WELLIS PROCESSING SERVICES INDIA P.LTD, MUMBAI V. DCIT RG 2(3)(1), MUMBAI

ITA 690/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 3747 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 20-06-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Related party transaction; Transfer pricing; Rectification of order; International transaction; Wholly owned subsidiary
• Section: 271(1)(c); 143(3); 234B; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL , ACCOUNTANT MEMBER ITA NO. 690 /MUM. /2016 ( ASSESSMENT YEAR : 2006 07 ) WILLIS PROCESSING SERVICES INDIA LTD. PLANT NO.6, GODREJ & BOYCE COMPOUND, PIROJSHA NAGAR, LBS MARG, VIKHROLI (W) MUMBAI 400 079 PAN AAACT1796R . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX RANGE 2(3)(1), MUMBAI . RESPONDENT ASSESSEE BY : SHRI RAJAN VORA REVENUE BY : SHRI S.K. SINGH DATE OF HEARING O3.06 .2019 DATE OF ORDER 30.08.2019 O R D E R PER SAKTIJIT DEY. J.M CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 30 TH DECEMBER 2015, PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) PERTAINING TO THE ASSESSMENT YEAR 2006 07 , IN PURSUANCE TO THE DIRECTIONS OF LEARNED DISPUTE RESOLUTION PANEL 2 (DRP), MUMBAI. 2 . GROUNDS NO.1 AND 2, BEING GENERAL IN NATURE , DO NOT REQUIRE ADJUDICATION. 2 WILLIS PROCESSING SERVICES INDIA LTD. 3 . GROUNDS NO.3 TO 13, ARE IN RESPECT OF ADDITION OF ` 4,46,63,527, MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THOUGH , IN THE AFORESAID GROUNDS THE ASSESSEE HAS RAISED VARIOUS ISSUES. HOWEVER, PRIMARY DISPUTE IS WITH REGARD TO SELECTION OF CERTAIN COMPARABLES. IN FACT, SHRI RAJAN VORA, LEARNED COUNSEL FOR THE ASSESSEE , CONFINED HIS ARGUMENTS OBJECTING TO THE SELECTION OF FOUR COMPARABLES. ON THE VERY SAME ISSUE, T HE ASSESSEE HAS ALSO RAISED SOM E ADDITION AL GROUNDS . THE COMPARABLES DISPUTED BY THE ASSESSEE ARE AS UNDER : I ) VISHAL INFORMATION TECHNOLOGIES LTD; II ) DATA M ATICS FINANCIAL SERVICES LTD; III ) MAPLE E SOLUTIONS LTD; IV ) ASIT C. MEHTA. 4 . BR IEF FACTS ARE, THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF WILLIS EUROPE B.V., A COMPANY INCORPORATED IN NETHERLANDS. THE ASSESSEE BASICALLY PROVIDES SERVICES T O ITS ASSOCIATED ENTERPRISES (A E) RELATING TO PROCESSING OF INSURANCE CLAIMS, PREMIUM AND DATA PROCESSING WHICH ARE IN TH E NATURE OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITE S). DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE PROVIDED ITES SERVICES TO ITS AE, WHICH THE ASSESSEE BENCH MARKED IN THE TRANSFER PRICING STUDY REPORT BY USING TRANSACTIONAL NET MARGIN METHOD (TN MM) AS THE MOST APPROPRIATE METHOD. FOR COMPARABILITY ANALYSIS, THE ASSESSEE SELECTED TEN 3 WILLIS PROCESSING SERVICES INDIA LTD. COMPANIES AS COMPARABLES WITH ARITHMETIC MEAN OF 8.40% AS AGAINST THE MARGIN SHOWN BY THE ASSESSEE @ 10.60%. THUS, IT WAS CLAIMED BY THE ASSESSEE THAT THE TRANSACTION WITH THE AE IS AT ARM'S LENGTH. AFTER PERUSING THE TRANSFER PRICING STUDY REPORT AS WELL AS OTHER MATERIAL ON RECORD, THE TRANSFER PRICING OFFICER , THOUGH , ACCEPTED TNMM AS THE MOST APPROPRIATE METHOD, HOWEVER, HE DID NOT ACCEPT THE COMPARABLES SELECTED B Y THE ASSESSEE AS WELL AS CERTAIN ADJUSTMENTS MADE. OUT OF THE TEN COMPARABLES SELECTED BY THE ASSESSEE, THE TRANSFER PRICING OFFICER REJECTED EIGHT COMPARABLES . A DDITIONALLY , HE INTRODUCED TEN FRESH COMPARABLES. THUS, THE TRANSFER PRICING OFFICER FINALLY SELECTED TWELVE COMPARABLES WITH AVERAGE MARGIN OF 22.77% AND A FTER WORK IN G CAPITAL ADJUSTMENT THE MARGIN STOOD REDUCED TO 21.29%. APPLYING THE AFORESAID ADJUSTED MARGIN OF THE COMPARABLES TO THE OPERATING COST, THE TRANSFER PRICING OFFICER DETERMINED THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION AT ` 50,69,87,072, AS AGAINST THE PRICE CHARGED BY THE ASSESSEE AT ` 46,23,23,545. THE RESULTANT SHORTFALL OF ` 4,46,63,527, WAS TREATED AS ADJUSTMENT TO THE ARMS LENGTH PRICE. ON THE BASIS OF ADJUSTMENT PROPOSED BY THE TRANSFER PRICING OFFICER, THE ASSESSING OFFICER FRAMED THE DRAFT ASSESSMENT ORDER ADDING THE ADJUSTMENT . THOUGH , THE ASSESSEE OBJECTED TO THE ADJU STMENT MADE BY THE TRANSFER PRICING OFFICER BEFORE LEARNED DRP, HOWEVER, THE ADJUSTMENT MADE WAS MORE OR LESS SUSTAINED . 4 WILLIS PROCESSING SERVICES INDIA LTD. 5 . AS OBSERVED EARLIER, INSOFAR AS THE TRANSFER PRICING ADJUSTMENT IS CONCERNED, LEARNED COUNSEL FOR THE ASSESSEE HAS RESTRICTED HIS ARGU MENT TO FOUR COMPARABLES SELECTED BY THE TRANSFER PRICING OFFICER. THEREFORE, WE PROCEED TO DEAL WITH THE AFORESAID ISSUE AT THE OUTSET. 6 . THE FIRST COMPARABLE OBJECTED BY THE ASSESSEE IS VISHAL INFORMATION TECHNOLOGIES LTD. 7 . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , THIS COMPANY CANNOT BE TREATED AS COMPARABLE ONLY BECAUSE IT WAS SELECTED AS A COMPARABLE IN ASSESSMENT YEAR 2007 08. HE SUBMITTED , WHILE SELECTING THE COMPANY, THE TRANSFER PRICING OFFICER HAS NOT AT ALL CONSIDERED THE SUBMISSIONS OF T HE ASSESSEE OBJECTING TO THE SELECTION OF THIS COMPANY. HE SUBMITTED , THE COMPANY HAS A COMPLETELY DIFFERENT BUSINESS MODEL AS IT OUTSOURCES MAJOR PORTION OF ITS WORK TO THIRD PARTY VENDORS. DRAWING OUR ATTENTION TO THE FINANCIAL STATEMENTS OF THE COMPANY, THE LEARNED COUNSEL SUBMITTED , THE PERSONNEL COST OF THE COMPANY AS A PERCENTAGE OF ITS TURNOVER WORKS OUT TO ONLY 1.25% AS AGAINST 54.45% OF THE ASSESSEE. FURTHER, HE SUBMITTED , THE PERSONNEL COST AS A PERCENTAGE OF TOTAL COST OF THE COMPANY WORKS OUT TO 1.84% AS AGAINST 59.79% OF THE ASSESSEE. HE SUBMITTED , THE AFORESAID FACTS CLEARLY INDICATE THAT THIS C OMPANY DOES NOT PROVIDE SERVICE ITSELF BUT OUTSOURCES ITS WORK TO THIRD PARTIES. THE LEARNED COUNSEL SUBMITTED , FOR THE AFORESAID REASON, IN CASE OF VARIOUS OTHER 5 WILLIS PROCESSING SERVICES INDIA LTD. ASSESSES THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT HAS HELD THAT THIS COMPANY CANNOT BE A COMPARABLE . IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) ACIT V/S TRINITY COMPUTE R PROCESSING INDIA PVT. LTD., ITA NO.1832/MUM./2011, DATED 29.07.2016; II ) WILLIS PROCESSING SERVICES INDIA PVT. LTD. V/S ACIT, ITA NO.6877/MUM./2012, DATED 22.03.1017; III ) RAMPGREEN SOLUTIONS PVT. LTD. V/S CIT, ITA NO.102/2015, DATED 10.08.2015 (DEL.HC); IV ) PCIT V/S V/S IHG IT SERVICES INDIA PVT. LTD., ITA NO.264/ 2016 (O&M), DATED 05.12.2016 (P&H); V ) CIT V/S PTC SOFTWARE INDIA PVT. LTD., ITA NO.732/2014, DATED 26.09.2016; VI ) TATA CONSULTANCY SERVICES LTD. V/S ACIT, ITA NO.6648/ MUM./2012, ETC., DATED 18.10.2017; VII ) MA ERSK GLOBAL INDIA PVT. LTD., ITA NO.2594/MUM./2014, DATED 16.01.2015 VIII ) HSBC ELECTRONIC DATA PROCESSING INDIA LTD. V/S ACIT, ITA NO.1624/HYD./2010, DATED 28.06.2013; IX ) COGNIZANT TECHNOLOGY SERVICES PVT. LTD. V/S ACIT, 37 CCH 115; X ) ZAVATA INDIA PVT. LTD. V/S DCIT, ITA NO.1781/HYD./2011, DATED 07.06.2013; XI ) M/S. EXXONMOBIL CO. INDIA PVT. LTD. V/S ACIT, ITA NO.2/ PNJ./2013; AND XII ) M/S. PENTAIR WATER INDIA PVT. LTD. V/S ACIT, ITA NO.2/ PNJ./2013. 8 . THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED , IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR S 2005 06 AND 2008 09, 6 WILLIS PROCESSING SERVICES INDIA LTD. THE COMPANY HAS BEEN REJECTED AS A COMPARABLE FOR THE VERY SAME REASON. THUS, HE SUBMITTED , THE COMPANY CANNOT BE TREATED AS COMPARABLE TO THE ASSESSEE. 9 . SHRI S.K. SINGH, THE LEARNED DEP ARTMENTAL REPRESENTATIVE , STRONGLY RELYING UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED DRP SUBMITTED , THE COMPANY CANNOT BE REJECTED AS A COMPARABLE AS IT IS FUNCTIONALLY SIMILAR TO THE ASSESSEE. DRAWING OUR ATTENTION TO THE FINANCIAL STATEMENTS OF THE COMPANY PLACED IN THE PAPER BOOK , HE SUBMITTED , THE CONTENTION OF THE ASSESSEE THAT THE COMPANY OUTSOURCES ITS WORK HAS TO BE VERIFIED AS THE FINANCIAL STAT EMENT SHOWS THAT THE COMPANY OWNS MANY COMPUTERS WHICH P RE SUPPOSES THAT IT IS DO ING ITE S ITSELF. THUS, HE SUBMITTED , THE COMPANY CANNOT BE REJECTED AS COMPARABLE. 10 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. IT IS RELEVANT TO OBSERVE , BEFORE THE T RANSFER PRICING OFFICER AND LEARNED DRP, THOUGH , THE ASSESSEE HAD OBJECTED TO SELECTION OF THIS COMPANY AS A COMPARABLE, HOWEVER, ASSESSEES OBJECTIONS HAVE NOT BEEN PROPERLY CONSIDERED OR APPRECIATED. ON A PERUSAL OF THE FINANCIAL STATEMENTS OF THIS COMPA NY, WE HAVE NOTICED THAT THE EMPLOYEE/ PERSONNEL COST OF THIS COMPANY , AS A PERCENTAGE OF THE TOTAL COST AND SALES , IS NEGLIGIBLE COMPARED TO THE PERSONNEL COST OF THE 7 WILLIS PROCESSING SERVICES INDIA LTD. ASSESSEE AS A PERCENTAGE OF TOTAL COST AND SALES TURNOVER. THE AFORESAID FACTS DO ESTABLI SH THAT THE COMPANY D OES NOT UNDERTAKE THE PROVISION OF SERVICES ITSELF BUT OUT SOURCES MAJOR PART OF THE WORK TO THIRD PARTIES. IN CON TRAST, THE ASSESSEE PROVIDED ITE S ON ITS OWN WITHOUT OUTSOURCING. THAT BEING THE CASE, THE BUSINESS MODEL OF THIS COMPANY IS TOTALLY DIFFERENT FROM THE ASSESSEE. DUE TO THE DISTINCT BUSINESS MODEL OF OUTSOURCING OF WORK FOLLOWED BY THIS COMPANY, IT HAS BEEN REJECTED AS A COMPARABLE IN CASE OF VARIOUS OTHER ASSESSEE S . IN THIS CONTEXT, WE MAY REFER TO THE DECISION S CITED BEFORE US BY THE LEARNED COUNSEL . IN FACT, DIFFERENT HIGH COURTS , INCLUDING THE HON'BLE JURISDICTIONAL HIGH COURT , HAVE EXCLUDED THIS COMPANY AS A COMPARABLE DUE TO ITS DISTINCT AND DIFFERENT BUSINESS MODEL. IT IS RELEVANT TO OBSERVE , IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2005 06 AND 2008 09, THIS COMPANY HAS BEEN REJECTED AS A COMPARABLE DUE TO ITS DIFFERENT BUSINESS MODEL. AS REGARDS THE CONTENTION OF THE REVENUE THAT THE COMPANY WAS SELECTED AS COMPARABLE IN ASSESSMENT YEAR 2007 08, ON CAREFUL ANALYSIS IT IS FOUND THAT IN ASSESSMENT YEAR 2007 08, THE DIFFERENCE IN THE BUSINESS MODEL OF TH E ASSESSEE AND THIS COMPANY WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL. THUS, IN VIEW OF THE RELEVANT FACTS AND THE RATIO LAID DOWN IN THE DE CISION S CITED BEFORE US, WE HOLD THAT VISHAL INFORMATION TECHNOLOGIES LTD ., CANNOT BE TREATED AS A COMPARABLE TO THE ASSESSEE. 8 WILLIS PROCESSING SERVICES INDIA LTD. 11 . THE NEXT COMPARABLE DISPUTED BY THE ASSESSEE IS DATAMATICS FINANCIAL SERVICES LTD . 12 . OBJECTING TO THE SELECTION OF THIS COMPANY, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , THE ONLY REASON THE TRANSFER PRICING OFFICER SELECTED THIS COMPANY AS A COMPARABLE IS, IT WAS ACCEPTED AS A COMPARABLE IN ASSESSMENT YEAR 2007 08. THE LEARNED COUNSEL SUBMITTED , THE ANNUAL REPORT OF THE COMPA NY REVEALS THAT IT IS ENGAGED IN PROCES SING AND PRINTING AS WELL AS ITE S. WHEREAS , THE SEGMENTAL BREAK UP IS ONLY AVAILABLE IN RESPECT OF REVENUE AND NO SEGMENTAL BREAK UP OF EXPENSES INCURRED OR PROFITS EARNED IS AVAILABLE. HE SUBMITTED , WHILE THE COMPANY HAS EARNED REVENUE FROM PROCESSING AND PRINTING AMOUNTING TO ` 5.93 CRORE , REVEN UE EARNED FROM EXPORT OF ITE S IS ` 2.31 CRORE AND OTHER INCOME IS OF ` 2 C RORE. THEREFORE, INCOME FROM ITE S CONSTITUTES ONLY 22% OF THE TOTAL INCOME OF THE C OMPANY. HE SUBMITTED , SINCE THE TRANSFER PRICING OFFICER HAS APPLIED ITE S REVENUE FILTER OF MORE THAN 75% , WHICH IS NOT SATISFIED BY THIS COMPANY, IT CANNOT BE TREATED AS A COMPARABLE. WITHOUT PREJUDICE, THE LEARNED COUNSEL SUBMITTED , IT ALSO FAILS RELATED PARTY TRANSACTION (RPT) FILTER OF MORE THAN 25% ON SALES APPLIED BY THE TRANSFER PRICING OFFICER. DRAWING OUR ATTENTION TO THE ANNUAL REPORT OF THE COMPANY, HE SUBMITTED , INCOME FROM ITE S IS ` 2.31 CORE , WHEREAS , THE TOTAL TRANSACTION WITH AE IS ` 1.13 CR ORE. THEREFORE, THE RPT WORKS OUT TO 9 WILLIS PROCESSING SERVICES INDIA LTD. 49% ON SALES. FURTHER, HE SUBMITTED , THE BUSINESS MODEL OF THE COMPANY IS ALSO DIFFERENT FROM THE ASSESSEE. THE LEARNED COUNSEL SUBMITTED , THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2007 08 WILL HAVE NO EFFECT ON T HE ISSUE OF ACCEPTABILITY OF THIS COMPANY AS A COMPARABLE IN THE IMPUGNED ASSESSMENT YEAR SINCE ALL THESE ASPECTS WERE NOT RAISED BEFORE THE TRIBUNAL IN THE SAID ASSESSMENT YEAR. IN SUPPORT OF HIS CONTENTION, THE LEARNED COUNSEL RELIED UPON THE FOLLOWING D ECISIONS: I ) M/S. STREAM INTERNATIONAL SERVICES PVT. LTD. V/S ADIT, ITA NO. 8997/MUM./2010, DATED 11.01.2013; II ) GOLDMAN SACHS SERVICES PVT. LTD. V/S DCIT, IT(TP)A NO.1423/BANG./2010, DATED 11.01.2013; III ) DEUTSCHE NETWORKING SERVICES PVT. LTD. V/S DCIT, ITA NO. 8972/ MUM./2010, DATED 14.09.2018; IV ) M/S. EXXON MOBIL CO. INDIA PVT. LTD. V/S ACIT, ITA NO.6708/ MUM./2011, DATED 21.02.2018; AND V ) AKAMAI TECHNOLOGIES INDIA PVT. LTD. V/S DCIT, ITA NO.6708/ MUM./2011, DATED 21.02.2018. 13 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELYING UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED DRP SUBMITTED , THE COMPANY IS FUNCTIONALLY SIMILAR TO THE ASSESSEE. HOWEVER, HE SUBMITTED , ASSESSEES CONTENTION REGARDIN G NON FULFILLMENT OF RPT AND ITE S REVENUE FILTER CRITERIA ADOPTED BY THE TRANSFER PRICING OFFICER CAN BE RE EXAMINED. 10 WILLIS PROCESSING SERVICES INDIA LTD. 14 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. AS COULD BE SEEN FROM THE IMPUGNED ORDER OF THE TRANSFER PRICING OFFICER , WHILE SELECTING COMPARABLES HE HAD APPLIED CERTAIN FILTERS WHICH INCLUDED MORE THAN 75% SERVICE INCOME FILTER AND LESS THAN 25% RELATED PARTY TRANSACTION FILTER. IT IS THE SPECIFIC CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT TOTAL REVENUE FROM ITES WORKS OUT TO 22% ONLY. FURTHER, IT IS THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE RELATED PARTY TRANSACTION AS A PERCENTAGE OF THE SALES OF THE COMPANY WORKS OUT TO 49%. THUS, ACCORD ING TO THE ASSESSEE, THE COMPANY FAILS THE AFORESAID TWO FILTERS APPLIED BY THE TRANSFER PRICING OFFICER HIMSELF. IT IS RELEVANT TO OBSERVE , DUE TO SUB STANTIAL RELATED PARTY TRANSACTION THIS COMPANY HAS BEEN EXCLUDED AS A COMPARABLE IN CASE OF VARIOUS OTHE R ASSESSE E S CONCERNING THE VERY SAME ASSESSMENT YEAR. IN THIS CONTEXT, WE MAY REFER TO THE FOLLOWING DECISION OF THE TRIBUNAL, MUMBAI BENCH: I ) M/S. STREAM INTERNATIONAL SERVICES PVT. LTD. V/S ADIT, ITA NO. 8997/MUM./2010, DATED 11.01.2013; II ) DEUTSCHE NETWORKING SERVICES PVT. LTD. V/S DCIT, ITA NO. 8972/MUM./2010, DATED 14.09.2018; AND III ) GOLDMAN SACHS SERVICES PVT. LTD. V/S DCIT, IT(TP)A NO.1423/BANG./2010, DATED 07.09.2015. 11 WILLIS PROCESSING SERVICES INDIA LTD. 15 . THE OTHER DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUPPORT THE AFORESAID VIEW. THUS, PRIMA FACIE, WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE SINCE IT DOES NOT SATISFY CERTAIN FILTERS APPLIED BY THE TRANSFER PRICING OFFICER HIMSELF. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO FA CTUALLY VERIFY THIS ASPECT AND EXCLUDED THIS COMPANY AS A COMPARABLE. 16 . THE NEXT COMPARABLE DISPUTED BY THE ASSESSEE IS MAPLE E SOLUTIONS LTD. 17 . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , THIS COMPANY CANNOT BE SELECTED AS COMPARABLE DUE TO UNRELIABILIT Y OF ITS FINANCIAL STATEMENTS. HE SUBMITTED , THIS COMPANY IS A WHOLLY OWNED SUBSIDIARY OF HARYANA FIBRE LTD. WHICH IS A RASTOGI GROUP COMPANY. HE SUBMITTED , AS PER CBI INVESTIGATION REPORT, COMPANYS PROMOTERS WERE INVOLVED IN FRAUD IN THE LATE 1980S AND E ARLY 1990S. THUS, THE FINANCIALS OF THE COMPANY BEING UNRELIABLE , IT CANNOT BE CONSIDERED AS A COMPARABLE. HE SUBMITTED , THE UNRELIABILITY OF THE FINANCIAL STATEMENTS OF THE COMPANY IS FURTHER EVIDENT FROM THE ABNORMAL VARIATION IN COMPANYS PROFIT MARGIN OVER THE YEARS. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE MATERIALS PLACED IN THE PAPER BOOK. FURTHER, HE SUBMITTED , LEARNED DRP HAS ACCEPTED IT AS A COMPARABLE ONLY FOR THE REASON THAT IT WAS ACCEPTED AS A COMPARABLE IN ASSESSEES OWN CASE IN ASSESSME NT YEAR 2007 08. THE LEARNED COUN SEL SUBMITTED , THE 12 WILLIS PROCESSING SERVICES INDIA LTD. HON'BLE JURISDICTIONAL HIGH COURT IN CUMMINS TURBO TECHNOLOGIES LTD., DATED 28 TH FEBRUARY 2018, HAS REJECTED THIS COMPANY AS A COMPARABLE ACCEPTING THE REASONING OF THE TRIBUNAL THAT THE FINANCIALS OF THE COMPANY ARE UNRELIABLE DUE TO FRAUD COMMITTED BY THE DIRECTORS OF THE COMPANY. ACCORDINGLY, THE COMPANY WAS REJECTED. HE SUBMITTED , IN VIEW OF THE AFORESAID DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, WHICH IS ALSO FOR TH E ASSESSMENT YEAR 2007 08, THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 08, WOULD NOT BE APPLICABLE. IN THIS CONTEXT, HE ALSO RELIED UPON THE FOLLOWING DECISIONS: I ) CIT V/S CUMMINS TURBO TECHNOLOGIES LTD., ITA NO.1099/ 2 015, DATED 28.02.2018; (BOM. HC); II ) CIT(IT) V/S U.T. STARCOM INC., ITA NO.767/2017, DATED 25.09.2017; III ) TATA CONSULTANCY SERVICES LTD. V/S ACIT, ITA NO.6648/ MUM./2012, ETC., DATED 18.10.2017; IV ) M/S. STREAM INTERNATIONAL SERVICES PVT. LTD. V/S ADIT, ITA NO. 8997/MUM./2010, DATED 11.01.2013; V ) CRM SERVICES INDIA PVT. LTD. V/S CIT, ITA NO.618/2012, DATED 29.08.2014; VI ) FRANKLIN TEMPLETON INTERNATIONAL SERVICES INDIA PVT. LTD. V/S DCIT, ITA NO.7472/MUM./2010; DATED 10.01.2018; VII ) CUMMINS TURBO TECHNOLOGIES LTD. V/S D CIT, ITA NO.269/PN./ 2013, DATED 29.09.2014; VIII ) DEUTSCHE NETWORKING SERVICES PVT. LTD. V/S DCIT, ITA NO. 8972/MUM./2010, DATED 14.09.2018; IX ) FLEXTRONICS TECHNOLOGICS INDIA PVT. LTD. V/S DCIT, ITA NO.1219/BANG./2011, DATED 23.11.2015; 13 WILLIS PROCESSING SERVICES INDIA LTD. X ) U.T. STARCOM INC., ITA NO. 5848 / DEL./ 201 1; AND XI ) CAPITAL IQ INDIA PVT. LTD. V/S DCIT ITA NO.1961/HYD./2011. 18 . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , FOR THE PURP OSE OF SPECIFICALLY BRINGING THIS ISSUE BEFORE THE TRIBUNAL, THE ASSESSEE HAS RAISED THE ADDITIONAL GROUND. 19 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED DRP. 20 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AT THE OUTSET, WE MUST OBSERVE , IN THE MAIN GROUND ITSELF, THE A SSESSEE HAS OBJECTED TO SELECTION OF THIS COMPANY AS A COMPARABLE. THE ISSUE RAISED IN THE ADDITIONAL GROUND CONCERNING THE AFORESAID COMPARABLE IS ONLY AN OFF SHOOT OF THE MAIN GROUND. THEREFORE, WE ADMIT THE ADDITIONAL GROUND FOR ADJUDICATION. REVERTING BACK TO THE ISSUE OF COMPARABILITY OF THIS COMPANY, WE MAY OBSERVE THAT THE MATERIAL ON RECORD CL EARLY REVEAL THAT THE DIRECTORS/ PROMOTERS OF THIS COMPANY WERE INVOLVED IN SERIOUS FRAUD EARLIER. THEREFORE, DIFFERENT BENCHES OF THE TRIBUNAL AS WELL AS DIFFE RENT HIGH COURTS INCLUDING THE HON'B LE JURISDICTIONAL HIGH COURT HAVE HELD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE DUE TO UNRELIABILITY OF ITS FINANCIALS. THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CUMMINS TURBO TECHNOLOGIES LTD., I TA NO.1099/2015, DATED 28 TH 14 WILLIS PROCESSING SERVICES INDIA LTD. FEBRUARY 2018, HAS EXPRESSED THE AFORESAID VIEW. EVEN THE HON'BLE DELHI HIGH COURT IN CIT V/S U.T. STARCOM INC., ITA NO.767/2017, DATED 25 TH SEPTEMBER 2017, HAS EXPRESSED SIMILAR VIEW. THE OTHER DECISIONS CITED BY THE LEARNED CO UNSEL FOR THE ASSESSEE ALSO SUPPORT THIS VIEW. THEREFORE, IN VIEW OF THE DECISION S OF THE HON'BLE JURISDICTIONAL HIGH COURT AS WELL AS HON'BLE DELHI HIGH COURT AND OTHER DECISIONS REFERRED TO ABOVE, WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE TO THE ASSESSEE. 21 . THE NEXT COMPARABLE DISPUTED BY THE ASSESSEE IS ASIT C. MEHTA . 22 . THE LEARNED COUNSEL FOR THE ASSESSEE DRAWING OUR ATTENTION TO THE ANNUAL REPORT OF THE COMPANY SUBMITTED , IT HAS THREE SEGMENTS I.E., ITE S, PORTFOLIO MANAGEMENT SERVICES AND INVESTMENT ACTIVITIES. HE SUBMITTED , ITES SEGMENT INCLUDES REVENUE FROM ITE S AS WELL AS SOFTWARE DEVELOPMENT SERVICES . WHEREAS, NO FURTHER SEGMENT AL BREAK UP IS AVAILABLE. FURTHER, HE SUBMITTED , EVEN THE ITE S PROVIDED BY THE COMPANY IS IN THE NATURE OF GEOGRAPHICAL INFORMATION SYSTEM (GIS) WHICH IS A HIGH END KNOWLEDGE PROCESS OUTSOURCING (KPO) SERVICES. THEREFORE, THE COMPANY BEING FUNCTIONALLY DIFFERENT FROM THE ASSESSEE CANNOT BE TREATED AS COMPARABLE. HE SUBMITTED , IN ASSESSEES OWN CASE IN ASSESSMEN T YEAR S 2009 10 AND 2010 11, THE COMPANY HAS BEEN REJECTED AS A COMPARABLE AS IT IS A KPO COMPANY. HE SUBMITTED , EVEN LEARNED DRP ALSO REJECTED THIS COMPANY IN ASSESSMENT YEAR 15 WILLIS PROCESSING SERVICES INDIA LTD. 2011 12, AS IT PROVIDES KPO SERVICES. THE LEARNED COUNSEL SUBMITTED , DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HAS ALSO ACQUIRED ANOTHER COMPANY I.E., NUCLEUS NETSOFT AND GIS INDIA LTD. THEREFORE, DUE TO SUCH EXTRA ORDINARY EVENT HAPPENING DURING THE YEAR, THE COMPANY CANNOT BE TREATED AS COMPARABLE. THE LEARNED COUNSEL SUBMITT ED , LEARNED DRP WAS NOT JUSTIFIED IN UPHOLDING SELECTION OF THIS COMPANY AS A COMPARABLE SIMPLY RELYING UPON THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2007 08. IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) M/S. PENTAIR WATER INDIA PVT. LTD. V/S ACIT, ITA NO.2/ PNJ./ 2013; II ) M/S. AKAMAI TECHNOLOGIES INDIA PVT. LTD. V/S DCIT, IT(TP)A NO.1227/BANG./2010, DATED 11.08.2016; III ) HSBC ELECTRONICS DATA PROCESSING INDIA LTD. V/S ACIT, ITA NO.1624/HYD./2010; IV ) STREAM INTERNATIONAL SERVICES, ITA NO.1624/HYD./2010; V ) GOLDMAN SACHS SERVICES PVT. LTD. V/S DCIT, ITA NO.1423/ BANG./2010, DATED 07.09.2015; AND VI ) M/S. DEUTSCHE NETWORKING SERVICES PVT. LTD. V/SDCIT, ITA NO.8972/MUM./2010, DATED 14.09.2018. 23 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. ON EXAMINING THE ANNUAL REPORT OF THE COMPANY AS WELL AS OTHER MATERIALS PLACED ON RECORD, WE FIND THAT THE COMPANY HAS VARIOUS SEGMENTS AND THE ITES SEGMENT DOES NOT PROVIDE ITE S ALONE. IT APPEARS FROM TH E ANNUAL REPORT, THE ITE S SEGMENT ALSO INCLUDES 16 WILLIS PROCESSING SERVICES INDIA LTD. INCOME FROM SOFTWARE DEVELOPMENT SERVICES. HOWEVER, SEGMENTAL DETAILS RELATING TO THE AFORESAID SERVICES ARE NOT AVAILABLE. EVEN OTHERWISE ALSO, THE NATURE OF SERVICES PROVIDED BY THIS COMPANY IS RELATING TO GIS WHICH IS CONSIDERED TO BE KPO SERVICES. THEREFORE, THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IT IS ALSO NOTICED FROM THE JUDICIAL PRECEDENTS CITED BEFORE US THAT THE COMPANY HAS BEEN REJECTED AS A COMPARABLE DUE TO VARIOUS OTHER FACTORS SUCH AS EXTRA ORDINARY BUSINESS ACTIVITY DUE TO MERGER, LOW EMPLOYEE COST, ETC. THEREFORE, KEEPING IN VIEW THE JUDICIAL PRECEDENTS CITED BEFORE US WHICH ARE FOR THE VERY SAME ASSESSMENT YEAR, WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE TO THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DETERMINE THE ARM'S LENGTH PRICE OF THE TRA NSACTIONS RELATING TO PROVISION OF ITE S IN ACCORDANCE WITH OUR OBSERVATIONS HEREIN ABOVE. WHILE DOING SO, THE ASSESSING OFFICER IS DIRECTED TO CONSIDER AS SESSEES CLAIM OF RISK ADJUSTMENT IN ACCORDANCE WITH LAW. GROUNDS ARE ALLOWED TO THE EXTENT INDICATED ABOVE. 24 . BEFORE PARTING, WE MUST MAKE IT CLEAR THAT WE HAVE CONFINED OUR DECISION IN RESPECT OF TRANSFER PRICING A DJUSTMENT ON THE SPECIFIC ISSUE/ ARGUMENT RAISED BEFORE US AT THE TIME OF HEARING OF THE APPEAL. THEREFORE, ALL OTHER ISSUES RELATING TO THE TRANSFER PRICING ADJUSTMENT 17 WILLIS PROCESSING SERVICES INDIA LTD. ARE DEEMED AS NOT PRESSED, HENCE, NOT ADJUDICATED. GROUNDS ARE ALLOWED TO THE EXTENT INDICATED ABOVE. 25 . AS SUBMITTED BY THE LEARNE D COUNSEL FOR THE ASSESSEE, GROUNDS NO.14 AND 17, HAVE BECOME INFRUCTUOUS BY VIRTUE OF RECTIFICATION ORDERS PASSED BY THE ASSESSING OFFICER. HENCE, THESE GROUNDS ARE DISMISSED. 26 . GROUNDS NO.15 AND 16, ARE ON THE ISSUE OF LEVY OF INTEREST UNDER SECTION 234B AND 234D OF THE ACT. 27 . SINCE THE LEVY OF INTEREST UNDER THE AFORESAID PROVISIONS IS CONSEQUENTIAL IN NATURE, THE ASSESSING OFFICER IS DIRECTED TO APPLY THE PROVISIONS IN ACCORDANCE WITH LAW. 28 . IN GROUND NO.18, THE ASSESSEE HAS CHALLENGED INITIATION OF PENAL TY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THIS GROUND BEING PRE MATURE AT THIS STAGE IS DISMISSED. 29 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 30.08.2019 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 30.08.2019 18 WILLIS PROCESSING SERVICES INDIA LTD. COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI