Schlumberger Global Support Centre Ltd, Pune V. Dy. Director of Income-Tax, Pune

ITA 86/PUN/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0975 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 08-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction
• Section: 234B

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, A M . / ITA NO.86/PN/2013 % % / ASSESSMENT YEAR : 2009-10 SCHLUMBERGER GLOBAL SUPPORT CENTRE LIMITED, OFFICE NO.701, BUILDING NO.9, COMMERZONE, SURVEY NO.144/145, SAMRAT ASHOK PATH, AIRPORT ROAD, YERWADA, PUNE 411006 PAN NO. AALCS2048C . / APPELLANT V/S D Y. DIT (INTL. TAXN - II), PUNE . / RESPONDENT / ASSESSEE BY : MS. KARISHMA PHATARPHEKAR, SHRI SUJIT THAKAR & SHRI HARSH SHAH / DEPARTMENT BY : SMT. M.S. VERMA, CIT / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER DATED 27-10-2012 PASSED U/S.143(3) R.W.S.144C(13) OF I.T.ACT BY THE DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION-II) RELA TING TO ASSESSMENT YEAR 2009-10. 2. FACTS OF THE CASE, IN BRIEF ARE THAT THE ASSESSEE IS A BRANCH OF FOREIGN COMPANY INCORPORATED IN UAE. THIS INDIAN BRANCH WAS ESTABLISHED ON 27.09.2007 AND COMMENCED ITS OPERATIONS ON 01.12.2007. THE ASSESSEE IS ENGAGED IN PROVIDING TECHNICAL SUPPORT / DATE OF HEARING : 07.08.2015 / DATE OF PRONOUNCEMENT:30.10.2015 2 SERVICES (ENGINEERING BACK-OFFICE SERVICES) TO ITS VARIOUS GR OUP COMPANIES OUTSIDE INDIA. THE COMPANY BELONGS TO SCHLUMBER GER GROUP WHICH IS A LEADING OILFIELD SERVICES PROVIDER FOR OIL AND GAS COMPANIES AROUND THE WORLD. IT FILED ITS RETURN OF INCOME ON 26-10- 2009 DECLARING TOTAL INCOME OF RS.71,20,590/-. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS SHOWN INCOME FROM SUPPORT SERVIC ES OF RS.10,52,92,835/- AND OTHER INCOME OF RS.49,89,078/- ON WHICH A NET PROFIT OF RS.65,01,060/- HAS BEEN DISCLOSED. THE AO NOT ED THAT THE ASSESSEE HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES THE DETAILS OF WHICH ARE AS UNDER : SR. NO. NATURE OF THE ASSOCIATED ENTERP RISES AMOUNT (RS.) 1 SCHLUMBERGER TECHNOLOGY CORPORATION, USA 7,51,09,169 2 ETUDES ET PRODUCTIONS SCHLUMBERGER, FRANCE 2,81,49,402 3 WESTERNGECO AS, NORWAY 5,27,936 4 SCHLUMBERGER VECTOR SA, FRANCE 15,06,328 TOTAL 10,52,92,835 4. SINCE THE INTERNATIONAL TRANSACTIONS WERE BELOW RS.15 CRORES THE CASE WAS NOT REFERRED TO THE TPO. HOWEVER, THE AO EXAMINED THE CASE OF THE ASSESSEE FROM TRANSFER PRICING ANGLE. FRO M THE TP STUDY REPORT SUBMITTED BY THE ASSESSEE, THE AO NOTED THAT THE ASSESSEE HAS SELECTED TNMM AS THE MOST APPROPRIATE ME THOD TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS. THE ASSESSEE HA S CONSIDERED 5 COMPANIES AS COMPARABLES BY CONSIDERING WE IGHTED AVERAGE MARGINS OF 3 YEARS DATA FOR THE F.YRS. 2006-07 T O 2008-09. SINCE ACCORDING TO THE AO, AS PER RULE 10B(4), IT IS MANDAT ORY TO USE THE CURRENT YEAR DATA, I.E. DATA FOR F.Y. 2008-09 AND THAT EARLIER 3 2 YEAR DATA CAN BE USED ONLY WHEN IT IS SHOWN THAT SU CH EARLIER YEAR DATA HAD AN INFLUENCE IN DETERMINING THE PRICE, THEREFORE, TH E AO ASKED THE ASSESSEE TO FURNISH THE UPDATED MARGINS OF TH E COMPARABLE COMPANIES SELECTED BY IT. ACCORDINGLY, THE AS SESSEE SUBMITTED FRESH SET OF COMPARABLES CONSIDERING THE TURNOV ER FILTER OF RS.200 CRORES INSTEAD OF RS.15 CRORES CONSIDERED IN THE TP REPORT AND SUBMITTED THE FOLLOWING SET OF COMPARABLE COMPANIES : SR. NO. NAME OF THE COMPARABLE COMPANY PLI % (OP/OC) PLI % (OP/OC) AFTER CONSIDERING WORKING CAPITAL ADJUSTMENT REMARKS 1. CG - VAK SOFTWARE AND EXPORTS LTD 3.84 - 0.44 2. COSMIC GLOBAL LTD NC NC SUPER NORMAL PROFIT AND HENCE REJECTED / NC 3. FLEXTRONICS SOFTWARE SYSTEMS LTD (SEGMENTAL) NA NA DATA NOT AVAILABLE 4. INFORMED TECHNOLOGIES INDIA LTD 22.95 21.95 5. ICRA ONLINE LTD (SEGMENTAL) NC NC FUNCTIONALLY DIFFERENT AND HENCE REJECTED / NC 6. CEPHA IMAGING LTD 1.94 - 4.19 7. MICROGENETICS SYSTEMS LTD 0.87 -0.77 8. AL LSEC TECHNOLOGIES LTD - 9.06 - 11.96 9. R SYSTEMS INTERNATIONAL LTD 12.10 9.00 10. VISHAL INFORMATION TECHNOLOGIES LTD 38.61 25.13 AVERAGE 10.18 5.53 5. THE AO ANALYSED THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE AND HELD THAT WHILE SOME OF THE COMPANIES ARE COMPARABLES, HOWEVER, OTHER COMPANIES ARE NOT COMPAR ABLE. THE AO RE-WORKED THE PLI OF THE ASSESSEE BY TAKING PBIT/O C WHICH IS AS UNDER : 4 INCOME INCOME FROM OPERATIONS 105,292,835 FOREIGN EXCHANGE GAIN 5,531,304 MISC INCOME - OPERATING REVENUES 110,824,139 EXPENDITURE SALARIES, WAGES & OTHER BENEFITS TO EMPLOYEES 58,615,132 ADMINISTRATIVE EXPENSES 36, 738, 085 DEPRECIATION 8,396,758 PROVISION FOR FRINGE BENEFIT TAX 1,015,272 OPERATING COST 104,765,247 OPERATING PROFIT 8,058,892 OPERATING PROFIT / OPERATING COST 5.78% 6. AFTER CONSIDERING THE ANNUAL REPORTS OF THE COMPARABLES , THE AO NOTED THAT THE PLI WORKING IN THE CASE OF THE ASSE SSEE TAKING PBIT/OC IS 5.78% WHEREAS THE PLI WORKING OF THE COMPAR ABLE COMPANIES FINALLY SELECTED BY HIM COMES TO 29.02%. SIMILARLY , THE PLI WORKING AFTER CONSIDERING THE WORKING CAPITAL ADJUSTM ENT OF THE COMPARABLES SELECTED BY HIM COMES TO 24.33%. THE COMPAN IES SELECTED BY THE AO AT PARA 7 OF THE ORDER IS AS UNDER : SR. NO. NAME OF THE COMPARABLE COMPANY PLI% (OP/OC) PLI% (OP/OC) AFTER CONSIDERING WORKING CAPITAL ADJUSTMENT REMARKS 1 CG - VAK SOFTWARE AND EXPORTS LTD. 3.84 - 0.44 AS PER ASSESSEES WORKING 2 COSMIC GLOBAL LTD. 50.70 50.70 THE ASSESSEE MAY PROVIDE CAPITAL WORKING ADJUSTMENT IN THIS CASE 3 INFORMED TECHNOLOGIES INDIA LTD. 22.95 21.95 AS PER ASSESSEES WORKING 4 VISHAL INFORMATION TECHNOLOGIES LTD. 38.61 25.13 AS PER ASSESSEES WORKING AVERAGE 29.02 24.33 5 7. BASED ON THE ABOVE, THE AO PROPOSED TO MAKE ADDITIO N OF RS.1,94,30,492/- ON ACCOUNT OF TP ADJUSTMENT THE DETAILS OF WHICH ARE AS UNDER : OPERATING COST 10,47,85,247 ARMS LENGTH MEAN MARGIN (OP/OC) 24.33% ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSA CTION (@124. 33% OF OPERATING COST) [A] 13,02,54,631 PRICE CHARGED (OPERATING REVENUE OF THE ASSESSEE) [ B] 11,08,24,139 ADJUSTMENT OVER OPERATING INCOME [A - B] (SHORTFALL BEING ADJUSTMENT U/S 92C(3) 1,94,30,492 8. THE AO THEREFORE ASKED THE ASSESSEE TO SUBMIT ITS OBJECTION S IF ANY REGARDING THE PROPOSED ADDITION. THE ASSESSEE FILED ITS SUBMISSIONS OBJECTING THE REJECTION OF THE FOLLOWING COMPAN IES AS COMPARABLES : 1. CEPHA IMAGING LTD. 2. MICROGENETICS SYSTEMS LIMITED 3. ALLSEC TECHNOLOGIES LTD 4. R SYSTEMS INTERNATIONAL LTD 9. THE AO ACCEPTED THE CONTENTION OF THE ASSESSEE REGA RDING REJECTION OF MICROGENETICS SYSTEMS LTD. FOR WHICH HE CONSID ERED THE SAME AS COMPARABLE. HOWEVER, IN RESPECT OF THE REMAININ G 3 COMPANIES, I.E. CEPHA IMAGING LTD. ALLSEC TECHNOLOGIES LTD . AND R SYSTEMS INTERNATIONAL LTD. THE AO REJECTED THE VARIOUS CONTENTIONS OF THE ASSESSEE. 10. SO FAR AS THE REJECTION OF CEPHA IMAGING LTD. IS CONC ERNED THE AO NOTED THAT THE RELATED PARTY TRANSACTIONS OF CEPHA IMAGING LTD. ARE RS.4,01,87,048/- WHEREAS ITS INCOME IS RS.14,44,25,927/-. THUS, THE RPT IS 27.82%. THEREFORE, CEPHA IMAGING LTD. C ANNOT BE ACCEPTED AS COMPARABLE IN VIEW OF THE FILTER APPLIED BY THE ASSESSEE ITSELF. 6 11. AS REGARDS ALLSEC TECHNOLOGIES LTD. IS CONCERNED THE A O NOTED THAT THE ASSESSEE IN ITS ACCEPT/REJECT MATRIX OF THE T P REPORT HAD REJECTED THIS COMPANY AS FUNCTIONALLY DIFFERENT. HOWEVER, T HE ASSESSEE HAS NOT AT ALL DISCUSSED IN ANY OF THE SUBMISSION S MADE THAT HOW THE COMPANY HAS BECOME FUNCTIONALLY COMPARABLE . HE NOTED FROM THE ANNUAL REPORT FOR F.Y. 2007-08 OF ALLSEC TECHNOLOGIES LTD. THAT THERE IS ABNORMAL INCREASE IN EMPLOY EE COST AND GENERAL ADMINISTRATION COST WHICH WAS DUE TO MERGER OF B2K CORPORATION PVT. LTD. AND NEW FACILITIES STARTED AT 2 NEW LO CATIONS. THE SAME HAS EFFECT ON THE CURRENT YEAR ALSO WHICH CAN BE SEEN FR OM THE ANNUAL REPORT OF F.Y. 2008-09. THUS, THERE IS LOSS IN EARLIER AS WELL AS IN THE CURRENT YEAR DUE TO PECULIAR ECONOMIC CIRCU MSTANCES. THE COMPANY HAS INCURRED LOSSES DURING THE CURRENT YEA R AND EARLIER YEARS. SINCE ASSESSEES BUSINESS MODULE IS COST P LUS NATURE WHEREIN THERE IS NO POSSIBILITY OF INCURRING LOSSES, THEREFORE , THE AO HELD THAT ALLSEC TECHNOLOGIES LTD. CANNOT BE COMPARED WITH THE ASSESSEE COMPANY. HE ACCORDINGLY REJECTED THE SAME FR OM THE LIST OF COMPARABLES. 12. SO FAR AS R SYSTEMS INTERNATIONAL LTD. IS CONCERNED THE AO NOTED THAT THE ASSESSEE COMPANY IN ITS ACCEPT/REJECT MATRIX OF THE TP REPORT HAD REJECTED THIS COMPARABLE AS FUNCTIONALLY D IFFERENT. HOWEVER, THE ASSESSEE HAS NOT AT ALL DISCUSSED IN ANY OF THE SUBMISSIONS MADE AS TO HOW THE COMPANY HAS BECOME FUNC TIONALLY COMPARABLE. ACCORDING TO THE AO COMPANIES HAVING DIFFERENT FINANCIAL YEAR DATA (OTHER THAN MARCH 2009) OR DATA OF THE COMPARABLE COMPANIES NOT FALLING WITHIN THE RELEVANT FINANCIAL Y EAR, I.E. 01-04-2008 TO 31-03-2009 SHOULD NOT HAVE BEEN CONS IDERED BECAUSE ONLY CONTEMPORARY DATA SHOULD BE CONSIDERED. ACCORDING TO THE AO IF A TESTED PARTY ENDS ITS ACCOUNTING YEAR BY MARCH, THEN 7 TAKING COMPANIES WHOSE ACCOUNTING YEAR ENDS WITH MARCH WILL BE MORE APPROPRIATE COMPARABLE AND THEIR SELECTION WILL LEAD T O PROPER COMPARABILITY. THUS CONSIDERING THE OVERALL CIRCUMSTANCES T HE AO HELD THAT THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. 13. THE ASSESSEE OBJECTED FOR INCLUSION OF COSMIC GLOBAL LTD . AS A COMPARABLE MAINLY ON THE GROUND THAT IT IS A SUPER NORM AL PROFIT MAKING COMPANY. IT WAS SUBMITTED THAT THE ASSESSEE HA S CONSIDERED COSMIC GLOBAL LTD. AS COMPARABLE COMPANY FOR F.Y . 2006-07 AND F.Y. 2007-08 IN ITS TP STUDY REPORT FOR BENC HMARKING ITS INTERNATIONAL TRANSACTION. HOWEVER, WHILE PREPARING THE TP REPORT FOR F.Y. 2008-09 THE DATA FOR F.Y. 2008-09 OF COSMIC GLOBAL LTD. WAS NOT AVAILABLE. IT WAS ARGUED THAT SINCE ITS OPERATING MAR GIN HAS BEEN COMPUTED AT 50.70%, THEREFORE, IT IS A SUPER NOR MAL PROFIT MAKING COMPANY WHICH HAS A TENDENCY TO SCEW THE RESUL TS AND CANNOT BE CONSIDERED AS REPRESENTATIVE OF THE INDUSTRY. RELYING ON VARIOUS DECISIONS IT WAS SUBMITTED THAT COSMIC GLOBAL LTD., WHICH IS A SUPER NORMAL MAKING COMPANY SHOULD BE EXCLUDED FROM TH E LIST OF COMPARABLES. 14. WITHOUT PREJUDICE TO THE ABOVE, IT WAS FURTHER ARGUED THAT UNADJUSTED OPERATING MARGIN OF COSMIC GLOBAL LTD. SHOULD BE CONSIDERED AS 43.13% AS AGAINST 50.70%. THE ASSESSEE FURT HER ARGUED THAT SINCE MICROGENETICS SYSTEMS LTD. AND COSMIC GLOBAL LTD. WERE ENGAGED IN RENDERING MEDICAL TRANSCRIPTION SERVIC ES DURING A.Y. 2009-10, THEREFORE, IN CASE MICROGENETICS SYSTEM S LTD. IS REJECTED, THEN IN THAT CASE, COSMIC GLOBAL LTD. SHOULD ALS O BE REJECTED AS IT IS ALSO ENGAGED IN RENDERING MEDICAL TRANS CRIPTION SERVICES. 8 15. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT IN THE ACCEPT/REJECT MATRIX OF THE TP REPORT THE ASSESSEE COMPANY HAD ACCEPTED COSMIC GLOBA L LTD. COMPANY AS FUNCTIONALLY COMPARABLE. HOWEVER, NOW THE AS SESSEE IS OBJECTING THE INCLUSION OF THE SAME ON THE GROUND THAT IT IS A SUPER PROFIT MAKING COMPANY. THE AO NOTED THAT THE ASSESSEE DOES NOT HAVE ANY DEFINITE IDEA AS TO WHAT SHOULD BE CONSIDERED AS SUPER PROFIT BUT HAS ARGUED THAT PRACTICALLY ANY COMPANY, INC LUSION OF WHICH IN THE SET MAY RESULT IN AN INCONVENIENT AVERAGE PL I, SHOULD BE REJECTED. THE AO NOTED THAT IN ALL THE DECISIONS RE LIED ON BY THE ASSESSEE THE TERM SUPER PROFIT HAS BEEN DEFINED WITH M ATHEMATICAL ACCURACY. ACCORDING TO HIM NORMALLY COMPANIES HAVING MAR GINS OF NEAR ABOUT 100% ON COST HAVE BEEN TREATED AS SUPER PROFIT COMPANIES. HOWEVER, IN THE INSTANT CASE, IT CANNOT BE SA ID THAT THE ABOVE MENTIONED COMPANY WAS ACTUALLY A SUPER PROFIT CO MPANY. ACCORDINGLY, HE REJECTED THE CONTENTION OF THE ASSESSEE AND CONSIDERED COSMIC GLOBAL LTD. AS COMPARABLE. RELYING ON VA RIOUS DECISIONS THE TPO REJECTED THE CONTENTION OF THE ASSESS EE REGARDING THE BENEFIT OF +/- 5%. THE AO ACCORDINGLY CONSIDERED TH E FOLLOWING 5 COMPANIES AS COMPARABLE WHOSE PLI, I.E. OP/OC COMES TO 17.92%, THE DETAILS OF WHICH ARE AS UNDER : SR. NO. NAME OF THE COMPARABLE COMPANY PLI = (OP/OC) % AFTER CONSIDERING WORKING CAPITAL ADJUSTMENT 1. CG - VAK SOFTWARE AND EXPORTS LTD - 0.44 2. COSMIC GLOBAL LTD 43.75 3. INFORMED TECHNOLOGIES INDIA LTD 21.95 4. MICROGENETICS SYSTEMS LTD. - 0.77 5 . VISHAL INFORMATION TECHNOLOGIES LTD 25.13 AVERAGE (89.62/5) 17.92 9 16. AFTER CONSIDERING THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS OF COMPARABLES AS THE ARMS LENGTH MARGIN, THE A O MADE AN ADJUSTMENT OF RS.1,27,15,040/- TO THE TOTAL INCOME OF TH E ASSESSEE, THE DETAILS OF WHICH ARE AS UNDER : (AMOUNT IN RS.) OPERATING COST 10,47,65,247 ARMS LENGTH MEAN MARGIN (OP/OC) 17.92% ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTION @117.92% OF OPERATING COST) [A] 12,35,39,179 PRICE CHARGED (OPERATING REVENUE OF THE ASSESSEE [B] 11,08,24,139 ADJUSTMENT OVER OPERATING INCOME [A - B] (SHORTFALL BEING ADJUSTMENT U/S.92C(3) 1,27,15,040 17. THE ASSESSEE CHALLENGED THE DRAFT ASSESSMENT ORDER BEFORE THE DRP BUT WITHOUT ANY SUCCESS. THE AO THEREAFTER PASSE D THE ORDER U/S.143(3) R.W.S.144C(13) ON 27-10-2012 MAKING AN UPWARD T.P . ADJUSTMENT OF RS.1,27,15,040/-. 18. AGGRIEVED WITH SUCH ORDER OF THE DRP THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : ON THE FACT AND CIRCUMSTANCES OF THE CASE, AND IN LAW ; 1. THE HONOURABLE DISPUTE RESOLUTION PANEL ('HON'BLE PANEL') / LD. ASSESSING OFFICER ('LD. AO') HAVE ERRED IN MAKING T HE TRANSFER PRICING ADJUSTMENT OF RS.1,27,15,040 BY RE-COMPUTING ARM'S LENGTH PRICE OF THE APPELLANT'S INTERNATIONAL TRANSACTI ON OF PROVISION OF TECHNICAL SUPPORT SERVICES (ENGINEERING BACK OFFICE SE RVICES) TO ITS ASSOCIATED ENTERPRISES. THE APPELLANT PRAYS THAT THE ARM'S LENGTH PRICE OF TH E INTERNATIONAL TRANSACTION OF PROVISION OF TECHNICAL SUPPORT SERVICES A S COMPUTED BY THE APPELLANT BE ACCEPTED AND CONSEQUENTLY THE TRANSF ER PRICING ADJUSTMENT OF RS. 1,27,15,040 BE DELETED. 2. THE HON'BLE PANEL / LD. AO HAVE ERRED IN CONSIDER ING CERTAIN COMPANIES AS COMPARABLE TO THE APPELLANT. THE APPELLANT PRAYS FOR EXCLUSION OF THESE COMPANIES FR OM THE SET OF COMPARABLES USED BY THE HON'BLE PANEL / LD. AO FOR DE TERMINATION OF THE ARM'S LENGTH PRICE OF THE APPELLANT'S INTERNATION AL TRANSACTION OF PROVISION OF TECHNICAL SUPPORT SERVICES. 10 3. THE HON'BLE PANEL / LD. AO HAVE ERRED IN REJECTI NG CERTAIN COMPARABLE COMPANIES FROM THE SET OF COMPARABLES IDEN TIFIED BY THE APPELLANT. THE APPELLANT PRAYS FOR INCLUSION OF THESE COMPANIES IN THE SET OF COMPARABLES USED BY THE HON'BLE PANEL / LD. AO FOR DE TERMINATION OF THE ARM'S LENGTH PRICE OF THE APPELLANT'S INTERNATION AL TRANSACTION OF PROVISION OF TECHNICAL SUPPORT SERVICES. 4. THE HON'BLE PANEL / LD. AO HAVE ERRED IN REJECTI NG THE NEED FOR CONDUCTING THE ECONOMIC ADJUSTMENT FOR DIFFERENCES IN RISK PROFILE OF APPELLANT'S CAPTIVE OPERATIONS AND THE FULL-FLEDGED RISK BEARING OPERATIONS OF THE COMPARABLES. THE APPELLANT PRAYS FOR COMPUTING THE ARM'S LENGTH P RICE OF THE APPELLANT'S INTERNATIONAL TRANSACTION OF PROVISION OF TECHNICAL SUPPORT SERVICES AFTER CONDUCTING ECONOMIC ADJUSTMENT FOR DIFF ERENCES IN RISK PROFILE OF THE APPELLANT AND THE COMPARABLES. 5. THE HON'BLE PANEL / LD. AO HAVE ERRED IN NOT CON SIDERING MULTIPLE YEAR FINANCIAL DATA OF THE COMPARABLES WH ILE COMPUTING THE ARM'S LENGTH PRICE OF THE APPELLANT'S INTERNATIONAL TRANSACTION OF PROVISION OF TECHNICAL SUPPORT SERVICES. THE APPELLANT PRAYS FOR CONSIDERATION OF MULTIPLE YEA R FINANCIAL DATA OF THE COMPARABLES FOR DETERMINATION OF THE ARM'S LENGTH PRICE OF THE APPELLANT'S INTERNATIONAL TRANSACTION OF PROVISION OF TECHNICAL SUPPORT SERVICES. 6. THE LD. AO HAS ERRED IN LEVYING INTEREST UNDER SEC TION 234A AND SECTION 234B OF THE ACT. THE APPELLANT PRAYS FOR DELETION OF INTEREST LEVIED B Y THE LD. AO UNDER SECTION 234A AND SECTION 234B OF THE ACT. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHE R THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT , SUBSTITUTE OR AMEND ONE OR MORE OF THE ABOVE GROUNDS AT ANY TIME BEFORE OR AT THE TIME OF PROCEEDINGS SO AS TO ENABLE THE HON'BLE TRIBUNAL MEMBE RS TO DECIDE THESE ACCORDING TO THE LAW. 19. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGED THE ORDER OF THE AO AND DRP. REFERRING TO PAGE 98 OF THE PAPER BO OK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENC H TO THE NOTES FORMING PART OF THE ACCOUNTS OF THE ASSESSEE COMP ANY FOR THE YEAR ENDED 31-03-2009 ACCORDING TO WHICH THE NATURE O F OPERATION OF THE INDIAN BRANCH OFFICE HAS BEEN MENTIONED AS RENDER ING OF SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES OUTSIDE I NDIA. REFERRING TO PAGE 105 OF THE PAPER BOOK SHE SUBMITTED T HAT THE 11 ASSESSEE COMPANY WAS ESTABLISHED AS A BRANCH ON 27-09 -2007 AND COMMENCED OPERATIONS ON 01-12-2007. IT PROVIDES SERVIC E RELATED TO PREPARATION, CORRECTION AND EDITING OF DATA SHEETS AND DR AWINGS TO ITS ASSOCIATED ENTERPRISES. SHE SUBMITTED THAT THE MAIN GRIEVANCE OF THE ASSESSEE IS REGARDING THE ACTION OF THE AO IN CONS IDERING CERTAIN COMPANIES AS COMPARABLE AND EXCLUSION OF CERTAIN COMPANIES SELECTED BY THE ASSESSEE AS NOT COMPARABLE. 20. NOW COMING TO THE GROUNDS RAISED THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SHE IS NOT PRESSING GROUND OF A PPEAL NO.1 BEING GENERAL IN NATURE. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 21. SO FAR AS GROUND OF APPEAL NO.2 IS CONCERNED SHE SUB MITTED THAT THE GRIEVANCE OF THE ASSESSEE IS REGARDING CONSIDER ING COSMIC GLOBAL LTD. AS COMPARABLE. SHE SUBMITTED THAT THE AO WHILE CONSIDERING THIS COMPANY AS COMPARABLE HAS HELD THAT THE ASSESSEE HAS ACCEPTED THIS COMPANY AS COMPARABLE IN ITS TP STUDY REPORT. THE ASSESSEE HAS APPLIED AN IMPLIED FILTER OF REJECTING COMPA NIES SHOWING SUPER PROFITS. ACCORDING TO THE AO SINCE THE TE RM SUPER PROFIT HAS NOT BEEN DEFINED WITH MATHEMATICAL ACCURACY AND NORMAL COMPANIES WITH MARGIN AROUND 100% HAVE BEEN TREATED AS SUPER PROFIT COMPANIES, THEREFORE, THIS COMPANY WITH MARGIN OF 43.75 % CANNOT BE CONSIDERED AS A SUPER PROFIT MAKING COMPANY. ACCORDINGLY, THE AO HELD THAT THIS COMPANY IS COMPARABLE TO THE ASSESSEE COMPANY. SHE SUBMITTED THAT THE DRP WHILE UPH OLDING THE ORDER OF THE AO HELD THAT THE LAW DOES NOT DEFINE SU PER PROFIT AND THE ASSESSEE ITSELF HAS SUO MOTU DEFINED SUPER NORMA L PROFIT RANGE TO BE MORE THAN 50%. SINCE THE PROFIT MARGIN IS 4 3.75, THEREFORE, THE DRP UPHELD THE ACTION OF THE AO. 12 22. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT PROVIDED ANY SPECIFIC SUPER PROFIT THRESHOLD OF 50% OR OTHERWISE FOR REJECTION OF COSMIC GLOBAL LTD. SHE SUBMITTE D THAT A COST PLUS 5% ENTITY CANNOT BE REASONABLY EXPECTED TO EARN A MARGIN OF 43.75%. REFERRING TO THE PROFITABILITY TREND OF COSMIC GLOBA L LTD. SHE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING TABLE : YEAR SALES RS. MARGIN 2006 - 07 4,27,73,232 12.19% 2007 - 08 5,86,63,285 24.30% 2008 - 09 7,37,02,584 43.75% 2009 - 10 5,86,37,419 16.59% 2010 - 11 6,24,96,615 8.06% 23. SHE SUBMITTED THAT THE ABOVE TABLE DEMONSTRATES TH AT WHILE F.Y. 2008-09 WAS A YEAR OF ABNORMAL PROFIT THEREFORE IT IS LI ABLE FOR REJECTION IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF TH E TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES INDIA PVT. LTD. VS. AC IT REPORTED IN 43 TAXMANN.COM 100 (MUMBAI) (SB). SHE SUBMITTE D THAT IN CASE COSMIC GLOBAL LTD. IS STILL TO BE CONSIDERED, T HEN ITS PROFITS NEED TO BE AVERAGED OUT BY USING MULTIPLE YEAR DA TA. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT COSMIC G LOBAL LTD. HAS PAID TRANSLATION CHARGES TO THIRD PARTIES WHICH INDICAT ES OUTSOURCING OF WORK. THE ASSESSEE HOWEVER DOES NOT O UTSOURCE THE WORK RATHER IT RECEIVES OUTSOURCED WORK. THUS, EFFECTIVE LY COSMIC GLOBAL LTD. AND THE ASSESSEE ARE ON THE OPPOSITE SIDES O F THE VALUE CHAIN. 24. REFERRING TO THE SYNOPSIS CHART THE LD. COUNSEL FOR TH E ASSESSEE SUBMITTED THAT THE PROPORTION OF OUTSOURCING COST OF COSMIC GLOBAL LTD. IS 40.70%. SIMILARLY, THE PROPORTION OF EMPLO YEE COST OF COSMIC GLOBAL LTD. IS 21.32% WHEREAS THE PROPORTION OF EMPLOYEE COST OF THE ASSESSEE IS 53.15%. THEREFORE, FUNCTIO NALLY 13 ALSO, COSMIC GLOBAL LTD. IS INCOMPARABLE TO THE ASSESSEE. SH E SUBMITTED THAT COMPANIES WITH LOW EMPLOYEE COST TO SALES RATIO OUTSOURCING SUBSTANTIAL PORTION OF WORK HAS TO BE REJECT ED. FOR THE ABOVE PROPOSITION SHE RELIED ON THE FOLLOWING DECISIONS : 1. XCHANGING TECHNOLOGIES SERVICES INDIA PVT. LTD. VS. DCIT ITA NO.1897/DEL/2014 ORDER DATED 24-04-2015 2. CAPITAL IQ INFORMATION SYSTEMS LTD. VS. DY.CIT IT A NO.1961/HYD/2011 ORDER DATED 23-11-2012 3. ACIT VS. MAERSK GLOBAL SERVICE CENTRE INDIA PVT. L TD. ITA NO.3774/MUM/2011 ORDER DATED 09-11-2011 25. SHE SUBMITTED THAT THE DECISION OF THE SPECIAL BENCH O F THE TRIBUNAL IN THE CASE OF ACIT VS. MAERSK GLOBAL SERVICE CENT RES INDIA PVT. LTD. HAS BEEN UPHELD BY THE HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT VS. MAERSK GLOBAL SERVICE CENTRES IND IA PVT. LTD. VIDE ITA NO.693 AND 693/2012. THE REVENUE HAS NOT TAK EN A PLEA ON CONTESTING EXCLUSION OF VISHAL INFORMATION TECHNOLOGIES LT D. BY THE TRIBUNAL ON ACCOUNT OF OUTSOURCING. SHE ALSO RELIED ON THE FOLLOWING DECISION : 1. SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. VS. ITO IT/TP(A) NO.1316/BANG/2012 ORDER DATED 14-03-2013 2. Q-LOGIC INDIA PVT. LTD. VS. DCIT ITA NO.227/PN/ 2014 ORDER DATED 21-10-2014 26. SO FAR AS GROUND OF APPEAL NO.3 IS CONCERNED, THE LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THE GRIEVANCE OF THE AS SESSEE IS REGARDING REJECTION OF THE FOLLOWING 3 COMPANIES : 1. CEPHA IMAGING PVT. LTD. 2. ALLSEC TECHNOLOGIES LTD. 3. R SYSTEMS INTERNATIONAL LTD. 27. SO FAR AS CEPHA IMAGING PVT. LTD. IS CONCERNED SHE SU BMITTED THAT THE AO REJECTED THE INCLUSION OF THE SAID COMPANY ON THE 14 GROUND THAT THE ASSESSEE ITSELF HAS APPLIED COMPANIES HAV ING RELATED PARTY TRANSACTIONS MORE THAN 25% OF SALES. SINCE RELATED PARTY TRANSACTIONS TO SALES IN CASE OF CEPHA IMAGING PVT . LTD. IS 27.82% THE AO HELD THAT CEPHA IMAGING PVT. LTD. FAILS THE RPT FILTER. IN THE ORDER OF THE DRP THE DIRECTIONS ARE SILENT ON THE ISSUE OF WRONG RPT TO SALES COMPUTATION. HOWEVER, THEY HELD THAT SINCE CEPHA IMAGING PVT. LTD. IS ENGAGED E-PUBLISHING BUSINESS A ND MAINLY CARRIES OUT DATA CONVERSION WORK FOR WHICH THE SA ID COMPANY CANNOT BE COMPARED WITH THAT OF THE ASSESSEE COMPANY. 28. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT TNM M REQUIRES COMPARABILITY AT A BROAD FUNCTIONAL LEVEL. REFERRING TO PAGE 189 OF THE PAPER BOOK SHE SUBMITTED THAT CEPHA IMAGING PVT. LTD. IS IN THE BUSINESS OF E-PUBLISHING SERVICES WHICH INCLUDE TYPE- SETTING, COMPOSITION ART WORK, PROOF READING, PROJECT MANAGEMENT E TC. WHICH IS IT ENABLED SERVICE PROVIDER LIKE THAT OF THE ASSES SEE. SHE SUBMITTED THAT THE ASSESSEE IN FACT IS ALSO INVOLVED IN FILE CONVERSION, CONTENT MODIFICATION, TEST EDITING ETC. AS PART O F ITS BACK OFFICE SUPPORT SERVICES. THIS IS SIMILAR TO DATA CONVERSION W HICH IS A KEY ACTIVITY OF CEPHA IMAGING PVT. LTD. SHE SUBMITTED TH AT IF THE CORRECT COMPUTATION IS MADE BY EXCLUDING THE DEBTORS AN D CREDITORS, THEN THE RPT TO SALE IN CASE OF CEPHA IMAGING PVT. LT D. COMES TO 17.72%. REFERRING TO THE VARIOUS DECISIONS SHE SUBMITTED T HAT TNMM REQUIRES BROAD COMPARABILITY AND THEREFORE CEPHA IM AGING PVT. LTD. SHOULD BE CONSIDERED AS COMPARABLE. 29. REFERRING TO THE FOLLOWING DECISIONS SHE SUBMITTED THAT TNMM REQUIRES BROAD COMPARABILITY SINCE ALLSEC TECHNOLOGIES LTD. IS FUNCTIONALLY COMPARABLE AND IS NOT A PERSISTENT LOSS MAKING COMPANY, THEREFORE, THE SAME SHOULD BE INCLUDED : 15 1. GE INDIA TECHNOLOGY CENTRE (P) LT. VS. DCIT IT A NO.789/BANG/2010 & ITA NOS. 487 & 925/BANG/2011 ORDE R DATED 31- 12-2012 2. ACIT VS. SCHAFHORST MARKETING CO. LTD. ITA NO.1960/MUM/2007 ORDER DATED 12-08-2011 30. SO FAR AS ALLSEC TECHNOLOGIES LTD. IS CONCERNED SHE SUB MITTED THAT THE AO REJECTED THE SAME AS COMPARABLE ON THE G ROUND THAT THE ASSESSEE REJECTED ALLSEC TECHNOLOGIES LTD. IN ITS TP STUD Y REPORT. FURTHER, IN F.Y. 2007-08 THERE WAS ABNORMAL INCREASE IN TH E EMPLOYEE COST, GENERAL AND ADMINISTRATION COST DUE TO TA KE OVER OF B2K CORPORATION PVT. LTD. AND NEW FACILITY STARTED AT 2 LOC ATIONS. FURTHER, ASSESSEE FOLLOWS COST PLUS BUSINESS MODEL WHERE IT CANNOT INCUR A LOSS. HENCE, THE AO REJECTED THE SAME. THIS WAS UPHELD BY THE DRP. SHE SUBMITTED THAT ALLSEC TECHNOLOGIES LTD. WAS R EJECTED BY APPLYING UPPER TURNOVER FILTER OF RS.15 CRORES IN THE T P REPORT. THE REFERENCE TO BEING FUNCTIONALLY DIFFERENT IN THE ACCEPT REJECT MATRIX WAS INADVERTENT. HOWEVER, ALLSEC TECHNOLOGIES LT D. WAS ACCEPTABLE CONSIDERING UPPER TURNOVER FILTER OF RS.200 CRO RES. SHE SUBMITTED THAT ALLSEC TECHNOLOGIES LTD. IS FUNCTIONALLY COMP ARABLE AND IS NOT A PERSISTENT LOSS MAKER AND THEREFORE THE SA ME CANNOT BE REJECTED ON THIS GROUND. FURTHER, TNMM REQUIRES BROAD COMPARABILITY. ALLSEC TECHNOLOGIES LTD. IS AN IT ENABLED SERV ICE PROVIDER LIKE THAT OF THE ASSESSEE. FOR THE YEAR UNDER CONSIDERATION, THERE WAS NO AMALGAMATION. THEREFORE, THE DRP WAS FACT UALLY INCORRECT IN STATING THAT B2K CORPORATION PVT. LTD. WAS AMALGAMATE D DURING THE YEAR UNDER CONSIDERATION. 31. REFERRING TO THE ANNUAL REPORT OF ALLSEC TECHNOLOGIES LT D. FOR F.Y. 2008-09, SHE SUBMITTED THAT THE REFERENCE MADE BY T HE AO REGARDING ABNORMAL INCREASE IN EMPLOYEE COST, GENERAL AND ADMINISTRATION COST IS INCORRECT. THEREFORE, THERE IS NO CA SE FOR 16 REJECTION OF ALLSEC TECHNOLOGIES LTD. ON THIS ACCOUNT. FOR THE ABOVE PROPOSITION SHE RELIED ON THE DECISIONS OF G.E. INDIA TECHNOLO GY PVT. LTD. (SUPRA) AND SCHAFHORST MARKETING CO., (SUPRA) 32. SO FAR AS R SYSTEMS INTERNATIONAL LTD. IS CONCERNED S HE SUBMITTED THAT THE AO REJECTED THE SAME ON THE GROUN D THAT THE ASSESSEE HAD REJECTED R SYSTEMS INTERNATIONAL LTD. IN IT S TP STUDY REPORT AND THE COMPANY HAS DIFFERENT FINANCIAL YEAR. THE D RP UPHELD THE ACTION OF THE AO HOLDING THAT R SYSTEMS INTER NATIONAL LTD. IS IN PRODUCT DEVELOPMENT AND PRODUCT SELLER AND THE REFORE IT CANNOT BE CONSIDERED AS COMPARABLE. 33. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT R SY STEMS INTERNATIONAL LTD. HAS REPORTED ITS BPO SEGMENT SEPARAT ELY. BPO SEGMENT IS COMPARABLE TO THE BACK OFFICE ACTIVITY OF THE AS SESSEE. SHE SUBMITTED THAT MERELY BECAUSE ACCOUNTING YEAR IS D IFFERENT THE SAME DOES NOT IMPLY THAT A COMPANY IS FUNCTIONALLY INCOM PARABLE. THE CONTEMPORANEOUS RETURN FOR THE FUNCTIONS IRRESPECT IVE OF THE ACCOUNTING PERIOD WOULD PROVIDE AN APPROPRIATE COMPARABLE. 34. REFERRING TO THE FOLLOWING DECISIONS, SHE SUBMITTED THAT DIFFERENT ACCOUNTING YEAR DOES NOT WARRANT REJECTION OF COMPARA BLE : 1. PENTAIR WATER INDIA PVT. LTD. VS. ACIT ITA NO. 2/PNJ/2013 ORDER DATED 17-04-2014 2. MAERSK GLOBAL SERVICE CENTRES INDIA PVT. LTD. VS. D CIT ITA NO.2594/MUM/2014 ORDER DATED 16-01-2015 35. SO FAR AS GROUND OF APPEAL NO.4 IS CONCERNED THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAME RELATES TO RIS K ADJUSTMENT. REFERRING TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUN AL IN THE CASE OF WATSON GLOBAL LTD. VS. DCIT REPORTED IN 54 TAXMAN N.COM 88 (215 OF THE LEGAL COMPILATION) SHE SUBMITTED THAT RISK ADJUST MENT 17 HAS BEEN ALLOWED. REFERRING TO PARA 9.5 OF THE APPEAL MEMO AT PAGE 20 SHE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING T ABLE ACCORDING TO WHICH THE RISK ADJUSTMENT SHOULD BE 6.96%. PARTICULARS REF. % AVERAGE PRIME LENDING RATE DURING F.Y. 2008 - 09 (A) 12.96% AVERAGE BANK RATE DURING F.Y. 2008 - 09 (B) 6.00% DIFFERENCE BETWEEN THE PRIME LENDING RATE AND BANK RATE (C=A - B) 6.96% RISK ADJUSTMENT (D) 6.96% 35.1 REFERRING TO THE DECISION IN THE CASE OF SONY INDIA LT D. REPORTED IN 114 ITD 448 SHE SUBMITTED THAT RISK ADJUST MENT OF 20% HAS BEEN ALLOWED. SINCE IN THE INSTANT CASE THE ASSESSEE HAS DEMONSTRATED THE RISK ADJUSTMENT AT 6.96%, THEREFORE, T HE SAME SHOULD BE ALLOWED. 36. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND STRONGLY RELIED ON THE ORDER OF THE AO/DRP. SHE SUBMITT ED THAT THE TP STUDY REPORT CONDUCTED BY THE ASSESSEE SUFFERS FROM VARIOUS INFIRMITIES. 37. SO FAR AS COSMIC GLOBAL LTD. IS CONCERNED SHE SUBMITTE D THAT ASSESSEE ITSELF HAS ACCEPTED THIS COMPANY AS COMPARABLE IN ITS TP STUDY REPORT. THE ASSESSEE ITSELF HAD APPLIED AN IMPLIED FILTE R OF REJECTING THE COMPANIES SHOWING SUPER PROFITS. HOWEVER, IN THE INSTANT CASE, IT CANNOT BE SAID THAT A COMPANY EARNING 4 3.75% IS SUPER PROFIT MAKING COMPANY. THEREFORE, THE AO AND DRP W ERE JUSTIFIED IN CONSIDERING COSMIC GLOBAL LTD. AS COMPARABLE COMPANY. 38. SO FAR AS CEPHA IMAGING PVT. LTD. IS CONCERNED SHE SU BMITTED THAT SINCE AFTER INCLUDING THE DEBTORS AND CREDITORS THE RPT TO SALES IS 27.82% WHICH IS MORE THAN 25%. THEREFORE, THE AO WAS JU STIFIED IN REJECTING THE SAME. 18 39. AS REGARDS ALLSEC TECHNOLOGIES LTD. IS CONCERNED SHE SUBMITTED THAT THE ASSESSEE ITSELF HAD REJECTED ALLSEC TE CHNOLOGIES LTD. IN ITS TP STUDY REPORT ON THE GROUND THAT THIS COM PANY IS FUNCTIONALLY DIFFERENT. IN F.Y. 2007-08 THERE WAS ABNORMAL INC REASE IN EMPLOYEE COST AND GENERAL AND ADMINISTRATION COST DUE TO TAKE OVER OF B2K CORPORATION PVT. LTD. IT HAD REPERCUSSION DU RING THIS YEAR ALSO. THEREFORE, THIS COMPANY CANNOT COME TO THE C OMPARATIVE ZONE. SHE ACCORDINGLY SUBMITTED THAT THE AO AND DRP WERE JUSTIFIED IN EXCLUDING THIS COMPANY AS COMPARABLE. 40. AS REGARDS R SYSTEMS INTERNATIONAL LTD. IS CONCERNED THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESEE ITSELF HAD REJECTED R SYSTEMS INTERNATIONAL LTD. IN ITS TP STUDY REPORT AS FUNCTIONALLY DIFFERENT. FURTHER, DRP HAS ALSO GIVEN A FINDING T HAT R SYSTEMS INTERNATIONAL LTD. IS IN PRODUCT DEVELOPMENT AND PRODUCT SELLER, THEREFORE, THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE. 41. REFERRING TO THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF GENESIS INTEGRATING SYSTEM (INDIA) PVT. LTD. VS. DCIT REPORTED IN 53 SOT 89, SHE SUBMITTED THAT THE TRIBUNAL HAS HELD THAT THE TPO HAS TO GIVE REASONS FOR INCLUSION/E XCLUSION OF A COMPARABLE COMPANY. THEREFORE, THE SAME RATIO ALSO IS A PPLICABLE TO THE ASSESSEE. THE ASSESSEE CANNOT BE PERMITTED TO TAKE DIFFERENT STAND AT DIFFERENT TIME BEFORE REVENUE AUTHORITIES. 42. AS REGARDS THE RISK ADJUSTMENT IS CONCERNED SHE SU BMITTED THAT THIS ISSUE WAS NEVER BEFORE THE AO. THERE IS NO FIND ING BY THE AO ON THIS ISSUE. FOR THE FIRST TIME, THE ASSESSEE TOOK THE GROUND BEFORE THE DRP WHO REJECTED THE SAME ON THE GROUND T HAT ASSESSEE HAS NOT DISCHARGED ITS INITIAL ONUS TO FILE THE REQUISITE INFOR MATION IN THIS REGARD. 19 43. REFERRING TO THE DECISION OF MUMBAI BENCH OF THE TRIBUNA L IN THE CASE OF WILLS PROCESSING SERVICE INDIA PVT. LTD. VS. DCIT REPORTED IN 30 TAXMANN.COM 350 SHE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT RISK ADJUSTMENT AND WORKING CAPITA L ADJUSTMENT CAN BE MADE ONLY ON THE BASIS OF PROPER DA TA AND ACCURATE CALCULATIONS AND NOT ON ADHOC BASIS. 44. THE LD. COUNSEL FOR THE ASSESSEE IN HER REJOINDER SU BMITTED THAT THE ASSESSEE HAS PREPARED TP REPORT ON THE BAS IS OF DATA AVAILABLE AT THE RELEVANT TIME. ONLY WHEN TPO ASKED TO C HANGE THE TP REPORT ON THE BASIS OF SINGLE YEAR DATA AND APPLYING TURNOVER FILTER THAT THE ASSESSEE PREPARED THE TP STUDY REPORT. SHE ACCORDINGLY SUBMITTED THAT THE GROUNDS RAISED BY THE A SSESSEE BE ALLOWED. 45. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. SO FAR AS INCLUSION OF COSMIC GLOB AL LTD. AS COMPARABLE BY THE AO IS CONCERNED WE FIND THE AO CON SIDERED THE SAME AS COMPARABLE ON THE GROUND THAT THE ASSESS EE ACCEPTED THIS COMPANY AS COMPARABLE IN ITS TP STUDY REPORT AND T HE ASSESSEE HAS APPLIED AN IMPLIED FILTER OF REJECTING THE COMPANIES SHOWIN G SUPER PROFIT. SINCE THIS COMPANY WITH A MARGIN OF 43.75% CA NNOT BE CONSIDERED AS SUPER PROFIT COMPANY, THEREFORE, THE AO CONSIDERED THE SAME AS COMPARABLE TO THE ASSESSEE WHIC H HAS BEEN UPHELD BY THE DRP ALSO. 46. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASESSE E THAT EXCEPT FOR F.Y. 2008-09 THE PROFIT MARGIN WAS MUCH LESS. I T IS ALSO 20 THE CASE OF THE ASSESSEE THAT COSMIC GLOBAL LTD. HAS PAID TRANSLATION CHARGES TO THIRD PARTIES WHICH INDICATES OUTSO URCING AND THE ASSESSEE DOES NOT OUTSOURCE ITS WORK. THE OU TSOURCE COST OF COSMIC GLOBAL LTD. IS 40.74%. SIMILARLY, AS AGAINST ASSESSE ES PROPORTION OF EMPLOYEE COST OF 53.15% THE PROPORTION OF EM PLOYEE COST OF COSMIC GLOBAL LTD. IS 21.32% WHICH INDICATES THAT FUNCTIONALLY COSMIC GLOBAL LTD. IS INCOMPARABLE TO THE ASSESSEE. 47. WE FIND MERIT IN THE ABOVE CONTENTION OF THE LD. COUNS EL FOR THE ASSESSEE. ADMITTEDLY, THE PROFIT OF COSMIC GLOBAL LTD. FOR F.Y. 2006-07 WAS 12.19%, FOR F.Y. 2007-08 IT WAS 24.30% FOR F.Y. 2009- 10 IT WAS 16.59% AND FOR F.Y. 2010-11 IT WAS 8.06%. HOWEVE R, FOR F.Y. 2008-09 THE PROFIT MARGIN IS 43.75%. THUS, DURING F.Y. 20 08- 09 THERE IS ABNORMAL PROFIT AS COMPARED TO THE 2 PRECED ING AND 2 SUCCEEDING YEARS. 48. WE FIND THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES INDIA PVT. LTD., (SUPRA) AT PARA 99 O F THE ORDER HAS OBSERVED AS UNDER : 99. THE QUESTION NO. 2 REFERRED TO THIS SPECIAL BEN CH IS AS TO WHETHER, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, CO MPANIES EARNING ABNORMALLY HIGH PROFIT MARGIN SHOULD BE INCLUDED IN THE LIST OF COMPARABLE CASES FOR THE PURPOSE OF DETERMINING ARM'S L ENGTH PRICE OF AN INTERNATIONAL TRANSACTION. AS ALREADY OBSERVED, THE ISSUE INVOLVED IN THIS QUESTION HAS BECOME INFRUCTUOUS IN SO FAR AS THE CASE OF THE ASSESSEE BEFORE THE SPECIAL BENCH IS CONCERNED AND THE SA ME THEREFORE NO MORE SURVIVES FOR CONSIDERATION IN THE PRESENT CASE. IN GENERALITY, WE ARE OF THE VIEW THAT THE ANSWER TO THIS QUESTION WI LL DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE INASMUCH AS POTENTIA L COMPARABLE EARNING ABNORMALLY HIGH PROFIT MARGIN SHOULD TRIGGER FURTHER INVESTIGATION IN ORDER TO ESTABLISH WHETHER IT CAN BE TAKEN AS COMPARABLE OR NOT. SUCH INVESTIGATION SHOULD BE TO ASC ERTAIN AS TO WHETHER EARNING OF HIGH PROFIT MAERSK GLOBAL SERVICE CENTRES (INDIA)PRIVATE LIMITED REFLECTS A NORMAL BUSINESS CONDI TION OR WHETHER IT IS THE RESULT OF SOME ABNORMAL CONDITIONS PREVAILING IN THE RELEVANT YEAR. THE PROFIT MARGIN EARNED BY SUCH ENTITY IN THE IMMEDIATELY PRECEDING YEAR/S MAY ALSO BE TAKEN INTO CONSIDERATION TO FIND OUT WHETHER THE HIGH PROFIT MARGIN REPRESENTS THE NORMAL BUSINESS TREND . THE FAR ANALYSIS IN SUCH CASE MAY BE REVIEWED TO ENSURE THAT THE 21 POTENTIAL COMPARABLE EARNING HIGH PROFIT SATISFIES THE COMPARABILITY CONDITIONS. IF IT IS FOUND ON SUCH INVESTIGATION THAT T HE HIGH MARGIN PROFIT MAKING COMPANY DOES NOT SATISFY THE COMPARABILI TY ANALYSIS AND OR THE HIGH PROFIT MARGIN EARNED BY IT DOES NOT REF LECT THE NORMAL BUSINESS CONDITION, WE ARE OF THE VIEW THAT THE HIGH P ROFIT MARGIN MAKING ENTITY SHOULD NOT BE INCLUDED IN THE LIST OF C OMPARABLE FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH PRICE OF AN I NTERNATIONAL TRANSACTION. OTHERWISE, THE ENTITY SATISFYING THE COMPARABILITY AN ALYSIS WITH ITS HIGH PROFIT MARGIN REFLECTING NORMAL BUSINESS CONDITION SHOULD NOT BE REJECTED SOLELY ON THE BASIS OF SUCH ABNORMAL HI GH PROFIT MARGIN. QUESTION NO. 2 REFERRED TO THIS SPECIAL BENCH IS ANSWERE D ACCORDINGLY. (EMPHASIS SUPPLIED BY US) 49. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE O F Q-LOGIC (INDIA) PVT. LTD.(SUPRA) WHILE EXCLUDING BODHTREE CONSULTING LTD . FROM THE LIST OF COMPARABLES UNDER SIMILAR CIRCUMSTANCES HAS OBSERVED AS UNDER : 17. IN OUR CONSIDERED OPINION, THE PLEA OF THE ASSESSE E FOR EXCLUSION OF BODHTREE CONSULTING LTD. FROM THE FINAL LIST OF CO MPARABLES CANNOT BE SHUT OUT MERELY BECAUSE THE SAID COMPARABLE HAS BEEN AD OPTED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY. SO HOWEVER, THE A FORESAID PROPOSITION IS NOT AN ABSOLUTE PROPOSITION. IN OTHER WO RDS, IT WOULD BE IMPERATIVE FOR THE ASSESSEE TO JUSTIFY EXCLUSION OF A CON CERN FROM THE LIST OF COMPARABLES IF IN THE INITIAL TRANSFER PRICING STUDY UNDERTAKEN BY IT, SUCH A CONCERN HAS BEEN ADOPTED AS A COMPARABLE. I N THE PRESENT SITUATION, CASE HAS BEEN SET UP BY THE ASSESSEE FOR EXCLU SION OF BODHTREE CONSULTING LTD ON THE GROUND THAT THE PROFIT MARGINS OF THE SAID CONCERN ARE FLUCTUATING WIDELY AND ARE ABNORMALLY HIGH FOR THE PERIOD UNDER CONSIDERATION. OSTENSIBLY, THE FINANCIAL DATA OF THE SUCCEEDING YEAR S WHICH HAS BEEN PRESSED INTO SERVICE BY THE ASSESSEE TO DEMO NSTRATE ABNORMAL PROFIT TRENDS OF THE SAID CONCERN WAS NOT AV AILABLE WITH THE ASSESSEE AT THE TIME OF CARRYING OUT ITS TRANSFER PRICING STUDY. THEREFORE, HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE PRESENT CASE, IN OUR VIEW, ASSESSEE HAS JUSTIFIABLY DEMONSTRATED T HAT THE CONCERN M/S. BODHTREE CONSULTING LTD. IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, EVEN THOUGH THE SAID CONCERN WAS CONSIDERED AS A COMPARABLE INITIALLY IN ITS TRANSFER PRICING STUD Y. THEREFORE, ON THIS ASPECT, WE CONCLUDE BY HOLDING THAT THE CONCERN, M/S. BODHTREE CONSULTING LTD. BE EXCLUDED FROM THE FINAL LIST OF CO MPARABLES FOR CARRYING OUT THE COMPARABILITY ANALYSIS. WE HOLD SO. (EMPHASIS SUPPLIED BY US) 50. IN VIEW OF THE ABOVE DECISIONS AND CONSIDERING THE FACT THAT COSMIC GLOBAL LTD. HAD ABNORMAL PROFIT IN THE F.Y. 2008-09 AS COMPARED TO 2 PRECEDING AND 2 SUCCEEDING YEARS WE ARE OF THE 22 CONSIDERED OPINION THAT COSMIC GLOBAL LTD. CANNOT BE CONSID ERED AS A COMPARABLE AND HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 51. EVEN OTHERWISE ALSO, WE FIND MERIT IN THE SUBMISSION OF TH E LD. COUNSEL FOR THE ASSESSEE THAT COSMIC GLOBAL LTD. AND T HE ASSESSEE ARE IN OPPOSITE SIDES OF THE VALUE CHAIN. FROM THE DETAILS FURNISHED BY THE ASSESSEE, WE FIND THE EMPLOYEE COST OF C OSMIC GLOBAL LTD. IS RS.1,57,11,463/- ON A TURNOVER OF RS.7,37,02,584/ - AND THUS THE EMPLOYEE COST TO TURNOVER RATIO COMES TO 21.32%. IN THE CASE OF THE ASSESSEE AS AGAINST THE TOTAL EMPLOYEE COST OF RS.5,86,15,132/- THE TURNOVER IS RS.11,02,81,913/- AND THE R ATIO OF EMPLOYEE COST TO TURNOVER COMES TO 53.15%. FURTHER, CO SMIC GLOBAL LTD. HAS PAID TRANSLATION CHARGES OF RS.3,00,25,306/- T O THIRD PARTIES WHICH IS TO THE TUNE OF 40.74% OF ITS TURNOVE R WHICH INDICATES OUTSOURCING OF WORK. THEREFORE, WE FIND MERIT IN T HE SUBMISSION OF THE LD. COUNSEL FOR THE ASESSEE THAT FUNCTION ALLY COSMIC GLOBAL LTD. IS INCOMPARABLE TO THE ASSESSEE. THE VA RIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE TO THE PROPOSITION THAT COMPANIES WITH LOW EMPLOYEE COST/SALES RA TIO OUTSOURCING SUBSTANTIAL PORTION OF WORK HAS TO BE REJECT ED. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF XCHANGING TECHNO LOGY SERVICES INDIA PVT. LTD. (SUPRA) AT PARA 8 OF THE ORDER HA S OBSERVED AS UNDER : 8. THE TPO CONSIDERED COSMIC GLOBAL LTD. AS COMPARAB LE WITH THE ASSESSEE COMPANY ON ENTITY LEVEL. WE HAVE EXAMINED THE ANNUAL REPORT OF THIS COMPANY FOR THE YEAR IN QUESTION, WHICH IS AVA ILABLE IN THE PAPER ITA NO.1897/DEL/2014 BOOK. IT CAN BE NOTICED THAT ITS REVENUE FROM OPERATIONS STANDS AT RS.7,37,02,584/-, WHICH CONSIST S OF THREE AMOUNTS, NAMELY, MEDICAL TRANSCRIPTION AND CONSULTANCY SERVICE CHARGES AMOUNTING TO RS.9,90,737/-; TRANSLATION CHARGE S AMOUNTING TO RS.6,99,35,756/-; AND ACCOUNTS BPO CHARGES AMOUNTING T O RS.27,76,090/-. THIS COMPANY OUTSOURCED THE ACTIVITY O F TRANSLATION. 57.31% OF TOTAL OPERATING EXPENSES INCURRED BY THIS CO MPANY ARE OUTSOURCING CHARGES. ADMITTEDLY, OUTSOURCING IS CONFINE D TO TRANSLATION, FOR WHICH IT PAID CHARGES AT RS.3.00 CROR E. IN OUR 23 CONSIDERED OPINION, THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE WITH THE ASSESSEE COMPANY FOR THE REASON OF ITS MAJOR ACT IVITY, NAMELY, TRANSLATION, WITH REVENUE OF RS.6.99 CRORE (OUT OF TO TAL REVENUE OF RS.7.35 CRORE), BEING DISSIMILAR WITH THE ASSESSEE'S ACTIV ITIES UNDER THIS SEGMENT. THE SECOND REASON FOR CONSIDERING THIS COMPANY AS INCOMPARABLE ON ENTITY LEVEL IS THE BUSINESS MODEL ADOP TED BY IT. IT CAN BE SEEN THAT THIS COMPANY HAS OUTSOURCED MAJOR ACTIVITI ES IN COMPARISON WITH THE ASSESSEE DOING ITS BUSINESS IN- HOUSE. IT GOES WITHOUT SAYING THAT THESE TWO BUSINESS MODELS, NAMELY, OU TSOURCING SERVICES AND PROVIDING IN-HOUSE SERVICES, CANNOT BE ITA NO.1897/DEL/2014 COMPARED WITH EACH OTHER BECAUSE OF THEIR INHERENT DIFFERENCES. SINCE THE TPO HAS CONSIDERED THIS COMPANY AS COMPARABLE ON ENTITY LEVEL, WE HOLD THAT THE SAME CANNOT BE SO T REATED. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF UNITED HEALTH GROUP INFORMATION SERVICES PVT. LTD. VS. ACIT (ITA NO.6312/ DEL/2012) VIDE ITS ORDER DATED 28.8.2014. RESPECTFULLY FOLLOWING THE PRECEDENT, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. ACCENTIA TECHNOLOGIES LTD. 52. FOLLOWING THE DECISION CITED (SUPRA), WE HOLD THAT EVEN ON THIS ISSUE ALSO COSMIC GLOBAL LTD. CANNOT BE CONSIDERED AS COMP ARABLE. WE ACCORDINGLY DIRECT THE AO TO EXCLUDE COSMIC GLOBAL LTD . FROM THE LIST OF COMPARABLES. GROUND OF APPEAL NO.2 IS ACCORDINGLY ALLOWED. 53. SO FAR AS GROUND OF APPEAL NO.3 IS CONCERNED THE GRIEV ANCE OF THE ASSESSEE IS REGARDING REJECTION OF CERTAIN COMPANIES WHICH ACCORDING TO THE ASSESSEE ARE COMPARABLE. 54. COMING TO CEPHA IMAGING PVT. LTD. WE FIND THE AO REJEC TED THE SAME FROM THE LIST OF COMPARABLES ON THE GROUND THAT THE RELATED PARTY TRANSACTIONS IS MORE THAN 25% OF SALES. FOR THE A BOVE PROPOSITION, THE AO HAS CONSIDERED THE DEBTORS AND THE CREDITORS FOR COMPUTING THE RPT TO SALES, THE DETAILS OF WHICH ARE AS UNDER : PARTICULARS AMT. IN RS. SALES 96,01,016/ - INCOME 20,41,849/ - EXPENSES 1,39,54,466/ - INTEREST 1,62,333/ - DEBTORS 51,71,358/ - CREDITORS 92,56,026/ - TOTAL 4,01,87,048/ - 24 55. ACCORDING TO THE ASSESSEE, IF THE DEBTORS, CREDITORS A ND INTEREST EXPENSES ARE EXCLUDED THE RPT TO SALES COMES T O 17.72%, THE DETAILS OF WHICH ARE AS UNDER : PARTICULARS AMT. IN RS. SALES 96,01,016/ - INCOME 20,41,849/ - EXPENSES 1,39,54,466/ - INTEREST NIL DEBTORS NIL CREDITORS NIL TOTAL 2,55,97,331 / - 56. FROM THE ORDER OF THE DRP WE FIND THE DRP IS SILENT O N THE ISSUE OF RPT TO SALES COMPUTATION. HOWEVER, THEY HAVE GI VEN THE OBSERVATION THAT CEPHA IMAGING PVT. LTD. IS NOT COMPARAB LE BECAUSE IT IS ENGAGED IN E-PUBLISHING BUSINESS AND MAINLY CARRIES OU T DATA CONVERSION WORK WHICH CANNOT BE COMPARED WITH THAT OF T HE WORK OF THE ASSESSEE COMPANY. FROM THE ABOVE TABLE, WE FIND TH E NECESSARY DETAILS ARE NOT DISCERNABLE. HOWEVER, IN OUR OPINION, FOR COM PUTING THE RPT TO SALES DEBTORS AND CREDITORS CANNOT BE CONS IDERED. WE RESTORE THIS ISSUE BACK TO FILE OF AO TO COMPUTE THE PERC ENTAGE OF RPT TO SALES IN ACCORDANCE WITH FACT AND LAW AND IF IT IS LE SS THAN 25% THEN CEPHA IMAGING PVT. LTD. CANNOT BE EXCLUDED FROM THE LIST OF COMPARABLES. 57. AS REGARDS THE OBSERVATION OF THE DRP THAT CEPHA I MAGING PVT. LTD. IS ENGAGED IN E-PUBLISHING BUSINESS AND MAINLY CA RRIES OUT DATA CONVERSION WORK WHICH CANNOT BE COMPARED WITH THA T OF THE ASSESSEE;S SERVICES, WE FIND MERIT IN THE SUBMISSION OF THE L D. COUNSEL FOR THE ASSESSEE THAT ASSESSEE ALSO IS INVOLVED IN FILE CONVERSION, CONTENT MEDICATION, TEST EDITING, AS A PART OF I TS BACK OFFICE SUPPORT SERVICES WHICH IS SIMILAR TO DATA CONVERSION W HICH IS A KEY ACTIVITY OF CEPHA IMAGING PVT. LTD. 25 58. FROM THE COPY OF THE LETTER ADDRESSED TO THE AO ON 26-12-2011 A COPY OF WHICH IS PLACED AT PAGE 105 OF THE PAPER BOOK, WE FIND THE ASSESSEE IN ITS LETTER HAS GIVEN THE BACKGROU ND OF THE COMPANY WHICH READ AS UNDER : BACKGROUND : SGSCL WAS ESTABLISHED AS A BRANCH ON 27 TH SEPTEMBER 2007 AND COMMENCED OPERATIONS ON 1 DECEMBER 2007. SGSCL IS E NGAGED IN PROVIDING TECHNICAL SUPPORT SERVICDES (ENGINEERING BAC K-OFFICE SERVICES) TO VARIOUS OVERSEAS SCHLUMBERGER GROUP COMPANI ES. SGSCL PROVIDES SERVICES RELATED TO PREPARATION, CORRECTION AND EDITING OF DATASHEETS AND DRAWINGS TO ITS ASSOCIATED ENTERPRISES (AES ). 59. WE THEREFORE FIND FORCE IN THE SUBMISSION OF THE LD. COU NSEL FOR THE ASSESSEE THAT TNMM REQUIRES BROAD COMPARABILITY AND SINCE THE ACTIVITY CARRIED OUT BY THE ASSESSEE IS SIMILAR TO DA TA CONVERSION WHICH IS A KEY ACTIVITY OF CEPHA IMAGING PVT. LTD, THEREFOR E, THIS COMPANY SHOULD NOT BE REJECTED. 60. THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD. VS. DY.DIT REPORTED IN 30 TAXM ANN.COM 249 (BANGALORE-TRIBUNAL) AT PARA 34 OF THE ORDER HAS OBS ERVED AS UNDER : 34. AS PER THE PRINCIPLES OF COMPARABILITY, CONTROLL ED AND UNCONTROLLED TRANSACTIONS ARE REGARDED AS COMPARABLE IF THEIR ECONO MICALLY RELEVANT ATTRIBUTES AND THE CIRCUMSTANCES SURROUNDING THEM ARE S UFFICIENTLY SIMILAR TO PROVIDE A RELIABLE MEASURE OF AN ARMS LENG TH RESULT. HOWEVER, IN REALITY, TWO TRANSACTIONS ARE SELDOM COMPL ETELY ALIKE. TO BE COMPARABLE DOES NOT MEAN THAT THE TWO TRANSACTIONS ARE NECESSARILY IDENTICAL, BUT THAT EITHER NONE OF THE DIFFERENCES B ETWEEN THEM COULD MATERIALLY AFFECT THE ARMS LENGTH PRICE OR, WHERE SU CH MATERIAL DIFFERENCES EXIST, THEN REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THEIR EFFECT. IT IS IMPORTANT TO NOTE THA T THE TYPE AND ATTRIBUTES OF THE COMPARABLES AVAILABLE IN A GIVEN SITUATION TYP ICALLY DETERMINE THE MOST APPROPRIATE TRANSFER PRICING METHOD. IN GENERAL, CLOSELY COMPARABLE PRODUCTS/SERVICES ARE REQUIRED IF THE COMPA RABLE UNCONTROLLED PRICE (CUP) METHOD IS USED FOR ARMS LE NGTH PRICING; THE RESALE PRICE, COST-PLUS METHODS GENERALLY REQUIRE A LESSE R DEGREE OF PRODUCTS OR SERVICES COMPARABILITY AND MAY BE APPROPRI ATE IF FUNCTIONAL COMPARABLES ARE AVAILABLE. THE TNMM REQUIRES ONLY BRO AD FUNCTIONAL AND PRODUCT/SERVICES COMPARABILITY. IN MANY INSTANCES, IT WILL BE 26 POSSIBLE TO USE IMPERFECT COMPARABLES, E.G., COMPARAB LES FROM ANOTHER INDUSTRY SECTOR, POSSIBLY ADJUSTED TO ELIMINATE OR REDUC E THE DIFFERENCES BETWEEN THEM AND THE CONTROLLED TRANSACTION. HENCE, THE CONTENTION OF THE ASSESSEE THAT THE COMPARABLES HAVE TO BE OF R & D CO MPANIES FROM THE SAME INDUSTRY IS NOT APPROPRIATE FOR TNMM. 61. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V S. SCHLAFHORST MARKETING CO. LTD. REPORTED IN 13 TAXMANN.COM 104 (MUMBAI) AT PARA 14 OF THE ORDER HAS OBSERVED AS UNDER : 14. COMING TO THE NATURE OF SERVICES, FROM TIME SHEE T, WHICH IS AT PAGE-51 OF THE PAPER BOOK, IT CAN BE SEEN THAT THESE ARE - (I) NEW ERECTION; (II) MACHINERY RE-LOCATION/DISMANTLING; ( III) UPGRADE/CONVERSION, OVERHAUL REPAIRS; (IV) REPAIRS AND SERVICES ON ELECTRIC EQUIPMENT. THOUGH THE NATURE OF SERVICES DO VARY, THE FACT REMAINS THAT THEY BROADLY FALL UNDER A COMMON CATEGO RY OF INSTALLATION SERVICES, WARRANTY SERVICES AND AFTER-SALES-SERVICES. IN O UR OPINION, THE NATURE OF SERVICES DOES NOT VARY SIGNIFICANTLY. IT IS N OT ALSO IN DISPUTE THAT THE SAME ENGINEERS ARE DEPUTED FOR ALL THESE SERVI CES AND THE SAME RATE IS CHARGED. UNDER THESE CIRCUMSTANCES, WE ARE OF T HE CONSIDERED OPINION THAT THE FINDING OF THE FIRST APPELLATE AUTH ORITY THAT THE TNMM METHOD ADOPTED BY THE ASSESSEE TO ARRIVE AT ARM'S LENGTH PRICE WAS JUSTIFIED. TNMM IS MORE BROAD BASED AND THE VARIATION IN THE TYPE OF SERVICES, AS IN THIS CASE CAN BE ABSORBED IN THIS METHOD. 62. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT CEPHA I MAGING PVT. LTD. SHOULD BE CONSIDERED AS A COMPARABLE, IF THE RPT TO SALES IS LESS THAN 25%. 63. SO FAR AS ALLSEC TECHNOLOGIES LTD. IS CONCERNED WE FIND T HE AO EXCLUDED THE SAME FROM THE LIST OF COMPARABLES ON THE GR OUND THAT THE ASSESSEE HAD REJECTED THE SAME IN ITS TP STUDY A ND THERE WAS ABNORMAL INCREASE IN THE EMPLOYEE COST AND GENERAL ADMINIS TRATION COST IN F.Y. 2007-08 DUE TO TAKE OVER OF B2K CORPORATION PVT. LTD. AND NEW FACILITIES STARTED AT 2 LOCATIONS. THIS ALSO HAS EFFE CT ON THE CURRENT YEAR RESULTING IN LOSS DUE TO PECULIAR ECONOMIC CIRCUMSTANCES IN EARLIER AND CURRENT YEAR. SINCE THE ASS ESSEE WAS FOLLOWING A COST PLUS BUSINESS MODEL WHERE IT CANNOT INCUR LO SS, THEREFORE, THE AO HELD THAT ALLSEC TECHNOLOGIES LTD. IS NOT COMPARABLE. WE FIND THE DRP APART FROM UPHOLDING THE FINDING S 27 GIVEN BY THE AO HELD THAT ALLSEC TECHNOLOGIES LTD. IS ENGAGED IN DATA VERIFICATION, PROCESSING OF ORDERS RECEIVED ON TELEPHONE CALLS , TELEMARKETING, MONITORING QUALITY OF CALLS AND OTHER CALL CENT RES, CUSTOMER CENTRE, HR AND PAYROLL PROCESS AND THEREFORE IT IS FUNCTIONALLY DISSIMILAR. 64. IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE TH AT TNMM REQUIRES A BROAD FUNCTIONAL LEVEL AND ALLSEC TECHNOLOGIES LTD . BEING FUNCTIONALLY COMPARABLE AND BEING NOT A PERSISTENT LOSS MA KING COMPANY SHOULD NOT HAVE BEEN REJECTED. IT IS ALSO THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT DURING THE YEAR THER E WAS NO AMALGAMATION AND THE REFERENCE TO ABNORMAL INCREASE IN EM PLOYEE AND GENERAL ADMINISTRATION COSTS IS NOT BORNE OUT FROM TH E ANNUAL REPORT OF ALLSEC TECHNOLOGIES LTD. FOR A.Y. 2008-09. WE DO N OT FIND ANY MERIT IN THE ABOVE SUBMISSIONS MADE BY THE LD. COUNS EL FOR THE ASSESSEE. FIRST OF ALL, THE ASSESSEE ITSELF HAS REJECTED A LLSEC TECHNOLOGIES LTD. IN ITS TP STUDY. AS OBSERVED BY THE LD . DRP THE COMPANY IS ENGAGED IN THE BUSINESS OF DATA VERIFICATION, PR OCESSING OF ORDERS RECEIVED ON TELEPHONE CALLS, TELEMARKETING, MONITOR ING OF QUALITY OF CALLS AND OTHER CALL CENTRES, CUSTOMER SERVICES, H R AND PAYROLL PROCESS. THEREFORE, THE FUNCTIONS CARRIED OUT BY A LLSEC TECHNOLOGIES LTD. ARE DIFFERENT FROM THAT OF THE FUNCTIONS CA RRIED ON BY THE ASSESSEE. FURTHER, THIS COMPANY HAS INCURRED LOS S IN THE CURRENT YEAR AS WELL AS IN THE PRECEDING YEAR. APART FRO M THE GENERAL ARGUMENT THE LD. COUNSEL FOR THE ASSESSEE COULD NOT REBUT THE FINDINGS/OBSERVATIONS GIVEN BY THE AO AS WELL AS THE D RP AS TO HOW ALLSEC TECHNOLOGIES LTD. SHOULD BE INCLUDED IN THE LIST O F COMPARABLES. THE VARIOUS DECISIONS RELIED ON BY LD. COUNSE L FOR THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. WE, THEREFORE, REJECT THE ARGUMENTS OF THE LD. COUNSEL FOR TH E ASESSEE ON 28 THIS ISSUE AND UPHOLD THE ACTION OF THE AO/DRP IN REJECTIN G THIS COMPANY FROM THE LIST OF COMPARABLES. 65. AS REGARDS THE R SYSTEMS INTERNATIONAL LTD. IS CONCE RNED WE FIND THE AO REJECTED THE SAME ON THE GROUND THAT THE ASSESSEE ITSELF HAD REJECTED THE SAME IN THE TP STUDY REPORT AND THE COMPANY HAS DIFFERENT FINANCIAL YEAR. THE DRP HAD GIVEN A FINDING ON THE B ASIS OF THE DIRECTORS REPORT THAT THE COMPANY IS LEADING PROVID ER OF OUTSOURCED PRODUCT DEVELOPMENT SERVICES, BUSINESS PROCE SS OUTSOURCE SERVICE AND ALSO OFFERS OWN PRODUCT SUITES IN B FSI, MANUFACTURING AND LOGISTICS VERTICALS. THUS, THE COMPANY IS PRODUCT DEVELOPMENT AND PRODUCT SELLER. ACCORDINGLY, TH E DRP CONSIDERED THE SAME AS NOT COMPARABLE WITH THAT OF THE ASSESSEE COMPANY. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE A O AS WELL AS THE DRP ON THIS ISSUE. WE FIND THE LD. COUNSEL FOR T HE ASSESSEE WHILE ARGUING THE CASE FOR EXCLUSION OF COSMIC G LOBAL LTD. HAS ARGUED THAT THE SAME COMPANY HAD TO BE EXCLUDED SINCE IT HAD PAID TRANSLATION CHARGES TO THIRD PARTIES INDICTING OUTSOUR CING OF WORK. FOR THE ABOVE PROPOSITION, SHE ALSO RELIED ON VARIOU S DECISIONS. THEREFORE, ONCE IT HAS BEEN FOUND BY THE DRP F ROM THE DIRECTORS REPORT THAT R SYSTEMS INTERNATIONAL LTD. IS L EADING PROVIDER OF OUTSOURCE PRODUCT DEVELOPMENT SERVICES, BUSIN ESS PROCESS, OUTSOURCE SERVICE AND ALSO OWN PRODUCT SUITES IN BFSI, MANUFACTURING AND LOGISTICS VERTICALS ETC., THEREFORE, IN THE OWN ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE THIS COMPA NY IS FUNCTIONALLY DISSIMILAR AND THEREFORE THE SAME CANNOT BE AC CEPTED AS COMPARABLE. IN THIS VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE AO/DRP ON THIS ISSUE. 29 65.1 THE GROUND OF APPEAL NO.3 BY THE ASSESSEE IS ACCO RDINGLY PARTLY ALLOWED. 66. NOW COMING TO THE ISSUE REGARDING RISK ADJUSTMENT, WE FIND THE DRAFT ASSESSMENT ORDER IS SILENT ON THIS ISSUE. THE A SSESSEE FOR THE FIRST TIME TOOK A STAND BEFORE THE DRP WHO ALSO REJE CTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT ASSESSE E HAS NOT PRODUCED COMPLETE ANALYSIS AND COMPLETE SPECTRUM OF RISK FACED ON THE BUSINESS ENTITY. IT HAS NOT CARRIED OUT FAR ON CO MPARABLE AND IN THE TP REPORT DURING THE PROCEEDINGS HAS MERELY ENU MERATED FEW REASONS. THEREFORE, IN ABSENCE OF RISK ANALYSIS OF EACH C OMPARABLE WITH THE RISK MATRIX OF THE ASSESSEE, THE DRP HELD THAT NO DIFFERENCE IN RISK PROFILE BY ASSESSEE AND COMPARABLE CAN BE MADE ON ACCOUNT OF RISK. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ASSESSEES BUSINESS MODEL IS COST PLUS NATURE WHEREIN TH ERE IS NO POSSIBILITY OF INCURRING LOSSES. THIS HAS ALSO BEEN ACCEPTED BY THE AO. HOWEVER, THE COMPARABLES ARE NORMAL RISK BEARING ENT ITIES. FURTHER, THE OBSERVATION OF THE DRP THAT ASSESSEE SHOU LD PROVIDE A DETAILED RISK ANALYSIS OF EACH COMPARABLE IS BOTH ONEROUS AND IMPRACTICAL SINCE THE DATA BELONGS TO THIRD PARTIES AND BE YOND THE CONTROL OF THE ASSESSEE. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE CAN BE EXPECTED TO CONDUCT THE TP STUDY BASED ON INFO RMATION AVAILABLE IN PUBLIC DOMAIN. FURTHER, IT IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT WITHOUT A CLEAR FINDING T HAT THE COMPARABLES ARE RISK PROTECTED LIKE THE ASSESSEE THE TP O AND THE DRP HAVE ERRED IN NOT ALLOWING THE RISK ADJUSTMENT FOR DIFFE RENCE IN RISK PROFILE AS PER RULE 10B(10(E)(III). FOR THE ABOVE PROPOSITIO N, SHE ALSO RELIED ON VARIOUS DECISIONS. 30 67. WE FIND SOME MERIT IN THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. THE DIFFERENT BENCHES OF THE TR IBUNAL ARE TAKING THE VIEW THAT AN ASSESSEE WHO IS A CAPTIVE SERVIC E PROVIDER AND DOES NOT ASSUME ANY RISK OR TAKES LESSER RISK AS C OMPARED TO COMPARABLE COMPANY WHICH UNDERTAKES HIGHER RISKS, THEN IT IS ENTITLED TO SOME RISK ADJUSTMENT. HOWEVER, SINCE THE ASS ESSEE HAS NOT PRODUCED COMPLETE ANALYSIS AND COMPLETE SPECTRUM O F RISK FACED BY BUSINESS ENTITY AND IN ABSENCE OF RISK ANALYSIS OF EACH COMPARABLE, WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO WOR K OUT AND JUSTIFY TO THE SATISFACTION OF THE AO REGARDING THE RISK A DJUSTMENT IT IS ENTITLED TO. WE HOLD AND DIRECT ACCORDINGLY. THE GROU ND OF APPEAL NO.4 BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 68. SO FAR AS THE REMAINING GROUNDS ARE CONCERNED THE L D. COUNSEL FOR THE ASSESSEE DID NOT PRESS THE SAME FOR WH ICH THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCORDINGL Y, THE OTHER GROUNDS OF APPEAL ARE DISMISSED AS NOT PRESSED. 69. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30-10-2015. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; # DATED : 30 TH OCTOBER, 2015. LRH'K 31 ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE DRP, PUNE 4 . ' * , * , IQ.K IQ.KIQ.K IQ.K / DR, ITAT, A PUNE; 5 . / GUARD FILE. / BY ORDER, ' //TRUE COPY// 0 * / SR. PRIVATE SECRETARY *, IQ.KS IQ.KSIQ.KS IQ.KS / ITAT, PUNE