Omniglobe Information Technologies (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 787/DEL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7185 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 09-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 09-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: NEERAJ JAIN ADV SH ABHISHEK; DEEPIKA AGARWAL CAS
• Keywords: Related party transaction; Transfer pricing; International transaction; Additional evidence; Wholly owned subsidiary
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 1 , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. S UDHANSHU SRIVASTAVA , JM ITA NO. 1052/DEL/2014 : ASSTT. YEAR : 2009 - 10 ITA NO. 787/DEL/2015 : ASSTT. YEAR : 2010 - 11 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD., E - 11, RAJOURI GARDEN, NEW DELHI - 110027 VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 6(1) , NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AA CO6606M ASSESSEE BY : SH. NEERAJ JAIN, ADV., SH. ABHISHEK & MS. DEEPIKA AGARWAL, CAS REVENUE BY : SH. P IYUSH JAIN , CIT DR DATE OF HEARING : 09 .0 6 .201 6 DATE OF PRONOUNCE MENT : 07 .09 .201 6 ORDER PER N. K. SAINI, AM : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 03.12.2013 AND 07.01.2015 OF THE AO FOR THE ASSESSMENT YEARS 2009 - 10 & 2010 - 11 RESPECTIVELY PASSED U/S 144C(13) R.W.S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) . 2 . AT THE FIRST INSTANCE WE WILL DEAL WITH THE APPEAL IN ITA NO. 1052/DEL/2014 FOR THE ASSESSMENT YEAR 2009 - 10 . FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 2 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPLETING ASSESSMENT UNDER SECTION 144C READ WITH SECTI ON 143(3) OF THE INCOME - TAX ACT (THE ACT) AT AN INCOME OF RS. 5,11,78,590 AS AGA INST THE RETURNED INCOME OF RS. 1,42,06,264. 2. THAT THE ASSESSING OFFICER / TPO ERRED ON FACTS AND IN L AW IN MAKING AN ADDITION OF RS. 3,69,72,323 ALLEGEDLY ON ACCOUNT OF DIFFERENCE IN THE ARM'S LENGTH PRICE OF THE 'INTERNATIONAL TRANSACTIONS' OF BPO / ITES SERVICES RENDERED TO THE ASSOCIATED ENTERPRISE ON THE BASIS OF THE ORDER PASSED UNDER SECTION 92CA( 3) OF THE ACT BY THE TPO. 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/TPO ERRED IN NOT HOLDING THAT SINCE THE ASSOCIATED ENTERP RISE ('THE AE') HAS INCURRED A LOSS, IN RELATION TO ITES SERVICES RENDERED BY THE APPELLANT TO THE AE, WHICH, IN TURN, WERE RENDERED BY THE AE TO ULTIMATE THIRD PARTY CUSTOMER(S), NO TRANSFER PRICING ADJUSTMENT WAS WARRANTED. 4. THAT ON FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW, THE DRP/TPO ERRED IN NOT HOLDING THAT THE TRANSFER PRICING ADJUSTMENT, AT BEST, COULD NOT EXCEED THE TOTAL PROFIT EARNED BY THE GROUP, AS THE SAME WOULD RESULT IN TAXATION OF NOTIONAL INCOME. 5. THAT THE DRP/TPO ERRED ON FACT S AND IN LAW IN NOT APPRECIATING THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF RENDERING LOW END DATA PROCESSING SERVICES RESULTING IN LOW COMBINED PROFITABILITY AND, THEREFORE, THERE COULD NOT BE AN ALLEGATION AS TO TRANSFER PRICING. ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 3 6. THAT THE DISPUT E RESOLUTION PANEL (DRP) / TPO ERRED ON FACTS AND IN LAW IN ADOPTING ADDITIONAL FILTER OF TURNOVER OF AT LEAST RS.5 CRORES AND DECLINING SALES / PERSISTING LOSSES AND INCOME FROM EXPORT SALES OF AT LEAST 75% FOR SELECTION / REJECTION OF THE COMPARABLE COMP ANIES. 7. THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN ADOPTING ADDITIONAL FILTER OF EXPORT SALES LESS THAN 75% OF TOTAL INCOME WITHOUT APPRECIATING THAT SELECTION OF COMPARABLE COMPANY SHALL BE ON FAR ANALYSIS AND APPLICATION OF SUCH QUANT ITATIVE FILTERS SELECTIVELY DEFIES THE PURPOSE OF THE BENCHMARKING ANALYSIS. 8. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN APPLYING INCONSISTENT APPROACH BY ELIMINATING LOSS MAKING COMPANIES OR COMPANIES WITH DE CLINING REVENUE WITHOUT ELIMINATING THE C OMPANIES HAVING SIGNIFICANTLY HIGH MARGINS OR HIGH TURNOVER. 9. THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN NOT COMPLYING THE SPECIFIC DIRECTION OF THE DISPUTE RESOLUTION PANEL ( 'DRP ') TO INCLUDE ALL SEC TECHNOLOGIES LIMITED IN THE FINAL SET OF COMPARABLE COMPANIES. 10. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN CONSIDERING THE OPERATING PROFIT TO OPE RATING COST (OP/OC) RATIO OF ALL SEC TECHNOLOGIES LIMITED AT - 2% AS AGAINST ACTUAL OP/OC RATIO OF - 15.78% SUBMITTED BY THE APPELLANT DURIN G THE COURSE OF PROCEEDINGS. ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 4 11. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN CONSIDERING CROSSDOMAIN SOLUTIONS PVT. LIMITED IN THE FINAL SET OF COMPARABLE COMPANIES WITHOUT APPRECIATING THAT COMPLETE FINANCIAL INFORMATION OF THE SAID COMPANY IS NOT AVAI LABLE IN THE PUBLIC DOMAIN. 12. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT ALLOWING APPROPRIATE RISK ADJUSTMENT TO ESTABLISH COMPARABILITY ON ACCOUNT OF THE APPELLANT BEING A LOW - RISK - BEARING CAPTIVE SERVICE PROVIDER AS OPPOSED TO THE COMPARABLE CO MPANIES WHO WERE INDEPENDENT ITES SERVICE PROVIDER, EVEN WHILE HOLDING THAT 'THE ASSESSEE CANNOT BE COMPARED TO A RISK FREE ENTITY'. 13. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP ERRED IN REJECTING THE CONTENTION OF THE AP PELLANT REGARDING RISK ADJUSTMENT, HOLDING THAT IN ABSENCE OF ROBUST AND RELIABLE DATA, BOTH FOR THE ASSESSEE AND FOR THE COMPARABLES, RISK ADJUSTMENT CANNOT BE CONSIDERED FOR ENHANCING COMPARABILITY. 14. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN L AW IN LEVYING INTEREST UNDER SECTION 234B AND SECTION 234D OF THE ACT. 15. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY FROM THE AFORESAID GROUNDS OF APPEAL BEF ORE OR AT THE TIME OF HEARING. ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 5 3 . GROUND NOS. 1 & 2 ARE GENERAL IN NATURE, GROUND NO. 15 IS PREMATURELY RAISED, SO THESE GROUNDS DO NOT REQUIRE ANY COMMENT ON OUR PART. GROUND NOS. 6 TO 9, 12 & 13 WERE NOT PRESSED SO THESE ARE DISMISSED AS NOT PRESSED. AS REGARDS TO GROUND NOS. 3, 4, & 5, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THESE ARE ACADEMIC IN NATURE, THEREFORE, DO NOT REQUIRE ANY COMMENTS ON OUR PART. 4 . VIDE GROUND NOS. 10 & 11, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE CONSIDERATION OF FOREIGN EXCHANGE/LOSS AS NON - OPERATING NATURE AND WORKING OUT A PROFIT MARGIN OF THE COMPARABLE M/S ALLSEC TECHNOLOGIES LTD. AT - 2% AS AGAINST ACTUAL OPERATING PROFIT TO OPERATING COST (OP/OC) RATIO AT - 15.78% SUBMI TTED BY THE ASSESSEE AND CONSIDERATION OF CROSSDOMAIN SOLUTIONS PVT. LTD. AS COMPARABLE IN THE FINAL SET OF COMPARABLES BY THE TPO/DRP WHILE WORKING OUT OPERATING PROFIT TO OPERATING COST RATIO (OP/OC) WHEN THE COMPLETE FINANCIAL INFORMATION OF THE SAID CO MPANY WAS NOT AVAILABLE AT THE PUBLIC DOMAIN. 5 . THE FACTS RELATED TO THE S E ISSUE S IN BRIEF ARE THAT THE ASSESSEE FILED DIGITALLY SIGNED ELECTRONIC RETURN DECLARING AN INCOME OF RS.1,42,06,264/ - ON 29.09.2009. THE CASE WAS SELECTED FOR SCRUTINY AND SINCE THE ASSESSEE WAS INVOLVED IN ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 6 INTERNATIONAL TRANSACTION , THE AO MADE THE REFERENCE U/S 92CA OF THE ACT TO THE TPO TO DETERMINE THE ARM S LENG TH PRICE. THE ASSESSEE FURNISHED TRANSFER PRICING DOCUMENTATION (TP REPORT) CONTAINING FUNCTIONAL AND ECONOMIC ANAL YSIS PRESCRIBED UNDER RULE 8DOF THE INCOME TAX RULES, 1962. THE ASSESSEE COMPANY WAS INCORPORATED ON 19.03.2004 AND IS A WHOLLY OWNED SUBSIDIARY OF OM NIGLOBE INTERNATIONAL LLC, USA, THE ASSOCIATED ENTERPRISE (AE ). THE ASSESSEE WAS ENGAGED IN THE PROVISION OF BPO/DATA PROCESSING SERVICES TO ITS AE AND PROVIDED IT ENABLED SERVICES RELATING TO PHONE ACTIVATION AND LOCAL NUMBER PORTABILITY TO VARIOUS CLIENTS FOR AND ON BEHALF OF ITS PARENT COMPANY. THE ASSESSEE RECEIVED A TOTAL CONSIDERATION OF RS.30,45,77,480/ - IN RESPECT OF THE INTERNATIONAL TRANSACTIONS OF PROVISION OF BPO/DATA PROCESSING SERVICES TO ITS AES AND BENCHMARKED THE SAID TRANSACTION S BY USING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD AND THE OPERATING PROFIT TO TOTAL CO ST (OP/OC) RATIO WAS TAKEN AS THE PROFIT LEVEL INDICATOR (PLI). THE ASSESSEE HAD SELECTED 17 COMPARABLES AND THE AVERAGE ARITHMETIC MEAN WAS LEVELED AT 7.95%. THE TPO NOTICED THAT NO WORKING CAPITAL OR RISK ADJUSTMENT HAD BEEN MADE IN THE MARGINS OF THE CO MPARABLES SELECTED BY THE ASSESSEE. THE TPO SELECTED HIS OWN 7 COMPARABLES AND WORKED OUT ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 7 THE AVERAGE PLI OF THE COMPARABLES AT 32.10% AS PER FOLLOWING DETAILS: S. NO. NAME OF THE COMPANY OP/OC (%) 1. ACCENTIA TECHNOLOGIES LTD. 52.52 2. ADITYA BIRLA MIN ACS WORLDWIDE LTD. 11.95 3. CORAL HUB LTD. 37.03 4. COSMIC GLOBAL LTD. 50.70 5. CROSSDOMAIN SOLUTIONS PVT. LTD. 25.63 6. IGATE GLOBAL 22.58 7. INFOSYS BPO LTD. 24.28 ARITHMETIC MEAN 32.10 6 . THE TPO PROPOSED THE ADJUST MENT OF RS.6,79,65,902/ - AND ACCORDINGLY, THE AO PASSED THE DRAFT ASSESSMENT ORDER. THE ASSESSEE RAISED THE OBJECTION S BEFORE THE LD. DRP WHO VIDE ORDER DATED 31.10.2013, DIRECTED THE TPO TO EXCLUDE ACCENTIA TECHNOLOGIES LTD., CORAL HUB LTD. AND COSMIC GLO BAL LTD. FROM THE FINAL SET OF COMPARABLE COMPANIES AND TO INCLUDE ALLSEC TECHNOLOGIES IN THE FINAL SET OF COMPARABLE S . HOWEVER, THE TPO WHILE GIVING EFFECT TO THE DIRECTIONS OF THE DRP, FAILED TO INCLUDE ALLSEC TECHNOLOGIES LTD. I N THE FINAL SET OF COMPA RABLE AND BY CONSIDERING THE ANOTHER 4 COMPARABLES , HE WORKED OUT AN AVERAGE OPERATING PROFIT TO OPERATING COST RATIO AT 21.11% AS PER FOLLOWING DETAILS: ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 8 S. NO. NAME OF THE COMPANY OP/OC (%) 1. ADITYA BIRLA MINACS WORLDWIDE LTD. 11.95 2. CROSSDOMAIN SO LUTIONS PVT. LTD. 25.63 3. IGATE GLOBAL 22.58 4. INFOSYS BPO LTD. 24.28 ARITHMETIC MEAN 21.11 7 . ACCORDINGLY, THE TPO WORKED OUT AN ADJUSTMENT OF RS.3,69,72,323/ - . THEREAFTER, THE AO PASSED THE ASSESSMENT ORDER DATED 03.1 2.2013 BY MAKING THE ADDITION OF RS.3,69,72,323/ - AND ASSESSED THE INCOME AT RS.5,11,78,590/ - . 8 . NOW THE ASSESSEE IS IN APPEAL AND MOVED AN APPLICATION UNDER RULE 29 OF THE INCOME TAX APPELLATE TRIBUNAL RULES, 1963 FOR ADMITTING THE ADDITIONAL EVIDENCE I N THE FORM OF ANNUAL ACCOUNTS OF ASSOCIATED ENTERPRISES (AE) . THE ASSESSEE SUBMITTED THAT THE TPO REJECTED THOSE COMPARABLES SELECTED BY THE ASSESSEE FOR WHICH DATA PERTAINING TO FINANCIAL YEAR 2008 - 09 WAS NOT AVAILABLE BUT NOW THE ASSESSEE IS HAVING THE A NNUAL ACCOUNTS OF THE AE FOR THE YEAR ENDING DECEMBER 2009 AND SAME IS TO BE TAKEN INTO CONSIDERATION TO COMPUTE THE MARGIN RETAINED BY THE AE DURING THE FINANCIAL YEAR ENDING MARCH 2009. IT IS FURTHER SUBMITTED THAT M/S CROSSDOMAIN SOLUTIONS PVT. LTD. SEL ECTED BY THE TPO AS A COMPARABLE IS A SERVICE PROVIDER AND NOT ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 9 THE BPO. THEREFORE, THIS COMPARABLE SHOULD BE EXCLUDED. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: MARKET TOOLS RESEARCH (P) LTD. VS DCIT IN ITA NO. 1811/HYD/2012 DCIT VS WILLIS PROCE SSING SERVICES (INDIA) (P.) LTD. IN ITA NO. 2152/MUM/2014 BNY MELLON INTERNATIONAL OPERATIONS (INDIA) (P.) LTD. VS DCIT IN ITA NO. 23/PN/2014 CUMMINS TURBO TECHNOLOGIES LTD. VS DDIT IN ITA NO. 784/PN/2014 VERTEX CUSTOMER SERVICES INDIA PVT. LTD. VS DCIT IN ITA NO. 572/DEL/2014 EXCELLENCE DATA RESEARCH PVT. LTD. VS ITO IN ITA NO. 159/HYD/2014 SYMPHONY MARKETING SOLUTIONS INDIA (P.) LTD. VS ITO IN ITA NO. 1316/BANG/2012 BP INDIA SERVICES (P) LTD. VS ACIT IN ITA NO. 6977/MUM/2012 MINDCREST (INDIA) PVT. LTD. VS DCIT IN ITA NO. 7289/MUM/2012 FORTUNE INFOTECH LTD. VS ACIT IN ITA NO. 274/AHD/2013 GLOBAL E:BUSINESS OPERATIONS PVT. LTD. VS DCIT IN ITA NO. 1678/BANG/2012 9 . IT WAS FURTHER SUBMITTED THAT THE TPO WHILE COMPUTING THE MARGIN OF OTHER COMPARABLE COMPANIES ALTHOUGH CONSIDERED FOREIGN EXCHANGE INCOME/LOSS AS NON - OPERATING IN NATURE BUT WRONGLY WORKED OUT THE OPERATING PROFIT MARGIN AND IF THE FOREIGN EXCHANGE FLUCTUATION LOSS INCURRED BY THE ASSESSEE IS CONSIDERED AS NON - OPERATING ITEM OF ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 10 EXPENSES, THE CORRE CT OPERATING PROFIT MARGIN OF THE ASSESSEE WORKS OUT TO 12.83%, WHICH IS HIGHER THAN THE MARGIN EARNED BY COMPARABLE COMPANIES , THEREFORE, NO ADJUSTMENT IS REQUIRED TO BE MADE ON ACCOUNT OF ARM S LENGTH PRICE. 10 . IN HIS RIVAL SUBMISSIONS THE LD. DR SUPPO RTED THE ORDERS OF THE TPO/AO AND REITERATED THE OBSERVATIONS MADE IN THEIR RESPECTIVE ORDERS . 11 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE TPO WHILE WORKING OUT THE OP/OC RATIO EXCLUDED THOSE COMPARABLES IN RESPECT OF WHICH FINANCIAL DATAS WERE NOT AVAILABLE WHICH NOW HAVE BEEN PROVIDED BY THE ASSESSEE AND AN APPLICATION UNDER RULE 29 OF THE INCOME TAX APPELLATE TRIB UNAL RULES, 1963 HAS BEEN MOVED. S INCE , THE INFORMATIONS NOW PROVIDED BY THE ASSESSEE ARE AVAILABLE AT PUBLIC DOMAIN AND ARE VERY MUCH RELEVANT TO DECIDE THE PRESENT CONTROVERSY. THEREFORE, THE ADDITIONAL EVIDENCE NOW FURNISHED BY THE ASSESSEE ARE ADMITTED. HOWEVER, SINCE THES E DOCUMENTS W ERE NOT AVAILABLE TO THE TPO/AO, T HEREFORE, THIS ISSUE IS SET ASIDE TO THE FILE OF THE TPO/AO TO BE DECIDED AFRESH AFTER TAKING INTO CONSIDERATION THE ADDITION EVIDENCE S NOW FURNISHED BY THE ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 11 ASSESSEE. IN THE PRESENT CASE, THE ASSESSEE CLAIMED THAT THE CROSSDOMAIN SOLUTIONS PVT. LTD. IS A KPO WHILE THE ASSESSEE IS BPO. THEREFORE, THIS COMPARABLE CONSIDERED BY THE TPO SHOULD BE EXCLUDED WHILE WORKING OUT THE AVERAGE OPERATING PROFIT TO OPERATIN G COST RATIO OF THE COMPARABLES, THIS FACT ALSO NEEDS VERIFICATION AT THE LEVEL OF THE TPO/AO AND IF THIS FACT IS FOUND TO BE TRUE THAN CROSSDOMAIN SOLUTIONS PVT. LTD. SHALL BE EXCLUDED FROM THE LIST OF THE COMPARABLES ON THE BASIS OF FUNCTIONAL DISSIMILARITY. WE, THEREFORE, BY KEEPING IN VIEW THE RELEVANT F ACTS OF THE PRESENT CASE AS DISCUSSED HEREINABOVE, SET ASIDE THIS CASE BACK TO THE FILE OF AP/TPO FOR FRESH ADJU DI CATION. 12 . AS REGARDS TO THE GROUND NO. 14 RELATING TO CHARGING OF INTEREST U/S 234B AND 234D OF THE ACT. IT WAS THE COMMON CONTENTION OF BO TH THE PARTIES THAT IT IS CONSEQUENTIAL IN NATURE. WE ORDER ACCORDINGLY. 13 . NOW WE WILL DEAL WITH THE APPEAL IN ITA NO. 787/DEL/2015 FOR THE ASSESSMENT YEAR 2010 - 11. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT THE ASSESSING OFFICER ERRE D ON FACTS AND IN LAW IN COMPLETING ASSESSMENT UNDER SECTION 144C READ WITH SECTION 143(3) OF THE INCOME - TAX ACT, 1961 ('THE ACT') AT AN INCOME OF RS. 5,62,33,670 AS ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 12 AGAINST INCOME OF RS. 1,42,06,264 RETURNED BY THE APPELLANT . 2. THAT THE ASSESSING OFFICE R ERRED ON FACTS AND IN LAW IN MAKING AN ADJUSTMENT OF RS. 4,20,27,410 ALLEGEDLY ON ACCOUNT OF DIFFERENCE IN THE ARM'S LENGTH PRICE OF THE 'INTERNATIONAL TRANSACTION' OF PROVISION OF BPO/DATA PROCESSING SERVICES ON THE BASIS OF THE ORDER PASSED UNDER SECTI ON 92CA(3) OF THE ACT BY THE TPO. 2.1 THAT THE DRP ERRED ON FACTS AND IN LAW IN UPHOLDING THE ADDITIONAL FILTER OF EXPORT SALES LESS THAN 75% OF THE TOTAL INCOME APPLIED BY THE TPO, WITHOUT APPRECIATING THAT SELECTION OF COMPARABLE COMPANIES ON THE BASIS OF SUCH QUANTITATIVE FILTERS ALONE, DEFIES THE PURPOSE OF THE BENCHMARKING ANALYSIS. 2.2 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN REJECTING FOLLOWING COMPARABLE COMPANIES ON THE FILTER OF EXPORT SALES LESS THAN 75%, WITHOUT APPRECIATING THAT THE COM PANIES WERE OTHERWISE FUNCTIONALLY COMPARABLE TO THE APPELLANT: (I) FIRSTSOURCE SOLUTIONS LTD. (II) OPTIMUS GLOBAL SERVICES LTD. (III) SPARSH BPO SERVICES LTD. 2.3 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN REJECTING OPTIMUS GLOBAL SERVICES LTD. AND SPARSH BPO SERVICES LTD. ALLEGEDLY HOLDING THAT THE SAID COMPANIES ARE HAVING NEGATIVE NET WORTH AND THEREFORE THAT ARE AFFECTED BY SOME PECULIAR ECONOMIC CIRCUMSTANCES . ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 13 2.4 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN CONSIDERING OMEGA HEA L THCARE LIMITE D AS COMPARABLE TO THE APPELLANT WITHOUT APPRECIATING THE FACT THAT THE PROFIT & LOSS ACCOUNT OF THE COMPANY FOR THE FINANCIAL YEAR 2009 - 10 IS NOT AVAILABLE IN PUBLIC DOMAIN. 2.5 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN CONSIDERING TCS E - SERVE LTD. A ND TCS E - SERVE INTERNATIONAL LTD. AS COMPARABLE TO THE APPELLANT WITHOUT APPRECIATING THAT THESE COMPANIES ARE PROVIDING SERVICES TO A SINGLE CUSTOMER AND THEREFORE, DOES NOT SATISFY THE FILTER OF RELATED PARTY TRANSACTIONS APPLIED BY THE TPO. 2.6 THAT TH E DRP/TPO ERRED ON FACTS AND IN LAW IN CONSIDERING TCS E - SERVE LTD. IN THE FINAL SET OF COMPARABLE COMPANIES WITHOUT APPRECIATING THAT THE FINANCIAL RESULTS OF THE COMPANY CANNOT BE CONSIDERED ON ACCOUNT OF (I) PROVISION FOR ERRORS AMOUNTING TO RS. 4,28,54 THOUSANDS MADE IN THE ACCOUNTS AND (II) CHANGE IN THE METHOD OF REVENUE RECOGNITION. 2.7 THAT WHILE UNDERTAKING BENCHMARKING ANALYSIS OF THE TRANSACTION UNDERTAKEN BY THE APPELLANT, A CAPTIVE SERVICE PROVIDER, THE DRP/TPO ERRED ON FACTS AND IN LAW IN APP LYING INCONSISTENT APPROACH IN REJECTING LOSS MAKING COMPANIES AND CONSIDERING FOLLOWING COMPANIES EARNING SUPER NORMAL PROFIT, IN THE FI NAL SET OF COMPARABLE COMPANIES: ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 14 NAME OF THE COMPANY OP/TC (%) TCS E - SERVE LTD. 53.80% TCS E - SERVE INTERNATIONAL L TD 63.38% 2.8 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN CONSIDERING FOLLOWING COMPANIES IN THE FINAL SET OF COMPARABLE COMPANIES WITHOUT APPRECIATING THAT COMPANIES WITH SUCH HIGH TURNOVER DOES NOT SATISFY THE TES T OF COMPARABILITY LAID DOWN UNDER RU LE 10B(2) OF THE INCOME TAX RULES, 1962, FOR BEING OPERATING IN DIFFERENT MARKET CONDITIONS AND LEVEL OF COMPETITION: NAME OF THE COMPARABLE COMPANY TURNOVER (CR) INFOSYS BPO LIMITED 1,126 TCS E - SERVE LIMITED 1,440 2.9 THAT THE DRP/TPO ERRED ON FACTS A ND IN LAW IN CONSIDERING FOLLOWING COMPANIES IN THE FINAL SET ALLEGEDLY HOLDING THEM TO BE FUNCTIONALLY COMPARABLE TO THE ASSESSEE FOR THE PURPOSE OF BENCHMARKING ANALYSIS: (I) TCS E - SERVE LTD. (II) COSMIC GLOBAL LTD. 2.10 THAT THE DRP/TPO ERRED ON FACT S AND IN LAW IN NOT ALLOWING APPROPRIATE RISK ADJUSTMENT TO ESTABLISH COMPARABILITY ON ACCOUNT OF THE APPELLANT BEING A LOW - RISK - BEARING CAPTIVE SERVICE PROVIDER AS OPPOSED TO THE COMPARABLE COMPANIES WHO WERE INDEPENDENT IT ENABLED SERVICE PROVIDERS. ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 15 2.1 1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/TPO ERRED IN REJECTING THE CONTENTION OF THE APPELLANT REGARDING RISK 'ADJUSTMENT, ALLEGEDLY HOLDING THAT NO EVIDENCE HAS BEEN PROVIDED BY THE APPELLANT TO PROVE THAT RISK HAS ACTU ALLY BEEN UNDERTAKEN BY THE COMPARABLE COMPANIES. 2.12 THAT THE DRP/ TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE ASSOCIATED ENTERPRISE HAS ULTIMATELY ERRED A LOSS IN UNDERTAKING TRANSACTION OF PROVISION OF IT ENABLED SERVICES WITH THE APPELLANT, NO FURTHER TRANSFER PRICING ADJUSTMENT COULD BE IMPUTED TO THE INCOME OF THE APPELLANT. 2.13 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/TPO ERRED IN NOT APPRECIATING THE FACT THAT THE TRANSFER PRICING ADJUSTMENT, AT B EST, COULD NOT EXCEED THE AMOUNT OF MARGIN RETAINED BY THE ASSOCIATED ENTERPRISES. 3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN LEVYING INTEREST UNDER SECTION 234A AND SECTION 234C OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, AMEND , ALTER OR V ARY, ANY OF THE AFO RESAID GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 14 . GROUND NOS. 1 & 2 ARE GENERAL IN NATURE SO DO NOT REQUIRE ANY COMMENT ON OUR PART. GROUND NOS. 2.1 TO 2.3 AND 2.10 TO 2.13 WERE NOT PRESSED SO THESE ARE DISM ISSED AS NOT PRESSED. ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 16 1 5 . VIDE GROUND NO. 2.4, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE INCLUSION OF THE OMEGA HEALTHCARE LTD. AS COMPARABLE WHILE WORKING OUT THE AVERAGE MARGIN OF THE COMPARABLE. 16 . THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTION OF PROVISIONS OF BPO/DATA PROCESSING SERVICES, CONSIDERED 13 COMPARABLE COMPANIES IN THE TRANSFER PRICING DOCUMENTATION AND WORKED OUT WEIGHTED AVERAGE OPERATING PROFIT MARGIN (OP/ OC) AT 7.98%. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THE UPDATED MARGINS OF THE COMPARABLE COMPANIES AND EXCLUDED 2 COMPARABLES, NAMELY, ECLERX SERVICES LTD. AND TCS E - SERVE INTERNATIONAL LTD. , T HE AVERAGE OPERATING PROFIT MARG IN WAS WORKED OUT AT 4.52% . S INCE OPERATING PROFIT M ARGIN OF THE ASSESSEE WAS AT 8%, T HEREFORE, THE INTERNATIONAL TRANSACTION OF PROVISIONS OF BPO SERVICES WAS CLAIMED TO BE ENTERED AT ARM S LENGTH PRICE. THE TPO, HOWEVER, WORKED OUT THE AVERAGE OPERATING PROFIT TO COST RATIO AT 24.78% BY TAKING INTO CONSIDERATION THE FOLLOWING COMPARABLES: S. NO. COMPANY NAME OP/OC (%) 1. COSMIC GLOBAL LTD. 18.28% 2. INFOSYS BPO LTD. 31.46% ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 17 3. JINDAL INTELLICOM LTD. 13.62% 4. OMEGA HEALTHCARE 15.31% 5. TCS E - SERVE I NTERNATIONAL LTD. 53.80% 6. TCS E - SERVE LTD. 63.38% 7. INTERGLOBE TECHNOLOGIES PVT. LTD.(SEG) 6.21% 8. MICROLAND LTD. (ITES SEGMENT) - 3.79% AVERAGE 24.78% 1 7 . T HE TPO PROPOSED AN ADJUSTMENT OF RS.4,20,27,410/ - ON ACCOUNT OF DIFFERENCE IN THE PRICE C HARGED FOR INTERNATIONAL TRANSACTION OF PROVISIONS OF BPO/DATA PROCESSING SERVICES. THE AO, THEREAFTER PASSED THE DRAFT ASSESSMENT ORDER. THE ASSESSEE RAISED THE OBJECTION S BEFORE THE DRP AND SUBMITTED THAT THE TPO WRONGLY REJECTED THE FOLLOWING COMPANIES ON THE FILTER OF EXPORT SALES LESS THAN 75% WITHOUT APPRECIATING THAT THE SAID COMPANIES WERE FUNCTIONALLY COMPARABLE TO THE ASSESSEE: PARTICULARS OP/OC (%) FIRSTSOURCE SOLUTIONS LTD. 9.93% OPTIMUS GLOBAL SERVICES LTD. 13.31% SPARSH BPO SERVICES LTD. 2 .77% 18 . IT WAS FURTHER