ITO, New Delhi V. M/s. Styx Back Office Services Pvt. Ltd., Delhi

ITA 4658/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7029 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 15-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 06-08-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: MANOJ PARDASANI
• Keywords: Related party transaction; Transfer pricing; International transaction; Services rendered outside India; Additional evidence
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, AM & SHRI KULDIP SINGH, JM ITA NO.4658/DEL/2013 ASSESSMENT YEAR : 2009-10 ITO, WARD 9(2), CR BUILDING, NEW DELHI. VS. STYX BACK OFFICE SERVICES PVT. LTD., 216(72-B), LANE 12, 1 ST FLOOR, EAST AZAD NAGAR, KRISHNA NAGAR, DELHI. PAN: AAJCS6767N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANOJ PARDASANI & SHRI VIVEK GUPTA DEPARTMENT BY : SHRI RAHUL GARG, SR. DR DATE OF HEARING : 15.02.2016 DATE OF PRONOUNCEMENT : 17.02.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE REVENUE EMANATES FROM THE ORDER PASSED BY THE CIT(A) ON 31.5.2013 IN RELATION TO THE ASSESSMENT Y EAR 2009-10. ITA NO.4658/DEL/2013 2 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS A PPEAL:- 1. THE LD. CIT(A) ERRED IN FACTS & LAW IN REJECTIN G SEVEN COMPARABLES OUT OF 11 SELECTED BY THE AO. 2. THE LD. CIT(A) HAS TAKEN VERY NARROW COMPARABLES WHERE ONLY FOUR COMPANIES ARE THERE WHICH HAVE WIDE VARIATIONS IN OP/TC. 3. THE HONBLE TRIBUNAL MAY RESTORE THE ADJUSTMENT/ ADDITION MADE BY THE AO OR WITHOUT PREJUDICE TO THIS REQUEST OFFE R, ANOTHER OPPORTUNITY TO AO TO DETERMINE THE NEW OP/TC RATIO BY TAKING MORE COMPANIES AS COMPARABLES. 4. THE APPELLANT CRAVES LEAVE OR RESERVING THE RIGH T TO AMEND, MODIFY ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE A SSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PERFORMING ACCOUNTING AN D MANAGEMENT INFORMATION SYSTEM (MIS) SERVICES FOR ITS ASSOCIATE D ENTERPRISES (AES). IT REPORTED AN INTERNATIONAL TRANSACTION OF RECEIPT OF REVENUE AMOUNTING TO RS.2,63,88,523/- FOR RENDERING PROFESSIONAL SERVI CES. THE ASSESSEE APPLIED COST PLUS METHOD (CPM) FOR SHOWING THAT I TS INTERNATIONAL TRANSACTION WAS AT ARMS LENGTH PRICE (ALP). IN DO ING SO, THE ASSESSEE TOOK DIRECT COSTS AT RS.1,95,62,205/-, COMPRISING O F SALARY AND WAGES, BONUS, CONTRIBUTION TO PROVIDENT FUND, INTERNET CHA RGES AND RENT. MARK- ITA NO.4658/DEL/2013 3 UP OF 35% WAS APPLIED ON SUCH DIRECT COSTS. THE AS SESSEE SHOWED CALCULATION OF ITS ALP AS UNDER:- DIRECT COST SALARIES AND BONUS 1,59,08,981 CONTRIBUTION TO PROVIDENT FUND 5,77,316 INTERNET CHARGES 8,61,916 RENT 22,13,992 TOTAL DIRECT COSTS 1,95,62,205 ADD: MARK-UP ON DIRECT COST 35% 68,26,318 AMOUNT BILLED 2,63,88,523 4. IN JUSTIFYING THE ABOVE METHOD AND CALCULATION, THE ASSESSEE STATED THAT THE MARK-UP ADDED ON A YEAR TO YEAR BASIS WAS IN EXCESS OF 30-35% WHICH WAS MORE THAN INDUSTRY AVERAGE OF 20-25%. TH E ASSESSING OFFICER (AO), VIDE ORDER SHEET ENTRY DATED 19.12.2011, CALL ED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE TRANSACTIONAL NET MARGIN METH OD (TNMM) BE NOT APPLIED ON A SET OF COMPARABLE TRANSACTIONS. THE A SSESSEE, VIDE ITS SUBMISSIONS DATED 26.12.2011, OBJECTED TO THE APPLI CATION OF THE TNMM AND ALSO THE SELECTION OF COMPANIES PROPOSED AS COM PARABLE BY THE AO. IT WAS ARGUED THAT THESE COMPANIES WERE ENGAGED IN PRO VIDING IT ENABLED SERVICES DOING BUSINESS INDEPENDENTLY AS AGAINST TH E ASSESSEE, BEING A CAPTIVE UNIT. THE AO NOTICED THAT THE ALP UNDER CO ST PLUS METHOD OR ITA NO.4658/DEL/2013 4 TNMM WOULD ROUGHLY BE THE SAME. BY CONSIDERING THE PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT/TOTAL COST (OP/ TC), HE WORKED OUT THE AVERAGE PROFIT OF THE SET OF ELEVEN COMPARABLES CHO SEN BY HIM, AT 32.46%. THEREAFTER, HE PROCEEDED TO DETERMINE THE QUANTUM O F DIRECT COSTS UNDER THE COST PLUS METHOD. IN DOING SO, HE NOTICED THAT ONLY A SUM OF RS.1.95 CRORE WAS SHOWN BY THE ASSESSEE AS TOTAL `DIRECT CO STS INCURRED IN RENDERING BACK OFFICE, ACCOUNTING AND MANAGEMENT IN FORMATION SYSTEM SERVICES TO ITS AES. HE OPINED THAT AMOUNT OF PERS ONNEL EXPENSES AND OTHER OPERATING AND ADMINISTRATIVE EXPENSES WAS LIA BLE TO BE CONSIDERED IN THE BASE OF DIRECT COSTS. ON A PERUSAL OF THE ASSESSEES PROFIT & LOSS ACCOUNT, HE OBSERVED THAT PERSONNEL EXPENSES, OPERA TING AND ADMINISTRATIVE EXPENSES TOTALED UP TO RS.3,43,06,17 1/-, OUT OF WHICH A SUM OF RS.95,37,970/- WAS TOWARDS REIMBURSEMENT. H E, THEREFORE, DETERMINED TOTAL `DIRECT COSTS ATTRIBUTABLE TO THE BUSINESS AT RS.2,47,68,201/- (RS.3,43,06,171/- MINUS RS.95,37, 970/-). BY APPLYING 35% MARK-UP ON SUCH TOTAL DIRECT COSTS DETERMINED B Y HIM AT RS.2,47,68,201/-, HE WORKED OUT THE ALP OF THE INT ERNATIONAL TRANSACTION AT RS.3,34,37,071/-. BY REDUCING THE AMOUNT OF REV ENUE RECEIVED FROM THE ITA NO.4658/DEL/2013 5 AES AT THE TRANSACTED VALUE OF RS.2,63,88,523/-, HE WORKED OUT TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.70,48,548/- (RS. 3,34,37,071/- MINUS RS.2,63,88,523/-). EVENTUALLY, ADDITION WAS MADE F OR RS.70.48 LAC TO THE RETURNED INCOME. THE LD. CIT(A) REDUCED THE ADDITI ON TO RS.25,92,749/-. OUR ATTENTION HAS NOT BEEN DRAWN TOWARDS ANY CROSS APPEAL HAVING BEEN FILED BY THE ASSESSEE AGAINST SUSTENANCE OF THE REM AINING ADDITION. THE REVENUE IS AGGRIEVED AGAINST THE REDUCTION ALLOWED BY THE LD. FIRST APPELLATE AUTHORITY IN THE AMOUNT OF ADDITION MADE BY THE AO. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD. THE GROUNDS TAKEN IN THIS APPE AL AS SET OUT ABOVE HAVE ALSO BEEN TAKEN INTO CONSIDERATION. IT IS OBVIOUS F ROM THE ASSESSMENT ORDER THAT THE AO CONSIDERED TNMM AS THE MOST APPROPRIATE METHOD AND FOUND THE SAME TO BE QUITE CLOSE TO THE COST PLUS METHOD AS APPLIED BY THE ASSESSEE. IN DETERMINING THE ALP UNDER TNMM, THE A O WORKED OUT MEAN MARGIN WITH PLI OF OP/TC FOR A SET OF 11 COMPA RABLE COMPANIES, AT 32.46%. THOUGH THERE IS NO REFERENCE TO THE NAME S OF THE COMPARABLE COMPANIES IN THE ASSESSMENT ORDER, BUT SUCH A LIST HAS BEEN PLACED AT PAGE ITA NO.4658/DEL/2013 6 77 OF THE PAPER BOOK. THEREAFTER, THE AO ALSO CONS IDERED THE APPLICATION OF COST PLUS METHOD. DIRECT COSTS REPORTED BY TH E ASSESSEE WERE ENHANCED FROM RS.1.95 CRORE TO RS.2.47 CRORE ON WHI CH MARK-UP OF 35% WAS APPLIED. THE ASSESSEE FURNISHED A NEW LIST OF COMPARABLES COMPANIES BEFORE THE LD. CIT(A) AND ALSO ITS OBJECTIONS AGAIN ST THE ALLEGED COMPARABLE COMPANIES SELECTED BY THE AO. THE LD. C IT(A) HELD THAT THE ASSESSEE WAS NOT GIVEN SUFFICIENT OPPORTUNITY TO AN ALYSE THE COMPARABLES SELECTED BY THE AO AT THE ASSESSMENT STAGE AS LIST OF 11 COMPARABLES WAS GIVEN TO IT ONLY ON 19.12.2011, ON WHICH REPLY WAS CALLED BY 26.12.2011 AND THE ASSESSMENT ORDER WAS PASSED ON 30.12.2011. THE LD. FIRST APPELLATE AUTHORITY ADMITTED THE ADDITIONAL EVIDENC E FILED BY THE ASSESSEE IN SUPPORT OF EXCLUSION OF CERTAIN COMPANIES FROM T HE LIST OF COMPARABLES AS SELECTED BY THE AO. HOWEVER, HE REFUSED TO ALLOW A FRESH SEARCH TO ARRIVE AT THE NEW COMPARABLE COMPANIES. THE ADDITIO NAL EVIDENCE FILED BY THE ASSESSEE WAS FORWARDED TO THE AO ON 18.2.2013 F OR HIS COMMENTS. SINCE NO COMMENTS WERE RECEIVED, THE LD. CIT(A) PRO CEEDED TO DECIDE THE APPEAL ON THE BASIS THE ADDITIONAL EVIDENCE FURNISH ED BY THE ASSESSEE. IN DOING SO, HE EVALUATED THE ASSESSMENT ORDER BY HOLD ING THAT THE TNMM ITA NO.4658/DEL/2013 7 WAS APPLIED BY THE AO AS THE MOST APPROPRIATE METHO D. FROM THE LIST OF ELEVEN COMPANIES SELECTED BY THE AO AS COMPARABLE, HE EXCLUDED FIVE COMPANIES ON THE GROUND OF HIGHER RELATED PARTY TRA NSACTIONS (RPTS). HE ALSO EXCLUDED TWO MORE COMPANIES. THUS, OUT OF ELE VEN COMPANIES CHOSEN BY THE AO, THE LIST GOT SHRINKED TO ONLY FOU R COMPANIES, WHOSE AVERAGE OP/OC WAS WORKED OUT BY HIM AT 17.01%. BY APPLYING IT AS BENCHMARK, THE LD. CIT(A) REDUCED THE TRANSFER PRIC ING ADJUSTMENT TO RS.25.92 LAC. I. TNMM OR COST PLUS METHOD ? 6.1. THE FIRST ISSUE BEFORE US IS TO DECIDE THE MOS T APPROPRIATE METHOD IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IT CAN BE OBSERVED FROM THE ASSESSMENT ORDER THAT THE AO SHOW CAUSED THE ASSESS EE AS TO WHY THE TNMM BE NOT APPLIED AS AGAINST THE CPM USED BY THE ASSESSEE AS THE MOST APPROPRIATE METHOD. HE SELECTED ELEVEN COMPAN IES AS COMPARABLE WITH THEIR MEAN MARGIN OF PROFIT OF OP/TC AT 32.46% , WHICH IS SPECIFIC TO THE TNMM ALONE. IN THE SAME BREATH, HE ALSO ENHANC ED THE AMOUNT OF DIRECT COSTS, WHICH IS RELEVANT TO THE CPM. APPL YING 35% PROFIT RATE, ITA NO.4658/DEL/2013 8 HE WORKED OUT ADDITION OF RS.70.48 LAC. THE LD. CI T(A) DISPOSED OF THE APPEAL BY CONSIDERING THE DETERMINATION OF THE ALP UNDER THE TNMM ALONE. 6.2. THE LD. DR ARGUED THAT THE LD. CIT(A) ERRED IN COMPUTING THE ALP UNDER THE TNMM, WHICH OUGHT TO HAVE BEEN DONE ON TH E BASIS OF COST PLUS METHOD. THUS, SELECTION OF THE MOST APPROPRIA TE METHOD IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, ASSUMES SIGNIF ICANCE. 6.3. SECTION 92C(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT) TAKES INTO ACCOUNT FIVE SPECIFIC AND ONE GENERAL METHOD FOR THE COMPUTATION OF ARMS LENGTH PRICE OF AN INTERNATION AL TRANSACTION. ONE OF SUCH SPECIFIC METHODS IS COST PLUS METHOD AND ANO THER IS TNMM. MANNER OF COMPUTATION OF ALP UNDER ALL THE GIVEN SP ECIFIC METHODS IS CONTAINED IN RULE 10B(1). CLAUSE (C) OF RULE 10B(1 ) DEALS WITH THE DETERMINATION OF ALP UNDER COST PLUS METHOD, WHIC H RUNS AS UNDER:- `(C) COST PLUS METHOD, BY WHICH, (I) THE DIRECT AND INDIRECT COSTS OF PRODUCTION INC URRED BY THE ENTERPRISE IN RESPECT OF PROPERTY TRANSFERRED OR SE RVICES PROVIDED TO AN ASSOCIATED ENTERPRISE, ARE DETERMINED ; ITA NO.4658/DEL/2013 9 (II) THE AMOUNT OF A NORMAL GROSS PROFIT MARK-UP TO SUCH COSTS (COMPUTED ACCORDING TO THE SAME ACCOUNTING NORMS) A RISING FROM THE TRANSFER OR PROVISION OF THE SAME OR SIMILAR PROPER TY OR SERVICES BY THE ENTERPRISE, OR BY AN UNRELATED ENTERPRISE, IN A COM PARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANS ACTIONS, IS DETERMINED ; (III) THE NORMAL GROSS PROFIT MARK-UP REFERRED TO I N SUB-CLAUSE (II) IS ADJUSTED TO TAKE INTO ACCOUNT THE FUNCTIONAL AND OT HER DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN THE ENTERPRIS ES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT SU CH PROFIT MARK-UP IN THE OPEN MARKET ; (IV) THE COSTS REFERRED TO IN SUB-CLAUSE (I) ARE IN CREASED BY THE ADJUSTED PROFIT MARK-UP ARRIVED AT UNDER SUB-CLAUSE (III) ; (V) THE SUM SO ARRIVED AT IS TAKEN TO BE AN ARMS L ENGTH PRICE IN RELATION TO THE SUPPLY OF THE PROPERTY OR PROVISION OF SERVI CES BY THE ENTERPRISE; 6.4. ON GOING THROUGH THE MANDATE OF RULE 10B(1)(C) , IT EMERGES THAT THE DIRECT AND INDIRECT COSTS INCURRED IN PROVIDING SER VICES TO AN AE ARE DETERMINED UNDER SUB-CLAUSE (I). THE SECOND SUB-CL AUSE STIPULATES THAT THE AMOUNT OF NORMAL GROSS PROFIT MARK-UP IN A COMPARAB LE UNCONTROLLED TRANSACTION IS DETERMINED. UNDER SUB-CLAUSE (III), SUCH NORMAL GROSS PROFIT MARK-UP OF COMPARABLES AS DETERMINED UNDER S UB-CLAUSE (II), IS ADJUSTED ON ACCOUNT OF DIFFERENCES BETWEEN THE INTE RNATIONAL TRANSACTION AND COMPARABLE UNCONTROLLED TRANSACTION. AS PER SU B-CLAUSE (IV), THE ITA NO.4658/DEL/2013 10 ADJUSTED PROFIT MARK-UP ARRIVED UNDER SUB-CLAUSE (I II) IS APPLIED TO COSTS INCURRED BY THE ASSESSEE AS PER SUB-CLAUSE (I). TH E SUM SO ARRIVED AT IS TAKEN AS ALP OF THE INTERNATIONAL TRANSACTION AS PE R SUB-CLAUSE (V). ON CIRCUMSPECTION OF THE ABOVE SUB-CLAUSES OF RULE 10B (1)(C), IT EMERGES THAT NOT ONLY THE DIRECT, BUT ALSO THE INDIRECT COS TS INCURRED IN PROVIDING SERVICES TO AN AE, ARE REQUIRED TO BE TAKEN INTO C ONSIDERATION, WHICH ARE THEN INCREASED BY GROSS PROFIT MARK-UP OF COMPARABL ES. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE AO HAS ALBEIT RIGHTLY INCREASED THE COSTS BASE IN CONSONANCE WITH SUB-CLAUSE (I) OF RULE 10B(1)(C), BUT, ERRED IN APPLYING THE MARK-UP OF 35%, IMPLIEDLY UND ER SUB-CLAUSE (II) AND (III) OF RULE 10B(1)(C). IT IS CLEAR FROM THE MANDA TE OF THE PROVISION THAT THE MARK-UP APPLIED MUST BE OF COMPARABLE UNCONTROL LED TRANSACTIONS. WHERE FROM THIS 35% MARK-UP APPLIED BY THE AO HAS C OME, IS A MYSTERY. THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER AS T O HOW THIS 35% WAS TAKEN. LIST OF ELEVEN COMPARABLE COMPANIES CHOSEN BY THE AO, ON PAGE 77 OF THE PAPER BOOK, EXHIBITS THE CALCULATION OF T HEIR PROFIT MARGIN UNDER TNMM WITH OP/TC AT 32.46%. THERE IS NO CALCULATION OF GROSS PROFIT MARK-UP ON DIRECT AND INDIRECT COSTS OF THESE COMPA NIES, WHICH IS RELEVANT ITA NO.4658/DEL/2013 11 UNDER RULE 10B(1)(C). ON A SPECIFIC QUERY, THE LD. DR ALSO COULD NOT PRECISELY POINT OUT AS TO WHERE FROM THE GROSS PROF IT MARK-UP OF 35% WAS TAKEN BY THE AO, EXCEPT FOR RELYING ON PAGE 2 OF TH E ASSESSMENT ORDER, WHICH EXTRACTED THE ASSESSEES REPLY THAT: THE BAC K OFFICE WORK DONE BY THE INDIAN SUBSIDIARY WAS OF NON-INTEGRAL NATURE AN D, THEREFORE, THE METHOD ADOPTED HAS BEEN COST PLUS METHOD. THE MARK -UP ADDED ON A YEAR TO YEAR BASIS HAS BEEN IN EXCESS OF 30-35% WHI CH IS MORE THAN THE INDUSTRY AVERAGE OF 20-25%. THE BENCHMARKING HAS B EEN DONE ACCORDINGLY. ON GOING THROUGH THE ASSESSEES ABO VE REPLY, IT CROPS UP THAT THE PROFIT RATE OF INDUSTRY (WHICH MAY BE AKIN TO THE COMPARABLES IN GENERAL) IS 20-25% AND THE ASSESSEES OWN PROFIT RA TE RANGES BETWEEN 30- 35%. THIS DOES NOT HELP IN ANY MANNER IN FINDING OU T THE ORIGIN OF THE GROSS PROFIT RATE OF COMPARABLES TAKEN BY THE AO AT 35%. IT PRIMA FACIE APPEARS THAT THE AO MIGHT HAVE BEEN SWAYED BY THE P ROFIT RATE OF 35% ON THE BASIS OF THE STATED PROFIT RATE OF THE ASSESSEE OVER THE YEARS RANGING BETWEEN 30%-35%, WHICH COURSE OF ACTION IS WRONG. P ER CONTRA, THE PROFIT RATE TO BE TAKEN IS THAT OF COMPARABLES IN TERMS OF SUB-CLAUSES (II) AND (III) OF RULE 10B(1)(C) AND NOT THAT OF THE ASSESSEE. ITA NO.4658/DEL/2013 12 6.5. IT IS FURTHER FOUND THAT HAVING DONE THIS, THE AO REFERRED TO THE CALCULATION OF PROFIT UNDER TNMM AS WELL. IN THIS REGARD, HE CHOSE THE FOLLOWING ELEVEN COMPANIES AS COMPARABLE WHICH HAV E BEEN TABULATED ON PAGE 77 OF THE PAPER BOOK, GIVING THEIR OP/TC AT 32 .46%, WHICH PERCENTAGE MATCHES WITH THAT TAKEN NOTE OF IN LAST PARA ON PAGE 2 OF HIS ORDER:- MAR-09 MAR-09 COMPANY NAME OP/SALES OP/TC 1. ADITYA BIRLA MINACS WORLDWIDE LTD. -0.92 -1.12 2. CORAL HUB LTD. 27.25 35.07 3. COSMIC GLOBAL LTD. 34.19 47.28 4. ECLERX SERVICES LTD. 34.29 51.12 5. GENPACT INDIA 36.14 49.2 6. INFOSYS BPO LTD. 16.12 20.15 7. MICROGENETIC SYSTEMS LTD. 1.6 1.71 8. REV IT SYSTEMS PVT. LTD. 34.81 44.12 9. TCS E-SERVE LTD. 14.63 18.3111 10. TRICOM INDIA LTD. 42.16 69.77 11. TRICOM INFOTECH SOLUTIONS LTD. 18.24 21.48 AVERAGE 23.50 32.46 6.6. THE ABOVE ANALYSIS OF THE ASSESSMENT ORDER D IVULGES THAT THE AO HAS CONSIDERED AND DISCUSSED BOTH THE METHODS OF COMPUT ATION OF THE ALP FROM THE INTERNATIONAL TRANSACTION, VIZ., CPM AND T NMM. HOWEVER, WHILE DETERMINING THE AMOUNT OF TP ADJUSTMENT AT RS .70.48 LAC, HE ITA NO.4658/DEL/2013 13 APPLIED COST PLUS METHOD WITH AVERAGE GROSS PROFIT MARGIN AT 35%, WHICH WE HAVE NOTICED ABOVE IS NON-EXISTENT. THE LD. CIT (A) TOOK UP THE TRANSFER PRICING EXERCISE ONLY UNDER THE TNMM. WHEN WE PERUSE THE SPECIFIC GROUNDS TAKEN BY THE REVENUE BEFORE US AT SR. NOS. 1 TO 3, IT CLEARLY EMERGES THAT THE ENTIRE FOCUS IS ON VARIOUS FACETS OF THE COMPUTATION OF ALP UNDER TNMM. FOR INSTANCE, GROUN D NO. 1 IS AGAINST REMOVAL OF SEVEN COMPARABLES BY THE LD. CIT(A) FROM THE AOS LIST OF ELEVEN, WHICH WERE IMPLIEDLY CONSIDERED BY HIM WHIL E APPLYING THE TNMM, AS HE HAS NO WHERE COMPUTED THEIR RATIO OF GR OSS PROFIT TO DIRECT AND INDIRECT COSTS, WHICH IS GERMANE TO THE CPM. SI MILARLY GROUND NO. 2 IS AGAINST TAKING NARROW COMPARABLES WHICH HAVE WID E VARIATIONS IN OP/TC. AGAIN IT IS APPARENT THAT OP/TC IS RELEVANT ONLY UNDER THE TNMM AND NOT THE CPM. IN THE LIKE MANNER, GROUND NO. 3 IS ALSO AIMED AT EITHER RESTORING THE ADJUSTMENT OR GIVING ANOTHER OPPORT UNITY TO THE AO TO DETERMINE THE NEW OP/TC RATIO BY TAKING MORE COMPAN IES AS COMPARABLE. THIS GROUND ALSO TALKS OF OP/TC, WHICH IS MATERIAL ONLY FOR THE TNMM. AS SUCH, IT BECOMES VIVID THAT THROUGH ALL THE THRE E SPECIFIC GROUNDS TAKEN BY THE REVENUE, THE ASSAIL HAS BEEN ONLY TO THE COM PUTATION OF THE ALP ITA NO.4658/DEL/2013 14 UNDER THE TNMM. WHEN WE CONSIDER THE FACT THAT THE AO APPLIED BOTH THE TNMM AND ALSO THE CPM AND THE LD. CIT(A) DECIDE D THE CASE ONLY UNDER THE TNMM AND THE FURTHER FACT THAT ALL THE SP ECIFIC GROUNDS TAKEN BY THE REVENUE CHALLENGE THE COMPUTATION OF THE A LP UNDER THE TNMM, THE INEVITABLE CONCLUSION WHICH FOLLOWS IN THE GIVE N FACTS AND CIRCUMSTANCES OF THE CASE IS THAT IT IS THE TNMM, W HICH HAS BEEN ULTIMATELY CONSIDERED BY THE AUTHORITIES AS THE MOS T APPROPRIATE METHOD. AS SUCH, WE HOLD THAT THE TNMM HAS BEEN ACCEPTED BY THE REVENUE AS THE MOST APPROPRIATE METHOD. II. AMBIT OF GENERAL WIDE GROUND IN APPEAL MEMO 7.1. THE LD. DR VEHEMENTLY ARGUED THAT THE LD. C IT(A) WAS NOT JUSTIFIED IN IGNORING THE CPM AS THE MOST APPROPRIATE METHOD. WHEN HIS ATTENTION WAS DRAWN TOWARDS THE FACT THAT THERE WAS NO SPECIF IC GROUND TAKEN BY THE REVENUE IN ITS APPEAL IN THIS REGARD, HE PRESSED IN TO SERVICE GROUND NO. 4 BY CLAIMING IT TO BE GENERALLY WORDED WITH WIDEST A MPLITUDE COVERING ANY OTHER ASPECT THAT MAY BE TAKEN UP BEFORE THE TRIBUN AL. HE ACCENTUATED THAT ITA NO.4658/DEL/2013 15 THIS GROUND WILL COVER THE PLEA FOR ADOPTION OF TH E CPM AS THE MOST APPROPRIATE METHOD. 7.2. WE FIND THAT AS AGAINST THE FIRST THREE SPE CIFIC GROUNDS, THERE IS ONE MORE LAST GROUND NO. 4 WHICH, INTER ALIA , STATES THAT THE APPELLANT RESERVES THE RIGHT TO AMEND, MODIFY, ALTER, ADD ANY GROUND O F APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. THIS T YPE OF GROUND IS PERMISSIBLE AND CAN BE NORMALLY TAKEN IN THE APPEAL MEMO WITH A VIEW TO PROTECT THE INTEREST OF THE APPELLANT IN TAKING UP ANY FRESH ISSUE AT THE TIME OF HEARING OF THE APPEAL. SUCH A GROUND IS GIVEN A VERY WIDE SCOPE TO ENCOMPASS ANY OTHER ISSUE, WHICH MAY HAVE BEEN OMIT TED AT THE TIME OF FILING OF APPEAL OR WHICH MAY ARISE DURING THE COUR SE OF HEARING, OR FOR THAT MATTER, ANY OTHER RELEVANT ISSUE WHICH MAY BE TAKEN UP THERE AND THEN. NO EXCEPTION CAN BE TAKEN TO RAISING OF SUCH TYPE OF GROUND BY THE APPELLANT. IT ENABLES THE APPELLANT TO PROTECT ITS INTEREST IN ALL POSSIBLE MANNERS. THE APPELLANT WITH THE HELP OF SUCH A GRO UND CAN SUPPORT THE SPECIFIC GROUNDS FROM ANY ANGLE OTHER THAN THOSE SP ECIFICALLY TAKEN OR RAISE AN ALTOGETHER NEW ISSUE, WHICH IS NOT COVERED BY ANY OF THE SPECIFIC ITA NO.4658/DEL/2013 16 GROUNDS. FOR EXAMPLE, IF THERE WAS A COMPARABLE, SA Y X, SELECTED BY THE ASSESSEE, WHICH GOT AXED BY THE AUTHORITIES ON ACCO UNT OF FUNCTIONAL DISSIMILARITY. WHEN THE ASSESSEE FILES APPEAL AGAIN ST THE EXCLUSION OF X ON THE GROUND OF FUNCTIONAL SIMILARITY AND THERE IS A GENERAL GROUND OF APPEAL ALSO TAKEN IN THE MEMORANDUM OF APPEAL, THEN THE AS SESSEE, IN ADDITION, CAN ALSO CHALLENGE THE EXCLUSION OF X FROM THE ANGL E OF EXTRA-ORDINARY FINANCIAL EVENTS OR EXCESSIVE RPTS ETC. SUCH A COU RSE OF ACTION OF THE ASSESSEE IN RAISING FRESH ISSUES QUA COMPARABLE X IS PERFECTLY IN ORDER AS THE GENERAL GROUND ENABLES HIM TO CHALLENGE ITS EXC LUSION ON OTHER SCORES SUCH AS, EXTRA-ORDINARY FINANCIAL EVENTS OR EXCESSI VE RPTS ETC. SIMILARLY, IF THERE WAS NO ISSUE OF LIMITATION/JURISDICTION, THE ASSESSEE CAN VERY WELL TAKE UP SUCH AN ISSUE FOR THE FIRST TIME WITH THE H ELP OF SUCH A GENERAL GROUND. IN OUR CONSIDERED OPINION, THERE IS ONE INH ERENT LIMITATION ON THE AMBIT OF SUCH A GENERAL GROUND, HOWSOEVER WIDELY WO RDED IT MAY BE. THE LIMITATION IS THAT IT SHOULD NOT BE INVOKED FOR ARG UING ANYTHING CONTRARY TO THE SUBJECT MATTER OF THE SPECIFIC GROUNDS TAKEN IN THE MEMO OF APPEAL. THE OBVIOUS REASON IS THAT TAKING UP OF ANY SUCH IS SUE WITH THE HELP OF GENERAL GROUND, IF ALLOWED, WOULD MILITATE AGAINST THE SPECIFIC GROUNDS ITA NO.4658/DEL/2013 17 TAKEN IN APPEAL MEMO. THIS CAN BE ALLOWED ONLY IF T HE APPELLANT FIRST OPTS NOT TO PRESS THE SPECIFIC CONTRARY GROUND AND THEN TAKE UP A NEW ISSUE WITH THE HELP OF GENERAL GROUND. WHERE THE SPECIFIC GROU NDS ARE ALLOWED TO REMAIN INTACT, THEN SUCH A GENERAL GROUND CANNOT BE INVOKED TO HELP THE APPELLANT IN TAKING UP NEW ISSUES WHICH RUNS CONTRA RY TO THE SUBJECT MATTER OF THE SPECIFIC GROUNDS. 7.3. REVERTING TO THE FACTS OF THE CASE, WE FIN D THAT THOUGH GROUND NO. 4 IS GENERALLY WORDED, TAKING WITHIN ITS SWEEP ALL PO SSIBLE ISSUES, BUT THE CONTENTION RAISED BY THE LD. DR FOR DETERMINING ALP UNDER COST PLUS METHOD FALLS IN THE LIMITATION CLAUSE AS DISCUSSED ABOVE. IT IS MANIFEST THAT THE FIRST THREE SPECIFIC GROUNDS CHALLENGE VAR IOUS ASPECTS CONCERNING THE COMPUTATION OF ALP UNDER THE TNMM. IF WE ACCEPT THE PLEA FOR THE APPLICATION OF CPM, WITH THE HELP OF FOURTH GROUND, THEN IT WOULD MAKE THE EARLIER THREE GROUNDS INFRUCTUOUS. AS THE LD. D R HAS ALSO EQUALLY ARGUED AND PRESSED THE FIRST THREE SPECIFIC GROUNDS , WE ARE UNABLE TO ACCEPT HIS ARGUMENT FOR EXAMINING THE APPLICABILITY OF THE CPM AS THE MOST APPROPRIATE METHOD WITH THE HELP OF GENERAL GR OUND AT SR. NO. 4. ITA NO.4658/DEL/2013 18 CONSEQUENTLY, HIS CONTENTION IN THIS REGARD IS REPE LLED. IN THE ULTIMATE ANALYSIS, WE HOLD THAT THE TNMM IS THE METHOD ACCEP TED BY THE AUTHORITIES BELOW AS THE MOST APPROPRIATE METHOD. III. COMPARABLES 8.1. NOW, WE TURN TO THE COMPARABLES EXCLUDED BY THE LD. CIT(A). IN ALL ELEVEN COMPANIES WERE TREATED BY THE AO AS C OMPARABLE, WHICH HAVE BEEN TABULATED ABOVE. THE LD. CIT(A) EXCLUDED FIVE COMPANIES HAVING SIGNIFICANT RPTS, AS UNDER:- S.NO. NAME OF THE COMPANY RPT (%) 1. REV IT SYSTEMS PVT. LTD. 62.70% 2. TCSE E-SERVE LTD. 53.39% 3. TRICOM INDIA LTD. 87.49% 4. TRICOM INFOTECH SOLUTIONS LTD. 87.05% 5. GENPACT INDIA 114.16% 8.2. HE, THEN, EXCLUDED CORAL HUB LTD. AND E-CLERX SERVICES LTD. ALSO FROM THE TALLY OF COMPARABLES DRAWN BY THE AO. IN EXCLUDING THESE SEVEN COMPANIES, THE LD. CIT(A) NOTICED THAT THE ASSESSEE WAS NOT GIVEN ADEQUATE OPPORTUNITY BY THE AO. THAT IS HOW, HE AD MITTED ADDITIONAL ITA NO.4658/DEL/2013 19 EVIDENCE FILED BY THE ASSESSEE BEFORE HIM FOR THE F IRST TIME AND ALSO SOUGHT REMAND REPORT FROM THE AO. IN THE ABSENCE OF ANY R EMAND REPORT FORTHCOMING, HE DECIDED ON THE EXCLUSION OF THESE S EVEN COMPANIES UNILATERALLY BY CONSIDERING THE ADDITIONAL EVIDENCE FILED ON BEHALF OF THE ASSESSEE. THE REVENUE IS AGGRIEVED AGAINST THE EXC LUSION OF SUCH COMPANIES. 8.3. WHEN WE PERUSE THE ADDITIONAL EVIDENCE IN T HE SHAPE OF CALCULATION OF PERCENTAGE OF RELATED PARTY TRANSACTIONS QUA THE FIRST FIVE COMPANIES, WE FIND THAT THE LD. CIT(A) HAS ACCEPTED THE SAME A T FACE VALUE WITHOUT EXAMINING THE CORRECTNESS OF THE MANNER OF COMPUTAT ION OF PERCENTAGE OF THEIR RPTS. IT IS NOTICED THAT THE ASSESSEE COMPUT ED PERCENTAGE OF RPTS OF TRICOM INDIA LTD. AT 87.49%, A COPY OF WHICH HA S BEEN PLACED AT PAGE 118 OF THE PAPER BOOK. IN SUCH A CALCULATION, THE A SSESSEE INCLUDED NOT ONLY SALES TO AES BUT ALSO RECEIPT AND PAYMENT OF I NTEREST ON LOAN/ADVANCES AS A PERCENTAGE OF TURNOVER, WHICH IS AN ERRONEOUS APPROACH FOR THE CALCULATION OF RPTS, BUT INADVERT ENTLY GOT THE SEAL OF APPROVAL FROM THE CIT(A) WITHOUT ANY QUESTION. SIM ILARLY, WHILE ITA NO.4658/DEL/2013 20 COMPUTING PERCENTAGE OF RPTS OF TRICOM INFOTECH SOL UTIONS LTD. AT PAGE 122 OF THE PAPER BOOK, THE ASSESSEE CONSIDERED NOT ONLY EXPORT OF SERVICES TO THE AES, BUT ALSO LEAVE AND LICENCE, SERVICE CHA RGES AND OTHER EXPENSES, AS A PERCENTAGE OF TOTAL TURNOVER AT 87.0 5%, WHICH IS, AGAIN, NOT CORRECT. IN SO FAR AS THE CALCULATION OF PERCENTAG E OF RPTS OF GENPACT INDIA, AT PAGE 127 OF THE PAPER BOOK, IS CONCERNED, WE FIND THAT THE ASSESSEE HAS CALCULATED THE SAME AT 114.16% OF TOTA L TURNOVER BY CONSIDERING EXPENSES, REIMBURSEMENT, INTEREST INCOM E ON DEPOSITS, ALLOCATIONS RECEIVED/ MADE ALONG WITH INCOME FROM I T ENABLED SERVICES AS A PERCENTAGE OF TOTAL TURNOVER. THIS CALCULATIO N LEADING TO RPT AT 114.16% IS, AGAIN, FLAWED AND HAS EVEN CROSSED THE MAXIMUM OF 100%. AS REGARDS THE EXCLUSION OF OTHER TWO COMPANIES, NA MELY, CORAL HUB LTD. AND E-CLERX SERVICES LTD., WE FIND THAT THERE IS NO T MUCH DISCUSSION ABOUT THEIR INCOMPARABILITY TO THE ASSESSEE-COMPANY. 8.4. AFTER EXAMINING THE ABOVE POSITION FROM THE ADDITIONAL EVIDENCE FILED BEFORE THE LD. CIT(A), WE REQUIRED THE LD. AR TO PLACE BEFORE US ANNUAL REPORTS OF THESE SEVEN COMPANIES, SO THAT WE COULD UNDERTAKE ITA NO.4658/DEL/2013 21 COMPARABILITY EXERCISE AT OUR OWN END. NO SUCH REP ORTS WERE AVAILABLE WITH THE LD. AR. GIVEN THE FACT THAT THE LD. CIT(A ) ADMITTED ADDITIONAL EVIDENCE QUA THESE SEVEN COMPANIES AND DID NOT GIVE ADEQUATE OPPORTUNITY TO THE AO FOR SENDING REMAND REPORT, WE ARE OF THE CONSIDERED OPINION THAT THE ENDS OF JUSTICE WOULD MEET ADEQUAT ELY IF THE IMPUGNED ORDER ON THIS SCORE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF AO. WE ORDER ACCORDINGLY AND DIRECT HIM TO DECIDE THE C OMPARABILITY OR OTHERWISE OF THESE SEVEN COMPANIES AFRESH FOR THE P URPOSES OF INCLUSION OR OTHERWISE IN THE FINAL SET OF COMPARABLES DRAWN BY HIM WITH A TOTAL OF ELEVEN COMPANIES. NEEDLESS TO SAY, THE ASSESSEE WI LL BE ALLOWED AN ADEQUATE OPPORTUNITY OF HEARING IN SUCH FRESH PROCE EDINGS. 8.5. AS REGARDS THE LD. DRS CONTENTION FOR GIVIN G ONE MORE OPPORTUNITY TO THE AO FOR INCLUDING NEW COMPANIES IN THE FRESH ROUND OF PROCEEDINGS, WE ARE NOT IN AGREEMENT WITH THE SAME. THE LD. DR HAS NOT BROUGHT TO OUR NOTICE ANY COMPANY WHICH IS COMPARABLE AND OUGHT TO HAVE BEEN INCLUDED. WHEN THE AO HIMSELF SHORTLISTED ELEVEN C OMPANIES AS ITA NO.4658/DEL/2013 22 COMPARABLE, WE CANNOT PERMIT TO UNDERTAKE THIS EXER CISE ONCE AGAIN WITH A VIEW TO INCREASE THE LIST BEYOND SUCH COMPANIES. 8.6. HERE, WE ALSO WANT TO MAKE IT CLEAR THAT W ITH THE EXCLUSION OF SEVEN COMPANIES, THE LD. CIT(A) COMPUTED AVERAGE PROFIT O F THE REMAINING FOUR COMPANIES AT 17.01%. SINCE THERE IS NO APPEAL FROM THE SIDE OF THE ASSESSEE, THE FOUR COMPANIES FINALLY SELECTED BY TH E CIT(A), NAMELY, COSMIC GLOBAL LTD., INFOSYS BPO LTD., MICROGENETIC SYSTEMS LTD. AND ADITYA BIRLA MINACS WORLDWIDE LTD., WILL CONTINUE T O REMAIN AS SUCH IN THE LIST OF COMPARABLES TO BE DRAWN BY THE AO IN TH E FRESH ROUND AND THE ASSESSEE WILL NOT BE ENTITLED TO ASSAIL THEIR COMPA RABILITY BEFORE THE AO. 9. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 17.02.201 6. SD/- SD/- [KULDIP SINGH] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED,17 TH FEBRUARY, 2016. DK ITA NO.4658/DEL/2013 23 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.