GE India Exports Private Limited, Bangalore V. DCIT, Bangalore

ITA 987/BANG/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5411 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 03-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: G R REDDY
• Keywords: Transfer pricing; International transaction; Earning of tax free income
• Section: 14A; 10B

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.987/BANG/201 1 (ASST. YEAR 2007-0 8) G.E INDIA EXPORTS PVT. LTD., (FORMERLY GE POWER CONTROLS INDIA (P) LTD., 42/1 & 45/14, ELECTRONIC CITY, PHASE II BANGALORE-561 229. . APPELLANT PAN NO.AABCG 1257B. VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-11(3), BANGALORE. . RESPONDENT APPELLANT BY : SHRI RAJAN VORA, C.A ASSESSEE BY : SHRI G.R REDDY, CIT DATE OF HEARING : 13-02-2017 DATE OF PRONOUNCEMENT : 28-04-2017 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER PASSED BY THE DY. COMMISSIONER OF INCOME-TAX DATED 6.9.2011 PURSUANT TO THE DIRECTION OF DRP DATED 16.8.2011 FO R THE ASSESSMENT YEAR 2007-08. ITA NO.987/B/11 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER:- ITA NO.987/B/11 3 3. GROUND NO.1 IS GENERAL. 4. GROUND NO.2.1 TO 2.4 IS WITH REGARD TO REDUCTION IN DEDUCTION U/S 10A AND 10B. THE DRP AT PAGE NO.48 OF THE ORDE R RECORDS AS UNDER:- 5. ON THE OTHER HAND, THE LEARNED DR RELIED ON THE ORDER PASSED BY THE AUTHORITIES BELOW. ITA NO.987/B/11 4 6. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THIS ISSUE IS COVERED BY THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.185,186 AND 187/BANG/ 2010 FOR THE ASSESSMENT YEAR 2002-03, 2003-04 AND 2004-05, WHERE IN IT WAS HELD THAT IF FREIGHT EXPENSES ARE NOT INCLUDED IN EXPORT TURNOVER AND TOTAL TURNOVER, THEN THEY CANNOT BE REDUCED WHILE COMPUTI NG THE DEDUCTION U/S 10B OF THE ACT. IN OUR VIEW THIS ISSUE IS NO M ORE RES INTEGRA AND IT IS COVERED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN 349 ITR 98. THEREFORE, THE GROUNDS RAISED ARE REQUI RED TO BE ALLOWED AND ACCORDINGLY WE ALLOW THE GROUNDS OF THE ASSESSE E ON THE SIMILAR LINES AS HELD BY THE COORDINATE BENCH IN THE ASSES SEES OWN CASE. ACCORDINGLY, GROUND NOS.2 TO 2.4 OF THE ASSESSEES APPEAL IS ALLOWED. 7. GROUND NOS.3 TO 3.3 IS WITH REGARD TO DISALLOWAN CE U/S 14A OF THE ACT, GROUND NOS.3.1 AND 3.2 ARE AS UNDER: 3.1. GROUND 3.1: THAT THE LD. AO/DRP ERRED IN DISALLOWIN G THE EXPENDITURE OF INR 9,70,000 UNDER SECTION 14A READ WITH RULE 8D OF INCOME-TAX RULES, 1962 (RULES) HOLDING THAT EXPEN DITURE IS ATTRIBUTABLE TO EARNING OF EXEMPT INCOME (DIVIDEND) 3.2. GROUND 3.2: THAT THE LD. AO/DRP ERRED IN PROPOSING TO APPLY THE PROVISIONS OF RULE 8D OF THE RULES FOR THE YEAR UND ER CONSIDERATION. 8. THE LD AUTHORIZED REPRESENTATIVE ON BEHALF OF T HE ASSESSEE HAS SUBMITTED THAT DURING AY 2007-08, THE ASSESSEE HAD EARNED DIVIDEND ITA NO.987/B/11 5 INCOME OF INR 1,95,74,334. THE SAID DIVIDEND INCOM E HAS BEEN EARNED ON THE INVESTMENT OF INR 38,80,00,000 MADE B Y THE APPELLANTS HYDERABAD INDIA INNOVATION CENTRE (IIC ) DIVISION OUT OF ITS OWN FUNDS IN THE CUMULATIVE REDEEMABLE PREFE RENCE SHARES OF GE INDIA INDUSTRIAL PRIVATE LIMITED. THE APPELLANT HAD NOT INCURRED ANY EXPENDITURE IN EARNING SUCH DIVIDEND INCOME. T HE FACT THAT THE COMPANY HAS NOT INCURRED ANY EXPENDITURE IN RELATIO N TO EARNING DIVIDEND INCOME HAS ALSO BEEN DISCLOSED IN THE TAX AUDIT REPORT FOR THE YEAR UNDER CONSIDERATION. THE COMPANY AT THE TIME O F ASSESSMENT PROCEEDINGS HAS MADE A DETAILED SUBMISSION IN THIS REGARD WHEREIN THE COMPANY HAS SUBMITTED TO THE LEARNED AO THAT SINCE NO EXPENDITURE WAS INCURRED BY THE COMPANY IN EARNING THE DIVIDEND INCOME, NO DISALLOWANCE SHALL BE MADE BY THE COMPANY UNDER SEC TION 14A OF THE ACT. THE LEARNED AO WITHOUT RECORDING ANY REASONS O F NOT BEING SATISFIED WITH THE EXPLANATIONS OFFERED BY THE COMP ANY AND WITHOUT IDENTIFYING ANY PROXIMATE CAUSE OF ANY EXPENDITURE INCURRED IN CONNECTION OF EARNING THE EXEMPT INCOME, HAS ARBITR ARILY APPLIED RULE 8D(2)(III) OF THE RULES AND MADE A DISALLOWANCE OF INR 9,70,000/- UNDER SECTION 14A OF THE ACT. THE APPELLANT FURTHER SUBMITTED THAT RULE 8D OF THE RULES WAS INSERTED VIDE NOTIFICATION NO. S.O. 547(E) DATED 24 MARCH 2008. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSEE CONTENDED BEFORE THE LEARNED AO/DRP TH AT RULE 8D OF ITA NO.987/B/11 6 THE RULES WAS APPLICABLE ONLY PROSPECTIVELY I.E., F ROM AY 2008-09 ONWARDS AND HENCE COULD NOT BE APPLIED TO THE CASE OF THE COMPANY FOR THE YEAR UNDER CONSIDERATION (I.E. AY 2007-08). THE LEARNED AO IN THE FINAL ASSESSMENT ORDER HAS ERRONEOUSLY COMPUTED DISALLOWANCE UNDER SECTION 14A OF THE ACT BY APPLYING RULE 8D(2) (III) OF THE RULES WITHOUT APPRECIATING THE FACT THAT THE SAID RULE IS NOT APPLICABLE FOR AY 2007-08. ACCORDINGLY, THE APPELLANT HUMBLY SUBMI TS THAT IT IS A WELL SETTLED POSITION OF LAW THAT APPLICATION OF RU LE 8D OF THE RULES IS PROSPECTIVE FROM AY 2008-09 ONWARDS AND IT DOES NOT HAVE RETROSPECTIVE APPLICATION. 9. THE LEARNED DR RELIES UPON THE ORDER PASSED BY T HE AO MORE PARTICULARLY PAGE 62 OF THE AOS ORDER WHEREBY THE AO INVOKED THE PROVISION OF SEC. 14A R.W.R 8D OF THE ACT. 10. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE RECORD. THE BOMBAY HIGH IN THE CASE OF GODREJ AND BOYCE MFG. CO . LTD., VS. DCIT [2010] 194 TAXMAN 203 HAS HELD THAT RULE 8D IS PROSPECTIVE IN NATURE AND IS NOT RETROSPECTIVE IN NATURE AND IS ON LY APPLICABLE FROM ASST. YEAR 2008-09 ONWARDS. THEREFORE, IN OUR VIEW , RULE 8D CANNOT BE INVOKED BY THE AO FOR CALCULATING DISALLOWANCE U /S 14A. IN THE ITA NO.987/B/11 7 CASE OF GODREJ AND BOYCE MFG. CO. LTD., (SUPRA) AT PARA 67 IT IS HELD AS UNDER:- 67. EVEN IN THE ABSENCE OF SUB-SECTIONS (2) AND (3) OF SECTION 14A AND OF RULE 8D, THE ASSESSING OFFICER W AS NOT PRECLUDED FROM MAKING APPORTIONMENT. SUCH AN APPORTIONMENT WOULD HAVE TO BE MADE IN ORDER TO GIV E EFFECT TO THE SUBSTANTIVE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A WHICH PROVIDE THAT NO DEDUCTION WOULD B E ALLOWED IN RESPECT OF EXPENDITURE INCURRED IN RELAT ION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE ACT. CONSEQUENTLY, DE HORS THE PROVISIONS OF SUB-SECTIONS (2) AND (3) OF SECTION 14A AND RULE 8D , THE ASSESSING OFFICER WAS ENTITLED TO DETERMINE BY THE APPLICATION OF A REASONABLE METHOD WHAT QUANTUM OF THE EXPENDITURE INCURRED BY THE ASSESSEE WOULD HAVE TO BE DISALLOWED ON THE GROUND THAT IT WAS INCURRED IN RELATION TO THE EARNING OF INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT. UNDOUBTEDLY , IN DETERMINING WHAT WOULD CONSTITUTE A REASONABLE METHOD FOR EFFECTING THE DISALLOWANCE, THE ASSESSIN G OFFICER WOULD HAVE TO GIVE DUE REGARD TO ALL THE FA CTS AND CIRCUMSTANCES OF THE CASE. THE CHANGE WHICH IS BROUGHT ABOUT BY THE INSERTION OF SUB-SECTIONS (2) AND (3) INTO SECTION 14A BY THE FINANCE ACT OF 2006 WIT H EFFECT FROM 1-4-2007 IS THAT IN A SITUATION WHERE T HE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM OF THE ASSESSEE IN REGARD TO THE EXPENDITURE INCURRED BY IT IN RELATION TO THE NON- ITA NO.987/B/11 8 TAXABLE INCOME, THE ASSESSING OFFICER WOULD HAVE TO FOLLOW THE METHOD WHICH IS PRESCRIBED BY THE RULES. THE RULES WERE NOTIFIED TO COME INTO FORCE ON 24-3- 2008. IT IS A TRITE PRINCIPLE OF LAW THAT THE LAW W HICH WOULD APPLY TO AN ASSESSMENT YEAR IS THE LAW PREVAILING ON THE FIRST DAY OF APRIL. CONSEQUENTLY, RULE 8D WHICH HAS BEEN NOTIFIED ON 24-3-2008 WOULD APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. THE RULE, CONSEQUENTLY CANNOT HAVE APPLICATION IN RESPECT OF ASSESSMENT YEAR 2002-03 WHICH IS THE YEAR UNDER CONSIDERATION IN THIS CASE. 11. RESPECTFULLY FOLLOWING THE DECISION OF GODREJ A ND BOYCE MFG. CO. LTD., (SUPRA), WE SET ASIDE THIS ISSUE TO THE F ILE OF THE AO FOR COMPUTING REASONABLE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME 12. GROUND NO.4 IS GENERAL IN NATURE. GROUND NO.5 I S NOT PRESSED. 13. GROUND NO.6 IS WITH RESPECT TO TP ISSUE. 13.1 THE LEARNED ASSESSING OFFICER (AO) OBTAINED THE APPROVAL OF COMMISSIONER OF INCOME-TAX, BANGALORE AND MADE A RE FERENCE U/S 92CA(1) OF THE ACT TO THE ADDITIONAL COMMISSIONER O F INCOME TAX, (TRANSFER PRICING) - I, (TPO) FOR DETERMINATION O F ARMS LENGTH ITA NO.987/B/11 9 PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS ENT ERED BY THE APPELLANT WITH ITS AES. 13.2 A NOTICE WAS ISSUED BY THE LEARNED TPO CALLING FOR CERTAIN DETAILS SUCH AS PROFIT & LOSS ACCOUNT, BALANCE SHEE T, STATEMENT OF INCOME FILED WITH THE RETURN OF INCOME, TRANSFER PR ICING DOCUMENTS MAINTAINED, AGREEMENTS ENTERED INTO BETWEEN THE APP ELLANT AND ITS ASSOCIATED ENTERPRISES FOR THE AY 2007-08. IN RESP ONSE, THE APPELLANT FURNISHED THE REQUIRED DETAILS. SUBSEQUENTLY, THE LEARNED TPO ISSUED SHOW-CAUSE NOTICE DATED 31 MAY 2010 AND IN RESPONS E TO THAT ASSESSEE FILED SUBMISSIONS BEFORE THE TPO ON 12 TH JULY 2010 AND 8 TH SEPTEMBER 2010. 31.3 THE TPO PASSED AN ORDER DATED 27 OCTOBER 2010 UNDER SECTION 92CA OF THE ACT MAKING AN ADJUSTMENT OF INR 152,450 ,673 TO THE INTERNATIONAL TRANSACTION OF ITES ENTERED BY THE AP PELLANT WITH THE AES. 13.4 THE INTERNATIONAL TRANSACTION OF THE APPELLANT WITH ITS AE DURING THE CAPTIONED AY IS AS UNDER: ITA NO.987/B/11 10 S.NO NATURE OF INTERNATIONAL TRANSACTION AMOUNT IN INR 1. PROVISION OF CUSTOMER SUPPORT SERVICE (ITES) 158,08,98 ,347 2. PROVISION OF SOFTWARE SERVICES 275,63,51,266 3. PROVISION OF PERSONNEL SOURCING SERVICES 25,289,189 4. PURCHASE OF FIXED ASSETS 7,072,770 5. RECOVERY OF EXPENSES 1,241,646 6. PURCHASE OF COMPONENTS 135,527 7. EXPORT OF FINISHED GOODS 3,483,883 8. REIMBURSEMENT OF EXPENSES 137,879,045 13.5 THE TPO SELECTED THE FOLLOWING COMPANIES AS COMPARA BLE: ---- SPACE LEFT BLANK INTENTIONALLY ---- ITA NO.987/B/11 11 SL. NO. COMPANY NAME NET MARGIN AS PER TP ORDER 1 ACCENTIA TECHNOLOGIES LIMITED (SEG) 30.61% 2 BODHTREE CONSULTING LIMITED (SEG) 29.58% 3 ECLERX SERVICES LIMITED 89.33% 4 HCL COMNET SYSTEMS & SERVICES LIMITED (SEG) 44.99% 5 INFORMED TECHNOLOGIES INDIA LIMITED 35.56% 6 MOLD TEK TECHNOLOGIES LIMITED(SEG) 113.49% 7 VISHAL INFORMATION TECHOLOGIES LIMITED 51.19% 8 INFOSYS BPO LIMITED 28.78% 9 WIPRO LIMITED (SEG) 29.70% 10 ACCURATE DATA CONVERTERS 50.68% 11 ADITYA BIRLA MINCAS WORLDWIDE LIMITED (FORMERLY KNOWN AS TRANSWORKS INFORMATION SERVICES LTD.) 11.98% 12 ALLSEC TECHNOLOGIES LIMITED 27.31% 13 APEX KNOWLEDGE SOLUTIONS PVT LIMITED 12.83% 14 APOLLO HEALTHSTREET LIMITED -13.55% 15 ASIT C MEHTA FINANCIAL SERVICES LIMITED 24.21% 16 CALIBER POINT BUSINESS SOLUTIONS LIMITED 21.26% 17 COSMIC GLOBAL LIMITED 12.40% 18 DATAMATICS FINANCIAL SERVICES LIMITED (SEG) 5.07% 19 FLEXTRONICS SOFTWARE SYSTEMS LIMITED (SEG) 8.62% 20 GENSYS INTERNATIONAL CORPORATION LIMITED 13.35% 21 ICRA TECHNO ANALYTICS LIMITED (SEG) 12.24% 22 ISERVICES INDIA PRIVATE LIMITED 49.47% 23 MAPLE ESOLUTIONS LIMITED 34.05% 24 R SYSTEMS INTERNATIONAL LIMITED (SEG) 20.18% 25 SPANCO LIMITED (SEG) 25.81% 26 TRITON CORP LIMITED 34.93% 27 NITTANY OUTSOURCING SERVICES PVT LIMITED 11.50% AVERAGE 30.21% WORKING CAPITAL ADJUSTMENT 3.10% ADJUSTED OPERATING MARGIN 27.10% ITA NO.987/B/11 12 13.6 BASED ON THE ABOVE APPROACH, THE LEARNED TPO MADE AN ADJUSTMENT OF INR 15,24,50,673 IN RESPECT OF THE IT ES SEGMENT. 13.7 BEING AGGRIEVED BY ABOVE MENTIONED ADJUSTMENTS MADE IN THE DRAFT ASSESSMENT ORDER BY THE LEARNED AO, THE ASSES SEE FILED OBJECTIONS BEFORE THE HONBLE DISPUTE RESOLUTION PA NEL (DRP) ON 31 DECEMBER 2010. THE DRP VIDE DIRECTION DATED 16 AUGUST 2011 HAS UPHELD THE DRAFT ASSESSMENT ORDER IN ENTIRETY. ACCORDINGLY, THE LEARNED AO HAS PASSED THE FINAL ASSESSMENT ORDER DA TED 6 SEPTEMBER 2011 (THE ORDER), IN CONFORMITY WITH THE DIRECTIO NS GIVEN BY DRP. 13.8 ACCORDINGLY, BEING AGGRIEVED BY THE ORDER, THE ASSE SSEE IS BEFORE US ON THE ABOVE STATED TP GROUNDS . 13.9 THE APPELLANT HAS FILED THE FOLLOWING MODIFIED GRO UNDS OF APPEAL TO PLEAD REJECTION OF SPECIFIC COMPANIES WHI CH ARE CONSIDERED AS COMPARABLE BY THE TPO AND UPHELD BY DRP. 8. THE LEARNED TPO / AO HAS FAILED TO APPRECIATE THE FACT THAT THE FOLLOWING COMPANIES ARE NOT FUNCTIONA LLY COMPARABLE TO THE APPELLANT, THEREFORE HAS ERRED IN LAW AND FACTS IN CONSIDERING THEM AS COMPARABLE COMPANIES: A) MOLD-TEK TECHNOLOGIES LIMITED; B) ECLERX SERVICES LIMITED; C) VISHAL INFORMATION TECHNOLOGIES LIMITED; D) INFOSYS BPO LIMITED; ITA NO.987/B/11 13 E) ACCENTIA TECHNOLOGIES LIMITED; F) BODHTREE CONSULTING LIMITED; E) ACCURATE DATA CONVERTERS PRIVATE LIMITED; F) ISERVICES INDIA PRIVATE LIMITED 9. WITHOUT PREJUDICE TO THE TRANSFER PRICING DOCUME NTATION MAINTAINED BY THE APPELLANT, THE LEARNED TPO / AO H AS FAILED TO APPRECIATE THE FACT THAT WIPRO LIMITED IS NOT FU NCTIONALLY COMPARABLE TO THE APPELLANT, THEREFORE HAS ERRED IN LAW AND FACTS IN CONSIDERING IT AS A COMPARABLE COMPANY. 13.10 HOWEVER DURING THE COURSE OF ARGUMENT THE APPELLANT HAS RESTRICTED HIS ARGUMENT IN RESPECT OF COMPANIES MEN TIONED AT S.NOS. 6, 7, 8 AND 9 OF THE CHART. HENCE, WE SHALL ONLY BE EXAMINING THE COMPARABILITY OF THESE 4 COMPANIES ONLY. MOLD TEK TECHNOLOGIES LIMITED (MOLD-TEK) 13.11 THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY IS NOT COMPARABLE WITH THE ASSESSEE AS THE PROFILE OF THE COMPANY IS DIFFERENT. IN THE WRITTEN SUBMISSIONS FILED WITH THE ASSESSEE IT IS M ENTIONED AS UNDER: 6.1.2 IN THE CASE OF MOLD-TEK, THE LEARNED TPO HAS CONSIDERED, THE ENGINEERING SERVICES IN THE NATURE OF PRODUCING DES IGN DRAWINGS, DETAILED STRUCTURAL ENGINEERING DRAWINGS USING 3D A ND 2D SOFTWARE SPECIALIZING IN CIVIL, STRUCTURAL AND MECHANICAL EN GINEERING SERVICES, AS COMPARABLE TO THE ITES SEGMENT OF THE APPELLANT. MOLD-TEK HAS A STRONG TEAM OF HIGHLY SKILLED RESOURCES. MOLD-TE K HELPS ITS CLIENTS TO CUT DOWN DESIGN AND DEVELOPMENT COSTS OF CIVIL, STRUCTURAL, MECHANICAL AND PLANT DESIGN AND DELIVERED TECHNOLOG ICALLY SUPERIOR OUTPUTS. THE COMPANY ALSO HAS IN-HOUSE SOFTWARE DE VELOPMENT TEAM, QUALITY CONTROL TRAINING AND TROUBLESHOOTING FACILITIES. ITA NO.987/B/11 14 6.1.3 IN THIS REGARD, THE EXTRACT OF SEGMENTAL INFO RMATION FROM THE ANNUAL REPORT OF MOLD-TEK PROVIDED BELOW (REFER PAGE 749 O F THE PAPERBOOK): 6.1.4 THE HONBLE MEMBERS WOULD APPRECIATE THE FACT THAT THE ENGINEERING SERVICES BEING IN THE NATURE OF KPO, IS NOT COMPARA BLE TO THE APPELLANTS ACTIVITIES. THE APPELLANT REPRODUCES TH E FOLLOWING EXTRACTS FROM THE RESPONSE OF THE COMPANY U/S133(6) EVIDENCI NG THESE FACTS: 6.1.5 IN SUPPORT OF THE ABOVE CONTENTIONS, THE APPE LLANT RELIED UPON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: SOCIETE GENERALE GLOBAL SOLUTION CENTRE PVT. LTD.[ IT(TP)A NO.1188/BANG/2011] DATED 22 APR 2016 (PAGE 1514, 1516) GOLDMAN SACHS SERVICES PRIVATE LIMITED [IT(TP)A NO . 1163/BANG/2014] DATED 06 MAY 2016 (PAGE 1671 TO 1678) M/S. POLE TO WIN INDIA PVT. LTD.(FORMERLY E4E TECH SUPPORT (INDIA) PVT. LTD.) VS DCIT [I.T.(TP) A. NO.1053/BAN G/2011] DATED 08 JUNE 2016 (PAGE 1629) M/S ARIBA TECHNOLOGIES INDIA PVT. LTD. VS ITO, [IT (TP)A NO.441/BANG/2012] DATED 02 FEB 2016 (PAGE 1589, 1590) MAERSK GLOBAL CENTRES (INDIA) (P) LTD VS. ACIT [IT A NO.7466/MUM/2012] SB DATED 07 MAR 2014; (PAGE 1762 TO 1765) ITA NO.987/B/11 15 13.12 IT WAS SUBMITTED THAT THE PROFILE OF MOLD-TEK WAS EXAMINED BY THE COORDINATE BENCH AND AFTER DISCUSSION IT WAS FO UND THAT THE SAID COMPANY IS NOT COMPARABLE WITH THE COMPANY INTO ITE S SEGMENT. ECLERX SERVICES LIMITED (ECLERX) 13.13 THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY IS NOT COMPARABLE WITH THE ASSESSEE COMPANY AS THE PROFILE OF THE COMPANY IS DIFFERENT. IN THE WRITTEN SUBMISSIONS FI LED BY THE ASSESSEE IT IS MENTIONED AS UNDER: 6.1.6 BASED ON THE REVIEW OF THE ANNUAL REPORT OF E CLERX, THE ASSESSEE WOULD LIKE TO SUBMIT THAT THIS COMPANY IS ENGAGED IN PROVIDING DATA PROCESS AND ANALYTICS SERVICES WHICH ARE IN THE NATURE OF KPO. FOR THE RELEVANT FY, ECLERX HAS EMP LOYED OVER 1500 DOMAIN SPECIALISTS WORKING FOR ITS CLIENT S. ECLERX OFFERS INDUSTRY SPECIALIZED SERVICES FOR MEETING CO MPLEX CLIENT NEEDS, DATA ANALYTICS KPO SERVICES IN TWO BUSINESS VERTICALS - FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. E CLERX OFFERS SOLUTIONS THAT DO NOT JUST REDUCE COST, BUT ALSO HE LP THEIR CLIENTS INCREASE SALES AND REDUCE RISK BY ENHANCING EFFICIE NCIES AND BY PROVIDING VALUABLE INSIGHTS THAT EMPOWER BETTER DECISIONS. ECLERX PROVIDES TAILORED PROCESS OUTSOURCING AND MA NAGEMENT SERVICES ALONG WITH DATA AGGREGATION, MINING AND MA INTENANCE SERVICES. 6.1.7 THE RELEVANT EXTRACT FROM THE ANNUAL REPORT O F THE COMPANY FOR FY 2007-08 IS PROVIDED BELOW; 7 PAGE 6 OF THE ANNUAL REPORT (REFER PAGE 818 OF THE PAPERBOOK): ITA NO.987/B/11 16 7.1.2 PAGE 4 OF THE ANNUAL REPORT (REFER PAGE 816 OF THE PAPERBOOK): 7.1.3 IN SUPPORT OF THE ABOVE CONTENTIONS, THE APPE LLANT RELIED UPON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: SOCIETE GENERALE GLOBAL SOLUTION CENTRE PVT. LTD.[ IT(TP)A NO.1188/BANG/2011] DATED 22 APR 2016 (PAGE 1514 TO 1516) M/S. POLE TO WIN INDIA PVT. LTD.(FORMERLY E4E TECH SUPPORT (INDIA) PVT. LTD.) VS DCIT [I.T.(TP) A. NO.1053/BAN G/2011] DATED 08 JUNE 2016 (PAGE 1626, 1627) M/S ARIBA TECHNOLOGIES INDIA PVT. LTD. VS ITO, [IT (TP)A NO.441/BANG/2012] DATED 02 FEB 2016 (PAGE 1578 TO 1580) MAERSK GLOBAL CENTRES (INDIA) (P) LTD VS. ACIT [IT A NO.7466/MUM/2012] SB DATED 07 MAR 2014 (PAGE 1762 TO 1765) ITA NO.987/B/11 17 13.14 ON THE OTHER HAND, THE LD DR HAS SUBMITTED T HAT MOLD-TEK AND ECLERX SERVICES CAN NOT SAID TO UN-COMPARABLE WIT H THE ASSESSEE COMPANY MERELY ON THE GROUND THAT THAT DECISION WER E RENDERED IN THE SOME OTHER MATTER. IT WAS SUBMITTED THAT TP STUDY I S BASED ON THE FAR ANALYSIS AND, THEREFORE, EACH COMPANY AND COMPARABL E HAS ITS OWN UNIQUE FEATURES AND IS, THEREFORE, REQUIRED TO BE C OMPARED. 13.15 WE HAVE HEARD THE RIVAL CONTENTIONS OF THE P ARTIES AND PERUSED THE RECORD. THE ASSESSEE HAS ENTERED INTO VARIOUS AGREEMENTS BETWEEN THE GE INDIA EXPORTS PRIVATE LTD., AND ITS ASSOCIAT ED ENTERPRISES. THE SCOPE OF THE SERVICE AGREEMENT FOR IT RELATED SERVI CES IS GIVEN AT PAGE 420 OF THE PAPER BOOK TO THE FOLLOWING EFFECT: 14. THE ADDENDUM A MENTIONED IN SCOPE OF THE SAID AGREEMENT PROVIDES AS UNDER:- ITA NO.987/B/11 18 ITA NO.987/B/11 19 15. WE HAVE GONE THROUGH THE PROFILE OF THE ASSES SEE WHEREIN IT IS STATED THAT THE ASSESSEE IS PROVIDING SPECIALIZED S ERVICES AND IS NOT SIMPLY INTO BPO SERVICES PROVIDER AS PROJECTED BY THE ASSESSEE. THE WORK SCOPE AND THE AGREEMENT OF THE ASSESSEE WITH ITS AE CLEARLY PROVIDES THAT THE ASSESSEE IS PROVIDING HIGH END TE CHNICAL SERVICES TO ITS AE AND FOR THAT PURPOSES HAS ENGAGED VARIOUS TE CHNICAL STAFFS IN THE FORM OF IT TEAM LEADER, PROGRAM MANAGER, PROJE CT MANAGER, ITA NO.987/B/11 20 ENTERPRISE ARCHITECT/APPLICATION ARCHITECT/DESIGN A RCHITECT, BUSINESS ANALYST/PROJECT LEADER, PRODUCT DEVELOPER/SENIOR PR ODUCT DEVELOPER, PRODUCT QUALITY ENGINEER/SENIOR PRODUCT QUALITY ENG INEER, TECHNICAL AUTHOR/SENIOR TECHNICAL AUTHOR, TEAM LEAD (DEVELOP MENT), TEAM LEAD (QA) AND VARIOUS FUNCTIONS OF THESE PERSONS AR E PROVIDED IN DETAIL IN THE AGREEMENTS. THE KIND OF SERVICES EAC H PERSONS ARE RENDERING TO THE ORGANIZATION SHOWS THE SCOPE AND P ROFILE OF THE ASSESSEE . IN OUR VIEW, THE ASSESSEE IS PROVIDING H IGHLY SKILLED SERVICES WHICH IS TECHNICAL IN NATURE WITH INPUTS ENGINEERING AND ARCHITECT APPLICATIONS, THEREFORE, IN OUR VIEW, TH E ASSESSEE CANNOT BE SAID TO BE MERELY BPO AND, THEREFORE, THE TPO AND D RP WERE RIGHT IN TREATING THE MOLD-TEK AND ECLERX SERVICES LTD. AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEES PROFILE. 16. THE JUDGMENT RELIED UPON BY THE LD AR FOR THE ASSESSEE WAS RENDERED IN THE CASE OF SOCIETE GENERALE GLOBAL SO LUTION IN ITA NO.1188 OF 2011 DATED 22/4/2016 WAS RENDERED IN TH E FACTS OF SAID CASE AND IN THE SAID JUDGMENT THE EXCLUSION OF MOLD-TEK AND ECLERX SERVICES WAS CONSIDERED ON THE BASIS OF THE ASSUMP TION THAT THE ASSESSEE BEFORE THIS TRIBUNAL WAS NOT INTO KPO SERV ICES AND WHEREAS MOLD-TEK AND ECLERX SERVICES ARE INTO KPO SERVICES AND THE TRIB UNAL RELIED UPON THE JUDGMENT OF HONBLE DELHI HIGH COUR T IN THE MATTER OF RAMPGREEN SOLUTIONS LTD., HAS HELD THAT THE KPO COM PANY CANNOT BE ITA NO.987/B/11 21 COMPARED WITH BPO, HENCE MOLD-TEK AND ECLERX SERVICES ARE NOT REQUIRED TO BE TREATED AS COMPARABLE AND, THEREFORE , IS REQUIRED TO BE EXCLUDED. 17. THE RELIANCE OF THE ASSESSEE IN THE MATTER OF A RIBA TECHNOLOGIES INDIA PVT. LTD., IN ITA NO.441/BANG/2012 IS ALSO NO T CORRECT. IN PARAGRAPH 2, IT IS ONLY MENTIONED THAT THE ASSESSEE IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT AND INFORMATION TECH NOLOGY ENABLED SERVICES. FURTHER IN THE SAID JUDGMENT, TRIBUNAL R ELIED ON THE DECISION RENDERED IN THE CASE OF MAERSK GLOBAL SOL UTION VS. ACIT 147 ITD 83 AND NOTED THAT IN THE SAID JUDGMENT IT W AS HELD THAT THIS COMPANY CANNOT BE COMPARED WITH ORDINARY ITES. FURT HER, IT WAS MENTIONED THAT ARABIA IS ONLY PROVIDING BACK OFFICE SUPPORT TO THE PARENT COMPANY, WHEREAS MOLD-TECH IS ENGAGED IN PRO DUCING DESIGN, DRAWING AND STRUCTURAL ENGINEERING DRAWINGS OF 2D A ND 3D SOFTWARE CANNOT BE COMPARED WITH THE ASSESSEE. IN THE MATTER OF MAERSK GLOBAL SOLUTION (SUPRA) IT IS MENTIONED IN PARAGRAP H 81 AS UNDER:- 81. IN SO FAR AS THE CASE OF MOLD-TEK TECHNOLOGIES LTD . IS CONCERNED, IT IS OBSERVED FROM THE ANNUAL REPORT OF THE SAID COMPANY FOR THE FINANCIAL YEAR 2007-08 PLACED AT PA GE 139 TO 151 OF THE PAPER BOOK THAT THE SAID COMPANY WAS PIO NEER IN STRUCTURAL ENGINEERING KPO SERVICES AND ITS ENTIRE BUSINESS COMPRISED OF PROVIDING ONLY STRUCTURAL ENGINEERING SERVICES TO VARIOUS CLIENTS. FURTHER INFORMATION OF MOLD-TEK TE CHNOLOGIES LTD. AVAILABLE ON THEIR WEBSITE IS FURNISHED IN THE FORM OF PRINTOUT AT PAGE 158 TO 165 OF THE PAPER BOOK AND A PERUSAL OF THE SAME SHOWS THAT IT IS A LEADING PROVIDER OF ENG INEERING AND DESIGN SERVICES WITH SPECIALIZATION IN CIVIL, STRUC TURAL AND ITA NO.987/B/11 22 MECHANICAL ENGINEERING SERVICES. IT IS STATED TO HA VE A STRONG TEAM OF SKILLED RESOURCES WITH WORLD CLASS RESOURCE S AND SKILL SETS. IT IS ALSO STATED TO HAVE CONSISTENTLY HELPED THE CLIENTS TO CUT DOWN DESIGN AND DEVELOPMENT COSTS OF CIVIL, STR UCTURAL, MECHANICAL AND PLANT DESIGN BY 30-40% AND DELIVERED TECHNOLOGICALLY SUPERIOR OUTPUTS TO MATCH AND EXCEE D EXPECTATIONS. IT IS CLAIMED TO HAVE IN-HOUSE SOFTWA RE DEVELOPMENT TEAM, QUALITY CONTROL TRAINING AND TROU BLE SHOOTING FACILITIES. M/S MOLD-TEK IS ALSO RENDERING WEB DESI GN AND DEVELOPMENT SERVICES WITH EXPERIENCE IN TURNING THE M INTO AN EFFECTIVE GRAPHIC DESIGN REPRESENTATION AND CREATIN G DYNAMIC AND GRAPHIC RICH WEB APPLICATIONS FROM IT SPECS, DE SIGN PRINTS ETC. KEEPING IN VIEW THIS INFORMATION AVAILABLE IN THE ANNUAL REPORT OF MOLD-TEK AS WELL ON ITS WEBSITE, WE ARE O F THE VIEW THAT THE SAID COMPANY IS MAINLY INVOLVED IN PROVIDI NG HIGH-END SERVICES TO ITS CLIENTS INVOLVING HIGHER SPECIAL KN OWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT B E TAKEN AS COMPARABLE TO THE ASSESSEE COMPANY WHICH IS MAINLY INVOLVED IN PROVIDING LOW-END SERVICES. IT MAY BE PERTINENT TO NOTE HERE THAT THE FINANCIAL YEAR 2007-08 WAS A UNIQUE YEAR F OR MOLD-TEK TECHNOLOGIES LTD. AS THE SCHEME OF ARRANGEMENT INVO LVING AMALGAMATION BETWEEN TEKMEN TOOL PVT. LTD. AND MOLD -TEK TECHNOLOGIES LTD. AND DE-MERGER BETWEEN MOLD-TEK TECHNOLOGIES LTD. SIMULTANEOUSLY WAS SANCTIONED BY THE HON'BLE AP HIGH COURT BY 15TH JULY, 2008 WITH THE A PPOINTED DATE FOR AMALGAMATION AND DE-MERGER BEING 1ST OCTOB ER, 2007 AND 1ST APRIL, 2007 RESPECTIVELY. IT IS ALSO PERTIN ENT TO NOTE THAT WHILE WORKING OUT THE OPERATING MARGIN OF THE SAID COMPANY, PROVISION FOR DERIVATIVE LOSS OF RS. 6.43 CRORES MA DE BY MOLD- TEK TECHNOLOGIES LTD. WAS EXCLUDED BY THE A.O. TREA TING THE SAME AS NON-OPERATING EXPENSES WHEREAS IN THE CASE OF RUSHABH DIAMONDS ( SUPRA ), IT WAS HELD BY THE DIVISION BENCH OF THIS TRIBUNAL THAT THE GAIN OR LOSS ARISIN G FROM THE FORWARD CONTRACT ENTERED INTO FOR THE PURPOSE OF FO REIGN CURRENCY EXPOSURE ON THE EXPORT AND IMPORT HAS TO B E TAKEN INTO CONSIDERATION WHILE COMPUTING THE OPERATING PROFIT. 82. IN SO FAR AS M/S ECLERX SERVICES LIMITED IS CONCER NED, THE RELEVANT INFORMATION IS AVAILABLE IN THE FORM OF AN NUAL REPORT FOR FINANCIAL YEAR 2007-08 PLACED AT PAGE 166 TO 18 3 OF THE PAPER BOOK. A PERUSAL OF THE SAME SHOWS THAT THE SA ID COMPANY PROVIDES DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORLD AND IS RECOGNIZED A S EXPERTS IN CHOSEN MARKETS-FINANCIAL SERVICES AND RETAIL AND MA NUFACTURING. IT IS CLAIMED TO BE PROVIDING COMPLETE BUSINESS SOL UTIONS BY COMBINING PEOPLE, PROCESS IMPROVEMENT AND AUTOMATIO N. IT IS CLAIMED TO HAVE EMPLOYED OVER 1500 DOMAIN SPECIALIS TS WORKING FOR THE CLIENTS. IT IS CLAIMED THAT ECLERX IS A DIFFERENT COMPANY WITH INDUSTRY SPECIALIZED SERVICES FOR MEET ING COMPLEX CLIENT NEEDS, DATA ANALYTICS KPO SERVICE PR OVIDER SPECIALIZING IN TWO BUSINESS VERTICALS - FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE ENGAG ED IN ITA NO.987/B/11 23 PROVIDING SOLUTIONS THAT DO NOT JUST REDUCE COST, B UT HELP THE CLIENTS INCREASE SALES AND REDUCE RISK BY ENHANCING EFFICIENCIES AND BY PROVIDING VALUABLE INSIGHTS THAT EMPOWER BET TER DECISIONS. M/S ECLERX SERVICES PVT. LTD. IS ALSO CL AIMED TO HAVE A SCALABLE DELIVERY MODEL AND SOLUTIONS OFFERED THA T INCLUDE DATA ANALYTICS, OPERATIONS MANAGEMENT, AUDITS AND RECONCILIATION, METRICS MANAGEMENT AND REPORTING SE RVICES. IT ALSO PROVIDES TAILORED PROCESS OUTSOURCING AND MANA GEMENT SERVICES ALONG WITH A MULTITUDE OF DATA AGGREGATION , MINING AND MAINTENANCE SERVICES. IT IS CLAIMED THAT THE COMPAN Y HAS A TEAM DEDICATED TO DEVELOPING AUTOMATION TOOLS TO SUPPORT SERVICE DELIVERY. THESE SOFTWARE AUTOMATION TOOLS INCREASE PRODUCTIVITY, ALLOWING CUSTOMERS TO BENEFIT FROM FU RTHER COST SAVING AND OUTPUT GAINS WITH BETTER CONTROL OVER QU ALITY. KEEPING IN VIEW THE NATURE OF SERVICES RENDERED BY M/S ECLERX SERVICES PVT. LTD. AND ITS FUNCTIONAL PROFILE, WE A RE OF THE VIEW THAT THIS COMPANY IS ALSO MAINLY ENGAGED IN PROVIDI NG HIGH-END SERVICES INVOLVING SPECIALIZED KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT BE COMPARED WITH T HE ASSESSEE COMPANY WHICH IS MAINLY ENGAGED IN PROVIDING LOW-EN D SERVICES TO THE GROUP CONCERNS. 83. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIEW TH AT IF THE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPAN Y FOR ITS AES ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES PVT. LTD. AND MOLD-TEC TECHNOLOGIES LTD., IT IS DIFFICULT TO FIND OUT ANY RELATIVELY EQUAL DEGREE O F COMPARABILITY AND THE SAID ENTITIES CANNOT BE TAKEN AS COMPARABLE S FOR THE PURPOSE OF DETERMINING ALP OF THE TRANSACTIONS OF T HE ASSESSEE COMPANY WITH ITS AES. WE, THEREFORE, DIRECT THAT TH ESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF 10 COMPARABLE S FINALLY TAKEN BY THE AO/TPO AS PER THE DIRECTION OF THE DRP . 18. THE CO-ORDINATE BENCH IN THE MATTER OF TESCO HI NDUSTAN SERVICE CENTRE PVT. LTD., IN ITA NO.1285/BANG/2011 DATED 9.12.2016 HAS EXAMINED THE ABOVE COMPARABLES ECLER X AND MOLD-TEK IN PARAGRAPH 39-40 AND 57 AND HAS HELD THA T ON ACCOUNT OF ABNORMAL PROFITS ON THESE TWO COMPANIES AND ON ACCOUNT OF THE MOLD-TEK FAILING0 EMPLOYEE COST FILT ER, THESE 2 ITA NO.987/B/11 24 COMPARABLES CANNOT BE COMPARABLE WITH COMPARABLE. T HE COORDINATE BENCH HELD AS UNDER 39. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AUTH ORITIES IN THE LIGHT OF TRIBUNAL'S FINDING IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. ( SUPRA ), WE FIND THAT THE PROFILE OF THIS COMPANY WAS EXAMINED BY THE TRIBUNAL IN THI S CASE AND FOLLOWING THE ORDER OF THE SPECIAL BENCH OF THE TRI BUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. (SUPRA) , THE TRIBUNAL HELD THIS COMPANY TO BE NON-COMPARABLE. FO R THE SAKE OF REFERENCE, WE EXTRACT THE RELEVANT PORTION OF TH E ORDER OF THE TRIBUNAL: '( XI ) ECLERX SERVICES LTD. & MOLD-TEK TECHNOLOGIES LTD. :- FOR BOTH THESE COMPANIES, THE LD. COUNSEL FOR THE A SSESSEE STATED THAT THESE COMPANIES ARE FUNCTIONALLY DIFFER ENT, THEREFORE, CANNOT BE CONSIDERED AS COMPARABLES. WE FIND THAT THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. IN ITA NO. 7466/MUM/2012 HAS REJECTED ECLERX SERVICES LIMITED BECAUSE SOLUTIONS OFFERED BY THIS COMPANY INCLUDED DATA ANALYTICS, OPERATIONS, MANAGEMENT, AUDITS AND RECONCILIATION, METRICS MANAGEMENT AND REPORTING SE RVICES. THE SPECIAL BENCH OPINED THAT IF THESE FUNCTIONS AC TUALLY PERFORMED BY THE ASSESSEE COMPANY FOR ITS AES ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES LIMITED AND MOLD-TEK TECHNOLOGIES LTD., IT IS DIFFICULT TO FIND OUT ANY RELATIVELY EQUAL DEGREE O F COMPARABILITY AND THE SAID ENTITIES CANNOT BE TAKEN AS COMPARABLE FOR THE PURPOSE OF DETERMINING ALP OF TH E TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE OBSERVA TIONS OF THE SPECIAL BENCH ( SUPRA ), WE DIRECT THAT THESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES.' 40. SINCE THE TRIBUNAL HAS EXAMINED THIS ISSUE UNDER S IMILAR SET OF FACTS, WE FIND NO REASON TO TAKE A CONTRARY VIEW . ACCORDINGLY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. ( SUPRA ), WE HOLD THAT THIS COMPANY IS NOT A GOOD COMPARABLE AND DIRECT THE AO/ TPO TO EXCLUDE IT FROM THE LIST OF COMPARABLES. ................................................... ........ 57. MOLD-TEK TECHNOLOGIES LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS COMPANY'S FUNCTION IS DISSIMILAR, THEREFORE IT SHOULD BE EXCLUDED FROM TH E LIST OF COMPARABLES. THE LD. COUNSEL FURTHER CONTENDED THAT IN THIS CASE THE EMPLOYEE COST IS 7.6% OF SALES, THEREFORE THIS COMPANY CAN ALSO BE EXCLUDED BY APPLYING EMPLOYEE COST FILTER A S THE ITA NO.987/B/11 25 BENCHMARK FIXED BY THE TPO IS AT 25%. MOREOVER, IT HAS ABNORMAL GROWTH OF 204% IN SALES OVER THE PREVIOUS YEAR. THEREFORE, FOR THESE REASONS, THE COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. HE ALSO PLACED RELIAN CE UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. ( SUPRA ) IN WHICH THE TRIBUNAL FOLLOWING THE ORDER OF THE MUMBAI SPECIAL BENCH IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. ( SUPRA ), DIRECTED THE EXCLUSION OF THIS COMPANY. THE RELEVANT OBSERVATIONS OF THE T RIBUNAL HAVE ALREADY BEEN RECORDED IN THE FOREGOING PARAGRA PHS WHILE DEALING WITH THE COMPARABLE ECLERX SERVICES LTD. TH EREFORE, WE FIND NO JUSTIFICATION TO REPRODUCE THE SAME AGAIN. WE, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL, DIRECT THE AO/ TPO TO EXCLUDE THIS COMPARABLE FROM THE LIST OF FINAL COMP ARABLES. 19 IN VIEW THEREOF RESPECTFULLY FOLLOWING THE JUDGM ENT OF CO-ORDINATE BENCH IN THE MATTER OF TESCO HINDUSTAN SERVICE CENTRE PVT. LTD., (SUPRA), WE HOLD THAT THESE 2 COM PANIES ARE NOT A GOOD COMPARABLE AND WE DIRECT THE AO/TPO TO E XCLUDE IT FROM THE LIST OF COMPARABLES. . VISHAL INFORMATION TECHNOLOGIES LTD. AND INFOSYS BP O, 20. THE ASSESSEE HAS SUBMITTED THAT THESE COMPANIES ARE NOT COMPARABLE WITH THE ASSESSEE AS THE PROFILE OF THE COMPANY IS DIFFERENT. IN THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE, IT IS MENTIONED AS UNDER 6.1.9. VISHAL HAS A DIFFERENT BUSINESS MODEL AS COMPARED T O THE BUSINESS MODEL OF THE APPELLANT. VISHAL SUB-CONTRA CTS MAJORITY ITA NO.987/B/11 26 OF ITS ITES WORKS TO THIRD PARTY VENDORS. AS PER T HE ANNUAL REPORT OF THE COMPANY FOR FY 2006-07, THE COMPANY H AD INCURRED EMPLOYEE COST OF INR 70,27,631 WHICH IS 2. 3% OF THE REVENUE EARNED BY THE COMPANY DURING THE YEAR. FUR THER, ABOUT 43% OF THE REVENUE IS EXPENDED TOWARDS PAYMEN T TO VENDORS. 6.1.10. IT IS EVIDENT FROM THE ABOVE THAT VISHAL HA S ADOPTED A VERY DIFFERENT BUSINESS MODEL BY OUTSOURCING THE SERVICE S TO THIRD PARTY VENDORS. ACCORDINGLY, VISHAL IS PROVIDING AG ENCY SERVICES BY ACTING AS AN INTERMEDIARY BETWEEN THE F INAL CUSTOMER AND THE VENDOR. THESE INTERMEDIARY SERVIC ES 6.1.11. IN SUPPORT OF THE ABOVE CONTENTIONS, THE AP PELLANT WOULD LIKE TO HIGHLIGHT THE FOLLOWING JUDICIAL PRONOUNCEMENTS: M/S. POLE TO WIN INDIA PVT. LTD.(FORMERLY E4E TECH SUPPORT (INDIA) PVT. LTD.) VS DCIT [I.T.(TP) A. NO.1053/BAN G/2011] (PAGE 1631, 1632) M/S ARIBA TECHNOLOGIES INDIA PVT. LTD. VS ITO, [IT (TP)A NO.441/BANG/2012] (PAGE 1591 TO 1595) M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. (ITA NO.1961/HYD/2011) (PAGE 1800 TO 1802) 6.1.12. THE APPELLANT SUBMITS THAT INFOSYS IS AN ES TABLISHED PLAYER IN THE BPO INDUSTRY. IT SHOULD BE REJECTED ON ACCOUNT OF THE FACT THAT IT IS A MARKET LEADER AND ALSO ON THE DIFFEREN CE IN RISKS ASSUMED. THE COMPANY HAS TREMENDOUS BRAND VALUE ATTACHED TO IT WHICH HAS A SIGNIFICANT IMPACT ON IT S PRICING IN THE MARKET AND CONSEQUENTLY ON THE MARGINS EARNED. ALS O, THE COMPANY HAS INCURRED HUGE SELLING AND MARKETING COS T AND THIS HAS BEEN INCREASING ON A YEAR ON YEAR BASIS. 6.1.13. FURTHER, INFOSYS IS FUNCTIONALLY DIS-SIMILA R TO THE APPELLANT AS INFOSYS PROVIDES END TO END SOLUTIONS IN TECHNICAL CONSULTANCY, DESIGN, DEVELOPMENT, RE-ENGINEERING, MAINTENANCE, S YSTEM INTEGRATION AND IMPLEMENTATION. 6.1.14. THE RELEVANT EXTRACTS FROM THE ANNUAL REPOR T OF INFOSYS FOR FY 2006-07 ARE PROVIDED BELOW: ITA NO.987/B/11 27 PAGE 6 (REFER PAGE 913 OF THE PAPER BOOK): 6.1.15. IN SUPPORT OF THE ABOVE CONTENTIONS, THE A PPELLANT WOULD LIKE TO HIGHLIGHT THE FOLLOWING JUDICIAL PRONOUNCEMENTS: SOCIETE GENERALE GLOBAL SOLUTION CENTRE PVT. LTD.[ IT(TP)A NO.1188/BANG/2011] DATED 22 APR 2016 (PAGE 1516, 1517) M/S. POLE TO WIN INDIA PVT. LTD. (FORMERLY E4E TEC H SUPPORT (INDIA) PVT. LTD.) VS DCIT [I.T.(TP) A. NO.1053/BAN G/2011] (PAGE 1627) M/S ARIBA TECHNOLOGIES INDIA PVT. LTD. VS ITO, [IT (TP)A NO.441/BANG/2012] (PAGE 1583 TO 1588) 6.1.16. IN LIGHT OF THE ABOVE, THE ASSESSEE SUBMITS THAT INFOSYS BPO SHOULD NOT BE CONSIDERED AS COMPARABLE 21. THE LD DR RELIED UPON THE ORDER PASSED BY THE AUTHO RITIES BELOW. 22. WE HAVE GONE THROUGH THE ORDER PASSED BY THE COORDINATE BENCH IN THE MATTER OF POLE TO WIN INDIA PVT. LTD., AND O THER JUDGMENT. IN OUR VIEW, THE COMPARABILITY OF THESE COMPANIES HAVE BEEN EXAMINED BY THIS TRIBUNAL AND IT WAS FOUND THAT VISHAL INFOR MATION TECHNOLOGIES LTD., WAS INTO OUTSOURCING, THEREFORE , IT CANNOT BE COMPARABLE WITH THAT OF THE ASSESSEE. MOREOVER, TH E BUSINESS MODEL OF THE COMPARABLE COMPANY VIZ., VISHAL INFORMATION TECHNOLOGIES LTD. IS DIFFERENT FROM THE ASSESSEE AS IT IS GETTIN G ITS WORK DONE THROUGH OUTSOURCING. SIMILARLY, TRIBUNAL HAS EXCLUD ED THE INFOSYS ITA NO.987/B/11 28 BPO LTD. FROM THE LIST OF COMPARABLES AFTER EXAMINI NG THE COMPARABILITY AND SIZE OF THE INFOSYS BPO IN THE JU DGMENT REFEREED HEREIN ABOVE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH CITED HEREIN ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THESE TWO COMPANIES I.E. VISHAL INFORMATION TECHNOLOGIES LTD. AND INFOSYS BPO FROM THE LIST OF COMPARABLES. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH 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.