Appollo Health Street Ltd., Hyderabad V. ITO, Hyderabad

ITA 831/HYD/2009

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4411 (ITAT-HYDERABAD)
• Duration Of Justice: 7 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-10-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 03-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction; Question of law; Wholly owned subsidiary
• Section: 45(2); 143(3); 92A; 10AA; 10B; 92

Judgement Text

ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 1 OF 22 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.831/HYD/2009 (ASSESSMENT YEAR:2004-05) M/S SUTHERLAND HEALTHCARE SOLUTIONS LTD HYDERABAD PAN: AADCA 4278 N VS INCOME TAX OFFICER CIRCLE 1(1) HYDERABAD ITA NO.835/HYD/2009 (ASSESSMENT YEAR:2004-05) INCOME TAX OFFICER CIRCLE 1(1) HYDERABAD VS M/S SUTHERLAND HEALTHCARE SOLUTIONS LTD HYDERABAD PAN: AADCA 4278 N FOR ASSESSEE : SHRI RAVI BHARADWAJ FOR REVENUE : SMT. U. MINICHANDRAN, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. BOTH ARE CROSS APPEALS FOR THE A.Y 2004-05 AGAINST THE ORDER OF THE CIT (A) DATED 24.4.2009. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, EARLIER KNOWN AS M/S. APOLLO HEALTH STREET LTD, ENG AGED IN THE BUSINESS OF HEALTHCARE RELATED INFORMATION TECHNOLO GY AND I.T. ENABLED SERVICES, FURNISHED ITS RETURN OF INCOME FO R THE A.Y 2004- 05 ON 1.11.2004 DECLARING TOTAL LOSS OF RS.42,75,01 0. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A O OBSERVED DATE OF HEARING : 17.11.2016 DATE OF PRONOUNCEMENT : 30.11.2016 ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 2 OF 22 THAT THE ASSESSEE HAS ENTERED INTO AN INTERNATIONAL TRANSACTION WITH ITS AE WHICH IS THE WHOLLY OWNED SUBSIDIARY CO MPANY OF THE ASSESSEE IN USA. THE COMPUTATION OF ARMS LENGTH PR ICE (ALP) WAS REFERRED TO THE TPO U/S 92CA OF THE ACT. THE AS SESSEE ADOPTED THE CUP METHOD AS THE MOST APPROPRIATE METH OD AND HAS ADOPTED THE FOREIGN COMPANY AE AS THE TESTED PARTY AND THE US COMPANIES AS COMPARABLES. IT ARRIVED AT THE MARGIN OF THE COMPARABLES AT 14.64% AS AGAINST THE ASSESSEES MARG IN OF 12.90% AND THEREFORE, TREATED THE INTERNATIONAL TRA NSACTION TO BE AT ALP. THE TPO, HOWEVER, REJECTED THE ASSESSEES T .P. STUDY, ON THE GROUND THAT THE FOREIGN PARTY CANNOT BE TAKEN A S A TESTED PARTY. ACCORDING TO THE TPO, THE HOLDING COMPANY, I N INDIA, BEARS MOST OF THE RISKS, THE ASSETS & FUNCTIONS ETC., AND THEREFORE, THE INDIAN COMPANY I.E. THE ASSESSEE SHOULD BE TAKEN AS THE TESTED PARTY AND INDIAN COMPANIES ARE TO BE TAKEN AS COMPA RABLES. HE, THEREFORE, REJECTED THE TESTED PARTY SELECTED BY TH E ASSESSEE AND TREATED THE ASSESSEE AS A TESTED PARTY. HE ALSO RE JECTED THE CUP METHOD ADOPTED BY THE ASSESSEE ON THE GROUND THAT T HERE IS NO ADEQUATE DATA TO APPLY CUP METHOD OR OTHER METHODS. HE CONSIDERED THE TNMM AS THE MOST APPROPRIATE METHOD. THEREAFTER, HE PROCEEDED TO CONSIDER THE COMPARABLE COMPANIES IN INDIA AND ARRIVED AT 22 COMPANIES AND AFTER CONDUCT ING THE FAR ANALYSIS OF THE COMPARABLES, HE ARRIVED AT THE MEAN MARGIN OF THE COMPARABLES AND COMPUTED THE ADJUSTMENT U/S 92CA OF THE ACT AT RS.88,96,190. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT (A) AGAINST THE REJECTION OF THE FOREIGN COMPAN Y AS A TESTED PARTY AND ALSO AGAINST THE ALP DETERMINED BY THE TP O. THE CIT ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 3 OF 22 (A), HOWEVER, CONFIRMED THE ASSESSMENT ORDER PASSED CONSEQUENT TO THE TRANSFER PRICING ORDER. HOWEVER, WHILE CONFI RMING THE ORDER OF THE AO, THE CIT (A) HAS DIRECTED EXCLUSION OF TH E FOLLOWING COMPANIES FROM THE FINAL LIST OF COMPARABLES: I) M/S. VISHAL INFORMATIONAL TECHNOLOGIES LTD II) M/S. GOLDSTONE TELESERVICES LTD III) M/S. ALLSEC TECHNOLOGIES LTD 4) AGAINST THE ORDER OF THE CIT (A), BOTH THE ASSES SEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. WHILE THE REVENUE IS IN APPEAL AGAINST THE EXCLUSION OF CERTAIN COMPARAB LE COMPANIES CITED ABOVE FROM THE FINAL LIST OF COMPARABLES AND ALSO AGAINST THE DIRECTION ALLOWING A STANDARD DEDUCTION (+_) 5% TAX, THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE CIT (A) CONFI RMING THE ORDER OF THE TPO REJECTING THE FOREIGN COMPANY AS A TESTED P ARTY AND ALSO AGAINST THE T.P. ADJUSTMENT APPROVED BY THE CIT (A) . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, SUTHERLAND HEALTHCARE SOLUTIONS PRIVATE LIMITED (HEREINAFTER REFERRED TO AS 'THE APPELLANT') RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)- III DATED APRIL 24, 2009 (HEREINAFTER REFERRED TO AS 'CIT(APPEALS)') ON THE FOLLOWING GROUNDS. 1. THE LD. CIT(APPEALS) ERRED IN FACTS AND IN LAW WHILE DISPOSING THE APPEAL AGAINST THE ORDER OF LD. ASSESSING OFFICER (' AO') PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ('ACT'). 