Capital IQ Information Systems (India) Private Limited, Hyderabad v. Addl.CIT, Circle-1(2), Hyderabad

ITA 124/HYD/2014 | 2009-2010
Pronouncement Date: 31-07-2014 | Result: Partly Allowed

Appeal Details

RSA Number 12422514 RSA 2014
Assessee PAN AACCS8657G
Bench Hyderabad
Appeal Number ITA 124/HYD/2014
Duration Of Justice 6 month(s)
Appellant Capital IQ Information Systems (India) Private Limited, Hyderabad
Respondent Addl.CIT, Circle-1(2), Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 31-07-2014
Assessment Year 2009-2010
Appeal Filed On 30-01-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B' HYDERABAD BEFORE SHRI B.RAMAKOTAIAH ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER ITA NO.124/HYD/2014 : ASSESSME NT YEAR 2009-10 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD (PAN AACCS 8657 G) V/S. ADDL. COMMISSIONER OF INCOME-TAX CIRCLE 1(2) HYDERABAD (APPELLANT) (RESPONDENT) ITA NO.170/HYD/2014 : ASSESSME NT YEAR 2009-10 DY. COMMISSIONER OF INCOME- TAX CIRCLE 1(2) HYDERABAD V/S. M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD (PAN AACCS 8657 G) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SAURABH SRIVASTAVA REVENUE BY : SHRI D.SUDHAKARA RAO CIT-DR DATE OF HEARING 12.6.2014 DATE OF PRONOUNCEMENT 31.7.2014 O R D E R PER B.RAMAKOTAIAH ACCOUNTANT MEMBER: THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE AGAINST TH E ORDERS OF THE ASSESSING OFFICER UNDER S.143(3) READ WITH ORDER UNDER S.144(C)(5) OF THE INCOME TAX ACT 1961 ON THE DIRECT IONS OF THE DISPUTES RESOLUTION PANEL HYDERABAD VIDE ORDER DATED 27.11. 2013. ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 2 2. THE ISSUES IN THESE APPEALS ARE WITH REFERENCE TO TR ANSFER PRICING ADJUSTMENTS MADE BY THE ASSESSING OFFICER/TPO. 3. BRIEFLY STATED M/S. CAPITAL IQ INFORMATION SYST EMS (INDIA) PVT. LTD. IS A WHOLLY OWNED SUBSIDIARY OF CAPITAL IQ INC USA AND IS ENGAGED IN PROVIDING IT ENABLED SERVICES (ITES) TO ITS AE CAPITA L IQ US. ASSESSEE PROCESSES ANNUAL/ QUARTERLY FINANCIAL REPORTS AND PRESS REL EASES OF VARIOUS INTERNATIONAL COMPANIES AND EXTRACTS REQUIRED DATA FROM FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS AUDIT REPORTS ETC. THROU GH UTILIZATION OF TOOLS DEVELOPED IN HOUSE AND ALSO PREPARES BUSINESS DESCRIPTIONS BIOGRAPHIES OF KEY EXECUTIVES AND TRACKS KEY DEVELOPMENTS IN THE COMPANI ES. ASSESSEE FUNCTIONS AS A CAPTIVE CONTRACT SERVICE PROVIDER. FOR THE ASSESSMENT YEAR 2009-10 ASSESSEE FILED RETURN OF INCOME ON 30.9.2009 DE CLARING AN INCOME OF RS.29 22 01 881. THE ASSESSING OFFICER VIDE HIS DRAFT ASSESSM ENT ORDER ENHANCED THE TOTAL INCOME OF ASSESSEE TO RS.46 10 25 879 ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS.15 20 07 732 IN ACCORD ANCE WITH THE TRANSFER PRICING ORDER PASSED UNDER S.92CA(3) BY THE A DDL. COMMISSIONER OF INCOME-TAX TP II HYDERABAD(TPO). ASSESSEE HAS REPORTED OP ERATING REVENUE OF RS.179 67 97 166 AND AN OPERATING COST OF RS.155.62 CRORES RESULTING IN OPERATING PROFIT OF RS.24.06 CRORES. THE OP/OC WAS ARRIVED AT 15.46%. THE ENTIRE TURNOVER OF ASSESSEE IS RECEIPTS FROM ITS AE AS ITES PROVIDER. 4. ASSESSEE IN ITS TRANSFER PRICING STUDY UNDERTAKEN BY M /S. S.R. BATLIBOI & CO. SELECTED ITSELF AS THE TESTED PARTY AND IT HAS BEEN CHARACTERIZED AS PROVIDER OF IT ENABLED SERVICES AND SELECTED TNMM AS T HE MOST APPROPRIATE METHOD AND THE SEARCH FOR UNCONTROLLED COM PARABLES WAS DONE USING PROWESS AND CAPITALINE DATABASES. ASSESSEE UNDERTOOK MULTIPLE YEAR DATA AND SELECTED SIX COMPARABLES FOR ANALYSIS. IN VIE W OF THE LIMITED DATA ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 3 BASE AVAILABLE AT THAT TIME THE FINANCIAL RESULTS FO R THE YEAR ENDING 31.3.2009 WERE CONSIDERED ONLY FOR TWO COMPANIES AND IN OTHER FO UR COMPANIES THE DATA FOR THE YEAR ENDING MARCH 2008 WAS CONSIDERED. THE A VERAGE PROFIT MARGIN OF THE SIX COMPARABLES OF ASSESSEE WORKED OUT TO 12.15%. T HEREFORE ASSESSEE SUBMITTED THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARMS LENGTH PRICE. 5. EVEN THOUGH THERE IS NO DISPUTE WITH REFERENCE TO THE METHOD ADOPTED THE TPO REJECTED THE DOCUMENTATION MAINTAINE D BY ASSESSEE ON THE REASONS THAT MULTIPLE YEAR DATA WAS USED; HAS NOT APPLIE D EXPORT FILTERS PROPERLY; AND ALSO SELECTED SOME OF THE COMPANIES WHICH A RE NOT FUNCTIONALLY SIMILAR. AFTER ANALYZING THE REASONS VIDE PARA 7 OF THE TPOS ORDER THE TPO UNDERTOOK FRESH SEARCH OF COMPARABLES AND AFTER DETAILED ANALYSIS GAVE A SHOW CAUSE NOTICE TO ASSESSEE FOR ITS OBJECTIONS TO THE SELECTI ON OF 14 COMPARABLES. ULTIMATELY THE TPO DETERMINED THE FOLL OWING TWELVE COMPANIES AS COMPARABLES AND ARRIVED AT THE AVERAGE PROFIT LEVEL INDICATOR (PLI) OF 27.42% AS PER THE DETAILS TABULATED HEREUNDER- SL. NO. COMPANY NAME OPERATING REVENUE RS.(IN CRORES) PBIT/ COST % 1. ACCENTIA TECHNOLOGIES LIMITED 78.73 49.40 2. ACROPETAL TECHNOLOGIES LTD. (SEG.) 33.13 25.01 3. ADITYA BIRLA MINACS WORLDWIDE LTD. 231.57 0.53 4. COSMIC GLOBAL LTD. 7.76 48.20 5. CROSSDOMAIN 33.76 29.38 6. ECLERX SERVICES LTD. 187.98 53.44 7. INFOSYS B P O LTD. 101.62 16.90 8. JEEVAN SOFTECH TECHNOLOGY LTD. 1.79 16.56 ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 4 9. MICROLAND LIMITED 144.05 2.35 10. MICROGENETIC SYSTEMS LTD. 1.27 10.11 11. R.SYSTEMS INTERNATIONAL LTD.(SEG.) 26.55 5.77 12. GENESYS INTERNATIONAL LTD. 83.18 71.50 AVERAGE 27.42 6. HAVING ARRIVED AT THE ARITHMETIC MEAN PLI AT 27.4 2% THE TPO ALLOWED WORKING CAPITAL ADJUSTMENT AT 2.19%. THE ARIT HMETIC MEAN PLI WAS DETERMINED AT 25.23% AND TAKING THE OPERATING COST O F RS.155.62 CRORES THE TPO SUGGESTED ADJUSTMENT OF RS.15 20 07 732 UNDER S.92 CA. 7. THE ASSESSING OFFICER ISSUED A DRAFT ASSESSMENT ORDER PRO POSING TO MAKE THE ADJUSTMENT AND ASSESSEE FILED ITS OBJECTIONS BE FORE THE DRP. THE DRP VIDE ITS ORDER RUNNING INTO 11 PAGES REJECTED MOST OF THE GROUNDS EXCEPT THE GROUND REGARDING PAYMENT OF GRATUITY ON WHICH THE REVENUE IS IN CROSS APPEAL. 8. AS THE DRP CONFIRMED THE TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING OFFICER AND THE TPO ASSESSEE IS IN APPEAL BEF ORE US RAISING GROUNDS 1 TO 9 WHICH WE SHALL CONSIDER IN THE LATER PAR T OF THIS ORDER. 9. GROUND NO.10 PERTAINS TO NOT ALLOWING CREDIT FO R CORRECT AMOUNT OF TDS OF RS.2 28 156 CLAIMED BY ASSESSEE IN THE RETURN OF INCOME WHICH REQUIRES VERIFICATION BY THE ASSESSING OFFICER. WE DIRECT T HE ASSESSING OFFICER ACCORDINGLY TO VERIFY THE CLAIM MADE BY ASSESSEE AND ALLOW THE CREDIT FOR CORRECT AMOUNT OF TDS. ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 5 10. GROUND NO.11 PERTAINS TO COMPUTING INTEREST UNDER S.234B. IT WAS THE CONTENTION OF ASSESSEE THAT THE INTEREST WAS WRONGL Y COMPUTED AT RS.3 13 02 184 ON THE ASSESSED INCOME AS AGAINST THE CORRECT AMOUNT OF RS.3 00 01 783. THIS ALSO REQUIRES VERIFICATION OF THE COMPUTATION OF INTEREST. THEREFORE WE DIRECT THE ASSESSING OFFICER TO VERIFY AND RE-DETERMINE THE INTEREST ACCORDINGLY. 11. NOW COMING TO THE MAIN GROUNDS VIZ. GROUNDS NO .1 TO 9 ON TRANSFER PRICING ADJUSTMENTS MADE BY THE ASSESSING OFFICER/ TPO ASSESSEE HAS RAISED GROUNDS ON VARIOUS ASPECTS OF TRANSFER PRICING ADJUSTMENTS LIKE REJECTION OF ASSESSEES TP STUDY USE OF FILTERS OBTAINING DATA UNDER S.133(6) OF THE ACT WHICH IS NOT AVAILABLE IN PUBLIC DOMAIN SEL ECTION OF COMPARABLES AND RISK PROFILE OF ASSESSEE COMPANY VIS--VIS COMPARABLE COM PANIES. 12. IN THE COURSE OF ARGUMENTS LEARNED COUNSEL RESTRI CTED HIS ARGUMENTS TO THE SELECTION OF COMPARABLES. ASSESSEE IS OBJECT ING TO SIX COMPARABLES SELECTED BY THE TPO AND TO THE INCLUSION OF TWO COMPARABLES SELECTED BY ASSESSEE IN ITS TP STUDY WHICH WERE REJECTED BY THE TPO. 13. WE HAVE HEARD THE LEARNED COUNSEL FOR ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE IN DETAIL AND THEIR ARG UMENTS ARE CONSIDERED AT THE APPROPRIATE STAGES OF THIS ORDER. 14. AS BRIEFLY STATED ASSESSEE IS OBJECTING TO THE FOLL OWING SIX COMPARABLES OUT OF TWELVE COMPARABLES SELECTED BY THE TP O. ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 6 SL. NO. COMPANY NAME 1. INFOSYS B P O LTD. 2. GENESYS INTERNATIONAL LTD. 3. ECLERX SERVICES LTD. 4. COSMIC GLOBAL LTD. 5. ACROPETAL TECHNOLOGIES LTD. (SEG.) 6. ACCENTIA TECHNOLOGIES LIMITED THAT APART ASSESSEE WANTS THE INCLUSION OF THE FOLLOWING TWO COMPARABLES- (A) ALLSEC TECHNOLOGIES LIMITED (B) CEPHA IMAGING PRIVATE LIMITED IT WAS SUBMITTED THAT IF THESE COMPARABLES WERE CONSIDERED OTHER ISSUES BECOME ACADEMIC IN NATURE. 15. WE HAVE CONSIDERED THE CONTENTIONS OF THE PARTIES A ND EXAMINED THE DOCUMENTS AND PAPER-BOOKS PLACED ON RECORD. CORRECTNE SS OF INCLUSION/EXCLUSION OF THE ABOVE COMPANIES IS DECIDED HER EUNDER CASE BY CASE. (1) INFOSYS B P O LTD. : 16. IT WAS THE CONTENTION OF ASSESSEE THAT THIS BPO IS A GIANT IN ITS AREA AND HAS BRAND VALUE OF INFOSYS TECHNOLOGIES LIMIT ED. ASSESSEES MAIN CONTENTION WAS THAT IT IS NOT FUNCTIONALLY SIMILAR AND ITS TURNOVER IS MUCH MORE WHEN COMPARED TO THAT OF ASSESSEE. IT WAS ALSO CONTENDED T HAT THE INFOSYS BPO HAS DONE BRAND BUILDING EXERCISE BY INCURRING LARGE AMOUNTS OF BRAND BUILDING AND ADVERTISEMENT EXPENDITURE AND UNDERTAKI NG BRAND CAMPAIGNING OUTSIDE INDIA. FURTHER IT ALSO HAS HUGE ASSET BASE AND THEREFORE THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO ASSESSEE. ASSESSEE RE LIED ON THE ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 7 DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S. AGNITY INDIA TECHNOLOGIES PVT. LTD. (2013) 219 TAXMAN 26 (DEL) W HEREIN IT WAS HELD THAT HUGE TURNOVER COMPANIES LIKE INFOSYS AND WIPRO CANNOT B E CONSIDERED AS COMPARABLE TO SMALLER COMPANIES LIKE ASSESSEE. 16.1 EVEN THOUGH WE ARE NOT IN AGREEMENT WITH THE CONTENTIONS OF THE COMPARABILITY ON TURNOVER RATIO OF ASSESSEE WITH THIS COMP ANY ON THE GROUND THAT ASSESSEES TURNOVER IS ABOUT RS.129.8 CRORES WHICH AS AG AINST TURNOVER OF RS.1016 CRORES OF THE INFOSYS ( WHICH IS ONLY ABOUT 5 TIMES) WE ARE OF THE VIEW THAT OTHER CONTENTIONS WITH REGARD TO THE BRAN D VALUE AND BRAND BUILDING EXERCISE HAVING HUGE ASSET BASE CAN BE CONSIDERE D TO ARRIVE AT THE CONCLUSION THAT INFOSYS IS FUNCTIONALLY NOT SIMILAR TO THA T OF ASSESSEE. INFOSYS BPO STANDS ON ITS OWN AS AN EXCLUSIVE BPO OF THE INFOSYS TE CHNOLOGIES AND IN EARLIER YEARS GENERALLY INFOSYS BPO IS EXCLUDED IN MANY OF THE CASES. CONSIDERING THESE ASPECTS WE ARE OF THE OPINION THAT EV EN THOUGH THE PROFITS OF THE INFOSYS BPO LTD. IS REASONABLE AND NO SUPER PROFI TS ARE EARNED JUST BECAUSE OF ITS BIG BRAND VALUE THIS COMPANY HAS TO BE EXCLUDED ON THE GROUNDS OF FUNCTIONAL DISSIMILARITY ON FAR ANALYSIS. THE REFORE WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. (2) GENESYS INTERNATIONAL LTD. 17. IT WAS THE CONTENTION THAT THIS COMPANY FUNCTIONS IN TWO HORIZONTALS AND IS HAVING SUPER PROFITS. IT WAS FURTH ER SUBMITTED THAT THIS COMPANY IS NOT ONLY IN SOFTWARE DEVELOPMENT BUT ALSO IN GEOSPATIAL SERVICES WHICH ARE HIGHLY TECHNICAL. IT ALSO INVOLVES IN CONSULTIN G ACTIVITY. IT WAS THE CONTENTION THAT THIS COMPANY WAS ANALYSED BY THE COORDI NATE BENCH OF THE TRIBUNAL AT DELHI IN THE CASE OF M/S. MERCER CONSULTING (INDIA) LTD. V/S DCIT (VIDE ORDER DATED 6 TH JUNE 2014 IN ITA NO.966/DEL/2014) WHEREIN THIS ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 8 COMPANY WAS EXCLUDED IN THAT CASE. LEARNED COUNSEL FOR ASSESSEE RELIED UPON THE FINDINGS OF THE TRIBUNAL VIDE PARAS 14.2 AND 14.3 IN THAT CASE WHICH READ AS FOLLOWS- 14.2. WE HAVE HEARD THE RIVAL SUBMISSIONS A ND PERUSED THE RIVAL MATERIALS ON RECORD. IT HAS BEEN NOTICED SUP RA THAT ASSESSEE IS BASICALLY PROVIDING VARIOUS SERVICES TO THE CU STOMERS OF ITS AES IN RELATION TO HUMAN RESOURCES WHICH ARE MORE OR LESS CENTERED AROUND THE EMPLOYEES OF THE PROSPECTIVE CLIEN TS. WHEN WE CONSIDER THE NATURE OF SERVICES PROVIDED BY GENESYS INTERNATIONAL CORPORATION LTD. IT COMES TO THE FOREFRONT THAT THEY ARE PROVIDING FULL RANGE OF GEOSPATIAL SERVICES TO ITS CUSTOMERS. IN SIMPLE TERMS GEOSPATIAL SERVICES MEANS THE SERVICES RELATIN G TO THE RELATIVE POSITION OF THINGS ON THE EARTHS SURFACE. THESE BASICALLY INCLUDE 3D MAPPING NAVIGATION MAPS IMAGE PROCESSING CADASTRAL MAPPING ETC. IF WE TAKE INTO ACCOUNT THE N ATURE OF SERVICES PROVIDED BY THE ASSESSEE BEING FINANCIAL AND RETIREMENT SECURITY HEALTH PRODUCTIVITY OF EMPLOYEES AND EMPLOYMEN T RELATIONSHIPS AND THEN TRY TO COMPARE THEM WITH THOSE REND ERED BY GENESYS IT IS MANIFESTED THAT BOTH ARE TOTALLY INCOMP ARABLE. 14.3. THE TPO ON PAGE 48 OF HIS ORDER HAS EXAMINED CBDT CIRCULAR SO 890 (E) DATED 26.9.2000 WHICH PROVIDES A DETAILED LIST OF PRODUCTS OR SERVICES THAT CAN BE COVERED UNDER THE ITES FOR THE PURPOSES OF SECTION 10A AND 10B OF THE ACT. IN THIS CIRCULAR INFORMATION TECHNOLOGY ENABLED PRODUCTS/SERVICES HAVE BEEN DIVIDED INTO FIFTEEN CATEGORIES STARTING WIT H BANK OFFICE OPERATIONS CALL CENTRES ETC. AND ENDING WITH WEBSITE SERVICES. FROM THE VERY DESCRIPTION OF SUCH SERVICES IT IS PALPABLE THAT EVEN THOUGH THESE FALL UNDER THE OVERALL ITES CATEG ORY BUT SOME OF THEM ARE QUITE DIFFERENT FROM EACH OTHER. TO CITE SERVICE AT SL.NO. (VI) OF THIS CIRCULAR IS GEOGRAPHIC INFORMATION SYSTEM SERVICES AND AT SL. NO. (VII) IS HUMAN RESO URCES SERVICES. NO DOUBT ALL THESE FIFTEEN CATEGORIES OF PRODUCTS/SER VICES HAVE BEEN INCLUDED UNDER THE MAJOR HEAD OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) BUT MOST OF THEM ARE QUITE DISTINGUISHABLE FROM OTHERS. IN OUR CONSIDERED OPINION THE FIFTEEN BROA D CATEGORIES SET OUT IN THIS CIRCULAR CANNOT PER SE BE CLAIMED AS SIMILAR T O EACH OTHER. A CURSORY LOOK AT THESE PRODUCTS/SERVICES TRANSPIRES THAT SOME OF THEM ARE FUNCTIONALLY QUITE DIFFERENT FROM EACH OTHER. F URTHER THE LEVEL OF INVESTMENT REQUIRED FOR PROVIDING SUCH SERVICES I S ALSO NOT CONSISTENT. IN OUR CONSIDERED OPINION THE MER E FACT THAT TWO SERVICES ARE PLACED UNDER THIS CATEGORY DO NOT BEC OME AUTOMATICALLY COMPARABLE. IF A CASE PROVIDING ONE CATEGORY OF SERVICES UNDER ITES IS CLAIMED AS COMPARABLE WITH ANOTHER IN THE CATEGORY OF ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 9 SERVICE UNDER ITES AS PER THIS CIRCULAR THEN IT MUST BE SHOWN EX FACIE THAT IT IS BROADLY SIMILAR. ADVERTING TO THE FACTS OF THE INSTANT CASE WE FIND THAT THE SERVICES RENDE RED BY GENESYS FALL UNDER CLAUSE (VI) WITH THE HEADING GEOGRAPHICA L INFORMATION SYSTEMS SERVICES WHEREAS THOSE RENDERED BY TH E ASSESSEE FALL PARTLY UNDER CLAUSE (VII) WITH THE HEADING HUMAN R ESOURCES SERVICES AND PARTLY UNDER CLAUSE (XI) WITH THE HEADING PAYROLL. ON JUXTAPOSITION EXAMINATION OF THESE TWO SETS OF SE RVICES WE FIND THAT THERE IS A VAST DIFFERENCE WHICH MAKE ONE QUITE DISTINCT FROM THE OTHER. IN VIEW OF SUCH FUNCTIONAL INCOMPARABILI TY BETWEEN ASSESSEE AND GENESYS WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE. WE THEREFORE DIRECT TO EXCLUDE THIS CASE FROM THE LIST OF COMPARABLES. 17.1. ON CAREFUL CONSIDERATION OF THE MATTER RESPECTF ULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH WE ARE ALSO OF T HE OPINION THAT THERE IS VAST DIFFERENCE BETWEEN THE FUNCTIONS OF THE ABOVE CO MPANY AND THAT OF ASSESSEE. THIS COMPANY AS SUCH CANNOT BE TREATED AS COMPARABL E ON FAR ANALYSIS. WE THEREFORE DIRECT THE ASSESSING OFFICER/TPO T O EXCLUDE THIS COMPANY. (3) ECLERX SERVICES LTD. 18. THE OBJECTION OF ASSESSEE TO THIS COMPARABLE IS THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR. IT IS IN THE BUSINESS OF CONSU LTANCY AND ADVISORY SERVICE AND PROVIDES ONLY ANALYTICAL DATA. IT IS ALSO INV OLVED IN QUALITY MONITORING. IT IS THE STAND OF THE ASSESSEE THAT THIS COM PANY OFFERS SOLUTIONS THAT INCLUDE DATA ANALYTICS OPERATIONS MANAGEMENT AUD ITS AND RECONCILIATION AND THEREFORE HAS TO BE CLASSIFIED AS HIGH END KPO. IN SU PPORT OF THE STAND OF THE ASSESSEE EXTRACTS FROM THE ANNUAL REPORT OF THIS COMPA NY HAVE BEEN POINTED OUT. THEREFORE THE FUNCTIONS OF THE ABOVE CO MPANY ARE DISSIMILAR TO ASSESSEE WHICH IS A CAPTIVE SERVICE PROVIDER. ON THE PRINCI PLES LAID DOWN BY THE HONBLE SPECIAL BENCH OF THE ITAT (MUMBAI) IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. V/S. ACIT (ITA NO.7466/MUM/ 2012 FOR ASSESSMENT ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 10 YEAR 2008-09 DATED 7.3.2014) AND THE PRINCIPLES LAID DOWN BY THE COORDINATE BENCH OF THE TRIBUNAL(DELHI) IN THE CASE OF M/S. MERCER CONSULTING (INDIA) PVT. LTD. (SUPRA) ASSESSEE SUBMITS THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. 18.1 THE LEARNED DEPARTMENTAL REPRESENTATIVE HOWEV ER SUBMITTED THAT HAVING ACCEPTED ADITYA BIRLA MINACS WORLDWIDE LTD. AS A COMPARABLE COMPANY THIS COMPANY SHOULD ALSO BE INCLUDED AS OTHERWI SE BOTH THE COMPANIES SHOULD BE EXCLUDED. 18.2 WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE A NNUAL REPORT AND THE OBJECTIONS OF ASSESSEE. AS SEEN FROM THE ANNUAL R EPORT THE ABOVE COMPANY IS INVOLVED IN DIVERSE NATURE OF SERVICES AND TH ERE WAS NO SEGMENTAL DATA FOR DIVERSIFIED SERVICE PORT FOLIO. MOR EOVER THIS COMPANY CAN BE CONSIDERED AS KPO AND WE ARE OF THE OPINION THAT T HIS COMPANY IS NOT COMPARABLE TO ASSESSEES SERVICES. WE THEREFORE DIRECT T HE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. (4) COSMIC GLOBAL LTD. 19. THE MAIN OBJECTION OF ASSESSEE WITH REFERENCE TO THE INCLUSION OF THIS COMPANY IS WITH REFERENCE TO OUTSOURCING OF ITS MAIN ACTIVITY. EVEN THOUGH THIS COMPANY IS IN ASSESSEES TP STUDY IT HAS RAISED OBJECTION BEFORE THE TPO THAT THIS COMPANYS EMPLOYEE COST IS LESS THAN 21 .30% AND MOST OF THE COST IS WITH REFERENCE TO THE OUTSOURCING CHARGES OR TR ANSLATION CHARGES AND AS SUCH THIS IS NOT A COMPARABLE COMPANY. THE TPO THOUGH CONSIDERED THESE SUBMISSIONS REJECTED THE SAME ON THE REASON THAT TH IS DOES NOT IMPACT THE PROFIT MARGIN OF THE COMPANY. OPPOSING TH E VIEW TAKEN BY THE TPO IT IS SUBMITTED THAT THIS COMPANY CANNOT BE SELECTED AS COMPARABLE AS ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 11 SIMILAR ISSUE WAS DISCUSSED BY THE COORDINATE BENCH OF THE TRIBUNAL(DELHI) IN THE CASE OF MERCER CONSULTING (INDIA) P. LTD. (SUPRA) V IDE PARAS 13.2 TO 13.3 WHICH READ AS UNDER- 13.2. NOW COMING TO THE FACTUAL MATRIX O F THIS CASE WE FIND FROM THE MATERIAL ON RECORD THAT OUTSOURCING CHARGES OF THIS CASE CONSTITUTE 57.31% OF THE TOTAL OPERATING COSTS. THIS DOES NOT APPEAR T O US TO BE A VALID REASON FOR ELIMINATING THIS CASE FROM THE LIST OF COMPARABL ES. ON GOING THROUGH THE ANNUAL ACCOUNTS OF COSMIC GLOBAL LIMITED A COPY OF WHICH HAS BEEN PLACED ON RECORD WE FIND THAT ITS TOTAL REVENUE FROM OPERATIO NS ARE AT RS.7.37 CRORE DIVIDED INTO THREE SEGMENTS NAMELY MEDICAL TRANSCRIPTION AN D CONSULTANCY SERVICES AT RS.9.90 LACS TRANSLATION CHARGES AT RS.6.99 CRORE AND ACCOUNTS BPO AT RS.27.76 LAC. THE LD. AR HAS MADE OUT A CASE THAT OUTSOUR CING ACTIVITY CARRIED OUT BY THIS COMPANY CONSTITUTES 57% OF TOTAL EXPENSES. TH E REASON FOR WHICH WE ARE NOT AGREEABLE WITH THE LD. AR IS THAT WE HAVE TO EXAMIN E THE REVENUE OF THIS CASE ONLY FROM ACCOUNTS BPO SEGMENT AND NOT ON THE ENTI TY LEVEL BEING ALSO FROM MEDICAL TRANSCRIPTION AND TRANSLATION CHARGES. WHEN WE ARE EXAMINING THE RESULTS OF THIS COMPANY FROM THE ACCOUNTS BP O SEGMENT ALONE THERE IS NO NEED TO EXAMINE THE POSITION UNDER OTHER SEGM ENTS. THE ENTIRE OUTSOURCING IS CONFINED TO TRANSLATION CHARGES PAID AT RS.3.00 C RORE WHICH IS STRICTLY INTHE REALM OF THE TRANSLATION SEGMENT REVENUES FROM WHICH A RE TO THE TUNE OF RS.6.99 CRORE. IF THIS SEGMENT OF TRANSLATION IS NOT UNDER CONSIDERATION FOR DECIDING AS TO WHETHER THIS CASE IS COMPARABLE OR NOT WE CANN OT TAKE RECOURSE TO THE FIGURES WHICH ARE RELEVANT FOR SEGMENTS OTHER THAN ACCO UNTS BPO. THUS IT IS HELD THAT THIS CASE CANNOT BE EXCLUDED ON THE STRENGTH OF OUTSOURCING ACTIVITY WHICH IS ALIEN TO THE RELEVANT SEGMENT. 13.3. HOWEVER WE FIND THIS CASE TO INCOM PARABLE ON THE ALTERNATIVE ARGUMENT ADVANCED BY THE LD. AR TO THE EFFECT THAT T OTAL REVENUE OF THE ACCOUNTS BPO SEGMENT OF COSMIC GLOBAL LIMITED IS VERY LOW AT RS.27.76 LACS. WE HAVE DISCUSSED THIS ASPECT ABOVE IN THE CONTEXT OF CG-VAKS CASE AND HELD THAT A CAPTIVE UNIT CANNOT BE COMPARED WITH A GIANT CASE AND THUS EXCLUDED CG-VAK WITH TURNOVER FROM ACCOUNTS BPO SEGMENT AT RS .86.10 LACS. AS THE SEGMENTAL REVENUE OF BPO SEGMENT OF COSMIC GLOBAL LIMITED AT RS.27.76 LAC IS STILL ON MUCH LOWER SIDE THE REASONS GIVEN ABOVE WOULD FULL Y APPLY TO HOLD COSMIC GLOBAL LIMITED AS INCOMPARABLE. THIS CASE IS THEREF ORE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN VIEW OF THE DETAILED ANALYSIS OF THE COORDINATE BE NCH OF THE TRIBUNAL IN THE ABOVE REFERRED CASE IN THIS CASE ALSO WE ACCEPT THE CONTEN TIONS OF ASSESSEE AND DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPARA BLE FOR THE SAME REASONS. ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 12 (5) ACROPETAL TECHNOLOGIES LTD. (SEG.) 20. THE OBJECTION OF ASSESSEE WITH REFERENCE TO THIS COMP ANY IS THAT THE COMPANY IS INVOLVED IN ENGINEERING DESIGN SERVICES AN D HIGH END SERVICES AND HAS PRODUCTS IN ITS INVENTORY. IT IS ALSO INVOLVED IN R&D ACTIVITY AND DEVELOPING SOPHISTICATED DELIVERY SYSTEM. IT WAS FURTHE R SUBMITTED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE AT SEGMENT LEVE L ALSO AS ENGINEERING DESIGN SERVICES ARE HIGH END SERVICES AS CONSIDERED IN OTHER CASES. IT IS FURTHER SUBMITTED THAT ALLOCATION OF EXPENSES BETWEEN SEGMENTS IS NOT POSSIBLE AND DEPRECIATION WAS NOT ALLOCATED BETWEEN THE SEGMENTS. THERE ARE EXTRA-ORDINARY EVENTS WHICH IMPACT PROFIT ALSO AS CAN B E SEEN FROM THE ANNUAL REPORTS. IT IS FURTHER SUBMITTED THAT THIS COMPAN Y IS NOT SELECTED IN THE LIST OF COMPARABLES SELECTED IN THE CASE OF MERCER C ONSULTING (INDIA) PVT. LTD. AND THEREFORE SELECTION OF THE COMPANY BY THE TP O IN THIS CASE WHICH IS ALSO IN SIMILAR ITES SERVICES IS NOT PROPER. 20.1 AFTER CONSIDERING THE RIVAL CONTENTIONS WE AGREE WITH THE OBJECTIONS RAISED BY ASSESSEE. AS SEEN FROM THE ANNUAL REPOR T THIS COMPANY IS INVOLVED IN ENGINEERING DESIGN SERVICES AND HAS PRODU CTS ALSO WHICH MAKES IT FUNCTIONALLY NOT COMPARABLE. EVEN AT THE SEGMENTAL LEVEL IT PROVIDES ENGINEERING DESIGN SERVICES WHICH WAS CONSIDERED AS HIGH EN D BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF HYUNDAI MOTORS INDIA ENGINEERING (SUPRA) IN EARLIER YEAR . THEREFORE WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. WE ACCORDING LY DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY. ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 13 (6) ACCENTIA TECHNOLOGIES LIMITED. 21. THIS COMPANY WAS OBJECTED TO BY ASSESSEE ON THE REASO N OF SUPER PROFITS AS WELL AS EXTRA-ORDINARY EVENTS. IT WAS SUBMITT ED THAT ACQUISITION OF OAK TECHNOLOGIES & TRANS SERVICES HAS IMPACT ON THE PROFI TS OF THE COMPANY AND HAS TAKEN INORGANIC GROWTH AS STRATEGY TO INCREASE TH E PROFITS BECAUSE OF THE PECULIAR ECONOMIC CIRCUMSTANCES AND BRAND VALUE. THE SA ME IN THESE CIRCUMSTANCES CANNOT BE SELECTED. IT WAS SUBMITTED THAT ASSESSEE WAS IN MEDICAL TRANSCRIPTION SERVICES. 21.1. THE DEPARTMENTAL REPRESENTATIVE HOWEVER OBJ ECTED TO THE PLEAS OF ASSESSEE STATING THAT THE EXTRAORDINARY EVENTS OCCURRED IN EARLIER YEAR AND THEREFORE THE SAME CANNOT BE CONSIDERED AS HAVING ANY I MPACT IN THE YEAR UNDER CONSIDERATION. 21.2 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND NOTI CED THAT THIS COMPANY OPERATES IN A DIFFERENT BUSINESS STRATEGY OF ACQU IRING COMPANIES FOR INORGANIC GROWTH AS ITS STRATEGY. IN EARLIER YEARS O N THE REASON OF ACQUISITION OF VARIOUS COMPANIES BEING AN EXTRAORDINARY EVENT WHI CH HAD AN IMPACT ON THE PROFIT THIS COMPANY WAS EXCLUDED. AS SUBMITTED BY THE LEARNED COUNSEL THIS YEAR ALSO THE ACQUISITION OF SOME COMPANIES BY THA T COMPANY MAY HAVE IMPACT ON THE PROFIT. CONSIDERING THE PROFIT MARGIN S OF THE COMPANY AND INSUFFICIENT SEGMENTAL DATA WE ARE OF THE OPINION THA T THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. MOREOVER THIS IS ALSO NOT A COMPARABLE IN THE CASE OF M/S. MERCER CONSULTING (INDIA) P. LTD. (SUPRA) WHICH INDICATES THAT THE TPO THEREIN HAS EXCLUDED IT AT THE OUTSET. IN VIE W OF THIS WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES SELECTED. ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 14 22 NOW WE TURN TO THE TWO COMPANIES WHICH AS NOTED ABOVE THE TPO EXCLUDED BUT ASSESSEE WANTS TO BE INCLUDED- (A) ALLSEC TECHNOLOGIES LIMITED : 23. AS FAR AS THIS COMPANY IS CONCERNED ITS COMPARABLE NA TURE WAS ANALYSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TH E CASE OF M/S. MERCER CONSULTING (INDIA) P. LTD. (SUPRA) IN ITS ORDER DATED 6.6.2014. AS SEEN FROM THE TPOS ORDER ON COMPARABLES SELECTED BY THE TAX PAYER THIS COMPANY IS REJECTED AS IT FAILS EXPORT SALES FILTER WHICH WAS DETE RMINED AT 74.45% OF ITS SERVICE REVENUE. ON SIMILAR REASON THE COORDINATE BENCH IN THE ABOVE REFERRED CASE HAS ANALYSED AND DIRECTED THE TPO TO INCLUD E THE SAID COMPARABLE BY STATING AS UNDER- 9.1. THIS CASE WAS INCLUDED BY THE ASSESSEE IN THE LIST OF COMPARABLES WHICH WAS EXCLUDED BY THE TPO ON THE GROUND OF DIMINISHING SALES FOR THE LAST THREE YEARS AND THE EXPORT REVENUES LESS T HAN 75% OF THE TOTAL TURNOVER. HERE IT IS RELEVANT TO MENTION THAT THE TPO ADOPTED CERTAIN FILTERS WHICH HAVE BEEN MENTIONED ON PAGES 13 AND 14 OF HIS ORDER. ONE OF SUCH FILTERS IS THE EXCLUSION OF COMP ANIES WHOSE EXPORT SALES ARE LESS THAN 75% OF THE TOTAL SALES FROM IT ES. ANOTHER FILTER APPLIED BY THE TPO IS THE EXCLUSION OF CASES WITH DIMIN ISHING REVENUES. THE TPO RECORDED THAT THIS COMPANY HAS SOME PECULIAR PROBLEMS AND HENCE THE SAME IS NOT IN LINE WITH THE GROWTH IN SOFTWARE IND USTRY. HOWEVER HE DID NOT DELVE INTO THE ACTUAL FIGURES OF DIMINISHING REVENU ES OF THIS COMPANY. AS AGAINST THIS IT IS OBSERVED THAT ALLSECS OP ERATING REVENUE HAS INCREASED IN THE FINANCIAL YEAR 2008-09 OVER THE PREVIO US YEAR WHICH IS APPARENT FROM THE STATEMENT OF FACTS GIVEN BY THE ASSESSE E. ON A SPECIFIC QUERY THE LD. DR COULD NOT POINT OUT ANY MATERIAL TO I NDICATE OR SUPPORT THE TPOS ASSERTION IN HIS ORDER ABOUT THE DIMINISHING REVENUE OF ALLSEC TECHNOLOGIES LTD FOR THE LAST THREE YEARS. T HE SECOND REASON GIVEN BY THE TPO FOR DISCARDING THIS CASE FROM THE L IST OF COMPARABLES IS EXPORT LESS THAN 75% OF THE TOTAL TURNOVER. WE OBS ERVE THAT ALBEIT THIS CONTENTION OF THE TPO IS CORRECT THAT THIS C ASE DOES NOT PASS THE FILTER OR TEST LAID DOWN BY THE TPO BUT THE FACT OF THE M ATTER IS THAT THE ACTUAL RATIO OF EXPORT REVENUE TO TOTAL TURNOVER OF ALLSEC TECHNOLOGIES STANDS AT 74.45% AS SHOWN ON PAGE 84 OF THE PAPER BOOK. IF WE LITERALLY ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 15 CONSIDER THE FILTER APPLIED BY THE TPO THIS CASE DOES NOT PASS THE TEST. HOWEVER IT IS SEEN THAT THE ASSESSEE IN CLUDED THIS CASE IN THE LIST OF COMPARABLES BY APPLYING THE FILTER OF EXCLUDING THECASES IN WHICH EXPORT REVENUE WAS LESS THAN 25% OF THE TOTAL REVENUE. THE RE CAN BE NO HARD AND FAST RULE FOR PUTTING A SPECIFIC CEILING IN A PARTICULAR FILTER. THE FILTERS ARE NOT SACROSANCT AS NOT STATUTORILY PRESCRIB ED. THESE ARE USED OR MODIFIED FOR SELECTION OR REJECTION OF COMPARAB LES AS PER THE CONVENIENCE OF THE CONCERNED PARTY. IF AN ASSESSEE WANTS TO IN CLUDE A CERTAIN CASE IN THE LIST OF COMPARABLES WHICH SUITS ITS REQUI REMENTS THEN IT WILL SUITABLY MODIFY THE FILTER ITSELF OR THE CEIL ING IN SUCH FILTER SO AS TO FIT THE BILL. POSITION IS NO DIFFERENT WHEN IT COMES TO THE TURN OF THE REVENUE. IF IT WANTS TO INCLUDE A PARTICULAR CASE IN THE LIST OF COMPARABLES IT WILL ALSO MODIFY THE FILTER OR CEIL ING IN SUCH FILTER TO SUIT ITS INTEREST. EQUALLY IF BOTH THE SIDES WANTTO EXCLUDE A CASE THEY WILL MODIFY THE FILTER ACCORDINGLY. THE NUTSHELL IS THAT SOME SORT OF CHERRY-PICKING IS DONE BY BOTH THE SIDES. 9.2. THE EXCLUSION OF THIS CASE HAS BEE N DONE BY INCREASING THE LIMIT IN FILTER TO 75% AS AGAINST 25% APPLI ED BY THE ASSESSEE BECAUSE THE PERCENTAGE WAS 74.45%. IF THE ACTUAL RAT IO IN THIS CASE HAD BEEN MORE THAN 75% AND THE REVENUE HELL BENT ON EXCLUDING THIS CASE THEN IT WOULD HAVE RESORTED TO INCREASING THE CEILING IN THE FILTER TO 80% OR STILL MORE SO AS TO ENSURE THAT IT REMAINS OUTSIDE THE LIMIT SET BY IT. AS THE RATIO OF 75% IS NOT SOMETHING WHICH IS SCIENTIFICALLY PROVEN AND THE EXPORT REVENUE OF ALLSEC TECHNOLOGIES IS 74.45 % AS AGAINST THE TPOS FILTER OF 75% WE ARE OF THE CONSIDERED OPIN ION THAT THE SAME CANNOT BE EXCLUDED FOR SUCH A MINUSCULE DIFFERENCE I F IT IS OTHERWISE COMPARABLE. IT IS PATENT THAT THE TPO HAS NOT DISPUTED THE OTHERWISE FUNCTIONAL COMPARABILITY OF THIS CASE WITH TH AT OF THE ASSESSEE. IF WE CONSIDER THE CASE OF ALLSEC TECHNOLOGIES ON A CRITERIA OF PREPONDERANCE OF COMPARABILITY WE FIND THAT THE SAME MERITS INCLU SION IN THE LIST OF COMPARABLES. NOT ONLY THE TPOS REASONING ABOUT THE DECLINING REVENUE OF ALLSEC TECHNOLOGIES OVER A PERIOD OF THREE YEAR S IS INCORRECT THIS CASE IS ALSO PASSING THE TEST OF THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER ON A PRAGMATIC RATIONAL BASIS. WE THEREFORE HOLD THAT THIS CASE SHOULD BE INCLUDED IN THE LIST OF COMPARABLES. FOR THE REASONS STATED ABOVE WE ARE OF THE OPINION TH AT IN THIS CASE ALSO THIS COMPANY SHOULD BE INCLUDED AS A COMPARABLE. WE DIRECT T HE ASSESSING OFFICER/TPO ACCORDINGLY. ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 16 (B) CEPHA IMAGING P. LTD. 24. AS FOR THIS COMPANY SOUGHT TO BE INCLUDED AS A COMPAR ABLE BY THE ASSESSEE BUT EXCLUDED BY THE TPO WE FIND THAT THIS COMP ANY WAS ALSO ANALYSED BY THE COORDINATE BENCH OF THE TRIBUNAL(DELHI BENCH) IN THE CASE OF M/S. MERCER CONSULTING (INDIA) P. LTD. (SUPRA) AND ULTI MATELY THIS COMPANY WAS DIRECTED TO BE EXCLUDED. THE REASONING GIVEN BY T HE COORDINATE BENCH FOR ARRIVING AT SUCH CONCLUSION IS AS UNDER- 15.1. APART FROM THE INCLUSION AND EXCLUSION OF THE ABOVE DISCUSSED SIX CASES THE LD. AR ALSO CHALLENGED THE NON-INC LUSION OF CEPHA IMAGING PVT. LTD. MICRO GENETIC SYSTEMS AND FORTUNE INFOTECH IN THE LIST OF COMPARABLES WHICH WERE ARGUED TO BE INCLUDED BY THE ASSESSEE DURING THE COURSE OF PROCEEDINGS BEFORE THE AUTHORITIES BELOW. FIRSTLY WE TAKE UP THE CASE OF CEPHA IMAGES WHICH IS ENGAGED IN THE BUSINESS OF E- PUBLISHING SERVICES. E-PUBLISHING SERVICES INCLUD E TYPESETTING COMPOSITION ART WORK PROOF READING PROJECT MANAGEMENT X ML CONVERSIONS AND MULTIMEDIA SERVICES PROVIDED TO PUBLISHERS OF BOOKS AND JOURNALS. WHEN WE CONSIDER THE NATURE OF SERVICES PROVIDED BY C EPHA IMAGING VIS-A-VIS THOSE RENDERED BY THE ASSESSEE WHICH ARE BAS ICALLY IN THE NATURE OF HUMAN RESOURCES OR PAYROLL WE FIND THAT THE SAME ARE NOT COMPARABLE. THE VIEW TAKEN BY THE TPO IN EXCLUDING THIS CA SE FROM THE LIST OF COMPARABLES IS UPHELD. RESPECTFULLY FOLLOWING THE ABOVE DECISION WE ARE OF T HE OPINION THAT THE SAID COMPANY IS NOT COMPARABLE WITH THAT OF THE ASSESSEE ON THE BASIS OF THE SERVICES BEING PROVIDED. ACCORDINGLY WE UPHOLD THE VIE W TAKEN BY THE TPO IN EXCLUDING THIS COMPANY FROM THE LIST OF COMPARABLES. 25. IN VIEW OF THE ABOVE DISCUSSION AND DECISIONS IN TH E CONTEXT OF THE GROUNDS OF THE ASSESSEE ON SELECTION OF COMPARABLES TH E TPO/ASSESSING OFFICER IS DIRECTED TO RE-WORK OUT THE ARITHMETIC MEAN OF THE PLI AFTER EXCLUDING SIX COMPARABLES DISCUSSED ABOVE AND INCLUDING ON E COMPARABLE SELECTED BY THE ASSESSEE BUT EXCLUDED BY THE TPO VIZ. AL LSEC TECHNOLOGIES LTD. AND ACCORDINGLY RE-WORK OUT THE ADDITION IF AN Y WARRANTED. THE ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 17 ASSESSING OFFICER/TPO SHOULD ALSO ALLOW THE WORKING CAPITA L ADJUSTMENT ALREADY PROVIDED IN THE COMPUTATION BY THE TPO. 26. WITH THESE DIRECTIONS THE ASSESSEES GROUNDS ON SELECTI ON OF COMPARABLES ARE ALLOWED FOR STATISTICAL PURPOSES. 27. OTHER GROUNDS RAISED IN THE ASSESSEES APPEAL ON TP A DJUSTMENTS ARE NOT REQUIRED TO BE ADJUDICATED AS THE ASSESSEE SUBMI TTED THAT THEY BECOME ACADEMIC ONCE THE ISSUE RELATING TO COMPARABLE COMPA NIES IS DECIDED. THOSE GROUNDS ARE ACCORDINGLY CONSIDERED AS ACADEM IC AND ACCORDINGLY REJECTED. 28. IN THE RESULT ASSESSEES APPEAL BEING ITA NO.124/ HYD/2014 IS CONSIDERED AS PARTLY ALLOWED. 29. NOW TURNING TO THE APPEAL OF THE REVENUE VIZ. ITA NO.170/HYD/2014 THE GRIEVANCE OF THE REVENUE IS ON T HE ISSUE OF DIRECTION OF THE DRP IN ALLOWING DEDUCTION OF CONTRIBUTION TO THE GRATUITY FUND MAINTAINED WITH LIC. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE DEBITED AN AMOUNT OF RS.2 39 40 993 TO THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF GRATUITY EXPENSES. OUT OF THE SAID AMOUNT AN AMOUNT OF RS.73 46 402 WAS DISALLOWED UNDER S.43B IN THE COMPUTATION STATEMENT IT SELF BY THE ASSESSEE. NET AMOUNT OF RS.1 66 94 591 WAS CLAIMED AS GRATUITY EXPENDITURE. THE ASSESSING OFFICER DISALLOWED THE SAID AMOUNT ON THE REASON THAT THE SAID GRATUITY FUND BY THE LIC WAS NOT APPROVED BY THE COM MISSIONER OF INCOME- TAX HYDERABAD. EVEN THOUGH THE ASSESSEE MADE THE APPLICA TION FOR APPROVAL IN THE YEAR 2004 ITSELF THE COMMISSIONER OF INCOME-TA X SEEMS TO HAVE GRANTED APPROVAL TO THE GRATUITY SCHEME WITH EFFECT FROM 29.5.2012. ON THAT REASON SINCE THE SCHEME WAS NOT APPROVED FOR ASSESSMENT YEA R 2009-10 ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 18 THE ASSESSING OFFICER DISALLOWED THE AMOUNT CLAIMED IN TH E DRAFT ASSESSMENT ORDER. ON THE OBJECTION RAISED BY THE ASSESSEE THE DISPU TES RESOLUTION PANEL FOLLOWING THE DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF CIT V/S. TEXTOOL CO. LTD. (CIVIL APPEAL NO.447 OF 2003) ALLOWED DEDUCTION. 30. REVENUE IS AGGRIEVED BY THE RELIEF GRANTED BY T HE DRP ON THIS SCORE AND HENCE PREFERRED ITS APPEAL BEFORE THE TRIBUN AL. 31. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE MATERIAL ON RECORD. WE DO NOT SEE ANY REASON FOR THE REVENUE TO CONTEST ON THIS ISSUE. OBVIOUSLY THE DRP HAS ALLOWED THE CLAIM O F THE ASSESSEE AS THE ISSUE IS CRYSTALLIZED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V/S. TEXTOOL LTD. (SUP RA). THE FACT PATTERN IN THE CASE BEFORE THE HONBLE SUPREME COURT WHICH WAS SIMILAR TO THE FACTS OF THE ASSESSEE IN THE PRESENT CASE WAS- A) GRATUITY FUND WAS NOT RECOGNIZED UPTO THE END OF T HE PREVIOUS YEAR. B) PAYMENT WAS MADE TO LIC IN THE CIRCUMSTANCES THAT THE TAXPAYER WAS RENDERED OUT OF CONTROL OF FUNDS. C) THE PAYMENT WAS MEANT FOR THE GRATUITY FUND WHICH W AS EVENTUALLY APPROVED. D) THE APPROVAL WAS SECURED IN THE NEXT PREVIOUS YEAR A ND THE INFORMATION AS TO APPROVAL WAS AVAILABLE WITH THE A O AT THE TIME OF ASSESSMENT. E) IN THE ABOVE FACTS THE SC PERMITTED ALLOWABILIT Y IN TERMS OF S.36(1)(V) OF THE ACT. ITA NO.124 & 170/HYD/2014 M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. LTD. HYDERABAD 19 32. THE DRP FOUND THAT THE PRINCIPLES LAID DOWN IN THE AFORESAID DECISION ARE APPLICABLE TO THIS CASE. SINCE THE FACTS AND CIRCUMSTANCES ARE SIMILAR WE DO NOT FIND ANY MERIT IN THE REVENUE PUR SUING THE DISPUTE IN THE APPEAL BEFORE THIS TRIBUNAL. THE GROUNDS OF THE REVE NUE ARE ACCORDINGLY REJECTED. 33. IN THE RESULT REVENUES APPEAL IS DISMISSED. 34. TO SUM UP WHILE APPEAL OF THE ASSESSEE BEING ITA NO.124/HYD/20P14 IS PARTLY ALLOWED APPEAL OF THE RE VENUE BEING ITA NO./170/HYD/2014 IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 31 ST JULY 2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD DT 31 ST JULY 2014. COPY FORWARDED TO: 1. M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PRIVATE LIMITED SURVEY NO.12P KONDAPUR VILLAGE SERILINGAMPALLY MA NDAL RANGA REDDY DISTRICT HYDERABAD 2. 3. 4. 5. ADDL. COMMISSIONER OF INCOME-TAX CIRCLE 1(2) HYDERABAD DY. COMMISSIONER OF INCOME-TAX CIRCLE 1(2) HYDERABAD DISPUTE RSOLUTION PANEL HYDERABAD ADDITIONAL COMMISSIONER OF INCOME-TAX (TRANSFER PRICING) HYDERABAD 6 DEPARTMENTAL REPRESENTATIVE ITAT HYDERABAD. B.V.S.