STATED THAT THE FOLLOWING COMPANIES DID NOT SATISFY THE FILTER OF RELATED PARTY TRANSACTIONS APPLIED BY THE TPO: S. NO. NAME OF THE COMPANY OP/OC (%) 1. TCS E - SERVE LTD. 53.80% 2. TCS E - SERVE INTERNATIONAL LTD. 63.38% 3. COSMI C GLOBAL LTD. 18.28% ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 18 19 . IT WAS SUBMITTED THAT FIRST TWO OF THE AFORESAID COMPANIES WERE SUPER NORMAL PROFIT COMPANIES AS COMPARED TO THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THE TPO APPLIED INCONSISTENT APPROACH BY ELIMINATING LOW TURNOVER COMPANIES WIT HOUT ELIMINATING THE FOLLOWING COMPANIES HAVING SIGNIFICANT HIGH TURNOVER: S. NO. NAME OF THE COMPANY TURNOVER (CR) 1. INFOSYS BPO LTD. 1,126 2. TCS E - SERVE LTD. 1,440 2 0 . THE DRP AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT TCS E - SERVE LTD., TCS E - SERVE INTERNATIONAL LTD. AND COSMIC GLOBLE LTD. QUALIFIED RELATED PARTY TRANSACTION FILTER AND THAT THE OMEGA HEALTHCARE COMPANY PASSED THE ENTIRE QUANTITATIVE FIELD APPLIED BY THE TPO, THEREFORE, THE TPO WAS CORRECT TO ACCEPT THOSE COMPANIES AS COMPARABLE . AS REGARDS TO THE INFOSYS BPO LTD., THE DRP WAS OF THE VIEW THAT THE HIGH TURNOVER ALONE CANNOT BE A FACTOR TO ACCEPT OR REJECT THE COMPARABLES . A CCORDINGLY , THE ACTION OF THE TPO WAS APPROVED. THEREAFTER, THE AO PASSED THE ASSESSMENT ORDER BY MAKING THE TRANSFER PRICING ADJUSTMENT OF RS.4,20,27,470/ - . 2 1 . NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO/AO WRONGLY INCLUDED M/S ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 19 OMEGA HEALTHCARE AS COMPARABLE WHEN COMPLETE FINANCIAL DATA WAS NOT AVAILABLE AND THAT THE LD. DRP DID NOT CONSIDER THE OBJECTION RAI SED BY THE ASSESSEE IN RIGHT PER SPECTIVE. IT WAS STATED THAT WHEN THE COMPLETE FINANCIAL DATAS WERE NOT AVAILABLE, THE COMPANY M/S OMEGA HEALTHCARE COULD NOT HAVE BEEN INCLUDED IN THE LIST OF THE COMP ARABLE S . 22 . IN HIS RIVAL SUBMISSIONS THE LD. DR SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 23 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN OUR OPINION, THE INCLUSION OF M/ S OMEGA HEALTHCARE LTD. AS COMPARABLE WAS NOT JUSTIFIED WHEN THE PROFIT AND LOSS ACCOUNT OF THE SAID COMPANY FOR THE FINANCIAL YEAR 2009 - 10 WAS NOT AVAILABLE IN PUBLIC DOMAIN AND SINCE THE ORDER OF THE DRP IS A NON - SPEAKING ORDER RELATING TO THIS COMPARABL E BECAUSE IT HAS ONLY BEEN MENTIONED IN THE ORDER OF THE DRP THAT THIS COMPANY PASSED THE ENTIRE QUANTITATIVE FILTER APPLIED BY THE TPO BUT THE SAID ORDER IS SILENT ABOUT THE FINANCIAL DATAS. AT THE SAME TIME , IT IS NOT CLEAR AS TO WHETHER THE FINANCIAL DA TA IN RESPECT OF THE SAID COMPANY WERE AVAILABLE TO THE TPO. WE, THEREFORE, SET ASIDE THIS ISSUE BACK TO THE FILE OF THE TPO/AO TO BE DECIDED AFRESH BY ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 20 TAKING INTO CONSIDERATION THE FINANCIAL DATAS OF THE SAID COMPANY RELATING TO THE YEAR UNDER CONSIDERATI ON. 2 4 . AS REGARDS TO THE TCS E - SERVE LTD. AND TCS E - SERVE INTERNATIONAL LTD., THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE COMPANIES WERE NOT TO BE INCLUDED IN THE LIST OF THE COMPARABLES AS HAS BEEN HELD IN THE CASE OF SYMPHONY MARKETING SOLUTI ONS INDIA (P.) LTD. VS ITO, WARD - 12, BANGALORE IN IT(TP)A NO. 1316/BANG/2012 FOR THE ASSESSMENT YEAR 2008 - 09 DECIDED BY THE ITA T C BENCH, BANGALORE VIDE ORDER DATED 14.08.2013 AND THE ORDER DATED 10.10.2014 BY THE ITAT K BENCH, MUMBAI IN ITA NO. 2152/M UM/2014 FOR THE ASSESSMENT YEAR 2009 - 10 IN THE CASE OF M/S WILLIS PROCES SING SERVICES (INDIA) (P.) LTD. VS DCIT - 2(3), MUMBAI. OUR ATTENTION WAS DRAWN TOWARDS PAGE NOS. 317 TO 323 OF THE ASSESSEE S PAPER BOOK. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF EQUANT SOLUTIONS INDIA PVT. LTD. VS DCIT IN ITA NO. 1202/DEL/2015 (COPY OF WHICH IS PLACED AT PAGE NOS. 306A TO 321 OF THE ASSESSEE S PAPER BOOK). AS REGARDS TO THE INCLUSION OF INFOSYS BPO AS COMPARABLE , THE LD. COU NSEL FOR THE ASSESSEE SUBMITTED THAT THIS COMPANY WAS NOT COMPARABLE AT ALL AS HAS BEEN HELD BY ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 21 THE ITAT DELHI BENCH IN THE CASE OF EQUANT SOLUTIONS INDIA PVT. LTD. VS DCIT IN ITA NO.1202/DEL/2015 (SUPRA). 25. IN HIS RIVAL SUBMISSIONS THE LD. CIT DR SUPPO RTED THE IMPUGNED ORDER AND REITERATED THE OBSERVATIONS OF THE AUTHORITIES BELOW IN THEIR RESPECTIVE ORDER. 26 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. AS REGARDS TO THE ISSUE RELATING TO E XCLUSION OF INFOSYS BPO LTD., TCS E - SERVE INTERNATIONAL LTD. AND TCS E - SERVE LTD. IS CONCERNED , IT IS NOTICED THAT THIS ISSUE HAS BEEN DECIDED BY THE ITAT DELHI BENCH I , NEW DELHI IN THE CASE OF EQUANT SOLUTIONS INDIA PVT. LTD. VS DCIT IN ITA NO. 1202/DE L/2015 FOR THE ASSESSMENT YEAR 2010 - 11 ( S UPRA ) AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 22 TO 24 OF THE ORDER DATED 21.01.2016 WHICH READ AS UNDER: 22. INFOSYS BPO LIMITED A. THE ASSESSEE FURTHER OBJECTED TO INCLUSION OF INFOSYS BPO LTD AS C OMPARABLE WHICH HAS A MARGIN AT 31.44%. BEFORE THE TPO ASSESSEE SUBMITTED THAT, THIS IS THE COMPANY, WHICH HAS VERY HIGH TURNOVER AND HAS HUGE BRAND VALUE. SUBMISSION OF THE ASSESSEE THAT HIGHER PROFITS IS BECAUSE OF HIGHLY ESTABLISHED BRAND IN THE MARKET PLACE. TPO REJECTED THE CONTENTION OF THE ASSESSEE HOLDING THAT THE ASSESSEE HAS FAILED TO ESTABLISH ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 22 HOW THE BRAND HAS INFLUENCED INCREASED PROFITABILITY OF THE COMPARABLE. THE LD DRP ALSO REJECTED THE CONTENTION OF THE ASSESSEE. BEFORE US, THE ASSESSEE SU BMITTED THAT COMPARABLE IS ENGAGED IN HIGH - END INTEGRATED SERVICES IN IMPROVING THE COMPETITIVE POSITION OF THEIR CLIENTS AND MANAGE THEIR BUSINESS PROCESS AND PROVIDING VALUE ADDED SERVICES TO THEM. FURTHER, THE INFOSYS ALSO CARRYING HUGE BRAND VALUE AND THEREFORE THIS COMPARABLE SHOULD NOT BE TAKEN. B. LD DR RELIED ON THE ORDERS OF LOWER AUTHORITIES AND STATED THAT ALL THE REASONS HAVE BEEN CONSIDERED BY THE TPO AND DRP FOR INCLUSION OF THIS COMPARABLE. C. WE HAVE CONSIDERED THE RIVAL CONTENTION REGAR DING EXCLUSION OF INFOSYS BPO LTD. IT IS ENGAGED IN HIGH AND INTEGRATED SERVICES AND THEREFORE IT IS FUNCTIONALLY DISSIMILAR. THE INFOSYS BRAND IS INDISPUTABLY IS A HUGE BRAND AND DEFINITELY, RESULT OF THAT BRAND GOES TO THIS COMPARABLE. THEREFORE, THE BRA ND OF INFOSYS DEFINITELY RESULTS IN OPENING HIGHER PROFITS TO THIS COMPANY. IN VIEW OF THE FOLLOWING DECISIONS, THE SAME IS REQUIRED TO BE EXCLUDED AND HENCE IT IS ORDERED ACCORDINGLY. 23. TCS E SERVE INTERNATIONAL LTD, A. THIS COMPARABLE WAS TAKEN BY T PO WHERE THE MARGIN IS 54.02%. THE TPO HAS TAKEN THIS COMPARABLE CONSIDERED THIS A COMPANY IN IPS INDUSTRY AND CONSIDERED IT AS A SINGLED SEGMENT. THE TPO WAS ALSO OF THE VIEW THAT THERE ARE NO EXCEPTIONAL CIRCUMSTANCES, WHICH IS RELATED IN THE ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 23 INCREASE IN THE PROFIT. BEFORE DRP THE ARGUMENT OF THE ASSESSEE WERE REJECTED AND IT WAS HELD THAT FAR PROFILE OF THE COMPANY IS SIMILAR TO THAT OF THE APPELLANT. BEFORE US IT WAS SUBMITTED THAT IN ADDITION TO BPO SERVICES THIS COMPANY IS ENGAGED IN PROVIDING TECHNIC AL SERVICES LIKE SOFTWARE TESTING, VERIFICATION AND VALIDATION OF THE SOFTWARE WHICH FALLS UNDER SOFTWARE DEVELOPMENT SERVICES ACTIVITY, WHICH ALSO INCLUDES TRANSACTION PROCESSING, TECHNICAL SERVICES, THEREFORE IT IS FUNCTIONALLY DISSIMILAR. FURTHER IT WAS ALSO CONTENDED THAT THERE IS NO SEGMENTAL DATA ITES AND SOFTWARE DEVELOPMENT ACTIVITY OF THE COMPANY IS AVAILABLE AND THIS COMPARABLE OWNS SUBSTANTIAL AMOUNT OF INTANGIBLES IN THE FORM OF SOFTWARE LICENSES AND IT OWNS TATA BRAN D IN WHICH COMPANY IS MAKING PAYMENT. IT WAS FURTHER SUBMITTED THAT THE COMPANY HAS VOLATILE MARGIN OVER THE YEAR AND ITS PROFITABILITY HAS GONE UP 173% ON ACCOUNT OF INCREASED IN INFRASTRUCTURE AND THEREFORE THIS COMPARABLE SHOULD BE EXCLUDED. B. LD. DR RELIED ON THE ORDERS OF LOW ER AUTHORITIES AND SUPPORTED THEM. C. WE HAVE CONSIDERED THE RIVAL CONTENTION REGARDING THE EXCLUSION OF TCS E - SERVICE INTERNATIONAL LTD. THE COMPARABLE IS ENGAGED IN THE BUSINESS OF BPO SERVICE AND PROVIDES HIGH - END TECHNOLOGY SERVICES SUCH AS SOFTWARE TESTING, VERIFICATION AND VALIDATION OF THE SOFTWARE. THEREFORE, IT IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. FURTHER ANNUAL REPORT OF THE COMPANY DOES NOT PROVIDE ANY SEGMENTAL INFORMATION RELATED TO ITES AS WELL AS SOFTWARE DEVELOPMENT SERVICES. ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 24 THE CO MPANY ALSO OWNS INTANGIBLE OF SUBSTANTIAL AMOUNT AND IS BENEFITTED USUALLY BY THE TATA BRA N D. THE COMPANY IS ALSO MAKING APPELLANT FOR USE OF SUCH BRAND. THEREFORE THIS ASP ECT ALSO MAKES THIS COMPARABLE A S INAPPROPRIATE AND THEREFORE WE ORDER TO EXCLUDE TH IS COMPARABLE. 24. TCS E SERVE LIMITED A. TPO INCLUDED THIS COMPARABLE, WHICH HAS A MARGIN OF 63.42%. THE LD . DRP HAS ALSO HELD THAT THE FAR PROFILE OF THE COMPANY IS SIMILAR. BEFORE US, LD. AR SUBMITTED THAT THE COMPANY IS DISSIMILAR FUNCTIONALLY. IN A DDITION TO BPO SERVICES, IT IS ALSO ENGAGED IN TECHNICAL SERVICES SUCH AS SOFTWARE TESTING, VERIFICATION AND VALIDATION. IT HAS ALSO DEVELOPED SOFTWARE SUCH AS TRANSPORT MANAGEMENT SOFTWARE. IT DOES NOT HAVE SEGMENTAL REPORTING TOO. IT WAS FURTHER SUBMITTE D THAT THE COMPANY OWNS SUBSTANTIAL INTANGIBLE ASSETS IN FORM OF SOFTWARE LICENSES AND IT MAKES A PAYMENT FOR TATA BRAND AND THEREFORE IT GETS THE BENEFIT USE BRAND VALUE OF TATA. B. LD. DR RELIED ON THE ORDERS OF LOWER AUTHORITIES AND SUBMITTED THAT ALL THE ABOVE REASONS FOR SELECTION OF THIS COMPARABLE HAS BEEN CONSIDERED BY THE TPO. C. WE HAVE ALSO CONSIDERED THE RIVAL CONTENTION FOR EXCLUSION OF TCS E - SERVICE LTD. IT IS MAINLY INVOLVED IN TRANSACTION PROCESSING AND TECHNOLOGY SERVICES. IT CARRIES ON BUSINESS OF PROVIDING TECHNOLOGY SERVICE SUCH AS SOFTWARE TESTING, VERIFICATION AND VALIDATION. IT IS ALSO DEVELOPED A SOFTWARE SUCH AS TRANSPORT MANAGEMENT SOFTWARE ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 25 THEREFORE FUNCTIONALLY THIS COMPANY IS DISSIMILAR TO THE ASSESSEE COMPANY. IT ALSO OWNS HU GE INTANGIBLE AND USE OF TATA BRAND, WHICH HAS DEFINITELY BENEFITED THIS COMPARABLE, IT IS DIRECTED TO BE EXCLUDED. 27. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER OF THE CO - ORDINATE BENCH, WE DIRECT THE AO /TPO TO EXCLUDE THE SAID COM PANIES I.E. M/S INFOSYS BPO, M/S TCS E - SERVE INTERNATIONAL LTD. AND M/S TCS E - SERVE LTD. FROM THE LIST OF THE COMPARABLES WHILE WORKING OUT THE OPERATING PROFIT/OPERATING COST RATIO. 28. IT IS ALSO NOTICED THAT T HE ISS UE RELATING TO M/S COSMIC GLOBAL LTD. AGITATED BY THE ASSESSEE, HAS BEEN DECIDED BY THE ITAT DELHI BENCH I , NEW DELHI IN ITA NO. 5207/DEL/2013 FOR THE ASSESSMENT YEAR 2008 - 09 IN THE CASE OF XCHANGING TECHNOLOGY SERVICES INDIA PVT. LTD. VS ACIT VIDE ORDER DATED 10.06.20 15 AND THE RELEVANT FI NDINGS HAVE BEEN GIVEN IN PARA 18 OF THE SAID ORDER WHICH READ AS UNDER: 18. WHILE, WE CONSIDERED THE FUNCTIONALLY COMPARABILITY ISSUE OF COSMIC GLOBAL SERVICES WITH THE PRESENT ASSESSEE COMPANY THEN WE FIND OURSELVES VIEW TAKEN BY THE TRIBUNAL IN ITS OR DER IN THE CASE OF UNITED HEALTH GROUP INFORMATION SERVICES PVT. LTD. VS. ACIT (SUPRA) WHEREIN FOR THE SAME AY 2008 - 09 IT WAS HELD THAT THE MAJOR PART OF INCOME FROM TRANSLATION CHARGES IS AMOUNTING TO ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 26 RS.5.59 CRORES OUT OF TOTAL REVENUES OF RS.5.86 CRORE, WHICH IS TOTALLY DISSIMILAR TO THAT OF THE ASSESSEE OF THAT CASE. IN THE PRESENT CASE, THE DRP/AO HAS ONLY DISPUTED THE INTERNATIONAL TRANSACTION OF THE PRESENT ASSESSEE ONLY ITES SEGMENT WHEREAS AS PER ANNUAL REPORT OF COSMIC GLOBAL LTD. AT PAGE 578 OF A SSESSEE PAPER BOOK VOL. - II, WE CLEARLY NOTE THAT THE REVENUE FROM ITES SEGMENT IS VERY LOW WHICH CREATES A GREAT FUNCTIONAL DIFFERENCE FROM PRESENT ASSESSEE AS THE PRESENT ASSESSEE IS NOT INDULGED INTO TRANSLATION SEGMENTAL BUSINESS. HENCE, WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE COSMIC GLOBAL LTD. IS FUNCTIONALLY DISSIMILAR TO THE PRESENT ASSESSEE AND COSMIC GLOBAL LTD. IS NOT A SUITABLE COMPARABLE TO THE PRESENT ASSESSEE FOR BENCHMARKING AND DETERMINING THE ARM S LENGTH PRICE (AL P) OF PRESENT ASSESSEE ITES SEGMENTAL INTERNATIONAL TRANSACTIONS FOR AY 2008 - 09. ACCORDINGLY, WE HOLD THAT COSMIC GLOBAL LTD. WAS WRONGLY INCLUDED IN THE FINAL SET OF COMPARABLES WHICH DESERVES TO BE DELETED. WE ORDERED ACCORDINGLY. 29 . SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER, WE DIRECT THE AO TO EXCLUDE THE AFORESAID COMPANY ALSO FROM THE LIST OF THE COMPARABLES. 30 . AS REGARDS TO THE GROUND NO. 3, IT WAS THE COMMON CONTENTION OF BOTH THE PARTIES, IT IS CONSEQUENTIAL IN NATURE. WE O RDER ACCORDINGLY. ITA NO. 1052/DEL/2014 & 787/DEL/2015 OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD. 27 31 . IN THE RESULT, BOTH THE APPEAL S OF THE ASSESSEE ARE PARTLY ALLOWED . ( ORDER PRON OUNCED IN THE COURT ON 07 /09 / 2016 ) SD/ - SD/ - ( SUDHANSHU SRIVASTAVA ) ( N. K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 07 /09 /2016 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR