M/s Zyme Solutions Private Ltd., Bangalore V. Asst.C.I.T., Bangalore

ITA 85/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5412 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 27-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PADAMCHAND KHINCHA
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Wholly owned subsidiary; Bad and doubtful debts
• Section: 92C; 92D; 92E; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH, C, BANGALORE BEFORE SHRI A.K GARODIA, ACCOUNTANT MEMBER SHRI LALIET KUMAR, JUDICIAL MEMBER IT(TP)A NO.85/BANG/2016 (ASST. YEAR 2011-12) M/S ZYME SOLUTIONS PVT. LTD., NO.459, LAKSHA TOWERS, ASHOKA PILLAR ROAD, 2 ND BLOCK, JAYANAGAR, BANGALORE. . APPELLANT PAN NO.AAACZ2465R. VS. THE ASST. COMMISSIONER OF INCOME-TAX, WARD-7(1)(2), BANGALORE. . RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, C.A ASSESSEE BY : SHRI SANJAY KUMAR, CIT DATE OF HEARING : 21-03-2017 DATE OF PRONOUNCEMENT : 28 -04-2017 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER IT(TP)A NO.85/B/16 2 THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME-TAX, BANGALORE DATED 31/12/2015 PURSUANT TO THE DIRECTIONS BY THE DRP DATED 23/11/ 2015 FOR THE ASSESSMENT YEAR 2011-12. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AR E AS UNDER:- GENERAL GROUNDS:- 1. PASSING THE ORDER WHICH IS BAD IN LAW AND DISREGARDING THE PRINCIPLES OF NATURAL JUSTICE. GROUNDS RELATING TO TRANSFER PRICING :- 2. MAKING TRANSFER PRICING ADJUSTMENT OF RS. 4,03,93,455/-. 3. MAKING A REFERENCE TO TRANSFER PRICING OFFICER F OR DETERMINING ARM'S LENGTH PRICE. 4. NOT APPRECIATING THAT THERE IS NO AMENDMENT TO T HE DEFINITION OF 'INCOME' AND THE CHARGING OR COMPUTATION PROVISION RELATING TO INCOME UNDER THE HEAD 'PROFITS & GAINS OF BUSINESS OR PROFESSION' DO NOT REFER TO OR INCLUDE THE AMOUNTS COMPUTED UNDER CHAPTER X AND THEREFORE ADDITION UNDER CHAPTER X IS BAD IN LAW. IT(TP)A NO.85/B/16 3 5. PASSING THE ORDER WITHOUT DEMONSTRATING THAT THE APPELLANT HAD MOTIVE OF TAX EVASION. 6. RE-COMPUTING THE TP ADJUSTMENT AT RS. 4,03,93,4 55/- IN THE FINAL ASSESSMENT ORDER PURSUANT TO THE DIREC TIONS OF THE HONOURABLE DRP, WITHOUT GIVING BASIS OF COMPUTATION IN THE FINAL ASSESSMENT ORDER. 7. THE HONOURABLE DRP HAS MADE ENHANCEMENT TO THE TP ADJUSTMENT AND THEREFORE TOTAL INCOME, WITHOUT GIVING NOTICE OF ENHANCEMENT. GROUNDS RELATED TO COMPUTATION OF ALP SINCE COMPUTATION OF TP ADJUSTMENT PURSUANT TO DRP DIRECTIONS IS NOT GIVEN IN THE FINAL ASSESSMENT ORD ER, THE APPELLANT IS RAISING ALL THE FOLLOWING GROUNDS: 8. THE LOWER AUTHORITIES HAVE ERRED IN:- A. REJECTING THE TRANSFER PRICING ANALYSIS UNDERTAK EN BY THE APPELLANT ON UNJUSTIFIABLE GROUNDS; B. CONDUCTING A FRESH TRANSFER PRICING ANALYSIS DESPITE ABSENCE OF ANY DEFECTS IN THE TRANSFER PRICING ANALYSIS SUBMITTED BY THE ASSESSEE; C. REJECTING COMPARABLES SELECTED BY THE APPELLANT IN IT(TP)A NO.85/B/16 4 THE TP STUDY AND ADDITIONAL COMPARABLES PROPOSED BY THE APPELLANT ON UNJUSTIFIABLE GROUNDS; D. ADOPTING INAPPROPRIATE FILTERS FOR SELECTING COMPARABLES; E. SELECTING INAPPROPRIATE COMPARABLES AND SELECTIN G COMPANIES AS COMPARABLES EVEN THOUGH THEY ARE NOT COMPARABLE IN RESPECT OF FUNCTIONS PERFORMED, RISKS ASSUMED, ASSETS UTILISED, SIZE, TURNOVER, UNUSUAL BUSINESS CIRCUMSTANCES, HIGH MARGIN AND WHICH ARE NOT FUNCTIONALLY COMPARABLE TO THE APPELLANT; F. TREATING PROVISION FOR BAD DEBT AND BAD DEBTS WRITTEN OFF AS NON-OPERATING IN NATURE WHILE COMPUTING THE MARGIN OF THE COMPARABLES; G. NOT APPROPRIATELY COMPUTING THE WORKING CAPITAL ADJUSTMENT WHILE COMPUTING THE ALP; H. NOT MAKING PROPER ADJUSTMENT FOR ENTERPRISE LEVEL AND TRANSACTIONAL LEVEL DIFFERENCES BETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES; AND I. NOT MAKING PROPER ADJUSTMENT FOR RISK DIFFERENTIALS BETWEEN THE APPELLANT AND THE COMPARABLES. 9. THE LOWER AUTHORITIES HAVE ERRED IN NOT APPRECIATING THAT THE LAW DOES NOT COMPEL ADOPTING IT(TP)A NO.85/B/16 5 MANY (OR ANY MINIMUM) COMPANIES AS COMPARABLES AND THAT THE APPELLANT COULD JUSTIFY THE PRICE PAID/CHARGED ON THE BASIS OF ANY ONE COMPARABLE ONLY. 10. THE LOWER AUTHORITIES HAVE ERRED IN NOT ALLOWING THE BENEFIT OF THE +1-5% RANGE MENTIONED IN THE PROVISO TO SECTION 92C (2). OTHER GROUNDS 11. THE LEARNED AO HAS ERRED IN LEVYING A SUM OF RS. 60,05,520/- UNDER SECTION 234B. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, INTEREST IS NOT LEVIABLE. THE APPELLANT DENIES ITS LIABILITY TO PAY INTEREST U/S 234B. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S/ SUB-GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE T O ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, 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 INCOME-TAX APPELLATE TRIBUNAL TO DECIDE THE APPEAL ACCORDING TO LAW. IT(TP)A NO.85/B/16 6 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. THE ASSESSEE IS A SUBSIDIARY OF ZYME SOLUTIONS INC., USA. THE ASSESS EE IS A CAPTIVE SERVICE PROVIDER RENDERING SERVICES ON COST PLUS MARK UP BA SIS TO ITS PARENT COMPANY. THE SERVICES PROVIDED ARE IN THE FIELD OF DATA PROCESSING SERVICES PERTAINING TO SUPPORT TO DATA MANAGEMENT SERVICES W ITH MINIMAL APPLICATION OF KNOWLEDGE AND LIMITED TO NIL ANALYTICAL AND TECH NICAL SKILLS. ASSOCIATED ENTERPRISE RECEIVES SALES DATA FROM THE CHANNEL DIS TRIBUTORS OF ITS CUSTOMERS WHO ARE BASED ACROSS THE WORLD. THIS DATA NEEDS CLE ANSING AND FORMATTING BEFORE IT CAN BE SENT TO THE CUSTOMERS. THE ASSESSE E UNDERTAKES THE DATA PROCESSING ACTIVITY, KEEPS A RECORD OF THE DATA REC EIVED AND FOLLOWS UP WITH DISTRIBUTORS. THE CLEANSED DATA IS THEN LOADED TO T HE CUSTOMERS' DATA WAREHOUSE BY THE END OF THE WEEK. THIS PROCESS IS R EPEATED ON A WEEKLY BASIS. 4. IN SPITE OF THE PARENT COMPANY HAVING INC URRED OPERATING LOSSES, THE ASSESSEE HAS CONSISTENTLY DECLARED INCOME ON THE BA SIS OF COST PLUS MARGIN. DURING THE YEAR UNDER CONSIDERATION, A RETURN OF IN COME WAS FILED BY THE ASSESSEE ON 30.11.2011 DECLARING LOSS OF RS. 32,36, 750/- UNDER NORMAL COMPUTATION AND RS. 1.05.60.849/- AS BOOK-PROFITS U /S 11 5J OF THE ACT. THE IT(TP)A NO.85/B/16 7 ASSESSEE, UNDER THE NORMAL COMPUTATION CLAIMED DEDU CTION OF RS. 1,52,31,416/- UNDER SECTION 10A OF THE ACT. TAX UND ER MAT PROVISIONS BEING HIGHER WAS PAID. 5. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF TH E ACT. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY BY ISSUE OF NOTICE UNDER SECTION 143(2) OF THE ACT. VARIOUS DETAILS CALLED FOR WERE FILED BY THE ASSESSEE. 6. THE ASSESSEE FILED AN AUDIT REPORT UNDER SECTIO N 92E IN FORM NO.3CEB5 CERTIFYING THE PRICES CHARGED IN THE INTER NATIONAL TRANSACTION WITH THE ASSOCIATED ENTERPRISE ON 29THI NOVEMBER 2011. D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO THE FOLLOW ING INTERNATIONAL TRANSACTIONS :- DESCRIPTION AMOUNT DATA PROCESSING SERVICES 2 4,71,42,655 7. THE ASSESSEE ADOPTED TRANSACTIONAL NET MARGIN METHOD (HEREINAFTER REFERRED AS 'TNMM' FOR SHORT) AS THE M OST APPROPRIATE METHOD IT(TP)A NO.85/B/16 8 TO JUSTIFY THE PRICE CHARGED FOR DATA PROCESSING SE RVICES. 8. AFTER CARRYING OUT A METHODICAL SEARCH PROCESS ON PROWESS DATABASE, THE ASSESSEE SELECTED 4 COMPANIES AS COMP ARABLES. THE ASSESSEE COMPUTED THE ARM'S LENGTH PRICE USING DATA RELATING TO FY 2010-11. ADOPTING OPERATING PROFIT TO COST AS THE PROFIT LEVEL INDICA TOR (PL), THE ARITHMETIC MEAN MARGIN OF THE COMPARABLES WAS COMPUTED AT 9.06%. THE PLI OF THE ASSESSEE WAS AT 7.50%. SINCE THE PRICE RECEIVED BY THE ASSESSEE WAS WITHIN 5% RANGE OF THE ARM'S LENGTH PRICE, THE TRANSACTION S IN RESPECT OF DATA PROCESSING SERVICES PROVIDED TO THE AE WERE CONSIDE RED TO BE AT ARM'S LENGTH. 9. THE ASSESSEE HAS SELECTED THE FOLLOWING COMPARA BLE IN ITS TP STUDY: 1. ACROPETAL TECHNOLOGIES LTD., 2. COSMIC GLOBAL LTD. 3. INFOSYS BPO LTD., 4. ULTRAMARINE & PIGMENTS LTD., IT(TP)A NO.85/B/16 9 10. A REFERENCE WAS MADE U/S 92CA OF THE ACT TO TH E TPO AND THE TPO VIDE NOTICE DATED 19/2/2014 ASKED THE ASSESSEE TO SUBMIT THE FINANCIAL STATEMENTS, TAX AUDIT REPORT, TP DOCUMENT S MENTIONED IN SEC. 92D OF THE ACT. THEREAFTER THE TPO HAD GIVEN SHOW CAUSE NOTICE ON 24/11/2014 AND VIDE THIS NOTICE, THE TPO ASKED THE ASSESSEE TO FURNISH HIS REPLY IN RESPECT OF THE COMPARABLE SELECTED BY THE TPO. THE TPO HAD ALSO PROPOSED THREE DIFFERENT TP ANALYSES AS BPO, K PO SOFTWARE SERVICES. THE ASSESSEE FILED THE DETAILED REPLY ON 5/12/2014 AND HAS SUBMITTED VARIOUS OBJECTIONS. THE TPO FINALLY PASS ED THE ORDER REJECTING ONE OF THE COMPARABLE SELECTED BY THE ASSESSEE AND THEREAFTER SELECTED TOTAL 10 COMPANIES INCLUDING THREE COMPANIES SELECT ED BY THE ASSESSEE AND THEREAFTER HAS CONCLUDED THE AVERAGE NET PROFIT MARGIN TO THE MARGIN COST OF 10 COMPARABLE AT 24.77% AND AFTER GIVING TH E WORKING CAPITAL ADJUSTMENT, CALCULATED THE NET MARGIN ON COST OF 23 .14%. IT MAY BE RELEVANT TO MENTION HERE THAT THE ASSESSEE HAS NOT OBJECTED THE INCLUSION OF ACROPETAL TECHNOLOGIES LTD., COSMIC GLOBAL LTD, AND INFOSYS BPO LTD. IN FACT IN THE TP STUDY SUBMITTED BY THE ASSE SSEE, THE ASSESSEE HAS GIVEN A PROFILE OF THESE COMPANIES AS UNDER:- IT(TP)A NO.85/B/16 10 1. ACROPETAL TECHNOLOGIES LTD. ACROPETAL TECHNOLOGIES LTD IS RECOGNIZED IN INFORMATION TECHNOLOGY (IT) OUTSOURCING SERVICES. T HE COMPANY OFFERS COMPREHENSIVE ENTERPRISE SOLUTIONS I N ENGINEERING DESIGN SERVICES, HEALTHCARE, AND ENERGY AND ENVIRONMENT SECTORS. THE COMPANY PROVIDES COMPLETE SOLUTIONS IN THE FORM OF CONSULTING SERVICES, OUTSO URCING, PROFESSIONAL SERVICES, MAINTENANCE, AND SUSTENANCE OF ALL IT NEEDS. THEY OFFER A BROAD SPECTRUM OF ENGINEERIN G DESIGN SERVICES TO REDUCE PRODUCT DESIGN CYCLE TIM E AND COSTS. THE PORTFOLIO OF SERVICES INCLUDES CONCEPT D ESIGN, PRODUCT DESIGN & DEVELOPMENT ADVANCED ANALYSIS, RELIABILITY ENGINEERING AND VALUE ENGINEERING. ENGINEERING DESIGN SERVICE & HEALTH CARE SEGMENTS A RE CONSIDERED FOR THE PURPOSE OF ARRIVING AT MARGINS F OR COMPARISON. 2. COSMIC GLOBAL LTD. COSMIC GLOBAL LIMITED (CCI ) IS A BUSINESS SERVICE PROVIDER WITH ITS OPERATIONS CENTER BASED IN CHENNA I, INDIA AND FRONT OFFICES IN THE UNITED KINGDOM AND C ANADA. PART OF A 100 MILLION USI) BUSINESS ORGANIZATION C CL IS ISO CERTIFIED AND IS CHARACTERIZED BY WORLD CLASS Q UALITY IT(TP)A NO.85/B/16 11 AND PROFESSIONALISM. THE MAIN SERVICES AND SOLUTION S PROVIDED BY COSMIC GLOBAL LIMITED ARE: TRANSLATION, LOCALIZATION, VOICEOVERS, MULTI LINGUAL DESKTOP PUB LISHING, ACCOUNTS PROCESSING AND TRANSCRIPTION. STANDALONE FINANCIALS ARE CONSIDERED FOR THE PURPOS E OF ARRIVING AT MARGINS FOR COMPARISON. 3. INFOSYS BPO INFOSYS BPO, THE BUSINESS PROCESS OUTSOURCING SUBSIDIARY OF INFOSYS (NYSE: INFY), IS AN END-TO-E ND OUTSOURCING SERVICES PROVIDER. INFOSYS BPO ADDRESSE S THE BUSINESS CHALLENGES AND UNLOCKS BUSINESS VALUE BY A PPLYING PROVEN PROCESS METHODOLOGIES WITH INTEGRATED II AND BUSINESS PROCESS OUTSOURCING SOLUTIONS. THE COMPANY FOCUSES ON INTEGRATED END-TO-END OUTSOURCING AND DE LIVERY OF RESULT-ORIENTED BENEFITS TO OUR CLIENTS THROUGH REDUCED COSTS, ONGOING PRODUCTIVITY IMPROVEMENTS, AND PROCE SS REENGINEERING. STANDALONE FINANCIALS ARE CONSIDERED FOR THE PURPOS E OF ARRIVING AT MARGINS FOR COMPARISON IT(TP)A NO.85/B/16 12 11. BASED ON THE NET MARGIN, THE TPO HAS DETERMINE D ITES SERVICES RENDERED AT 283,099,037/- AND ACCORDINGLY DETERMI NED TP ADJUSTMENT FOR DATA PROCESSING SERVICES AT RS.35,956,382/-. 12. FEELING AGGRIEVED BY THE ORDER PASSED BY THE T PO, THE ASSESSEE FILED THE PROCEEDING BEFORE THE DRP. HOWEVER, BEFO RE THE DRP, THE ASSESSEE WAS NOT SUCCESSFUL AND THE DRP HAS UPHELD THE FINDING OF THE TPO. 13. THOUGH VARIOUS GROUND WERE RAISED BEFORE US, BU T DURING THE COURSE OF ARGUMENT, BUT THE ASSESSEE HAS ONLY REST RICTED ITS PRAYER FOR THE ADJUDICATION OF THE GROUND WITH RESPECT TO TRA NSFER PRICING ONLY. 14. BEFORE US, NO SPECIFIC GROUND WITH RESPECT TO E XCLUSION OF ANY OF THE COMPARABLE HAS BEEN PLACED. HOWEVER, THE LD AR HAS SUBMITTED THAT THE ASSESSEE HAS NO OBJECTION FOR RETENTION / INCLUSION OF COSMIC GLOBAL LTD., E4E HEALTHCARE BUSINESS SERVICES PVT . LTD. AND JINDAL INTELLICOM LTD..FURTHER FOR THE REMAINING SEVEN COM PARABLES, THE ASSESSEE HAS RAISED THE OBJECTIONS AND SUBMITTED AR GUMENTS FOR EXCLUSION OF THE SAID SEVEN COMPARABLES. IT(TP)A NO.85/B/16 13 15 NOW WE DEAL WITH THE SUBMISSIONS OF THE ASSESSEE WITH RESPECT TO REMAINING SEVEN COMPANIES:- 1) ACCENTIA TECHNOLOGIES LTD. IN RESPECT OF ACCENTIA, THE LD AR HAS SUBMITTED THA T THE COMPANY IS FUNCTIONALLY DIFFERENT, AS IT HAS SIGNIF ICANT INTANGIBLES. FURTHER THIS COMPANY ADOPTS DIFFERENT BUSINESS MODEL OF INORGANIC GROWTH VIA ACQUIRING VARIOUS COM PANIES AND, THEREFORE, IT WAS SUBMITTED THAT THIS COMPANY IS REQUIRED TO BE EXCLUDED. FOR BUTTRESS, THE LD AR R ELIED UPON THE FOLLOWING 4 COMPARABLES, THEY ARE : 1. SWISS RE SHARED SERVICES INDIA PVT. LTD, IN IT(TP)A NO.598/BANG/2016 2. S&P CAPITAL IQ INDIA PVT. LTD., IN IT(TP)A NO.564/HYD/2016 3. EXEVO INDIA PVT. LTD. IN ITA NO.588/DEL/2016 4. ORANGE BUSINESS SERVICES INDIA SOLUTIONS PVT. LTD. IN IT(TP)A NO.355/DEL/2016 IT(TP)A NO.85/B/16 14 16. WE WISH TO TAKE ONLY SWIZZ RE SHARED SERVICES INDIA LTD. (SUPRA), WHEREIN AT PARAGRAPH 15 IT IS MENTIONED A S UNDER: 15. AS AGAINST THE ABOVE, ASSESSEE WAS PROVIDING B ACK OFFICE SUPPORT TO ITS GROUP COMPANIES AND AFFILIATE S, IN THE FIELD OF REINSURANCE, WHICH ITS AFFILIATES WERE ENG AGED IN. WORK DONE BY THE ASSESSEE HAS BEEN CAPTURED BY US A T PARA THREE ABOVE. THIS IN OUR OPINION WAS ENTIRELY DIFFE RENT FROM THE TYPE OF ACTIVITIES THAT ACCENTIA TECHNOLOGIES L TD, WAS INTO. TYPE OF SERVICES RENDERED BY THE ASSESSEE IS ALSO CLEAR FROM THE SERVICE AGREEMENT ENTERED WITH ITS AE CALL ED SWISS RE, ZURICH, DT. 1.2.2009. ANNEXTURE-1 TO THIS AGRE EMENT, IS REPRODUCED HEREUNDER: IT(TP)A NO.85/B/16 15 17. THE COORDINATE BENCH WHILE EXCLUDING THE ACCENT IA TECHNOLOGIES LTD., AS COMPARABLE HAS RELIED UPON TH E DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF RAMP GREEN SOLUTION PVT. LTD., AND OTHER JUDGMENT AND ULTIMATELY IN PARAGRAPH 20 I T HAS HELD THAT THE ACCENTIA TECHNOLOGIES LTD., WAS NOT A GOOD COMPARA BLE FOR THE PURPOSE OF ALP STUDY OF THE ASSESSEE. IT(TP)A NO.85/B/16 16 18. THE LD AR BEFORE US HAS FILED THE PROFILE OF T HE ASSESSEE COMPANY IN THE PAPER BOOK AND THE SAME IS REPRODU CED IN THE TP ORDER TO THE FOLLOWING EFFECT:- ZYME SOLUTION PVT LTD IS A WHOLLY OWNED SUBSIDIARY OF ZYME SOLUTION INC., USA. ZYME INDIA IS ENGAGED IN P ROVIDING SUPPORT TO DATA MANAGEMENT SERVICES TO ZYME USA'S CUSTOMERS. THE TAXPAYER IS A CAPTIVE SERVICE PROVID ER RENDERING SERVICES. ON TOTAL COST REIMBURSEMENT PLU S. A MARK UP TO ITS PARENT COMPANY. THE SERVICES PROVIDE D ARE IN THE FIELD OF SUPPORT FUNCTIONS. PERTAINING TO SUPPO RT TO DATA MANAGEMENT SERVICES (SUPPORT TO DATA ANALYSIS SERVI CES) (WITH MINIMAL APPLICATION OF KNOWLEDGE AND LIMITED TO NIL ANALYTICAL AND TECHNICAL SKILLS) TO ITS PARENT COMP ANY (ASSOCIATED ENTERPRISES) IN USA. IN SPITE OF THE PA RENT COMPANY HAVING INCURRED OPERATING LOSSES, THE ASSES SEE COMPANY HAS CONSISTENTLY DECLARED INCOME ON COST PL US MARGIN. 19. AS NOTED BY US HEREIN ABOVE, THE COORDINATE BEN CH IN PARAGRAPH 15 HAS REPRODUCED WORK PROFILE OF THE COMPANY FROM THE SERVICE AGREEMENT ENTERED BY THE ASSESSEE WITH ITS AE. WE NOTICED THAT IN THE IT(TP)A NO.85/B/16 17 ENTIRE PAPER BOOK , FUNCTIONS PERFORMED BY THE ASSE SSEE WHILE DISCHARGING CONTRACTUAL OBLIGATION WITH ASSESSEE AR E NOT AVAILABLE AND, THEREFORE, IN THE ABSENCE OF ANY DOCUMENT SHOWING THE KIND OF SERVICE BEING RENDERED BY THE ASSESSEE TO ITS AE, IT IS DI FFICULT TO COMPARE THE FUNCTIONS/PROFILE OF THE ASSESSEE COMPANY WITH THAT OF THE PROFILE OF THE M/S SWIZZ RE SHARED SERVICES INDIA PVT. LTD., (SUP RA). IN VIEW THEREOF, WE DEEM IT APPROPRIATE TO REMAND THE MATTER WITH RE SPECT OF ACCENTIA TECHNOLOGIES LTD. TO THE FILE OF TPO/DRP FOR THE PU RPOSE OF COMPARING THE PROFILE OF THE ASSESSEE WITH THAT OF THE ACCENT IA TECHNOLOGIES LTD./ M/S SWIZZ RE SHARED SERVICES INDIA PVT. LTD., (SUP RA). WE MAY ALSO POINT OUT THAT DELHI HIGH COURT IN THE CASE OF RAM GREEN SOLUTIONS PVT. LTD., VS. CIT IN ITA NO.102/2015 DT. 10-8-2015, WHE REIN AT PARAGRAPH 33 TO 35 HONBLE HIGH COURT HELD AS UNDER:- '33. THE SPECIAL BENCH OF THE TRIBUNAL IN MAERSK GLOBAL CENTERS (INDIA) PUT. LTD. (SUPRA) STR UCK A DIFFERENT CORD. THE SPECIAL BENCH OF THE TRIBUNAL H ELD THAT EVEN THOUGH THERE APPEARS TO BE A DIFFERENCE BETWEEN BPO AND KPO SERVICES, THE LINE OF DIFFERENC E IS VERY THIN. THE TRIBUNAL WAS OF THE VIEW THAT THERE COULD IT(TP)A NO.85/B/16 18 BE A SIGNIFICANT OVERLAP IN THEIR ACTIVITIES AND IT MAY BE DIFFICULT TO CLASSIFY SERVICES STRICTLY AS FALLING UNDER THE CATEGORY OF EITHER A BPO OR A KPO. THE TRIBUNAL ALS O OBSERVED THAT ONE OF THE KEY SUCCESS FACTORS OF THE BPO INDUSTRY IS ITS ABILITY TO MOVE UP THE VALUE CHAIN THROUGH KPO SERVICE OFFERING. FOR THE AFORESAID REASONS, TH E SPECIAL BENCH OF THE TRIBUNAL HELD THAT ITES SERVIC ES COULD NOT BE BIFURCATED AS BPO AND KPO SERVICES FOR THE PURPOSE OF COMPARABILITY ANALYSIS IN THE FIRST INSTANCE. THE TRIBUNAL PROCEEDED TO HOLD THAT A RELATIVELY EQUAL DEGREE OF COMPARABILITY CAN BE ACH IEVED BY SELECTING POTENTIAL COMPARABLES ON A BROAD FUNCTIONAL ANALYSIS AT ITES LEVEL AND THAT THE COMPARABLES SO SELECTED COULD BE PUT TO FURTHER TES T BY COMPARING SPECIFIC FUNCTIONS PERFORMED IN THE INTERNATIONAL TRANSACTIONS WITH UNCONTROLLED TRANSACTIONS TO ATTAIN RELATIVELY EQUAL DEGREE OF COMPARABILITY. 34. WE HAVE RESERVATIONS AS TO THE TRIBUNAL'S AFORE SAID VIEW IN MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. (SU PRA). AS INDICATED ABOVE, THE EXPRESSION 'BPO' AND 'KPO' ARE, PLAINLY, UNDERSTOOD IN THE SENSE THAT WHEREAS, BPO DOES IT(TP)A NO.85/B/16 19 NOT NECESSARILY INVOLVE ADVANCED SKILLS AND KNOWLED GE; KPO, ON THE OTHER HAND, WOULD INVOLVE EMPLOYMENT OF ADVANCED SKILLS AND KNOWLEDGE FOR PROVIDING SERVICE S. THUS, THE EXPRESSION `KPO' IN COMMON PARLANCE IS US ED TO INDICATE AN ITES PROVIDER PROVIDING A COMPLETELY DIFFERENT NATURE OF SERVICE THAN ANY OTHER BPO SERV ICE PROVIDER. A KPO SERVICE PROVIDER WOULD ALSO BE FUNCTIONALLY DIFFERENT FROM OTHER BPO SERVICE PROVI DERS, INASMUCH AS THE RESPONSIBILITIES UNDERTAKEN, THE ACTIVITIES PERFORMED, THE QUALITY OF RESOURCES EMPL OYED WOULD BE MATERIALLY DIFFERENT. IN THE CIRCUMSTANCES , WE ARE UNABLE TO AGREE THAT BROADLY ITES SECTOR CAN BE USED FOR SELECTING COMPARABLES WITHOUT MAKING A CONSCIOU S SELECTION AS TO THE QUALITY AND NATURE OF THE CONTE NT OF SERVICES. RULE 10B(2)(A) OF THE INCOME TAX RULES, 1 962 MANDATES THAT THE COMPARABILITY OF CONTROLLED AND UNCONTROLLED TRANSACTIONS BE JUDGED WITH REFERENCE TO SERVICE/ PRODUCT CHARACTERISTICS. THIS FACTOR CANNO T BE UNDERMINED BY USING A BROAD CLASSIFICATION OF ITES WHICH TAKES WITHIN ITS FOLD VARIOUS TYPES OF SERVIC ES WITH COMPLETELY DIFFERENT CONTENT AND VALUE. THUS, WHERE THE TESTED PARTY IS NOT A KPO SERVICE PROVIDER, AN ENTI TY RENDERING KPO SERVICES CANNOT BE CONSIDERED AS A COMPARABLE FOR THE PURPOSES OF TRANSFER PRICING IT(TP)A NO.85/B/16 20 ANALYSIS. THE PERCEPTION THAT A BP0 SERVICE PROVIDE R MAY HAVE THE ABILITY TO MOVE UP THE VALUE CHAIN BY OFFERING KPO SERVICES CANNOT BE A GROUND FOR ASSESS ING THE TRANSACTIONS RELATING TO SERVICES RENDERED BY T HE BP0 SERVICE PROVIDER BY BENCHMARKING IT WITH THE TRANSACTIONS OF KPO SERVICES PROVIDERS. THE OBJECT IS TO ASCERTAIN THE ALP OF THE SERVICE RENDERED AND NOT O F A SERVICE (HIGHER IN VALUE CHAIN) THAT MAY POSSIBLY B E RENDERED SUBSEQUENTLY. 35. AS POINTED OUT BY THE SPECIAL BENCH OF THE TRIBUNAL IN MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. (SUPRA), THERE MAY BE CASES WHERE AN ENTITY MAY BE RENDERING A MIX OF SERVICES SOME OF WHICH MAY BE FUNCTIONALLY COMPARABLE TO A KPO WHILE OTHER SERVIC ES MAY NOT. IN SUCH CASES A CLASSIFICATION OF BPO AND KPO MAY NOT BE FEASIBLE. CLEARLY, NO STRAITJACKET FORMULA CAN BE APPLIED. IN CASES WHERE THE CATEGORIZATION O F SERVICES RENDERED CANNOT BE DEFINED WITH CERTAINTY, IT WOULD BE APPOSITE TO EMPLOY THE BROAD FUNCTIONALITY TEST AND THEN EXCLUDE UNCONTROLLED ENTITIES, WHICH ARE FOUND TO BE MATERIALLY DISSIMILAR IN ASPECTS AND FE ATURES THAT HAVE A BEARING ON THE PROFITABILITY OF THOSE E NTITIES. HOWEVER, WHERE THE CONTROLLED TRANSACTIONS ARE CLEA RLY IT(TP)A NO.85/B/16 21 IN THE NATURE OF LOWER-END ITES SUCH AS CALL CENTER S ETC. FOR RENDERING DATA PROCESSING NOT INVOLVING DOMAIN KNOWLEDGE, INCLUSION OF ANY KPO SERVICE PROVIDER AS A COMPARABLE WOULD NOT BE WARRANTED AND THE TRANSFER PRICING STUDY MUST TAKE THAT INTO ACCOUNT AT THE THRESHOLD'. 20. IN VIEW THEREOF TPO IS DIRECTED TO ASCERTAIN THE PROFILE OF THE ASSESSEE BY EXAMINING THE SERVICE AGREEMENTS WHICH THE ASSESSEE IS HAVING WITH ITS AE AND TO COME OUT WHETHER THE SERVICE REN DERED BY THE ASSESSEE TO ITS AE WERE IN THE NATURE OF BPO, KPO OR SOFTWARE SERVICES. 21. WITH RESPECT TO ACROPETAL TECHNOLOGIES AND INF OSYS BPO, THE ASSESSE HAS SUBMITTED THAT THESE COMPANIES ARE FUNC TIONALLY DIFFERENT AND IS ENGAGED IN RENDERING ENGINEERING DESIGN SERVICES ETC. IT WAS FURTHER SUBMITTED THAT THESE COMPANIES FAILS IN TURNOVER FI LTER AS WELL AS EMPLOYEE COST FILTER. ACROPETAL TECHNOLOGIES LTD. AND INFOSYS BPO IT(TP)A NO.85/B/16 22 22. AS STATED HEREIN ABOVE, THE ASSESSEE ITSELF HA S SELECTED THE COMPARABLES VIZ., ACROPETAL TECHNOLOGIES AND INFOSY S BPO AND EVEN IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE HAS ACC EPTED THE SAID COMPARABLES. IN OUR VIEW, ONCE THE ASSESSEE HAS AC CEPTED THE COMPARABLES BEFORE THE TPO AND HAS NOT CHALLENGED T HE SAID COMPARABLES BEFORE THE DRP AND HAS ALSO NOT CHALLENGED THE SAID COMPARABLES BEFORE THIS TRIBUNAL, IN OUR VIEW THE EXCLUSION OF THESE 2 COMPARABLES ON THE BASIS OF THE CHART, IS NOT POSSIBLE/PROPER. THESE 2 COMPARABLES CANNOT BE SUBJECT MATTER OF APPEAL BEFORE THE TRIBUNAL AS INC LUSION OF THESE 2 COMPARABLES WAS NEVER CHALLENGED BY THE ASSESSE BEF ORE THE DRP/TPO AS WELL AS BEFORE THE TRIBUNAL. THE GROUNDS RAISED BY THE ASSESSEE BEFORE US ARE NOT PROVIDING ANY OBJECTION FOR THESE 2 COMPARA BLES. THEREFORE, THE OBJECTION OF THE ASSESSEE IN RESPECT OF EXCLUSION O F THESE 2 COMPARABLES IS DEVOID OF MERIT AND IS, THEREFORE, REJECTED. ICRA ONLINE LTD. (SEG) IT(TP)A NO.85/B/16 23 23. THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY I S FUNCTIONALLY DIFFERENT SINCE IT IS ENGAGED IN PROVIDING INFORMAT ION SERVICES, SOFTWARE SERVICES AND KPO SERVICES AND THE COMPANY HAS SUBST ANTIAL RPT AT 24.77%. THE ASSESSEE HAS ALSO DRAWN OUR ATTENTION TO THE ORDERS PASSED BY THE COORDINATE BENCH IN THE CASE OF 24/7 CUSTOME R.COM PVT. LTD., IN ITA NO.227/BANG/2010 AND LOGICA PVT. LTD., IN IT(TP )A NO.1129/BANG/2011. THE ASSESSEE HAS ALSO SUBMITTED THAT THIS COMPANY FAILS ON EXPORT TURNOVER FILTER OF 75%. 24. ON THE OTHER HAND, IF WE LOOK INTO THE REPLY G IVEN BY ASSESSEE IN RESPONSE TO SHOW CAUSE NOTICE, WE NOTICE THAT THE B ASIC OBJECTION OF THE ASSESSEE WAS ICRA ONLINE LTD. IS PROVIDING INFORM ATION SERVICES AND TECHNOLOGY SOLUTION AND CATERS TO THE FINANCIAL SE RVICE SECTOR. IT WAS ALSO MENTIONED THAT OUTSOURCING SERVICE SEGMENT IS MAINLY ENGAGED IN PROVIDING KPO SERVICES AND HENCE REJECTED IN FUNCTI ONAL ANALYSIS. THE OUTSOURCING SERVICE SEGMENT WAS KPO ACTIVITY IN NAT URE AND IT IS NOT WHAT THE ASSESSEE IS INTO. IT(TP)A NO.85/B/16 24 25. ON THE OTHER HAND, THE TPO CONTROVERTED THE SA ID STUDY AND INFORMATION AT 24/7 CUTOMER.COM PVT. LTD. AND HAS M ENTIONED THAT ICRA ONLINE LTD., COMPANY HAS REPORTED 3 SEGMENTS I.E I NFORMATION SERVICES AND OUTSOURCING SERVICES AND SOFTWARE SERVICES AND ONLY OUTSOURCING WAS TAKING INTO CONSIDERATION. 26. WHILE DEALING WITH ACCENTIA TECHNOLOGIES LTD., THE BENCH HAS OBSERVED THE WORK AGREEMENT THAT THE ASSESSEE IS H AVING ITS AE IS NOT READILY AVAILABLE BY WAY OF CONTRACT AND, THEREFORE, THE TPO HAS ONL Y RELIED UPON THE SUBMISSION MADE BY THE ASSESSEE DU RING THE COURSE OF PROCEEDINGS. IN OUR VIEW, IT IS NECESSARY FOR THE TPO TO LOOK INTO THE SCOPE OF WORK WHICH THE ASSESSEE IS RENDERING TO IT S AE AND THE TPO SHOULD BE IN A POSITION TO CATEGORICALLY COMMENT WH ETHER SERVICES RENDERED BY THE ASSESSEE ARE COMPARABLE WITH THAT O F THE ICRA ONLINE LTD. IN VIEW THEREOF, WE DEEM IT APPROPRIATE TO RE MAND THE MATTER TO THE FILE OF THE TPO TO EXAMINE THIS ASPECT. IT MAY BE RELEVANT TO POINT OUT THAT THOUGH THE ASSESSEE HAS RAISED OBJECTION ON FA ILURE OF THE COMPARABLE OF ACROPETAL TECHNOLOGIES ON RPT FILTER AND ON EXPO RT TURNOVER FILTER. IT(TP)A NO.85/B/16 25 WE ARE NOT DEALING WITH THIS ISSUE AS THE SAID ISSU E HAS NOT BEEN RAISED AND CHALLENGED BEFORE THE TPO. WE MAY NOTE THAT T HE ASSESSEE HAS SUBMITTED THAT THE COMPANY IS REQUIRED TO BE REJECT ED AS IT FAILS ON RPT FILTER BEING 22.77%. WE DIRECT THE TPO TO VERIFY T HE RPT OF ICRA ONLINE LTD. (SEG) AND IF THE RPT WAS FOUND TO BE 22 .77% OR MORE THAN 15% THAN TPO IS DIRECTED TO EXCLUDED IT . JEEVAN SCIENTIFIC TECHNOLOGY LTD., MINDTREE LTD., IGATE SOLUTIONS LTD. 27. THE TOTAL OPERATING REVENUE OF THE ASSESSEE WAS 2,47,142,655/- AND THE TOTAL OPERATING REVENUE OF JEEVAN SCIENTIFIC TECHNO LOGY LTD., AS PER PAGE 32 WAS 172,14,00,000/-, MINDTREE LTD. WAS 5,653,00 0,000/- AND IGATE GLOBAL SOLUTIONS LTD WAS 118,45,540,000/-. 29. THE LD AR RELIED UPON THE DECISION OF THE TRI BUNAL IN THE CASE OF MACFEE SOFTWARE INDIA PVT. LTD., 136/2016 TO SA Y THAT IF THE TURNOVER OF THE COMPARABLE IS BELOW 1/10 TH OF THE TURNOVER SALES OF THE ASSESSEE OR MORE THAN 10 TIMES SALES OF THE ASSESSEE THEN SAID COMPARABLES ARE REQUIRED TO BE EXCLUDED. IT(TP)A NO.85/B/16 26 30. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE MAC FEE SOFTWARE INDIA PVT. LTD., WE DIRECT THE EXCLUSION OF OTHER 3 COMPARABLE COMPANIES FROM THE LIST OF COMPARABLES AND ACCORDINGLY THE A PPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 31. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH APRIL, 2017 . SD/- SD/- (A.K GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEM BER BANGALORE DATED : 28/4/2017 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRA R, ITAT, BANGALORE.