Sun Life India Service Centre Pvt. Ltd., Gurgaon V. ACIT, Gurgaon

ITA 5799/DEL/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0075 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 15-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: G C SRIVASTAVA; SAURABH SRIVASTAVA
• Keywords: Transfer pricing; International transaction
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI GEORGE GEORGE K. , JM ITA NO.5799/DEL/2012 ASSESSMENT YEAR : 2008-09 SUN LIFE INDIA SERVICE CENTRE PVT. LTD., UNITECH WORLD TOWER-B, 2 ND FLOOR, SECTOR-39, GURGAON. PAN: AAJCS6520K VS. ACIT, CIRCLE-II, GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.C. SRIVASTAVA, ADVOCATE & SHRI SAURABH SRIVASTAVA, CA DEPARTMENT BY : SHRI JASDEEP SINGH, CIT, DR DATE OF HEARING : 26.5.2015 DATE OF PRONOUNCEMENT : 27.5.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ORDER PASSED BY THE ASSESSING OFFICER (AO) ON 27.9.2012 U/S 143( 3) READ WITH SECTION ITA NO.5799/DEL/2012 2 144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER A LSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2008-09. 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT UNDER THE SEGMENT OF `PROVISION OF SOFTWARE DEVELOPMENT AND MAINTENANCE SUPPORT SERVICES ON ON E HAND AND `PROVISION OF BACK OFFICE SUPPORT SERVICES INCLUDI NG `PROVISION OF FINANCE AND ACCOUNTS SUPPORT SERVICES ON THE OTHER. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS AN INDIAN COMPANY, A PART OF SUN LIFE GROUP, WHICH HAS DIVER SIFIED FINANCIAL SERVICES ORGANIZATION PROVIDING SAVINGS, RETIREMENT AND PENSION PRODUCTS AND LIFE AND HEALTH INSURANCE IN CANADA, US, UK AND ASIA. THIS GROUP ALSO OPERATES MUTUAL FUNDS AND INVESTMENT MANAGEMEN T BUSINESSES. THE ASSESSEE PROVIDED SOFTWARE DEVELOPMENT AND MAINTENA NCE SUPPORT SERVICES AND ALSO BACK OFFICE SUPPORT SERVICES TO ITS ASSOCI ATED ENTERPRISES (AES) FOR ASSISTANCE IN THEIR PROJECTS. THE ASSESSEE REPORTE D FOUR INTERNATIONAL TRANSACTIONS IN FORM NO.3CEB CONSISTING OF `PROVISI ON OF SOFTWARE DEVELOPMENT AND MAINTENANCE SUPPORT SERVICES WITH THE TRANSACTED VALUE ITA NO.5799/DEL/2012 3 OF RS.30,08,48,648/-; `PROVISION OF BACK OFFICE SU PPORT SERVICES WITH THE TRANSACTED VALUE OF RS.5,65,34,293/-; AND `PROVISIO N OF F&A SUPPORT SERVICES WITH THE VALUE OF RS.24,51,728/-. IN ORD ER TO DEMONSTRATE THAT ITS INTERNATIONAL TRANSACTIONS WERE AT ARMS LENGTH PRI CE (ALP), THE ASSESSEE APPLIED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH THE PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT TO TOTAL COST ( OP/TC). ON A REFERENCE MADE BY THE AO, THE TRANSFER PRICING OFFICER (TPO) NOTICED THAT THE SEGMENT OF `PROVISION OF BACK OFFICE SUPPORT SERVIC ES WAS NO DIFFERENT FROM THE SEGMENT OF `PROVISION OF FINANCIAL AND ACC OUNTS SUPPORT SERVICES. HE, THEREFORE, MERGED THESE TWO SEGMENTS INTO ONE F OR CONDUCTING THE BENCHMARKING ANALYSIS. THOUGH THE ASSESSEE INITIAL LY USED MULTIPLE-YEAR DATA OF COMPARABLES, HOWEVER, DURING THE COURSE OF THE TP PROCEEDINGS, SUCH DATA WAS RESTRICTED TO A SINGLE YEAR, AT THE TPOS INSTANCE. THE TPO OBSERVED THAT THE ASSESSEES OP/TC IN THE SEGMENT O F `PROVISION OF SOFTWARE DEVELOPMENT AND MAINTENANCE SERVICES WAS AT 13.23% AND IN THE `MERGED PROVISION OF BACK OFFICE SUPPORT SERVIC ES AND F&A SUPPORT SERVICES AT 14.30%. THE ASSESSEE INITIALLY CHOSE 23 COMPARABLES IN THE `SOFTWARE DEVELOPMENT AND MAINTENANCE SERVICES SEG MENT. HOWEVER, ITA NO.5799/DEL/2012 4 DURING THE COURSE OF THE PROCEEDINGS BEFORE THE TPO AND BY USING THE CURRENT YEARS DATA, THE ASSESSEE CAME OUT WITH 20 COMPARABLES, WHICH HAVE BEEN LISTED ON PAGE 11 OF THE TPOS ORDER. TH E TPO FINALLY SELECTED 20 COMPARABLE CASES AS LISTED ON PAGE 79 OF HIS ORD ER. THE AVERAGE OP/TC OF SUCH 20 COMPANIES WAS COMPUTED AT 20.96%. BY AP PLYING THIS PLI AS A BENCHMARK, THE TPO WORKED OUT TRANSFER PRICING ADJU STMENT OF RS.2,05,24,879/- UNDER THIS SEGMENT. AS REGARDS TH E `MERGED BACK OFFICE AND F&A SUPPORT SERVICE SEGMENT, THE ASSESSEE INI TIALLY CHOSE 12 COMPARABLES LISTED ON PAGE 6 OF THE TPOS ORDER, WH ICH WERE REDUCED TO 8 DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO ON THE BASIS OF CURRENT YEARS DATA. THE TPO SHORTLISTED FOUR COMPARABLE C OMPANIES WHICH HAVE BEEN LISTED ON PAGE 80 OF HIS ORDER. THE AVERAGE O P/TC OF SAID FOUR COMPARABLE COMPANIES UNDER THIS MERGED SEGMENT WAS COMPUTED AT 22.85%. BY APPLYING THIS PROFIT RATE AS BENCHMARK, THE TPO WORKED OUT THE TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.44, 12,714/-. THE ASSESSEE CHALLENGED BEFORE THE DISPUTE RESOLUTION PANEL (DRP ) THE DRAFT ORDER PASSED BY THE AO PURSUANT TO THE TPOS ORDER. THE DRP REDU CED THE TOTAL ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT FROM RS.2.49 CRORE TO ITA NO.5799/DEL/2012 5 RS.2,37,41,997/-. THE AO FINALIZED THE ASSESSMENT WITH SUCH ADDITION. THE ASSESSEE IS AGGRIEVED AGAINST THE TRANSFER PRIC ING ADJUSTMENT MADE IN THE FINAL ASSESSMENT ORDER. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT HAS BEEN NOTICED ABOVE THAT THE ASSESSEE REPORTED INTERNATIONAL TRANSACTION OF `PROVISION OF SOFTWARE DEVELOPMENT AND MAINTENANCE SUPPORT SERVICES AND TWO SEPARATE INTE RNATIONAL TRANSACTIONS OF `PROVISION OF BACK OFFICE SUPPORT SERVICES AND `PROVISION OF F&A SUPPORT SERVICES. FOR THE PURPOSES OF COMPUTATIO N OF ALP, THE TPO MERGED THE INTERNATIONAL TRANSACTION OF PROVISION O F BACK OFFICE SUPPORT SERVICES WITH THE PROVISION OF F&A SUPPORT SERVICES AND TREATED THE TWO AS ONE INTERNATIONAL TRANSACTION. THE ASSESSEE HAS NOT RAISED ANY SERIOUS OBJECTION TO THE SAID MERGER OF THESE TWO INTERNATI ONAL TRANSACTIONS MADE BY THE TPO. IN OUR CONSIDERED OPINION, THE TPO HAS RIGHTLY MERGED THESE TWO TRANSACTIONS AS BOTH SUCH SERVICES FALL IN THE REALM OF PROVISION OF BACK OFFICE SUPPORT SERVICES. AS SUCH, WE WILL PROCEED TO DETERMINE THE CORRECTNESS OF THE APPROACH ADOPTED BY THE AUTHORIT IES IN DETERMINING THE ITA NO.5799/DEL/2012 6 ALP OF THE `PROVISION OF SOFTWARE DEVELOPMENT AND M AINTENANCE SUPPORT SERVICES SEGMENT AND THE MERGED SEGMENT OF `PROVI SION OF BACK OFFICE SUPPORT AND F&A SUPPORT SERVICES, ONE BY ONE. A. PROVISION OF SOFTWARE DEVELOPMENT AND MAINTENANC E SUPPORT SERVICES. 5. THE ASSESSEE REPORTED THE VALUE OF THIS TRANSACT ION AT RS.30.08 CRORE WITH OP/TC AT 13.23%. THE TPO CHANGED THE COMPOSIT ION OF COMPARABLE COMPANIES AND WITHOUT ALLOWING THE WORKING CAPITAL ADJUSTMENT CLAIMED BY THE ASSESSEE, COMPUTED THE ALP OF THIS TRANSACTI ON AT RS.32.13 CRORE. BEFORE PROCEEDING FURTHER, WE WANT TO MAKE IT CLEAR THAT THE ASSESSEE IS AGGRIEVED ONLY AGAINST NOT ALLOWING OF WORKING CAPI TAL ADJUSTMENT AND INCLUSION OF FIVE COMPANIES IN THE FINAL TALLY OF C OMPARABLES DRAWN BY THE TPO. APART FROM THESE, THE ASSESSEE IS SATISFIED O N ALL OTHER ASPECTS OF THE COMPUTATION OF THE ALP OF THIS TRANSACTION BY THE T PO. 6. AS REGARDS THE WORKING CAPITAL ADJUSTMENT, THE C LAIM FOR WHICH IS COMMON FOR BOTH THE SEGMENTS, NAMELY, THE `PROVISIO N OF SOFTWARE DEVELOPMENT AND MAINTENANCE SERVICES AND THE MERGE D SEGMENT OF `PROVISION OF BACK OFFICE SUPPORT SERVICES, THE A SSESSEE ARGUED BEFORE THE ITA NO.5799/DEL/2012 7 TPO THAT SUITABLE ADJUSTMENT ON ACCOUNT OF DIFFEREN CES BETWEEN THE WORKING CAPITAL BE ALLOWED. THE TPO REFUSED TO ALL OW SUCH ADJUSTMENT BY NOTICING THAT THE ASSESSEE HAS A CONSOLIDATED PROFI T AND LOSS ACCOUNT AND THE SEGMENTAL REPORTING OF SOFTWARE DEVELOPMENT AND BAC K OFFICE SUPPORT SERVICES WAS DONE ONLY FOR THE PURPOSES OF TP STUDY OF THE INTERNATIONAL TRANSACTIONS. AS THE FINANCIALS OF THE COMPANY SHO WED CONSOLIDATED INCOME FROM BOTH THE SEGMENTS, HE OPINED THAT IT WA S NOT POSSIBLE TO ASCERTAIN THE CREDITORS AND DEBTORS PERTAINING TO E ACH SEGMENT. WHEN THE MATTER WAS TAKEN UP BEFORE THE DRP, ONE MORE REASON WAS ASSIGNED FOR NEGATIVING THE ASSESSEES CLAIM ON WORKING CAPITAL ADJUSTMENT, BEING, THE NECESSITY AND NON-AVAILABILITY OF DAILY AVERAGE OF WORKING CAPITAL DEPLOYED, AS AGAINST THE USE BY THE ASSESSEE OF T HE AVERAGE OF SUCH FIGURES OF WORKING CAPITAL ON THE FIRST AND THE LAST DAY OF THE ACCOUNTING PERIOD. 7. WE ARE NOT INCLINED TO ACCEPT, IN PRINCIPLE, T HE VIEW CANVASSED BY THE AUTHORITIES BELOW THAT THE ASSESSEE CANNOT BE A LLOWED A WORKING CAPITAL ADJUSTMENT. SUCH AN ADJUSTMENT IS RESTRICTED TO INV ENTORY, TRADE RECEIVABLES AND TRADE PAYABLES. IF A COMPANY CARRIES HIGH TRAD E RECEIVABLES, IT WOULD ITA NO.5799/DEL/2012 8 MEAN THAT IT IS ALLOWING ITS CUSTOMERS RELATIVELY L ONGER PERIOD TO PAY THEIR AMOUNTS, WHICH WILL RESULT INTO HIGHER INTEREST COS T AND THE RESULTANT LOW NET PROFIT. SIMILARLY, BY CARRYING HIGH TRADE PAY ABLES, A COMPANY BENEFITS FROM A RELATIVELY LONGER PERIOD AVAILABLE TO IT FOR PAYING BACK TO ITS SUPPLIERS, WHICH REDUCES THE INTEREST COST AND INC REASES PROFITS. IN ORDER TO NEUTRALIZE THE DIFFERENCE ON ACCOUNT OF INVENTORY, TRADE PAYABLES AND TRADE RECEIVABLES, IT IS OF UTMOST IMPORTANCE TO ALLOW WO RKING CAPITAL ADJUSTMENT FOR BRINGING THE CASE OF THE ASSESSEE AT PAR WITH T HE OTHER OTHERWISE FUNCTIONALLY COMPARABLE ENTITIES. WE, THEREFORE, A GREE IN PRINCIPLE WITH THE GRANT OF WORKING CAPITAL ADJUSTMENT. 8. THE VIEW TAKEN BY THE DISPUTE RESOLUTION PANE L (DRP) FOR COMPUTING SUCH ADJUSTMENT ON THE BASIS OF DAILY AVERAGE OF WO RKING CAPITAL DEPLOYED BY THE TESTED PARTY AND ALSO EACH OF THE COMPARABLE S, IS NOT TENABLE BECAUSE OF THE ORDER PASSED BY THE DELHI BENCH OF THE TRIBU NAL IN THE CASE OF NAVISITE INDIA PVT. LTD. VS. ITO (ITA NO.5329/DEL/2 012) . VIDE ITS ORDER DATED 31.5.2013, THE TRIBUNAL HAS HELD THAT THE COM PONENTS OF THE WORKING CAPITAL DEPLOYED SHOULD BE CONSIDERED ON ANNUAL BAS IS WITH THE AVERAGE OF ITA NO.5799/DEL/2012 9 OPENING AND CLOSING. WE, THEREFORE, HOLD THAT THE E NTITLEMENT OF THE ASSESSEE TO THE WORKING CAPITAL ADJUSTMENT, CANNOT BE DENIED. 9. NOTWITHSTANDING THE ALLOWABILITY OF THE WORK ING CAPITAL ADJUSTMENT, WE ARE UNABLE TO COUNTENANCE ITS CALCULATION GIVEN BY THE ASSESSEE AT ITS FACE VALUE BECAUSE OF AN IMPORTANT FACTOR. IT IS A N UNDISPUTED POSITION THAT THE ASSESSEE MADE UP ITS ACCOUNTS ON AN ENTITY LEVE L. IT WAS ONLY FOR THE PURPOSES OF SHOWING THAT ITS INTERNATIONAL TRANSACT IONS WERE AT ALP, THAT IT BIFURCATED THE CONSOLIDATED ACCOUNTS INTO DIFFERENT SEGMENTS. SUCH BIFURCATION OF ACCOUNTS INTO DIFFERENT SEGMENTS HAS NOT BEEN DISPUTED BY THE TPO INASMUCH AS HE HAS NOT CHALLENGED THE CORRE CTNESS OF THE FIGURES SO DEDUCED IN RESPECT OF OPERATING PROFITS ETC. OF EACH SEGMENT. BUT, WHEN IT COMES TO THE COMPUTATION OF WORKING CAPITAL ADJU STMENT, ONE NEEDS TO LOOK ONLY AT THE FIGURES OF INVENTORY, TRADE RECEIV ABLES AND TRADE PAYABLES. THESE FIGURES CAN BE CULLED OUT ONLY FROM THE BALAN CE SHEET WITHOUT ANY REFERENCE TO THE SEGREGATED INCOME STATEMENT OF EAC H SEGMENT. ON A POINTED QUERY FROM THE BENCH, THE LD. AR CONCEDED T HAT THERE MAY BE SOME TRADE RECEIVABLES OR PAYABLES COMMON TO THE `SOFTWA RE DEVELOPMENT ITA NO.5799/DEL/2012 10 SEGMENT AND THE OTHER `MERGED SEGMENT. IN SUCH A SITUATION, IT BECOMES RELEVANT TO SEE AS TO HOW THE FIGURES OF SUCH TRADE RECEIVABLES OR PAYABLES HAVE BEEN PLACED IN THE COMPUTATION OF WORKING CAPI TAL ADJUSTMENT UNDER EACH SEGMENT. THE LD. AR ARGUED THAT THE WORKING O F THE WORKING CAPITAL ADJUSTMENT WAS NOT CHALLENGED BY THE TPO AND, HENCE , IT SHOULD NOT BE EMBARKED UPON AFRESH. WE ARE NOT CONVINCED WITH TH IS PROPOSITION FOR THE OBVIOUS REASON THAT WHEN THE TPO REJECTED THE ASSES SEES CLAIM FOR THE GRANT OF ANY WORKING CAPITAL ADJUSTMENT AT THE THRE SHOLD ITSELF, THERE WAS NO REASON FOR HIM TO EXAMINE THE VERACITY OF THE COMPU TATION OF WORKING CAPITAL ADJUSTMENT AS PUT FORTH ON BEHALF OF THE AS SESSEE. UNDER SUCH CIRCUMSTANCES, WE DIRECT THE AO/TPO TO COMPUTE WORK ING CAPITAL ADJUSTMENT, IF ANY, AVAILABLE UNDER BOTH THE SEGMEN TS, NAMELY, PROVISION OF SOFTWARE DEVELOPMENT AND MAINTENANCE SERVICES AND M ERGED PROVISION OF BACK OFFICE SUPPORT SERVICES AND F&A SUPPORT SERVIC ES DISTINCTLY IN THE LIGHT OF OUR ABOVE DISCUSSION. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED AN OPPORTUNITY OF HEARING IN SUCH FRESH DETERMINATI ON OF THE WORKING CAPITAL ADJUSTMENT, IF ANY. ITA NO.5799/DEL/2012 11 10. THE NEXT ISSUE RAISED BY THE ASSESSEE IN THE CO MPUTATION OF ALP UNDER THE `PROVISION OF SOFTWARE DEVELOPMENT AND MA INTENANCE SERVICES SEGMENT IS AGAINST THE INCLUSION OF FIVE COMPANIES IN THE FINAL LIST OF COMPARABLES SELECTED BY THE TPO, AS UNDER:- I) AVANI CIMCON LTD. II) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD., III) INFOSYS TECHNOLOGIES LTD., IV) KALS INFORMATION SYSTEMS LTD. (SEG) V) THIRDWARE SOLUTIONS LTD. 11. BEFORE DECIDING THE COMPARABILITY OR OTHERWISE OF THESE FIVE COMPANIES, IT IS SINE QUA NON TO ASCERTAIN THE NATURE OF SERVICES RENDERED BY THE ASSESSEE UNDER THIS SEGMENT. THIS SEGMENT H AS TWO CLASSIFICATIONS, NAMELY, SOFTWARE DEVELOPMENT SERVICES AND MAINTENAN CE SUPPORT SERVICES. SOFTWARE DEVELOPMENT SERVICES REFERS TO THE DEVELOP MENT OF MODULES BY THE ASSESSEE AND ALSO PARTS OF MODULES FOR SOFTWARE BEING USED BY ITS OVERSEAS GROUP ENTITIES. MAINTENANCE SUPPORT SERVI CES REFER TO THE SERVICES INCLUDING BUG FIXING, CARRYING OUT MAINTENANCE AND SUPPORT SERVICES OF ITA NO.5799/DEL/2012 12 SOFTWARE USED BY ITS OVERSEAS GROUP ENTITIES. THE ASSESSEE ENTERED INTO A SERVICES AGREEMENT DATED 1.4.2006 WITH SUN LIFE IRE LAND, UNDER WHICH, IT BECAME RESPONSIBLE FOR PROVIDING SOFTWARE DEVELOPME NT AND MAINTENANCE SUPPORT SERVICES TO ITS OVERSEAS GROUP ENTITIES. T HESE SERVICES WERE TO BE PROVIDED UNDER THE DIRECTIONS ISSUED BY SUN LIFE IR ELAND. FOR THIS PURPOSE, THE ASSESSEE GOT COMPENSATION FROM SUN LIFE IRELAND ON THE BASIS OF COST PLUS MARK-UP. REVENUE FROM SOFTWARE DEVELOPMENT SE RVICES ACCOUNTS FOR APPROXIMATELY 20% OF TOTAL REVENUE UNDER THE SOFTWA RE DEVELOPMENT AND MAINTENANCE SUPPORT SERVICES EARNED BY THE ASSESSEE AND THE REMAINING 80% IS TOWARDS SOFTWARE MAINTENANCE SUPPORT SERVICE S. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS COMPENSATED A T COST PLUS 12.52% MARK-UP UNDER THIS SEGMENT BY SUN LIFE IRELAND FOR WHICH THE INVOICES WERE RAISED ON MONTHLY BASIS IN CANADIAN DOLLARS. 12. WITH THE ABOVE UNDERSTANDING OF THE NATURE O F SERVICES CARRIED OUT BY THE ASSESSEE IN SEGMENT OF `PROVISION OF SOFTWARE D EVELOPMENT AND MAINTENANCE SUPPORT SEGMENT, LET US EXAMINE IF THE FIVE COMPANIES CONTESTED BY THE ASSESSEE ARE, IN FACT, COMPARABLE. ITA NO.5799/DEL/2012 13 AVANI CIMCON LTD . 13. THIS COMPANY WAS NOT CHOSEN BY THE ASSESSEE AS A COMPARABLE FOR THE SOFTWARE DEVELOPMENT SEGMENT. THE TPO INCLUDED IT BY OBSERVING THAT IT WAS ALSO ENGAGED INTO SOFTWARE DEVELOPMENT CONSULTI NG COMPANY WITH CLIENT BASE IN AUSTRALIA, US, UK, AFRICA AND THE EU ROPEAN UNION WITH MAJOR FOCUS ON THE TRAVEL AND INSURANCE INDUSTRY. THE DRP ALSO REJECTED THE ASSESSEES CONTENTION AGAINST THE INCLUSION OF THIS COMPANY. 14. WE HAVE PERUSED THE ANNUAL ACCOUNTS OF THIS COM PANY AVAILABLE IN THE ASSESSEES PAPER BOOK FROM PAGES 96 TO 99. APA RT FROM ITS BALANCE SHEET, PROFIT & LOSS ACCOUNT AND SOME SCHEDULES, TH E DIRECTORS REPORT AND AUDITORS REPORT, ETC. OF THIS COMPANY ARE NOT AVAI LABLE. THE LD. AR CONTENDED THAT THE INFORMATION OF THIS COMPANY AVAI LABLE IN THE PUBLIC DOMAIN FOR THE YEAR UNDER CONSIDERATION HAS BEEN DO WNLOADED AND PLACED BEFORE US AND EXCEPT FOR THESE DOCUMENTS, NO OTHER REPORTS, ETC. CONSTITUTING PART OF ANNUAL REPORT FOR THE YEAR END ING 31.3.2008, ARE AVAILABLE. HOWEVER, OUR ATTENTION WAS DRAWN TOWARD S CERTAIN TRIBUNAL ORDERS WHICH HAVE CONSIDERED THE FUNCTIONAL PROFILE OF THIS COMPANY ON THE ITA NO.5799/DEL/2012 14 BASIS OF INFORMATION AVAILABLE ON ITS WEBSITE. FIR ST IS TRIBUNAL ORDER IN AGNITY INDIA TECHNOLOGIES PVT. LTD. VS. DCIT (ITA N O.6485/DEL/2012). VIDE ITS ORDER DATED 20.9.2013, THE TRIBUNAL CONSID ERED THE FUNCTIONAL PROFILE OF THIS COMPANY BY NOTICING IT TO BE A PRO DUCT COMPANY OWNING SOFTWARE PRODUCTS LIKE DXCHANGE, TRAVEL SOLUTIONS, INSURANCE SOLUTIONS, CUSTOMER APPRECIATION, ETC. SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWOR KS INDIA PVT. LTD. VS. ITO (ITA NO.7633/N/2012). VIDE ITS ORDER DATED 6.11.2013, THE TRIBUNAL FOR THE ASSESSMENT YEAR 2008-09 HAS NOTICE D AVANI CIMCON LTD., TO BE A PRODUCT BASED COMPANY AND NOT PROVIDING SOF TWARE DEVELOPMENT SERVICES. NO CONTRARY MATERIAL HAS BEEN PLACED BEF ORE US BY THE LD. DR TO SHOW THE FUNCTIONAL PROFILE OF THIS COMPANY MATCHIN G WITH THE ASSESSEE. WHEN CONTRASTED WITH THE ASSESSEE COMPANY, WHICH I S ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT AND MAINTENANCE SERV ICES TO ITS GROUP CONCERNS, WE FAIL TO SEE AS TO HOW A SOFTWARE PRODU CT COMPANY LIKE AVANI CIMCON HAVING INTELLECTUAL PROPERTY RIGHTS OVER SOM E OF THE PRODUCTS DEVELOPED BY IT, CAN BE COMPARED WITH THE ASSESSEE ON AN ENTITY LEVEL. ITA NO.5799/DEL/2012 15 WE, THEREFORE, ORDER FOR THE ELIMINATION OF THIS CO MPANY FROM THE LIST OF COMPARABLES. KALS INFORMATION SYSTEMS LTD. (SEG.) 15. THIS COMPANY WAS NOT CHOSEN BY THE ASSESSEE AS ITS COMPARABLE. HOWEVER, THE TPO INCLUDED IT IN THE LIST BY DISCUSS ING ITS COMPARABILITY JOINTLY WITH THAT OF AVANI CIMCON LTD. AND THIRDWAR E SOLUTIONS LTD. THE SUM AND SUBSTANCE OF THE REASONING ADOPTED BY THE T PO FOR CONSIDERING THIS COMPANY AS COMPARABLE IS THAT IT IS ALSO A SOF TWARE DEVELOPMENT AND CONSULTING COMPANY, MEETING THE FILTERS ADOPTED BY HIM. 16. WE HAVE GONE THROUGH THE ANNUAL REPORT OF THIS COMPANY WHICH IS AVAILABLE AT PAGES 24 ONWARDS OF THE PAPER BOOK. S CHEDULE NO. 16 COMPRISING NOTES TO THE FINANCIAL STATEMENTS GIVES BACKGROUND OF THIS COMPANY TO BE ENGAGED IN DEVELOPMENT OF SOFTWARE A ND SOFTWARE PRODUCTS SINCE ITS INCEPTION. THIS COMPANY CONSISTS OF STPI UNIT ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS. PAG E 42 OF THE PAPER BOOK CONTAINS SEGMENTAL INFORMATION OF THIS COMPANY WHICH HAS BEEN DIVIDED INTO TWO PARTS, NAMELY, `APPLICATION SOFT WARE SEGMENT AND ITA NO.5799/DEL/2012 16 `TRAINING SEGMENT. IT IS THE `APPLICATION SOFTWAR E SEGMENT OF THIS COMPANY, WHICH HAS BEEN ADOPTED BY THE TPO. THE DEV ELOPMENT OF SOFTWARE AND ALL SOFTWARE PRODUCTS HAVE BEEN CLUBBE D UNDER THE APPLICATION SOFTWARE SEGMENT. SINCE THE FIGURES OF THIS COMPANY TAKEN BY THE TPO FOR MAKING COMPARISON WITH THE ASSESSEE INCLUDE THE EFFECT OF SOFTWARE PRODUCTS AS WELL, APART FROM SOFTWARE DEVE LOPMENT SERVICES, THE SAME CANNOT BE CONSIDERED AS COMPARABLE FOR THE SAM E REASONS AS ASSIGNED ABOVE FOR ELIMINATING AVANI CIMCON LTD. A PRODUCT COMPANY CANNOT BE COMPARED WITH A COMPANY ENGAGED IN PROVIDING SOFTWA RE DEVELOPMENT SERVICES BECAUSE OF DIFFERENCE IN THE INHERENT CHAR ACTERISTICS OF BOTH. WE, THEREFORE, ORDER FOR THE REMOVAL OF THIS COMPANY FR OM THE SET OF COMPARABLES. INFOSYS TECHNOLOGIES LTD . 17. THE TPO NOTICED THAT THIS COMPANY WAS FINDING P LACE IN THE ACCEPT/REJECT MATRIX. HE FOUND THIS COMPANY TO BE I NTO SOFTWARE DEVELOPMENT SERVICES QUALIFYING ALL THE FILTERS APP LIED BY HIM. THE ASSESSEE RAISED CERTAIN OBJECTIONS BEFORE THE DRP A GAINST THE INCLUSION OF ITA NO.5799/DEL/2012 17 THIS COMPANY, BUT WITHOUT ANY SUCCESS. THE TPO COM PUTED OPERATING PROFIT MARGIN OF THIS COMPANY AT 40.41% AND INCLUDE D IT IN THE FINAL LIST OF COMPARABLES. THE ASSESSEE IS AGGRIEVED AGAINST THE INCLUSION OF THIS COMPANY IN THE ULTIMATE SET OF COMPARABLES. 18. WE ARE DISINCLINED TO SUSTAIN THE LEGAL OBJECT ION TAKEN BY THE LD. DR THAT THE ASSESSEE SHOULD BE PROHIBITED FROM TAKING A STAND CONTRARY TO THE ONE WHICH WAS TAKEN AT THE STAGE OF THE TP STUDY OR DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO. IT GOES WITHOUT SAYING THAT THE OBJECT OF ASSESSMENT IS TO DETERMINE THE INCOME IN RESPECT OF WHICH THE ASSESSEE IS RIGHTLY CHARGEABLE TO TAX. AS THE INCOME NOT ORIGIN ALLY OFFERED FOR TAXATION, IF OTHERWISE CHARGEABLE, IS REQUIRED TO BE INCLUDED IN THE TOTAL INCOME, IN THE SAME BREATH, ANY INCOME WRONGLY INCLUDED IN THE TOTAL INCOME, WHICH IS OTHERWISE NOT CHARGEABLE, SHOULD BE EXCLUDED. TH ERE CAN BE NO ESTOPPEL AGAINST THE PROVISIONS OF THE ACT. EXTENDING THIS P ROPOSITION FURTHER TO THE CONTEXT OF THE TRANSFER PRICING, IF THE ASSESSEE FA ILS TO REPORT AN OTHERWISE COMPARABLE CASE, THEN THE TPO IS OBLIGED TO INCLUDE IT IN THE LIST OF COMPARABLES, AND IN THE SAME MANNER, IF THE ASSESSE E WRONGLY REPORTED AN ITA NO.5799/DEL/2012 18 INCOMPARABLE CASE AS COMPARABLE IN ITS TP STUDY AND THEN LATER ON CLAIMS THAT IT SHOULD BE EXCLUDED THEN, THERE SHOULD BE NO THING TO FORBID THE ASSESSEE FROM CLAIMING SO, PROVIDED THE TPO IS SATI SFIED THAT THE CASE SO ORIGINALLY REPORTED AS COMPARABLE IS, IN FACT, NOT COMPARABLE. THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT VS. QUARK SYSTEMS PVT. LTD. (2010) 132 TTJ (CHD) (SB) 1 HAS ALSO HELD THAT A CASE WHICH WAS INCLUDED BY T HE ASSESSEE AND ALSO BY THE TPO IN THE LIST OF COMPARABLES AT T HE TIME OF COMPUTING ALP, CAN BE EXCLUDED BY THE TRIBUNAL, IF THE ASSE SSEE PROVES THAT THE SAME WAS WRONGLY INCLUDED. 19. REVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE ASSESSEE IS ONLY A CAPTIVE UNIT RENDERING SERVICES TO ITS AE AL ONE WITHOUT ACQUIRING ANY INTELLECTUAL PROPERTY RIGHTS IN THE WORK DONE B Y IT IN THE DEVELOPMENT OF SOFTWARE. THE HONBLE DELHI HIGH COURT IN CIT VS. AGNITY INDIA TECHNOLOGIES (P) LTD. (2013) 219 TAXMANN 26 (DEL) CONSIDERED THE GIANTNESS OF INFOSYS LTD., IN TERMS OF RISK PROFILE , NATURE OF SERVICES, NUMBER OF EMPLOYEES, OWNERSHIP OF BRANDED PRODUCTS AND BRAND RELATED PROFITS, ETC. IN COMPARISON WITH SUCH FACTORS PREVA ILING IN THE CASE OF ITA NO.5799/DEL/2012 19 AGNITY INDIA TECHNOLOGIES PVT. LTD., BEING, A CAPTI VE UNIT PROVIDING SOFTWARE DEVELOPMENT SERVICES WITHOUT HAVING ANY IP RIGHTS IN THE WORK DONE BY IT. AFTER MAKING COMPARISON OF VARIOUS FAC TORS AS ENUMERATED ABOVE, THE HONBLE DELHI HIGH COURT HELD INFOSYS LT D. TO BE INCOMPARABLE WITH AGNITY INDIA TECHNOLOGIES PVT. LTD. THE FACTS OF THE INSTANT CASE ARE MORE OR LESS SIMILAR INASMUCH AS THE EXTANT ASSESSE E IS ALSO A CAPTIVE SERVICE PROVIDER WITH A LIMITED NUMBER OF EMPLOYEES AT ITS DISPOSAL AND ALSO NOT OWNING ANY BRANDED PRODUCTS WITH NO EXPEND ITURE ON R&D ETC. WHEN WE CONSIDER ALL THE ABOVE FACTORS IN A HOLISTI C MANNER, THERE REMAINS ABSOLUTELY NO DOUBT IN OUR MIND THAT INFOSYS TECHNO LOGIES LTD. IS INCOMPARABLE TO THE ASSESSEE COMPANY. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N AGNITY INDIA (SUPRA) , WE HOLD THAT INFOSYS TECHNOLOGIES LTD., CANNOT BE H ELD AS COMPARABLE WITH THE ASSESSEE COMPANY. THIS COMPANY IS, THEREFORE, DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. ITA NO.5799/DEL/2012 20 THIRDWARE SOLUTIONS LTD. 20. THIS COMPANY WAS NOT CHOSEN BY THE ASSESSEE AS ITS COMPARABLE. HOWEVER, THE TPO, CONSIDERING IT ALONG WITH AVANI C IMCON LTD. AND KALS INFORMATION SYSTEMS LTD. (SEG.), TREATED IT AS COMPARABLE. THE DRP REFUSED TO ACCEPT THE ASSESSEES CONTENTION FOR THE REMOVAL OF THIS COMPANY FROM THE LIST OF COMPARABLES. 21. WE HAVE PERUSED THE ANNUAL REPORT OF THIS COMPA NY WHICH IS AVAILABLE ON PAGES 100 ONWARDS OF THE PAPER BOOK. THE PROFIT & LOSS ACCOUNT OF THIS COMPANY IS AT PAGE 107, WHICH SHOWS `SALES & OTHER INCOME. BIFURCATION OF SALES IS AVAILABLE AS P ER SCHEDULE 12, WHICH COMPRISES OF `SALE OF LICENCE AMOUNTING TO RS.39. 16 LAC, `SOFTWARE SERVICES AMOUNTING TO RS.7.67 CRORE, `EXPORT FRO M SEZ UNIT AMOUNTING TO RS.26.39 CRORE, `EXPORT FROM STPI UNIT AMOUNTI NG TO RS.16.88 CRORE AND `REVENUE FROM SUBSCRIPTION AMOUNTING TO RS.92 .93 LAC. THESE FIGURES INDICATE THAT APART FROM THE REVENUE FROM ` SOFTWARE SERVICES WHICH IS ONLY TO THE TUNE OF RS.7.67 CRORE, THIS CO MPANY EARNED TOTAL GROSS REVENUE FROM `SALES TO THE TUNE OF RS.52.27 CRORE INCLUDING FROM EXPORT ITA NO.5799/DEL/2012 21 FROM SEZ/STPI UNITS. WHEN WE CONSIDER THE FIGURES O F THIS COMPANY ON AN ENTITY LEVEL AS HAVE BEEN ADOPTED BY THE TPO FOR CO MPARISON, IT BECOMES VIVID THAT IT CEASES TO BE COMPARABLE WITH THE ASSE SSEES `SOFTWARE DEVELOPMENT AND MAINTENANCE SUPPORT SERVICES SEGME NT. THE REASON HARDLY NEEDS ANY HIGHLIGHTING, BEING THE INCOME OF THIS COMPANY ALSO LARGELY INCLUDING REVENUES FROM EXPORTS FROM SEZ/ST PI UNITS APART FROM SALE OF LICENCE. THESE DISTINGUISHING FEATURES MAK E THIS COMPANY AS NON- COMPARABLE. WE, THEREFORE, ORDER FOR THE REMOVAL O F THIS COMPANY FROM THE LIST OF COMPARABLES. HELIOS AND MATHESON INFORMATION TECHNOLOGY LTD. 22. THIS COMPANY WAS INCLUDED BY THE ASSESSEE IN TH E LIST OF COMPARABLES. ACCORDINGLY, THE TPO TREATED IT SO. THE COMPARABILITY OF THIS COMPANY WAS NOT CHALLENGED BEFORE THE DRP. HO WEVER, FOR THE FIRST TIME BEFORE THE TRIBUNAL, THE ASSESSEE HAS COME OUT WITH A CONTENTION THAT THIS COMPANY BE REMOVED FROM THE LIST OF COMPARABLE S BECAUSE IT DOES NOT PASS THE FILTER OF EMPLOYEE COST. ITA NO.5799/DEL/2012 22 23. WE ARE NOT INCLINED TO ACCEPT THIS CONTENTION A DVANCED ON BEHALF OF THE ASSESSEE. THE LD. DR, WITH REFERENCE TO THE REL EVANT FIGURES, HAS POINTED OUT THAT THIS COMPANY PASSES THE FILTER OF EMPLOYEE COST. THIS SUBMISSION PUT FORWARD BY THE LD. DR, WAS NOT CONTROVERTED ON BEHALF OF THE ASSESSEE. ON A SPECIFIC QUERY, IT WAS ADMITTED THAT THIS COMP ANY IS OTHERWISE FUNCTIONALLY COMPARABLE. UNDER SUCH CIRCUMSTANCES, WE APPROVE THE VIEW TAKEN BY THE AUTHORITIES BELOW IN INCLUDING THIS CO MPANY IN THE FINAL SET OF COMPARABLES. B. MERGED BACK OFFICE AND F&A SUPPORT SERVICES SEGM ENT . 24. WE HAVE NOTICED ABOVE THAT THE ASSESSEE RIGHTLY DID NOT AGITATE THE CLUBBING OF BACK OFFICE SUPPORT SERVICES WITH F&A S UPPORT SERVICES SEGMENT BY THE TPO FOR THE PURPOSES OF BENCHMARKING . THE ASSESSEES GRIEVANCE AGAINST THE COMPUTATION OF ALP UNDER THIS MERGED SEGMENT IS ONLY CONFINED TO NOT ALLOWING THE WORKING CAPITAL A DJUSTMENT AND AGAINST THE INCLUSION OF TWO COMPANIES IN THE FINAL SET OF COMPARABLES. APART FROM THESE, THE ASSESSEE IS SATISFIED ON ALL OTHER ASPEC TS OF THE COMPUTATION OF THE ALP OF THIS MERGED SET TRANSACTIONS BY THE TPO. ITA NO.5799/DEL/2012 23 25. WHILE DISCUSSING THE `SOFTWARE DEVELOPMENT SERV ICES SEGMENT ABOVE, WE HAVE ANALYZED THE OTHERWISE AVAILABILITY OF WORKING CAPITAL ADJUSTMENT AND HELD THAT SUCH ADJUSTMENT SHOULD BE ALLOWED AFTER VERIFICATION IN TERMS INDICATED SUPRA. THE SAME REA SONS AND CONCLUSION APPLY MUTATIS MUTANDIS TO THIS MERGED BACK OFFICE AND F&A SUPPORT SERVICES SEGMENT AS WELL. 26. THE NEXT GRIEVANCE OF THE ASSESSEE IS AGAINST T HE INCLUSION OF TWO COMPANIES, NAMELY, COSMIC GLOBAL LTD. AND CORAL HUB (VISHAL INFORMATION TECHNOLOGIES LTD) IN THE LIST OF COMPAR ABLES. BEFORE DECIDING ABOUT THE COMPARABILITY OR OTHERWISE OF THESE TWO C OMPANIES, IT IS NECESSARY TO GO THROUGH THE FUNCTIONAL PROFILE OF T HE ASSESSEE UNDER THIS SEGMENT. BACK OFFICE SUPPORT SERVICE PROVIDED BY T HE ASSESSEE INCLUDE POLICY ADMINISTRATION AND MAINTENANCE AND ALSO CONT RACT GENERATION. GENERATING INSURANCE CONTRACTS FOR THE CUSTOMERS OF OVERSEAS GROUP ENTITIES AND SENDING THEM TO THE RESPECTIVE OVERSEAS OF SUN LIFE GROUP ENTITIES IS ONE OF THE ACTIVITIES PERFORMED BY THE ASSESSEE FOR ITS AES. IT ALSO ENCOMPASSES UPDATING THE FINANCIAL AND PERSONNEL DA TA OF THE CLIENTS OF ITA NO.5799/DEL/2012 24 OVERSEAS GROUP ENTITIES. FINANCE AND ACCOUNTS SUPP ORT SERVICES ARE IN THE NATURE OF FINANCIAL AND ACCOUNTING SUPPORT SERVICES RENDERED BY THE ASSESSEE UNDER THE DIRECTIONS ISSUED BY SUN LIFE, C ANADA. UNDER THE PROVISIONS OF BOTH BACK OFFICE SUPPORT AND F&A SUPP ORT SERVICES, THE ASSESSEE WAS COMPENSATED AT COST PLUS 12.82%. WITH THE ABOVE INFORMATION ABOUT THE NATURE OF ACTIVITIES CARRIED OUT BY THE ASSESSEE UNDER THIS MERGED SEGMENT OF PROVISION OF SERVICES, WE WI LL NOW EXPLORE AS TO WHETHER THE ABOVE REFERRED TWO COMPANIES ARE, IN FA CT, COMPARABLE OR NOT. CORAL HUB (VISHAL INFORMATION TECHNOLOGIES LTD) 27. THE ASSESSEE CHOSE THIS COMPANY AS COMPARABLE. AS SUCH, NO OBJECTION WAS TAKEN BEFORE THE TPO AGAINST THE INCL USION OF THIS COMPANY. HOWEVER, THE ASSESSEE ARGUED BEFORE THE DRP THAT TH IS COMPANY WAS WRONGLY INCLUDED. THE DRP REFUSED TO ACCEPT THE AS SESSEES CONTENTION. THAT IS HOW THE ASSESSEE IS AGGRIEVED BEFORE US. 28. WE ARE NOT INCLINED TO ACCEPT THE PRELIMINARY O BJECTIONS RAISED BY THE LD. DR AGAINST THE INCLUSION OF THIS COMPANY ON THE PREMISE THAT THE ASSESSEE HAD ITSELF CHOSEN IT AS COMPARABLE. THE R EASONS GIVEN ABOVE ITA NO.5799/DEL/2012 25 WHILE DEALING WITH THE CASE OF INFOSYS TECHNOLOGIES LTD., APPLY WITH FULL FORCE HERE AS WELL. 29. COMING TO ITS FUNCTIONAL COMPARABILITY OF TH IS COMPANY, WE OBSERVE FROM THE ANNUAL REPORT OF THIS COMPANY AVAILABLE AT PAGES 114 ONWARDS OF THE PAPER BOOK THAT IT IS OUTSOURCING ITS MAJOR ACT IVITIES. SUCH OUTSOURCING CHARGES CONSTITUTE AROUND 90% OF THE TOTAL OPERATIN G COST. AS AGAINST THIS, THE ASSESSEE IS ENGAGED IN PROVIDING THE SERVICES U NDER THIS SEGMENT AT ITS OWN WITHOUT ANY OUTSOURCING. THIS CRITICAL DIFFERE NCE BETWEEN THE MANNER OF PERFORMING SERVICES HAS AN IMPORTANT BEARING ON THE ULTIMATE PROFITABILITY. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MERCER CONSULTING (INDIA) PVT. LTD. VS. DCIT IN ITA NO.966 6/DEL/2014 , HAS APPROVED THE EXCLUSION OF THIS COMPANY FROM THE LIS T OF COMPARABLES BY, IN TURN, RELYING ON THE TWO TRIBUNAL ORDERS PASSED BY THE MUMBAI BENCHES IN HAPAG LLOYD GLOBAL SERVICES AND ACIT VS. MERSK GLOBAL SERVICES CENTRE (INDIA) PVT. LTD. IN VIEW OF THE ABOVE REASONS AND RESPECTFULLY FOLL OWING THE PRECEDENTS, WE DIRECT TO ELIMINATE THIS COMPANY FROM THE LIST OF COMPARABLES. ITA NO.5799/DEL/2012 26 COSMIC GLOBAL LTD . 30. THIS COMPANY WAS INCLUDED BY THE ASSESSEE IN IT S LIST OF COMPARABLES. HOWEVER, IT WAS ARGUED BEFORE THE TRIBUNAL THAT IT BE ELIMINATED. IN SUPPORT OF THE EXCLUSION OF THIS COMPANY, THE LD. A R RELIED ON THE TRIBUNAL ORDER PASSED IN THE CASE OF MERCER CONSULTING INDIA PVT. LTD. (SUPRA) . 31. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE TRIBUN AL IN MERCER CONSULTING INDIA PVT. LTD. (SUPRA) , HAS ORDERED FOR THE EXCLUSION OF COSMIC GLOBAL LTD., FROM THE LIST OF COMPARABLES BY RELYING ON TH E FACT THAT THE TOTAL REVENUE OF THE ACCOUNTS BPO SEGMENT OF COSMIC GLOBA L LTD. WAS VERY LOW AT RS.27.76 LAC AS AGAINST THE HUGE TURNOVER RECORD ED BY THAT ASSESSEE. WE HAVE REPEATEDLY LAID DOWN THAT A COMPANY WHICH IS N OT COMPARABLE WITH ONE COMPANY DOES NOT PER SE BECOMES NON-COMPARABLE WITH ALL OTHER COMPANIES. WHAT IS RELEVANT IS TO SEE THE REASONS O N WHICH SUCH COMPANY WAS HELD TO BE INCOMPARABLE IN FIRST CASE. IF THE S AME REASONS PERSIST IN THE CASE OF THE LATER CASE ALSO, THEN THAT COMPANY SHOU LD AGAIN BE TREATED AS NON-COMPARABLE. IF HOWEVER, THE REASONS WHICH WERE PRESENT WHILE MAKING ITA NO.5799/DEL/2012 27 COMPARISON IN THE FIRST CASE ARE ABSENT IN THE SECO ND CASE, THEN THERE CAN BE NO EXCLUSION OF THE COMPANY. WHEN WE PERUSE THE FAC TS OF THE INSTANT CASE, WE FIND THE RECEIPTS BY THE ASSESSEE ON ACCOUNT OF ACCOUNTS BPO SERVICE SEGMENT FOR THE YEAR IN QUESTION STAND AT RS.19.63 LAC, WHICH IS IN CLOSE VICINITY WITH THAT OF COSMIC GLOBAL LTD. THIS FACT OR WHICH PREVAILED IN MERCER CONSULTING INDIA PVT. LTD. , FOR EXCLUDING THIS COMPANY FROM THE LIST OF COMPARABLES, IS NOT PRESENT IN THE INSTANT CASE. NO OTHER DISTINGUISHING FEATURE IN THE FUNCTIONAL PROFILE OF THE ASSESSEE AS WELL AS COSMIC GLOBAL LTD., WAS BROUGHT TO OUR NOTICE. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 32. IN VIEW OF OUR ABOVE DISCUSSION, WE SET ASIDE T HE IMPUGNED ORDER ON THE QUESTION OF DETERMINATION OF ALP UNDER BOTH THE SEGMENTS AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR MAKING A FRESH DETERMINATION OF ALP IN CONSONANCE WITH OUR DIRECTIONS GIVEN ABOVE. NEE DLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY O F BEING HEARD IN SUCH FRESH PROCEEDINGS. ITA NO.5799/DEL/2012 28 33. THE ONLY OTHER GROUND WHICH SURVIVES FOR OUR CO NSIDERATION IN THIS APPEAL IS AGAINST NOT REDUCING LEASE LINE CHARGES F ROM `TOTAL TURNOVER, AFTER EXCLUDING IT FROM `EXPORT TURNOVER. THE ASSESSEE CLAIMED THE BENEFIT OF SECTION 10A. CONSIDERING THE MANDATE OF EXPLANATIO N 2 (IV) TO SECTION 10A OF THE ACT, THE AO OPINED THAT LEASE LINE CHARG ES AMOUNTING TO RS.2,09,67,887/- WERE IN THE NATURE OF TELECOMMUNIC ATION CHARGES INCURRED IN FOREIGN CURRENCY ATTRIBUTABLE TO DELIVERY OF COM PUTER SOFTWARE OUTSIDE INDIA. HE, THEREFORE, REDUCED THIS AMOUNT FROM `EX PORT TURNOVER. THE ASSESSEES CONTENTION FOR GIVING SIMILAR TREATMENT TO THIS AMOUNT IN THE COMPUTATION OF `TOTAL TURNOVER, WAS REJECTED. 34. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND FORCE IN THE CONTENTION RAISED BY THE LD. AR, REQUIRING THE EXCLUSION OF THIS AMOUNT FROM `TOTAL TURNOVER AS WELL. THE OBVIOUS REASON IS THAT WHEN A PARTICULAR ITEM DOES NOT FORM PART OF EXPORT TURNOVER, WHICH, IN TURN, IS A NECESSARY INGREDIEN T OF THE TOTAL TURNOVER, THE SAME HAS TO BE NECESSARILY EXCLUDED FROM THE COMPUT ATION OF LATTER. IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE TRIBUNAL IN ASS ESSEES OWN CASE FOR THE ITA NO.5799/DEL/2012 29 AY 2007-08 HAS DECIDED THIS ISSUE IN THE ASSESSEES FAVOUR. A COPY OF THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.2575/DEL/201 2 DATED 20.6.2014 HAS BEEN PLACED ON RECORD. THE LD. AR ALSO INVITED OUR ATTENTION TO THE JUDGMENT OF THE HONBLE HIGH COURT RENDERED IN THE CASE OF THE ASSESSEE APPROVING THE VIEW TAKEN BY THE TRIBUNAL. RESPECTFU LLY FOLLOWING THE PRECEDENTS, WE ALLOW THIS GROUND OF APPEAL. 35. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 36. THE ORDER PRONOUNCED IN THE OPEN COURT ON 27.05 .2015. SD/- SD/- [GEORGE GEORGE K.] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 27 TH MAY, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.