSESSMENT MADE BY THE LEARNED ASSESSING OFFICER PREFERRED OBJECTION BEFORE THE LEARNED DRP WHO REJECTED THE ARGUMENT OF THE ASSESSE E WITH RESPECT TO THE VARIOUS COMPARABLE S, HOWEVER WITH RESPECT TO THE MARGINS OF THOSE COMPARABLES, IT DIRECTED THE LEARNED TPO TO VERIFY THEM AND CORRECT THE COMPUTATIONAL ERRORS. CONSEQUENT TO THOSE DIRECTIONS THE LEARNED TPO PASSED AN ORDER ON 22/12 /2014 GIVING EFFECT TO THE DIRECTION OF THE DRP RETAINING ALL THESE 11 COMPARABLES WHOSE AVERAGE MARGIN AND THEREFORE THE PROPOSED ADJUSTMENT WAS REDUCED TO INR 14283265/ . THE ABOVE ADJUSTMENT WAS I NCORPORATED IN THE ASSESSMENT ORDER U/S 143 (3) READ WI TH SECTION 144C OF THE ACT DATED 24/2/2015 WHERE THE ASSESSED INCOME WAS DETERMINED AT INR 18936258/ AGAINST THE RETURNED INCOME OF INR 4652993/ WHEREIN THE ADJUSTMENT ON ACCOUNT OF THE ARMS - LENGTH PRICE OF INR 14283265/ WAS MADE. ASSESSEE AGGRIEVED WITH THE ORDER HAS PREFERRED THIS APPEAL BEFORE US. 6. THE 1 ST GROUND OF APPEAL IS GENERAL IN NATURE, NO ARGUMENTS ADVANCED BY BOTH THE PARTIES, HENCE IT IS DISMISSED. 7. THE GROUND NUMBER 2 OF THE APPEAL CHALLENGES THE ADDITION ON ACCOUNT OF DETERMINATION OF TH E ARMS - LENGTH PRICE OF AMOUNTING TO INR 14283265/ WITH RESPECT TO THE ITES SERVICES. AT THE BEGINNING OF THE HEARING THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED A CHART AND STATED THAT OUT OF THE 11 COMPARABLE SELECTED BY THE LEARNED TRANSFER PRICIN G OFFICER IT IS CONTESTING ONLY 5 COMPARABLES WHICH ACCORDING TO HIM ARE FUNCTIONALLY DIS SIMILAR, HAVING SUBSTANTIAL BRAND, NON AVAILABILITY OF THE SEGMENTAL INFORMATION, EXTRAORDINARY EVENTS AND CIRCUMSTANCES IN THOSE COMPANIES WITH RESPECT TO THE AMAL GAMATION ET CETERA AND CERTAIN OTHER FACTORS. HE HEAVILY RELIED UPON THE SEVERAL JUDICIAL PRECEDENTS WHEREIN FO U R OUT OF THOSE 5 COMPARABLES HAVE BEEN EXCLUDED FROM THE COMPARABILITY ANALYSIS IN CASE OF SOME OTHER ASSESSES . THEREFORE HE SUBMITTED THAT TH OSE COMPARABLES SHOULD ALSO BE EXCLUDED FROM THE COMPARABILITY ANALYSIS IN CASE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE ALSO. WE WILL DEAL WITH EACH OF THE COMPARABLE INDEPENDENTLY LOOK ING INTO THEIR FUNCTIONALITY AND COMPARING IT WITH THE FUNC TIONALITY OF THE ASSESSEE. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO VEHEMENTLY OBJECTED TO THE ARGUMENT OF THE AUTHORISED REPRESENTATIVE THAT THOSE 5 COMPARABLES SHOULD BE EXCLUDED ON THE BASIS OF THE JUDICIAL PRECEDENTS RENDERED IN SOME OTHER CASES. HE VEHEMENTLY SUBMITTED THAT MANDATE OF RULE 10 B PROVIDES FOR COMPARABILITY ANALYSIS WITH THE FUNCTIONS OF THE ASSESSEE OF THOSE COMPARABLE COMPANIES. UNLESS THE ASSESSEE DEMONSTRATES WITH ADEQUATE DOCUMENTATION THAT THE C OMPANIES IN WHOSE CASE THESE COMPARABLE S ARE EXCLUDED IS HAVING THE SAME FUNCTIONAL PROFILE AS THAT OF THE ASSESSEE. HE OTHERWISE REFERRED TO THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER AND THE LEARNED DISPUTE RESOLUTION PANEL AND STATED THAT AL L THE OBJECTION STATED PAGE | 6 BY THE ASSESSEE HAVE BEEN CONSIDERED BY THEM IN THEIR RESPECTIVE ORDERS. HE REFERRED TO EACH OF THE COMPARABLE IN THE COMMENTS GIVEN BY THE LEARNED TPO AND THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL WITH RESPECT TO THESE COMPARABLES. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ON CAREFUL ANALYSIS OF THE BALANCE SHEET OF THE COMPANY AND THE PROFIT AND LOSS ACCOUNT , IT IS APPARENT THAT ASSESSEE HAS PROVIDED SERVICES OF INR 125375557/ DURING THE YEAR AND EARNED PROFIT BEFORE TAX OF INR 14701374/ . THE ASSESSEE HAS THE SHARE CAPITAL OF INR 486930/ AND THE RES ERVE AND SURPLUSES OF RS. 4 9322227/ MAKING THE SHAREHOLDERS FUNDS OF RS . 4 9809157/ . ASSESSEE HAS FIXED ASSETS OF GROSS BLOCK OF RS 2 5114818 AND THE NET BLOCK OF RS. 7733525/ . LOOKING AT THE FIXED ASSETS OF THE ASSESSEE COMPANY AS PER THE FIXED ASSETS SCHEDULE , IT HAS TANGIBLE ASSETS MAINLY AND ALSO THE INTANGIBLE ASSETS IN THE FORM OF THE SOFTWARE , WH OSE W RITTEN DOWN VALUE IS INR 1758512/ OUT OF THE TOTAL WRITTEN DOWN VALUE OF ALL THE ASSETS OF RS. 7733525/ . ORIGINALLY THIS COMPANY WAS FORMED IN THE NAME OF HELIX ADVISORS INDIA PRIVATE LIMITED ON 22/06/2000 . SUBSEQUENTLY BECAUSE OF AN AGREEMENT DATED 22/12/2009 , SHARES OF THE COMPANY WERE TRANSFERRED FROM ALEX FINANCIAL GROUP LLC TO BLACKROCK ADVISORS SINGAPORE PTE LIMITED. CONSEQUENT TO THIS , NAME OF THE ASSESSEE WAS ALSO CHANGED TO BLACKROCK SERVICES IN DIA PRIVATE LIMITED. AS PER THE TRANSFER PRICING STUDY REPORT IN PARA NUMBER 4.3.2 , ASSESSEE SUBMITTED THAT IT PROVIDES IT ENABLED BACK - OFFICE SERVICES OUTSOURCING TO HELIX US AND HELIX LLC. IT IS FURTHER SUBMITTED THAT THE PRIMARY BUSINESS/FUNCTION S OF THE INDIAN ENTITY INCLUDES : - A. ORIGINATION SUPPORT SERVICES WHICH INCLUDE ACTIVITIES LIKE PREPARATION OF SUMMARY OF LOAN REQUEST MATERIALS, INPUT/ENTRY OF DATA FROM SOURCES SUCH AS THE OPERATING STATEMENT, RENT ROLL ET C I NTO MODELS CREATED BY THE CLIENTS INTO ONLINE DATABASE SUBSCRIBED TO BY ALEX US AND ALEX LLC. B. LEASE ABSTRACTING SUPPORT SERVICES INCLUDES ACTIVITIES LIKE ENTRY OF LEASE DATA INTO EXCEL - BASED MODELS DEVELOPED BY THE CLIENT, OPERATION MANAGEMENT OF DATA AND DOCUMENTATION IS AN UNDERT AKING RELATED DATABASE, WEB SEARCH AND ANALYSIS. C. PRESCREEN REPORT INCLUDES ACTIVITIES LIKE ENTERING BASIC FINANCIAL INFORMATION INTO CLIENT UNDERWRITING MODEL, PREPARATION OF THE ASSET SUMMARY ET CETERA. D. THE RESEARCH ACTIVITIES INCLUDE CARRYING OUT EXTENSI VE WEB SEARCHES ON INDUSTRY BENCHMARKS, OTHER INFORMATION/BETTER RELATING TO MARKETS, CUSTOMIZE TRANSACTION SURVEILLANCE AND REPORT GENERATIONS THEREOF. E. IN UNDERWRITING SUPPORT THE ASSESSEE CARRIES ON ACTIVITIES LIKE ENTRY OF FINANCIAL AND OTHER DATA OF TH E CLIENT INTO EXCEL - BASED FINANCIAL MODELS DEVELOPED BY ALEX US UNDERTAKING ACTIVITIES LIKE DATA ENTRY, DATABASE DOCUMENT MANAGEMENT AND RELATED PAGE | 7 WEB RESEARCH FOR ASSISTING IN PREPARING CREDIT WHICH DATABASE CONDUCTING ESTOPPELS REVIEWS ET CETERA F. FIXED INCO ME ADVISORY AND ANALYTICS SERVICES INCLUDES COMPREHENSIVE INVESTMENT DUE DILIGENCE AND SURVIVAL AND SERVICES FOR CMS INVESTORS BY UTILIZING THE DATA ANALYTICS AND SOUND REALISTIC JUDGMENT , INVESTORS CAN MAKE SEED MBS INVESTMENTS WITH CONFIDENCE. ADDITIONA L CLIENTS INCLUDE CTO ORIGINATORS/MANAGERS COMMERCIAL AND INVESTMENT BANKS BOND INSURANCE FIRMS AND HEDGE FUNDS. G. IN FINANCIAL ADMINISTRATION THE ACTIVITIES INCLUDED THE FULL SERVICES ACCOUNTING, INVESTMENT FUND ADMINISTRATION, TRANSACTION PROCESSING, VALUATION REVIEW, DUE DILIGENCE AND SURVEILLANCE FOR THE ALTERNATIVE ASSETS. ON THE BASIS OF THE ABOVE ANALYSIS IT IS FURTHER STATED THAT THE ALEX INDIA IS PRIMARILY INVOLVED IN EXECUTION OF ROUTINE BACKUP AND ACTIVITIES LIKE WEB SEARCHES, DATA ENTRY, DOCU MENT MANAGEMENT ET CETERA AN INITIAL QUALITY CONTROL. THESE ACTIVITIES FIGURE AT THE LOWER END OF THE GROUP SERVICE VALUE CHAIN. THEREFORE AS SUCH THESE ACTIVITIES ARE VOLUMINOUS AND TIME - CONSUMING IN NATURE THEY INVOLVE SIGNIFICANTLY GREATER TIME AND EF FORT TO THE INDIAN ENTITY PERSONAL VISIT S THE US PERSONAL FOR PROJECTS. IT IS FURTHER STATED THAT DURING FINANCIAL YEAR 2009 10 IN ADDITION TO THE PRIMARY ACTIVITY OF PROVIDING IT ENABLED BACK - OFFICE PROCESS OUTSOURCING AND RELATED SERVICES TO ITS A SSOCIATED ENTERPRISE , ASSESSEE IS ALSO ENGAGED IN PROVIDING IT ENABLED BACK - OFFICE PROCESS OUTSOURCING AND RELATED SERVICES IN THE NATURE OF PAYROLL PROCESSING, FINANCIAL ADMINISTRATION, RECORD - KEEPING ET C. TO 3 RD PARTIES IN INDIA WHICH IS CONSIDERED AS THE DOMESTIC BUSINESS OF THE ASSESSEE. IT IS FURTHER STATED THAT THESE SERVICES ARE SIMILAR TO SOME OF THE SERVICES PROVIDED BY ASSESSEE TO ITS ASSOCIATED ENTERPRISES. WITH RESPECT TO THE ASSETS , IT HAS BEEN STATED THAT ASSESSEE DOES NOT OWN ANY INTANGI BLE WHICH ARE SIGNIFICANT AND DOES NOT UNDERTAKE ANY ACTIVITY ON ITS OWN ACCOUNT THAT LEADS TO THE DEVELOPMENT OF THE NO N ROUTINE INTANGIBLE S WITH RESPECT TO THE INTERNATIONAL BUSINESS. FURTHER WITH RESPECT TO THE RISK METRICS , IT IS SUBMITTED THAT ALL RISKS WITH RESPECT TO THE DOMESTIC BUSINESS ARE BORNE BY THE ALEX INDIA , ASSESSEE , WHEREAS WITH RESPECT TO THE TRANSACTION WITH ASSOCIATED ENTERPRISE , MAJOR RISK ARE BORNE BY THE ASSOCIATED ENTERPRISES. BASED ON THIS THE ASSESSEE CHARACTERIZED ITSEL F AS A ROUTINE IT ENABLED BACK - OFFICE BUSINESS PROCESS OUTSOURCING SERVICE PROVIDER , WHICH ASSUMES A ROUTINE RISK ASSOCIATED WITH CARRYING OUT ITS INTERNATIONAL BUSINESS AND EMPLOYES ROUTE INTANGIBLE ASSETS FOR PROVIDING SUCH SERVICES. THIS FAR ANALYSIS PREPARED BY THE ASSESSEE REMAINS UNDISPUTED. 10. THE 1 ST COMPARABLE CHALLENGED BY THE ASSESSEE IS ACCENTIA TECHNOLOG IES LTD WHICH IS INCLUDED BY THE LEARNED TRANSFER PRICING OFFICER. THE ASSESSEE SUBMITTED THAT IT IS FUNCTIONALLY PAGE | 8 DISSIMILAR, IT HAS SIGNIFICA NT AMOUNT OF THE BRANDS, IT DOES NOT HAVE THE SEGMENTAL INFORMATION REQUIRED FOR THE COMPARABILITY ANALYSIS AND HAS UNDERGONE THE EXTRAORDINARY EVENTS DURING THE YEAR IN THE FORM OF AMALGAMATION. IT IS FURTHER STATED THAT THIS COMPANY WAS FOUND TO BE FUNC TIONALLY DISSIMILAR BY THE COORDINATE BENCH IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 09, WHEREIN IT IS FOUND THAT EXTRAORDINARY EVENTS HAVE TAKEN PLACE DURING THE YEAR IN THE CASE OF THE ABOVE COMPARABLE. THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE PLETHORA OF JUDICIAL PRECEDENTS WHERE IN CASE OF SOME OTHER FUNCTIONALLY DIFFERENT ASSESSEE THIS COMPARABLE IS EXCLUDED. 11. THE LEARNED TRANSFER PRICING OFFICER CONSIDERED THE ARGUMENT OF THE ASSESSEE THAT IT IS FUNCTIONALLY DISSIMILAR AND RE JECTED THAT STATING THAT ANNUAL REPORT HAS BEEN PRODUCED AND IT IS SEEN THAT THE COMPANY IS INTO AN HEALTHCARE RECEIVABLE CYCLE MANAGEMENT PREDOMINANTLY WHICH IS AN ITES SEGMENT. HE FURTHER HELD THAT 86% OF THE RECEIPT IS FROM HEALTHCARE RECEIVABLE FIELD AND A SMALL PORTION IS IN THE CODING ACTIVITY. HE THEREAFTER EXTRACTED THE ANNUAL ACCOUNTS AND THE REPORTS OF THE ABOVE COMPARABLE COMPANY AND STATED THAT HEALTHCARE MANAGEMENT RECEIVABLE SYSTEM IS OF ONE SINGLE OPERATIONAL SEGMENT CONSISTING OF VARIOUS AC TIVITIES WHICH ARE CLOSELY RELATED AND COMPLEMENTARY AND THE SERVICES CANNOT BE TERMED AS DIVERSIFIED ACTIVITY. HE FURTHER HELD THAT SAAS (SOFTWARE AS A SERVICE) IS NOTHING BUT BUNDLE OF ALL THE SERVICES UNDER ONE UMBRELLA. HE THEREFORE HELD THAT THE ABOV E COMPARABLE COMPANY Y IS FUNCTIONALLY SIMILAR AND PASSES ALL THE FILTERS APPLIED. HE FURTHER HELD THAT THERE IS NO ABNORMAL FLUCTUATION IN THE PROFIT EARNING CAPACITY OF THE COMPARABLE FOR THE YEAR UNDER THIS SITUATION AND IT IS SHOWING GOOD MARGIN C ONSISTENTLY OVER THE YEARS AND THEREFORE THERE IS NO ISSUE OF SUPERNORMAL PROFITS. THEREFORE HE STATED THAT THE COMPARABLE IS ROBUST COMPARABLE IN CASE OF THE TAXPAYER AND IS RETAINED AS A SUITABLE COMPARABLE. THE LEARNED DISPUTE RESOLUTION PANEL WAS ALS O OF THE VIEW THAT THE FAR PROFILE OF THE COMPANY IS ESSENTIALLY SIMILAR TO THAT OF THE ASSESSEE HENCE IT WAS RETAINED AS A COMPARABLE. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ANNUAL ACCOUNT OF COMPARABLE COMPANY PLACED AT PAGE NUMBER 119 226 OF THE PAPER BOOK. 13. AS IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2008 09 THE COORDINATE BENCH HAS DIRECTED THE LEARNED TPO TO EXCLUDE THE ABOVE COMPARABLE ONLY FOR THE REASON THAT IT HAS AN EXTRAORDINARY EVENTS TAKE N PLACE DURING THAT YEAR. THEREFORE FOR FOLLOWING THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE EARLIER YEAR THE FACTS MUST BE SIMILAR THAT THERE SHOULD BE AN EXTRAORDINARY EVENT DURING TH IS YEAR IN THE CASE OF THE COMPARABLE. OTHERWI SE THE DECISION OF THE COORDINATE BENCH IS DISTINGUISHABLE ON THE FACTS IN ABSENCE OF ANY SUCH INFORMATION AVAILABLE. THEREFORE MERELY ON THE BASIS OF THE EARLIER YEAR S ORDER OF PAGE | 9 THE COORDINATE BENCH IN ASSESSEES OWN CASE , THIS COMPARABLE CANNOT BE EXC LUDED AND IT IS REQUIRED TO BE TESTED ON ITS OWN MERIT. 14. THE ASSESSEE HAS ALSO CONTESTED THAT IT HAS UNDERGONE AMALGAMATION OF ANOTHER COMPANY WITH THE COMPARABLE COMPANY. THE AR REFERRED TO PAGE NUMBERS 78 OF THE ANNUAL REPORT WHEREIN IN NOTES TO ACCO UNTS THE REFERENCE HAS BEEN MADE THAT PURSUANT TO THE SCHEME OF AMALGAMATION OF ACCENTIA PRIVATE LIMITED WITH THE COMPANY AS APPROVED BY THE SHAREHOLDER IN THE COURT CONVENED MEETING HELD ON 25 TH DAY OF APRIL 2009 AND SUBSEQUENTLY SANCTIONED BY THE HONO URABLE HIGH COURT OF MUMBAI VIDE ORDER DATED 21/08/2009 AND THE HIGH COURT OF KARNATAKA VIDE ORDER DATED 06/02/2010, THE ASSETS AND LIABILITY OF THE ERSTWHILE COMPANY WAS TRANSFERRED INVESTED IN THIS COMPANY WITH EFFECT FROM 01/04/2008. ON READING THE ABOVE NOTE IT IS APPARENTLY CLEAR THAT AMALGAMATION HAS HAPPENED WITH EFFECT FROM 01/04/2008, AND THEREFORE IT DOES NOT PERTAIN TO THIS YEAR WHICH IS ASSESSMENT YEAR 2010 11 (FY 2009 - 10) . THERE IS NO FINANCIAL IMPACT ON THE PROFITABILITY / PRICE OF THE COMPARABLE COMPANY SHOWN TO US. THEREFORE WE REJECT THE ARGUMENT THAT THERE IS AN EXTRAORDINARY EVENT IN THE COMPARABLE COMPANY. 15. ON CAREFUL CONSIDERATION OF THE ANNUAL REPORT OF THE ABOVE COMPARABLE COMPANY FOR FINANCIAL YEAR 2009 10 PLACED, AT PAGE NUMBER 41 OF THE ANNUAL REPORT IT IS STATED THAT THE COMPARABLE COMPANY PROVIDES HEALTHCARE AND RECEIVABLE MANAGEMENT SERVICES INVOLVING MEDICAL TRANSCRIPTION, MEDICAL CODING, BILLING AND RECEIVABLES MANAGEMENT (COLLECTIONS). AT PAGE NUMBER 42, DESCRIPTI ON OF THE MEDICAL TRANSCRIPTION SERVICES HAVE BEEN PROVIDED W HICH SHOWS BRIEF PROCESS OF THE MEDICAL TRANSCRIPTION GIVING THE PROCESS FLOWCHART AND IN THE END IT IS STATED THAT MEDICAL TRANSCRIPTION PROFESSION IS CONSIDERED VERY MUCH A SKILLED WORK WHICH C AN BE DONE ONLY AFTER UNDERGOING 6 TO 8 MONTHS OF RIGOROUS TRAINING AS IT INVOLVES THE IDENTIFYING THE GENERIC NAME AND TRADE NAME OF THE VARIOUS DRUGS. THAT CAN BE DONE ONLY AFTER REFERENCE TO THE PHARMACOLOGY REFERENCE BOOKS WHICH SHOULD ALWAYS BE A PAR T OF THE LIBRARY OF A MEDICAL TRANSCRIPTION PROFESSION. FURTHER AT PAGE NUMBER 43 MEDICAL CODING HAS ALSO BEEN EXPLAINED BY WAY OF A FLOWCHART. THE COMPANY SAYS THAT IT HAS A SIZEABLE NUMBER OF CERTIFIED CODERS WHICH IS ASSIGNING CODES TO DIAGNOSIS AND P ROCEDURES WHICH HELP IN FINANCIAL REIMBURSEMENT FROM INSURANCE COMPANIES AND GOVERNMENT COMPANIES ET CETERA. IT IS FURTHER STATED THAT MEDICAL CODERS ARE SPECIALIZED IN CODING AFTER THOROUGH TRAINING PROGRAM AND CERTIFICATION. FURTHER THE ASSESSEE HAS CON TENDED THAT IT HAS A SIGNIFICANT AMOUNT OF BRANDS AND SOFTWARE FOR PROVIDING IT SERVICES. FOR THIS PROPOSITION WE LOOK AT PAGE NUMBER 37 OF THE ANNUAL REPORT WHEREIN MANAGEMENT DISCUSSION AND ANALYSIS IT IS SUBMITTED THAT IT IS THE 1 ST COMPANY TO OFFER SA AS MODEL HMRC AREA. IT IS ALSO ENTERING INTO THE LEGAL PROCESS OUTSOURCING SEGMENT. IT IS ALSO USING IMMACULATE BUSINESS PROCESS OUTSOURCING MANAGEMENT PAGE | 10 SOLUTIONS FOR HEALTHCARE, FINANCIAL AND INSURANCE SECTOR AND HEALTH THE DOX CUTTING - EDGE OFFSHORE H RC SOLUTIONS FOR HEALTHCARE SECTOR ARE PROVIDED BY THIS COMPANY. THEREFORE , LOOKING TO THE FUNCTIONS PERFORMED BY THE ACCENTIA TECHNOLOGY AND THE VARIOUS KINDS OF ADVANCED ASSETS IN THE FORM OF SOFTWARE ET CETERA UTILIZED, IT IS APPARENT THAT FUNCTIONALLY THE ABOVE COMPANY IS NOT COMPARABLE WITH THE ASSESSEE COMPANY. HENCE WE DIRECT THE LEARNED TRANSFER PRICING OFFICER /LEARNED AO TO EXCLUDE THE ABOVE COMPANY FROM THE COMPARABILITY ANALYSIS. 16. THE 2 ND COMPARABLE CHALLENGED BY THE ASSESSEE IS INF OSYS BPO LTD STATING THAT IT IS FUNCTIONALLY DISSIMILAR AND IS PROVIDING HIGH E ND INTEGRATED SERVICES IN THE NATURE OF BUSINESS TRANSFORMATION SERVICES, SOURCING AND PROCUREMENT OUTSOURCING ET CETERA. IT WAS FURTHER STATED THAT IT HAS A SIGNIFICANT INTANG IBLE ASSETS AND THERE ARE EXTRAORDINARY EVENTS SUCH AS ACQUISITION OF A COMPANY. THE LEARNED AUTHORISED REPRESENTATIVE FURTHER REFERRED TO THE SEVERAL JUDICIAL PRECEDENTS WHEREIN THE ABOVE COMPARABLE COMPANY HAS BEEN EXCLUDED. 17. THE LEARNED TRANSFER PRICING OFFICER REJECTED THE ALL THE CONTENTION OF THE ASSESSEE AND STATED THAT THE ABOVE COMPANY IS AN ITES COMPANY AND FULLY COMPARABLE IN THE CASE OF THE ASSESSEE. FURTHER IT WAS STATED THAT THE PRESENCE OF THE BRAND VALUE HAS NOT BEEN SHOWN TO HAVE MADE ANY IMPACT ON THE PROFITABILITY OF THIS COMPANY AND THEREFORE SAME CANNOT BE EXCLUDED. THE LEARNED DISPUTE RESOLUTION PANEL ALSO AFFIRMED THE FINDING OF THE LEARNED TRANSFER PRICING OFFICER. 18. WE HAVE CAREFULLY CONSIDERED THE ANNUAL REPORT OF INFOSYS BPO LTD FOR FINANCIAL 2009 10 PLACED AT PAGE NUMBER 213 296 OF THE PAPER BOOK. UNDOUBTEDLY THE COMPARABLE COMPANY BELONGS TO INFOSYS GROUP AND THEREFORE IT HAS THE SUPPORT AND BACKING OF THE INFOSYS BRAND WHICH WILL HAVE ITS OWN IMPACT ON THE PROFITABILITY AN D PRICE OF THIS COMPARABLE COMPANY. IT IS ALSO NOT NECESSARY THAT THE COMPARABLE COMPANY MUST HAVE SPENT FOR THE BRAND VALUE. IN THE PRESENT CASE OF COMPARABLE IS NOT REQUIRED TO DO SO AS IT BELONGS TO AS SUCH ONE OF THE LARGEST GROUP IN THE IT SEGMENT INFOSYS. AS PER PAGE NUMBER 281 IN SCHEDULE 12 SELLING AND MARKETING EXPENSES SHOWS THAT COMPARABLE COMPANY HAS SPENT APPROXIMATELY INR 7,500,000 TOWARDS THE BRAND BUILDING AND ADVERTISEMENT EXPENDITURE. COUPLED WITH THE FACT THAT THE COMPARABLE COMPANY BELONGS TO INFOSYS GROUP, HAS INCURRED THE EXPENDITURE ON THE BRAND BUILDING AND ANNUAL REPORT ITSELF SHOWS THE IMPRINT OF BEING PART OF THE LARGE IT SEGMENT GROUP, IT IS APPARENT THAT THE FUNCTIONAL PROFILE, THE ASSETS UTILIZED BY THE COMPARABLE COMPAN Y ARE NOT COMPARABLE WITH THE ASSESSEE COMPANY. THEREFORE, FOR THIS REASON ONLY, WE DIRECT THE LEARNED TRANSFER PRICING OFFICER, AO TO EXCLUDE THE ABOVE COMPARABLE FROM COMPARABILITY ANALYSIS. PAGE | 11 19. WITH REFERENCE TO THE ARGUMENT OF THE LEARNED AUTHORISED REPR ESENTATIVE THAT IT HAS ACQUIRED ONE COMPANY MACMISH SYSTEM LLC AND THEREFORE THERE IS AN EXTRAORDINARY EVENT IN THE COMPANY, DESERVES TO BE REJECTED AT THE THRESHOLD BECAUSE IT IS MERELY A PURCHASE OF SHARES OF THE TARGET COMPANY BY THIS COMPARABLE. PURCH ASING SHARES OF THE COMPANY DOES NOT MAKE ANY IMPACT ON THE PRICE OF THE MARGIN OF THE COMPARABLE COMPANY. THEREFORE THERE IS NO EXTRAORDINARY EVENT WHEN A COMPANY INVESTS IN SOME OTHER COMPANY BY PURCHASE OF SHARES. IT IS NEITHER A CASE OF AMALGAMATION/ MERGER. HENCE ON THIS GROUND THE ABOVE COMPARABLE COMPANY CANNOT BE EXCLUDED. 20. FURTHER THE AUTHORISED REPRESENTATIVE ALSO STATED THAT THERE IS AN AMALGAMATION OF PAN FINANCIAL SERVICES INDIA PRIVATE LIMITED WITH THE COMPANY AND THEREFORE IT SHOULD BE EXCLU DED. WE HAVE CAREFULLY CONSIDERED THE CONTENTION AND FIND THAT THE BOARD OF DIRECTORS IN THAT MEETING HELD ON 06/10/2008 APPROVED SUBJECT TO THE APPROVAL OF THE KARNATAKA AND MOTHERS HIGH COURT OF SCHEME OF AMALGAMATION TO AMALGAMATE PAN FINANCIAL SERVICE S INDIA PRIVATE LIMITED WHICH IS ENGAGED IN PROVIDING BUSINESS PROCESS MANAGEMENT SERVICES WITH THE INFOSYS BPO LTD WITH EFFECT FROM 01/04/2008. THEREFORE EVEN IF THERE IS AN AMALGAMATION OR MERGER, IT HAS HAPPENED IN FINANCIAL YEAR 2008 09, AND IMPUG NED FINANCIAL YEAR BEFORE US IS FINANCIAL YEAR 2009 10 , HENCE IT DOES NOT PERTAIN TO THIS YEAR AND THEREFORE FOR THIS REASON INFOSYS BPO CANNOT BE EXCLUDED. 21. HOWEVER FOR THE REASONS GIVEN BY US ABOVE, WE DIRECT THE LEARNED TPO/AO TO EXCLUDE THE INFOSYS B PO LTD FROM THE COMPARABILITY ANALYSIS FOR THE REASONS OF HAVING HUGE BRAND VALUE. 22. THE 3 RD COMPARABLE CHALLENGED BY THE ASSESSEE IS TCS E SERVE INTERNATIONAL LTD WHICH IS STATED TO BE THE FUNCTIONALLY DISSIMILAR AS IT IS ENGAGED IN TRANSACTION PROCESSING AND TECHNICAL SERVICES LIKE SOFTWARE TESTING, VERIFICATION AND VALIDATION OF THE SOFTWARE. IT WAS FURTHER STATED THAT THERE IS NO AVAILABILITY OF THE SEGMENTAL INFORMATION AND FURTHER THE COMPARABLE COMPANY EN JOYS THE TATA BRAND AND IS CONTRIBUTING SIGNIFICANTLY BY PAYMENT THEREOF. 23. WE HAVE CAREFULLY CONSIDERED THE C ONTENTIONS AND FIND THE ANNUA L REPORT OF THE ABOVE COMPARABLE COMPANY PLACED AT PAGE NUMBER 297 371 OF THE PAPER BOOK. APPARENTLY TCS E SERVE INTERNATIONAL IS A SUBSIDIARY OF TATA CONSULTANCY SERVICES LTD. BEHIND THE ABOVE COMPARABLE COMPANY, THERE IS A TATA BRAND , WHICH IS ALM OST 10 TIMES BIGGER THAN INFOSYS BRAND ( ON MARKET CAP BASIS) . ON THE PERUSAL OF SCHEDULE M OF THE PROFIT AND LOSS ACCOUNT THERE IS A PAYMENT OF 3738000S TOWARDS THE TATA BRAND EQUITY CONTRIBUTION. FOR THIS REASON THAT IT BELONGS TO TATA GROUP AND HAS ALSO CONTRIBUTED TO TATA BRAND WHICH IS ONE OF THE LARGEST BRAND IN THE INFORMATION TECHNOLOGY SEGMENT, THERE IS A DEFINITE IMPACT ON THE PRICING CAPACITY OF THE COMPARABLE WHICH THE ASSESSEE LACKS. HENCE, WE FIND THAT TCS E SERVE PAGE | 12 INTERNATIONAL LTD DE SERVES TO BE EXCLUDED. ACCORDINGLY WE DIRECT THE LEARNED TPO AO TO EXCLUDE THE ABOVE COMPARABLE. 24. THE 4 TH COMPARABLE THAT CHALLENGE BY THE ASSESSEE IS TCS E SERVE LIMITED STATING THAT IT IS FUNCTIONALLY DISSIMILAR ENGAGED IN THE TRANSACTION PROCESSING AN D TECHNICAL SERVICES LIKE SOFTWARE TESTING, VERIFICATION AND VALIDATION OF THE SOFTWARE. IT WAS FURTHER STATED THAT LIKE TCS E SERVE INTERNATIONAL LTD IT ALSO BELONGS TO THE TATA GROUP AND OWNS SIGNIFICANT INTANGIBLE AS WELL AS MAKES PAYMENT FOR TATA BRAN D EQUITY. IT IS FURTHER STATED THAT THE SCALE OF OPERATION OF THIS COMPANY ITSELF MAKES IT NOT COMPARABLE WITH THE ASSESSEE. THE LEARNED TRANSFER PRICING OFFICER REJECTED THE ARGUMENTS OF THE ASSESSEE SIMILAR TO TCS E SERVE INTERNATIONAL LTD. THE LEARNED DISPUTE RESOLUTION PANEL ALSO REJECTED THE OBJECTION OF THE ASSESSEE. 25. ON IDENTICAL FACTS AND CIRCUMSTANCES WE HAVE EXCLUDED TCS E SERVE INTERNATIONAL LTD THAT IT BELONGS TO A TATA GROUP AND HAS PAID CONTRIBUTION FOR TATA BRAND. WE HAVE ALSO PERUSED THE ANNUAL REPORT OF THE COMPARABLE COMPANY WHICH IS PLACED AT PAGE NUMBER 372 507 OF THE PAPER BOOK ON CAREFUL ANALYSIS OF THE ANNUAL REPORT IT IS FOUND THAT IN SCHEDULE N, TATA BRAND EQUITY CONTRIBUTION OF THIS COMPARABLE COMPANIES IS RS 46065 (IN THOUSANDS ) . THEREFORE WE DIRECT THE LEARNED TRANSFER PRICING OFFICER TO EXCLUDE THE ABOVE COMPARABLE FROM THE COMPARABILITY ANALYSIS. 26. THE LAST COMPARABLE , 5 TH , CHALLENGED BY THE ASSESSEE IS E4E HEALTHCARE BUSINESS SERVICES LTD STATING THAT IT IS ENGAGED IN MEDICAL TRANSCRIPTION SERVICES AND OTHER DIVERSIFIED SERVICES. THE LEARNED TRANSFER PRICING OFFICER CONSIDERED THE ABOVE ISSUE AT PAGE NUMBER 67 OF HIS ORDER WHERE THE ASSESSEE CONTESTED THAT IT IS NOT FUNCTIONALLY COMPA RABLE AND IT IS ENGAGED IN SOFTWARE DEVELOPMENT ACTIVITIES AND SEGMENTAL ACCOUNTS ARE NOT AVAILABLE. 27. THE LEARNED TRANSFER PRICING OFFICER HAS HELD THAT THOUGH THE COMPANY IS PRIMARILY ENGAGED IN THE BUSINESS OF PROVIDING HEALTHCARE OUTSOURCING SERVICES F OR THE HEALTHCARE INDUSTRY AND THE PRIMARY SOURCE OF THE INCOME OF THAT COMPANY IS THAT ACTIVITY. IN VIEW OF THIS IT WAS HELD THAT IT IS A COMPARABLE COMPANY. THE LEARNED DISPUTE RESOLUTION PANEL ALSO AGREED WITH THE FINDING OF THE LEARNED TPO. THE ASSE SSEE ALSO RELIED ON THE DECISION OF COORDINATE BENCH IN CASE OF BECHTEL INDIA PRIVATE LIMITED VS DCIT ITA NUMBER 1478/DEL/2015 FOR ASSESSMENT YEAR 10 11 WHEREIN THE ABOVE COMPARABLE WAS REJECTED ON ACCOUNT OF BEING ENGAGED IN BOTH SOFTWARE DEVELOPMENT AN D HEALTHCARE SERVICES AND ON AVAILABILITY OF SEGMENTAL INFORMATION BEING FUNCTIONALLY DISSIMILAR (KPO) AND THE PRODUCT COMPANY. 28. WE HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE ASSESSEE AS WELL AS THE ORDERS OF THE LEARNED TPO AND DISPUTE RESOLUTION PAN EL. THE ASSESSEE HAS SUBMITTED THE COPIES OF THE ANNUAL ACCOUNTS OF THE ABOVE COMPANY PLACED AT PAGE NUMBER 1 34 OF THE PAPER BOOK. WE PAGE | 13 HAVE ALSO CONSIDERED THE ORDER OF THE COORDINATE BENCH IN ITA NUMBER 1478/DEL/2015 AT PARA NUMBER 3 AT PAGE NUMBER 17 WHERE ABOVE COMPARABLE COMPANY HAS BEEN EXCLUDED FROM THE COMPARABILITY ANALYSIS. WE FIND THAT THE FACTS BEFORE US ARE QUITE DISTINCT AS WE DO NOT FIND ANY REFERENCE IN THE ORDER OF THE COORDINATE BENCH THAT HOW THE ASSESSEE IS ENGAGED INTO A SOFTWARE DEVELOPM ENT ACTIVITY. EVEN OTHERWISE THE COORDINATE BENCH CONSIDERED THAT THIS COMPARABLE IS FUNCTIONALLY DISSIMILAR TO THE BECHTEL HOWEVER IT NEVER HELD THAT IT IS FUNCTIONALLY DISSIMILAR TO THIS ASSESSEE. HENCE, RELIANCE ON THAT DECISION DESERVES TO BE REJECTED . 29. ON ANALYSIS OF NOTE NUMBER 1.1 OF SCHEDULE 1 BEING SIGNIFICANT ACCOUNTING POLICIES OF SCHEDULE TO THE FINANCIAL STATEMENTS IT IS APPARENT THAT THIS COMPANY IS PRIMARILY ENGAGED IN THE BUSINESS OF PROVIDING HEALTHCARE OUTSOURCING SERVICES FOR THE HEALTH CARE INDUSTRY. THE REVENUE STREAM OF THIS COMPANY IS ALSO INCOME FROM SERVICES. THE REVENUE RECOGNITION MENTIONED THAT NOTE NUMBER 1.4 OF THE SIGNIFICANT ACCOUNTING POLICIES PROVIDES THAT AS PE R THE PROFIT AND LOSS ACCOUNT, COMPANY DERIVES ITS REVENUE PRIMARILY FROM HEALTHCARE OUTSOURCING SERVICES. THE REVENUE FROM OUTSOURCING SERVICES RECOGNIZES THE RELATED SERVICES ARE PERFORMED, IN ACCORDANCE WITH THE SPECIFIC TERMS OF THE CONTRACT WITH THE CUSTOMERS. EARNINGS IN EXCESS OF BILLINGS ARE CLASSIFIED A S ADVANCE REVENUE WHILE BILLING IN EXCESS OF THE COST AND EARNING IS CLASSIFIED AS UNEARNED REVENUE. IN VIEW OF THIS IT IS APPARENT THAT ASSESSEE IS NOT ENGAGED IN ANY SOFTWARE DEVELOPMENT ACTI VITIES. WE HAVE ALSO PERUSED SCHEDULE 16 NOTES TO THE ACC OUNTS WHEREIN COMMITMENTS AND CONTINGENT LIABILITIES COMPANY IT IS REFERRED THAT COMPANY S SOFTWARE DEVELOPMENT CENTERS IN INDIA ARE 100 % EXPORT ORIENTED UNITS UNDER THE SOFTWARE TECHNOLOGY PARK GUIDELINES. BUT THAT DOES NOT MAKE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT ACTIVITIES ALSO , UNLESS, THE ACCOUNTS, REVENUE STREAM, RELEVANT COST, DIRECTORS REPORT, MANAGEMENT DISCUSSION AND ANALYSIS SHOWS OTHERWISE. IT IS ALSO NOT MENTIONED ANYWHERE IN THE REPORT THAT ASSESSEE I S ENGAGED IN MEDICAL TRANSCRIPTION, ACCORDING SERVICES. IN VIEW OF THIS , WE REJECT THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE AND UPHOLD THE ORDER OF THE LEARNED TPO AS WELL AS THE LEARNED DISPUTE RESOLUTION PANEL , THAT THIS COMPANY IS FUNCT IONALLY COMPARABLE AS IT IS ENGAGED IN THE OUTSOURCING SERVICES AS ASSESSEE IS ENGAGED IN. IN VIEW OF THIS, WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED TPO/DRP IN INCLUDING THE ABOVE COMPARABLE COMPANY FOR THE COMPARABILITY ANALYSIS. HENCE WE DIRECT THEM TO RETAIN THE ABOVE COMPARABLE. 30. THE NEXT ADJUSTMENT BY THE ASSESSEE IS WITH RESPECT TO THE GRANTING OF WORKING CAPITAL ADJUSTMENT. THE LEARNED TRANSFER PRICING OFFICER AT PAGE NUMBER 76 OF HIS ORDER HAS HELD THAT ASSESSEE HAS FAILED TO GIVE ANY ANSW ER THAT WHY THE WORKING CAPITAL ADJUSTMENT SHOULD BE ALLOWED TO THE ASSESSEE. THE LEARNED TRANSFER PRICING OFFICER FURTHER HELD THAT THAT IN CASE OF PAGE | 14 THE SERVICE INDUSTRY AS IT DOES NOT HAVE ANY INVENTORY , ISSUE BECOMES QUITE IR RELEVANT. FURTHER HE ALSO NOTED THAT ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE THAT THE DIFFERENCE IN THE WORKING CAPITAL DEPLOYED IS MAKING A DIFFERENCE IN THE MARGINS EARNED BY THE ASSESSEE AND THE OTHER COMPARABLES. THE LEARNED DISPUTE RESOLUTION PANEL ALSO CONSIDERED THIS AR GUMENT OF THE ASSESSEE VIDES GROUND NUMBER 11 AND 12. EVEN BEFORE US , ASSESSEE HAS ONLY RELIED UPON THE SUBMISSIONS MADE BEFORE THE LEARNED DISPUTE RESOLUTION PANEL FOR ALLOWABILITY OF THE WORKING CAPITAL ADJUSTMENT , HOWEVER , IT DID NOT PROVIDE ANY WORKING OF THE SAME. IN VIEW OF THE ABSENCE OF PROPER WORKING AND THE REASONS GIVEN BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES OR BEFORE US, WE DO NOT FIND ANY REASON TO ACCEPT THE CONTENTION OF THE LEARNED AUTHORISED REPRESE NTATIVE. THEREFORE WE REJECT THE ARGUMENT OF THE WORKING CAPITAL ADJUSTMENT WHILE COMPUTING THE MARGINS. 31. ACCORDINGLY GROUND NUMBER 2 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 32. GROUND NUMBER 3 OF THE APPEAL IS WITH RESPECT TO THE JUDICIAL DECISIONS O N THE TRANSFER PRICING ADJUSTMENT NOT FOLLOWED BY THE LOWER AUTHORITIES. NO SPECIFIC ARGUMENTS WERE ADVANCED BEFORE US. EVEN OTHERWISE THE COMPARABILITY ANALYSIS IS A COMPLETE FACTUAL ANALYSIS AND THEREFORE ANY COMPARABLE WHICH IS HELD TO BE NOT COMPARAB LE FOR CONSIDERATION IN CASE OF ANY OTHER ASSESSEE CANNOT BE HELD TO BE NOT COMPARABLE WITH THE WHOLE WORLD, AS THAT WOULD MAKE THAT COMPARABLE WHICH HAS BEEN EXCLUDED ON THE BASIS OF THE JUDICIAL PRECEDENT AS A UNIQUE COMPARABLE AND ONLY ONE ALIEN EXISTI NG IN THE WHOLE CORPORATE WORLD. SUCH IS NOT THE MANDATE OF THE INCOME TAX ACT AND RULES THERE UNDER. THE COMPARABILITY IS TO BE TESTED ONLY WITH THE FUNCTIONAL ANALYSIS OF THE ASSESSEE VIZ A VIZ THE COMPARABLE CONTESTED. THE JUDICIAL DECISIONS, UNLE SS OTHERWISE WARRANTED, CANNOT BE RELIED UPON FOR EXCLUSION OF SUCH COMPARABLES. HENCE WE REJECT THE GROUND NUMBER 3 OF THE APPEAL. 33. GROUND 4 IS WITH RESPECT TO INITIATION OF THE PENALTY PROCEEDINGS AND GROUND NUMBER 5 IS WITH RESPECT TO THE CHARGING OF INTEREST UNDER THE VARIOUS PROVISIONS OF THE INCOME TAX ACT, BOTH ARE CONSEQUENTIAL IN NATURE, HENCE BOTH ARE DISMISSED. 34. IN VIEW OF THIS APPEAL OF THE ASSESSEE IN ITA NUMBER 1671/DEL/2015 FOR ASSESSMENT YEAR 2010 11 IS PARTLY ALLOWED. ITA NUMBER 441/DEL/ 2016 ASSESSMENT YEAR 2011 12 35. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1 (1), GURGAON (THE LEARNED AO) PASSED U/S 143 (3) READ WITH SECTION 144C OF THE INCOME TAX ACT ON 23/11/2015 IN PURSUANCE OF THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL 1 (THE LEARNED DRP) NEW DELHI DATED 10/DEL/2015 IN OBJECTION FILED BY THE ASSESSEE IN DRAFT OF THE PROPOSED ASSESSMENT PASSED BY THE LEARNED PAGE | 15 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1 (1) WHEREIN THE ADJUSTMENT OF RS 33397407/ TO THE INTERNATIONAL TRANSACTION OF THE ASSESSEE WAS MADE BY THE ORDER OF THE ASSISTANT COMMISSIONER OF INCOME TAX, TRANSFER PRICING OFFICER 1 (1) (1), NEW DELHI PASSED U/S 92CA (3) DATED 07/ 01/2015 WAS CONSIDERED AN ADJUSTMENT TO THE ARMS - LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF RS. 33397407/ PROPOSED BY THE LEARNED TPO WAS MADE OF RS. 28328904/ . 36. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 441/DEL/2016 FO R THE ASSESSMENT YEAR 2011 - 12: - 1. THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER (LD. AO) U/S 143(3) READ WITH SECTION 144C OF THE ACT, PURSUANT TO THE DIRECTIONS OF LD. DISPUTE RESOLUTION PANEL (LD. DRP) U/S 1440(5), BASED ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE IS BAD IN LAW. 2. THE LD. DRP AND THE LD. TRANSFER PRICING OFFICER (LD. TPO) / LD. AO (FOLLOWING THE DIRECTIONS OF THE LD. DRP), ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITION TO THE EXTENT OF INR 27,848,04 3 HOLDING THAT THE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF LOW RISK IT ENABLED SERVICES DO NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO HAVE GROSSLY ERRED BY: 2.1 NOT FINDING ANY MERIT IN THE OBJECTIONS OF TH E APPELLANT THAT NONE OF THE CONDITIONS SET OUT IN SECTION 920(3) OF THE ACT ARE SATISFIED IN THE PRESENT CASE; 2.2 REJECTING THE TRANSFER PRICING (TP) DOCUMENTATION MAINTAINED BY THE APPELLANT UNDER SECTION 92D OF THE ACT AND RULE 10D OF THE INCOME - TAX RULES, 1962 (RULES) AND DISREGARDING THE ARMS LENGTH PRICE (ALP) AS DETERMINED BY THE APPELLANT IN THE TP DOCUMENTATION; 2.3 DISREGARDING THE FACT THAT THE APPELLANT IS A CAPTIVE IT ENABLED SERVICE PROVIDER WHICH DOES NOT BEAR SUBSTANTIAL RISKS ASSOCI ATED WITH ITS FUNCTIONS AND THEREFORE CANNOT BE COMPARED TO FULL - FLEDGED ENTREPRENEUR SERVICE PROVIDERS; 2.4 ERRED IN USING COMPARABLE COMPANY DATA AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS, INSTEAD OF USING DATA AVAILABLE AT THE TIME OF PREPARING TH E TP DOCUMENTATION. IN DOING SO, THE LEARNED TPO HAS IGNORED THE FACT THAT THIS DATA WAS NOT AVAILABLE TO THE ASSESSEE AT THE TIME OF COMPILATION OF THE TP DOCUMENTATION; 2.5 DISREGARDING MULTIPLE YEAR/PRIOR YEARS DATA USED BY THE APPELLANT IN THE TP DOCU MENTATION AND HOLDING THAT CURRENT YEAR (I.E. FINANCIAL YEAR (FY) 2010 - 11) DATA FOR COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; 2.6 REJEC TING COMPARABILITY ANALYSIS UNDERTAKEN BY THE APPELLANT IN THE TP DOCUMENTATION/FRESH SEARCH AND CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION OF THE FOLLOWING ADDITIONAL/REVISED FILTERS IN DETERMINING THE ALP: (I) EXCLUSION OF COMPANIES W HOSE DATA FOR FY 2010 - 11 WAS NOT AVAILABLE; (II) EXCLUSION OF COMPANIES WHOSE ITES INCOME IS LESS THAN INR 5 CRORES; PAGE | 16 (III) EXCLUSION OF COMPANIES WHOSE REVENUE FROM SERVICES IS LESS THAN 75% OF THE TOTAL OPERATING REVENUES; (IV) EXCLUSION OF COMPANIES WITH EXPORT SALES LESS THAN 75% OF THE SALES FROM ITES; (V) EXCLUSION OF COMPANIES WITH PERSISTENT LOSSES FOR LAST THREE YEARS UPTO AND INCLUDING FY 2010 - 11; (VI) EXCLUSION OF COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I.E. NOT MARCH 31, 2011); AND RE JECTING, IN PARTICULAR, THE FOLLOWING FILTERS APPLIED BY THE APPELLANT IN ITS FRESH SEARCH: (I) COMPANIES HAVING OTHER OPERATING INCOME (I.E. INCOME OTHER THAN MANUFACTURING AND TRADING INCOME) TO SALES GREATER THAN 50% WERE ACCEPTED; (II) COMPANIES HAVING RESEARCH & DEVELOPMENT COSTS TO SALES LESS THAN 3% WERE ACCEPTED; (III) COMPANIES HAVING ADVERTISING, MARKETING AND DISTRIBUTION COSTS TO SALES LESS THAN 3% WERE ACCEPTED. 2.7 INCLUDING HIGH - PROFIT MAKING COMPANIES WITH DIFFERENT SCALE OF OPERATIONS AND HIGH TURNOVER IN THE FINAL COMPARABLES SET FOR BENCHMARKING A CAPTIVE SENDEE PROVIDER SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEMENTS ON THE ISSUE); 2.8 INCLUDING CERTAIN COMPANIES THAT ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 2.9 INCLUDING CERTAIN COMPANIES IN THE COMPARABLES SET THAT HAD ACHIEVED SUPERNORMAL GROWTH AS A RESULT OF EXTRAORDINARY CIRCUMSTANCES DURING THE YEAR, THEREBY INCORRECTLY COMPARING SUCH COMPANIES TO THE APPELLANT WHICH OPERATES AS A CAPTIVE SERVICES PROVIDE R AND HAS STABLE GROWTH UNDER NORMAL CIRCUMSTANCES; 2.10 EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRIVOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 2.11 IGNORING THE BU SINESS/ COMMERCIAL REALITY THAT SINCE THE APPELLANT IS REMUNERATED ON AN A COST PLUS BASIS, (I.E. IT IS COMPENSATED FOR ALL ITS OPERATING COSTS PLUS A PRE - AGREED MARK - UP) THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL - FLEDGED RISK TAKING ENTREPRENEURS, AND BY NOT ALLOWING A RISK ADJUSTMENT TO THE APPELLANT ON ACCOUNT OF THIS FACT. 3. THE LD. TPO/ LD. AO/ LD. DRP HAVE GROSSLY ERRED ON FACTS AND IN LAW BY DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKI NG THE TP ADJUSTMENT. 4. THE LD. AO/LD. TPO/LD. DRP HAVE ERRED IN ENHANCING THE INCOME OF THE ASSESSEE BY INR 480,861 BY INCORRECTLY APPLYING AN INTEREST RATE OF LIBOR PLUS 400 BASIS POINTS FOR THE PERIOD OF DELAY IN THE REALIZATION OF RECEIVABLES FROM ASS OCIATED ENTERPRISE (AE) BEYOND 30 DAYS. 5. THE LD. TPO/ LD. AO /LD. DRP HAS GROSSLY ERRED ON FACTS AND IN LAW BY INITIATING PENALTY UNDER SECTION 27 1 (I)(C) OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY SATISFACTION FOR ITS INITIATION. PAGE | 17 37. THERE IS NO CH ANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2000 11 AND ASSESSMENT YEAR 2011 12 , SO FAR AS THE SERVICES PROVIDED BY THE ASSESSEE ARE CONCERNED . DURING THE YEAR THE ASSESSEE HAS ENTERED INTO AN INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISE OF PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) OF RS. 216186841/ . THE ASSESSEE BENCHMARK ED ABOVE INTERNATIONAL TRANSACTION SELECTING 16 COMPARABLES, ADOPTING THE PROFIT LEVEL INDICATOR OF OPERATI NG PROFIT BY TOTAL COST (OP/TC) , COMPUTING THE MARGIN OF THE COMPARABLE AT 9.34 PERCENTAGE AND COMPARING IT WITH THE COST PLUS MARKUP MODEL OF THE ASSESSEE OF 15%, SUBMITTED IN THE TRANSFER PRICING STUDY REPORT THAT INTERNATIONAL TRANSACTION OF PROVISION O F ITES SERVICES CARRIED OUT BY THE ASSESSEE IS AT ARMS - LENGTH. 38. THE LEARNED TRANSFER PRICING OFFICER REJECTED THE TP STUDY REPORT PREPARED BY THE ASSESSEE AND CARRIED OUT THE FRESH SEARCH TAKING THE SINGLE YEAR DATA AS PROVIDED BY THE INDIAN TAX LAWS, ADOP TED CERTAIN FILTERS AND SELECTED FINALLY 7 COMPARABLES WHOSE AVERAGE PROFIT LEVEL INDICATOR WAS 31.51 % (OP/TC) AND COMPARED IT WITH THE MARGIN OF THE ASSESSEE WHICH IS 15% AND MADE AN ADJUSTMENT OF INR 31657652 / - ON ALP OF TRANSACTION OF PROVISION OF ITES SERVICES. 39. ON OBJECTION BEFORE THE LEARNED DISPUTE RESOLUTION PANEL, 1 OF THE COMPARABLE WAS EXCLUDED AND FURTHER THE MARGINS WERE RECOMPUTED. THEREFORE ULTIMATELY 6 COMPARABLES WERE UPHELD FOR INCLUSION WHOSE AVERAGE MARGIN PLI WAS 29.50 PERCENTAGE AND THE ULTIMATE ADJUSTMENT WAS REVISED TO INR 27848043/ . FURTHER ADJUSTMENT WITH RESPECT TO THE INTEREST COST OF THE RECEIVABLES IMPUTED AT INR 1739755/ BY THE LEARNED TRANSFER PRICING OFFICER WHICH HAS BEEN REDUCED BY THE LEARNED DISPUTE RESOLUTION PANEL TO INR 4 80861/ . CONSEQUENTLY THIS APPEAL IS FILED BY THE ASSESSEE. 40. THE GROUND NUMBER 1 OF THE APPEAL IS GENERAL IN NATURE AND THEREFORE THE SAME IS DISMISSED. 41. THE GROUND NUMBER 2 CHALLENGES THE TRANSFER PRICING ADJUSTMENT OF INR 2 7848043/ . THE ASSESSEE CHALL ENGES THE INCLUSION OF THE COMPARABLE AS UNDER: - A. ACCENTIA TECHNOLOGIES LTD B. ECLERX SERVICES LTD C. TCS E SERVE LIMITED D. INFOSYS BPO LTD 42. THE ARGUMENTS OF THE BOTH THE PARTIES WITH RESPECT TO THE EXCLUSION OF ABOVE COMPARABLES REMAINED THE SAME AS WERE ADVANCED FOR ASSESSMENT YEAR 2000 11. THE ONLY NEW COMPARABLE WHICH ASSESSEE IS SEEKING FOR EXCLUSION IS ECLREX SERVICES LTD. 43. WE HAVE CAREFUL LY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ON COMPARISON OF THE FUNCTIONS PERFORMED BY THE ASSESSEE AS WELL AS THE PAGE | 18 FUNCTIONS PERFORMED BY THE COMPARABLE COMPANIES, DISCUSSION MADE BY US IN THE ORDER OF THE ASSESSE E FOR ASSESSMENT YEAR 2010 11, WE DIRECT THE LEARNED TRANSFER PRICING OFFICER TO EXCLUDE (1) ACCENTIA TECHNOLOGIES LTD, (2) TCS E SERVE LIMITED, (3) INFOSYS BPO LTD FOR REASON GIVEN BY US THEREIN . 44. NOW WE COME TO THE NEW COMPARABLE E CLREX SERVICES LTD , WHICH ASSESSEE CONTEST FOR EXCLUSION STATING THAT IT IS FUNCTIONALLY DISSIMILAR AS IT IS ENGAGED IN RENDERING KNOWLEDGE PROCESS SERVICES FOCUSED ON FINANCIAL SERVICES AND SALES AND MARKETING SUPPORT SERVICES. THEREFORE THE CONTENTION OF THE LEARNED AUTH ORISED REPRESENTATIVE IS THAT IT IS KPO WHICH CANNOT BE COMPARED WITH THE FUNCTIONS OF THE ASSESSEE. IT WAS SUBMITTED THAT THE FUNCTIONS PROVIDED BY THE ASSESSEE ARE NOT AT ALL KNOWLEDGE PROCESS OUTSOURCING FUNCTIONS. THE LEARNED TPO HELD THAT IT IS FUN CTIONALLY SIMILAR, THOUGH IT IS A KPO AS CLAIMED BY THE ASSESSEE, SEVERAL SERVICES PROVIDED BY THE TAXPAYER ARE ALSO OF SIMILAR NATURE. HE FURTHER HELD THAT ALL THE SERVICES OF THE TAXPAYER ARE NOT HIGH END AND THEREFORE BOTH THE LOWER END AND HIGH - END COMPARABLES HAVE BEEN USED. HE FURTHER HELD THAT THE SERVICES PROVIDED BY THE COMPARABLE ARE PART AND PARCEL OF THE ITES SEGMENT. THE LEARNED DISPUTE RESOLUTION PANEL UPHELD THE FINDINGS OF THE LEARNED TPO. 45. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS AND FIND THAT KNOWLEDGE PROCESS OUTSOURCING COMPARABLE CANNOT BE HELD TO BE COMPARABLE WITH THE FUNCTIONS PROVIDED BY THE ASSESSEE, SUCH IS THE MANDATE OF THE DECISION OF THE HONOURABLE DELHI HIGH COURT IN THE RAMPGREEN SOLUTIONS PRIVATE LIMITED VS . CIT (ITA NUMBER 102/2015 FOR ASSESSMENT YEAR 2008 09). LD TPO HAS ALSO ACCEPTED THAT COMPARABLE COMPANY IS A KPO. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HONOURABLE DELHI HIGH COURT , WE DIRECT THE LEARNED TRANSFER PRICING OFFICER TO E XCLUDE THE ABOVE COMPARABLE FROM THE COMPARABILITY ANALYSIS. 46. THE ASSESSEE DID NOT CONTEST ANY OTHER ISSUES AS MENTIONED IN GROUND NUMBER 2, AND THEREFORE THE GROUND NUMBER 2 OF THE APPEAL OF THE ASSESSEE IS DECIDED ON THE EXCLUSION OF THE ABOVE COMPARABLE IS ONLY AND SAME IS PARTLY ALLOWED. 47. GROUND NUMBER 3 IS NOT PRESSED BEFORE US, THEREFORE, THE SAME IS DISMISSED. 48. GROUND NUMBER 4 IS CHALLENGED BY THE ASSESSEE WHERE THE CONTENTION OF THE ASSESSEE IS THAT THE RECEIVABLES OUTSTANDING BEYOND 30 DAYS FROM THE A SSOCIATED ENTERPRISE ARE DEEMED AS LOAN AND CHARGING NOTIONAL INTEREST AT THE RATE OF ONE MONTH LIBOR +400 BASIS POINTS RESULTING INTO THE INTEREST RATE OF 4.78% FOR THE PERIOD OF DELAY IN RECEIPT OF PAYMENT BEYOND 30 DAYS OF THE INVOICE IS NOT CORRECT. THE LEARNED TRANSFER PRICING OFFICER AFTER THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL HAS MADE AN ADJUSTMENT OF INR 4 80861/ AGAINST THE ORIGINAL ADJUSTMENT PROPOSED BY THE LEARNED TRANSFER PRICING OFFICER OF INR 1 739755/ . PAGE | 19 49. THE LEARNED AUTHORI SED REPRESENTATIVE SUBMITTED THAT INTEREST ON RECEIVABLE IS NOT AN INTERNATIONAL TRANSACTION IS THE INTEREST PROPOSED TO BE CHARGED IS ALREADY BUILT IN THE SALE PRICE AND THUS NO INTEREST NEEDS TO BE COMPUTED ON THE OUTSTANDING RECEIVABLE FROM ITS ASSOCIAT ED ENTERPRISES. HE FURTHER SUPPORTED THE ABOVE CONTENTION BY THE JUDICIAL PRECEDENT IN CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. KUSUM HEALTHCARE PRIVATE LIMITED AND AGILENT TECHNOLOGIES LTD VS ITO (91 TAXMANN.COM 59) OF THE HONOURABLE DELHI HIGH COURT. 50. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND FIND THAT THE ISSUE HAS BEEN SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONOURABLE DELHI HIGH COURT WHEREIN IT WAS FOUND THAT THOUGH THERE IS A CREDIT PERIOD ALLOWED BY THE ASSESSEE TO THE ASSOCIATED ENTERPRISE OF ONLY 180 DAYS HOWEVER THE ASSOCIATED ENTERPRISE ARE ALLOWED TO LINGER FOR LONG AND INTEREST WAS COMPUTED BY THE AO/TPO, THE HONOURABLE DELHI HIGH COURT DELETED THE ABOVE ADJUSTMENT. THEREFORE RESPECTFULLY FOLLOWIN G THE DECISION OF THE HONOURABLE DELHI HIGH COURT WE DIRECT THE LEARNED AO/TPO TO DELETE THE ABOVE ADJUSTMENT TO THE ARMS - LENGTH PRICE ON ACCOUNT OF DELAYED RECEIVABLE FROM ITS ASSOCIATED ENTERPRISE AS THE FACTS ARE SIMILAR AS STATED IN THE DECISION OF TH E HONOURABLE DELHI HIGH COURT. ACCORDINGLY GROUND NUMBER 4 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 51. GROUND NUMBER 5 AND 6 OF THE APPEAL ARE CONSEQUENTIAL IN NATURE PERTAINING TO THE INITIATION OF THE PENALTY PROCEEDINGS IN CHARGING OF INTEREST. THEREFOR E THERE DISMISSED. 52. ACCORDINGLY APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2011 12 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 6 / 0 5 / 2019 . - SD/ - - SD/ - ( H. S. SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 6 / 0 5 / 2019 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI