Evalueserve.com P.Ltd, New Delhi V. ACIT, Circle-8(2), New Delhi

ITA 5148/DEL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7587 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 08-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DINESH ANTIL
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction; Question of law
• Section: 10B; 201; 192; 43; 73; 13; 22; 37; 92

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI N.K. CHOUDHARY, JUDICIAL M EMBER ITA NO. 5148/DEL/2017 [ASSESSMENT YEAR: 2011-12] EVALUESERVE.COM PVT LTD VS. THE A.C.I.T A-47, LOWER GROUND FLOOR CIRCLE 8(2) HAUZ KHAS, NEW DELHI NEW DELHI PAN: AAACE 8014 E [APPELLANT] [RESPONDENT] DATE OF HEARING : 22.01.2020 DATE OF PRONOUNCEMENT : 28.01.2020 ASSESSEE BY : SHRI SALIL KAPOOR, ADV MS. ANANYA KAPOOR, ADV REVENUE BY : SHRI DINESH ANTIL. SR. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS] 19, NEW DELH I DATED 15.05.2017 PERTAINING TO ASSESSMENT YEAR 2011-12. 2 2. GROUND NOS. 1 AND 2 ARE GENERAL IN NATURE AND NE ED NO ADJUDICATION. 3. GROUND NOS. 3 TO 15 RELATE TO TP ADJUSTMENT. TH E ASSESSEE PRAYS FOR EXCLUSION OF CERTAIN COMPARABLES. 4. GROUND NO. 16 RELATES TO CALCULATION OF ASSESSEE S PLI. 5. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSE SSEE STATED THAT THE ASSESSEE CONTENDS FOR THE EXCLUSION OF FOUR COM PARABLES FROM THE FINAL SET OF COMPARABLES. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT ALL THE COMPARABLES WERE CONSIDERED B Y THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEAR. COPY OF THE O RDER OF THE TRIBUNAL WAS SUPPLIED. 6. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE FI NDINGS OF THE TPO. IT IS THE SAY OF THE LD. DR THAT FUNCTIONAL PROFILE CANNOT BE THE SAME IN TWO CASES AND, THEREFORE, THE COMPARABLES USED BY T HE TPO ARE GOOD COMPARABLES. 3 7. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE OR DERS OF THE AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE ORDERS OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 1814/DEL/20 17 DATED 01.11.2019 FOR A.Y 2012-13 AND ITA NO. 6310/DEL/201 2 AND ITA NO. 1466/DEL/2015 FOR A.YS 2008-09 AND 2010-11. 8. THE FACTS ON RECORD SHOW THAT THE APPELLANT COMP ANY CARRIES OUT IT ENABLED SERVICES IN THE FORM OF RESEARCH ACTIVIT IES ACCORDING TO THE TERMS OF ITS AGREEMENT WITH ITS AE. THE RESEARCH CA RRIED OUT BY THE ASSESSEE IS DRIVEN BY BUSINESS INFORMATION, MARKET RESEARCH AND INTELLECTUAL PROPERTY RESEARCH. NORMALLY, THE CLIE NT EXECUTIVES OPERATING FROM OVERSEAS FORMED AN INTERFACE BETWEEN THE CLIENT AND THE ASSESSEE AND THE DELIVERABLE WAS TYPICALLY IN T HE FORM OF RESEARCH REPORT THAT IS FORWARDED DIRECTLY TO THE CLIENT UND ER THE SUPERVISION AND POST A QUALITY ASSURANCE BY THE AES. REPORTS A ND RESEARCH STUDIES PREPARED BY THE ASSESSEE ARE OWNED BY THE CLIENTS O NLY. OPERATIONS OF THE ASSESSEE PRIMARILY COMPRISED OF THE FOLLOWING S EGMENTS: A) BUSINESS INFORMATION B) INVESTMENT RESEARCH AND FINANCIAL ANALYTICS C) MARKET RESEARCH D) INTELLECTUAL PROPERTY 4 9. THE INTERNATIONAL TRANSACTIONS ENTERED INTO DURI NG THE YEAR ARE: (A) PROVISION OF SERVICES BACK OFFICE OPERATIONS [RESEARCH SERVICES] RS. 1,29,00,46,9 63/- (B) COST REIMBURSEMENT RECEIVED/ RECEIVABLE RS. 2,44,47,940/- 10. TNMM WAS TAKEN AS THE MOST APPROPRIATE METHOD A ND ASSESSEES PROFIT LEVEL INDICATOR WAS TAKEN AT 17.65% AND ARIT HMETIC MEAN OF COMPARABLES WAS 14.38%. THE TPO WAS NOT SATISFIED W ITH THE COMPARABLES USED BY THE ASSESSEE AND AFTER CONSIDER ING THE OBJECTIONS REGARDING COMPARABLES AND THEIR MARGIN CALCULATIONS , THE FOLLOWING SET OF COMPARABLES WERE TAKEN BY THE TPO FOR DETERMINAT ION OF ALP: SL. NO NAME OF THE COMPANY OP/OC 1 ACCENTIA TECHNOLOGIES LTD 29.18% 2 ACROPETAL TECHNOLOGIES LIMITED (SEGMENT) 14.36% 3 E4E HEALTHCARE BUSINESS SERVICES PVT LTD 9.77% 4 ECLERX SERVICES LTD 56.82% 5 ICRA TECHNO ANALYTICS LIMITED (SEGMENT) 25.24% 6 INFOSYS BPO LTD 17.86% 7 JINDAL INTELLICOM LTD. 13.70% 8 TCS E - SERVE LIMITED 69.31% AVERAGE 29.53% 5 11. ACCORDINGLY, ALP AND ADJUSTMENT WAS COMPUTED AS UNDER: OPERATIONAL COST 1,164,795,745 ARM'S LENGTH PRICE AT A MARGIN OF29.53% 1,508,759,928 PRICE RECEIVED 1,340,917,228 105% OF THE PRICE RECEIVED 1,407,963,089 PROPOSED ADJUSTMENT II/S 92CA 167,842,700 12. THE ASSESSEE AGITATED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 13. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT SHE WANTS THE FOLLOWING FOUR COMPARABLES TO BE EXCLUDED: (I) ACCENTIA TECHNOLOGIES LTD (II) INFOSYS BPO LTD (III) TCS E-SERVE LIMITED (IV) ECLERX SERVICES LTD 6 14. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESS EE THAT ALL THESE COMPANIES WERE EXCLUDED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN A.Y 2012-13. 15. WE FIND FORCE IN THE CONTENTION OF THE LD. COUN SEL FOR THE ASSESSEE. THE RELEVANT FINDINGS OF THE CO-ORDINATE READ AS UNDER: I) ACCENTIA TECHNOLOGIES LTD. 8. THIS COMPARABLE CHOSEN BY THE TPO WAS OBJECTED B Y THE ASSESSEE BEFORE THE TPO ON THE GROUND THAT, FIRSTLY , IT IS FUNCTIONALLY NOT SIMILAR; SECONDLY, PRESENCE OF IPR S, THIRDLY, EXTRAORDINARY EVENT OF ACQUISITION OF A SOFTWARE DE VELOPMENT COMPANY DURING THE FINANCIAL YEAR 2011-12; AND LAST LY, THERE ARE NO SEGMENTAL DETAILS. THIS COMPANY IS INTO MEDICAL TRANSCRIPTION, MEDICAL BILLING, MEDICAL CODING, CLAIMS PROCESSING AND SOFTWARE DEVELOPMENT IMPLEMENTATION SERVICES. LD. TPO HELD T HAT SINCE THE COMPARABLES CHOSEN BY HIM ARE PROVIDING ITES SE RVICES SIMILAR TO THE ASSESSEE AND UNDER TNMM BROUGHT COMP ARABILITY HAS TO BE SEEN, THEREFORE IT IS A FIT COMPARABLE. H E OBSERVED THAT, THIS COMPANY IS INTO HEALTH CARE RECEIVABLE C YCLE MANAGEMENT, WHICH IS PRE-DOMINANTLY UNDER ITES. THE ENTIRE FUNCTIONS OF MEDICAL TRANSCRIPTION, CODING BILLING AND COLLECTION IS ONE COMPLETE SEGMENT AND ALL THESE VARIOUS SPECI FIC SEGMENTS ARE CLOSELY RELATED TO EACH OTHER. AS FAR AS DEVELO PING OF PROPRIETARY SOFTWARE PRODUCTS, TPO OBSERVE THAT THE RE IS NO 7 REFERENCE OF ANY REVENUE FROM THE SOFTWARE PRODUCTS IN THE ANNUAL REPORT. THUS, HE HELD THAT SAME IS A GOOD CO MPARABLE. 8.1 BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT FROM THE PERUSAL OF THE P & L ACCOUNT IT CAN B E SEEN THAT REVENUES FROM OPERATIONS ARE FROM DIFFERENT SOURCE S I.E. MEDICAL TRANSCRIPTION, BILLING AND CODING AND EMR A ND SAAS. HOWEVER, THE ANNUAL REPORT STATES THAT IT HAS ONLY ONE SEGMENT. THUS, THERE IS NO SEGMENTAL DETAIL FOR VARIOUS STRE AMS OF REVENUE. SHE FURTHER SUBMITTED THAT THIS COMPANY IS INTO MEDICAL TRANSCRIPTION, CODING AND MEDICAL BILLING S ERVICES AND ALSO SOFTWARE DEVELOPMENT SERVICES AND ALSO HAS DEV ELOPED ITS OWN PRODUCTS SUCH AS, IMTAS, IRTS, IAMS, IPMS. APAR T FROM THAT, SHE SUBMITTED THAT THERE WERE EXTRAORDINARY E VENTS IN A.Y. 2012-13 IN THE FORM OF AMALGAMATION AND ACQUIS ITION, THEREFORE, DUE TO SUCH EXTRAORDINARY EVENT THIS COM PARABLE CANNOT BE INCLUDED IN THIS YEAR. SHE FURTHER POINTE D OUT THAT IN THE ASSESSMENT YEAR 2008-09, THE TRIBUNAL IN ASSESS EES OWN CASE FOLLOWING THE PRINCIPLE LAID DOWN BY THE HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS. AMERIPRISE INDIA (P) LTD. IN ITA NO. 461/2016 HAS UPHELD THE EXCLUSION OF THE SAID COMPARABLE. APART FROM THAT, THE TRIBUNAL IN CASE O F SISTER CONCERN, I.E., EVALUESERVE.COM SEZ WHICH HAS A SIMI LAR FUNCTION PROFILE HAS DIRECTED TO EXCLUDE THE SAID COMPARABLE ; AND THIS JUDGMENT OF THE TRIBUNAL HAS BEEN UPHELD BY THE HON BLE DELHI HIGH COURT ALSO. 8 8.2 ON THE OTHER HAND, LD. CIT-DR STRONGLY REL IED UPON THE ORDER OF AUTHORITIES BELOW AND SUBMITTED THAT THE A CTIVITIES CARRIED OUT BY ACCENTIA TECHNOLOGIES LTD. IS NOTHING BUT ITES SERVICES AND ALL THE THREE FUNCTIONS ARE INTER RELA TED AND THEREFORE, NO SEPARATE SEGMENT IS REQUIRED TO BE SE EN. UNDER THE TNMM, IF A COMPARABLE COMPANY IS CARRYING OUT S IMILAR FUNCTIONS WHICH ARE IN THE CATEGORY OF ITES, THEN S AME CANNOT BE EXCLUDED ON SUCH MINUTE FUNCTIONAL DIFFERENCE. H E SUBMITTED THAT ASSESSEE IS ALSO RENDERING KPO SERVI CES THROUGH PROFESSIONALS AND THEREFORE, ACCENTIA TECHNOLOGIES LTD. WHICH IS INTO HEALTH CARE AND KPO THEREFORE, IT IS A GOOD COMPARABLE. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT FINDING GIVEN THE IMPUGNED ORDERS AS WELL AS THE MATERIAL REFERRED BEFORE US. ACCENTIA TECHNOLOGIES LTD. IS A COMPANY WHICH IS PROVIDING MEDICAL TRANSCRIPTION SE RVICES WHICH ENCOMPASSES PROCESS OF PRESCRIBING OR CONVERTING VO ICE RECORDED REPORTS AS DETECTED BY PHYSICIANS OR OTHER HEALTH CARE PROFESSIONALS WHO VET THE ACTUAL TRANSCRIPTION . APART FROM THAT IT IS PROVIDING MEDICAL CODING, BILLING AND CO LLECTION SERVICES. MEDICAL CODING IS RELATED TO PROCEDURES O F FINANCIAL ASSESSMENT WHICH HELP INSURANCE COMPANIES AND GOVER NMENT COMPANIES. MEDICAL BILLING IS DESCRIBED AS MEDICAL PRACTICE MANAGEMENT WHICH INVOLVES BILL ON INSURANCE COMPANI ES BY HOSPITALS FOR ON BEHALF OF THE PERSONNEL FOR MEDICA L CARE EXPENSES, WHICH ARE MAJORLY FROM US MARKETS. NO DOU BT ECLERX IS PROVIDING KIND OF ITES SERVICES WHICH REQUIRES S PECIAL SKILLS, 9 BUT WHAT IS RELEVANT TO ANALYSE IS THE NATURE OF BU SINESS AND THE FUNCTIONS CARRIED OUT FOR EARNING THE REVENUE A ND PROFITABILITY. HIGHLY SPECIALIZED AND SKILLED SERVI CES DEFINITELY HAVE HIGHER PROFITABILITY. FURTHER ASSETS DEPLOYED IN THE FORM OF HUMAN RESOURCES AND OTHER TANGIBLE AND INTANGIBL E AND RISKS UNDERTAKEN ALSO IMPACTS THE MARGINS. APART FROM THA T, FROM THE PERUSAL OF THE ANNUAL ACCOUNTS OF THE SAID COMP ANY IT IS SEEN THAT IT HAS SHOWN REVENUES FROM VARIOUS OPERAT IONS SEPARATELY, LIKE FROM BILLING, CODING, MEDICAL DISC RETE REPORTABLE TRANSCRIPTION AND MEDICAL TRANSCRIPTION. HOWEVER, F OR VARIOUS STREAMS OF INCOME THERE ARE NO SEGMENTAL DETAILS OR SEGMENTAL ACCOUNT. IN FACT IT HAS BEEN REPORTED THAT THERE IS ONLY ONE SEGMENT CALLED AS HEALTH CARE RECEIVABLE MANAGEMENT . AS POINTED OUT BY THE LD. COUNSEL THIS COMPANY IS ALSO INTO SOFTWARE DEVELOPMENT SERVICES AND ALSO OWN PROPRIET ARY PRODUCTS LIKE IMTAS, IRTS, IAMS, IPMS, WHICH IS USE D FOR VARIOUS FUNCTIONS. DUE TO THESE FACTORS AND COMPARI SON OF FUNCTIONAL PROFILES, THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 HAS DIRECTED TO EXCLUDE THIS COMPANY. FURTH ER, IN THIS YEAR THERE WAS ACQUISITION OF SOFTWARE DEVELOPMENT COMPANY NAMELY, MEDEX HEALTHCARE GLOBAL WHICH IS INTO DEVEL OPMENT OF SOFTWARE RELATED TO EMR AND SAAS. 9.1 OTHER IMPORTANT FACT IS THAT THE TRIBUNAL IN THE CASE OF SISTER CONCERN, I.E. EVALUE SEZ WHICH IS HAVING IDE NTICAL FUNCTIONAL PROFILE HAS DIRECTED TO EXCLUDE THE SAID COMPARABLE AFTER OBSERVING AS UNDER :- 10 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTE NTIONS AS WELL AS PERUSED THE ANNUAL ACCOUNTS OF THE COMPARABLES. AT PAGE NO. 1172, WE HAVE PERUSED SCHEDULE 10 OF THE NOTES ON A CCOUNT WHEREIN IT HAS MENTIONED THAT W.E.F. 01.04.2008 A C OMPANY WHICH WAS ENGAGED IN THE BUSINESS OF MEDICAL TRANSC RIPTION AND CODING HAS BEEN AMALGAMATED WITH THE COMPARABLE. IT IS FURTHER STATED FIGURES FOR THIS YEAR ARE RELATED TO AMALGAMATING COMPANY ALSO. THE PROFIT AND LOSS ACCO UNT OF THE COMPARABLE SHOWS THAT SALES AND SERVICES OF THE COM PANY ARE ACCORDING TO SCHEDULE NO. 8. THERE IS NO CHANGE IN THE INCOME SEGMENT OF THE ASSESSEE AFTER AMALGAMATION AS AMALG AMATING COMPANY WAS ALSO HAVING THE SAME BUSINESS, HENCE, T HERE IS NO IMPACT OF AMALGAMATION ON THE COMPANY WITH RESPECT TO FUNCTIONS PERFORMED. THEREFORE, MERELY THERE IS AN AMALGAMATION DURING THE YEAR IT CANNOT BE EXCLUDED AS COMPARABLE AS IT DOES NOT CHANGE THE FUNCTIONAL PRO FILE OF THE COMPARABLE COMPANY. HOWEVER, AT PAGE NO. 27 THE LD TPO HAS CONFIRMED THAT THIS COMPANY IS ENGAGED IN THE BUSIN ESS OF HEALTHCARE CYCLE MANAGEMENT WHICH COMPRISES OF MEDI CAL TRANSCRIPTION, CODING AND BILLING AND COLLECTION. T HE MEDICAL TRANSCRIPTION BUSINESS REQUIRES SPECIAL SKILL AND A LSO EMPLOYS MEDICAL PROFESSIONAL WHO FINALLY VET THE ACTUAL TRA NSCRIPTION. FURTHER MEDICAL CODING IS RELATED TO PROCEDURE OF F INANCIAL ASSESSMENT. MEDICAL BILLING IS MAINTENANCE OF FINAN CIAL ACCOUNTS ON INSURANCE COMPANY ETC FOR THE PURPOSES OF RECOVE RY OF SUMS BY DOCTORS. THEREFORE, MEDICAL TRANSCRIPTION IS A S ERVICE WHICH REQUIRES EMPLOYMENT OF MEDICAL PROFESSIONAL ALSO. H OWEVER, THE 11 MEDICAL CODING THE BILLING MAY NOT REQUIRE HIGHER T ECHNICAL SKILL. IN ANNUAL REPORT THE COMPANY HAS MENTIONED THAT IT HAS ONLY ONE SEGMENT AND THEREFORE IT DOES NOT HAVE SEGMENTA L RESULTS PERTAINING TO MEDICAL TRANSCRIPTION VIS-A-VIS CODIN G AND BILLING ACTIVITY. ACCORDING TO US THE MEDICAL TRANSCRIPTION ITSELF CANNOT BE SAID TO BE COMPARABLE WITH THE FUNCTIONS PERFORM ED BY THE ASSESSEE. HOWEVER, THE MEDICAL CODING AND BILLING A CTIVITIES ARE SIMILAR TO THE FUNCTIONS PERFORMED BY THE ASSESSEE. BUT, IN ABSENCE OF THE SEGMENTAL ACCOUNTS WITH RESPECT TO M EDICAL CODING AND BILLING ACTIVITES THIS COMPARABLE CANNOT BE INCLUDED. HENCE, TPO IS DIRECTED TO EXCLUDE IT. 9.2 THIS DECISION OF THE TRIBUNAL HAS ALSO BEEN UPH ELD BY THE HONBLE HIGH COURT. SINCE FUNCTIONAL PROFILE AND OT HER COMPARABILITY FACTORS OF THE ASSESSEE AS WELL AS CO MPARABLE COMPANY ACCENTIA TECHNOLOGIES LTD. REMAINS THE SAME , THEREFORE, WE DO NOT FIND ANY REASON DEVIATE FROM EARLIER YEAR ORDERS OF THE TRIBUNAL AS WELL AS THE JUDGMENT OF H ONBLE DELHI HIGH COURT. ACCORDINGLY, ACCENTIA TECHNOLOGIES LTD. IS DIRECTED TO BE EXCLUDED. INFOSYS BPO LTD. 14. REGARDING THIS COMPARABLE, TPO HAS REJECTED ALL THE CONTENTION OF THE ASSESSEE THAT THIS COMPANY HAS HI GH BRAND VALUE AND INTANGIBLES AND IT IS A GIANT COMPANY IN TERMS RISK PROFILE AND NATURE OF SERVICES AND HELD THAT, SINCE IT IS ALSO INTO PROVIDING ITES SAME SHOULD BE INCLUDED. 12 15. AFTER HEARING BOTH THE PARTIES, WE FIND ON P ERUSAL OF THE MATERIAL PLACED ON RECORD THAT INFOSYS IS NOT ONLY HIGH TURNOVER COMPANY, BUT ALSO HAS A HIGH BRAND VALUE AND INTANG IBLES AS COMPARED TO THE ASSESSEE WHICH HAS VERY INSIGNIFICA NT INTANGIBLES. APART FROM THAT, INFOSYS IN TERMS OF R ISK PROFILE, SKILL, NATURE OF SERVICES, REVENUE, AND OWNERSHIP O F BRAND PROPRIETARY PRODUCTS CLEARLY OUTWEIGHS THE FAR ANAL YSIS COMPARISON WITH THE ASSESSEE. BECAUSE OF THESE FACT ORS, HONBLE DELHI HIGH COURT IN SEVERAL DECISIONS HAS H ELD THAT GIANT COMPANIES LIKE INFOSYS AND WIPRO CANNOT BE COMPARED WITH LOW RISK OR CAPITAL SERVICE PROVIDER. THE LISTS OF SAID JUDGMENT ARE AS UNDER:- 1) DELHI HIGH COURT-PCIT VS. ORACLE (OFSS) BPO SE RVICES P. LTD. ITA NO. 124/2018) 2) DELHI HIGH COURT-PCIT VS. NEW RIVER SOFTWARE SERVICES P. LTD. (ITA NO. 924/2016) ORDER DATED 22.08.2017- 3) DELHI HIGH COURT-CIT VS. AGNITY INDIA TECHNOL OGIES P. LTD. (2013) 219 TAXMAN 26 (DEL) 4) DELHI HIGH COURT-CIT VS. AGNITY INDIAN TECHNOL OGIES P. LTD. (ITA NO. 447/2018) 5) DELHI HIGH COURTIN PCIT VS. EVALUESERVE SEZ ( GURGAON) P. LTD. ITA NO. 241/2018 ORDER DATED 26.02.2018 6) DELHI HIGH COURTN IN PCIT VS. EVALUESERVE SEZ (GURGAON) P. LTD. ITA NO. 948/2018 ORDER DATED 29.08.2018. 13 15.1 FROM THE PERUSAL OF THE ANNUAL REPORT OF THE SAID COMPANY IT IS SEEN THAT IT IS AMONGST THE TOP TEN B PO OF THE COUNTRY AND HAS AROUND 18,383 EMPLOYEES WITH HUGE ADVERTISEMENT EXPENDITURE AND MARKETING OF RS. 8.73 CRORES AS COMPARED TO THE ASSESSEE WHICH HAS 1163 EMPLOYEES A ND UNDERTAKES NO SUCH EXPENSE; AND THE TURNOVER OF INF OSYS IS MORE THAN RS.1312 CRORES AS COMPARED TO ASSESSEES TURNOVER WHICH IS AT RS. 144 CRORES. FURTHER, IN ASSESSEES OWN CASE AS WELL AS IN THE CASE OF SISTER CONCERN, THIS TRIBUNA L HAS EXCLUDED INFOSYS BPO BASED ON THESE COMPARABILITY FACTORS. L OOKING TO THE SCALE OF OPERATIONS AND PRESENCE OF HIGH VALUAB LE ASSETS BOTH TANGIBLE AND INTANGIBLE, THIS COMPANY HAS CONS ISTENTLY BEEN HELD TO BE INCOMPARABLE WITH CAPTIVE SERVICE PROVID ER COMPANIES. ACCORDINGLY, WE DIRECT THE EXCLUSION OF THIS COMPARABLE. VI) TCS E-SERVE LTD. 16. THE TPO HAS INCLUDED THIS COMPARABLE HOLDING TH AT IT CARRIES OUT THE FUNCTION OF ITES AND HIGH TURNOVER AND BRAND VALUE IS NOT RELEVANT FACTOR AND BRAND EXPENSES IS ONLY RS. 3.67 CRORES. 17. AFTER HEARING BOTH THE PARTIES AND PERUSAL OF MATERIAL PLACED ON RECORD, WE FIND THAT TCS E-SERVE LTD. LIK E INFOSYS BPO IS A GIANT COMPANY WHICH HAS HIGH BRAND VALUE A ND INTANGIBLES AND IN TERMS OF RISK PROFILE, SKILL, NA TURE OF SERVICE, REVENUE ETC. THIS COMPARABLE HAS BEEN REJECTED IN V ARIOUS 14 JUDICIAL RULINGS. THE TURNOVER OF TCS IS MORE THAN RS. 1578 CRORE AND THIS COMPANY IS HAVING HUGE ASSETS AND IS UNDER TAKING HIGH RISK WHICH HAVE DIRECT IMPACT ON TURNOV ER AND IN PROFITABILITY. IF A COMPANY IS HAVING HUGE ASSET BA SE, BRAND VALUE, GOODWILL AND PRESENCE IN GLOBAL MARKET WITH SIGNIFICANT R & D, THEN IT CANNOT BE COMPARED WITH A COMPANY WHIC H IS PURELY CAPTIVE SERVICE PROVIDER IN ITES/BPO, HAVING LOW RI SK AND INSIGNIFICANT ASSETS. EVEN THE DEPLOYMENT OF HUMAN RESOURCES SHOWS THAT TCS HAS 14,785 EMPLOYEES WHEREAS THE ASS ESSEE HAS 1163 EMPLOYEES. THIS FACTOR ITSELF SHOWS THAT I N THE TERMS OF HUMAN RESOURCES, THERE IS HUGE DIFFERENCE IN THE ASSETS DEPLOYED. NOW THERE IS LATEST JUDGMENT OF HONBLE DELHI HIGH COURT DATED 24 TH JULY, 2019 IN THE CASE OF M/S. AVAYA INDIA PVT. LTD. VS. ACIT IN ITA NO. 532/2019 WHICH HAD CONSIDERED THE COMPARABILITY OF TCS E-SERVE LTD. A ND TCS SERVE INTERNATIONAL LTD. WITH THE COMPANY PROVIDING ITES SERVICES. THE RELEVANT SUBSTANTIAL QUESTION OF LAW ADMITTED BY THE HONBLE HIGH COURT READS AS UNDER :- WHETHER THE ITAT WAS JUSTIFIED IN UPHOLDING THE OR DER OF THE TPO AND THE DRP IN NOT EXCLUDING M/S. TCS E- SERVE LIMITED; M/S. TCS E-SERVE INTERNATIONAL LIMITED FRO M THE LIST OF COMPARABLES FOR THE PURPOSES OF DETERMINING THE ARMS- LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS INVO LVING THE ASSESSEE? 17.1 HONBLE HIGH COURT HAS DEALT THIS ISSUE IN DETAIL AFTER OBSERVING AS UNDER:- 15 ANALYSIS AND REASONS 15. THE ABOVE SUBMISSIONS HAVE BEEN CONSIDERED. IN A LARGE NUMBER OF DECISIONS THIS COURT HAS EMPHASIZED, THAT FOR THERE TO BE RELIABLE BENCHMARK STUDIES FOR DETERMINING AL P NOT ONLY THE COMPARABLES HAVE TO BE FUNCTIONALLY SIMILAR BUT SHOULD HAVE SIMILAR BUSINESS ENVIRONMENT AND RISKS AS THE TESTE D PARTY. A DETAILED EXPOSITION OF THE LEGAL POSITION WITH SPEC IFIC REFERENCE TO RULE 10 B (2) OF THE INCOME TAX RULES, 1962 IS F OUND IN THIS COURT S DECISION IN CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) PVT. LTD. V. DCIT 376 ITR 183 (DEL) AS UNDER: '30. THE REASONING ADOPTED IN VARIOUS JUDGMENTS NOT ICED ABOVE, SHOWS THAT FUNCTIONAL ANALYSIS SEEKS TO IDENTIFY AN D COMPARE THE ECONOMICALLY SIGNIFICANT ACTIVITIES AND RESPONS IBILITIES UNDERTAKEN, ASSETS USED AND RISKS ASSUMED BY THE PA RTIES TO THE TRANSACTION. QUANTITATIVE AND QUALITATIVE FILTE RS/CRITERIA HAVE BEEN USED IN DIFFERENT CASES TO INCLUDE OR EXC LUDE COMPARABLES. THE INTUITIVE LOGIC FOR EXCLUDING BIG COMPANIES FROM THE LIST OF COMPARABLES WHILE UNDERTAKING THE FAR ANALYSIS OF A SMALLER COMPANY IS ATTRACTIVE, GIVEN THAT SUCH BIG COMPANIES PROVIDE SERVICES TO DIVERSE CLIENTELE, PE RFORM MULTIFARIOUS FUNCTIONS, OFTEN ASSUME RISKS AND EMPL OY INTANGIBLE ASSETS WHICH ARE SPECIALLY DESIGNED, UNLIKE IN THE CASE OF SMALLER COMPANIES. THE BIGGER COMPANIES HAVE AN EST ABLISHED REPUTATION IN THE SEGMENT, ARE WELL KNOWN AND EMPLO Y ECONOMIES OF SCALE TO A TELLING END. ON THE OTHER HAND, THESE OBVIOUS - AND APPARENT FEATURES SHOULD NOT BLIND THE TPO FROM THE OBLIGATION 16 TO CARRY OUT THE TRANSFER PRICING EXERCISE WITHIN T HE STRICT MANDATE OF SECTION 92 C AND RULES 10-A TO 10-E. 31. ARM'S LENGTH PRICE DETERMINATION, IN RESPECT OF AN INTERNATIONAL TRANSACTION HAS NECESSARILY TO CONFIR M TO THE MANDATE OF RULE 10B. IN THIS CASE, THE METHOD FOLLO WED FOR DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATI ONAL TRANSACTION ADOPTED BY THE ASSESSEE AND THE REVENUE IS THE TNMM. THE COMPARABILITY OF AN INTERNATIONAL TRANSAC TION WITH AN UNCONTROLLED TRANSACTION HAS, IN SUCH CASES, TO BE SEEN WITH REFERENCE TO THE FUNCTIONS PERFORMED, TAKING INTO A CCOUNT THE ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASS UMED BY THE RESPECTIVE PARTIES TO THE TRANSACTION AS PER RU LE 10B(2)(B). THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSF ERRED OR SERVICES PROVIDED (CONTEMPLATED BY RULE 10B(2)(A)) IN EITHER TRANSACTIONS MAY BE SECONDARY, FOR JUDGING COMPARAB ILITY OF AN INTERNATIONAL TRANSACTION IN THE TNMM, BECAUSE THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICE S PROVIDED AND THE DIRECT AND INDIRECT COST OF PRODUCTION INCU RRED BY THE ENTERPRISE IN RESPECT OF PROPERTY TRANSFERRED OR SE RVICES PROVIDED GO INTO RECKONING COMPARABILITY ANALYSIS I N THE TRANSACTION METHODS, I.E. THE COMPARABLE UNCONTROLL ED PRICE, RESALE PRICE AND COST PLUS WHEREAS THE PROFIT BASED METHOD SUCH AS TRANSACTIONAL NET MARGIN METHOD TAKES INTO ACCOUNT, THE NET MARGIN REALISED. IN TNMM, COMPARABILITY OF AN I NTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION IS TO BE SEEN WITH REFERENCE TO FUNCTIONS PERFORMED AS PROVIDED IN SUB -RULE (2)(B) 17 OF RULE 10B READ WITH SUB-RULE (1)(E) OF THAT RULE AFTER TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED BY THE RESPECTIVE PARTIES TO THE TRANSACTIO N. AS NOTICED EARLIER, RULE 10B(3) MANDATES THAT A GIVEN OR SELECT UNCONTROLLED TRANSACTION SELECTED IN TERMS OF RULE 10B(2) 'SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION' IF N ONE OF THE DIFFERENCES, IF ANY, BETWEEN THE COMPARED TRANSACTI ONS, OR BETWEEN ENTERPRISES ENTERING INTO SUCH TRANSACTI ONS 'ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARG ED OR PAID OR THE PROFIT ARISING FROM SUCH TRANSACTION IN THE OPE N MARKET OR REASONABLY ACCURATE ADJUSTMENT CAN BE MADE TO ELIMI NATE THE EFFECTS OF SUCH DIFFERENCE.' 32. NOW, THE SEQUITUR OF RULE 10B (2) AND (3) IS TH AT IF THE COMPARABLE ENTITY OR ENTITY S TRANSACTIONS BROADLY CONFORM TO THE ASSESSEE S FUNCTIONING, IT HAS TO ENTER INTO THE MATRIX AND BE APPROPRIATELY CONSIDERED. THE CRUCIAL EXPRESSION GIVING INSIGHT INTO WHAT WAS INTENDED BY THE PROVISION CAN BE SEEN BY THE USE OF THE EXPRESSION: 'NONE OF THE DIFFERENCES , IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIK ELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, .. SUCH TRANSACTIONS IN THE OPEN MARKET.' THE OTHER EXERCIS E WHICH THE TPO HAS TO NECESSARILY PERFORM IS THAT IF THERE ARE SOME DIFFERENCES, AN ATTEMPT TO 'ADJUST' THEM TO 'ELIMIN ATE THE MATERIAL EFFECTS' SHOULD BE MADE: 18 '(II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE T O ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES.' 33. SUCH BEING THE CASE, IT IS CLEAR THAT EXCLUSION OF SOME COMPANIES WHOSE FUNCTIONS ARE BROADLY SIMILAR AND W HOSE PROFILE - IN RESPECT OF THE ACTIVITY IN QUESTION CA N BE VIEWED INDEPENDENTLY FROM OTHER ACTIVITIES- CANNOT BE SUBJ ECT TO A PER SE STANDARD OF LOSS MAKING COMPANY OR AN 'ABNORMAL' PROFIT MAKING CONCERN OR HUGE OR 'MEGA' TURNOVER COMPANY. AS EXPLAINED EARLIER, RULE 10B (2) GUIDES THE SIX METH ODS OUTLINED IN CLAUSES (A) TO (F) OF RULE 10B(1), WHILE JUDGING COMPARABILITY. RULE 10B (3) ON THE OTHER HAND, INDICATES THE APPRO ACH TO BE ADOPTED WHERE DIFFERENCES AND DISSIMILARITIES ARE A PPARENT. THEREFORE, THE MERE CIRCUMSTANCE OF A COMPANY - OTHERWISE CONFORMING TO THE STIPULATIONS IN RULE 10B (2) IN ALL DETAILS, PRESENTING A PECULIAR FEATURE - SUCH AS A HUGE PROFIT OR A HUGE TURNOVER, IPSO FACTO DOES NOT LEAD TO ITS EX CLUSION. THE TPO, FIRST, HAS TO BE SATISFIED THAT SUCH DIFFERENC ES DO NOT 'MATERIALLY AFFECT THE PRICE...OR COST'; SECONDLY, AN ATTEMPT TO MAKE REASONABLE ADJUSTMENT TO ELIMINATE THE MATE RIAL EFFECT OF SUCH DIFFERENCES HAS TO BE MADE. 34. THE COURT IS ALSO AWARE OF THE FACTORS MENTIONE D IN RULE 10B (2), I.E. CHARACTERISTICS OF THE SERVICE PROVID ED, FUNCTIONS PERFORMED TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIVE P ARTIES TO THE TRANSACTIONS; CONTRACTUAL TERMS OF THE TRANSACT IONS INDICATING HOW THE RESPONSIBILITIES, RISKS AND BENE FITS ARE TO BE 19 DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANS ACTIONS; CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE R ESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND THE GOVERNMENT ORDERS IN FORCE; COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITI ON AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. THESE ELEMENTS COMPREHEND THE SIMILARITIES AND DISSIMILARITIES; CL AUSE (F) OF RULE 10C(2) SPECIFICALLY PROVIDES THAT 'THE EXTENT TO WHICH RELIABLE AND ACCURATE ADJUSTMENTS CAN BE MADE TO AC COUNT FOR DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRAN SACTION OR THE SPECIFIED DOMESTIC TRANSACTION AND THE COMPARAB LE UNCONTROLLED TRANSACTION OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS AND THE NATURE, EXTENT AND R ELIABILITY OF ASSUMPTIONS REQUIRED TO BE MADE IN APPLICATION OF A METHOD' HAVE TO BE TAKEN INTO CONSIDERATION BY THE TPO. 36. THIS COURT HOLDS THAT IN THE FACTS OF THE PRESE NT CASE, THE ASSESSEE WAS INCORRECT, BOTH IN ITS RELIANCE PLACED UPON PREVIOUS YEARS DATA AS WELL AS THE MANNER OF SUCH RELIANCE. FIRST, THE ASSESSEE S JUSTIFICATION FOR RELYING ON SUCH DATA IS THE VOLATILITY IN THE COMPARABLES PROFIT MARGINS AND THE CONSEQUENT INABILITY TO TRANSACT AT A CONSISTENT AL P. HOWEVER, THIS IS NOT WARRANTED HEREIN. WHILST THERE MAY BE A WIDE FLUCTUATION IN THE PROFIT MARGINS OF COMPARABLES FR OM YEAR-TO- YEAR, THIS BY ITSELF DOES NOT JUSTIFY THE NEED TO T AKE INTO ACCOUNT PREVIOUS YEARS PROFIT MARGINS. THE TRANSFER PRICING 20 MECHANISM PROVIDED IN THE ACT AND THE RULES PRESCRI BES THAT WHILE DETERMINING THE ALP, THE ARITHMETIC MEAN OF A LL COMPARABLES IS TO BE ADOPTED. THIS IS TO OFFSET THE CONSEQUENCE OF ANY EXTREME MARGINS THAT COMPARABLES MAY HAVE AN D ARRIVE AT A BALANCED PRICE. SIMILARLY, THE WIDE FLUCTUATIO NS IN PROFIT MARGINS OF THE SAME ENTITY ON A YEAR-TO-YEAR BASIS WOULD BE OFFSET BY TAKING THE ARITHMETIC MEAN OF ALL COMPARA BLES FOR THE ASSESSMENT YEAR IN QUESTION. IN ANY CASE, IN THE EV ENT THAT THE VOLATILITY IS ON ACCOUNT OF A MATERIALLY DIFFERENT ASPECT INCAPABLE OF BEING ACCOUNTED FOR, THE ANALYSIS UNDE R WOULD RULE 10B (3) WOULD EXCLUDE SUCH AN ENTITY FROM BEING CON SIDERED AS A COMPARABLE. SECONDLY, AS REGARDS THE MANNER OF USIN G PREVIOUS YEARS DATA, THE ASSESSEE HAS TAKEN THE ARITHMETIC MEAN O F THE COMPARABLES PROFIT MARGINS FOR THE ASSESSMENT YEAR IN QUESTION AND TWO PREVIOUS YEARS. THIS COURT DISAGRE ES. THE PROVISO TO RULE 10B(4), READ WITH THE SUB-RULE, ITS ELF INDICATES THAT THE PURPOSE FOR WHICH PREVIOUS YEARS DATA MAY BE CONSIDERED IS - ANALYSING THE COMPARABILITY OF AN U NCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION. IT D OES NOT PRESCRIBE THAT ONCE AN UNCONTROLLED TRANSACTION HAS BEEN HELD TO BE A COMPARABLE , IN ORDER TO OBVIATE AN APPARENT VOLATILITY IN THE DATA, THE ARITHMETIC MEAN OF THREE YEARS (TH E ASSESSMENT YEAR IN QUESTION AND TWO PREVIOUS YEARS) MAY BE TAKEN. THAT WOULD AMOUNT TO ASSIGNING EQUAL WEIGHT TO THE DATA FOR EACH OF THE THREE YEARS, WHICH IS AGAINST THE M ANDATE OF RULE 10B(4). THE USE OF THE WORD 'SHALL' IN RULE 10 B(4) AND, NOTICEABLY, 'MAY' IN THE PROVISO, IMPLIES THAT THE RELEVANT 21 ASSESSMENT YEAR S DATA IS OF PRIMARY CONSIDERATION, AS OPPOSED TO PREVIOUS YEARS DATA. 39. THIS COURT PROCEEDS ON THE BASIS THAT THERE IS SUFFICIENT GUIDANCE AND CLARITY IN RULE 10B ON THE PRINCIPLES APPLICABLE FOR DETERMINATION OF ALP. THESE INCLUDE THE VARIOUS FAC TORS TO BE TAKEN INTO CONSIDERATION, APPROACH TO BE ADOPTED (F UNCTIONS PERFORMED, TAKING INTO ACCOUNT RISKS BORNE AND ASSE TS EMPLOYED, SIZE OF THE MARKET, THE NATURE OF COMPETI TION, TERMS OF LABOUR, EMPLOYMENT AND COST OF CAPITAL, GEOGRAPH ICAL LOCATION ETC). THE EXTENT OF ACCURATE ADJUSTMENTS POSSIBLE, TOO, IS A FACTOR TO BE CONSIDERED. RULE 10B (3) THEN UNDERLIN ES WHAT THE ALP DETERMINING EXERCISE ENTAILS, IF THERE ARE DISSIMILARITIES WHICH MATERIALLY AFFECT THE PRICE C HARGED ETC: THE FIRST ATTEMPT HAS TO BE TO ELIMINATE THE COMPON ENTS WHICH SO MATERIALLY AFFECT THE PRICE OR COST. IN OTHER WO RDS, GIVEN THE DATA AVAILABLE, IF THE DISTORTING FACTOR CAN BE SEVERED AND THE OTHER DATA USED, THAT COURSE HAS TO BE NECESSAR ILY ADOPTED.' (ALL EMPHASIS IN ORIGINAL) 16. IN RAMPGREEN SOLUTIONS PVT. LTD. V. CIT (2015) 377 ITR 533 THIS COURT FURTHER DISCUSSED RULE 10-B (2) OF THE IT RULES. THIS COURT POINTED OUT HOW ALTHOUGH BOTH THE KNOWLE DGE PROCESS OUTSOURCING (KPO) SERVICES AND THE BUSINESS PROCESS OUTSOURCING (BPO) SERVICES FALL WITHIN THE BROAD DE FINITION OF ITES, COMPANIES ENGAGED IN KPO SERVICES CANNOT BE U SED AS COMPARABLES FOR THE TP STUDY OF A COMPANY ENGAGED I N 22 PROVIDING BPO SERVICES. IN THAT PROCESS, IT WAS OBS ERVED BY THIS COURT AS UNDER: '20. IN ORDER FOR THE BENCHMARKING STUDIES TO BE RE LIABLE FOR THE PURPOSES OF DETERMINING THE ALP, IT WOULD BE ES SENTIAL THAT THE ENTITIES SELECTED AS COMPARABLES ARE FUNCTIONAL LY SIMILAR AND ARE SUBJECT TO THE SIMILAR BUSINESS ENVIRONMENT AND RISKS AS THE TESTED PARTY. IN ORDER TO IMPUTE AN ALP TO A CO NTROLLED TRANSACTION, IT WOULD BE ESSENTIAL TO ENSURE THAT T HE INSTANCES OF UNCONTROLLED ENTITIES/TRANSACTIONS SELECTED AS C OMPARABLES ARE SIMILAR IN ALL MATERIAL ASPECTS THAT HAVE ANY B EARING ON THE VALUE OR THE PROFITABILITY, AS THE CASE MAY BE OF T HE TRANSACTION. ANY FACTOR, WHICH HAS AN INFLUENCE ON THE PLI, WOULD BE MATERIAL AND IT WOULD BE NECESSARY TO ENSU RE THAT THE COMPARABLES ARE ALSO EQUALLY SUBJECTED TO THE INFLU ENCE OF SUCH FACTORS AS THE TESTED PARTY. THIS WOULD, OBVIOUSLY, INCLUDE BUSINESS ENVIRONMENT; THE NATURE AND FUNCTIONS PERF ORMED BY THE TESTED PARTY AND THE COMPARABLE ENTITIES; THE V ALUE ADDITION IN RESPECT OF PRODUCTS AND SERVICES PROVID ED BY PARTIES; THE BUSINESS MODEL; AND THE ASSETS AND RES OURCES EMPLOYED. IT CANNOT BE DISPUTED THAT THE FUNCTIONS PERFORMED BY AN ENTITY WOULD HAVE A MATERIAL BEARING ON THE V ALUE AND PROFITABILITY OF THE ENTITY. IT IS, THEREFORE, OBVI OUS THAT THE COMPARABLES SELECTED AND THE TESTED PARTY MUST BE F UNCTIONALLY SIMILAR FOR ASCERTAINING A RELIABLE ALP BY TNMM. RU LE 10B (2) OF THE INCOME TAX RULES, 1962 ALSO CLEARLY INDICATE S THAT THE COMPARABILITY OF CONTROLLED TRANSACTIONS WOULD BE J UDGED WITH 23 REFERENCE TO THE FACTORS AS INDICATED THEREIN. CLAU SE (A) AND (B) OF RULE 10B (2) EXPRESSLY INDICATE THAT THE SPE CIFIC CHARACTERISTICS OF THE SERVICES PROVIDED AND THE FU NCTIONS PERFORMED WOULD BE FACTORS FOR CONSIDERING THE COMP ARABILITY OF UNCONTROLLED TRANSACTIONS WITH CONTROLLED TRANSA CTIONS. ...... 30. AS INDICATED ABOVE, IN ORDER TO DETERMINE THE A LP IN RELATION TO A CONTROLLED TRANSACTION, THE ANALYSIS MUST INCLUDE COMPARABLES WHICH ARE SIMILAR IN ALL ASPECTS THAT H AVE A MATERIAL BEARING ON THEIR PROFITABILITY. PARAGRAPH 1.36 OF THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' PUBLISHED IN 2 010 (HEREAFTER 'OECD GUIDELINES') INDICATES THE 'COMPAR ABILITY FACTORS' WHICH ARE IMPORTANT WHILE CONSIDERING THE COMPARABILITY OF UNCONTROLLED TRANSACTIONS/ENTITIES WITH THE CONTROLLED TRANSACTIONS/ENTITIES. SUB-RULE (2) OF R ULE JOB OF THE INCOME TAX RULES, 1962 ALSO MANDATES THAT THE COMPARABILITY OF INTERNATIONAL TRANSACTIONS WITH UN CONTROLLED TRANSACTIONS WOULD BE JUDGED WITH REFERENCE TO THE FACTORS INDICATED UNDER CLAUSES (A) TO (D) OF THAT SUB-RULE , WHICH ARE SIMILAR TO THE COMPARABILITY FACTORS AS INDICATED U NDER THE OECD GUIDELINES. ..... 36. AS POINTED OUT EARLIER, THE TRANSFER PRICING AN ALYSIS MUST SERVE THE BROAD OBJECT OF BENCHMARKING AN INTERNATI ONAL TRANSACTION FOR DETERMINING AN ALP. THE METHODOLOGY NECESSITATES THAT THE COMPARABLES MUST BE SIMILAR I N MATERIAL ASPECTS. THE COMPARABILITY MUST BE JUDGED ON FACTOR S SUCH AS 24 PRODUCT/SERVICE CHARACTERISTICS, FUNCTIONS UNDERTAK EN, ASSETS USED, RISKS ASSUMED. THIS IS ESSENTIAL TO ENSURE TH E EFFICACY OF THE EXERCISE. THERE IS SUFFICIENT FLEXIBILITY AVAIL ABLE WITHIN THE STATUTORY FRAMEWORK TO ENSURE A FAIR ALP'.' 17. THE ABOVE DICTUM WAS FOLLOWED AND REITERATED IN AVENUE ASIA ADVISORS PVT. LTD. V. DY CIT (2017) 398 ITR 320 (DEL) WHERE THIS COURT, INTER ALIA, OBSERVED THAT 'THOUGH IN THE TNMM METHOD THERE IS SUFFICIENT TOLERANCE, MERE BRO AD FUNCTIONALITY IS BY ITSELF INSUFFICIENT.' 18. ON THE ASPECT OF EXCLUSION OF COMPARABLES THAT HAVE A HIGH ECONOMIC UPSCALE VIZ., INFOSYS, TCS AND WIPRO, PART ICULAR REFERENCE MAY BE MADE TO THE DECISION OF THIS COURT IN PCIT V. BC MANAGEMENT SERVICES PVT. LTD. (SUPRA) WHERE A PA RTICULAR REFERENCE WAS MADE TO TCS E-SERVE AS UNDER: '13. ...THE THIRD COMPARABLE THAT THE AO/TPO EXCLUD ED IS TCS E-SERVE. THE ITAT OBSERVED THAT THOUGH THERE IS A C LOSE FUNCTIONAL SIMILARITY BETWEEN THAT ENTITY AND THE A SSESSEE, HOWEVER, THERE IS A CLOSE CONNECTION BETWEEN TCS E- SERVE AND TATA CONSULTANCY SERVICE LTD. WHICH WAS HIGH BRAND VALUE: THAT DISTINGUISHED IT AND MARKED IT OUT FOR EXCLUSI ON. THE ITAT RECORDED THAT THE BRAND VALUE ASSOCIATED WITH TCS C ONSULTANCY REFLECTED IMPACTED TCS E-SERVE PROFITABILITY IN A V ERY POSITIVE MANNER. THIS INFERENCE TOO IN THE OPINION OF COURT, CANNOT BE TERMED AS UNREASONABLE. THE RATIONALE FOR EXCLUSION IS THEREFORE UPHELD.' 25 19. THE SAME DECISION ALSO NOTED THAT ONE REASON FO R EXCLUSION WAS THE 'UNAVAILABILITY OF THE SEGMENTAL DATA' FOR THE ABOVE COMPARABLE. 20. IN M/S. ORACLE (OFSS) BPO SERVICES PVT. LTD. (D ECISION DATED 5TH FEBRUARY 2018 IN ITA 124 OF 2018) WHILE U PHOLDING THE EXCLUSION OF M/S.WIPRO LTD. FROM THE LIST OF CO MPARABLES IT WAS NOTED THAT THE ITAT TOOK INTO ACCOUNT THE RELAT ED PARTY TRANSACTIONS (RPT ).THE FILTER ADOPTED WAS TO EXCLUDE COMPARABLES WITH UNRELATED PARTY TRANSACTIONS EQUAL TO OR IN EXCESS OF 75% OF THEIR BUSINESS. THE ITAT DID THAT ON THE BASIS THAT WIPRO LTD. HAD A SIGNIFICANT BRAND PRESE NCE IN THE MARKET AND COULD, THEREFORE, NOT BE DEEMED TO BE A COMPARABLE ENTITY. THIS COURT EXPLAINED THE RPT FILTER AS UNDE R: 'THE RPT FILTER, IS RELEVANT AND FITS IN WITH THE O VERALL SCHEME OF A TRANSFER PRICING STUDY WHICH IS PREMISED PRIMA RILY ON COMPARING LIGHT ENTITIES HAVING SIMILAR IF NOT IDEN TICAL FUNCTIONS. THEREFORE, IF A PARTICULAR ENTITY PREDOMINANTLY HAS TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISE - IN EXCESS OF A CERT AIN THRESHOLD PERCENTAGE, ITS PROFIT MAKING CAPACITY MAY RESULTED IN A DISTORTED PICTURE, EITHER WAY.' 21. A REFERENCE MAY NEXT BE MADE TO THE DECISION IN THE PRINCIPAL COMMISSIONER OF INCOME TAX-3 V. EVALUESER VE SEZ (GURGAON) PVT. LTD . (SUPRA) WHERE A REFERENCE IS MADE TO THE EARLIER DECISION TO THE BC MANAGEMENT SERVICES PVT. LTD. (SUPRA). THIS DECISION DEALT WITH THE EXCLUSION OF THREE SPECIFIC 26 COMPARABLES, WHICH HAVE ALSO INVOLVED IN THE PRESEN T CASE NAMELY M/S.TCS E-SERVE LTD., M/S.TCS E-SERVE INTERN ATIONAL LTD. AND M/S. INFOSYS BPO LTD. THIS COURT UPHELD TH E EXCLUSION OF ALL THREE COMPARABLES AND IN PARTICULAR SINCE TH E ENTITIES HAD 'A HIGH BRAND VALUE AND THEREFORE WERE ABLE TO COMM AND GREATER PROFITS; BESIDES THEY OPERATED ON ECONOMIC UPSCALE.' 22. THE REVENUE S APPEAL AGAINST THE SAME ASSESSEE FOR AY 2011-2012 AGAINST ANOTHER ORDER OF THE ITAT EXCLUDI NG TCS E- SERVE INTERNATIONAL LIMITED, INFOSYS BPO LIMITED FR OM COMPARABLES MET THE SAME FATE. IN ITS DECISION DATE D 29TH AUGUST, 2018 THE COURT REFERRED TO THE EARLIER DECI SION DATED 26TH FEBRUARY, 2018 WHICH AGAIN PERTAINED TO AY 201 0-2011. REFERENCE WAS AGAIN MADE TO THE DECISION IN BC MANA GEMENT SERVICES LIMITED. 23. IT APPEARS THEREFORE THAT THIS COURT HAS CONSIS TENTLY UPHELD DECISIONS OF THE ITAT EXCLUDING BOTH THESE V ERY COMPARABLES. THE ITAT ITSELF APPEARS TO HAVE TAKEN A CONSISTENT VIEW IN A LARGE NUMBER OF CASES EXCLUDIN G THESE TWO COMPARABLES AND ITS DECISIONS HAVE BEEN UPHELD BY T HIS COURT. ILLUSTRATIVELY REFERENCE MAY BE MADE TO THE DECISIO N OF THE TRIBUNAL IN VERTEX CUSTOMER SERVICES INDIA PRIVATE LIMITED V. DCIT (2017) 88 TAXMANN.COM 286 ( DEL- TRI), STRYKER GLOBAL TECHNOLOGY CENTRE PRIVATE LIMITED V. DCIT (2017) 87 TAXMANN.COM 43 ( DEL-TRI), SAMSUNG HEAVY INDUSTRIES PRIVATE LIMITED V. DCIT (2017) 84 TAXMANN.COM 154 ( DEL-TRI) AND 27 EQUANT SOLUTIONS INDIA PRIVATE LIMITED V. DCIT (2016) 66 TAXMANN.COM 192 (DELHI-TRIBUNAL). 24. ALL OF THESE DECISIONS PERTAINED TO AY 2010-201 1. WHAT WEIGHED INVARIABLY IS THE FACT THAT BOTH COMPANIES HAD HUGE TURNOVERS WHEN COMPARED TO THE TESTED ENTITY. BOTH ENTITIES HAD CLOSE CONNECTION OF THE TATA GROUP OF COMPANIES AND TCS E-SERVE INTERNATIONAL HAD GIVEN A HUGE AMOUNT TO TC S TOWARDS BRAND EQUITY. FURTHER THERE WAS NO SEGMENTAL BIFURC ATION BETWEEN THE TRANSACTION PROCESSING AND TECHNICAL SE RVICES. THE ASSETS EMPLOYED BY TCS E-SERVE ALONG WITH HUGE INTA NGIBLES IN THE FORM OF BRAND VALUE WERE FOUND TO HAVE A DEFINI TE CONSIDERABLE EFFECT ON ITS PLI. THESE FACTORS VITIA TED ITS COMPARABILITY UNDER THE FAR ANALYSIS WITH THE TESTE D COMPANY, WHICH COULD BE A CAPITAL SERVICE PROVIDER WITHOUT M UCH INTANGIBLE AND RISKS. 25. IN THIS CONTEXT IT REQUIRES TO BE NOTED THAT TH E ITAT ALSO REFERRED TO THE DECISION OF THIS COURT CIT V. AGNITY INDIA TECHNOLOGIES PRIVATE LIMITED (2013) 36 TAXMANN.COM 289. 26. THE COURT MAY ALSO NOTE THAT THE KARNATAKA HIGH COURT HAS IN PCIT V. SOFTBRANDS (2018) 406 ITR 513 (KAR) NOTE D AS UNDER: '48. THE TRIBUNAL OF COURSE IS EXPECTED TO ACT FAIR LY, REASONABLY AND RATIONALLY AND SHOULD SCRUPULOUSLY A VOID PERVERSITY IN THEIR ORDERS. IT SHOULD REFLECT DUE A PPLICATION OF MIND WHEN THEY ASSIGN REASONS FOR RETURNING THE PAR TICULAR FINDINGS. 28 49. FOR INSTANCE, WHILE DEALING WITH COMPARABLES OF FILTERS, IF UNEQUALS LIKE SOFTWARE GIANT INFOSYS OR WIPRO ARE C OMPARED TO A NEWLY ESTABLISHED SMALL SIZE COMPANY ENGAGED IN S OFTWARE SERVICE, IT WOULD OBVIOUSLY BE WRONG AND PERVERSE. THE VERY WORD 'COMPARABLE' MEANS THAT THE GROUP OF ENTITIES SHOULD BE IN A HOMOGENEOUS GROUP. THEY SHOULD NOT BE WILDLY D ISSIMILAR OR UNLIKE OR POLES APART. SUCH WILD COMPARISONS MAY RE SULT IN THE BEST JUDGMENT ASSESSMENT GOING HAYWIRE AND DIRECTIO NLESS WILD, WHICH MAY LAND UP THE FINDINGS OF THE TRIBUNAL IN T HE REALM OF PERVERSITY ATTRACTING INTERFERENCE UNDER SECTION 26 0-A OF THE ACT.' 27. THERE IS MERIT IN THE CONTENTION OF THE ASSESSE E THAT THE SCALE OF OPERATIONS OF THE COMPARABLES WITH THE TES TED ENTITY IS A FACTOR THAT REQUIRES TO BE KEPT IN VIEW. TCS E -SERVE HAS A TURNOVER OF RS.1359 CRORES AND HAS NO SEGMENTAL REV ENUE WHEREAS THE ASSESSEES ENTIRE SEGMENTAL REVENUE IS A MERE 24 CRORES. AS OBSERVED BY THIS COURT IN ITS DECISION D ATED 5TH AUGUST 2016 IN ITA 417/2016(PCIT V. ACTIS GLOBAL SE RVICES PRIVATE LIMITED) 'SIZE AND SCALE OF TCS S OPERATION MAKES IT AN INAPPOSITE COMPARABLE VIS-A- VIS THE PETITIONER.' A S ALREADY POINTED OUT EARLIER THERE IS A CLOSER COMPARISON OF TCS E-SERVE LIMITED WITH INFOSYS BPO LIMITED WITH EACH OF THEM EMPLOYING 13,342 AND 17,934 EMPLOYEES RESPECTIVELY AND MAKING RS.37 CRORES AND RS.19 CRORES AS CONTRIBUTION TOWARDS BRA ND EQUITY. WHEN RULE 10(B) (2) IS APPLIED I.E. THE FAR ANALYSI S, NAMELY, FUNCTIONS PERFORMED, ASSETS OWNED AND RISKS ASSUMED IS 29 DEPLOYED THEN BRAND AND HIGH ECONOMIC UPSCALE WOULD FALL WITHIN THE DOMAIN OF 'ASSETS' AND THIS ALSO WOULD MAKE BOT H THESE COMPANIES AS UNSUITABLE COMPARABLES. 28. THE DIRECTORS REPORT OF TCS E-SERVE LIMITED BE ARS OUT THE CONTENTION OF THE ASSESSEE THAT BOTH ENTITIES H AVE BEEN LEVERAGING TCSS SCALE AND LARGE CLIENT BASE TO INCR EASE THEIR BUSINESS IN A SIGNIFICANT WAY. THE SUBMISSION THAT THE TWO COMPARABLES OFFER AN ILLUSTRATION OF 'AN IDENTICAL TRANSACTION BEING CONDUCTED IN AN UNCONTROLLED MANNER' OVERLOOK S THE EFFECT OF THE TATA BRAND ON THE PERFORMANCE OF THE IMPUGNED COMPARABLES. THE QUESTION WAS NOT MERELY WHETHER TH E MARGINS EARNED BY THE TATA GROUP IN PROVIDING CAPTIVE SERVI CE TO THE CITI ENTITIES WERE AT ARM S LENGTH. THE QUESTION WAS WHETHER THEY OFFERED A RELIABLE BASIS TO RE-CALIBRATE THE P LI OF THE ASSESSEE WHOSE SCALE OF OPERATIONS WAS OF A MUCH LO WER ORDER THAN THE TWO IMPUGNED COMPARABLES. THE MERE FACT TH AT THE TRANSACTIONS WERE IDENTICAL WAS NOT, IN TERMS OF TH E LAW EXPLAINED IN THE ABOVE DECISIONS, EITHER A SOLE OR A RELIABLE YARDSTICK TO DETERMINE THE APPOSITE CHOICE OF COMPA RABLES. 29. FOR ALL OF THE AFOREMENTIONED REASONS, THE COUR T FINDS MERIT IN THE CONTENTION OF THE ASSESSEE THAT BOTH T HE IMPUGNED COMPARABLES VIZ., TCS E- SERVE LIMITED AND TCS E- SERVE INTERNATIONAL LIMITED OUGHT TO BE EXCLUDED FR OM THE LIST OF COMPARABLES FOR THE PURPOSES OF DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIONS INVOLVING THE ASSESS EE AND ITS AES. 30 18. RESPECTFULLY FOLLOWING THE AFORESAID PRINCIP LE OF HONBLE JURISDICTIONAL HIGH COURT WHICH APPLIES IN THE PRESENT CASE ALSO WE DIRECT THE TPO TO EXCLUDE THE SAID COM PARABLE. 6. REVENUE. 7. 7.5 WHEN ON SIMILAR FACTS AND CIRCUMSTANCES, ECLE RX HAS BEEN FOUND TO BE INCOMPARABLE WITH THE ASSESSEE, WHICH F INDING HAS BEEN AFFIRMED BY HONBLE DELHI HIGH COURT AND THERE IS NO CHANGE IN THE MATERIAL FACTS AND CIRCUMSTANCES IN T HIS YEAR, THEN WE DO NOT FIND ANY REASON TO DEVIATE FROM SUCH FINDING. ACCORDINGLY, RESPECTFULLY FOLLOWING THE SAME, WE DI RECT THE TPO/ AO TO EXCLUDE ECLERX FROM COMPARABILITY LIST. 16. AS THERE IS NO CHANGE IN THE FUNCTIONAL PROFILE OF THE ASSESSEE, FACTS BEING SAME, WE DO NOT FIND ANY REASON TO DIFF ER FROM THE FINDINGS OF THE CO-ORDINATE [SUPRA]. ACCORDINGLY, WE DIRECT THE TPO TO EXCLUDE THE AFOREMENTIONED COMPARABLES FROM THE FINAL SET O F COMPARABLES. GROUND NOS. 3 TO 15 AND ALL OTHER GROUNDS RELATING TO TP ADJUSTMENT ARE ALLOWED. 17. NEXT GRIEVANCE RELATES TO RECALCULATION OF PLI OF THE ASSESSEE BY THE TPO. 31 18. WE FIND THAT A SIMILAR ADJUSTMENT WAS CONSIDERE D BY THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 63 10/DEL/2012 AND 1466/DEL/2015 FOR A.Y 2008-09 AND 2010-11. RELEVAN T FINDINGS OF THE CO-ORDINATE BENCH READ AS UNDER: 28. AS RELATES TO GROUND NO. 6, THE LD. AR SUBMITT ED THAT TPO HAS ERRED IN RE-CALCULATING ASSESSEE'S PLI FROM 20. 17% TO 16.17%. THE SAME IS NOT ACCEPTABLE TO THE ASSESSE A S PER THE LD. AR. THE LD. AR SUBMITTED THAT ASSESSE IN ITS TP STU DY AT PAGE 499, 485 OF PB VOL. 2 HAS STATED THAT RS. 3,06,71,8 61/- WAS INCURRED ON NOIDA UNIT WHERE NO OPERATION WAS DONE BUT FIXED COST HAD TO BE INCURRED. HENCE, THIS IS A NON-OPERA TING EXPENSE. HOWEVER, TPO STATED THAT THIS IS AN OPERATING EXPEN SE BECAUSE ACCORDING TO HIM THE AE SHOULD HAVE REIMBURSED THIS EXPENSE. THE LD. AR SUBMITTED THAT THIS IS A NON-OPERATING E XPENSE AS THESE EXPENSES RELATED TO NOIDA UNIT WHICH IS NOT O PERATIONAL DURING THE YEAR. FURTHER, THE LD. AR POINTED OUT TH AT EVS INDIA HAD TWO STPI UNITS IN GURGAON AND NOIDA RESPECTIVEL Y. HOWEVER, THERE WERE NO OPERATIONS IN THE NOIDA UNIT. THE SAI D UNIT WAS IN THE PROCESS OF SHUTTING DOWN DUE TO CERTAIN BUSINES S REASONS. EVS INDIA DID NOT UNDERTAKE ANY OPERATIONS IN THE N OIDA UNIT WHILE IT CONTINUED TO INCUR THE FIXED COSTS PERTAIN ING TO THIS UNIT. THESE COSTS RELATE TO RENT AND HIRE CHARGES, DEPRECIATION, INSURANCE, SECURITY CHARGES, REPAIR AND MAINTENANCE , ETC. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE DID NOT CARR Y OUT 32 OPERATIONS IN THE NOIDA UNIT AND THE FIXED COSTS IN CURRED WERE UNPRODUCTIVE COSTS AND WERE NOT BILLED TO THE PAREN T COMPANY. THUS, AS THE EXPENSES INCURRED FOR THE NOIDA UNIT W ERE NON- RECURRING AND EXTRAORDINARY IN NATURE, THESE EXPENS ES HAVE BEEN EXCLUDED FROM THE OPERATING PROFIT COMPUTATION. THI S WAS MENTIONED IN TP STUDY AT PAGE 499, 485. ALSO DETAIL ED SUBMISSIONS IN THIS REGARD HAVE BEEN FILED BEFORE T PO AND DRP. THE LD. AR SUBMITTED THAT THE COMPARABLES DID NOT I NCUR SUCH EXTRAORDINARY / NON RECURRING EXPENSES AND HENCE FO R A LIKE TO LIKE COMPARISON, IT IS NECESSARY TO ADJUST SUCH ABN ORMAL EXPENSES FROM THE COMPUTATION OF OPERATING PROFIT. THE LD. AR SUBMITTED THAT THE VERY BASIS OF TRANSFER PRICING R EGULATIONS IS TO UNDERTAKE AN EXERCISE OF COMPARABILITY TO ELIMIN ATE DIFFERENCES, IF ANY, BY A SUITABLE ADJUSTMENT. THE LD. AR RELIED UPON RULE 10B(3) AND RULE 10B(1)(E)(II) OF THE INCO ME TAX RULES, 1962 AS WELL AS RELIED UPON SAFE HAROUR RULES NOTIF IED BY CBDT, WHICH IS NOW INCORPORATED AS RULE 10TA OF THE INCOM E TAX RULES, 1962. THE SAID RULES STATE THAT 'OPERATING E XPENSE' MEANS THE COST INCURRED IN RELATION TO INTERNATIONA L TRANSACTION. THIS FIXED COST OF NOIDA UNIT IS NOT IN RELATION TO INTERNATIONAL TRANSACTION AS THIS YEAR BUSINESS AND OPERATIONS OF THE ASSESSEE WERE CARRIED OUT ONLY IN THE GURGAON UNIT AND THERE WERE NO OPERATIONS IN THE NOIDA UNIT AND THUS ALL COSTS THA T WERE INCURRED IN RELATION TO THE INTERNATIONAL TRANSACTI ON, WERE INCURRED IN THE GURGAON UNIT. THESE FIXED COST OF N OIDA UNIT HAS NO RELATION TO PROVIDING OF SERVICES TO THE AE. THE LD. AR SUBMITTED THAT IT SPECIFICALLY REFERS TO EXPENSES I NCURRED IN 33 COURSE OF NORMAL OPERATIONS AND EXCLUDES EXTRA- ORD INARY EXPENSES AND OTHER EXPENSES NOT RELATING TO NORMAL OPERATIONS OF THE ASSESSE. THUS, A BARE READING OF SAFE HARBOU R RULES STATES THAT THE INTENT IS TO EXCLUDE SUCH EXTRA-ORD INARY EXPENSES WHICH HAVE NO CORELATION WITH DAY-TO-DAY O PERATIONS. FURTHER, THE LD. AR POINTED OUT THAT TPO AT PAGE 29 STATES THAT THESE SAFE HARBOUR RULES ARE APPLICABLE AND APPLIES THEM WHEN DETERMINING THE PLI OF THE COMPARABLES. HENCE, THE LD. AR SUBMITTED THAT TPO MUST APPLY THESE SAFE HARBOUR RU LES WHEN DETERMINING THE PLI OF THE ASSESSEE ALSO. THE LD. A R RELIED UPON THE FOLLOWING JUDGMENTS- MARUBENI INDIA (P.) LTD. V. DIT 120131 354 ITR 638/215 TAXMAN 122 (MAQ.)/33 TAXMANN.COM 100 (DELHI)- DELHI HIGH COURT CIT VS. TRANSWITCH INDIA (P .) LTD ITA NO. 678/2012- DELHI HIGH COURT HOV SERVICES LTD. VS. JCIT [2016 ] 73 TAXMANN.COM 311 (PUNE - TRIB.) HCL TECHNOLOGIES B PO SERVICES LTD. V. ASSTT. CIT 120151 60 TAXMANN.COM 186/69 SOT 571 (DELHI-TRIB) DY. CIT V. EXXON MOBIL GAS (INDIA) ( P.) LTD. [20151 152 ITD 220/120141 51 TAXMANN.COM 256 (DELHI-TRIB) TRANSWITCH INDIA (P.) LTD. V. DY. CIT [20121 21 TAXMANN.COM 257/53 SOT 151 (DELHI-TRIB) 29. THE LD. AR SUBMITTED THAT MARUBENI INDIA (P.) LTD. V. DIT (2013) 354 ITR 638- DELHI HIGH COURT IS DIRECTLY O N THIS ISSUE WHEREIN THE HON'BLE DELHI HIGH COURT HELD THA T EXPENDITURE FOR CLOSURE OF ITS INDIA UNITS WOULD RE PRESENT 34 ABNORMAL COST AND THE SAME HAS TO BE EXCLUDED WHILE COMPUTING THE OPERATING MARGIN OF THE ASSESSE. IN THE CASE OF MARUBENI INDIA (SUPRA), ALSO THE REVENUE ARGUED THAT SINCE T HE ASSESSEE IS A CAPTIVE UNIT OF ITS ASSOCIATED ENTERPRISE, IT WAS ACTUALLY THE LATTER THAT UNDERTOOK THE ENTIRE RISK. EVEN IN ASSE SSEE'S CASE, THE TPO STATES THAT ASSESSE IS A CAPTIVE UNIT AND R ISK IS WITH THE AE AND HENCE AE SHOULD BEAR THIS EXPENSE AND COMPEN SATE. HOWEVER, THIS WAS REJECTED BY THE HON'BLE DELHI HIG H COURT. THE LD. AR FURTHER SUBMITTED THAT THE TPO CANNOT SI T IN THE CHAIR OF THE BUSINESSMAN AND DECIDE HOW THE BUSINES S IS TO BE CONDUCTED. THE INCURRING OF EXPENSE ARE NOT DOUBTED . TPO HAS NOT DOUBTED THAT THERE IS A MATERIAL DIFFERENCE ON THIS ACCOUNT. HE HAS DENIED ONLY ON THE GROUND THAT ASSESSEE SHOU LD HAVE BEEN COMPENSATED BY THE AE WITHOUT REALIZING THAT T HE ASSESSE IS NOT CHARGING ON COST PLUS BASIS. THE EXPENSE HAV E BEEN ALLOWED U/S 37 OF THE ACT AND THE LIMITED REASON FOR DENYIN G A HIGHER PLI BY THE TPO IS THAT THE EXPENSES SHOULD HAVE BEE N COMPENSATED BY THE AE, WHICH IS NOT CORRECT. THE DR P AT PARA 11 HAS STATED THAT EVIDENCE WAS NOT MADE AVAILABLE. TH IS IS FACTUALLY INCORRECT. ALL EVIDENCES/BILLS/DETAILS/CO RRESPONDENCE WAS MADE AVAILABLE TO THEM AND IS ALSO BEING FILED IN COURT TODAY. THIS ARGUMENT OF THE REVENUE THAT AE SHOULD HAVE SH ARED THIS COST, IS AGAIN REJECTED BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. TRANSWITCH INDIA P. LTD. ITA NO . 678/2012. 30. THE LD. DR RELIED UPON THE ORDERS OF THE TPO/AO AND DIRECTIONS OF THE DRP. 35 31. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT RECORDS. IT IS PERTINENT TO NOTE THAT THE DRP OBSER VED THAT THE EVIDENCE WAS NOT PRODUCED. BUT ACCORDING TO THE LD. AR, ALL EVIDENCES/BILLS/DETAILS/CORRESPONDENCE WERE PRODUCE D. SINCE THE EVIDENCES HAVE NOT BEEN VERIFIED BY THE REVENUE AUTHORITIES, THEREFORE, IT WILL BE APPROPRIATE TO REMAND BACK TH IS ISSUE TO THE FILE OF THE TPO/AO FOR ADJUDICATING THE ISSUE I N THE RIGHT OF ALL THE EVIDENCES PRODUCED BY THE ASSESSEE AND A FTER TAKING THE SAME INTO CONSIDERATION, DECIDE THE ISSUE AS PE R FACT AND LAW. NEEDLESS TO THE SAY, THE ASSESSEE BE GIVEN THE OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTI CE. GROUND NO. 6 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 19. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-O RDINATE BENCH, WE DIRECT ACCORDINGLY. GROUND NO. 16 IS TREATED AS AL LOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO. 5148/DEL/2017 IS PARTLY ALLOWED FOR STATISTICAL PUR POSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28.01. 2020. SD/- SD/- S/- SD/- [N.K. CHOUDHARY ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28 TH JANUARY, 2020. 36 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT ASST. REGISTRAR 4. CIT(A) ITAT, NEW DELHI 5. DR DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER