Asst.C.I.T., Bangalore V. M/s 24/7 Customer Pvt. Ltd., Bangalore

ITA 498/BANG/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8918 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 27-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; International transaction; Question of law; Working capital adjustments; Bad and doubtful debts; Set aside
• Section: 92C; 143(3); 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND S HRI VIKRAM SINGH YADAV , ACCOUNTANT MEMBE IT ( TP) A NO. 498/ BANG / 2015 ASSESSMENT YEAR : 2010 - 11 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(4)(1), BANGALORE. VS. 24/7 CUSTOMER PRIVATE LTD., 2/1, 2/2, 2/3 & 5/1, EMBASSY GOLF LINKS BUSINESS PARK, CHALLAGHATTA VILLAGE, VARTHUR HOBLI, OFF INTERMEDIATE RING ROAD, BANGALORE 560 071. P AN: AAACZ 1014A APP ELLANT RESPONDENT IT (TP) A NO.550/BANG/2015 & CO NO.129/BANG/2015 [IN IT( TP) A 498/BANG/ 2015] ASSESSMENT YEAR : 2010 - 11 24/7 CUSTOMER PRIVATE LTD., EMBASSY GOLF LINKS BUSINESS PARK, CHALLAGHATTA VILLAGE, VARTHUR HOBLI, OFF INTERMEDIATE RING ROAD, BANGALORE 560 071. P AN: AAACZ 101 4 A VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(4)(1), BANGALORE. APP ELLANT / CROSS OBJECTOR RESPONDENT REVENUE BY : S HRI C.H. SUNDAR RAO, CIT - I (DR ), ITAT, B A NGALORE. A SSESSEE BY : NONE DATE O F HEARING : 12 .09.2019 DATE O F PRONOUNCEMENT : 20 .09.2019 IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 2 OF 22 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT IT(TP)A NO.498/BANG/2015 IS AN APPEAL BY THE R EVENUE, WHILE IT(TP)A NO.550/BANG/2015 IS AN APPEAL BY THE ASSESS EE. BOTH THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 27.01.2015 OF THE ASSESSING OFFICER PASSED U/S. 143(3) R.W.S. 144C(13 ) OF THE INCOME-TAX ACT, 1961 [THE ACT] IN RELATION TO ASSESSMENT YEA R 2009-10. 2. THE ASSESSEE HAS FILED CROSS OBJECTION NO.129/B ANG/2015 IN THE APPEAL FILED BY THE REVENUE. 3. THE ISSUE THAT ARISES FOR CONSIDERATION IN BOTH THE APPEALS BY THE ASSESSEE AND REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE ARE IN RELATION TO DETERMINATION OF ARMS LENGTH PRICE (AL P) IN RESPECT OF INTERNATIONAL TRANSACTION OF RENDERING INFORMATION TECHNOLOGY ENABLED SERVICES [ITES] BY THE ASSESSEE AND ITS ASSOCIATED ENTERPRISE (AE). 4. THE ASSESSEE PROVIDED CALL CENTRE SERVICES TO TH E CUSTOMERS IDENTIFIED BY 24 X 7 INC. FROM ITS DEVELOPMENT CENT RE LOCATED IN INDIA. FOR RENDERING SUCH SERVICES TO THE AE, THE ASSESSEE REC EIVED A CONSIDERATION OF RS.140,91,82,455 FROM THE AE. IN SUPPORT OF THE CLAIM BY THE ASSESSEE THAT THE PRICE RECEIVED FROM THE AE IN THE INTERNAT IONAL TRANSACTION WAS AT ARMS LENGTH, THE ASSESSEE FILED A TRANSFER PRICING ANALYSIS CHOOSING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD (MAM) AND ADOPTING PROFIT LEVEL INDICATOR (PLI) FOR THE PURPOSE OF COMPARABILITY OF PROFIT MARGINS OF THE COMPARABLE C OMPANIES WITH THAT OF THE ASSESSEE, AS OPERATING PROFIT TO OPERATING COST (OP/OC). THE OP/OC OF THE ASSESSEE WAS AS FOLLOWS:- IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 3 OF 22 OPERATING INCOME(EXCLD OTHER INCOME) 1,409,246,534 TOTAL EXPENDITURE 1,306,671,062 LESS: EXCHANGE LOSS 11,182,814 LESS: PROVISION FOR DOUBTFUL ADVANCE/DEPOSITS 18,595,670 LES S : INTEREST ON LOAN 139,405 OPERATING EXPENDITURE 1,276,753,173 OPERATING PROFIT 132,49 3,361 OP/OC 10.38% 5. THE ASSESSEE HAD CHOSEN COMPARABLE COMPANIES AND ARITHMETIC PROFIT MARGIN OF THOSE COMPANIES WERE WITHIN +/- 5% RANGE OF PROFIT MARGIN OF THE ASSESSEE AND THE ASSESSEE CLAIMED THAT THE P RICE RECEIVED BY IT WAS AT ARMS LENGTH. THE TPO TO WHOM THE DETERMINATION OF ALP WAS REFERRED TO BY THE AO U/S. 92CA OF THE ACT, REJECTED 8 OUT O F 10 COMPARABLE COMPANIES CHOSEN BY THE ASSESSEE IN ITS TP ANALYSIS . AFTER ADOPTING HIS OWN ANALYSIS OF DATA OF COMPANIES IN THE PUBLIC DOM AIN, THE TPO ARRIVED AT A SET OF 10 COMPARABLE COMPANIES AND THE AVERAGE AR ITHMETIC PROFIT MARGIN OF THESE 10 COMPANIES WERE AS FOLLOWS:- SLNO NAME PLI 1 ACCENTIA TECHN OLOGIES LTD 43.06% 2 ACROPETAL TECHNOLOGIES LTD (SEG.) 22.27% 3 E-CLERX SERVICES LTD 55.97% 4 FORTUNE INFOTECH LTD 22.80% 5 ICRA ONLINE LTD(SEG) 43.39% 6 INFORMED TECHNOLOGIES INDIA LTD 26.15% IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 4 OF 22 7 INFOSYS BP 31.23% 8 COSMIC GLOBAL LTD 14.97% 9 SUNDARAM BUSINESS SERVICES LTD -12.31% 10 JEEVAN SCIENTIFIC TECHNOLOGY LTD.(SEG.) 21.05% AVERAGE 26.86% 6. AFTER ALLOWING ADJUSTMENT TOWARDS WORKING CAPITA L ADJUSTMENT, THE TPO COMPUTED ARMS LENGTH PRICE AND ADDITION TO THE TOTAL INCOME ON ACCOUNT OF DETERMINATION OF ALP AS FOLLOWS:- IT ENABLED SERVICES ARM'S LENGTH MEAN MARGIN ON COST 26.86% LESS: WORKING CA PITAL ADJUSTMENT (ANNEX.C) 0.14% ADJUSTED MARGIN 26.72% OPERATING COST 1,276,753,173 ARMS LENGTH PRICE (ALP) 126.72% OF OPERATING COST 1,617 , 901,621 PRICE RECEIVED 1,409,246,534 SHORTFALL BEING ADJUSTMENT U/S 92CA: 208,655,087 7. AGGRIEVED BY THE ADDITION AS MADE ABOVE IN THE A SSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. 8. THE DRP ACCEPTED THAT COMPANIES HAVING EMPLOYEE COST TO SALES OF LESS THAN 25% SHOULD BE EXCLUDED. ACCORDING TO THE ASSESSEE, THE EMPLOYEE COST CONSTITUTES MAJOR COMPONENT IN A SERV ICE INDUSTRY AND EXPENDITURE ON IT WAS A DIRECT REFLECTION OF THE NA TURE OF BUSINESS UNDERTAKEN BY AN ASSESSEE. IF THE EMPLOYEE COST IS VERY LOW, THAT WOULD BE AN INDICATION THAT COMPANIES OUTSOURCE THEIR FUN CTIONS TO THIRD PARTIES IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 5 OF 22 AND SUCH COMPANIES CANNOT BE TAKEN FOR THE PURPOSE OF BENCHMARKING THE PROFITS THAT ARE EARNED BY PURE ITES COMPANIES. TH E DRP ACCEPTED THE STAND OF ASSESSEE AND BY APPLYING THE AFORESAID FIL TER, EXCLUDED JEEVAN SCIENTIFIC TECHNOLOGY LTD., WHERE EMPLOYEE COST WAS 21.05% TO SALES AND ACROPETAL TECHNOLOGIES LTD. WHERE EMPLOYEE COST WAS 12.11% OF THE SALES. 9. THE ASSESSEE ALSO SUBMITTED BEFORE THE DRP THAT THE TPO APPLIED LOWER TURNOVER FILTER OF RS.1 CRORE IN SELECTING CO MPARABLES I.E., COMPANIES WITH TURNOVER OF RS.1 CRORE AND BELOW, WERE NOT CON SIDERED FOR COMPARISON AT ALL. THE ASSESSEE CONTENDED BY THE SAME LOGIC, COMPANIES HAVING HUGE TURNOVER ALSO OUGHT TO HAVE BEEN EXCLUDED FOR THE P URPOSE OF COMPARISON. THE ASSESSEE CITED EXISTENCE OF GOODWILL, ECONOMIES OF SCALE AND OTHER FACTORS AS REASON FOR EXCLUDING COMPANIES WITH HIGH TURNOVER. THE ASSESSEE RELIED ON THE DECISION OF THE ITAT BANGALO RE BENCH IN THE CASE OF GENESIS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DC IT, ITA NO.1231/BANG/2010, WHEREIN THE TRIBUNAL HELD THAT COMPANIES WITH TURNOVER OF RS.200 CRORES SHOULD NOT BE COMPARED WI TH COMPANIES HAVING TURNOVER OF LESS THAN RS.200 CRORES. THE DRP ACCEP TED THE SUBMISSION OF THE ASSESSEE AND EXCLUDED INFOSYS BPO LTD. WHICH HA D A TURNOVER O FRS.1226.63 CRORES. BY THE SAME LOGIC, E-CLERX SER VICES LTD. HAVING TURNOVER OF RS.257 CRORES ALSO OUGHT TO HAVE BEEN E XCLUDED, BUT THE ORDER OF DRP IS SILENT ON EXCLUSION OF THIS COMPANY. 10. THE NEXT SUBMISSION OF THE ASSESSEE WAS THAT WH EREVER A COMPARABLE COMPANY HAD TRANSACTIONS WITH RELATED PA RTY OF MORE THAN 25%, SUCH COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE PROCESS OF EXCLUDING COMPANIES ON TH E BASIS OF EXISTENCE OF RELATED PARTY TRANSACTION IS APPLICATION OF RPT FILTER. THE DRP HELD THAT THE THRESHOLD LIMIT OF RPT SHOULD BE ZERO AND ANY P ARTY HAVING RPT EVEN A IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 6 OF 22 SINGLE RELATED PARTY TRANSACTION SHOULD BE EXCLUDED FOR THE PURPOSE OF COMPARISON. BY APPLYING THE AFORESAID FILTER, THE DRP EXCLUDED ACCENTIA TECHNOLOGIES LTD., ACROPETAL TECHNOLOGIES LTD., COS MIC GLOBAL LTD. AND JEEVAN SCIENTIFIC TECHNOLOGY LTD. FROM THE LIST OF COMPARABLES. 11. THE NEXT CONTENTION OF THE ASSESSEE BEFORE THE DRP WAS THAT PROVISION FOR DOUBTFUL DEBTS SHOULD BE CONSIDERED A S OPERATING EXPENSES AND SHOULD NOT BE EXCLUDED WHILE COMPUTING THE PROF IT MARGIN OF THE ASSESSEE. THIS WAS REJECTED BY THE DRP BY OBSERVIN G AS FOLLOWS:- 7.2 THE TAX PAYER'S OBJECTIONS AS ABOVE HAVE BEEN CONSIDERED. OPERATING EXPENSES ARE THOSE EXPENSES WHICH ARE INC URRED TO EARN OPERATIONAL INCOME AND HAVE A DIRECT NEXUS WITH THE REVENUE. DOUBTFUL DEBTS CANNOT BE CONSIDERED AS OPERATING EX PENSES SINCE THE GENESIS OF THE DEBT AND ITS WRITE OFF ARE INTIM ATELY LINKED TO THE BUSINESS WISDOM AS FAR AS THE TIMING OF IDENTIF ICATION AND CLAIM AS EXPENDITURE IS CONCERNED. THEY ARE NOT INC URRED IN THE NORMAL COURSE OF BUSINESS TRANSACTION AND ARE PECUL IAR TO SPECIFIC BUSINESS CONDITIONS. THIS POSITION FINDS ACCEPTANCE IN THE CASE OF TELCORDIA TECHNOLOGIES (INDIA) PVT. LTD. VS. ACIT ( 2012) 22 TAXMANN.COM 96 (ITAT MUM). HENCE, THE OBJECTION CAN NOT BE ACCEPTED. 12. THE NEXT OBJECTION OF THE ASSESSEE WAS THAT TH E TPO CALCULATED THE WORKING CAPITAL ADJUSTMENT OF THE ASSESSEE AND COMP ARABLES AND BY DOING SO, THE WORKING CAPITAL ADJUSTMENT WAS MUCH HIGHER THAN 0.23% WORKING CAPITAL ADJUSTMENT ALLOWED BY THE TPO. THE ASSESSE E POINTED OUT THAT 0.23% WAS THE AVERAGE COST OF CAPITAL OF THE COMPAR ABLE COMPANIES AND THE TPO OUGHT TO HAVE ALLOWED THE WORKING CAPITAL A DJUSTMENT ON THE BASIS OF ACTUALS WORKED OUT BY THE TPO AND OUGHT NOT TO H AVE RESTRICTED THE REDUCTION OF ARITHMETIC PROFIT MARGIN OF COMPARABLE COMPANIES ONLY TO THE EXTENT OF 0.23%. THE DRP REJECTED THE CONTENTION O F ASSESSEE OBSERVING AS FOLLOWS:- IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 7 OF 22 8.2 THE OBJECTIONS OF THE TAXPAYER AS ABOVE HAVE B EEN CONSIDERED. THE REASON FOR RESTRICTION OF THE WORKI NG CAPITAL ADJUSTMENT TO 0.23% HAS BEEN GIVEN BY THE TPO IN PA GE 15 OF HIS ORDER ALONG WITH THE REASON FOR NON-INCLUSION OF AD VANCES FROM AES AS FOLLOWS - 'THE BALANCE PAYABLES NOT CONSIDERED IN CALCULATION OF NET WORKING CAPITAL OF THE TESTED PARTY IS DUE TO THE F ACT THAT THEY ARE INVESTED EITHER IN FIXED ASSETS OR IN THE CURRENT ASSETS HAVING NO COST, WHEREAS IN TRANSFER PRICING THOSE RECEIVABLES ARE TAKEN INTO CONSIDERATION THAT REDUC E THE WORKING CAPITAL REQUIREMENT AND ACCORDINGLY THE COS T OF WORKING CAPITAL THAT MUST BE RECOVERED FROM THE CUSTOMERS BY FACTORING IN THE SALES PRICE. ANY EXCES SIVE ADVANCE WHICH IS RECEIVED FROM THE HOLDING COMPANY BY THE WHOLLY OWNED SUBSIDIARIES (WOS) CANNOT BE FACTO RED IN REDUCING THE SALES PRICE AND LESS SALE PRICE CAN NOT BE DEFENDED ON THE GROUND THAT DUE TO NEGATIVE COST OF CAPITAL IT IS MANAGING TO HAVE ARM'S LENGTH PROFIT MARGIN EVEN IF IT IS HAVING LOW PROFIT MARGIN ON OPERATING ACTIVITY AS DISCUSSED IN THE EXAMPLE GIVEN ABOVE. IN A RELAT ED PARTY SCENARIO, THE ENTIRE PAYABLES/ADVANCES CANNOT BE CONSIDERED IN WORKING CAPITAL ADJUSTMENT AS IN ANY BUSINESS THERE IS ON OPTIMUM WORKING CAPITAL THAT C AN BE FOUND OUT ONLY ON THE BASIS OF COMPARISON WITH THIR D PARTIES US THIRD PARTIES ALONE REPRESENT THE OPTIMU M WORKING CAPITAL REQUIREMENT. ACCORDINGLY THE WORKING CAPITAL ADJUSTMENT IS RESTRICTED TO 0.23%.' 8.3 BOTH THE REASONS GIVEN AS ABOVE BY THE TPO ARE FOUND TO BE APPROPRIATE FOR PURPOSES OF TP ANALYSIS WHICH RE QUIRES THAT THE ATTEMPT SHOULD BE TO ENSURE THE MAXIMUM EXTENT OF C OMPARABILITY BETWEEN THE TESTED ENTITY AND THE UNCONTROLLED COMP ARABLES. SINCE THE TAXPAYER IS A CAPTIVE UNIT REMUNERATED ON COST PLUS BASIS IT IS REASONABLE TO UNDERSTAND THE COST OF WORKING CAPITA L TOWARDS ADVANCES AS 'NIL'. THE UPPER CAP OF 0.23% IS ALSO C ONSIDERED REASONABLE IN THE INTEREST OF PROTECTING STRICT COM PARABILITY IN ALL FACETS WHICH AFFECT PRICES & PROFITABILITY. THE TPO 'S APPROACH ENSURES THIS. HENCE, THE OBJECTION RAISED BY THE TA XPAYER IN THIS REGARD CANNOT BE ACCEPTED. THE OBJECTION IN RESPECT OF ERRONEOUS PLR ADOPTED IS FACTUAL FOR WHICH THE AO/TPO IS DIRE CTED TO CALCULATE THE SAME CORRECTLY BEFORE ADOPTION FOR WO RKING CAPITAL ADJUSTMENT CALCULATION. IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 8 OF 22 13. THE ASSESSEE PRAYED FOR ALLOWING MARKET RISK AD JUSTMENT AND THE TPO DIRECTED THE AO TO ALLOW WORKING CAPITAL ADJUST MENT. BESIDES THE ABOVE, THE DRP ALSO HELD THAT ACCENTIA TECHNOLOGIES LTD. CANNOT BE REMOVED FROM LIST OF COMPARABLES ON THE GROUND OF F UNCTIONAL NON- COMPARABILITY. THE DRP ALSO REJECTED THE PLEA OF A SSESSEE FOR EXCLUSION OF ACROPETAL TECHNOLOGIES LTD. ON THE GROUND OF FUNCTI ONAL COMPARABILITY. THE ASSESSEE ALSO CONTENDED THAT AS AGAINST THE COMPUTA TION OF 12% AS OP TO OC OF ASSESSEE, THE TPO WAS NOT RIGHT IN ARRIVING A T PLI OF 10.38%. THE DRP DIRECTED THE TPO TO COMPUTE THE CORRECT PLI BY TREATING THE FOREIGN EXCHANGE GAIN/LOSS AS OPERATIONAL IN NATURE AND ALS O CONSIDERING OTHER OPERATING INCOME AND OPERATING EXPENDITURE. 14. AGGRIEVED BY THE AFORESAID DIRECTIONS OF THE DR P, THE REVENUE AS WELL AS THE ASSESSEE HAVE FILED APPEALS. THE ASSESS EE HAS ALSO FILED CROSS OBJECTIONS, APART FROM THE APPEAL FILED AGAINST THE IMPUGNED ORDER OF CIT(APPEALS). 15. NOTICE OF HEARING OF THIS APPEAL WAS SERVED THR OUGH DR AND A COPY OF ACKNOWLEDGEMENT IS PLACED ON RECORD. NONE APPEA RED ON BEHALF OF ASSESSEE AT THE TIME OF HEARING. WE THEREFORE PROC EED TO DECIDE THE APPEALS AND THE CO ON MERITS, AFTER HEARING THE SUB MISSION OF THE LD. DR AND PERUSING THE MATERIAL ON RECORD. 16. AS FAR AS THE APPEAL OF REVENUE IS CONCERNED, T HE GROUNDS OF APPEAL READ AS FOLLOWS:- THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL ARE OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN LAW IN DIRECTING THE AO TO EXCLUDE THE EXPENDITURE INCURRED IN FOREIGN CURRENC Y BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM TOTAL TURNOVER FOR THE PURPOSE IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 9 OF 22 OF COMPUTATION OF DEDUCTION U/S 10A, WITHOUT APPREC IATING THE FACT THAT THE STATUTE ALLOWS EXCLUSION OF SUCH EXPE NDITURE ONLY FROM EXPORT TURNOVER BY WAY OF SPECIFIC DEFINITION OF EXPORT TURNOVER AS ENVISAGED BY SUB-CLAUSE (4) OF EXPLANAT ION 2 BELOW SUB-SECTION (8) OF SECTION 10A AND THE TOTAL TURNOV ER HAS NOT BEEN DEFINED IN THIS SECTION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN DIRECTING THE AO TO COMPUTE DEDUCTION U/S 10A IN THE ABOVE MANNER BY PLACING RE LIANCE ON THE DECISION OF HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF M/S TATA ELXSI LTD., WHICH HAS NOT BECOME FINAL SINCE T HE SAME HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND SLPS ARE PE NDING BEFORE THE HON'BLE SUPREME COURT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER THE HON'BLE DISPUTE RESOLUTION PANEL IS CORRECT IN HOLDING THAT THE SIZE AND TURNOVER OF THE COMPANY ARE DECIDING F ACTORS FOR TREATING A COMPANY AS A COMPARABLE AND ACCORDINGLY ERRED IN EXCLUDING THE COMPARABLES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER THE HON'BLE DISPUTE RESOLUTION PANEL IS CORRECT IN EXCLUDING UNCONTROLLED COMPARABLES HAVING TURNOVER MORE THAN Z. 200 CRORES IN THE ABSENCE OF TURNOVER CRITERION PRESCRI BED IN RULE 10 B OF INCOME TAX RULES AND ALSO THERE BEING NO CORRE LATION BETWEEN TURNOVER AND PROFIT MARGIN. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE HON'BLE DISPUTE RESOLUTION PANEL ERRED IN APPLYING 0% RPT. 7 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , WHETHER THE HON'BLE DISPUTE RESOLUTION PANEL IS CORRECT IN DIRECTING THE TPO TO COMPUTE RISK ADJUSTMENT IN THE CASE OF THE T AXPAYER WITHOUT ADDUCING ANY METHOD FOR THE SAME. 8. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL IN SO FAR AS IT RELATES TO THE ABO VE GROUNDS MAY BE REVERSED. IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 10 OF 22 9. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 17. AS FAR AS GROUND NOS.2 & 3 OF THE REVENUE ARE C ONCERNED, IT IS NOT A DISPUTE ARISING OUT OF DETERMINATION OF ALP, BUT IT IS A DISPUTE WITH REGARD TO COMPUTATION OF DEDUCTION U/S. 10A OF THE ACT. THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S.10A OF THE ACT ON THE PROFIT S DERIVED FROM ITS SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI) REGISTERE D UNIT. SEC.10A(4) PROVIDES THE METHODOLOGY OF COMPUTATION OF DEDUCTIO N U/S.10A OF THE ACT AND IT LAYS DOWN THAT THE PROFITS DERIVED FROM EXPO RT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS T O THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFT WARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAK ING. EXPORT TURNOVER HAS BEEN DEFINED UNDER EXPLANATION 2 (IV) TO SEC.10A AS : 'EXPORT TURNOVER' MEANS THE CONSIDERATION IN RESPEC T OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB-SECTION (3), BUT DOES NOT IN CLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTS IDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN P ROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA. 18. WHILE COMPUTING THE DEDUCTION U/S.10A OF THE AC T, THE AO NOTICED THAT DURING THE RELEVANT ASSESSMENT YEAR, THE ASSES SEE HAD INCURRED CERTAIN EXPENDITURE IN FOREIGN CURRENCY, WHICH WAS NOT REDUCED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SEC TION 10A OF THE INCOME TAX ACT, 1961. THE AO THEREFORE EXCLUDED TH E AFORESAID SUM FROM IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 11 OF 22 THE EXPORT TURNOVER WITHOUT EXCLUDING THEM FROM THE TOTAL TURNOVER. AS A RESULT, THE DEDUCTION CLAIMED U/S.10A OF THE ACT BY THE ASSESSEE WAS ALLOWED AT A LESSER SUM THAN WHAT WAS CLAIMED BY TH E ASSESSEE. IT WAS THE PLEA OF THE ASSESSEE IN THE APPEAL AGAINST THE ASSESSMENT ORDER BEFORE THE DRP THAT AT ALL TIMES DURING THE RELEVAN T PREVIOUS YEAR, IT WAS ENGAGED IN DEVELOPMENT OF COMPUTER SOFTWARE AND NOT IN RENDERING ANY TECHNICAL SERVICES. COMMUNICATION EXPENSES WERE IN CURRED NOT FOR EXPORT OF COMPUTER SOFTWARE OUTSIDE INDIA AND THEREFORE TH E EXCLUSION FROM EXPORT TURNOVER AS DONE BY THE AO WAS NOT CORRECT. WITHOU T PREJUDICE TO ITS CONTENTION THAT THE AFORESAID SUMS SHOULD NOT BE EX CLUDED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S.10A OF THE A CT, THE ASSESSEE HAS ALSO MADE AN ALTERNATE PRAYER THAT EXPENSES THAT AR E REDUCED FROM THE EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOT AL TURNOVER AND IN THIS REGARD HAS PLACED RELIANCE ON THE DECISION OF THE H ONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) WHEREIN IT WAS HELD THAT WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT EXPENSES THAT ARE REDUCED FROM THE EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER. THE DRP ALLOWED ALTERNATIVE RELIEF PLEAD ED BY THE ASSESSEE. 19. AGGRIEVED BY THE ORDER OF DRP, THE REVENUE HAS RAISED GR.NO.2 & 3 BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE A SSESSEE RELIED ON THE ORDER OF THE DRP. 20. WE HAVE CONSIDERED HIS SUBMISSION. TAKING IN TO CONSIDERATION THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARN ATAKA IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) , WE ARE OF THE VIEW THAT EXPENDITURE INCURRED IN FOREIGN CURRENCY SHOULD BE EXCLUDED BOTH FROM EXPORT TURNOVER AND TOTAL TURNOVER. WE ARE OF THE VIEW THAT AS OF TODAY, LAW DECLARED BY THE HON'BLE HIGH COURT OF KARNATAKA WHI CH IS THE JURISDICTIONAL HIGH COURT IS BINDING ON US. MOREOVER, THE ORDER O F THE HONBLE KARNATAKA IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 12 OF 22 HIGH COURT HAS BEEN UPHELD BY THE HONBLE SUPREME C OURT IN THE CASE OF CIT V. HCL TECHNOLOGIES LTD. IN CIVIL APPEAL NO.848 9-98490 OF 2013 & ORS. DATED 24.04.2018 . IN VIEW OF THE ABOVE, WE FIND NO MERITS IN GR. NO.2 & 3 RAISED BY THE REVENUE. 21. AS FAR AS GROUNDS NO.4 & 5 RAISED BY THE REVENU E IS CONCERNED, THE LAW BY NOW IS WELL SETTLED THAT TURNOVER IS A RELEV ANT CRITERION FOR EXCLUDING COMPANIES. THIS TRIBUNAL IN THE CASE OF AUTODESK INDIA PVT. LTD. V. DCIT IN IT(TP)A NO.540 & 541/BANG/2013, ORDER DATED 06.07.2 018 AFTER REVIEW OF ENTIRE CASE LAWS ON THE SUBJECT, CONSIDERED THE QUE STION, WHETHER COMPANIES HAVING TURNOVER MORE THAN 200 CRORES UPTO 500 CRORES HAS TO BE REGARDED AS ONE CATEGORY AND THOSE COMPANIES CANNOT BE REGARDED AS COMPARABLES WITH COMPANIES HAVING TURNOVER OF LESS THAN 200 CRORES. THE TRIBUNAL HELD AS FOLLOWS:- 17.7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. T HE SUBSTANTIAL QUESTION OF LAW (QUESTION NO.1 TO 3) WHICH WAS FRAM ED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITA L INVESTMENT ADVISORS (INDIA) PVT.LTD., (SUPRA) WAS AS TO WHETHE R COMPARABLE CAN BE REJECTED ON THE GROUND THAT THEY HAVE EXCEPT IONALLY HIGH PROFIT MARGINS OR FLUCTUATION PROFIT MARGINS, AS CO MPARED TO THE ASSESSEE IN TRANSFER PRICING ANALYSIS. THEREFORE AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE T HE OBSERVATIONS OF THE HON'BLE HIGH COURT, IN SO FAR A S IT REFERS TO TURNOVER, WERE IN THE NATURE OF OBITER DICTUM. JUDI CIAL DISCIPLINE REQUIRES THAT THE TRIBUNAL SHOULD FOLLOW THE DECISI ON OF A NON- JURISDICTION HIGH COURT, EVEN THOUGH THE SAID DECIS ION IS OF A NON-JURISDICTIONAL HIGH COURT. WE HOWEVER FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PENTAIR WA TER INDIA PVT.LTD. TAX APPEAL NO.18 OF 2015 JUDGMENT DATED 16 .9.2015 HAS TAKEN THE VIEW THAT TURNOVER IS A RELEVANT CRIT ERION FOR CHOOSING COMPANIES AS COMPARABLE COMPANIES IN DETER MINATION OF ALP IN TRANSFER PRICING CASES. THERE IS NO DECIS ION OF THE JURISDICTIONAL HIGH COURT ON THIS ISSUE. IN THE CIR CUMSTANCES, FOLLOWING THE PRINCIPLE THAT WHERE TWO VIEWS ARE AV AILABLE ON AN ISSUE, THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO B E ADOPTED, WE IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 13 OF 22 RESPECTFULLY FOLLOW THE VIEW OF THE HON'BLE BOMBAY HIGH COURT ON THE ISSUE. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE UPHOLD THE ORDER OF THE DRP EXCLUDING 5 COMPANIES F ROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO ON THE BA SIS THAT THE 5 COMPANIES TURNOVER WAS MUCH HIGHER COMPARED TO TH AT THE ASSESSEE. 17.8. IN VIEW OF THE ABOVE CONCLUSION, THERE MAY N OT BE ANY NECESSITY TO EXAMINE AS TO WHETHER THE DECISION REN DERED IN THE CASE OF GENISYS INTEGRATING (SUPRA) BY THE ITAT BAN GALORE BENCH SHOULD CONTINUE TO BE FOLLOWED. SINCE ARGUMENTS WE RE ADVANCED ON THE CORRECTNESS OF THE DECISIONS RENDERED BY THE ITAT MUMBAI AND BANGALORE BENCHES TAKING A VIEW CONTRARY TO THA T TAKEN IN THE CASE OF GENISYS INTEGRATING (SUPRA), WE PROCEED TO EXAMINE THE SAID ISSUE ALSO. ON THIS ISSUE, THE FIRST ASPECT W HICH WE NOTICE IS THAT THE DECISION RENDERED IN THE CASE OF GENISYS I NTEGRATING (SUPRA) WAS THE EARLIEST DECISION RENDERED ON THE I SSUE OF COMPARABILITY OF COMPANIES ON THE BASIS OF TURNOVER IN TRANSFER PRICING CASES. THE DECISION WAS RENDERED AS EARLY AS 5.8.2011. THE DECISIONS RENDERED BY THE ITAT MUMBAI BENCHES C ITED BY THE LEARNED DR BEFORE US IN THE CASE OF WILLIS PROC ESSING SERVICES (SUPRA) AND CAPEGEMINI INDIA PVT.LTD. (SUP RA) ARE TO BE REGARDED AS PER INCURIUM AS THESE DECISIONS IGNORE A BINDING CO- ORDINATE BENCH DECISION. IN THIS REGARD THE DECISI ONS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTS TH E PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE DECISIONS RE NDERED IN THE CASE OF M/S.NTT DATA (SUPRA), SOCIETE GENERALE GLOB AL SOLUTIONS (SUPRA) AND LSI TECHNOLOGIES (SUPRA) WERE RENDERED LATER IN POINT OF TIME. THOSE DECISIONS FOLLOW THE RATIO LAID DOWN IN WILLIS PROCESSING SERVICES (SUPRA) AND HAVE TO B E REGARDED AS PER INCURIUM. THESE THREE DECISIONS ALSO PLACE REL IANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CHRISCAPITAL INVESTMENT (SUPRA). WE HAVE ALREADY H ELD THAT THE DECISION RENDERED IN THE CASE OF CHRISCAPITAL INVES TMENT (SUPRA) IS OBITER DICTA AND THAT THE RATIO DECIDENDI LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PENTAIR (SUPRA) WH ICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. THE REFORE, THE DECISIONS CITED BY THE LEARNED DR BEFORE US CANNOT BE THE BASIS TO HOLD THAT HIGH TURNOVER IS NOT RELEVANT CRITERIA FO R DECIDING ON COMPARABILITY OF COMPANIES IN DETERMINATION OF ALP UNDER THE TRANSFER PRICING REGULATIONS UNDER THE ACT. FOR THE REASONS GIVEN IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 14 OF 22 ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) ON THE ISS UE OF APPLICATION OF TURNOVER FILTER AND HIS ACTION IN EX CLUDING COMPANIES BY FOLLOWING THE RATIO LAID DOWN IN THE C ASE OF GENISYS INTEGRATING (SUPRA). 22. CONSEQUENTLY, THERE IS NO MERIT IN GROUND NOS.4 & 5 RAISED BY THE REVENUE. 23. AS FAR AS GROUND NO.6 IS CONCERNED, THE DRP AP PLIED THE RELATED PARTY TRANSACTION (RPT) FILTER I.E., IT EXCLUDED CO MPANIES WHICH HAD TRANSACTIONS WITH RELATED PARTIES. THE THRESHOLD L IMIT APPLIED BY THE DRP ON ACCOUNT OF RPT FILER WAS 0%. BY APPLYING THE AFORE SAID FILTER, THE DRP EXCLUDED ACCENTIA TECHNOLOGIES LTD., ACROPETAL TECH NOLOGIES LTD., COSMIC GLOBAL LTD. AND JEEVAN SCIENTIFIC TECHNOLOGY LTD. F ROM THE LIST OF COMPARABLES. 24. THE LD. DR SUBMITTED THAT IN SOME OF THE DECISI ONS RENDERED BY THE BANGALORE BENCH OF ITAT THRESHOLD LIMIT OF 25% OF S ALES WAS APPLIED TO EXCLUDE COMPANIES ON ACCOUNT OF RPT FILTER AND THER EFORE THE DECISION OF THE DRP SHOULD BE MODIFIED BY HOLDING THAT THE THRE SHOLD LIMIT FOR APPLYING RPT FILTER SHOULD BE 25% OF SALES. WE FIND THAT T HE BANGALORE ITAT IN THE CASE OF AUTODESK INDIA PVT. LTD., VS. DCIT (2018) 9 6 TAXMANN.COM 263 (BANGALORE - TRIB.) AFTER CONSIDERING THE APPLICAT ION OF RPT FILTER AT 15% AND 28% HELD AS FOLLOWS:- IN GROUND NO.4 (E) OF THE GROUNDS OF APPEAL, THE A SSESSEE SEEKS EXCLUSION OF GEOMETRIC SOFTWARE SOLUTIONS CO. LTD; AND FOURSOFT LTD. FROM THE LIST OF COMPARABLE COMPANIES AS THESE COMP ANIES HAVE RELATED PARTY TRANSACTION (RPT) OF MORE THAN 15%. L EARNED DR DREW OUR ATTENTION TO THE DECISION OF THE HON'BLE I TAT BANGALORE B BENCH IN THE CASE OF ROBERT BOSCH ENGINEERING AND B USINESS SOLUTIONS LTD. (SUPRA) WHEREIN THE TRIBUNAL IN PARA GRAPH 8 HAS OBSERVED 25% TO 15% RPT FILTER HAS TO BE APPLIED DE PENDING ON AVAILABILITY OF COMPARABLES. HIS SUBMISSION WAS THE REFORE THAT COMPANIES WITH RPT OF 25% OR MORE ALONE SHOULD BE E XCLUDED FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO AND THE ACTION IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 15 OF 22 OF THE CIT(A) IN EXCLUDING COMPARABLE COMPANIES EVE N IN A CASE WHERE THERE ARE SINGLE AND INSIGNIFICANT RPT WAS NO T CORRECT. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , POINTED OUT THAT THIS TRIBUNAL, IN THE EASES OF 2417 CUSTOMER ( P.) LTD. V. DY. CIT [2012] 28 TAXRNANN.COM 258/[2013] 140 ITD 344 (PUNJ .) SONY INDIA (F) LTD. V. DY. CIT [2008]114 LTD 448 (DELHI) AND V ARIOUS OTHER CASES, HAS TAKEN A VIEW THAT COMPARABLES HAVING RPT OF UPTO 15% OF TOTAL REVENUES CAN BE CONSIDERED AS COMPARABLE C OMPANY. WE HAVE CONSIDERED THE RIVAL SUBMISSION. IT IS NO DOUB T TRUE THAT IN THE CASE OF ROBERT BOSCH (SUPRA) THIS TRIBUNAL HAS HELD THAT RPT FILTER CAN BE IN THE RANGE OF 25% TO 15% OF THE TOTAL RECE IPTS FROM SOFTWARE DEVELOPMENT SERVICES, DEPENDING ON AVAILABILITY OF COMPARABLE COMPANIES. IT IS NO BODY'S EASE THAT THERE IS DEART H OF COMPARABLE COMPANIES IN SOFTWARE DEVELOPMENT SERVICES INDUSTRY . THEREFORE IT WOULD BE SAFE TO FOLLOW THE RULING OF THIS TRIBUNAL IN THE CASES OF 2417 CUSTOMER (P.) LTD. (SUPRA), SONY INDIA (P.) LT D. (SUPRA) WHEREIN A VIEW HAS BEEN TAKEN THAT COMPARABLE COMPA NIES HAVING RPT OF UPTO 15% OF TOTAL REVENUES CAN BE CONSIDERED AS COMPARABLE COMPANIES. IN VIEW THEREOF, THE PLEA OF THE ASSESSEE REQUIRES TO BE ACCEPTED. THE TPO/AO ARE DIRECTED TO ADOPT A THRESHOLD LIMIT OF 15% OF THE TOTAL REVENUE ATTRIBU TABLE TO RELATED PARTY TRANSACTION AS GROUND FOR REJECTING COMPARABL E COMPANIES. CONSEQUENTLY, IT IS HELD THAT COMPANIES HAVING RPT UPTO 15% OF THE TOTAL REVENUES CAN BE INCLUDED. 25. WE HAVE CONSIDERED THE SUBMISSION OF THE LEARNE D DR IN THE LIGHT OF THE DECISION REFERRED TO ABOVE AND WE ARE OF THE V IEW THAT APPLICATION OF RPT FILER AT 15% OF THE SALES WOULD BE APPROPRIATE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND AS LAID DOWN IN THE CASE OF AUTO DESK INDIA PVT. LTD., (SUPRA). WE HOLD ACCORDINGLY AND DIREC T THE TPO TO EXCLUDE COMPANIES WHOSE RELATED PARTY TRANSACTIONS ARE 15% OR MORE OF THE SALES. 26. AS FAR AS GROUND NO.7 RAISED BY THE REVENUE IS CONCERNED, RISK ADJUSTMENT HAS BEEN ALLOWED BY THE DRP WITHOUT ANY BASIS OF COMPUTATION AND WE AGREE WITH THE SUBMISSION OF THE LD. DR THAT WITHOUT A PROPER METHOD OF COMPUTATION OF RISK ADJUSTMENT AND THE BA SIS OF SUCH COMPUTATION, RISK ADJUSTMENT CANNOT BE ALLOWED ON AN ADHOC BASIS. IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 16 OF 22 ACCORDINGLY, WE HOLD THAT ASSESSEE IS NOT ENTITLED TO RISK ADJUSTMENT. THE OTHER GROUNDS ARE GENERAL AND CALL FOR NO ADJUDICAT ION. 27. IN THE RESULT, THE APPEAL BY THE REVENUE IS PAR TLY ALLOWED. 28. AS FAR APPEAL BY ASSESSEE IS CONCERNED, GROUNDS 1 TO 14 RAISED BY THE ASSESSEE ARE WITH REGARD TO COMPUTATION OF ALP IN RESPECT OF INTERNATIONAL TRANSACTION OF RENDERING ITES TO THE AE. THESE GROUNDS READ AS FOLLOWS:- TRANSFER PRICING 1. THE LEARNED ASSESSING OFFICER ('AO'), THE LEARNE D TRANSFER PRICING OFFICER ('TPO') AND THE HONORABLE DISPUTE RESOLUTION PANEL ('DRP') HAVE ERRED IN LAW AND FACT S OF THE CASE IN PROPOSING A TRANSFER PRICING ADJUSTMENT UNDER SE CTION 92CA OF THE INCOME-TAX ACT. 1961 ('THE ACT') AMOUNTING TO R S. 17,87,79,063/- IN RESPECT OF THE IT ENABLED SERVICE S ('ITES') TO THE ASSOCIATED ENTERPRISES ('AE'). 2. THE LEARNED AO / LEARNED TPO AND THE HONORABLE D RP HAVE ERRED IN REJECTING THE TRANSFER PRICING ('TP') DOCUMENTATION MAINTAINED BY THE APPELLANT ON INVOKING PROVISIONS OF SUB- SECTION (3) OF 92C OF THE ACT CONTENDING THAT THE I NFORMATION OR DATA USED IN THE COMPUTATION OF THE ARM'S LENGTH PR ICE IS NOT RELIABLE OR CORRECT. 3. THE LEARNED AO / LEARNED TPO AND THE HONORABLE D RP HAVE ERRED IN REJECTING THE ECONOMIC ANALYSIS PERFO RMED BY THE APPELLANT IN THE TP DOCUMENTATION JUSTIFYING THE AR M'S LENGTH NATURE OF THE INTERNATIONAL TRANSACTION PERTAINING TO ITES. 4. THE LEARNED AO / LEARNED TPO AND THE HONORABLE D RP HAVE ERRED IN NOT CONSIDERING THE MULTIPLE YEAR / P RIOR YEAR FINANCIAL DATA OF COMPARABLE COMPANIES WHILE DETERM INING THE ARM'S LENGTH PRICE AND INSISTING THAT ONLY THE CURR ENT YEAR (I.E. FY 2009-10) DATA BE USED FOR DETERMINATION OF ARM'S LE NGTH PRICE. IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 17 OF 22 5. THE HONORABLE DRP HAS ERRED IN MODIFYING THE FIL TER OF RELATED PARTY TRANSACTION APPLIED BY THE LEARNED TP O AND BY THE APPELLANT TO PROVIDE THAT COMPANIES HAVING MORE THA N ZERO PERCENT OF RELATED PARTY TRANSACTION SHOULD BE REJE CTED AS COMPARABLE. 6. THE LEARNED AO/ LEARNED TPO AND THE HONORABLE DR P HAVE ERRED IN REJECTING COMPARABLE COMPANIES SELECT ED BY THE APPELLANT IN THE TP DOCUMENTATION AND INTRODUCED DU RING THE ASSESSMENT PROCEEDINGS. 7. THE LEARNED AO / LEARNED TPO AND THE HONORABLE D RP HAVE ERRED IN SELECTING / INTRODUCING COMPANIES WHI CH ARE NOT COMPARABLE TO THE APPELLANT. 8. THE LEARNED AO / LEARNED TPO AND THE HONORABLE D RP HAVE ERRED IN REJECTING JINDAL INTELLICOM PRIVATE L IMITED AS A COMPARABLE COMPANY FOR THE ONLY REASON THAT THE FIN ANCIAL STATEMENTS OF THIS COMPANY IS FOR 15 MONTHS. 9. THE LEARNED AO/ LEARNED TPO AND THE HONORABLE D RP HAVE ERRED IN APPLYING THE FILTER OF DIFFERENT FINA NCIAL YEAR ENDING TO REJECT THE COMPANIES THAT ARE OTHERWISE FUNCTION ALLY COMPARABLE. 10. THE LEARNED AO / LEARNED TPO AND THE HONORABL E DRP HAVE ERRED IN NOT CONSIDERING THE PROVISION FOR BAD AND DOUBTFUL DEBTS AS OPERATING IN NATURE. 11. THE LEARNED AO / LEARNED TPO AND THE HONORABLE DRP HAVE ERRED IN RESTRICTING THE WORKING CAPITAL ADJUS TMENT TO THE AVERAGE COST OF CAPITAL OF THE COMPARABLE COMPANIES SELECTED IN DETERMINATION OF ARM'S LENGTH PRICE FOR THE ITES. 12. THE LEARNED AO / LEARNED TPO HAVE ERRED IN INCO RRECTLY COMPUTING THE WORKING CAPITAL ADJUSTMENTS IN THE IT ES SEGMENT. 13. THE HONORABLE DRP HAS ERRED IN NOT PROVIDING AN APPROPRIATE ADJUSTMENT TOWARDS THE RISK DIFFERENTIA L BETWEEN THE APPELLANT AND THE ENTREPRENEURIAL COMPANIES SELECTE D AS COMPARABLE BUT FOR RESORTING TO DETERMINE THE RISK ADJUSTMENT ON AN AD HOC BASIS. IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 18 OF 22 14. THE LEARNED TPO / LEARNED AO ERRED IN NOT ALLOW ING THE BENEFIT OF RANGE OF +/- 5% AS PROVIDED IN PROVISO T O SECTION 92C (2) OF THE ACT TO THE APPELLANT, WHILE DETERMINING THE ARM'S LENGTH PRICE. 29. AS FAR AS GROUNDS 1 TO 3 RAISED BY THE ASSESSE E ARE CONCERNED, THEY ARE GENERAL IN NATURE AND CALL FOR NO ADJUDICA TION. 30. GROUND NO.4 WITH REGARD NON ACCEPTANCE OF MULTI PLE YEAR DATA CHOSEN FOR THE PURPOSE OF COMPARISON BY THE ASSESSE E IN ITS TP ANALYSIS IS CONCERNED, THE RELEVANT STATUTORY PROVISIONS AS WEL L AS THE INCOME TAX RULES, 1962 PERMIT ONLY THE FINANCIAL DATA OF THE R ELEVANT PREVIOUS YEAR TO BE USED FOR THE PURPOSE OF COMPARISON OF THE TESTED PARTY AS WELL AS THE COMPARABLE COMPANIES AND THEREFORE THERE IS NO MERI T IN GR.NO.4 RAISED BY THE ASSESSEE. 31. GROUND NO.5 WITH REGARD TO RELATED PARTY TRANSA CTION (RPT) HAS ALREADY BEEN ADJUDICATED WHILE DEALING WITH CONNECT ED GROUNDS OF APPEAL OF REVENUE AND THEREFORE THE SAME DOES NOT REQUIRE ANY CONSIDERATION. 32. AS FAR AS GROUND NOS. 6 & 7 ARE CONCERNED, THES E ARE GENERAL GROUNDS AND NO SPECIFIC INSTANCE OF COMPANIES WHICH ARE NOT COMPARABLE WITH ASSESSEE HAVING BEEN SELECTED BY THE TPO AS A COMPARABLE COMPANY HAS BEEN SET OUT IN THESE GROUNDS. HENCE THESE GRO UNDS ARE TREATED AS ACADEMIC. 33. GROUND NO.8 IS WITH REGARD TO REJECTING JINDAL INTELLICOM P. LTD. AS A COMPARABLE COMPANY ON THE GROUND THAT ITS FINANCIAL STATEMENTS ARE FOR THE PERIOD OF 15 MONTHS, WE ARE OF THE VIEW THAT IF TH E ASSESSEE CAN CULL OUT AND FINANCIAL RESULTS OF THIS COMPANY FOR THE RELEV ANT FINANCIAL YEAR RELEVANT TO AY 2010-11 FROM THE INFORMATION AVAILABLE IN PUB LIC DOMAIN OR OTHER AUTHENTIC EVIDENCE, THEN THE AO CAN CONSIDER COMPAR ABILITY OF THIS IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 19 OF 22 COMPANY, PROVIDED THIS COMPANY IS FOUND TO BE FUNCT IONALLY AND OTHERWISE COMPARABLE. 34. GROUND NO.9 ALSO IS IDENTICAL TO GROUND NO.8, B UT NO SPECIFIC COMPANY HAS BEEN POINTED OUT WHICH WAS REJECTED ON ACCOUNT OF DIFFERENT FINANCIAL YEAR ENDING. HENCE THIS GROUND IS TREATE D AS ACADEMIC. 35. AS FAR AS GROUND NO.10 IS CONCERNED, THE LAW IS WELL SETTLED THAT PROVISION FOR BAD AND DOUBTFUL DEBTS HAS TO BE REGA RDED AS OPERATING EXPENSES IN NATURE AND SHOULD BE TAKEN INTO ACCOUNT WHILE COMPUTING THE PLI OF ASSESSEE AND COMPARABLE COMPANIES. 36. GROUND NOS. 12 & 13 REGARDING INCORRECT COMPUTA TION OF WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT ARE REJECTED AS NO DETAILS OF INCORRECT COMPUTATION HAS BEEN BROUGHT ON RECORD EV EN BEFORE THE DRP. 37. GROUND NO. 14 WITH REGARD TO ALLOWING THE BENEF IT OF SECOND PROVISO TO SECTION 92C(2) OF THE ACT IS CONSEQUENTIAL AND S UBJECT TO THE CONDITION THAT THE DIFFERENCE IN THE MARGIN IS +/- 5%. THESE GROUNDS ARE ACCORDINGLY DECIDED. 38. AS FAR AS CORPORATE ISSUES ARE CONCERNED, THE C OMPUTER SOFTWARE EXPENSES THAT WERE DISALLOWED WHILE COMPUTING THE I NCOME FROM BUSINESS OF THE ELIGIBLE SEC.10A UNIT, WILL GO TO INCREASE T HE PROFITS OF 10A UNITS AND ASSESSEE SHOULD BE GIVEN THE BENEFIT OF DEDUCTION U /S. 10A OF THE ACT ON SUCH ENHANCED PROFIT. THE OTHER GROUND WITH REGARD TO LEVY OF INTEREST IS CONSEQUENTIAL AND AO IS DIRECTED TO GIVE CONSEQUENT IAL RELIEF. 39. AS FAR AS CO OF ASSESSEE IS CONCERNED, THE GROU NDS RAISED IN CO ARE AS FOLLOWS:- IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 20 OF 22 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE RESPONDENT WISHES TO RELY UPON THE DIRECTIONS (DATE D 08 DECEMBER, 2014) PASSED UNDER SECTION 144C (5) OF TH E INCOME- TAX ACT, 1961 BY THE HON'BLE DISPUTE RESOLUTION PAN EL ('DRP') AND GROUNDS OF APPEAL FILED IN FORM 35A BEFORE THE DRP WHICH WAS DISREGARDED BY THE LEARNED ASSESSING OFFICER (' LD. AO') / LEARNED TRANSFER PRICING OFFICER ('LD. TPO') WHILE FILING AN APPEAL BEFORE THE HON'BLE TRIBUNAL. 2. THE HON'BLE DRP HAS ERRED IN NOT ADJUDICATING ON THE FOLLOWING GROUNDS RAISED BY THE ASSESSEE DURING THE DRP PROCEEDINGS FOR THE EXCLUSION OF INFOSYS BPO LIMITE D ('INFOSYS') A) INFOSYS OWNS SUBSTANTIAL BRAND VALUE; AND B) INFOSYS IS FUNCTIONALLY DISSIMILAR TO THE ASSESS EE. 3. THE HON'BLE DRP HAS ERRED IN NOT ADJUDICATING ON THE FOLLOWING GROUNDS RAISED BY THE ASSESSEE DURING THE DRP PROCEEDINGS FOR THE EXCLUSION OF E-CLERX SERVICES L IMITED ('E- CLERX'): A) E-CLERX IS FUNCTIONALLY DISSIMILAR TO THE ASSESS EE; B) APPLICATION OF UPPER TURNOVER FILTER; AND C) EXTRA-ORDINARY EVENTS OF AMALGAMATION / ACQUISIT ION IN E- CLERX DURING THE RELEVANT ASSESSMENT YEAR 4. THE HON'BLE DRP HAS ERRED IN NOT ADJUDICATING O N THE FOLLOWING GROUNDS RAISED BY THE ASSESSEE DURING THE DRP PROCEEDINGS FOR THE EXCLUSION OF FORTUNE INFOTECH L IMITED ('FORTUNE'): A) FORTUNE IS FUNCTIONALLY DISSIMILAR TO THE ASSESS EE; AND B) FORTUNE USES INTANGIBLES, TECHNOLOGY AND TECHNIC AL KNOW- HOW FOR THE PROVISION OF BPO SERVICES. 5. THE HON'BLE DRP HAS ERRED IN NOT ADJUDICATING ON THE OTHER GROUNDS RAISED BY THE ASSESSEE DURING THE DRP PROCEEDINGS FOR THE EXCLUSION OF ICRA ONLINE LIMITED ('ICRA') W HEREIN THE IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 21 OF 22 ASSESSEE ARGUED THAT ICRA IS FUNCTIONALLY NOT COMPA RABLE TO THE ASSESSEE. 40. GROUNDS 1 TO 3 IN THE CO ARE ACADEMIC BECAUSE I NFOSYS BPO LTD., E-CLERX SERVICES LTD. GET EXCLUDED ON APPLICATION O F TURNOVER FILTER. 41. AS FAR AS GROUNDS 4 & 5 ARE CONCERNED, IT WOULD BE APPROPRIATE TO SET ASIDE THE ORDER OF THE DRP ON THIS ISSUE AND DI RECT THE TPO TO CONSIDER THE COMPARABILITY OF THE COMPANIES VIZ., FORTUNE IN FOTECH LTD. AND ICRA ONLINE LTD., IN THE PROCEEDINGS FOR DETERMINATION O F ALP IN ACCORDANCE WITH THE DIRECTIONS GIVEN IN THIS ORDER. 42. WE DIRECT THE TPO TO COMPUTE THE ALP IN THE LIG HT OF DIRECTIONS GIVEN IN THIS ORDER AFTER AFFORDING ASSESSEE OPPORT UNITY OF BEING HEARD. 43. IN THE RESULT, THE APPEAL BY THE ASSESSEE AND R EVENUE ARE TREATED AS PARTLY ALLOWED, WHILE CO OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF SEPTEMBER, 2019. SD/- SD/- ( VIKRAM SI N GH Y ADAV ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 20 TH SEPTEMBER, 2019. / D ESAI S MURTHY / IT(TP)A NOS. 490 & 550/BANG/2015 & CO NO.129/BANG/2015 PAGE 22 OF 22 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CI T(A) 5. DR, I TAT, BANGALORE. 6. GUARD F IL E BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.