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TMI Blog2024 (2) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal relating to Assessment Year 2008-09 as a lead appeal. ASSESSMENT YEAR 2008-09 ITA.No. 7603/MUM/2012 (A.Y. 2008-09) (ASSESSEE APPEAL) 4. Aggrieved with the Final Assessment order and directions of the Ld.DRP, assessee filed appeal before us raising following grounds in its appeal: - "1. determining the arm's length price of the Appellant's international transaction of provision of back end support for data analysis at Rs. 62,37,32,345 instead of Rs. 53,33,43,789 determined by the Appellant; 2. disregarding the appellant's Transfer Pricing documentation and conducting his own comparability analysis (and in this regard, obtaining the financial data of certain potential comparables using his powers under Section 133(6) of the Act) which is not in accordance with the contemporaneous documentation requirement of the Indian TP regulations; 3. requiring financial data of only the current year (FY 2007-08) of the comparable companies to be used for benchmarking the Appellant's international transactions; 4. not granting a risk adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses through the Global Analytical Centre (GAC) which is the transaction under dispute. The Assessee had undertaken, inter-alia, international transactions of provision of back-end support for data analysis services from the GAC to its associated enterprises for Rs.. 53,33,43,789/-. The Assessee adopted the Transactional Net Margin Method (TNMM') to determine the arm's length of the said international transactions. It earned a margin of operating profit to total cost (hereinafter referred to as 'margin') of 28.03% (OP/TC). In relation to this transaction, CRISIL had entered into a Master Services Agreement, dated 30 June 2004 with its associated enterprise, Standard & Poor (S&P), whereby S&P would outsource services to CRISIL in accordance with the Statement of Work (SOW). These services are provided by CRISIL based on inputs from S&P. 8. The sample copies of SOW entered into with S&P (copies placed at Page No. 245 to 288 of the Paper book and a brief snapshot of SOWs attached at Annexure 1) which demonstrates that the services provided by CRISIL to S&P are broadly in the nature of back-end data support services. CRISIL's data analysis team works together to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution Panel and filed detailed submissions. After considering the submissions of the assessee, Ld. DRP upheld the order of the Transfer Pricing Officer and affirmed the Transfer Pricing addition. 13. Aggrieved with the above directions of Ld. DRP, assessee is in appeal before us. 14. At the time of hearing, Ld.AR of the assessee brought to our notice relevant facts relating to the Transfer pricing adjustments and contended the additions proposed by the Ld. DRP. Further, Ld.AR of the assessee filed its written submissions in support of his contentions, for the sake of clarity it is reproduced below: - "3.2 At the outset, the Appellant wishes to submit that the TPO/DRP have erred in determining the nature of Appellant's functions by placing reliance on certain ad-hoc information available in the public domain about CRISIL instead of the detailed documentary evidences submitted by the Appellant during the course of the proceedings before the TPO/DRP. The Appellant submits that the TPO/DRP have grossly erred in recharacterizing the Appellant's functions to be in the nature of KPO services by relying on online job advertisements by CRISIL, job profile of employees working in CR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional / Technical Qualifications: For an activity to be considered as a KPO, the number of employees holding professional/technical qualifications as a proportion of total employees would have to be large as this would probably indicate services to be in the nature of KPO. In the instant case, it is pertinent to note that a majority of the workforce (-79%) employed by the Appellant comprises of graduates, under graduates and diploma holders. Thus, the workforce is on the lower end of the technical spectrum, which further demonstrates that the Appellant is engaged in providing low-end support services and therefore cannot be characterised sa KPO 3.6. Based on the above, the Appellant has classified itself as a provider of low-end support services and not High-end services as contended by the Ld. TPO. 3.7 Without prejudice to the above, even if it is assumed that the Appellant is providing high-end services akin to a KPO, the Appellant humbly submits that even KPOs cannot be compared to each other in case of substantial differences in functionality. In support of the same, the Appellant relies on the decision of PCIT us. Actis Global Services Pvt. Ltd. (ITA no. 417/2016 - Del. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous." 5. It is urged by Mr Sanjay Kumar, learned counsel for the Revenue, that the ITAT ought not to have excluded ESL as a comparable because both ESL and the assessee were KPOs and both were catering to high-end clients. 6. The above submission overlooks what ITAT itself has noted in its impugned order, that the function profile of the two companies were different. While the Assessee is catering to the capital and financial services markets, ESL works in the area of sales, marketing and supporting financial services. The financial profile of the two KPOs could not be said to be similar from the point of view of the type of businesses they were catering to. 7. This now virtually the third appeal. What the Court has to examine is whether the view taken by the ITAT is a plausible one and whether the impugned order gives rise to any substantial question of law. The Court is not persuaded to hold that the view taken by the ITAT is not a plausible one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable to the Appellant. 4.4 In addition to the above, Mold-Tek has also completed the acquisition of the Crossroads Detailing Inc., a USA based company during the year w.e.f. 28 April 2007. The acquisition of Crossroads Detailing Inc. USA has enabled Mold-Tek to enter into high rise buildings and commercial buildings space, which has resulted in about 56.49% growth in Financial Year 2007-08. This is an extra-ordinary event during the year under consideration and for this reason also, Mold-Tek cannot be considered as a comparable to the Appellant. (refer pg. nos. 426 and 429 of the paper book) Provision for loss on derivatives of Rs. 6.43 crores 4.5 It is also pertinent to note that the company has created a provision for loss on derivatives of Rs. 6.43 crores (approx. 36% of its total revenue) which is of abnormal nature. The TPO has treated the same as non-operating expense, which has resulted in a high margin of 96.6%. If the same were to be considered as operating in nature, the margin would drop down to 14.14%. This itself shows the abnormality in the accounts of the said company. Thus, the financials of the Mold-Tek are unreliable and therefore for the aforementione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble High Court of Andhra Pradesh, vide its order dated 2th July, 2008. The appointed data for amalgamation and the demerger were 1st October, 2006 and 1st April, 2007, respectively, and the effective date of the scheme was 26th August, 2008. In our considered view, pursuant to the aforesaid restructuring of the aforementioned company ie Mold-Tek Technologies Ltd., the same could not have been adopted as a comparable for benchmarking the international transactions of the assessee for the year under consideration. In fact, we find, that a similar view had been taken by the ITAT, Mumbai, in the case of Dialogic Networks (1) P. Ltd. Vs. ACIT, Circle 3(3). Mumbai [ITA No. 7280/Mum/2012, dated 27.07.2018). In the aforesaid case, the Tribunal had concluded that pursuant to the restructuring of the aforesaid company ie Mold-Tek Technologies Ltd. in A.Y 2008-09, it could not have been considered as a comparable. Also, we find that the aforementioned comparable is even otherwise functionally dissimilar as in comparison to the assessee before us. On a perusal of its annual report for the year under consideration, we find, that the aforesaid company i.e.., Mold-Tek Technologies Ltd. was provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnologies Ltd, it could safely be held to be functionally dissimilar to the assessee company, which was providing business support services (ITCS) to its group entities across the world. Accordingly, we find ourselves to be in agreement with the claim of the Id. A.R. that in the backdrop of the functional dissimilarity also the aforementioned company ie Mold-Tek Technologies Ltd., could not have been included in the final list of the comparables for the purpose of benchmarking international transactions of the assessee company for the year under consideration. 8.3 On the basis of our aforesaid observations and the reasons given hereinabove, we are of a strong conviction that the aforesaid company i.e Mold-Tek Technologies Ltd could not have been selected as a comparable for benchmarking the International transactions of the assessee company. Accordingly, we herein direct the A.O to exclude the aforesaid company ie Mold-Tek Technologies from the final list of comparables for the purpose of benchmarking the international transactions of the assessee for the year under consideration. (emphasis supplied) 4.7 Further, the above contention of the Appellant to exclude Mold-Tek ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. simultaneously was sanctioned by the Hon'ble AP High Court by 15th July, 2008 with the appointed date for amalgamation and de-merger being 1 October, 2007 and 1st April, 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company, provision for derivative loss of Rs. 6.43 crores made by Mold-Tek technologies Ltd. was excluded by the A.O. treating the same as non-operating expenses whereas in the ease of Rushabh Diamonds(supra), it was held by the Division Bench of this Tribunal that the gain or loss arising from the forward contract entered into for the purpose of foreign currency exposure on the export and import has to be taken into consideration while computing the operating profit. 82. ...... 83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company 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 of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able delivery model..." 5.4 In view of the above, it can be seen that Eclerx is a Knowledge Processing Outsourcing company providing a unique blend of consulting services along with process outsourcing. It provides consulting services, devises innovative solutions for its clients and uses a scalable delivery model which makes it efficient and cheaper for them to deliver. In comparison, the Appellant is engaged only in providing support services for financial data analysis and does not do consulting services or provide complete business solutions like that of Eclerx and therefore, Eclerx is functionally different than the Appellant and therefore cannot be considered as a comparable to the Appellant. 5.5 As evident from the extracts reproduced above, Eclerx provides a diversified set of services for which no segmental data is available and, hence, in the absence of said segmental data, Eclerx cannot be said to be comparable to the assessee. (Kindly refer Pg. 408 of the paperbook) High proportion of Outsourcing of work: 5.6 Without prejudice to the above, the Appellant submits that in the case of Eclerx, substantial work hasbeen outsourced to various other parties as compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new vertical travel and hospitality besides consolidating its position in the retail and manufacturing space. As the aforesaid company pursuant to the acquisition of Igentica Travel Solutions Ltd. on July, 2007 had witnessed an abnormal profit of 65.88% during the year under consideration, therefore, in our considered view it could not have been selected as a comparable for benchmarking the International transactions of the assessee for the year under consideration. 9.2 Further, a perusal of the financial results of the aforesaid company, Page 12 of APB, therein reveals that it had outsourced services to third party vendors which therein constituted 20.39% of its total expenses. The aspect that when a company had outsourced its ITeS services, it cannot be said that its business results would be comparable to any other ITeS service provider rendering services entirely on its own, had been so held by a coordinate bench of the Tribunal in the case of Google India Pvt. Ltd. Vs. DCIT [ITA No. 1368/Bang/2010). Considering the outsourcing of services to the extent of 20.39% of its total expenses by the aforesaid company, we are of the considered view that the said company ie Eclerx Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that as the said company was mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field, thus, it could not be compared that the assessee before them which was mainly into providing of low-end services to its group concerns. In the backdrop of the functional profile of the aforementioned company i.e Eclerx Services Ltd., we find that beyond any scope of doubt it is functionally dissimilar to the assessee before us, which is engaged in providing of business support services (ITES) to its group entities across the world. Accordingly, due to the functional dissimilarity of the aforesaid company i.e., Eelerx Services Ltd, the same could not have been included in the final list of comparables for benchmarking the assessee's International transactions. 9.4. On the basis of our aforesaid observations, we herein direct the A.O to exclude the aforementioned company ie Eclerx Services Ltd. from the final list of comparables for the purpose of benchmarking the international transactions of the assessee for the year under consideration. (emphasis supplied) 5.9. Further, the above contention of the Appellant to exclude Ecler ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared with the assessee company which is mainly engaged in providing low-end services to the group concerns. 83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pot. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the Ld. Ld. DRP." (emphasis supplied) 5.11. The Hon'ble Delhi ITAT in case of Copal Research India Pvt. Ltd. us. ITO in itaпо. 1713/Del/2014 also has held that Eclerx is not comparable as it provides complete business solutions as compared to the Appellant which provides raw data. The relevant extract of the decision is reproduced hereunder for Your Honors' ready reference (Para no. 11-12, Pg. no. 8-16): "11. We have considered the submissions of both the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns." 11.1. We find that the assessee also cannot be said to have relatable degree of comparability because primarily assessee was engaged in providing primary data for various field of activities but not complete business solutions. Therefore, this company could not be treated as comparable for the purpose of determining ALP of the transactions between the assessee company with its AEs. We, accordingly, direct that this company be excluded from the list of comparables finally taken by the AO/ TPO as per the direction of the DRP. (emphasis supplied) 5.12. The aforesaid decision of the Hon'ble Tribunal has been affirmed by the Hon'ble Delhi High Court in ΙΤΑ. Νο. 894/2015 vide order dated 23.11.2015 (Para 2, Pg. no. 2) 5.13. The said decision of the Hon'ble Mumbai Tribunal has also been followed in cases cited below: * PCIT vs. B.C. Management Services P. Ltd. [2018] 89 taxmann.com 68 (De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court in the case of PCIT v. Actis Global Services Pvt. Ltd., in ITA No. 417/2016 dated 05.08.2016 (Copy of the order is placed on record). 17. Considered the rival submissions and material placed on record, we observe that the assessee a group concern of the S&P, which also does the similar nature of business in the line of financial ratings to the various establishments. S&P does the rating in the global level with the back office assistance of the assessee. The assessee itself does the similar rating in the Indian market. The nature of providing services are similar and however the assessee has provided the relevant SOW to demonstrate that the nature of work involved is based on the structured and process oriented. There is no involvement of human intelligence or technical skill. It is mere data compilation and submission to its AE. This will not fall within the category of KPO. After careful consideration, we are of the view that there is fine line difference between the BPO and KPO. It is difficult to determine the involvement of human intelligence or skills in the set of process or activities. It is subjective and need proper analysis of process of work and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement involving amalgamation between Tekmen Tool Pvt. Ltd. and Mold-Tek Technologies Ltd. and demerger between Mold-Tek Technologies Ltd. simultaneously was sanctioned by the Hon'ble Andhra Pradesh High Court by 15th July, 2008 with the appointed date for amalgamation and de-merger being 01st October, 2007 and 01st April, 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company, provision for derivative loss of Rs.. 6.43 crores made by Mold-Tek technologies Ltd. was excluded by the Assessing Officer treating 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 arising from the forward contract entered into for the purpose of foreign currency exposure on the export and import has to be taken into consideration while computing the operating profit. Therefore, respectfully following the above decision, we are inclined to direct the TPO/AO to remove the above company from the final list of comparables. 20. Coming to the next comparables i.e., M/s Eclerx, we observe that the Coordinate Bench of this Tribunal in the case of De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial bench of the Tribunal in the case of Maersk Globle Centre (India) Put. Ltd. Vs. ACIT, Circle- 6(3), Mumbai, (ITA No. 7466/Mum/2012, dated 07.03.2014]. It was observed by the Tribunal, that a perusal of the annual report of the aforesaid company Le Eclerx Services Ltd. for the year under consideration ie F.Y.2007-08, therein revealed, that the said company was in the business of providing data analytics and data process solutions to some of the largest brands in the world and was recognized as experts in chosen markets-financial services, retails and manufacturing. It was observed by the Tribunal, that the aforesaid company was providing complete business solutions by combining people, process improvement and automation and had employed over 1500 domain specialists working for the clients. It was observed, that the aforesaid company was providing industry specialized services for meeting complex clients needs, data analytics KPO service provider specialising in two business verticals - financial services and retail and manufacturing. It was stated to be engaged in providing solutions that not only just reduced cost, but helped the clients increase sales and reduce risk by enhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of the same shows that the said company provides data analyties and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analyties, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets- financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. t is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r clients. Clearly, characteristics of the service rendered would be dissimilar. Further, both service providers cannot be considered to be functionally similar. Their business environment would be entirely different, the demand and supply for the services would be different, the assets and capital employed would differ, the competence required to operate the two services would be different. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous...." 5. It is urged by Mr Sanjay Kumar, learned counsel for the Revenue, that the ITAT ought not to have excluded ESL as a comparable because both ESL and the assessee were KPOs and both were catering to high-end clients. 6. The above submission overlooks what ITAT itself has noted in its impugned order, that the function profile of the two companies were different. While the Assessee is catering to the capital and financial services markets, ESL works in the area of sales, marketing and supporting financial services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /MUM/20214 (A.Y. 2009-10)(ASSESSEE APPEAL) 28. Assessee has raised following grounds in its appeal: - "1. On the facts and circumstances of the case and in law the Deputy Commissioner of Income Tax (OSD)-B(1), Mumbai ('The AO')/ Joint Commissioner of Income tax, Transfer Pricing-1(4). Mumbai (The TPO) under the direction of Dispute Resolution Panel (DRP') erred in upholding the action by including certain companies which were functionally not comparable and excluding/ rejecting certain companies which were functionally comparable and thereby making a transfer pricing adjustment of Rs. 8,10.51,139 to the Appellant's international transaction of provision of financial data analysis services. 2. On the facts and circumstances of the case and in law the AO/ TPO under the direction of DRP erred in: a. disregarding the Appellant's Transfer Pricing documentation and conducting his own comparability analysis (and in this regard, obtaining the financial data of certain potential comparables using his powers under Section 133(6) of the Act) which is not in accordance with the contemporaneous documentation requirement of the Indian TP regulations, b requiring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in furtherance to the above submissions, the assessee requests for the exclusion of 2 comparables along with working capital adjustment for AY2009-10. Ld.AR of the assessee filed his written submissions challenging the directions of the Ld. DRP, for the sake of clarity it is reproduced below:- "Eclerx Services Ltd. ('Eclerx') 10.1 The Appellant submits that the contentions of the Appellant vis-à-vis AY 2008-09 would be applicable for the current year, AY 2009-10 also and therefore, the Appellant prays that on account of the reasons as mentioned above, Eclerx be excluded from the list of comparable companies. (Kindly refer pgs. 471-474, 508, 516 and 519 of the paper book) 11. Accentia Technologies Ltd. (Accentia) Functionally different: 11.1 Accentia is engaged into provision of Healthcare Receivables Cycle Management (HRCM) services and software products for business process outsourcing. (Kindly refer pg. 594-596 of the paper book). It provides the following HRCM services Medical transcription, medical coding, medical billing, receivables management. Further, the Appellant now aims to offer services like Data Process Outsourcing services and Legal Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar view has been taken by the Delhi Bench of the Tribunal in several cases including Ciena India Pvt. Ltd. Vs. DCIT (ITA No.3324/Del/2013) vide its order dated 23.4.2015. In view of the fact that there was merger of some entity with Accentia Technologies Ltd., we hold that this company cannot be considered as comparable. Accordingly, the same is directed to be excluded from the final list of comparables" (emphasis supplied) 11.7. The aforesaid decision of the Hon'ble Delhi Tribunal has been affirmed by the Hon'ble Delhi High Court in ITA No. 813/2015 vide order dated 20 October 2015 (Para 3-4. Pg. no. 2). Further, the Hon'ble Bombay High Court in CFT vs. PTC Software Bom HC-ITA 598/2016 has also upheld that Accentia cannot be considered as a good comparable. 11.8. Reliance is placed on the following decisions to support the aforesaid submission of the assessee: * DCIT vs. Swiss Re-services India P. Ltd. Mum Trib. ITA Nos. 1465 & 1493/Mum/2014 (Para no. 8(e), Pg. nos. 7-8) * BNY Mellon International Operations (India) (P.) Ltd. vs. DCIT [2015] 55 taxmann.com 386 (Pune -Trib.) (Para 11, Pg. no. 6) upheld by the Hon'ble Bombay High Court in ITA No. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as comparable because of exceptional financial results due to mergers/demergers. Similar view has been taken by the Delhi Bench of the Tribunal in several cases including Ciena India Pvt. Ltd. Vs. DCIT (ITA No.3324/Del/2013) vide its order dated 23.4.2015. In view of the fact that there was merger of some entity with Accentia Technologies Ltd., we hold that this company cannot be considered as comparable. Accordingly, the same is directed to be excluded from the final list of comparables" 33. The aforesaid decision of the Delhi Tribunal has been affirmed by the Hon'ble Delhi High Court in ITA No. 813/2015 vide order dated 20.10.2015. Further, the Hon'ble Bombay High Court in CFT v. PTC Software (I) Pvt. Ltd., in ITA 598/2016 has also upheld that Accentia Technologies Ltd., cannot be considered as a good comparable. "1. This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act), challenges the order dated 31st October, 2014 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order dated 31st October, 2014 is in respect of Assessment Year 2009-10. 2. Revenue urges only the following questions of law, for our consideration: "( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable, inter alia, on account of fact that extra ordinary event such as merger/ amalgamation would affect the profitability of M/s. Accentia Technologies Ltd., Thus, making it incomparable. (iv). Further, in that case, as in this case, the Tribunal has also recorded a finding of fact that the activities of M/s. Accentia Technologies Ltd., and the Respondent are different. Thus, not comparable. The above finding of fact is not shown to be perverse. (v). In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained." 34. Respectfully following the above decisions, we are inclined to allow the grounds raised by the assessee and direct the TPO to eliminate the comparables, Eclerx Services Ltd., and Accentia Technologies Ltd., from the final list comparables for this assessment year. 35. With respect of working capital adjustment, the facts in this assessment year also similar to AY 2008-09, accordingly we direct TPO to determine the WCA based on the actual data available on record. Accordingly, this ground of appeal also allowed for statistical purpose. 36. With regard to Ground No.3 which is in respect of adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 43. Considered the rival submissions and material placed on record, we observe that in the similar facts on record, the Hon'ble Supreme Court in the case of HCLTechnologies Ltd. (supra) held as under: - "17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT vs. Tata Elxsi Ltd. (2012) 204 Taxman 321/17. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from 'export turnover' must also be excluded from 'total turnover', since one of the components of 'total turnover' is export turnover. Any other interpretation would run counter to the legislative intent and would be impermissible. 18. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax-9(2)(2), Mumbai ("The AO')/ Joint Commissioner of Income tax, Transfer Pricing- 1(4), Mumbai (The TPO) under the direction of Dispute Resolution Panel ('DRP') erred in making a transfer pricing adjustment of Rs. 7,84,61,590 to the Appellant's international transaction of provision of financial data analysis services. 2 On the facts and circumstances of the case and in law the AO/ TPO under the direction of DRP erred in: a. upholding the action by including certain companies which were functionally not comparable, b. excluding/rejecting certain companies which were functionally comparable c. disregarding the Appellant's Transfer Pricing documentation and conducting his own comparability analysis (and in this regard, obtaining the financial data of certain potential comparables using his powers under Section 133(6) of the Act) which is not in accordance with the contemporaneous documentation requirement of the Indian TP regulations; d. requiring financial data of only the current year (FY 2009-10) of the comparable companies to be used for benchmarking the Appellant's international transactions; e. not granting a working capital and ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,44,85,774 claimed in the return of income filed by the appellant under section 139(1) of the Act. The appellant prays that the AO be directed to allow credit of the entire amount of tax deducted at source of Rs. 22,44,85.774 claimed in the return of income. 6. On the facts and in the circumstances of the case and in law, the Ld. AO legally erred in levying interest under section 234A of the Act. The appellant prays that the AO be directed to delete the interest under section 234A of the Act as the same is erroneous and unwarranted. 7. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B and 234C of the Act. The appellant prays that the AO be directed to re-compute interest under section 234A, 234B and 234C of the Act as a consequence of the above grounds." 47. Ground Nos. 1 and 2 are similar to Ground Nos. 1 and 2 of grounds of appeal raised by the assessee for the A.Y. 2009-10 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2010-11. We order accordingly. 48. With regard to Ground No. 3, at the time of hearing, Ld.AR of the assessee submitted that this ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee from domestic companies. Further, the assessee has made submissions that the Assessing Officer has not recorded satisfaction before invoking rule 8D. It is fact on record that the AO has invoked rule 8D considering the fact that the rule 8D is applicable for this year and instead of going into this aspect, we are inclined to direct the Assessing Officer to make disallowances based on the settled position of law, in the following cases, the Hon'ble High Courts and coordinate benches has given clear findings that the disallowance u/s 14A is restricted only to the extent of exempt income earned and the investments to be considered for making disallowances are only on those investments which has actually earned the dividend. So far as disallowance of other administrative expenditure is considered, it is observed that Hon'ble Delhi ITAT in the case of Vireet Investment Pvt. Ltd. [165 ITD 27] has held as under: "Section 14A of the Income-tax Act, 1961 read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to exempt income not includible in total income - Assessment year 2008-09 - Whether only those investments are to be considered for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8D(2)(iii) of the Act should be invoked for calculation of disallowance pertaining to only investment from which exempt income is earned by the assessee by placing reliance on the decision of the Special Bench of the Tribunal in the case of Vireet Investments Pvt. Ltd. (supra). We find no infirmity in the order of the ld. CIT(A). 12. By respectfully following the above mentioned decisions, we uphold the order of the ld. CIT(A) in directing the A.O. to recompute the disallowance only to the investments which have yielded exempt income during the impugned year." 55. Considering the finding given by Coordinate Benches, the Assessing Officer is directed to re-work disallowance u/s.14A under rule 8D(2)(iii) by adopting only those investments which has yielded exempt income. The assessee gets the relief accordingly. This ground of appeal is partly allowed. 56. With regard to Ground Nos. 5, 6 and 7, we observe that these grounds are consequential in nature, accordingly, these grounds are dismissed as such. 57. In the result, appeal filed by the assessee is partly allowed. 58. ITA No. 843/MUM/2015 (A.Y. 2010-11) (REVENUE APPEAL) 59. Revenue has raised following grounds in its app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces in the risk profile of the comparables vis-a vis the Appellant. It is prayed that the aforesaid adjustment should be deleted. 3. On the facts and in the circumstances of the case and in law, the AO under the directions of the DRP erred in reducing expenses incurred in foreign currency, not being expenses incurred in providing technical services outside India or in the nature of freight, telecommunication charges or insurance attributable to delivery of article or things or computer software, from "export turnover" and "total turnover while computing deduction under section 10A and section 10AA of the Act. This has resulted in disallowance of Rs. 15,71,878. The appellant prays that the disallowance of Rs. 15,71,878 made under section 10A and section 10AA of the Act is erroneous, unwarranted and be deleted. 4. On the facts and in the circumstances of the case and in law, the AO under the directions of the DRP erred in disregarding the suo motu disallowance of Rs. 414,324 made by the appellant under section 14A of the Act, in applying Rule 8D(2)(iii) of the Income-tax Rules, 1962 (the Rules). The appellant prays that the additional disallowance be deleted. Witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue under consideration is remitted back to the file of Assessing Officer for statistical purpose. 67. With regard to Ground No. 6 which is in respect of levy of interest under section 234B of the Act, we observe that this grounds is consequential in nature, accordingly, this ground is dismissed. 68. In the result, appeal filed by the assessee is partly allowed. ITA NO. 824/MUM/2016 (A.Y. 2011-12) (REVENUE APPEAL) 69. Revenue has raised following grounds in its appeal: - i) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble DRP was justified in holding that for the purpose of deduction/exemption u/s. 10A, the expenses incurred in foreign currency in providing technical services outside India do not have an element of turnover and these expenses have to be excluded from the total turnover particularly in the absence of a legislature prescription to the contrary?" 70. Coming to the appeal relating to A.Y. 2011-12, since facts in this case are mutatis mutandis, therefore the decision taken in A.Y. 2009-10 in revenue appeal are applicable to this assessment year also. Accordingly, appeal filed by the revenue is dismissed. 71. In the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred in foreign currency from 'export turnover' while computing deduction under section 10AA of the Income Tax Act, 1961 (Act') thereby reducing the claim by Rs. 32,10,125. Without prejudice to above, assuming but not admitting that the expenditure in foreign currency is to be reduced from the 'export turnover, the AO under the directions of the DRP erred in not reducing the same from the total turnover' while computing the deduction u/s. 10AA of the Act. It is prayed by that the claim of the Appellant rejected by the Ld. AO and the Hon'ble DRP be accepted. 5. On the facts and in the circumstances of the case and in law, the AO erred in not granting credit of tax deducted at source of Rs. 28,09,064. 6. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B of the Act. 7. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest under section 234C of the Act." 73. Ground Nos.1 to 3 are relating to Transfer Pricing Adjustment in relation to financial data analysis services, we observe that this ground is similar to Ground Nos. 1 to 6 of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee would be within +/-5% of mean margins of comparables shown by the assessee. 9. We find that the issue of exclusion of TCS e-Serve Ltd. from the final list of comparables on the ground of the said concern having both brand value and high turnover was agitated before the Tribunal (supra) in assessee's own case in Assessment Year 2011-12. The Tribunal in turn relied on the ratio laid down by the Delhi Bench of Tribunal in B.C. Management Services P.Ltd. 83 Taxmann.com 346. The relevant finding of the said case are reproduced by the Tribunal in para 14 and are being referred, but not being reproduced for the sake of brevity. It may further be pointed out that against the said order in B.C. Management Services P.Ltd.(supra), the Revenue filed an appeal before the Hon'ble High Court and the question of law raised was as under:- 1. "Whether the exclusion of four comparables i.e. e-ClerxPvt.ltd., M/s ICRA Techno Analytics Ltd., M//s. TCS E-Serve Ltd. and M/s. Accentia Technologies Pvt.ltd., are sustainable and not erroneous?" 10. The Hon'ble Jurisdictional High Court dismissed the appeal of the Revenue observing as under:- "The third comparable that the AO/TPO excluded is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer to exclude the comparable TCS e-serve from the final list of comparables. We order accordingly. 78. With regard to Ground No. 4, Ld.AR of the assessee submitted that this ground is not pressed, accordingly, this ground is dismissed as not pressed. 79. However, Ld.AR of the assessee submitted that on a without prejudice basis, the assessee submits that the expenses excluded from the export turnover should have to be excluded from the total turnover as well. The Ld. AR submitted that the same is squarely covered in favour of the assessee by the Hon'ble Supreme Court in the case of HCL Technologies Ltd. [(2018) 404 ITR 719] which has affirmed the Bombay High Court's decision in the case of Gem Plus Jewellery India Ltd. (Supra) and held that the expenses excluded from the export turnover have to be excluded from the total turnover as well while computing deduction u/s 10A of the Act. 80. Considered the rival submissions and material placed on record, we observe from the record that Assessing Officer has not followed the directions of Ld DRP in granting the benefit to the assessee that the foreign currency expenses which are excluded from Export turnover and not exclud ..... X X X X Extracts X X X X X X X X Extracts X X X X
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