Appeal details
Counselvise Citation
60422514 RSA 2014
Assessee PAN
Bench
Appeal Number
Duration Of Justice
10 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-02-2015
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
08-01-2015
Assessment Year
2009-2010
Appeal Filed On
03-04-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 604/HYD/2014 ASSESSMENT YEAR: 2009-10 M/S TNS INDIA PVT. LTD., HYDERABAD PAN AABCN2278F VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(3), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 419/HYD/2014 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(3), HYDERABAD. VS. M/S TNS INDIA PVT. LTD., HYDERABAD PAN AABCN2278F (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI RAJAN R VORA & PANKAJ JAIN REVENUE BY : SMT. G. APARNA RAO DATE OF HEARING 08-01-2015 DATE OF PRONOUNCEMENT 13-02-2015 O R D E R PER SAKTIJIT DEY, J.M.: THESE CROSS APPEALS ARE AGAINST THE DIRECTIONS OF T HE DISPUTE RESOLUTION PANEL (DRP) U/S 144C(5) AND THE ASSESSME NT ORDER PASSED U/S 143(3) READ WITH SECTION 144C(13) IN CON SEQUENCE THERETO. THE APPEALS ARE PERTAINING TO AY 2009-10. 2 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. 1. REGISTRY HAS POINTED OUT DELAY OF ELEVEN DAYS IN DEPARTMENTS APPEAL IN ITA NO. 419/HYD/2014 BY TAKING INTO ACCOU NT THE DATE MENTIONED IN COLUMN NO. 9 OF APPEAL MEMO. HOWEVER, IT IS SEEN THAT FINAL ASSESSMENT ORDER WAS PASSED BY AO ON 30/01/20 14. AS THE APPEAL OF THE DEPARTMENT WAS FILED ON 12/03/2014, I T IS WITHIN THE TIME LIMIT PRESCRIBED U/S 253(3A) R.W.S. 253(2A). HENCE, WE IGNORE THE DELAY AND ADMIT THE APPEAL FOR HEARING ON MERIT. ITA NO. 604/HYD/2014. 2. THIS IS AN APPEAL BY ASSESSEE AGAINST ASSESSMENT ORDER DT. 30/01/2014 PASSED U/S 143(3) R.W.S. 92CA OF THE ACT AS PER THE DIRECTIONS OF DISPUTE RESOLUTION PANEL (DRP). THE A PPEAL PERTAINS TO THE AY 2009-10. 3. BRIEFLY THE FACTS ARE, ASSESSEE AN INDIAN COMPAN Y WAS INCORPORATED IN THE YEAR 1992 AS ORACLE RESEARCH AN D CONSULTANCY PVT. LTD. IT WAS PART OF MBL GROUP, WHICH WAS ACQU IRED BY NFO GROUP IN1997. NFO GROUP, IN TURN, WAS ACQUIRED BY TNS GRO UP IN THE YEAR 2003. TNS GROUP, AS CLAIMED, IS ONE OF THE WORLDS LARGEST AND LEADING CUSTOM MARKET RESEARCH SPECIALISTS. IT PROV IDES QUALITY MARKETING INFORMATION AND INNOVATIVE MARKET RESEARC H SOLUTIONS ACROSS THE PRODUCT LIFE CYCLE, FROM DEVELOPING PROD UCTS TO BUILDING BRANDS AND MARKETING COMMUNICATIONS. THE GROUP PROV IDES SERVICES ACROSS THE GLOBE. ASSESSEE, ON ITS PART, IS ENGAGED IN RENDERING A RANGE OF COMPREHENSIVE MARKET RESEARCH SERVICES TO DOMESTIC AND INTERNATIONAL CLIENTS THROUGH VARIOUS OFFICES IN DI FFERENT CITIES ACROSS INDIA. ASSESSEE ALSO PROVIDES IT ENABLED BACK OFFIC E DATA PROCESSING SERVICES (ITES) THROUGH ITS OFFSHORE RESEARCH SERVI CE CENTRE (ORSC) AT HYDERABAD, WHICH IS A 100% EOU REGISTERED UNDER SOFTWARE TECHNOLOGY PARK OF INDIA (STPI) SCHEME. FO R THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME ON 25/09/2009 DECLARING TOTAL INCOME OF RS. 1,25,42,985 AFTER CLAIMING DEDUCTION U/S 10A OF THE ACT. ASSESSEE ALS O DISCLOSED BOOK 3 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. PROFIT OF RS. 14,31,83,022 UNDER MAT PROVISIONS. DU RING THE RELEVANT FINANCIAL YEAR ASSESSEE HAD ENTERED INTO THE FOLLOW ING INTERNATIONAL TRANSACTIONS WITH AES: I) PROVISION OF ITES(BPO SERVICES) TO AES RS. 619, 594,672 II) PROVISION OF MARKET RESEARCH (MR) SERVICES RS. 155,135,117 III) PAYMENT TOWARDS OVERHEAD ALLOCATION CROSS MANA GEMENT CHARGES TO GROUP MANAGEMENT SERVICE COMPANY (TNS SE RVICES LTD., UK) GROUP OVERHEAD ALLOCATION FEE RS. 17,904,050 ASIA PACIFIC OVERHEAD ALLOCATION FEE RS.19,593,845 REGIONAL MANAGEMENT ALLOCATION FEE RS.10,672,185 IV) PAYMENT OF TRADE MARK LICENSE FEE @2% OF EXTERN AL SALES TO TNS PLC., UK RS. 13,743,472 V) PAYMENT OF BUSINESS SOLUTIONS LICENSE FEE TO TNS UK LTD., UK RS. 10,083,229 VI) REIMBURSEMENT TO AES - RS. 50,811,896 VII) REIMBURSEMENT BY AES RS. 719,226 TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS, ASSESS EE CONDUCTED A TP ANALYSIS THROUGH AN EXTERNAL AGENCY WHEREIN ASSE SSEE WAS CHOSEN AS TESTED PARTY. AS FAR AS PROVISIONS FOR IT ES (BPO SERVICES) AND MARKET RESEARCH SERVICES ARE CONCERNED, ASSESSE E ADOPTED TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST AP PROPRIATE METHOD WITH OPERATING PROFIT TO OPERATING COST AS T HE PROFIT LEVEL INDICATOR (PLI). IN ITES SEGMENT, AFTER SEARCHING D ATABASES EIGHT COMPANIES WITH WEIGHED AVERAGE OP TO OC OF 19.56% W ERE SELECTED AS COMPARABLES. AS ASSESSEES OP TO OC WAS 42.69%, PRICE CHARGED BY ASSESSEE WAS FOUND TO BE WITHIN ARMS LENGTH. IN SO FAR AS MARKET RESEARCH SERVICES IS CONCERNED, BY APPLYING TNMM, O PERATING PROFIT TO OPERATING COST OF UNCONTROLLED TRANSACTIONS WAS FOU ND TO BE (-)9.82% AS AGAINST OPERATING MARGIN OF 8.23% SHOWN BY ASSES SEE ON TRANSACTIONS WITH AE. 4 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. 4. DURING THE ASSESSMENT PROCEEDING, AO NOTICING TH AT ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH AE S, MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) TO DETERMINE THE ALP. TPO, IN COURSE OF PROCEEDING BEFORE HIM, CALLED FOR AND EXAMINED THE BOOKS OF ACCOUNT, FINANCIAL STATEMENTS, TP STUDY AN D VARIOUS OTHER INFORMATIONS SUBMITTED BY ASSESSEE. TPO, THOUGH, AG REED THAT TNMM IS THE MOST APPROPRIATE METHOD BUT HE NEVERTHELESS REJECTED THE TP REPORT OF ASSESSEE OBSERVING THAT ASSESSEE HAS USED MULTIPLE YEAR DATA AND APPLIED INAPPROPRIATE FILTERS WHICH MADE T HE TP ANALYSIS UNRELIABLE. HE OBSERVED, AS A RESULT OF FAULTY APPR OACH UNCOMPARABLES HAVE BEEN SELECTED AS COMPARABLES, WH EREAS COMPARABLES HAVE BEEN EXCLUDED. TPO WAS ALSO OF THE VIEW THAT MARKET RESEARCH SERVICES BEING PART OF BPO SERVICES (ITES), NEED NOT BE CONSIDERED SEPARATELY. AFTER REJECTING THE TP RE PORT, TPO UNDERTOOK A SEARCH HIMSELF BY APPLYING SOME OF THE FILTERS APPLIED BY ASSESSEE AS WELL AS SOME ADDITIONAL FILTERS WHICH Y IELDED 12 COMPARABLES (INCLUDING FOUR SELECTED BY ASSESSEE) W ITH ARITHMETIC MEAN PLI OF 27.42%. AFTER ALLOWANCE OF 0.26% TOWARD S WORKING CAPITAL ADJUSTMENT, THE ADJUSTED ARITHMETIC MEAN PL I WAS WORKED OUT TO 27.16% AND THE ALP OF INTERNATIONAL TRANSACTION WAS DETERMINED AT RS. 92,83,30,698 AS AGAINST PRICE CHARGED BY ASSESS EE OF RS. 78,08,02,088. THE RESULTANT SHORTFALL OF RS. 14,75, 28,610 WAS TREATED AS THE ADJUSTMENT U/S 92CA(3). THE COMPARABLES SELE CTED BY TPO ARE AS UNDER: 1. ACCENTIA TECH. 2. ACROPETAL TECHNOLOGIES LTD. (SEG.) 3. ADITYA BIRLA MINACS WORLDWIDE LTD. 4. COSMIC GLOBAL LTD. 5. CROSSDOMAIN 6. ECLERX SERVICES LTD. 7. INFOSYS BPO LTD. 8. JEEVAN SCIENTIFIC/SOFTECH TECHNOLOGY LTD. 9. MICROLAND LTD. 10. MICROGENETIC SYSTEMS LTD. 11. R SYSTEMS INTERNATIONAL LTD. (SEG.) 12. GENESYS INTERNATIONAL LTD. 5 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. AS FAR AS PAYMENT OF MANAGEMENT FEE IS CONCERNED, T PO DETERMINED THE ALP AT NIL BY OBSERVING, AS THERE IS NO NECESSI TY FOR PAYING SUCH FEES IT HAS FAILED THE BENEFIT TEST. HOWEVER, TPO D ID NOT MAKE ANY SEPARATE ADJUSTMENT ON ACCOUNT OF DETERMINATION OF ALP OF MANAGEMENT FEE AS NIL. IN TERMS WITH THE ORDER PASS ED BY TPO, AO FRAMED THE DRAFT ASSESSMENT ORDER. 5. ASSESSEE RAISED OBJECTIONS AGAINST DRAFT ASSESSM ENT ORDER BEFORE THE DRP ON TRANSFER PRICING ADJUSTMENT AS WE LL AS CORPORATE ISSUES. AS FAR AS TRANSFER PRICING ISSUES ARE CONCE RNED, DRP MORE OR LESS REJECTED ALL OBJECTIONS OF ASSESSEE, EXCEPT TH E ISSUE AS TO WHETHER FOREIGN EXCHANGE GAIN AND MISCELLANEOUS OPE RATING INCOME IS TO BE TREATED AS PART OF OPERATING INCOME. DRP F OLLOWING SOME DECISIONS OF ITAT HELD THAT FOREIGN EXCHANGE GAIN/ LOSS IS TO BE TREATED AS PART OF OPERATING INCOME/LOSS. DRP ALSO DEALT WITH ASSESSEES OBJECTIONS ON CORPORATE ISSUES. IN TERMS WITH THE DIRECTIONS OF DRP, AO PASSED THE IMPUGNED ASSESSMEN T ORDER ON 30/01/2014. 6. BEING AGGRIEVED, ASSESSEE IS BEFORE US RAISING I N TOTAL 18 GROUNDS. GROUND NOS. 1 TO 12 ARE ON TRANSFER PRICIN G ISSUES WHEREAS GROUND NOS. 13 TO 18 ARE ON CORPORATE TAX ISSUES. A S FAR AS TRANSFER PRICING ISSUES ARE CONCERNED, LD. AR CONFINED HIS A RGUMENT TO GROUND NOS. 4, 8, 9, 10 AND 11,HENCE, THE OTHER GROUNDS RE LATING TO TRANSFER PRICING ISSUES ARE DISMISSED AS NOT PRESSED. AS THE MAJOR TRANSFER PRICING ADJUSTMENT IS ON THE ISSUE OF SELECTION/REJ ECTION OF COMPARABLES, WE PROPOSE TO DEAL THESE ISSUES AT THE OUTSET. IN THE MODIFIED GROUND NO. 8, ASSESSEE HAS OBJECTED TO SEL ECTION OF THE FOLLOWING SIX COMPANIES OUT OF THE 12 COMPANIES SEL ECTED BY TPO AND CONFIRMED BY DRP: I) ACCENTIA TECHNOLOGIES LTD. (SEG.) II) ACROPETAL TECHNOLOGIES LTD. (ENGINEERING DESIG N SEGMENT) 6 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. III)COSMIC GLOBAL LTD. IV) ECLERX SERVICES LTD. V) GENESYS INTERNATIONAL CORPN. LTD. VI) INFOSYS BPO LTD. 7. BRIEF SUBMISSIONS OF THE LD. AR AGAINST THE SELE CTION OF THE AFORESAID COMPARABLES ARE AS UNDER: S.NO. NAME OF THE COMPARABLE REASONS FOR REJECTIONS 1. ACCENTIAL TECHNOLOGIES LTD. (SEG.) FUNCTIONALLY DIFFERENT ACCENTIA IS ENGAGED INTO HEALTH CARE RESEARCH MANAGEMENT (HRCM) SERVICES AND SOFTWARE PRODUCTS. COMPANYS SEGMENTAL INFORMATION IS NOT AVAILABLE. 2. ACROPETAL TECHNOLOGIES LTD. FUNCTIONALLY DIFFERENT AS IT IS INVOLVED IN ENGINEERING DESIGN SERVICES AND HAS PRODUCTS ALSO, WHICH MAKES IT FUNCTIONALLY NOT COMPARABLE TO A BPO SERVICE PROVIDER. IT HAS A STATE OF THE ART R&D INCUBATION CENTRE WHICH CLEARLY POINTS OUT TOWARDS HIGH END SERVICES OF THE COMPANY. FURTHER 65% OF THE OPERATING COST OF THE COMPANY IS IN FOREIGN CURRENCY UNDER THE HEAD ONSITE DEVELOPMENT EXPENSES, ILLUSTRATING THAT THE COMPANY PROVIDING SUBSTANTIAL ONSITE SERVICES AND ALSO COULD HAVE OUTSOURCED SERVICES. 3. COSMIC GLOBAL LTD. FAILS EMPLOYEE FILTER: THE C OMPANY HAS OUTSOURCED THE WORK AND DOES NOT PROVIDE BPO SERVICES BY ITSELF. THE EMPLOYEE COST IS NOT EVEN 25% (-20%) AND OUTSOURCING COST IS -58% OF OPERATING COST. 4. ECLERX SERVICES LTD. FUNCTIONALLY DIFFERENT THE COMPANY IS A KNOWLEDGE SOLUTIONS PROVIDER IN THE FIELD OF DATA ANALYTICS OPERATIONS MANAGEMENT AND AUDIT RECONCILIATION. THE COMPANY HAS PROVIDED DETAILED WRITE-UP ON ITS NATURE OF BUSINESS WHICH ARE COMPLETELY DIFFERENT FROM THE BACK OFFICE SERVICES 7 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. PROVIDED BY THE TNS INDIA OR ANY OTHER BACK OFFICE DATA PROCESSING SERVICES. 5. GENESYS INTERNATIONAL CORPORATION LTD. FUNCTIONALLY DIFFERENT IT IS ENGAGED IN THE NICHE BUSINESS OF GEOGRAPHICAL INFORMATION SERVICES COMPRISING PHOTOGRAMMETRY, REMOTE SENSING, CARTOGRAPHY, DATA CONVERSION, RELATED COMPUTER BASED SERVICES AND OTHER RELATED SERVICES. IT IS WORKING CLOSELY WITH MICROSOFT, NOKIA/NAVTEQ, DIGITAL GLOBE AND GOOGL EARTH THAT PROVIDE GEO DATA. IN FACT THE COMPANY IS THE EXCLUSIVE RESELLER FOR NAVETEQ DATA FOR ENTERPRISE SPACE IN INDIA. IT HAS A STRONG FOCUS ON R&D AND HAS BEEN UNDERTAKING PIONEERING RESEARCH IN THE AREA OF IMAGE INTELLIGENCE AND RECOGNITION, MOBILE MAPPING AS WELL AS LIGHT DETECTION AND RANGING (LIDAR) AS MENTIONED IN THE DIRECTORS REPORT. SUPER NORMAL GROWTH AND PROFIT IT REPORTED A SUBSTANTIAL 77% INCREASE IN SALES AND 107% INCREASE IN NET PROFITS (DIRECTORS REPORT FY 2008-09). THE EXCLUSIVITY OF THE COMPANYS AREA OF OPERATION CAN BE DEMONSTRATED FROM THE YEAR ON YEAR GROWTH ACHIEVED BY THE COMPANY. 6. INFOSYS BPO LTD. HIGH BRAND VALUE INFOSYS IS A TIER-I IT COMPANY AND ITS BRAND & INTANGIBLES ENJOY A PREMIUM PRICING. LD. AR SUBMITTED, THE COORDINATE BENCHES OF THIS TR IBUNAL HAVE HELD THE AFORESAID COMPANIES NOT TO BE COMPARABLE WITH I TES COMPANIES IN THE FOLLOWING RULINGS: 1. M/S BERKADIA SERVICES INDIA PVT. LTD. ITA NO. 1 802/HYD/13. 8 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. 2. CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. ITA NO. 124/HYD/2014 3. EXCELLENCE DATA RESEARC ITA NO. 159/HYD/2014. 8. THE LD. DR, THOUGH, AGREED THAT THE ISSUES RELAT ING TO SELECTION OF THE AFORESAID COMPARABLES ARE COVERED BY THE DEC ISIONS OF THE TRIBUNAL, BUT, SHE NEVERTHELESS SUPPORTED THE ORDER OF THE DRP/TPO. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF THE DEPARTMENTAL AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. THERE IS NO DISPUTE TO THE FACT THAT TPO HAS CLASSIFIED ASSESSEE AS ITES PROVIDER. AS CAN BE SEEN FROM THE MATERIALS ON RECORD, COMPARABILITY OF THE COMPANIES OBJECTED TO BY ASSESSEE WITH ITES PROVIDER CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BENCH OF THIS TRIBUNAL IN A NUMBER OF CASES. THE TRIBUNA L AFTER EXAMINING THE FUNCTIONALITY ON THE BASIS OF MATERIALS ON RECO RD, HELD THE AFORESAID COMPANIES NOT TO BE COMPARABLE WITH A PUR ELY ITES PROVIDER. THE OBSERVATIONS OF THE COORDINATE BENCH IN CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. VS. ADDL. CIT IN ITA NO. 124/HYD/14 DATED 31/07/14 ARE EXTRACTED HEREUNDER F OR READY REFERENCE: INFOSYS BPO LTD. 16. IT WAS THE CONTENTION OF ASSESSEE THAT THIS B PO IS A GIANT IN ITS AREA AND HAS BRAND VALUE OF INFOSYS TECHNOLOG IES LIMITED. ASSESSEES MAIN CONTENTION WAS THAT IT IS NOT FUNCTIONALLY SIM ILAR AND ITS TURNOVER IS MUCH MORE WHEN COMPARED TO THAT OF ASSESSEE. IT W AS ALSO CONTENDED THAT THE INFOSYS BPO HAS DONE BRAND BUILDING EXERCI SE BY INCURRING LARGE AMOUNTS OF BRAND BUILDING AND ADVERTISEMENT EXPENDI TURE AND UNDERTAKING BRAND CAMPAIGNING OUTSIDE INDIA. FURTHER, IT ALSO HAS HUGE ASSET BASE AND THEREFORE, THIS COMPANY IS NOT FUNCTIONALLY COMPARA BLE TO ASSESSEE. ASSESSEE RELIED ON THE DECISION OF THE HONBLE DELH I HIGH COURT IN THE CASE OF CIT V/S. AGNITY INDIA TECHNOLOGIES PVT. LTD. (2 013) 219 TAXMAN 26 (DEL), WHEREIN IT WAS HELD THAT HUGE TURNOVER COMP ANIES LIKE INFOSYS AND WIPRO CANNOT BE CONSIDERED AS COMPARABLE TO SMALLE R COMPANIES LIKE ASSESSEE. 16.1 EVEN THOUGH WE ARE NOT IN AGREEMENT WITH THE CONTENTIONS OF THE COMPARABILITY ON TURNOVER RATIO OF ASSESSEE WIT H THIS COMPANY ON THE 9 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. GROUND THAT ASSESSEES TURNOVER IS ABOUT RS.129.8 C RORES, WHICH AS AGAINST TURNOVER OF RS.1016 CRORES OF THE INFOSYS, ( WHICH IS ONLY ABOUT 5 TIMES) WE ARE OF THE VIEW THAT OTHER CONTENTIONS WITH REGARD TO THE BRAND VALUE AND BRAND BUILDING EXERCISE, HAVING HUGE ASSET BASE, CA N BE CONSIDERED TO ARRIVE AT THE CONCLUSION THAT INFOSYS IS FUNCTIONALLY NOT SIMILAR TO THAT OF ASSESSEE. INFOSYS BPO STANDS ON ITS OWN AS AN EXCLUSIVE BPO O F THE INFOSYS TECHNOLOGIES AND IN EARLIER YEARS, GENERALLY INFOSY S BPO IS EXCLUDED IN MANY OF THE CASES. CONSIDERING THESE ASPECTS, WE ARE O F THE OPINION THAT EVEN THOUGH THE PROFITS OF THE INFOSYS BPO LTD. IS REASO NABLE AND NO SUPER PROFITS ARE EARNED, JUST BECAUSE OF ITS BIG BRAND VALUE, TH IS COMPANY HAS TO BE EXCLUDED ON THE GROUNDS OF FUNCTIONAL DISSIMILARITY ON FAR ANALYSIS. THEREFORE, WE DIRECT THE ASSESSING OFFICER/TPO TO E XCLUDE THIS COMPANY. (2) GENESYS INTERNATIONAL LTD. 17. IT WAS THE CONTENTION THAT THIS COMPANY FUNCTIONS IN TWO HORIZONTALS, AND IS HAVING SUPER PROFITS. IT WAS F URTHER SUBMITTED THAT THIS COMPANY IS NOT ONLY IN SOFTWARE DEVELOPMENT BUT ALS O IN GEOSPATIAL SERVICES, WHICH ARE HIGHLY TECHNICAL. IT ALSO INVO LVES IN CONSULTING ACTIVITY. IT WAS THE CONTENTION THAT THIS COMPANY WAS ANALYSE D BY THE COORDINATE BENCH OF THE TRIBUNAL AT DELHI IN THE CASE OF M/S. MERCER CONSULTING (INDIA) LTD. V/S DCIT (VIDE ORDER DATED 6 TH JUNE, 2014 IN ITA NO.966/DEL/2014), WHEREIN THIS COMPANY WAS EXCLUDED IN THAT CASE. LE ARNED COUNSEL FOR ASSESSEE RELIED UPON THE FINDINGS OF THE TRIBUNAL V IDE PARAS 14.2 AND 14.3, IN THAT CASE, WHICH READ AS FOLLOWS- 14.2. WE HAVE HEARD THE RIVAL SUBMISSIONS A ND PERUSED THE RIVAL MATERIALS ON RECORD. IT HAS BEEN NOTIC ED SUPRA THAT ASSESSEE IS BASICALLY PROVIDING VARIOUS SERVIC ES TO THE CUSTOMERS OF ITS AES IN RELATION TO HUMAN RESOURCES W HICH ARE MORE OR LESS CENTERED AROUND THE EMPLOYEES OF THE PRO SPECTIVE CLIENTS. WHEN WE CONSIDER THE NATURE OF SERVICES PROVI DED BY GENESYS INTERNATIONAL CORPORATION LTD., IT COMES TO T HE FOREFRONT THAT THEY ARE PROVIDING FULL RANGE OF GEOSPATIAL SERVICE S TO ITS CUSTOMERS. IN SIMPLE TERMS, GEOSPATIAL SERVICES MEANS THE SERVICES RELATING TO THE RELATIVE POSITION OF THINGS ON THE EA RTHS SURFACE. THESE BASICALLY INCLUDE 3D MAPPING, NAVIGATION MAPS, IMAGE PROCESSING, CADASTRAL MAPPING, ETC. IF WE TA KE INTO ACCOUNT THE NATURE OF SERVICES PROVIDED BY THE ASSESS EE, BEING FINANCIAL AND RETIREMENT SECURITY, HEALTH, PRODUCTIVITY O F EMPLOYEES AND EMPLOYMENT RELATIONSHIPS AND THEN TRY TO COMP ARE THEM WITH THOSE RENDERED BY GENESYS, IT IS MANIFESTED THAT BOTH ARE TOTALLY INCOMPARABLE. 10 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. 