TECH MAHINDRA BUSINESS SERVICES LTD (FORMERLY KNOWN AS HUTCHISON GLOBAL SERVICES LIMITED), MUMBAI v. ASST CIT 13(3)(2), MUMBAI

ITA 4861/MUM/2017 | 2013-2014
Pronouncement Date: 22-11-2019 | Result: Partly Allowed

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Appeal Details

RSA Number 486119914 RSA 2017
Assessee PAN AABCH8136L
Bench Mumbai
Appeal Number ITA 4861/MUM/2017
Duration Of Justice 2 year(s) 4 month(s) 10 day(s)
Appellant TECH MAHINDRA BUSINESS SERVICES LTD (FORMERLY KNOWN AS HUTCHISON GLOBAL SERVICES LIMITED), MUMBAI
Respondent ASST CIT 13(3)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-11-2019
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted Not Allotted
Tribunal Order Date 22-11-2019
Last Hearing Date 08-01-2019
First Hearing Date 08-01-2019
Assessment Year 2013-2014
Appeal Filed On 12-07-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH MUM BAI BEFORE SHRI C.N.PRASAD JUDICIAL MEMBER & SHRI G. MANJUNATHA ACCOUNTANT MEMBE R IT(TP).A NO.977/MUM/2017 ( ASSESSMENT YEAR: 2012-13 ) TECH MAHINDRA BUSINESS SERVICES LIMITED (FORMERLY KNOWN AS HUTCHISON GLOBAL SERVICES LIMITED) SPECTRUM TOWERS MINDSPACE CHINCHOLI BUNDER LINK ROAD MALAD (WEST) MUMBAI-400 064 VS. ACIT-13(3)(2) ROOM NO.229 AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AA BCH8136L ( APPELLANT ) .. ( RESPONDENT ) & ITA NO.4861/MUM/2017 ( ASSESSMENT YEAR: 2013-14 ) TECH MAHINDRA BUSINESS SERVICES LIMITED (FORMERLY KNOWN AS HUTCHISON GLOBAL SERVICES LIMITED) SPECTRUM TOWERS MINDSPACE CHINCHOLI BUNDER LINK ROAD MALAD (WEST) MUMBAI-400 064 VS. ACIT-13(3)(2) ROOM NO.229 AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AABCH8136L ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY A.MOHAN ASSESSEE BY J.D.MISTRY DATE OF HEARI NG 26/08 /2019 DATE OF PRONOUNCEME NT 22 /1 1 /2019 / O R D E R TECH MAHINDRA BUSINESS SERVICES LTD. 2 PER G.MANJUNATHA (A.M) : THESE TWO APPEALS FILED BY THE ASSESEE ARE DIRECT ED AGAINST SEPARATE BUT IDENTICAL DIRECTIONS OF DRP U/S 144 C (5) OF THE I.T.ACT 1961 IN TURN WHICH IS ARISED OUT OF ASSESSMENT ORD ER PASSED BY THE AO U/S 143(3) R.W.S. 144C(1) OF THE I.T.ACT 1961 F OR THE AY 2012-13 AND 2013-14. SINCE THE FACTS ARE IDENTICAL AND ISS UES ARE COMMON FOR THE SAKE OF CONVENIENCE THESE APPEALS WERE HEA RD TOGETHER AND ARE DISPOSED-OFF BY THIS CONSOLIDATED ORDER. IT(TP)A.NO.977/MUM/2017:- 2. THE ASSESEE HAS MORE OR LESS RAISED COMMON GROUN DS OF APPEAL FOR BOTH AYS. THEREFORE FOR THE SAKE OF BR EVITY GROUND OF APPEAL FILED FOR AY 2012-13 ARE REPRODUCED AS UNDER :- 1. ADDITION TO TOTAL INCOME OF INR 83 52 94 173 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED ASSESSING OFFICER ('AO') ERRED IN MAKING AND THE HO N'BLE DISPUTE RESOLUTION PANEL ('DRP'} FURTHER ERRED IN CONFIRMIN G AN ADDITION OF RS. 83 52 94 173 TO [HE APPELLANT'S TOTAL INCOME COMPUT ED UNDER THE PROVISIONS OF THE INCOME-TAX ACT 1961 ('THE ACT'). 2. TRANSFER PRICING (TP) ADJUSTMENT /ADDITION OF INR 83 50 82 268 IN APPELLANT'S TOTAL INCOME ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LA\S THE LEARNED TRANSFER PRICING OFFICER (TPO) AND THE TEAMED AO UN DER THE DIRECTIONS ISSUED BY THE DRP ERRED IN MAKING A IT ADJUSTMENT / ADDITION OF INK 83 50 82 268 TO THE APPELLANT'S INCOME UNDER THE P ROVISIONS OF CHAPTER X OF THE ACT. 3. TP ADJUSTMENT OF INR.83.06 70.260 IN RESP ECT OF VOICE BASED CALL CENTRE SERVICES PROVIDED BY THE APPELLANT 3.1 ERRONEOUS REFERENCE TO THE LEARNED TPO BY THE LEARNED AO WITHOUT APPLICATION OF MIND TECH MAHINDRA BUSINESS SERVICES LTD. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED AO HAS ERRED IN REFERRING THE MATTER TO THE LEARNED TPO WITHOUT SPECIFYING THE REASONS BY WHICH CONDITIONS SPECIFIE D UNDER SECTION 92C(3) OF THE ACT HAVE BEEN SATISFIED. 3.2 TAX EVASION MOTIVE NUT DEMONSTRATED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO / AO ERRED IN AND THE HON'BLE DRP FURL HER ERRE D IN UPHOLDING/ CONFIRMING THE ACTION OF THE TEAMED TPO/ AO IN FAIL ING TO APPRECIATE THAT THE APPELLANT WAS CLAIMING TAX DEDUCTION UNDER SECT ION 10A OF THE ACT AND ACCORDINGLY HAD NO INTENTION TO SHIFT PROFITS O UTSIDE INDIA BY MANIPULATING THE PRICES CHARGED IN ITS INTERNATIONA L TRANSACTIONS WHICH IS PRE-REQUISITE CONDITIONS TO MAKE ANY ADJUSTMENT UND ER THE PROVISION OF CHAPTER X OF THE ACT 3.3 INCORRECT UNDERSTANDING OF THE APPELLANT'S BUSHIER LEADING TO WRONG CHARACTERIZATION OF APPELLANTS BUSINESS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO / AO AND THE DRP ERRED IN CONCLUDING THAT THE A PPELLANT UNDERTAKES ACTIVITIES OF A HIGHER FUNCTIONAL SIGNIFICANCE THAN A MERE BPO BY PLACING RELIANCE ON ADHOC SEARCHES CONDUCTED ON THIRD PARTY WEBSITES AND MISINTERPRETING THE DETAILS / DOCUMENTARY EVIDENCES SUBMITTED BY THE APPELLANT. THE APPELLANT PRAYS THAT THE AFORESAID ACTION BEING AGAINST THE FACTS OF THE CASE AND AGAINST THE BASIC TENETS OF TRANSFER PRICING REGULATIONS BE SET ASIDE. 3.4 INCORRECT BIFURCATION OF THE APPELLANTS ACT IVITIES INTO FRONT END AND BACKEND ACTIVITIES. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO/AO AND THE HON'BLE DRP PROCEEDED LO INCORRECTLY CONCLUDE THAT THE APPELLANT IS ENGAGED IN TWO LEGS OF ACTIVITIES VIZ. FRONT END RPO ACTIVITIES INVOLVING RESPONDING TO CUSTOMER QUERIES HANDLING THEIR COMPLAINTS ETC. AND BACKEND ACTIVITIES FALLING BEYOND THE SCOPE OF A BPO INVOLVING ANALYSIS AND REPORTING OF DATA GENERATED FROM FRONT END ACTIVITIES. 