Appeal details
Counselvise Citation
[2014] 120 COUNSELVISE.COM (IT) 8060 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 10 month(s) 2 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
10-10-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
K
Next Hearing Date
29-09-2014
Assessment Year
2007-2008
Appeal Filed On
08-12-2011
Judgement Text
K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI N.K. BILLAIYA, AM AND SHRI AMIT SHUKLA, JM . . , , ! ' #./ I.T.A. NO.8290/ MUM/2011 ( / ASSESSMENT YEAR : 2007-08 STREAM INTERNATIONAL SERVICES PRIVATE LIMITED, MAXUS MALL, 4 TH FLOOR, FATAK ROAD, NEAR TIMBDA HOSPITAL, BHAYENDAR (W), THANE 400 101. / VS. ASSTT. COMMISSIONER OF INCOME TAX 7(2), AAYKAR BHAVAN, MUMBAI. % # ./ PAN : AAECS8569F ( ' %& / APPELLANT ) .. ( '(%& / RESPONDENT ) A PPELLANT BY SHRI S.N. SOPARKAR SHRI B.S. SOPARKAR DEPARTMENT BY SHRI S.D. SRIVASTAVA )* + !, / DATE OF HEARING : 29-09-2014 -./0 + !, / DATE OF PRONOUNCEMENT : [ / O R D E R PER N.K. BILLAIYA, A.M . : . . , THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ASSESSMENT ORDER PASSED IN PURSUANCE TO THE DIRECTIONS U/S 144C(5) O F THE INCOME TAX ACT, 1961 DATED 16-8-2011. 2. IN GROUND NO. 1, THE ASSESSEE IS AGGRIEVED BY TH E TREATMENT OF RENTAL INCOME EARNED ON LEASEHOLD PREMISES FROM M/S ACCENT URE SERVICES PVT. LTD. AS INCOME FROM HOUSE PROPERTY. ITA 8290/M/11 2 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN A.Y. 2006-0 7 IN ITA NO. 8997/MUM/2010 QUA GROUND NO. 2 OF THAT APPEAL AND D IRECTED THE A.O. TO TREAT THE RENTAL INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LD. D.R. FAIRLY CONCEDED TO THIS. 4. WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIBU NAL IN ITA NO. 8997/MUM/2010. WE FIND THAT THE TRIBUNAL HAS CONSID ERED THIS ISSUE AT PARA 4 OF ITS ORDER AND AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE TRIBUNAL FINALLY CONCLUDED BY HOLDING THAT IN SUCH A SITUATION, IT IS DIRECTED THAT THE SAME SHOULD BE INCLUDED UNDER THE HEAD IN COME FROM OTHER SOURCES. WITH THIS DIRECTION, THE TRIBUNAL RESTORE D THE MATTER TO THE FILE OF THE A.O. FOR COMPUTING THE INCOME AFTER ALLOWING TH E ELIGIBLE DEDUCTIONS AND ALLOWANCES AS PER THE RELEVANT PROVISIONS UNDER CHA PTER IV-F. THE TRIBUNAL HAS FURTHER DIRECTED THAT WHILE ALLOWING SUCH DEDUC TIONS, THE A.O. WILL ALSO ENSURE THAT NO DEDUCTION IS DOUBLY CLAIMED/ALLOWED, FIRSTLY, IN COMPUTING OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINES S OR PROFESSION AND THEN UNDER THE HEAD INCOME FROM OTHER SOURCES. AS NO D ISTINGUISHING FACTS/DECISIONS HAS BEEN BROUGHT BEFORE US, RESPECT FULLY FOLLOWING THE FINDINGS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITA NO . 8997/MUM/2010, THE MATTER IS RESTORED TO THE FILE OF THE A.O. FOR DOIN G THE NEEDFUL IN THE LIGHT OF THE FINDINGS GIVEN BY THE TRIBUNAL IN A.Y. 2006-07. GROUND NO. 1 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 5. GROUND NO. 2 HAS NOT BEEN PRESSED BY THE LD. COU NSEL FOR THE ASSESSEE AND ACCORDINGLY DISMISSED AS NOT PRESSED. 6. GROUND NO. 3 RELATES THE DISALLOWANCE U/S 14A OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND. THE A SSESSEE CLAIMED THAT IT HAS NOT CLAIMED ANY EXPENSES. THE ASSESSEE WAS ASKE D AS TO WHY SECTION 14A ITA 8290/M/11 3 READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962 SH OULD NOT BE INVOKED. THE ASSESSEE REPLIED THAT IT HAS NOT INCURRED ANY E XPENSES TO EARN SUCH DIVIDEND INCOME. THE A.O. DID NOT ACCEPT THIS SUBMI SSION AND PROCEEDED BY COMPUTING THE DISALLOWANCE AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. THE DISALLOWANCE WAS COMPUTED TAKING 0.5% OF AVERAGE INVESTMENT. THE A.O. PROPOSED TO DISALLOW RS. 16,55,850/-. THE MATTER WAS OBJECTED BEFORE THE DRP. THE DRP WAS OF THE OPINION THAT RUL E 8-D IS APPLICABLE FROM A.Y. 2008-09 FOLLOWING THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT. THE DRP W AS OF THE OPINION THAT THE DISALLOWANCE U/S 14A OF THE ACT HAS TO BE WORKED OU T ON A REASONABLE BASIS AND ACCORDINGLY DIRECTED THE A.O. TO DISALLOW 5%. H OWEVER, THE A.O. COMPLETED THE ASSESSMENT BY MAKING THE DISALLOWANCE @ 0.5% OF AVERAGE INVESTMENT AT RS. 16,55,850/-. BEFORE US, THE LD. C OUNSEL FOR THE ASSESSEE STATED THAT THE A.O. HAS NOT FOLLOWED THE DIRECTION S OF THE DRP. THE LD. D.R. RELIED UPON THE ASSESSMENT ORDER. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. IT IS A SETTLED POSITION OF LAW THAT APPLICATION OF RULE 8- D IS PROSPECTIVE AND IS APPLICABLE FROM A.Y. 2008-09. WE ALSO FIND THAT THE DRP HAS CONSIDERED THE DISALLOWANCE OF 5% TO BE REASONABLE. HOWEVER, THE A .O. HAS NOT APPRECIATED THE DIRECTIONS OF THE DRP CORRECTLY, MAY BE DIRECTI ONS WAS NOT CLEAR. THEREFORE, MODIFYING THE DIRECTIONS OF THE DRP, WE DIRECT THE A.O. TO RESTRICT THE DISALLOWANCE U/S 14A OF THE ACT TO 5% OF THE EX EMPT INCOME. GROUND NO. 3 IS ACCORDINGLY ALLOWED. 8. GROUND NO. 4 RELATES TO THE TRANSFER PRICING ADJ USTMENT OF RS. 6,40,58,995/-. 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTED THAT THE ASSESSEE HAS ENTERED INTO VARIOUS INTERNATIONAL TRA NSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES). A REFERENCE U/S 92C(1 ) OF THE ACT WAS MADE TO ITA 8290/M/11 4 THE TRANSFER PRICING OFFICER, MUMBAI FOR THE DETERM INATION OF THE ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANS ACTIONS. THE ASSESSEE HAS REPORTED THE FOLLOWING INTERNATIONAL TRANSACTIONS I N ITS FORM 3CEB:- SR NO. NATURE OF INTERNATIONAL TRANSACTIONS AMOUNT (RS) METHOD 1 RENDERING ECRM SERVICES 54,16,75,364/- TNMM 2 REIMBURSEMENT OF EXPENSES RECEIVED 36,22 ,707/- CUP 10. IN SO FAR AS RENDERING ECRM SERVICES, THE ASSES SEE HAS SELECTED THE FOLLOWING COMPANIES AS ITS COMPARABLES AND THEIR UP DATED MARGINS ARE AS FOLLOWS:- SR NO. NAME OF THE COMPANY MARGINS 1 ACE SOFTWARE EXPORTS LTD. -6.79% 2 ASK ME INFO HUBS LTD. 5.6% 3 C S SOFTWARE ENTERPRISE LTD. N.A 4 COSMIC GLOBAL LTD. 11.75% 5 MAPLE E SOLUTIONS LTD. 34.32% 6 TRANSWORKS INFORMATION SERVICES LTD. (ADITYA BIRLA MANICS WORLDWIDE LTD.) 12.44% 7 TRITON CORPN. LTD. 32.36% 8 GALAXY COMMERCIAL LTD. 14.36% 9 CMC LTD. (SEG) 31.92% 10 DATAMATICS SOFTWARE PVT. LTD. (SEG) 3.14% 11 GOLD STONES TELESERVICES LTD. (SEG) (FORMERLY GOLD STONE TELESERVICES LTD.) -68.25% 12 NATIONAL SECURITIES DEPOSITORY LTD. (SEG) 29.17% DURING THE COURSE OF THE PROCEEDINGS BEFORE THE TPO , THE ASSESSEE WAS GIVEN A SET OF 25 COMPANIES INVOLVED IN ITES SERVICE ACTI VITY WHICH WERE SELECTED BY THE DEPARTMENT. THE ASSESSEE ACCEPTED 13 COMPANIES WHILE OBJECTIONS WERE RAISED WITH REFERENCE TO NINE COMPANIES. AFTER CON SIDERING THE OBJECTIONS AND THE SUBMISSIONS, THE TPO SELECTED FOLLOWING COMPANI ES FROM THE LIST OF COMPANIES SELECTED BY THE DEPARTMENT. THE FINAL LI ST OF COMPANIES READ AS UNDER:- ITA 8290/M/11 5 SR. NO. NAME OF THE COMPANY MARGINS 1 ACE SOFTWARE EXPORTS LTD. -6.79 2 COSMIC GLOBAL LTD. 11.75% 3 MAPLE E SOLUTIONS 34.32% 4 TRANSWORKS INFORMATION SERVICES LTD. (ADITYA BIRLA MANICS WORLDWIDE LTD.) 12.44% 5 TRITON CORPN. LTD. 32.36% 6 CMC LTD. (SEG.) 31.92% 7 DATAMATICS SOFTWORD PVT. LTD. (SEG.) 3.14% 8 ACCENTIA TECHNOLOGIES LTD. 38.26 9 ALLSEC TECHNOLOGIES LTD. 27.31 10 APEX KNOWLEDGE SOLUTIONS LIMITED 12.83 11 APOLLO HEALTHSTREET LIMITED -13.55 12 ASIT C MEHTA FINANCIAL SERVICES LIMITED 24.21 13 DATAMATIC FINANCIAL SERVICES LIMITED (SEG) 5.07 14 FLEXTRONICS SOFTWARE SYSTEMS LIMITED (SEG) 14.54 15 GENESYS INTERNATIONAL CORPORATION LIMITED 13.35 16 INFOSYS BPO LIMITED 28.78 17 ISERVICES INDIA PRIVATE LIMITED 50.27 18 R SYSTEMS INTERNATIONAL LIMITED (SEG) 20.18 19 SPANCO LIMITED (SEG) 25.81 20 TRITON CORP. LIMITED 34.93 21 BODHTREE CONSULTING LIMITED 29.58 22 CALIBER POINT BUSINESS SOLUTION 21.26 23 ECLERX SERVICES LTD. 90.43 24 INFORMED TECHNOLOGIES LTD. 35.56 25 MOLDTEC TECHNOLOGIES LTD. 113.49 26 VISHAL INFORMATION TECHNOLOGIES LTD. 51.19 27 WIPRO LTD. 29.70 AVERAGE MEAN 28.60 THE TPO FINALLY CONCLUDED BY STATING THAT THE ASSES SEES OP/TC MARGIN IS LESS COMPARED TO THE AVERAGE MEAN OF THE MARGIN OF THE C OMPARABLE COMPANIES WHICH IS 28.60% WHEREAS ASSESSEES OPERATING PROFIT MARGIN AS CLAIMED BY IT IS 15.45%. THE ADJUSTMENT OF RS. 6,40,58,995/- WAS ACCORDINGLY MADE. OBJECTIONS WERE RAISED BEFORE THE DRP BUT WITHOUT A NY SUCCESS. AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OBJEC TED TO THE INCLUSION OF 15 COMPANIES. THE LD. COUNSEL FOR THE ASSESSEE ARGUED AT LENGTH EXPLAINING WHY ITA 8290/M/11 6 THESE COMPANIES SHOULD NOT BE COMPARED AS COMPARABL E CASES POINTING OUT REASONS FOR THE EXCLUSION IN RESPECT OF EACH AND EV ERY COMPANY. 12. PER CONTRA, THE LD. D.R. RELIED UPON THE FINDIN GS OF THE LOWER AUTHORITIES. 13. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW AND THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE IN RESPECT OF EACH COMPARABLE COMPANIES OBJECTED BY THE ASSESSEE. LET US TAKE TH E COMPARABLE COMPANIES ONE BY ONE:- (I) MAPLE ESOLUTIONS LTD. :- THE OP/TC OF THIS COMPANY IS 34.32%. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS C OMPANY WAS UNDER SERIOUS INDICTMENT IN FRAUD CASES. A PERUSAL OF THE ORDER OF THE TRIBUNAL FOR A.Y. 2006-07 IN ITA NO. 8997/MUM/2010 SHOW THAT THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES. RESPECT FULLY FOLLOWING THE PRECEDENT, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. (II) TRITON CORP. LTD.: - THE OP/TC OF THIS COMPANY IS 32.36%. IT IS THE S AY OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS COMPA NY ALSO DESERVES TO BE EXCLUDED AS THE DIRECTORS OF THIS COMPANY WERE I NVOLVED IN FRAUD, THEREFORE, FINANCIAL RESULTS OF THE COMPANY ARE NOT RELIABLE. IN SUPPORT, RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. IN ITA NO. 1961/HYD/2011, CRM SERVICES INDIA (P) LTD. IN ITA N O. 4068/(DEL)/2009, AVINCON INDIA PVT. LTD. IN ITA NO. 1989/MUM/2011 AND MARKET TOOLS RESEARCH PVT. LTD. ON ITA NO. 2066 /HYD/2011. WE HAVE PERUSED THE DECISIONS RELIED UPON BY THE LD. C OUNSEL FOR THE ASSESSEE. WE FIND THAT WHENEVER A COMPANY OR ITS DI RECTORS ARE FOUND TO BE INVOLVED IN FRAUD, THE CO-ORDINATE BENCHES HAVE TAKEN A CONSISTENT VIEW OF EXCLUDING SUCH COMPANY FROM THE FINAL LIST OF COMPARABLES AS THE FINANCIAL RESULTS ARE NOT RELIABLE. RESPECTFULL Y FOLLOWING THIS ITA 8290/M/11 7 CONSISTENT VIEW TAKEN BY THE TRIBUNAL, WE DIRECT TH E EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. (III) CMC LIMITED (SEG): - THE OP/TC OF THIS COMPANY IS AT 31.92%. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THA T THE RELATED PARTY TRANSACTION OF THIS COMPANY IS 58% TO 59%. THE LD. COUNSEL FOR THE ASSESSEE FURTHER ARGUED THAT THIS COMPANY HAS LOW E MPLOYEE COST TO SALES, THEREFORE, SHOULD NOT BE CONSIDERED AS A COM PARABLE. WE FIND THAT THIS COMPANYS RELATED PARTY TRANSACTIONS ARE IN THE RANGE OF 58% TO 59%. IT IS ALSO A FACT THAT THIS COMPANY HAS LOW EMPLOYEE COST TO SALES AT 17.66% AS COMPARED TO THAT OF THE ASSESSEE WHICH IS 49.34%. ON BOTH COUNT, IN OUR CONSIDERED OPINION, THIS COMP ANY DESERVES TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. WE DI RECT ACCORDINGLY. (IV) ACCENTIA TECHNOLOGIES LTD. :- THE OP/TC OF THIS COMPANY IS 38.26%. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS C OMPANY AMALGAMATED WITH TWO OF ITS SUBSIDIARIES PURSUANT TO THE ORDER OF THE COURT BECAUSE OF WHICH THE IMMEDIATE EFFECT OF THE AMALGAMATION/M ERGER IS REFLECTED ON THE OPERATING INCOME, EXPENSES AND PBIT. THIS AM OUNTS TO EXTRAORDINARY EVENTS AND THEREFORE THE COMPANY NEED S TO BE EXCLUDED. THE CO-ORDINATE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. IN ITA NO . 1964/HYD/2011 AND IN THE CASE OF ZAVATA INDIA PRIVATE LIMITED IN ITA NO. 1781/HYD/2011 HAS TAKEN A VIEW THAT EXTRAORDINARY E VENTS LIKE MERGER AND DE-MERGER WILL IMPACT PROFITABILITY OF COMPANIE S AND THEREFORE SHOULD BE EXCLUDED. WE ALSO FIND THAT THE SEGMENTAL DATA IS NOT AVAILABLE AND THEREFORE WHERE THERE IS NO SEGMENTAL DATA, THE OVERALL RESULT DECLARED BY A COMPANY CANNOT PER SE BE APPLI ED FOR PURPOSES OF TAKING COMPARISON. A SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL IN THE CASE OF ROCHE DIAGNOSTICS INDIA PVT. LTD. IN ITA N O. 4127/MUM/2009. WE ALSO FIND THAT THIS COMPANY WAS REJECTED BY THE DRP IN ASSESSEES OWN CASE FOR A.Y. 2009-10 ON ACCOUNT OF NON-AVAILAB ILITY OF SEGMENT- ITA 8290/M/11 8 WISE RESULTS. CONSIDERING THE FACTS IN THE LIGHT O F THE JUDICIAL DECISIONS DISCUSSED HEREINABOVE, WE DIRECT THE EXCLUSION OF T HIS COMPANY FROM THE FINAL LIST OF COMPARABLES. (V) ASIT C. MEHTA FINANCIAL SERVICES LTD. (SEG):- THE OP/TC OF THIS COMPANY IS 24.21%. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS COMPANY HAS LOW EMPLOYEE COST TO SALES AS COMPARED TO THAT OF THE ASSESSEE. RELIANCE WAS PLACED ON THE DECISION OF THE HYDERABA D BENCH OF THIS TRIBUNAL IN THE CASE OF ZAVATA INDIA PRIVATE LIMITE D IN ITA NO. 1781/HYD/2011. WE FIND FORCE IN THE CONTENTION OF T HE LD. COUNSEL FOR THE ASSESSEE. THIS COMPANYS EMPLOYEE COST TO SALES IS AT 24.78% AS COMPARED TO THAT OF THE ASSESSEE WHICH IS 49.34%. A S THE EMPLOYEE COST TO SALES IS FOUND TO BE MUCH LOWER THAN THAT OF THE ASSESSEE, WE DIRECT FOR THE EXCLUSION OF THIS COMPANY FROM THE FINAL LI ST OF COMPARABLES. (VI) INFOSYS BPO LTD.:- THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE TURNOVER OF THIS COMPANY IS EXTREMELY HIGH AS COMPA RED TO THAT OF THE ASSESSEE. MOREOVER, INFOSYS IS A BRAND AND COMMAND S PREMIUM IN THE MARKET, THEREFORE, THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. IT IS AN UNDISPUTED FACT THAT INFOSYS IS A BRAND AND COMMANDS PREMIUM IN THE MARKET. IT IS ALSO A FACT T HAT THE TURNOVER FOR THE YEAR OF THIS COMPANY WAS RS. 649.56 CRORES AS A GAINST THAT OF THE ASSESSEE OF RS. 54.17 CRORES WHICH IS ALMOST 12 TIM ES OF THE ASSESSEE. INFOSYS BPO LTD. IS A JOINT COMPANY AND IT ASSUMES SIGNIFICANT BUSINESS RISKS UNLIKE THE ASSESSEE WHO DOES NOT ASS UME SIGNIFICANT RISKS THEREFORE DESERVES TO BE EXCLUDED FROM THE FI NAL LIST OF COMPARABLES. WE DIRECT ACCORDINGLY. A SIMILAR VIEW WAS TAKEN BY THE HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF C3I SUPPORT SERVICES PVT. LTD. IN ITA NO. 2183/HYD/2011. (VII) SPANCO LTD. (SEG.):- THE OP/TC OF THIS COMPANY IS 25.81%. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE TPO HAS NO T PROVIDED REPORT OF THIS COMPANY AND REQUESTED FOR NECESSARY DIRECTION. THE LD. COUNSEL FOR ITA 8290/M/11 9 THE ASSESSEE FURTHER STATED THAT THE COMPANY ALSO H AS VERY LOW EMPLOYEE COST TO SALES AS COMPARED TO THAT OF THE A SSESSEE. IN OUR CONSIDERED OPINION, THIS COMPANY NEEDS TO BE RESTOR ED BACK TO THE FILE OF THE A.O./TPO WITH A DIRECTION TO PROVIDE REPORT OF THIS COMPANY TO THE ASSESSEE AND DECIDE THE ISSUE AFRESH WHETHER TH IS COMPANY PASSES THE TEST OF BEING IN THE FINAL LIST OF THE COMPARAB LES. (VIII) TRITON CORP. LTD.:- THIS COMPANY HAS BEEN REPEATED AGAIN. WE H AVE CONSIDERED THIS COMPANY AT SL NO. 2 HEREINABOVE, TH EREFORE, REQUIRES NO SEPARATE ADJUDICATION. (IX) BODHTREE CONSULTING LTD. :- THE OP/TC OF THIS COMPANY IS 29.58%. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS COMPA NY HAS EXTRAORDINARY PROFIT DUE TO HIVING OFF OF E-PAPER BUSINESS AND WE B BASED ASSESSMENT SERVICES TO SEPARATE COMPANIES. THE LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THAT THIS COMPANY IS FINALLY NOT COMPARABLE AS THE COMPANY IS IN THE SOFTWARE DEVELOPMENT. FURTHER, THIS COMPANY HAS NO SEGMENTAL REPORTING. ON PERUSAL OF THE ACCOUNTS OF THIS COMPA NY, WE FIND THAT THE COMPANY HAS EARNED EXTRAORDINARY PROFIT DURING THE YEAR DUE TO HIVING OFF OF E-PAPER BUSINESS AND WEB BASED ASSESSMENT SE RVICES TO SEPARATE COMPANY. IT APPEARS THAT THE COST HAS BEEN TRANSFER RED TO NEW COMPANIES WHILE INCOME IS RETAINED BY THIS COMPANY. WE FURTHER FIND THAT THIS COMPANY IS ENGAGED IN SINGLE SEGMENT HENC E IT IS FUNCTIONALLY DIFFERENT. AS THE COMPANY HAS HIVED OFF ITS BUSINE SS, IT IS A CASE OF DE- MERGER. IN OUR CONSIDERED OPINION, THIS ISSUE NEEDS TO BE CONSIDERED BY THE A.O./TPO. WE ACCORDINGLY RESTORE THIS COMPANY BACK TO THE FILE OF THE A.O./TPO WITH A DIRECTION TO VERIFY THE CONTENT IONS OF THE ASSESSEE THAT THE COMPANY IS IN ITES AND WHETHER SEGMENTAL D ATA ARE AVAILABLE OR NOT AND DECIDE AFRESH WHETHER THIS COMPANY NEEDS TO BE CONSIDERED IN THE FINAL LIST OF COMPARABLES. (X) CALIBER POINT BUSINESS SOLUTIONS LTD. :- AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS COMPANY DESERVES TO BE REJECTED AS THE ITA 8290/M/11 10 RELATED PARTY TRANSACTION IS MORE THAN 25% WHICH IS A FILTER ADOPTED BY THE TPO HIMSELF. WE FIND THAT THE DRP HAS NOT CONSI DERED THIS OBJECTION BECAUSE IT WAS OF THE OPINION THAT RELATE D PARTY TRANSACTION IS MAINLY FOR REIMBURSEMENTS AND RECOVERIES AND THEREF ORE WOULD NOT AFFECT THE COMPANY. WE FIND THAT AN IDENTICAL ISSU E CAME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2006-07 IN ITA NO. 8997/MUM/2010 WHEREIN THE TRIBUNAL HAS REJECTED THI S CONTENTION OF THE DEPARTMENT. THE TRIBUNAL AT PARA 13 OF ITS ORDE R HAS OBSERVED THAT A PURE REIMBURSEMENT OF EXPENSES BY ONE AE TO ANOTH ER AE IS VERY MUCH A TRANSACTION AS PER SECTION 92F(V) AND CONS EQUENTLY IS EQUALLY AN INTERNATIONAL TRANSACTION AS PER SECTION 92B REQUIR ING CONSIDERATION AS PER SECTION 92 OF THE ACT. THESE OBSERVATIONS WERE IN RELATION TO A COMPANY NAMELY DATAMATICS FINANCIAL SERVICES LIMITE D. WE THEREFORE DO NOT FIND ANY FORCE IN THE REJECTION OF THE OBJEC TION BY THE DRP IN LINE WITH THE OBSERVATIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07. WE DIRECT FOR THE EXCLUSION OF THIS COMPA NY FROM THE FINAL SET OF COMPARABLE. (XI) ECLERX SERVICES LTD. & MOLD-TEK TECHNOLOGIES LTD.:- FOR BOTH THESE COMPANIES, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THESE COMPANIES ARE FUNCTIONALLY DIFFERENT, THEREFORE, CA NNOT BE CONSIDERED AS COMPARABLES. WE FIND THAT THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. IN ITA NO. 7466/MUM/2012 HAS REJECTED ECLERX SERVICES LIMITED BECAUSE SOLUTIONS OFFERED BY THIS COMPANY INCLUDED DATA ANA LYTICS, OPERATIONS, MANAGEMENT, AUDITS AND RECONCILIATION, METRICS MANA GEMENT AND REPORTING SERVICES. THE SPECIAL BENCH OPINED THAT I F THESE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPANY FOR ITS AES ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES LIMITED AND MOLD-TEK TECHNOLOGIES LTD., IT IS DIFFICULT TO FIND OUT ANY RELATIVELY EQUAL DEGREE OF COMPARABILITY AND THE SAID ENTITIES CANNOT BE TAKEN AS COMPARABLE ITA 8290/M/11 11 FOR THE PURPOSE OF DETERMINING ALP OF THE TRANSACTI ONS OF THE ASSESSEE COMPANY WITH ITS AES. FACTS BEING IDENTICAL, RESPE CTFULLY FOLLOWING THE OBSERVATIONS OF THE SPECIAL BENCH (SUPRA), WE DIREC T THAT THESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF FINAL COMPARA BLES. (XII) INFORMED TECHNOLOGIES INDIA LIMITED: - THE LD. COUNSEL FOR THE ASSESSEE STATED THAT FIRSTLY THIS COMPANY IS NOT FUNCTIONALL Y COMPARABLE AND SECONDLY IT HAS A LOW EMPLOYEE COST TO SALES AS COM PARED TO THAT OF THE ASSESSEE. WE HAVE ALREADY HELD THAT IN RELATION TO THE REJECTION OF THE COMPANY AS COMPARABLE ON THE GROUND OF LOW COST TO SALES, WE FIND THAT IN THIS COMPANY, THE EMPLOYEE COST TO SALES IS 27.7 7% AS COMPARED TO THAT OF THE ASSESSEE WHICH IS 49.34%. FOLLOWING OUR OWN VIEW AND OTHER JUDICIAL DECISIONS DISCUSSED ELSEWHERE IN THIS MATT ER, WE DIRECT FOR EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARAB LES. (XIII) VISHAL INFORMATION TECHNOLOGIES LTD.:- WE FIND THAT THIS COMPANY WAS EXCLUDED FROM THE FINAL LIST OF COMPARABLES IN A.Y. 2006-07 BY THE TRIBUNAL IN ITA NO. 8997/MUM/2010. THE ISSUE HAS B EEN DISCUSSED BY THE TRIBUNAL AT PARA 19, 20 & 21 OF ITS ORDER. AS NO DISTINGUISHING FACT HAS BEEN BROUGHT ON RECORD BEFORE US, RESPECTF ULLY FOLLOWING THE FINDINGS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2006-07, WE DIRECT FOR THE EXCLUSION O F THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. (XIV) WIPRO LTD. (SEG):- THE FACTS OF THIS COMPANY ARE SIMILAR TO T HE FACTS OF INFOSYS BPO LTD. CONSIDERED BY US AT SL NO. (VI). F OR THE SIMILAR REASON, THIS COMPANY IS ALSO DIRECTED TO BE EXCLUDED FROM T HE FINAL LIST OF COMPARABLES. 14. TO COMPLETE THE ADJUDICATION, WE DIRECT THE A.O ./TPO TO RECOMPUTE/RE- DETERMINE THE ARMS LENGTH PRICE AS PER OUR DIRECTI ONS GIVEN HEREINABOVE. BEFORE CLOSING, WE FIND THAT THE ASSESSEE HAS ALSO TAKEN CERTAIN ADDITIONAL GROUNDS. ITA 8290/M/11 12 15. GROUND NO. 1.2 & 1.3 RELATES TO THE TAXABILITY OF RENTAL INCOME. THESE GROUNDS ARE TREATED AS ALLOWED QUA OUR DECISION TO GROUND NO. 1 OF THIS APPEAL. 16. GROUND NO. 3.3 RELATES TO THE DETERMINATION OF ARMS LENGTH PRICE. THIS ISSUE WILL BE CONSIDERED BY THE A.O. WHILE RE-DETER MINING THE ALP AS PER OUR DIRECTIONS GIVEN HEREINABOVE. 17. GROUND NO. 5 RELATES THE GRANT OF SHORT CREDIT OF TDS. WE DIRECT THE A.O. TO ALLOW THE CREDIT OF TDS AS PER THE PROVISIO NS OF LAW AFTER DUE VERIFICATION. 18. GROUND NO. 6 RELATES TO THE LEVY OF INTEREST U/ S 234B OF THE ACT. THE LEVY OF INTEREST IS MANDATORY THOUGH CONSEQUENTIAL. WE ORDER ACCORDINGLY. 19. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2014. + -./0 1 2#3 10-10-2014 . + 4* SD/- SD/- (AMIT SHUKLA) (N.K. BILLAIYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER #* MUMBAI ; 2# DATED - 10-10-2014. [ ).../ R.K. , SR. PS ITA 8290/M/11 13 ..0!'# $ %&'( )'(& / COPY OF THE ORDER FORWARDED TO : 1. ' %& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ! (' ) / THE DRP II, MUMBAI 4. ! / DIRECTOR OF INCOME TAX (IT), CONCERNED, MUMBAI 5. G)H4 'IJ , ! ' , IJ!0 , #* / DR, ITAT, MUMBAI K BENCH 6. 4KL M* / GUARD FILE. !'# * / BY ORDER, (G' ' //TRUE COPY// +/*, - ( DY./ASSTT. REGISTRAR) , #* / ITAT, MUMBAI