14.3. THE TPO ON PAGE 48 OF HIS ORDER HAS EXAMINED CBDT CIRCULAR SO 890 (E) DATED 26.9.2000 WHICH PROVIDES A DETAILED LIST OF PRODUCTS OR SERVICES THAT CAN BE COVERED UNDER THE ITES FOR THE PURPOSES OF SECTION 10A AND 10B OF THE ACT. IN THIS CIRCULAR, INFORMATION TECHNOLOGY ENABLED PRODUCTS/SERVICES HAVE BEEN DIVIDED INTO FIFTEEN CATEGORIES, STARTING WIT H BANK OFFICE OPERATIONS, CALL CENTRES ETC. AND ENDING WITH WEBSITE SERVICES. FROM THE VERY DESCRIPTION OF SUCH SERVICES, IT IS PALPABLE THAT EVEN THOUGH THESE FALL UNDER THE OVERALL ITES CATEG ORY, BUT SOME OF THEM ARE QUITE DIFFERENT FROM EACH OTHER. TO CITE, SERVICE AT SL.NO. (VI) OF THIS CIRCULAR IS GEOGRAPHIC INFORMATION SYSTEM SERVICES AND AT SL. NO. (VII) IS HUMAN RES OURCES SERVICES. NO DOUBT, ALL THESE FIFTEEN CATEGORIES OF PRODUCTS/SER VICES HAVE BEEN INCLUDED UNDER THE MAJOR HEAD OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES), BUT MOST OF THEM A RE QUITE DISTINGUISHABLE FROM OTHERS. IN OUR CONSIDERED OPIN ION, THE FIFTEEN BROAD CATEGORIES SET OUT IN THIS CIRCULAR CANNOT PE R SE BE CLAIMED AS SIMILAR TO EACH OTHER. A CURSORY LOOK AT THESE PROD UCTS/SERVICES TRANSPIRES THAT SOME OF THEM ARE FUNCTIONALLY QUITE DIFFERENT FROM EACH OTHER. FURTHER THE LEVEL OF INVESTMENT REQUIRE D FOR PROVIDING SUCH SERVICES IS ALSO NOT CONSISTENT. IN OU R CONSIDERED OPINION, THE MERE FACT THAT TWO SERVICES ARE PLACED UNDER TH IS CATEGORY DO NOT BECOME AUTOMATICALLY COMPARABLE. IF A CASE PR OVIDING ONE CATEGORY OF SERVICES UNDER ITES IS CLAIMED A S COMPARABLE WITH ANOTHER IN THE CATEGORY OF SERVICE UNDER ITES AS PE R THIS CIRCULAR, THEN IT MUST BE SHOWN EX FACIE THAT IT IS BROADLY SIMILAR. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE SERVICES RENDERED BY GENESYS FALL UNDER CLAUS E (VI) WITH THE HEADING GEOGRAPHICAL INFORMATION SYSTEMS SERVI CES, WHEREAS THOSE RENDERED BY THE ASSESSEE FALL PARTLY UND ER CLAUSE (VII) WITH THE HEADING HUMAN RESOURCES SERVICES AND PARTLY U NDER CLAUSE (XI) WITH THE HEADING PAYROLL. ON JUXTAPOSITION EXAMINATION OF THESE TWO SETS OF SERVICES, WE FIND THAT THERE IS A VAST DIFFERENCE WHICH MAKE ONE QUITE DISTINCT FROM THE OTHER. IN VIEW OF SUCH FUNCTIONAL INCOMPARABILITY BETWEEN ASSESSEE AND GEN ESYS, WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS COMPA RABLE. WE, THEREFORE, DIRECT TO EXCLUDE THIS CASE FROM THE LIS T OF COMPARABLES. 17.1. ON CAREFUL CONSIDERATION OF THE MATTER, RES PECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH, WE ARE ALSO OF THE OPINION THAT THERE IS VAST DIFFERENCE BETWEEN THE FUNCTIONS OF T HE ABOVE COMPANY AND THAT OF ASSESSEE. THIS COMPANY AS SUCH, CANNOT BE T REATED AS COMPARABLE ON FAR ANALYSIS. WE THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. 11 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. (3) ECLERX SERVICES LTD. 18. THE OBJECTION OF ASSESSEE TO THIS COMPA RABLE IS THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR. IT IS IN THE B USINESS OF CONSULTANCY AND ADVISORY SERVICE AND PROVIDES ONLY ANALYTICAL DATA. IT IS ALSO INVOLVED IN QUALITY MONITORING. IT IS THE STAND OF THE ASSESSE E THAT THIS COMPANY OFFERS SOLUTIONS THAT INCLUDE DATA ANALYTICS, OPERATIONS M ANAGEMENT, AUDITS AND RECONCILIATION AND THEREFORE HAS TO BE CLASSIFIED A S HIGH END KPO. IN SUPPORT OF THE STAND OF THE ASSESSEE, EXTRACTS FROM THE ANN UAL REPORT OF THIS COMPANY HAVE BEEN POINTED OUT. THEREFORE, THE FUNC TIONS OF THE ABOVE COMPANY ARE DISSIMILAR TO ASSESSEE, WHICH IS A CAPT IVE SERVICE PROVIDER. ON THE PRINCIPLES LAID DOWN BY THE HONBLE SPECIAL BEN CH OF THE ITAT (MUMBAI) IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. L TD. V/S. ACIT (ITA NO.7466/MUM/2012 FOR ASSESSMENT YEAR 2008-09 DATED 7.3.2014) AND THE PRINCIPLES LAID DOWN BY THE COORDINATE BENCH OF THE TRIBUNAL(DELHI) IN THE CASE OF M/S. MERCER CONSULTING (INDIA) PVT. LTD., ( SUPRA), ASSESSEE SUBMITS THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABL E. 18.1 THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWE VER, SUBMITTED THAT HAVING ACCEPTED ADITYA BIRLA MINACS WORLDWIDE LTD., AS A COMPARABLE COMPANY, THIS COMPANY SHOULD ALSO BE INCLUDED, AS O THERWISE, BOTH THE COMPANIES SHOULD BE EXCLUDED. 18.2 WE HAVE CONSIDERED THE ISSUE AND EXAMINED TH E ANNUAL REPORT AND THE OBJECTIONS OF ASSESSEE. AS SEEN FROM THE A NNUAL REPORT, THE ABOVE COMPANY IS INVOLVED IN DIVERSE NATURE OF SERVICES AND THERE WAS NO SEGMENTAL DATA FOR DIVERSIFIED SERVICE PORT FOLIO. MOREOVER THIS COMPANY CAN BE CONSIDERED AS KPO AND WE ARE OF THE OPINION THA T THIS COMPANY IS NOT COMPARABLE TO ASSESSEES SERVICES. WE THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. (4) COSMIC GLOBAL LTD. 19. THE MAIN OBJECTION OF ASSESSEE WITH REFERENCE TO THE INCLUSION OF THIS COMPANY IS WITH REFERENCE TO OUTSOURCING OF ITS MAIN ACTIVITY. EVEN THOUGH THIS COMPANY IS IN ASSESSEES TP STUDY, IT H AS RAISED OBJECTION BEFORE THE TPO THAT THIS COMPANYS EMPLOYEE COST IS LESS T HAN 21.30% AND MOST OF THE COST IS WITH REFERENCE TO THE OUTSOURCING CHARG ES OR TRANSLATION CHARGES, AND AS SUCH THIS IS NOT A COMPARABLE COMPANY. THE T PO, THOUGH CONSIDERED THESE SUBMISSIONS, REJECTED THE SAME, ON THE REASON THAT THIS DOES NOT IMPACT THE PROFIT MARGIN OF THE COMPANY. OPPOSING THE VIEW TAKEN BY THE TPO, IT IS SUBMITTED THAT THIS COMPANY CANNOT BE S ELECTED AS COMPARABLE, AS SIMILAR ISSUE WAS DISCUSSED BY THE COORDINATE B ENCH OF THE TRIBUNAL(DELHI) IN THE CASE OF MERCER CONSULTING (I NDIA) P. LTD. (SUPRA), VIDE PARAS 13.2 TO 13.3 WHICH READ AS UNDER- 13.2. NOW COMING TO THE FACTUAL MATRIX O F THIS CASE, WE FIND FROM THE MATERIAL ON RECORD THAT OUTSOURCING CHARGES OF THIS CASE CONSTITUTE 57.31% OF THE TOTAL OPERATING COSTS. THIS DO ES NOT APPEAR TO US TO 12 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. BE A VALID REASON FOR ELIMINATING THIS CASE FROM THE LIST OF COMPARABLES. ON GOING THROUGH THE ANNUAL ACCOUNTS OF COSMIC GLO BAL LIMITED, A COPY OF WHICH HAS BEEN PLACED ON RECORD, WE FIND THAT ITS TOTAL REVENUE FROM OPERATIONS ARE AT RS.7.37 CRORE DIVIDED INTO THREE SEGMENTS, NAMELY, MEDICAL TRANSCRIPTION AND CONSULTANCY SERVI CES AT RS.9.90 LACS, TRANSLATION CHARGES AT RS.6.99 CRORE AND ACCOU NTS BPO AT RS.27.76 LAC. THE LD. AR HAS MADE OUT A CASE THAT O UTSOURCING ACTIVITY CARRIED OUT BY THIS COMPANY CONSTITUTES 57% OF TOTAL EXPENSES. THE REASON FOR WHICH WE ARE NOT AGREEABLE WITH THE LD. AR IS THAT WE HAVE TO EXAMINE THE REVENUE OF THIS CASE ONLY FROM ACCOUNTS BPO S EGMENT AND NOT ON THE ENTITY LEVEL, BEING ALSO FROM MEDICAL TRANSCR IPTION AND TRANSLATION CHARGES. WHEN WE ARE EXAMINING THE RESULTS OF THIS COMPANY FROM THE ACCOUNTS BPO SEGMENT ALONE, THERE IS NO NEED TO EXAMINE THE POSITION UNDER OTHER SEGMENTS. THE ENTIRE OUTS OURCING IS CONFINED TO TRANSLATION CHARGES PAID AT RS.3.00 CRORE, WHICH IS STRICTLY INTHE REALM OF THE TRANSLATION SEGMENT, REVENUES FROM WHICH ARE TO THE TUNE OF RS.6.99 CRORE. IF THIS SEGMENT OF TRANSLATION IS NO T UNDER CONSIDERATION FOR DECIDING AS TO WHETHER THIS CASE IS COMPARAB LE OR NOT, WE CANNOT TAKE RECOURSE TO THE FIGURES WHICH ARE RELEVANT FOR SEG MENTS OTHER THAN ACCOUNTS BPO. THUS IT IS HELD THAT THIS CASE CANNOT BE EXCLUDED ON THE STRENGTH OF OUTSOURCING ACTIVITY, WHICH IS ALIEN TO THE RELEVANT SEGMENT. 13.3. HOWEVER, WE FIND THIS CASE TO INCOM PARABLE ON THE ALTERNATIVE ARGUMENT ADVANCED BY THE LD. AR TO THE EFFE CT THAT TOTAL REVENUE OF THE ACCOUNTS BPO SEGMENT OF COSMIC GLOBAL LIMI TED IS VERY LOW AT RS.27.76 LACS. WE HAVE DISCUSSED THIS ASPECT ABOVE IN THE CONTEXT OF CG-VAKS CASE AND HELD THAT A CAPTIVE UNIT C ANNOT BE COMPARED WITH A GIANT CASE AND THUS EXCLUDED CG-VAK WITH T URNOVER FROM ACCOUNTS BPO SEGMENT AT RS.86.10 LACS. AS THE SEGMENT AL REVENUE OF BPO SEGMENT OF COSMIC GLOBAL LIMITED AT RS.27.76 LAC I S STILL ON MUCH LOWER SIDE, THE REASONS GIVEN ABOVE WOULD FULLY APP LY TO HOLD COSMIC GLOBAL LIMITED AS INCOMPARABLE. THIS CASE IS, THEREF ORE, DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN VIEW OF THE DETAILED ANALYSIS OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE ABOVE REFERRED CASE, IN THIS CASE ALSO WE ACCEP T THE CONTENTIONS OF ASSESSEE AND DIRECT THE ASSESSING OFFICER/TPO TO EX CLUDE THIS COMPARABLE FOR THE SAME REASONS. (5) ACROPETAL TECHNOLOGIES LTD. (SEG.) 20. THE OBJECTION OF ASSESSEE WITH REFERENCE TO TH IS COMPANY IS THAT THE COMPANY IS INVOLVED IN ENGINEERING DESIGN SERVICES AND HIGH END SERVICES AND HAS PRODUCTS IN ITS INVENTORY. IT IS ALSO INVOLVED IN R&D ACTIVITY AND DEVELOPING SOPHISTICATED DELIVERY SYSTEM. IT W AS FURTHER SUBMITTED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE AT SEG MENT LEVEL ALSO, AS ENGINEERING DESIGN SERVICES ARE HIGH END SERVICES, AS CONSIDERED IN OTHER CASES. IT IS FURTHER SUBMITTED THAT ALLOCATION OF EXPENSES BETWEEN SEGMENTS IS NOT POSSIBLE AND DEPRECIATION WAS NOT A LLOCATED BETWEEN THE SEGMENTS. THERE ARE EXTRA-ORDINARY EVENTS WHICH IMP ACT PROFIT ALSO, AS CAN BE SEEN FROM THE ANNUAL REPORTS. IT IS FURTHER SUBM ITTED THAT THIS COMPANY 13 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. IS NOT SELECTED IN THE LIST OF COMPARABLES SELECTED IN THE CASE OF MERCER CONSULTING (INDIA) PVT. LTD. AND THEREFORE, SELECT ION OF THE COMPANY BY THE TPO IN THIS CASE, WHICH IS ALSO IN SIMILAR ITES SERVICES, IS NOT PROPER. 20.1 AFTER CONSIDERING THE RIVAL CONTENTIONS, WE A GREE WITH THE OBJECTIONS RAISED BY ASSESSEE. AS SEEN FROM THE ANN UAL REPORT, THIS COMPANY IS INVOLVED IN ENGINEERING DESIGN SERVICES AND HAS PRODUCTS ALSO, WHICH MAKES IT FUNCTIONALLY NOT COMPARABLE. EVEN A T THE SEGMENTAL LEVEL, IT PROVIDES ENGINEERING DESIGN SERVICES, WHICH WAS CON SIDERED AS HIGH END BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF HYUNDAI MOTORS INDIA ENGINEERING (SUPRA) IN EARLIER YEAR . THEREFORE, WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. (6) ACCENTIA TECHNOLOGIES LIMITED. 21. THIS COMPANY WAS OBJECTED TO BY ASSESSEE ON T HE REASON OF SUPER PROFITS AS WELL AS EXTRA-ORDINARY EVENTS. IT WAS SUBMITTED THAT ACQUISITION OF OAK TECHNOLOGIES & TRANS SERVICES HA S IMPACT ON THE PROFITS OF THE COMPANY AND HAS TAKEN INORGANIC GROWTH AS ST RATEGY TO INCREASE THE PROFITS BECAUSE OF THE PECULIAR ECONOMIC CIRCUMSTAN CES AND BRAND VALUE. THE SAME IN THESE CIRCUMSTANCES CANNOT BE SELECTED. IT WAS SUBMITTED THAT ASSESSEE WAS IN MEDICAL TRANSCRIPTION SERVICES. 21.1. THE DEPARTMENTAL REPRESENTATIVE HOWEVER, OBJ ECTED TO THE PLEAS OF ASSESSEE STATING THAT THE EXTRAORDINARY E VENTS OCCURRED IN EARLIER YEAR AND THEREFORE, THE SAME CANNOT BE CONSIDERED A S HAVING ANY IMPACT IN THE YEAR UNDER CONSIDERATION. 21.2 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND NOTICED THAT THIS COMPANY OPERATES IN A DIFFERENT BUSINESS STRATEGY OF ACQUIRING COMPANIES FOR INORGANIC GROWTH AS ITS STRATEGY. IN EARLIER Y EARS ON THE REASON OF ACQUISITION OF VARIOUS COMPANIES, BEING AN EXTRAORD INARY EVENT WHICH HAD AN IMPACT ON THE PROFIT, THIS COMPANY WAS EXCLUDED. AS SUBMITTED BY THE LEARNED COUNSEL, THIS YEAR ALSO, THE ACQUISITION OF SOME COMPANIES BY THAT COMPANY MAY HAVE IMPACT ON THE PROFIT. CONSIDERING THE PROFIT MARGINS OF THE COMPANY AND INSUFFICIENT SEGMENTAL DATA, WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. MOREOV ER, THIS IS ALSO NOT A COMPARABLE IN THE CASE OF M/S. MERCER CONSULTING (INDIA) P. LTD. (SUPRA), WHICH INDICATES THAT THE TPO THEREIN HAS EXCLUDED I T AT THE OUTSET. IN VIEW OF THIS, WE DIRECT THE ASSESSING OFFICER/TPO TO EXC LUDE THIS COMPARABLE, FROM THE LIST OF COMPARABLES SELECTED. SAME VIEW HAS ALSO BEEN EXPRESSED BY THE COORDINATE BENCH IN CASE OF EXCELLENCE DATA RESEARCH PVT. LTD. VS. ITO IN IT A NO. 159/HYD/14 DATED 31/07/14 AND M/S BERKADIA SERVICES INDIA PVT LTD. VS. DCIT IN ITA NO. 1802/HYD/2013, DATED 19/09/14. AS THE AFORE SAID DECISIONS OF THE COORDINATE BENCH ARE IN RELATION TO ITES SERVIC E PROVIDER AND FOR THE SAME AY I.E. AY2009-10, RESPECTFULLY FOLLOWING THE VIEW 14 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. EXPRESSED BY THE COORDINATE BENCH IN THE AFORESAID DECISIONS, WE DIRECT AO/TPO TO EXCLUDE THE AFORESAID COMPANIES FR OM THE LIST OF COMPARABLES. THIS GROUND IS CONSIDERED TO BE ALLOWE D. 10. IN GROUND NO. 9, THOUGH, ASSESSEE OBJECTED TO R EJECTION OF THREE COMPARABLES, HOWEVER, AT THE TIME OF HEARING, LD. AR CONFINED HIS SUBMISSIONS TO ALLSEC TECHNOLOGIES LTD. AND CEP HA IMAGING PVT. LTD. HENCE, WE WILL CONFINE OUR FINDING TO THESE T WO COMPANIES. 11. AS FAR AS ALLSEC TECHNOLOGIES LTD. IS CONCERNED , LD. AR SUBMITTED THAT TPO REJECTED THIS COMPANY ON THE GRO UND THAT IT HAS OPERATING LOSS AND HAS MADE SIGNIFICANT ACQUISITION AND IS ALSO UNDERGOING PECULIAR ECONOMIC CIRCUMSTANCES. LD. AR SUBMITTED THAT IN THE ANNUAL REPORT NOWHERE IT HAS BEEN MENTIONED THAT LOSSES WERE DUE TO ACQUISITION MADE BY COMPANY. ON THE OTHER HA ND, ANNUAL REPORT REVEALS THAT OPERATING LOSSES WERE SIGNIFICA NTLY REDUCED IN THE YEAR. FURTHER, LD. AR SUBMITTED THAT IN CASE OF CAP ITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. VS. ADDL. CIT (SUPRA), TH IS COMPANY HAS BEEN HELD TO BE A COMPARABLE TO A BPO SERVICE PROVI DER. 12. ON THE OTHER HAND, LD. DR SUBMITTED THAT AS THE COMPANY HAS MADE ACQUISITIONS DURING THE RELEVANT PREVIOUS YEAR , IT CANNOT BE TREATED AS A COMPARABLE. 13. AS FAR AS CEPHA IMAGING PVT. LTD. IS CONCERNED, LD. AR SUBMITTED THAT AS THE COMPANY SATISFIES ALL THE FIL TERS APPLIED BY TPO, HE SHOULD NOT HAVE REJECTED THE COMPANY. THE DR, ON THE OTHER HAND SUPPORTED THE REASONING OF THE TPO. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDERS OF RE VENUE AUTHORITIES ON THE ISSUE. ON A PERUSAL OF THE ANNUAL REPORT OF ALLSEC TECHNOLOGIES LTD., A COPY OF WHICH IS AT PAGE 442 OF THE PAPER BOOK, IT IS SEEN THAT DURING THE RELEVANT FY, IT HAS ACQUIRED A COMPANY. FURTHER, IT IS CLEAR THAT COMPANY HAS MADE LOSSES AND IT IS NOT CLEAR WH ETHER LOSS IS ON 15 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. ACCOUNT OF ACQUISITION OR NOT. MOREOVER, THE TRIBUN AL HAS BEEN CONSISTENT IN ITS VIEW THAT A COMPANY IN THE YEAR O F ACQUISITION CANNOT BE TREATED AS A COMPARABLE. IN FACT FOR THE SAME RE ASON, ASSESSEE HAS SOUGHT EXCLUSION OF ACCENTIA TECHNOLOGY LTD. TH OUGH, IT MAY BE A FACT THAT IN CASE OF MERCER CONSULTING INDIA LTD. V S. DCIT IN ITA NO. 966/DE./14 DATED 06/06/14, WHICH WAS SUBSEQUENTLY F OLLOWED IN CAPITAL IQ INFORMATION SYSTEMS (SUPRA), THE AFORESA ID COMPANY HAS BEEN HELD TO BE A COMPARABLE, BUT, ON A CAREFUL ANA LYSIS OF THE DECISION OF THE TRIBUNAL, IT BECOMES CLEAR THAT THI S COMPANY WAS HELD AS COMPARABLE ONLY BECAUSE THE TRIBUNAL FOUND THE R EASON FOR EXCLUSION OF THE COMPANY BY APPLYING THE EXPORT REV ENUE FILTER OF 75% UNACCEPTABLE. THE TRIBUNAL NEVER CONSIDERED THE ASP ECT OF ACQUISITION MADE BY ALLSEC DURING THE YEAR. IN THE AFORESAID VIEW OF THE MATTER AND CONSIDERING THE FACT THAT THE ACQUIS ITION MADE BY THE COMPANY DURING THE RELEVANT FY MIGHT HAVE HAD AN IM PACT ON THE FINANCIAL RESULTS, WE DO NOT CONSIDER IT EXPEDIENT TO INTERFERE WITH THE DECISIONS OF TPO/DRP. ACCORDINGLY, WE UPHOLD THE RE JECTION OF THE AFORESAID COMPARABLE. 15. AS FAR AS CEPHA IMAGING PVT. LTD. IS CONCERNED , IT IS SEEN THAT IN CASE OF CAPITAL IQ INFOMRATION SYSTEMS (SUPRA), THE COORDINATE BENCH AFTER CONSIDERING THE FUNCTIONALITY OF THE CO MPANY AND FOLLOWING THE OBSERVATIONS MADE BY DELHI BENCH OF THE TRIBUNA L IN CASE OF MERCER CONSULTING PVT. LTD. (SUPRA) HELD THE AFORES AID COMPANY AS UNCOMPARABLE TO ASSESSEE. AS LD. AR HAS FAILED TO B RING ANY MATERIAL TO CONTRADICT THE AFORESAID FINDING OF THE COORDINA TE BENCH, WE ARE INCLINED TO FOLLOW THE DECISION OF THE COORDINATE B ENCH IN UPHOLDING THE VIEW OF THE TPO. THUS, GROUND NO. 9 IS DISMISSE D. 16. IN GROUND NO. 4, ASSESSEE HAS CHALLENGED THE DE TERMINATION OF ALP OF MANAGEMENT FEES AND LICENCE FEE PAID TO AES AT NIL. 16 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. 17. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE P AID MANAGEMENT FEES AND LICENCE FEE OF RS. 7,19,96,781 FOR THE FOLLOWING SERVICES: S. NO. NATURE OF SERVICE DESCRIPTION OF SERVICES 1. NEW BUSINESS TARGETING ASSISTANCE ADVICE AND ASSISTANCE ON TARGETING POTENTIAL NEW MNC CLIENTS, PROVISION OF TRAINING IN TECHNIQUES FOR NEW BUSINESS DEVELOPMENT ETC. 2. STRATEGIC PLANNING ASSISTANCE PROVISION OF BACKGROUND RESEARCH MATERIALS INTO POTENTIAL CLIENTS, PARTICULAR INDUSTRY AND MARKETS ETC. 3. MEDIA SUPPORT SERVICES COORDINATION OF MEDIA REQUIREMENTS, DEVELOPMENT AND PROVISION OF PLANNING AND RESEARCH TOOLS ETC. 4. PUBLIC RELATIONS SERVICES. ADVICE, ASSIST AND TRAINING IN MANAGING RELATIONSHIPS WITH LOCAL MEDIA, PUBLICATION AND DISTRIBUTION OF INTERNAL NEWSLETTER FOR EMPLOYEES, PROMOTION OF THE GROUP NAME WITH POTENTIAL CLIENTS, EMPLOYEES ETC. 5. FINANCIAL ADMINISTRATION SERVICES ADVICE ON GENERAL ACCOUNTING METHODS, PREPARING AND MONITORING PERIODIC PROFITABILITY ANALYSIS, BUDGETING, FINANCIAL FORECASTS, ARRANGEMENT OF FINANCING FACILITIES WITH BANKS, ADVICE ON TREASURY MANAGEMENT, ASSISTANCE IN TAX COMPLIANCE, FINANCIAL AWARENESS EDUCATION OF PERSONNEL, CENTRAL PURCHASING/ PRICE-NEGOTIATION SERVICE ETC. 6. BUSINESS SERVICES ADVISING ON CLAIMS, DISPUTES, LITIGATION, LOCATING AND EVALUATING OUTSIDE CONSULTANTS AND EXPERTS, ADVICE AND ASSISTANCE ON MANAGING RELATIONSHIPS WITH CLIENTS, ADVISING ON BUSINESS STRATEGY, MARKETING STRATEGY, EFFICIENCY AND CONTROLS, DEVELOPING AND IMPROVING MANAGEMENT ORGANSATION ETC. 17 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. THE TPO, HOWEVER, HELD THAT AS ASSESSEE HAS FAILED TO SUBSTANTIATE THE NEED FOR SERVICES AND FURTHER, ASSESSEE FAILED TO PROVE WHETHER SERVICES WERE ACTUALLY RENDERED AND ASSESSEE DERIV ED ANY BENEFIT FROM SUCH SERVICES, ARMS LENGTH PRICE OF SUCH SERV ICES HAS TO BE DETERMINED AT NIL. HOWEVER, TPO DID NOT MAKE ANY SE PARATE ADJUSTMENT BY OBSERVING THAT IT HAS ALREADY GOT MER GED IN THE ADJUSTMENT MADE TO THE PRICE RECEIVED ON ACCOUNT OF TRANSACTIONS PERTAINING TO SALE OF SERVICES. THE DRP ALSO UPHEL D THE VIEW OF TPO BY FOLLOWING ITS EARLIER ORDER FOR AY 2008-09. 18. LD. AR SUBMITTED BEFORE US THAT TNS SERVICES, U K IS IN THE BUSINESS OF THE PROVISION OF TECHNICAL AND SUPPORT SERVICES TO TNS GROUP ENTITIES AND HAS ACCESS TO A STORE OF KNOWLED GE AND EXPERTISE, FROM WITHIN TNS SERVICES UK AND ALSO OTHER COMPANIE S OF THE GROUP, WHICH THE GROUP COMPANIES NEED AND ARE DESIROUS OF USING. HE FURTHER SUBMITTED THAT THESE SERVICES, KNOWLEDGE AN D EXPERTISE BENEFIT TNS INDIA BY ALLOWING IT TO OPERATE COHEREN TLY WITHIN THE GLOBAL NETWORKS OF TNS, THEREBY ENHANCING BUSINESS GROWTH PROSPECTS, SERVICE QUALITY AND OPPORTUNITIES TO MAX IMIZE PROFITABILITY. FURTHER, IT WAS SUBMITTED THAT IN CARRYING OUT ITS BUSINESS, TNS INDIA RECEIVES CONTINUOUS ASSISTANCE AND SUPPORT FROM ITS AES. THE SERVICES ARE RECEIVED BY TNS INDIA ON A REGULAR BAS IS IN ITS BUSINESS OPERATIONS THROUGH INTER ALIA SUPPORT IN THE FORM O F ACCESS TO DATABASE, ADVICE ON ALL ASPECTS OF THE BUSINESS OPE RATIONS AND DEVELOPMENT INCLUDING STRATEGY, KNOWLEDGE MANAGEMEN T, MARKETING, FINANCE, TREASURY, PUBLIC RELATIONS, HR, IT, LEGAL, TAXATION, IT INFRASTRUCTURE, TRAINING ETC. LD. AR SUBMITTED, AE S EMPLOY PERSONNEL WITH SUBSTANTIAL EXPERIENCE AND ACT AS A CENTRAL UN IT TO PROVIDE VARIETY OF BENEFICIAL SERVICES TO COMPANIES WITHIN THE GRO UP. LD. AR SUBMITTED THAT AS THE MANAGEMENT FEES AND LICENCE F EE PAYMENTS WERE BETWEEN THE PARTIES, TPO WAS IN CORRECT IN DET ERMINING THE ALP AT NIL BY APPLYING THE BENEFIT TEST. LD. AR SUBMITT ED THAT IN ASSESSEES CASE FOR AY 2003-04 TO 2005-06, THE COOR DINATE BENCH OF 18 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. THE TRIBUNAL IN ITA NOS. 944/HYD/2007, 194/HYD/08 AND 793/HYD/09 DATED 22/01/14 HAS HELD THAT TPO CANNOT DETERMINE A LP OF AN INTERNATIONAL TRANSACTION AT NIL. 19. LD. DR, ON THE OTHER HAND, RELIED ON THE OBSERV ATIONS MADE BY TPO/DRP. 20. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IALS ON RECORD. THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE HAS E NTERED INTO AGREEMENT WITH AES FOR PAYMENT OF MANAGEMENT FEE AN D LICENCE FEE TOWARDS PROVISION FOR CERTAIN SERVICES. IT IS ALSO A FACT ON RECORD THAT FEES WERE PAID IN PURSUANCE TO SUCH AGREEMENT. IT I S EVIDENT FROM THE ORDER OF TPO THAT HE ADOPTED CUP METHOD FOR DETERMI NING THE ALP OF MANAGEMENT FEES AND LICENCE FEES. AS PER RULE 10B(1 )(A), FOR DETERMINING ALP UNDER CUP METHOD TPO HAS TO BRING C OMPARABLE TO BENCHMARK PRICE OF THE ASSESSEE. HOWEVER, AS CAN BE SEEN FROM THE RECORD, TPO HAS NOT BROUGHT ANY COMPARABLE COMPANY TO JUSTIFY THE DETERMINATION OF ALP AT NIL. ON THE CONTRARY, TPO H AS APPLIED THE BENEFIT TEST FOR DETERMINING ALP. IN OUR VIEW, THE METHOD APPLIED BY TPO IS NOT IN TERMS WITH THE STATUTORY PROVISIONS. MOREOVER, IN ASSESSEES OWN CASE IN ITA NOS. 944/HYD/2007, 194/H YD/08 AND 793/HYD/09 DATED 22/01/14, THE COORDINATE BENCH OF THIS TRIBUNAL WHILE CONSIDERING IDENTICAL ISSUE, DISAPPROVED DETE RMINING ALP AT NIL. OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDE R FOR READY REFERENCE: 16. WE HAVE CONSIDERED THE ISSUE. WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSING OFFICER/TPO WITH REFERENCE TO THE SERVICE S PROVIDED BY AES. ASSESSEE HAS PROVIDED THE AGREEMENTS WHICH WERE ENTERED NOT DURI NG THE YEAR BUT IN EARLIER YEAR AND HAS BEEN PAYING THE SERVICE FEE TERMED AS MANAG EMENT FEE ACCORDINGLY. THIS CLAIM IS NOT ARISING FOR THE FIRST TIME IN THIS YEAR BUT, IS ALSO THERE IN EARLIER YEARS AND LATER YEARS. ASSESSEE IS PART OF A WORLDWIDE GROUP AND TH EY HAVE PLACED SOME CORPORATE CENTERS FOR GUIDANCE OF VARIOUS UNITS RUN BY THEM A CROSS THE GLOBE. IT WAS SUBMITTED THAT THE COSTS BEING INCURRED BY THE CENTERS ARE BE ING SHARED BY VARIOUS UNITS AND ASSESSEES SHARE IN THIS YEAR HAS COME TO 5% OF THE RECEIPTS PAYABLE TO NFO WORLDWIDE INC USA AND AT 4% TO NFO ASIA PACIFIC LTD. HONGKONG ON THE NET REVENUES. THESE AMOUNTS ARE WITHIN THE NORMS PRESCRIBED FOR PAYMENT OF FEES TO VARIOUS GROUP COMPANIES OF SIMILAR NATURE. THERE IS NO DISPUTE WI TH REFERENCE TO SERVICES BEING 19 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. PROVIDED BY THE GROUP COMPANIES TO ASSESSEE AND ASS ESSEE ALSO PAID VARIOUS OTHER AMOUNTS INCLUDING ROYALTY. AS SUBMITTED BY ASSESSEE , EVEN THOUGH SOME CORRESPONDENCE WAS PLACED ON RECORD WITH REFERENCE TO THE ADVISE GIVEN TO ASSESSEE, PROVIDING A CONCRETE EVIDENCE WITH REFERENCE TO THE SERVICES IN THE NATURE OF SPECIFIC ACTIVITIES IS DIFFICULT, LIKE PROVING THE ROLE OF A N ANESTHESIAN IN AN OPERATION CONDUCTED BY A SURGEON. THERE MAY BE AN EVIDENCE OF OPERATION BEING PERFORMED BY THE DOCTOR IN THE FORM OF SUTURES OR SCARS ETC, WHICH CAN BE PROV ED LATER BUT THE ROLE OF AN ANESTHESIAN BEFORE OPERATION AND AFTER GAINING CONS CIOUSNESS IS DIFFICULT TO PROVE AS THAT IS NOT TANGIBLE IN NATURE. LIKEWISE, FOR THE A DVISE GIVEN BY VARIOUS GROUP CENTERS TO THE GROUP COMPANIES IN DAY-TO-DAY MANNER IS DIFFICU LT TO PLACE ON RECORD BY WAY OF CONCRETE EVIDENCE BUT THE WAY BUSINESS IS CONDUCTED , ONE CAN PERCEIVE THE SAME. ASSESSEE HAS GIVEN A DETAILED WRITE-UP AS WELL AS T HE SERVICES PROVIDED AND BENEFIT OBTAINED WHICH WERE NOT CONTRADICTED. THE ASSESSING OFFICER DID NOT BELIEVE THE SAME IN THE ABSENCE OF CONCRETE EVIDENCE. UNLESS THE ASS ESSING OFFICER STEPS INTO ASSESSEES BUSINESS PREMISES AND OBSERVES THE ROLE OF THESE CO MPANIES/ ASSESSEES BUSINESS TRANSACTIONS, IT WILL BE DIFFICULT TO PLACE ON RECO RD THE SORT OF ADVICE GIVEN IN DAY-TO-DAY OPERATIONS. WHAT SORT OF EVIDENCE SATISFIES THE AO IS ALSO NOT SPECIFIED. ASSESSEE HAS ALREADY PLACED LOT OF EVIDENCE IN SUPPORT OF CLAIMS . THEREFORE, ON THAT COUNT, WE ARE NOT IN AGREEMENT WITH THE ASSESSING OFFICER AND TPO THAT SERVICES WERE NOT RENDERED BY THE GROUP COMPANIES TO ASSESSEE. 16.1. EVEN OTHERWISE, THE ROLE OF TRANSFER PRICING OFFICER IS TO DETERMINE THE ARMS LENGTH PRICE OF A TRANSACTION. HE CANNOT REJECT THE ENTIRE PAYMENT UNDER THE PROVISIONS OF SEC. 92CA AS HELD BY THE HONBLE DELHI HIGH COUR T IN THE CASE OF EKL APPLIANCES LTD (SUPRA) WHEREIN THE HONBLE DELHI HIGH COURT, ON SI MILAR FACTS WHERE THE TPO ALSO DETERMINED THE ALP AT NIL, HAS HELD AS UNDER : 21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR ASSESSEE TO SHOW THAT ANY LEGITIMATE EXPENDITUR E INCURRED BY HIM WAS ALSO INCURRED OUT OF NECESSITY. IT IS ALSO NOT NECESSARY FOR ASSESSEE TO SHOW THAT ANY ITA.NO.944/H/07, 194 & 74/H/08, 793/H/09, 654,655/H /10 & 7/H/2012 TNS INDIA PVT. LTD. EXPENDITURE INCURRED BY HIM FOR THE PURPOSE OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED 'WHOLLY AND EXCLUSIVELY' FOR THE PURPOSE OF BUSINESS AND NOTHING MORE. IT IS THIS PRINCIPLE THAT INTER ALIA FINDS EXPRESSION IN THE OECD GUIDELINES, IN THE PARAGRAPHS WHICH WE HAVE QUOTED ABOVE. 22. EVEN RULE IOB(L)(A) DOES NOT AUTHORISE DISALLOW ANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR ASSESSEE TO HAVE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXP ENDITURE WAS UNREMUNERATIVE OR THAT IN VIEW OF THE CONTINUED LOS SES SUFFERED BY ASSESSEE IN HIS BUSINESS, HE COULD HAVE FARED BETTER HAD HE NOT INCURRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FOR THE PURPOSE OF RULE LOB. WHETHER OR NOT TO ENTER INTO THE TRANSACTION IS FOR ASSESSEE TO DE CIDE. THE QUANTUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILITY THEREOF AS BUSINESS EXPENDITURE, H E HAS NO AUTHORITY TO DISALLOW THE ENTIRE EXPENDITURE OR A PART THEREOF O N THE GROUND THAT ASSESSEE HAS SUFFERED CONTINUOUS LOSSES. THE FINANCIAL HEALT H OF ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOWABILITY OF AN EXPENSE; THER E IS CERTAINLY NO AUTHORITY FOR THAT. WHAT THE TPO HAS DONE IN THE PRESENT CASE IS TO HOLD THAT ASSESSEE OUGHT 20 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYAL TY/BRAND FEE, BECAUSE IT HAS BEEN SUFFERING LOSSES CONTINUOUSLY. SO LONG AS THE EXPENDITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW T HE SAME ON ANY EXTRANEOUS REASONING. AS PROVIDED IN THE OECD GUIDELINES, HE I S EXPECTED TO EXAMINE THE INTERNATIONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BUT A WHOLESALE DISALLOWANCE OF THE EXPE NDITURE, PARTICULARLY ON THE GROUNDS WHICH HAVE BEEN GIVEN BY THE TPO IS NOT CONTEMPLATED OR AUTHORISED. 23. APART FROM THE LEGAL POSITION STATED ABOVE, EVE N ON MERITS THE DISALLOWANCE OF THE ENTIRE BRAND FEE / ROYALTY PAYM ENT WAS NOT WARRANTED. ASSESSEE HAS FURNISHED COPIOUS MATERIAL AND VALID R EASONS AS TO WHY IT WAS SUFFERING LOSSES CONTINUOUSLY AND THESE HAVE BEEN R EFERRED TO BY US EARLIER. FULL JUSTIFICATION SUPPORTED BY FACTS AND FIGURES HAVE B EEN GIVEN TO DEMONSTRATE THAT THE INCREASE IN THE EMPLOYEES COST, FINANCE CH ARGES, ADMINISTRATIVE EXPENSES, DEPRECIATION COST AND CAPACITY INCREASE H AVE CONTRIBUTED TO THE CONTINUOUS LOSSES. THE COMPARATIVE POSITION OVER A PERIOD OF 5 YEARS FROM 1998 TO 2003 WITH RELEVANT FIGURES HAVE BEEN GIVEN BEFOR E THE CIT (APPEALS) AND THEY ARE REFERRED TO IN A TABULAR FORM IN HIS ORDER IN PARAGRAPH 5.5.1. IN FACT THERE ARE FOUR TABULAR STATEMENTS FURNISHED BY ASSE SSEE BEFORE THE CIT (APPEALS) IN SUPPORT OF THE REASONS FOR THE CONTINU OUS LOSSES. THERE IS NO MATERIAL BROUGHT BY THE REVENUE EITHER BEFORE THE C IT (APPEALS) OR BEFORE THE TRIBUNAL OR EVEN BEFORE US TO SHOW THAT THESE ARE I NCORRECT FIGURES OR THAT EVEN ON MERITS THE REASONS FOR THE LOSSES ARE NOT GENUIN E. 24. WE ARE, THEREFORE, UNABLE TO HOLD THAT THE TRIB UNAL COMMITTED ANY ERROR IN CONFIRMING THE ORDER OF THE CIT (APPEALS) FOR BOTH THE YEARS DELETING THE DISALLOWANCE OF THE BRAND FEE L ROYALTY PAYMENT WHI LE DETERMINING THE ALP. ACCORDINGLY, THE SUBSTANTIAL QUESTIONS OF LAW ARE A NSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. THE APPEALS ARE ACCORDINGLY DISMISSED WITH NO ORDER AS TO COSTS. 17. RESPECTFULLY FOLLOWING THE ABOVE, WE ARE OF THE OPINION THAT THE TPO WENT BEYOND HIS JURISDICTION IN DENYING THE PAYMENT OUT-RIGHTLY , WHEREAS, HIS ROLE IS LIMITED TO DETERMINING THE ALP. IN THE GUISE OF DETERMINATION OF ALP, THE TPO CANNOT QUESTION THE BUSINESS DECISION OF PAYMENT AND DETERMINE THAT NO SERVICES WERE RENDERED. IN THAT VIEW OF THE MATTER, THE DIRECTION OF THE TPO CANNOT BE UPHELD AT ALL. 17.2 BE THAT AS IT MAY, THE TPO ALSO INVOKED RULE 10B TO ANALYSE THE T RANSACTIONS ON TNMM METHOD. ACCORDINGLY, FEW OF THE TRANSACTIONS PARTICULARLY, PROVISIONS FOR DATA PROCESSING SERVICES AND ROYALTY ETC., WERE ANALYSED UNDER TNMM AND ACCEPTED THAT ASSESSEES PLI IS MORE THAN THE COMPARABLES. WHILE DETERMINING THE PLI, PAYMENT OF MANAGEMENT FEES IS ALSO CONSIDERED AS AN EXPENDITURE. IN THAT SENSE, EVEN AFTER PAYING THE MANAGEMENT FEE AT 4%, THE PROFIT LEVEL INDICATOR IS MORE THAN THE COMPARABLE CASES. THEREFORE, ASSESSEES TRANSACTIONS ARE DEEMED TO BE AT ARMS LENGTH. CONSIDERING THAT ALSO, DENIAL OF MANAGEMENT FEES IS NOT PROPER ON TH E PART OF THE TPO/ ASSESSING OFFICER. CONSIDERING THE ABOVE, WE ARE OF THE OPINI ON THAT THE ACTION OF THE TPO IN DETERMINING THE ALP AT NIL IS NOT ACCORDING TO THE PROVISIONS OF LAW AND ALSO ON FACTS. THEREFORE, WE DIRECT HIM TO ALLOW THE CLAIM. 21 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. 18. HOWEVER, AS SEEN FROM THE PRICING PATTERN OF TH E AGREEMENT, THE METHODOLOGY PRESCRIBED IS NOT AS FIXED PERCENTAGE OF ASSESSEES TURNOVER/ NET RECEIPTS. THE COSTS ARE ITA.NO.944/H/07, 194 & 74/H/08, 793/H/09, 654,655/H /10 & 7/H/2012 TNS INDIA PVT. LTD. TO BE WORKED OUT IN THE GROUP CONCERN OR SERVI CE PROVIDER AND ARE ALLOCATED TO SPECIFIC GROUP COMPANIES. NEITHER THE TPO NOR ASSES SING OFFICER EXAMINED WHETHER THE PAYMENT OF FEE PAID IS ACCORDING TO THE AGREEMENT O R NOT. WHAT WE NOTICED, AS PER THE INVOICE PLACED, IS THAT ASSESSEE WAS GIVEN INVOICES AT A FIXED AMOUNT WHERE AS THE AGREEMENT PROVIDES OTHERWISE. THERE MAY BE ADJUSTME NTS AT THE END OF YEAR BASED ON OVER ALL COST INCURRED BY AES. THIS REQUIRES EXAMIN ATION AS TPO/AO DENIED THE CLAIM ITSELF. THEREFORE, IN ORDER TO VERIFY THE PRICING M ETHODOLOGY AS PRESCRIBED IN THE AGREEMENT AND PAYMENT OF THE AMOUNTS, THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THIS ASPECT AND ALLOW THE AMOUNTS, IF THE PAYMENT IS ACCORDING TO PRICING METHODOLOGY AGREED BETWEEN THE PARTIES. THEREFORE, WHILE ALLOWING THE GROUND ON THE QUESTION OF CLAIM OF MAN AGEMENT FEES AS SUCH, THE QUANTIFICATION THEREOF IS RESTORED TO THE ASSESSING OFFICER TO EXAMINE WITH REFERENCE TO THE AGREEMENT BETWEEN THE PARTIES. ACCORDINGLY, GRO UNDS 2 TO 5 ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. IN VIEW OF THE AFORESAID ORDER OF THE COORDINATE BE NCH, THOUGH, IN PRINCIPLE WE AGREE WITH ASSESSEE THAT DETERMINATION OF ALP AT NIL AND DENIAL OF MANAGEMENT FEE IS NOT CORRECT, HOWEVER, F OLLOWING THE ORDER OF THE COORDINATE BENCH WE REMIT THE ISSUE BACK TO THE FILE OF THE AO/TPO TO DETERMINE THE QUANTUM OF MANAGEMENT FEE A ND LICENCE FEE WITH REFERENCE TO AGREEMENT BETWEEN THE PARTIES . THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 21. IN GROUND NO. 10, ASSESSEE HAS RAISED THE ISSUE OF NON- CONSIDERATION OF PROVISION FOR BAD AND DOUBTFUL DEB TS IN COMPUTATION UNDER TNMM FOR CERTAIN COMPARABLES. 22. THE LD. AR SUBMITTED BEFORE US WHILE COMPUTING OPERATING PROFIT MARGIN OF THE COMPARABLE COMPANIES UNDER TNMM, TPO HAS CONSIDERED THE PROVISION FOR BAD AND DOUBTFUL DEBTS AS NON-OPERATING EXPENDITURE. LD. AR SUBMITTED, BAD DEBTS ARE INCURR ED IN THE NORMAL COURSE OF BUSINESS OPERATION AND, THEREFORE, ARE OP ERATING IN NATURE. THE FACT THAT COMPARABLE COMPANIES HAVE MADE PROVIS ION FOR BAD DEBT INDICATE THAT IT BEARS CREDIT AND COLLECTION R ISKS WHICH ARE INHERENT FOR ANY COMPANY BEARING ENTREPRENEURIAL RI SK AND OPERATING IN OPEN MARKET CONDITIONS. THE LOSS ON ACCOUNT OF B AD DEBT IS NOT UNIQUE AND EXTRAORDINARY IN NATURE. LD. AR SUBMITTE D THAT ASSESSEE 22 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. ITSELF HAD MADE PROVISION FOR BAD DEBTS OF RS. 2,32 ,51,163 IN THE RELEVANT FY WHICH WERE COMPLETELY IN RELATION TO TH IRD PARTY SALES AND THE SAME WAS CONSIDERED OPERATING IN NATURE BY TPO. LD. AR SUBMITTED THAT DISREGARDING BAD DEBTS IN COMPUTATIO N OF OPERATING MARGIN WOULD NOT RESULT IN DISCLOSURE OF APPROPRIAT E RESULTS AND TO A LARGE EXTENT DISTORT THE MARGINS. IN SUPPORT OF HI S CONTENTION, LD. AR RELIED ON THE DECISION OF ITAT, HYDERABAD BENCH IN CASE OF KENEXA TECHNOLOGIES PVT. LTD. VS. DCIT IN ITA NO. 243/HYD/ 2014 DATED 14/11/2014. 23. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE REASONING OF TPO/DRP. 24. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. IN PRINCIPLE WE AGREE WITH THE CONTENTION OF LD. AR THAT PROVISION FOR BAD AND DOUBTFUL DEBTS AN D BAD DEBTS SHOULD FORM PART OF THE OPERATING EXPENDITURE. IN THIS CON NECTION, WE RELY ON THE OBSERVATIONS OF THE COORDINATE BENCH IN CASE OF M/S KENEXA TECHNOLOGY PVT. LTD. VS. DCIT (SUPRA), WHICH ARE AS UNDER: 41. WE PLACE RELIANCE ON THE DECISION OF ITAT DELH I BENCH IN THE CASE OF SONY INDIA PVT. LTD. VS. DCIT, ITA NO. 1189/DEL/2005, 819/DEL/2007 AND 820/DEL/2007. THE RELEVANT PORTION IS EXTRACTED BELOW: '106.2 THUS, CREATION O F UNPAID LIABILITY AND ITS WRITE BACK IS A NORMAL INCIDENT OF A BUSINESS OPERATION WHICH IS CARRIED EVERYWHERE IN ACCOUNTS TO HAVE TRUE PICTURE OF PROFITS OF THE RELEVANT PERIOD . HAVING REGARD TO STATUTORY PROVISIONS, IT CANNOT BE SAID THAT PROVISIONS OR WR ITING BACK OF LIABILITY IS NOT PART OF OPERATING PROFIT OR WOULD NOT BE TAKEN INTO CONSIDE RATION FOR COMPUTING THE SAME. WE CAN THEREFORE MAKE A GENERAL OBSERVATION THAT ALL B USINESS ENTERPRISES ARE MAKING AND WRITING BACK LIABILITIES AS A NORMAL INCIDENT OF OP ERATING BUSINESS. THEREFORE ON FACTS WE DO NOT SEE ANY JUSTIFICATION FOR EXCLUDING PROVI SIONS WRITTEN BACK IN THE PROFIT AND LOSS ACCOUNT AS NOT FORMING PART OF THE OPERATING P ROFIT OF THE TAXPAYER. ACCORDINGLY CLAIM OF THE TAXPAYER IS ACCEPTED. 107. THE NEXT IT EM RELATES TO BALANCES WRITTEN BACK. IN OUR CONSIDERED OPINION, FINDING GIVEN IN RESPECT OF PROVISIONS WRITTEN BACK IS EQUALLY APPLICABLE TO BALANCES WRITTEN BACK MORE PARTICULAR LY WHEN LD. CIT(A) HAS NOT GIVEN ANY SEPARATE FINDING AND THE TRANSFER PRICING OFFICER H AS SAID NOTHING SPECIFICALLY ON THIS ITEM. THE BALANCES WRITTEN BACK SHOULD ALSO BE TREA TED AS PART OF OPERATING PROFIT. WE DIRECT ACCORDINGLY.' 42. WE ARE OF THE VIEW THAT IN THE INSTANT CASE BAD DEBTS AND PROVISION FOR BAD AND DOUBTFUL DEBTS ARE PART OF THE OPERATING EXPENSES A ND WE DIRECT THE TPO TO RE-COMPUTE THE MARGINS OF 24 COMPARABLE COMPANIES BY INCLUDING BAD DEBTS AND PROVISION FOR BAD 23 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. AND DOUBTFUL DEBTS AS OPERATING EXPENSES FOR THE PU RPOSE OF COMPUTING PROFIT AND LOSS OF COMPARABLE COMPANIES. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH, WE REMIT THIS ISSUE TO THE FILE OF AO/TPO FOR CONSIDERING AF RESH IN THE LIGHT OF THE SAID DECISION OF THE COORDINATE BENCH. 25. THE NEXT ISSUE AS RAISED IN GROUND NO. 11 IS WI TH REGARD TO RISK ADJUSTMENT. 26. THE LD. AR SUBMITTED BEFORE US THAT ASSESSEE FU NCTIONS UNDER LIMITED RISK ENVIRONMENT WITH MOST OF THE RISK ASSU MED BY ITS AES WHEREAS THE COMPARABLES SELECTED BY TPO INCLUDE COM PANIES WHICH HAVE FAIRLY DIVERSIFIED AREAS OF SPECIALIZATION, PE RFORM OF ADDITIONAL FUNCTIONS LIKE MARKETING, HENCE, BEAR MORE RISK AKI N TO ANY THIRD PARTY INDEPENDENT SERVICE PROVIDER. LD. AR SUBMITTED THAT IN VIEW OF THE LIMITED FUNCTIONS PERFORMED AND RISK BORNE BY ASSES SEE, IT CAN BE CHARACTERIZED AS A CONTRACT SERVICE PROVIDER OPERAT ING IN A RISK MITIGATED ENVIRONMENT VIS--VIS COMPARABLE COMPANIE S WHICH PERFORMED ENTREPRENEURIAL FUNCTIONS AND, THEREFORE, BEAR ENTREPRENEURIAL RISK. THEREFORE, FROM A TRANSFER PR ICING PERSPECTIVE, IT CAN BE NECESSARY TO MAKE ADJUSTMENTS FOR THE RISK P ORTION BY COMPARABLE COMPANIES VIS--VIS ASSESSEE. IN SUPPORT OF HIS CONTENTION, LD. AR RELIED UPON A NUMBER OF DECISION S AS REFERRED TO IN THE WRITTEN SUBMISSIONS. 27. THE LD. DR ON THE OTHER HAND, SUBMITTED THAT AS SESSEE HAVING ITSELF NOT PROVIDED FOR ANY RISK ADJUSTMENT, TPO CA NNOT BE FAULTED FOR NOT ALLOWING RISK ADJUSTMENT. 28. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. IT IS EVIDENT FROM THE TP STUDY OF ASSESSEE, IT UNDERTAKES CERTAIN RISKS, HOWEVER, LIMITED THAT MAY BE. IT IS FURTHER EVIDENT FROM TP STUDY, ASSESSEE HAS NOT QUANTIFIED RISK ADJUSTMENT. EVEN BEFORE TPO OR DRP AND BEFORE US ALSO, ASSESSEE HAS NOT FURNISHED ANY QUANTIFICATION FOR RISK ADJUSTMENT. I N THESE 24 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. CIRCUMSTANCES, WE CANNOT DIRECT AO/TPO TO ALLOW RIS K ADJUSTMENT AT A PARTICULAR PERCENTAGE. AS RISK ADJUSTMENT HAS TO BE QUANTIFIED ON CERTAIN SCIENTIFIC BASIS, IT CANNOT BE GRANTED IN A ROUTINE MANNER BY FIXING CERTAIN PERCENTAGE ON ADHOC BASIS. IT IS FOR ASSESSEE, TO DEMONSTRATE RISK ASSUMED BY EACH OF THE COMPANY VI S--VIS ASSESSEE AND QUANTIFY THE ALLOWANCE TO BE MADE IN T HAT REGARD. AS ASSESSEE HAS NOT UNDERTAKEN ANY SUCH EXERCISE, AT T HIS STAGE, WE CANNOT DIRECT AO/TPO TO ALLOW RISK ADJUSTMENT AT A CERTAIN PERCENTAGE ON A PURELY ESTIMATE BASIS. MOREOVER, THIS ISSUE MA Y BECOME ACADEMIC IF ALP COMPUTED BY TPO AFTER GIVING EFFECT TO OUR DIRECTIONS ON COMPARABLES COMES WITHIN THE TOLERANCE BAND OF A SSESSEES MARGIN. IN THE AFORESAID VIEW OF THE MATTER, WE RE MIT THIS ISSUE BACK TO THE FILE OF AO FOR CONSIDERING AFRESH, IF WARRAN TED, AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO ASSESSEE. AO/TPO IS DIRECTED TO DETERMINE ALP OF THE INTERNATIONAL TRAN SACTION IN TERMS WITH OUR DIRECTION, AND ADJUSTMENT ON ACCOUNT OF SH OFTFALL, IF ANY, MAY BE CONSIDERED FOR ADDITION. NOW WE DEAL WITH THE CORPORATE TAX ISSUES: 29. IN GROUND NO. 13, ASSESSEE HAS RAISED THE ISSU E OF NON- CONSIDERATION OF REVISED COMPUTATION OF INCOME FILE D BY ASSESSEE CLAIMING DEDUCTION U/S 10A. 30. IN THE RETURN OF INCOME FILED BY ASSESSEE, IT H AD CLAIMED DEDUCTION U/S 10A FOR AN AMOUNT OF RS. 19,08,89,67 7. HOWEVER, SUBSEQUENTLY, IT WAS NOTED THAT DEDUCTION CLAIMED U /S 10A WAS WRONG AS IT WAS ON THE BASIS OF PROFIT BEFORE TAXES IN ST EAD OF TAXABLE PROFIT. ACCORDINGLY, ASSESSEE REVISED ITS CLAIM U/S 10A OF THE ACT TO RS. 20,66,74,305 AND REQUESTED AO TO ACCEPT THE SAME. A REVISED FORM 56F WAS ALSO SUBMITTED BEFORE AO. THE AO, HOWEVER, ALLOWED THE DEDUCTION U/S 10A AS PER THE ORIGINAL RETURN BY OBS ERVING THAT REVISED CLAIM CANNOT BE ACCEPTED. DRP ALSO UPHELD SUCH VIEW . 25 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. 31. LD. AR SUBMITTED THAT AO AND DRP ARE NOT CORREC T IN IGNORING THE REVISED CLAIM OF ASSESSEE WITHOUT VERIFYING ITS CORRECTNESS. IN SUPPORT OF SUCH CONTENTION, LD. AR RELIED ON THE DE CISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 108/HYD/2011 DATED 27/06/14 FOR AY 2006-07. LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 32. WE HAVE CONSIDERED THE SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. UNDISPUTEDLY, ASSESSEE HAS FILED A REVI SED COMPUTATION IN COURSE OF ASSESSMENT PROCEEDING CLAIMING REVISION I N DEDUCTION U/S 10A. ASSESSEE HAS ALSO FILED A REVISION FORM 56F. H OWEVER, TPO AND DRP HAVE REJECTED SUCH CLAIM BY OBSERVING THAT REVI SED COMPUTATION FILED IN COURSE OF ASSESSMENT PROCEEDING CANNOT BE ENTERTAINED. WHEN ASSESSEE HAS FILED REVISED COMPUTATION ALONG W ITH CERTIFICATE IN FORM 56F, AO SHOULD HAVE VERIFIED CORRECTNESS OF AS SESSEES CLAIM INSTEAD OF DISCARDING IT AT THE THRESHOLD. THE COOR DINATE BENCH WHILE CONSIDERING SIMILAR ISSUE IN ASSESSEES OWN CASE FO R AY 2006-07 IN ITA NO. 108/HYD/2011 (SUPRA) DIRECTED AS UNDER: 8.3 CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, WE REMIT THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION T O LOOK INTO THIS ASPECT AND TAKE A DECISION IN THE MATTER AFTER VERI FYING THE CLAIM OF THE ASSESSEE AND AFTER GIVING DUE OPPORTUN ITY OF HEARING IN THE MATTER TO THE ASSESSEE. FOLLOWING THE VIEW EXPRESSED BY COORDINATE BENCH, W E REMIT THE ISSUE BACK TO FILE OF AO WITH SIMILAR DIRECTION. THIS GRO UND IS ALLOWED FOR STATISTICAL PURPOSES. 33. THE NEXT ISSUE AS RAISED IN GROUND NO. 14 IS WI TH REGARD TO DISALLOWANCE OF EXPENDITURE OF RS. 1,29,97,123 ON S OFTWARE LICENCE FEE PAID BY ASSESSEE DURING THE YEAR. 34. IN COURSE OF ASSESSMENT PROCEEDING, AO ON VERIF ICATION NOTICED THAT ASSESSEE HAS CLAIMED EXPENDITURE OF RS. 1,29,9 7,123 AS REVENUE EXPENDITURE. AO HELD THAT SINCE THE SOFTWARE LICENC E FEES WAS FOR ACQUIRING AN ASSET OF ENDURING NATURE, THE EXPENDIT URE INCURRED HAS TO 26 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. BE TREATED AS CAPITAL IN NATURE. ACCORDINGLY, AO D ISALLOWED ASSESSEES CLAIM OF EXPENDITURE. HOWEVER, HE ALLOWE D DEPRECIATION @ 25% ON SUCH EXPENDITURE. DRP ALSO CONFIRMED THE VIE W OF AO. 35. LD. AR SUBMITTED BEFORE US THAT THE COMPUTER SO FTWARE USED BY ASSESSEE ARE IN THE NATURE OF APPLICATION SOFTWARE , THE DETAILS OF SOFTWARE USED ARE AS UNDER: A. E-TAB THIS LICENSE IS USED BY THE REPORTING AN D CHARTING DEPARTMENT TO WRITE THE REPORTS AND CHARTS. B. SPSS SPSS IS A COMPUTER PROGRAM USED FOR SURVE Y AUTHORING AND DEPLOYMENT, TEXT ANALYSIS, STATISTICA L ANALYSIS ETC. C. SCRIPTS THIS LICENSE IS USED IN THE SCRIPTING DEPARTMENT TO WRITE THE SCRIPTS. 36. IT WAS SUBMITTED THAT THESE APPLICATION SOFTWAR E GENERALLY HAVE A USEFUL LIFE OF ONE YEAR. AS THERE IS NO ENDURING BENEFIT, EXPENDITURE ON SUCH COMPUTER SOFTWARE SHOULD BE CONSIDERED AS R EVENUE IN NATURE. IN SUPPORT OF SUCH CONTENTION, LD. AR RELIE D ON THE DECISION OF AMWAY INDIA ENTERPRISES VS. DCIT, 111 ITD 112 AND A NUMBER OF OTHER DECISIONS. ALTERNATIVELY, IT WAS SUBMITTED BY LD. AR THAT AS COMPUTER SOFTWARE IS ALSO ELIGIBLE FOR DEPRECIATION @ 60% ALONG WITH COMPUTER, AO WAS NOT JUSTIFIED IN RESTRICTING DEPRE CIATION TO 25%. DRP, THOUGH, UPHELD THE VIEW OF AO THAT EXPENDITURE INCURRED TOWARDS SOFTWARE LICENCE IS A CAPITAL EXPENDITURE, BUT, DIRECTED AO TO ALLOW DEPRECIATION AT APPROPRIATE RATE. HOWEVER, AO WHILE FINALISING ASSESSMENT ALLOWED DEPRECIATION @ 25%. LD. DR, ON THE OTHER HAND, SUPPORTED THE REASONING OF AO. 37. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE DECISIONS RE LIED UPON BY LD. AR. AS FAR AS ASSESSEES CLAIM THAT THE EXPENDITURE CLA IMED HAS TO BE TREATED AS REVENUE EXPENDITURE, WE ARE OF THE VIEW THAT AS PER THE ITAT SPECIAL BENCH DECISIONS IN CASE OF AMWAY INDIA LTD. VS. DCIT (SUPRA), WHETHER A PARTICULAR EXPENDITURE IN RELATI ON TO ACQUISITION OF SOFTWARE WILL BE REVENUE OR CAPITAL, CANNOT BE DECI DED BY EITHER THE 27 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. OWNERSHIP TEST OR ENDURING BENEFIT TEST. THE FUNCTI ONAL TEST HAS ALSO TO BE APPLIED. ITAT SPECIAL BENCH WENT ON TO LAY DOWN CERTAIN TESTS FOR DECIDING WHETHER THE EXPENDITURE INCURRED HAS TO BE TREATED AS REVENUE OR CAPITAL. IN THE PRESENT CASE, ASSESSEE H AS NOT BROUGHT ANY MATERIAL ON RECORD TO ESTABLISH THAT BY APPLYING TH E FUNCTIONAL TEST, THE EXPENDITURE CAN BE SAID TO BE OF A REVENUE NATURE. MOREOVER, AFTER 01/04/2003 COMPUTER SOFTWARE HAS BEEN SPECIFICALLY BROUGHT INTO THE SCHEDULE AT PAR WITH COMPUTER AS FAR AS ELIGIBILIT Y OF DEPRECIATION IS CONCERNED. THEREFORE, AFTER 01/04/2003, COMPUTER SO FTWARE IN THE NATURE OF APPLICATION SOFTWARE AND NOT MERE LICENC E FOR RENEWAL HAVE TO BE TREATED AS CAPITAL ASSETS ELIGIBLE FOR DEPREC IATION AT THE SAME RATE AS OF COMPUTER. THEREFORE, EXPENDITURE INCURRE D FOR ACQUIRING SUCH ASSET WILL BE CAPITAL EXPENDITURE. HOWEVER, WE ACCEPT LD. ARS ALTERNATIVE CONTENTION THAT DEPRECIATION SHOULD BE ALLOWED AT 60%. AS PER THE NEW APPENDIX APPLICABLE FROM AY 2006-07, DE PRECIATION ON COMPUTER AND COMPUTER SOFTWARE IS TO BE ALLOWED AT 60%. AS AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT COM PUTER SOFTWARE ACQUIRED BY ASSESSEE IS NOT IN THE NATURE OF SOFTWA RE AS MENTIONED IN THE APPENDIX, IN OUR VIEW, AO IS NOT JUSTIFIED IN A LLOWING DEPRECIATION AT 25%. WE, THEREFORE, DIRECT AO TO ALLOW DEPRECIAT ION ON THE COMPUTER SOFTWARE AT 60%. THIS GROUND IS PARTLY AL LOWED. 38. IN GROUND NO. 15, ASSESSEE HAS CHALLENGED THE D ISALLOWANCE OF DEPRECIATION ON AN AMOUNT OF RS. 9,12,652 BY HOLDIN G IT TO BE ASSET NOT USED FOR THE PURPOSE OF BUSINESS. 39. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDING, AO FOUND THAT ASSESSEE DURING THE RELEVANT PREVIOUS YE AR HAS WRITTEN OFF AN AMOUNT OF RS. 9,12,652 AS INTANGIBLE ASSET (BUS INESS COMMERCIAL RIGHTS). AO DISALLOWED THE WRITE OFF ALLEGING THAT ASSESSEE FAILED TO SUBMIT THE AGREEMENT AND DETAILS REGARDING NATURE O F COMMERCIAL RIGHTS. DRP ALSO UPHELD THE VIEW OF AO. 28 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. 40. LD. AR SUBMITTED BEFORE US, TAYLOR NELSON SOFRE S MODE PVT. LTD. HAD PURCHASED BUSINESS COMMERCIAL RIGHTS IN AY 2003-04 AND HAD BEEN CLAIMING DEPRECIATION ON THE SAME @ 25% UN DER INTANGIBLE ASSETS. IN AY 2005-06, TAYLOR MERGED WITH TNS INDIA AND ACCORDINGLY BUSINESS COMMERCIAL RIGHT WAS TRANSFERRED AND INCOR PORATED IN THE BALANCE SHEET OF TNS INDIA. SINCE THEN, TNS INDIA H AD BEEN CLAIMING DEPRECIATION ON THE SAME @ 25%. IT WAS SUBMITTED, I N AY 2009-10 AS THERE WAS NO ADDITIONAL BENEFIT REMAINING TO BE AVA ILED FROM THE USE OF THESE RIGHTS, A DECISION WAS TAKEN BY THE MANAGE MENT OF THE COMPANY TO WRITE OFF THE ENTIRE BALANCE IN THE BOOK S OF ACCOUNT. ACCORDINGLY, THE WDV OF BUSINESS COMMERCIAL RIGHTS AS PER THE INCOME TAX DEPRECIATION SCHEDULE OF RS. 9,12,652 WA S WRITTEN OFF COMPLETELY. HOWEVER, AO HAS DISALLOWED THE ENTIRE C LAIM EVEN WITHOUT ALLOWING DEPRECIATION @ 25% BY HOLDING THAT ASSETS ARE NOT USED. LD. AR SUBMITTED THAT EVEN IF ASSETS ARE NOT IN USE BUT ARE EXISTING IN THE BLOCK OF ASSETS, DEPRECIATION HAS TO BE ALLOWED. L D. DR, ON THE OTHER HAND, RELIED UPON THE ASSESSMENT ORDER. 41. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. WHILE WE UPHOLD THE VIEW O F AO THAT THE AMOUNT CANNOT BE WRITTEN OFF TILL IT EXISTS IN THE BLOCK OF ASSETS, BUT AT THE SAME TIME, WE ARE OF THE VIEW THAT IF DEPRECIAT ION IS ALLOWED IN THE PRECEDING YEARS ON SUCH ASSETS AND IT STILL FORMS P ART OF THE BLOCK, DEPRECIATION CANNOT BE DISALLOWED IN THE IMPUGNED A Y. ACCORDINGLY, WE REMIT THE ISSUE BACK TO THE FILE OF AO FOR DECID ING AFRESH AFTER VERIFYING FACTS. THIS GROUND IS ALLOWED FOR STATIST ICAL PURPOSES. 42. IN GROUND NO. 17, ASSESSEE HAS RAISED THE ISSUE OF NOT ALLOWING CREDIT OF TDS. IT IS SUBMITTED THAT IN THE ASSESSM ENT ORDER, AO HAS GIVEN CREDIT FOR TDS OF RS. 5,29,05,228 WHEREAS THE TDS CREDIT AS PER ON LINE FORM 26AS IS RS. 6,31,29,041. 43. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. AS CAN BE SEEN, DRP HAS SP ECIFICALLY 29 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. DIRECTED AO TO ALLOW TDS CREDIT AS PER FORM 26AS. C ONSIDERING THE AFORESAID FACT, WE REMIT THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO ALLOW TDS CREDIT TO ASSESSEE AS PER FO RM 26AS. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 44. IN GROUND NO. 17, ASSESSEE HAS RAISED THE ISSUE OF WRONG CALCULATION OF INTEREST U/S 234D ON THE EXCESS REFU ND ISSUED U/S 143(1). 45. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIE S AND PERUSING THE MATERIALS ON RECORD, WE ARE INCLINED TO REMIT T HIS ISSUE BACK TO THE FILE OF AO FOR DECIDING AFRESH AFTER CONSIDERING TH E SUBMISSIONS OF ASSESSEE AND VERIFYING THE EVIDENCES PRODUCED BEFOR E HIM. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 46. GROUND NO. 18 IS ON INITIATION OF PENALTY PROCE EDINGS U/S 271(1)(C) OF THE ACT. THIS GROUND BEING PREMATURE A T THIS STAGE, IS NOT REQUIRED TO BE ADJUDICATED UPON, HENCE, THE SAME IS DISMISSED. ITA NO. 419/HYD/2014 BY REVENUE 47. THE ONLY EFFECTIVE GROUND RAISED BY THE DEPARTM ENT IS AS UNDER: 2. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE T HE DRP IS CORRECT IN DIRECTING THE AO TO ADOPT FOREIGN EXCHAN GE GAIN/LOSS AS OPERATING INCOME/LOSS FOLLOWING THE DECISION OF ITAT, HYDERABAD BENCH IN THE CASE OF M/S FOURSOFT LTD., A S THE DECISION IN THE CASE OF M/S FOURSOFT LTD. HAS NOT B ECOME FINAL AS FURTHER APPEAL PREFERRED AGAINST THE SAME HAS BE EN ADMITTED BY THE HONBLE HIGH COURT OF AP IN ITA NO. 274 OF 2 012. 48. WHILE COMPUTING OPERATING MARGIN, TPO TREATED F OREIGN EXCHANGE GAIN OF RS. 5,08,60,846 AND MISCELLANEOUS OPERATING INCOME OF RS. 10,17,414 AS NOT PART OF OPERATING IN COME. HOWEVER, DRP HELD THAT FOREIGN EXCHANGE GAIN/LOSS HAS TO BE TAKEN AS PART OF OPERATING INCOME/LOSS. THE OBSERVATIONS OF DRP ARE EXTRACTED HEREUNDER: 4.4 IN THE FOURTH GROUND, TAXPAYER RAISED AN OBJEC TION FOR THE EXCLUDING FOREX GAIN OF RS. 5,01,50,845 AND MISCELL ANEOUS 30 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. OPERATING INCOME OF RS. 10,17,414 WHILE COMPUTING T HE OPERATING MARGIN OF THE ASSESSEE AND DETERMINING TP ADJUSTMENT. IT WAS ARGUED BY THE ASSESSEE THAT THE EXCHANGE GAIN/LOSS ARISING IN THE NORMAL COURSE OF BUSINESS SHOULD BE CONSIDERED IN COMPUTING THE NET MARGINS. THE ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN UPHELD IN A PLETHORA OF TP RULINGS. THE TPO IN HIS ORDER AT PAGE 56 AT PARA 26.2 STATED THA T EXTRAORDINARY EXPENSES OR INCOME WHICH DO NOT RECUR EVERY YEAR LIKE DONATIONS, PRELIMINARY EXPENSES WRITTEN OFF, P UBLIC ISSUE EXPENSES WRITTEN OFF ARE NOT CONSIDERED AS OPERATIN G EXPENSES AS THE COMPARISON OF THE PROFITS SHOULD BE AT THE S AME LEVEL FOR THE COMPARABLE AND THAT OF THE TAXPAYER. FURTHER, F OREIGN EXCHANGE GAIN/LOSS HAS BEEN TAKEN AS OPERATING INCO ME/LOSS FOLLOWING THE DECISION OF HON. ITAT BANGALORE IN TH E CASE OF SAPLAPS LTD. & TRILOGY EBUSINESS SOFTWARE INDIA P. LTD. & DECISION OF HON. ITAT HYDERABAD IN THE CASE OF FOU RSOFT LTD. IN VIEW OF THE ABOVE, THE GROUND OF THE ASSESSEE SUCCE EDS. 49. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF DRP. AS CAN BE SEEN, DRP HAS FOLLOWED THE DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUNAL WHILE HOLDING T HAT FOREIGN EXCHANGE GAIN/LOSS HAS TO BE TREATED AS PART OF OPE RATING INCOME/LOSS. MOREOVER, AS CAN BE SEEN FROM THE GROU ND RAISED, DEPARTMENT IS CHALLENGING THE DECISION OF DRP ONLY ON THE GROUND THAT DECISIONS OF ITAT, HYDERABAD BENCHES IN CASE O F FOURSOFT LTD. HAS NOT BECOME FINAL AND THE APPEAL PREFERRED AGAIN ST THE SAME HAS BEEN ADMITTED BEFORE THE HONBLE AP HIGH COURT. TH IS, IN OUR VIEW, WILL NOT BE A VALID REASON TO DISTURB THE ORDER OF LD. DRP. ACCORDINGLY, WE UPHOLD THE SAME BY DISMISSING THE GROUND. 50. IN THE RESULT, ASSESSEES APPEAL IN ITA NO. 604 /HYD/14 IS PARTLY ALLOWED AND DEPARTMENTS APPEAL IN ITA NO. 419/HYD/ 14 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 13/02/2015. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 13 TH FEBRUARY, 2015 31 ITA NO. 604 & 419/HYD/2014 TNS INDIA PVT. LTD. KV COPY TO:- 1) M/S TNS INDIA PVT. LTD., PLOT NO. 17, ROAD NO. 3 , BANJARA HILLS, HYDERABAD 500 034. 2)DC IT,CIRCLE 2(3), HYDERABAD 3)DRP, HYDERABAD 4) TPO, HYDERABAD 4) DIT (INTERNATIONAL TAXATION), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.
