Future First Info. Servicees Pvt. Ltd,, Gurgaon v. DCIT, CIRCLE- 9(2), New Delhi

ITA 3838/DEL/2017 | 2009-2010
Pronouncement Date: 10-05-2021 | Result: Partly Allowed

Appeal Details

RSA Number 383820114 RSA 2017
Assessee PAN AAACF8545J
Bench Delhi
Appeal Number ITA 3838/DEL/2017
Duration Of Justice 3 year(s) 10 month(s) 27 day(s)
Appellant Future First Info. Servicees Pvt. Ltd,, Gurgaon
Respondent DCIT, CIRCLE- 9(2), New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 10-05-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 10-05-2021
Assessment Year 2009-2010
Appeal Filed On 13-06-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1 NEW DELHI BEFORE SHRI AMIT SHUKLA JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI ACCOUNTANT MEMBER I.T .A. NO. 3476 /DEL/20 1 7 ASSESSMENT YEAR: 20 09 - 1 0 ACIT CIRCLE - 9(2) NEW DELHI. VS. FUTURE FIRST INFO. SERVICES PVT. LTD. 303 MANSAROVAR 90 NEHRU PLACE NEW DELHI TAN/PAN: AAACF8545J (APP ELL ANT) (RESPONDENT) I.T.A. NO. 3838/DEL/2017 ASSESSMENT YEAR: 2009 - 10 FUTURE FIRST INFO. SERVICES PVT. LTD. 303 MANSAROVAR 90 NEHRU PLACE NEW DELHI VS. DCIT CIRCLE - 9(2) NEW DELHI. TAN/PAN: AAACF8545J (APPELLANT) (RESPONDENT) A SSESSEE BY: SHRI AJIT KUMAR JAIN CA & SHRI SIDDHARTH CHAUGHLI ADV. DEPARTMENT BY: SHRI DHEERAJ SINGH SR.D.R. DATE OF HEARING: 11 0 2 2021 DATE OF PRONOUNCEMENT: 10 05 2021 O R D E R PER AMIT SHUKLA JM: THE AFORESAID CROSS APPEALS HAVE BEEN FILED BY THE REVENUE AS WELL AS BY THE ASSESSEE AGAINST IMPUGNED ORDER DATED 18.11.2016 PASSED BY LD. CIT(A)-XLIV NEW DEL HI FOR ITA NO.3476 & 3838/DEL/2017 2 THE QUANTUM OF ASSESSMENT PASSED U/S.143(3) R.W.S. 144C(3) FOR THE ASSESSMENT YEAR 2009-10. THE EFFECTIVE GROU ND RAISED BY THE ASSESSEE READS AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN NOT A PPRECIATING THE CORRECT FACTUAL AND LEGAL POSITION IN REGARD TO THE ISSUE OF TAX DEDUCTED AT SOURCE FOR BOTH PARTIES RELATING TO RENT IN APPELLANTS GROUND NO.6 BEFORE HIM AND HAD ISSUED D IRECTIONS TO THE ASSESSING OFFICER WHICH ARE CONFUSING AND IN STEAD HE OUGHT TO HAVE APPRECIATED THE FACTS AND RECORDS FAI RLY AND OBJECTIVELY TO ARRIVE AT THE DECISION FOR ALLOWING DEDUCTION THEREOF AND FAILURE TO DO SO HAD VITIATED THE IMPUG NED ORDER. 2. THE GROUND NO.1 HAS NOT BEEN PRESSED AND GROUND NO.3 AS PER THE SYNOPSIS SUBMITTED BY THE ASSESSEE HAS A LSO NOT BEEN PRESSED THEREFORE THE SAME IS DISMISSED AS N OT PRESSED. 3. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. THE LD.CIT(A) ERRED IN DIRECTING THE AO/TPO TO EXCLUDE ACROPETAL & INFOSYS BPO LTD. FROM THE FINAL SET OF COMPARABLES AS THESE COMPARABLES HAVE THE SIMILAR FAR AS THAT O F ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) ALSO ERRED IN DIRECTING THE AO/TPO TO RECOMPUTED AVERAGE PLI OF THE FINAL SET OF COMPARABLES AND MAKE THE ADJUSTMEN T IN ARMS LENGTH PRICE ACCORDINGLY AFTER EXCLUDING ECLE RX SERVICES LTD. FROM THE FINAL SET OF COMPARABLES AS ON SIMILA R ISSUE THE REVENUES APPEAL IS PENDING IN HONBLE SUPREME COUR T IN THE CASE OF AGAINST THE DECISION OF HONBLE HIGH COURT OF DELHI IN ITA NO.3476 & 3838/DEL/2017 3 THE CASE OF M/S RAMPGREEN SOLUTION PVT. LTD. VS. CI T(ITA NO.102/2015). 2. THE LD. CIT(APPEAL) ERRED IN LAW AND ON FACTS I N DELETING DISALLOWANCE U/S 40A(IA) AS ASSESSEE PAID RENT IN EXCESS OF AMOUNT ALLOWED IN CERTIFICATE OF LOWER DE DUCTION U/S 197(1). 3. THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.1 03 53 150/- MADE BY THE AO U/S 40A(2)(B) IN SP ITE OF THE FACT THAT ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS FAILED TO JUSTIFY THE SERVICES BEING R ENDERED BY THE DIRECTOR SHRI SUNIL BAIJAL TO THE COMPANY FOR W HICH HE WAS EARNING SUCH A HUGE AMOUNT OF REMUNERATION. 3. WE WILL FIRST TAKE UP THE REVENUES APPEAL WHERE IN THE MAIN ISSUE INVOLVED AS RAISED IN GROUND NO.1 ARE; E XCLUSION OF THREE COMPARABLES I.E. I) M/S. ACROPETAL TECHNOLO GIES LTD.; II) ECLERX SERVICES LTD.; AND III) INFOSYS BPO LTD. TH E FACTS IN BRIEF QUA THE ISSUE ARE THAT ASSESSEE IS A SUBSIDIA RY OF GHF HOLDINGS LTD. MAURITIUS. IT PROVIDES IT ENABLED SE RVICES TO ITS AE THROUGH THE USE OF IT INFRASTRUCTURE WHICH INCLU DES USE OF ONLINE SOFTWARE LIVE INFORMATION SERVICES RESEARC H ON INTERNATIONAL DATA BASE. DURING THE YEAR ASSESSEE HAS ENTERED INTO FOLLOWING TWO INTERNATIONAL TRANSACTIO NS:- SL. NO. TYPES OF INTERNATIONAL TRANSACTION METHOD TOTAL VALUE OF TRANSACTIONS 1. PROVISION OF IT ENABLED SERVICES TNMM 501 167 785 2. RECOVERY OF EXPENSES NA 1 263 825 ITA NO.3476 & 3838/DEL/2017 4 4. THE ASSESSEES MARGIN WAS WORKED OUT AT 14.87% WHEREAS IN THE TP STUDY REPORT AFTER ADOPTING TNMM AS MAM WITH THE PLI BASE OF OP/TC THE ASSESSEE HAD SHORT LISTED SET OF 12 COMPARABLES WITH AN AVERAGE MARGIN OF 9.82%. ACCORDINGLY IT WAS REPORTED THAT INTERNATIONAL TRA NSACTIONS WERE AT ARMS LENGTH. SINCE ASSESSEE HAD USED MULTI PLE DATA THE TPO ASKED THE ASSESSEE TO DO A FRESH SEARCH USI NG FILTER PROPOSED BY TPO AND IN RESPONSE THE ASSESSEE ARRIV ED AT A SET OF FOUR COMPARABLES HAVING AVERAGE MEAN MARGIN OF 4.76%. IN THE TP STUDY REPORT THE FUNCTIONS PERFOR MED FOR THE PROVISION OF IT ENABLED SERVICES WAS REPORTED A S UNDER: PROVISIONS OF IT ENABLED SERVICES FUTURES FIRST WAS INCORPORATED TO UTILIZE THE LARGE TALENT BASE AVAILABLE IN INDIA AT RELATIVELY LOWER COST. F UTURES FIRST PROVIDES IT ENABLED SERVICES TO ITS AFS THROUGH THE USE OF IT INFRASTRUCTURE. IT EFFECTIVELY UTILIZES IT INFRASTR UCTURE WHICH INCLUDE USE OF ONLINE SOFTWARE LIVE INFORMATION SE RVICES RESEARCH ON INTERNATIONAL DATABASES SUCH AS BLOOMBE RG AND REUTERS AND HIGH SPEED INTERNATIONAL NETWORKS TO PE RFORM ITS FUNCTIONS. FUTURES FIRST PROVIDES THESE SERVICE S TO A GROUP ENTITY LINUS WHICH IN TURN PROVIDES SERVICES TO INDUS DERIVATIVES. FUTURES FIRST ACTIVITIES ARE DETAILED BELOW FOR THE TRADING SUPPORT FUNCTION. RESEARCH TO FACILITATE TRADING SUPPORT ACTIVITIES : FUTURES FIRST HAS A SUPPORT TEAM INVOLVED IN PROVISION OF F INANCIAL AND ECONOMIC RESEARCH. THESE RESEARCH SERVICES FACI LITATE EMPLOYEES TO ENTER BUY-SELL DETAILS. THESE ANALYSTS PERFORM COMPANY AND INDUSTRY ANALYSIS SECONDARY DATA ANALY SIS CAPITAL MARKET ANALYSIS COMMODITY DEMAND AND SUPPL Y RESEARCH ETC. THE FUNCTIONS OF THIS TEAM ARE SIMILA R TO RESEARCH SERVICES PROVIDED BY KNOWLEDGE PROCESS ITA NO.3476 & 3838/DEL/2017 5 OUTSOURCING (KPO') COMPANIES IN INDIA. TRADING SUPPORT FUNCTIONS: AFS HAVE PROVIDED FUTURE S FIRST WITH ADEQUATE ONLINE TRADING TOOLS AND KNOWLEDGE OF TRADING STRATEGIES SO THAT THESE SUPPORT ACTIVITIES AND BUY- SELL DETAILS CAN BE ENTERED BY EMPLOYEES WITHOUT PR IOR EXPERIENCE OF TRADING OR FINANCIAL MARKETS. THIS CA N BE JUDGED FROM THE FACT THAT OVER 90% OF FUTURES FIRST EMPLOYEES ARE EITHER FRESH GRADUATES OR HAVE NO TRA DING EXPERIENCE. THE EMPLOYEES ANALYZE DATA ON VARIOUS O NLINE TOOLS AND USE THEIR KNOWLEDGE SKILLS TO ENTER BUY-S ELL DETAILS. THE EMPLOYEES ARE TRAINED WITH RULES WHICH HELP THEM TO ENTER THESE DETAILS. FUTURES FIRST EMPLOYS OVER 370 EMPLOYEES WHO SUPPORT EXECUTION OF MAIN ACTIVITIES OF AES WHICH ARE PERFORMING DERIVATIVE TRADES IN EQUITIES FUTURES (PRIMARILY IN U.S. AND EUROPEAN STOCK INDICES) COM MODITIES FUTURES (E.G. OIL. GOLD COCOA COFFEE SUGAR AND C ORN COMMODITY FUTURES) AND INTEREST RATE FUTURES (E.G. EURO STERLING AND CANADIAN CURRENCY DERIVATIVES). FUTURE S FIRST ENTERS BUY-SELL DETAILS FOR TICK TRADING WHICH ESSE NTIALLY MEANS BUYING AND SELLING ON VERY LOW MARGINS. THESE DETAILS ARE PRIMARILY SYSTEM AND SOFTWARE DRIVEN AN D THE ROLE OF EMPLOYEE IN INDIA IS LIMITED TO ENTERING TH E BUY SELL DETAILS BASED ON BROAD GUIDELINES PROVIDED BY AES. IN ADDITION EACH EMPLOYEE IS ALLOCATED ONLY ONE OR TWO PRODUCTS FOR WHICH HE ENTERS BUY-SELL DETAILS WITHI N SPECIFIED LIMITS. IT SUPPORT TOOLS: FUTURES FIRST HAS A SMALL SUPPORT TEAM INVOLVED IN PROVISION OF TECHNICAL SUPPORT. THESE T OOLS HELP EMPLOYEES IN PROVISION OF STATED SUPPORT FUNCTION. OTHER RELATED FUNCTIONS: FINANCE ACCOUNTING TREASURY AND LEGAL FUNCTION: T HE MANAGEMENT OF FUTURES FIRST IS RESPONSIBLE FOR MANA GING THE FINANCE TREASURY LEGAL AND ACCOUNTING FUNCTIO NS RELATING TO FUTURES FIRST OPERATIONS. IN CERTAIN AR EAS ITA NO.3476 & 3838/DEL/2017 6 WHEREVER NECESSARY. FUTURES FIRST IS GUIDED BY THE AES. FUTURES FIRST IS ALSO RESPONSIBLE FOR ALL LOCAL STA TUTORY COMPLIANCE. HUMAN RESOURCE MANAGEMENT FUNCTION: THE HR FUNCTION AT FUTURES FIRST IS COORDINATED BY ITS LOCAL MANAGEMEN T WHICH HAS PRIMARY RESPONSIBILITY FOR RECRUITMENT DEVELOP MENT AND TRAINING OF THE PERSONNEL INCLUDING THE EMOLUMENT S TRUCTURE. IN THIS RESPECT WHERE APPROPRIATE IT IS GUIDED BY AE POLICIES. MARKETING OF TRADING SERVICES: FUTURES FIRST DOES N OT PERFORM ANY MARKETING ACTIVITY AS ITS ROLE IS LIMIT ED TO PROVIDING SERVICES TO ITS AE. AS TRADING SUPPORT FUNCTION IS THE PRIMARY FUNCTION OF FUTURES FIRST AND RESEARCH AND IT SUPPORT ACTIVITIE S ARC PERFORMED PRIMARILY TO FACILITATE THE SUPPORT ACTIV ITIES WE BELIEVE OTHER ACTIVITIES SUBSUMES INTO SUPPORT FUNC TION. 5. HOWEVER THE TPO CARRIED OUT HIS OWN SEARCH AND FINALLY CAME OUT WITH FOLLOWING NINE COMPARABLES:- SI. NO. COMPARABLE OP/OC 1 ACROPETAL TECH. (SEGMENT) 21.30% 2 CORAL HUB 36.93% 3 COSMIC GLOBAL 48.20% 4 ECLERX SERVICES 47.00% 5 INFORMED TECHNOLOGIES LIMITED 23.13% 6 INFOSYS BP0 LTD. 24.42% 7 JEEVAN SOFTECH 44.32% 8 MICROQENETIC SYSTEMS LTD .: 23.25% 9 MICROLAND LTD. (SEGMENT) -21.63% AVERAGE 27.72% ITA NO.3476 & 3838/DEL/2017 7 6. ACCORDINGLY TPO PROPOSED ADJUSTMENT OF RS.3 42 98 762/-. SINCE THE ONLY DISPUTE IS WITH R EGARD TO THE AFORESAID THREE COMPARABLES VIZ. M/S. ACROPETAL TECHNOLOGIES LTD. ECLERX SERVICES LTD. AND INFOSYS BPO LTD. THEREFORE THE OTHER COMPARABLES ARE NOT THE SUBJEC T MATTER OF DISPUTE EITHER WHICH HAS BEEN REJECTED BY THE TPO OR WHICH HAS BEEN FINALLY SELECTED BY HIM. 7. THE RELEVANT FINDING OF THE LD. CIT (A) FOR EXCLUDING THREE COMPARABLES ARE AS UNDER: M/S ACROPETAL TECHNOLOGIES LTD. LD. AR HAS ARGUED THAT THIS COMPANY IS ENGAGED IN T HE DEVELOPMENT OF SOFTWARE AND HAS GIVEN THE EXTRACTS FROM THE ANNUAL REPORT REPRODUCED AS UNDER:- 'THE COMPANY IS ENGAGED IN THE DEVELOPMENT OF COMPU TER SOFTWARE. THE PRODUCTION AND SALE OF SUCH ITEMS CAN NOT BE EXPRESSED ON ANY GENERIC TERM. HENCE IT IS NOT POSS IBLE TO GIVE THE QUANTITATIVE DETAILS OF SALES AND INFORMATION A S REQUIRED UNDER PARAGRAPH 3 4 C & 4 D OF PART II OF THE SCHE DULE VI TO THE COMPANIES ACT.' LD. AR HAS FURTHER ARGUED THAT ACROPETAL HAS HUGE O N SITE DEVELOPMENT EXPENSES WHEREAS THE APPELLANT IS ONLY ENGAGED IN OFFSHORE ACTIVITIES. I AGREE WITH THE ARGUMENTS OF THE LD. AR THAT THE POSSIBILITIES OF SOFTWARE DEVELOPMENT ACTIVITY AND ON SITE DEVELOPMENT ACTIVITY OF THIS COMPANY MAKES IT UNFIT TO BE CALL A GOOD COMPARABLE FOR ITES SEGMENT. ACCORDINGLY I DI RECT THE AO/TPO TO EXCLUDE ACROPETAL FROM THE FINAL SET OF C OMPARABLES. ITA NO.3476 & 3838/DEL/2017 8 ECLERX SERVICES LTD. LD. AR ARGUED THAT THIS COMPANY IS ENGAGED IN KNOWL EDGE PROCESS OUTSOURCING COMPANY AND HAS QUOTED ANNUAL R EPORT FOR THE FY 2008- 09 AS UNDER: - 'FOUNDED IN THE YEAR 2000 ECLERX IS A LEADING KNOW LEDGE PROCESS OUTSOURCING (KPO) COMPANY PROVIDING DATA AN ALYTICS AND DATA PROCESS SOLUTIONS TO SOME OF THE LARGEST B RANDS IN THE WORLD. OVER THE YEARS ECLERX HAS CONSISTENTLY ACHI EVED PROFITABLE GROWTH AND HAS NOW REACHED EMPLOYEE STRE NGTH OF ABOUT 2000.' SOURCE: 'BUSINESS OVERVIEW' AT PG 17 OF ANNUAL REPO RT FOR FY 2008-09 (ENCLOSED AT PAGE NO. 127) 'WHAT IS REALLY INTERESTING ABOUT ECLERX THOUGH I S THE WAY WE HAVE MADE AN INHERENTLY NICHE HIGH-END KPO DATA ANALGTICS BUSINESS SCALABLE - BY COMBINING PEOPLE PROCESS RE ENGINEERING AND AUTOMATION IN A POTENT MIX TO BUILD PROPRIETARY PLATFORM BASED SERVICES'. SOURCE: 'CHAIRMAN'S MESSAGE' AT PG 5 OF ANNUAL REPO RT FOR FY 2008-09 (ENCLOSED AT PAGE NO. 128) 'WE ALSO FOCUS ON AUTOMATION AND PROCESS RE-ENGINEERING TO ELIMINATE WASTEFUL STEPS AND TO AUTOMATE REPETITIV E ONES SO WE MINIMIZE THE NEED FOR HUMAN INTERVENTION AND PRESEN T OUR CLIENTS COSTS SAVINGS WHICH EXCEED THOSE FROM SIMPL E WAGE ARBITRAGE. THIS ALSO REDUCES THE NEED FOR COSTLY H IGH SKILLED RESOURCES AND GIVES US THE ABILITY TO SCALE SOLUTIO NS QUICKLY BOTH FOR EXISTING CLIENTS AND ALSO FOR NEW ONES.' ITA NO.3476 & 3838/DEL/2017 9 'SO THIS IS THE COMPANY THAT YOU SUPPORT. A LEADING THIRD PARTY DATA ANALYTIC KPO SERVICE PROVIDER BASED IN INDIA BUT SUPPORTING GLOBAL CLIENTS ON A REAL-TIME BASIS ACROSS THEIR COMPLEX BUSINESSES. SOURCE: 'CHAIRMAN'S MESSAGE' AT PG 5 OF ANNUAL REPO RT FOR FY 2008-09 (ALREADY ENCLOSED AT PAGE NO. 128) I HAVE CONSIDERED THE ARGUMENTS OF THE LD. AR. AS T HIS COMPANY IS ENGAGED IN DIFFERENT TYPES OF BUSINESS MODEL THA T IS KNOWLEDGE OUTSOURCING AND HENCE HIGH END IT ENABLE D SERVICES. THEREFORE I DIRECT THE AO/TPO TO EXCLUDE THIS COM PANY FROM THE FINAL SET OF COMPARABLES. (VII) INFOSYS BPO LTD. LD. AR HAS QUOTED THAT THE INFOSYS BPO LTD. IS A GI ANT HAVING TURNOVER OF RS. 1081.53 CRS WHICH IS 12.71 OF TURNO VER OF THE APPELLANT. SIMILARLY NET WORTH OF INFOSYS BPO LTD. IS RS. 661.94 CRS WHICH IS 99.39 TIMES OF THE APPELLANT. LD. AR R ELIED ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. WHICH HELD THIS COMPANY AS A LAGER AND BIGGER COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWA RE ETC. HENCE NON COMPARABLE. CONSIDERING THE SCALE OF OPER ATIONS AND SUBSTANTIAL INTANGIBLE ASSETS OF THIS COMPANY AMOUN TING TO RS 19.03 CRS AS GOODWILL 1 DIRECT THE AO/TPO TO EXCL UDE THIS COMPANY FROM THE FINAL SET OF COMPARABLES. ON THE BASIS OF MY ABOVE FINDINGS THE AO/TPO HAS T O RECOMPUTE AVERAGE PLI OF THE FINAL SET OF COMPARABL ES AND MAKE THE ADJUSTMENT IN ARMS LENGTH PRICE ACCORDINGLY. A S A RESULT THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. ITA NO.3476 & 3838/DEL/2017 10 7. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT IN SO FAR AS EXCLUSION OF INFOSYS BPO LTD. IS CONCERNE D THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE SUBSEQUENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2010-11 IN I TA NO.3382/DEL/2016 HAVE EXCLUDED THIS COMPARABLES ON THE GROUNDS THAT FIRSTLY INFOSYS BPO IS A GIANT COMPANY HAVING REVENUE OF MORE THAN 12 TIMES OF THE ASSESSEE COMPA NY; SECONDLY IT HAS FIXED ASSETS WHICH ARE MORE THAN 18 TIMES OF THE ASSESSEE COMPANY INCLUDING THE EMPLOYEES STRENG TH WHICH ARE ALSO 44 TIMES MORE THAN OF THE ASSESSEE; AND LASTLY RELYING UPON THE JUDGMENT OF HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. SANVIH INFO GROUP PVT. LTD. IN ITA NO.420/2019 OBSERVED THAT ON SIMILAR GROUND THE HON BLE HIGH COURT HAS ALSO EXCLUDED INFOSYS BPO LTD. THE RELEVANT FINDING OF THE TRIBUNAL READS AS UNDER:- (V) IN GROUND NO.5 THE ASSESSEE IS PRAYING FOR EXC LUSION OF INFOSYS BPO AS A COMPARABLE. UNDISPUTEDLY THIS COM PARABLE WAS SELECTED BY THE ASSESSEE IN ITS ORIGINAL SET OF COMPARABLES BUT NOW THE ASSESSEE IS SEEKING ITS EXCLUSION ON TH E GROUND THAT THIS COMPANY IS A GIANT AS COMPARED TO THE ASS ESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) HAS ARGUED THA T THE COMPARABLE WHICH HAS INITIALLY BEEN SELECTED BY THE ASSESSEE CANNOT BE EXCLUDED SUBSEQUENTLY BY THE ASSESSEE. HO WEVER WE NOTE THAT THE MUMBAI BENCH OF THE ITAT IN THE CA SE OF STREAM INTERNATIONAL SERVICES (P.) LTD. VS. ADIT (I NTERNATIONAL TAXATION) 7(2) MUMBAI ITA NO.8997/ MUM/2010 HELD THAT ITA NO.3476 & 3838/DEL/2017 11 THERE CAN BE NO ESCAPE FROM THE PROPOSITION THAT TH E ASSESSEE IS ENTITLED TO ARGUE AT LEAST BEFORE THE APPELLATE AUT HORITIES THAT A WRONG STAND TAKEN AT THE TIME OF FILING OF THE RETU RN SHOULD BE ALLOWED TO BE MODIFIED. SIMILARLY THE SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS (P.) LTD. [2010] 38 SOT 307 (CHD.) ALSO ALLOWED THE ASSESSEE TO CLAI M EXCLUSION OF CERTAIN COMPANIES FROM THE LIST OF COMPARABLES W HICH WERE INADVERTENTLY INCLUDED BY IT IN ITS TRANSFER PRICIN G STUDY. THEREFORE WE AGREE WITH THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE THAT ASSESSEE HAS A RIGHT TO ARGUE F OR THE EXCLUSION OF COMPARABLE EVEN IF ORIGINALLY IT WAS I NCLUDED BY THE ASSESSEE IN THE TRANSFER PRICING STUDY. COMING TO T HE ARGUMENTS FOR EXCLUSION OF THIS COMPANY IT IS THE ASSESSEES CONTENTION THAT THIS COMPANY IS A GIANT AS COMPARED TO THE ASS ESSEE COMPANY HAVING ITS REVENUE MORE THAN 12 TIMES OF TH E REVENUE OF THE ASSESSEE COMPANY. APART FROM THIS IT HAD ALS O BEEN ARGUED THAT THIS COMPANY HAS FIXED ASSETS WHICH ARE 18 TIMES MORE THAN ASSETS OF THE ASSESSEE COMPANY. THE EMPLO YEES STRENGTH IS ALSO 44 TIMES MORE THAN THAT OF THE ASS ESSEE COMPANY. WE NOTE THAT NOW THERE ARE NUMEROUS CASE L AWS TO SUPPORT THE VIEW THAT INFOSYS BPO LTD. IS NOT TO BE TAKEN AS A COMPARABLE ON THE GROUND OF BEING A GIANT COMPANY. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SAN VIH INFO GROUP PVT. LTD. IN ITA 420/2019 FOR THE SAME ASSES SMENT YEAR AS THE CAPTIONED ASSESSMENT YEAR UPHELD THE ORDER OF THE ITAT IN REJECTING INFOSYS BPO LTD. AS A COMPARABLE ON TH E GROUND OF BEING A GIANT COMPANY. IN THIS CASE THE TRIBUNAL WHILE ORDERING EXCLUSION OF THIS COMPANY HAD RELIED ON D ECISION OF THE HONBLE DELHI HIGH COURT IN AGNITY INDIA TECHNO LOGIES PVT. ITA NO.3476 & 3838/DEL/2017 12 LTD. THE HONBLE DELHI HIGH COURT NOTED THAT INFOSY S BPO LTD. WAS A GIANT CORPORATION. SIMILAR OBSERVATIONS WERE MADE BY THE HONBLE DELHI HIGH COURT IN THE CASE OF AVAYA INDIA PVT. LTD. (ITA NO.532/2019 FOR ASST. YEAR 2010-11) WHEREIN M/ S TCS E- SERVE LIMITED AND M/S TCS E-SERVE INTERNATIONAL LIM ITED WERE HELD TO BE HAVING HIGH BRAND VALUE AND OPERATING ON A HUGE ECONOMIC UPSCALE AND WERE THEREFORE ABLE TO COMMA ND AND GENERATE BETTER PROFITS MAKING THEM FUNCTIONALLY DI SSIMILAR TO THE ASSESEE. THE HONBLE DELHI HIGH COURT NOTED THA T INFOSYS BPO LTD. HAD BEEN EXCLUDED BY THE ITAT FOR THE VERY SAME REASON. SIMILARLY ITAT DELHI BENCH IN THE CASE OF CENGAGE LEARING INDIA PVT. LTD. VS. DCIT (ITA NO.6484/DEL/2 012) HELD THAT INFOSYS BPO LTD. HAD HUGE TURNOVERS OWNS IPR AND BRAND VALUE ON PRODUCTS AND PROVIDES SERVICES TO VAST CLI ENTELE. UNDER SUCH CIRCUMSTANCES THIS COMPANY CANNOT BE ACCEPTED TO BE A FIT COMPARABLE IN CASE OF ASSESSEE WHO IS A CAPTIVE SER VICE PROVIDER PROVIDING SERVICES ONLY TO ITS GROUP CONCE RNS. THE JUDICIAL PRECEDENTS WHERE INFOSYS BPO LTD. HAS BEEN EXCLUDED FOR THE REASON OF BEING A GIANT COMPANY HAVING HUG E TURNOVER BRAND VALUE OWNERSHIP OF IPRS ETC. CAN BE MULTIPLI ED. THEREFORE IN OVERALL VIEW OF THE MATTER CONSIDERI NG THE SIZE AND SERVICE BEING RENDERED BY THE ASSESSEE COMPANY AS COMPARED TO INFOSYS BPO LTD. WE HOLD THAT THIS COM PANY IS NOT A GOOD COMPARABLE. ACCORDINGLY WE DIRECT THE EXCLU SION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. THUS GRO UND NO.5 STANDS ALLOWED. 8. AFTER CONSIDERING THE AFORESAID FINDING OF THE T RIBUNAL WE FIND THAT EVEN THE LD. CIT (A) HAS QUOTED THE SAME REASONS FOR ITA NO.3476 & 3838/DEL/2017 13 EXCLUDING THE INFOSYS BPO LTD. SINCE THE EXCLUSION OF THE SAID COMPARABLE IS BASED ON VARIOUS JUDICIAL PRINCIPLES L AID BY HONBLE JURISDICTIONAL HIGH COURT THEREFORE WE DO NOT FIND ANY REASON TO DEVIATE FROM THE FINDING OF THE LD. C IT (A) AND THE SAME IS CONFIRMED. 9. SIMILARLY IN THE CASE OF M/S. ACROPETAL TECH NOLOGIES LTD. THE TPO HAS TAKEN SEGMENTAL INFORMATION FOR INCOME FROM ENGINEERING DESIGN SERVICES WAS TAKEN AS IT ENABLED SERVICES. LD. CIT (A) HAS EXCLUDED THE SAID COMPARABLE IN THE GROUND THAT FIRSTLY HIS COMPANY IS ENTERED IN THE BUSINESS OF COMPUTER SOFTWARE AND THERE IS NO QUANTITATIVE DETA IL OF SALES AND INFORMATION IN THE ANNUAL ACCOUNTS. FURTHER TH E M/S. ACROPETAL TECHNOLOGIES LTD. HAS HUGE ON-SITE DEVELO PMENT EXPENSES WHEREAS THE ASSESSEE IS ONLY ENGAGED IN OF FSHORE ACTIVITIES THEREFORE SOFTWARE ACTIVITIES AND OFFS HORE ACTIVITIES OF THESE COMPARABLES CANNOT BE COMPARED TO THE ASSE SSEE AND ACCORDINGLY ON FUNCTIONAL LEVEL IT WAS DIRECTED TO BE EXCLUDED. ON THE BARE PERUSAL OF THE TPOS ORDER IT IS SEEN THAT NOWHERE THE TPO HAS ANALYZED HOW THE ENGINEERING DE SIGN SERVICES HAS BEEN COMPARED WITH LOW AND IT ENABLED SERVICES CARRIED OUT BY THE ASSESSEE COMPANY. FROM THE PERUS AL OF THE ANNUAL REPORT AS REFERRED TO BY LD. COUNSEL AT PAGE 619 OF THE PAPER BOOK THAT IT IS FUNCTIONALLY NOT COMPARABLE S INCE IT IS ENGAGED IN SOFTWARE PRODUCTS AND ENGINEERING SERVIC ES. FURTHER FROM PERUSAL OF PAGE 639 OF THE PAPER BOOK IT IS SEEN THAT COMPANY HAS A SEGMENT BY THE NAME OF ENGINEERI NG DESIGN AND INVENTORIES SHOW THAT THERE ARE PRODUCT ITA NO.3476 & 3838/DEL/2017 14 DEVELOPMENT. EVEN THE SEGMENTAL DETAIL OF THE SAID COMPANY HAS NOT BEEN DISCUSSED BY THE TPO TO BUTTRESS HIS CLAIM. ACCORDINGLY WE DO NOT FIND ANY REASON TO INFER WIT H THE FINDING OF THE LD. CIT (A) AND THE SAME IS CONFIRME D. 10. LASTLY WITH REGARD TO THE ECLERX SERVICE LT D. THE REVENUE IN ITS GROUND HAS NOT DISPUTED WITH THE EXC LUSION OF THE SAID COMPANY BECAUSE THE SAME BEING A KPO COMPA NY AND IS COVERED BY THE DECISION OF HONBLE DELHI HIG H COURT IN THE CASE OF RAMPGREEN (SUPRA) ALBEIT IT HAS RAISED THE ISSUE ON THE GROUND THAT AGAINST THE JUDGMENT OF HONBLE D ELHI HIGH COURT APPEAL HAS BEEN FILED BEFORE THE HONBLE SUPREME COURT. THE LD. TPO ALSO IN HIS ORDER HAS NOTED THAT THE ONLY SEGMENT OF ECLERX IS DATA ANALYTICS AND PROCESS OUT SOURCING SERVICES WHICH IS NOTHING BUT ITE SERVICES. FROM TH E BARE PERUSAL OF THE FUNCTIONS CARRIED OUT BY THE ASSESSE E COMPANY AND THE NATURE OF SERVICES RENDERED BY THE ECLERX S ERVICE AS INCORPORATED IN THE APPELLATE ORDER AND ALSO NOTED BY US ABOVE IT IS AN UNDISPUTED FACT THAT ECLERX SERVICE IS A LEADING KPO SERVICES PROVIDER WHEREIN IT CARRIED OUT HIGH E ND KPO DATA ANALYTIC BASE SERVICES. FURTHER FROM PERUSAL OF PAGE 708 WHICH IS PART OF ITS ANNUAL ACCOUNTS IT IS SE EN THAT THERE IS NO SEGMENTAL DATA FOR ITS STREAMS OF REVENUE. AN OTHER GLARING FACT IS THAT IT CARRIES OUT ITS SUBSTANTIAL BUSINESS ON OUTSOURCING MODEL WHICH IS ABSENT IN THE CASE OF TH E ASSESSEE. THIS FACTOR ITSELF CANNOT BE HELD TO BE C OMPARABLE. THE HONBLE DELHI HIGH COURT HAS HELD THAT IN PRINC IPLE THAT E-CLERX IS HIGH END KPO SERVICES PROVIDER WHICH CAN NOT BE ITA NO.3476 & 3838/DEL/2017 15 COMPARED WITH ITE SERVICES WHICH ARE IN THE CATEGOR Y OF BPO SERVICES PROVIDER. ACCORDINGLY THE AFORESAID FINDI NG OF THE LD. CIT (A) IS CONFIRMED. 11. IN SO FAR AS GROUND NO.2 IS CONCERNED THE DISA LLOWANCE U/S. 40A(IA) THE LD. COUNSEL POINTED OUT THAT THE LD. CIT(A) HAS GIVEN DIRECTION TO THE ASSESSING OFFICER TO VER IFY WHETHER THE COPIES OF NON DEDUCTION OF TAX/DEDUCTION TAX AT LOWER RATE WAS FILED BEFORE THE ASSESSING OFFICER BEFORE PASSI NG OF THE ASSESSMENT ORDER AND IF THAT BE SO THEN NO DISALLOW ANCE CAN BE MADE. IT HAS BEEN INFORMED BY THE LD. COUNSEL TH AT LD. ASSESSING OFFICER WILL GIVE EFFECT TO THE ORDER OF THE LD. CIT(A) VIDE ORDER DATED 27.09.2018 HAS ACCEPTED THIS FACT THAT IN CASE OF PAYMENT OF RS 33 39 348/- TO M/S ANNAPURNA BUILDERS ASSESSEE HAS PRODUCED TDS EXEMPTION CERTI FICATE AND HIMSELF HAS DELETED THE DISALLOWANCE. ACCORDING LY THIS GROUND IS TREATED AS INFRUCTUOUS. IN SO FAR AS SHOR T DEDUCTION OF TDS RATHER TDS DEDUCTED AT LOWER RATE IN THE CA SE OF M/S HIND HOSIERY MILLS PVT. LTD AGAIN NO DISALLOWANCE CAN BE MADE IN VIEW OF THE JUDGMENT OF HONBLE CALCUTTA HI GH COURT IN THE CASE OF CIT VS. S.K. TEKRIWAL REPORTED IN (2013) 260 CTR 73. ACCORDINGLY THIS ISSUE IS DECIDED AGAINST THE REVENUE. 12. IN SO FAR AS ISSUE OF 40A(2)(B) THE RELEVANT OB SERVATION OF THE LD. ASSESSING OFFICER READS AS UNDER: DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE WA S ASKED TO FURNISH THE DETAILS 1 OF PAYMENTS MADE TO PERSON SPECIFIED ITA NO.3476 & 3838/DEL/2017 16 U/S 40A(2)(B) OF THE ACT DURING THE YEAR. THE ASSES SEE SIMPLY FURNISH THE DETAILS OF THE SAME. ON PERUSAL OF THE SAME IT HAS BEEN FOUND THAT THE ASSESSEE COMPANY HAS PAID RS. 2 07 06 300/- AS SALARY TO ITS DIRECTOR MR. SUNIL B AIJAL. HOWEVER NO JUSTIFICATION HAS BEEN GIVEN BY THE ASS ESSEE AS WHAT KIND OF SERVICES ARE RENDERED TO EARN SUCH A H UGE AMOUNT OF REMUNERATION. SINCE THE ASSESSEE FAILED TO BRING ON RECORD TO SHOW THAT THE REMUNERATION SO PAID IS NOT IN EXCESS OF THE LIMITS. THE ASSESSEE HAS ALSO FAILED TO JUST IFY THE NATURE OF SERVICES RENDERED BY THE DIRECTORS SO AS TO COMM AND SUCH A HUGE REMUNERATION. THEREFORE AN AMOUNT OF RS. 1 03 53 150/- BEING 50% OF THE TOTAL REMUNERATIONS PAID TO MR. SU NIL BAIJAL DIRECTOR OF THE ASSESSEE COMPANY IS HEREBY DISALLOW ED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. SINCE. 1 AM SATISFIED THAT ASSESSEE HAS CONCEALED THE INCOME BY FURNISHING INACCURATE PARTICULARS OF ITS INCOME PE NALTY PROCEEDINGS U/S 271(1 )(C) IS INITIATED SEPARATELY. 13. BEFORE LD. CIT(A) THE ASSESSEE HAD SUBMITTED AS UNDER: (I) THE MANAGING DIRECTOR SHRI SUNIL BAIJAL IS ASS OCIATED WITH THE ASSESSEE COMPANY RIGHT FROM THE BEGINNING. DUE TO ITS ASSOCIATION TURNOVER AND PROFIT BEFORE TAX HAS INCR EASED MANY TIMES. HE IS INVOLVED IN FINANCIAL MARKET SINCE 199 4 IN TRADING IN FOREX INTEREST RATES AND CREDIT MARKETS IN DELH I MUMBAI. AND SINGAPORE. HE HOLDS A DEGREE IN (MECHANICAL) EN GINEERING FROM DELHI COLLAGE OF ENGINEERING AND MBA FROM UNIV ERSITY OF DELHI. THEREFORE HIS REMUNERATION COMMENSURATE TO H IS QUALIFICATION AND WORKING OF THE COMPANY. (II) SUBSEQUENTLY THE ASSESSMENT YEAR 2010-11 MR. SUNIL ITA NO.3476 & 3838/DEL/2017 17 BAIJAL WAS PAID AN INCREASE REMUNERATION OF RS. 2 66 37 300/-. THE SAME WAS ACCEPTED BY THE AO DURI NG THE SCRUTINY PROCEEDINGS OF THE ASSESSEE. (III) MR. SUNLI BAIJAL HAS DECLARED THE THIS SUM I N HIS RETURN OF INCOME. (IV) LD. AR HAS RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS WHERE SUCH ADHOC DISALLOWANCE WAS NO T APPROVED. (A) THE HONBLE SUPREME COURT HELD IN COMMISSIONER OF INCOME TAX VS. EDWARD KEVENTER {PRIVATE) LTD.(197 8) 115 ITR 149 (SC) (B) THE HONBIE ITAT DELHI HELD IN DEPUTY COMMISSIONER OF INCOME TAX VS. SPARK HOTELS (P) LTD. 2012 52 SOT 305 (DELHI) 14. LD. CIT(A) HAS DELETED THE SAID DISALLOWANCE ON THE GROUND THAT ASSESSING OFFICER HAS NOT BROUGHT ANY E VIDENCE/ ANY MATERIAL FOR MAKING THE DISALLOWANCE U/S.401A(2 ). IN SUBSEQUENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2 010-11 WHEREIN HIGHER SALARY PAID TO THE MANAGING DIRECTOR MR. SUNIL BAIJWAL WAS ALLOWED IN THE ORDER PASSED U/S.1 43(3). 15. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL O F THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER WE FI ND THAT FIRST OF ALL ASSESSING OFFICER WITHOUT ANY REASON OR MATE RIAL FACTS ON RECORD HAD SIMPLY DISALLOWED 50% ON THE GROUND T HAT THERE IS NO JUSTIFICATION FOR GIVING SUCH HUGE AMOUN T OF REMUNERATION. SUCH AN AD HOC REASONING CANNOT BE ACCEPTED AS ASSESSING OFFICER HAS TO JUSTIFY THAT SUCH A REMU NERATION ITA NO.3476 & 3838/DEL/2017 18 PAID IS NOT COMMENSURATE WITH THE SERVICES RENDERED BY THE MANAGING DIRECTOR HAVING REGARD TO THE SERVICES REN DERED AND MARKET VALUE OF ITS SERVICES. THE PROFILE OF MANAGI NG DIRECTOR AND THE SERVICES RENDERED BY HIM AS INCORPORATED IN THE IMPUGNED APPELLATE ORDER AND ALSO LOOKING TO THE FA CT THAT THE SUBSEQUENT ASSESSMENT YEAR THE INCREASE REMUNERATIO N HAS BEEN ACCEPTED AND THEREFORE THE DISALLOWANCE MADE U/S.40A(2)(B) CANNOT BE SUSTAINED. THUS THE REVENU ES APPEAL IS DISMISSED. 16. IN THE ASSESSEES APPEAL WHEREIN THE ONLY GR OUND NO.2 HAS BEEN ARGUED WE FIND THAT THIS GROUND IS SIMIL AR TO GROUND NO.2 OF THE DEPARTMENTS APPEAL WHEREIN THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER ON T HE GROUND THAT NO TDS EXEMPTION CERTIFICATE WAS SUBMIT TED IN RESPECT OF RENTAL PAYMENTS MADE TO ANNAPURNA BUILDE RS. SECONDLY THERE WAS LOWER DEDUCTION CERTIFICATE SUB MITTED IN RESPECT OF HIND HOSIERY MILLS LTD. THE LD. CIT(A) H AS DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER THE COPIES OF NON DEDUCTION OF TAX AT LOWER RATE WERE FILED BEFORE TH E ASSESSING OFFICER OR NOT AND IF THAT IS SO THEN TO DELETE TH E DISALLOWANCE. LD. COUNSEL SUBMITTED THAT BEFORE THE ASSESSING OFF ICER BOTH THE CERTIFICATE WERE DULY SUBMITTED DURING THE COUR SE OF ASSESSMENT PROCEEDINGS VIDE SUBMISSIONS DATED 1 ST MARCH 2013 AND 10 TH APRIL 2013. THE LD. ASSESSING OFFICER AFTER VERIFYING THE SAID CERTIFICATE HAD DELETED THE DISA LLOWANCE IN ORDER GIVING EFFECT ORDER. APART FROM THAT THE LD. COUNSEL HAS ALSO RELIED UPON THE JUDGMENT OF HONBLE CALCUTTA H IGH COURT ITA NO.3476 & 3838/DEL/2017 19 IN THE CASE OF CIT VS. S.K. TEKRIWAL AS REPORTED IN (2014) 361 ITR 432 THAT NO DISALLOWANCE U/S.40(A)(IA) CAN BE MADE WHERE THERE IS A SHORT DEDUCTION OF TDS. WE HAVE AL READY HELD THAT NO DISALLOWANCE CAN BE MADE IN CASE OF DEDUCTI ON OF TDS AT LOWER RATE. THE ASSESSEE HAS PRODUCED THE CERTIF ICATE BEFORE THE ASSESSING OFFICER AS PER THE DIRECTION GIVEN BY LD. CIT (A) AND THEREFORE THERE IS NO QUESTION OF ANY DISALLOW ANCE. ACCORDINGLY THE GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED. 17. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH MAY 2021. SD/ - SD/ - [PRASHANT MAHIRSHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10 TH MAY 2021 PKK