Louis Dreyfus Company India Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 6575/DEL/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6716 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 23-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUMAR PRANAV SENIOR
• Assessee Lawyers: RAVI SHARMA MS SHRUTI KHIMTA
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Set aside
• Section: 92D; 205; 144

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.6575/DEL./2016 (ASSESSMENT YEAR : 2012-13) LOUIS DREYFUS COMPANY INDIA PVT. LTD., VS. ACIT, 8 TH FLOOR, TOWER A, BUILDING NO.5, CIRCLE 15 (2), CYBER CITY, DLF PHASE III, NEW DELHI. GURGAON 122 002 (HARYANA). (PAN : AAACL7361E) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVI SHARMA, ADVOCATE MS. SHRUTI KHIMTA, AR REVENUE BY : SHRI KUMAR PRANAV, SENIOR DR DATE OF HEARING : 10.10.2019 DATE OF ORDER : 30.10.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER THE APPELLANT, LOUIS DREYFUS COMPANY INDIA PVT. LTD . (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 20.10.2016 PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH SECTION 144 C OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2012-13 ON THE GROUNDS INTER ALIA THAT :- ITA NO.6575/DEL/2016 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, A ND IN LAW; 1. THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSES SING OFFICER ('LD. AO') IN PURSUANCE OF THE DIRECTIONS I SSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP') IS A VITIA TED ORDER AS THE HON'BLE DRP ERRED IN CONFIRMING THE ARBITRARY T RANSFER PRICING ADJUSTMENT MADE BY THE LD. AO/LEARNED TRANS FER PRICING OFFICER ('LD. TPO') TO THE INTERNATIONAL TR ANSACTION PERTAINING TO PROVISION OF BACK-OFFICE SUPPORT SERV ICES ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRIS ES ('AES'). 2. THE HON'BLE DRP ERRED IN CONFIRMING THE ADDITION TO INCOME OF THE APPELLANT TO THE EXTENT OF INR 50,13, 634 BY HOLDING THAT THE APPELLANT'S INTERNATIONAL TRANSACT ION PERTAINING TO PROVISION OF BACK-OFFICE SUPPORT SERVICES DOES N OT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. IN DOING SO, THE HON'BLE DRP HAS GROSSLY ERRED IN CONFIRMING THE LD. AO/LD. TPO'S ACTION OF: 2.1. NOT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE PRES ENT CASE; 2.2. DISREGARDING THE ARM'S LENGTH PRICE (,ALP') A S DETERMINED BY THE APPELLANT IN THE TRANSFER PRICING (,TP') DOCUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 196 2 ('RULES'); 2.3. DISREGARDING PRIOR YEARS' DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. FY 2011-12) DATA FOR COMPARABLE COMPANIES SHOULD BE US ED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABL E TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTA TION; 2.4. REJECTING COMPARABILITY ANALYSIS IN THE TP DO CUMENTATION AND THUS, WITHOUT REASON, THE QUANTITATIVE AND QUAL ITATIVE SCREENS/FILTERS APPLIED AND SET OF COMPARABLES OF T HE APPELLANT ARRIVED AT BY FOLLOWING A DETAILED AND ROBUST SEARC H METHODOLOGY CARRIED OUT IN THE TP DOCUMENTATION, AND CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION OF ADDI TIONAL/REVISED FILTERS IN DETERMINING THE ALP; 2.5. INCLUDING HIGH-PROFIT MAKING COMPANIES IN THE FINAL COMPARABLES' SET FOR BENCHMARKING A LOW RISK CAPTIV E UNIT SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEME NTS ON THE ISSUE), THUS DEMONSTRATING AN INTENTION TO ARRIVE A T A PRE- FORMULATED OPINION WITH THE SINGLE-MINDED INTENTION OF MAKING AN ADDITION TO THE RETURNED INCOME OF THE APPELLANT ; ITA NO.6575/DEL/2016 3 2.6. INCLUDING CERTAIN COMPANIES THAT ARE NOT COMP ARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSE TS EMPLOYED AND RISKS ASSUMED; 2.7. EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRI VOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPE LLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND R ISKS ASSUMED; 2.8. IGNORING THE BUSINESS/ COMMERCIAL REALITY THA T SINCE THE APPELLANT IS REMUNERATED ON AN ARM'S LENGTH COST PL US BASIS, I.E. IT IS COMPENSATED FOR ALL ITS OPERATING COSTS PLUS A PRE-AGREED MARK-UP BASED ON A BENCHMARKING ANALYSIS, THE APPEL LANT UNDERTAKES MINIMAL BUSINESS RISKS, AS AGAINST COMPA RABLE COMPANIES THAT ARE FULL-FLEDGED RISK TAKING ENTREPR ENEURS, AND BY NOT ALLOWING A RISK ADJUSTMENT TO THE APPELLANT ON ACCOUNT OF THIS FACT; 2.9. DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : LOUIS DREYFUS COMPANY IND IA PVT. LTD., THE TAXPAYER BEING A WHOLLY OWNED SUBSIDIARY OF LOU IS DREYFUS COMMODITIES ASIA PTE. LTD., SINGAPORE IS INTO THE T RADING OF AGRI- BASED COMMODITY PRODUCTS SUCH AS COTTON, RICE, CORN , COFFEE, BARLEY, SUGAR AND OIL SEEDS. THE TAXPAYER IS INTO TRADING OF COMMODITIES WITH ITS ASSOCIATED ENTERPRISES (AES) A ND UNRELATED PARTIES IN THE DOMESTIC AND INTERNATIONAL MARKET. THE TAXPAYER IS ALSO INTO PROVIDING BACK OFFICE SUPPORT SERVICES (B SS) AND CROP RESEARCH SERVICES TO ITS AES. 3. LD. TPO ACCEPTED ALL THE INTERNATIONAL TRANSACTI ONS UNDERTAKEN BY THE TAXPAYER DURING THE YEAR UNDER AS SESSMENT AT ARMS LENGTH EXCEPT INTERNATIONAL TRANSACTIONS QUA PROVISIONS OF ITA NO.6575/DEL/2016 4 BUSINESS SUPPORT SERVICES. THE TAXPAYER IN ITS TP STUDY QUA PROVISIONS FOR BACK OFFICE SUPPORT SERVICES CLAIMED THAT IT IS PROVIDING INFORMATION TECHNOLOGY ENABLED SERVICES ( ITES) TO ITS AES, SELECTED ITSELF AS THE TESTED PARTY AND APPLIE D TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE ME THOD (MAM) WITH OP/OC AS PROFIT LEVEL INDICATOR (PLI), T AKEN SEVEN COMPARABLES WITH MEAN MARGIN OF 13.62% AS AGAINST M ARGIN OF THE TAXPAYER @ 10% OF COST AND FOUND ITS INTERNATIONAL TRANSACTIONS AT ARMS LENGTH. HOWEVER, THE LD. TPO AFTER APPLYING VARIOUS FILTERS, WHICH ARE NOT NOW UNDER CHALLENGE, FINALLY SELECTED 9 COMPARABLES WITH AVERAGE OP/OC AT 20.44% AND PROCEEDED TO COMPU TE THE ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTI ONS AS UNDER :- OPERATIONAL COST A 8,09,95,709 ARMS LENGTH PRICE AT A MARGIN OF 20.44% B=A* 120.44% 9,75,51,232 PRICE RECEIVED C 8,90,95,280 105% OF THE PRICE RECEIVED C* 105% 9,35,50,044 PROPOSED ADJUSTMENT U/S 92CA B-C 84,55,952 4. TPO ACCORDINGLY PROPOSED THE ADJUSTMENT ON ACCOU NT OF ARMS LENGTH PRICE AT RS.84,55,952/-. 5. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. D RP BY WAY OF FILING OBJECTIONS, WHO HAS PARTLY ALLOWED THE OB JECTIONS FILED BY THE TAXPAYER BY EXCLUDING INFOSYS LTD. WHICH HAS RE DUCED THE ITA NO.6575/DEL/2016 5 AVERAGE OF COMPARABLE AT 16.19%. FEELING AGGRIEVED , THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING TH E PRESENT APPEAL. 6. 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. 7. UNDISPUTEDLY, LD. TPO HAS ACCEPTED TNMM AS MAM W ITH OP/OC AS THE PLI APPLIED BY THE TAXPAYER. IT IS AL SO NOT IN DISPUTE THAT THE TPO HAD ACCEPTED ALL OTHER INTERNATIONAL T RANSACTIONS EXCEPT TRANSACTIONS OF PROVISION OF BUSINESS SUPPOR T SERVICES UNDERTAKEN BY THE TAXPAYER WITH ITS AES DURING THE YEAR UNDER ASSESSMENT. IT IS ALSO NOT IN DISPUTE THAT AFTER D IRECTIONS ISSUED BY THE LD. DRP, PROPOSED ADJUSTMENT OF RS.84,55,952/- MADE BY THE TPO HAS BEEN REDUCED TO RS.50,13,634/- AND THE FINA L SET OF COMPARABLES HAVE COME UP AS UNDER :- S.NO. NAME OF THE COMPANY OP/OC 1 ACCENTIA TECHNOLOGIES LTD. 11.82% 2 ACROPETAL TECHNOLOGIES LTD (SEGMENT) 26.30% 3 E4E HEALTHCARE BUSINESS SERVICES PVT. LTD. 19.85% 4 INFORMED TECHNOLOGIES INDIA LTD. 6.08% 5 JINDAL INTELLICOM LTD. 0.25% 6 MICROGENETIC SYSTEMS LTD. 6.38% 7 R SYSTEM INTERNATIONAL LTD. (SEG)(BPO) - 4.38% 8 TCS E-SERVE LTD. 63.674% AVERAGE 16.19% ITA NO.6575/DEL/2016 6 8. LD. AR FOR THE TAXPAYER IN ORDER TO COMPRESS THE CONTROVERSY AT HAND CONTENDED THAT THE CHALLENGE BY WAY OF FILI NG THIS APPEAL IS QUA EXCLUSION OF TWO COMPARABLES CHOSEN BY THE TPO AND CONFIRMED BY LD. DRP, NAMELY, ACROPETAL TECHNOLOGIES LTD. (SEGMENT) AND TCS E-SERVE LIMITED ONLY. 9. NOW, WE WOULD EXAMINE THE SUITABILITY OF AFORESA ID COMPARABLES VIS--VIS THE TAXPAYER AS UNDER. ACROPETAL TECHNOLOGIES LTD. (SEGMENT) (ACROPETAL) 10. THIS IS TPOS OWN COMPARABLE. THE TAXPAYER CHA LLENGED THE INCLUSION OF ACROPETAL AS COMPARABLE ON GROUNDS INT ER ALIA THAT IT IS FUNCTIONALLY DISSIMILAR; THAT ITS SEGMENTAL PROFITA BILITY IS NOT AVAILABLE; THAT IT FAILS AMP/SALES FILTER; THAT ACR OPETAL HAS UNDERGONE BUSINESS RESTRUCTURING/EXTRA ORDINARY CIR CUMSTANCES AND RELIED UPON THE DECISIONS RENDERED BY THE COORDINAT E BENCHES OF THE TRIBUNAL IN INDUCTIS INDIA (P.) LTD. VS. ACIT (2019) 101 TAXMANN.COM 110 (DELHI-TRIB.), AGILIS INFORMATION T ECHNOLOGIES INDIA (P.) LTD. VS. ACIT (2018) 89 TAXMANN.COM 44 0 (DELHI) AND SHIPNET SOFTWARE SOLUTIONS INDIA VS. DCIT (20 17) 81 TAXMANN.COM 301 (CHENNAI TRIB.) . 11. HOWEVER, LD. DR FOR THE REVENUE ON THE OTHER HA ND IN ORDER TO REPEL THE ARGUMENTS ADDRESSED BY THE LD. AR FOR THE TAXPAYER ITA NO.6575/DEL/2016 7 RELIED UPON THE ORDER PASSED BY THE LD. DRP AND CON TENDED THAT THE LD. DRP HAS DEALT WITH ALL THE ARGUMENTS RAISED BY THE LD. AR BEFORE THE TRIBUNAL. 12. WHEN WE EXAMINE THE ANNUAL REPORT OF ACROPETAL, RELEVANT PAGE 140 OF THE ANNUAL REPORT COMPILATION, IT GOES TO PROVE THAT ACROPETAL IS INVOLVED IN PRODUCT AND IS ALSO DEVELO PING IP, RELEVANT PORTION OF BUSINESS PROFILE IS AS UNDER :- IP & PRODUCT DEVELOPMENT THE COMPANY HAS BEEN MAKING CONSISTENT INVESTMENTS IN DEVELOPING INTELLECTUAL PROPERTIES AND PRODUCTS THA T CAN HELP THE COMPANY TO GROW NON-LINEARLY. ACROPETAL INC. (HQ IN CA, USA) WILL DRIVE THE IP DEVELOPMENT EFFORTS WHILE ACROPET AL TECHNOLOGIES WILL DEVELOP AND DEPLOY SOLUTIONS TO CONSUMERS GLOB ALLY. THE COMPANY HAS A STRONG PIPELINE OF 7 IPS WHICH WILL B E DEVELOPED AND ROLLED OUT OVER THE NEXT 3 YEARS. THE FIRST IP, IN THE FIELD OF EDUCATION NAMED AS PM3, HAS BEEN DEVELOPED TO DELIV ER QUALITY EDUCATION ACROSS THE WORLD. USING THIS AS A LEADING IP AND PRODUCT, THE COMPANY PLANS TO FOCUS ON K-12 EDUCATION, HIGHE R EDUCATION, LATERAL EDUCATION AND EXPERIENTIAL LEARNING STARING FROM NORTH AMERICA. IP DESCRIPTION PATENT LIFE CYCLE MANAGEMENT (HEALTHCARE INTEGRATING THE UNIVERSE OF CUSTOMERS ACROSS CLINICAL LIFE CYCLE MANAGEMENT, DISEASE MANAGEMENT, DRUG DISCOVERY & MANAGEMENT, HOSPITAL ADMINISTRATION MANAGEMENT, AND REVENUE LIFE CYCLE MANAGEMENT INTEGRATED WITH ELECTRONIC MEDICAL RECORD (EMR). PM3 (EDUCATION) CONNECTING THE UNIVERSE OF CUSTOMER S THAT FACILITATE A STUDENT TO DERIVE QUALITY EDUCATION. HREERNM (ENTERPRISE INNOVATION MANAGEMENT) ENERGIZING INNOVATION EXCELLENCE THROUGH VALUE, INTELLECTUAL AND HUMAN CAPITAL MANAGEMENT U & I (UNIVERSAL INTENTIONALISM) A DOCU-VISION PLATFORM TO LEARN, SHARE AND COLLABORATE GLOBALLY AND INNOVATE IN A NETWORKED ENVIRONMENT ITA NO.6575/DEL/2016 8 EXTENDING THE MOMENT OF TRUTH (CONSUMER EXPERIENCE MANAGEMENT) RESPONDING TO THE NEW EXPERIENCE ORIENTED CONSUMER LOYALLY MANAGEMENT CRADLE TO GRAVE (GOVERNMENT & CITIZEN INTERACTION) CREATING AN INTERACTIVE REAL-TIME EXPERIENCE BETWEEN THE GOVERNMENT AND CITIZENS AT ALL LEVELS. GREEN ENVIRONMENT (ENERGY & ENVIRONMENT) RECOMMENDING OPTIMIZATION ON CONSUMPTION OF ENERGY AND RECOMMENDING ALTERNATE SOURCES OF ENERGY. 13. FURTHERMORE, WHEN WE EXAMINE PAGE 141 OF THE AN NUAL REPORT COMPILATION, IT IS EVIDENT THAT ACROPETAL HA S COMPLETED ACQUISITION OF TWO US BASED COMPANIES, NAMELY, LINE BEYOND INC. AND OPTECH CONSULTING INC. WITH 100% AND 70% STOCK RESPECTIVELY FOR FY 2011-12. IN THE SUBSEQUENT YEARS, ACROPETAL HAS ACQUIRED REMAINING 30% SHARES OF OPTECH CONSULTING INC. WHIC H HAS BECOME ITS WHOLLY OWNED SUBSIDIARY. FURTHERMORE, W HEN WE EXAMINE PAGES 194 TO 205 OF THE ANNUAL REPORT COMPI LATION, IT PROVED THAT THE SEGMENTAL PROFITABILITY IS NOT AVAI LABLE. SUITABILITY OF ACROPETAL HAS BEEN EXAMINED BY THE COORDINATE BE NCH OF THE TRIBUNAL IN INDUCTIS INDIA (P.) LTD. (SUPRA), AVAILABLE AT PAGES 37 TO 45 OF THE CASE LAWS COMPILATION, VIS--VIS INDUC TIS INDIA (P.) LTD. HAVING SIMILAR BUSINESS MODEL AS THAT OF THE TAXPAY ER FOR AY 2012- 13 AND FOUND TO BE NOT A SUITABLE COMPARABLE BY RET URNING FOLLOWING FINDINGS :- ITA NO.6575/DEL/2016 9 (IV) ACROPETAL TECHNOLOGIES LTD (SEGMENT): IT HAS BEEN SUBMITTED BY THE LD. AR THAT THIS COMPA NY IS ENGAGED IN PROVISION OF HEALTHCARE SERVICES WHICH I NCLUDE ELECTRONIC MEDICAL RECORD, PATIENT LIFE CYCLE MANAG EMENT, PHYSICAL AND CLINICAL LIFE CYCLE MANAGEMENT, HOSPIT AL ADMINISTRATION MANAGEMENT AND DISEASE LIFE CYCLE MANAGEMENT. IT HAS ALSO BEEN SUBMITTED THAT SEGMENT AL BIFURCATION PERTAINING TO THE VARIOUS REVENUE STREA MS WAS NOT DISCLOSED. WE FIND THAT THESE AVERMENTS OF THE AR ARE CORRECT. WE ALSO NOTE THAT THIS COMPANY WAS DIRECTE D TO BE EXCLUDED BY THE ITAT DELHI BENCH IN THE CASE OF AGI LIS INFORMATION TECHNOLOGIES PVT. LTD VS. ACIT REPORTED IN (2018) 89 TAXMANN.COM 440 (DELHI TRIB.) ON THE GR OUND THAT ACROPETAL TECHNOLOGIES LTD. WAS ENGAGED IN PRO VISION OF HIGH END HEALTHCARE SERVICES AND OWNS INTELLECTU AL PROPERTY. IT HAS ALSO BEEN NOTED BY THE ITAT DELHI BENCH THAT THIS COMPANY WAS ENGAGED IN SALE OF SOFTWARE P RODUCTS. UNDISPUTEDLY, THE ASSESSEE COMPANY I.E. INDUCTIS IN DIA PVT. LTD. IS A CAPTIVE IT ENABLED SERVICE PROVIDER AND, THEREFORE, THIS CANNOT BE COMPARED TO THE SERVICES BEING OFFER ED BY ACROPETAL TECHNOLOGIES LTD. WE ALSO NOTE THAT SEGME NTAL DATA IS NOT AVAILABLE FOR THE YEAR UNDER CONSIDERAT ION AS IS EVIDENT FROM THE PERUSAL OF THE ANNUAL REPORT WHICH HAS BEEN PLACED ON RECORD. THEREFORE, WE HAVE NO OTHER OPTION BUT TO DIRECT THE EXCLUSION OF THIS COMPANY FROM TH E FINAL SET OF COMPARABLES. IT IS DIRECTED ACCORDINGLY. 14. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT ACROPETAL BEING ENGAGED IN DEVELOPMENT OF PRODUCTS AND INTELLECTUAL PROPERTY, HAVING NO SEGMENTAL PROFITAB ILITY AVAILABLE AND HAS UNDERGONE BUSINESS RESTRUCTURING, EXTRA-ORD INARY CIRCUMSTANCES, CANNOT BE A SUITABLE COMPARABLE TO B ENCHMARK THE INTERNATIONAL TRANSACTIONS QUA BUSINESS SUPPORT SER VICES VIS--VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDED. ITA NO.6575/DEL/2016 10 TCS E-SERVICE LTD. (TCS E-SERVE) 15. TCS E-SERVE IS ALSO TPOS OWN COMPARABLE WHICH WAS CHALLENGED BY THE TAXPAYER BEFORE THE TPO AS WELL A S DRP. THE TAXPAYER CHALLENGED THE INCLUSION OF TCS E-SERVE AS A COMPARABLE ON GROUNDS OF FUNCTIONAL DISSIMILARITY, NON-AVAILAB ILITY OF SEGMENTAL INFORMATION, DIFFERENCE IN RISK PROFILE, OWNERSHIP OF INTANGIBLES, PAYMENT FOR TATA BRAND AND INCOMPARABL E SCALE OF OPERATIONS AND RELIED UPON THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN CASE OF AVAYA INDIA LTD. VS. ACIT IN ITA 532/2019 ORDER DATED 24.07.2019 . 16. HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVE NUE IN ORDER TO REPEL THE ARGUMENTS ADDRESSED BY THE LD. AR FOR THE TAXPAYER RELIED UPON THE ORDER PASSED BY THE LD. DRP AND CON TENDED THAT ALL THESE CONTENTIONS NOW RAISED BY THE LD. AR FOR THE TAXPAYER HAVE BEEN EXTENSIVELY DEALT WITH BY THE LD. DRP AND RELI ED UPON CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) PVT. LTD. VS. DCIT 376 ITR 183 (DEL.) AND RAMPGREEN SOLUTIONS PVT. LTD. (2015) 377 ITR 533 DELIVERED BY HONBLE DELHI HIGH COURT. 17. WHEN WE EXAMINE THE BUSINESS PROFILE OF TCS E-S ERVE, AVAILABLE AT PAGES 69, 83 AND 21 OF THE ANNUAL REPO RT COMPILATION, NO DOUBT THE TCS E-SERVE IS PRIMARILY ENGAGED IN PR OVIDING BUSINESS PROCESS SERVICES (BPO) TO ITS CUSTOMERS IN BANKING, ITA NO.6575/DEL/2016 11 FINANCIAL SERVICES AND INSURANCE DOMAIN BUT, AT THE SAME TIME, COMPANYS OPERATIONS INCLUDE DELIVERING CORE BUSINE SS PROCESSING SERVICES, ANALYTICS/INSIGHTS AND SUPPORT SERVICES F OR BOTH DATA AND VOICE PROCESSES, WHICH MAKE TCS E-SERVE AS A KPO WH EREAS THE TAXPAYER IS A ROUTINE CAPTIVE BPO SERVICES PROVIDER TO ITS AE. 18. WHEN WE EXAMINE PAGE 66 OF THE ANNUAL REPORT CO MPILATION I.E. PROFIT AND LOSS ACCOUNT, SEGMENTAL INFORMATION IS NOT AVAILABLE. FURTHERMORE, TCS E-SERVE IS A SIGNIFICANT RISK BEAR ING COMPANY SUCH AS MACRO-ECONOMIC RISK, REGULATORY RISK, FINAN CIAL RISK ETC., AS IS EVIDENT FROM ANNUAL REPORT COMPILATION UNDER THE HEAD RISK AND RISK MITIGATION WHICH INCLUDES MACRO-ECONOMIC RISKS , ABILITY TO HIRE AND RETAIN, DATA PROTECTION, TECHNOLOGY, NETWO RK AND TELECOMMUNICATION RISKS, RISK FROM OPERATIONS, FINA NCIAL RISK, LEGAL & STATUTORY LIABILITIES RISK ETC. WHEREAS TAXPAYER IS NOT PROVIDING LOW END SUPPORT SERVICES ON COST PLUS BASIS BEING A CAPTIVE SERVICE PROVIDER. 19. EVEN OTHERWISE, TCS E-SERVE IS HAVING SIGNIFICA NT OWNERSHIP OF INTANGIBLES AND IT IS A BRAND IN ITSEL F AS IT HAS MADE PAYMENT FOR TATA BRAND EQUITY CONTRIBUTION OF RS.3. 67 CRORES DURING THE YEAR UNDER ASSESSMENT, AS IS EVIDENT FRO M NOTES TO FINANCIAL STATEMENT, AVAILABLE AT PAGE 81 OF THE AN NUAL REPORT COMPILATION. FURTHERMORE, WHEN WE EXAMINE THE SCAL E OF OPERATION ITA NO.6575/DEL/2016 12 OF TCS E-SERVE AT PAGE 66 OF THE ANNUAL REPORT COMP ILATION, ITS TOTAL REVENUE IS RS.1733.34 CRORES AS AGAINST REVEN UE OF THE TAXPAYER AT RS.8,90,95,280/-. 18. EXCLUSION OF TCS E-SERVE HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT IN AVAYA INDIA LTD. (SUPRA) ON GROUND OF LARGE SCALE OPERATION, HUGE BRAND VALUE AND LACK OF SEGME NTAL BY DISTINGUISHING CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) PVT. LTD. AND RAMPGREEN SOLUTIONS PVT. LTD. (SUPRA) RELIED UPON BY THE LD. DR FOR THE REVENUE BY RETURNING FOLLOWING FINDINGS :- 27. THERE IS MERIT IN THE CONTENTION OF THE ASSES SEE THAT THE SCALE OF OPERATIONS OF THE COMPARABLES WITH THE TES TED ENTITY IS A FACTOR THAT REQUIRES TO BE KEPT IN VIEW. TCS E-SERV E HAS A TURNOVER OF RS.1359 CRORES AND HAS NO SEGMENTAL REV ENUE WHEREAS THE ASSESSEES ENTIRE SEGMENTAL REVENUE IS A MERE24 CRORES. AS OBSERVED BY THIS COURT IN ITS DECISION D ATED5THAUGUST 2016 IN ITA 417/2016 (PCIT V. ACTIS GLOBAL SERVICES PRIVATE LIMITED) SIZE AND SCALE OF TCSS OPERATION MAKES I T AN INAPPOSITE COMPARABLE VIS-A-VISTHE PETITIONER. AS ALREADY POINTED OUT EARLIER THERE IS A CLOSER COMPARISON OF TCS E-SERVE LIMITED WITH INFOSYS BPO LIMITED WITH EACH OF THEM EMPLOYING 13,342 AND 17,934 EMPLOYEES RESPECTIVELY AND MAKING RS.37 CRORES AND RS.19 CRORES AS CONTRIBUTION TOWARDS BRA ND EQUITY. WHEN RULE 10(B)(2) IS APPLIED I.E. THE FAR ANALYSIS , NAMELY, FUNCTIONS PERFORMED, ASSETS OWNED AND RISKS ASSUMED IS DEPLOYED THEN BRAND AND HIGH ECONOMIC UPSCALE WOULD FALL WIT HIN THE DOMAIN OF ASSETS AND THIS ALSO WOULD MAKE BOTH TH ESE COMPANIES AS UNSUITABLE COMPARABLES. 28. THE DIRECTORS REPORT OF TCS E-SERVE LIMITED B EARS OUT THE CONTENTION OF THE ASSESSEE THAT BOTH ENTITIES H AVE BEEN LEVERAGING TCSS SCALE AND LARGE CLIENT BASE TO INCR EASE THEIR BUSINESS IN A SIGNIFICANT WAY. THE SUBMISSION THAT THE TWO COMPARABLES OFFER AN ILLUSTRATION OF 'AN IDENTICAL TRANSACTION BEING CONDUCTED IN AN UNCONTROLLED MANNER OVERLOOK S THE EFFECT OF THE TATA BRAND ON THE PERFORMANCE OF THE IMPUGNE D COMPARABLES. THE QUESTION WAS NOT MERELY WHETHER TH E MARGINS EARNED BY THE TATA GROUP IN PROVIDING CAPTIVE SERVI CE TO THE CITI ENTITIES WERE AT ARMS LENGTH. THE QUESTION WAS WHE THER THEY ITA NO.6575/DEL/2016 13 OFFERED A RELIABLE BASIS TO RE-CALIBRATE THE PLI OF THE ASSESSEE WHOSE SCALE OF OPERATIONS WAS OF A MUCH LOWER ORDER THAN THE TWO IMPUGNED COMPARABLES. THE MERE FACT THAT THE TR ANSACTIONS WERE IDENTICAL WAS NOT IN TERMS OF THE LAW EXPLAINE D IN THE ABOVE DECISIONS, EITHER A SOLE OR A RELIABLE YARDSTICK TO DETERMINE THE APPOSITE CHOICE OF COMPARABLES. 29. FOR ALL OF THE AFOREMENTIONED REASONS, THE COUR T FINDS MERIT IN THE CONTENTION OF THE ASSESSEE THAT BOTH THE IMP UGNED COMPARABLES VIZ., TCS E-SERVE LIMITED AND TCS E-SER VE INTERNATIONAL LIMITED OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PURPOSES OF DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIONS INVOLVING THE ASSESSEE A ND ITS AES. 19. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT TCS E-SERVE CANNOT BE A VALID COMPARABLE VIS--VIS TAXPAYER ON GROUND OF ITS LARGE VOLUME OF OPERATIONS HAVING HUGE BRAND VALUE, LACK OF SEGMENTAL AND FUNC TIONAL DISSIMILARITY, HENCE ORDERED TO BE DELETED. 20. 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.