ACIT, Cir-1(2), Hyderabad V. M/s. Ckar Systems (P) Ltd, Hyderabad

ITA 565/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66383 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 06-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL M EMBER ITA NO.565/HYD/2011 : ASSES SMENT YEAR 2005-06 ASSTT. COMMISSIONER OF INCOME- TAX CIRCLE 1(2), HYDERABAD V/S. M/S. CKAR SYSTEMS (P)LTD., HYDERABAD ( PAN - AACCC 1762 I) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.SRINIVAS RESPONDENT BY : SHRI K.GOPAL DATE OF HEARING 22.8.2012 DATE OF PRONOUNCEMENT 19.10.2012 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A) III, HYDERABAD DATED 28.1.2011, FOR THE ASSE SSMENT YEAR 2005-06. 2. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS - 1. THE ORDER OF THE CIT(A) IS ERRONEOUS ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ADDITION OF RS.1,70,51,255 MADE U/S. 92CA WHICH WAS DETERMINED BY THE TPO AFTER CAREFUL AND SYSTEMATIC STUDY. 3. THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OF FICER TO EXCLUDE TELECOMMUNICATION CHARGES OF RS.15,23,721/- FROM THE ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 2 TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DE DUCTION U/S.10A. 4. THE LD. CIT(A) OUGHT TO HAVE NOTICED THAT ON THE IS SUE OF EXCLUSION OF COMMUNICATION CHARGES FORM TOTAL TURNO VER, THE CASE-LAWS ON WHICH HE RELIED UPON HAVE NOT BECOME FINAL AND THE M ATTER IS IN APPEAL BEFORE THE HIGH COURT. 3. IN GROUND NO.2, WHICH IS THE FIRST EFFECTIVE GR OUND IN THIS APPEAL, THE DEPARTMENT HAS CHALLENGED THE DECISION OF THE C IT(A) IN NOT SUSTAINING THE ADDITION MADE ON THE BASIS OF THE ARMS LENGTH PRICE(ALP) DETERMINED BY THE TRANSFER PRICING OFFICER(TPO). THE FACTUAL MATR IX OF THE CASE AS EMANATE FROM THE RECORD ARE THAT THE ASSESSEE, A PRIVATE LI MITED COMPANY, HAS SET UP A 100% EXPORT ORIENTED UNIT UNDER THE SOFTWARE TECH NOLOGY PARK OF INDIA(STPI) AT HYDERABAD. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF CBAY SYSTEMS LTD., USA, WHICH IS THE HOLDING COMPA NY. THE MAIN OBJECT OF THE ASSESSEE COMPANY IS TO PROVIDE IT-ENABLED HEALT H CARE SERVICES TO ITS PARENT COMPANY AS WELL AS TO OTHER OVERSEAS CUSTOME RS. THE ASSESSEE COMMENCED ITS TRIAL OPERATIONS IN MEDICAL TRANSCRIP TION FROM OCTOBER, 2003. THE ASSESSEE ALSO HAS FACILITY TO TRAIN GRAD UATES AND POST GRADUATES IN MEDICAL TRANSCRIPTION FOR INDUCTING INTO THEIR UNIT OR IN ITS ASSOCIATE UNITS. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE FILED RE TURN DECLARING ITS INCOME AT NIL. DURING THE SCRUTINY ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE ENTERED INTO INTERNATIO NAL TRANSACTIONS WITH ITS PARENT COMPANY CBAY SYSTEMS LTD., USA, WHICH IS AN ASSOCIATED ENTERPRISES(AE), MADE A REFERENCE TO THE TPO UNDER S.92CA(1) FOR DETERMINING THE ALP. IN THE COURSE OF THE PROCEEDI NGS BEFORE THE TPO, THE ASSESSEE SUBMITTED THE TRANSFER PRICING STUDY ACCOM PANIED BY OTHER DOCUMENTS. IN THE TP STUDY REPORT, THE ASSESSEE AD OPTED COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AS THE MOST APPROPR IATE METHOD FOR COMPUTING THE ARMS LENGTH PRICE OF THE INTERNATIONA L TRANSACTIONS MADE WITH ITS AE. THE ASSESSEE SUBMITTED BEFORE THE TPO THAT THE REASON FOR ADOPTING ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 3 THE CUP METHOD IS DUE TO THE FACT THAT DURING THE P ERIOD UNDER CONSIDERATION, THERE WAS INTERNAL COMPARABLES AS THE PARENT COMPAN Y CBAY ALSO OUTSOURCED THE MEDICAL TRANSCRIPTION TO INDEPENDENT PARTIES IN INDIA. THE CBAY USA PAYS A STANDARD RATE OF 6 CENTS PER LINE (SUBJECT T O THE ACHIEVEMENT OF CERTAIN QUALITY STANDARDS WHICH ARE COMMON FOR THE OUTSOURCED COMPANY AND THE ASSESSEE) FOR THE MEDICAL TRANSCRIPTION ACTIVI TIES CARRIED ON BY THE ASSESSEE AND OTHER OUTSOURCED COMPANIES. THE ASSES SEE FURTHER SUBMITTED THAT THE SERVICES RECEIVED FROM THIRD PARTIES ARE S IMILAR TO THE SERVICES RECEIVED BY CBAY USA FROM THE ASSESSEE. THE ASSESS EE HAS ALSO ENTERED INTO INDEPENDENT TRANSACTIONS WITH UNRELATED THIRD PARTI ES DURING THE YEAR, VIZ. ARIEL, MEDSCRIBE, MEDWRITE, AND ITS TRANSACTIONS WI TH THESE CONCERNS ARE COMPARABLE OR AT LOWER RATE. THE ASSESSEE SUBMITTE D THAT THE FIVE COMPARABLES SELECTED BY THE ASSESSEE, WHICH INCLUDE S THREE INTERNAL COMPARABLES AND TWO EXTERNAL COMPARABLES, AND THE P RICE RECEIVED BEING WITHIN THE ARMS LENGTH STANDARD AS PER THE CUP METH OD IS SIMILAR TO THE RATE CHARGED BY THE AE TO THE ASSESSEE AND THE TWO INDEP ENDENT INDIAN COMPANIES LOCATED AT HYDERABAD FOR RENDERING MEDICA L TRANSCRIPTION SERVICES WERE SIMILAR. SIMILARLY, THE RATES CHARGED PER LIN E OF MEDICAL TRANSCRIPTION BY THE ASSESSEE TO THE THREE OTHER INDEPENDENT OVERSEA S COMPANIES WERE ALSO SIMILAR TO THE PRICE CHARGED BY THE ASSESSEE TO ITS AE. THE ASSESSEE THEREFORE, SUBMITTED THAT THE ALP COMPUTED BY IT BY APPLYING THE CUP METHOD IS APPROPRIATE. IN SUPPORT OF HIS CONTENTION S, THE ASSESSEE SUBMITTED BEFORE THE TPO VARIOUS DOCUMENTS TO SHOW THAT IT HA S RECEIVED SERVICE CHARGES AT AN AVERAGE RATE OF 0.063 US$ PER LINE OF \MEDICAL TRANSCRIPTION FROM ITS AE DURING THE PREVIOUS YEAR. IN THIS REGA RD, THE ASSESSEE FURNISHED THE COPY OF THE AGREEMENT ENTERED INTO WITH ITS AE AND ALSO THE COPIES OF THE BILLS ISSUED TO THE AE DURING THE RELEVANT PERIOD. THE ASSESSEE ALSO SUBMITTED COPIES OF THE AGREEMENTS ENTERED INTO BY ITS AE WIT H TWO OTHER INDIAN COMPANIES VIZ. M/S. ELICO LTD, M/S. SHASTER TECHNOL OGIES P. LTD. SHOWING ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 4 RATE OF 0.063 US$ PER LINE OF MEDICAL TRANSCRIPTION DURING THE PREVIOUS YEAR. THE ASSESSEE ALSO SUBMITTED THE COPIES OF THE AGREE MENT ENTERED INTO BETWEEN THE ASSESSEE AND THE THREE OTHER OVERSEAS C OMPANIES, I.E. ARIEL VENTURES LLC, USA, MEDSCRIBE USA AND MEDWRITE USA, AS PER WHICH THE ASSESSEE HAS CHARGED THEM AT 0.06 US$, 0.0575 US$ A ND 0.05US$ PER LINE OF MEDICAL TRANSCRIPTION DURING THE PREVIOUS YEAR. ON THE BASIS OF THE PRICE INDICATED IN THE FORESAID AGREEMENT, THE ASSESSEE S UBMITTED BEFORE THE TPO THAT THE RATE OF RS.0.63 US$ PER LINE OF MEDICAL TR ANSCRIPTION RECEIVED BY IT FROM ITS AE IS WITHIN THE ARMS LENGTH. 4. THE TPO HOWEVER, DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE BY NOTING THAT THOUGH THE ASSESSEE FURNISHED COPIES OF THE AGREEMENTS ENTERED INTO BY ITS AE WITH M/. SHASTER TECHNOLOGIE S PVT. LTD. AD MN/S. ELICO LTD., SHOWING RATE OF 0.05US$ PER LINE OF MEDICAL T RANSCRIPTION, THERE IS NO BASIS ON WHICH IT CAN BE SAID THAT SUCH PRICE IS AN UNCONTROLLED TRANSACTION. THE TPO NOTED THAT THE RATE CHARGED PER LINE OF TRA NSCRIPTION IS DEPENDENT ON THE SIZE OF THE TRANSACTION AND THE SOPHISTICATION OF THE TRANSCRIPTION WORK. THE TPO NOTED THAT THE INCOME STATEMENT OF THOSE TW O COMPANIES DOES NOT GIVE SUFFICIENT INFORMATION TO ARRIVE AT THE CONCLU SION THAT SUCH RATE OF 0.05 US$ IS AN UNCONTROLLED PRICE PER LINE OF TRANSCRIPT ION. FURTHER, THE TPO REFERRING TO THE PROFIT & LOSS ACCOUNT IN THE CASE OF SHASTER TECHNOLOGIES PVT. LTD. FOR THE FINANCIAL YEAR ENDED 31.3.2005 NOTED T AT A SUM OF RS.61.17 LAKHS WAS RECEIVED BY THAT COMPANY TOWARDS DATA PROCESSIN G (EXPORTS). HOWEVER, IN THE ABSENCE OF ANY BREAK UP OF THAT AMOUNT, IT W AS NOT KNOWN AS TO HOW MUCH INCOME WAS GENERATED BY THAT COMPANY FROM MEDI CAL TRANSCRIPTION WORK. THE TPO NOTED THAT AS PER THE REPORT OF THE DIRECTORS OF THAT COMPANY, DURING THE YEAR, TOTAL 14,600 LINES OF TRANSCRIPTIO N WORK WAS RECEIVED FROM CBAY SYSTEMS LTD. BUT IN THE LAST PARAGRAPH OF THA T REPORT, THERE IS A MENTION THAT DURING THE CURRENT YEAR, THE COMPANY H AS ALSO TAKEN UP ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 5 ADDITIONAL MEDICAL TRANSCRIPTION WORK FROM M/S. ACC URATE TRANSCRIPTION INC. USA. IT IS FURTHER MENTIONED THAT THIS WORK COULD NOT BE CONTINUED SINCE ACCURATE TRANSCRIPTION INC. WAS NOT IN A POSITION T O OUTSOURCE ITS WORK TO THEIR COMPANY. ON THE BASIS OF THE AFORESAID OBSERVATION S, THE TPO NOTED THAT IN THE ABSENCE OF REQUIRED PARTICULARS AND THE DETAILS OF REVENUE GENERATED FROM THE MEDICAL TRANSCRIPTION WORK AND ALSO THE TOTAL N UMBER OF LINES OF TRANSCRIPTION DONE BY THAT AE, IT CANNOT BE SAID TH AT SUCH RATE OF 0.05US$ PER LINE OF MEDICAL TRANSCRIPTION IS AN UNCONTROLLED RA TE SO AS TO USE THE SAME AS A BENCH MARK IN THE CUP METHOD ADOPTED BY THE ASSES SEE. SO FAR AS THE OTHER COMPARABLE, I.E. M/S. ELICO LTD,. IS CONCERNE D, THE TPO REFERRING TO THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING 31.3.2005 NOTED THAT IN THE ABSENCE OF BREAK UP OF THE AMOUNT OF RS.20.13 CRORES SHOWN TOWARDS TOTAL SALES, IT IS NOT KNOWN AS TO HOW MUCH INCOME WAS GENERATED FROM ITES OR MEDICAL TRANSCRIPTION SERVICES BY THAT COMPANY. HE FURTHER NOTED THAT ELICO LTD. HAS GOT SEVERAL DIVISIONS. THE TPO NOTED THAT THERE IS NO SEGMENTAL BREAK UP OF REVENUE AVAILABLE. HE FURTHER NOTED THAT IN THE ABS ENCE OF REQUIRED PARTICULARS AND THE DETAILS OF REVENUE GENERATED FROM THE MEDIC AL TRANSCRIPTION, IT CANNOT BE SAID THAT THE RATE OF L0.05 US$ PER LINE OF MEDI CAL TRANSCRIPTION IS AN UNCONTROLLED RATE. SO FAR AS RELIANCE MADE BY THE ASSESSEE WITH THREE OTHER OVERSEAS COMPANIES, ARIEL VENTURES LLP, USA, MEDSCR IBE USA AND MEDWRITE USA, THE TPO NOTED THAT IN THE ABSENCE OF ANNUAL RE PORTS AND OTHER DETAILS IN RESPECT OF THOSE COMPANIES FURNISHED BY THE ASSESSE E, THOSE COMPANIES CANNOT BE ACCEPTED AS COMPARABLES FOR THE PURPOSES OF CUP METHOD ADOPTED BY THE ASSESSEE COMPANY. THE TPO NOTED THAT IN THE CUP METHOD ADOPTED BY THE ASSESSEE, THE DATA RELATING TO RATE CHARGED PER LINE OF TRANSCRIPTION AND NUMBER OF LINES DONE WERE NOT AVAILABLE IN PUBL IC DOMAIN WITH RESPECT TO INDEPENDENT ENTERPRISES AND AS SUCH THE UNCONTROLLE D TRANSACTION RATE PER LINE OF TRANSCRIPTION IS NOT AVAILABLE TO BENCHMARK THE ASSESSEES ACTUAL RATE. THE TPO REFERRING TO PARA 2.9 OF THE OECD GUIDELINE S NOTED THAT THE CUP ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 6 METHOD CAN BE APPLIED PROVIDED NONE OF THE DIFFEREN CES BETWEEN THE TRANSACTIONS BEING COMPARED AFFECTS THE PRICE IN TH E OPEN MARKET, AND REASONABLY ACCURATE ADJUSTMENT CAN BE MADE TO ELIMI NATE MATERIAL EFFECTS OF SUCH DIFFERENCES. THE TPO OBSERVED THAT THE SO CAL LED MAXIMUM RATE IS NOT AN UNCONTROLLED TRANSACTION TO BE COMPARED WITH, AS THE INDUSTRY AVERAGE DATA FROM THE COMPETITIVE SERVICE PROVIDERS AND OTH ER MNC. THEREFORE, SUCH METHOD CANNOT BE APPLIED BASED ON THE INDUSTRIAL AV ERAGE MAXIMUM BILLING RATE. THE TPO HELD THAT THE SO CALLED MAXIMUM RATE OF THE AVERAGE ACCEPTABLE RATE CANNOT BE CONSIDERED AS AN UNCONTR OLLED TRANSACTION AS PER RULE 10A(A). ANOTHER REASON MENTIONED BY THE TPO FO R NOT ACCEPTING THE METHOD APPLIED BY THE ASSESSEE IS THAT THERE IS NO PUBLICLY AVAILABLE INFORMATION ON PRICES CHARGED IN INDEPENDENT TRANSA CTIONS OF SIMILAR NATURE THAT REFLECT THE CHARACTERISTICS OF THE SERVICES RE NDERED BY THE ASSESSEE. ON THE AFORESAID REASONING, THE TPO REJECTED THE ALP C OMPUTED BY THE ASSESSEE BY ADOPTING CUP METHOD. THE TPO HELD THAT THE CUP METHOD CANNOT BE APPLIED DUE TO LACK OF INFORMATION AND COMPARABLE S. THE TPO HELD THAT TRANSFER NET MARGIN METHOD(TNMM) IS THE MOST APPROP RIATE METHOD FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO NS IN THE CASE OF THE ASSESSEE THE TPO OBSERVED THAT THE CUP METHOD ADOP TED BY THE ASSESSEE IS NOT WORKABLE ON THE BASIS OF THE COMPARABLE RATES PER LINE WITH REFERENCE TO INDEPENDENT COMPARABLE AS THE RATE PER LINE VARIES ACCORDING TO THE QUANTITY OF WORK, I.E. NUMBER OF LINES OF WORK DONE. SINCE THE ASSESSEE HAS NOT PROVIDED THE QUANTITY, I.E. THE NUMBER OF LINES BI LLED WITH REFERENCE TO ANY RELATIVE COMPARABLES, THE ALP COMPUTED BY THE ASSES SEE CANNOT BE ACCEPTED. THE TPO FOR THE PURPOSES OF DETERMINING THE ALP OF SUCH INTERNATIONAL TRANSACTIONS MADE BY THE ASSESSEE WITH ITS AE, SELE CTED NINE COMPARABLE COMPANIES, AND ON THE BASIS OF THE PROFIT MARGINS I N SIX OF THESE COMPANIES, DETERMINED THE AVERAGE PROFIT MARGIN, I.E. ARITHMET IC MEAN PROFIT LEVEL INDICATRO(PLI) AT 24.65 PER CENT. AFTER ALLOWING D EDUCTION OF 1.59% TOWARDS ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 7 WORKING CAPITAL ADJUSTMENT, THE ARITHMETIC MEAN PLI WAS DETERMINED AT 23.06 PER CENT AND ON THAT BASIS, DETERMINED THE ALP AT R S.12,02,19,332. THE ALP DETERMINED BY THE TPO WHEN COMPARED TO THE ALP COM PUTED BY THE ASSESSEE AT RS.10,31,68,077, EXCEEDED BY AN AMOUNT OF RS.1,70,51,255. THE TPO RECOMMENDED FOR ADJUSTING THE AMOUNT OF RS. 1,70,51,255 UNDER S.92CA OF THE ACT. 5. IN CONFORMITY WITH THE ORDER PASSED BY THE TPO, THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER ADDING AN AMOU NT OF RS.1,70,51,255 TO THE INCOME, ON ACCOUNT OF ALP DIFFERENCE. 