2. THE LD. CIT(APPEALS) ERRED IN CONFIRMING THAT THE DEDUCTION UNDER SECTION 10A OF THE ACT IS ALLOWABLE FROM THE TOTAL INCOME OF THE BUSINESS AND NOT FROM THE PROFIT OF THE UNDERTAKING. ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 4 OF 22 3. THE LD. CIT (APPEALS) ERRED IN LAW AND IN FACTS IN CONFIRMING THAT LD. TPO'S REJECTION OF THE OVERSEAS ASSOCIATED ENTERPRISE OF THE APPELLANT AS THE TESTED PARTY DISREGARDING THE FUNCTIONAL PROFILE AND BUSINESS MODEL OF THE APPELLANT. 4. THE LD. CIT (APPEALS) ERRED IN LAW AND IN FACTS IN CONFIRMING THAT LD. TPO'S REJECTION OF THE FOREIG N COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT TO DEMONSTRATE THAT THE INTERNATIONAL TRANSACTIONS HAVE BEEN CARRIED AT ARMS LENGTH BASIS. 5. THE LD. CIT (APPEALS) ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THAT AS PER THE OPERATING MARGINS COMPUTED BY THE TPO, THE TRANSACTIONS WITH ASSOCIATED ENTERPRISES ARE CARRIED OUT AT SIMILAR OPERATING MARGIN AS THAT OF NON ASSOCIATED ENTERPRISES IMPLYING THAT THE TRANSACTIONS WITH ASSOCIATED ENTERPRISES WERE CARRIED AT ARMS LENGTH. 6. THE LD. CIT(APPEALS) ERRED IN NOT APPRECIATING THAT THE LD. TPO ERRED IN LAW AND IN FACTS IN NOT CONSIDERING THE SUBMISSIONS OF THE APPELLANT WITH RESPECT TO THE SELECTION OF COMPARABLE DATA AND ARBITRARILY SELECTING COMPARABLE COMPANIES. 7. THE LD. CIT (APPEALS) ERRED IN NOT APPRECIATING THAT THE LD. TPO ERRED IN LAW AND IN FACTS IN APPLYING SELECTION CRITERIA FOR REJECTING ALL THE L OSS MAKING AND LOW MARGIN COMPARABLES FOR VARIOUS REASONS AMOUNTING TO CHERRY PICKING OF COM PARABLES WHICH IS NOT IN LINE WITH THE ACT. 8. THE LD. CIT(APPEALS) ERRED IN LAW AND IN FACTS IN CONFIRMING THAT THE LD. TPO 'S REJECTION OF THE APPELLANT'S BIFURCATION OF COST BETWEEN THE TRANSACTIONS WITH ASSOCIATED AND NON ASSOCIATED ENTERPRISE AND CONSIDERING SALES AS BASIS OF APPORTIONMENT OF COST. EACH OF THE ABOVE GROUND IS INDEPENDENT AND WITHOUT PREJUDICE TO THE OTHER GROUNDS OF APPEAL PREFERRED BY THE APPELLANT. ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 5 OF 22 THE APPELLANT CRAVES, TO LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE APPELLATE AUTHORITY TO DECIDE THIS APPEAL ACCORDING TO THE LAW. FURTHER VIDE LETTER DATED 31.12.2015 THE ASSESSEE HA S RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL: ADDITIONAL GROUND OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A)/LEARNED TPO ERRED IN, 9. NOT UNDERTAKING AN OBJECTIVE COMPARATIVE ANALYSIS AND INTERALIA SELECTING THE FOLLOWING COMPARABLE COMPANIES. I) GOLDSTONE TELESERVICES LTD II) TRICOM INDIA LTD III)FORTUNE INFOTECH LTD IV) ULTRAMARINE & PIGMENTS LTD 10. NOT UNDERTAKING AN OBJECTIVE COMPARATIVE ANALYSIS AND INTERALIA REJECTING THE FOLLOWING COMPARABLE COMPANIES: I) ACE SOFTWARE EXPORTS LTD II) CS SOFTWARE ENTERPRISES LTD III) NORTHGATE BPO SERVICES LTD IV) BNKE SOLUTIONS PVT LTD V) SAFFRON GLOBAL LTD VI) SUPRAWIN TECHNOLOGIES LTD VII) ASIAN CERC INFORMATION TECHNOLOGY LTD 11. NOT GRANTING TDS CREDIT OF RS.4,01,357. ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 6 OF 22 5. AT THE TIME OF HEARING, THE REVENUE HAS RAISED A N OBJECTION ABOUT THE MAINTAINABILITY OF THE APPEAL O N THE GROUND THAT THE FORM NO.36 HAS BEEN SIGNED BY THE AUTHORIZE D SIGNATORY AND NOT BY THE MANAGING DIRECTOR/DIRECTOR AS REQUIR ED UNDER THE PROVISIONS OF INCOME TAX APPELLATE TRIBUNAL RULES. IN REPLY THERETO, IT IS STATED BY THE LEARNED COUNSEL FOR TH E ASSESSEE THAT THE ASSESSEE HAS FILED THE APPEAL ON 3.7.2009 AND F ORM NO.36 AND GROUNDS OF APPEAL WERE SIGNED BY THE AUTHORIZED SIGNATORY AS HE WAS SO AUTHORIZED BY THE BOARD OF DIRECTORS. IT IS HIS CASE THAT THIS WAS DONE INADVERTENTLY. BUT SUBSEQUENTLY, WHEN THE DEFECT HAS BEEN POINTED OUT BY THE TRIBUNAL DURING THE COU RSE OF HEARING, THE ASSESSEE IMMEDIATELY RECTIFIED THE DEF ECT AND THE FORM NO.36 GOT SIGNED BY THE DIRECTOR (AS THE ASSESS EE WAS NOT HAVING A MANAGING DIRECTOR AT THAT POINT OF TIME) W AS FILED. THE COPY OF THE BOARD RESOLUTION IS ALSO PRODUCED BEFOR E US. IT IS SUBMITTED THAT THE REGISTRY HAD NOT POINTED OUT ANY DEFECTS. THEREFORE, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE APPEAL IS MAINTAINABLE AS THE DEFECT HAS BEEN RECTI FIED BY FILING REVISED FORM 36 IN ACCORDANCE WITH THE RULES AND IN SUPPORT OF HIS CONTENTIONS THAT THE DEFECT IS A CURABLE ONE AN D WILL NOT AFFECT THE MAINTAINABILITY OF THE APPEAL, HE PLACED RELIAN CE UPON THE FOLLOWING DECISIONS OF THE TRIBUNAL: A) LALLOORAM PYARELAL VS. INCOME TAX OFFICER REPORT ED IN (1984) 19 TTJ 0040 WHEREIN IT WAS HELD THAT THE NON SIGNING OF GROUNDS OF APPEAL BY THE MANAGING PARTNE R WAS ONLY A CURABLE IRREGULARITY AND NOT A FATAL DEF ECT SO AS TO RENDER THE APPEAL A NULLITY. B) HARILELAS VS. INCOME TAX OFFICER REPORTED IN (19 86) 16 TTD 0356 WHEREIN IT WAS HELD THAT THE FORM OF APPEA L ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 7 OF 22 NOT SIGNED BY THE PARTNERS WHO WERE ALL NON-RESIDEN TS BUT SIGNED BY THE CONSTITUTED ATTORNEY, IS A CURABL E IRREGULARITY AND DEFECT ONCE REMOVED, SUCH REMOVAL RELATES BACK TO THE DATE, THE APPEAL WAS ORIGINALLY FILED. C) WIPRO INFORMATION TECHNOLOGY LTD VS. DY.CIT REPO RTED IN (2004) 88 TTJ 0778 WHEREIN IT WAS HELD THAT THE APPEAL SIGNED BY THE INCOMPETENT PERSON IS A CURABL E DEFECT AND SINCE THE SAME HAS BEEN CURED, APPEAL IS MAINTAINABLE. 6. THE LEARNED DR, HOWEVER, OPPOSED THE SAME AND RE LIED UPON THE DECISION OF THE COORDINATE BENCH OF THIS T RIBUNAL IN THE CASE OF SUVISTAS SOFTWARE (P) LTD VS. INCOME TAX O FFICER REPORTED IN (2014) 034 ITR (TRIB.) 0539 WHEREIN IT WAS HELD THAT IN THE CASE OF A COMPANY, IT IS ONLY THE MANAGING DIRECTOR OR THE DIRECTOR OF THE ASSESSEE COMPANY IN CERTAIN CIRCUMS TANCES, AS ON THE DATE OF FILING OF THE RETURNS, WHO CAN SIGN AND VERIFY THE RETURN AND WHERE UNAUTHORIZED PERSON SIGNS THE FORM OF APP EAL, IT IS NOT MAINTAINABLE. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THERE IS NO DISPUTE THAT U/ S 253 OF THE I.T. ACT AND RULE 45(2) OF THE I.T. RULES, A PERSON WHO IS THE MANAGING DIRECTOR OF THE COMPANY OR A DIRECTOR, IN CERTAIN C IRCUMSTANCES, AS ON THE DATE OF FILING OF THE RETURNS, ONLY CAN S IGN AND VERIFY THE RETURNED INCOME OF THE COMPANY. IN THE CASE BEFORE US, THE AUTHORIZED SIGNATORY HAD SIGNED THE FORM OF APPEAL AND ALSO THE GROUNDS OF APPEAL AT THE TIME OF FILING OF THE APPE AL. THEREAFTER, THE REGISTRY DID NOT RAISE ANY OBJECTION REGARDING THE ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 8 OF 22 MAINTAINABILITY OF THE APPEAL. IT IS ONLY WHEN THE CASE HAD CAME UP FOR HEARING AFTER SEVERAL ADJOURNMENTS THAT THE TRIBUNAL HAS POINTED OUT THE DEFECT AND IMMEDIATELY THEREAFTER, THE ASSESSEE HAS RECTIFIED THE SAME BY FILING THE REVISED FORM NO .36 DULY SIGNED BY THE DIRECTOR OF THE SAID COMPANY. IN THE CASE OF LALLOORAM PYARELAL (CITED SUPRA), THE DELHI BENCH O F THE TRIBUNAL WAS DEALING WITH A CASE WHEREIN THE MEMO OF APPEAL AND VERIFICATION AT THE BACK OF THE MEMO OF APPEAL WAS SIGNED BY THE MANAGING PARTNER, BUT THE GROUNDS OF APPEAL WAS NOT SIGNED BY THE MANAGING PARTNER BUT WAS SIGNED BY ITS COUNSEL. IT WAS IN THESE CIRCUMSTANCES THAT THE TRIBUNAL HELD THAT THE GROUNDS OF APPEAL NOT SIGNED BY THE MANAGING DIRECTOR IS A CUR ABLE DEFECT. IN OUR OPINION, THIS CASE IS DISTINGUISHABLE FROM ASSE SSEES CASE AND CANNOT BE APPLIED. 8. IN THE CASE OF HARILELAS (CITED SUPRA), THE MUMB AI BENCH OF THE TRIBUNAL, WHILE DEALING WITH AN APPEAL WHEREIN THE MEMO OF APPEAL AND VERIFICATION WERE SIGNED BY THE CONSTITUTED ATTORNEY, HAS FOLLOWED THE DECISION OF THE HON'BLE ORISSA HIGH COURT IN THE CASE OF ADDL. CIT VS. K. PADMALOCHAN S AHU (1974) 95 ITR 113, TO HOLD THAT THE DEFECT IS ONLY AN IRREGUL ARITY. THE DECISION IN THE CASE OF WIPRO INFORMATION TECHNOLOG IES LTD (SUPRA) IS ALSO SIMILAR. 9. IN THE CASE OF SUVISTAS SOFTWARE (P) LTD (SUPRA) , THE ASSESSEES APPEAL WAS NOT SIGNED BY THE M.D OR EVEN THE DIRECTOR AND THE DEFECT WAS NOT CURED EVEN SUBSEQUENTLY. THE REFORE, THE ABOVE DECISION IS DISTINGUISHABLE FROM FACTS. AS HE LD BY THE VARIOUS BENCHES OF THE TRIBUNAL, THE DEFECT IN THE ASSESSEES CASE ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 9 OF 22 IS ONLY A CURABLE DEFECT AND THE ASSESSEE HAVING RE CTIFIED THE DEFECT, THE APPEAL IS MAINTAINABLE. THEREFORE, THE OBJECTION OF THE REVENUE THAT THE APPEAL IS NOT MAINTAINABLE IS NOT SUSTAINABLE. 10. COMING TO THE ASSESSEES APPEAL, THE GROUNDS OF APPEAL NO.1 IS GENERAL IN NATURE AND NEEDS NO ADJUDICATION . 11. AS REGARDS GROUND NO.2, THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HON'BLE ANDHRA PRAD ESH HIGH COURT IN THE ASSESSEES OWN CASE FOR A.Y 2005-06, CO PY OF THE ORDER IS PLACED AT PAGE NO.614 OF THE PAPER BOOK. T HE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BE LOW. WE FIND THAT THE AO, WHILE COMPUTING THE DEDUCTION U/S 10A OF THE ACT, OBSERVED THAT THE ASSESSEE HAD COMPUTED THE LOSS FR OM NON EXPORT BUSINESS TO THE EXTENT OF RS.61,85,180 WHILE CLAIMING DEDUCTION OF RS.33,42,076 FROM EXPORT BUSINESS U/S 10A OF THE ACT. THE AO HELD THAT THE LOSS OF NON EXPORT BUSINE SS IS TO BE SET OFF FROM THE PROFIT OF THE EXPORT BUSINESS AND ONLY THEREAFTER DEDUCTION U/S 10A IS ALLOWABLE. AGAINST THIS ORDER OF THE AO, THE ASSESSEE HAD FILED AN APPEAL BEFORE THE CIT (A) AND THE CIT (A) HAS CONFIRMED THE ORDER OF THE AO. THIS ISSUE HAD ARISE N IN ASSESSEES OWN CASE IN THE EARLIER A.YS AND THE TRIBUNAL FOLLOW ED THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD REPORTED IN (2012) 341 ITR 38 5 (KAR.) AND ON APPEAL BY THE REVENUE, THE HON'BLE ANDHRA PRADES H HIGH COURT HAS CONFIRMED THE ORDER OF THE TRIBUNAL. THE LEARNED DR, HOWEVER RELIED UPON THE CBDT CIRCULAR DATED 16.07.2 013 ON SECTION 10A, 10AA AND 10BA OF THE ACT AND ALSO PLAC ED RELIANCE ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 10 OF 22 UPON THE DECISION OF THE TRIBUNAL AT BANGALORE IN T HE CASE OF M/S. SAFRAN ENGINEERING SERVICES INDIA P LTD VS. DY. CIT IN ITA NO.1310(B)/2011 DATED 09.03.2016 WHEREIN THE JUDGME NT OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. HIMATASIN GIKE SEIDE LTD WAS ALSO CONSIDERED. ACCORDING TO THE LEARNED D R, THE HON'BLE SUPREME COURT IN THE CASE OF HIMATASINGIKE SEIDE LT D HAS REVERSED THE JUDGMENT OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF M/S YOKOGAWA INDIA LTD AND THEREFORE, HAS TO BE FOLLOWED. 12. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT IN THE CASE OF M/S SAFRAN A EROSPACE INDIA PVT. LTD VS. DCIT, THE COORDINATE BENCH OF THIS TRI BUNAL HAS CONSIDERED THE EFFECT OF THE JUDGMENT OF THE HON'BL E KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD AND ALS O THE HON'BLE SUPREME COURTS DECISION IN THE CASE OF M/S HIMATAS INGIKE SEIDE LTD AND HAS HELD AS UNDER: 4.5 THE HON'BLE HIGH COURT OF KARNATAKA, IN THE CASE OF YOKOGAWA INDIA LTD (SUPRA) WAS CONSIDERING THE CASE OF AN ASSESSEE WHICH WAS IN THE BUSINESS OF MANUFACTURE AND TRADING OF PROCESS CONTROLLED INSTRUMENTS AND IT HAD FILED RETURN OF INCOME DECLARING LOSS. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3), THE AO HAD OBSERVED THAT THE ASSESSEE HAD CLAIMED EXEMPTION U/S 10A FOR ITS STPI UNIT BEFORE SET OFF OF BROUGHT FORWARD LOSSES AND DEPRECIATION. THE AO, THEREIN, HAD ALSO OBSERVED THAT 10A BENEFIT CAN BE GIVEN ONLY AFTER ADJUSTING BROUGHT FORWARD LOSS AND DEPRECIATION FROM THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO GRANTED RELIEF TO THE ASSESSEE AND ON FURTHER APPEAL BY THE REVENUE TO THE TRIBUNAL, IT WAS HELD THAT BUSINESS LOSS OF OTHER UNITS CANNOT BE SET OFF AGAINST THE PROFITS O F THE UNDERTAKING ENGAGED IN THE BUSINESS OF ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 11 OF 22 COMPUTER SOFTWARE FOR PURPOSES OF DETERMINATION OF THE ALLOWABLE DEDUCTION U/S 10B OF THE ACT. THE REVENUE, THEREFORE, FILED APPEAL BEFORE THE HON'BLE HIGH COURT AND THE HIGH COURT FRAMED THE FOLLOWING QUESTION FOR DETERMINATION: 'WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE DEDUCTION U/S 10A OR 10B OF THE ACT DURING THE CURRENT ASSESSMENT YEAR HAS TO BE ALLOWED WITHOUT SETTING OFF BROUGHT FORWARD UNABSORBED LOSSES AND THE DEPRECIATION FROM EARLIER ASSESSMENT YEAR OR CURRENT ASSESSMENT YEAR EITHER IN THE CASE OF NON- STP UNITS OR IN THE CASE OF THE VERY SAME UNDERTAKING?' THE HON'BLE HIGH COURT HAS CONSIDERED THE ISSUE AT LENGTH AND AT PARA 31 OF ITS ORDER HAS HELD THAT AS DEDUCTION U/S 10A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFITS AND GAINS OF UNDERTAKING WOULD NOT ARISE AND IN THAT VIEW OF THE MATTER, THE APPROACH OF THE AO WAS QUITE CONTRARY TO THE AFORESAID PROVISION AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUSTIFIED IN SETTING ASID E THE SAID ASSESSMENT ORDER AND GRANTING THE BENEFIT OF SEC.10A TO THE ASSESSEE. THUS, THE QUESTION OF LAW WAS ANSWERED IN FAVOUR OF THE ASSESSEE. THUS, THERE ARE TWO JUDGMENTS OF THE HON'BLE KARNATAKA HIGH COURT CONTRARY TO EACH OTHER. WHEN THERE ARE TWO JUDGMENTS OF THE VERY SAME HIGH COURT BY BENCHES OF EQUAL STRENGTH, THEN THE LATER JUDGMENT OF THE HIGH COURT HAS TO BE FOLLOWED AS HELD BY THE HON'BLE APEX COURT IN THE CASE OF BHIKA RAM & OTHERS VS. UOI REPORTED IN 238 ITR 113. THE DECISION OF THE HIGH COURT IN THE CASE OF HIMATSINGIKE SIEDE (SUPRA) IS DATED 4 TH AUGUST, WHEREAS THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD (SUPRA) IS DATED 9TH AUGUST, 2011. AS REGARDS THE DISMISSAL OF THE SLP BY THE HON'BLE SUPREME COURT AGAINST THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF HIMATSINGIKE SIEDE (SUPRA) IS ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 12 OF 22 CONCERNED, WE FIND THAT THE HON'BLE SUPREME COURT HAS DISMISSED THE APPEAL IN LIMINE WITHOUT LAYING DOWN ANY RATIO DECIDENDI THEREIN AND, THEREFORE, AS HELD BY THE HON'BLE APEX COURT IN THE CASE OF INDIAN OIL CORPORATION LTD VS. STATE OF BIHAR & OTHERS, REPORTED IN 167 ITR 897, THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD.(SUPRA) HOLDS THE FIELD. FURTHER, THE HON'BLE APEX COURT IN THE CASE O F VEGETABLE PRODUCTS LTD., REPORTED IN 881TR 192 (SC) HAS HELD THAT WHERE TWO REASONABLE CONSTRUCTIONS ARE POSSIBLE, THEN THE CONSTRUCTION I N FAVOUR OF THE ASSESSEE MUST BE ADOPTED. RESPECTFULLY FOLLOWING THE SAID DECISION, WE ALLOW THE GROUND OF APPEAL WE FIND THAT THE ABOVE DECISION IS IN FACT IN FAVOU R OF THE ASSESSEE AND RESPECTFULLY FOLLOWING THE SAME, THE CLAIM OF T HE ASSESSEE IS ALLOWED AND THE AO IS DIRECTED TO ALLOW 10A DEDUCTI ONS IN RESPECT OF THE EXPORT BUSINESS WITHOUT SETTING OF THE LOSS FROM THE NON EXPORT BUSINESS. GROUND NO.2 OF APPEAL IS ACCORDING LY ALLOWED. 13. AS REGARDS GROUNDS 3 & 4 ARE CONCERNED, IT IS T HE CASE OF THE ASSESSEE THAT FOR T.P. STUDY, THE PARTY WITH LEAST COMPLEX ACTIVITIES IS TO BE CONSIDERED AS A TESTED PARTY. H E SUBMITTED THAT THE ASSESSEE HEREIN IS THE HOLDING COMPANY PERFORMI NG THE MOST COMPLEX OF ACTIVITIES WHEREAS THE US SUBSIDIARY IS THE SUBSIDIARY WITH THE LEAST COMPLEX ACTIVITIES AND THEREFORE, TH E SAID COMPANY HAS BEEN CONSIDERED AS THE TESTED PARTY AND THE US COMPARABLES HAVE BEEN ADOPTED BY THE ASSESSEE. ACCORDING TO HIM , BOTH THE TPO AS WELL AS THE CIT (A), HAVE ERRED IN REJECTING THE FOREIGN COMPANY AS THE TESTED PARTY, ONLY ON THE GROUND, TH AT THE TPO DOES NOT HAVE THE POWER TO OBTAIN INFORMATION ABOUT THE FOREIGN COMPARABLES. IN SUPPORT OF HIS CONTENTION THAT A FO REIGN COMPANY ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 13 OF 22 CAN BE ADOPTED AS A TESTED PARTY, THE LEARNED COUNS EL FOR THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS: I) GENERAL MOTORS INDIA PVT.LTD (ITA NO.3096/AHD/20 10) FOR THE A.Y 2006-07 WHEREIN THE TRIBUNAL HAS UPHELD THE SELECTION OF THE FOREIGN COMPANY AS A TESTED PA RTY. II) TATA MOTORS EUROPEAN TECHNICAL CENTRE PLC IN IT A NO.7630/MUM/2012 DATED 22.12.2014 WHEREIN AFTER CONSIDERING THE OECD TRANSFER PRICING GUIDELINES AN D ALSO THE UN MANUAL OF TRANSFER PRICING, ABOUT THE SELECTION OF TESTED PARTY, THE TRIBUNAL HAS HELD TH AT THE BLANKET ASSUMPTION OF THE TPO THAT THE FOREIGN COMPARABLES CANNOT BE ACCEPTED AT ALL IS NOT CORREC T AS THE INDIAN TRANSFER PRICING DOES NOT REJECT THE FOR EIGN COMPARABLES IF THE TESTED PARTY IS FOREIGN. 14. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT DURING THE TP ANALYSIS, THE AO/TPO WILL HAVE TO VERIFY THE DETAIL S FILED BY THE ASSESSEE AND IF THE TESTED PARTY IS A FOREIGN COMPA NY, THEN THE COMPARABLES ALSO WILL HAVE TO BE FOREIGN COMPANIES AND THE AO/TPO HAS NO JURISDICTION OVER THE SAID COMPANIES AND THEREFORE, CANNOT VERIFY THE DIFFERENCES IF ANY, BE TWEEN THE TESTED PARTY AND THE FOREIGN COMPARABLES AND ALSO WILL NOT BE ABLE TO MAKE ANY ADJUSTMENTS REQUIRED TO BE MADE TO BRING T HEM ON PAR WITH THE TESTED PARTY. THEREFORE, ACCORDING TO THE LEARNED DR, THE FOREIGN COMPANY CANNOT BE TAKEN AS A TESTED PARTY. ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 14 OF 22 15. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT BOTH THE OECD GUIDELINES ON TRANSFER PRICING AND THE UN MANUAL ON TRANSFER PRICING SUGGE STS THAT A FOREIGN COMPANY CAN BE TAKEN AS A TESTED PARTY PROV IDED THE ASSESSEE MAKES SURE THAT THE NECESSARY RELEVANT INF ORMATION ABOUT THE TESTED PARTY AND SUFFICIENT DATA ON COMPA RABLES IS FURNISHED TO THE TAX ADMINISTRATION AND VICE-VERSA IN ORDER TO VERIFY THE SELECTION AND APPLICATION OF THE TRANSFE R PRICING METHOD. THE LEARNED COUNSEL FOR THE ASSESSEE HAD STATED THA T THE ASSESSEE HAS FILED THE INFORMATION RELATING TO BOTH THE TEST ED PARTY AND ALSO THE FOREIGN COMPANIES TAKEN AS COMPARABLES WHICH AR E REPRODUCED IN THE TP ORDER. HE HAS ALSO DRAWN OUR A TTENTION TO PAGES 113 TO 122 OF THE PAPER BOOK WHEREIN, THE FIL TERS ADOPTED BY THE ASSESSEE AND THE BASIS FOR TAKING THE COMPAN IES AS COMPARABLES ARE REPRODUCED. THE LEARNED DR, HOWEVER , POINTED OUT THAT WHILE EXPLAINING THAT THE ASSESSEE HAS DON E RESEARCH ON THE DATA BASE GLOBAL SYMPOSIUM, IT HAS CLEARLY ST ATED THAT IT HAS NOT, IN GENERAL, EXAMINED THE PUBLISHED FINANCI AL STATEMENTS OF THE COMPANIES IN ITS COMPARABLE STUDY, NOR HAS I T OTHERWISE ENQUIRED INTO THE NATURE OF THE CIRCUMSTANCES, ACTI VITIES OR RESULTS AND ALSO FURTHER THAT THE FINANCIAL DATA PROVIDED I N THE GLOBAL SYMPOSIUM FOR ALL THE COMPANIES AND THE DATA IS CL ASSIFIED AND TREATED IN A MANNER THAT IS UNIQUE TO GLOBAL SYMPO SIUM. THUS, ACCORDING TO THE LEARNED DR, THE RELEVANT FINANCIAL STATEMENTS HAVE NOT BEEN GONE INTO BY THE ASSESSEE ITSELF AND THEREFORE, THE ASSESSEES T.P. STUDY FOR ARRIVING AT THE COMPARABL E COMPANIES IS NOT RELIABLE. ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 15 OF 22 16. HAVING REGARD TO THE ABOVE CONTENTIONS AND HAVI NG PERUSED THE RELEVANT DOCUMENTS IN ORDER TO VERIFY A S TO WHETHER THE ASSESSEE HAS PROVIDED THE NECESSARY RELEVANT IN FORMATION ABOUT THE TESTED PARTY AND ALSO THE COMPARABLES TO THE TAX ADMINISTRATION TO VERIFY THE SAME, WE HAVE VERIFIED THE T.P. DOCUMENTATION FILED BY THE ASSESSEE. WE ARE SATISFI ED THAT ALL THE NECESSARY INFORMATION ABOUT THE TESTED PARTY AND AL SO THE FOREIGN COMPARABLES ADOPTED BY THE ASSESSEE HAVE NOT BEEN P ROVIDED BY THE ASSESSEE BEFORE THE AO OR THE TPO TO VERIFY THE SAME AND FOR ARRIVING AT THE ALP. THEREFORE, WE ARE SATISFIED TH AT THE ASSESSEE HAS NOT DONE A PROPER TP STUDY AND THEREFORE, THE T PO HAS RIGHTLY REJECTED THE FOREIGN COMPANY AS A TESTED PARTY AND THE FOREIGN COMPARABLES FOR ARRIVING AT THE ALP. ACCORDINGLY G ROUNDS 3 & 4 ARE REJECTED. 17. AS REGARDS GROUNDS 5 TO 7, THE TPO HAS ADOPTED THE ASSESSEE COMPANY AS THE TESTED PARTY AND HAS ADOPTE D 15 COMPANIES AS COMPARABLE TO THE ASSESSEE AND ADOPTED TNMM AS THE MOST APPROPRIATE METHOD. THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS CHALLENGING THE COMPARABLES SELECTED BY THE TPO ON VARIOUS GROUNDS, BUT IN EFFECT THE ASSESSEE IS CHALLENGING THE INCLUSION OF THE FO LLOWING FOUR COMPANIES: I) FORTUNE INFOTECH LTD II) TRICOM INDIA LTD III) ULTRAMARINE & PIGMENTS LTD IV) GOLDSTONE TELESERVICES LTD HE SUBMITTED THAT WHILE, FORTUNE INFOTECH LTD AND TR ICOM INDIA LTD ARE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE, U LTRAMARINE & PIGMENTS LTD IS TO BE EXCLUDED ON ACCOUNT OF EXTRA ORDINARY ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 16 OF 22 CIRCUMSTANCES AND ABNORMAL PROFIT AND GOLDSTONE TEL ESERVICES LTD HAS TO BE EXCLUDED ON ACCOUNT OF INSIGNIFICANT FOREX REVENUE. AS FAR AS THE FIRST TWO COMPANIES ARE CONCERNED, HE SUBMITTED THAT THE ISSUE OF FUNCTIONAL DISSIMILARITIES OF THE ABOVE COMPANIES HAS BEEN BROUGHT OUT BY THE COORDINATE BENCH OF THI S TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT LTD TO WHICH ONE OF US THE J.M. IS THE SIGNATORY FOR THE A.Y 2004-05. THE TRIBU NAL, AT PARAS 15.3.3 & 15.3.4 HAS CONSIDERED THE ISSUE AT LENGTH AND HAS HELD AS UNDER: 15.3.3. IN RESPECT OF M/S. TRICOM INDIA LTD., THE L EARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT IT HAS REGI STERED AN ABNORMAL GROWTH OF 33% INCREASE IN PAT IN THE RELEV ANT PERIOD DUE TO THE FACT THAT IT HAS DEVELOPED ITS UNIQUE SO FTWARE TO PROVIDE BPO SERVICES TO ITS CUSTOMERS. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE ANNUAL REPORT OF THIS COMPARABLE, WHEREIN IT IS MENTIONED THAT IT DOES SPECIALIZED SE RVICES SUCH AS TITLE PLANT MAINTENANCE AND ELECTORNIC DATA DISCOVE RY WHICH GIVES IT AN EDGE OVER OTHER INDIAN COMPANY COMPETIT ION THEREBY ENABLING IT TO GENERATE HIGHER REVENUES AND MARGINS. IT WAS ALSO SUBMITTED BY THE LEARNED COUNSEL FOR TH E ASSESSEE THAT IT HAS A PROCESS OF CONTINUOUS IN HOUSE R & D PROCESS FOR UPGRADATION OF SOFTWARE AND TRAINING ITS PROFESSION ALS TO DEVELOP ITS OWN SOFTWARE TO CATER TO THE NEEDS OF I TS CLIENTS. ON APPRAISAL OF THE SUBMISSIONS AND THE MATERIAL ON RECORD, IT WOULD CERTAINLY STAND TO REASON THAT A COMPANY HAVI NG UNIQUE SOFTWARE DEVELOPED IN HOUSE WHICH ALSO RENDERS SPEC IALIZED SERVICES IN ITS AREA OF SPECIALIZATION GETS THAT SO RT OF COMPETITIVE EDGE THAT GIVES IT AN ADVANTAGE. APPLYI NG THE PRINCIPLE THAT COMPANIES WHICH ARE ON SIMILAR STAND ARDS ONLY SHOULD BE TAKEN AS COMPARABLES, WE HOLD THAT THIS C OMPANY WHICH HAS UNIQUE INTANGIBLES CANNOT BE TAKEN AS A C OMPARABLE FOR THE ASSESSEE AND ACCORDINGLY DIRECT THE ASSESSI NG OFFICER / TPO TO EXCLUDE IT FROM THE LIST OF COMPARABLES IN T HIS CASE. 15.3.4 M/S. FORTUNE INFOTECH LTD. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THIS COMPANY WAS USING WEB BASED SOFTWARE, UNIQUE TECHNO LOGY AND TECHNICAL KNOWHOW IMPORTED FROM ITS BUSINESS PA RTNER FOR PROVIDING BPO SERVICES AND SUBMITTED LETTER DT.11.9 .2012, ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 17 OF 22 ENCLOSING WEB SITE EXTRACTS DETAILING THE INTANGIBL ES DEVELOPED BY THIS COMPANY. ON PERUSAL OF THE DETAILS FURNISHED AND SUBMISSIONS MADE, IT IS SEEN THAT THIS COMPANY HAS DEVELOPED ITS OWN SOFTWA RE CALLED 'FINETRAN' AND 'IMAGE INDEX' FOR PERFORMING SPECIAL IZED SERVICES IN MEDICAL TRANSCRIPTION AND PATIENT RECOR D MANAGEMENT. ON APPRAISAL OF THE SAME, WE ARE OF THE OPINION THAT THIS COMPARABLE COMPANY HAS DEVELOPED UNIQUE S OFTWARE FROM WHICH IT WOULD DERIVE SUBSTANTIAL BENEFITS /AD VANTAGES WHEN COMPARED WITH THE ASSESSEE WHICH IS UNDERTAKIN G PURE CALL CENTRE SERVICES. APPLYING THE PRINCIPLE THAT C OMPANIES WHICH ARE ON SIMILAR STANDARDS ONLY SHOULD BE TAKEN AS COMPARABLES, WE HOLD THAT THIS COMPANY WHICH HAS UN IQUE INTANGIBLES CANNOT BE TAKEN AS A COMPARABLE FOR THE ASSESSEE AND ACCORDINGLY DIRECT THE ASSESSING OFFICER / TPO TO EXCLUDE IT FROM THE LIST OF COMPARABLES IN THIS CASE. 18. WE FIND THAT THE ASSESSEE BEFORE US IS INTO THE SOFTWARE DEVELOPMENT AND PROVIDING CALL CENTRE SERVICES EXCL USIVELY TO ITS AE AS IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD AND THEREFORE, THE DECISION OF THE COORDINATE BENCH IN THE ABOVE C ASE IS APPLICABLE TO THE FACTS BEFORE US. RESPECTFULLY FOL LOWING THE SAME, WE DIRECT EXCLUSION OF FORTUNE INFOTECH LTD AND TRIC OM INDIA LTD FROM THE FINAL LIST OF THE COMPARABLES IN THE CASE OF THE ASSESSEE AS WELL. 19. AS REGARDS THE COMPARABILITY OF ULTRAMARINE & PIGMENTS LTD IS CONCERNED, WE FIND THAT THE COORDIN ATE BENCH OF THIS TRIBUNAL IN THE CASE OF BRIGADE GLOBAL SERVICE S PVT. LTD (WHICH IS ALSO INTO SIMILAR BUSINESS AS THE ASSESSE E) IN ITA NO.1494/HYD/2010 FOR THE A.Y 2004-05, HAS CONSIDERED THAT THE SAID COMPANY HAD SHOWN ABNORMAL TRADING RESULTS AS COMPARED TO THE ASSESSEE THEREIN AND THEREFORE, CANNOT BE CO NSIDERED AS A ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 18 OF 22 COMPARABLE. RELEVANT PARAGRAPHS 39 TO 41 ARE REPROD UCED HEREUNDER: 39. AR SUBMITTED IN RESPECT OF ULTRAMARINE & PIGMEN T LTD. (ITEM NO. 17 IN THE CHART) INTRODUCED BY THE ASSESS EE AND ACCEPTED BY LOWER AUTHORITIES BUT LATER ON REJECTED BY THE ASSESSEE ON THE GROUND THAT DURING THE CURRENT FINA NCIAL YEAR, THE COMPANY HAD MADE ABNORMAL PROFITS. THE AR SUBMI TTED THAT THE COMPANY SHOWING ABNORMAL PROFITS, WHICH IS BEYOND THE NORMS OR THE STANDARDS OF INDUSTRY CANNOT BE TA KEN AS COMPARABLES. RELIANCE FOR THIS PROPOSITION IS PLACE D ON THE DECISION OF MUMBAI BENCH IN THE CASES OF ADOBE SYST EMS INDIA PVT. LTD. V. ADDL . CIT (44 SOT 49) (DELHI-URO), ITO V. SAUNAY JEWELS PVT. LTD . (42 SOT 4) (MUM. - URO), MENTOR GRAPHICS, 2007-(112)-TTJ-0408-TDEL AND THE CASE OF ITAT, PUNE BENCH IN THE CASE OF E-GAIN COMMUNICATIONS VS. ITO 118 TTJ 354 AND SAPIENT CORPORATION PVT. LTD. VS. DCIT (2012) 15 IT R (TRIB.) 285 DELHI. 40. THE DR SUBMITTED THAT M/S. ULTRAMARINE PIGMENTS LIMITED CANNOT BE EXCLUDED FROM COMPARABLES. ACCORDING TO T HE ASSESSEE COUNSEL, THE AO WAS NOT CORRECT IN ACCEPTI NG THIS COMPANY WHICH HAS 123% INCREASE IN REVENUE IN ONE Y EAR, AS A COMPARABLE IN THIS CASE. HOWEVER, THE ASSESSEE ITSE LF HAS PROPOSED THIS COMPANY AS A COMPARABLE IN THEIR TP DOCUMENTATION. FURTHER, IT IS SEEN THAT THE TPO HAS CONSIDERED ONLY THE SEGMENTAL RESULTS, PERTAINING TO F.Y 2003- 04 IN THE CASE OF THE ABOVE COMPANY FOR COMPARABILITY ANALYSI S IN THIS CASE. AS PER THE FINANCIAL DATA PERTAINING TO SUCH SEGMENTAL RESULTS, THE AMOUNT OF INCOME IS SHOWN AT RS. 10.9 CRORES, WHICH IS COMPARABLE, KEEPING IN VIEW THE TURNOVER O F RS. 13.05 CRORES SHOWN BY THE ASSESSEE FOR THE ASST. YEAR 200 4-05. IT IS ALSO RELEVANT TO MENTION HERE THAT, THE TPO HAS NOT ED THAT THE EXTRAORDINARY PROFITS EARNED IN SUBSEQUENT FINANCIA L YEAR 2004- 05, IS NOT RELEVANT AS THE MATTER HERE PERTAI NS TO F.Y. 2003-04. HAVING REGARD TO SUCH FACTS, THE TPO WAS J USTIFIED IN CONSIDERING THE SEGMENTAL RESULTS IN RESPECT OF THE ABOVE COMPANY, FOR COMPARABILITY ANALYSIS IN THIS CASE. A CCORDINGLY, THE AO WAS ALSO JUSTIFIED IN ACCEPTING SUCH SEGMENT AL RESULTS IN RESPECT OF THE ABOVE COMPANY FOR COMPARABILITY ANAL YSIS IN THIS CASE. 41. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. I T IS AN ADMITTED FACT THAT THE CASES WHICH WERE SHOWING ABN ORMAL TRADING RESULTS, AS DISCUSSED IN EARLIER PARAS, BY RELYING ON THE ORDER OF THE BANGALORE BENCH IN THE CASE OF GENISYS INTEGRATION SYSTEMS INDIA PVT. LTD. (SUPRA), COMPANIES SHOWING ABNORMAL ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 19 OF 22 RESULTS CANNOT BE CONSIDERED AS COMPARABLES. IT IS AN ADMITTED VIEW THAT THE COMPANIES MAKING ABNORMAL PROFITS AS COMPARED TO THE ASSESSEE CANNOT BE CONSIDERED AS COMPARABLES WHILE DETERMINING THE ALP. FOR THIS PURPOSE WE PLACE RELI ANCE ON THE DECISION OF SPECIAL BENCH IN THE CASE OF DY. CIT VS . QUARK SYSTEMS LTD . (132 TTJ 1) (CHD.) (SB). ACCORDINGLY, IN OUR OPINION, SUPER PROFIT COMPANIES PER SE ARE LIABLE T O BE EXCLUDED FROM THE COMPARABLES. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THAT THI S COMPANY CANNOT BE TAKEN AS A COMPARABLE. 20. AS REGARDS GOLDSTONE TELESERVICES LTD IS CONCER NED, THE OBJECTION OF THE ASSESSEE IS THAT ITS FOREX EAR NING IS LESS THAN 25% OF THE TOTAL REVENUE AND THEREFORE, CANNOT BE CO NSIDERED AS COMPARABLE. OUR ATTENTION HAS BEEN DRAWN TO PAGE 57 7 OF THE PAPER BOOK WHEREIN THE EARNINGS IN FOREIGN CURRENCY ON EXPORT OF TOTAL GOODS IS RS.163.31 LAKHS, WHEREAS THE TOTAL T URNOVER OF THE ASSESSEE IS RS.13,76,554 LAKHS WHICH IS LESS THAN 2 5% OF THE EXPORT TURNOVER WHICH IS ONE OF THE FILTERS ADOPTED BY THE TPO. THIS ISSUE IS REMITTED TO THE FILE OF THE AO, FOR V ERIFICATION AND IF IT IS FOUND THAT THE EXPORT TURNOVER IS LESS THAN 25%, THEN WE DIRECT THAT THE SAME IS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. 21. THE ASSESSEE IS ALSO SEEKING INCLUSION OF ACE S OFTWARE EXPORTS LTD. THE TPO HAD REJECTED THIS COMPANY BY A DOPTING THE RPT FILTER. THE LEARNED COUNSEL FOR THE ASSESSEE H AS DRAWN OUR ATTENTION TO THE DECISION OF THE COORDINATE BENCH I N THE CASE OF BRIGADE GLOBAL SERVICES PVT LTD IN ITA NO.1494/HYD/ 2010 WHEREIN IT HAS BEEN CLEARLY BROUGHT OUT THAT THERE WERE NO RELATED PARTY TRANSACTIONS DURING THE RELEVANT A.Y AND THE TPO THEREIN WAS DIRECTED TO CONSIDER THE SAME AS A COMPARABLE C OMPANY. FOR ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 20 OF 22 THE SAKE OF READY REFERENCE, PARA 31 AND 32 OF THE ORDER ARE REPRODUCED HEREUNDER: 3 1. REGARDING ACE SOFTWARE EXPORTS LTD. THE DR SUBMITTED THAT ACCORDING TO THE ASSESSEE, THE TPO ERRED IN EXCLUDING THIS COMPANY FOR COMPARISON ON THE GROUND THAT DIRECTOR'S REPORT OF THE COMPANY MENTIONS THAT IT HAS CATERED SERVICE EXCLUSIVELY TO APEX DATA SERVICES INC, A GROUP COMPANY, THAT MAKES BOTH ACE EXPORTS AND APEX DATA AS ASSOCIATED ENTERPRISES U/S. 92A(2)(I) OF THE ACT. IT WAS STATE D THAT THE TPO HAS IGNORED THE FACT THAT, THE FINANCI AL STATEMENTS NOWHERE MENTION THAT ANY SALE/ PURCHASE TRANSACTIONS HAVE TAKEN PLACE WITH APEX INC. DURING THE RELEVANT FINANCIAL YEAR. IT WAS FURTHER SUBMITT ED THAT THE AO ERRED IN TREATING THE ABOVE COMPANY AS FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE COMPANY. IT WAS SUBMITTED THAT AS SEEN FROM THE ANNUAL REPORT OF ACE SOFTWARE LTD., FOR THE YEAR EN DED 31.03.2004, THE SALE TRANSACTION MADE BY ACE SOFTWARE EXPORTS DURING THE F.Y 2003-04 WERE CONTROLLED TRANSACTIONS AND THIS COMPANY, SHOULD NO T BE CONSIDERED AS A COMPARABLE. THEREFORE, THE TPO WAS JUSTIFIED IN REJECTING THE ABOVE COMPANY AS COMPARABLE IN THIS CASE. 32. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. I N OUR OPINION, CONTROLLED TRANSACTION WITH RELATED PARTIES WHICH MAKES IT UN-COMPARABLE WITH THE ASSESSEE. IN THE PRESENT CASE, RELATED PARTY DISCLO SURE IN ACE ANNUAL REPORT SHOWS NO SERVICES ARE PROVIDED TO APEX DATA SERVICES. RELATIONSHIP HAS TO BE EXAMINED AS PER DEFINITION OF ASSOCIATED ENTERPRISE S (AES) AS PER SECTION 92A OF THE ACT. IT WAS STATED BEFORE US THAT APEX DATA SERVICES IS HAVING 7% SHAR E CAPITAL IN ACE SOFTWARE EXPORTS LTD. EVEN OTHERWISE PROVISIONS OF SECTION 92A(2)(I) DEEMS TWO COMPANIES AS AES ONLY, IF 100% GOODS ARE PURCHASED AND SOLD. THOUGH THE TRANSACTIONS WITH RELATED PARTIES CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPARISON, IN THE PRESENT CASE CONSIDERING THE FACTS, REJECTION IS NO T JUSTIFIED. SINCE THE ABOVE DECISION IS FOR THE SAME A.Y AND FAC TS ARE THE SAME, RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE DIRECT THAT THIS ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 21 OF 22 COMPANY MAY ALSO BE CONSIDERED AS COMPARABLE COMPAN Y TO THE ASSESSEE. 22. AS REGARDS GROUND NO.8, THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT ADVANCE ANY ARGUMENTS AND THEREFOR E, THE SAME IS REJECTED AS NOT PRESSED. 23. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. 24. AS REGARDS REVENUES APPEAL AGAINST THE EXCLUSI ON OF VISHAL INFORMATION TECHNOLOGIES LTD FROM THE FINAL LIST OF COMPARABLES, WE FIND THAT THE DRP HAS DIRECTED EXCL USION OF THIS COMPANY ON THE GROUND THAT THE BUSINESS MODEL OF VI SHAL INFORMATION TECHNOLOGIES LTD IS NOT SIMILAR TO THE APPELLANT AS THE SAID COMPANY HAS OUTSOURCED MOST OF ITS WORK. WE AL SO FIND THAT THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMERS.COM PVT LTD HAS CONSIDERED THIS ASPECT OF THE SAID COMPANY TO EXCLU DE THE SAME FROM THE FINAL LIST OF COMPARABLES. AS THE ORDER OF THE DRP IS ON SIMILAR FACTS, WE DO NOT SEE ANY REASON TO INTERFER E WITH THE SAME. 25. AS REGARDS ALLSEC TECHNOLOGIES LTD, WE FIND THA T THE DRP HAS DIRECTED THIS COMPANY TO BE EXCLUDED ON THE GROUND THAT IT IS A LOSS MAKING COMPANY. THE LEARNED DR HAS NOT BEEN ABLE TO BRING ANY MATERIAL ON RECORD TO DISPROVE THE ABOVE FINDING OF THE DRP. IN VIEW OF THE SAME, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE DRP. 26. AS REGARDS GROUND NO.2 OF THE REVENUES APPEAL, WE FIND THAT THE SAME IS TO BE ALLOWED IN VIEW OF THE AMENDED ITA NOS 831 AN D 835 OF 2009 SUTHERLAND HEALTHCARE SOLUTIONS P LTD HYDERABAD HEALTH STREET LTD HYDERAB AD PAGE 22 OF 22 PROVISION OF SECTION 92 OF THE ACT BY THE FINANCE AC T. IN VIEW OF THE SAME, THIS GROUND IS PARTLY ALLOWED. 27. IN THE RESULT, BOTH THE ASSESSEES AND REVENUE S APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2016. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 30 TH NOVEMBER, 2016. VINODAN/SPS COPY TO: 1 M/S SUTHERLAND HEALTHCARE SOLUTIONS P LTD, SURVEY NO.185(P), 2 ND FLOOR, KALAJYOTHI PROCESS, KONDAPUR VILLAGE, SERILI NGAMPALLY, HYDERABAD 500 133 2 INCOME TAX OFFICER CIRCLE 1(1) AAYAKAR BHAVAN, HY DERABAD 3 CIT (A)-III HYDERABAD 4 CIT 1, HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER