Prometric Testing Pvt. Ltd., Gurgaon V. ACIT, Gurgaon

ITA 499/DEL/2015

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6584 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2008-2009
• Appeal Filed On: 23-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M BARANWAL
• Assessee Lawyers: BHUWA N DHOOPAR
• Keywords: Related party transaction; Transfer pricing; Principle of natural justice; International transaction; Wholly owned subsidiary; Onus to prove; Revenue expenditure; Set aside
• Section: 14A; 133(6); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: I-2 NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.499/DEL./2015 ASSESSMENT YEAR: 2008-09 M/S. PROMETRIC TESTING (P) LTD., 2 ND FLOOR, DLF INFINITY TOWER-A, SEC.-25, PHASE-II, DLF CITY, GURGAON VS. DCIT, CIRCLE-2, GURGAON PAN :AACCP5202A (APPELLANT) (RESPONDENT) AND ITA NO.397/DEL./2015 ASSESSMENT YEAR: 2008-09 DCIT, CIRCLE-3, GURGAON VS. M/S. PROMETRIC TESTING (P) LTD., 2 ND FLOOR, DLF INFINITY TOWER- A, SEC.-25, PHASE-II, DLF CITY, GURGAON PAN :AAACP5202A (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI HIMANSHU SINHA, ADV. & SHRI BHUWAN DHOOPAR, ADV. DEPARTMENT BY SHRI M. BARANWAL, SR.DR DATE OF HEARING 18.01.2021 DATE OF PRONOUNCEMENT 25.01.2021 2 ITA NO. 499/DEL./2015 & 397/DEL./2015 ORDER PER O.P. KANT, AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST ORDER DATED 03/11/2014 PASSED BY T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, FARIDABAD [ IN SHORT THE LD. CIT(A)] FOR ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE REPRODUCED AS UNDER: 1. THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN SUST AINING ADDITION MADE BY THE LD.AO BY WAY OF ADJUSTMENT TO ARMS LEN GTH PRICE OF INTERNATIONAL TRANSACTIONS IN THE IT ENABLED SEGMEN T. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE REFERENCE MADE BY THE LD. AO SUFFERS FROM JURISDICT IONAL ERROR AS THE LD. AO DID NOT RECORD ANY REASONS IN THE ASSESS MENT ORDER BASD2_ ON WHICH HE REACHED THE CONCLUSION THAT I T WAS EXPEDIENT AND NECESSARY TO REFER THE MATTER TO TH E LD. TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF THE ARM S LENGTH PRICE, AS IS REQUIRED UNDER SECTION 92CA(1) OF THE INCOME TAX ACT, 1961 (ACT). 3. THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN DETE RMINING THE ARMS LENGTH PRICE OF THE APPELLANTS INTERNATIONAL TRANS ACTIONS WITH ITS ASSOCIATED ENTERPRISES IN THE ADMINISTRATIVE/MARKET SUPPORT AND IT ENABLED SEGMENTS IN THE FOLLOWING MANNER: 3.1 BY UPHOLDING THE LD. TRANSFER PRICING OFFICERS (TPO) APPROACH OF APPLYING ADDITIONAL AND MODIFIED QUANTI TATIVE FILTERS IN ORDER TO ARRIVE AT A SET OF COMPARABLE C OMPANIES. 3.2 BY UPHOLDING THE LD. TPOS APPROACH OF SELECTI NG COMPANIES WHICH WERE FUNCTIONALLY NOT COMPARABLE TO THE APPEL LANT AND OPERATED ON A DIFFERENT BUSINESS MODEL UNDER TRANSA CTIONAL NET MARGINAL METHOD (TNMM). 3.3 BY UPHOLDING THE LD. TPOS APPROACH TO INCLUDE COMPANIES AS COMPARABLE DESPITE THE FACT THAT SUCH COMPANIES HAD WITNESSED ABNORMAL MARGIN/GROWTH DURING THE YEAR UN DER CONSIDERATION. 3.4 BY UPHOLDING THE APPROACH OF THE LD. TPO IN DEN YING ECONOMIC ADJUSTMENT FOR THE DIFFERENCE IN RISK PROF ILE BETWEEN THE COMPARABLE COMPANIES AND THE APPELLANT. 3 ITA NO. 499/DEL./2015 & 397/DEL./2015 3.5 BY UPHOLDING THE APPROACH OF LD. TPO IN SELECT ING THE CURRENT YEAR (I.E. FINANCIAL YEAR 2007-08) DATA FOR COMPARA BILITY DESPITE THE FACT THAT AT THE TIME OF COMPARISON DON E BY THE APPELLANT, THE COMPLETE DATA FOR FINANCIAL YEAR 200 7-08 WAS NOT AVAILABLE WITHIN THE PUBLIC DOMAIN. THAT THE ABOVE GROUNDS ARE MUTUALLY EXCLUSIVE AND W ITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, D ELETE, RESCIND, FORGO OR WITHDRAW ANY OF THE ABOVE, GROUNDS OF OBJE CTION EITHER BEFORE OR DURING THE COURSE OF PROCEEDINGS IN THE I NTEREST OF THE NATURAL JUSTICE. 2.1 THE GROUNDS RAISED BY THE REVENUE ARE REPRODUCED A S UNDER: 1. THE CIT (A) HAS ERRED IN LAW AND FACTS IN DIREC TING TO EXCLUDE SAKET PROJECTS LTD. FROM THE FINAL SET OF COMPARABL ES. 2. THE CIT (A) HAS ERRED IN LAW AND FACTS IN DIREC TING TO EXCLUDE WAPCOS LIMITED, FROM THE FINAL SET OF COMPARABLES. 3. THE CIT (A) HAS ERRED IN LAW AND FACTS IN DIREC TING TO EXCLUDE RITES LIMITED, FROM THE FINAL SET OF COMPARABLES. 4. THE CIT (A) HAS ALSO ERRED IN LAW AND FACTS IN DIRECTING TO EXCLUDE ACCENTIA TECHNOLOGIES LTD. FROM THE FINAL SET OF CO MPARABLES. 5. THE CIT (A) HAS ERRED IN LAW AND FACTS IN DIREC TING TO EXCLUDE ECLERX LTD. FROM THE FINAL SET OF COMPARABLES. 6. THE CIT (A) HAS ERRED IN LAW AND FACTS IN DIREC TING TO EXCLUDE HCL COMNET SYSTEM AND SERVICES LTD FROM THE FINAL SET O F COMPARABLES 7. THE CIT (A) HAS ERRED IN LAW AND FACTS IN DIREC TING TO EXCLUDE MOLD TEK TECHNOLOGIES LTD. FROM THE FINAL SET OF COMPARA BLES 2.2 THE ASSESSEE FILED LETTER DATED 27 TH NOVEMBER, 2019, MENTIONING THEREIN THE ADDITIONAL GROUNDS, WHICH RE AD AS UNDER: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO/DRP HAVE ERRED IN INCLUDING COSMIC GLOBAL L TD. AS A COMPARABLE IGNORING THE FUNCTIONAL DISSIMILARITY WI TH THE APPELLANT. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO HAS ERRED IN WRONGLY COMPUTING THE OPERATIN G MARGIN OF R SYSTEMS LTD. AND THE RESULTING QUANTUM OF ALP ADJUS TMENT. 4 ITA NO. 499/DEL./2015 & 397/DEL./2015 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE I.E. PROMETIC INDIA PRIVATE LIMITED (IN SHORT PROMETRIC INDIA) WAS INCORPORATED ON 06/08/1997 AS A 100% SUBSIDIARY OF PROMATRIC BV, NETHERLANDS. THE ASSESSEE IS ENGAGED IN PROVIDIN G TECHNOLOGY-BASED TESTING SERVICES, SUPPORT SERVICES FOR COMPUTER- BASED EXAMINATION, SOFTWARE SUPPORT SERVICES, MARKE TING SUPPORT SERVICES ETC TO ITS ASSOCIATED ENTERPRISES (AES) LO CATED ABROAD. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILE D ITS RETURN OF INCOME ON 30/09/2008 DECLARING TOTAL INCOME OF 1,93,55,507/-, WHICH WAS SELECTED FOR THE SCRUTINY ASSESSMENT. THE STATUTORY NOTICES UNDER THE INCOME-TAX ACT, 1961 (IN SHORT T HE ACT) WERE ISSUED AND COMPLIED WITH. THE ASSESSING OFFICER OBS ERVED INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSES SEE WITH ITS ASSOCIATED ENTERPRISES AND THEREFORE FOR DETERMININ G ARMS-LENGTH PRICE OF THOSE INTERNATIONAL TRANSACTIONS, HE REFER RED THE MATTER TO THE LEARNED TRANSFER PRICING OFFICER (TPO). THE LD. TPO, AFTER PROVIDING OPPORTUNITY TO THE ASSESSEE, PROPOSED TRA NSFER PRICING ADJUSTMENT OF 3,57,86,942/- IN HIS ORDER DATED 31/10/2011 UNDER SECTION 92CA(3) OF THE ACT . THE LD. ASSESSIN G OFFICER IN HIS ORDER DATED 30/01/2012 INCLUDED THE TRANSFER PRICIN G ADJUSTMENT PROPOSED BY THE LD. TPO. AGGRIEVED WITH THE TRANSFE R PRICING ADJUSTMENT, THE ASSESSEE FILED APPEAL BEFORE THE LE ARNED CIT(A), WHO PARTLY ALLOWED THE APPEAL. AGGRIEVED, BOTH THE ASSESSEE AND THE REVENUE ARE BEFORE THE INCOME-TAX APPELLATE TRI BUNAL (IN SHORT THE TRIBUNAL) BY WAY OF RAISING THE GROUNDS AS REPRODUCED ABOVE. 4. IN THE ADDITIONAL GROUNDS, THE ASSESSEE HAS RAISED TWO ISSUES. THE FIRST ISSUE IS FOR EXCLUDING THE COMPAR ABLE M/S 5 ITA NO. 499/DEL./2015 & 397/DEL./2015 COSMIC GLOBAL LTD. IN SUPPORT SERVICE SEGMENT. TH IS COMPARABLE WAS SELECTED BY THE ASSESSEE BEFORE LD. TPO AND DID NOT SEEK ITS EXCLUSION EITHER BEFORE THE LEARNED TPO OR BEFORE T HE LEARNED CIT(A). ITS EXCLUSION HAS BEEN SOUGHT FOR THE FIRS T TIME BEFORE THE TRIBUNAL. THE SECOND ISSUE IS FOR COMPUTING CORRECT OPERATING MARGIN OF COMPARABLE M/S R SYSTEMS INTERNATIONAL L TD. UNDER INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) SEGM ENT. THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT AT T HE TIME OF SELECTION OF THE COMPARABLE M/S COSMIC GLOBAL FULL INFORMATION WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AND SUBSEQUE NTLY ON BEING NOTICED OUTSOURCING MODEL OF THE COMPARABLE A ND DECISION OF THE HONBLE HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS PRIVATE LIMITED [ITA NO. 102/2015 (DELHI HC)], WHE REIN IT IS HELD THAT A COMPARABLE WITH DIFFERENT BUSINESS MODEL CAN NOT BE COMPARED WITH THE TAXPAYER, THE ASSESSEE CHOSE TO C HALLENGE THE COMPARABLE BEFORE THE TRIBUNAL. REGARDING R-SYSTEM S INTERNATIONAL LTD., THE LEARNED COUNSEL SUBMITTED THAT THE LEARNED TPO WITHOUT PROVIDING ANY BASIS FOR CALCULA TION, INCORRECTLY COMPUTED THE OPERATING MARGIN AS 10.34% INSTEAD OF 4.30%. 4.1 IN SUPPORT OF HIS CONTENTION THAT ASSESSEE CAN CHA LLENGE THE EXCLUSION OF A COMPARABLE BEFORE THE TRIBUNAL, EVEN THOUGH IT WAS NOT CHALLENGED BEFORE THE LOWER AUTHORITIES, THE LE ARNED COUNSEL OF THE ASSESSEE RELIED ON FOLLOWING JUDGMENTS: DCIT VS. QUARK SYSTEMS (P.) LTD., [2010] 38 SOT 307 (CHD. SB) CIT VS. QUARK SYSTEMS (P) LTD., [2011] 244 CTR 542 (P&H HC) NAVISITE INDIA PVT. LTD. VS. ITO, [ITA NO. 5329/DEL ./2012] A.M. TOD COMPANY INDIA PVT. LTD. VS. ITO [ITA NO. 4 92/MUM./2006] 6 ITA NO. 499/DEL./2015 & 397/DEL./2015 4.2 RELYING ON THE ABOVE JUDGMENTS, THE LEARNED COUNSE L OF THE ASSESSEE SUBMITTED THAT ADDITIONAL GROUND OF THE AS SESSEE MIGHT BE ADMITTED. 4.3 ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT A SSESSEE IS VERY CASUAL IN RAISING ADDITIONAL GROUND, WHICH IS REFLECTED FROM LETTER FILED FOR ADMITTING ADDITIONAL GROUND WHERE THE LEARNED DISPUTE RESOLUTION PANEL (DRP) HAS BEEN MENTIONED I NSTEAD OF LD. CIT(A). THE LEARNED DR ALSO SUBMITTED THAT THE CONTENTION OF NEW INFORMATION IN PUBLIC DOMAIN REGARDING THE COMP ARABLE IS NOT CORRECT AS ORDER OF THE LEARNED TPO WAS PASSED ON 31/10/2011 AND ORDER OF THE LEARNED CIT(A) WAS PASS ED ON 3/11/2014 WHEREAS THE ASSESSEE IS APPROACHING NOW I N THE YEAR 2019 FOR ADMITTING THE ADDITIONAL GROUND. ACCORDING LY, HE SUBMITTED THAT ADDITIONAL GROUND OF THE ASSESSEE MI GHT NOT BE ADMITTED. 4.4 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE OF ADDITIONAL GROUND RAISED. ON THE ISSUE OF EXCLUS ION OF COMPARABLE WHICH WAS SELECTED BY THE ASSESSEE BEFOR E THE LEARNED TPO, THE TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS (P) LTD. (SUPRA) HAS HELD AS UNDER: 30. LEARNED SPECIAL COUNSEL FOR THE REVENUE SHRI KAPIL A HAS VEHEMENTLY ARGUED THAT 'DATAMATICS' WAS TAKEN AS ON E OF THE COMPARABLES BY THE TAXPAYER AND NO OBJECTION TO ITS INCLUSION WAS RAISED BEFORE THE TPO OR BEFORE THE LEARNED CIT(A) IN APPEAL. THEREFORE, THE TAXPAYER SHOULD NOT BE PERMITTED TO RAISE ADDITIONAL GROUND AND ASK FOR EXCLUSION OF THE ABOVE ENTERPRIS E IN THE DETERMINATION OF THE AVERAGE MARGINS. WE ARE UNABLE TO ACCEPT ABOVE CONTENTION. IN THE FIRST PLACE, THESE ARE INI TIAL YEARS OF IMPLEMENTATION OF TRANSFER PRICING LEGISLATION IN I NDIA AND TAXPAYERS AS WELL AS TAX COUNSELTANTS WERE NOT FULLY CONVERSA NT WITH THIS NEW 7 ITA NO. 499/DEL./2015 & 397/DEL./2015 BRANCH OF LAW WHEN PROCEEDINGS WERE INITIATED OR EV EN AT APPELLATE STAGE. BESIDES, REVENUE AUTHORITIES, INCLUDING TPO WERE REQUIRED TO APPLY STATUTORY PROVISIONS AND CONSIDER FOR PURPOSE S OF COMPARISON FUNCTIONS, ASSETS AND RISKS (TURNOVER), PROFIT AND TECHNOLOGY EMPLOYED BY THE TESTED PARTY AND OTHER ENTERPRISES TAKEN AS COMPARABLE. STATUTORY DUTY IS CAST ON THEM TO UNDER TAKE ABOVE EXERCISE. THIS HAS NOT BEEN DONE IN THIS CASE. WE W OULD ONLY SAY THAT PRIMA FACIE, AS PER THE MATERIAL, TO WHICH REF ERENCE HAS BEEN DRAWN BY SHRI AGGARWAL, DATAMATICS DOES NOT APPEAR TO BE COMPARABLE. EVEN IF THE TAXPAYER OR ITS COUNSEL HAD TAKEN DATAMATICS AS COMPARABLE IN ITS T.P. AUDIT, THE TAX PAYER IS ENTITLED TO POINT OUT TO THE TRIBUNAL THAT ABOVE ENTERPRISE HAS WRONGLY BEEN TAKEN AS COMPARABLE. IN FACT THERE ARE VAST DIFFERE NCES BETWEEN TESTED PARTY AND THE DATAMATICS. THE CASE OF DATAMA TICS IS LIKE THAT OF 'IMERCIUS TECHNOLOGIES' REPRESENTING EXTREME POS ITIONS. IF IMERCIUS TECHNOLOGIES HAS SUFFERED HEAVY LOSSES AND, THEREFO RE, IT IS NOT TREATED AS COMPARABLE BY THE TAX AUTHORITIES, THEY ALSO HAVE TO CONSIDER THAT THE DATAMATICS HAS EARNED EXTRAORDINA RY PROFIT AND HAS A HUGE TURNOVER, BESIDES DIFFERENCES IN ASSETS AND OTHER CHARACTERISTICS REFERRED TO BY SHRI AGGARWAL. THE T RIBUNAL IS A FACT- FINDING BODY AND, THEREFORE, HAS TO TAKE INTO ACCOU NT ALL THE RELEVANT MATERIAL AND DETERMINE THE QUESTION AS PER THE STAT UTORY REGULATIONS. 31. IN THE CASE OF CIT VS. BHARAT GENERAL REINSURANCE CO. LTD. (1971) 81 ITR 303 (DEL), THE HONBLE DELHI HIGH COU RT OBSERVED AS UNDER : 'IT IS TRUE THAT THE ASSESSEE ITSELF HAD INCLUDED T HAT DIVIDEND INCOME IN ITS RETURN FOR THE YEAR IN QUESTION BUT THERE IS NO ESTOPPEL IN THE IT ACT AND THE ASSESSEE HAVING ITSELF CHALLENGED THE V ALIDITY OF TAXING THE DIVIDEND DURING THE YEAR OF ASSESSMENT IN QUEST ION, IT MUST BE TAKEN THAT IT HAD RESILED FROM THE POSITION WHICH I T HAD WRONGLY TAKEN WHILE FILING THE RETURN. QUIT APART FROM IT, IT IS INCUMBENT ON THE IT DEPARTMENT TO FIND OUT WHETHER A PARTICULAR INCOME WAS ASSESSABLE IN THE PARTICULAR YEAR OR NOT. MERELY BE CAUSE THE ASSESSEE WRONGLY INCLUDED THE INCOME IN ITS RETURN FOR A PARTICULAR YEAR, IT CANNOT CONFER JURISDICTION ON THE DEPARTME NT TO TAX THAT INCOME IN THAT YEAR EVEN THOUGH LEGALLY SUCH INCOME DID NOT PERTAIN TO THAT YEAR.' 32. IN THE CASE OF R.B. JESSARAM FATEHCHAND VS. CIT (1 971) 81 ITR 409 (ALL), IT HAS BEEN FOUND AND OBSERVED AS UNDER : 'MR. BRIJLAL GUPTA APPEARING FOR THE DEPARTMENT POI NTED OUT THAT THE ASSESSEE ITSELF FILED SEPARATE RETURNS FOR THE TWO PARTS OF A SINGLE ACCOUNTING PERIOD. THE ASSESSEE APPLIED FOR REGISTR ATION FOR THE FIRST PERIOD ONLY. THE ASSESSMENT FOR THE SECOND PERIOD P ROCEEDED AS 8 ITA NO. 499/DEL./2015 & 397/DEL./2015 AGAINST AN UNREGISTERED FIRM. IT WAS, THEREFORE, UR GED BY MR. GUPTA THAT IT IS NOT OPEN TO THE ASSESSEE TO URGE NOW THA T A SINGLE ASSESSMENT UNDER S. 26(1) OUGHT TO HAVE BEEN MADE. NOW, THERE CANNOT BE AN ESTOPPEL AGAINST STATUTE. IF IN FACT T HE PROCEDURE ADOPTED BY THE ITO WAS INCORRECT, THE DEFECT IS NOT CURED BY THE ATTITUDE TAKEN UP BY THE ASSESSEE.' 33. IN THE CASE OF CIT VS. C. PARAKH& CO. (INDIA) LTD. (1956) 29 ITR 661 (SC), THEIR LORDSHIPS OF SUPREME COURT MADE THE FOLLOWING OBSERVATIONS : 'ON THE QUESTION OF THE ADMISSIBILITY OF THE DEDUCT ION OF RS. 1,23,719, THE CONTENTION OF THE APPELLANT IS THAT A S THE RESPONDENT HAD ITSELF SPLIT UP THE COMMISSION OF RS. 3,12,699 PAID TO THE MANAGING AGENTS, AND APPROPRIATED RS. 1,23,719 THER EOF TO THE PROFITS EARNED AT KARACHI AND HAD DEBITED THE SAME WITH IT, IT WAS NOT ENTITLED TO GO BACK UPON IT, AND CLAIM THE AMOU NT AS A DEDUCTION AGAINST THE INDIAN PROFITS. WE DO NOT SEE ANY FORCE IN THIS CONTENTION. WHETHER THE RESPONDENT IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERET O, AND NOT ON THE VIEW WHICH IT MIGHT TAKE OF ITS RIGHTS, AND CONSEQU ENTLY, IF THE WHOLE OF THE COMMISSION IS UNDER THE LAW LIABLE TO BE DED UCTED AGAINST THE INDIAN PROFITS, THE RESPONDENT CANNOT BE ESTOPPED F ROM CLAIMING THE BENEFIT OF SUCH DEDUCTION, BY REASON OF THE FACT TH AT IT ERRONEOUSLY ALLOCATED A PART OF IT TOWARDS THE PROFITS EARNED I N KARACHI. WHAT HAS, THEREFORE, TO BE DETERMINED IS WHETHER, NOTWIT HSTANDING THE APPORTIONMENT MADE BY THE RESPONDENT IN THE PROFIT AND LOSS STATEMENTS, THE DEDUCTION IS ADMISSIBLE UNDER THE L AW.' 34. IN THE CASE OF CIT VS. V. MR. P. FIRM (1965) 56 IT R 67 (SC), THE FOLLOWING OBSERVATIONS OF THEIR LORDSHIPS OF SUPREM E COURT ARE AS UNDER : 'THE DECISION IN AMARENDRA NARAYAN ROY VS. CIT AIR 1954 CAL 271 HAS NO BEARING ON THE QUESTION RAISED BEFORE US. TH ERE THE CONCESSIONAL SCHEME TEMPTED THE ASSESSEE TO DISCLOS E VOLUNTARILY ALL HIS CONCEALED INCOME AND HE AGREED TO PAY THE PROPE R TAX UPON IT. THE AGREEMENT THERE RELATED TO THE QUANTIFICATION O F TAXABLE INCOME BUT IN THE PRESENT CASE WHAT IS SOUGHT TO BE TAXED IS NOT A TAXABLE INCOME. THE ASSESSEE IN SUCH A CASE CAN CERTAINLY R AISE THE PLEA THAT HIS INCOME IS NOT TAXABLE UNDER THE ACT. WE, T HEREFORE, REJECT THIS PLEA.' 35. IN PARA 4.16 OF LATEST REPORT, THE OECD PROVIDES T HE FOLLOWING GUIDELINES : 'IN PRACTICE, NEITHER COUNTRIES NOR TAXPAYERS SHOUL D MISUSE THE BURDEN OF PROOF IN THE MANNER DESCRIBED ABOVE. BECA USE OF THE 9 ITA NO. 499/DEL./2015 & 397/DEL./2015 DIFFICULTIES WITH TRANSFER PRICING ANALYSIS, IT WOU LD BE APPROPRIATE FOR BOTH TAXPAYERS AND TAX ADMINISTRATIONS TO TAKE SPEC IAL CARE AND TO USE RESTRAINT IN RELYING ON THE BURDEN OF PROOF IN THE COURSE OF THE EXAMINATION OF A TRANSFER PRICING CASE. MORE PARTIC ULARLY, AS A MATTER OF GOOD PRACTICE THE BURDEN OF PROOF SHOULD NOT BE MISUSED BY TAX ADMINISTRATIONS OR TAXPAYERS AS A JUSTIFICATION FOR MAKING GROUNDLESS OR UNVERIFIABLE ASSERTIONS ABOUT TRANSFE R PRICING. A TAX ADMINISTRATION SHOULD BE PREPARED TO MAKE GOOD FAIT H SHOWING THAT ITS DETERMINATION OF TRANSFER PRICING IS CONSISTENT WITH THE ARMS LENGTH PRINCIPLE EVEN WHERE THE BURDEN OF PROOF IS ON THE TAXPAYER, AND THE TAXPAYERS SIMILARLY SHOULD BE PREPARED TO M AKE GOOD FAITH SHOWING THAT THEIR TRANSFER PRICING IS CONSISTENT W ITH THE ARMS LENGTH PRINCIPLE REGARDLESS OF WHERE THE BURDEN OF PROOF LIES.' 36. THE AFORESAID DECISIONS AND GUIDELINES MAY NOT BE EXACTLY ON IDENTICAL FACTS BEFORE US BUT THEY EMPHATICALLY SHO W THAT TAXPAYER IS NOT ESTOPPED FROM POINTING OUT A MISTAKE IN THE ASS ESSMENT THOUGH SUCH MISTAKE IS THE RESULT OF EVIDENCE ADDUCED BY T HE TAXPAYER. 37. WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERATI ONS ARE PITTED AGAINST EACH OTHER, THE CAUSE OF SUBSTANTIAL JUSTIC E DESERVES TO BE PREFERRED, FOR THE OTHER SIDE CANNOT CLAIM TO HAVE A VESTED RIGHT IN INJUSTICE BEING DONE DUE TO SOME MISTAKES ON ITS PA RT. 4.5 THIS DECISION OF THE TRIBUNAL HAS BEEN FURTHER UPH ELD BY THE HONBLE HIGH COURT OF PUNJAB AND HARYANA AS REPORTE D IN (2011) 244 CTR 542. 4.6 RELYING ON THE DECISION OF THE TRIBUNAL AND IN THE INTEREST OF THE SUBSTANTIAL JUSTICE, THE ISSUE RAISED BY WAY OF THE ADDITIONAL GROUND DESERVES TO BE ADMITTED. ACCORDINGLY, THE AD DITIONAL GROUND WAS ADMITTED AND THE PARTIES WERE DIRECTED T O ADDRESS ON THE ADDITIONAL GROUNDS ALONG WITH THE GROUNDS RAISE D IN APPEALS. 5. THE GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS GENERAL AND GROUND NO. 2 AND 3.5 WERE NOT PRESSED, ACCORDIN GLY SAME ARE DISMISSED AS INFRUCTUOUS. 6. THE REMAINING GROUNDS PERTAINING TO REJECTION OF T HE COMPARABLES ARE TAKEN UP TOGETHER. BEFORE TAKING UP THOSE GROUNDS, IT IS RELEVANT TO REFER TO THE PROFILE OF THE ASSESSEE 10 ITA NO. 499/DEL./2015 & 397/DEL./2015 COMPANY AS MENTIONED BY THE LEARNED TRANSFER PRICIN G OFFICER IN PARA 1.3 OF HIS ORDER: 1.3.1 PROMETRIC INDIA IS A MEMBER COMPANY OF THE P ROMETRIC GROUP ENGAGED IN PROVISION OF COMPUTER BASED TESTING (CB T') SERVICES TO ITS OVERSEAS GROUP COMPANIES AND TO ITS CLIENTS IN INDIA 1.3.2 PROMETRIC INDIA IS HEADQUARTERED IN DELHI FRO M WHERE ALL ITS ADMINISTRATIVE AND FINANCIAL ACTIVITIES ARE CARRIED OUT. IT HAS A CALL- CENTRE FOR TEST SCHEDULING / TEST RESCHEDULING / CA LL-IN INFORMATION ETC., AND TESTING CENTERS IN 8 CITIES, INCLUDING AL L 4 METROPOLITAN CITIES OF INDIA FOR CONDUCTING CBT SERVICES. 1.3.3 PROMETRIC INDIA'S ACTIVITIES INCLUDE SCHEDULI NG, RESCHEDULING OF APPOINTMENTS FOR CBT, CALL-IN INFORMATION ABOUT VAR IOUS TESTS OFFERED AND TESTING SITES TESTING CENTRES ARE WELL EQUIPPED WITH THE REQUISITE EQUIPMENTS, WHICH ARE REQUIRED FOR CBT AND PROVIDE UTMOST SECURITY AND CONFIDENTIALITY. IN THE PROVISION OF THESE SERV ICES, PROMETRIC BV (PBV') AND PROMETRIC THOMAS LEARNING PTY. LTD. (P SA) ARE THE ONLY CUSTOMERS OF PROMETRIC INDIA IN INDIA, PROMETRIC IN DIA CONDUCTS CBT TESTS FOR GRE, GREW, TOEFL, MCSE, CCNA, OCP ETC. 1.3.4 PROMETRIC INDIA ALSO PROVIDES SUPPORT SERVICE S TO ONE OF ITS ASSOCIATED ENTERPRISES IN NETHERLANDS FOR WHOM PROM ETRIC INDIA IDENTIFIES POTENTIAL AUTHORISED PROMETRIC TESTING C ENTRES (APTC'), ASSISTS IN THE DELIVERY OF MARKETING MATERIALS AND INFORMATION FORMS TO POTENTIAL APTCS, ORGANIZES ATTENDANCE AT CONFERE NCES AND MEETING WITH REGARD TO INFORMATION TECHNOLOGY TESTI NG IN INDIA, PROVIDES NECESSARY ASSISTANCE AND SUPPORT WHICH THE APTCS MAY REQUIRE IN RESPECT OF THEIR TESTING ACTIVITIES FOR THEIR RESPECTIVE CLIENTS. THESE SERVICES CAN BE CATEGORIZED AS MARKETING SUPP ORT SERVICES. 6.1 THE ASSESSEE IN ITS TRANSFER PRICING STUDY REPORTED FOLLOWING INTERNATIONAL TRANSACTIONS AND METHOD SELECTED FOR DETERMINING ARMS-LENGTH PRICE: SL. NO. NATURE OF TRANSACTIONS METHOD VALUE OF TRANSACTION 1. PROVISION OF SUPPORT SERVICES FOR COMPUTER BASED TESTING TNMM OP/TC 91,064,861 2. PROVISION OF MARKETING SUPPORT SERVICES 31,134,838 3. PROVISION OF BACK OFFICE BASED IT ENABLED SERVICES 46,184,808 11 ITA NO. 499/DEL./2015 & 397/DEL./2015 6.2 FURTHER, THE ASSESSEE SELECTED 12 COMPARABLES FOR THE SUPPORT SERVICE FOR COMPUTER BASED TESTING AND MARK ETING SUPPORT SERVICE SEGMENT AND IN VIEW OF THE AVERAGE MARGIN OF THOSE COMPARABLES BASED ON MULTIPLE YEAR DATA, WAS WORKED OUT AT 7.90%. THE ASSESSEES MARGIN BEING HIGHER IN BOT H SEGMENTS, THE TRANSACTIONS WERE TREATED AS AT ARMS-LENGTH. S IMILARLY, IN THE CASE OF ITES, SEVEN COMPARABLES WERE CHOSEN BY THE ASSESSEE AND THEIR MEAN MARGIN WAS WORKED OUT AT 10.04%, AND THU S, THE TRANSACTION WAS CONSIDERED AT ARMS-LENGTH. 6.3 THE LEARNED TPO THOUGH ACCEPTED THE METHOD ADOPTED BY THE ASSESSEE TO BENCHMARK THE INTERNATIONAL TRANSAC TION, HOWEVER HE REJECTED THE COMPARABILITY ANALYSIS AND CONDUCTE D A FRESH BENCHMARKING STUDY ON THE BASIS OF ADDITIONAL/MODIF IED QUANTITATIVE FILTERS. THE LEARNED TPO REJECTED FEW COMPARABLES OF THE ASSESSEE AND SELECTED FEW COMPARABLES HIMSELF. THE SUMMARY OF THE COMPARABLE COMPANIES SELECTED BY THE LEARNED TPO ARE AS FOLLOWS: SEGMENT NO. OF COMPARABLES ARM'S LENGTH MARGIN MARGIN OF THE APPELLANT QUANTUM OF ADDITION (IN INR) MARKETING SUPPORT SERVICE SEGMENT (PAGE 123 OF VOLUME I OF THE PAPERBOOK) 11 28.16 % 7.00% 6,157,133 SUPPORT SERVICES FOR COMPUTER BASED TESTING SEGMENT/PAGE 123 OF VOLUME I OF THE PAPERBOOK) 8.79% 16,218,949 IT ENABLED SERVICES SEGMENT/PAGE 172 OF VOLUME I OF THE PAPERBOOK) 9 38.07 % 7.00% 13,410,860 12 ITA NO. 499/DEL./2015 & 397/DEL./2015 6.4 FINAL LIST OF THE COMPARABLES FOR THE MARKETING AN D OTHER SUPPORT SERVICES (MSS) MENTIONED ON PAGE 44 OF THE LEARNED TPO IS REPRODUCED AS UNDER: S L . NO. NAME OF COMPARABLE OPHC (%) 1 EDUCATIONAL COUNSELTANTS INDIA LTD. (SEG.) 5.2 2 ICRA MANAGEMENT COUNSELTING SERVICES LTD. 3.22 3 I DC INDIA LTD 14.87 4 ITDC LTD (SEG) 9.4 5 SAKET PROJECTS LTD (SEG.) 159.37 6 IN HOUSE PRODUCTIONS LTD (SEG.) 0.56 7 CHOKSI LABORATORIES LTD. 29.2 8 INDUS TECHNICAL & FINANCIAL COUNSELTANTS (LTD.) 14.56 9 RITES LTD. (SEG) 25.77 10 TECHNICOM-CHEMIE (INDIA) LTD. 7.32 11 WAPCOS (INDIA) LTD (SEG) 40.37 AVERAGE 28.16 6.5 THE LEARNED TPO ON THE BASIS OF MEAN MARGIN OF COMPARABLES AT 28.16%, COMPUTED THE ARMS-LENGTH PR ICE OF TRANSACTION OF SUPPORT SERVICES FOR COMPUTER-BASED TESTING SEGMENT AND MARKETING SUPPORT SERVICE SEGMENT AND A CCORDINGLY PROPOSED ADJUSTMENT OF 1,62,18,949/- AND 61,57,133/- TO THE SEGMENT OF COMPUTER BASED TESTING SUPPORT SERVICES AND MARKETING SUPPORT SERVICES SEGMENT RESPECTIVELY. 6.6 THE LIST OF THE COMPARABLES FOR IT ENABLED SERVICES MENTIONED AT PAGE 93 OF LD. TPO IS REPRODUCED AS UN DER: SL. NO. NAME OF COMPARABLE OP/TC 1 ACCENTIA TECHNOLOGIES LTD 40.94 2 CALIBER POINT BUSINESS SOLUTIONS LTD 10.97 3. COSMIC GLOBAL LTD. 23.3 V ECLERX SERVICES LTD. 65.88 5 HCL COMNET SYSTEMS & SERVICES LTD. 37.99 13 ITA NO. 499/DEL./2015 & 397/DEL./2015 6 MOLD-TEK TECHNOLOGIES LTD 96.66 7 R SYSTEMS INTERNATIONAL LTD. (SEG.) 10.34 8 SPANCO LTD (SEG.) 5.86 9. VISHAL INFORMATION TECHNOLOGIES LTD . (ALSO KNOWN AS CORAL HUBS LTD ) 50.68 AVERAGE 3 8.07 6.7 IN VIEW OF THE MEAN MARGIN OF COMPARABLE IS UNDER ITES SEGMENT AT 38.07% , THE LEARNED TPO WORKED OUT THE ARMS-LENGTH PRICE OF THE TRANSACTION AT 5,95,95,668/- AND PROPOSED TRANSFER PRICING ADJUSTMENT OF 1,34,10,860/- FOR THE SHORTFALL. IN THIS MANNER, THE LEARNED TPO PROPOSED TOTAL TRANSFER PRI CING ADJUSTMENT OF 3,57,86,942/- (1,62,18,949 + 61,57,133 + 1,34,10,860) 6.8 THE LEARNED CIT(A) REJECTED THREE COMPARABLES FOR MSS SEGMENT AND 4 COMPARABLES IN ITES SEGMENT. THE SUMM ARY OF THE COMPARABLE COMPANIES FINALLY SELECTED BY THE LD. CI T(A) IS AS FOLLOWS: SEGMENT NO. OF COMPARABLES ARM'S LENGTH MARGIN SINGLE YEAR DATA MARGIN OF THE APPELLANT QUANTUM OF A DDITION (IN INR) MARKETING SUPPORT SERVICE SEGMENT 8 10.54% 7.00% NIL SUPPORT SERVICES FOR COMPUTER BASED TESTING SEGMENT 8.79% NIL IT ENABLED SERVICES SEGMENT 5 20.23% 7.00% 5,710,514 6.9 IN GROUNDS ALONG WITH ADDITIONAL GROUNDS RAISED, T HE ASSESSEE IS CONTESTING INCLUSION OF TWO COMPARABLES IN THE ITES SEGMENT AND ONE COMPARABLE IN MARKETING AND SUPPORT SERVICE (MSS) SEGMENT. THE ASSESSEE IS ALSO ASKING FOR COMP UTATION OF 14 ITA NO. 499/DEL./2015 & 397/DEL./2015 CORRECT MARGIN OF ONE COMPARABLE. THE REVENUE ON TH E OTHER HAND IS SEEKING EXCLUSION OF THE THREE COMPARABLES IN THE MSS SEGMENT AND FOUR COMPARABLES IN ITES SEGMENT. 6.10 WE HAVE HEARD BOTH THE PARTIES THROUGH VIDEO CONFE RENCING FACILITY AND PERUSED THE PAPER BOOKS FILED ELECTRON ICALLY. ITA NO.499/DEL./2015 (ASSESSEES APPEAL) 7. WE FIRST TAKE UP THE ISSUES RAISED BY THE ASSESSEE IN ITS APPEAL. IN ADDITIONAL GROUND NO.1 THE ASSESSEE HAS SOUGHT EXCLUSION OF M/S COSMIC GLOBAL LTD UNDER IT ENABLED SERVICES SEGMENT: 7.1 THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY WA S SELECTED AS COMPARABLE BY THE ASSESSEE BUT BEING CO NTESTED BEFORE THE TRIBUNAL FOR ITS EXCLUSION ON THE GROUND OF DIFFERENT BUSINESS MODEL. THE LEARNED COUNSEL SUBMITTED THAT THE COMPANY IS FUNCTIONALLY NOT COMPARABLE AS MAIN SERV ICES PROVIDED BY IT ARE TRANSLATION SERVICES. HE FURTHER SUBMITTED THAT VENDOR PAYMENT OF THE COMPANY CONSTITUTE 60.17% OF THE TOTAL COST AND THUS BUSINESS MODEL OF THE COMPANY IS OF O UTSOURCING, . THE ASSESSEE DOES NOT OUTSOURCE ITS FUNCTION AND CA RRIES OUT THE ITES SERVICES THROUGH ITS OWN EMPLOYEES. THE LEARNE D COUNSEL SUBMITTED THAT THE COMPANY HAS BEEN HELD INCOMPARAB LE TO ITES SERVICE PROVIDER ON ACCOUNT OF OUTSOURCING MODEL IN FOLLOWING JUDICIAL PRONOUNCEMENT: BNY MELLON INTERNATIONAL OPERATIONS V/S PCIT (IT A NO 1226/2015)- BOMBAY HIGH COURT M/S GLOBAL E- BUSINESS OPERATIONS V/S PCIT (ITA NO. 700/2017)- KARNATAKA HIGH COURT M/S VENTURE INDIA PRIVATE V/S ACIT (ITA NO 1788/ PUN/2014)- AY 2009-10 UT STARCOM INC. V/S DDIT (ITA NO 1829/DEL/2014)- AY 2009-10 15 ITA NO. 499/DEL./2015 & 397/DEL./2015 MERCER CONSULTING (INDIA) PVT LTD [ITA NO.966/D EL/2014] [AY 2009-10] DATED 06.6.2014 M/S. PAREXEL INTERNATIONAL (INDIA) PRIVATE LIMI TED, HYDERABAD (ITA NO. 144 & 07/HYD/2014) AY 2009-10 DATED 30.9.2014 PTC SOFTWARE (INDIA) PVT. LTD. (ITA NO.336/PN/20 14) DATED 31.10.2014 UPHELD BY THE HON'BLE BOMBAY HIGH COURT AND FOLLOWED IN BNY M ELLON INTERNATIONAL (SUPRA) M/S. EXCELLENCE DATA RESEARCH PVT. LTD., HYDERAB AD [ITA.NO. 159/HYD/2014] [AY 2009-10] DATED 31.7.2014 M/S. HYUNDAI MOTORS INDIA ENGINEERING PVT. LTD., HYDERABAD [ITA.NO. 255/HYD/14] [AY 2009- 10] DATED 31.7.2014 GLOBAL E-BUSINESS OPERATIONS P. LTD. [ITA NO. 16 0/BANG/2014] [AY 2009-10] DATED 28.02.2017 CUMMINS TECHNOLOGIES INDIA LTD. [ITA NO. 784/PN/ 2014] [AY 2009-10] DATED 30.03.2016 BNY MELLON INTERNATIONAL OPERATION (INDIA) PRIVA TE LIMITED [ITA NO. 23/PN/2014] [AY 2009-10] DATED 11.02.2015 . ADP PVT. LTD. [ITA NO. 191/HYD/2014] [AY 2009-10 ] DATED 18.01.2017 7.2 ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT TRANSLATION SERVICES ARE ALSO IN THE NATURE OF ITES SERVICES AND THEREFORE FUNCTIONALLY SIMILAR TO THE ASSESSEE. HE ALSO DISPUTED THE RATIO OF VENDOR PAYMENTS TO TOTAL COST IN THE C ASE OF THE COMPANY PRESENTED BY THE ASSESSEE. 7.3 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THIS COMPANY WAS I NCLUDED BY THE ASSESSEE IN ITS SET OF THE COMPARABLES FILED BE FORE THE LEARNED TPO AND THE LD. TPO ALSO ACCEPTED THIS COMPANY AS V ALID COMPARABLE. NOW, THE ASSESSEE IS SEEKING EXCLUSION OF THE COMPANY ON THE GROUND OF FUNCTIONAL DISSIMILARITY A ND DIFFERENT BUSINESS MODEL. 7.4 ON PERUSAL OF PAGE 376 OF THE PAPER-BOOK OF THE AN NUAL REPORTS, WHICH IS DIRECTORS REPORT OF THE COMPANY, WHEREIN UNDER THE HEAD REVIEW PERFORMANCE AND BUSINESS PROSPECTUS , THE ACTIVITY OF THE TRANSLATION HAS BEEN CATEGORIZED AS ITES ACTIVITY. NO FURTHER DETAIL AS HOW THE TRANSACTION SERVICES F ALLS UNDER ITES 16 ITA NO. 499/DEL./2015 & 397/DEL./2015 CATEGORY IS GIVEN IN THE ANNUAL REPORT. THE PROCESS OF SERVICE DELIVERY IS ALSO NOT MENTIONED IN THE ANNUAL REPORT . FURTHER, THE LEARNED DR SUBMITTED THAT CBDT HAS CONSIDERED TRANS LATION ACTIVITY AS PART OF ITES ACTIVITY. IN VIEW OF THE D OUBTS RAISED BY THE ASSESSEE ON THE ITES NATURE OF THE TRANSLATION SERV ICES PERFORMED BY THE COMPANY AND NO FURTHER DETAILS AVAILABLE IN THE ANNUAL REPORT, NEEDS VERIFICATION FROM THE COMPANY, WHICH MAY BE CARRIED OUT BY THE LD. AO/TPO BY WAY OF EXERCISING AUTHORITY UNDER SECTION 133(6) OF THE ACT 7.5 FURTHER, THE ASSESSEE HAS STATED THAT THE COMPANY WORK ON OUTSOURCE MODEL AS AGAINST THE ASSESSEE WHO PROVIDE SERVICES TO THE AES THROUGH ITS OWN EMPLOYEES. THE LEARNED DR O N THE OTHER HAND HAS OBJECTED FOR ASSUMING THE OUTSOURCE MODEL ONLY ON THE BASIS OF ONE ENTRY OF TRANSLATION CHARGES PAID OF 2,86,29,348/- OUT OF TOTAL OPERATING COST OF 4,75,83,209/-. WE HAVE PERUSED THE ANNUAL REPORT OF THE COMPANY AND FROM SCHEDULE 14- SIGNIFICANT ACCOUNTING POLICIES (PAGE 385 OF ANNUAL REPORT PAPER BOOK) WE FIND AS FOLLOWS: 1.6 THE COMPANY FOLLOWS THE PROCEDURE OF DEPLOYING PERSONNEL AS TRANSCRIPTIONISTS AND CHECKERS FOR TRANSLATION WORK ONLY AFTER IMPARTING AN INTENSIVE TRAINING PROGRAMME. IN THE O PINION OF THE COMPANY, THE INTENSIVE TRAINING PROGRAMME IS VITAL AND NECESSARY, WITHOUT WHICH THE PERSONNEL WILL NOT BE ABLE TO ACH IEVE THE NECESSARY COMPETENCE FOR CARRYING OUT THE OPERATION S. SUCH PERSONNEL AFTER THE TRAINING PROGRAMME WAS ABSORBED BY THE COMPANY AS EMPLOYEES AND THE ENTIRE EXPENDITURE INC URRED ON SUCH PERSONNEL HITHERTOFORE ACCOUNTED AS DEFERRED REVENU E EXPENDITURE IS NOW ACCOUNTED AS REVENUE EXPENDITURE DURING THE YEAR AND WRITTEN OFF. HOWEVER THE PROPORTION OF EARLIER YEAR S DEFERRED REVENUE EXPENDITURE OF RS. 3,74,500 IS WRITTEN OFF. DURING THIS TRAINING PERIOD, THE PERSONNEL ARE PAID STIPEND. 17 ITA NO. 499/DEL./2015 & 397/DEL./2015 7.6 SINCE EXCLUSION OF THE COMPANY HAS BEEN SOUGHT FIR ST TIME BEFORE THE TRIBUNAL, AND IN ORDER TO VERIFY THE EXA CT NATURE TRANSLATION WORK AND THE EXPENSES ON TRANSLATION WHETHER THE SAME ARE IN THE NATURE OF OUTSOURCING OR INCURRED B Y THE ASSESSEE IN DEVELOPING EMPLOYEES, WE FEEL IT APPROPRIATE TO RESTORE THE ISSUE OF EXCLUSION OF THE COMPANY FROM THE SET OF THE COM PARABLES TO THE FILE OF THE LEARNED AO/TPO FOR VERIFYING FROM T HE ANNUAL REPORT OR BY WAY OF ISSUING NOTICE UNDER SECTION 13 3(6) OF THE ACT TO THE COMPANY. IT IS NEEDLESS TO MENTION THAT THE ASSESSEE SHALL BE PROVIDED COPY OF THE INFORMATION GATHERED BY THE AO/TPO FROM THE COMPANY AND ALSO PROVIDE ADEQUATE OPPORTUNITY O F BEING HEARD ON THE ISSUE. THE ADDITIONAL GROUND NO.1 OF T HE APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 8. IN ADDITIONAL GROUND NO. 2, THE ASSESSEE HAS SOUGH T FOR ADOPTING CORRECT MARGIN OF COMPARABLE M/S R SYSTEMS INTERNATIONAL LTD UNDER THE ITES SEGMENT. 8.1 THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT CORRECTED MARGIN OF THE COMPANY SHOULD BE CONSIDERE D FOR COMPUTATION OF THE ARMS-LENGTH MARGIN. HE SUBMITTE D THAT THE COMPANY FOLLOWS YEAR ENDING, WHICH IS DIFFERENT FRO M THE ASSESSEE. ACCORDINGLY, SUBMITTED THAT COMPUTATION O F MARGIN MIGHT BE REMANDED TO THE FILE OF THE LEARNED TPO BA SED ON QUARTERLY FILING OF THE COMPANY. 8.2 ON THE OTHER HAND, THE LEARNED DR RELIED ON THE MA RGIN COMPUTED BY THE LEARNED TPO. 8.3 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE. IN OUR OPINION, IN TRANSFER PRICING, CO MPARABILITY OF THE ASSESSEE HAS TO BE MADE WITH OTHER COMPANIES IN IDENTICAL 18 ITA NO. 499/DEL./2015 & 397/DEL./2015 ENVIRONMENT. THEREFORE, SAME FINANCIAL PERIOD OF BO TH THE ASSESSEE AND THE COMPARABLE SHOULD BE CONSIDERED FO R COMPARISON. IN VIEW OF THE ABOVE FACTS AND CIRCUMST ANCES, WE DIRECT THE LEARNED TPO TO COMPUTE THE MARGIN OF THI S COMPANY AFTER TAKING INTO CONSIDERATION THE FINANCIAL RESUL TS OF FOUR QUARTERS, WHICH HAVE BEEN CONSIDERED IN THE CASE OF THE ASSESSEE. THE RELEVANT GROUND OF THE APPEAL GROUND IS ACCORDI NGLY ALLOWED FOR STATISTICAL PURPOSES. 9. IN REGULAR GROUND NO. 3.1 TO 3.4 OF THE APPEAL, UN DER THE ITES SEGMENT , THE ASSESSEE HAS ONLY CHALLENGED INC LUSION OF M/S VISHAL INFORMATION TECHNOLOGIES LTD. IN SET OF COMP ARABLES. 9.1 THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE COMPANY SUBCONTRACTS MAJORITY OF ITS WORK TO 3 RD PARTY VENDORS. HE SUBMITTED THAT VENDOR PAYMENTS APPROXIMATE TO 85 .58% OF THE TOTAL COST INCURRED BY THE COMPANY AND THUS, IT NEEDS TO BE EXCLUDED ON THE GROUND OF BUSINESS MODEL. HE SUBMIT TED THAT COMPANY HAS BEEN REJECTED AS COMPARABLE TO ITES COM PANIES IN FOLLOWING DECISIONS: RAMPGREEN SOULTIONS PRIVATE LIMITED [ITA 102/2015 ] - DELHI HC - PLEASE REFER PARA 8 BNY MELLON INTERNATIONAL OPERATIONS V/S PCIT (ITA NO 1226/2015)- HIGH COURT EVEREST BUSINESS ADVISORY INDIA PRIVATE LIMITED V /S DCIT (ITA NO 43/ DEL/ 2013)- AY 2007- OS M/S BA CONTINUUM INDIA PRIVATE LIMITED V/S ACIT ( ITA NO 1144/HYD/2014)- AY 2008-09 M/S SYMPHONY MARKETING SOLUTIONS INDIA PRIVATE LI MITED V/S ITO (IT (PA) NO 1316/BANG/2012)- AY 2008-09 PTC SOFTWARE (INDIA) PVT. LTD. (ITA NO.336/PN/201 4) FOR AY (2009-10) DATED 31.10.2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD (ITA NO.L961/HYD/2011 ; AY 2007- OS; PARAGRAPH 17 AND 23 PAGE 20-21 AND 25); WHEREIN, THE HON'BLE ITAT RELIED UPON DPP DIRECTIONS FOR SUBSEQUENT YEAR, I.E. AY 2008-09 IN ASSESSEE'S OWN CASE BASED ON SIMILAR FACTS OF THE CASE IN BOTH THE YEARS. 19 ITA NO. 499/DEL./2015 & 397/DEL./2015 ZAVATA INDIA PRIVATE LIMITED [ITA NO.L781/HYD/20 11; AY 2007-08; PARAGRAPH 16- PAGE 9] IN THIS CASE, THE HON'BLE ITA T FOLLOWED THE ORDER OF CAPITAL IQ INFORMATION SYSTEMS WHEREIN, THE HON' BLE ITAT HAD RELIED UPON DRP DIRECTIONS FOR SUBSEQUENT YEAR, I.E. AY 20 08-09 IN ASSESSEE'S OWN CASE BASED ON SIMILAR FACTS OF THE CASE IN BOTH THE YEARS. HSBC ELECTRONIC DATA PROCESSING INDIA LTD.ITA NO. L624/HYD/2010; AY 2006-07; PARAGRAPH 9.2- PAGE 6; WHEREIN, THE HON'BL E ITAT RELIED UPON DRP DIRECTIONS FOR SUBSEQUENT YEAR, AY 2008-09 IN A SSESSEE'S OWN CASE BASED ON SIMILAR FACTS OF THE CASE IN BOTH THE YEAR S. COGNIZANT TECHNOLOGY SERVICES PVT. LTD.,HYDERABAD ITA NO.255/HYD/14 AY 2007-08,2008- 09 9.2 THE LEARNED DR, ON THE OTHER HAND, CONTESTED THAT I N THE CASE OF THE COMPANY CLAIM OF SALARY EXPENSES BEING LOW AS COMPARED TO VENDOR PAYMENT IS NOT CORRECT. BEFORE T HE LEARNED TPO, THE ASSESSEE CHALLENGED INCLUSION OF THE COMPA NY VISHAL INFORMATION TECHNOLOGY LTD. ON THE GROUND OF OUTSO URCING MODEL. THE LEARNED TPO REJECTED THIS GROUND FOLLOWING THE FINDING OF THE TRIBUNAL IN THE CASE OF DELOITTE CONSULTANT PRIVATE LIMITED (SUPRA). BEFORE THE LEARNED CIT(A) THIS GROUND WAS NOT TAKEN AND ONLY THE COMPANY WAS CHALLENGED ON THE GROUND OF FU NCTIONAL DISSIMILARITY, WHICH WAS REJECTED BY THE LEARNED CI T(A). THE LEARNED COUNSEL OF THE ASSESSEE HAS REFERRED TO SCH EDULE 14A OF FINANCIAL STATEMENT (PAGE 401 OF THE PAPER-BOOK OF ANNUAL REPORTS) AND HAS SUBMITTED THAT VENDOR PAYMENT CONS TITUTE 85.58% OF THE TOTAL COST. HOWEVER, ON VERIFICATION OF THE SCHEDULE, WE FIND THAT ALLEGED VENDOR PAYMENTS ACTUALLY CONSI ST OF OPENING STOCK OF WORK IN PROGRESS ALSO AND THERE IS NO SEPA RATE AMOUNT OF VENDOR PAYMENTS MENTIONED SPECIFICALLY IN FINANCIAL STATEMENTS. FROM THE OTHER PARTS OF THE ANNUAL REPORT ALSO WE A RE UNABLE TO DECIPHER WHETHER THE COMPANY WORK MAINLY ON OUTSOUR CE MODEL. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FEEL IT APPROPRIATE 20 ITA NO. 499/DEL./2015 & 397/DEL./2015 TO RESTORE THIS ISSUE TO THE FILE OF THE LEARNED AO /TPO TO VERIFY EXERCISING AUTHORITY UNDER 133(6) OF THE ACT AND IF IT IS FOUND THAT BUSINESS MODEL OF THE COMPANY IS OUTSOURCED MODEL, THE ISSUE MAY BE DECIDED IN ACCORDANCE WITH LAW. 9.3 IN THE GROUND NO. 3.1 TO 3.4 OF THE APPEAL, UNDER MARKETING SUPPORT SERVICE AND OTHER SUPPORT SERVICE SEGMENT, THE ASSESSEE HAS CHALLENGED INCLUSION OF ONE COMPARABLE, NAMELY, M/S CHOKSI LABORATORIES LTD. 9.4 THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS ENGAGED IN LAB TESTING OF PRODUCTS FOR CLIENTS OR A S A REGULATORY REQUIREMENT FOR PHARMACEUTICALS, FOOD AND AGRICULTU RE PRODUCTS, CONSTRUCTION MATERIALS, CHEMICALS ETC. HE FURTHER S UBMITTED THAT THE COMPANY ALSO PROVIDES SERVICES IN THE FIELD OF POLLUTION- CONTROL AND HAS BEEN CERTIFIED BY SEVERAL REGULATOR Y BODIES AND ALSO ACCREDITED BY THE NATIONAL ACCREDITATION BOARD FOR TESTING AND CALIBRATION LABORATORIES. HE FURTHER SUBMITTED THAT COMPANY IS HIGHLY CAPITAL INTENSIVE COMPANY, EMPLOYING NET FIXED ASSETS AMOUNTING TO 148% OF THE OPERATING INCOME AS COMPAR ED TO THE ASSESSEE WHICH DEPLOYS ROUTING TANGIBLE CONSTITUTIN G ONLY 6.98% OF THE OPERATING INCOME. HE FURTHER SUBMITTED THAT COMPANY HAS BEEN REJECTED IN FOLLOWING CASES AS COMPARABLE TO I TES SEGMENT: YUM RESTAURANTS INDIA PRIVATE LIMITED V/S ITO (IT A NO 6168/DEL/2012)-AY 2008-09 M/S BROWN FORMAN WORLD WIDE LLC V/S DDIT (ITA 613 9/DEL/2012)- AY 2008-09 CIENA INDIA PVT. LTD VS DCIT [ITA NO.3324/DEL/201 3] AY 2008-09 GENZYME INDIA PVT. LTD. VS ACIT [ITA NO.892/DEL/2 014] AY 2009-10 BROWN FORMAN WORLDWIDE LLC VS DDIT [ITA NOS.433 & 6 139/DEL/2012] AY 2007-08 & AY 2008-09 AVAYA INDIA PVT. LTD. VS DCIT [ITA NO. 146/DEL/20 13] AY 2008-09 CORNING SAS-INDIA BRANCH OFFICE VS DDIT [ITA NO.5 713/DEL./2012] AY 2008-09 21 ITA NO. 499/DEL./2015 & 397/DEL./2015 9.5 THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE F INDING OF THE LD. CIT(A) AND SUBMITTED THAT COMPANY IS FUNCTI ONALLY SIMILAR TO THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ASSE SSEE COMPANY IS ALSO CAPITAL INTENSIVE COMPANY AND THEREFORE CAN NOT BE REJECTED ON THE GROUND OF ASSET DEPLOYED BY THE COMPANY. 9.6 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED TPO HE LD THE TESTING SERVICES OF THE COMPANY AS FUNCTIONALLY SIMILAR TO SUPPORT SERVICES PROVIDED BY THE ASSESSEE. HE ALSO REJECTED THE CONTENTION OF THE ASSESSEE THAT 58% OF THE ASSETS OF THE COMPA NY WERE TESTING INSTRUMENTS, ON THE GROUND THAT PLANT AND M ACHINERY IN THE CASE OF THE ASSESSEE ALSO CONSTITUTES 58.81% OF THE FIXED ASSETS. THE LD. CIT(A) UPHELD THE FINDING OF THE LE ARNED TPO. WE HAVE PERUSED THE ANNUAL REPORT OF THE COMPANY (PAGE 20 OF ANNUAL REPORT), WHEREIN THE SEGMENT REPORTING ON PA GE 22 OF THE ANNUAL REPORT MSS PAPER-BOOK, IS MENTIONED, WHICH I S REPRODUCED AS UNDER FOR READY REFERENCE: 08. SEGMENTAL REPORTING: THE COMPANY TREATS ANALYT ICAL CHARGES & CONSULTANCY RECEIPTS AS A SINGLE SEGMENT AND THER EFORE DETAILS OF SEGMENTS ARE NOT SEPARATELY SHOWN. THE COMPANY IS A COMMERCIAL TESTING HOUSE ENGAGED IN TESTING OF VARIOUS PRODUCT S AND ALSO OFFERS SERVICES IN THE FIELD OF POLLUTION CONTROL AS ALLIE D ACTIVITY. THE COMPANY IS MANAGED ORGANIZATIONALLY AS A UNIFIED EN TITY WITH VARIOUS FUNCTIONAL HEADS REPORTING TO THE TOP MANAG EMENT AND IS NOT ORGANISED ALONG SEGMENTS. THERE ARE, THEREFORE, NO SEPARATE SEGMENTS WITHIN THE COMPANY AS DEFINED BY AS-17 (SE GMENTAL REPORTING) ISSUED BY THE ICAI. 9.7 IN OUR OPINION, TESTING OF PRODUCTS AND SERVICES I N THE FIELD OF THE POLLUTION-CONTROL ARE FUNCTIONALLY DIFFERENT FROM THE 22 ITA NO. 499/DEL./2015 & 397/DEL./2015 PROVIDING MARKETING SUPPORT SERVICES. FOR PROVIDING TESTING SERVICES HIGHER TECHNICAL SKILLS AND EXPERIENCES AR E REQUIRED WHEREAS SUPPORT SERVICES CAN BE PROVIDED USING COMP ARATIVELY LESS TECHNICAL PERSONS. IN VIEW OF DIFFERENT NATURE OF SERVICES , WE HOLD THE COMPANY AS FUNCTIONALLY DISSIMILAR AND ACC ORDINGLY DIRECT THE LEARNED AO/TPO TO EXCLUDE THE COMPANY FR OM THE FINAL SET OF THE COMPARABLE. 9.8 THE GROUNDS NO. 3.1 TO 3.4 OF THE APPEAL OF THE AS SESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.397/DEL./2015 (REVENUES APPEAL) 10. NOW, WE TAKE UP THE APPEAL OF THE REVENUE. IN GRO UND NO.1 EXCLUSION OF SAKET PROJECT LTD. HAS BEEN CHALLENGED. 10.1 THE LEARNED DR SUBMITTED THAT THE TPO HAS ALREADY CONSIDERED SEGMENT RESULT AND, THEREFORE, LD. CIT(A ) IS NOT JUSTIFIED IN EXCLUDING THE COMPANY ON THE GROUND OF FUNCTIONAL DISSIMILARITY. 10.2 THE LEARNED COUNSEL OF THE ASSESSEE, ON THE OTHER HAND, RELIED ON THE FINDING OF THE LEARNED CIT(A) AND SUB MITTED THAT TPO HAS TAKEN THE EVENT MANAGEMENT DIVISION FOR COM PARISON WHICH CONSTITUTES FOR ONLY 25% OF THE BUSINESS AND HAS 159% PROFIT. HE FURTHER CHALLENGED THE ACCURACY OF ALLOC ATION OF THE EXPENSES TO VARIOUS SEGMENTS BY THE COMPANY. HE FUR THER SUBMITTED THAT THIS COMPANY HAS BEEN EXCLUDED IN TH E CASE OF MARKETING SUPPORT SERVICE PROVIDER IN FOLLOWING DEC ISIONS: YUM RESTAURANTS INDIA PRIVATE LIMITED V/S ITO (IT A NO 1097/DEL/2014)-AY 2009-10 YUM RESTAURANTS INDIA PRIVATE LIMITED V/S ITO (IT A NO 6168/DEL/2012)-AY 2008-09 23 ITA NO. 499/DEL./2015 & 397/DEL./2015 M/S QUALCOMM INDIA PRIVATE LIMITED V/S DCIT (ITA NO 6059/DEI/2012)- AY 2008-09 M/S HONEYWELL TURBO TECHNOLOGIES (INDIA) PRIVATE LIMITED (ITA NO 2584/PUN/2012)- AY 2008-09 M/S. PREMIER EXPLORATION SERVICES PVT. LTD., ITA NO.5293/DEL./2012, AY 2008-09 PARAGRAPH 9, PAGE 13 WHEREIN, THE HON'BLE I TAT. M/S DHL EXPRESS (INDIA) PRIVATE LIMITED (I.T.A.N 0.7360/MUM/2010 - A.Y 2006-07 'HELD THAT WHEN DIRECT COMPARABLES ARE AVAILABLE, COMPARABLES WITH SEGMENTED RESULTS SHOULD NOT BE US ED. 10.3 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES ON THE ISSUE-IN -DISPUTE. THE LEARNED TPO RETAINED THE COMPANY IN THE SET OF THE COMPARABLES ON THE GROUND THAT THE COMPANY CANNOT BE EXCLUDED D UE TO SUPER PROFIT DURING PARTICULAR YEAR. HE REJECTED THE CONT ENTION OF THE ASSESSEE OF NON-RELIABILITY OF EXPENSE ALLOCATION B Y THE COMPANY UNDER DIFFERENT SEGMENTS. THE LD. CIT(A), HOWEVER, EXCLUDED THE COMPANY ON THE GROUND OF THE FUNCTIONAL DISSIMILARI TY. THE COMPANY IS ENGAGED IN FOUR SEGMENTS, NAMELY, PUBLIC ATION, ENERGY, EVENT MANAGEMENT AND PHARMACEUTICALS. IT WA S ADMITTED BY THE ASSESSEE THAT EVENT MANAGEMENT SEGMENT WAS FOUND COMPARABLE DURING FINANCIAL YEAR 2005-06 AND 2006-0 7 BUT IN THE YEAR UNDER CONSIDERATION THE ASSESSEE SOUGHT EXCLUS ION ON THE GROUND OF UNRELIABILITY OF SEGMENT INFORMATION. BEF ORE US, THE LEARNED COUNSEL OF THE ASSESSEE HAS REFERRED TO ACT IVITIES CARRIED OUT UNDER EVENT MANAGEMENT SEGMENT (PAGE 34 OF THE PAPER BOOK OF MSS ANNUAL REPORT) REPORTED IN DIRECTORS REPORT (PAGE 4 OF THE ANNUAL REPORT), WHICH READS AS UNDER: DURING THE YEAR UNDER REVIEW, THE COMPANY HAS ARRA NGE THE MAJOR EVENTS LIKE TEXCELLENCE 2007. STEAMTECH 2007 AND SY NERGY FOR ENERGY 2008. YOUR COMPANY HAS ALSO SHOWN VERY G OOD GROWTH IN THIS DIVISION AND EARNED THE REVENUE OF R S.169.94 LACS AS AGAINST RS.107.11 LACS DURING THE PREVIOUS YEAR HAV ING THE IMPROVED PERFORMED OF 59%. THE EVENT MANAGEMENT ACT IVITIES ARE 24 ITA NO. 499/DEL./2015 & 397/DEL./2015 MAINLY FOR INDUSTRY AND NOW IT IS GETTING MOMENTUM. WITH THE LAST GROWTH AND DEVELOPMENT. IT IS HOPED TO GET INCREASI NG REVENUE FROM THIS DIVISION. 10.4 THE FUNCTION OF MANAGING EVENTS UTILIZING SERVICE S OF VARIOUS PROFESSIONALS CANNOT BE COMPARED WITH THE F UNCTION OF PROVIDING MARKETING SUPPORT. THE LD. CIT(A) HAS ALS O FOLLOWED FINDING OF THE TRIBUNAL IN THE CASE OF PREMIER EXPL ORATION SERVICES PRIVATE LIMITED (SUPRA) AND NORTEL NETWORKS INDIA P RIVATE LIMITED (SUPRA), WHERE THE COMPANY HAS BEEN REJECTED ON THE GROUND OF FUNCTIONAL DISSIMILARITY. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE FINDING OF THE LD. CIT(A) ON THE I SSUE IN DISPUTE AND ACCORDINGLY WE UPHOLD THE SAME. THE GROUND NO.1 OF THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 11. IN GROUND NO.2, THE REVENUE HAS CHALLENGED EXCLUSI ON OF WAPCOS LIMITED . IN GROUND NO. 3 EXCLUSION OF RITES LIMITED HAS BEEN CHALLENGED BY THE REVENUE. 11.1 THE LEARNED DR SUBMITTED THAT BOTH THE COMPANIES HAVE BEEN EXCLUDED ON THE GROUND OF PUBLIC SECTOR UNDERT AKING. ACCORDING TO HIM IF COMPANIES ARE FUNCTIONALLY SIMI LAR TO THE ASSESSEE, SAME SHOULD NOT BE EXCLUDED MERELY ON THE GROUND OF BEING PUBLIC SECTOR COMPANIES. 11.2 ON THE CONTRARY, THE LEARNED COUNSEL OF THE ASSES SEE SUBMITTED THAT M/S WAPCOS LIMITED IN ADDITION TO BE ING A GOVERNMENT-OWNED COMPANY, FUNCTIONALLY NOT COMPARAB LE AS IT PROVIDES CONSULTANCY SERVICES RELATING TO WATER AND POWER INFRASTRUCTURE SECTORS ETC. HE FURTHER SUBMITTED TH AT THIS COMPANY HAS BEEN REJECTED BY THE LEARNED CIT(A) IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 ON THE BASIS O F DIFFERENT 25 ITA NO. 499/DEL./2015 & 397/DEL./2015 FUNCTIONAL PROFILE AND SAID FINDING OF THE LEARNED CIT(A) HAS BEEN ACCEPTED BY THE DEPARTMENT AND NO THE APPEAL HAS BE EN FILED. 11.3 AS FAR AS COMPANY RITES LIMITED, IS CONCERNED THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT IN ADDITION TO BEING A GOVERNMENT-OWNED COMPANY, IT IS ALSO NOT FUNCTIONAL LY COMPARABLE AS IT IS ENGAGED IN RENDERING CONSULTANC Y SERVICES MAINLY IN THE TRANSPORTATION INFRASTRUCTURE SECTORS . FURTHER SUBMITTED THAT COMPANY HAS BEEN REJECTED IN ASSESSE ES OWN CASE FOR ASSESSMENT YEAR 2009-10 AND 2010-11 ON THE BASI S OF DIFFERENT FUNCTIONAL PROFILE AND NO FURTHER APPEAL HAS BEEN FILED BY THE DEPARTMENT ON THIS ISSUE. 11.4 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. THE LD. CIT(A) HAS EXCLUDED ABOVE BOTH COMPANIES OBSERVING AS UNDER: (B) I HAVE CONSIDERED THE FACTS OF THE CASE, THE S UBMISSIONS OF THE APPELLANT AND VARIOUS JUDICIAL CASES ON THE SUBJECT . BEFORE ADJUDICATING ON THE COMPARABILITY OF THESE COMPANIE S WITH THE APPELLANT COMPANY, IT IS NECESSARY TO HAVE AN OVERV IEW OF THE FUNCTIONS OF THE TWO COMPANIES: RITES LTD PROVIDES PRE-PROJECT PLANNING SERVICES IN THE FIEL DS OF ENGINEERING DESIGN, CONSTRUCTION AND PROJECT MANAGE MENT FOR RAILWAY TRACKS AND ELECTRIFICATION TOGETHER WITH TR AFFIC ARFD SOFTWARE CONSULTANCY ASSIGNMENTS TO MALAYSIAN RAILWAYS. HENC E THE SERVICES PROVIDED BY IT ARE EXTREMELY TECHNICAL IN NATURE RE QUIRING HIGHLY QUALIFIED TECHNICAL PERSONNEL. WAPCOS RENDERS CONSULTANCY SERVICES RELATING TO WATER, PO WER AND INFRASTRUCTURE SECTORS. SERVICES OFFERED INCLUDE MA RKET INTELLIGENCE, FEASIBILITY STUDIES, PLANNING/ PROJECT FORMULATION, FIELD AND GEO- TECHNICAL INVESTIGATIONS, ENGINEERING DESIGN, CONTR ACT MANAGEMENT, QUALITY ASSURANCE & MANAGEMENT AND HUMAN RESOURCE DEVELOPMENT. IT ALSO EXECUTES TURNKEY PROJECTS ON A REGULAR BASIS. RITES LTD AND WAPCOS LTD CANNOT BE CONSIDERED AS A COMPARABLE FOR THE FOLLOWING REASONS: 26 ITA NO. 499/DEL./2015 & 397/DEL./2015 (I)WHEREAS THE APPELLANT WAS ENGAGED IN PROVIDING M ARKETING AND SUPPORT SERVICES TO ITS PARENT, RITES LTD AND W APCOS LTD ARE PUBLIC SECTOR ENGINEERING COMPANIES PROVIDING E ND TO END ENGINEERING SOLUTIONS TO THEIR CLIENTS WHO ARE NOT THEIR PARENT COMPANY. HENCE THE AFORESAID PSUS ARE FUNCTIONALLY VERY DIFFERENT FROM THE APPELLANT COMPANY. (II)ON THE BASIS OF FUNCTIONAL DISSIMILARITY, RITES LTD AND WAPCOS LTD HAVE BEEN REJECTED AS COMPARABLES IN THE CASE OF COMPANIES PROVIDING MARKETING AND SUPPORT SERVICES BY THE HON'BLE ITAT IN A NUMBER OF CASES. IN THE CASE OF D CIT VS MCI COM I LTD 25 TAXMANN.COM 520,(DEL)(2012) IT WAS HEL D AS UNDER: 'THE VIEW OF THE FIRST APPELLATE AUTHORITY THAT UIL , RITES, WAPCOS AND TCE ARE ENGINEERING COMPANIES AND PROVID E END- TO-END SOLUTIONS AND WHEREAS THE ASSESSEE COMPANY P ROVIDES MARKETING SUPPORT SERVICES TO THE PARENT COMPANY, W HICH IS IN THE NATURE OF SUPPORT SERVICE AND HENCE NOT FUNCTIO NALLY COMPARABLE, IS TO BE AGREED WITH. SHE RIGHTLY CONCL UDED THAT THE RISK PROFILE IS VASTLY DIFFERENT AND HENCE ON T HIS COUNT ALSO THEY ARE NOT COMPARABLE. THIS FACTUAL CONCLUSIONS A RE NOT DISPUTED BY THE DEPARTMENT.' ON THE BASIS OF THE AFORESAID JUDGMENT A SIMILAR VI EW WAS TAKEN BY HON'BLE ITAT DELHI IN THE CASE OF H&M HENNES AND MAURITZ INDIA (P)LTD VS DCIT (ITA NO 4704 OF 2012) (III).IN A MORE RECENT JUDGMENT IN THE CASE OF NORT EL NETWORKS INDIA (P) LTD VS ADDL CIT(2014) 44 TAXMANN.COM 26, BOTH WAPCOS AND RITES HAVE BEEN EXCLUDED ON THE BASIS OF FUNCTIONAL DISSIMILARITY WITH A COMPANY PROVIDING M ARKETING AND SUPPORT SERVICES. 11.5 WE AGREE WITH THE FINDING OF THE LEARNED CIT(A) O N THE ISSUE IN DISPUTE AS SERVICES OF CONSULTANCY AND PROVIDING ENGINEERING SOLUTIONS CANNOT BE COMPARED WITH THE ACTIVITY OF P ROVIDING MARKET SUPPORT SERVICES. FURTHER, BOTH ARE GOVERNME NT-OWNED COMPANIES, WHO GETS PRIORITY IN GETTING ANY GOVERNM ENT CONTRACT AND THUS THERE PROFITABILITY GETS INFLUENCED BY REL ATED PARTY TRANSACTIONS. ACCORDINGLY, WE DO NOT FIND ANY INFIR MITY IN THE FINDING OF THE LEARNED CIT(A) ON THE ISSUE IN DISPU TE AND 27 ITA NO. 499/DEL./2015 & 397/DEL./2015 ACCORDINGLY, WE UPHOLD THE SAME. THE GROUND NO. 2 A ND 3 OF THE APPEAL OF THE REVENUE ARE ACCORDINGLY DISMISSED. 12. IN GROUND NO. 4, REVENUE HAS CHALLENGED EXCLUSION OF M/S ACCENTIA TECHNOLOGIES LTD. 12.1 THE LEARNED DR SUBMITTED THAT IN VIEW OF THE CBDT CIRCULAR, THE ACTIVITY OF THE COMPANY IS IN THE NAT URE OF THE ITES AND, THEREFORE, IT IS A VALID COMPARABLE. 12.2 ON THE OTHER HAND, LEARNED COUNSEL OF THE ASSESSE E RELIED ON THE FINDING OF THE LEARNED CIT(A) AND SUBMITTED THAT COMPANY OPERATES INTO SEGMENTS I.E. ITES AND SOFTWARE DEVEL OPMENT, AND THEREFORE IT CANNOT BE COMPARED WITH THE ASSESSEE A T ENTITY LEVEL. 12.3 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE- IN-DISPUTE AND PERUSED THE ORDER OF THE LOWER AUTHO RITIES. WE FIND THAT BEFORE THE LEARNED TPO, THE ASSESSEE SOUGHT TO EXCLUDE THE COMPANY ON THE GROUND OF MULTIPLE SEGMENTS AND EXTR AORDINARY EVENT. THE CONTENTION OF THE ASSESSEE WAS REJECTED BY THE LEARNED TPO. THE LEARNED TPO NOTED THAT THE COMPANY SHOWN R EVENUE FROM ITES AS WELL AS SOFTWARE DEVELOPMENT AND IMPLE MENTATION BUT THE REVENUE FROM ITES WAS 80.87% THEREFORE IT W AS SELECTED AS COMPARABLE. THE OBJECTION OF EXTRAORDINARY EVENT WA S ALSO REJECTED ON THE GROUND THAT THE ASSESSEE DID NOT AD DUCE ANY EVIDENCE OF IMPACT OF THE EXTRAORDINARY EVENT ON TH E MARGIN OF THE COMPANY. THE LEARNED CIT(A), HOWEVER, REJECTED THE FINDINGS OF THE LEARNED TPO AND EXCLUDED THE COMPANY. THE FINDI NG OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE IS REPRODUCED AS UNDER: (C) (I) I HAVE CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT AND VARIOUS JUDICIAL CASES ON THE SUBJECT .THE TPO, ERRED IN INCLUDING ACCENTIA AS A COMPARABLE ON ACCOUNT OF TH E FOLLOWING REASONS: 28 ITA NO. 499/DEL./2015 & 397/DEL./2015 1.EXTRAORDINARY EVENTS IN THE FORM OF MERGER OF 4 C OMPANIES WITH ACCENTIA, WHICH TOOK PLACE DURING THE YEAR AND HAD A CONSIDERABLE IMPACT ON ITS PROFITABILITY AND HENCE OP/TC. WHILE THE TURNOVER INCREASED BY 75% IN FY 2007-08 OVER THE IMMEDIATELY PRECEDING YEAR, THE PROFITS INCREASED BY 23% DURING THE CORRE SPONDING PERIOD. SEVERAL PROMINENT DECISIONS RELIED UPON BY THE APPE LLANT RULE OUT A COMPANY BEING USED AS A COMPARABLE IN A YEAR IN WHI CH SUCH EXTRAORDINARY EVENTS HAVE TAKEN PLACE. (CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD [ITA NO.L961/HYD/2011 *AY 2007-08]; M/S. MARKET TOOLS RESEARCH PVT LTD.[ ITA NO.L811/HY D/2012; AY 2008-09). (II). FUNCTIONALLY, THERE IS A MAJOR DIFFERENCE BET WEEN THE TWO SETS OF COMPANIES. ACCENTIA EARNS REVENUE FROM VARIOUS SOUR CES VIZ. SOFTWARE DEVELOPMENT & IMPLEMENTATION MEDICAL TRANS CRIPTION AND BILLING &. CODING. HOWEVER, ITS OPERATIONS HAVE BEE N CLASSIFIED UNDER A SINGLE SEGMENT NAMELY 'HEALTHCARE RECEIVABL ES MANAGEMENT AND NO SEGMENTAL INFORMATION HAS BEEN PR OVIDED BY IT IN ITS ANNUAL REPORT. HENCE I HOLD THAT ACCENTIA SHOULD NOT HAVE BEEN USE D AS A COMPARABLE ON ACCOUNT OF THE FACT THAT THERE WERE S IGNIFICANT MERGERS DURING THE YEAR. 12.4 BEFORE US, THE LEARNED DR COULD NOT REBUT THE FIN DING OF LD. CIT(A) OF EXISTENCE OF EXTRAORDINARY EVENT AND IMPA CT ON MARGIN OF THE COMPANY. IN OUR OPINION, THE FINDING OF THE LD. CIT(A) ON THE ISSUE-IN-DISPUTE IS JUSTIFIED AND NO INTERFEREN CE IS REQUIRED ON THE SAME. ACCORDINGLY, WE UPHOLD THE SAME. THE GROU ND NO. 4 OF THE APPEAL IS ACCORDINGLY DISMISSED. 13. IN GROUND NO.5, THE REVENUE HAS CHALLENGED EXCLUSI ON OF E- CLARX SERVICES LTD. THE LEARNED DR SUBMITTED THAT THE FINDING OF THE LD. CIT(A) THAT COMPANY IS ENGAGED IN PROVIDING KPO SERVICES IS NOT CORRECT AND THE COMPANY IS MAINLY ENGAGED IN ITES SEGMENT ONLY. 13.1 THE LEARNED COUNSEL, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LEARNED CIT(A). 29 ITA NO. 499/DEL./2015 & 397/DEL./2015 13.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE ORDER OF THE LOWER AUTHO RITIES. BEFORE THE LEARNED TPO, THE ASSESSEE SOUGHT EXCLUSION OF T HE COMPANY ON THE GROUND OF FUNCTIONAL DISSIMILARITY AS COMPAN Y BEING A KNOWLEDGE PROCESSING OUTSOURCING (KPO) COMPANY. ACC ORDING TO THE LEARNED TPO, IN VIEW OF TNMM SELECTED AS MOST A PPROPRIATE METHOD, ONLY BROAD SIMILARITY OF FUNCTION WAS REQUI RED. THE LEARNED TPO ALSO REJECTED OBJECTION OF THE ASSESSEE OF EXTRAORDINARY EVENT DURING THE YEAR UNDER CONSIDERA TION AND INTANGIBLES OWNED BY THE COMPANY. THE LEARNED CIT(A ) EXCLUDED THE COMPANY FROM THE SET OF COMPARABLES, OBSERVING AS UNDER: C) I HAVE CONSIDERED THE FACTS OF THE CASE, THE SU BMISSIONS OF THE APPELLANT AND VARIOUS JUDICIAL PRONOUNCEMENTS ON TH E ISSUE. THE TPO ERRED IN INCLUDING E CLERX SERVICES LTD AS A CO MPARABLE ON ACCOUNT OF THE FOLLOWING REASONS: E CLERX SERVICES LTD OFFERS SOLUTIONS THAT INCLU DE DATA ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RECONCILIATION AN D THEREFORE HAS TO BE CLASSIFIED AS HIGH END KPO. EXTRA ORDINARY EVENTS AND PECULIAR CIRCUMSTANCES PREVAILED IN THE CASE OF THIS COMPANY AS IT ACQUIRED A UK BASED COMPANY WHICH HAS SIGNIFICANTLY CONTRIBUTED TO THE INCREASE IN THE CUSTOMER AND REVENUE BASE OF THE COMPANY. THE HON'BLE BANGALORE TRIBUNAL IN THE CASE OF CA PITAL IQ INFORMATION SYSTEMS INDIA (P.) LTD. (SUPRA) HAD AN OCCASION TO DEAL WITH COMPARABILITY OF THIS COMPANY IN THE CASE OF AN ITES COMPANY SUCH AS THE APPELLANT AND THE TRIBUNAL HELD AS FOLLOWS: THE ASSESSEE HAS OBJECTED FOR THIS COMPANY BEING T AKEN AS COMPARABLE MAINLY ON THE GROUND THAT IT WAS HAVING A SUPERNORMAL PROFIT OF 89%, AND AS SUCH IT CANNOT BE TAKEN AS A COMPARABLE IN VIEW OF THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE M/S. TEVA INDIA LTD. (SUPR A). THAT APART, RELYING UPON THE ANNUAL REPORT OF THE COMPAN Y, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE HAS CONTENDED THAT THAT THE CONCERNED COMPANY IS ENGAGE D IN PROVIDING KNOWLEDGE PROCESS OUTSOURCING(KPO) SERVIC ES. ON CONSIDERING THE OBJECTIONS OF THE ASSESSEE IN RE LATION TO THIS COMPANY, WE ACCEPT THE CONTENTION OF THE ASSES SEE THAT 30 ITA NO. 499/DEL./2015 & 397/DEL./2015 THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE BOTH F OR THE REASONS THAT IT WAS HAVING SUPERNORMAL PROFIT AND I T IS ENGAGED IN PROVIDING KPO SERVICES, WHICH IS DISTINC T FROM THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE.' WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DECISIO N OF THE HYDERABAD BENCH REFERRED TO ABOVE, THIS COMPANY CAN NOT BE REGARDED AS A COMPARABLE FOR THE REASON THAT IT WAS FUNCTIONALLY DIFFERENT.' HENCE ON THE BASIS OF THE AFORESAID ARGUMENTS, I HO LD THAT E- CLERX SHOULD NOT HAVE BEEN USED AS A COMPARABLE BY THE TPO. THIS COMPARABLE IS ACCORDINGLY DIRECTED TO BE EXCLU DED. 13.3 IN OUR OPINION, IT IS SETTLED LAW THAT KPO COMPANI ES ENGAGED IN PROVIDING HIGH-END INFORMATION TECHNOLOG Y SERVICES CANNOT BE COMPARED WITH BPO COMPANIES ENGAGED IN PR OVIDING LOW END ITES SERVICES DUE TO DIFFERENCE IN QUALITY OF HUMAN RESOURCES EMPLOYED FOR RENDERING THE SERVICES. ACCO RDINGLY, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED CIT( A) ON THE ISSUE- IN-DISPUTE AND WE ACCORDINGLY , UPHOLD THE SAME. THE GROUND NO. 5 OF THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMI SSED. 14. IN GROUND NO. 6, THE REVENUE HAS CHALLENGED EXCLUS ION OF M/S HCL COMNET SYSTEMS AND SERVICES LTD. 14.1 THE LEARNED DR SUBMITTED THAT CIT(A) IS NOT JUSTI FIED IN REJECTING THE COMPARABLE ON THE GROUND OF RELATED P ARTY TRANSACTION. ACCORDING TO HIM WHILE COMPARING RELAT ED PARTY TRANSACTIONS, ENTIRE TRANSACTION OF PURCHASE AND SA LES CANNOT BE COMPARED WITH THE SALES ONLY. 14.2 THE LEARNED COUNSEL, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LD. CIT(A). 14.3 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE AND PERUSED THE ORDER OF THE LOWER AUTHO RITIES. THE LD. CIT(A) HAS EXCLUDED THE COMPANY ON THE GROUND OF RE LATED PARTY 31 ITA NO. 499/DEL./2015 & 397/DEL./2015 TRANSACTIONS BEING MORE THAN 25% OF THE SALES. THE RELEVANT FINDING OF THE LD. CIT(A) IS REPRODUCED AS UNDER: (C)I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT AND GONE THROUGH THE FACTS OF THIS CASE. THE APPELLANT IS CH ALLENGING THE INCLUSION OF THIS COMPARABLE ON TWO FRONTS, FIRSTLY THE MASSIVE DISPARITY IN TURNOVER OF THE APPELLANT COMPANY ON T HE ONE HAND AND HCL ON THE OTHER AND RPT BEING MORE THAN 25% IN THE CASE OF THE COMPARABLE COMPANY. AS REGARDS THE LATTER, THE TPO HAD CHOSEN RPT TRANSACTIONS GREATER THAN 25% AS A FILTER FOR S ELECTING THE FINAL LIST OF COMPARABLES. ONCE RPT IN EXCESS OF 25% WAS ADOPTED BY THE TPO AS A FILTER, NO COMPARABLE FAILING TO SATISFY T HIS FILTER SHOULD HAVE BEEN INCLUDED. BESIDES THERE ARE A NUMBER OF C ASE LAWS WHERE COMPARABLES HAVING RPT IN EXCESS OF 25% HAVE BEEN E XCLUDED. (ADP(P) LTD VS DCIT(2011) 10 TAXMANN.COM 160) (KYD- TRIB); GLOBAL LOGIC INDIA(P) LTD VS DCIT (2011) 12 TAXMANN.COM 2S 5 (DE!-TRIB) ACIT VS HAPAG LLOYD GLOBAL SERVICES(P) LTD (ITA NO 8499 DATED 28- 2-13).IN LIGHT OF THIS DISCUSSION IF RPT IS IN EXCE SS OF 25% THIS COMPARABLE SHOULD BE EXCLUDED. (II)AS REGARDS TURNOVER DIFFERENCE BETWEEN THE APPE LLANT AND THE COMPARABLE COMPANY, I HOLD THAT WHEREAS THE TURNOVE R OF HCL WAS 495 CRORES, THE APPELLANT'S TURNOVER WAS HARDLY 4.6 CRORES. AS HAS BEEN RIGHTLY HELD IN THE CASES OF MARKET TOOLS RESEARCH(SUPRA),CAPITAL IQ INFORMATION SYSTEM LNDIA (P) LTD VS ACIT(SUPRA)CSR INDIA(P) LTD VS ITO (2013) 31 TAXMAN N.COM 265(BANG-TRIB) AND ACTIS ADVISERS(P) LTD VS DCIT (D ELHI), THE TPO SHOULD NOT HAVE CONSIDERED HCL COMNET SYSTEM AS A COMPARABLE ON ACCOUNT OF THESE REASONS. THUS I HOLD THAT THE T PO ERRED IN INCLUDING HCL AS A COMPARABLE AND IT SHOULD THUS BE EXCLUDED FROM THE LIST OF COMPARABLES. 14.4 WE DO NOT AGREE WITH THE FINDING OF THE LD. CIT(A ) ON THE ISSUE IN DISPUTE. THE LEARNED CIT(A) HAS CLUBBED T HE TRANSACTION OF SALE, PURCHASE, PAYMENT FOR FACILITIES, MANAGEME NT CONTRACTS ETC. AND THEN WORKED OUT RATIO OF THESE TRANSACTION TO SALES. THE SAID RATIO HAS BEEN WORKED OUT TO 26.44 %. IN OUR O PINION, IF TOTAL RELATED PARTY TRANSACTIONS HAVE TO BE COMPARED, THE N SAME SHOULD BE COMPARED WITH TOTAL TRANSACTION OF PURCHA SE AND SALES ETC. CARRIED OUT BY THE ASSESSEE. COMPARING THE TOT AL RELATED PARTY TRANSACTION WITH THE SALES REFLECT A DISTORTED VIEW OF THE MEASURE 32 ITA NO. 499/DEL./2015 & 397/DEL./2015 OF RELATED PARTY IMPACT ON THE MARGIN OF THE COMPAN Y. THE LEARNED COUNSEL WAS DIRECTED TO PROVIDE ANY BINDING JUDICIAL PRECEDENT WHERE A COMPANY WAS REJECTED ON THE BASIS OF FILTER OF RATIO OF TOTAL RPT TO SALES BEING MORE THAN 25%, HO WEVER NO SUCH INFORMATION WAS PROVIDED BY HIM. IN THE FACTS AND C IRCUMSTANCES, WE ARE OF THE OPINION THAT THE COMPANY CANNOT BE RE JECTED ON THE GROUND OF RPT FILTER. THE DIRECTION OF THE LEARNED CIT(A) ON THE ISSUE IN DISPUTE ARE SET ASIDE AND THE LEARNED AO/T PO IS DIRECTED TO RETAIN THE SAID COMPANY AS COMPARABLE IN THE FIN AL SET OF THE COMPARABLES. THE GROUND NO.6 OF THE APPEAL OF THE R EVENUE IS ACCORDINGLY ALLOWED. 15. IN GROUND NO.7, THE REVENUE HAS CHALLENGED EXCLUSIO N OF M/S MOLD-TEK TECHNOLOGIES LTD. 15.1 THE LEARNED DR RELIED ON THE ORDER OF THE TPO, WH EREAS THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT IN V IEW OF THE EXTRAORDINARY EVENT OF DEMERGER OF THE PLASTIC DIVI SION OF THE COMPANY AND AMALGAMATION OF TECK MEN TOOLS PRIVATE LIMITED DURING THE YEAR UNDER CONSIDERATION, THE COMPANY CA NNOT BE INCLUDED AS A VALID COMPARABLE. HE SUPPORTED THE OR DER OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND ALSO RELIED ON F OLLOWING DECISIONS: M/S SYMPHONY MARKETING SOLUTIONS INDIA PRIVATE L IMITED V/S ITO (IT (PA) NO 1316/BANG/2012)- AY 2008-09 M/S BA CONTINUUM INDIA PRIVATE LIMITED V/S ACIT ( ITA NO 1144/HYD/2014)- AY 2008-09 ICC INDIA PRIVATE LIMITED V/S DCIT (ITA NO 25/DEL /2012)- AY 2007- 08 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD (ITA NO.L961/HYD/2011; AY 2007-08 PARAGRAPH 12,13 AND 23 , PAGE 17 AND 25) WHEREIN, THE HON'BLE ITAT RELIED UPON DRP D IRECTIONS FOR SUBSEQUENT YEAR, I.E. AY 2008-09 IN ASSESSEE'S OWN CASE BASED ON SIMILAR FACTS OF THE CASE IN BOTH THE YEARS. 33 ITA NO. 499/DEL./2015 & 397/DEL./2015 ZAVATA INDIA PRIVATE LIMITED [ITA NO.L781/HYD/201 1; AY 2007-08; PARAGRAPH 31- PAGE 15'.IN THIS CASE, THE HON'BLE IT AT FOLLOWED THE ORDER OF CAPITAL IQ INFORMATION SYSTEMS WHEREIN, TH E HON'BLE ITAT HAD RELIED UPON DRP DIRECTIONS FOR SUBSEQUENT YEAR, I.E. AY 2008-09 IN ASSESSEE'S OWN CASE BASED ON SIMILAR FACTS OF TH E CASE IN BOTH THE YEARS. . M/S AVINEON INDIA PVT. LTD. ITA NO. 1989/HYD/2011 ; AY 2008-09; PARAGRAPH D (3),PAGE 15;. 15.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. THE LEARNED CIT(A) EXCLUDED THE COMPANY FROM THE FINAL SET OF THE COMPARABLES OBSERVING AS UNDER: (C) I HAVE CONSIDERED THE FACTS OF THE CASE AND GONE THROUGH THE SUBMISSIONS OF THE APPELLANT. THE FOLLOWING ARGUMEN TS EMERGE OUT OF THE FACTS OF THE CASE AND APPELLANT'S SUBMISSIONS W HICH ARE IN SUPPORT OF EXCLUDING THE COMPANY FROM THE LIST OF C OMPARABLES. (I).THIS WAS AN EXCEPTIONAL YEAR SINCE THERE WAS ME RGER/DEMERGER ON ACCOUNT OF WHICH SUPERNORMAL PROFITS ACCRUED TO THE COMPANY. (II). ON ACCOUNT OF EXCEPTIONAL EVENTS DURING THE Y EAR, COMPANIES HAVE BEEN EXCLUDED AS COMPARABLES BY THE HON'BLE HA T IN A NUMBER OF CASES. IN THE CASE OF CAPITAL IQ VS DCIT( SUPRA), ON THE ISSUE OF INCLUDING MOLD TECH AS A COMPARABLE IT WAS HELD AS UNDER: 'ON CAREFUL CONSIDERATION OF THE SUBMISSIONS OF THE ASSESSEE WE FIND THAT THE DRP, AS ALREADY STATED EARLIER, IN THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2008-09 HAS ACC EPTED THE ASSESSEE'S CONTENTION THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE BECAUSE OF EXCEPTIONAL FINANCIAL RESU LT DUE TO MERGER/DEMERGER. IN VIEW OF THE AFORESAID, WE ACCEP T THE ASSESSEE'S CONTENTION THAT THIS COMPANY CANNOT BE T REATED AS COMPARABLE. THAT APART, IT IS ALSO A FACT THAT THIS COMPANY HAS SHOWN SUPER NORMAL PROFIT WORKING OUT TO 113%. THE INCOME- TAX APPELLATE TRIBUNAL, MUMBAI BENCH IN THE CASE OF TEVA INDIA (P.) LTD. (SUPRA) HAS OBSERVED THAT COMPANIES SHOWING SUPERNORMAL PROFIT CANNOT BE TREATED AS COMPARABLE. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THAT CASE ARE EXTRACTED HEREUNDER FOR CONVENIENCE- '32. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSE RVED THAT ALTHOUGH A DETAIL SUBMISSION WAS MADE ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(A) ON THE BASIS OF FAR 34 ITA NO. 499/DEL./2015 & 397/DEL./2015 ANALYSIS TO SHOW THAT THE SELECTION OF M/S. VIMTA L ABS AS COMPARABLE IS NOT JUSTIFIED, THE LEARNED CIT(A) HA S NOT ACCEPTED THE STAND OF THE ASSESSEE ON THE ISSUE WIT HOUT GIVING ANY COGENT OR CONVINCING REASONS. IN ITS RECENT DEC ISION RENDERED IN THE CASE OF ADOBE SYSTEMS INDIA PVT LTD . (ITA NO.5043/DEI/2000 DTD. 21.01.2011) + (2011 -TII-13-I TAT- DEL-TP), DELHI BENCH OF ITAT HAS HELD THAT EXCLUSIO N OF COMPARABLES SHOWING SUPERNORMAL PROFITS AS COMPARED TO OTHER COMPARABLE IS FULLY JUSTIFIED. WE, THEREFORE SET ASIDE THE IMPUGNED ORDER OF THE ID. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION TO DECIDE THE SAME AFRESH AFTER TAKING INTO CONSIDERATION THE SUB MISSIONS MADE BY THE ASSESSEE BEFORE THE LEARNED CIT(A) AND KEEPING IN VIEW THE DELHI BENCH OF ITA IN THE CASE OF ABODE SYSTEMS INDIA PVT. LTD. (SUPRA). IN THIS VIEW OF THE MATTER, WE ACCEPT THE CONTENTIO NS OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TREATED AS A COMPARABLE .' (III). FROM THE NEXT YEAR, AS PER THE APPELLANT, TH E TPO ALSO DID NOT INCLUDE MOLD-TECH AS A COMPARABLE. (IV). MOLD TECH IN ITS AUDIT REPORT FOR FY 2010-11 MADE A DISCLOSURE THAT SINCE IT WAS COMING OUT OF TAX FREE ZONE IN FY 2011-12, CERTAIN ADJUSTMENTS WERE MADE IN ITS BOOKS FOR 2010-11 IN R ELATION TO AMOUNTS PERTAINING TO PRECEDING YEARS. THIS MEANS T HAT FOR YEARS PRIOR TO FY 2010- 11, THE ACCOUNTS OF THE COMPANY W ERE NOT REFLECTING THE TRUE MARGINS AND THUS PROFITS. HENCE ON THE BASIS OF THESE ARGUMENTS TOGETHER WITH VARIOUS CASE LAWS ON THIS ISSUE, I HOLD THAT THE AO ERRED IN INC LUDING MOLD TECH AS A COMPARABLE. 15.3 IN VIEW OF JUDICIAL PRECEDENT, THE LD. CIT(A) IS JUSTIFIED IN EXCLUDING THE COMPANY BECAUSE OF EXTRAORDINARY EVEN T OF MERGER/DEMERGER. THE LEARNED CIT(A) HAS ALSO NOTED THAT THE TPO HIMSELF HAS NOT INCLUDED THE COMPANY AS COMPARA BLE IN SUBSEQUENT YEAR. ACCORDINGLY, WE UPHOLD THE ORDER O F THE LD. CIT(A) ON THE ISSUE IN DISPUTE. THE GROUND NO.7 OF THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 35 ITA NO. 499/DEL./2015 & 397/DEL./2015 16. IN THE RESULT, BOTH THE APPEAL OF THE ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2021 SD/- SD/- (AMIT SHUKLA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 25 TH JANUARY, 2021. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI