M/s TRX Technologies India Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 487/BANG/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6148 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-09-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 18-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARINDER KUMAR
• Assessee Lawyers: G S PRASHANTH
• Keywords: Business income; Transfer pricing; International transaction; Set aside
• Section: 143(3); 144C; 92CE; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A BENCH: BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER IT (TP) A NO. 487/BANG/2016 (ASSESSMENT YEAR: 20 11 - 12 ) M/S. TRX TECHNOLOGIES INDIA PVT. LTD., NO.55/2, LAUREL, BAGMANE TECH PARK, C V RAMAN NAGAR, BANGALAORE - 560 093 .APPELLANT PAN AACCT 7171N VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(1), BANGALORE. RESPONDENT. ASSESSEE BY: SHRI G.S. PRASHANTH, C.A. REVENUE BY: SHRI HARINDER KUMAR, CIT (D.R) DATE OF HEARING : 16.09 .20 20. DATE OF PRONOUNCEMENT : 25 .09 .20 20. O R D E R PER SHRI GEORGE GEORGE K , JM : TH IS APPEAL AT THE INSTANCE OF REVENUE IS DIRECTED AGAINST THE ASSESSMENT ORDER DT. 27.01.2016, PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 ('THE ACT'), IN PURSUANCE TO THE DIRECTIONS OF DISPUTE RESOLUTION PANEL (DRP). THE RELEVANT ASSESSMENT YEAR IS 20 11 - 12. 2 IT (TP) A NO. 487/BANG/2016 2. THE LEARNED AUTHORISED REPRESENTATIVE AT THE TIME OF HEARING HAD ARGUED ONLY GROUND NOS.7, 8 & 12. THE GROUND NOS.7, 8 & 12 READ AS FOLLOWS : 7. A) THE AUTHORITIES BELOW ERRED IN TREATING ACCENTIA TECHNOLOG IES LTD. AS A COMPARABLE COMPANY THOUGH IT IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT ON THE FACTS OF THE CASE. B) THE AUTHORITIES BELOW ERRED IN TREATING ACROPETAL TECHNOLOGIES LTD. AS A COMPARABLE COMPANY THOUGH IT IS FUNCTIONALLY DIFFERENT FROM THE APPEL LANT ON THE FACTS OF THE CASE. C) THE AUTHORITIES BELOW ERRED IN TREATING ICRA ONLINE LTD. AS A COMPARABLE COMPANY THOUGH IT IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT ON THE FACTS OF THE CASE. D) THE AUTHORITIES BELOW ERRED IN TREATING JEEVAN SCIENTIFIC TECHN OLOGY LTD. AS A COMPARABLE COMPANY ON THE FACTS OF THE CASE. E) THE AUTHORITIES BELOW FURTHER ERRED IN NOT GIVING EFFECT TO THE DIRECTIONS OF THE DRP WITH REGARD TO THE DISCREPANCIES THAT EXISTED IN THE FIGURES ADOPTED FOR COMPUTING THE MARGIN OF THE COMPAR ABLE M/S. JEEVAN SCIENTIFIC TECHNOLOGIES LTD. AND THUS THE COMPARABLE NEEDS TO BEEN REJECTED EVEN ON THIS GROUND. F) THE LEARNED DRP ERRED IN NOT CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT WITH REGARD TO FUNCTIONALITY OF THE COMPARABLES WHICH IS SINE QUA NON FOR PASSING THE ORDER AND THUS THE ORDER PASSED NEEDS TO BE SET ASIDE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. A) THE TPO, DRP AND THE ASSESSING OFFICER ERRED IN NOT REDUCING THE WORKING CAPITAL ADJUSTMENT OF 1.47% FROM THE FINAL ALP MARGIN THOUGH THE TPO HAD SPECIFICALLY PROVIDED FOR THE SAME AS PER TP ORDER. B) WITHOUT PREJUDICE, THE WORKING CAPITAL ADJUSTMENT THAT OUGHT TO HAVE BEEN PROVIDED AT 1.47% IS VERY LOW AND NEEDS TO BE SUBSTANTIALLY ENHANCED ON THE FACTS OF THE CASE. 12. THE ASSE SSING OFFICER ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE DRP TO EXCLUDE SUCH COMPARABLES WHICH DO NOT FALL WITHIN THE TURNOVER FILTER OF 1 - 200 CRORES WHICH AMOUNTS TO JUDICIAL INDISCIPLINE AND THEREFORE THE ORDER OF ASSESSMENT PASSED NEEDS TO BE SET ASID E ON THE FACTS OF THE CASE. 3. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUNDS WHICH READ AS FOLLOW S : 3 IT (TP) A NO. 487/BANG/2016 1. THE COMPARABLE M/S. MINDTREE LTD. ORIGINALLY SELECTED BY THE APPELLANT NEEDS TO BE EXCLUDED AS IT FAILS THE TURNOVER FILTER OF 1 - 200 CRORES AS WELL AS 10 TIMES MULTIPLE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMPARABLE M/S. ACROPETAL TECHNOLOGIES LTD. O RI GINALLY SELECTED BY THE APPELLANT NEEDS TO BE EXCLUDED AS THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT AND SEGMENTA L INFORMATION IS NOT AVAILABLE UNDER THE FACTS OF THE CASE. 3. THE COMPARABLE M/S. ACCENTIA TECHNOLOGIES LTD. O RI GINALLY SELECTED BY THE APPELLANT NEEDS TO BE EXCLUDED AS THE COMPANY IS FUNCTIONALLY INDIFFERENT ON THE FACTS OF THE CASE. 4. THE APPELLANT CRAVES L EAVE TO ADD, ALTER, DELETE OR SUBSTITUTE ANY OF THE GROUNDS URGED ABOVE. 5. IN VIEW OF THE ABOVE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF THE HE ARING, THE APPELLANT PRAYS THAT THE OBJECTIONS BE CONSIDERED IN THE INTEREST OF EQUITY AND JUSTICE. 3.1 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABOVE ADDITIONAL GROUNDS RAISED ARE NOT URGED SPECIFICALLY IN THE ORIGINAL GROUNDS OF APPEAL AT THE INSTITUTION OF THE APPEAL. HOWEVER, THESE GROUNDS DO NOT INVOLVE ANY NEW INVESTIGATION O F FACTS OTHERWISE ON RECORD. THEREFORE, IT IS PRAYED THAT THE ADDITIONAL GROUND MAY BE ADMITTED FOR ADVANCEMENT OF SUBSTANTIAL CAUSE AND JUSTICE. IN THIS CONTEXT, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT I N THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT REPORTED IN 229 ITR 383 (SC) AND DECISION OF HON'BLE MYSORE HIGH COURT IN THE CASE OF GUNDATHUR THIMMAPPA & SONS VS. CIT REPORTED IN 70 ITR 70 (MYSORE). 4 IT (TP) A NO. 487/BANG/2016 3.2. THE ADDITIONAL GROUNDS RAISED DOES NOT REQUIRE INVESTIGATION OF ANY NEW FACTS. ALL THE FACTS FOR ADJUDICATION OF THE ADDITIONAL GROUNDS ARE ON RECORD. THEREFORE FOR ADVANCEMENT OF SUBSTANTIAL CAUSE AND JUSTICE IN THE LIGHT OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN CASE OF NATIONAL T HERMAL POWER CO. LTD. (SUPRA) , THE ADDITIONAL GROUNDS ARE ADMITTED FOR ADJUDICATION. 4 . THE BRIEF FACTS ARE AS FOLLOWS : THE ASSESSEE IS AN INDIAN COMPANY ENGAGED IN THE BUSINESS OF RENDERING BACK OFFICE AND RELATED SERVICES INCLUDING INVOI CING, COLLECTION, ADMINISTRATION, SUPPORT SERVICES INCLUDES CUSTOMER SERVICES, TICKETING, CONTRACT LOADING ETC. TO ITS ASSOCIATED ENTERPRISES (AES) I.E. ;TRX INC, USA, TRX EUROPE LIMITED AND TRX GERMANY GMBH, GERMANY (HEREIN REFERRED TO AS AES). THE SERV ICES RENDERED BY THE ASSESSEE TO ITS AES IS PREDOMINANTLY RELATED TO TRAVEL AND TOURISM INDUSTRY. THE ASSESSEE IS ALSO ENGAGED IN PROVIDING SOFTWARE MAINTENANCE SUPPORT TO TRX PORTFOLIO OF SOFTWARE PRODUCTS AND SOLUTIONS WHICH IS ESSENTIAL AN ITES . FOR T HE ASSESSMENT YEAR 2011 - 12, THE RETURN OF INCOME W A S FILED ON 30.09.2011, DECLARING TOTAL INCOME OF RS.28,81,107, AFTER CLAIMING DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT, 1961 ('THE ACT') AMOUNTING TO RS.2,94,52,337. AS PER THE 92CE REPORT, THE A SSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS 5 IT (TP) A NO. 487/BANG/2016 AES AMOUNTING TO RS.20,71,82,109 (BOTH SOFTWARE SUPPORT SERVICES AND BUSINESS SUPPORT SERVICES). THE NET MARGIN OF THE ASSESSEE COMPANY WAS CALCULATED IN THE TP STUDY AT 16.08% (OPERATING MARG IN) WHEREAS THE NET MARGIN OF THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE IN ITS TP STUDY WAS CALCULATED AT 9.59%. THEREFORE IT WAS SUBMITT ED THAT THE MARGIN OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES BE ACCEPTED AS ARMS LENGTH IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 5) THE ASSESSMENT WAS TAKEN UP FOR SCRUTINY AND IN THE COURSE OF ASSESSMENT PROCEEDINGS THE MATTER WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO). THE TPO REJECTED SOME OF THE COMPARABLES SELECTED BY THE ASSESSEE, INCLUDED SOME NEW COMPARABLES AND AR RIVED AT ARMS LENGTH PRICE (ALP) MARGIN OF 24.77% FOR THE YEAR UNDER CONSIDERATION. THE TPO AFTER PROVIDING FOR WORKING CAPITAL ADJUSTMENT OF 0.13% , PROPOSED ALP ADJUSTMENT OF RS.1,83,99,556. THE FINAL S ET OF 10 COMPARABLES CONSIDERED BY THE TPO AND ITS OPERATING PROFIT TO OPERATING COST ARE AS FOLLOWS : SL. NO. NAME OF THE CASE OPERATING INCOME OPERATING COST OP/OC 1 ACCENTIA TECHNOLOGIES LTD. 1,069,026,524 82,93,91,898 28.89% 6 IT (TP) A NO. 487/BANG/2016 2 ACROPETAL TECHNOLOGIES 494,399,332 389,706,574 26,86% 3 COSMIC GLOBAL LTD. 62,499,615 5,69,15,360 9.81% 4 E4E HEALTHCARE (CAPITALINE) 613,160,587 54,56,25,872 12.38% 5 I C R A ONLINE LTD. (SEG.) 156,691,000 11,67,49,267 34.21% 6 JEEVANSCIENTIFIC TECHNOLOGY LTD. 1,721,400,00 0 1,00,86,52,592 70.66% 7 INFOSYS BPO LTD. 11,291,147,909 9,57,73,24,546 17.89% 8 JINDAL INTELLICOM (CAPITALINE) 390,358,799 35,12,69,641 11.13% 9 MINDTREE LTD. (SEG.) 65,653,000,000 5,10,39,05,999 10.76% 10 IGATE GLOBAL SOLUTIONS LTD. 11,845,540,000 9 ,47,11,65,000 25.07% AVERAGE MARGIN 24.77% 6 . THE ASSESSEE FILED OBJECTIONS TO THE ASSESSMENT ORDER BEFORE THE DRP. THE DRP DIRECTED THE TPO TO EXCLUDE THE COMPARABLES WHICH DO NOT PASS THE TURNOVER FILTER OF RS.1 TO 200 CRORES. THE DRP ALSO D IRECTED THE AO / TPO TO CHECK DISCREPANCIES IN THE FIGURE OF COMPARABLES. HOWEVER THE FINAL ASSESSMENT ORDER 7 IT (TP) A NO. 487/BANG/2016 UNDER SECTION 143(3) R.W.S. 144C OF THE ACT WAS PASSED ON 27.01.2016, ADOPTING THE ALP ADJUSTMENT PROPOSED BY THE TPO AT RS.1,83,99,556. 7 . A GGRIEVED BY THE ASSESSMENT ORDER DT.27.01.2016, THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE HAS FILED A PAPER BOOK COMPRISING OF 372 PAGES, INTER ALIA ENCLOSING THEREIN THE RETURN OF INCOME, COMPUTATION STATEMENT, AUDITED FINANCIA L STATEMENTS, COPIES OF SERVICE AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH ITS AES, ANNUAL REPORT OF COMPARABLE COMPANIES, ETC. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THOUGH M/S. ACROPETAL TECHNOLOGIES LIMITED (SEG.), M/S. ACCENTIA TECHNOL OGIES LIMITED AND M/S. MINDTREE LIMITED (SEG.) WERE SELECTED BY THE ASSESSEE IN ITS TP STUDY, THE SAME NEEDS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IT WAS S TATED THAT M/S. MINDTREE LIMITED NEEDS TO BE EXCLUDED AS IT FAILS THE TURNOVER FILTER OF R S.1 TO 200 CRORES AS WELL AS 10 TIMES MULTIPLE RATIO. AS REGARDS M/S. ACROPETAL TECHNOLOGIES LIMITED (SEG.) AND M/S. ACCENTIA TECHNOLOGIES LIMITED, IT WAS SUBMITTED THAT THE ABOVE COMPANIES ARE FUNCTIONALLY DI FFERENT. IT WAS FURTHER CONTENT ED THAT IN THE CASE OF ACROPETAL TECHNOLOGIES LIMITED, SEGMENTAL INFORMATION IS NOT AVAILABLE. AS FAR AS INFOSYS BPO LIMITED, MINDTREE LIMITED AND JEEVAN SCIENTIFIC TECHNOLOGY LIMITED ARE CONCERNED, IT WAS S UBMITTED THAT THE ASSESSING OFFICER IN ITS FINAL ASSESSMENT OR DER HAD NOT COMPLIED WITH THE DIRECTIONS OF THE DRP AND HAS INCLUDED THE ABOVE 8 IT (TP) A NO. 487/BANG/2016 COMPANIES IN LIST OF COMPARABLES . FURTHER THE LEARNED AUTHORISED REPRESENTATIVE RELIED ON THE ORDER OF BANGALORE BENCH OF TRIBUNAL IN THE CASE OF ASPECT TECHNOLOGY CENTRE (IND IA) PVT. LTD. VS. ITO (ITA NO.187/BANG/2016 ORDER DT.30.07.2020 ) FOR THE PROPOSITION THAT ACCENTIAL TECHNOLOGIES LIMITED, ACROPETAL TECHNOLOGIES LIMITED, JEEVAN SCIENTIFIC TECHNOLOGY LIMITED AND ICRA ONLINE LTD. (SEG.) NEED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 8 . THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED ON THE ORDER OF THE DELHI BENCH OF TRIBUNAL IN THE CASE OF E - VALUESERVE SEZ (GURUGAON) P. LTD. VS. ACIT (ITA NO.5147/DEL/2017 DT.28.03.2018) FOR THE PROPOSITION THAT COMPARABLES SELE CTED BY THE ASSESSEE IN ITS TP STUDY CANNOT BE DISREGARDED BY THE ASSESSEE WHEN THERE IS NO FUNCTIONAL DISSIMILARITY. 9 . IN THE REJOINDER, THE LEARNED AUTHORISED REPRESENTATIVE RELIED ON THE LATEST ORDER OF THE BANGALORE BENCH OF TRIBUNAL IN THE CAS E OF NVIDIA GRAPHICS (P) LTD. VS. CIT (2020) 116 TAXMANN.COM 909 (BANG TRIB). IT WAS SUBMITTED THAT THE BANGALORE BENCH OF TRIBUNAL ORDER HAS FOLLOWED THE SPECIAL BENCH ORDER OF THE TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS PVT. LTD. (2010) 38 SO T 307 (CHANDIGARH) (SB) WHEREIN IT WAS HELD THAT COMPARABLE COMPANIES CHOSEN BY THE 9 IT (TP) A NO. 487/BANG/2016 ASSESSEE IN THE TP STUDY CAN BE SOUGHT TO BE EXCLUDED BEFORE THE TRIBUNAL ON ACCOUNT OF FUNCTIONAL DISSIMILARITY OR OTHER VALID POINT. 1 0 . WE HAVE HEARD BOTH THE PARTI ES AND PERUSED THE MATERIAL ON RECORD. IN THE TP STUDY, THE ASSESSEE HAS SELECTED 3 COMPARABLES I.E. M/S. ACROPETAL TECHNOLOGIES LIMITED (SEG.), M/S. ACCENTIA TECHNOLOGIES LIMITED AND M/S. MINDTREE LIMITED (SEG.). IN APPEAL BEFORE US, ASSESSEE CONTENTS (THROUGH ADDITIONAL GROUNDS) THAT THE ABOVE COMPARABLES ARE TO BE EXCLUDED, BECAUSE THESE COMPARABLES WERE IN CLUDED ON INAPPROPRIATE APPRECIATION OF FACTS DURING THE TP STUDY. THE CO - ORDINATE BENCH OF BANGALORE TRIBUNAL IN CASE OF ASPECT TECHNOLOGY CENTRE (INDIA) PVT. LTD. (SUPRA) AND IN THE CASE OF M/S. SWISS RE SHARED SERVICES INDIA PVT. LTD. VS. ACIT REPORTED IN 76 TAXMANN.COM 22 HA D DIRECTED TO EXCLUDE M/S. ACROPETAL TECHNOLOGIES LTD. AND ACCENTIA TECHNOLOGIES LIMITED FROM THE LIST OF COMPARABLES AS T HESE COMPANIES WERE FUNCTIONALLY DIFFERENT FROM ITES SEGMENT. FURTHER, IN LIGHT OF JURISDICTIONAL TRIBUNAL ORDER IN CASE OF ITO VS. MAXIM INDIA INTEGRATED CIRCUITS DESIGN PVT. LTD. IN ITA NO.28/BANG/2012 DT.13.03.2016, M/S. MINDTREE LIMITED DOES NOT PASS THE TURNOVER FILTER OF RS.1 TO 200 CRORES AS WELL AS 10 TIMES MULTIPLE. THE ASSESSEE DID NOT HAVE THE BENEFIT OF THESE DECISIONS AT THE TIME OF TP STUDY. THEREFORE IN THE LIGHT OF THE ORDER OF SPECIAL BENCH OF TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEM S PVT. 10 IT (TP) A NO. 487/BANG/2016 LTD. (SUPRA), WE ARE OF THE VIEW THAT THE ASSESSEE CAN RETRACT FROM ITS TP STUDY AND CONTEND THAT COMPARABLE S SELECTED BY IT ARE TO BE EXCLUDED ON ACCOUNT OF FUNCTIONAL DISSIMILARITY OR OTHER VALID REASON. A SIMILAR VIEW WAS HELD BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF NVIDIA GRAPHICS (P) LTD. VS. CIT (SUPRA), THE RELEVANT FINDING OF THE TRIBUNAL READS AS FOLLOWS : 10. ALL THE AFORESAID COMPANIES WERE CHOSEN BY THE ASSESSEE IN ITS TP ANALYSIS AS A COMPARABLE COMPANY. EVEN BEFORE THE CIT(A), THE ASSESSEE HAD NOT CHOSEN TO CHALLENGE THE AFORESAID COMPANIES BEING CONSIDERED AS A COMPARABLE COMPANY. HOWEVER THE SPECIAL BENCH, ITAT, CHANDIGARH, IN THE CASE OF DCIT VS. QUARKS SYSTEMS PVT. LTD., 42 DTR 414 (CHANDIGARH - SB) HAS HELD THAT T HERE CANNOT BE ESTOPPEL AGAINST LAW AND THAT NON - COMPARABLE COMPANIES EVEN IF SELECTED BY THE ASSESSEE IN TP STUDY CAN BE SOUGHT TO BE EXCLUDED BY THE ASSESSEE BASED ON FUNCTIONAL COMPARABILITY OR OTHER VALID REASONS. IN VIEW OF THE AFORESAID DECISION OF T HE SPECIAL BENCH, WE ADMIT THE ADDITIONAL GROUND FOR ADJUDICATION. 1 1 . THE ORDER OF THE DELHI BENCH OF THE TRIBUNAL RELIED ON BY THE LD.DR IN THE CASE OF E - VALUESERVE SEZ (GURGAON) P. LTD. VS. ACIT (SUPRA) IS DISTINGUISHABLE ON FACTS. IN THE CAS E CONSIDERED BY THE DELHI BENCH OF TRIBUNAL, THE ASSESSEE IN THAT CASE COULD NOT GIVE ANY VALID REASON WHY IT WANT TO EXCLUDE CERTAIN COMPARABLES WHICH ITSELF HAS SELECTED IN ITS TP STUDY. IN OTHER WORDS, THE ASSESSEE IN THE CASE CONSIDERED BY THE DELHI B ENCH OF TRIBUNAL COULD NOT DEMONSTRATE HOW THE COMPARABLE CHOSEN IN ITS TP STUDY WAS FUNCTIONALLY DISSIMILAR. WHEREAS IN THE INSTANT CASE, THE JURISDICTIONAL TRIBUNAL ON SIMILAR SET OF FACTS AND FOR THE SAME ASSESSMENT YEAR HAS HELD THAT COMPARABLES SOUG HT TO BE EXCLUDED NOW BY THE 11 IT (TP) A NO. 487/BANG/2016 ASSESSEE ARE FUNCTIONALLY DISSIMILAR AND IN THE CASE OF MINDTREE LIMITED, IT DOES NOT SATISFY THE TURNOVER FILTER. THEREFORE, WE HOLD THAT THE ASSESSEE IS JUSTIFIED O N THE FACTS AND CIRCUMSTANCES OF TH E CASE TO RETRACT FROM I TS TP STUDY AND CONTEN T THAT M/S. ACROPETAL TECHNOLOGIES LIMITED (SEG.), M/S. ACCENTIA TECHNOLOGIES LIMITED AND M/S. MINDTREE LIMITED (SEG.) ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 1 2 . THE ASSESSEE IS CONTENDING TO EXCLUDE FROM THE LIST O F COMPARABLES M/S. ACROPETAL TECHNOLOGIES LIMITED (SEG.), M/S. ACCENTIA TECHNOLOGIES LIMITED, ICRA ONLINE LTD. AND JEEVAN SCIENTIFIC TECHNOLOGY LIMITED. IN SIMILAR CIRCUMSTANCES AND FOR THE SAME ASSESSMENT YEAR, THE JURISDICTIONAL TRIBUNAL IN THE CASE OF ASPECT TECHNOLOGY CENTRE (INDIA) PVT. LTD. VS. ITO (SUPRA) HAS HELD THAT THE ABOVE COMPANIES ARE FUNCTIONALLY DISSIMILAR AND CANNOT BE TAKEN AS A COMPARABLE. THE RELEVANT FINDING OF THE TRIBUNAL IN THE CASE OF ASPECT TECHNOLOGY CENTRE (INDIA) PVT. LTD. VS. ;ITO (SUPRA) READS AS FOLLOWS : 41. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES. AS FAR AS GR.NO.14 OF THE REVENUES APPEAL IS CONCERNED, THE REVENUE IS SEEKING THE INCLUSION OF ACROPETAL TECHNOLOGIES LTD., JEEVAN SCIENTIFIC TECHNOLOGY LTD., ACCENTIA TECHNOLOGIES LTD., IGATE GLOBAL SOLUTIONS LTD. AND ICRA ONLINE LTD. WE FIND THAT THE ABOVE COMPANIES WERE RIGHTLY REJECTED BY THE DRP AND THE SAME REQUIRES NO INTERFERENCE FROM THIS HONBLE TRIBUNAL. WE FIND THAT ACROPETAL TECHNOLOGIES LTD., IS E NGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND SERVICES, CONTRACT CENTRE SERVICE AND IT ENABLED SERVICES AND THE SAME ARE REPORTED TOGETHER AS ONE SEGMENT. IN THE ABSENCE OF SEGMENTAL DETAILS MADE AVAILABLE, THE COMPANY COULD NOT BE TREATED AS A COMPAR ABLE. THE TPO, WHILE CHOOSING THE COMPANY AS A COMPARABLE, HAS SELECTED ITS ENGINEERING DESIGN SEGMENT (EDS FOR SHORT) WHICH IS IN THE NATURE OF HIGH END IT ENABLED SERVICES WHICH ARE IN THE NATURE OF KNOWLEDGE PROCESS 12 IT (TP) A NO. 487/BANG/2016 OUTSOURCING (KPO). THE HIGH END S ERVICES PROVIDED BY THE COMPANY CANNOT BE COMPARED WITH THE ROUTINE SERVICES PROVIDED BY THE ASSESSEE. THIS IS A SETTLED POSITION AND RELIANCE CAN BE PLACED ON THE DECISION OF THIS HONBLE TRIBUNALS IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. L TD.(ITA NO. 1316/BANG/2012) WHERE IT WAS HELD THAT ACROPETAL CANNOT BE CONSIDERED AS A COMPARABLE TO ASSESSEES PERFORMING ROUTINE LOW END IT ENABLED SERVICES FUNCTION. AS FAR AS EXCLUSION OF COMPANY JEEVAN SCIENTIFIC TECHNOLOGY LTD., WE FIND THAT THIS COMP ANY WAS REJECTED BY THE DRP FOR THE REASON THAT IT WAS ENGAGED IN DIVERSE FUNCTIONS AND THE SAME WERE REPORTED UNDER ONE SEGMENT WITHOUT SEGMENTAL DETAILS REGARDING THE SAME BEING MADE AVAILABLE. THE DRP IS RIGHT IN EXCLUDING THE COMPANY AS WITHOUT SEGMENT AL DETAILS, THE COMPARABILITY OF THE COMPANY CANNOT BE DETERMINED. IN ANY EVENT, THE ERP SEGMENT OF THE COMPANY IS NOT COMPARABLE TO THE ASSESSEE, THE BPO SEGMENT OF THE COMPANY FAILS THE FILTER OF SERVICE INCOME BEING GREATER THAN 75% OF TOTAL REVENUE, AN D THE COMPANY SUFFERS FROM HUGE FLUCTUATIONS WHICH INDICATE THAT CERTAIN PECULIAR CIRCUMSTANCES INFLUENCING THE PROFIT MARGIN OF THE COMPANY EXIST, FOR WHICH APPROPRIATE ADJUSTMENTS CANNOT BE MADE TO BALANCE THE EFFECT. IT IS SUBMITTED THAT THE ERP IMPLEME NTATION SERVICES ARE NOT IN THE NATURE OF IT ENABLED SERVICES WHICH WERE NOTIFIED BY CBDT VIDE NOTIFICATION NO. SO 890(E) DATED 26.09.2000. IF THE BPO SEGMENT IS CONSIDERED, THE COMPANY FAILS TO SATISFY THE TPOS OWN FILTER OF SERVICE REVENUE FROM THE RELE VANT SEGMENT HAVING TO BE IN EXCESS OF RS. 1 CRORE AS THE REVENUE FROM THE BPO SEGMENT OF THE SAID COMPANY IS RS. 79 LAKHS ONLY. THE COMPANY IS THEREFORE NOT COMPARABLE TO THE ASSESSEE. THIS TRIBUNAL IN THE CASE OF SWISS RE SHARED SERVICES (INDIA) PVT. LTD . V. ACIT (ORDER DATED 08.07.2016 IN IT(TP)A NO. 380/BANG/2016) DIRECTED THE TPO TO VERIFY AS TO WHETHER THE TPOS FILTER OF SALES > 1 CRORE IS SATISFIED BY THIS COMPANY. IN THE PRESENT CASE, AS CAN BE SEEN FROM THE ANNUAL REPORT OF THE COMPANY THE SALE OF THE COMPANY IN RESPECT OF THE BPO SEGMENT AMOUNTS TO ONLY 79 LAKHS, AND THEREFORE IT FAILS THE TPOS FILTER. AS FAR AS EXCLUSION OF ACCENTIA TECHNOLOGIES LTD., IS CONCERNED, WE FIND THAT THIS COMPANY WAS EXCLUDED BY THE DRP FOR THE REASON THAT THE DETAILS REGARDING ITS DIVERSE FUNCTIONS WERE REPORTED UNDER ONE SEGMENT, WITHOUT SEGMENTAL DETAILS REGARDING THE SAME BEING MADE AVAILABLE. IN THE ABSENCE OF SEGMENTAL DETAILS BEING MADE AVAILABLE, THE COMPARABILITY OF THE COMPANY WITH THAT OF THE ASSESSEE CANNOT BE DETERMINED. IN ANY EVENT, ACCENTIA IS ENGAGED IN PROVIDING HIGH END SERVICES IN THE NATURE OF KNOWLEDGE PROCESS OUTSOURCING (KPO) WHICH IS EVIDENT FROM ITS ANNUAL REPORT, WHEREAS, THE ASSESSEE IS ENGAGED IN RENDERING ROUTINE LOW END INFORMATION TECHN OLOGY ENABLED SERVICES. FURTHER, THE SAID COMPANY NOT ONLY DOES MEDICAL TRANSCRIPTIONS, BUT HAS ALSO VENTURED INTO HEALTHCARE RECEIVABLES CYCLE MANAGEMENT AND HIGH END CONSULTANCY TO START - UPS REQUIRING FIELD EXPERTS. AS CAN BE SEEN FROM THE ANNUAL REPORT , CODING INCOME IS CONTRIBUTING 15% OF THE TOTAL INCOME WHICH ACTIVITIES ARE AKIN TO SOFTWARE DEVELOPMENT ACTIVITY WHILE THE ASSESSEE IS A MERE PROVIDER OF IT ENABLED SERVICES. THE COMPANY HAS INVESTED HUGE SUMS IN THE DEVELOPMENT OF EMR SOFTWARE. SEGMENTA L DETAILS OF ITS VARIOUS ACTIVITIES ARE UNAVAILABLE. THE COMPANY FURTHER OWNS SIGNIFICANT INTANGIBLES. THIS TRIBUNAL IN THE CASE OF SWISS RE SHARED INDIA PVT. LTD. V. ACIT [TS - 598 - ITAT - 2016(BANG) - TP AT PARAS 9 - 20 ON PAGES 7 - 21] WHERE, IN SIMILAR CIRCUMSTAN CES AND FOR THE SAME ASSESSMENT YEAR, THIS HONBLE TRIBUNAL DIRECTED THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. ACCENTIA TECHNOLOGIES LTD. IS, THEREFORE, NOT COMPARABLE TO THE ASSESSEE AND WAS RIGHTLY REJECTED AS A COMPARABLE. AS FAR AS IG ATE GLOBAL SOLUTIONS LTD., IS CONCERNED, DRP REJECTED THIS COMPANY AS COMPARABLE COMPANY FOR THE REASON THAT THE DETAILS REGARDING ITS DIVERSE FUNCTIONS ARE REPORTED UNDER ONE SEGMENT WITHOUT SEGMENTAL DETAILS REGARDING THE SAME BEING MADE AVAILABLE. THERE FORE, THE COMPARABILITY OF THE COMPANY CANNOT BE DETERMINED. IT IS SEEN THAT IGATE IS ENGAGED IN PROVISION OF VARIED SERVICES AND NO SEGMENTAL BREAKUP OF THE SAME IS AVAILABLE 13 IT (TP) A NO. 487/BANG/2016 IN ITS ANNUAL REPORT. FURTHER, THE COMPANYS SOFTWARE SERVICES SEGMENT IS CLUBB ED WITH ITS ITES SEGMENT AND THERE IS NO BREAKUP BETWEEN THE REVENUES GENERATED FROM THE TWO SEGMENTS. DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HAS ACQUIRED MAJORITY EQUITY INTEREST IN PATNI COMPUTER SYSTEMS LTD. RENDERING IT INCOMPARABLE DUE TO IT FAILING THE TPOS OWN FILTER OF HAVING PECULIAR ECONOMIC CIRCUMSTANCES. IN ADDITION, THE COMPANY OWNS SIGNIFICANT INTANGIBLES IN ITS NAME, WHICH IS EVIDENT FROM THE BALANCE SHEET OF THE COMPANY FOR THE FINANCIAL YEAR 2010 - 11. FOR THE REASONS ABOVE, THE CO MPANY IS NOT COMPARABLE TO THE ASSESSEE AND THE DRPS FINDINGS ON EXCLUSION OF IGATE IS RIGHT IN LAW. AS FAR AS THE COMPANY ICRA ONLINE LTD., IS CONCERNED, THE DRP EXCLUDED THIS COMPANY FOR THE REASON THAT THE DETAILS REGARDING ITS DIVERSE FUNCTIONS ARE R EPORTED UNDER ONE SEGMENT WITHOUT SEGMENTAL DETAILS REGARDING THE SAME BEING MADE AVAILABLE. THEREFORE, THE COMPARABILITY OF THE COMPANY CANNOT BE DETERMINED. IN ANY EVENT, THIS COMPANY IS FUNCTIONALLY DISSIMILAR FOR THE REASON THAT THE OUTSOURCED SERVICES SEGMENT OF THE COMPANY IS ENGAGED IN THE PROVISION OF HIGH END CONSULTANCY SERVICES WHICH CANNOT BE COMPARED TO THE ASSESSEE WHO IS INTO PROVISION OF LOW END IT ENABLED SERVICES WHICH ARE ROUTINE IN NATURE. FURTHER, THE COMPANY FAILS THE TPOS OWN FILTER OF EXPORT TURNOVER IN EXCESS OF 75% OF TOTAL SALES AS THE EXPORT TURNOVER OF THE COMPANY AMOUNT TO ONLY 61.88% OF ITS SALES. THEREFORE, THE COMPANY CANNOT BE HELD AS A COMPARABLE TO THE ASSESSEE. 13. SINCE THE PROFILE OF THE ASSESSEE AND THAT OF THE ASPECT TECHNOLOGY CENTRE (INDIA) PVT. L T D. VS. ITO (SUPRA) BEING SIMILAR AND THE ASSESSMENT YEAR BEING THE SAME (I.E. A.Y. 2011 - 12), WE FOLLOW THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ASPECT TECHNOLOGY CENTRE (INDIA) PVT. LTD. VS. ITO (SUPRA) AND DIRECT THE AO / TPO TO EXCLUDE M/S. ACROPETAL TECHNOLOGIES LIMITED (SEG.), M/S. ACCENTIA TECHNOLOGIES LIMITED, ICRA ONLINE LTD. AND JEEVAN SCIENTIFIC TECHNOLOGY LIMITED FROM THE LIST OF COMPARABLES. 14. THE DRP IN ITS DIRECTION DT.28.12.2015 HAS HE LD THAT THE COMPANIES WITH TURNOVER OF LOWER THAN RS.1 CRORE AND HIGHER THAN RS.200 CRORES SHOULD BE 14 IT (TP) A NO. 487/BANG/2016 EXCLUDED FROM THE COMPARABILITY ANALYSIS (REFER PAGE 4 OF DRP DIRECTION). HOWEVER, THE DIRECTIONS OF THE DRP WAS NOT FOLLOWED BY THE AO / TPO AND ALP ADJUSTMENT PROPOSED BY THE TPO WAS INCLUDED IN THE FINAL ASSESSMENT ORDER. IN THE ABSENCE OF THE APPEAL BY THE REVENUE, THE DIRECTIONS OF THE DRP HAS BECOME FINAL. THE ASSESSEE'S TURNOVER IS RS.23.76 CRORES. THEREFORE, THE AO / TPO IS DIRECTED TO EXAMIN E WHETHER INFOSYS BPO LTD., MINDTREE LIMITED AND I - GATE GLOBAL SOLUTIONS LTD. ARE TO BE EXCLUDED ON ACCOUNT OF DRP DIRECTION ON TURNOVER FILTER. I N THE LIGHT OF ABOVE, THE GROUND NO.7 IS ALLOWED AND GROUND NO.12 IS RESTORED TO AO / TPO. 15 . IN G ROU ND NO.8, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT AO / TPO ERRED IN NOT REDUCING THE WORKING CAPITAL ADJUSTMENT OF 1.47% FR O M THE FINAL LIST OF ALP MARGIN . IT WAS STATED THAT THE TPO HAS SPECIFICALLY PROVIDED FOR 1.4 7 % AS PER THE TPO ORDER ( PAGE 20 OF TPOS ORDER) HOWEVER WHILE COMPUTING THE ALP, THE TPO ADOPTED WORKING CAPITAL ADJUSTMENT OF ONLY 0.13% . WE ARE OF THE VIEW THAT THIS ISSUE OUGHT TO HAVE BEEN RAISED IN A RECTIFICATION APPLICATION. MOREOVER, THE ASSESSEE HAS NOT CONTENDED BEFOR E THE DRP THAT THE WORKING CAPITAL ADJUSTMENT OUGHT TO BE 1.47% INSTEAD OF 0.13% GRANTED BY THE TPO WHILE 15 IT (TP) A NO. 487/BANG/2016 COMPUTING THE ALP. THEREFORE GROUND NO.8 RAISED IS REJECTED. IT IS ORDERED ACCORDINGLY. 1 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/ - SD/ - ( A.K. GARODIA ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 25 .09. 20 20 . *REDDY GP COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE