DCIT, V. M/s ISG Nova Soft Technology Pvt. Ltd.,

ITA 610/BANG/2013

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2315 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-02-2020
• Assessment Year: 2008-2009
• Appeal Filed On: 03-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R PREMI J C IT BENGALURU
• Assessee Lawyers: S VASUDEVAN
• Keywords: Transfer pricing; International transaction
• Section: 250; 13; 92CA; 154; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A.K.GARODIA, ACCOUNTANT MEMBER IT (TP) A NO. 2485 / DEL /20 13 ASSESSMENT YEAR: 20 08 - 09 M/S ISG NOVASOFT TECHNOLOGIES LTD. 2 ND FLOOR, MARUTHI SAPPHIRE 128/9, MADIWALA MACHIDEVA ROAD, MURUGESHPALYA, BANGALORE - 560017 PAN: AABCI 2488Q VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1). BENGALURU. [FORMERLY ITO, WARD 11(4), NEW DELHI]. APPELLANT RESPONDENT IT (TP) A NO. 610/B ANG/2013 ASSESSMENT YEAR: 2008 - 09 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1). BANGALORE. VS. M/S ISG NOVASOFT TECHNOLOGIES LTD., BANGALORE. PAN: A A BCI 2488Q APPELLANT RESPONDENT A SSESSEE BY : S HRI S. VASUDEV AN , ADVOCATE. REVENUE BY : S MT R. PREMI , JCIT ( DR)(ITAT),BENGALURU. DATE OF HEARING : 11.03 .2020 DATE OF PRONOUNCEMENT : 20 .03 .2020 IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 2 OF 19 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT IT((TP)A NO.2485/DEL/2013 IS AN APPEAL BY THE ASS ESSEE WHILE IT(TP)A NO.610/BANG/2013 IS APPEAL BY THE REVENUE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 25.2.2013 OF C IT(APPEALS)-XX, NEW DELHI, RELATING TO ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED IN THE APPEAL BY THE ASSESSEE (AS PER AMENDED GROUNDS) AND THE GROUNDS OF APPEAL RAISED BY THE RE VENUE IN ITS APPEAL ARE WITH REGARD TO DETERMINATION OF ARMS LENGTH PRICE (ALP) AND ARE CONNECTED TO THE GROUNDS RAISED BY THE REVENUE IN I TS APPEAL. AS FAR AS THE ISSUE OF DETERMINATION OF ALP OF INTERNATIONAL TRAN SACTIONS CARRIED OUT BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE (AE) IS CONCERNED, THE SAME IS IN RESPECT OF INFORMATION TECHNOLOGY ENABLED SERVIC ES (ITES). DURING THE PREVIOUS YEAR, THE ASSESSEE RENDERED INFORMATION TE CHNOLOGY ENABLED SERVICES [ITES] TO ITS AE. AS REQUIRED UNDER THE PR OVISIONS OF SECTION 92 OF THE INCOME TAX ACT, 1961 (ACT), INCOME ARISING FROM INTERNATIONAL TRANSACTION WITH AE HAS TO BE COMPUTED HAVING REGAR D TO THE ARMS LENGTH PRICE [ALP]. THE ASSESSEE FILED A TRANSFER PRICING [TP] STUDY JUSTIFYING THE AMOUNT THAT IT RECEIVED FOR PROVIDING ITES TO ITS A E AS ONE AT ARMS LENGTH. THE ASSESSEE RECEIVED A SUM OF RS.20,05,56,461 FROM ITS AE FOR PROVIDING ITES. THE ASSESSEE IN ITS TP STUDY JUSTIFYING THE A MOUNT RECEIVED FROM ITS AE IS AT ARMS LENGTH, SELECTED THE TRANSACTIONAL N ET MARGIN METHOD [TNMM] AS THE MOST APPROPRIATE METHOD(MAM). THE ASS ESSEE ADOPTED OPERATING PROFIT TO OPERATING COST (OP/OC) AS THE P ROFIT LEVEL INDICATOR (PLI) FOR COMPARISON OF ASSESSEES NET PROFIT MARGI N WITH THAT OF COMPARABLE COMPANIES. THE ASSESSEE SELECTED COMPAR ABLE COMPANIES AND CLAIMED THAT THE AVERAGE ARITHMETIC PROFIT MARG IN OF THOSE COMPANIES WHEN COMPARED WITH THAT OF THE ASSESSEES PROFIT MA RGIN WAS AT ARMS IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 3 OF 19 LENGTH AFTER BENEFIT OF (+)/(-) VARIATION TO THE PR OFIT MARGIN PERMITTED BY THE SECOND PROVISO TO SEC.92CA(2) OF THE ACT. 3. THE TRANSFER PRICING OFFICER (TPO) TO WHOM THE REJECTED THE TRANSFER PRICING ANALYSIS OF THE ASSESSEE AND HE FI NALLY PROPOSED FINAL SET OF 20 COMPARABLE COMPANIES AND THE ARITHMETIC MEAN OF PROFIT MARGINS OF THOSE COMPARABLE WAS AS FOLLOWS:- S L.NO. NAME OF THE COMPANY 1 ACCENTIA TECHNOLOGIES LTD. (SEG.) 2 ACROPETALTECHNOLOGIES LTD. (SEG.) 3 ADITYA BIRLA MINACS WORLDWISE LIMITED (EARLIER KNOWN AS TRANSWORKS INFORMATION SERVICES LTD.) 4 ASIT C MEHTA FINANCIAL SERVICES LTD. (SEG.) 5 CALIBER POINT BUSINESS SOLUTIONS LTD. 6 CORAL HUBS LTD. (EARLIER KNOWN AS VISHAL INFORMATION TECHNOLOGIES LTD.) 7 COSMIC GLOBAL LTD. 8 CROSSDOMAIN SOLUTIONS LTD. 9 DATAMATICS FINANCIAL SERVICES LTD. (SEG.) 10 E4E HEALTHCARE SOLUTIONS LTD. (FORMERLY KNOWN AS NITTANY OUTSOURCING SERVICES PVT. LTD.) 11 ECLERX SERVICES LTD . 12 GENESYS INTERNATIONAL CORPORATION LTD. 13 INFOSYS BPO LTD. 14 ISERVICES INDIA PVT. LTD. 15 HCL COMNET SYSTEMS & SERVICES LTD.