M/s. Macquarie Global Services Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 6803/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73998 (ITAT-DELHI)
• Duration Of Justice: 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 28-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: HARPREET AJMANI S; DEEPAK CHOPRA MS ANANYA KAPOOR
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.6803/DEL/2013 ASSESSMENT YEAR : 2009-10 MACQUARIE GLOBAL SERVICES PVT. LTD., UNIT NO.8-12, GROUND FLOOR, WORLD TRADE CENTRE, BABAR ROAD, CONNAUGHT PLACE, NEW DELHI. PAN : AAFCM0180K VS. DCIT, CIRCLE-6(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHOPRA, MS ANANYA KAPOOR & SHRI HARPREET AJMANI, ADVOCATES. DEPARTMENT BY : SHRI PEEYUSH JAIN, CIT, DR ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER ON 21.10.201 3 U/S 143(3) READ ITA NO.6803/DEL/2013 2 WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HERE INAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2009- 10. 2. THE ONLY DISPUTE RAISED IN THIS APPEAL IS AGAINS T THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.3,36,37,317/- MADE BY THE AO. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS AN INDIAN PRIVATE LIMITED COMPANY SET UP AS A WHOLLY OWNED SU BSIDIARY OF MACQUARIE GLOBAL FINANCE SERVICES (MAURITIUS) LTD., TO SUPPORT THE BACK OFFICE FUNCTIONS EXCLUSIVELY OF ITS ASSOCIATED ENTE RPRISES (AE). THE ASSESSEE REPORTED AN INTERNATIONAL TRANSACTION AMOU NTING TO RS.24,66,73,397/- TOWARDS PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) RENDERED TO ITS AES. THE T RANSACTIONAL NET MARGIN METHOD (TNMM) WAS EMPLOYED AS THE MOST APPRO PRIATE METHOD WITH THE PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT / OPERATING COST FOR DEMONSTRATING THAT ITS INTERNATIONAL TRANS ACTION WAS AT ARMS LENGTH PRICE (ALP). EIGHT COMPANIES WERE CHOSEN AS COMPARABLE. THE ASSESSEES ADJUSTED MARGIN, AS STATED BY THE LD.AR, BUT, NOT PRECISELY ITA NO.6803/DEL/2013 3 EMANATING FROM THE TPOS ORDER, WAS COMPUTED BY THE TPO AT 16.29%. AFTER MAKING CERTAIN EXCLUSIONS FROM THE LIST OF CO MPARABLES GIVEN BY THE ASSESSEE AND INCLUDING SOME NEW CASES, THE TPO SHORT-LISTED NINE COMPANIES AS COMPARABLE WITH THE PROFIT MARGINS AS UNDER:- SL.NO. NAME OF THE COMPANY OP/OC 1. ICRA ONLINE LTD. 43.67 2. INFORMED TECHNOLOGIES LTD. 23.13 3. COSMIC GLOBAL LTD. 48.20 4. GENESYS INTERNATIONAL 58.45 5. VISHAL INFORMATION TECHNOLOGIES (KNOWN AS CORAL HUB) 36.93 6. ACCENTIA TECHNOLOGIES 43.44 7. ECLERX SERVICES PVT. LTD. 46.92 8. MICROGENETIC SYSTEMS LTD. 1.13 9. ADITYA BIRLA MINACS WORLDWIDE LTD. 0.52 AVERAGE 33.59% ITA NO.6803/DEL/2013 4 4. THIS LED TO THE PROPOSAL FOR A TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.3.75 CRORE. PURSUANT TO THE DIRECTI ONS GIVEN BY THE DISPUTE RESOLUTION PANEL (DRP), THE AO, IN THE FINA L ORDER, MADE AN ADDITION AMOUNTING TO RS.3.36 CRORE ON ACCOUNT OF T RANSFER PRICING ADJUSTMENT, WHICH IS DISPUTED IN THE INSTANT APPEAL . 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. BEFORE PROCEEDING FURTHER, IT IS RELEVANT TO MENTION THAT THE ONLY AREA OF DISPUTE BEFORE US IS THE SELE CTION OF COMPARABLES. THE ASSESSEE HAS NOT CHALLENGED THE COMPUTATION OF ITS ALP OR THE SELECTION OF TNMM AS THE MOST APPROPRIATE METHOD, O R APPLICATION OF SINGLE YEAR DATE OR FOR THAT MATTER ANY OTHER ASPEC T OF THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. TO BE PREC ISE, THE CONTROVERSY ROTATES AROUND THE EXCLUSION OF THE FOLLOWING FIVE COMPANIES FROM THE LIST OF COMPARABLES:- SL.NO. NAME OF THE COMPANY OP/OC 1. COSMIC GLOBAL LTD. 48.20 2. GENESYS INTERNATIONAL 58.45 ITA NO.6803/DEL/2013 5 3. VISHAL INFORMATION TECHNOLOGIES (KNOWN AS CORAL HUB) 36.93 4. ACCENTIA TECHNOLOGIES 43.44 5. ECLERX SERVICES PVT. LTD. 46.92 6. APART FROM THAT, THE ASSESSEE IS INSISTING ON TH E INCLUSION OF THE FOLLOWING TWO COMPANIES, WHICH WERE NOT INCLUDED BY THE TPO IN HIS LIST OF COMPARABLES:- I) ALLSEC TECHNOLOGIES LTD.; AND II) R. SYSTEMS. 7. WE WILL TAKE UP THESE COMPANIES ONE BY ONE TO AS CERTAIN THEIR COMPARABILITY OR OTHERWISE WITH THE ASSESSEE COMPAN Y. BEFORE EMBARKING UPON THIS EXERCISE, IT IS SINE QUA NON TO PRECISELY CONSIDER THE FUNCTIONAL PROFILE OF THE ASSESSEE. THE MACQUARIE GROUP, HEADQUARTERED IN AUSTRALIA, IS A PROVIDER OF INVESTMENT BANKING A ND FINANCIAL SERVICES. IT HAS SIX OPERATING GROUPS WITHIN WHICH INDIVIDUAL BUSINESS DIVISIONS OPERATE. IT HAS MORE THAN 70 OFFICE LOCATIONS IN 2 6 COUNTRIES. THE ITA NO.6803/DEL/2013 6 ASSESSEE WAS SET UP IN MARCH, 2007 FOR PROVIDING SE RVICES EXCLUSIVELY TO ITS AES. THE SUPPORT SERVICES RENDERED BY THE ASSE SSEE ARE ONLY TO ITS AES AND IT HAS NO INTERACTION WITH THE THIRD PARTY CLIENTS. THE ASSESSEE MANAGES THE FOLLOWING PROCESSES FOR ITS AES GLOBALL Y :- A. ACCOUNTS PAYABLE SERVICES: MAINTAINING VENDOR DATA EXPENSES PROCESSING INVOICE PROCESSING PAYMENT PROCESSING RECONCILIATION AND COMPLETING/COMPLETION OF THE FIX ED ASSET REGISTER ACCOUNTS RECONCILIATION QUERY RESOLUTION B. GENERAL ACCOUNTING FOR FUNDS: MAINTAINING OF JOURNALS RECONCILIATIONS QUERY RESOLUTION CASH MANAGEMENT ITA NO.6803/DEL/2013 7 BUDGETING & FORECASTING STATUTORY REPORTING MANAGEMENT REPORTING RISK MANAGEMENT REPORTING DISTRIBUTIONS. 8. CONSIDERING THE CBDT CIRCULAR S.O.890(E) DATED 2 6.9.2007, WHICH GIVES A DETAILED LIST OF PRODUCTS OR SERVICES THAT CAN BE CLAIMED UNDER THE ITES SEGMENT, THE TPO CAME TO THE CONCLUS ION THAT THE SERVICES OFFERED BY THE ASSESSEE FELL WITHIN THE DO MAIN OF ITES. FROM THE ABOVE DESCRIPTION OF THE SERVICES RENDERED BY T HE ASSESSEE, IT CAN BE SEEN THAT IT IS MAINLY INTO PROVIDING SUPPORT SERVI CES TO ITS AES IN THE AREAS OF ACCOUNTS PAYABLE AND GENERAL ACCOUNTING. WHEREAS THE ACCOUNTS PAYABLE SERVICES REFER TO MAINTAINING VEN DOR DATA, EXPENSES PROCESSING, INVOICE PROCESSING, ACCOUNTS RECONCILIA TION AND QUERY RESOLUTION, ETC., THE GENERAL ACCOUNTS SERVICES INC LUDES MAINTENANCE OF JOURNALS, CASH MANAGEMENT, BUDGETING & FORECASTING, MANAGEMENT REPORTING, RISK MANAGEMENT REPORTING AND DISTRIBUTI ONS, ETC. WHEN WE CONSIDER THE NATURE OF SERVICES RENDERED BY THE ASS ESSEE IN THE LIGHT OF ITA NO.6803/DEL/2013 8 THE ABOVE REFERRED CBDT CIRCULAR DATED 26.9.2000, W E CAN PLACE THE SERVICE RENDERED BY THE ASSESSEE ON A MACRO LEVEL, UNDER: (I) BACK OFFICE OPERATIONS; (II) CALL CENTRES; (IV) DATA PROCESSING ; AND (XIII) REVENUE ACCOUNTING. WITH THE ABOVE UNDERSTANDING OF THE NA TURE OF THE SERVICES PROVIDED BY THE ASSESSEE TO ITS AES, WE WILL NOW PR OCEED TO EXAMINE THE COMPARABILITY OR OTHERWISE OF THE COMPANIES DISPUTE D BY THE ASSESSEE IN THE EXTANT APPEAL. (I) COSMIC GLOBAL LTD . 9. THE TPO INCLUDED THIS COMPANY IN THE LIST OF COM PARABLES ON THE PREMISE THAT THE NATURE OF SERVICES PROVIDED BY IT ALSO FELL UNDER ONE OF THE SEGMENTS OF ITES. THE ASSESSEES OBJECTION THA T THIS COMPANY WAS FUNCTIONALLY DIFFERENT, DID NOT IMPRESS THE TPO, WH O TREATED THIS COMPANY AS COMPARABLE. NO RELIEF WAS ALLOWED BY THE DRP ALSO. 10. FROM THE ANNUAL ACCOUNTS OF THIS COMPANY, IT CA N BE SEEN THAT ITS TOTAL REVENUE FROM OPERATIONS STANDS AT RS.7.37 CRO RE, DIVIDED INTO THREE SEGMENTS, NAMELY, MEDICAL TRANSCRIPTION AND CONSULT ANCY SERVICES AT RS.9.90 LAC, TRANSLATION CHARGES AT RS.6.99 CRORE A ND ACCOUNTS BPO AT ITA NO.6803/DEL/2013 9 RS.27.76 LAC. IT IS APPARENT THAT THIS COMPANY OUT SOURCED ITS ACTIVITIES AND THE OUTSOURCING EXPENSES CONSTITUTE 57% OF THE TOTAL EXPENSES. THE ENTIRE OUTSOURCING IS CONFINED TO TRANSLATION CHARG ES PAID AT RS.3.00 CRORE. WE CAN SEE FROM THE TPOS ORDER THAT HE CON SIDERED THE RESULTS OF THIS COMPANY ON ENTITY LEVEL, THEREBY RECKONING INC OME FROM ALL THE THREE SEGMENTS. SINCE TRANSLATION CHARGES CONSTITU TE A LARGER CHUNK OF THIS COMPANYS INCOME, FOR WHICH THE SERVICES WERE MAINLY OUTSOURCED, WE CANNOT CONSIDER THIS COMPANY AS COMPARABLE ON AN ENTITY LEVEL. 11. WE FIND IT PERTINENT TO MENTION THAT THE NAT URE OF ACTIVITIES CARRIED OUT BY OUR ASSESSEE IS LARGELY SIMILAR TO THAT OF M ERCER CONSULTING (INDIA) PVT. LTD. THE CASE OF THAT COMPANY FOR THE SAME ASSESSMENT YEAR CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL. VIDE ITS ORDER DATED 6 TH JUNE, 2014 IN MERCER CONSULTING (INDIA) PVT. LTD.VS. DCIT (ITA NO.966/DEL/2014), THE TRIBUNAL HAS DIRECTED THE EXC LUSION OF THIS COMPANY ON THE BASIS OF THE OUTSOURCING ISSUE. FOL LOWING THE PRECEDENT, WE ORDER FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. ITA NO.6803/DEL/2013 10 (II) GENESYS INTERNATIONAL 12. THIS COMPANY WAS INITIALLY INCLUDED BY THE ASSE SSEE IN ITS LIST OF COMPARABLES. HOWEVER, DURING THE COURSE OF PROCEED INGS BEFORE THE TPO, ITS EXCLUSION WAS SOUGHT FOR THE REASONS GIVEN ON PAGE 14 OF THE TPOS ORDER. UNMOVED BY THE ASSESSEES OBJECTIONS AND WITHOUT CONTROVERTING THE SAME, THE TPO INCLUDED THIS COMPA NY IN THE FINAL SET OF COMPARABLES SIMPLY ON THE GROUND THAT IT WAS VOL UNTARILY CHOSEN BY THE ASSESSEE AS COMPARABLE. 13. WE FAIL TO APPRECIATE THE VIEW POINT OF THE AUT HORITIES IN FORCEFULLY INCLUDING A COMPANY IN THE LIST OF COMPARABLES SIMP LY ON THE GROUND THAT SINCE THE ASSESSEE INITIALLY VOLUNTARILY TREAT ED IT AS COMPARABLE, NOW IT CANNOT RESILE. THE SUBSTANCE OF THE MATTER IS TO CONSIDER AND DECIDE THE COMPARABILITY OF A COMPANY WITH THE ASSESSEE ON MER ITS RATHER THAN HARPING ON AN INADVERTENT MISTAKE COMMITTED BY THE ASSESSEE IN THIS REGARD. IF AN ASSESSEE WRONGLY INCLUDES A COMPANY IN THE LIST OF COMPARABLES AND THEN PUTS UP A CASE BEFORE THE TPO THAT THIS COMPANY IS, IN FACT, NOT COMPARABLE CITING THE REASONS FOR ITS STAND, THE TPO IS ITA NO.6803/DEL/2013 11 OBLIGED TO REJECT THE CONTENTION UNDER DUE PROCESS OF LAW AFTER SUCCESSFULLY MEETING WITH THE OBJECTIONS SO RAISED BY THE ASSESSEE. IT CANNOT BE A ONE SIDED WIND BLOW. THERE CAN BE NO E STOPPEL AGAINST THE INCLUSION OF CORRECT COMPANIES IN THE TALLY OF COMP ARABLES. IF ONE HAS TO GO STRICTLY WITH THE ASSESSEES LIST OF COMPARABLES BY NOT ACCEPTING THE CONTENTION FOR THE EXCLUSION OF A PARTICULAR COMPAN Y AFTER PROPER EVALUATION, THEN, THERE OUGHT TO BE THE COMPLETE AC CEPTANCE OF THE ASSESSEES VERSION AS REGARDS THE COMPARABILITY OF ALL OTHER COMPANIES AS WELL. THERE CANNOT BE SIMULTANEOUS APPROBATE AND RE PROBATE. AS THE POSITION IS NOT SO AND TPO IS FULLY EMPOWERED TO EX AMINE AND EVALUATE EACH AND EVERY COMPANY INCLUDED BY THE ASSESSEE IN ITS LIST OF COMPARABLES FROM THE ANGLE OF ITS ACTUAL COMPARABIL ITY, IN THE LIKE MANNER, THE TPO SHOULD ALSO EXAMINE THE ASSESSEES CONTENTION OF INCOMPARABILITY OF A COMPANY WRONGLY INCLUDED BY IT IN THE LIST OF COMPARABLES, IF ARGUED. 14. COMING TO THE FUNCTIONAL PROFILE OF THIS COMPAN Y, WE FIND THAT IT IS ENGAGED IN PROVIDING FULL RANGE OF GEOSPATIAL SERVI CES TO ITS CUSTOMERS. ITA NO.6803/DEL/2013 12 SUCH SERVICES, IN SIMPLE TERMS, MEAN EXAMINING THE RELATIVE POSITION OF THINGS ON THE EARTHS SURFACE. THESE INCLUDE 3D MA PPING, NAVIGATION MAPS, IMAGE PROCESSING, CADASTRAL MAPPING, ETC. THE RE CAN BE NO DISPUTE ON THE PROPOSITION THAT THE LIST IN CIRCULA R NO. S.O.890(E) DATED 26.9.2007, TAKEN NOTE OF BY THE TPO, CONTAINS 15 PR ODUCTS OR SERVICES, UNDER THE OVERALL UMBRELLA OF INFORMATION TECHNOLOG Y ENABLED SERVICES. WE FIND THAT MOST OF THEM ARE DIVERSE IN NATURE. IT CAN BE SEEN THAT THE ITEM AT SR. NO. (V) IN THIS LIST IS: ENGINEERING A ND DESIGN; ITEM AT SR. NO. (VI) IS: GEOGRAPHIC INFORMATION SYSTEM SERVICE S; ITEM AT SR. NO. (VIII) IS: INSURANCE CLAIM PROCESSING; ITEM AT SR . NO. (X) IS: MEDICAL TRANSCRIPTION; ITEM AT SR. NO. (XIV) IS: SUPPORT CENTRES; AND ITEM AT SR. NO. (XV) IS: WEBSITE SERVICES. WE CAN EASILY FIND OUT FROM THE ABOVE ELABORATION OF SOME OF THE SERVICES PICKED UP FROM THE CIRCULAR THAT SOME OF THEM ARE ENTIRELY DIFFERENT FROM ONE ANOTHE R. DIFFERENT PROPORTIONS OF SKILLS AND THE EXTENT OF CAPITAL EMP LOYED ARE REQUIRED FOR RENDERING SUCH SERVICES. IT IS WHOLLY ILLOGICAL TO CONSIDER ONE PRODUCT OR SERVICE FROM THIS LIST OF 15 PRODUCTS OR SERVICES A S SIMILAR AND COMPARABLE TO ALL THE REMAINING 14. ITA NO.6803/DEL/2013 13 15. COMING BACK TO OUR POINT, IT CAN BE SEEN THAT G ENESYS INTERNATIONAL FALLS UNDER SERIAL NO. VI. OF THE CIRCULAR WITH THE CAPTION GEOGRAPHIC INFORMATION SYSTEM SERVICES. THERE CAN BE NO COMPA RISON OF THE SERVICES CARRIED OUT BY THIS COMPANY WITH THOSE REN DERED BY THE ASSESSEE TO ITS AES, WHICH ARE BASICALLY IN THE NATURE OF AC COUNTS PAYABLE SERVICES AND GENERAL ACCOUNTING FOR FUNDS, FALLING UNDER (I) BACK OFFICE OPERATIONS; (II) CALL CENTRES; (IV) DATA PROCESSING ; AND (XIII) REVENUE ACCOUNTING. BY NO STANDARD, GENESYS INTERNATIONAL C AN BE CONSIDERED AS COMPARABLE WITH THE ASSESSEE COMPANY. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF MERCER CONSULTING (I) PVT. LTD. (SUPRA). WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. (III) VISHAL INFORMATION TECHNOLOGIES (CORAL HUB) 16. THE TPO INCLUDED THIS COMPANY IN THE LIST OF CO MPARABLES DESPITE THE ASSESSEES OBJECTION ABOUT ITS WRONGFUL INCLUSI ON IN THE LIST OF COMPARABLES. THE ASSESSEES OBJECTION ABOUT THE IN COMPARABILITY OF THIS COMPANY WAS TURNED DOWN BY THE AUTHORITIES. ITA NO.6803/DEL/2013 14 17. IN VIEW OF THE DISCUSSION MADE IN THE CONTEXT OF GENESYS INTERNATIONAL ABOVE, WE FIND NO REASON TO STOP THE ASSESSEE FROM ARGUING THAT A PARTICULAR COMPANY WAS WRONGLY INCLUDED IN T HE LIST OF COMPARABLES AND THE SAME BE EXCLUDED. IN VIEW OF T HE DETAILED REASONS GIVEN ABOVE AND RELYING UPON THE SPECIAL BENCH DECI SION OF THE TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS PVT. LTD. (2010) 132 TTJ (CH D) (SB) 1 , WE HOLD THAT THIS COMPANY CANNOT PER SE BE INCLUDED IN THE FINAL SET OF COMPARABLES SIMPLY FOR THE REASON THAT THE A SSESSEE INADVERTENTLY SO INCLUDED IT INITIALLY. 18. COMING TO THE MERITS, WE FIND FROM THE ANN UAL ACCOUNTS OF THIS COMPANY THAT OUTSOURCING CHARGES CONSTITUTE 90% OF THE TOTAL OPERATING COST. THE BUSINESS MODEL ADOPTED BY THIS COMPANY I N OUTSOURCING ITS ACTIVITIES IN CONTRAST TO THAT OF THE ASSESSEE IN R ENDERING SERVICES AT ITS OWN, MAKES THE TWO INCOMPARABLE TO EACH OTHER. SIMI LAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF MERCER CONSULTING (I) PVT. LTD. (SUPRA), WHICH, IN TURN, RELIED ON DECISIONS OF MUMBAI BENC H OF THE TRIBUNAL IN THE CASES OF HAPAG LLOYD GLOBAL SERVICES (2013)-TIL-68- ITA NO.6803/DEL/2013 15 ITAT-MUM-TP AND ACIT VS. MAERSK GLOBAL SERVICE CENTRE (I) PVT. LTD. (ITA NO.3744/MUM/2011) LAYING DOWN THE SAME PROPOSITION. IN VIEW OF THE FOREGOING REASONS, WE ORDER FOR THE EXCLUSION O F THIS COMPANY FROM THE LIST OF COMPARABLES. (IV) ACCENTIA TECHNOLOGIES 19. THE TPO INCLUDED THIS COMPANY ON THE GROUND TH AT IT WORKS IN MEDICAL TRANSCRIPTION AND BILLING ACTIVITIES WHICH FALL WITHIN THE OVERALL AMBIT OF ITES AND MORE THAN 80% OF ITS REVENUE IS R EALIZED FROM THESE SECTORS. 20. THE LD. AR CONTENDED THAT THIS COMPANY DESERV ED TO BE EXCLUDED FOR TWO REASONS, FIRST, BEING IT ENGAGED IN SOFTWAR E PRODUCTS ALSO AND SECOND, BEING, SOME ACQUISITIONS TAKING PLACE IN TH IS YEAR. IN SUPPORT OF SUCH EXCLUSION, HE RELIED ON CERTAIN DECISIONS. 21. WE FIND IT AS AN ADMITTED POSITION THAT THIS COMPANY, APART FROM BEING ENGAGED IN THE BUSINESS OF RENDERING ITES, IS ALSO DEALING WITH SOFTWARE PRODUCTS. AS THE SEGMENTAL FIGURES OF THI S COMPANY ARE NOT AVAILABLE AND THE TPO HAS TAKEN ITS ENTITY LEVEL FI GURES, IT CEASES TO BE ITA NO.6803/DEL/2013 16 COMPARABLE. TO WHAT EXTENT THE OVERALL PROFITABILIT Y OF THIS ENTITY IS AFFECTED BECAUSE OF SOFTWARE PRODUCTS, IS NOT CAPA BLE OF ASCERTAINMENT WITH PRECISION. 22. AS REGARDS THE OTHER OBJECTION OF THE LD. AR ABOUT THE ACQUISITION UNDERTAKEN BY THIS COMPANY DURING THE YEAR, WE FIND FROM THE ANNUAL REPORT OF THIS COMPANY THAT IT COMPLETED ACQUISITIO N OF OAK TECHNOLOGIES INC. USA DURING THE YEAR. THE MUMBAI B ENCH OF THE TRIBUNAL IN PETRO ARALDITE (P) LTD. VS. DCIT (2013) 154 TTJ (MU M) 176 HAS HELD THAT A COMPANY CANNOT BE CONSIDERED AS COM PARABLE BECAUSE OF EXCEPTIONAL FINANCIAL RESULTS DUE TO MERGERS/DEMERG ERS ETC. SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI BENCH OF THE TRIBUNAL I N SEVERAL CASES INCLUDING TOLUNA INDIA P. LTD. VS. ACIT (ITA NO. 5645/D/2011) VIDE ITS ORDER DT. 26.8.2014. THE VERY FACT THAT THIS IS A Y EAR OF ACQUISITION OF THIS COMPANY, IS SUFFICIENT ENOUGH TO CHARACTERIZE IT AS AN EXTRAORDINARY EVENT JUSTIFYING ITS EXCLUSION FROM THE FINAL SET O F COMPARABLES. WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. ITA NO.6803/DEL/2013 17 (V) ECLERX SERVICES PVT. LTD . 23. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY, PROPOSED TO BE USED IN THE FINAL SET OF COMPARABLES BY THE T PO, BY CONTENDING THAT IT WAS NOT FUNCTIONALLY COMPARABLE. THE TPO REJECT ED SUCH CONTENTION BY HOLDING THAT IT IS ALSO PROVIDING IT ENABLED SER VICES. 24. WE HAVE PERUSED THE ANNUAL REPORT OF THIS COMP ANY, A COPY OF WHICH IS AVAILABLE ON PAGES 494 ONWARDS OF THE PAPE R BOOK. IT CAN BE SEEN THAT IT IS A KNOWLEDGE PROCESS OUTSOURCING (KP O) COMPANY PROVIDING DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO GLOBAL CLIENTS. THIS COMPANY PROVIDES END TO END SUPPORT THROUGH TRADE L IFECYCLE INCLUDING TRADE CONFIRMATION, SETTLEMENTS, ETC. IT ALSO PROV IDES SALES AND MARKETING SUPPORT SERVICES TO LEADING GLOBAL MANUFACTURING, R ETAIL, TRAVEL AND LEISURE COMPANIES THROUGH ITS PRICING AND PROFITABI LITY SERVICES. FROM THE ABOVE NARRATION OF THE NATURE OF BUSINESS DONE BY ECLERX SERVICES PVT. LTD., IT IS OVERT THAT IT, BEING A KPO COMPANY , IS PROVIDING DATA PROCESS SOLUTIONS TO ITS CLIENTS, WHICH ACTIVITY I S A WAY DIFFERENT FROM THAT OF THE ASSESSEE COMPANY, WHICH IS BASICALLY OF PROVIDING ACCOUNTS ITA NO.6803/DEL/2013 18 PAYABLE SERVICES AND GENERAL ACCOUNTING SERVICES TO ITS AES ALONE. NOT ONLY THAT, THIS COMPANY HAS SIGNIFICANT INTANGIBLES WHICH ITS USES FOR THE PURPOSES OF RENDERING KPO SERVICES. AS THE ASSESSEE IS A CAPTIVE UNIT RENDERING SERVICES TO ITS AES WITHOUT ANY INTANGIBL ES, THERE CAN BE NO COMPARISON BETWEEN THE ASSESSEE AND ECLERX SERVICES PVT. LTD. WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. (VI) ALLSEC TECHNOLOGIES LTD. 25. THE ASSESSEE INCLUDED THIS COMPANY IN ITS SE T OF COMPARABLES. THE TPO ORDERED FOR THE EXCLUSION OF THIS COMPANY ON TH E GROUND OF ITS EXTRAORDINARY BUSINESS ACTIVITY AND THE DIMINISHING REVENUE TREND. THE ASSESSEES OBJECTIONS BEFORE THE DRP COULD NOT PERS UADE THE PANEL TO CHANGE THE VIEW CANVASSED BY THE TPO. 26. WE FIND THAT THE TPO EXCLUDED THIS COMPANY B Y MAINLY ON THREE CONSIDERATION, NAMELY, THE NON-AVAILABILITY OF RPT DATA, DIMINISHING REVENUES AND FAILING OF THE EXPORT FILTER. ITA NO.6803/DEL/2013 19 27. AS REGARDS FAILING THE EXPORT FILTER, IT IS FO UND THAT THE TPO EMPLOYED THE FILTER OF : COMPANIES WHOSE REVENUE F ROM SERVICE ACTIVITY IS LESS THAN 75% OF THE TOTAL OPERATING REVENUES AR E EXCLUDED. IT CAN BE SEEN THAT THIS COMPANYS RATIO OF EXPORT TO SALES S TANDS AT 74.45%. THERE IS HARDLY ANY DIFFERENCE BETWEEN 75% AND 74.45% WHE N WE CONSIDER A PERCENTAGE IN THE CONTEXT OF USING A PARTICULAR FIL TER. THE LD. AR HAS RIGHTLY RELIED ON THE TRIBUNAL ORDER IN THE CASE OF MERCER CONSULTING (I) PVT. LTD. (SUPRA), TO CONTEND THAT THE DIFFERENCE IS NOMINAL AND THIS COMPANY CANNOT BE EXCLUDED FOR SUCH A MINISCULE DIF FERENCE. WE AGREE WITH THE CONTENTION OF THE LD. AR ON THIS ISSUE, WH ICH EMANATES FROM THE TRIBUNAL ORDER IN MERCER (SUPRA) TO THE EFFECT THAT THIS COMPANY CANNOT BE EXCLUDED ON THE BASIS OF THIS FILTER. 28. THE NEXT OBJECTION TAKEN BY THE TPO ADVOCATI NG THE EXCLUSION OF THIS COMPANY IS THE NON-AVAILABILITY OF RPT DATA. IT CAN BE SEEN FROM THE ASSESSEES SUBMISSIONS MADE BEFORE THE DRP, A C OPY OF WHICH IS AVAILABLE ON PAGES 59-96 OF THE PAPER BOOK, THAT TH E ASSESSEE SUBMITTED THE DETAILS OF RPTS OF THIS COMPANY AT 15.82%. AS THE TPO HAS RIGHTLY ITA NO.6803/DEL/2013 20 APPLIED FILTER OF EXCLUDING COMPANIES WITH MORE THA N 25% OF RPTS, THE PERCENTAGE OF THIS COMPANY AT 15.82% IS WELL WITHIN THE FILTER ADOPTED BY THE TPO. THIS AGAIN CANNOT BE A REASON FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLE. 29. THE THIRD GROUND TAKEN BY THE TPO FOR EXCLUD ING THIS COMPANY IS DIMINISHING REVENUE. IT CAN BE SEEN FROM THE DET AILS OF PROFITS (LOSSES) OF THIS COMPANY GIVEN BY THE ASSESSEE IN ITS OBJECT IONS BEFORE THE DRP THAT ITS LOSS BEFORE INTEREST AND TAXES FOR THE YEA R UNDER CONSIDERATION WAS AT RS.6.64 CRORE AS AGAINST THE PRECEDING YEAR S LOSS OF RS.10.80 CRORE. IT HAS BEEN FURTHER SHOWN BY THE ASSESSEE ON PAGE 64 OF THE PAPER BOOK THAT THIS COMPANY REPORTED LOSS BEFORE INTERES T AND TAXES FOR THE SUCCEEDING YEAR AT RS.6.43 CRORE AND FOR THE YEAR T HEREAFTER AT RS.3.47 CRORE. THESE FIGURES OF LOSS SPEAK VOLUMES OF THIS COMPANY BEING IN CONSISTENT RED, THEREBY MAKING IT AS AN ABNORMAL FE ATURE, NECESSITATING ITS EXCLUSION. 30. IT CAN ALSO BE SEEN FROM THE OBJECTIONS TAK EN BY THE ASSESSEE BEFORE THE DRP, RELEVANT PART OF WHICH IS AVAILABL E ON PAGE 59 ONWARDS ITA NO.6803/DEL/2013 21 OF THE PAPER BOOK THAT THE TPO SOUGHT TO REJECT ALL SEC TECHNOLOGIES ON ACCOUNT OF EXTRA ORDINARY BUSINESS ACTIVITY. IN S UPPORT OF ITS CONTENTION FOR THE INCLUSION OF THIS COMPANY, THE ASSESSEE STA TED BEFORE THE DRP THROUGH PAGES 60 TO 62 OF THE PAPER BOOK THAT CERTA IN EXTRAORDINARY EVENTS IN THE SHAPE OF ACQUISITION AND DISSOLUTION TOOK PLACE IN THE RELEVANT YEAR. THE ASSESSEE HAS MENTIONED THAT ALLS EC ACQUIRED THE DOMESTIC CONTRACT MANAGEMENT SERVICES DIVISION OF I 2I TELESOURCE WITH ITS EXISTING FACILITIES DURING THE YEAR. THIS COMPA NY FURTHER DISSOLVED ITS SUBSIDIARY B2K CORP INC. IN THIS YEAR UNDER THE VOL UNTARY DISSOLUTION PROCESS. THUS, IT IS CLEAR THAT THE ASSESSEE ITSELF ADMITTED ABOUT THE ACQUISITION AND DISSOLUTION UNDERTAKEN BY ALLSEC DU RING THE YEAR. THESE ARE DEFINITELY EXTRA-ORDINARY EVENTS REQUIRING THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. FOLLOWING THE VIEW TAKEN ABOVE FOR EXCLUDING ACCENTIA TECHNOLOGIES, WE HOLD THAT A LLSEC TECHNOLOGIES HAS BEEN RIGHTLY EXCLUDED BY THE TPO. 31. THE LD. AR VEHEMENTLY ARGUED THAT THE TRIBUN AL IN THE CASE OF MERCER (SUPRA) HAS DIRECTED TO CONSIDER THIS COMPANY AS COMPARABLE AND ITA NO.6803/DEL/2013 22 HENCE IT SHOULD BE SO CONSIDERED HERE ALSO. WE DO N OT AGREE WITH THIS CONTENTION. IT HAS BEEN HELD IN SEVERAL DECISIONS I NCLUDING TOLUNA INDIA P. LTD. VS. ACIT (ITA NO. 5645/D/2011) DT. 26.8.2014 THAT IF A PARTICULAR COMPANY, (SAY A), HAS BEEN HELD TO BE INCOMPARABLE IN CASE B, IT IS NOT ESSENTIAL THAT A WILL BE INCOMPARABLE IN ALL OTHER CASES AND VICE VERSA . BASICALLY, WE NEED TO SEE THE FILTER ON THE BASIS OF WHICH COMPANY A WAS HELD TO BE INCOMPARABLE. IF THERE IS A SAME FILTER IN A LATER CASE, THEN THE COMPANY HELD TO BE INCOMPARABL E IN THE FORMER CASE WOULD ALSO CEASE TO BE COMPARABLE IN A LATER CASE. HOWEVER, IF FILTER IS DIFFERENT, THEN IT CAN ALSO ASSUME THE CHARACTER OF A COMPARABLE DEPENDING UPON THE APPLICABILITY OF A DIFFERENT FIL TER APPLIED IN A LATER CASE. SIMILAR IS TRUE FOR ONE COMPANY CONSIDERED A S COMPARABLE IN A FORMER COMPANY ON THE BASIS OF A PARTICULAR FILTER, LOSING COMPARABILITY ON THE BASIS OF ANOTHER FILTER IN A LATER CASE. 32. IT CAN BE SEEN FROM THE ORDER IN THE CASE OF MERCER (SUPRA) THAT THIS COMPANY WAS EXCLUDED BY THE TPO ON THE FILTER OF 75 % EXPORT SALES AS AGAINST THIS COMPANYS PERCENTAGE AT 74.55%. THE FI LTER OF DECLINING OR ITA NO.6803/DEL/2013 23 CONSISTENT LOSSES WAS NOT APPLIED IN THAT CASE. THE DECLINING REVENUE OR CONSISTENT LOSSES OF A COMPANY AGAINST THE INDUSTRY S TREND OF PROFITS IS AN IMPORTANT FILTER AND A RELEVANT FACTOR, WHICH SK IPPED THE ATTENTION OF THE TPO IN THAT CASE. MERELY BECAUSE THE TPO DID NO T APPLY A PROPER FILTER IN ONE CASE, CANNOT IPSO FACTO BE A REASON TO REPEAT THE SAME MISTAKE IN ALL OTHER CASES TO FOLLOW, MORE SPECIFI CALLY, WHEN THE EARLIER ERROR STANDS CORRECTED IN A LATER CASE. 33. APART FROM THAT, IT IS ALSO NOTICEABLE FROM T HE ASSESSEES OWN SUBMISSIONS THAT THERE WAS ACQUISITION AND DISSOLUT ION IN ALLSEC DURING THE YEAR IN QUESTION. WE FAIL TO APPRECIATE THE LOG IC OF THE CONTENTION OF THE LD. AR FOR TREATING THIS COMPANY AS COMPARABLE DESPITE THERE BEING EXTRA-ORDINARY EVENTS OF ACQUISITION ETC., WHEN IN THE SAME BREATH HE PRESSED FOR NOT TREATING ACCENTIA TECHNOLOGIES AS C OMPARABLE FOR THE SAME REASON. IT IS IMPERMISSIBLE TO TAKE SUCH CONT RADICTORY STANDS. WE ACCENTUATE THAT WHAT IS RELEVANT IS THE PRINCIPLE A ND NOT ITS SUITABILITY TO THE ASSESSEE OR THE REVENUE. IN THE CONTEXT OF TRAN SFER PRICING, THE SAME PRINCIPLE MAY SOMETIMES COME TO THE RESCUE OF THE A SSESSEE AND AT OTHER ITA NO.6803/DEL/2013 24 TIMES, IT MAY FAVOUR THE REVENUE. THE PRINCIPLE NE EDS TO INVARIABLY FOLLOWED. 34. THUS, IT IS EVIDENT THAT OUT OF THREE REASON S GIVEN BY THE TPO FOR EXCLUDING THIS COMPANY, TWO REASONS ARE NOT MAINTAI NABLE WHILE THE LAST ONE IS. IF A COMPANY FAILS ON ONE OF THE FILTERS AD OPTED BY THE TPO, IT HAS TO BE EXCLUDED. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER IN NOT CONSIDERING ALLSEC TECHNOLOGIES AS A COMPARABLE COM PANY. (VI) R. SYSTEMS INTERNATIONAL LTD. 35. THE LAST COMPANY DISPUTED IS R. SYSTEMS INTER NATIONAL LTD., WHICH THE ASSESSEE INCLUDED IN ITS ROLL OF COMPARABLES, B UT, THE TPO HELD IT TO BE INCOMPARABLE ON THE GROUND THAT IT WAS HAVING A DECEMBER YEAR ENDING. 36. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND IT AS AN UNDISPUTED FAC T THAT THIS COMPANY WAS FOLLOWING CALENDAR YEAR ENDING FOR MAINTAINING ITS ACCOUNTS. THE ONLY REASON GIVEN BY THE TPO FOR EXCLUDING IT IS TH E FOLLOWING OF A DIFFERENT YEAR ENDING VIS--VIS THE ASSESSEE COMPAN Y. HOWEVER, IT CAN ITA NO.6803/DEL/2013 25 BE SEEN FROM THE AUDITED ACCOUNTS OF THIS COMPANY T HAT THE AUDITED DATA FOR THE QUARTER ENDING 31.3.2009 AND 31.3.2008 HAS BEEN PROVIDED BY THE COMPANY ITSELF. ORDINARILY, THERE SHOULD BE NO DIF FICULTY IN DETERMINING THE RELEVANT FIGURES FOR THE YEAR ENDING 31.3.2009 BY EXCLUDING THE RESULTS FOR THE QUARTER ENDING 31.3.2008 AND INCLUD ING THE RESULTS OF THE QUARTER ENDING 31.3.2009 TO THE ANNUAL FIGURE FOR T HE YEAR ENDING 31.12.2008. THUS, IT IS APPARENT THAT THE FIGURE O F PROFIT FOR THE YEAR ENDING 31.3.2009 IS CAPABLE OF ASCERTAINMENT. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND DIRECT TO INCL UDE R. SYSTEMS IN THE LIST OF COMPARABLES BY WORKING OUT THE FIGURES RELE VANT TO THE FINANCIAL YEAR ENDING 31.3.2009 FROM THE AUDITED ACCOUNTS OF R. SYSTEMS INTERNATIONAL LTD. SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MERCER CONSULTING (I) PVT. LTD. (SUPRA). 37. WE WANT TO MAKE IT CLEAR THAT THE APPREHENS ION EXPRESSED BY THE LD. DR ABOUT THE IMPOSSIBILITY OF THE WORKING OF TH E RELEVANT FIGURES FOR THE YEAR ENDING 31 ST MARCH, 2009 ON THE BASIS OF DATA GIVEN BY THIS COMPANY, ALSO NEEDS CONSIDERATION. IT IS BUT NATURA L THAT ONLY IF CORRECT ITA NO.6803/DEL/2013 26 FIGURES OF THE COMPANY FOR THE YEAR ENDING MATCHING WITH THE ASSESSEE ARE POSSIBLE TO DEDUCE THAT IT WOULD MERIT INCLUSIO N IN THE LIST OF COMPARABLES. IN THE OTHERWISE EVENTUALITY, IT WOULD AUTOMATICALLY GO OUT OF THE RECKONING. 38. IN VIEW OF THE FOREGOING DISCUSSION ABOUT THE I NCLUSION OR EXCLUSION OF THE COMPANIES, WE SET ASIDE THE IMPUGN ED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR CALCULATING TH E ALP OF THE INTERNATIONAL TRANSACTION AFRESH IN CONSONANCE WITH OUR ABOVE DIRECTIONS. 39. IN THE RESULT, THE APPEAL IS ALLOWED FOR STAT ISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 22.01.201 5. SD/- SD/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, JANUARY, 2015. DK ITA NO.6803/DEL/2013 27 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.