Acusis Software India Private Limited, Bangalore v. ITO, Bangalore

ITA 1232/BANG/2011 | 2007-2008
Pronouncement Date: 18-10-2016 | Result: Partly Allowed

Appeal Details

RSA Number 123221114 RSA 2011
Assessee PAN AADCA2415P
Bench Bangalore
Appeal Number ITA 1232/BANG/2011
Duration Of Justice 4 year(s) 10 month(s) 9 day(s)
Appellant Acusis Software India Private Limited, Bangalore
Respondent ITO, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 18-10-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 18-10-2016
Date Of Final Hearing 04-08-2016
Next Hearing Date 04-08-2016
Assessment Year 2007-2008
Appeal Filed On 09-12-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BANGALORE BEFORE SHRI S.K.YADAV JUDICIAL MEMBER AND SHRI A. K. GARODIA ACCOUNTANT MEMBER IT (TP) A NO.1232(BANG) 2011 (ASSESSMENT YEAR : 2007-08) M/S ACUSIS SOFTWARE INDIA PVT. LTD. NO.17/2 DOLLAR CHAMBER LALBAGH ROAD BANGALORE -560 027 PAN NO.AADCA2415P APPELLANT VS THE INCOME TAX OFFICER WARD-11(1) BANGALORE RESPONDENT ASSESSEE BY : SHRI CHAVALI NAR AYAN CA REVENUE BY : MS. NEERA MALHOTRA CIT DATE OF HEARING : 04-08-2016 DATE OF PRONOUNCEMENT: : 18-10-201 6 O R D E R PER SHRI A.K.GARODIA AM THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE A SSESSMENT ORDER DATED 30-09-2011 PASSED BY THE AO U/S 143(3) R.W.S. 144C OF THE IT ACT 1961 AS PER THE DIRECTIONS OF DRP FOR ASSESSMENT YE AR 2007-08. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER ; BA SE D O N T H E FAC T S A ND CIRC UM S T ANCES OF T H E CASE AND I N L AW ACUSIS SOFTWARE INDIA P RIVATE LIMITED (HEREINAFTER REFE RR E D TO AS 'A P PEL L AN T ') RESPECTF UL LY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY IN COME TAX O FFICER - WAR D 11(1) ('AO ' ) DATED 30 SEPTEMBER 2011 IN PURSUANCE OF THE DIREC TIO N S I SSUE D B Y D ISPUTE R ESOLUTION P ANEL ( ' DR P') B ANGALORE DATED 05 SEPTEMBER 201 I UNDER SECT I ON 2 5 3 OF T H E INCOME -T AX ACT 1961 ( ' ACT') ON THE FO L LOWING GROUNDS : IT(TP)A NO.1232(B)2011 2 T H AT O N THE FA CT S A ND CI R C UM S T A N CES OF THE CASE A N D IN L AW 1. THE O R DER OF THE LEARNED AO BASED ON DI R ECTIONS OF THE HON ' BLE D RP ERRED IN ASSESSING THE TOTA L INCO M E AT R S . 2 86 60 019 AS AGAINST RETUR N ED INCOME OF NIL COMPUTED B Y THE AP P E LL A N T ; G R OU N DS OF APPEA L R E L ATI N G TO CORPORATE TAX MA TT ERS 2. O N T H E FACTS A ND IN TH E CIRCUMSTA N CES OF T H E CASE A N D IN LAW BASED ON T H E D I RECTIONS OF THE DRP T H E L EA RN ED A O HAS ERRE D IN LAW AND IN FACT BY HOLD I NG THAT THE FOREIGN CURRENC Y EXPENSES ARE TOWAR D S TECHNICA L SERVICES RENDERED OUTSIDE INDIA AND SHOULD BE REDUCED F ROM ' EX P OR T T URN OVER' WHILE CO MPUTIN G THE P ROFITS E L IGIBLE FOR D EDUCTION UNDER SECT I ON 1O A OF T H E ACT . 3.ON THE FACTS AND I THE CIRCUMSTANCES OF THE CASE AND IN LAW BASED ON THE DIRECTIONS OF THE DRP THE LD. AO HAS ERRED IN LAW BY NO CONSIDER ING THAT IF THE TELECOMMUNICATION EXPENSES (I.E. INTERNET AND ISDN SERVICE CHARGE) AN D FOREIGN CURRENCY EXPENSES ARE REDUCED FROM EXPORT TURNOVER AN EQUAL AMOUNT SHOUL D ALSO BE FROM TOTAL TURNOVER FOR COMPUTING THE DEDUCTION U/S 10 A OF THE ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW BASED ON THE DIRECTIONS OF THE DRP THE LD. AO HAS ERRED IN LAW AND IN FACT S BY NOT PROVIDING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD IN CONNECTION WITH REDUC TION OF UNABSORBED DEPRECIATION FROM THE PROFITS OF THE UNDERTAKING BEFORE PROVIDIN G FOR DEDUCTION U/S 10 A OF THE ACT. GROUNDS OF APPEAL RELATING TO TRANSFER PRICING MATT ERS ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW; 5. THE LD. AO/TPO ERRED IN MAKING AN ADDITION OF RS .2 81 69 410/- TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARMS LENGTH PRICE OF THE MEDICAL TRANSCRIPTION SERVICE TRANSACTION ENTERED INTO BY T HE APPELLANT WITH ITS ASSOCIATED ENTERPRISE. 6. THE LD. AO/TPO HAVE ERRED IN IGNORING THE FACT T HAT SINCE THAT APPELLANT IS AVAILING TAX HOLIDAY U/S 10A OF THE ACT THERE IS NO INTENTI ON TO SHIFT THE PROFIT BASE OUT OF INDIA WHICH IS ONE OF THE BASIC INTENTION OF THE INTRODUC TION OF TRANSFER PRICING PROVISIONS. 7. THE LD. AO/TPO ERRED IN DISREGARDING THE ECONOMI C ANALYSIS UNDERTAKEN BY THE APPELLANT AND CONDUCTING A FRESH ECONOMIC ANALYSIS OR THE DETERMINATION OF THE ARMS LENGTH PRICE IN CONNECTION WITH THE IMPUGNED INTERN ATIONAL TRANSACTION. 8. THE LEARNED AO I TPO ERRED IN DETERMINING THE ARM ' S LENGTH MARGIN ! PRICE USING ONLY FINANCIAL YEAR 2006-07 DATA WHICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIM E OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION R EQUIREMENTS ; 8. THE LEARNED AO I TPO ERRED IN REJECTING CERTAIN COMPARABLES CONSIDERED B Y THE APPELLANT IN THE COMPARABILITY ANALYSIS BY APPLY ING DIFFERENT QUANTITATIVE AND QUALITATIVE FILTERS ; A) THE LEARNED AO I TPO HAS ERRED BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED B Y THE APPELLANT USING IT(TP)A NO.1232(B)2011 3 TURNOVER < RS. 1 CRORE AS A COMPARABILITY CRITERION ; B) THE LEARNED AO I TPO HAS ERRED BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED B Y THE APPELLANT AS HAVING ECONOMIC PERFORMANCE CONTRARY TO THE INDUSTR Y BEHAVIOR (E.G . COMPANIES WHICH SHOWED A DIMINISHING REVENUE TREND) ; AND C) THE LEARNED AO I TPO ERRED IN REJECTING CERTAIN COMPARABLES CONSIDERED BY THE APPELLANT IN THE COMPARABILITY AN ALYSIS ON THE GROUND THAT THE COMPARABLES WERE HAVING DIFFERE NT ACCOUNTING YEAR (OTHER THAN MARCH 31 OR COMPANIES W HOSE FINANCIAL STATEMENTS WERE FOR A PERIOD OTHER THAN 1 2 MONTHS) . D) THE LEARNED AO I TPO ERRED IN REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT WHERE CONSOLI DATED RESULTS HAD BEEN USED FOR ANALYSIS . THE APPELLANT HAD CONSIDERED THE CONSOLIDATED RESULTS IN ONLY THOSE C ASES WHERE THE MEDICAL TRANSCRIPTION SERVICES RELATED INCOME O F THE INDIAN OPERATIONS CONSTITUTED MORE THAN 75 PERCENT O F THE CONSOLIDATED COMPANY-WIDE L SEGMENTAL REVENUES ; 10. THE LEARNED TPO ERRED IN OBTAINING INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN BY EXERCISING POWERS U / S 133(6) OF THE ACT AND RELYING ON THE INFORMATION FOR COMPARAB ILITY ANALYSIS; 11. THE LEARNED AO I TPO ERRED BY ACCEPTING CERTAIN COMPANIES USING UNREASONABLE COMPARABILITY CRITERIA; 12. THE LEARNED AO I TPO ERRED BY NOT PROVIDING THE ASSESSEE ANY OPPORTUNITY OF BEING HEARD IN CERTAIN CASES AND ACC EPTING SOME COMPANIES WITHOUT COMMUNICATING THE REASONS THEREOF ; 13. THE LEARNED AO I TPO ERRED IN NOT CONSIDERING THE FOREIGN EXCHANGE FLUCTUATION GAIN (LOSS) AS PART OF THE OPE RATING INCOME WHILE COMPUTING THE OPERATING MARGIN ; 14. THE LEARNED AO I TPO ERRED IN NOT MAKING SUITABLE ADJUSTMENTS ON ACCOUNT OF DIFFERENCES IN THE RISK P ROFILE OF THE APPELLANT VIS-A-VIS THE COMPARABLES WHILE CONDUCTING COMPARABILITY ANALYSIS; 15. THE LD. AO/TPO ERRED IN COMPUTING THE ARMS LENGTH PRICE WI THOUT GIVING BENEFIT OF += 5% UNDER THE PROVISO TO SEC.92C OF THE ACT. IT(TP)A NO.1232(B)2011 4 16. THE LD. AO/TPO ERRED IN LEVYING INTEREST OF RS. 51 96 873 AND RS. 662 U/S 234B AND 234D OF THE ACT RESPECTIVELY. 17. THE LD. AO/TPO ERRED IN LAW AND IN FACTS IN INITI ATING PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE ACT. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUNDS IS INDEP ENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES TO ADD ALTER AMEND VARY OMIT OR SU BSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL SO AS TO ENABLE THE HONBLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 3. IT WAS SUBMITTED BY THE LD.AR OF THE ASSESSEE T HAT GROUND NO.1 IS GENERAL IN NATURE AND GROUND NO.2 TO 4 ARE REGARDIN G CORPORATE TAX MATTERS AND THESE GROUNDS ARE COVERED IN FAVOUR OF THE ASSE SSEE BY THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CA SE OF M/S TATA ELXSI LTD. REPORTED IN 349 ITR 98. 4. THE LD. DR OF THE REVENUE SUPPORTED THE ASSESSM ENT ORDER ON THIS ISSUE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. REGAR DING THE FIRST GROUND WE HOLD THAT THIS GROUND IS GENERAL AND NO SEPARATE ADJUDICATION IS REQUIRED FOR THIS GROUND. 6. REGARDING GROUND NO.2 TO 4 WE FIND THAT THE IS SUES INVOLVED IN THESE GROUNDS IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE O F M/S TATA ELXSI LTD. (SUPRA) WHEREIN IT WAS HELD THAT THE TOTAL TURNOVER IS SUM TOTAL OF DOMESTIC TURNOVER AND EXPORT TURNOVER AND THEREFORE IF AN A MOUNT IS REDUCED FROM THE EXPORT TURNOVER THEN THE TOTAL TURNOVER ALSO G ETS REDUCED BY THE SAME AMOUNT. RESPECTFULLY FOLLOWING THIS JUDGMENT OF TH E HONBLE KARNATAKA HIGH COURT WE DIRECT THE AO TO RE-CALCULATE THE DE DUCTION ALLOWABLE TO THE IT(TP)A NO.1232(B)2011 5 ASSESSEE U/S 10A OF THE ACT BY REDUCING THE TOTAL T URNOVER ALSO BY THE SAME AMOUNT BY WHICH EXPORT TURNOVER WAS REDUCED BY THE AO IN RESPECT OF FOREIGN CURRENCY EXPENSES INCURRED TOWARDS TECHNICA L SERVICES RENDERED OUTSIDE INDIA. ACCORDINGLY GROUND NO.2 TO 4 ARE A LLOWED FOR STATISTICAL PURPOSES. 7. THEREAFTER THE LD. AR OF THE ASSESSEE SUBMITTE D THAT THE REMAINING GROUND ARE IN RESPECT OF TP ISSUES AND IN THIS REGA RD HE SUBMITTED A CHART BEFORE US AND POINTED OUT THAT THE TPO HAD CONSIDER ED TOTAL 28 COMPARABLES OUT OF WHICH THE ASSESSEE IS REQUESTING FOR EXCLUS ION OF 13 COMPARABLES WHICH ARE DIVIDED IN TO FOUR SEPARATE GROUPS. FIRST SUCH GROUP IS OF 3 COMPARABLES I.E. 1)M/S BODHTREE CONSULTING LTD. (S EG.) 2)M/S ECLERX SERVICES LTD. AND 3) MOLD TEK TECHNOLOGIES LTD. ( SEG.). REGARDING EXCLUSION OF THIS GROUP HE SUBMITTED THAT THESE CO MPANIES ARE FUNCTIONALLY DIFFERENT BECAUSE THESE COMPANIES ARE PERFORMING FU NCTIONS IN THE NATURE OF KPO AND THEREFORE SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES. RELIANCE WAS PLACED ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. IN IT(TP)A N O.1086(BANG.)/2011 DATED 30-04-2013 COPY AVAILABLE ON PAGES 527 TO 56 4 OF THE PAPER BOOK AND IN PARTICULAR OUR ATTENTION WAS DRAWN TO PARA-36 & 37 OF THIS TRIBUNAL ORDER WHICH ARE AS UNDER; 36. AS FAR AS 3 RD GROUP IS CONCERNED THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS GROUP CONSISTS OF 1) BODHTREE CONSULTING LTD. 2) ECLERX SERVICES LTD. 3) MOLD TEK TECHNOLOGIES LTD. IT(TP)A NO.1232(B)2011 6 37. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESS EE THESE COMPANIES ARE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE IS BASICA LLY A CALL CENTRE WHEREAS THESE THREE COMPANIES ARE INTO THE BUSINESS OF KNOWLEDGE PROCESS OUT SOURCING (KPO). HE SUBMITTED THAT WHILE THE ASSESSEE IS INTO SIMPLE AC TIVITIES LIKE CREDIT CHECK IN HOUSE SUPPORT BILL SEARCH P EOPLE SEARCH HIGH CHECK AUTOMATED SERVICES DOCUMENT MANAGEMENT ETC. WHILE THE KNOWLEDGE PROCESS OUTSOURCING INCLUDES SPECIALIZED CUSTOMER & TECHNI CAL SERVICES. HE SUBMITTED THAT BODHTREE LTD. PROVIDES SOFTWARE SOLUTIONS SUCH AS DATA CLEANSING E-LEARNING AND E -PAPER SOLUTION AND ALSO EARNS REVENUE FROM SOFTWARE PRODU CTS AS FAR AS ECLERX SERVICES LTD. IS CONCERNED HE SUBMIT TED THAT IT IS ENGAGED IN PROVIDING DATA PROCESS AND ANALYT ICS SERVICES AS IS EVIDENT FROM THE WEBSITE OF THE COMP ANY. AS REGARDS MOLD TEK TECHNOLOGIES LTD. IS CONCERNED HE SUBMITTED THAT IT IS PROVIDING HIGH-END ENGINEERING DESIGN AND DETAILING SERVICES WHICH ARE APPROPRIATELY CATE GORIZED AS STRUCTURAL ENGINEERING SERVICES AND ARE HIGH END ENGINEERING SERVICES AND CANNOT BE CONSIDERED AS COMPARABLE TO THE ITES SERVICES RENDERED BY THE ASS ESSEE. THUS ACCORDING TO HIM THESE THREE COMPANIES BEING FUNCTIONALLY DIFFERENT FROM THE ASSESSEE ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN SUPPORT OF HIS CO NTENTION HE PLACED RELIANCE UPON THE DECISION OF A BENCH O F THE TRIBUNAL AT HYDERABAD IN THE CASE OF M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. IN ITA NO.1961/HYD/2011 DATED 23.11.2012 WHEREIN THE TRIB UNAL IT(TP)A NO.1232(B)2011 7 HAS DIRECTED THAT MOLD TEK TECHNOLOGIES LTD. IS TO BE EXCLUDED FROM THE LIST OF COMPARABLES BECAUSE OF EXCEPTIONAL FINANCIAL RESULT DUE TO MERGER/DEMERG ER AND ALSO ON ACCOUNT OF SUPER NORMAL PROFIT OF 113%. HE PLACED RELIANCE UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. WHEREIN IT HAS BEEN HELD THAT THE COMPANIES S HOWING ABNORMAL PROFITS CANNOT BE TREATED AS COMPARABLE. 8. HE FURTHER SUBMITTED THAT THE SECOND GROUP FOR WHICH EXCLUSION IS BEING REQUESTED BY THE ASSESSEE IS ALSO GROUP OF THREE CO MPANIES INCLUDING M/S INFOSYS BPO LTD. M/S WIPRO LTD. (SEG.) AND M/S HCL COMN ET SYSTEMS & SERVICES LTD. AND EXCLUSION OF THIS GROUP IS REQUESTED BY T HE ASSESSEE ON ACCOUNT OF TURNOVER FILTER. HE SUBMITTED THAT THE TURNOVER OF THE ASSESSEE COMPANY FOR ITES IS RS.22.64 CRORES WHEREAS THE TURNOVER OF EACH OF THESE THREE COMPANIES IS MORE THAN 10 TIMES OF THE ASSESSEES TURNOVER AND THEREF ORE THESE COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES EVEN A S PER THE LATEST TRIBUNAL ORDERS WHEREIN INSTEAD OF APPLYING TURNOVER FILTER OF 1- 2 00 CRORES THE TURNOVER FILTER OF 1/10 TH OR 10 TIMES OF THE TURNOVER OF THE ASSESSEE COMPAN Y IS BEING APPLIED. THEREAFTER HE SUBMITTED THAT THE THIRD GROUP OF WH ICH EXCLUSION IS BEING REQUESTED BY THE ASSESSEE CONSISTS OF FIVE COMPANIE S I.E. 1) M/S VISHAL INFORMATION TECHNOLOGIES LTD. 2) M/S INFORMED TECH NOLOGIES INDIA LTD. 3) M/S ACCENTIA TECHNOLOGIES LTD. (SEG.) 4) M/S SPANCO L TD. (SEG.) & 5) M/S ASIT C MEHTA FINANCIAL SERVICES LTD. HE SUBMITTED THAT EXC LUSION OF THIS GROUP OF FIVE IT(TP)A NO.1232(B)2011 8 COMPANIES IS BEING REQUESTED BY THE ASSESSEE ON ACC OUNT OF EMPLOYEES COST FILTER. HE PLACED RELIANCE ON THE TRIBUNAL ORDER RE NDERED IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. (SUPRA) AND OUR ATTENTION WAS DRAWN TO PARA-35 OF THIS TRIBUNAL ORDER AVAILABLE ON PAGE NO L.554 OF THE PAPER BOOK. THEREAFTER HE SUBMITTED THAT THE ASSESSEE IS SEEKI NG EXCLUSION OF ONE MORE GROUP OF COMPANIES CONSISTS OF TWO COMPANIES I.E. M/S MAP LE E-SOLUTIONS LTD. AND 2)M/S TRITON CORP LTD. AND THE ASSESSEE IS REQUEST ING FOR EXCLUSION OF THIS GROUP ON THIS BASIS THAT THESE COMPANIES SHOULD BE REJECT ED FOR FRAUDULENT FINANCIAL STATEMENT AND IN THIS REGARD RELIANCE HAS BEEN PLA CED ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF CAPITAL IQ INFORMATION SYST EMS (IND.)PVT. LTD. IN ITA NO.1961/HYD/2011DATED 23-11-2012 COPY AVAILABLE O N PAGES 499-526 OF THE PAPER BOOK. THEREAFTER HE SUBMITTED THAT IF THES E 4 GROUPS CONSISTING OF 13 COMPANIES ARE EXCLUDED FROM THE LIST OF FINAL COMPA RABLES THE NET AVERAGE MARGIN OF THE REMAINING 15 COMPARABLE COMPANIES WIL L BE 18.24 % AND AFTER RISK ADJUSTMENT THE ADJUSTED ARITHMETIC MEAN WILL BE 14 .59% WHICH IS WITHIN +/- 5% RANGE OF THE OPERATING MARGIN OF THE ASSESSEE AT 13 .20% AND THEREFORE NO TP ADJUSTMENT IS REQUIRED TO BE MADE. AS AGAINST THIS THE LD. DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW BUT H E COULD NOT POINT OUT ANY DIFFERENCE IN FACTS IN THE PRESENT CASE A ND VARIOUS CASES ON WHICH RELIANCE CASE HAS BEEN PLACED BY THE LD. AR OF THE ASSESSEE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND SOME FORCE IN THE SUBMISSIONS OF THE LD.AR OF THE ASSESSEE REGARD ING EXCLUSION OF SOME OF IT(TP)A NO.1232(B)2011 9 THESE FOUR GROUPS OF COMPANIES CONSISTING OF 13 COM PANIES. 10. IN THE CASE OF M/S FIRST ADVANTAGE OFFSHORE SE RVICES PVT. LTD. (SUPRA) IN PARA-36 OF THIS TRIBUNAL ORDER THE TRI BUNAL WAS EXAMINING THE ISSUE REGARDING EXCLUSION OF THREE COMPANIES I.E. M /S BODHTREE CONSULTING LTD. (SEG.) 2) M/S ECLERX SERVICES LTD. AND 3) M OLD TEK TECHNOLOGIES LTD. (SEG.) AND IT WAS HELD BY THE TRIBUNAL THAT THESE T HREE COMPANIES ARE PROVIDING KPO SERVICES AND THEREFORE CANNOT BE CON SIDERED AS A COMPARABLE IN A CASE WHERE THE ASSESSEE IS PROVIDING BPO SERVI CES. RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER WE DIRECT THE AO/TPO TO EXCLUDE THESE THREE COMPANIES FROM THE LIST OF FINAL COMPARABLES. 11. REGARDING THE SECOND GROUP OF THREE COMPANIES I.E. 1) M/S INFOSYS BPO LTD. 2) M/S WIPRO LTD. (SEG.) AND 3)HCL COMN ET SYSTEMS & SERVICES LTD. (SEG.) WE FIND THAT IN THE SAME TRIBUNAL ORD ER RENDERED IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. (SUPRA ) IN PARA-29 OF THIS TRIBUNAL ORDER THE TRIBUNAL CONSIDERED THESE THREE COMPANIES AND HELD THAT THESE THREE COMPANIES SHOULD BE EXCLUDED BECAUSE TH E TURNOVER OF THESE THREE COMPANIES IS MORE THAN RS.200 CRORES. NOW T HE TRIBUNAL IS ADOPTING A DIFFERENT TURNOVER FILTER I.E. THOSE COMPANIES AR E EXCLUDED WHICH HAVE TURNOVER LESS THAN 1/10 TH OR MORE THAN 10 TIMES OF THE ASSESSEE COMPANYS TURNOVER. IN THE PRESENT CASE THESE THREE COMPANI ES ARE HAVING TURNOVER IN EXCESS OF 10 TIMES OF THE TURNOVER OF THE ASSESSEE COMPANY AND HENCE WE DIRECT THE AO/TPO TO EXCLUDE THESE THREE COMPANIES ALSO FROM THE LIST OF FINAL COMPARABLES BY APPLYING THIS TURNOVER FILTER. 12. REGARDING THIRD GROUP CONSISTING OF FIVE COMPA NIES I.E. 1) M/S VISHAL INFORMATION TECHNOLOGIES LTD. 2) INFORMED TECHNOLOGIES LTD. 3) IT(TP)A NO.1232(B)2011 10 ACCENTIA TECHNOLOGIES LTD. (SEG.) 4) M/S SPANCO LT D. (SEG.) AND 5) M/S ASIT C MEHTA FINANCIAL SERVICES LTD. WE FIND THAT THE EXCLUSION OF THIS GROUP IS BEING REQUESTED BY APPLYING THE EMPLOYEES COST FIL TER. IN PARA-35 OF THE SAME TRIBUNAL ORDER RENDERED IN THE CASE OF M/S FIRST AD VANTAGE OFFSHORE SERVICES PVT. LTD. (SUPRA) THE TRIBUNAL HAD CONSIDERED THR EE COMPANIES OUT OF THESE FIVE COMPANIES IN THE PRESENT CASE I.E. 1) M/S VI SHAL INFORMATION TECHNOLOGIES LTD. 2) INFORMED TECHNOLOGIES LTD. 3 ) ACCENTIA TECHNOLOGIES LTD.(SEG.) AND IT WAS HELD BY THE TRIBUNAL IN THAT CASE THAT THESE THREE COMPANIES ARE EXCLUDED BECAUSE THE COMPANIES WERE H AVING EMPLOYEES COST OF LESS THAN 25%. REGARDING THE REMAINING TWO COM PANIES I.E. M/S SPANCO LTD. (SEG.) AND M/S ASIT C MEHTA FINANCIAL SERVIC ES LTD. THE ISSUE WAS NOT BEFORE THE TRIBUNAL IN THAT CASE AND NO EVIDENCE HA S BEEN BROUGHT ON RECORD BEFORE US TO SHOW THAT THESE TWO COMPANIES ARE HAVI NG EMPLOYEES COST OF LESS THAN 25% OF TURNOVER. HENCE OUT OF THIS GROUP OF FIVE COMPANIES WE DIRECT THE AO/TPO TO EXCLUDE THREE COMPANIES I.E. 1) M/S V ISHAL INFORMATION TECHNOLOGIES LTD. 2)M/S INFORMED TECHNOLOGIES LTD. 3) ACCENTIA TECHNOLOGIES LTD.(SEG.). 13. REGARDING THE FOURTH GROUP CONSISTING OF TWO C OMPANIES I.E. M/S MAPLE E-SOLUTIONS LTD. AND M/S TRITON CORP LTD. W E FIND THAT RELIANCE HAS BEEN PLACED ON THE TRIBUNAL ORDER RENDERED IN THE C ASE OF M/S CAPITAL IQ INFORMATION SYSTEMS (IND.) PVT. LTD. (SUPRA) AND OUR ATTENTION HAS BEEN DRAWN TO PARA-18 & 19 OF THIS TRIBUNAL ORDER AVAILA BLE ON PAGES 519 520 OF THE PAPER BOOK. AS PER THESE PARAS OF THE TRIBUNAL ORDER IT IS SEEN THAT THE TRIBUNAL HAD FOLLOWED ANOTHER TRIBUNAL ORDER OF THE DELHI BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF ITO VS CRM SERVICE S INDIA PVT. LTD. IN ITA IT(TP)A NO.1232(B)2011 11 NO.4068(DEL.)/2009 FOR ASSESSMENT YEAR 2004-05 DATE D 30-11-2011 AND IT WAS HELD BY THE TRIBUNAL THAT THESE COMPANIES ARE N OT GOOD COMPARABLES. RESPECTFULLY FOLLOWING THESE TRIBUNAL ORDERS WE DI RECT THE AO/TPO IN THE PRESENT CASE ALSO TO EXCLUDE THESE TWO COMPANIES FR OM THE LIST OF FINAL COMPARABLES. AS PER THE ABOVE DISCUSSION WE HAVE HELD THAT OUT OF 28 COMPARABLES AND AGAINST REQUEST OF THE ASSESSEE FOR EXCLUSION O F 13 COMPARABLES 11 COMPANIES ARE TO BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES. THE AO SHOULD WORK OUT THE ALP ON THE BASIS OF REMAINING 1 7 COMPARABLES AND AFTER ALLOWING RISK ADJUSTMENT AS WELL AS THE ADVANTAGE O F += 5% MARGIN AS PER LAW THE AO SHOULD FIND OUT WHETHER ANY TP ADJUSTME NT IS REQUIRED TO BE MADE AND IF IT IS REQUIRED TO BE MADE HE SHOULD DO SO AS PER LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. 14. IN THE RESULT THE APPEAL OF THE ASSESSEE STAN DS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. (SUNIL KUMAR YADAV) (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE: D A T E D :18.10.2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR ITAT BANGALORE. 6 GUARD FILE BY ORDER IT(TP)A NO.1232(B)2011 12 AR ITAT BANGALORE 1. DATE OF DICTATION 2. DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICT ATING MEMBER .. 3. !' # . $ %# / $ %# # & DATE ON WHICH THE APPROVED DRAFT COMES TO THE PS/SR .PS. 4. ''() & * + DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTAT ING MEMBER FOR PRONOUNCEMENT 5. * . %# / # . . %# # + DATE ON WHICH THE ORDER COMES BACK TO THE PS/SR.PS .. 6 * !' + DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. ! !' ' - ) IF NOT UPLOADED FURNISH THE REASON FOR DOING SO . 8. .% / 0 + DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. * 1'2 / 34 & 5 + DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT 10. 0 6 / + DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 11. * 7 & 0 8 + THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. !) * 9() & 0 9() /#5 . + THE DATE ON WHICH THE FILE GOES TO DESPATCH SECTION FOR DESPATCH OF THE TRIBUNAL ORDER 13. * 9() + DATE OF DESPATCH OF ORDER .