(SEG.) 16 MOLD-TEK TECHNOLOGIES LTD. 17 R SYSTEMS INTERNATIONAL LTD. (SEG.) 18 SPANCO LTD. (SEG.) [EARLIER KNOWN AS SPANCO TELESYSTEMS & SOLUTIONS LTD.) 19 WIPRO LTD. (SEG.) 20 ICRA TECHNO ANALYTICS LTD. (SEG.) IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 4 OF 19 4. THE AVERAGE ARITHMETIC MEAN PROFIT MARGIN OF THE AFORESAID 20 COMPANIES AFTER WORKING CAPITAL ADJUSTMENT WAS 25.4 0%. THE TPO DETERMINED THE ALP OF THE INTERNATIONAL TRANSACTION AND THE CONSEQUENT ADDITION/ADJUSTMENT TO THE TOTAL INCOME AS FOLLOWS: - COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. (PLEASE SEE ANNEXURE E FOR DETA ILS OF COMPUTATION OF PLI OF THE COMPARABLES). BASED ON TH IS, THE ARMS LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES R ENDERED BY THE TAXPAYER TO ITS AE(S) IS COMPUTED AS UNDER: ARMS LENGTH MEAN PLI 29.16% LESS: WORKING CAPITAL ADJUSTMENT (AS PER ANNEXURE-C) 3.76% ADJUSTED MEAN MARGIN OF THE COMPARABLES 25.40% OPERATING COST RS.18,28,28,461 ARMS LENGTH MARGIN 25.40% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) RS.22,92,66,890 PRICE RECEIVED RS.20,05,56,461 SHORTFALL BEING ADJUSTMENT U/S. 92CA RS.2,87,10,429 THE ABOVE SHORTFALL OF RS.2,87,10,249/- IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S. 92CA. 5. THE ABOVE ADJUSTMENT SUGGESTED BY THE TPO WAS IN CORPORATED IN THE DRAFT ASSESSMENT ORDER BY THE AO AS AN ADDITION TO THE TOTAL INCOME. AGAINST THE DRAFT ASSESSMENT ORDER OF THE AO INCORP ORATING THE ADJUSTMENT TO THE ALP AS PROPOSED BY THE TPO, THE ASSESSEE DID NOT FILE ANY OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE AO PASSED FINAL ASSESSMENT ORDER. AGAINST THE FINAL ASSESSMENT ORD ER, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 5 OF 19 6. THE CIT(A) DIRECTED EXCLUSION OF GENESYS INTERNA TIONAL CORPORATION LTD., CORAL HUB LTD., AND MOLD-TEK TECHNOLOGIES LTD ., FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. THE CIT(A) WHILE COMPUTING THE AVERAGE ARITHMETIC MEAN MARGIN OF THE REMAINING 17 COMPARABLE COMPANIES ARRIVED AT A PROFIT MARGIN OF 24.23%. TH ERE WERE SOME CLERICAL ERRORS IN THE SAID CALCULATION DONE BY THE CIT(A). THIS WAS POINTED OUT BY THE ASSESSEE TO THE CIT(A) IN AN APPLICATION FILED U/S.154 OF THE ACT DATED 7.5.2013 FILED IN THE OFFICE OF THE CIT(A) ON 29.5. 2013. THE SAME IS AS FOLLOWS:- WE REFER TO YOUR ORDER UNDER SECTION 250 OF THE AC T DATED 25 FEBRUARY 2013 (ENCLOSED ANNEXURE- 1) RECEIVED BY US ON 28 FEBRUARY 2013. IN THIS REGARD, WE WISH TO HIGHLIGHT THE FOLLOWING MISTAKES WHICH WERE APPARENT ON RECORD: IN THIS SAID ORDER (TABLE 2 PAGE 50 OF THE ORDER) . WE OBSERVE THAT YOUR GOODSELF HAS ERRONEOUSLY COMPUTED THE MAR GINS OF VARIOUS COMPARABLE COMPANIES. THE SAME IS ELUCIDATE D BELOW YOUR GOODSELFS REFERENCE: COMPANY NAME AY 2008-09 AS PER YOUR GOODSELFS ORDER RECTIFIED MARGINS ACCENTIA TECHNOLOGIES LTD. (SEG.) 39 .60% 39.60% ACROPETAL TECHNOLOGIES LTD. (SEG.) 2.56% 27.97% ADITYA BI RLA MINACS WORLDWISE LIMITED 27.97% - 9.25% ASIT C MEHTA FINANCIAL SERVICES LTD. - 9.25% 6.86% CALIBER POINT BUSINESS SOLUTIONS LTD. (SEG.) 6.86% 6.46% CORAL HUBS LTD. ( VISHAL INFORM ATION) * 6.64% REJECTED * COSMIC GLOBAL LTD. 39.12% 23.3 8% CROSSDOMAIN SOLUTION P. LTD. 23.38% 25.37% DATAMATICS FINANCIAL (BPO D IVISION ) 25.37% 32.48% E4E (EARLIER KNOWN NITTANY OUTSOURCING SERVICES PVT. LTD.) 32.48% 14.02% ECLERX SERVICES LTD. 14.02% 64.07% G ENESYS INTERNATIONAL LTD. REJECTED REJE CTED HCL COMNET SYSTEMS & SERVICES LTD.(SEG.) 44.07% 29.58% IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 6 OF 19 ICRA ONLINE LTD. (SEG .) 29.58% 7.57% INFOSYS BPO LTD . 7.57% 18.12% I - SERVICE IND P L TD 18.12% 7. 7 1 % MOLD - TEK TECHNOLOGIES LTD. REJECTED REJECT ED R SYSTEMS INTERNATIONAL LTD. (SEG.) 35.51% 2.56% SPANCO TELESYSTEMS & SOLUTIONS LTD (SEG)(CONSOLIDATED) 89.53% 3.02% WIPRO LTD. (SEG.) 3.02% 35.51% AVERAGE 24.23% 19.72% *YOUR GOODSELF HAS REJECTED VISHAL INFORMATION TECH NOLOGIES LIMITED IN THE SAID ORDER. HOWEVER, THE SAME HAS BEEN ERRONEOUSLY INCLU DED IN THE MARGIN COMPUTATION FOR AY 2008-09. CONSEQUENT TO THE ABOVE RECTIFICATION, THE COMPUTAT ION OF ADJUSTMENT SUSTAINED / RELIEF PROVIDED TO THE APPELLANT WOULD READ AS FOLL OWS (TABLE -4, PAGE 51 OF THE ORDER): PARTICULARS AY 2008 - 0 9 AS PER YOUR GOODSELFS ORDER RECTIFIED MARGINS OPERATING REVENUE 227,127,797 218,880,083 OPERATING COST 182,828,461 182,828,461 OPERATING PROFIT 44,299,336 36,051,622 OPERATING MARGIN (OP/OC) 24.23% 19.72% P RICE OF INTERNATIONAL TRANSACTION SHOWN 200,556 ,461 200,556,461 ADJUSTMENT SUSTAINED 26,571,336 18,323,622 ADJUSTMENT AS PER TPO 28,710,429 28,710,429 RELIEF GIVEN TO THE APPELLANT 2,139,093 10,386,807 BASED ON THE ABOVE, WE HUMBLY REQUEST YOUR GOODSELF TO RECTIFY THE MISTAKE APPARENT FROM RECORD IN YOUR ORDER DATE D 25 FEBRUARY 2013, AS EXPLAINED IN ABOVE PARAGRAPHS BY PASSING A N ORDER UNDER SECTION 154 OF THE ACT. 7. IT WAS STATED THAT THE SAID APPLICATION IS STILL PENDING CONSIDERATION BEFORE THE CIT(A). IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 7 OF 19 8. AGGRIEVED BY THE ORDER OF THE CIT(A) IN EXCLUDIN G GENESYS INTERNATIONAL CORPORATION LTD., AND MOLD-TEK TECHNO LOGIES LTD., FROM THE LIST OF COMPARABLE COMPANIES, THE REVENUE IS IN APPEAL B EFORE THE TRIBUNAL. 9. AGGRIEVED BY THE ORDER OF THE CIT(A) IN NOT EXC LUDING SOME OF THE COMPARABLE COMPANIES WHICH THE ASSESSEE SOUGHT EXCL USION BEFORE THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL. 10. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE PRAYED FOR ADJUDICATION OF AMENDED GROUNDS RELATING TO EXC LUSION OF THE FOLLOWING SIX COMPARABLE COMPANIES, VIZ., ACCENTIA TECHNOLOGI ES LTD., ACROPETAL TECHNOLOGIES LTD., CROSSDOMAIN SOLUTIONS PVT. LTD., ECLERX SERVICES LTD., INFOSYS BPO LTD., AND WIPRO LTD. THEREFORE THE COM PARABILITY OF THE 8 COMPANIES VIZ., THE TWO COMPANIES EXCLUDED BY CIT(A ) WHICH THE REVENUE CHALLENGES IN THEIR APPEAL AND THE 6 COMPANIES WHIC H THE ASSESSEE SEEKS EXCLUSION ALONE NEED TO BE ADJUDICATED AND NO OTHER GROUND OF APPEAL WAS PRESSED FOR ADJUDICATION ON BEHALF OF THE ASSESSEE. 11. THE LEARNED COUNSEL FOR THE ASSESSEE FILED BEFO RE US A COPY OF THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA (P) LTD. VS. ITO (2013) 83 TAXMANN. COM 55 (BANGALORE- TRIB.) WHEREIN THE COMPARABILITY OF ALL THE AFORESAID 8 C OMPANIES WERE CONSIDERED BY THE TRIBUNAL. IT IS NOT DISPUTED BEF ORE US THAT THE FUNCTIONAL PROFILE OF THE ASSESSEE AND THAT OF THE CASE DECIDE D BY THE TRIBUNAL ARE IDENTICAL I.E., BOTH ARE IN ITES. THE FACT THAT 18 OUT OF THE 20 COMPARABLE COMPANIES CHOSEN IN THE CASE OF THE ASSESSEE AND IN THE CASE DECIDED BY THE TRIBUNAL BY ITSELF WOULD SHOW THAT THE FUNCTION AL PROFILE OF THE TWO COMPANIES ARE SIMILAR. THEREFORE THE RATIO LAID DO WN IN THE DECISION CITED BEFORE US, WHICH IS ALSO IN RELATION TO AY 2008-09, CAN SAFELY BE APPLIED IN THE PRESENT CASE ALSO. WE SHALL NOW SEE THE RELEVA NT PORTION OF THE IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 8 OF 19 DECISION OF THE TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTIONS (SUPRA) . 12. IN PARAGRAPH-9 ONWARDS OF THE ORDER CITED BEFOR E US, THE COMPARABILITY OF ALL THE 8 COMPANIES HAVE BEEN DISC USSED AND HELD THAT THESE 8 COMPANIES ARE NOT FUNCTIONALLY COMPARABLE W ITH A COMPANY RENDERING ITES SUCH AS THE ASSESSEE. THE RELEVANT CONCLUSIONS OF THE TRIBUNAL IS AS FOLLOWS:- 9. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PAR TIES. THE LD. COUNSEL FOR THE ASSESSEE FILED BEFORE US SUBMISSION S ON EACH OF THE COMPANIES THAT WERE CONSIDERED AS COMPARABLE BY THE TPO AND HAS ALSO EXPLAINED AS TO WHY THOSE COMPANIES CA NNOT BE CONSIDERED AS COMPARABLE. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE TPO AND THE DIRECTIONS OF THE D RP, WHEREIN THE DRP HAS GIVEN REASONS AS TO WHY THE OBJECTIONS OF THE ASSESSEE TO ADOPT COMPARABLE PROPOSED BY THE TPO SH OULD NOT ACCEPTED. WE WILL DEAL WITH THESE OBJECTIONS WHILE WE TAKE UP THE INDIVIDUAL COMPARABLE COMPANIES FOR CONSIDERATION. (1) ACCENTIA TECHNOLOGIES LTD. (SEG.) 10. THIS WAS CONSIDERED AS A COMPARABLE BY THE TP O AND LISTED AT SL.NO.1 OF THE COMPARABLE COMPANIES CHOSE N BY THE TPO. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTE NTION TO THE FACT THAT THERE ARE EXTRA ORDINARY EVENTS THAT OCCU RRED DURING THE PREVIOUS YEAR IN THIS COMPANY. OUR ATTENTION WAS DR AW TO THE ANNUAL REPORT OF THIS COMPANY FOR THE A.Y. 2007-08 WHEREIN THE FACT THAT THIS COMPANY HAD ACQUIRED THUNGA SOFTWARE PVT. LTD., GSR PHYSICIANS BILLING SERVICES INC., GSR SYSTEMS I NC. AND DENMED INC. IS MENTIONED. OUR ATTENTION WAS ALSO DR AWN TO THE DECISION OF THE HYDERABAD ITAT BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS INDIA PVT. LTD. V. DCIT (2013) 32 TAXMAN.COM 21 (HYD. TRIB). IN THE AFORESAID DECISIO N, THE HYDERABAD BENCH OF THE TRIBUNAL HAD TO DEAL WITH A CASE OF DETERMINATION OF ALP IN THE CASE OF AN ASSESSEE WHO WAS PROVIDING ITES BUSINESS SUPPORT SERVICES FOR THE A. Y. 2007-08. THE TPO HAD CONSIDERED ACCENTIA TECHNOLOGIES LTD. A S A COMPARABLE. THE DRP HOWEVER HELD THAT THE SAID COMP ANY IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 9 OF 19 CANNOT BE COMPARED AS A COMPARABLE OWING TO EXTRA O RDINARY EVENTS THAT TOOK PLACE DURING THE PREVIOUS YEAR. TH E TRIBUNAL UPHELD THE ORDER OF THE DRP OBSERVING AS FOLLOWS:- I. ACCENTIA TECHNOLOGIES LTD. 10. IT IS THE SUBMISSION OF THE ASSESSEE THAT THI S COMPANY CANNOT BE TREATED AS A COMPARABLE BECAUSE O F UNCOMPARABLE FINANCIAL RESULTS ARISING OUT OF AMALGAMATION IN THE COMPANY. IN THIS REGARD, THE AS SESSEE HAS RELIED UPON THE ORDER OF THE DRP FOR THE ASSESS MENT YEAR 2008-09 IN ASSESSEE'S OWN CASE. IT IS SEEN THA T THE DRP WHILE CONSIDERING SIMILAR OBJECTION PLACED BY T HE ASSESSEE IN THE CASE OF ANOTHER COMPANY, VIZ. MOLD TEK TECHNOLOGIES LTD., IN THE PROCEEDINGS RELATING TO T HE ASSESSMENT YEAR 2008-09, HAS OBSERVED IN THE FOLLOW ING MANNER- '17.5. IN ADDITION TO THE ABOVE, THE DIRECTOR'S REP ORT OF THE COMPANY FOR THE FY 2007-08 REVEALED THE MERGER AND THE DEMERGER. A COMPANY KNOWN AS TECHMEN TOOLS PVT. LTD. HAD AMALGAMATED WITH MOLD-TEK TECHNOLOGIES LTD. WITH EFFECT FORM 1ST OCTOBER, 2006. THERE WAS A DE-MERGER OF PLASTIC DIVISION OF THE COMPANY AND THE RESULTING COMPANY I S KNOWN AS MOLDTEK PLASTICS LIMITED. THE DE-MERGER FROM THE MOLDTEK TECHNOLOGIES TOOK PLACE WITH EFFECT FROM 1ST APRIL, 2007. THE MERGER AND THE DE- MERGER NEEDED THE APPROVAL OF THE HON'BLE HIGH COURT OF ANDHRA PRADESH AND ALSO THE APPROVAL OF TH E SHAREHOLDERS. THE SHAREHOLDERS OF THE COMPANY GAVE APPROVAL FOR THE MERGER AND THE DE-MERGER ON 25.01.2008 AND THE HON'BLE HIGH COURT OF ANDHRA PRADESH HAD APPROVED THE MERGER AND DE-MERGER ON 25TH JULY, 2008. SUBSEQUENTLY, THE ACCOUNTS OF MOLDTEK TECHNOLOGIES FOR FY 2007-08 WERE REVISED. ON A PERUSAL OF THE ANNUAL REPORT IT IS NOTICED THA T TECKMEN TOOLS PVT. LTD. AND THE PLASTIC DIVISION OF THE COMPANY WERE DEMERGED AND THE RESULTING COMPANY WAS NAMED AS MOLDTEK PLASTICS LTD. THE KPO BUSINESS REMAINED WITH THE COMPANY. A PERUSAL OF THE ANNUAL REPORT REVEALED THAT TO GIVE EFFECT T O THE MERGER AND DEMERGER, THE FINANCIAL STATEMENTS IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 10 OF 19 WERE REVISED AND RESTATED AFTER SIX MONTHS FORM THE END OF THE FINANCIAL YEAR 31.3. 2008. THE ASSESSEE FILED FORM NO.21 UNDER THE COMPANIES ACT WITH THE REGISTRAR OF COMPANIES ON 26TH AUGUST, 2008. THUS THE EFFECTIVE DATE OF THE SCHEME OF MERGER AND DEMERGER WAS 26TH AUGUST, 2008. THE ANNUAL REPORT SUPPORTED THE ARGUMENT OF THE ASSESSEE THAT THERE WERE MERGER AND DEMERGER IN THE FINANCIAL YEAR AND IT WAS AN EXCEPTIONAL YEAR OF PERFORMANCE AS FINANCIAL STATEMENTS WERE REVISED BY THIS COMPANY MUCH AFTER THE CLOSURE OF THE PREVIOUS YEAR. THE PANEL AGREES WITH THE CONTENTION OF THE ASSESSEE THAT IT IS AN EXCEPTIONAL YEAR HAVING SIGNIFICANT IMPACT ON THE PROFITABILITY ARISING OUT OF MERGER A ND DEMERGER.' 11. ON CAREFUL CONSIDERATION OF THE MATTER, WE AL SO AGREE WITH THE AFORESAID VIEW OF THE DRP THAT EXTRA - ORDINARY EVENT LIKE MERGER AND DE-MERGER WILL HAVE AN EFFECT ON THE PROFITABILITY OF THE COMPANY IN THE F INANCIAL YEAR IN WHICH SUCH EVENT TAKES PLACE. IT IS THE CON TENTION OF THE ASSESSEE THAT IN CASE OF THE AFORESAID COMPA NY, THERE IS AMALGAMATION IN DECEMBER, 2006, WHICH HAS IMPACTED THE FINANCIAL RESULT. THIS FACT HAS TO BE VERIFIED BY THE TPO. IF IT IS FOUND UPON SUCH VERIFICATION T HAT THE AMALGAMATION IN FACT HAS TAKEN PLACE, THEN THE AFOR ESAID COMPARABLE HAS TO BE EXCLUDED. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. C OUNSEL FOR THE ASSESSEE AND ARE OF THE VIEW THAT THE RATIO LAID DO WN BY THE HYDERABAD BENCH OF THE ITAT IS SQUARELY APPLICABLE TO THE PRESENT CASE ALSO. IT IS CLEAR THAT DURING THE PREV IOUS YEAR THERE WERE EXTRA ORDINARY EVENTS THAT TOOK PLACE IN THIS COMPANY WHICH WARRANTS EXCLUSION OF THIS COMPANY AS A COMPARABLE. WE THEREFORE HOLD THAT THIS COMPANY CANNOT BE CONSIDER ED AS A COMPARABLE. (2) ACROPETAL TECHNOLOGIES LTD. (SEA.) 12. THIS COMPANY IS LISTED AT SL.NO.2 OF THE COMPAR ABLES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, TH E OBJECTION OF THE ASSESSEE IS THAT THIS COMPANY IS NOT FUNCTIONAL LY COMPARABLE. THE ASSESSEE IS A BPO COMPANY THAT PROVIDES MARKET ANALYTICS IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 11 OF 19 AND DATA MANAGEMENT SERVICES. TO PROVIDE MARKET ANA LYTICS SOLUTIONS, THE ASSESSEE GIVES STRATEGIES THAT IMPAC T ON CLIENT REVENUE INCLUDING DATA BASED MARKETING STRATEGIES F OR CUSTOMER ACQUISITION, DEVISING CUSTOMER RETENTION STRATEGIES AND EXCLUDING LOSS MITIGATION STRATEGIES THROUGH CUTTING EDGE FOR ECASTING TOOLS. THE DATA MANAGEMENT SERVICES PROVIDED BY THE ASSESS EE INCLUDE ROUTINE BUSINESS DATA REPORTING AND MANAGEMENT, WEB SITE MANAGEMENT, MARKETING DATA ANALYSIS AND TOP LINE RE PORTING. AS FAR AS ACROPETAL TECHNOLOGIES LTD. IS CONCERNED, TH IS COMPANY DOES THE BUSINESS OF EXPORT OF SOFTWARE SERVICES. I T IS ALSO SEEN FROM THE SEGMENTAL REVENUE OF THIS COMPANY (NOTE 15 TO THE NOTES ON ACCOUNTS TO ANNUAL REPORT FOR 07-08) THAT IT DERIVES INCOME FROM ENGINEERING DESIGN SERVICES AND SOFTWAR E DEVELOPMENT SERVICES. IT IS ALSO PERTINENT TO POINT OUT THAT BEFORE THE TPO, THE ASSESSEE RAISED AN OBJECTION THAT THIS COMPANY PERFORMS DIFFERENT FUNCTIONS AND MAINLY ENGAGED IN THE AREA OF SOFTWARE DEVELOPMENT SERVICES AND ENGINEERING DESIG N SERVICES. THE TPO IN HIS ORDER HAS OBSERVED THAT THE SERVICES RENDERED BY THIS COMPANY FALL IN THE DEFINITION OF ITES. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED COUNSEL FOR THE ASSESSEE. ON A PERUSAL OF THE NOTE NO.15 OF NOTES TO ACCOUNTS WHICH GIVES SEGMENTAL REVENUE OF THIS COMP ANY, IT IS CLEAR THAT THE MAJOR SOURCE OF INCOME FOR THIS COMP ANY IS FROM PROVIDING ENGINEERING DESIGN SERVICE AND INFORMATIO N TECHNOLOGY SERVICES. THE FUNCTIONS PERFORMED BY THE ENGINEERING DESIGN SERVICES SEGMENT OF THE COMPANY CANNOT BE CONSIDERED AS COMPARABLE TO THE ITES/BPO FUNCTIONS PERFORMED BY THE ASSESSEE. THE PERFORMANCE OF ENGINEERING DES IGN SERVICES IS REGARDED AS PROVIDING HIGH END SERVICES AMONG THE BPO WHICH REQUIRES HIGH SKILL WHEREAS THE SERVICES PERFORMED BY THE ASSESSEE ARE ROUTINE LOW END ITES FUNCTIONS. WE THEREFORE HOLD THAT THIS COMPANY COULD NOT HAVE BEEN SELECTED AS A COMPARABLE, ESPECIALLY WHEN IT PERFORMS ENGINEERING DESIGN SERVICES WHICH ONLY A KNOWLEDGE PROCESS OUTSOURCING [KPO] WOULD DO AND NOT A BUSINESS PROCESS OUTSOURCING [BP O]. (4) CROSSDOMAIN SOLUTIONS LTD. 18. THIS COMPANY WAS CONSIDERED AS A COMPARABLE AND LISTED AT SL.NO.8 OF THE COMPARABLES CHOSEN BY THE TPO. IT IS THE STAND OF IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 12 OF 19 THE ASSESSEE THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE. AS OBSERVED IN THE CASE OF CORAL HUBS LTD., THE TPO RE JECTED THE PLEA OF THE ASSESSEE ON THE BASIS OF A NON-EXISTENT TP ORDER PASSED FOR THE A.Y. 2007-08. IT IS SEEN THAT THE BU SINESS PROFILE OF THIS COMPANY IS RE-ENGINEERED PAYROLL SERVICE. THIS COMPANY IS ALSO ENGAGED IN THE DEVELOPMENT OF INFORMATION SYST EMS. THESE ACTIVITIES ARE TOTALLY DIFFERENT FROM THE ACTIVITIE S OF THE ASSESSEE WHICH PERFORM VERY LIMITED/LOW END FUNCTIONS BACK O FFICE SERVICES. THE REVIEW AND BUSINESS FUNCTIONS OF CROS S DOMAIN IS AS FOLLOWS:- WITH A DECADE OF EXPERIENCE IN PAYROLL OUTSOURCING , CROSSDOMAIN HAS CREATED A RE-ENGINEERED PAYROLL SER VICE EFFIPAY - THAT PROCESSES AND DELIVERS ACCURATE PAYR OLL TO CLIENTS WITH HEADCOUNT UP TO 1000 EMPLOYEES IN JUST 4 HOURS*. WITH EFFIPAY LITE AND EFFIPAY LITE PLUS, OU R BOUQUET OF SERVICES COVER END TO END PAYROLL, RETRI ALS, REIMBURSEMENT, TAX PROOF VERIFICATIONS UPTO ISSUE O F FORM 16 FOR EMPLOYEES OF OUR CLIENTS ACROSS DIFFERENT IN DUSTRY VERTICALS. OUR PROCESSES ARE HIGHLY SCALABLE AND PR OVIDE END TO END PAYROLL SOLUTIONS TO CLIENTS WITH HEADCO UNT RANGING FROM 5 TO 65,000. CROSSDOMAINS IT KNOWLEDGE AND DOMAIN COMPETENCE HAS PROVIDED THE EDGE TO DEVELOP INFORMATION SYSTEM S TO IMPLEMENT PROCESS INNOVATION AND CONTINUOUSLY INCRE ASE EFFICIENCY AND TURN-AROUND-TIME FOR BUSINESS CRITIC AL PROCESSES. SOURCE: HTTP://WWW.CROSS-DOMAIN.COM AS CAN BE SEEN FROM THE ABOVE, THE BUSINESS OF CROS S DOMAIN RANGES FROM HIGH END KPO SERVICES, DEVELOPMENT OF P RODUCT SUITES AND ROUTINE LOW END ITES SERVICE. HOWEVER, T HERE IS NO BIFURCATION AVAILABLE FOR SUCH VERTICALS OF SERVICE S. THEREFORE THE ASSESSEE CONTENDS THAT CROSS DOMAIN CANNOT BE COMPA RED TO A ROUTINE ITES SERVICE PROVIDER. 19. WE ARE OF THE VIEW THAT IN THE ABSENCE OF ANY R EASONS GIVEN TO THE CONTRARY EITHER BY THE TPO OR THE DRP FOR REGAR DING THIS COMPANY AS A COMPARABLE, THIS COMPANY SHOULD BE EXC LUDED FROM THE LIST OF COMPARABLES, ACCEPTING THE PLEA OF THE ASSESSEE. WE HOLD ACCORDINGLY. IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 13 OF 19 (5) ECLERX SERVICES LTD. 20. THIS COMPANY IS LISTED AT SL.NO.11 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. IT IS THE S TAND OF THE ASSESSEE THAT THIS COMPANY OFFERS SOLUTIONS THAT IN CLUDE DATA ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RECONC ILIATION AND THEREFORE HAS TO BE CLASSIFIED AS HIGH END KPO. IN SUPPORT OF THE STAND OF THE ASSESSEE, EXTRACTS FROM THE ANNUAL REP ORT OF THIS COMPANY HAVE BEEN POINTED OUT. IT HAS FURTHER BEEN SUBMITTED THAT EXTRA ORDINARY EVENTS AND PECULIAR CIRCUMSTANC ES PREVAIL IN THE CASE OF THE ASSESSEE IN AS MUCH AS THIS COMPANY ACQUIRED A UK BASED COMPANY WHICH HAS SIGNIFICANTLY CONTRIBUTE D TO THE INCREASE IN THE CUSTOMER AND REVENUE BASE OF THE CO MPANY. THIS TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYST EMS INDIA PVT. LTD. (SUPRA) HAD AN OCCASION TO DEAL WITH COMPARABI LITY OF THIS COMPANY IN THE CASE OF AN ITES COMPANY SUCH AS THE ASSESSEE AND THE TRIBUNAL HELD AS FOLLOWS:- 14. THE ASSESSEE HAS OBJECTED FOR THIS COMPANY BEI NG TAKEN AS COMPARABLE MAINLY ON THE GROUND THAT IT WA S HAVING A SUPERNORMAL PROFIT OF 89%, AND AS SUCH IT CANNOT BE TAKEN AS A COMPARABLE IN VIEW OF THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE M/S. TEVA INDIA LTD. (SUPRA). THAT APART, RELYING UPON THE ANNUAL R EPORT OF THE COMPANY, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE HAS CONTENDED THAT THAT THE CONCERNED COMPANY IS ENGAGED IN PROVIDING KNOWLEDGE PROCESS OUTSOURCING(KPO) SERVICES. 15. ON CONSIDERING THE OBJECTIONS OF THE ASSESSEE I N RELATION TO THIS COMPANY, WE ACCEPT THE CONTENTION OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE BOTH FOR THE REASONS THAT IT WAS HAVING SUPERNORMAL PROFIT AND IT IS ENGAGED IN PROVIDING K PO SERVICES, WHICH IS DISTINCT FROM THE NATURE OF SERV ICES PROVIDED BY THE ASSESSEE. 21. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DEC ISION OF THE HYDERABAD BENCH REFERRED TO ABOVE, THIS COMPANY CAN NOT BE REGARDED AS A COMPARABLE FOR THE REASON THAT IT WAS FUNCTIONALLY DIFFERENT. IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 14 OF 19 (6) GENESYS INTERNATIONAL CORPORATION LTD. 22. THIS COMPANY IS LISTED AT SL. NO.12 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE AND THAT IT HAS A DIFFE RENT EMPLOYEE SKILL SET AND THAT THIS COMPANY PERFORMS R&D SERVIC ES AND ALSO OWNS INTANGIBLES. THIS COMPANY IS A GEOSPATIAL SERV ICES CONTENT PROVIDER SPECIALISING IN LAND BASED TECHNOLOGIES. F ROM THE NOTES TO ACCOUNTS OF THIS COMPANY, IT IS SEEN THAT THIS C OMPANY IS ENGAGED IN PROVIDING GEOGRAPHICAL INFORMATION SERVI CES COMPRISING OF PHOTOGRAMMETRY, REMOTE SENSING CARTOG RAPHY, DATA CONVERSION RELATED COMPUTED BASED SERVICES AND OTHE R RELATED SERVICES. FURTHER THE BUSINESS OF THIS COMPANY REQU IRES SKILLED MANPOWER AND SCIENTISTS, CIVIL ENGINEERS, ETC. THE ASSESSEE IS A ROUTINE ITES PROVIDER WHO DOES NOT REQUIRE SUCH HIG HLY SKILLED EMPLOYEES. BESIDES THE ABOVE, THIS COMPANY ALSO CAR RIES OUT R&D SERVICES AND OWN INTANGIBLES. THE AFORESAID FAC TS, IN OUR VIEW, WILL TAKE THIS COMPANY OUT OF THE LIST OF COM PARABLES. WE MAY ALSO POINT OUT THAT THE OBJECTION OF THE ASSESS EE IN THIS REGARD HAS BEEN DISREGARDED BY THE TPO BY MERE OBSERVATION THAT IT CANNOT BE REJECTED ON THE BASIS THAT IT IS INTO DIF FERENT FUNCTIONAL LINE WITHIN ITES. IN THIS REGARD, WE MAY REFER TO T HE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF FIRST ADVAN TAGE OFFSHORE SERVICES LTD. (SUPRA), WHEREIN IT WAS OBSE RVED AS UNDER:- 39. HAVING HEARD BOTH THE PARTIES AND HAVING CONSI DERED THEIR RIVAL CONTENTIONS, WE FIND THAT THE ASSESSEE HAD RAISED ELABORATE OBJECTIONS TO EACH OF THE COMPARAB LES IN GROUP 3 BEFORE THE TPO. THE TPO HAS ALSO REPRODUCED THE SAID OBJECTION IN HIS ORDER PARA 6.5.1. OF PAGE 178 OF HIS ORDER. HE HAS REJECTED THE CONTENTION OF THE ASSESS EE BY HOLDING THAT EVERY FUNCTION WITHIN BPO SECTOR CAN B E FROM LOW END TO HIGH END AND THE ACTIVITIES OF THE ASSES SEE SUCH AS ACCOUNTING, WEB MANAGEMENT, NETWORK MANAGEMENT ARE BPO SERVICES USING TECHNOLOGY BUT THESE SERVICE S ARE NOT CATEGORIZED AS KPO. HE HELD THAT A CALL CENTRE MAY OFFER SUPPORT SERVICES LIKE TELEMARKETING TO HIGH E ND SERVICES LIKE TECHNICAL SUPPORT SERVICES, WHERE NOT ONLY THE LEVEL OF KNOWLEDGE, SKILL REQUIRED WOULD BE HIGH, B UT THE TECHNICAL KNOWLEDGE AS WELL WOULD BE HIGH. ACCORDIN G TO IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 15 OF 19 HIM, BACK OFFICE TRANSACTION PROCESS SERVICES MAY B E AS REMARKABLE AND AS COMPLICATED AS INSURANCE/MARKET TRANSACTION PROCESSING SERVICES. HE, THEREFORE, REJ ECTED THE CONTENTION OF THE ASSESSEE AND TREATED THE BPO AS EQUIVALENT TO KPO SERVICES. 40. WE HAVE TO NOW CONSIDER WHETHER A BPO AND KPO A RE FUNCTIONALLY SIMILAR AND ARE COMPARABLE TO EACH OTH ER. BPO IS A SUB-SET OF OUTSCORING AND INVOLVES THE CONTRACTING OF THE OPERATIONS AND RESPONSIBILITIES OF SPECIFIC BUSINESS FUNCTIONS OR PROCESS TO A THIRD P ARTY SERVICES PROVIDER. OFTEN BUSINESS PROCESSES OUTSOUR CING ARE INFORMATION TECHNOLOGY BASED AND REFERRED TO AS ITES- BPO. KPO IS ONE OF THE SUB-SEGMENT OF THE BPO INDUS TRY. IT INVOLVES OUTSOURCING OF CORE INFORMATION RELATED BUSINESS ACTIVITIES WHICH ARE COMPETITIVELY IMPORTA NT OR FORM AN INTEGRAL PART OF A COMPANYS VALUE CHAIN. I T THUS REQUIRES ADVANCED ANALYTICAL AND TECHNICAL SKILLS A S WELL AS A HIGH DEGREE OF SPECIALIST EXPERTISE. THE KPO SERV ICES INCLUDE ALL KINDS OF RESEARCH AND INFORMATION GATHE RING. THUS IT CAN BE SEEN THAT EVEN THOUGH BOTH BPO AND K PO ARE OFFERING INFORMATION TECHNOLOGY BASED SERVICES, THE SKILL AND EXPERTISE AND MAY BE EVEN THE TOOLS REQUI RED ARE DIFFERENT WHICH MAY RESULT IN DIFFERENT ECONOMIC RE SULTS OF BOTH THE SEGMENTS. THUS, IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT THEY CANNOT BE COMPARED WITH EACH OTHER AND HAVE TO BE EXCLUDED FROM THE LIST OF COMPARABLE S. 23. IT IS THUS CLEAR FROM THE AFORESAID DECISION OF THE TRIBUNAL THAT AMONG THE ITES COMPANIES THERE IS A HIERARCHY IN TE RMS OF SKILL REQUIRED TO PROVIDE SERVICES. IT RANGES FROM PROVID ING ROUTINE SERVICES WHERE NO SKILLS AND REQUIRED AND PROVIDING SERVICES WHERE HIGHLY PROFESSIONALIZED SKILLS ARE REQUIRED. DEPENDING ON THE SKILLS REQUIRED TO PERFORM ITES THE COMPARABILI TY HAS TO BE DONE. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THIS COMPANY CANNOT BE REGARDED AS A COMPARABLE AND DESERVES TO BE EXCLUDED FROM THE LIST OF COMPARABLES. (7) INFOSYS BPO LTD. 24. THIS COMPANY IS LISTED AT SL.13 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS COMPANY HAS A BRAND VALUE AND THEREFORE T HERE WOULD BE IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 16 OF 19 SIGNIFICANT INFLUENCE IN THE PRICING POLICY WHICH W ILL IMPACT THE MARGINS. SCHEDULE 13 TO THE PROFIT & LOSS ACCOUNT O F THIS COMPANY FOR THE F.Y. 2007-08 SHOWS THAT THIS COMPAN Y INCURRED HUGE SELLING AND MARKETING EXPENSES. PAGE 133 OF TH E ANNUAL REPORT OF THIS COMPANY FOR THE F.Y. 2007-08 SHOWS T HAT THIS COMPANY REALIZING ITS BRAND VALUE HAS CHOSEN TO VAL UE THE SAME ON THE BASIS OF ITS EARNINGS AND THAT OF INFOSYS. T HE BRAND VALUE OF THE ASSESSEE AND INFOSYS HAS BEEN VALUED AT RS.3 1,863 CRORES. INFOSYS BPO, BEING A SUBSIDIARY OF INFOSYS, HAS AN ELEMENT OF BRAND VALUE ASSOCIATED WITH IT. THIS IS ALSO CLEAR FROM THE PRESENCE OF BRAND RELATED EXPENSES INCURRED BY THIS COMPANY. PRESENCE OF A BRAND COMMANDS PREMIUM PRICE AND THE CUSTOMERS WOULD BE WILLING TO PAY, FOR THE SERVICES/PRODUCTS OF THE COMPANY. INFOSYS BPO IS AN ESTABLISHED PLAYER WHO I S NOT ONLY A MARKET LEADER BUT ALSO A COMPANY EMPLOYING SHEER BR EADTH IN TERMS OF ECONOMIES OF SCALE AND DIVERSITY AND GEOGR APHICAL DISPERSION OF CUSTOMERS. THE PRESENCE OF THE AFORES AID FACTORS WILL TAKE THIS COMPANY OUT OF THE LIST OF COMPARABL ES. WE THEREFORE ACCEPT THE CONTENTION OF THE ASSESSEE THA T THIS COMPANY CANNOT BE REGARDED AS A COMPARABLE. (8) MOLD-TEK TECHNOLOGIES LTD. 25. THIS COMPANY IS LISTED AT SL.NO.16 OF THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, THE SUBMISSION OF THE ASSESSEE BEFORE US IS THAT IT IS IN THE BUSINESS OF KNOWLEDGE PROCESS OUTSOURCING AND C ANNOT BE CONSIDERED AS A COMPARABLE. THE FUNCTIONAL PROFILE OF THIS COMPANY IS AS FOLLOWS:- AS PER THE ANNUAL REPORT FOR THE F.Y. 2007-08, THE COMPANY PRIMARILY OPERATES IN TWO BUSINESS SEGMENTS : PLASTIC DIVISION: THE PLASTIC DIVISION IS ENGAGED I N THE MANUFACTURE OF TUBE & OILS, PAINTS, PET PRODUCTS, CONSUMER PRODUCTS, ETC. THE COMPANY DEMERGED THE SA ID SEGMENT EFFECTIVE 1 APRIL, 2007 AND TRANSFERRED THE BUSINESS UNIT TO THE COMPANY PLASTICS LT. THE EXTRA CT FROM THE ANNUAL REPORT CONFIRMS THE FACT THAT THE COMPAN Y HAD RESTRUCTURED ITS OPERATIONS RESULTING IN DEMERGING THE PLASTIC SEGMENT BUSINESS. IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 17 OF 19 INFORMATION TECHNOLOGY (IT) DIVISION: THE IT DIVISI ON (ALSO REFERRED TO AS THE KPO DIVISION BY THE COMPAN Y) OF THE COMPANY SPECIALIZES IN PROVIDING STRUCTURAL DES IGN AND DETAILING SERVICES WHICH CAN BE CATEGORIZED AS STRUCTURAL ENGINEERING SERVICES. THE STRUCTURAL ENG INEERING SERVICES PROVIDED BY THE IT DIVISION OF THE COMPANY CANNOT BE CLASSIFIED AS FALLING WITH THE SCOPE AND AMBIT OF ITES SERVICES. ON THE CONTRARY, THE SAID SERVICES W OULD FALL UNDER THE CATEGORY OF ENGINEERING SERVICES. EXCERPTS FROM THE ANNUAL REPORT OF THE COMPANY PAGE 10 OF THE ANNUAL REPORT FOR THE FY 2007-08 CON TAINS THE FOLLOWING OBSERVATION REGARDING THE KPO DIVISIO N OF THE COMPANY: THE COMPANY HAS ACHIEVED ABOUT 56.49% GROWTH IN 2007-08 TO REGISTER A TURNOVER OF RS.17.86 CRORE. T HE COMPANY HAVING ESTABLISHED ITS CREDENTIALS IN STRUC TURAL ENGINEERING SERVICES TO US CLIENTS IS DEVISING AGGR ESSIVE MARKETING STRATEGY TO ACHIEVE RAPID GROWTH. THIS COMPANY IS ALSO ENGAGED IN PROVIDING A HOST OF ENGINEERING SERVICES LIKE CIVIL AND STRUCTURAL ENGINEERING SERV ICES, MECHANICAL PRODUCT DESIGN, PLANT ENGINEERING, IT SERVICES AND GIS SERVICES. AS WE HAVE ALREADY SEEN, THIS COMPANY IS TO BE CLAS SIFIED AS KPO AND CANNOT BE COMPARED WITH THE ASSESSEE. THE DECIS ION OF THE BANGALORE BENCH OF THE ITAT IN THE CASE OF FIRST AD VANTAGE OFFSHORE SERVICES LTD. (SUPRA) WHICH WE HAVE REFERR ED TO IN THE EARLIER PART OF THIS ORDER WILL CLEARLY APPLY TO TH IS COMPANY. WE THEREFORE DIRECT THIS COMPANY TO BE EXCLUDED FROM T HE LIST OF COMPARABLES. (8) WIPRO LTD. 26. THIS COMPANY IS LISTED AT SL.NO.18 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, THE DISCUSSION MADE WHILE DECIDING INFOS YS BPO LTD. AS A COMPARABLE WILL EQUALLY APPLY TO THIS COMPANY ALSO. THIS COMPANY OWNS SUBSTANTIAL INTELLECTUAL PROPERTY ON S OFTWARE PRODUCTS. THIS COMPANY CANNOT THEREFORE BE REGARDED AS A COMPARABLE. FOR THE REASONS GIVEN WHILE DISREGARDIN G INFOSYS IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 18 OF 19 BPO LTD. AS A COMPARABLE, THIS COMPANY IS ALSO DIRE CTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 9. RESPECTFULLY, FOLLOWING THE DECISION OF THE TR IBUNAL, WE UPHOLD THE EXCLUSION OF GENESYS INTERNATIONAL CORPORATION LTD. , AND MOLD-TEK TECHNOLOGIES LTD., BY THE CIT(A) AND DISMISS THE RE LEVANT GROUNDS OF APPEAL OF THE REVENUE. WE ALSO DIRECT EXCLUSION OF THE FOLLOWING SIX COMPANIES SOUGHT BY THE ASSESSEE IN ITS APPEAL, VIZ ., ACCENTIA TECHNOLOGIES LTD., ACROPETAL TECHNOLOGIES LTD., CRO SSDOMAIN SOLUTIONS PVT. LTD., ECLERX SERVICES LTD., INFOSYS BPO LTD., AND WIPRO LTD. 10. WE ALSO DIRECT THE TPO WHILE GIVING EFFECT TO THIS ORDER TO VERIFY THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGAR D TO INCORRECT PROFIT MARGIN OF COMPARABLE COMPANIES CONSIDERED BY THE CI T(A) IN THE IMPUGNED ORDER AS STATED IN THE APPLICATION FILED U /S.154 OF THE ACT AND IF FOUND CORRECT, ADOPT THE CORRECT PROFIT MARGINS AS REFLECTED IN THE TPOS ORDER. THE TPO SHALL RECOMPUTED THE ALP IN THE LIG HT OF THE DIRECTIONS GIVEN ABOVE AFTER AFFORDING OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED WHILE THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF MARCH, 2020. SD/- SD/- ( A.K.GARODIA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 20 TH MARCH, 2020. / DESAI S MURTHY / IT(TP)A NO.2485/DEL/2013 & IT(TP)A NO.610/BANG/2013 PAGE 19 OF 19 COPY TO: 1. A SSESSEE 2. REVENUE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.