M/s. OKS Span Tech Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 481/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7609 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 10-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 27-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Assessee Lawyers: VED JIN
• Keywords: Transfer pricing; International transaction; Rule of consistency; Earning of tax free income; Arm length price
• Section: 14A; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I, NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. NO.481/DEL/2014 (ASSESSMENT YEAR 2009-10) OKS SPAN TECH. PVT. LTD., VS. ITO, WARD 13(4), 220, OKHLA INDUSTRIAL ESTATE, NEW DELHI PHASE II, NEW DELHI-110 020 GIR / PAN :AABCO5682P (APPELLANT) (RESPONDENT) APPELLANT BY :SHRI VED JIN, CA RESPONDENT BY :SHRI AMRENDRA KUMAR, CIT DR DATE OF HEARING: 10.03.2016 DATE OF PRONOUNCEMENT: 09/06/2016 ORDER PER BEENA A. PILLAI, JM: THE PRESENT APPEAL OF THE ASSESSEE HAS BEEN FILED AGAINST THE ORDER OF ITO, WARD 13 (4), NEW DELHI DA TED 27/11/2013 FOR ASSESSMENT YEAR 2009-10 ON THE FOLLO WING GROUNDS OF APPEAL: 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND LAW ON THE POINT, THE LEARNED ASSESSING OFFICER (LD. A.O.)/ TRANSFER PRICING OFFICER (LD. T.P.O.)/ HON'BLE DISPUTE RESOLUTION PANEL (HON'BLE DPR) HAS ERRED IN MAKING AN ADJUSTMENT OF RS. 6,93,66,342/- TO THE INCOME OF THE APPELLANT ON ACCOUNT OF DIFFERENC E IN ARM LENGTH PRICE FOR TRANSACTION ENTERED WITH ITS A ES. 1.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LAW ON THE POINT, THE LD. ASSESSING OFFICER HAS ERRED IN PASSING ASSESSMENT ORDER VIDE HIS ORDER DATED 27/11/2013 WITHOUT GIVING EFFECT OF HON'BLE 2 I.T.A.NO.481./DEL/2014 DRP'S DIRECTIONS. THIS MAKES ORDER OF THE LD. ASSESSING OFFICER NULL AND VOID. 1.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LAW ON THE POINT, THE LD. T.P.O/ HON'BLE DRP HA S ERRED IN SELECTING THE COMPANIES AS COMPARABLE COMPANY, WHICH ARE FUNCTIONALLY NOT COMPARABLE TO APPELLANT COMPANY USING TRANSACTIONAL NET MARGIN METHOD & WITHOUT UNDERSTANDING THE BUSINESS ACTIVIT Y OF THE APPELLANT COMPANY. 1.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LAW ON THE POINT, THE LD. T.P.O/ HON'BLE DRP HA S ERRED IN CONSIDERING FOREIGN EXCHANGE GAIN AS NON OPERATING ITEM WHILE CALCULATING OPERATING MARGIN O F APPELLANT COMPANY. 1.5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LAW ON THE POINT, THE LD. T.P.O/ HON'BLE DRP HA S ERRED IN APPLYING TURNOVER FILTER AS 'REJECTION OF COMPANIES WHOSE TURNOVER IS LESS THAN RS. 5 CRORES' INSTEAD OF 'REJECTION OF COMPANIES WHOSE TURNOVER I S LESS THAN RS. 1 CRORE'. 1.6 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LAW ON THE POINT, THE LD. T.P.O/ HON'BLE DRP HA S ERRED IN SELECTING 'ACCENTIA TECHNOLOGIES LTD.' AS COMPARABLE COMPANY WHICH IS ENGAGED IN DIFFERENT BUSINESS AND HAVING HIGH TURNOVER. AS HELD BY HON'BLE ITAT, DELHI AND CONFIRMED BY HON'BLE DELHI HIGH COURT IN CASE OF CIT VS AGNITY INDIA TECHNOLOG IES PVT. LTD. (2013) ITA 1204/2011 DATED 10 TH JULY 2013, 'COMPANIES HAVING HIGH TURNOVER CANNOT BE CONSIDERED AS COMPARABLE.' 1.7 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LAW ON THE POINT, THE LD. T.P.O/ HON'BLE DRP HA S ERRED IN SELECTING 'E-CLERX SERVICES LTD.' AS COMPARABLE COMPANY WHICH IS ENGAGED IN KPO SECTOR, EARNING SUPERNORMAL PROFITS AND HAVING HIGH TURNOVER. AS HELD BY HON'BLE ITAT, DELHI AND CONFIRMED BY HON'BLE DELHI HIGH COURT IN CASE OF CI T VS AGNITY INDIA TECHNOLOGIES PVT. LTD. (2013) ITA 3 I.T.A.NO.481./DEL/2014 1204/2011 DATED 10 TH JULY 2013, 'COMPANIES HAVING HIGH TURNOVER CANNOT BE CONSIDERED AS COMPARABLE.' 1.8 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LAW ON THE POINT, THE LD. T.P.O/ HON'BLE DRP HA S ERRED IN REJECTING SUNTECH WEB SERVICES PVT. LTD. A S COMPARABLE COMPANY ON THE BASIS OF INCORRECT/INAPPROPRIATE REASONS. 1.9 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LAW ON THE POINT, THE LD. T.P.O./ HON'BLE DRP H AS ERRED IN REJECTING ALLSEC TECHNOLOGIES LTD.', AS COMPARABLE COMPANY. 1.10 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND LAW ON THE POINT, THE LD. T.P.O/ HON'BLE DRP HA S ERRED IN COMPUTING ARM LENGTH PRICE FOR TRANSACTION WITH AES USING TOTAL COST OF THE COMPANY INSTEAD OF OPERATING COST INCURRED IN RELATION TO TRANSACTION WITH AES. 1.11 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND LAW ON THE POINT, THE LD. T.P.O/ HON'BLE DRP HA S ERRED IN REJECTING MOST APPROPRIATE METHOD APPLIED BY APPELLANT COMPANY. 1.12 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, MODIFY, SUBSTANTIATE, DELETE AND/OR TO RESCIND ALL OR ANY OF THE GROUNDS OF OBJECTION ON OR BEFORE THE FI NAL HEARING, IF NECESSITY SO ARISES. FOR DOMESTIC TRANSACTIONS ISSUE: 2.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW ON THE POINT, THE LD. ASSESSING OFFICER HAS ERRED IN MAKING ADDITION OF RS.3,51,102/- U/S 14A OF THE INCOME TAX ACT, 1961. 2. 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LAW ON THE POINT, THE LD. ASSESSING OFFICER HAS ERRED IN MAKING DISALLOWANCE U/S 14A OF THE ACT WITHOUT GIVING CLEAR FINDING OF INCURRING OF EXPEND ITURE IN RELATION TO EXEMPT INCOME. 4 I.T.A.NO.481./DEL/2014 2.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW ON THE POINT, THE HON'BLE ORP HAS ERRED IN IGNORING THE FACT THAT RECORDING OF SATISFACTION BY THE LD. ASSESSING OFFICER FOR REJECTING APPELLANT'S CLA IM OF EXPENDITURE IN RELATION TO EXEMPT INCOME SHOULD HAV E BEEN WITH REGARD TO THE ACCOUNTS OF THE APPELLANT A S REQUIRED BY SECTION 14A(2) OF THE INCOME TAX ACT,1961. THEREFORE RECORDING OF SATISFACTION BY LD . ASSESSING OFFICER BY SIMPLY STATING THAT PERCENTAGE METHOD CANNOT BE A METHOD FOR DISALLOWANCE IS AGAINST THE LAW AND FACTS OF THE CASE AND HENCE DISPUTED. 2. 4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LAW ON THE POINT, THE LD. ASSESSING OFFICER HAS ERRED IN CALCULATING THE DISALLOWANCE AT RS.3,51,10 2/- BY APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 INCORRECTLY. 2. 5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND LAW ON THE POINT, THE LD. ASSESSING OFFICER HAS ERRED IN IGNORING THE FACT THAT ALTERNATIVE GROUND OF APPELLANT HAS BEEN ACCEPTED BY THE HON'BLE DRP. LD. ASSESSING OFFICER HAS NOT ACCEPTED THE ALTERNATIVE PLEA OF THE APPELLANT AND HAS CALCULATED THE DISALLOWANCE AS PER RULE 8D BY INCLUDING THE UNQUOTED INVESTMENTS FOR CALCULATION OF AVERAGE VAL UE OF INVESTMENTS ON THE PLEA THAT UNQUOTED INVESTMENT S WERE MADE WITH THE MOTIVE TO EARN DIVIDEND INCOME. 2.6 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, MODIFY, SUBSTANTIATE DELETE AND/OR TO RESCIND ALL O R ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE FINAL HEARING IF NECESSITY SO ARISES. 2. THE BRIEF FACTS OF THE CASE AS RECORDED BY THE L D.TPO ARE THAT THE ASSESSEE COMPANY WAS ESTABLISHED ON 10/03/1995 AS A LIMITED COMPANY, WHICH WAS CONVERTE D INTO A PRIVATE LIMITED COMPANY ON 21 ST DECEMBER 2000. 5 I.T.A.NO.481./DEL/2014 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDIN G LOW END DATA PROCESSING AND RETAIL MARKETING SERVICES T O OVERSEAS AFFILIATED AND UNRELATED ENTITIES BASED ON THE SPECIFIC REQUIREMENTS OF THE CUSTOMERS. FROM FINAN CIAL YEAR 2007-08 ONWARDS, THE ASSESSEE HAS BEEN ALSO ENGAGED IN CALL CENTRE SERVICE TO ITS AES. 2.1 THE ASSESSEE FILED ITS RETURN OF INCOME FOR RS.1,84,921/- ON 30/09/2009. AS THERE WERE INTERNATIONAL TRANSACTIONS, THE LD.AO, REFERRED THE ISSUE TO THE LD.TPO, FOR DETERMINATION OF ARMS LENGTH PR ICE. 2.2 DURING THE YEAR UNDER CONSIDERATION THE ASSESSE E COMPANY HAD ENTERED INTO INTERNATIONAL TRANSACTION S WITH ITS ASSOCIATED ENTERPRISES (AE), THE DETAILS OF WHI CH WERE REPORTED IN FORM 3 CEB AS UNDER: S.NO. NAME AND ADDRESS OF ASSOCIATED ENTERPRISES VALUE (IN RS.) 1. OKS LTD. ADDRESS: 303, PARSONS AVENUE, BALA CYNWYD. PA, USA 13,45,46,027 26,12,645 2. OKS GROUP ADDRESS: 303, PARSONS AVENUE, BALA CYNWYD. PA, USA 2,44,44,157 3. OKS AMERIDIAL ADDRESS: 4535, STRAUSSAR STREET, NORTH CANTON OH 44720 1,68,69,379 TOTAL 17,84,72,208 2.3 THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WAS IN RESPECT OF DATA PROCESSING AMOUNTIN G TO RS.17,84,72,208/-RENDERED TO ITS AE. THE ASSESSEE H AS 6 I.T.A.NO.481./DEL/2014 BENCHMARKED THE INTERNATIONAL TRANSACTION OF DATA PROCESSING, USING COST PLUS METHOD (CPM) AS THE MOS T APPROPRIATE METHOD (MAM) TO ARRIVE AT ARMS LENGTH PRICE (ALP), AND HAS SHOWN OPERATING PROFIT MARGIN AT 32. 03% WITH AE AND AT 36.27% WITH NON-AE. THE ASSESSEE HAS USED AN ALTERNATE ANALYSIS USING TRANSACTIONAL NET METHOD (TNMM). IN THE TNMM ANALYSIS, THE ASSESSEE HAS CALCULATED THE OPERATING PROFIT TO TOTAL COST (OP/T C) RATIO AS THE PROFIT LEVEL INDICATOR (PLI). THE ASSESSEE C ALCULATED THE PLI AT 9.17% ON COST, WHEREAS THE AVERAGE PLI O F THE COMPARABLES WAS CALCULATED AT 8.52%, IN THE TP DOCUMENTATION, THE COMPARABLES USED BY THE ASSESSEE ARE AS UNDER: S.NO. NAME OF COMPARABLE OPERATING PROFIT MARGIN 1. ADITYA BIRLA MEAN MINACS WORLDWIDE LTD. 2.55% 2. ALLSEC TECHNOLOGIES LTD. 8.81% 3. COSMIC GLOBAL LTD. 43.13% 4. MICROGENETICS SYSTEMS LTD. 1.28% 5. INFOSYS BPO LTD. 15.53% 6. SUNTECH WEBSERVICES (P) LTD 2.54% AVERAGE OP/OC 8.52% 2.4 AFTER MAKING CERTAIN EXCLUSIONS FROM THE LIST O F COMPARABLES GIVEN BY THE ASSESSEE AND INCLUDING SOM E NEW CASES, THE LD.TPO SHORTLISTED 7 COMPANIES WITH THE PROFIT MARGINS AS UNDER:* S.NO. NAME OF COMPARABLE OPERATING PROFIT MARGIN 1. ACCENTIA TECH. 46.30% 2. COSMIC GLOBAL 48.12% 7 I.T.A.NO.481./DEL/2014 3. CROSSDOMAIN 25.63% 4. INFOSYS BPO 31.33% 5. ECLERX SERVICES LTD. 47.00% 6. ADITYA BIRLA MINACE WORLDWIDE LTD 13.91% 7. CORAL HUB 36.93% AVERAGE 2.5 THIS LED TO THE PROPOSED TRANSFER PRICING ADJUS TMENT, AMOUNTING TO RS.6,93,66,342/-. THEREAFTER THE ASSES SEE CARRIED THE MATTER BEFORE THE DISPUTE RESOLUTION PA NEL (DRP)-2, NEW DELHI. THE DRP UNDER SECTION 144C (5) OF THE IT ACT, 1961 GAVE DIRECTIONS ON 31/10/2013, DETERMINING THE TOTAL INCOME AT RS.24,78,38,550/-, INTER ALIA MAKING AN ADJUSTMENT OF RS.6,93,66,342/- TO TH E ARMS LENGTH PRICE. THE DRP EXCLUDED ONE COMPARABLE BEING CORAL HUB AND UPHELD THE FOLLOWING 6 COMPARAB LES: S.NO. NAME OF THE COMPARABLE OPERATING PROFIT MARGIN 1. ACCENTIA TECH 52.52% 2. COSMIC GLOBAL 50.70% 3. CROSSDOMAIN 25.63% 4. INFOSYS BPO 24.28% 5. ECLERX SERVICES LTD 66.01% 6. ADITYA BIRLA MINACS WORLDWIDE LTD 11.95% AVERAGE 38.50% 2.6 FURTHER, WHILE GIVING EFFECT TO THE DRP ORDER, THE LD. A.O. DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTIO N 14 A TO AN EXTENT OF RS.3,51,102/- AND PASSED THE ASSESS MENT ORDER ON 12/03/2013 MAKING THE IMPUGNED ADDITIONS. 3. AGGRIEVED BY THE ORDER OF THE LD.AO THE ASSESSEE IS IN APPEAL BEFORE US IN RESPECT OF THE ADJUSTMENTS M ADE TO 8 I.T.A.NO.481./DEL/2014 ALP AND CORPORATE ISSUE BEING DISALLOWANCE UNDER SE CTION 14 A OF THE IT ACT, 1961. 4. WE FIRST TAKE UP THE ISSUE OF ADJUSTMENT TO ARMS LENGTH PRICE. 4.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE SIDES, PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW, THE PAPER BOOKS FILED BY THE ASSESSEE AND THE CASE LAWS RELIED UPON BY BOTH THE SIDES. 4.2 AT THE OUTSET IT IS SUBMITTED BY THE LD.AR THAT THE ASSESSEE IS NOT SERIOUSLY DISPUTING THE TNMM AS THE MAM ADOPTED BY THE LD. TPO. THUS THE ONLY DISPUTE THAT ARISES IS WITH RESPECT TO SELECTION OF THE COMPARABLES. TO BE PRECISE THE CONTROVERSY ROTATES AROUND THE EXCLUSIO N OF THE FOLLOWING COMPARABLES: S.NO. NAME OF THE COMPARABLE OPERATING PROFIT MARGIN 1. ACCENTIA TECH 52.52% 2. COSMIC GLOBAL 50.70% 3. CROSSDOMAIN 25.63% 4. INFOSYS BPO 24.28% 4.3 APART FROM THAT, THE ASSESSEE IS INSISTING ON INCLUSION OF THE FOLLOWING THREE COMPARABLES, WHICH WERE NOT INCLUDED BY THE DRP AS WELL AS THE TPO: S.NO. NAME OF THE COMPARABLE OPERATING PROFIT MARGIN 1. ALLSEC TECHNOLOGIES LTD 8.81% 2. MICROGENETIC SYSTEMS LTD. 1.28% 3. SUNTECH WEBSERVICES (P) LTD 2.54% 9 I.T.A.NO.481./DEL/2014 5. WE WILL TAKE UP THESE COMPANIES ONE BY ONE TO ASCERTAIN THEIR COMPATIBILITY OR OTHERWISE WITH THE ASSESSEE COMPANY BEFORE EMBARKING UPON THIS EXERCIS E IT IS SINE QUA NON TO PRECISELY CONSIDER THE FUNCTIONAL PROFILE OF THE ASSESSEE. 5.1 OKS GROUP WAS FOUNDED IN 1985 AND ITS PIONEERING TRADITION IN OUTSOURCING COMBINED WITH ITS SKILLED MANPOWER AND CUTTING-EDGE TECHNOLOGY HELPS DELIVER OUTSOURCING SOLUTION IN A COST-EFFECTIVE AND TIMELY MANNER. THIS GROUP PROVIDES A WIDE RANGE OF INNOVAT IVE OUTSOURCED SOLUTIONS TO SUIT THE NEEDS OF EVERY ENT ERPRISE. OKS SPAN TECH PVT. LTD. (ASSESSEE COMPANY) WAS ESTABLISHED ON 10/03/1995 AS A LIMITED COMPANY, WHI CH WAS CONVERTED INTO A PRIVATE LTD. COMPANY ON 21/12/2000. OKS IS PRIMARILY ENGAGED IN DATA PROCESSING, WHICH IS RENDERED TO OVERSEAS AFFILIATE D AND UNRELATED ENTITIES BASED ON THE SPECIFIC REQUIREMEN TS OF THE CUSTOMERS. FURTHER FROM THE FINANCIAL YEAR 2007 -08 ONWARDS, THE COMPANY HAS ALSO ENGAGED IN THE CALL C ENTRE SERVICES FOR ITS AES. THE SERVICES PROVIDED BY A SSESSEE IS CHARACTERISED AS BPO SERVICES IN THE TP STUDY, PRES ENTED AT PAGES 713 TO 762. IT IS CATEGORICALLY BEEN SUB MITTED THAT, THE ASSESSEE DOES NOT UNDERTAKE ANY SIGNIFICA NT RESEARCH AND DEVELOPMENT ON ITS OPERATION. THE MAIN FUNCTIONS PERFORMED BY THE ASSESSEE ARE: 1. CORPORATE STRATEGY DETERMINATION 2. MARKETING AND SALES FUNCTION 3. FINANCE ACCOUNTING TREASURY AND LEGAL FUNCTION 10 I.T.A.NO.481./DEL/2014 4. HUMAN RESOURCE MANAGEMENT FUNCTION. THE PRICE FOR THE SERVICES RENDERED BY THE ASSESSEE TO ITS AE IS DETERMINED AFTER CONSIDERING VARIOUS FACT ORS LIKE: A) TIME INVOLVED; B) LEVEL OF SOFTWARE SKILLS REQUIRED; C) TRAINING OF EMPLOYEES; D) HARDWARE AND TECHNOLOGY SPECIFICATIONS AND E) COMPLEXITIES OF THE JOBS IN HAND. 5.1.1 THE COMPANY HAS CHARACTERISED ITSELF IN THE T P STUDY AS BEING ENGAGED IN DATA PROCESSING AND VOICE PROCE SSING WHICH INVOLVES LOW SKILLED MANPOWER, ANY GRADUATE O R UNDERGRADUATE ARE EMPLOYED TO EXECUTE THE PROJECTS. THE ASSESSEE PROVIDES SERVICES TO ITS AES AS WELL AS N ON-AES AND THE NATURE OF SERVICES RENDERED TO BOTH ARE SIM ILAR. HOWEVER THE ASSESSEE IS MAINLY DEPENDENT ON ITS AES FOR ITS BUSINESS. ON PERUSAL OF THE FINANCIAL INFORMATI ON PLACED AT PAGE 744 OF THE TP STUDY, THE MAIN REVENU E IS DERIVED FROM ACTIVITIES OF THE DATA PROCESSING. 5.1.2 THE LD.TPO RELIED ON THE CBDT CIRCULAR S. O. 890 (E) DATED 26/09/2007, WHICH PROVIDED A DETAILED LIST OF PRODUCTS OR SERVICES THAT CAN BE CLAIMED UNDER I TES SEGMENT. THE TPO ON THE BASIS OF THE CIRCULAR CAME TO THE CONCLUSION THAT THE SERVICES OFFERED BY THE ASSESSE E FELL WITHIN THE DOMAIN OF ITES. 5.1.3 FROM THE ABOVE DESCRIPTION OF THE SERVICES RENDERED BY THE ASSESSEE, IT CAN BE SEEN THAT IT IS MAINLY PROVIDING SUPPORT SERVICES TO ITS AES IN THE AREAS OF MARKETING, SALES ACCOUNTS ETC. WHEN WE CONSIDER THE 11 I.T.A.NO.481./DEL/2014 NATURE OF THE SERVICES RENDERED BY THE ASSESSEE IN THE LIGHT OF THE ABOVE REFERRED CBDT CIRCULAR DATED 26/09/2007, WE CAN PLACE THE SERVICES RENDERED BY T HE ASSESSEE ON A MACRO LEVEL, UNDER: (IV) DATA PROCESS ING, WITH THE UNDERSTANDING OF THE NATURE OF SERVICES PR OVIDED BY THE ASSESSEE TO ITS AES. 5.1.4 WE WILL NOW PROCEED TO EXAMINE THE COMPATIBILITY OR OTHERWISE OF THE COMPANIES DISPUTE D BY THE ASSESSEE TO THE EXTENT. 5.2 ADITYA BIRLA MINACS WORLDWIDE LTD: 5.2.1 AT THE OUTSET THE LD.AR SUBMITS THAT HE DOES NOT HAVE ANY OBJECTION FOR M/S. ADITYA BIRLA MINACS WORLDWIDE LTD BEING INCLUDED. THEREFORE WE DIRECT T HE LD.TPO TO INCLUDE THIS COMPANY AS COMPARABLE. 5.3 ACCENTIA TECH : 5.3.1 THE ASSESSEE OBJECTED THE INCLUSION OF THIS COMPANY PROPOSED TO BE USED IN THE FINAL SET OF COMPARABLES BY THE TPO, BY CONTENDING THAT IT WAS N OT FUNCTIONALLY COMPARABLE. THE LD.TPO INCLUDED THIS COMPANY ON THE GROUND THAT IT WORKS IN MEDICAL TRANSCRIPTION SERVICES AND QUALIFIES ALL THE FILTER S APPLIED BY THE TPO, WHICH FALLS WITHIN THE OVERALL AMBIT OF ITES AND MORE THAN 95% OF ITS REVENUE IS DERIVED FROM IT ES ACTIVITIES. 5.3.2 THE LD.AR CONTENDED THAT THIS COMPANY DESERVES TO BE EXCLUDED FOR 2 REASONS 1 ST IT BEING ENGAGED IN SOFTWARE PRODUCTS AND 2 ND AS SOME ACQUISITIONS HAS 12 I.T.A.NO.481./DEL/2014 TAKEN PLACE WHICH HAS INCREASED THE ASSET VALUE OF THIS COMPARABLE COMPANY. HE FURTHER CONTENDED THAT THIS COMPARABLE COMPANY HAS GOT A VERY HIGH GOODWILL IN THE MARKET. 5.3.3 ON THE CONTRARY THE LD. DR SUBMITTED THAT FUNCTIONALLY THIS COMPARABLE AS WELL AS ASSESSEE AR E SIMILAR. HE PLACED AS RELIANCE UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHRYS CAPITAL INVES TMENTS ADVISERS INDIA LTD VS. DCIT, I.T.A.NO. 417/2014 PRONOUNCED ON 27.04.2015. 5.3.4 WE HAVE PERUSED THE ANNUAL REPORT OF THIS COMPANY, A COPY OF WHICH IS AVAILABLE AT PAGE 781 T O 946. 5.3.5 WE FIND THAT THIS COMPANY, APART FROM BEING ENGAGED IN THE BUSINESS OF ITES, IS ALSO DEALING WI TH SOFTWARE PRODUCTS. AS THE SEGMENTAL FIGURES OF THIS COMPANY ARE NOT AVAILABLE, THE LD. TPO HAS TAKEN IT AT ENTITY LEVEL. AS REGARDS THE OBJECTION OF THE LD.AR REGARDING THE ACQUISITION UNDERTAKEN BY THIS COMPAN Y, WE FIND FROM THE ANNUAL REPORT THAT THIS COMPARABLE CO MPANY IS IN THE PROCESS OF EXPANSION STRATEGY THROUGH AMALGAMATION, ACQUISITIONS, MERGERS, JOINT VENTURES . THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN MA CQUAIRE GLOBAL SERVICES (P) LTD VERSUS DCIT REPORTED IN (20 15) 55 TAXMANN.COM 259 HAS HELD THAT THIS COMPANY CANNOT B E CONSIDERED AS A COMPARABLE BECAUSE OF EXCEPTIONAL FINANCIAL RESULTS DUE TO MERGERS/DEMERGERS ETC. SIM ILAR VIEW HAS BEEN TAKEN BY OTHER BENCHES OF THIS TRIBUN AL, IN 13 I.T.A.NO.481./DEL/2014 THE CASE OF AMERIPRAISE INDIA (P) LTD VS. ACIT REPO RTED IN (2015) 62 TAXMANN.COM 237. FROM THE FINANCIAL STUDY OF THIS COMPARABLE COMPANY IT IS VERY MUCH CLEAR THAT THE COMPANY IS INTO ACQUISITION OF 5 MORE COMPANIES IN USA AND UK WITH OPERATIONS IN THE AREAS OF MEDICAL BILL ING AND CODING AND MEDICAL TRANSCRIPTION, FURTHER THE COMPA NY HAS GOT A FUTURE PLAN TO ACQUIRE 2 MORE COMPANIES I N UK HAVING THE SAME FUNCTIONS. THE DECISION RELIED UPON BY THE LD.DR IN THE CASE OF CHRIS CAPITAL (SUPRA) HAS ACTUALLY BEEN MISINTERPRETED BY THE DEPARTMENT, AS THE HONB LE HIGH COURT HAS HELD THAT; ..FIRSTLY AN ENQUIRY HAS TO BE CARRIED OUT BY THE DRP PRECEDING THE ANALYSIS UNDER RULE 10 B (3), AS TO I TS FUNCTIONAL SIMILARITY WITH THE ASSESSEE; THEREAFTER THE EXERCISE OF DETERMINING IF THERE ARE MATERIAL DIFFE RENCE ON ACCOUNT OF EXCEPTIONALLY HIGH PROFITS WHICH ARE CAPABLE OF ELIMINATION HAS TO BE CARRIED OUT. 5.3.5 APPLYING THE ABOVE TO THE FACTS OF THE PRESE NT CASE, IT HAS TO BE FIRST ASCERTAINED REGARDING THE FUNCTIONAL SIMILARITY. IT IS AN ADMITTED POSITION THAT THIS C OMPARABLE COMPANY DEALS WITH SOFTWARE PRODUCTS WHEREAS THE ASSESSEE IS INTO THE ACTIVITIES OF MACRO LEVEL DATA PROCESSING, WHICH IS CARRIED ON BY LOW SKILLED, UNDERGRADUATE EMPLOYEES. THUS, THE COMPARABLE COMPANY IS FUNCTIONALLY DISSIMILAR WITH THAT OF THE ASSESSEE. AS THE BASIC REQUIREMENT OF FUNCTIONAL SIMILARITY HAS NOT BEEN SATISFIED, THERE DOES NOT A RISE THE QUESTION OF COMPARING THE PROFITS EARNED BY BOTH COMPANIES. 14 I.T.A.NO.481./DEL/2014 5.3.6 WE, THEREFORE, ON THE BASIS OF THE ABOVE DISCUSSIONS AND FINDINGS DIRECT THE LD. TPO TO EXCL UDE THIS COMPANY FROM THE LIST OF COMPARABLES. 5.4 COSMIC GLOBAL LTD : 5.4.1 THE LD. A.R. OBJECTED THE INCLUSION OF THIS COMPANY PROPOSED TO BE USED IN THE FINAL SET OF COMPARABLES BY THE TPO BY CONTENDING THAT IT WAS NO T FUNCTIONALLY COMPARABLE. THE LD.AR SUBMITTED THAT T HE MAIN REVENUE GENERATION OF THIS COMPARABLE IS FROM MEDICAL TRANSCRIPTION AND CONSULTANCY SERVICES. THU S THE LD.AR CONTENDED THAT THIS COMPARABLE IS A HIGH ENDE D KPO. 5.4.2 ON THE CONTRARY THE LD. DR SUBMITTED THAT ASSESSEE HAD INCLUDED THIS COMPANY IS A COMPARABLE WHICH WAS NOT OBJECTED BY THE LD.TPO. 5.4.3 WE HAVE PERUSED THE ANNUAL REPORT OF THIS COMPANY A COPY OF WHICH IS AVAILABLE AT PAGES 1936A TO 1938. FROM THE ANNUAL ACCOUNTS OF THIS COMPARABLE, IT CAN BE SEEN THAT ITS TOTAL REVENUE FROM OPERATIONS AMOUNTS TO RS. 7.37 CRORE, WHICH HAS BEEN DERIVED F ROM MEDICAL TRANSCRIPTION AND RS. 9.90 LAKHS DERIVED FR OM CONSULTANCY SERVICES, TRANSLATION CHARGES AMOUNTING TO RS. 6.99 CRORES AND ACCOUNTS BPO AMOUNTING TO RS. 2 7.76 LACS. IT IS APPARENT THAT THIS COMPANY OUTSOURCED I TS ACTIVITIES AND THE OUTSOURCING EXPENSES CONSTITUTE 57% OF THE TOTAL EXPENSES. THE ENTIRE OUTSOURCING IS CONFI NED TO TRANSLATION CHARGES PAID AT RS. 3 CRORE, CONSTITUTE S A LARGE 15 I.T.A.NO.481./DEL/2014 CHUNK OF THIS COMPANYS INCOME, FOR WHICH THE SERVI CES WERE MAINLY OUTSOURCED THIS COMPANY CANNOT BE SELEC TED AS A COMPARABLE ON AN ENTITY LEVEL. THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN MACQUAIRE GLOB AL SERVICES (P) LTD VERSUS DCIT REPORTED IN (2015) 55 TAXMANN.COM 259 HAS HELD THAT THIS COMPANY CANNOT B E CONSIDERED AS A COMPARABLE BECAUSE OF EXCEPTIONAL FINANCIAL RESULTS. 5.4.4 WE THEREFORE DIRECT THE LD.TPO TO EXCLUDE TH IS COMPANY AS A COMPARABLE. 5.5 CROSSDOMAIN SOLUTIONS PRIVATE LIMITED: 5.5.1 THE ASSESSEE OBJECTED THE INCLUSION OF THIS COMPANY PROPOSED TO BE USED IN THE FINAL SET OF COMPARABLES BY THE TPO BY CONTENDING THAT IT WAS NO T FUNCTIONALLY COMPARABLE. THE TPO REJECTED THE CONTE NTIONS BY HOLDING THAT IT WAS ALSO PROVIDING IT ENABLED SE RVICES. THE LD.AR CONTENDED THAT THIS COMPANY IS A HIGH-END KPO. THE LD.AR HAS PLACED RELIANCE UPON THE DECISIO N OF HYDERABAD TRIBUNAL IN THE CASE OF MARKET TOOLS RESE ARCH (P) LTD VS. DCIT REPORTED IN (2014) 148 ITD 631 WHE REIN IT HAS BEEN HELD THAT THIS COMPANY IS PROVIDING SERVIC ES WHICH ARE IN THE NATURE OF KPO. FURTHER IT HAS BEEN OBSERVED THAT THIS COMPANY IS ENGAGED IN PROVIDING NICHE SERVICES AS WELL AS OWNS BRAND EXDION TO TARGET THE INSURANCE INDUSTRY IN US. 16 I.T.A.NO.481./DEL/2014 5.5.2 ON THE CONTRARY THE LD.DR RELIED UPON THE DECISION OF AUTHORITIES BELOW AND PRAYED FOR INCLUS ION OF THIS COMPANY. 5.5.3 WE HAVE PERUSED THE ANNUAL REPORT OF THIS COMPANY A COPY OF WHICH IS AVAILABLE AT PAGE 1049 T O 1068. THIS COMPANY IS INDULGED IN HIGH SKILLED IT S ERVICES, WHICH IS NOT COMPARABLE TO ROUTINE IT ENABLED SERVI CES. THE HYDRABAD TRIBUNAL BENCH IN CASE OF MARKET TOOLS RESEARCH (P) LTD VS. DCIT, REPORTED IN (2014) 40 TAXMANN.COM 390, HAS HELD THAT THIS COMPANY IS PROVIDING SERVICES WHICH ARE IN THE NATURE OF KPO. FURTHER THE COMPANY IS ENGAGED IN PROVIDING NICHE SERVICES AS WELL AS THEY LEAD ITS OWN BRAND EXDION, TO TARGET THE INSURANCE INDUSTRY IN US. THIS TRIBUNAL THEREIN FOL LOWED THE FINDINGS OF THE BANGALORE BENCH IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA (P) LTD VS. ITO, REPORTED IN (2013) 38 TAXMANN.COM 55 WHILE REJECTIN G THIS COMPANY FROM THE FINAL SET OF COMPARABLES. RESPECTFULLY FOLLOWING THE FINDINGS OF THE COORDINA TE BENCHES, WE DIRECT THE LEARNED TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 5.6 INFOSYS BPO: 5.6.1 THE ASSESSEE OBJECTED THE INCLUSION OF THIS COMPANY PROPOSED TO BE USED IN THE FINAL SET OF COMPARABLES BY THE TPO BY CONTENDING THAT IT WAS NO T FUNCTIONALLY COMPARABLE. THE LD. TPO REJECTED THE 17 I.T.A.NO.481./DEL/2014 CONTENTIONS OF THE ASSESSEE BY HOLDING THAT THIS CO MPANY WAS PROVIDING IT ENABLED SERVICES. 5.6.2 WE HAVE PERUSED THE ANNUAL REPORT OF THIS COMPANY, A COPY OF WHICH IS AVAILABLE AT PAGE 1121 TO 1178. IT IS FOUND THAT THIS COMPANY IS A SUBSIDIARY OF INFOSYS TECHNOLOGIES LTD AND AS ON TODAY THIS COMPA NY IN INDIA IS AMONG THE TOP 10 BPO COMPANIES ACCORDING T O THE NATIONAL ASSOCIATION OF SOFTWARE AND SERVICE COMPANIES RANKING. THIS COMPANY HAS EARNED A NET PR OFIT OF RS. 273.81 CRORE DURING THE YEAR WITH APPROXIMAT ELY 17,934 EMPLOYEES. IT IS FOUND THAT THIS COMPANY IS PARTNERING WITH ONE AIM FOR IMPARTING EXECUTIVE EDU CATION PROGRAM TO BUILD BUSINESS COMPETENCIES AND PROVIDE COMPREHENSIVE INSIGHTS TO MANAGEMENT FUNCTIONS. 5.6.3 IT IS FURTHER OBSERVED THAT THE TURNOVER OF THIS COMPANY IS MORE THAN 5 CRORES. AS HELD BY THIS TRI BUNAL IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PR IVATE LTD., IN ITA NO. 124/DEL/2011, WHICH HAS BEEN CONFI RMED BY THE HONBLE DELHI HIGH COURT WIDE ORDER DATED 10/07/2013, THE HON'BLE HIGH COURT HAS UPHELD THE FINDING OF THIS TRIBUNAL THAT COMPANIES HAVING HIGH TURNOVER CANNOT BE CONSIDERED AS A COMPARABLE. 5.6.4 RESPECTFULLY FOLLOWING THE RATIO LAID DOWN B Y HON'BLE HIGH COURT, WE DIRECT THE LEARNED TPO TO EX CLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 5.7 E-CLERX SERVICES LTD: 18 I.T.A.NO.481./DEL/2014 5.7.1 THE ASSESSEE PRAYS FOR EXCLUSION OF THIS COMPANY AS COMPARABLE, AS THIS COMPANY PROVIDES DAT A ANALYTICS AND CUSTOMISED PROCESS SOLUTION TO A HOST OF GLOBAL CLIENTS. IT IS SUBMITTED THAT IT DELIVERS DA TA SOLUTIONS TO COMPLEX BUSINESS NEEDS THROUGH COST- EFFECTIVE COMBINATION OF PEOPLE, PROCESS AND TECHNO LOGY. THE LD.AR SUBMITTED THAT THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2008-09 HAS EXCLUDED IT FR OM THE COMPARABLES. 5.7.2 ON THE CONTRARY THE LD. DR SUBMITS THAT THE COMPANY IS ENGAGED IN SIMILAR FUNCTIONS OF IT ENABL ED SERVICES AND THE COMPANY PASSES ALL THE FILTERS. 5.7.3 WE HAVE PERUSED THE SUBMISSIONS MADE BY BOTH THE PARTIES AND THE ORDER OF ASSESSEES OWN CA SE FOR ASSESSMENT YEAR 2008-09 IN I.T.A.NO. 6541/DEL/2012, ORDER DATED 07.08.2015. THIS TRIBUNAL HAS HELD AS UNDER: 5. WE FIRST TAKE UP THE ISSUE OF CASE OF ECLERX SERVICES LTD. THE ASSESSEE RELIED UPON THE DECISIO N OF SPECIAL BENCH OF THE TRIBUNAL IN MEARSK GLOBAL SERVICE CENTRE (INDIA) PVT. LTD. VS ACIT I.T.A.NO. 7466/MUM/2012 ORDER DT. 07.03.2014 WHERE IT IS HELD AS UNDER: 82. IN SO FAR AS M/S ECLERX SERVICES LIMITED IS CONCERNED, THE RELEVANT INFORMATION IS AVAILABLE IN THE FORM OF ANNUAL REPORT FOR FINANCIAL YEAR 2007-08 PLACED AT PAGE 166 TO 183 OF THE PAPER BOOK. A PERUSAL OF THE SAME SHOWS THAT THE SAID COMPANY PROVIDES DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORLD AND IS RECOGNIZED AS EXPERTS IN CHOSEN MARKETS-FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIME D TO 19 I.T.A.NO.481./DEL/2014 BE PROVIDING COMPLETE BUSINESS SOLUTIONS BY COMBINING PEOPLE, PROCESS IMPROVEMENT AND AUTOMATION. IT IS CLAIMED TO HAVE EMPLOYED OVER 150 0 DOMAIN SPECIALISTS WORKING FOR THE CLIENTS. IT IS CLAIMED THAT ECLERX IS A DIFFERENT COMPANY WITH INDUSTRY SPECIALIZED SERVICES FOR MEETING COMPLEX CLIENT NEEDS, DATA ANALYTICS KPO SERVICE PROVIDER SPECIALIZING IN TWO BUSINESS VERTICALS - FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIME D TO BE ENGAGED IN PROVIDING SOLUTIONS THAT DO NOT JUST REDUCE COST, BUT HELP THE CLIENTS INCREASE SALES AN D REDUCE RISK BY ENHANCING EFFICIENCIES AND BY PROVID ING VALUABLE INSIGHTS THAT EMPOWER BETTER DECISIONS. MI S ECLERX SERVICES PVT. LTD. IS ALSO CLAIMED TO HAVE A SCALABLE DELIVERY MODEL AND SOLUTIONS OFFERED THAT INCLUDE DATA ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RECONCILIATION, METRICS MANAGEMENT AND REPORTING SERVICES. IT ALSO PROVIDES TAILORED PROCE SS OUTSOURCING AND MANAGEMENT SERVICES ALONG WITH A MULTITUDE OF DATA AGGREGATION, MINING AND MAINTENANCE SERVICES. IT IS CLAIMED THAT THE COMPAN Y HAS A TEAM DEDICATED TO DEVELOPING AUTOMATION TOOLS TO SUPPORT SERVICE DELIVERY. THESE SOFTWARE AUTOMATION TOOLS INCREASE PRODUCTIVITY, ALLOWING CUSTOMERS TO BENEFIT FROM FURTHER COST SAVING AND OUTPUT GAINS WITH BETTER CONTROL OVER QUALITY, KEEP ING IN VIEW THE NATURE OF SERVICES RENDERED BY M/S. ECL ERX SERVICES PVT. LTD. AND ITS FUNCTIONAL PROFILE, WE A RE OF THE VIEW THAT THIS COMPANY IS ALSO MAINLY ENGAGED I N PROVIDING HIGH-END SERVICES INVOLVING SPECIALIZED KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT BE COMPARED WITH THE ASSESSEE COMPANY WHICH IS MAINLY ENGAGED IN PROVIDING LOW-END SERVICES TO THE GROUP CONCERNS. 5.7.4 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THIS TRIBUNAL, WE DIRECT THE LD. TPO TO EXCLUDE THIS COM PANY FROM THE LIST OF COMPARABLES. 5.8 ALLSEC TECHNOLOGIES LTD. 20 I.T.A.NO.481./DEL/2014 5.8.1 THE ASSESSEE IS SEEKING TO INCLUDE THIS COMPANY AS A COMPARABLE AS IT HAS BEEN ACCEPTED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 WIDE ORDER DATED 07/08/2015. HE ACCORDINGLY PRAYED FOR INCLUSION OF THIS COMPANY TO THE FINAL L IST OF COMPARABLE FOLLOWING THE RULE OF CONSISTENCY. THE L D. A.R. RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF RADHA SWAMI SATSANG VERSUS CIT REPORTED IN (1992) 193 ITR 321. 5.8.2 ON THE CONTRARY THE LD. DR SUBMITTED THAT IT IS A FUNCTIONALLY DISSIMILAR COMPANY DUE TO MERGER OF THIS COMPANY WITH B2K CORPN. PVT. LTD. THE LD. DR HAS SUBMITTED THAT THE ISSUE RELATING TO THE EXCLUSION / INCLUSION OF THIS COMPANY CAN BE SENT BACK TO THE L EARNED TPO FOR VERIFICATION. 5.8.3 WE HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW AND THE SUBMISSIONS ADVANCED BY BOTH THE PART IES. IT IS OBSERVED THAT THIS COMPANY HAS BEEN ACCEPTED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09, WHEREIN THIS TRIBUNAL HAS HELD AS UNDER: 7.2 THE MERGER OF ALLSEC TECHNOLOGIES LTD. WITH THE B2K CORPN. PVT. LTD. HAS NOT ADVERSELY EFFECTED THE PROFIT OF ALLSEC TECHNOLOGIES LTD. AT BEST, AN ADJUSTMENT OF RS.79,865/- CAN BE MADE TO THE PROFIT S BUT THIS COMPANY CANNOT BE REJECTED AS A COMPARABLE . HENCE, WE DIRECT THE TPO TO INCLUDE THIS COMPANY AS A COMPARABLE AND TO MAKE AN ADJUSTMENT OF RS.79,865/- TO THE PROFITS WHILE COMPUTING THE TNMM . HENCE, THIS PLEA OF THE ASSESSEE IS ALLOWED IN PART . 21 I.T.A.NO.481./DEL/2014 5.8.4 RESPECTFULLY FOLLOWING THE SAME WE ALSO DIRE CT THE LEARNER TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLES. 5.9 MICROGENETICS SYSTEM S LTD. 5.9.1 THE ASSESSEE IS SEEKING TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLES AS THIS COMPANY HAS A TURNOVER OF LESS THAN RS.5 CRORES BUT MORE THAN ONE CRORE AND IT QUALIFIES THE TURNOVER FILTER APPLIED BY THE LD. TPO. 5.9.2 ON THE CONTRARY THE LD. DR SUBMITTED THAT IT IS A FUNCTIONALLY SIMILAR COMPANY AS ITS MAIN INCOME I S GENERATED FROM MEDICAL TRANSCRIPTION. THE LD. DR HA S SUBMITTED THAT THE ISSUE RELATING TO EXCLUSION / IN CLUSION OF THIS COMPANY CAN BE SENT BACK TO THE LEARNER TPO FOR VERIFICATION. 5.9.3 WE HAVE PERUSED THE FINANCIAL STATEMENTS OF THIS COMPARABLE PLACED AT PAGE 1179 TO1196. IT IS T RUE THAT THIS COMPARABLE HAS ITS MAIN REVENUE FROM MEDI CAL TRANSCRIPTION. MERELY BECAUSE ITS TURNOVER IS LESS THAN RS.5 CRORES IT CANNOT BE A REASON TO ACCEPT THIS AS A COMPARABLE AS CONTENDED BY LD. A.R. AS THIS COMPAN Y IS INTO ACTIVITY OF MEDICAL TRANSCRIPTION, CANNOT BE CONSIDERED TO BE A LOW-END BPO AS THE ACTIVITY INVO LVES A PROCESS OF KNOWLEDGE. IN OUR VIEW APPLYING THE FUN CTIONAL TESTS AS A PRIMARY REQUIREMENT FOR CONSIDERATION OF A COMPANY AS A COMPARABLE, THIS COMPANY CANNOT BE 22 I.T.A.NO.481./DEL/2014 CONSIDERED TO BE CARRYING OUT ACTIVITY WHICH IS CAR RIED ON BY LOW SKILLED OR UNDERGRADUATES. WE THUS DIRECT T HE LD. TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 5.10 M/S.SUNTEC WEB SERVICES PVT. LTD. 5.10.1 THE ASSESSEE IS SEEKING TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLES AS THIS COMPANY HAS A TURNOVER OF LESS THAN RS.5 CRORES BUT MORE THAN ON E CRORE AND IT QUALIFIES THE TURNOVER FILTER APPLIED BY THE LD. TPO. ON THE CONTRARY, THE LD. DR SUBMITTED THAT IT IS FUNCTIONALLY NOT SIMILAR TO ASSESSEE. THE LD. DR HA S SUBMITTED THAT THE ISSUE RELATING TO EXCLUSION /F I NCLUSION OF THIS COMPANY CAN BE SENT BACK TO THE LEARNED TPO FOR VERIFICATION. 5.10.2 WE HAVE PERUSED THE FINANCIAL ACCOUNTS OF TH IS COMPARABLE PLACED AT PAGE 1197 TO1196 OF THE PAPER BOOK. IT IS OBSERVED THAT THE SERVICES FROM WHICH I NCOME IS GENERATED OF THIS COMPANY HAS NOT BEEN CLEARLY SPEC IFIED. THE STATEMENT OF ACCOUNTS DOES NOT CLEARLY ENUNCIAT ES THE TYPES OF SERVICES RENDERED BY THIS COMPANY. 5.10.3 WE ARE, THEREFORE, SETTING ASIDE THIS COMPAR ABLE TO THE FILES OF THE LD.TPO FOR DUE VERIFICATION AND TO CONSIDER THE SAME AFRESH FOR INCLUSION OR EXCLUSION IN THE FINAL LIST OF COMPARABLES ON THE RESULT OF FUNCTION AL SIMILARITY. 23 I.T.A.NO.481./DEL/2014 5.11 ACCORDINGLY GROUND NO. 1 OF THE ASSESSEES APPEAL STANDS DISPOSED OFF. 6. GROUND NO. 2 6.1 THE ASSESSEES HAS CHALLENGED THE ADDITION MADE BY THE LD.AO UNDER SECTION 14A OF I.T. ACT, 1961, READ WITH RULE 8D OF THE I.T. RULES, 1962. 6.2 DURING THE YEAR UNDER CONSIDERATION THE ASSESSE E HAD EARNED LONG-TERM CAPITAL GAIN OF RS.31,76,476/- AND DIVIDEND INCOME OF RS.9,30,583/-. WHILE FLING THE R ETURN OF INCOME THE ASSESSEE HAD SUO MOTU DISALLOWED AN AMOUNT OF RS.13,115/- ON ACCOUNT OF DEMAT CHARGES A S EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. DURING THE ASSESSMENT PROCEEDINGS THE LD. AO REJECTED THE ASSESSEES CLAIM OF EXPENDITURE AND MADE ADDITION O F RS.3,51,102 UNDER SECTION 14 A OF THE ACT BY INVOKI NG RULE 8D FOR THE YEAR UNDER CONSIDERATION. 6.3 BEFORE THE DRP THE ASSESSEE HAD OBJECTED TO THE ADDITION SO MADE. IT WAS CONTENDED BY THE ASSESSEE THAT LD. AO HAS INCLUDED THOSE INVESTMENTS, WHICH DO NOT EARN ANY EXEMPT INCOME. THE ASSESSEE SUBMITTED BEFORE DR P THAT THE INVESTMENTS, WHICH DO NOT EARN ANY EXEMPT INCOME, MUST NOT BE CONSIDERED FOR THE PURPOSES OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE CONT ENTION SO RAISED BY THE ASSESSEE WAS ACCEPTED BY THE DRP. ACCORDINGLY THE DRP DIRECTED THE LD. A.O. TO RE-COM PUTE THE EXPENDITURE UNDER SECTION 14A, BY EXCLUDING THO SE INVESTMENTS, WHICH DO NOT EARN ANY DIVIDEND/EXEMPT 24 I.T.A.NO.481./DEL/2014 INCOME. THE LD.AO IGNORING THE DIRECTIONS OF THE DR P MADE AN ADDITION OF RS.3,51,102/-. AT THE OUTSET, THE LD.AR SUBMITS THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE IN ITS OWN CASE BY AN ORDER O F THIS TRIBUNAL IN ITA NO. 6541/DEL/2012 VIDE ORDER DATED 07/08/2015, FOR ASSESSMENT YEAR 2008-09. 6.4 ON THE CONTRARY THE LD. DR SUPPORTED THE ORDER PASSED BY THE LD. AO. 6.5 WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW, THE ARGUMENTS SUBMITTED BY BOTH THE PARTIES. IT IS OBSERVED THAT PRIMARILY THE LD.AO HA S NOT RECORDED A SATISFACTION, AS REQUIRED BY LAW, BEFORE INVOKING SECTION 14 A OF THE ACT. FURTHER THE LD. A O HAS ALSO NOT JUSTIFIED THE REJECTION OF THE SUO MOTU DISALLOWANCE MADE BY THE ASSESSEE UNDER SECTION 14 A OF THE ACT. 6.6 WE HAVE PERUSED THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 (SU PRA). THIS TRIBUNAL HELD AS UNDER: 9.2 GROUND NO.3 IS ON THE ISSUE OF DISALLOWANCE U/S 14A. THE A.O. HAS NOT RECORDED SATISFACTION AS REQUIRED BY LAW, BEFORE INVOKING SECTION 14A. IT H AS NOT BEEN POINTED OUT BY THE A.O. AS TO HOW THE COMPUTATION OF DISALLOWANCE U/S 14A DONE BY THE ASSESSEE WAS NOT CORRECT. NO ERROR OR DEFECT HAS B EEN POINTED OUT. UNDER THESE CIRCUMSTANCES, WE HAVE TO APPLY THE PROPOSITION LAID DOWN BY THE JURISDICTION AL HIGH COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. 347 ITR 272 AND DELETE THE ADDITION MADE BY THE A.O. 25 I.T.A.NO.481./DEL/2014 6.7 RESPECTFULLY FOLLOWING THE DECISION OF THIS TRI BUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09, WE ARE INCLINED TO DELETE THE ADDITION MADE BY THE LD.AO U NDER SECTION 14 A OF THE ACT. ACCORDINGLY THIS GROUND OF ASSESSEE STANDS ALLOWED. 7. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE S TANDS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 09 TH JUNE, 2016. SD./- SD./- (N. K. SAINI) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 09.06.2016 SP. COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI) 26 I.T.A.NO.481./DEL/2014 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 9/6/16 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 9/6 SR. PS/PS 7 FILE SENT TO BENCH CLERK 13/6 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER