Copal Research India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 6411/DEL/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6705 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHA KANT SAHU SENIOR
• Keywords: Transfer pricing; International transaction; Rule of consistency; Set aside
• Section: 92D; 144C; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.6411/DEL./2016 (ASSESSMENT YEAR : 2007-08) M/S. COPAL RESEARCH INDIA PVT. LTD., VS. DCIT, CIR CLE 6 (2), PLOT NO.267, PHASE II, NEW DELHI. UDYOG VIHAR, GURGAON 122 015. (PAN : AACCC1159R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.M GUPTA, ADVOCATE MS. SHRUTI KHIMTA, ADVOCATE MR. NEERAJ SHARMA, AR REVENUE BY : SHRI SUBHA KANT SAHU, SENIOR DR DATE OF HEARING : 07.10.2019 DATE OF ORDER : 30.10.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER THE APPELLANT, M/S. COPAL RESEARCH INDIA PVT. LTD. (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 31.08.2016 PASSED BY THE ASSESSING OFFICER (AO) IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TPO UNDER SECTION 254/ 143 (3) READ ITA NO.6411/DEL/2016 2 WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2007-08 ON THE GROUNDS INTE R ALIA THAT :- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, A ND IN LAW:- 1. THE LD. AO FOLLOWING THE DIRECTIONS OF THE LD. T PO/ HON'BLE ORP ERRED ON FACTS AND IN LAW IN MAKING AN UPWARD ADJUSTMENT TO THE INCOME OF THE APPELLANT BY INR 2, 93,93,847 HOLDING THAT THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT PERTAINING TO PROVISION OF INFORMATION TECHNOLOGY E NABLED SERVICES ('ITES') DOES NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO, HAVE GROSS LY ERRED IN: 1.1. NOT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE PRES ENT CASE; 1.2. IGNORING THE FUNCTIONS, RISKS AND ASSET PROFI LE OF THE APPELLANT PROVIDED IN THE TRANSFER PRICING CTP') DO CUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 ('THE RULES' ); 1.3. DISREGARDING THE ARM'S LENGTH PRICE ('ALP') A S DETERMINED BY THE APPELLANT IN THE TP DOCUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE RULES AND MODIFYING/ REJECTING THE FILTERS APPLIED BY THE APPELLANT; 2. THE LD. AO FOLLOWING THE DIRECTIONS OF THE LD. T PO/ HON'BLE ORP ERRED ON FACTS AND IN LAW IN INCLUDING VISHAL INFORMATION TECHNOLOGIES LTD. AND ECLERX SERVICES L TD. AS A COMPARABLE IN THE FINAL SET OF COMPARABLES WHICH HA S BEEN HELD TO BE NOT COMPARABLE TO THE APPELLANT IN ITS OWN CA SE FOR AY 2009-10 BY THE HON'BLE INCOME-TAX APPELLATE TRIBUNA L; 3. THE LD. AO FOLLOWING THE DIRECTIONS OF THE LD. T PO HON'BLE DRP ERRED ON FACTS AND IN LAW IN INCLUDING CERTAIN OTHER COMPANIES AS COMPARABLE WITHOUT APPRECIATING THAT T HEY ARE NOT COMPARABLE TO THE APPELLANT KEEPING IN VIEW THEIR F UNCTIONAL, ASSET AND RISK PROFILE; AND 4. THE LD. AO FOLLOWING THE DIRECTIONS OF THE LD. T PO HON'BLE ORP ERRED ON FACT AND IN LAW BY COMMITTING A NUMBER OF COMPUTATIONAL ERROR IN THE OPERATING PROFIT MARK -UP OF THE SELECTED COMPARABLES. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. COPAL RESEARCH INDIA PVT. LTD., THE ITA NO.6411/DEL/2016 3 TAXPAYER IS A SUBSIDIARY OF COPAL RESEARCH LTD., MA URITIUS, WHICH IS ENGAGED INTO PROVIDING IT ENABLED SERVICES (ITES ) (BACK OFFICE SUPPORT SERVICES IN THE NATURE OF PROVIDING RESEARC H SUPPORT SERVICES) IN THE NATURE OF BUSINESS INFORMATION/DAT A GATHERING, DATA MINING/ENTRY TO ITS ASSOCIATED ENTERPRISES (AE). D URING THE YEAR UNDER ASSESSMENT, THE TAXPAYER ENTERED INTO INTERNA TIONAL TRANSACTIONS AS PER FORM 3CEB WITH ITS AE AS UNDER :- NATURE OF TRANSACTION VALUE OF INTERNATIONAL TRANSACTION PROVISION OF IT ENABLED SERVICES 329,980,600 3. IN THE FIRST ROUND OF LITIGATION, TRANSFER PRICI NG OFFICER (TPO) REJECTED THE TP STUDY UNDERTAKEN BY THE TAXPA YER AND BY APPLYING QUANTITATIVE AND QUALITATIVE FILTERS, PROP OSED TP ADJUSTMENT OF RS.36,13,36,377/- ON ACCOUNT OF PROVI SIONS OF ITES BY THE TAXPAYER. THEN, TAXPAYER APPROACHED DISPUTE S RESOLUTION PANEL (DRP) BY FILING OBJECTIONS WHICH HAVE BEEN DI SPOSED OFF WITH CERTAIN DIRECTIONS. FEELING AGGRIEVED, THE TA XPAYER APPROACHED THE TRIBUNAL WHICH HAS DISPOSED OFF THE APPEAL VIDE ORDER DATED 08.05.2015 BY REMANDING THE MATTER BACK TO LD. DRP TO PASS A SPEAKING ORDER AFTER DEALING WITH ALL THE CO NTENTIONS RAISED BY THE TAXPAYER. ITA NO.6411/DEL/2016 4 4. IN THE SECOND ROUND OF LITIGATION/PROCEEDINGS BE FORE THE LD. DRP, CORRECTION OF MARGINS OF CERTAIN COMPARABLES W ERE ORDERED BUT TAXPAYERS CONTENTION OF INCLUSION/EXCLUSION OF CERTAIN COMPARABLES WAS DECLINED. 5. POST-DRP DIRECTIONS, 27 COMPARABLE COMPANIES WER E SELECTED TO BENCHMARK THE INTERNATIONAL TRANSACTION S WITH MEAN MARGIN OF 28.54% MINUS WORKING CAPITAL ADJUSTMENT O F 2.17% AND AS SUCH THE MEAN MARGIN COMES TO 26.39%. ACCORDINGL Y, AO PASSED FINAL ASSESSMENT ORDER MAKING ADJUSTMENT ON ACCOUNT OF ARMS LENGTH PRICE (ALP) AT RS.2,93,93,847/-. 6. FEELING AGGRIEVED, THE TAXPAYER HAS AGAIN COME U P BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 7. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. UNDISPUTEDLY, TP ADJUSTMENT HAS BEEN MADE BY THE AO AT RS.2,93,93,847/- POST DIRECTIONS ISSUED BY THE LD. DRP ON THE BASIS OF 27 COMPARABLES WITH MARGIN OF 26.39% (MEAN MARGI N OF 28.54% MINUS WORKING CAPITAL ADJUSTMENT OF 2.17% = 26.39%) AS AGAINST MEAN MARGIN OF THE TAXPAYER AT 16.06%. FIN AL SET OF ITA NO.6411/DEL/2016 5 COMPARABLES POST-DRP DIRECTIONS ARE EXTRACTED AS UN DER FOR READY PERUSAL :- S.NO. NAME OF THE COMPANY MARGINS 1 ACCENTIA TECHNOLOGIES LTD. (SEGMENTAL 30.61% 2 ADITYA BIRLA MINACS WORLDWIDE LTD. 11.98% 3 ALLSEC TECHNOLOGIES LTD. 27.31% 4 APEX KNOWLEDGE SOLUTIONS PVT. LTD. 12.83% 5 APOLLO HEALTHSTREET LTD. 14.04% 6 ASIT C. MEHTA FINANCIAL SERVICES LTD. 24.21% 7 BODHTREE CONSULTING LTD (SEGMENTAL) 29.58% 8 CALIBER POINT BUSINESS SOLUTIONS LTD 21.26% 9 COSMIC GLOBAL LTD. 12.40% 10 DATAMATICS FINANCIAL SERVICES LTD (SEGMENTAL) 5.07% 11 ECLERX SERVICES LTD. 89.33% 12 FLEXTRONICS SOFTWARE SYSTEMS LTD (SEGMENTAL) 8.62% 13 GENESYS INTERNATIONAL CORPORATION LTD 13.35% 14 H C L COMNET SYSTEMS & SERVICES LTD (SEGMENTAL) 44.99% 15 I C R A TECHNO ANALYTICS LTD (SEGMENTAL) 12.24% 16 INFORMED TECHNOLOGIES INDIA LTD 35.56% 17 INFOSYS B P O LTD 28.78% 18 I SERVICES INDIA PVT LTD 49.47% 19 MAPLE ESOLUTIONS LTD. 34.05% 20 MOLD-TEK TECHNOLOGIES LTD (SEGMENTAL) 113.49% 21 R SYSTEMS INTERNATIONAL LTD (SEGMENTAL) 20.18% 22 SPANCO LTD. (SEGMENTAL) 25.81% 23 TRITON CORP LTD. 34.93% 24 VISHAL INFORMATION TECHNOLOGIES LTD (CORAL HUB LIMITED) 51.19% 25 WIPRO LTD. (SEGMENTAL) 29.70% 26 NITTANY OUTSOURCING SERVICES LTD. 11.50% 27 CAMEO CORPORATE SERVICES LTD. 6.28% ARITHMETIC MEAN 28.54% WORK CAP ADJUSTMENT 2.17% 26.39% 12. THE LD. ASSESSING OFFICER (AO) ACCORDINGLY PASS ED FINAL ASSESSMENT ORDER ENHANCING THE RETURNED INCOME OF T HE APPELLANT BY RS.2,93,93,847. 9. IT IS NOT IN DISPUTE THAT TRANSACTIONAL NET MARG IN METHOD WITH OP/TC AS PLI USED BY THE TAXPAYER AS MOST APPR OPRIATE ITA NO.6411/DEL/2016 6 METHOD (MAM) TO BENCHMARK THE INTERNATIONAL TRANSAC TIONS HAS BEEN ACCEPTED BY THE LD. DRP. IT IS ALSO NOT IN DI SPUTE THAT WORKING CAPITAL ADJUSTMENT HAS ALREADY BEEN GRANTED BY THE LD. DRP TO THE TAXPAYER. IT IS ALSO NOT IN DISPUTE THAT THE TAXPA YER IS PROVIDING ROUTINE ITES TO ITS AE ON COST PLUS MARK UP BASIS. 10. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRC UMSTANCES OF THE CASE, LD. AR FOR THE TAXPAYER CONTENDED THAT TH E TAXPAYER ONLY CHALLENGES INCLUSION OF SIX COMPARABLES BY THE TPO/ DRP AND IN CASE, ALL THE SIX COMPARABLES, NAMELY, ASIT C. MEHTA FINANCIAL SERVICES LTD., ECLERX SERVICES LTD., MAPLE ESOLUTIO NS LTD., MOLD- TEK TECHNOLOGIES LTD (SEGMENTAL), TRITON CORP LTD. & VISHAL INFORMATION TECHNOLOGIES LTD (CORAL HUB LIMITED), ARE EXCLUDED, THE TAXPAYER WOULD BE AT ARMS LENGTH. WE WOULD EX AMINE THE SUITABILITY OF THE AFORESAID COMPARABLES VIS--VIS THE TAXPAYER FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS AS UNDE R. VISHAL INFORMATION TECHNOLOGIES LTD. (VISHAL) 11. THIS IS TPOS COMPARABLE, WHICH THE TAXPAYER HA S CHALLENGED ON GROUND OF FUNCTIONAL DISSIMILARITY HA VING DISTINCT BUSINESS MODEL AND RELIED UPON THE DECISIONS IN COPAL RESEARCH INDIA PVT. LTD. VS. ITO IN ITA NO.1713/DEL/2014, PC IT VS. COPAL RESEARCH INDIA PVT. LTD. IN ITA 894/2015, UT STARCO M INC. ITA NO.6411/DEL/2016 7 ((INDIA BRANCH) VS. DDCT IN ITA NO.5848/DEL/2011, U T STARCOM INC. (INDIA BRANCH) IN ITA 767/2017 AND ICC INDIA PVT. LTD. VS. DCIT IN ITA NO.25/DEL/2012) . 12. PERUSAL OF THE ANNUAL REPORT OF VISHAL, AVAILAB LE AT PAGES 23 TO 39 OF THE PAPER BOOK, SHOWS THAT VISHAL IS FU NCTIONALLY DISSIMILAR VIS--VIS THE TAXPAYER AS IT HAS BEEN PR OVIDING AGENCY SERVICES BY WAY OF OUTSOURCING THE SERVICES TO THIR D PARTY VENDORS AND HAS NOT BEEN ACTING AS INTERMEDIATELY BETWEEN F INAL CUSTOMER AND VENDOR WHICH FACT IS PROVED FROM VENDOR PAYMENT CHARGES AS A PERCENTAGE OF SALES. VENDORS PAYMENT AS A PERCENT AGE OF SALE FOR VISHAL IS 54.41%, 44.81%, 42.88%, 67.37% & 66.00% F OR AY 2005-06, 2006-07, 2007-08, 2008-09 & 2009-10 RESPEC TIVELY AS AGAINST VISHALS PERSONNEL COST AS A PERCENTAGE OF SALE IS 0.95%, 1.25%, 2.3%, 2.93% & 2.00% FOR AY 2005-06, 2006-07, 2007-08, 2008-09 & 2009-10 RESPECTIVELY. 13. SIMILARLY, ANNUAL REPORT FURTHER SHOWS THAT VIS HAL IS INCURRING SUBSTANTIAL OUTSOURCING EXPENSES WHICH IS 42.88% OF THE SALES WITH MEAGER EMPLOYEE COST OF 2.30% WHEREAS EM PLOYEES COST OF TAXPAYER IS 51.85% APPROXIMATELY OF THE OPERATIN G COST. 14. LD. DR FOR THE REVENUE RELIED UPON THE ORDER PA SSED BY THE LD. DRP AND CONTENDED THAT ALL THE CONTENTIONS RAIS ED BY THE LD. AR FOR THE TAXPAYER HAS BEEN EXTENSIVELY DEALT WITH BY THE LD. DRP. ITA NO.6411/DEL/2016 8 15. VISHAL HAS BEEN ORDERED TO BE EXCLUDED AS A C OMPARABLE VIS--VIS THE TAXPAYERS OWN CASE PASSED BY THE COO RDINATE BENCH OF THE TRIBUNAL IN ITA NO.1713/DEL/2014 FOR AY 2009-10 ORDER DATED 08.05.2015 , AVAILABLE AT PAGES 1 TO 18 OF THE PAPER BOOK, WHICH HAS BEEN UPHELD BY THE HONBLE HIGH COURT OF DELHI IN ITA 894/2015 ORDER DATED 23.11.2015 . MOREOVER, SUITABILITY OF VISHAL AS A COMPARABLE VIS--VIS ROUTINE ITES PROVI DER HAS BEEN EXAMINED BY THE HONBLE DELHI HIGH COURT IN RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT (2015) 60 TXMANN.COM 35 5 (DELHI) AND ORDERED TO BE EXCLUDED BY RETURNING FOLLOWING FINDI NGS :- 20. IN ORDER FOR THE BENCHMARKING STUDIES TO BE RE LIABLE FOR THE PURPOSES OF DETERMINING THE ALP, IT WOULD BE ES SENTIAL THAT THE ENTITIES SELECTED AS COMPARABLES ARE FUNCTIONAL LY SIMILAR AND ARE SUBJECT TO THE SIMILAR BUSINESS ENVIRONMENT AND RISKS AS THE TESTED PARTY. IN ORDER TO IMPUTE AN ALP TO A CONTRO LLED TRANSACTION, IT WOULD BE ESSENTIAL TO ENSURE THAT T HE INSTANCES OF UNCONTROLLED ENTITIES/TRANSACTIONS SELECTED AS COMP ARABLES ARE SIMILAR IN ALL MATERIAL ASPECTS THAT HAVE ANY BEARI NG ON THE VALUE OR THE PROFITABILITY, AS THE CASE MAY BE, OF THE TR ANSACTION. ANY FACTOR, WHICH HAS AN INFLUENCE ON THE PLI, WOULD BE MATERIAL AND IT WOULD BE NECESSARY TO ENSURE THAT THE COMPARABLE S ARE ALSO EQUALLY SUBJECTED TO THE INFLUENCE OF SUCH FACTORS AS THE TESTED PARTY. THIS WOULD, OBVIOUSLY, INCLUDE BUSINESS ENVI RONMENT; THE NATURE AND FUNCTIONS PERFORMED BY THE TESTED PARTY AND THE COMPARABLE ENTITIES; THE VALUE ADDITION IN RESPECT OF PRODUCTS AND SERVICES PROVIDED BY PARTIES; THE BUSINESS MODEL; A ND THE ASSETS AND RESOURCES EMPLOYED. IT CANNOT BE DISPUTED THAT THE FUNCTIONS PERFORMED BY AN ENTITY WOULD HAVE A MATERIAL BEARIN G ON THE VALUE AND PROFITABILITY OF THE ENTITY. IT IS, THERE FORE, OBVIOUS THAT THE COMPARABLES SELECTED AND THE TESTED PARTY MUST BE FUNCTIONALLY SIMILAR FOR ASCERTAINING A RELIABLE AL P BY TNMM. RULE 10B(2) OF THE INCOME TAX RULES, 1962 ALSO CLEA RLY INDICATES THAT THE COMPARABILITY OF CONTROLLED TRANSACTIONS W OULD BE JUDGED WITH REFERENCE TO THE FACTORS AS INDICATED THEREIN. CLAUSE (A) AND (B) OF RULE 10B(2) EXPRESSLY INDICATE THAT THE SPEC IFIC CHARACTERISTICS OF THE SERVICES PROVIDED AND THE FU NCTIONS ITA NO.6411/DEL/2016 9 PERFORMED WOULD BE FACTORS FOR CONSIDERING THE COMP ARABILITY OF UNCONTROLLED TRANSACTIONS WITH CONTROLLED TRANSACTI ONS. 38. IN OUR VIEW, EVEN VISHAL COULD NOT BE CONSIDERE D AS A COMPARABLE, AS ADMITTEDLY, ITS BUSINESS MODEL WAS C OMPLETELY DIFFERENT. ADMITTEDLY, VISHALS EXPENDITURE ON EMPL OYMENT COST DURING THE RELEVANT PERIOD WAS A SMALL FRACTION OF THE PROPORTIONATE COST INCURRED BY THE ASSESSEE, APPARE NTLY, FOR THE REASON THAT MOST OF ITS WORK WAS OUTSOURCED TO OTHE R VENDORS/SERVICE PROVIDERS. THE DRP AND THE TRIBUNA L ERRED IN BRUSHING ASIDE THIS VITAL DIFFERENCE BY OBSERVING T HAT OUTSOURCING WAS COMMON IN ITES INDUSTRY AND THE SAME WOULD NOT HAVE A BEARING ON PROFITABILITY. PLAINLY, A BUSINESS MODEL WHERE SERVICES ARE RENDERED BY EMPLOYING OWN EMPLOYEES AND USING O NES OWN INFRASTRUCTURE WOULD HAVE A DIFFERENT COST STRUCTUR E AS COMPARED TO A BUSINESS MODEL WHERE SERVICES ARE OUTSOURCED. THERE WAS NO MATERIAL FOR THE TRIBUNAL TO CONCLUDE THAT THE OUTS OURCING OF SERVICES BY VISHAL WOULD HAVE NO BEARING ON THE PRO FITABILITY OF THE SAID ENTITY. 16. MOREOVER, WHEN THE TAXPAYER HAS NOT UNDERGONE A NY CHANGE IN THE BUSINESS MODEL THEN AY 2009-10 IN WHICH YEAR VISHAL HAS BEEN FOUND TO BE NOT A SUITABLE COMPARABLE WHICH OR DER HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT IN TAXPAYERS ORDER CASE FOR AY 2009-10 (SUPRA). 17. IN VIEW OF THE MATTER, WE ARE OF THE CONSIDERED VIEW THAT VISHAL IS NOT A SUITABLE COMPARABLE VIS--VIS TAXPA YER ON GROUND OF FUNCTIONAL DISSIMILARITY AND DISTINCT BUSINESS MODE L, HENCE WE ORDER TO EXCLUDE IT FROM THE FINAL SET OF COMPARABL ES. ITA NO.6411/DEL/2016 10 ECLERX SERVICES LTD. (ECLERX) 18. THIS IS AGAIN TPOS COMPARABLE WHICH THE TAXPAY ER HAS SOUGHT TO EXCLUDE ON GROUND OF FUNCTIONAL DISSIMILA RITY AND RELIED UPON THE DECISION RENDERED BY THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2009-10 (SUPRA), WHICH HAS BEEN CONFIRMED BY THE HONBLE DELHI HIGH COURT. THE TAXPAYER ALSO RELIED UPON TH E DECISIONS OF RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT (2015) 60 TXM ANN.COM 355 (DELHI) AND ICC INDIA PVT. LTD. VS. DCIT IN ITA NO.25/DEL/2012) . 19. LD. DR FOR THE REVENUE RELIED UPON THE ORDER PA SSED BY THE LD. DRP AND CONTENDED THAT ALL THE CONTENTIONS RAIS ED BY THE LD. AR FOR THE TAXPAYER HAS BEEN EXTENSIVELY EXAMINED BY T HE LD. DRP. 20. WHEN WE EXAMINE ANNUAL REPORT OF ECLERX, AVAILA BLE AT PAGES 1 TO 22 OF THE ANNUAL REPORT COMPENDIUM, IT S HOWS THAT ECLERX HAS BEEN PROVIDING DATA ANALYTICS SERVICES, OPERATIONS MANAGEMENT SERVICES AND AUDIT & RECONCILIATION SERV ICES WHEREAS THE TAXPAYER IS INTO ROUTINE ITES. ECLERX HAS BEEN ORDERED TO BE EXCLUDED IN TAXPAYERS OWN CASE FOR AY 2009-10 BY T HE TRIBUNAL WHICH HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT VIDE ORDER DATED 23.11.2015 (SUPRA) BY RETURNING FOLLOWING FINDINGS :- 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE FIND THAT IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) P VT. ITA NO.6411/DEL/2016 11 LTD., WHICH COMPANY WAS, INTER ALIA, ENGAGED IN THE BUSINESS AS SHARED SERVICE CENTRE AND RENDERING TRANSACTION PROCESSING, DATA ENTRY, RECONCILIATION OF STATEMENTS, AUDIT OF SHIPPING DOCUMENTS AND OTHER S IMILAR SUPPORT SERVICES; AND ALSO RENDERING I.T. SERVICES SUCH AS PROCESS SUPPORT, PROCESS OPTIMIZATION AND TECHNICAL SUPPORT SERVICES, THE TRIBUNAL IN PARA 82 OF ITS OR DER OBSERVED AS UNDER: IN SO FAR AS M/S ECLERX SERVICES LIMITED IS CONCERNED, THE RELEVANT FORMATION IS AVAILABLE IN THE FORM OF ANNUAL REPORT FOR FINANCIAL YEAR 2007 - 08 PLACED AT PAGE 166 TO 183 OF THE PAPER BOOK. A PERUSAL OF THE SAME SHOWS THAT THE SAID COMPANY PROVIDES DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORLD AND IS RECOGNIZED AS EXPERTS IN CHOSEN MARKETS-FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIME D TO BE PROVIDING COMPLETE BUSINESS SOLUTIONS BY COMBINING PEOPLE, PROCESS IMPROVEMENT AND AUTOMATION. T IS CLAIMED TO HAVE EMPLOYED OVER 1500 DOMAIN SPECIALISTS WORKING FOR THE CLIENTS. IT IS CLAIMED THAT ECLERX IS A DIFFERENT COMPANY WITH INDUSTRY SPECIALIZED SERVICES FOR MEETING COMPLEX CLIENT NEEDS, DATA ANALYTICS KPO SERVICE PROVIDER SPECIALIZING IN TWO BUSINESS VERTICALS FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIME D TO BE ENGAGED IN PROVIDING SOLUTIONS THAT DO NOT JUST REDUCE COST, BUT HELP THE CLIENTS INCREASE SAL ES AND REDUCE RISK BY ENHANCING EFFICIENCIES AND BY PROVIDING VALUABLE INSIGHTS THAT EMPOWER BETTER DECISIONS. M/S ECLERX SERVICES PVT. LTD. IS ALSO CLAIMED TO HAVE A SCALABLE DELIVERY MODEL AND SOLUTIONS OFFERED THAT INCLUDE DATA ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RECONCILIATION, METRICS MANAGEMENT AND REPORTING SERVICES. IT ALSO PROVIDES TAILORED PROCESS OUTSOURCING AND MANAGEMENT SERVICES ALONG WITH A MULTITUDE OF DATA AGGREGATION, MINING AND MAINTENANCE SERVICES. IT IS CLAIMED THAT THE COMPANY HAS A TEAM DEDICATED TO DEVELOPING AUTOMATION TOOLS TO SUPPORT SERVICE DELIVERY. THESE SOFTWARE AUTOMATION TOOLS INCREASE PRODUCTIVITY, ALLOWING CUSTOMERS TO BENEFI T FROM FURTHER COST SAVING AND OUTPUT GAINS WITH ITA NO.6411/DEL/2016 12 BETTER CONTROL OVER QUALITY. KEEPING IN VIEW THE NATURE OF SERVICES RENDERED BY M/S ECLERX SERVICES PVT. LTD. AND ITS FUNCTIONAL PROFILE, WE ARE OF THE VIEW THAT THIS COMPANY IS ALSO MAINLY ENGAGED IN PROVIDING HIGH-END SERVICES INVOLVING SPECIALIZED KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT BE COMPARED WITH THE ASSESSEE COMPANY WHICH IS MAINLY ENGAGED IN PROVIDING LOW-END SERVICES TO THE GROUP CONCERNS. 11.1. WE FIND THAT THE ASSESSEE ALSO CANNOT BE SAI D TO HAVE RELATABLE DEGREE OF COMPARABILITY BECAUSE PRIM ARILY ASSESSEE WAS ENGAGED IN PROVIDING PRIMARY DATA FOR VARIOUS FIELD OF ACTIVITIES BUT NOT COMPLETE BUSINE SS SOLUTIONS. THEREFORE, THIS COMPANY COULD NOT BE TRE ATED AS COMPARABLE FOR THE PURPOSE OF DETERMINING ALP OF TH E TRANSACTIONS BETWEEN THE ASSESSEE COMPANY WITH ITS AES. WE, ACCORDINGLY, DIRECT THAT THIS COMPANY BE EXCLUD ED FROM THE LIST OF COMPARABLES FINALLY TAKEN BY THE A O/ TPO AS PER THE DIRECTION OF THE DRP. 21. SUITABILITY OF ECLERX HAS ALSO BEEN EXAMINED AN D EXCLUDED BY THE HONBLE DELHI HIGH COURT IN RAMPGREEN SOLUTIONS PVT. LTD. (SUPRA) VIS--VIS ROUTINE ITES PROVIDER ON GROUND OF FUNCTIONAL DISSIMILARITY. IN VIEW OF THE MATTER, W E ARE OF THE CONSIDERED VIEW THAT ECLERX IS NOT A SUITABLE COMPA RABLE VIS--VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDED. MOLD-TEK TECHNOLOGIES LTD. (SEGMENT) (MOLD-TEK) 22. THE TAXPAYER CHALLENGED MOLD-TEK BEFORE TPO AS WELL AS DRP ON GROUND OF FUNCTIONAL DISSIMILARITY AND GROWT H/EXTRA ORDINARY CIRCUMSTANCES/ACQUISITION; THAT IT HAS ABN ORMALLY HIGH ITA NO.6411/DEL/2016 13 MARGIN HAVING LOW EMPLOYEE COST/SALES RATIO AND HAS ALREADY BEEN REJECTED BY THE LD. DRP IN TAXPAYERS OWN CASE FOR AY 2008-09. 23. LD. DR FOR THE REVENUE RELIED UPON THE ORDER PA SSED BY THE LD. DRP AND CONTENDED THAT ALL THE CONTENTIONS RAIS ED BY THE LD. AR FOR THE TAXPAYER HAS BEEN EXTENSIVELY EXAMINED BY T HE LD. DRP. 24. WHEN WE EXAMINE THE FUNCTIONAL PROFILE OF MOLD- TEK, IT IS PROVED THAT IT IS INTO THE BUSINESS OF RENDERING ST RUCTURAL ENGINEERING KPO SERVICES IN THE NATURE OF PRODUCING DESIGNS, DRAWINGS, DETAILED STRUCTURAL ENGINEERING DRAWINGS ETC. WHEREAS THE TAXPAYER IS A ROUTINE ITES (BACK OFFICE SERVICES IN THE NATURE OF PROVIDING RESEARCH SUPPORT SERVICES) FURTHERMORE, DURING THE YEAR UNDER ASSESSMENT, MOLD-TEK HAS ACHIEVED SUPER-NORMA L GROWTH OF 250% QUA THE KPO DIVISION AND IT HAS ALSO AMP EXPEN SES OF 5.13% OF SALES. FURTHERMORE, MOLD-TEK IS HAVING L OW EMPLOYEE COST/SALES RATIO WHICH IS 12.93% AS COMPARED TO THE WAGES/SALES RATIO OF 51.85% OF THE TAXPAYER. 25. MOLD-TEK HAS BEEN REJECTED BY THE LD. DRP IN TA XPAYERS OWN CASE FOR AY 2008-09 VIDE ORDER DATED 21.08.2012 , COPY AVAILABLE AT PAGES 253 OF THE PAPER BOOK. WHEN IT IS UNDISPUTED FACT THAT THERE IS NO CHANGE IN THE BUSINESS MODEL OF THE TAXPAYER, SO THE RULE OF CONSISTENCY HAS TO BE FOLLOWED BY TH E REVENUE. ITA NO.6411/DEL/2016 14 26. MOLD-TEK HAS ALSO ACQUIRED ABNORMAL GROWTH RATE DURING THE YEAR UNDER ASSESSMENT WHICH HAS APPARENTLY LED TO H IGH MARGIN OF 250%. SO, WE ARE OF THE CONSIDERED VIEW THAT MOLD- TEK CANNOT BE A SUITABLE COMPARABLE ON GROUND OF FUNCTIONAL DISSI MILARITY AND IT HAS GONE INTO ACQUISITION HAVING ABNORMALLY HIGH MA RGIN AND LOW EMPLOYEE COST RATIO/SALES RATIO AS ALL THESE FACTOR S ARE DIRECT INDICATOR OF ENHANCING THE PROFIT MARGIN, HENCE WE ORDER TO EXCLUDE THE SAME. ASIT C. MEHTA FINANCIAL SERVICES LTD. (SEGMENTAL) (ASIT C. MEHTA) 27. THIS IS TPOS COMPARABLE. THE TAXPAYER CHALLEN GED THE INCLUSION OF ASIT C. MEHTA ON THE GROUNDS INTER ALI A THAT IT IS FUNCTIONALLY DISSIMILAR; THAT SEGMENTAL FINANCIALS ARE NOT AVAILABLE; THAT IT HAS SIGNIFICANT ADVERTISEMENT EXPENDITURE A ND RELIED UPON THE DECISION OF NTT DATA GLOBAL DELIVERY SERVICES LTD. VS. ITO (2018) 96 TAXMANN.COM 181 (DELHI-TRIB.). HOWEVER, THE TPO RETAINED THIS COMPARABLE ON THE GROUND THAT THE COM PANY CANNOT BE REJECTED ON THE BASIS THAT IT IS INTO KPO OR BPO AN D MOREOVER, THE TAXPAYER HAS NOT GONE INTO VERTICALS OF COMPARABLES . 28. LD. DR FOR THE REVENUE RELIED UPON THE ORDER PA SSED BY THE LD. DRP AND CONTENDED THAT ALL THE CONTENTIONS RAIS ED BY THE LD. AR FOR THE TAXPAYER HAS BEEN EXTENSIVELY DEALT WITH BY THE LD. DRP. ITA NO.6411/DEL/2016 15 29. LD. DRP ALSO RETAINED THIS COMPARABLE BY RATIFY ING THE FINDINGS GIVEN BY THE TPO. ANNUAL REPORT OF ASIT C . MEHTA NOW KNOWN AS NUCLEUS NETSOFT AND GIS INDIA LTD., AVAILA BLE AT PAGES 288 TO 365 OF THE PAPER BOOK, SHOWS THAT ASIT C. ME HTA IS ENGAGED IN ADVERTISING BUSINESS AS IT HAS EARNED INCOME FRO M ITES AND SOFTWARE SERVICES, PORTFOLIO MANAGEMENT AND INVESTM ENT ACTIVITIES, WHEREAS ITS SEGMENTAL ARE NOT AVAILABLE AS IS EVIDE NT FROM PROFIT & LOSS ACCOUNT, RELEVANT PAGE 312 OF THE PAPER BOOK. FURTHERMORE, DURING THE YEAR UNDER ASSESSMENT, ASIT C. MEHTA HAS UNDERGONE AMALGAMATION WITH NUCLEUS NETSOFT & GIS INDIA LTD. W.E.F. APRIL 1, 2005 WITH ITS ASSETS OF RS.39,541,385, LIABILITI ES OF RS.6,449,847, CAPITAL RESERVES RS.16,287,405 AND REVENUE RESERVE OF RS.1,686,933. FURTHERMORE, IT HAS ALSO COME ON REC ORD THAT EMPLOYEE COST WITH ASIT C. MEHTA IS MERELY 23 % OF THE TOTAL COST WHEREAS IN ITES EMPLOYEE COST IS A SIGNIFICANT FACT OR WHICH ALSO MAKES IT DISSIMILAR VIS--VIS THE TAXPAYER. 30. SUITABILITY OF ASIT C. MEHTA HAS BEEN EXAMINED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF NTT DATA GLOBAL DELIVERY SERVICES LTD. (SUPRA), AVAILABLE AT PAGES 58 TO 67 OF THE CASE LAWS COMPENDIUM, VIS--VIS ITES SERVICE PROVID ER AND HAS BEEN ORDERED TO BE EXCLUDED ON GROUND OF DIVERSIFIE D ACTIVITIES LIKE BROKERAGE, COMMISSION, ARBITRAGE, TRADING IN SECURI TIES, PREMIUM ITA NO.6411/DEL/2016 16 ON EQUITY INDEX OPTION, EQUITY STOCK OPTION ETC. S O, IN VIEW OF THE AFORESAID FACTS AND FOLLOWING THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN NTT DATA GLOBAL DELIVERY SERVICES LTD. (SUPRA), WE FIND THAT ASIT C. MEHTA IS NOT A SUITAB LE COMPARABLE VIS--VIS THE TAXPAYER ON GROUND OF FUNC TIONAL DISSIMILARITY, NON-AVAILABILITY OF SEGMENTAL AND ON GROUND OF AMALGAMATION, SO WE ORDER TO EXCLUDE ASIT C. MEHTA FROM THE FINAL SET OF COMPARABLES. MAPLE ESOLUTIONS LTD. (MAPLE) AND TRITON CORP LIMITED (TRITON) 31. THE TAXPAYER CHALLENGED THE INCLUSION OF MAPLE ON GROUNDS INTER ALIA THAT IT HAS UNDERGONE EXTRA-ORDINARY EVE NTS WITH MERGER OF TRITON CORP WITH MAPLE ON JANUARY 1, 2007; THAT ITS FUNCTIONAL DATA IS NOT RELIABLE AS ITS PROMOTERS WERE INVOLVED IN A FRAUD; THAT THE COMPANY HAS SHOWN VOLATILE MARGIN AND RELIED UP ON THE DECISIONS OF UT STARCOM INC. AND ICC INDIA PVT. LTD. (SUPRA). 32. LD. DR FOR THE REVENUE RELIED UPON THE ORDER PA SSED BY THE LD. DRP AND CONTENDED THAT ALL THE CONTENTIONS RAIS ED BY THE LD. AR FOR THE TAXPAYER HAS BEEN EXTENSIVELY EXAMINED BY T HE LD. DRP. 33. TRITON IS ALSO STATED TO BE FUNCTIONALLY DISSIM ILAR BEING ENGAGED IN SALE OF IT PERIPHERALS AND ON THE GROUND THAT ITS ITA NO.6411/DEL/2016 17 SEGMENTAL IS NOT AVAILABLE. PERUSAL OF THE ANNUAL REPORT, AVAILABLE AT PAGE 130 OF THE PAPER BOOK, SHOWS THAT SEGMENTAL IS NOT AVAILABLE TO SHOW THE INCOME AND EXPENDITURE IN IT AS WELL AS ITES. MOREOVER, TRITON HAS BEEN EXCLUDED BY THE TP O HIMSELF IN TAXPAYERS OWN CASE FOR AY 2008-09 WHEN UNDISPUTEDL Y THERE IS NO CHANGE IN THE BUSINESS MODEL OF THE TRITON. SO, WE ORDER TO EXCLUDE TRITON FROM THE FINAL SET OF COMPARABLES. 34. COORDINATE BENCH OF THE TRIBUNAL EXAMINED THE S UITABILITY OF MAPLE IN UT STARCOM INC. FOR AY 2007-08 (SUPRA) VIS--VIS ROUTINE ITES PROVIDER AND HAS ORDERED TO BE EXCLUDE D ON THE GROUND THAT ITS FINANCIALS ARE NOT RELIABLE BEING O WNED BY RASTOGI GROUP, WHICH WAS UNDER SERIOUS INDICTMENT FOR FINAN CIAL IRREGULARITIES COMMITTED BY THE DIRECTORS. HONBLE DELHI HIGH COURT HAS CONFIRMED THE FINDINGS RETURNED BY THE TR IBUNAL. 35. MOREOVER, COORDINATE BENCH OF THE TRIBUNAL EXAM INED THE SUITABILITY OF MAPLE IN ICC INDIA PVT. LTD. FOR AY 2007-08 (SUPRA) VIS--VIS ROUTINE ITES PROVIDER AND HAS ORDERED TO EXCLUDE IT ON GROUND OF MERGER AND ACQUISITION DURING THE YEAR UN DER ASSESSMENT AS TRITON HAS ACQUIRED 100% SHARE OF MAPLE AND PROM OTERS WERE INVOLVED IN FRAUD FOR EARLIER YEARS AND AS SUCH, IT S FINANCIALS ARE UNRELIABLE. SO, FOLLOWING THE AFORESAID DECISIONS OF THE COORDINATE BENCH OF THE TRIBUNAL, WE ARE OF THE VIEW THAT MAPL E IS NOT A ITA NO.6411/DEL/2016 18 SUITABLE COMPARABLE VIS--VIS THE TAXPAYER ON ACCOU NT OF MERGER AND ON THE GROUND THAT ITS PROMOTERS HAVE BEEN INDI CTED IN FRAUD AND DISTORTED UNRELIABLE FINANCIALS. SO, WE ORDER TO EXCLUDE MAPLE IT FROM THE FINAL SET OF COMPARABLES. 35. RESULTANTLY, THE APPEAL FILED BY THE TAXPAYER I S ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 30 TH DAY OF OCTOBER, 2019. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 30 TH DAY OF OCTOBER , 2019 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.