6. THE ASSESSEE AGGRIEVED BY SUCH ADDITION FILED APPEAL BEFORE THE CIT(A). IN THE COURSE OF HEARING BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT IT HAS ENTERED INTO INTERNATIONAL TRANSACTION WITH ITS HOLDING COMPANY FOR RENDERING MEDICAL TRANSCRIPTION SERVICES IN TERMS WITH AN AGREEMENT EXECUTED ON 29.9.2003. APART FROM PROVIDING SERVIC ES TO THE HOLDING COMPANY, THE ASSESSEE ALSO PROVIDES ITES ENABLED HE ALTH CARE SERVICES TO OTHER OVERSEAS CUSTOMERS AS PER THE AGREED TERMS AN D CONDITIONS. AS PER THE TERMS OF THE AGREEMENT WITH THE HOLDING COMPANY, FO R THE SERVICES RENDERED BY IT TO THE HOLDING COMPANY, THE HOLDING COMPANY W ILL PAY CONSIDERATION AT THE RATE OF 0.05 US$ PER LINE TYPED. IN ADDITION T O THAT, THE ASSESSEE ALSO GETS ENHANCED PAYMENT DEPENDING UPON THE QUALITY OF SERVICE RENDERED. THE ASSESSEE IN ITS TRANSFER PRICING STUDY, CONSIDERING THE NATURE OF SERVICES RENDERED AND AVAILABILITY OF DATA HAS APPLIED CUP M ETHOD AS THE MOST APPROPRIATE METHOD FOR COMPUTING THE ALP FOR ITS IN TERNATIONAL TRANSACTIONS. THE ASSESSEE SUBMITTED THAT WHILE COMPUTING THE ALP , IT HAS CONSIDERED BOTH INTERNAL COMPARABLES AND ALSO THE EXTERNAL COMPARAB LES. ALL THE DETAILS REGARDING THE COMPARABLES WERE ALSO SUBMITTED BEFOR E THE TPO. IT WAS SUBMITTED BEFORE THE CIT(A) THAT THE AVERAGE PRICE PER LINE OF TRANSCRIPTION ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 8 REALISED FROM THE AE CBAY USA AT 0.063 US$ IS ALMOS T SAME AS THE AVERAGE PRICE REALISED FROM THE UNRELATED PARTIES AT 0.06 U S$. THE ASSESSEE OBJECTING TO THE OBSERVATIONS MADE BY THE TPO THAT IN ABSENCE OF PROPER DATA/INFORMATION CUP METHOD COULD NOT BE APPLIED, S UBMITTED THAT ALL THE DETAILS PERTAINING TO THE EXTERNAL COMPARABLES RELA TING TO THE COMPANIES, M/S. ELICO LTD. AND M/S. SHASTER TECHNOLOGIES LTD., SUCH AS THE AGREEMENT ENTERED INTO BY THE PARENT COMPANY CBAY USA, FINANC IAL STATEMENT AND OTHER DETAILS WERE PRODUCED BEFORE THE TPO. TPO HIMSELF ALSO OBTAINED BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE AFORESAID CO MPANIES UNDER S.133(6) OF THE ACT. THE ASSESSEE SUBMITTED THAT THE REJECTION OF CUP METHOD BY THE TPO IS NOT BASED ON PROPER REASONING BUT ON FLIMSY GROUNDS. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THE OECD GUIDELINES AS WELL AS THE GUIDELINES ISSUED BY THE ICAI ACCEPT THE CUP ,METHOD AS THE BE ST METHOD FOR TRANSFER PRICING STUDY. THEREFORE, THE TPO WITHOUT POINTING OUT ANY INFIRMITY IN THE COMPARABLES SELECTED BY THE ASSESSEE, WAS NOT JUSTI FIED IN REJECTING THE METHOD APPLIED BY THE ASSESSEE FOR COMPUTING ALP. T HE ASSESSEE DISPUTING THE OBSERVATION MADE BY THE TPO THAT IT HAS ACCEPTE D THE TNMM METHOD TO EVALUATE THE ALP, SUBMITTED THAT ONLY WHERE THE DAT A UNDER THE CUP METHOD CANNOT BE ACCEPTED THEN THE OTHER METHOD CAN BE EXP LORED TO COMPUTE THE ALP. THE ASSESSEE HAS NEVER ACCEPTED THE TNMM MET HOD FOR COMPUTATION OF ALP. THE ASSESSEE, OBJECTING TO THE ADOPTION OF T NMM METHOD BY THE TPO FOR COMPUTING THE ALP, SUBMITTED THAT WHEN INFORMAT ION AND DATA ARE AVAILABLE, THE TPO SHOULD NOT HAVE REJECTED THE CUP METHOD AND ADOPTED TNMM METHOD, WHICH SHOULD BE ADOPTED AS A METHOD OF LAST RESORT, WHEN ALL OTHER METHODS FAIL. 7. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND EXAMINING THE MATERIALS AVAILABLE BEFO RE HIM, WAS OF THE VIEW THAT AS PER THE OECD GUIDELINES, WHERE IT IS P OSSIBLE TO LOCATE ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 9 COMPARABLE UNCONTROLLED TRANSACTIONS, THE CUP METHO D IS THE MOST DIRECT AND RELIABLE ONE TO APPLY FOR DETERMINING TH E ALP. THE CIT(A) FROM THE MATERIALS ON THE RECORD FOUND THAT THE ASS ESSEE HAS COMPARED THE PRICE PAID BY THEIR HOLDING COMPANY CBAY SYSTEM S LTD USA TO TWO OTHER INDIAN COMPANIES, VIZ. ELICO LTD. HYDERABAD A ND M/S.SHASTER TECHNOLOGY P. LTD. HYDERABAD FOR AVAILING SIMILAR S ERVICES FROM THEM, AS HAVE BEEN RENDERED BY THE ASSESSEE TO ITS AE DUR ING THE FINANCIAL YEAR 2004-05. THE ASSESSEE HAS FURTHER COMPARED WIT H THE PRICE CHARGED BY IT TO THREE OTHER OVERSEAS COMPANIES, NA MELY, ARIEL VENTURES LLC, USA, MEDSCRIBE USA AND MEDWRITE USA F OR RENDERING SIMILAR SERVICES AS RENDERED TO ITS AE. FROM THE DO CUMENTS SUBMITTED BEFORE HIM LIKE THE BILLS RAISED, AGREEMENTS, ETC. THE CIT(A) FOUND THAT THE TWO INDIAN COMPANIES, NAMELY, ELICO AND SHASTER TECHNOLOGIES LTD. WERE ALSO PROVIDING MEDICAL TRANSCRIPTION SERV ICES TO THE CBAY SYSTEMS USA AT THE SAME TERMS AND CONDITIONS AS APP LICABLE TO THE ASSESSEE, AND AT A PRICE OF 0.05 US$ PER LINE OF TR ANSCRIPTION. THE CIT(A), AFTER THOROUGHLY EXAMINING THE TERMS AND CO NDITIONS OF THE ASSESSEE WITH ITS AE AND THE AE WITH OTHER COMPANIE S IN INDIA, FOUND THAT THE INTERNATIONAL TRANSACTIONS RELATING TO PRO VISION OF MEDIAL TRANSCRIPTION SERVICES MADE BY THE ASSESSEE WITH I TS AE CBAY SYSTEMS USA DURING FINANCIAL YEAR 2004-005 ARE FULLY COMPAR ABLE WITH SUCH TRANSACTIONS FOR PROVIDING SIMILAR SERVICES MADE BY THE TWO INDIAN COMPANIES NAMELY, ELICO LTD. AND SHASTER TECHNOLOGI ES P. LTD. WITH THE ASSESSEES AE, CBAY SYSTEMS LTD. USA. THE CIT( A) THEREFORE, HELD THAT THE MOST SUITABLE METHOD FOR DETERMINING THE A LP OF THE INTERNATIONAL TRANSACTIONS IS THE CUP METHOD. THE CIT(A) FURTHER OBSERVED THAT THOUGH THE TPO IN HIS ORDER, HAS MENT IONED THAT THE DIRECTORS REPORT IN THE CASE OF SHASTER TECHNOLOGI ES P. LTD. MENTIONS THAT DURING THE FINANCIAL YEAR 2004-05, A TOTAL OF 14,600 LINES OF ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 10 TRANSCRIPTION WORK WAS RECEIVED FROM CBAY SYSTEMS L TD. WHICH IS NOT CORRECT, IN VIEW OF THE FACT THAT THE DIRECTORS RE PORT MENTIONS THAT DURING THE YEAR 2004-05, THE COMPANY ON AN AGGREGAT E PRODUCED 4,400 LINES PER DAY OF MEDICAL TRANSCRIPTION WORK I N THE FIRST HALF OF THE YEAR AND 10,200 LINES PER DAY DURING THE SECOND HAL F OF THE YEAR WITH CONTINUOUS IMPROVEMENT, WHICH EFFECTIVELY MEANS THA T THE SAID COMPANY, I.E. SHASTER TECHNOLOGIES PRODUCED ON AN A VERAGE 4,400 LINES PER DAY OF MEDICAL TRANSCRIPTION DURING THE FIRST H ALF AND AN AVERAGE OF 10,200 LINES PER DAY DURING THE SECOND HALF OF THE FINANCIAL YEAR 2004- 05. SO, ON THIS BASIS AND TAKING INTO ACCOUNT ONLY THE WORKING DAYS DURING THE FINANCIAL YEAR 2004-05, THE TOTAL NUMBER OF LINES TRANSCRIBED BY THAT COMPANY DURING THE WHOLE YEAR EXCEEDS 19 LA KHS, WHICH IS NOT CORRECT, AS THE ACTUAL NUMBER OF LINES OF MEDICAL T RANSCRIPTION WORK DONE BY M/S. SAHSTER TECHNOLOGIES LTD. WAS MUCH MOR E. SIMILARLY, THE CIT(A) ALSO FOUND THAT THE OBSERVATIONS MADE BY THE TPO IN THE CASE OF ELICO LTD., AND THE DIRECTORS REPORT IN THE CASE O F THAT COMPANY DOES NOT MENTIONS ANYTHING WITH REGARD TO ITES OR MEDICA L TRANSCRIPTION ACTIVITY CARRIED ON BY THAT COMPANY IS NOT CORRECT. THE CIT(A) OBSERVED THAT THE TPOS REASONING THAT THE RATE OF 0.05US$ P ER LINE OF MEDICAL TRANSCRIPTION CANNOT BE ACCEPTED, AS THE UNCONTROL LED RATE IN THE ABSENCE OF SEGMENTAL BREAK OF REVENUE, IS WITHOUT A NY BASIS. SINCE THERE IS NO DENYING THE FACT THAT M/S. ELICO LIMITE D HAS RECEIVED SERVICES CHARGES FROM MEDICAL TRANSCRIPTION RENDERE D BY THEM TO CBAY SYSTEMS USA AT THE RATE OF 0.05US$ PER LINE OF MEDI CAL TRANSCRIPTION AS PER THE TERMS OF THE AGREEMENT. SO FAR AS THE INTE RNAL COMPARABLES CONSIDERED BY THE ASSESSEE IS CONCERNED, THE CIT(A) AFTER GOING THROUGH THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE THREE INDEPENDENT OVERSEAS COMPANIES FOUND THAT THE SERVI CES RENDERED BY THE ASSESSEE FOR MEDICAL TRANSCRIPTION TO THOSE COM PANIES ARE SIMILAR TO ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 11 THOSE RENDERED BY IT TO ITS AE AND THE PRICE CHARGE D AT THE RATE OF US$0.06 PER LINE OF MEDICAL TRANSCRIPTION IN CASE O F ARIEL VENTURE LLC AND AT THE RATE OF US$0.05 PER LINE IN THE CASE OF OTHER TWO COMPANIES, MEDSCRIBE USA AND MEDWRITE USA ARE SIMILAR TO THE P RICE CHARGED BY THE ASSESSEE FROM ITS AE, CBAY SYSTEMS USA FOR SIMI LAR MEDICAL TRANSCRIPTION SERVICES RENDERED BY THE ASSESSEE DUR ING THE FINANCIAL YEAR 2004-05. THE CIT(A), AFTER CONSIDERING THE AG REEMENT BY THE ASSESSEE WITH THE AE AND ALSO WITH THE OVERSEAS COM PANIES AS WELL AS THE AGREEMENTS BY THE AE WITH THE INDIAN COMPANIES, THE PRICE CHARGED BY THE ASSESSEE TO ITS AE AND THE PRICE CHARGED BY THE OTHER INDIAN COMPANIES TO THE AE AND ALSO THE PRICE CHARGED BY T HE ASSESSEE TO THE OTHER OVERSEAS CUSTOMERS, HELD THAT THEY CAN BE CON SIDERED FOR THE PURPOSES OF COMPARATIVE ANALYSIS FOR DETERMINING TH E ALP OF THE INTERNATIONAL TRANSACTIONS MADE BY THE ASSESSEE WIT H ITS AE. THE CIT(A), AFTER COMPARING THE PRICE CHARGED BY THE AS SESSEE TO ITS AE WITH THE PRICE CHARGED BY THE ASSESSEE TO THE OVERS EAS CUSTOMERS AND AS WELL AS THE PRICE CHARGED BY THE OTHER TWO INDIA N COMPANIES TO CBAY SYSTEMS USA, FOUND THAT THE PRICE CHARGED BY THE ASSESSEE AT THE RATE OF 0.063 US$ PER LINE OF TRANSCRIPTION WORK TO ITS HOLDING COMPANY IS WITHIN THE ARMS LENGTH RANGE. THE CIT(A) FURT HER FOUND THAT THE ALLEGATION OF THE TPO THAT THE ASSESSEE HAS NOT PRO VIDED THE QUANTITY OF NUMBER OF LINES BILLED WITH REFERENCE TO THE UNRELA TED COMPARABLES TO BE WITHOUT ANY BASIS. AFTER EXAMINING THE MATERIALS ON RECORDS, THE CIT(A) WAS OF THE VIEW THAT THE ASSESSEE PROVIDED A LL THE MATERIALS TO THE TPO WITH REGARD TO THE PRICE CHARGED BY THE INT ERNAL COMPARABLES AS WELL AS EXTERNAL COMPARABLES. THE CIT(A) FINALL Y CAME TO A CONCLUSION THAT THE ASSESSEE WAS RIGHT IN ADOPTING THE CUP METHOD AS THE MOST SUITABLE METHOD FOR DETERMINING THE ALP OF INTERNATIONAL TRANSACTIONS MADE BY IT WITH ITS AE DURING THE FINA NCIAL YEAR 2004-05 ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 12 RELEVANT TO ASSESSMENT YEAR 2005-06 AND THE AMOUNT OF RS.84,840,538 RECEIVED BY IT FROM ITS AE IS WITHIN THE ARMS LENG TH RANGE. THE CIT(A), THEREFORE, DELETED THE ADDITION OF RS.1,70,51,255. 8. AGGRIEVED BY THE ORDER OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE, RELY ING UPON THE REASONING OF THE TPO, SUBMITTED THAT THE ASSESSEE I S A CONTRACT SERVICE PROVIDER. SINCE THE ASSESSEE DID NOT PROVIDE THE Q UANTITATIVE DETAILS IN THE CASE OF COMPARABLES, THE TPO WAS JUSTIFIED IN R EJECTING THE CUP METHOD ADOPTED BY THE ASSESSEE. THE LEARNED DEPART MENTAL REPRESENTATIVE, THOUGH AGREED TO THE FACT THAT THE CUP METHOD IS THE MOST APPROPRIATE METHOD, SUBMITTED THAT IN THE AB SENCE OF RELEVANT DATA, THE TPO WAS LEFT WITH NO OTHER OPTION BUT TO ADOPT THE TNMM METHOD. HE FURTHER SUBMITTED THAT THE AGREEMENTS BETWEEN THE AE AND THE ASSESSEE AS WELL AS THE OTHER TWO INDIAN CO MPANIES WERE IDENTICALLY WORDED, WHICH GIVES RISE TO A REASONABL E DOUBT THAT THE COMPARABLES ARE NOT UNCONTROLLED. 10. THE LEARNED AUTHORISED REPRESENTATIVE FOR TH E ASSESSEE, REITERATING THE CONTENTIONS URGED BEFORE THE LOWER AUTHORITIES, SUBMITTED THAT THE OBSERVATIONS MADE BY THE TPO THA T QUANTITATIVE DETAILS WERE NOT FURNISHED TO THE TPO IS WITHOUT AN Y BASIS. ALL RELEVANT DATA WITH REGARD TO COMPARABLES WERE AVAILABLE BEFO RE THE TPO. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT THE TPO HIMSELF HAS CALLED FOR INFORMATION UND ER S.133(6) OF THE ACT FROM THE EXTERNAL COMPARABLES AND THEREFORE, TH E ALLEGATION THAT THE RELEVANT DATA IS NOT SUBMITTED IS WITHOUT ANY B ASIS. THE LEARNED ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 13 AUTHORISED REPRESENTATIVE FOR THE ASSESSEE REFERRIN G TO PARA 5.8 OF THE ORDER OF THE CIT(A) SUBMITTED THAT ALL RELEVANT MAT ERIALS WITH REGARD TO THE EXTERNAL AS WELL AS INTERNAL COMPARABLES WERE P ROVIDED TO THE TPO. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSES SEE ULTIMATELY SUBMITTED THAT WHEN COMPARABLES IN RESPECT OF UNCON TROLLED TRANSACTIONS ARE AVAILABLE, THE CIT(A) WAS JUSTIFIE D IN HOLDING THAT THE CUP METHOD ADOPTED BY THE ASSESSEE IS CORRECT AND I N ACCORDANCE WITH HE GUIDELINES OF THE OECD AND THE IT RULES AND THE PRICE CHARGED BY THE ASSESSEE TO ITS AE IS WITHIN THE ARMS LENGTH. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. THE FACTS OF THE CASE HAVE BE EN EXHAUSTIVELY DEALT WITH BY THE CIT(A) IN HIS ORDER. IT IS A FACT ON R ECORD THAT THE ASSESSEE HAS ADOPTED THE CUP METHOD FOR COMPUTING THE ARMS LENGTH PRICE FOR THE INTERNATIONAL TRANSACTION ENTERED INTO BY IT WI TH ITS AE FOR THE MEDICAL TRANSCRIPTION SERVICE RENDERED BY IT TO THE AE. IN THIS REGARD, THE ASSESSEE HAS CONSIDERED TWO EXTERNAL COMPARABLE S AND THREE INTERNAL COMPARABLES. THE EXTERNAL COMPARABLES TH E TWO INDIAN COMPANIES, M/S. ELICO LIMITED AND M/S. SHASTER TECH NOLOGIES LTD. HAVE ALSO ENTERED INTO AGREEMENTS WITH M/S. CBAY SY STEMS LTD. USA FOR PROVIDING MEDICAL TRANSCRIPTION SERVICES. SIMI LARLY, THE ASSESSEE HAS ALSO ENTERED INTO AGREEMENT WITH THREE OVERSEAS CU STOMERS (INTERNAL COMPARABLES) FOR PROVIDING MEDICAL TRANSCRIPTION SE RVICES SIMILAR TO THE ONES PROVIDED BY ASSESSEE TO ITS AE. AS CAN BE SEE N FROM THE PRICE CHARGED BY THE ASSESSEE TO ITS AE, IN COMPARISON WI TH THE PRICE CHARGED BY THE ASSESSEE TO ITS OTHER OVERSEAS CUSTOMERS, SO ALSO BY THE PRICE CHARGED BY THE OTHER TWO INDIAN COMPANIES, VIZ. ELI CO LTD AND SHASTER TECHNOLOGIES P. LTD. TO M/S. CBAY SYSTEMS, USA, IT IS CLEAR THAT THEY ARE ALMOST WITHIN SIMILAR RANGE. THE SERVICE RENDE RED BY THE ASSESSEE ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 14 TO ITS AE AS WELL AS TO THE OTHER OVERSEAS CUSTOMER S AND THE SERVICES RENDERED BY THE OTHER TWO INDIAN COMPANIES TO CBAY SYSTEMS IS ALSO SAME, I.E. MEDICAL TRANSCRIPTION WORK. THEREFORE, T HE COMPARABLES ADOPTED BY THE ASSESSEE ARE UNCONTROLLED PARTIES AN D CAN BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRI CE AS PER CUP METHOD. AS CAN BE SEEN FROM THE ORDER OF THE TPO , THOUGH THE TPO ACCEPTS THE FACT THAT CUP METHOD IS THE MOST DIREC T AND RELIABLE ONE TO APPLY FOR DETERMINING ARMS LENGTH PRICE, HE REJEC TS THE CUP METHOD ADOPTED BY THE ASSESSEE IN THE PRESENT CASE ON THE GROUND THAT IN THE ABSENCE OF INFORMATION, THE ASSESSEES STATEMENT TH AT IN MEDICAL TRANSCRIPTION INDUSTRY, IN GENERAL, THE PRICE CHARG ED PER LINE OF TRANSCRIPTION IS AROUND 00.6 US$ CANNOT BE ACCEPTED AND THAT APART, NO PUBLICLY AVAILABLE INFORMATION ON PRICES CHARGED IN INDEPENDENT TRANSACTIONS OF SIMILAR AND IDENTICAL NATURE THAT R EFLECT THE CHARACTERISTICS OF THE SERVICES RENDERED BY THE ASS ESSEE, HAS BEEN FURNISHED. THEREFORE, THE COMPARABLE FOR APPLYING T HE CUP METHOD CANNOT BE ACCEPTED. THE TPO HAS FURTHER OBSERVED T HAT THE ASSESSEE ALSO ACCEPTS THAT THE TNMM METHOD IS A USEFUL METHO D FOR COMPUTING THE ARMS LENGTH PRICES IN ITS CASE. HOWEVER, SUCH FINDING OF THE TPO IS NOT CORRECT. IT IS SEEN FROM THE ORDER OF THE TPO ITSELF THAT IN RESPONSE TO HIS SHOW-CAUSE NOTICE DATED 22.10.2008, THE ASSE SSEE HAS STRONGLY OBJECTED TO THE PROPOSAL FOR APPLYING THE TNMM MET HOD AND HAS REQUESTED FOR ACCEPTING THE CUP METHOD APPLIED BY T HE ASSESSEE. THE ASSESSEE HAS SUBMITTED BEFORE THE TPO THAT IT HAS A PPLIED THE CUP METHOD AFTER COMPARING THE FUNCTIONS PERFORMED AND THE RISKS UNDERTAKEN BY EACH ENTITY INVOLVED IN THE INTER-COM PANY TRANSACTIONS. THE TPO HAS BRUSHED ASIDE THE OBJECTIONS OF THE ASS ESSEE BY SIMPLY OBSERVING THAT THE ASSESSEE HAS NOT PROVIDED QUANTI TATIVE DETAILS WITH REFERENCE TO THE UNRELATED COMPARABLES. HOWEVER, SUCH FINDING OF THE ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 15 TPO IS AGAIN NOT CORRECT, CONSIDERING THE FACT THAT THE ASSESSEE HAS FURNISHED ALL THE RELEVANT INFORMATION/DATA, REQUI SITIONED BY THE TPO FROM TIME TO TIME. THIS FACT IS VERY MUCH EVIDENT F ROM PARA 1.1 OF THE ORDER OF THE TPO ITSELF. THEREFORE, THE FINDING OF THE TPO THAT THE ASSESSEE HAS NOT GIVEN THE QUANTITATIVE DETAILS IS WITHOUT ANY BASIS. IT IS A MATTER OF FACT THAT THE ASSESSEE HAS SUBMITTED THE AGREEMENTS BETWEEN THE ASSESSEE AND ITS AE AS WELL AS THE AGRE EMENTS ENTERED INTO BY THE AE WITH THE OTHER INDIAN COMPANIES AND THE A GREEMENTS BETWEEN THE ASSESSEE AND ITS OTHER OVERSEAS CUSTOME RS. THE ASSESSEE HAS ALSO SUBMITTED BILLS RAISED AND THE PRICES CHAR GED FOR EACH LINE OF MEDICAL TRANSCRIPTION WORK BY THE ASSESSEE TO ITS AE AND BY THE INDIAN COMPANIES FOR THE SERVICES RENDERED TO CBAY SYSTE MS USA AND ALSO THE SERVICES RENDERED BY THE ASSESSEE TO THE OVERSE AS CUSTOMERS. ON PERUSING SERVICES RENDERED AND PRICE CHARGED FOR AL L THE AFORESAID TRANSACTIONS, IT IS SEEN THAT THE PRICE CHARGED BY THE ASSESSEE TO ITS AE ON EACH LINE OF MEDICAL TRANSCRIPTION WORK AT 0.063 US$ IS ALMOST EQUAL TO THE SIMILAR RATE CHARGED PER LINE ON MEDICAL TR ANSCRIPTION WORK BY THE OTHER UNCONTROLLED PARTIES, CONSIDERED AS COMPA RABLE BY THE ASSESSEE. THE OBSERVATION OF THE TPO THAT THE COMPA RABLES CANNOT BE CONSIDERED TO BE UNCONTROLLED IS WITHOUT ANY BASIS, AND IT IS BASED ON MERE PRESUMPTIONS AND SURMISES. WHEN THE COMPARABLE S CONSIDERED BY THE ASSESSEE ARE IN NO WAY CONNECTED EITHER WITH TH E ASSESSEE OR WITH ITS HOLDING COMPANY, AND ALL THE INFORMATION/DATA R ELATING TO THEIR TRANSACTIONS ARE AVAILABLE, THE TPO WAS NOT JUSTIFI ED IN REJECTING THE COMPUTATION OF ALP MADE BY THE ASSESSEE BY APPLYING THE CUP METHOD. THE CIT(A) HAS PASSED A WELL REASONED ORDER, ELABO RATELY DISCUSSING THE VARIOUS ISSUES RAISED BY THE TPO AND ULTIMATELY CAME TO A CONCLUSION THAT THE CUP METHOD IS THE MOST APPROPRI ATE METHOD FOR COMPUTING THE ALP FOR THE INTERNATIONAL TRANSACTIO NS ENTERED INTO BY ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 16 THE ASSESSEE WITH ITS AE. WE FULLY AGREE WITH TH E ORDER OF THE CIT(A) IN THIS BEHALF. WE ACCORDINGLY UPHOLD THE SAME AND REJECT THE GROUND OF THE REVENUE ON THIS ISSUE. 12. IN GROUNDS 3 AND 4, THE DEPARTMENT HAS CHALLEN GED THE DIRECTION OF THE CIT(A) TO EXCLUDE THE COMMUNICATIO N CHARGES OF RS.15,23,721/- FROM THE TOTAL TURNOVER ALSO WHILE COMPUTING THE EXEMPTION U/S. 10A OF THE ACT. 13. BRIEFLY STATED, FACTS ARE THAT IN THE COURSE O F THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUN D THAT THE ASSESSEE HAS CLAIMED EXEMPTION UNDER S.10A OF THE ACT, FOR AN AMOUNT OF RS.20,11,603. WHILE VERIFYING THE DETAILS, THE AS SESSING OFFICER NOTICED THAT THE ASSESSEE HAS INCURRED EXPENSES TOWARDS COM MUNICATION CHARGES AMOUNTING TO RS.15,23,721. THE ASSESSING O FFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE COMMUNICATION CHA RGES SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER AS PER CLAUSE (IV) OF EXPLANATION 2 TO S.10A, WHILE COMPUTING THE EXEMPTION UNDER S.1 .0A. THE ASSESSEE IN ITS REPLY SUBMITTED THAT IT IS NEITHER POSSIBLE NOR PRACTICABLE TO SEGREGATE AS TO WHAT AMOUNT OF BANDWIDTH CHARG ES PAID IS MEANT FOR DELIVERY OF PRODUCT OUTSIDE INDIA. THE ASSESSE E SUBMITTED THAT IF THE EXPENDITURE INCURRED TOWARDS COMMUNICATION CHAR GES IS TO BE EXCLUDED FROM THE EXPORT TURNOVER, THE SAME IS ALSO TO BE EXCLUDED FROM THE TOTAL TURNOVER FOR COMPUTING THE EXEMPTION UNDER S10 A OF THE ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. THE ASSESSING OFFICER INTERPRETING THE T ERM EXPORT TURNOVER AS DEFINED IN CLAUSE (IV) OF EXPLANATION (2) TO S.1 0A, CAME TO THE CONCLUSION THAT THE COMMUNICATION CHARGES AMOUNTING TO RS.15,21,721 ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 17 HAS TO BE EXCLUDED FROM THE EXPORT TURNOVER FOR WO RKING OUT THE EXEMPTION UNDER S.10A OF THE ACT. 14. THE ASSESSEE CHALLENGED THE AFORESAID ACTION O F THE ASSESSING OFFICER IN APPEAL BEFORE THE CIT(A). IN THE COURSE OF HEARING BEFORE THE CIT(A), ASSESSEE CONTENDED THAT THE ASS ESSING OFFICER WAS NOT JUSTIFIED IN DEDUCTING THE COMMUNICATION CHARG ES FROM EXPORT TURNOVER, WHILE AT THE SAME TIME TREATING THE SAME AS PART OF TOTAL TURNOVER FOR DETERMINING THE EXEMPTION UNDER S.10A. THE CIT(A), CONSIDERING THE CONTENTIONS OF THE ASSESSEE, THOUGH AGREED WITH THE VIEW OF THE ASSESSING OFFICER THAT EXPENDITURE INC URRED TOWARDS COMMUNICATION CHARGES, CANNOT FORM PART OF EXPORT TURNOVER AND AS SUCH COMMUNICATION CHARGES HAVE TO BE EXCLUDED FROM THE EXPORT TURNOVER, THE CIT(A), HOWEVER, FOLLOWING THE ORDERS OF THE TRIBUNAL IN SIMILAR MATTERS, AS IN D-BLOCK INDIA SOFTWARE P. LT D. IN ITA NO.983- 984/HYD/2006 DATED 31.1.2007 AND PATNI TELECOM P. L TD. V/S. ITO (22 SOT 26) HELD THAT COMMUNICATION CHARGES WHICH DO N OT HAVE ELEMENT OF PROFIT, IF EXCLUDED FROM THE EXPORT TURNOVER, A T THE SAME TIME HAS TO BE EXCLUDED FROM THE TOTAL TURNOVER ALSO, FOR THE P URPOSE OF COMPUTING DEDUCTION UNDER S.10A. 15. WE HEARD THE SUBMISSIONS OF THE PARTIES ON TH E ISSUE AND ALSO PERUSED THE MATERIALS ON RECORD. THE ISSUE INV OLVED IN THESE GROUNDS RAISED BY THE REVENUE, COULD NOT DETAIN US TOO LONG, IN VIEW OF THE CONSISTENT JUDICIAL PRONOUNCEMENTS LAYING DOWN THE PRINCIPLES ON THE ISSUE IN DISPUTE. THE HONBLE KARNATAKA HIGH CO URT, WHILE CONSIDERING A SIMILAR ISSUE, IN THE CASE OF TATA EL EXI LTD. (115 TTJ 423) HELD THAT THE EXPENDITURE INCURRED TOWARDS COMMUNIC ATION CHARGES, IF EXCLUDED FROM THE EXPORT TURNOVER, HAS ALSO TO BE E XCLUDED FROM THE ITA NO.565/HYD/2011 M/S. CKAR SYSTEMS (P)LTD., HYDERABAD 18 TOTAL TURNOVER. FOLLOWING THE AFORESAID DECISION O F THE HONBLE KARNATAKA HIGH COURT, AND ALSO THE CONSISTENT VIEW TAKEN BY THE COORDINATE BENCHES OF THIS TRIBUNAL IN SIMILAR MATT ERS, WE ARE OF THE VIEW THAT THE COMMUNICATION CHARGES HAVE TO BE EXCL UDED BOTH FROM THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER, WHILE COMPUTING EXEMPTION UNDER S10A OF THE ACT. IN THIS VIEW OF T HE MATTER, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE. WE ACCORDINGLY UPHOLD THE SAME, AND REJECT THE GROUNDS OF THE REVENUE ON THIS ISSUE. 16. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 19.10.2012 SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED/- 19 TH OCTOBER, 2012 COPY FORWARDED TO: 1. M/S. CKAR SYSTEMS (P)LTD., 8 - 2 - 472,ROAD NO.1, BANJARA HILLS, HYDERABAD 2. 3. 4 ASST. COMMISSIONER OF INCOME - TAX CIRCLE 1(2), HYDERABAD COMMISSIONER OF INCOME-TAX(APPEALS)-III, HYDERABAD COMMISSIONER OF INCOME - TAX II, HYDERABAD 5 DEPA RTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S.