Appeal details
Counselvise Citation
81921114 RSA 2011
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 8 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-05-2015
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
12-05-2015
Assessment Year
2007-2008
Appeal Filed On
16-09-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IT(TP)A NO.819/BANG/2011 ASSESSMENT YEAR : 2007-08 M/S.E4E BUSINESS SOLUTIONS INDIA PRIVATE LIMITED, MARUTHI CHAMBERS, 4 TH FLOOR, #17/9B, 17/4B, RUPENA AGRAHARA, HOSUR ROAD, BANGALORE 560 068. PAN : AAACI6324A VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(3), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI. SMT.SHREYA LOYALKA, CA RESPONDENT BY : SHRI C.H. SUNDAR RAO, CIT-I(DR) DATE OF HEARING : 12.05.2015 DATE OF PRONOUNCEMENT : 26.05.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DA TED 26.7.2011 OF THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE11(3), BANGALORE PASSED U/S. 143(3) R.W.S. 144C OF THE ACT. IT(TP)A NO.819/BANG/2011 PAGE 2 OF 25 2. ISEVA INC.. INCORPORATED IN NOVEMBER 1999 IN THE UNITED STATES OF AMERICA IS THE HOLDING COMPANY OF ISPL. ISEVA INC . IS PART OF THE E4E GROUP WHICH INCLUDES AZTEC SOFTWARE AND TECHNOLOGY SERVICES LIMITED, INDIA; OMNIPROS LTD., USA.; VINCITI NETWORKS INC. , USA AND ICELERATE INC., USA. E4E WAS ESTABLISHED IN 2000 AND PROVIDES ITS SERVICES DESIGNED TO INCREASE REVENUES AND PROVIDE PRODUCTIVITY ENHANCEM ENTS TO ITS CUSTOMERS. E4E ALSO PROVIDES SOLUTIONS IN THE AREAS OF CUSTOME R CARE OPERATIONS INCLUDING HELP DESK, TECHNICAL SUPPORT, NETWORK MAN AGEMENT. SYSTEMS AND SECURITY MANAGEMENT AND TECHNOLOGY SERVICES INCLUDI NG ENTERPRISE APPLICATION IMPLEMENTATION AND SOFTWARE ENGINEERING SERVICES FOR SOFTWARE DEVELOPMENT. 3. FINANCIAL RESULTS OF ISPE FAR THE F Y 2006-07 DESCRIPTION AMOUNT (RS.) OPERATING REVENUE 64,87,05,072 OPERATING EXPENSES (*) 56,04,33,299 OPERATING PROFIT 8,82,71,773 OPERATING PROFIT TO EXPENSES 15.75% (*) EXCLUDING THE AE, NON-AE FINANCIAL RESULT OF THE COMPANY (AS PER THE TP REPORT) IS AS UNDER: PARTICULARS WITH AE WITH NON-AE TOTAL OPERATING INCOME (*) 546440687 102264385 648705072 OPERATING EXPENSES 465599540 94833759 560433299 OPERATING PROFITS 80841147 7430626 88271773 PROFIT MARGIN = OP / COST 17.36% 7.84% 15.75% THE ABOVE SEGMENTAL DETAILS ARE CONSIDERED FOR TRAN SFER PRICING ANALYSIS. IT(TP)A NO.819/BANG/2011 PAGE 3 OF 25 4. DURING THE FY 2006-07, THE TAXPAYER ENTERED INTO INTERNATIONAL TRANSACTIONS MAINLY IN E-CUSTOMER RELATIONSHIP MANA GER (I T ENABLED SERVICES). 5. INTERNATIONAL TRANSACTIONS (AS MENTIONED IN 92CE RE PORT) THE FOLLOWING ARE THE INTERNATIONAL TRANSACTIONS E NTERED INTO BY THE TAX PAYER WITH ITS ASSOCIATED ENTERPRISES (AES) AS PER THE 3CB REPORT AND AS PER THE REFERENCE RECEIVED FROM THE AO. SERVICES RELATING TO E-CUSTOMER RELATIONSHIP MANAGEMENT RS.54,64,40,687 REIMBURSEMENT OF TELECOM USAGE EXPENSES RS.33,21,86 6 6. IN THIS APPEAL WE ARE CONCERNED ONLY WITH THE CO MPUTATION OF ALP OF INTERNATIONAL TRANSACTION OF RENDERING OF SERVICES RELATING TO E-CUSTOMER RELATIONSHIP MANAGEMENT BETWEEN THE ASSESSEE AND IT S AE. 7. BUSINESS PROFILE OF ISPL : ISPL HAS ESTABLISHED ITSELF AS A DOMAIN SPECIFIC AND INDUSTRY FOCUSED COMPANY WITH SIGNIFI CANT EXPERTISE IN INDUSTRIES INCLUDING MORTGAGE PROCESSING. BANKING A ND HIGH TECHNOLOGY. IT PROVIDES BUSINESS PROCESS OUTSOURCING (BPO) SERVI CES TO CLIENTS IN THE UNITED STATES, UNITED KINGDOM AND INDIA. ISPL IS FO CESSED ON PROVIDING SERVICES TO ISEVA INC., IN TWO VERTICALS FOR US AND UK BASED CLIENTS, NAMELY: A) FINANCIAL SERVICES, AND B) TECHNICAL SERVICES. IT(TP)A NO.819/BANG/2011 PAGE 4 OF 25 SERVICE AREAS THE SERVICES PROVIDED BY ISEVA INC.. AND JSPL CAN H E BROADLY CLASSIFIED INTO THREE CATEGORIES: LIVE E-MAIL RESPONSE; REAL-TIME COLLABORATIVE CHAT: AND VOICE RESPONSE. OUTBOUND SUPPORT OUTBOUND SUPPORT SERVICES PROVIDED BY ISPL ARE IN T HE NATURE OF TELEMARKETING SERVICES. ISPL OBTAINS A LIST OF ALL PROSPECTIVE C USTOMERS FROM THE CLIENT (ALTERNATELY. ISEVA INC., COULD PROCURE SUCH A LIST FROM A THIRD PARTY AND PROVIDE THE SAME TO ISPL). ISPL DEPLOYS DAVOX, AN AUTOMATE D OUTBOUND DIALLER. THE LIST OF PROSPECTIVE CLIENTS IS LOADED ONTO THE DIAL LER AND THE DIALLER AUTOMATICALLY DIALS OUT TO THESE CUSTOMERS. EVERY TIME A CONTACT IS ESTABLISHED WITH A PROSPECTIVE CLIENT, THE CALL IS TRANSFERRED TO AN A GENT IN ISPL WHO THEN READS OUT A PREDEFINED MARKETING SCRIPT THUS COMPLETING THE S ELLING EFFORT. INBOUND SUPPORT INBOUND SUPPORT COULD BE IN THE NATURE OF ANSWERING STATUS CALLS ON CLIENTS PRODUCTS, TROUBLESHOOTING, FILLING OUT APPLICATION FORM (SALES SUPPORT) ETC. ISPLS TELECOM ENGINEERS SET UP A CALL ROUTING PROC ESS FOR ALL CALLS (OR SOME SET OF CALLS BASED ON CERTAIN PRE-ARRANGED RULE) TO BE REDIRECTED TO ISPL. ONCE THE IT(TP)A NO.819/BANG/2011 PAGE 5 OF 25 CALLS ARRIVE IN INDIA, THEY WILL BE HANDLED BY A DE DICATED SET OF AGENTS WHO WILL ANSWER THE CALL AND RESOLVE THE CUSTOMERS QUERIES. 8. FINAL SET OF COMPARABLE COMPANIES CONSIDERED BY THE TPO AND THE OP TO TOTAL COST % SL. NO. NAME OF THE COMPANY OP/TC % 1 ACCENTIA TECHNOLOGIES LTD. (SEG.) 30.61 2 ADITYA BIRLA MINACS WORLDWISE LIMITED (EARLIER KNOWN AS TRANSWORKS INFORMATION SERVICES LTD.) 11.98 3 ALLSEC TECHNOLOGIES LTD. 27.31 4 APEX KNOWLEDGE SOLUTIONS PVT.LTD. 12.83 5 APPOLLO HEALTH STREET LTD. - 13.55 6 ASIT C MEHTA FINANCIAL SERVICES LTD. (SEG.) 24.21 7 BODHTREE CONSULTING LTD. (SEG.) 29.58 8 CALIBER POINT BUSINESS SOLUTIONS LTD. 21.26 9 COSMIC GLOBAL LTD. 12.40 10 DATAMATICS FINANCIAL SERVICES LTD. (SEG.) 5.07 11 ECLERX SERVICES LTD. 89.33 12 FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.) 8.62 13 GENESYS INTERNATIONAL CORPORATION LTD. 13.35 14 HCL COMNET SYSTEMS & SERVICES LTD. (SEG.) 44.99 15 ICRA TECHNO ANALYTICS LTD. (SEG.) 12.24 16 INFORMED TECHNOLOGIES INDIA LTD. 35.56 17 INFOSYS BPO LTD. 28.78 18 ISERVICES INDIA PVT. LTD. 49.47 19 MAPLE E SOLUTIONS LTD. 34.05 20 MOLD-TEK TECHNOLOGIES LTD. 113.49 21 R SYSTEMS INTERNATIONAL LTD. (SEG.) 20.18 22 SPANCO LTD. (SEG.) [EARLIER KNOWN AS SPANCO TELESYSTEMS & SOLUTIONS LTD.) 25.81 23 TRITON CORP. LTD. 34.93 24 VISHAL INFORMATION TECHNOLOGIES LTD. 51.19 25 WIPRO LTD.(SEG.) 29.70 26 NITTANY OUTSOURCING SERVICES PVT.LTD. 11.50 27 ACCURATE DATA CONVERTERS LTD. 50.68 AVERAGE 30.21 IT(TP)A NO.819/BANG/2011 PAGE 6 OF 25 THE TPOS WORKING OF TURNOVER, RPT TO SALES, PERCE NTAGE OF EXPORT SALES TO SALES ARE ALL GIVEN AT PAGE-137 & 138 OF THE TPO S ORDER. THE SAME IS GIVEN AS ANNEXURE-I TO THIS ORDER TO APPRECIATE SOME OF THE CONTENTIONS THAT WERE TAKEN UP BEFORE US. THE TPO AFTER GIVING NEGATIVE ADJUSTMENTS TOWARDS WORKING CAPITAL ADJUSTMENT OF -1.58% ARRIVE D AT AN ARITHMETIC MEAN OF 31.79% AND DETERMINED THE ADJUSTMENT TO THE ALP AS FOLLOWS:- 18.6 COMPUTATION OF ARMS LENGTH PRICE : THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. (PLEASE SEE ANNEXURE E FOR DETA ILS OF COMPUTATION OF PLI OF THE COMPARABLES). BASED ON TH IS, THE ARMS LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES R ENDERED BY YOU IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI 30.21% LESS: WORKING CAPITAL ADJUSTMENT(ANNEXURE-F) -1.58% ADJ.ARITHMETIC MEAN PLI 31.79% ARMS LENGTH PRICE: OPERATING COST RS.56,04,33,299 ARMS LENGTH MARGIN 31.79% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) AT 131.79% OF OPERATING COST RS.73,85,95,044 18.6.1 PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE : THE PRICE CHARGED BY THE TAX PAYER TO ITS ASSOCIATE D ENTERPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER: ARMS LENGTH PRICE (ALP) AT 131.79% OF OPERATING COST RS.73,85,95,044 PRICE CHARGED IN THE INTERNATIONAL RS.64,87,05,072 IT(TP)A NO.819/BANG/2011 PAGE 7 OF 25 TRANSACTIONS SHORTFALL BEING ADJUSTMENT U/S.92CA RS.8,98,89,972 THE ABOVE SHORTFALL OF RS.8,98,89,972/- IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S 92CA. 9. AGAINST THE SAID ADJUSTMENT PROPOSED BY THE TPO WHICH WAS INCORPORATED IN THE DRAFT ASSESSMENT ORDER BY THE A O, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. THE DRP REJECTED THOSE O BJECTIONS AND CONFIRMED THE TRANSFER PRICING ADJUSTMENT SUGGESTED BY THE TPO. THE ADJUSTMENT CONFIRMED BY THE DRP WAS ADDED TO THE TO TAL INCOME OF THE ASSESSEE BY THE AO IN THE FAIR ORDER OF ASSESSMENT. AGAINST THE SAID ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAS PREFERRE D THE PRESENT APPEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED C OUNSEL FOR THE ASSESSEE AND THE LEARNED DR. THE ASSESSEE FILED A CHART SHOWING HOW THE SOME OF THE COMPARABLE COMPANIES CHOSEN BY THE TPO ARE NOT COMPARABLE IN LIGHT OF DECISIONS RENDERED BY VARIOU S BENCHES OF TRIBUNAL IN THE CASE OF SIMILAR IT ENABLED SERVICES COMPANIES. THE LEARNED DR RELIED ON THE ORDER OF THE DRP AND MADE HIS SUBMISSIONS ON SOME OF THE ARGUMENTS ADVANCED BY THE LEARNED COUNSEL FOR THE A SSESSEE. WE WILL DEAL WITH EACH ONE OF THE COMPARABLES THAT ARE SOUG HT TO BE EXCLUDED. THE ASSESSEE HAS ALSO FILED AN ADDITIONAL GROUND OF APP EAL WHICH READS THUS: IT(TP)A NO.819/BANG/2011 PAGE 8 OF 25 THE LEARNED TPO HAS IN HIS FRESH STUDY, ERRED IN S ELECTING ACCURATE DATA CONVERTERS PRIVATE LIMITED, ACCENTIA TECHNOLOGIES LIMITED, ECLERX SERVICES LIMITED, INFO RMED TECHNOLOGIES INDIA LIMITED, MAPLE ESOLUTIONS LIMITE D AND TRITON CORPORATION LIMITED AS COMPARABLE TO THE APP ELLANT DESPITE THE SAME FAILING TO MEET THE LEGALLY ACCEPT ABLE CRITERIA FOR COMPARABILITY. THE HONOURABLE DRP HAS ALSO ERRED I N CONFIRMING THE ORDER OF THE TPO IN THIS REGARD. TH ESE COMPANIES SHOULD BE REJECTED AS COMPARABLES, NOTWITHSTANDING THAT TRITON CORPORATION LIMITED WAS EARLIER SELECTED BY THE APP ELLANT AND NOTWITHSTANDING THAT THE ABOVEMENTIONED COMPARABLES WERE CONTENDED BEFORE THE LOWER AUTHORITIES ON DIFFERENT PARAMETERS. 11. IN DCIT VS. QUARK SYSTEMS (P) LTD. ITAT, CHANDIGARH SP ECIAL BENCH (2010) 38 SOT 307 HAD TO DEAL WITH ARGUMENT AS TO WHETHER THE ASSESSEE OR THE REVENUE HAVING CHOSEN A COMPANY AS COMPARABLE IS ENTITLED TO SEEK EXCLUSION OF THE VERY SAME COMPANY BEFORE THE TRIBUNAL. THE SPECIAL BENCH HELD AS FOLLOWS:- CONTENTION THAT DM WAS TAKEN AS ONE OF THE COMPARA BLES BY THE TAXPAYER AND NO OBJECTION TO ITS INCLUSION WAS RAIS ED BEFORE THE TPO OR BEFORE THE CIT(A) IN APPEAL AND THEREFORE, T HE TAXPAYER SHOULD NOT BE PERMITTED TO RAISE ADDITIONAL GROUND AND ASK FOR EXCLUSION OF THE ABOVE ENTERPRISE IN THE DETERMINAT ION OF THE AVERAGE MARGINS IS NOT SUSTAINABLE. IN THE FIRST PL ACE, THESE ARE INITIAL YEARS OF IMPLEMENTATION OF TRANSFER PRICING LEGISLATION IN INDIA AND TAXPAYERS AS WELL AS TAX CONSULTANTS WERE NOT FULLY CONVERSANT, WITH THIS NEW BRANCH OF LAW WHEN PROCEE DINGS WERE INITIATED OR EVEN AT APPELLATE STAGE. BESIDES, REVE NUE AUTHORITIES, INCLUDING TPO WERE REQUIRED TO APPLY STATUTORY PROV ISIONS AND CONSIDER FOR PURPOSES OF COMPARISON FUNCTIONS, ASSE TS AND RISKS (TURNOVER), PROFIT AND TECHNOLOGY EMPLOYED BY THE T ESTED PARTY AND OTHER ENTERPRISES TAKEN AS COMPARABLE. STATUTOR Y DUTY IS CAST ON THEM TO UNDERTAKE ABOVE EXERCISE. THIS HAS NOT B EEN DONE IN THIS CASE. PRIMA FACIE, AS PER THE MATERIAL, DM DOE S NOT APPEAR TO BE COMPARABLE. EVEN IF THE TAXPAYER OR ITS COUNSEL HAD TAKEN DM AS COMPARABLE IN ITS T.P. AUDIT, THE TAXPAYER IS EN TITLED TO POINT IT(TP)A NO.819/BANG/2011 PAGE 9 OF 25 OUT TO THE TRIBUNAL THAT ABOVE ENTERPRISE HAS WRONG LY BEEN TAKEN AS COMPARABLE. IN FACT THERE ARE VAST DIFFERENCES B ETWEEN TESTED PARTY AND THE DM. THE CASE OF DM IS LIKE THAT OF IC REPRESENTING EXTREME POSITIONS. IF IC HAS SUFFERED HEAVY LOSSES AND, THEREFORE, IT IS NOT TREATED AS COMPARABLE BY THE TAX AUTHORIT IES, THEY ALSO HAVE TO CONSIDER THAT THE DM HAS EARNED EXTRAORDINA RY PROFIT AND HAS A HUGE TURNOVER. BESIDES DIFFERENCES IN ASSETS AND OTHER CHARACTERISTICS. THE TRIBUNAL IS A FACT-FINDING BODY AND, THEREFORE, HAS TO TAKE INTO ACCOUNT ALL THE RELEVAN T MATERIAL AND DETERMINE THE QUESTION AS PER THE STATUTORY REG ULATIONS. TAXPAYER IS NOT ESTOPPED FROM POINTING OUT A MISTAK E IN THE ASSESSMENT THOUGH SUCH MISTAKE IS THE RESULT OF EVI DENCE ADDUCED BY THE TAXPAYER. WHEN SUBSTANTIAL JUSTICE A ND TECHNICAL CONSIDERATIONS ARE PITTED AGAINST EACH OT HER, THE CAUSE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERR ED. FOR THE OTHER SIDE CANNOT CLAIM TO HAVE A VESTED RIGHT IN I NJUSTICE BEING DONE DUE TO SOME MISTAKES ON ITS PART. 12. IN THE LIGHT OF THE DECISION OF THE HONBLE SPE CIAL BENCH IN THE CASE OF QUARK SYSTEMS (SUPRA) , WE ARE OF THE VIEW THAT THE ADDITIONAL GROUND SOUGHT TO BE RAISED BY THE ASSESSEE HAS TO BE ADMIT TED AND IT HAS TO BE EXAMINED WHETHER THE CLAIM MADE BY THE ASSESSEE IN THE ADDITIONAL GROUND CAN BE SUSTAINED ON MERITS OR NOT. THE ASSE SSEE SHOULD NOT BE PRECLUDED FROM RAISING CONTENTIONS WHICH WILL ULTIM ATELY HELP IN ASCERTAINING THE CORRECT LIST OF COMPARABLE COMPANIES. MOREOVER THE ASSESSEE HAS OBJECTED TO INCLUSION OF THE COMPANIES BEING CHOSEN AS COMPARABLE BEFORE DRP ON DIFFERENT PARAMETERS. WHAT THE ASSESSEE NOW SEEKS TO DO BY WAY OF ADDITIONAL GROUND IS TO SEEK EXCLUSION OF THE CO MPARABLE COMPANY MENTIONED IN THE ADDITIONAL GROUND ON DIFFERENT PAR AMETERS THAN THE ONE WHICH WAS RAISED BEFORE DRP. WE THEREFORE ADMIT TH E ADDITIONAL GROUND OF APPEAL FOR ADJUDICATION. IT(TP)A NO.819/BANG/2011 PAGE 10 OF 25 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS F AR AS COMPARABLES LIST AT SL.NO.17 AND 25 OF THE LIST OF COMPARABLES CHOSEN BY THE TPO IS CONCERNED VIZ., INFOSYS BPO LTD. AND WIPRO LTD., TH E TURNOVER OF THESE COMPANIES ARE ADMITTED BEYOND RS.200 CRORES. IT HA S BEEN HELD BY THIS TRIBUNAL IN SEVERAL DECISIONS LIKE TRILOGY E-BUSINE SS SOFTWARE INDIA PRIVATE LIMITED (SUPRA), HUAWEI TECHNOLOGIES INDIA PRIVATE LIMITED [IT (TP) A.NO.583/BANG/2012] THAT COMPANIES HAVING TURNOVER ABOVE RS.200 CRORES CANNOT BE CONSIDERED AS COMPARABLE WITH COMP ANIES HAVING TURNOVER OF LESS THAN RS.200 CRORES. IN THE CASE OF INFOSYS BPO LTD. AND WIPRO LTD., THE TURNOVER IS RS.649.57 CRORES AND 93 9.78 CRORES RESPECTIVELY. THE ASSESSEES TURNOVER IS RS.4.5 CRO RES. APART FROM THE ABOVE THESE TWO COMPANIES COMMAND PREMIUM IN THE MA RKET DUE TO THEIR BRAND VALUE AND CANNOT BE COMPARED WITH A COMPANY L IKE THE ASSESSEE. IT WAS SO HELD BY THE HYDERABAD BENCH OF ITAT IN THE C ASE OF STREAM INTERNATIONAL SERVICES PVT. LTD. VS. ACIT ITA NO.82 90/MUM/2011 FOR AY 2007-08 ORDER DATED 10.10.2014. IN VIEW OF THE AFO RESAID DECISIONS RENDERED BY THE TRIBUNAL, WE ARE OF THE VIEW THAT T HE AFORESAID TWO COMPANIES CANNOT BE REGARDED AS COMPARABLE. WE HOLD AND DIRECT ACCORDINGLY. 14. WITH REGARD TO COMPANY AT SL.NO.19 & 23 OF THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO VIZ., M/S.MAPLE E SOLUT IONS LTD., AND TRITON CORPORATION LTD., THE HYDERABAD BENCH OF THE TRIBUN AL IN THE CASE OF STREAM INTERNATIONAL SERVICES PVT.LTD., (SUPRA) IN PARA 13(III) AT PAGE-14 OF IT(TP)A NO.819/BANG/2011 PAGE 11 OF 25 THE ORDER HELD THAT THE PROMOTERS OF THESE TWO COMP ANIES WERE INVOLVED IN FRAUD FOR EARLIER YEARS AND HENCE THE FINANCIAL RES ULTS OF THESE COMPANIES ARE DISTORTED AND CANNOT BE RELIED UPON AND IN THIS REGARD RELIED ON SEVERAL DECISIONS RENDERED BY THE VARIOUS BENCHES OF ITAT. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AFORESAID TWO COMPANIES BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. 15. THE ASSESSEE NEXT SEEKS EXCLUSION OF THE FOLLOW ING FOUR COMPANIES FROM THE LIST OF COMPARABLE COMPANIES BY APPLYING T HE EMPLOYEE COST TO SALES FILTER, VIZ., ASIT C.MEHTA FINANCIAL SERVICES LTD., (PREVIOUS KNOWN AS NUCLEUS NETSOFT AND GIS LIMITED), INFORMED TECHNOLO GIES LTD., VISHAL INFORMATION TECHNOLOGIES LIMITED (NOW KNOWN AS CORA L HUB LIMITED) AND ACCENTIA TECHNOLOGIES LTD. THE EMPLOYEE COST FILTE R IS AN ACCEPTED FILTER IN THE MATTER OF CHOOSING COMPARABLES. IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD., VS. DCIT IT (TP) A.NO.1 086/BANG/2011 FOR AY 07-08 ORDER DATED 30.4.2013 IN PARA- 35, THIS TRIBU NAL HAS HELD THAT IN ITES SECTOR ALSO THE COMPANIES WHICH HAS LESS THAN 25% O F THE SALES AS EMPLOYEE COST SHOULD NOT BE SELECTED FOR COMPARABIL ITY ANALYSIS FOR DETERMINATION OF ALP. 16. AS FAR AS THE PERCENTAGE OF EMPLOYEE COST TO SA LES IS CONCERNED, THE ASSESSEE HAS FILED A CHART SHOWING THE EMPLOYEE COS T TO SALES IN RESPECT OF THE AFORESAID FOUR COMPANIES. THE SAID CHART IS GIVEN AS ANNEXURE-II TO THIS ORDER . IN RESPECT OF THE PERCENTAGE OF EMPLOYEE COST TO TURNOVER THERE IT(TP)A NO.819/BANG/2011 PAGE 12 OF 25 IS DISPUTE IN THE CASE OF ASIT C.MEHTA ABOUT THE PE RCENTAGE OF EMPLOYEE COST TO TURNOVER. IN RESPECT OF ASIT C.MEHTA THE L EARNED DR SUBMITTED THAT THE DATA PROCESSING CHARGES MENTIONED IN SCHEDULE-1 2 OF THE PROFIT AND LOSS ACCOUNT SHOULD ALSO BE CONSIDERED AS EMPLOYEE COST AND THE PERCENTAGE WORKED OUT ACCORDINGLY. IN RESPECT OF A CCENTIA TECHNOLOGIES LTD., ALSO THE ISSUE SHOULD BE REMANDED AS THE EMPL OYEE COST TO TURNOVER ISSUE WAS NOT RAISED BEFORE THE DRP/TPO BY THE ASSE SSEE AND THE FIGURES GIVEN BY THE ASSESSEE BEFORE TRIBUNAL NEEDS VERIFIC ATION. WE ARE OF THE VIEW THAT THE PLEA PUT FORTH BY THE LEARNED DR IS A CCEPTABLE AND IN RESPECT OF THESE TWO COMPANIES THE EMPLOYEE COST TO SALES S HOULD BE EXAMINED AFRESH BY THE AO/TPO AFTER DUE OPPORTUNITY TO THE A SSESSEE. IN RESPECT OF THE OTHER TWO COMPANIES THERE IS NO DISPUTE THAT TH E EMPLOYEE COST TO SALES IS LESS THAN 25% AND THEREFORE THESE TWO COMPANIES ARE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 17. AS FAR AS COMPARABLE COMPANY AT SL.NO. 5, 14 & 16 OF THE CHART OF COMPARABLE COMPANIES CHOSEN BY THE TPO VIZ., APPOLL O HEALTH STREET LTD., M/S.HCL COMNET AND M/S.INFORMED TECHNOLOGIES INDIA LTD., ARE CONCERNED, IT IS NOT IN DISPUTE BEFORE US THAT TH E RELATED PARTY TRANSACTION IN THE CASE OF COMPANIES EXCEEDS 15% ( 17.77 % IN T HE CASE OF APPOLLO HEALTH STREET LTD., 21.52% IN THE CASE OF HCL COMNE T AND 15.93% IN THE CASE OF INFORMED TECHNOLOGIES INDIA LTD.) AND IN VI EW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF 24 X 7 CUSTOMER.COM PVT. LT D. IN ITA NO.227/BANG/2010, FOLLOWED BY THIS TRIBUNAL IN THE CASE OF LOGICA PRIVATE IT(TP)A NO.819/BANG/2011 PAGE 13 OF 25 LTD. (SUPRA) WHEREIN IT WAS HELD THAT WHERE THE RPT EXCEEDS 15%, SUCH COMPANIES SHOULD NOT BE TAKEN AS COMPARABLE COMPANI ES. FOLLOWING THE SAID DECISION, WE HOLD THAT COMPANIES AT SL.NOS. 5, 14 & 16 REFERRED TO ABOVE OF THE LIST OF THE COMPARABLE COMPANIES CHOSE N BY THE TPO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES WHIL E WORKING OUT THE ALP. IN RESPECT OF COMPARABLE COMPANY CALIBER POINT, WHI CH IS AT SL.NO.9 OF THE LIST OF COMPARABLES CHOSEN BY THE TPO, THE RELATED PARTY TRANSACTION IS SHOWN BY THE TPO IS 13.70%. THE ASSESSEE HAS FILED A CHART BEFORE US SHOWING RPT AT 15.44%. THE SAME IS GIVEN AS ANNEXURE-III TO THIS ORDER . WE THEREFORE REMAND FOR FRESH CONSIDERATION BY T HE TPO THE RPT IN THE CASE OF THIS COMPANY AFTER AFFORDING OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE. IN THE EVENT OF RPT BEING MORE THAN 15%, THE SAID COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMP ANIES. 18. WITH REGARD TO (1) ECLERX SERVICES LIMITED; (2 ) MOLD-TEK TECHNOLOGIES LIMITED (SEG.) AT SL.NO.11 & 20 OF THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO, BEING CHOSEN AS COMPAR ABLE COMPANIES, THE ITAT BANGALORE BENCH IN THE CASE OF SYMPHONY MA RKETING SOLUTIONS INDIA PVT.LTD. IN IT (TP)A NO.1316/BANG/2012 ORDER DATED 14.8.2013 THESE COMPANIES WERE HELD TO BE NOT COMPARABLE WITH COMPA NIES IN IT ENABLED SERVICES SECTOR. THE FOLLOWING WERE THE RELEVANT O BSERVATIONS OF THE TRIBUNAL:- IT(TP)A NO.819/BANG/2011 PAGE 14 OF 25 (5) ECLERX SERVICES LTD. 20. THIS COMPANY IS LISTED AT SL.NO.11 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. IT IS THE STAND OF THE ASSESSEE THAT THIS COMPANY OFFERS SOLUTIONS THAT IN CLUDE DATA ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RECONC ILIATION AND THEREFORE HAS TO BE CLASSIFIED AS HIGH END KPO. IN SUPPORT OF THE STAND OF THE ASSESSEE, EXTRACTS FROM THE ANNUAL REP ORT OF THIS COMPANY HAVE BEEN POINTED OUT. IT HAS FURTHER BEEN SUBMITTED THAT EXTRA ORDINARY EVENTS AND PECULIAR CIRCUMSTANC ES PREVAIL IN THE CASE OF THE ASSESSEE IN AS MUCH AS THIS COMPANY ACQUIRED A UK BASED COMPANY WHICH HAS SIGNIFICANTLY CONTRIBUTE D TO THE INCREASE IN THE CUSTOMER AND REVENUE BASE OF THE CO MPANY. THIS TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS INDIA PVT. LTD. (SUPRA) HAD AN OCCASION TO DEAL WITH COMPARABILITY OF THIS COMPANY IN THE CASE OF AN ITES COMPANY SUCH AS THE ASSESSEE AND THE TRIBUNAL HELD AS FOLLOWS:- 14. THE ASSESSEE HAS OBJECTED FOR THIS COMPANY BEING TAKEN AS COMPARABLE MAINLY ON THE GROUND THAT IT WAS HAVING A SUPERNORMAL PROFIT OF 89%, AND AS SUCH IT CANNOT BE TAKEN AS A COMPARABLE IN VIEW OF THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE M/S. TEVA INDIA LTD. ( SUPRA ). THAT APART, RELYING UPON THE ANNUAL REPORT OF THE COMPANY, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE HAS CONTENDED THAT THAT THE CONCERNED COMPANY IS ENGAGED IN PROVIDING KNOWLEDGE PROCESS OUTSOURCING(KPO) SERVICES. 15. ON CONSIDERING THE OBJECTIONS OF THE ASSESSEE IN RELATION TO THIS COMPANY, WE ACCEPT THE CONTENTION OF THE ASSESSEE THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE BOTH FOR THE REASONS THAT IT WAS HAVING SUPERNORMAL PROFIT AND IT IS ENGAGED IN PROVIDING KPO SERVICES, WHICH IS DISTINCT FROM THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE. 21. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DE CISION OF THE HYDERABAD BENCH REFERRED TO ABOVE, THIS COMPANY CAN NOT BE REGARDED AS A COMPARABLE FOR THE REASON THAT IT WAS FUNCTIONALLY DIFFERENT. IT(TP)A NO.819/BANG/2011 PAGE 15 OF 25 (8) MOLD-TEK TECHNOLOGIES LTD. 25. THIS COMPANY IS LISTED AT SL.NO.16 OF THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, THE SUBMISSION OF THE ASSESSE E BEFORE US IS THAT IT IS IN THE BUSINESS OF KNOWLEDGE PROCESS OUT SOURCING AND CANNOT BE CONSIDERED AS A COMPARABLE. THE FUNCTION AL PROFILE OF THIS COMPANY IS AS FOLLOWS:- AS PER THE ANNUAL REPORT FOR THE F.Y. 2007-08, THE COMPANY PRIMARILY OPERATES IN TWO BUSINESS SEGMENTS: PLASTIC DIVISION : THE PLASTIC DIVISION IS ENGAGED IN THE MANUFACTURE OF TUBE & OILS, PAINTS, PET PRODUCT S, CONSUMER PRODUCTS, ETC. THE COMPANY DEMERGED THE SAID SEGMENT EFFECTIVE 1 APRIL, 2007 AND TRANSFERRE D THE BUSINESS UNIT TO THE COMPANY PLASTICS LT. THE EXTRACT FROM THE ANNUAL REPORT CONFIRMS THE FACT TH AT THE COMPANY HAD RESTRUCTURED ITS OPERATIONS RESULTING IN DEMERGING THE PLASTIC SEGMENT BUSINESS . INFORMATION TECHNOLOGY (IT) DIVISION : THE IT DIVISION (ALSO REFERRED TO AS THE KPO DIVISION BY T HE COMPANY) OF THE COMPANY SPECIALIZES IN PROVIDING STRUCTURAL DESIGN AND DETAILING SERVICES WHICH CAN BE CATEGORIZED AS STRUCTURAL ENGINEERING SERVICES. TH E STRUCTURAL ENGINEERING SERVICES PROVIDED BY THE IT DIVISION OF THE COMPANY CANNOT BE CLASSIFIED AS FALLING WITH THE SCOPE AND AMBIT OF ITES SERVICES. ON THE CONTRARY, THE SAID SERVICES WOULD FALL UNDER THE CATEGORY OF ENGINEERING SERVICES. EXCERPTS FROM THE ANNUAL REPORT OF THE COMPANY PAGE 10 OF THE ANNUAL REPORT FOR THE FY 2007-08 CONTAINS THE FOLLOWING OBSERVATION REGARDING THE KPO DIVISION OF THE COMPANY: THE COMPANY HAS ACHIEVED ABOUT 56.49% GROWTH IN 2007-08 TO REGISTER A TURNOVER OF IT(TP)A NO.819/BANG/2011 PAGE 16 OF 25 RS.17.86 CRORE. THE COMPANY HAVING ESTABLISHED ITS CREDENTIALS IN STRUCTURAL ENGINEERING SERVICES TO US CLIENTS IS DEVISING AGGRESSIVE MARKETING STRATEGY TO ACHIEVE RAPID GROWTH. THIS COMPANY IS ALSO ENGAGED IN PROVIDING A HOST OF ENGINEERING SERVICES LIKE CIVIL AND STRUCTURAL ENGINEERING SERVICES, MECHANICAL PRODUCT DESIGN, PLANT ENGINEERING, IT SERVICES AND GIS SERVICES. A S WE HAVE ALREADY SEEN, THIS COMPANY IS TO BE CLASSIFIED AS KPO AND CANNOT BE COMPARED WITH THE ASSESSEE. THE DECISION OF THE BANGALORE BENCH OF THE ITAT IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES LTD. (SUPRA) WHICH WE HAVE REFERRED TO IN THE EARLIER PART OF THIS ORDER WILL CLEARLY APPLY T O THIS COMPANY. WE THEREFORE DIRECT THIS COMPANY TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 19. AS CAN BE SEEN FROM THE AFORESAID DECISION, THE TWO COMPANIES VIZ., (1) ECLERX SERVICES LIMITED; (2) MOLD-TEK TECHNOLO GIES LIMITED (SEG.) WERE CONSIDERED AS NOT COMPARABLE BECAUSE OF THE DI STINCTION THAT LIES BETWEEN A KNOWLEDGE PROCESS OUTSOURCING (KPO) COMPA NY AND BUSINESS PROCESS OUTSOURCING (BPO) COMPANY. THE SPECIAL BEN CH OF THE ITAT MUMBAI BENCH IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT.LTD. VS. ACIT IN ITA NO.7466/MUM/2012 ORDER DATED 7.3.2014 CONSIDERED THE QUESTION WHETHER THERE CAN BE ANY DISTINCTION IN TH E MATTER OF COMPARISON BETWEEN A KPO AND A BPO. THE SPECIAL BENCH HELD TH AT THERE CANNOT BE ANY SUCH DISTINCTION AND EVEN KPO COMPANIES CAN BE CONSIDERED AS COMPARABLE. THE SPECIAL BENCH HOWEVER WENT INTO TH E COMPARABILITY OF THE IT(TP)A NO.819/BANG/2011 PAGE 17 OF 25 AFORESAID TWO COMPANIES IN IT ENABLED SERVICES SECT OR RENDERING SHARED SERVICE CENTER, TRANSACTION PROCESSING, DATA ENTRY RECONCILIATION OF STATEMENTS, AUDIT OF SHIPPING DOCUMENTS AND OTHER S IMILAR SUPPORT SERVICES AND CONCLUDED AT PARA-83 OF ITS ORDER THAT THE AFOR ESAID TWO COMPANIES ARE NOT COMPARABLE. AS TO WHETHER THE NATURE OF SERVIC ES RENDERED BY THE ASSESSEE IN THE PRESENT CASE IS SIMILAR TO THE ONE RENDERED BY M/S.MAERSK GLOBAL CENTRES (INDIA) PVT.LTD., IS AN ASPECT WHICH IN OUR VIEW WILL HAVE TO BE LOOKED INTO BY THE TPO/AO. WE ACCORDINGLY REMAN D THE ISSUE OF DECIDING THE COMPARABILITY OF THE AFORESAID TWO COM PANIES FOR FRESH CONSIDERATION IN THE LIGHT OF THE DECISIONS REFERRE D TO ABOVE. 20. THE NEXT COMPANY WHICH WAS CONSIDERED AS COMPAR ABLE BY THE TPO / ASSESSING OFFICER IS BODHTREE CONSULTING LTD (SEG). THIS COMPANY IS LISTED AT SL.NO.7 OF THE LIST OF COMPARABLES CHO SEN BY THE TPO. OBJECTION OF THE ASSESSEE IN REGARD TO CHOOSING THIS COMPANY AS A COMPARABLE WAS THAT THIS COMPANY IS NOT IN ITES, THIS COMPANY HAD MADE EXTRA-ORDINARY PROFITS, THIS COMPANY FAILS 75% ITES REVENUE FILTER , SEGMENTAL RESULTS WERE OBTAINED BY TPO BY ISSUE OF NOTICE U/S.133(6) OF TH E ACT WHICH WERE NOT AVAILABLE IN PUBLIC DOMAIN. 21. THE TPO HOWEVER HELD THAT SEGMENTAL PROFIT OF D ATA CLEANSING ACTIVITY ALONE WAS TAKEN FOR COMPARISON AND DATA CL EANSING ACTIVITY WAS IN ITES AND NOT SOFTWARE DEVELOPMENT. THE REPLY RECEI VED BY THE COMPANY IN THIS REGARD IN RESPONSE TO NOTICE U/S.133(6) OF THE ACT MENTIONED THAT ITS IT(TP)A NO.819/BANG/2011 PAGE 18 OF 25 SERVICES CAN BE CATEGORIZED AS ITES. WITH REGARD T O ABNORMAL PROFITS, THE TPO HELD THAT THE PROFITS OF THE ITES SEGMENT WAS O NLY 29.58% WAS CONSIDERED FOR COMPARISON AND CANNOT BE REGARDED AS EXTRA ORDINARY PROFIT. REGARDING THE PLEA OF THE ASSESSEE THAT THIS COMPAN Y FAILS 75% ITES REVENUE FILTER, THE TPO HELD THAT WHEN THE SEGMENTA L REVENUE OF DATA CLEANSING ALONE WAS CONSIDERED FOR COMPARISON, THE APPLICATION OF 75% REVENUE FROM ITES WAS AN IRRELEVANT FILTER AND THE FILTER NEED NOT BE APPLIED AT THE ENTITY LEVEL. 22. BEFORE THE DRP THE ASSESSEE REITERATED THE SUBM ISSIONS AS WERE MADE BEFORE THE TPO. THE DRP HOWEVER HAS NOT CONSI DERED ANY OF THE SUBMISSIONS BUT MERELY OBSERVED THAT THE TPO HAS GI VEN VALID REASONS FOR REGARDING THIS COMPANY AS A COMPARABLE. 23. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED SUBMISSIONS AS WERE MADE BEFORE THE TPO / DRP. 24. THE LEARNED DR BROUGHT TO OUR NOTICE THE DECISI ON OF THE ITAT, MUMBAI BENCH IN THE CASE OF WILLIS PROCESSING SERVI CE INDIA P. LTD., (SUPRA) WHEREIN THE TRIBUNAL IN PARA 30 OF ITS ORDE R HELD THAT THIS COMPANY WAS INTO ITES. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FROM THE FACTS AS NARRATED IN THE ORDER OF TPO IT IS CLEAR THAT BODHT REE CONSULTING LTD., HAD FOUR DISTINCT SOURCES OF REVENUE VIZ., (I) SOFTWARE DEVELOPMENT-OFFSHORE; (II) IT(TP)A NO.819/BANG/2011 PAGE 19 OF 25 DATA CLEANSING; (III) E-PAPER ADS; (IV) E-PAPER PRO CESSING. THE REVENUE FROM THESE ACTIVITIES ARE GIVEN IN TPOS ORDER. TH E NATURE OF SERVICES PERFORMED BY BODHTREE IN ITS DIVISION OF DATA CLEAN SING WAS CONFIRMED BY IT AS IN THE NATURE OF ITES. THE ASSESSEE DID NOT DIS PUTE THIS FACT BEFORE THE TPO. THE ASSESSEE TOOK A PLEA OF EXTRA-ORDINARY PR OFIT DUE TO HIVING OFF OF E-PAPER ACTIVITY. THE TPO HOWEVER HAS DEMONSTRATED THAT THE MARGIN OF DATA CLEANSING BUSINESS ALONE WAS BEING CONSIDERED FOR COMPARABILITY AND HENCE THE PLEA OF THE ASSESSEE WAS NOT SUSTAINABLE. THE DECISIONS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE CONCERNED, THE FACTS AS BROUGHT OUT BY THE TPO IN HIS ORDER ARE NO T DISCUSSED. IN THE CASE OF NXP SEMI CONDUCTORS INDIA PVT.LTD. ITA NO.1560/ BANG/2012 IN ITS ORDER THE TRIBUNAL AT PARA 15.3.1 & 15.3.2 HAS HELD THAT THE COMPANY PROFITS ARE FLUCTUATING AND THE SAME IS OWING TO REVENUE RECOGN ITION METHOD FOLLOWED BY BODHTREE LTD. THE TRIBUNAL ALSO OBSERVED THAT BO DHTREE LTD. WAS INTO SOFTWARE DEVELOPMENT AND NOT A PURE ITES COMPANY. IN OUR VIEW THE OBJECTIONS AND THE REASONS GIVEN BY THE TPO FOR CON SIDERING THIS COMPANY AS A COMPARABLE ARE DIFFERENT AND THE OBJECTIONS RA ISED BY THE ASSESSEE BEFORE TPO WERE ALSO DIFFERENT. ON THE FACTS AS IT TRANSPIRED BEFORE THE TPO AND THE ARGUMENTS OF THE ASSESSEE BEFORE TPO/DR P, WE ARE OF THE VIEW THAT THIS COMPANY WAS RIGHTLY REGARDED AS COMP ARABLE. 26. THE NEXT OBJECTION OF THE ASSESSEE IS WITH REGA RD TO THE TPO'S ACTION IN CONSIDERING ACCURATE DATA CONVERTERS LTD. , WHICH IS AT SL.NO.25 OF THE LIST OF COMPARABLES CHOSEN BY THE TPO. THE TPO FOR CHOOSING THIS IT(TP)A NO.819/BANG/2011 PAGE 20 OF 25 COMPANY AS A COMPARABLE HAS, IN HIS ORDER REFERRED TO THE FACT OF THE TPO HAVING CALLED FOR CERTAIN INFORMATION FROM THE AFOR ESAID COMPANY IN EXERCISE OF HIS POWERS U/S.133(6) OF THE ACT. IN R EPLY THE COMPANY HAD INFORMED THE TPO THAT IT WAS ENGAGED IN DATA PROCES SING ACTIVITY AND WAS NOT PROVIDING ANY SOFTWARE DEVELOPMENT SERVICES OR EXPORT OF SOFTWARE. THE TPO THEREFORE CONSIDERED THIS COMPANY AS IN THE BUSINESS OF ITES. THEREAFTER HE HAS ANALYSED THE FINANCIAL RESULTS OF THIS COMPANY AND EXPORT REVENUES OF THIS COMPANY AND HAS CONSIDERED THIS CO MPANY AS A COMPARABLE. THE COMPANY HAD FURNISHED ITS ANNUAL R EPORT TO THE TPO AND IT IS STATED SO BY THE TPO IN HIS ORDER. IN ITS OB JECTION BEFORE THE DRP, THE ASSESSEE SPECIFICALLY POINTED OUT THAT THE TPO DID NOT AFFORD ANY OPPORTUNITY TO THE ASSESSEE FOR ANALYZING THE BUSIN ESS AND PERFORMANCE OF THE COMPANY BEFORE INCLUDING IT AS A COMPARABLE. T HE ASSESSEE ALSO POINTED OUT THAT THE ANNUAL REPORT OF THIS COMPANY WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AND WAS ALSO NOT PROVIDED BY THE ASSE SSEE TO THE TPO. 27. THE DRP HOWEVER DID NOT CONSIDER THESE SUBMISSI ONS OF THE ASSESSEE AND MERELY OBSERVED THAT TPO HAS GIVEN VAL ID REASONS FOR CHOOSING COMPANIES AS COMPARABLE. 28. BEFORE US THE LIMITED PRAYER OF THE LEARNED COU NSEL FOR THE ASSESSEE WAS THAT THE ASSESSEE SHOULD BE GIVEN A COPY OF THE ANNUAL REPORT OF THIS COMPANY AND AFFORDED AN OPPORTUNITY OF EXPLAINING A S TO HOW THIS COMPANY IS NOT COMPARABLE. WE ARE OF THE VIEW THAT THE REQ UEST MADE BY THE IT(TP)A NO.819/BANG/2011 PAGE 21 OF 25 ASSESSEE HAS TO BE ACCEPTED IN VIEW OF THE LACK OF OPPORTUNITY PROVIDED BY THE TPO / DRP. ACCORDINGLY, THE TPO / ASSESSING OF FICER IS DIRECTED TO FURNISH A COPY OF THE ANNUAL REPORT OF THIS COMPANY TO THE ASSESSEE. THE ASSESSEE WILL THEREAFTER FURNISH HIS EXPLANATION AS TO WHETHER THIS COMPANY CAN BE CONSIDERED AS A COMPARABLE COMPANY OR NOT. THE TPO WILL THEREAFTER DECIDE THE COMPARABILITY OF THIS COMPANY AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THIS COMPANY. 29. THE ASSESSEE SEEKS TO CHALLENGE THE ACTION OF THE TPO IN CONSIDERING THE I SERVICES INDIA LTD., AS A COMPARABLE. THIS COMPANY IS LISTED AT SL.NO.18 OF THE LIST OF COMPARABLES CHOSE N BY THE TPO. FOR CHOOSING THIS COMPANY AS A COMPARABLE, THE TPO HAS MADE THE FOLLOWING OBSERVATIONS :- '33.18 ISERVICES INDIA PVT LTD (OP/TO FOR THE FY 2 006-07 - 49.47%) THE COMPANY WAS NOT PART OF THE COMPANIES CONSIDERE D BY THE TAXPAYER IN THE ACCEPT I REJECT MATRIX GIVEN AS APP ENDIX-D TO THE TP REPORT. HOWEVER, THE DATA OF THE COMPANY IS AVAI LABLE IN CAPITALINE DATABASE. THE ANNUAL REPORT WAS NOT AVAILABLE FOR TILE FY 200 6-07. RPT INFORMATION WAS NOT AVAILABLE. THUS NOTICE 133(6) N OTICE WAS ISSUED TO THE COMPANY. AS PER THE REPLY RECEIVED FR OM THE COMPANY AND THE ANNUAL REPORT SUBMITTED, IT IS SEEN THAT THE COMPANY IS INTO IT ENABLED SERVICES AND QUALIFIES A LL THE FILTERS APPLIED BY THE TPO. THUS THE COMPANY IS PROPOSED AS A COMPARABLE VIDE THIS OFFICE LETTER DATED 17-05-2010 . IN RESPONSE, THE TAXPAYER IN ITS LETTER DATED 28-06-2010 DID NOT OFFER ANY COMMENTS. THUS THE COMPANY IS CONSIDERED AS A COMPA RABLE. HOWEVER, THERE IS A MISTAKE IN THE COMPUTATION OF P LI OF THE COMPANY. THE SAME IS RECTIFIED AS UNDER : IT(TP)A NO.819/BANG/2011 PAGE 22 OF 25 DESCRIPTION AMOUNT (RS) OPERATING REVENUES 16,29,20,061 EXPENSES DEBITED TO P&L ACCOUNT 11,11,80,761 LESS: INTEREST . 14,80,537 LESS: EXCHANGE DIFFERENCE 6,42,614 LESS: MISCELLANEOUS EXPENSES WRITTEN OFF 55,880 OPERATING EXPENSES 10,90,01,730 OPERATING PROFIT (PBIT) 5,39,18,331 OP / TC (PLI) 49.47% THUS THE COMPANY IS CONSIDERED AS A COMPARABLE WITH THE ABOVE REVISED PLI OF 49.47% ON COST.' 30. THE ASSESSEE HAS NOT RAISED ANY SPECIFIC GROUND ON ADOPTING THIS COMPANY AS A COMPARABLE BEFORE THE DRP. BEFORE US , THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE TPO DID NOT FURNISH THE INFORMATION OBTAINED FROM THIS COMPANY IN EXERCISE OF HIS POWERS U/S.133(6) OF THE ACT. IT WAS FURTHER POINTED OUT THAT EVEN AS PER THE TPO, THE ANNUAL REPORT OF THIS COMPANY FOR F. Y. 2006-07 WAS NOT AVAILABLE. THE TPO HAS GONE BY THE DATA AVAILABLE ON CAPITA LINE D ATA BASE. THE LEARNED COUNSEL FOR THE ASSESSEE THEREFORE MADE A PRAYER TH AT THE QUESTION OF CONSIDERING THE AFORESAID COMPANY AS A COMPARABLE S HOULD BE REMANDED BACK TO THE TPO / ASSESSING OFFICER FOR FRESH CONSI DERATION AND THE ISSUE DECIDED IN THE LIGHT OF THE PUBLISHED ANNUAL REPORT FOR F. Y. 2006-07 AND ALSO ON THE BASIS OF THE INFORMATION FURNISHED BY T HIS COMPANY TO THE ASSESSING OFFICER IN RESPONSE TO NOTICE U/S.133(6) OF THE ACT. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF THE VIEW THAT THE SAME DESERVES TO IT(TP)A NO.819/BANG/2011 PAGE 23 OF 25 BE ACCEPTED. THE TPO / ASSESSING OFFICER WILL OBTA IN THE ANNUAL REPORT OF THE COMPANY FOR F. Y. 2006-07 AND ALSO FURNISH THE ASSESSEE COPIES OF THE SAME TOGETHER WITH THE INFORMATION OBTAINED BY THE TPO PURSUANT TO ISSUE OF NOTICE U/S.133(6) OF THE ACT. THE ASSESSEE WILL THEREAFTER FURNISH ITS REPLY AS TO WHY THIS COMPANY SHOULD NOT BE CONSIDERED AS A COMPARABLE COMPANY. THE TPO / ASSESSING OFFICER WILL THEREAFT ER DECIDE THE QUESTION OF CONSIDERING THIS COMPANY AS A COMPARABLE COMPANY AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 31. THE ASSESSEE IN THE GROUNDS OF APPEAL BEFORE TH E TRIBUNAL HAS ALSO PROJECTED ITS GRIEVANCE REGARDING THE ACTION OF THE LEARNED ASSESSING OFFICER AND HONORABLE DISPUTE RESOLUTION PANEL IN E XCLUDING WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT TELECOMMUNIC ATION CHARGES OF RS.2,39,12,226/- ON THE GROUND THAT THESE EXPENSES ARE ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA FROM THE EXPORT TURNOVER. IT IS THE PLEA OF THE ASSESSEE THAT AT ALL TIMES DURING THE RELEVANT PREVIOUS YEAR, IT WAS ENGAGED IN DEVELOPMENT OF COMPUTER SOFTWARE AND NOT IN RENDERING ANY TECHNICAL SERVICES. WITHOUT PREJUDICE TO ITS CONTE NTION THAT THE AFORESAID SUMS SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVE R WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT, THE ASSESSEE HAS ALSO MADE AN ALTERNATE PRAYER THAT EXPENSES THAT ARE REDUCED FROM THE EXPO RT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER AND IN THIS REGA RD HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) . IT(TP)A NO.819/BANG/2011 PAGE 24 OF 25 32. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DR ON THE ISSUES RAISED IN THIS REGARD. TAKING INTO CONS IDERATION THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) , WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO DIRECT THE ASSESSING OFFICER TO EXCLUDE TELECOMMUNICATION CHARGES INCURRED BE EXCLUDED BOT H FROM EXPORT TURNOVER AND TOTAL TURNOVER, AS HAS BEEN PRAYED FOR BY THE ASSESSEE IN THE ALTERNATIVE. IN VIEW OF THE ACCEPTANCE OF THE ALTE RNATIVE PRAYER, WE ARE OF THE VIEW THAT NO ADJUDICATION IS REQUIRED ON THE GR OUND WHETHER THE AFORESAID SUMS ARE REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER. 33. IN THE RESULT THE APPEAL BY THE ASSESSEE IS PAR TLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF MAY, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER ENCLOSURES: ANNEXURES I, II & III. BANGALORE, DATED, THE 26 TH MAY, 2015. /D S/ IT(TP)A NO.819/BANG/2011 PAGE 25 OF 25 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.
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