CAPITA INDIA P.LTD, MUMBAI V. DCIT RG 5(1), MUMBAI

ITA 7674/MUM/2012

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7687 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 04-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 27-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DHARMESH BAFNA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3); 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE S/ SHRI B.R.BASKARAN (AM) & AMARJIT SINGH (JM) I.T.A. NO. 7674 /MUM /20 1 2 (ASSESSMENT YEAR 20 0 8 - 0 9 ) CAPITAL INDIA PRIVATE LTD. 5 TH FLOOR, LOGITECH PARK TOWER - I, PHASE - II M.V.ROAD, SAKI NAKA AN DHERI EAST MUMBAI - 400 072. PAN : AABCE7046A VS. DCIT, RANGE - 5(1) AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 0020. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI DHARMESH BAFNA DEPARTMENT BY SHRI MANOJ KUMAR DATE OF HEARING 26 .1 0 . 201 8 DATE OF PRON OUNCEMENT 15 . 0 1 . 201 9 O R D E R PER B.R. BASKARAN (A M) : - THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER FOR A.Y. 2008 - 09 U/S. 143(3) READ WITH SECTION 144C OF THE ACT IN PURSUANCE OF DIRECTIO NS GIVEN BY LD DISPUTE RESOLUTION PANEL (DRP) . THE VARIOUS G ROUNDS URGED BY THE ASSESSEE RELATE TO FOLLOWING ISSUE S : - (A) TRANSFER PRICING ADJUSTMENT OF RS. 799.87 LAKHS (B) REJECTION OF CLAIM FOR DEDUCTION U/S. 10A OF THE ACT ON THE AMOUNT DISALLOWED U/S. 14A O F THE ACT. (C) NON - GRANTING OF TDS OF RS. 17,562/ - (D) LEVY OF INTEREST U/S. 234B & 234C OF THE ACT. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING BPO/ITE SERVICES TO ITS ASSOCIATE ENTERPRISES COVERING BOTH VOICE AND NON - VOICE BASED SEGMENT S. HENCE, IT IS CAPTIVE SERVICE PROVIDER. THE FIRST ISSUE CONTESTED BY THE ASSESSEE CAPITAL INDIA PRIVATE LTD. 2 RELATES TO THE TRANSFER PRICING (T.P) ADJUSTMENTS MADE BY THE AO. IN ITS TP STUDY, THE ASSESSEE BENCHMARKED ITS INTERNATIONAL TRANSACTION USING TNMM AS THE MOST APPROPRIATE METHOD. T HE ASSESSEE CONSIDERED 14 COMPARABLES AND ARRIVED AT AN AVERAGE ARMS LENGTH MARGIN OF 12.99% , WHILE THE ASSESSEES OWN MARGIN WAS 16.77%. ACCORDINGLY THE ASSESSEE CLAIMED THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARMS LENGTH. 3. HOWEVER, LEARNED T PO SELECTED 19 COMPARABLES AND ARRIVED AT ARMS LENGTH MARGIN AT 30.49%. ACCORDINGLY, HE MADE ADJUSTMENT OF RS. 1167.96 LAKHS. IN THE PROCEEDINGS BEFORE LEARNED DRP , IT EXCLUDED TWO COMPARABLES. IT RESULTED IN MEAN MARGIN OF 27.45% AND ACCORDINGLY THE ADDI TION WAS REDUCED TO RS.799.87 LAKHS. ACCORDINGLY, THE AO ADDED THE ABOVE SAID AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE IS AGGRIEVED BY THE DECISION SO RENDERED BY LEARNED DRP. 4. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE REC ORD. THE F INAL LIST OF COMPARABLE S CONSIDERED BY LD DRP IS GIVEN BELOW : - 1. SPANCO LTD. (SEG.) 2. COSMIC GLOBAL LTD. 3. ADITYA BIRLA MINACS WORLDWIDE LTD. 4. ASIT C. MEHTA FINANCIAL SERVICES LTD. (SEG.) 5. CROSSD OMAIN SOLUTIONS LTD. 6. DATAMATICS FINANCIAL SERVICES LTD (SEG.) 7. E4E HEALTHCARE SOLUTIONS LTD. 8. INFOSYS BPO LTD . 9. ISERVICES INDIA PVT LTD . 10. M APLE ESOLUTIONS LTD . 11. R SYSTEMS INTERNATIONAL LTD (SEG.) 12. WIPRO LTD (SEG.) 13. HCL COMNET SYSTEM & SERVICES LTD. (SEG.) 14. ACCENTIA TECHNOLOGIES LIMITED (SEG) CAPITAL INDIA PRIVATE LTD. 3 15. E - CLERX SERVICES LTD. 16. MOLD - TEX TECHNOLOGIES LTD. 17. ACROPETAL TECHNOLOGIES LTD. (SEG) THE LD A.R SUBMITTED THAT THE RE IS NO DISPUTE IN RESPECT OF COMPARABLES LISTED LISTED IN SERIAL NO. 1 TO 13 , I .E., THE ASSESSEE HAS ALSO ACCEPTED THEM AS VALID COMPARABLES . HE SUBMITTED THAT T HE ASSESSEE IS CHALLENGING SELECTION OF FOLLOWING FOUR COM PARABLES : - 1. ACCENTIA TECHNOLOGIES LIMITED (SEG) 2. E - CLERX SERVICES LTD. 3. MOLD - TEX TECHNOLOGIES LTD. 4. ACROPETAL TECHNOLOG IES LTD. (SEG) 5. WE SHALL NOW DEAL THE ABOVE SAID FOUR COMPARABLES. THE FI RST COMPARABLE IN DISPUTE IS M/S. ACCENTIA TECHNOLOGIES LIMITED. T HE ASSESSEE S CASE IS THAT THIS COMPANY IS PROVIDING HIGH END SERVICES LIKE MEDICAL TRANSCRIPTION, MEDICAL CODIN G, MEDICAL BILLING ETC. , WHILE TH E ASSESSEE IS PROVIDING LOW END SERVICES TO ITS AE AS CAPTIVE SERVICE PROVIDER . IT WAS SUBMITTED THAT THIS COMPANY HAS DEVELOPED SOFTWARE PRODUCTS . FURTHER IT DID NOT FURNISH SEGMENTAL INFORMATION /RESULTS FOR ITS SERVICES SEGMENT AND SOFTWARE PRODUCTS SEGMENT . THIS COMPANY HAS ALSO ACQUIRED MANY BUSINESS ES LIKE THUNGA SOFTWARE PVT. LIMITED, GSR SYSTEMS INC., GSR PHYSICIAN BILLING SERVICE INC., DENMED TRANSCRIPTION SERVICES INC. ETC., DURING THE YEAR UNDER CONSIDERATION, WHI CH WOULD I MPACT THE PROFITABILITY OF THE COMPANY. THE LEARNED AR FURTHER SUBMITTED THAT THE TPO HAD INC LUDED THIS COMPANY AS A COMPARABLE IN A.Y. 2011 - 12 . HOWEVER THE TRIBUNAL , VIDE ITS ORDER DATED 19.9.2016 PASSED IN ITA NO. 356/MUM/2016 FOR AY 2011 - 12, HAS EXCLUDED THE SAME. THE LEARNED AR FURTHER PLACED HIS RELIANCE ON THE DECISION RENDERED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF APTARA TECHNOLOGY (P) LTD. (92 TAXAMN.COM 240) , WHEREIN HON'BLE BOMBAY HIGH COURT HAS HELD THAT A COMPANY PROVIDING MEDI CAL TRANSCRIPTION, MEDICAL CODING SERVICES AND APPLICATION , DEVELOPMENT AND CAPITAL INDIA PRIVATE LTD. 4 CUSTOMIZATION SERVICES IN RESPECT OF WHICH SEGMENTAL DATA WAS NOT AVAILABLE CANNOT BE COMPARED FOR THE ASSESSEE PROVIDING ITE SERVICES TO ITS AE. HE SUBMITTED THAT THE FACTS PREVA ILING IN THE CASE OF APTARA TECHNOLOGY P LTD (SUPRA) SHALL SQUARELY APPLY TO THE FACTS OF THE PRESENT CASE. ACCORDINGLY, THE LEARNED AR SUBMITTED THAT THIS COMPARABLE SHOULD BE EXCLUDED FOR THE PURPOSE OF TRANSFER PRICING STUDY IN THIS YEAR ALSO . 6. ON T HE CONTRARY, LEARNED DR SUBMITTED THAT THE ASSESSEE IS SEEKING EXCLUSION OF M/S ACCENTIA TECHNOLOGIES LTD. , ON THE GROUND THAT IT IS PROVIDING MEDICAL SERVICES AND HE SUBMITTED THAT THE ASSESSEE HAS ACCEPTED ANOTHER COMPARABLE NAMED E4E HEALTHCARE SOLUTIO NS LIMITED AS A GOOD COMPARABLE , WHICH IS ALSO PROVIDING MEDICAL TRANSCRIPTION SERVICES. HE SUBMITTED THAT T HE ASSESSEE IS DEMANDING EXCLUSION OF ACCENTIA TECHNOLOGIES LTD. ONLY FOR THE REASON THAT ITS MARGIN IS VERY HIGH. ACCORDINGLY, THE LEARNED DR SUB MITTED THAT THIS COMPARABLE SHOULD BE INCLUDED. 7. IN THE REJOINDER, THE LEARNED AR SUBMITTED THAT ACCENTIA TECHNOLOGIES LIMITED HAS ALSO DEVELOPED SOFTWARE PRODUCTS LIKE IMTAS, IRTS, IAMS, IIMS, IPMS, IHMS. HE SUBMITTED THAT THE SOFTWARE DEVELOPMENT ACT IVITY IS NOT THERE IN THE ASSESSEES CASE. FURTHER NO SEGMENTAL INFORMATION FOR S ERVICES SEGMENT AND SOFTWARE PRODUCTS DIVISION IS AVAILABLE. THE ABSENCE OF THE SAME WOULD MAKE THIS COMPANY INCOMPARABLE AS HELD BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF APTARA TECHNOLOGY (P) LIMITED. 8. WE NOTICED THAT THE COORDINATE BENCH OF THE ITAT HAS EXCLUDED THIS COMPARABLE IN RGW A S SESSEES OWN CASE FOR A.Y. 2011 - 12 WITH FOLLOWING OBSERVATIONS : - (II) ACCENTIA TECHNOLOGIES: - FROM THE PERUSAL OF THE ANNUAL REPORT OF THIS COMPANY, IT IS SEEN THAT IT IS MAINLY IN TO RENDERING OF KNOWLEDGE PROCESSING, OUTSOURCING (KPO) SERVICES IN THE FIELD OF MEDICAL. FOLLOWING SERVICES ARE BEING PROVIDED BY THIS COMPANY: - CAPITAL INDIA PRIVATE LTD. 5 MEDICAL TRANSCRIPTION DISCRETE MEDICAL TRANSCR IPTION MEDIAL CODING BILLING RECEIVABLE PRACTICE MANAGEMENT CONSULTANCY SOFTWARE AS A SERVICE (SAAS) THE PRODUCTS DEVELOPED BY THIS COMPANY ARE MAINLY INSTAKARE - EMR SOFTWARE, WHICH IS INTO HEALTHCARE MANAGEMENT SYSTEMS FOR DOCTORS AND WEB BASED APPLICAT ION FOR THE DOCTORS. THUS, THIS COMPANY IS MAINLY INTO MEDICAL TRANSCRIPTION AND ITS REVENUE IS FROM MEDICAL TRANSCRIPTION, BILLING AND COLLECTION AND INCOME FROM CODING ETC. THIS COMPANY HAS BEEN FOUND TO BE UN - COMPARABLE FROM COMPANIES RENDERING ITES COM PANIES BY THE TRIBUNAL IN THE CASE OF EQUANT SOLUTIONS INDIA PVT. LTD AND ALSO AMERIPRISE INDIA PVT. LTD. (SUPRA). THUS, FOLLOWING THE SAID CASES AND ON COMPARABILITY ANALYSIS, THIS COMPANY CANNOT BE HELD TO BE COMPARABLE AND ACCORDINGLY, THE SAME IS DIREC TED TO BE REMOVED FROM THE COMPARABILITY LIST. 9. FURTHER, HON'BLE BOMBAY HIGH COURT IN THE CASE OF APTARA TECHNOLOGY (P) LTD. HAS HELD AS UNDER : - WE FIND THAT THE IMPUGNED ORDER OF THE TRIBUNAL HAS AFTER RENDERING A FINDING OF FACT THAT THE ACTIVITIES OF THE TESTED PARTY AND COMPARABLE ARE FUNCTIONALLY DIFFERENT, ALSO RECORDS FINDING OF FACT THAT EXTRAORDINARY EVENTS SUCH AS MERGER/AMALG A MATION WOULD HAVE AN IMPACT/EFFECT ON THE PROFITABILITY OF M/S. ACCENTIA TECHNOLOGIES LTD. THEREFORE, ON BOTH THE ABO VE GROUNDS, IT WAS HELD TO BE NOT A COMPARABLE TO THE TRANSACTION OF THE RESPONDENT WITH ITS AE. (D) IN FACT ON THE ISSUE OF MERGER/AMALG A MATION THE TRIBUNAL HOLDS THAT IT AFFECTED THE PROFITABILITY OF M/S. ACCENTIA TECHNOLOGIES LTD. RELIANCE FOR THE ABOV E WAS PLACED ON THE DECISIONS OF ITS COORDINATE BENCHES IN HYDERABAD AND BANGALORE, I.E., CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P.) LTD. V. DY. CIT[2013] 32 TAXMANN.COM 21/57 SOT 14 (HYD) AND SYMPHONY MARKETING SOLUTIONS INDIA (P.) LTD. V. ITO [2.013] 38 TAXMANN.COM 55 (BANG). THE REVENUE HAS NOT ATTEMPTED TO SHOW EITHER BEFORE THE TRIBUNAL OR EVEN BEFORE US THAT THE MERGER/AMALGAMATION WHICH TOOK PLACE IN THE PREVIOUS YEAR RELEVANT TO SUBJECT ASSESSMENT YEAR DID NOT HAVE AN IMPACT ON THE PROFITABILITY OF THE ACCENTIA TECHNOLOGIES LTD. MERELY BECAUSE BOTH THE TESTED AND THE COMPARABLE PROVIDE ITES SERVICES THEY DO NOT BECOME COMPARABLE. THIS IS SO AS THE NATURE OF SERVICES PROVIDED BY USE CAPITAL INDIA PRIVATE LTD. 6 OF INFORMATION - TECHNOLOGY IS DIFFERENT. IN ANY EVENT, NO CHALLENGE H AS BEEN MADE TO THE FINDING OF THE TRIBUNAL THAT THE ACTIVITIES CARRIED OUT BY ACCENTIA TECHNOLOGIES LTD. AND THE RESPONDENT - ASSESSEE ARE FUNCTIONALLY DIFFERENT ARID, THEREFORE, NOT COMPARABLE. (E) THEREFORE, THE VIEW TAKEN BY THE TRIBUNAL IN EXCLUDING AC CENTIA TECHNOLOGIES LTD. IS A POSSIBLE VIEW MORE PARTICULARLY IN THE ABSENCE OF THE SAME BEING SHOWN TO BE PERVERSE. THUS, NO INTERFERENCE IS WARRANTED.' 10. ANOTHER IMPORTANT FEATURE HIGHLIGHTED BEFORE US WAS THAT ACCENTIA TECHNOLOGIES LTD. IS ALS O ENGAGED IN THE BUSINESS OF DEVELOPING SOFTWARE PRODUCTS AND IT DOES HAVE ANY SEGMENTAL INFORMATION FOR ITS SERVICES SEGMENT AND SOFTWARE PRODUCTS SEGMENT . THOUGH THE LD D.R SOUGHT TIME TO FIND OUT AVAILABILITY OF SEGMENTAL DETAILS, YET NO SUCH INFORMATI ON WAS PROVIDED BEFORE US. ACCORDINGLY, T HE ABSENCE OF SEGMENTAL INFORMATION WOULD MAKE THIS COMPANY INCOMPARABLE AS PER THE DECISION RENDERED BY HON'BLE BOMBAY HIGH COURT AND THE COORDINATE BENCH REFERRED (SUPRA). ACCORDINGLY, WE DIRECT THE ASSESSING OFF ICER TO EXCLUDE THIS COMPANY. 11. THE NEXT COMPARABLE BEING DISPUTED IS E - CLERX SERVICES LTD. THE LEARNED AR SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE PROVISION OF HIGH END SERVICES IN THE NATURE OF KPO SERVICES LIKE DATA ANALYTICS, DATA MANA GEMENT AND PROCESS IMPROVEMENT SOLUTIONS TO GLOBAL ENTERPRISE CLIENTS. THE COMPANY HAS ALSO BEEN NAMED AS LEADING KPO BY NELSON HALL. THE LEARNED AR SUBMITTED THAT, IN THE CHAIRMANS MESSAGE, IT IS STATED THAT THE COMPANY IS A DATA ANALYTICS KPO SERVICE PROVIDER AND CANNOT BE COMPARED TO A BPO OR A N IT OFFSHORE COMPANY. THE LD A.R SUBMITTED THAT CERTAIN EXTR A ORDINARY EVENTS HAVE ALSO TAKEN PLACE IN THIS COMPANY DURING THE RELEVANT YEAR . FROM THE MANAGEMENT DISCUSSION AND ANALYSIS REPORT, IT CANNOT BE N OTICED THAT T HIS COMPANY HAS ACQUIRED UK BASED IGENTICA TRAVEL SOLUTIONS LTD. ON 27.7.2009. I T IS FURTHER SUBMITTED THAT THIS ACQUISITION HAS PROVIDED THE COMPANY WITH A SET OF 28 LARGE CUSTOMERS THEREBY GIVING AN ENTRY PLATFORM INTO A NEW VERTICAL , VIZ., T RAVEL AND HOSPITALITY , WHICH WOULD BOOST ITS PROFITABILITY . ACCORDINGLY, THE LEARNED AR SUBMITTED THAT THIS COMPANY CANNOT BE TAKEN AS COMPARABLE TO THE CAPITAL INDIA PRIVATE LTD. 7 ASSESSEE - COMPANY . THE LEARNED AR FURTHER SUBMITTED THAT TPO HIMSELF HAS EXCLUDED THIS COMPANY IN AY 20 11 - 12 ON THE REASONING THAT IT IS A KPO COMPANY. THE LD A.R FURTHER SUBMITTED THAT THIS COMPANY HAS NOT BEEN CONSIDER ED AS A COMPARABLE IN THE F OLLO WING CASES: RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT (ITA NO. 102/2015) MAERSK GLOBAL CENTRES (INDIA) PVT. LT D. (ITA NO. 7466/MUM/2012) DIALOGIC NETWORKS (INDIA) (P) LTD. (ITA NO. 7280/MUM/2012) SYMPHONY MARKETING SOLUTION INDIA P. LTD. (ITA NO. 1316/BANG/2012) 12. THE LEARNED DR, ON THE CONTRARY, PLACED RELIANCE ON THE DISCUSSION S MADE BY THE LEARNED TPO. WITH REGARD TO THE ACQUISITION OF COMPANY BY M/S. E - CLERX SERVICES LTD., THE LEARNED DR SUBMITTED THAT IT IS NOT CLEAR AS TO WHETHER NEW COMPANY IS PROVIDING SAME FUNCTIONS OR DIFFERENT FUNCTIONS. 13. IN THE REJOINDER, LEARNED AR SUBMITTED THAT LEARNED TPO HA S ERRONEOUSLY OBSERVED THAT THE ACTIVITY OF THE ASSESSEE COMPANY IS A COMPLEX HI GH ENDE D ACTIVITY. H E HAS ALSO DISCUSSED ABOUT THE PROFILE OF THE COMPANY, WHICH IS NOT AT ALL RELEVANT TO THE ASSESSEE - COMPANY . HE SUBMITTED THAT THE TPO HAS DISCUSSED PROFILE OF SOME OTHER ASSESSEE. HENCE THE ORDER PASSED BY THE TPO IN RESPECT OF THIS COMPARABLE WOULD GET VITIATED. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICED THAT THIS COMPARABLE, VIZ., M/S E - CLERX SERVICES LTD HAS BEEN EXCLUDED IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. (377 ITR 533)(DEL) . THE ASSESSEE BEFORE THE HONBLE DELHI HIGH COURT WAS ALSO A COMPANY RENDERING VOICE CALL SERVICES. THE HIGH COURT HELD THAT THE SAME CANNOT BE COMPARED WITH A KPO COMPANY. F OR THE SAKE OF C ONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATION MADE BY HON'BLE DELHI HIGH COURT IN THE ABOVE SAID CASE : - 37. APPLYING THE AFORESAID PRINCIPLES TO THE FACTS OF THE PRESENT CASE, IT IS ONCE AGAIN CLEAR THAT BOTH VISHAL AND ECLERX COULD NOT BE TAKEN A S COMPARABLES FOR DETERMINING THE ALP. VISHAL AND ECLERX, BOTH ARE INTO KPO SERVICES. IN MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAD NOTED THAT ECLERX IS ENGAGED IN DATA ANALYTICS, DATA PROCESSING SERVICES, CAPITAL INDIA PRIVATE LTD. 8 PRICIN G ANALYTICS, BUNDLING OPTIMIZATION, CONTENT OPERATION, SALES AND MARKETING SUPPORT, PRODUCT DATA MANAGEMENT, REVENUE MANAGEMENT. IN ADDITION, ECLERX ALSO OFFERED FINANCIAL SERVICES SUCH AS REAL - TIME CAPITAL MARKETS, MIDDLE AND BACK - OFFICE SUPPORT, PORTFOLI O RISK MANAGEMENT SERVICES AND VARIOUS CRITICAL DATA MANAGEMENT SERVICES. CLEARLY, THE AFORESAID SERVICES ARE NOT COMPARABLE WITH THE SERVICES RENDERED BY THE ASSESSEE. FURTHER, THE FUNCTIONS UNDERTAKEN (I.E. THE ACTIVITIES PERFORMED) ARE ALSO NOT COMPARAB LE WITH THE ASSESSEE. IN OUR VIEW, THE TRIBUNAL ERRED IN HOLDING THAT THE FUNCTIONS PERFORMED BY THE ASSESSEE WERE BROADLY SIMILAR TO THAT OF ECLERX OR VISHAL. THE OPERATING MARGIN OF ECLERX, THUS, COULD NOT BE INCLUDED TO ARRIVE AT AN ALP OF CONTROLLED TR ANSACTIONS, WHICH WERE MATERIALLY DIFFERENT IN ITS CONTENT AND VALUE. IN MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAD NOTED THE SAME AND HAD, THUS, EXCLUDED ECLERX AS A COMPARABLE. IT IS FURTHER OBSERVED THAT THE C OMPARABILITY OF ECLERX HAD ALSO BEEN EXAMINED BY THE HYDERABAD BENCH OF THE TRIBUNAL IN M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P.) LTD. V. ADDITIONAL COMMISSIONER OF INCOME - TAX (SUPRA), WHEREIN, T HE TRIBUNAL DIRECTED THE EXCLUSION OF ECLERX AS A COMPARABLE FOR THE REASON THAT IT WAS ENGAGED IN PROVIDING KPO SERVICES AND FURTHER THAT IT HAD ALSO RETURNED SUPERNORMAL PROFITS. 15. FURTHER, THIS COMPANY HAS BEEN EXCLUDED IN THREE OTHER CASES RELIED UP ON BY THE ASSESSEE. THE LD A.R ALSO SUBMITTED THAT THIS COMPARABLE HAS BEEN EXCLUDED BY THE TPO HIMSELF IN THE ASSESSEES OWN CASE IN AY 2011 - 12, AS THE TPO TOOK THE VIEW THAT A KPO COMPANY CANNOT BE TAKEN AS COMPARABLE. THE LD A.R ALSO SUBMITTED THAT TH IS COMPANY HAS ACQUIRED ANOTHER UK BASED COMPANY PROVIDING DIFFERENT SERVICES, VIZ., TRAVEL AND HOSPITALITY. IN VIEW OF THE ABOVE, WE FIND MERIT IN THE CONTENTION S OF THE ASSESSEE THAT THIS COMPARABLE SHOULD BE EXCLUDED. ACCORDINGLY , WE DIRECT THE ASSES SING OFFICER TO EXCLUDE THIS COMPANY. 16. THE N EXT COMPARABLE IN DISPUTE IS M/S. MOLD - TECH TECHNOLOGIES LIMITED. THE LEARNED AR SUBMITTED THAT THIS COMPANY IS PIONEER IN STRUCTURAL KPO SERVICES AND ITS ENTIRE BUSINESS COMPRISES OF PROVISION OF STRUCTURAL ENGINEERING SERVICES ONLY TO VARIOUS CLIENTS. THE N OTES TO THE AC COUNTS OF THIS COMPANY ALSO STATES THAT ENTIRE COMPANYS FOREX EARNINGS ARE GENERATED FROM KPO DIVISION ONLY. FURTHER, A N EXTRA ORDINARY EVENT HAS ALSO BEEN TAKEN PLACE IN THIS COMPANY DURING THE YEAR UNDER CONSIDERATION, I.E., D URING THE CURRENT YEAR, A SCHEME OF ARRANGEMENT INVOLVING AMALGAMATION BETWEEN TEK - MEN CAPITAL INDIA PRIVATE LTD. 9 TOOLS PVT. LTD. AND THE ASSESSEE - COMPANY AND FURTHER DE MERGER IN MOLD - TECK TECHNOLOGIES WAS SIMULTANEOUSLY SANCTIONED BY HON'BLE AN DHRA PRADESH HIGH COURT VIDE ORDER DATED 15.7.2008 WITH THE APPOINTED DATE FOR AMALGAMATION AND DE - MERGER BEING 1.10.2006 AND 1.4.2007 RESPECTIVELY. ACCORDINGLY, THE LEARNED AR SUBMITTED THAT THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE. HE FURTHER SUBM ITTED THAT IN THE FOLLOWING CASE THIS COMPANY HAS BEEN EXCLUDED: - (A) DIALOGIC NETWORKS (INDIA)(P) LTD. (B) MAERKS GLOBAL CENTRES (INDIA) PVT. LTD. 17. ON THE CONTRARY, THE LEARNED DR PLACED RELIANCE ON THE ORDER PASSED BY LEARNED TPO AND LEARNED DRP . 18. WE HAVE HEARD THE PARTIES ON THIS ISSUE. IT IS NOTICED THAT THIS COMPANY IS A KPO COMPANY PROVIDING STRUCTURAL ENGINEERING SERVICES. FURTHER DURING THE YEAR UNDER CONSIDERATION, EXTRA ORDINARY EVENTS LIKE AMALGAMATION AND DE - MERGER HA VE TAKEN PLACE . H ENCE, THERE IS MERIT IN THE CONTENTION S OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. FURTHER THIS COMPANY HAS BEEN EXCLUDED IN THE CASE OF DIALOGIC NETWORKS (INDIA) PVT. LTD. WITH FOLLOWING OBSERVATIONS : - 52. THE TENTH COMPARABLE UNDER DISPUTE IS MOLD - TEK TECHNOLOGIES LTD. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT MOLD - TEK HAS UNDERGONE RESTRUCTURING IN THE AY 2008 09 DETAILS OF THE SAME ARE PROVIDED ON PAGE 307 OF PAPER BOOK. THE SCHEME OF ARRANGEMENT INVOLVING AMALGAMATION BETWEEN TECK - MEN TOOLS PRIVATE LIMITED (TTPL), THE TRANSFER COMPANY AND MOLD - TEK, THE TRANSFEREE COMPANY AND THE DEMERGER BETWEEN MOLD - TEK, THE DEMERGED COMPANY AND MOLD - TEK PLASTICS LIMITED (MPL), THE RESULTING COMPANY WAS SANCTIONED BY HON'B LE HIGH COURT OF ANDHRA PRADESH VIDE ITS ORDER DATED 25 JULY 2008. THE APPOINTED DATE FOR AMALGAMATION AND THE DEMERGER WERE 1 OCTOBER 2006 AND 1 APRIL 2007 RESPECTIVELY. THE EFFECTIVE DATE OF THE SCHEME IS 26 AUGUST 2008, THE DATE ON WHICH FORM 21 WAS FIL ED WITH THE REGISTRAR OF COMPANIES, ANDHRA PRADESH. (PG. 9 AND PG 41 OF THE AR FOR FY 2007 - 08). HENCE, IT WAS SUBMITTED, THAT A COMPANY UNDERGONE RESTRUCTURING CANNOT BE CONSIDERED AS A COMPARABLE. ALSO WITH REGARD TO THE FUNCTIONAL PROFILE IT WAS SUBMITTE D THAT MOLD - TEK TECHNOLOGIES LTD. CAPITAL INDIA PRIVATE LTD. 10 ('MOLD - TEK') PRIMARILY OPERATES UNDER TWO BUSINESS SEGMENTS PLASTIC DIVISION: THE PLASTIC DIVISION IS ENGAGED IN THE MANUFACTURE OF PLASTIC CONTAINERS, PET BOTTLES, BLOW MOULDING, TUBE & OILS, PAINTS, PET PRODUCTS, CONSUME R PRODUCTS, ETC. IT (KPO) DIVISION. THE IT DIVISION SPECIALIZES IN PROVIDING STRUCTURAL ENGINEERING AND DESIGN SERVICES FOR CONSTRUCTION OF BUILDINGS. (PG 29 OF THE AR FOR FY 2007 - 08). THUS IT WAS SUBMITTED THAT MOLD - TEK PERFORMS A ITA NO . 7 2 80 / MU M /2 0 12 COMPLETELY DIFFERENT SET OF FUNCTIONS THAN THOSE PERFORMED BY THE APPELLANT. IT IS ENGAGED IN PROVIDING STRUCTURAL ENGINEERING AND DESIGN KPO SERVICES FOR CONSTRUCTION OF BUILDING BY USING DESIGN TOOLS LIKE CAD/ CAM, STADD PRO BY EMPLOYING HIGHLY SKI LLED SOFTWARE ENGINEERS FOR THE PURPOSE. THUS, THE LEARNED COUNSEL FOR THE ASSESSEE REQUESTED TO DROP MOLD - TEK AS A COMPARABLE. IN THIS REGARD, SHE RELIED ON THE JUDICIAL PRECEDENTS FOR REJECTION OF THIS COMPANY ON THE BASIS OF BEING FUNCTIONALLY NON COMPA RABLE TO A ITES PROVIDER. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE CASE LAW OF CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF FLEXTRONICS TECHNOLOGIES (INDIA) PVT LTD ITA(TP) NO. 1559/BANG/2012 (PARA 19) & SYMPHONY MARKETING SOLUTION S INDIA PVT. LTD. VS ITO ITA NO. 1316/BANG/2012 (PARA 25). NO CONTRARY DECISION IS BROUGHT BEFORE US BY THE LEANED SR. DR, AND WE THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF CO - ORDINATE BENCH OF THIS TRIBUNAL HOLD THAT THIS COMPANY CANNOT BE REGARDED AS COMPARABLE AND DIRECT THE AO TO EXCLUDE THE SAME FROM COMPARABLES AS SELECTED BY THE TPO. 19. THIS COMPANY HAS ALSO BEEN EXCLUDED MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. (SUPRA). IN VIEW OF THIS, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPAN Y. 20. THE N EXT COMPARABLE DISPUTED BY THE ASSESSEE IS M/S. ACROPETAL TECHNOLOGIES LIMITED. THE LEARNED AR SUBMITTED THAT LEARNED TPO, IN RESPECT OF THIS COMPARABLE ALSO , HAS CONSIDERED THE ASSESSEE AS COMPANY PROV IDING COMPLEX ENDED ACTIVITIES, I.E., AS STATED EARLIER, THE LEARNED TPO HAS ADOPTED PROFILE OF SOME OTHER COMPANY AS THAT OF THE ASSESSEE WHILE CONSIDERING THIS COMPARABLE. THE LEARNED AR SUBMITTED THAT THIS COMPANY HAS TWO SEGMENTS NAMELY ENGINEERING DESIGN SERVICE SEGMENT AND INFORMATION TECH NOLOGY SERVICE. HOWEVER, LEARNED TPO HAS CONSIDERED ENGINEERING DESIGN SERVICE SEGMENT AND ACCORDINGLY TOOK THE VIEW THAT THIS COMPANY AS A COMPARABLE ONE. THE LEARNED AR SUBMITTED THAT THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTION INDIA P. LTD. (ITA NO. 1316/BANG/2012), HAS CAPITAL INDIA PRIVATE LTD. 11 HELD THAT THE COMPANY PROVIDING ENGINEERING DESIGN SERVICE SEGMENT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ITES/BPO FUNCTIONS. ACCORDINGLY, LEARNED AR SUBMITTED THAT THIS COMPARABLE SHOULD ALSO BE EX CLUDED. 21. ON THE CONTRARY, LEARNED DR SUPPORTED THE ORDER PASSED BY LEARNED TPO. 22. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THERE IS NO DISPUTE THAT THIS COMPARABLE HAS TWO SEGMENTS NAMELY ENGINEER ING DESIGN SERVICE SEGMENT A ND I NFORMATION TECHNOLOGY SERVICE SEGMENT. THE LEARNED TPO HAS CONSIDERED ENGINEERING DESIGN SERVICE SEGMENT AND COMPARED THE SAME WITH THE ASSESSEE COMPANY. AS NOTICED EARLIER THE ASSESSEE COMPANY IS PROVIDING ROUTINE ITE SERVICES TO ITS AES AS A CAPTIVE SERVICE PROVIDER. IDENTICAL SCENARIO WAS CONSIDERED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SYMPHONY MARKETING SOLUTION INDIA P. LTD. (SUPRA) AND THIS COMPARABLE HAS BEEN EXCLUDED WITH THE FOLLOWING OBSERVATIONS : - 13. WE HAVE CONSIDER ED THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. ON A PERUSAL OF THE NOTE NO.15 OF NOTES TO ACCOUNTS WHICH GIVES SEGMENTAL REVENUE OF THIS COMPANY, IT IS CLEAR THAT THE MAJOR SOURCE OF INCOME FOR THIS COMPANY IS FROM PROVIDING ENGINEERING DESIGN SERVICE AND INFORMATION TECHNOLOGY SERVICES. THE FUNCTIONS PERFORMED BY THE ENGINEERING DESIGN SERVICES SEGMENT OF THE COMPANY CANNOT BE CONSIDERED AS COMPARABLE TO THE ITES/BPO FUNCTIONS PERFORMED BY THE ASSESSEE. THE PERFORMANCE OF ENGINEERING DESIGN SE RVICES IS REGARDED AS PROVIDING HIGH END SERVICES AMONG THE BPO WHICH REQUIRES HIGH SKILL WHEREAS THE SERVICES PERFORMED BY THE ASSESSEE ARE ROUTINE LOW END ITES FUNCTIONS. WE THEREFORE HOLD THAT THIS COMPANY COULD NOT HAVE BEEN SELECTED AS A COMPARABLE, E SPECIALLY WHEN IT PERFORMS ENGINEERING DESIGN SERVICES WHICH ONLY A KNOWLEDGE PROCESS OUTSOURCING [KPO] WOULD DO AND NOT A BUSINESS PROCESS OUTSOURCING [BPO]. FACTS BEING IDENTICAL, BY FOLLOWING THE DECISION RENDERED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE ABOVE SAID CASE, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPANY AS COMPARABLE. 23. SINCE ALL THE ABOVE SAID FOUR COMPANIES HAVE BEEN DIRECTED TO BE EXCLUDED, ARITHMETIC MEAN MARGIN OF COMPARABLE REQUIRES TO BE REDETERMINED CAPITAL INDIA PRIVATE LTD. 12 AND IT ALSO R EQUIRES TO BE SEEN AS TO WHETHER ANY ADDITION , IF ANY, IS CALLED FOR OR NOT. ACCORDINGLY, WE RESTORE THE ISSUE OF DETERMINING MEAN MARGIN OF COMPARABLES TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING IT AFRESH BY EXCLUDING FOUR COMPARABLE COMPANIES DIS CUSSED ABOVE. AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, THE ASSESSING OFFICER MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 24. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE DISALLOWANCE MADE U/W 14A OF THE ACT. AT THE TIME OF HEARING, THE LD A.R SUBMITTED THAT THE DISALLOWANCES MADE WHILE COMPUTING THE PROFITS AND GAINS OF BUSINESS SHALL ALSO BE ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. ACCORDINGLY, HE PRAYED THAT THE AO MAY BE DIRECTED TO ALLOW DEDU CTION U/S 10A OF THE ACT IN RESPECT OF DISALLOWANCE MADE U/S 14A OF THE ACT. IN THIS REGARD, HE PLACED HIS RELIANCE ON A CIRCULAR ISSUED BY CBDT. IN OUR VIEW, THIS CLAIM OF THE ASSESSEE REQUIRES EXAMINATION IN TERMS OF THE CIRCULAR ISSUED BY CBDT. ACCOR DINGLY, WE RESTORE THIS ISSUE TO THE FILE OF AO FOR EXAMINING THE SAME. 25. THE NEXT ISSUE RELATES TO THE CLAIM FOR CREDIT OF TDS AMOUNT. WE RESTORE THIS ISSUE ALSO TO THE FILE OF THE AO, AS IT REQUIRES EXAMINATION OF RELEVANT TDS CERTIFICATES AND INC OME DECLARED BY THE ASSESSEE. 26. THE NEXT ISSUE RELATES TO THE CHARGING OF INTEREST U/S 234B AND 234C OF THE ACT. AS CHARGING OF INTEREST IS CONSEQUENTIAL, THIS GROUND DOES NOT REQUIRE ADJUDICATION. 27. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S TREATED AS ALLOWED. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 15 . 1 .201 9 . SD/ - SD/ - (AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 15 / 1 / 20 1 9 CAPITAL INDIA PRIVATE LTD. 13 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR PRIVATE SECRETARY ) PS ITAT, M UMBAI