3.5 ADJUSTMENT MADE TO TOTAL INCOME IN RESPECT OF ENTIRE OPERATIONS OF THE APPELLANT INSTEAD OF PROPORTIONAT E ADJUSTMENT FOR THE ALLEGED HIGH END ACTIVITIES CARRIED OUT BY THE APPELLANT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW WITHOUT PREJUDICE LO THE APPELLANT'S STAND THAT THE LEARNED TPO / AO AND THE HON'BLE DRP HAS ERRONEOUSLY BIFURCATED THE APPELLAN TS ACTIVITIES IN TWO FOGS OF ACTIVITIES ONE BPO AND ANOTHER HIGH END FUN CTIONS THE LEARNED TPO / AO AND THE HONBLE DRP ERRED IN MAKING AN AD JUSTMENT TO THE TOTAL INCOME OF THE APPELLANT INSTEAD OF MAKING AN ADJUSTMENT ONLY TO THE RELEVANT PROPORTION OF OPERATIONS WHICH ARE ALLEGED LY INTO HIGH END OPERATIONS AS PER THE LEARNED AO /TPOS CONTENTION. TECH MAHINDRA BUSINESS SERVICES LTD. 4 3.6 INCORRECT REJECTION OF APPELLANT'S BENCHMAR KING ANALYSIS AND COMPARABLE COMPANIES ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO / AO ERRED AND THE HONBLE DRP FURTHER ERRED IN UPHOLDING.' CONFIRMING THE ACTION OF THE LEARNED TPO / AO OF AR BITRARILY DISREGARDING THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT WHICH WERE SELECTED AFTER CARRYING OUT A SYSTEMATIC AND METHOD OLOGICAL SEARCH PROCESS AND ADOPTING AN ARBITRARY APPROACH BY CHERR Y PICKING COMPARABLE COMPANIES WITH A PREDETERMINED MIND SET OF MAKING AN ADJUSTMENT TO TOTAL INCOME OF APPELLANT 3.7 INCORRECT SELECTION OF COMPARABLE COMPANIES BY THE LEARNED TPO ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO / AO ERRED AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF ME TPO OF SELECTION OF COMPANIES WHICH ARE FUNCTIONALLY NO COMPARABLE LO T HE APPELLANTS BUSINESS. THE APPELLANT PRAYS THAT AFORESAID ACTION OF THE LE ARNED TPO/ AO AND HONBLE DRP IS FACTUALLY INCONGRUENT AND AGAINST T HE PRINCIPLES OF COMPARABILITY ENSHRINED IN RULE 10B(2) OF THE INCOM E-TAX RULES 1962 ('THE RULES') AND HENCE IS LIABLE LO BE REJECTED OR ALTERNATIVELY SET ASIDE. 3.8 ERRONEOUS CONSIDERATION OF SERVICE-TAX REFUND AS MM- OPERATING INCOME AND CONSEQUENT EXCLUSION OF THE S AME FROM MARGIN COMPUTATION OF THE APPELLANT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW. THE LEARNED TPO ' AO ERRED AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LEARNED TPO / AO OF CO NSIDERING SERVICE-TAX REFUND FOR SERVICE TAX PAID TO THIRD PARTIES ON ALL INPUT SERVICES AS NON- OPERATING AND EXCLUDING THE SAME FROM THE MARGIN CO MPUTATION OF THE APPELLANT THEREBY ERRONEOUSLY REDUCING T HE MARGIN OF THE APPELLANT. THE APPELLANT PRAYS THAT THE AFORESAID ACTION OF TH E LEARNED TPO/AO IS INCONGRUENT IS AGAINST THE BASIC FINANCIAL PRINCIPL ES THEREFORE LIABLE TO BE REJECTED. 3 9 DISREGARD OF MULTIPLE YEAR DATA CONTENTION ON THE FACTS AND IN THE CIRCUMSTANCES OF THE. CASE AND IN LAW THE LEARNED TPO . AO ERRED AND THE HONBLE DRP FURTHER ERRED IN UPHOLDING /CONFIRMING THE ACTION OF THE LEARNED TPO / AO IN R EJECTING THE USE OF MULTIPLE YEAR DATA FOR MARGIN COMPUTATION ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO AND HONBLE DRP ERRED IN ERRONEOUSLY REJECTING THE TRANSFER PRICING ANALYSIS UNDERTAKEN BY THE APPELLANT UNDER SECTION 92C OF THE ACT TECH MAHINDRA BUSINESS SERVICES LTD. 5 USING 3 YEAR AVERAGE MARGIN AND DETERMINING THE ARM 'S LENGTH MARGIN/ PRICE USING ONLY DATA FOR FINANCIAL YEAR 201 1-12 WHICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS. 3.10 WORKING CAPITAL ADJUSTMENT DISALLOWED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO / AO ERRED AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING ' CONFIRMING THE ACTION OF THE LEARNED TPO/' AO IN NO T ALLOWING WORKING CAPITAL ADJUSTMENT IN ACCORDANCE WITH THE PROVISION S OF RULE I OB OF THE RULES LO ACCOUNT FOR DIFFERENCE BETWEEN INTERNATION AL TRANSACTIONS AND THE COMPARABLE COMPANIES. 3.11 RISK ADJUSTMENT DISALLOWED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW. THE LEARNED TPO / AO ERRED AND THE HON'BLE DRP FURTHER ERRED I N UPHOLDING / CONFIRMING THE ACTION OF THE LEARNED TPO/AO IN NOT ALLOWING RISK ADJUSTMENT IN ACCORDANCE WITH THE PROVISION OF RUL E 10B OF THE RULES LO ACCOUNT FOR DIFFERENCE BETWEEN INTERNATIONAL TRANSA CTIONS AND THE ALLEGED COMPARABLE UNCONTROLLED TRANSACTIONS SELECTED BY T HE LEARNED TPO / AO. 4. TP ADJUSTMENT OF INR 4412008 IN RESPECT OF INTEREST ON OUTSTANDING AMOUNTS RECEIVABLE BY THE APPELLANT FRO M THE ASSOCIATED ENTERPRISES [AES] 4.1 ERRONEOUS IMPUTATION OF INTEREST ON THE O UTSTANDING AMOUNTS RECEIVABLE FROM THE AES BY INCORRECTLY RE-CHARACT ERIZING THE SAID AMOUNTS AS INTEREST FREE ADVANCE. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED TPO / AO ERRED AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LEARNED TPO / AO OF RE-CHARACTERIZING OUTSTANDING AMOUNTS RECEIVABLE FROM THE AES AS ADVA NCES PROVIDED LO AES AND IMPUTING INTEREST THEREON WITHOUT APPRECI ATING THE FACTS OF THE CASE. THE VERY ACTION OF THE LEARNED TPO / AO AND T HE HON'BLE DRP HAS RESULTED IN SECONDARY ADJUSTMENT WHICH IS NOT ONLY AGAINST THE EXPRESS PROVISIONS OF THE AC! BUT IS ALSO BAD IN LAW. 4 2 ERRONEOUS CUBICLE RATION OF THE CREDIT PE RIOD PROVIDED BY THE APPELLANT FU ITS AES WHILE DETERMINING THE EXCESS CREDIT PERIOD FOR COMPUTING TP ADJUSTMENT IN RESPECT OF INTEREST ON O UTSTANDING AMOUNTS. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEARNED TPO/ AO AND THE HONBLE DRP ERRED IN UPHOLDING THE ACTIO N OF THE LEARNED TPO / AO OF ERRONEOUSLY CONSIDERING [HE CREDIT PERI OD OF 30 DAYS PROVIDED IN THE INTER-COMPANY AGREEMENT INSTEAD OF THE ACTUAL AVERAGE CREDIT PERIOD OF 38 DAYS PROVIDED BY THE APPELLANT LO ITS AES WHILE DETERMINING THE EXCESS CREDIT PERIOD. TECH MAHINDRA BUSINESS SERVICES LTD. 6 4.3 DISREGARDING THE CREDIT PERIOD OF TPOS OW N SET OF COMPARABLE COMPANIES WHILE COMPUTING TP ADJUSTMENT IN RESPECT OF INTEREST ON OUTSTANDING AMOUNTS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO / AO ERRED AND THE HONBLE DRP FURTHER ERRED IN CONVENIENTLY IGNORING THE CREDIT PERIOD OF TPO ; S OWN SET OF COMPARABLE COMPANIES WHICH WORKS OUT TO AROUND 47 DAYS AS AGAINST THE AC TUAL AVERAGE CREDIT PERIOD OF 38 DAYS PROVIDED BY THE APPELLANT TO ITS AE THEREBY WARRANTING A DELETION OF TP ADJUSTMENT 4.4 INTEREST ADJUSTMENT BENEFIT NOT GRANTED ON AMOUNTS RECEIVED BEFORE THE EXPIRY OF THE CREDIT PERIOD ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW WITHOUT PREJUDICE TO THE APPELLANT'S* STAND THAT LEARNED AO /TPO AND THE HON'BLE DRP HAS ERRONEOUSLY RE-CHARACTERIZED OUTSTANDING AM OUNTS RECEIVABLE FROM THE AES ADVANCES AND NO INTEREST SHOULD BE IMP UTED THEREON THE LEARNED AO / TPO AND THE HON'BLE DRP HAS ERRONEOUS LY NOT PROVIDED INTEREST ADJUSTMENT BENEFIT TO THE APPELLANT ON AMO UNTS COLLECTED BY THE APPELLANT FROM ITS AES BEFORE THE EXPIRY OF CREDI T PERIOD 5. ADDITION OF INTEREST INCOME OF RS. 2 11 9 05 TO THE INCOME OF THE APPELLANT ON THE BASIS OF THE AIR DATA ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED AO ERRED IN AND THE HON'BLE DRP FURTHER ERRED IN UP HOLDING' CONFIRMING THE ACTION OF THE LEARNED AO OF' MAKING AN ADDITION OF INTEREST INCOME OF RS. 2 11 905 TO THE INCOME OF THE APPELLANT WITHOUT APPRECIATING THE FACT THAT THE SAID INCOME WAS OFFERED LO TAX BY THE APPE LLANT IN THE SUBSEQUENT ASSESSMENT YEAR ON AN ACCRUAL BASIS. 6. ADDITION OF TRANSFER PRICING ADJUSTMENT AM OUNTING TO RS. 83 50 82 268 TO THE BOOK PROFIT COMPUTED UNDER SEC TION 115JB OF THE ACT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED AO ERRED M MAKING AN ADDITION OF THE TRANSFER PRICI NG ADJUSTMENTS OF RS. 83 50 82 268 TO THE BOOK PROFIT COMPUTED UNDER SECT ION OF 15JB OF THE ACT WITHOUT ACCORDING ANY OPPORTUNITY TO THE APPEL LANT AND APPRECIATING THAT THE SUBJECT ADDITION DOES NOT FALL WITHIN ANY OF THE SPECIFIED ADDITIONS IN EXPLANATION J TO SECTION 115JBOF THE ACT . 7. INITIATION OF PENALTY PROCEEDINGS UNDER SE CTION 271(1)(C) OF THE ACT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1 )(C) OF THE ACT. THE APPELLANT PRAYS THAT THE LEARNED AO BE DIRECTED TO DROP THE PENALTY PROCEEDINGS INITIALED UNDER SECTION 271(1)(C) OF TH E ACT. TECH MAHINDRA BUSINESS SERVICES LTD. 7 THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN AND TO SUBMIT SUCH STA TEMENT DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 3. THE BRIEF FACTS OF CASE ARE THAT THE ASSESEE IS A 100% SUBSIDIARY OF HWP INVESTMENT HOLDING (INDIA) LIMITE D AND PROVIDES VOICE BASED CUSTOMER CONTACT CENTRE SERVICES (ITES) TO HUTCHISON 3G UK LTD AND HUTCHISON AUSTRALIA PTY LTD (AE). TH E ITES SERVICES RENDERED BY THE ASSESSEE ARE MAINLY IN RELATION TO HANDLING SERVICES RELATED QUERIES BILLING RELATED QUERIES MOBILE NU MBER PORTABILITY RELATED QUERIES HANDSET RELATED QUERIES NETWORK R ELATED QUERIES AND PRICE PLAN RELATED QUERIES. THUS ASSESSEE CLAI MED THAT ON THE BASIS OF THE ANALYSIS OF FUNCTIONS PERFORMED ASSET S EMPLOYED AND RISKS ASSUMED BY THE ASSESSEE TOWARDS PROVISION OF ITES SERVICES IT IS POSSIBLE TO CHARACTERIZE THE ASSESEE AS A LOW RISK SERVICE PROVIDER EXPOSED TO MINIMAL RISKS ASSOCIATED WITH C ARRYING OUT SUCH ACTIVITIES. 4. DURING THE YEAR UNDER CONSIDERATION THE ASSESEE HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS WITH ASSO CIATED ENTERPRISES (AE) AS PER FORM NO. 3CEB. THE RELEVANT DETAILS OF INTERNATIONAL TRANSACTIONS ARE AS FOLLOW: SL.NO ENTITY NAME LIST OF INTERNATIONAL TRANSACTIONS AMOUNT PAID/ PAYABLE IN RS. METHOD ADOPTED 1 VODAFONE HUTCHISON AUSTRALIA PTY LIMITED (FORMERLY KNOWN AS HUTCHINSON 3G AUSTRALIA PTY LIMITED) PROVISION OF VOICE E BASED CUSTOMER CONTACT CENTRE SERVICES 29059 05 956/- TNMM TECH MAHINDRA BUSINESS SERVICES LTD. 8 2 HUTCHISON 3G UK LTD STAR HOUSE 20 GRENFELL ROAD MAIDENHEAD SL 6 1 EH PROVISION OF VOICE BASED CUSTOMER CONTACT CENTRE SERVICES 49181 00508/- TNMM 3 HUTCHISON 3G IRELAND LIMITED 3 RD FLOOR 6-10 SUFFOLK STREET DUBLIN 2 IRELAND PROVISION OF VOICE BASED CUSTOMER CONTACT CENTRE SERVICES 36 4455 733/- TNMM 4 HUTCHISION 3G IRELAND LTD REIMBURSEMENT OF EMPLOYEE COST 60 75 450/- 5. THE ASSESSEE HAS CONDUCTED TRANSFER PRICING STUD Y OF INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRI SES (AES) AND ADOPTED TRANSACTIONS NET MARGIN METHOD AS MOST APPR OPRIATE METHOD. THE ASSESEE HAS CONSIDERED OPERATING PROFIT /TOTAL COST AS PROFIT LEVEL INDICATOR. THE ASSESSEE HAS COMPUTED O P/PC IS AT 14.09% AND AS AGAINST THIS SELECTED FOUR COMPARABL ES WITH A ARITHMETIC MEAN MARGIN (AMM) OF 11.27% AND THEN ST ATED THAT INTERNATIONAL TRANSACTIONS WITH ITS AE ARE AT ARM L ENGTH PRICE (ALP). 6. THE ASSESEE HAS FILED ITS RETURN OF INCOME FOR AY 2012-13 ON 24/11/2012 DECLARING TOTAL INCOME OF RS. 123 70 44 042/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND THE DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE LD. AO NOTICED THAT THE ASSESSE HAS SUBSTANTIAL INTERNATIONAL TRANSACTIONS EXCEEDING RS . 15 CRORES WITH ITS AE AND THEREFORE A REFERENCE WAS MADE U/S 92 CA (1) OF THE I.T.ACT 1961 TO THE TPO TO DETERMINE ALP OF INTE RNATIONAL TRANSACTIONS OF THE ASSESSEE WITH AES. DURING THE TP PROCEEDINGS THE LD. TPO CALLED UPON THE ASSESSE TO FILE NECESSA RY EVIDENCES TO TECH MAHINDRA BUSINESS SERVICES LTD. 9 JUSTIFY TO TP STUDY CONDUCTED IN RESPECT OF INTERN ATIONAL TRANSACTIONS AND ALSO NECESSARY DETAILS IN RESPECT OF COMPARABL E SELECTED TO DETERMINE ALP OF INTERNATIONAL TRANSACTIONS. THE TP O ON THE BASIS OF INFORMATION FURNISHED BY THE ASSESEE RECOMPUTED PLI OF THE ASSESEE AFTER EXCLUDING SERVICE TAX REFUND FROM OPE RATING INCOME AND ALSO AFTER RE-COMPUTING WORKING CAPITAL ADJUSTM ENT HAS DETERMINED OPERATING PROFIT (OP/OC) OF THE ASSESEE AT 14.09%. THEREAFTER THE TPO HAS ISSUED A SHOW- CAUSE NOTICE AND CALLED UPON THE ASSESSE TO EXPLAIN AS TO WHY CERTAIN COMPA RABLES SHALL NOT BE REJECTED/INCLUDED TO SELECT FINAL SET OF COMPARA BLES TO DETERMINE ALP OF INTERNATIONAL TRANSACTIONS OF THE ASSESEE WI TH AES. IN RESPONSE THE ASSESEE HAS FILED DETAILED WRITTEN S UBMISSIONS AND ALSO JUSTIFIED SELECTION OF COMPARABLES AND COMPU TATION OF OP/OC. THE TPO AFTER CONSIDERING RELEVANT SUBMISSIONS OF T HE ASSESEE AND ALSO TAKEN NOTE OF VARIOUS OTHER PARAMETERS SELECT ED FINAL SET OF THREE COMPARABLES WITH A OPERATING PROFIT MARGIN OF 25.66% AND THEN COMPARED OPERATING PROFIT MARGIN OF THE ASSE SEE I.E 14.09% AND SUGGESTED TRANSFER PRICING ADJUSTMENT(TPA) OF R S. 83 06 70 260/- IN RESPECT OF PROVISION OF ITES SER VICES. THE RELEVANT FINDINGS OF THE TPO ARE AS UNDER:- 13. FINAL SET OF COMPARABLES. THEREFORE FINAL SET OF COMPARABLES TAKING INTO CONS IDERATION THE ABOVE DISCUSSION ARE AS UNDER: COMPARABLES OP/OC JINDAL 1.58 INFOSYS BPO 33.92 EXCEL INFOWAYS LIMITED (SEGMENTAL) 41.48 ARITHMETIC MEAN 25.66 ADJUSTMENT CALCULATION: THUS IT CAN BE OBSERVED THAT THE OP/OC OF THE COMPA RABLES IS 25.66% WHEREAS THAT OF THE ASSESEE IS 14.09% THEREFORE THE TRANSACTION IS NOT AT ARMS LENGTH. THEREFORE THE ARMS LENGTH VALUE IS C ALCULATED AS UNDER:- TECH MAHINDRA BUSINESS SERVICES LTD. 10 ADJUSTMENT CALCULATION RS.CR OPERATING REVENUE OF THE ASSESEE A 819.31 OPERATING COST OF THE ASSESEE B 718.11 OPERATING PROFIT OF THE ASSESSE C=A-B 101.20 OP/OC OF THE ASSESEE D 14.09 OP?OC OF THE COMPARABLES E 25.66% ALP PROFIT F=E*B 184.267 ALP REVENUE G=B+F 902.377 DIFF. IN ACTUAL REVENUE & ARMS LENGTH REVENUE H=G-A 83.07 TRANSACTION VALUE I 819.31 5% OF TRANSACTION VALUE J=5%*I 40.97 PROPOSED ADJUSTMENT K 83.06070260 7. FURTHER THE TPO HAS ALSO SUGGESTED TP ADJUSTMEN T BEING INTEREST RECEIVABLE IN RESPECT OF RECEIVABLE FROM A ES AMOUNTING TO RS 44 12 008/- ON THE GROUND THAT THE OPPORTUNITY C OST OF THE FUND IS THERE WHICH COULD HAVE YIELDED INTEREST IN CASE THE SAME HAD BEEN INVESTED ELSEWHERE. THEREFORE HE HAS COMPUTE D INTEREST ON DELAYED RECEIVABLES BEYOND THE CREDIT PERIOD ALLOWE D IN NORMAL COURSE OF BUSINESS TO OTHER THAN AES AND THE RATE OF INTEREST I.E CHARGED IS ONE APPLICABLE FOR RELEVANT AE TERRITORY AND THE CURRENCY IN WHICH THE RECEIVABLE STANDS. ACCORDINGLY THE T PO HAS TAKEN INTEREST RATE FROM BLOOMBERG PROFESSIONAL SERVICES DATA BASE AND THEN COMPUTED INTEREST RECEIVABLE AT RS. 44 12 008/ -. 8. PURSUANT TO TP ADJUSTMENT AS SUGGESTED BY THE TP O THE LD. AO HAS PASSED DRAFT ASSESSMENT ORDER U/S 143(3) R.W .S. 144(C)1) OF THE I.T.ACT 1961 ON 08/03/2016 AND MADE ADDITIONS TOWARDS TP TECH MAHINDRA BUSINESS SERVICES LTD. 11 ADJUSTMENT OF RS. 83 50 82 268/- IN RESPECT OF TP ADJUSTMENT AS SUGGESTED BY THE AO TOWARDS INTERNATIONAL TRANSACTI ONS OF THE ASSESEE WITH ITS AES AND ALSO INTEREST RECEIVABLE ON OUTSTANDING RECEIVABLES FROM AE. THE LD. AO FURTHER MADE ADDI TIONS TOWARDS DISCREPANCY IN RESPECT OF AIR INFORMATION AMOUNTIN G TO RS. 2 11 905/- ON THE GROUND THAT THE ASSESEE HAS FAIL ED TO FILE RECONCILIATION BETWEEN FINANCIAL TRANSACTIONS RECO RDED IN BOOKS OF ACCOUNTS AND AIR DATA BASE OF THE INCOME TAX DEPART MENT. 9. AGGRIEVED BY THE DRAFT ASSESSMENT ORDER THE ASS ESSEE HAS FILED OBJECTIONS BEFORE THE LD.DRP-2 MUMBAI AND CH ALLENGED ADDITIONS MADE BY THE AO TOWARDS TP ADJUSTMENT IN R ESPECT OF INTERNATIONAL TRANSACTIONS OF THE ASSESEE WITH AES . THE ASSESEE HAS ALSO CHALLENGED ADDITIONS MADE BY THE AO TOWARDS DI FFERENCE IN AIR RECONCILIATION. THE LD.DRP FOR THE DETAILED REASON S RECORDED IN ITS DIRECTIONS ISSUED U/S 144C(5) OF THE I.T.ACT 1961 REJECTED OBJECTIONS FILED BY THE ASSESSE AND CONFIRMED ADDITIONS MADE B Y THE AO TOWARDS TP ADJUSTMENT AS SUGGESTED BY THE TPO IN RE SPECT OF INTERNATIONAL TRANSACTIONS OF THE ASSESEE WITH AES . THE DRP HAS ALSO CONFIRMED ADDITIONS MADE BY THE AO TOWARDS DIF FERENCE IN AIR INFORMATION. CONSEQUENT TO DRP DIRECTIONS THE AO H AS PASSED FINAL ASSESSMENT YEAR U/S 143(3) R.W.S 144C (13) OF THE I .T.ACT 1961 ON 12/01/2007 AND MADE ADDITIONS OF RS. 83 50 82 268/- IN RESPECT OF TP ADJUSTMENT AS SUGGESTED BY THE TPO ON THE BASIS OF DIRECTIONS OF LD.DRP. THE LD. AO HAS ALSO MADE ADDITIONS TOWARDS DIFFERENCE IN AIR INFORMATION. AGGRIEVED BY THE DRP DIRECTIONS T HE ASSESEE IS IN APPEAL BEFORE US. TECH MAHINDRA BUSINESS SERVICES LTD. 12 10. THE FIRST ISSUE THAT CAME UP OF OUR CONSIDERATI ON FROM GROUND NO.3 OF ASSESEE APPEAL IS TP ADJUSTMENT OF RS. 83 06 70 260/- IN RESPECT OF VOICE BASED CALL CENTRE SERVICES PROVI DED BY THE ASSESSEE. THE LD. AR FOR THE ASSESSEE SUBMITTED THA T ALTHOUGH ASSESSE HAS RAISED NUMBER OF GERUNDS BUT THE RELEV ANT GROUNDS IS GROUND NO. 3.7 WHICH DEALS WITH INCORRECT SELECTIO N OF COMPARABLES COMPANIES BY THE LD. TPO. THE LD. TPO HAS INCLUDED TWO COMPARABLES TO THE FINAL SET OF COMPARABLES OF THRE E COMPANIES AND IF EXCEL INFOWAY LTD. IS EXCLUDED FROM THE LIST OF COMPARABLES THEN THE ARITHMETIC MEAN MARGIN OF COMPARABLES SELECTED BY THE TPO WORKOUTS TO 17.75% WHICH IS WITHIN THE RANGE OF (+ ) OR( 5%) AND THEN THE TP ADJUSTMENT SUGGESTED BY THE TPO BECOM ES NIL. THE LD. AR FOR THE ASSESEE FURTHER SUBMITTED THAT THE ASSESEE IS AN ENTITY ENGAGED IN BPO SERVICES BUT THE COMPARABLES SELECTED BY THE TPO IS INTO HIGH END ITES SERVICES WHICH IS FU NCTIONALLY NOT COMPARABLE TO THE ASSESEE. THE LD. AR FURTHER SUBM ITTED THAT IF YOU GO THROUGH PROFILE OF EXCEL INFOWAY LTD THE COMPA NY ENGAGED IN PROVIDING IT/ BPO ENABLED SERVICES AND DEVELOPMENT OF INFRASTRUCTURE AS AGAINST THIS THE ASSESEE IS ENG AGED IN PROVIDING MERELY VOICE BASED CALL CENTRE SERVICES TO ITS AES . FURTHER IT HAS EARNED NET COST MARGIN OF 41.48% FROM THE SEGMENT O F IT /BPO ENABLED SERVICES. THUS EXCEL INFOWAYS LTD. IS AN O UT LAYER WHOSE MARGIN IS WAY BEYOND ASSESSEE COMPANY. FURTHER THE COMPANY EARNING ABNORMAL MARGIN AND HENCE CANNOT BE CONSID ERED IN ARMS LENGTH SCENARIO. THE LD. AR FURTHER SUBMITTED THAT THIS COMPANY HAS BEEN CONSIDERED BY VARIOUS TRIBUNALS AND HELD T HAT THIS IS NOT A COMPARABLE FOR THOSE COMPANIES WHICH ARE INVOLVED IN PROVIDING LOW END BPO SERVICES. IN THIS REGARD HE RELIED UPON TH E DECISION OF ITAT PUNE IN THE CASE OF EMERSON CLIMATE TECHNOLOG IES INDIA PVT. TECH MAHINDRA BUSINESS SERVICES LTD. 13 LTD. VS DCIT IN ITA NO. 2847/PUNE/2016. THE LD. AR FOR THE ASSESEE HAS ALSO RELIED UPON THE DECISION OF ITAT BANGALORE IN THE CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONS ULTANT PVT LTD VS ACIT (2018) 94 TAXMANN.COM 97. 11. THE LD. DR ON THE OTHER HAND STRONGLY SUPPORTIN G ORDER OF THE TPO AS WELL AS DRP SUBMITTED THAT THE AUTHORITIES HAVE BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT EXCEL INFOWAYS LTD. IS ALSO ENGAGED IN SIMILAR BUSINESS THAT OF THE ASSESSEE IS PROVIDING ITS AE AND HENCE THERE IS NO REASON TO INTERFERE IN THE FINDINGS OF THE LD.DRP. 12. WE HAVE HEARD BOTH THE PARTIES PERUSED MATERIA L AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES B ELOW. WE FIND THAT THE COORDINATE BENCH OF ITAT PUNE IN THE CAS E OF EMERSON CLIMATE TECHNOLOGIES INDIA PVT.LTD. VS DCIT (SUPRA) HAD CONSIDERED M/S EXCEL INFOWAYS LTD. IN THE LIGHT OF COMPANIES ENGAGED IN THE BUSINESS OF PROVIDING LOW END BPO SERVICES AND HELD THAT THIS COMPANY CANNOT BE COMPARABLE TO THE COMPANIES WHIC H ARE INVOLVED IN PROVIDING LOW END BPO SERVICES TO AE. W E FURTHER NOTED THAT THE TRIBUNAL RECORDED CATEGORICALLY FINDING TH AT THIS COMPANY SHOWING FLUCTUATING MARGINS FROM YEAR ON YEAR AND A LSO IT IS IN THE PROCESS FOR CLOSING DOWN ITS ITES SEGMENT. THEREFOR E BECAUSE OF ITS DIFFERENT FACTORS AND ALSO FLUCTUATING MARGINS THIS COMPANY CANNOT BE COMPARED TO THE COMPANY WHICH IS PROVIDI NG LOW END SERVICES TO ITS AE. SIMILARLY THE ITAT BANGALORE I N THE CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANT PVT L TD HAD CONSIDERED M/S EXCEL INFOWAYS LTD. FROM THE LIST OF COMPARABLE SELECTED BY THE TPO AND BY FOLLOWING THE DECISION OF ITAT DELHI IN THE CASE OF BOXTER INDIA PVT.LTD. VS AND ACIT (2017 ) 85 TECH MAHINDRA BUSINESS SERVICES LTD. 14 TAXMANN.COM 285 HELD THAT EXCEL INFOWAYS LTD CANNOT BE COMPARED BECAUSE OF CONSISTENT DIMINISHING REVENUE. IN THIS CASE ON PERUSAL OF FACTS WE FIND THAT THE ASSESSEE IS ENGAGED IN P ROVIDING LOW END BPO SERVICES TO IS AES AND IF YOU COMPARE THE NATU RE OF SERVICES PROVIDED BY EXCEL INFOWAYS LTD TO THE FUNCTIONS PER FORMED BY THE ASSESSE THEN CERTAINLY EXCEL INFOWAYS LTD CANNOT B E COMPARED TO THE PROFILE OF THE ASSESSEE. THEREFORE CONSISTENT WITH VIEW TAKEN BY COORDINATE BENCH IN THE CASES DISCUSSED HEREINABOVE WE DIRECT THE AO TO EXCLUDE M/S EXCEL INFOWAYS LTD FROM THE FINAL SET OF COMPARABLES. 13. THE LD. AR FOR THE ASSESSEE AT THE TIME OF HEA RING SUBMITTED THAT IF EXCEL INFOWAYS LTD IS EXCLUDED FROM FINAL S ET OF COMPARABLES THEN THE ARITHMETIC MEAN MARGIN OF COMPARABLES SELE CTED BY THE TPO IS WITHIN (+ OR -) 5% RANGE THEN THE TP ADJUST MENT MADE BY THE AO BECOMES NIL AND ACCORDINGLY AL OTHER GROUNDS R ELATES TO TP ADJUSTMENT BECOMES INFRCTOUS. THEREFORE WE DIRECT THE AO TO EXCLUDE EXCEL INFOWAYS LTD FROM THE LIST OF FINAL S ET OF COMPARABLES AND THEN DETERMINE ARITHMETIC MEAN MARGIN OF COMPA RABLES TO DECIDE WHETHER ANY ADJUSTMENT IS REQUIRED IN RES PECT OF INTERNATIONAL TRANSACTIONS OF THE ASSESSE WITH ITS AES. INSOFAR AS OTHER GROUNDS TAKEN BY THE ASSESEE IN RESPECT OF TP ADJUSTMENT BECOMES INFRUCTUOUS AND HENCE ALL GROUNDS ARE DISM ISSED AS NOT PRESSED. 14. THE NEXT ISSUE THAT CAME UP OF OUR CONSIDERATIO N FROM GROUND NO. 4 OF ASSESEE APPEAL IS TP ADJUSTMENT OF RS. 44 12 088/- IN RESPECT OF INTEREST ON OUTSTANDING AMOUNTS RECEIVAB LE BY THE ASSESSEE FROM THE AES. THE LD. AO HAS COMPUTED INT EREST TECH MAHINDRA BUSINESS SERVICES LTD. 15 RECEIVABLE ON THE GROUND THAT THE ASSESEE HAS ALLO WED UNDUE BENEFIT TO THE AE BY EXTENDING CREDIT PERIOD BEYON D THE NORMAL CREDIT PERIOD ALLOWED TO OTHER CUSTOMERS AND HENCE COMPUTED INTEREST RECEIVABLES FROM EXPORT RECEIVABLES WHERE VER THE RECEIVABLES EXCEED THE CREDIT PERIOD. THE LD. AR F OR THE ASSESEE SUBMITTED THAT FIRST OF ALL THERE CANNOT BE ANY ADJ USTMENT IN RESPECT OF INTEREST RECEIVABLE BECAUSE THE ASSESEE HAS NOT CHARGED ANY INTEREST ON RECEIVABLES FROM AE AS WELL AS NON AE. FURTHER THE CREDIT PERIOD ALLOWED TO AE IS LESS THAN THE CREDIT PERIOD COMPUTED BY THE TPO IN COMPARABLE CASES. THEREFORE THERE CA NNOT BE ANY ADJUSTMENT IN RESPECT OF INTEREST RECEIVABLES ON RE CEIVABLES FROM AES. IN THIS REGARD HE RELIED UPON THE DECISION O F HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS KUSUM HEALTH CARE (PVT.LTD.) 398 ITR 66. 15. THE LD. DR ON THE OTHER HAND STRONGLY SUPPORTI NG ORDER OF THE TPO AS WELL AS DRP SUBMITTED THAT THE AUTHORITIES BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THE ASSESSE HAS ALLOWED EX TENDED CREDIT PERIOD TO THE AE THEREBY ALLOWED UNDUE BENEFIT. TH EREFORE THE OPPORTUNITY COST RELATES TO SUCH EXTENDED CREDIT PE RIOD OF RECEIVABLES FROM AE SHALL BE SUITABLY BENCH MARKED AND ACCORDIN GLY THERE IS NO ERROR IN THE FINDINGS OF THE LD.TPO AS WELL AS THE LD.DRP AND THEIR ORDER SHOULD BE UPHELD. 16. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE MAIN ARGUMENTS OF THE LD. AR FOR THE ASSES EE IN THE LIGHT OF AVERAGE CREDIT PERIOD COMPUTED BY THE TPO IN CASE OF COMPARABLES THAT THE AVERAGE CREDIT PERIOD ALLOWED BY THE ASSES EE TO ITS AE IS TECH MAHINDRA BUSINESS SERVICES LTD. 16 LESS THAN THE AVERAGE CREDIT PERIOD COMPUTED BY THE TPO IN COMPARABLES CASES AND HENCE THERE CANNOT BE ANY AD JUSTMENTS IN RESPECT OF INTEREST ON RECEIVABLE FROM AE. WE FURT HER NOTED THAT THE ASSESEE HAS ALSO TAKEN SUPPORT FROM THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF KUSUM HEALTH CARE PVT.L TD(SUPRA) AND ARGUED THAT WHEN THE ASSESSE HAS ALREADY FACTORED THE IMPACT OF THE RECEIVABLES ON THE WORKING CAPITAL AND THEREB Y ON ITS PRICING / PROFITABILITY VIS--VIS THAT OF ITS COMPARABLES A NY FURTHER ADJUSTMENTS ONLY ON THE BASIS OF THE OUTSTANDING RECEIVABLE WOU LD DISTRACT THE PICTURE AND RE-CHARACTERIZE THE TRANSACTIONS AND TH US WOULD BE UN- JUSTIFIED. WE FIND THAT IN THIS CASE THE FACTS WIT H REGARD TO FACTORING IN IMPACT OF RECEIVABLES ON WORKING CAPITAL VIS--VIS THAT OF ITS COMPARABLES BY THE ASSESEE IS NOT COMING OUT FROM T HE RECORDS. FURTHER THE ASSESEE HAS FILED A CHART OF WORKING O F AVERAGE CREDIT PERIOD ALLOWED TO AES WHICH IS ANNEXED AS ATTACHM ENT IN PAGE NO. 163 OF PAPER BOOK FILED BY THE ASSESEE. WE FIND THA T ALTHOUGH IN MAJORITY OF THE CASES THE CREDIT PERIOD IS LESS T HAN THE AVERAGE CREDIT PERIOD WORKED OUT BY THE AO IN COMPARABLE SE LECTED BUT IN SOME CASES THE CREDIT PERIOD ALLOWED TO AES IS MOR E THAN THE AVERAGE CREDIT PERIOD COMPUTED BY THE AO. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO BE SET ASID E TO THE FILE OF THE LD.AO /TPO TO DETERMINE THE AVERAGE CREDIT PERIOD A LLOWED BY THE ASSESSE TO IS AE AND THEN COMPARE WITH AVERAGE CRE DIT PERIOD OF COMPARABLES TO DETERMINE WHETHER ANY EXTENDED CR EDIT PERIOD IS ALLOWED TO AES OR NOT. FURTHER WHILE DOING SO TH E LD. AO SHALL TAKE NOTE OF THE DECISIONS OF HONBLE DELHI HIGH COURT I N THE CASE OF KUSUM HEALTH CARE PVT.LTD (SUPRA). HENCE WE SET AS IDE THE ISSUE TO THE FILE OF THE AO FOR RE-CONSIDERATION OF THE I SSUE IN LIGHT OF THE EVIDENCES FILED BY THE ASSESEE. TECH MAHINDRA BUSINESS SERVICES LTD. 17 17. THE NEXT ISSUE THAT CAME UP OF OUR CONSIDERATIO N FROM GROUND NO. 5 OF ASSESEE APPEAL IS ADDITIONS TOWARD DIFFERE NCE IN AIR INFORMATION AMOUNTING TO RS. 2 11 905/-. THE LD. AR FOR THE ASSESEE SUBMITTED THAT THE AO WAS ERRED IN MAKING AN ADDITI ON OF INTEREST INCOME OF RS. 2 11 905/- WITHOUT APPRECIATING THE F ACT THAT THE SAID INCOME WAS OFFERED TO TAX BY THE ASSESEE IN THE SU BSEQUENT AY ON AN ACCRUAL BASIS. THE LD. DR ON THE OTHER HAND AR GUED THAT THE ISSUE MAY BE SET ASIDE TO THE AO TO RECONSIDER THE ARGUMENTS OF THE ASSESSE THAT IT HAS OFFERED THE SAME FOR TAXATION IN SUBSEQUENT ASSESSMENT YEARS. 18. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE AO HAS MADE ADDITIONS TOWARD DIFFERENCE IN AIR INFORMATION IN RESPECT OF INTEREST INCOME WITHOUT CONSIDERING T HE ARGUMENTS OF THE ASSESEE THAT THE SAID INCOME WAS SUBJECTED TO T AX IN SUBSEQUENT AY ON AN ACCRUAL BASIS. IF AT ALL THE SAID DIFFERE NCE AMOUNT OF INTEREST INCOME WAS SUBJECTED TO TAX IN AN EARLIER YEAR OR SUBSEQUENT YEAR THEN THERE CANNOT BE FURTHER ADDITIONS TOWARD S THE SAME DURING THE YEAR UNDER CONSIDERATION. THEREFORE WE SET ASI DE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO VERIFY THE FAC TS IN LIGHT OF THE CLAIM OF THE ASSESSEE THAT THE DIFFERENCE INTEREST INCOME WAS OFFERED TO TAX IN THE SUBSEQUENT ASSESSMENT YEAR ON AN ACCR UAL BASIS. IN CASE THE LD. AO FINDS THAT THE SAID DIFFERENCE IS SUBJECT TO TAX IN SUBSEQUENT YEARS THEN THE ADDITIONS MADE TOWARDS D IFFERENCE IN INTEREST INCOME ON THE BASIS OF AIR INFORMATION SHO ULD BE DELETED. TECH MAHINDRA BUSINESS SERVICES LTD. 18 15. THE NEXT ISSUE THAT CAME UP OF OUR CONSIDERATIO N FROM GROUND NO. 6 OF ASSESEE APPEAL IS RE-COMPUTATION OF BOOK P ROFIT U/S 115JB IN RESPECT OF TP ADJUSTMENT AMOUNTING TO RS. 83 50 82 268/-. WE FIND THAT WE HAVE DIRECTED THE TPO TO RECOMPUTE TP ADJUSTMENT BY EXCLUDING EXCEL INFOWAYS LTD FROM FINAL SET OF COMP ARABLES TO DETERMINE ANY TP ADJUSTMENT IS REQUIRED IN RESPECT OF INTERNATIONAL TRANSACTIONS OF THE ASSESEE WITH ITS AES. IT IS TH E CASE OF THE ASSESEE THAT IF EXCEL INFOWAYS LTD IS EXCLUDED FROM FINAL SET OF COMPARABLES THEN ARITHMETIC MEAN MARGIN OF COMPARA BLES SELECTED BY THE TPO IS WITHIN + OR 5% RANGE AND CONSEQUENT LY NO TP ADJUSTMENT IS REQUIRED IN RESPECT OF INTERNATIONAL TRANSACTIONS WITH AES. THEREFORE WE SET ASIDE THIS ISSUE TO THE FIL E OF THE AO TO DECIDE THE ISSUE AFTER DETERMINING THE TP ADJUSTMEN T IN ACCORDANCE WITH OUR DIRECTIONS GIVEN HEREINABOVE IN EARLIER PA RAGRAPH. 19. IN THE RESULT APPEAL FILED BY THE ASSESEE FOR AY 2012-13 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 4861/MUM/2017 20. THE ASSESEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL 1. TRANSFER PRICING (TP) ADJUSTMENT /ADDITION OF INR 5 229198 TO APPELLANTS TOTAL INCOME . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TRANSFER PRICING OFFICER (TPO) AND THE LEARNED ASSE SSING OFFICER (AO) UNDER THE DIRECTIONS ISSUED BY THE HONBLE DISPUTE RESOLUTION PANEL (DRP) ERRED IN MAKING A TP ADJUSTMENT / ADDITION OF INR 52 29 92 198 TO THE APPELLANTS INCOME UNDER THE PROVISIONS OF CHA PTER X OF THE INCOME- TAX ACT 1961 (THE ACT) 2. TP ADJUSTMENT OF INR 52 0761 900 IN RESPECT OF VOICE BASED CALL CENTRE SERVICES PROVIDED BY THE APPELLANT TECH MAHINDRA BUSINESS SERVICES LTD. 19 2.1 ERRONEOUS REFERENCE TO THE LEARNED TPO BY THE LEARNED AO WITHOUT APPLICATION OF MIND ON THE FACTS AND IN THE CIRCUMSTANCES OF HE CASE AN D IN LAW THE LEARNED AO HAS ERRED IN REFERRING THE MATTER TO THE LEARNED TPO WITHOUT SPECIFYING THE REASONS BY WHICH CONDITIONS SPECIFIED UNDER SECTION 92C (3) OF THE ACT HAVE BEEN SATISFIED. 2.2 ERRONEOUS RELIANCE BY THE LEARNED TPO ON APPROA CH ADOPTED IN AY 2012-13 WITH A PRE-DETERMINED MINDSET TO MAK E ADJUSTMENT. THE LEARNED AO/TPO ERRED IN MECHANICALLY RELYING ON THE OBSERVATIONS/CONCLUSIONS MADE BY THE LEARNED TPO IN AY 2012-13 AND NOT EVALUATING THE SAME AFRESH. THE LEARNED AO/ TPO S ACTION OF CONCLUDING THE ASSESSMENT BY SETTING THE APPELLANT S POSITION IN AY 2013-14 REMAINS ALMOST THE SAME AS IN AY 2012-13 WITHOUT EXAMINING THE FACTS HIMSELF AFRESH IN AY 2013-14 DE MONSTRATES THE LEARNED AO/TPOS PRE-DETERMINED MINDSET TO MAKE AN ADJUSTMENT. FURTHER THE LEARNED AO/TPO ERRED IN FAILING TO APP RECIATE THAT THE PRINCIPLES OF RES JUDICATA ARE NOT APPLICABLE TO TA X PROCEEDINGS AND HENCE THE MATTER SHOULD BE LOOKED AT AFRESH IN AY 2 013-14. FURTHER HONBLE DRP ERRED IN UPHOLDING THE ABOVE A CTION OF THE LEARNED AO/TPO OF PLACING COMPLETE RELIANCE ON AY 2 012-13 OBSERVATIONS AND NOT UNDERTAKING A FRESH EXAMINATIO N OF FACTS IN AY 2013-14. 2.3 INCORRECT UNDERSTANDING OF THE APPELLANTS BUSI NESS LEADING TO WRONG CHARACTERIZATION FO APPELLANTS BUSINESS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA AND IN LAW THE LEARNED TPO/AO AND THE HONBLE DRP ERRED IN CONCLUD ING THAT THE APPELLANT UNDERTAKES ACTIVITIES OF A HIGHER FUNCTIO NAL SIGNIFICANCE THAN A MERE BPO BY PLACING RELIANCE ON THE ADHOC SEARCHE S CONDUCTED ON THIRD PARTY WEBSITES DURING TP ASSESSMENT FOR AY 20 12-13 MISINTERPRETING THE DETAILS/DOCUMENTARY EVIDENCES S UBMITTED BY THE APPELLANT DURING THE TP ASSESSMENT FOR AY 2012-13 2.4 INCORRECT BIFURCATION OF THE APPELLANTS ACT IVITIES INTO FRONT END AND BACKEND ACTIVITIES. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO/AO AND THE HON'BLE DRP HAVE ERRONEOUSLY CONCLU DED THAT THE APPELLANT IS ENGAGED IN TWO LEGS OF ACTIVITIES VIZ. FRONT END RPO ACTIVITIES INVOLVING RESPONDING TO CUSTOMER QUERIES HANDLING THEIR COMPLAINTS ETC. AND BACKEND ACTIVITIES WHICH INVOLVE ANALYSIS AND R EPORTING OF DATA GENERATED FROM FRONT END ACTIVITIES ON THE BASIS O F THE OBSERVATIONS AND CONCLUSIONS RECORDED IN TP ASSESSMENT FOR AY 2012-1 3. TECH MAHINDRA BUSINESS SERVICES LTD. 20 THE LD. AO/TPO HAVE ERRED AND THE HONBLE DRP HAS F URTHER ERRED IN FAILING TO APPRECIATE THAT THE APPELLANT IS ENGAGED IN ONLY PROVIDING VOICE BASED CALL CENTRE SERVICES AND THE ACTIVITIES OF RE PORT GENERATION AND ANALYSIS OF DATA ARE UNDERTAKEN ONLY FOR EFFICIENT OPERATION OF THE BUSINESS. 2.5 ADJUSTMENT MADE TO TOTAL INCOME IN RESPECT OF ENTIRE OPERATIONS OF THE APPELLANT INSTEAD OF PROPORTIONAT E ADJUSTMENT FOR THE ALLEGED HIGH END ACTIVITIES CARRIED OUT BY THE APPELLANT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW WITHOUT PREJUDICE TO THE APPELLANT'S STAND THAT THE (EARNED TPO / AO AND THE HON'BLE DRP HAS ERRONEOUSLY BIFURCATED THE APPELLAN TS ACTIVITIES IN TWO LEGS OF ACTIVITIES ONE BPO AND ANOTHER HIGH END FUN CTIONS THE LEARNED TPO / AO AND THE HONBLE DRP ERRED IN MAKING AN AD JUSTMENT TO THE TOTAL INCOME OF THE APPELLANT INSTEAD OF MAKING AN ADJUSTMENT ONLY TO THE RELEVANT PROPORTION OF OPERATIONS WHICH ARE ALLEGED LY INTO HIGH END OPERATIONS AS PER THE LEARNED AO /TPOS CONTENTION. 2.6 INCORRECT REJECTION OF APPELLANT'S BENCHMAR KING ANALYSIS AND COMPARABLE COMPANIES ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO / AO ERRED AND THE HONBLE DRP FURTHER ERRED IN UPHOLDING.' CONFIRMING THE ACTION OF THE LEARNED TPO / AO OF AR BITRARILY DISREGARDING THE COMPARABLE COMPANIES SELECTED B> [HE APPELLANT WHICH WERE SELECTED AFTER CARRYING OUT A SYSTEMATIC AND METHOD OLOGICAL SEARCH PROCESS AND ADOPTING AN ARBITRARY APPROACH BY CHERR Y PICKING COMPARABLE COMPANIES WITH A PREDETERMINED MIND SET OF MAKING AN ADJUSTMENT TO TOTAL INCOME OF APPELLANT 2.7 INCORRECT SELECTION OF COMPARABLE COMPANIES BY THE LEARNED TPO ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO / AO ERRED AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF ME TPO OF SELECTION OF COM PANIES ON THE BASIS OF THE OBSERVATIONS RECORDED BY THE TPOS OFFICE IN AY 2012-13. THE COMPARABLES SELECTED BY THE TPO WERE HIGH END ITES COMPANIES WHICH ARE LACKED CONGRUENCE VIS--VIS THE FUNCTIONAL PRO FILE OF THE APPELLANT. THE APPELLANT PRAYS THAT AFORESAID ACTION OF THE LE ARNED TPO/ AO AND HONBLE DRP IS FACTUALLY INCONGRUENT AND AGAINST T HE PRINCIPLES OF COMPARABILITY ENSHRINED IN RULE 10B(2) OF THE INCOM E-TAX RULES 1962 ('THE RULES') AND HENCE IS LIABLE LO BE REJECTED OR ALTERNATIVELY SET ASIDE. 2.8 ERRONEOUS CONSIDERATION OF SERVICE-TAX REFUND AS NON- OPERATING INCOME AND CONSEQUENT EXCLUSION OF THE S AME FROM MARGIN COMPUTATION OF THE APPELLANT TECH MAHINDRA BUSINESS SERVICES LTD. 21 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW. THE LEARNED TPO ' AO ERRED AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LEARNED TPO / AO OF CO NSIDERING SERVICE-TAX REFUND FOR SERVICE TAX PAID TO THIRD PARTIES ON ALL INPUT SERVICES AS NON- OPERATING AND EXCLUDING THE SAME FROM THE MARGIN CO MPUTATION OF THE APPELLANT THEREBY ERRONEOUSLY REDUCING T HE MARGIN OF THE APPELLANT. THE APPELLANT PRAYS THAT THE AFORESAID ACTION OF TH E LEARNED TPO/AO IS INCONGRUENT IS AGAINST THE BASIC FINANCIAL PRINCIPL ES THEREFORE LIABLE TO BE REJECTED. 2.9 DISREGARD OF MULTIPLE YEAR DATA CONTENTION ON THE FACTS AND IN THE CIRCUMSTANCES OF THE. CASE AND IN LAW THE LEARNED TPO . AO ERRED AND THE HONBLE DRP FURTHER ERRED IN UPHOLDING /CONFIRMING THE ACTION OF THE LEARNED TPO / AO IN R EJECTING THE USE OF MULTIPLE YEAR DATA FOR MARGIN COMPUTATION ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO AND HONBLE DRP ERRED IN ERRONEOUSLY REJECTING THE TRANSFER PRICING ANALYSIS UNDERTAKEN BY THE APPELLANT UNDER SECTION 92C OF THE ACT USING 3 YEAR AVERAGE MARGIN AND DETERMINING THE ARM'S LEN GTH MARGIN/ PRICE USING ONLY DATA FOR FINANCIAL YEAR 2012-13 WHICH W AS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TRA NSFER PRICING DOCUMENTATION REQUIREMENTS. 3. TP ADJUSTMENT OF INR 22 30 298 IN RESPE CT OF INTEREST ON OUTSTANDING AMOUNTS RECEIVABLE BY THE APPELLANT FRO M THE ASSOCIATED ENTERPRISES [AES] 3.1 ERRONEOUS IMPUTATION OF INTEREST ON THE O UTSTANDING AMOUNTS RECEIVABLE FROM THE AES BY INCORRECTLY RE-CHARACT ERIZING THE SAID AMOUNTS AS INTEREST FREE ADVANCE. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED TPO / AO ERRED AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LEARNED TPO / AO OF RE-CHARACTERIZING OUTSTANDING AMOUNTS RECEIVABLE FROM THE AES AS ADVA NCES PROVIDED LO AES AND IMPUTING INTEREST THEREON WITHOUT APPRECI ATING THE FACTS OF THE CASE. THE VERY ACTION OF THE LEARNED TPO / AO AND T HE HON'BLE DRP HAS RESULTED IN SECONDARY ADJUSTMENT WHICH IS NOT ONLY AGAINST THE EXPRESS PROVISIONS OF THE AC! BUT IS ALSO BAD IN LAW. 3.2 ERRONEOUS COMPUTATION OF EXCESS CREDIT PE RIOD FOR COMPUTING TP ADJUSTMENT IN RESPECT OF INTEREST ON O UTSTANDING AMOUNTS. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEARNED TPO/ AO AND THE HONBLE DRP ERRED IN UPHOLDING THE ACTIO N OF THE LEARNED TPO / AO OF ERRONEOUSLY CONSIDERING [HE CREDIT PERI OD OF 30 DAYS TECH MAHINDRA BUSINESS SERVICES LTD. 22 PROVIDED IN THE INTER-COMPANY AGREEMENT INSTEAD OF THE ACTUAL AVERAGE CREDIT PERIOD OF 43 DAYS PROVIDED BY THE APPELLANT LO ITS AES WHILE DETERMINING THE EXCESS CREDIT PERIOD. 3.3 DISREGARDING THE CREDIT PERIOD OF TPOS O WN SET OF COMPARABLE COMPANIES WHILE COMPUTING TP ADJUSTMENT IN RESPECT OF INTEREST ON OUTSTANDING AMOUNTS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TPO / AO ERRED AND THE HONBLE DRP FURTHER ERRED IN CONVENIENTLY IGNORING THE CREDIT PERIOD OF TPO ; S OWN SET OF COMPARABLE COMPANIES WHICH WORKS OUT TO AROUND 58 DAYS AS AGAINST THE AC TUAL AVERAGE CREDIT PERIOD OF 43 DAYS PROVIDED BY THE APPELLANT TO ITS AE THEREBY WARRANTING A DELETION OF TP ADJUSTMENT 3.4 INTEREST ADJUSTMENT BENEFIT NOT GRANTED ON AMOUNTS RECEIVED BEFORE THE EXPIRY OF THE CREDIT PERIOD ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW WITHOUT PREJUDICE TO THE APPELLANT'S* STAND THAT LEARNED AO /TPO AND THE HON'BLE DRP HAS ERRONEOUSLY RE-CHARACTERIZED OUTSTANDING AM OUNTS RECEIVABLE FROM THE AES ADVANCES AND NO INTEREST SHOULD BE IMPUTED THEREON THE LEARNED AO / TPO AND THE HON'BLE DRP HAS ERRONEOUSLY NOT P ROVIDED INTEREST ADJUSTMENT BENEFIT TO THE APPELLANT ON AMOUNTS COLL ECTED BY THE APPELLANT FROM ITS AES BEFORE THE EXPIRY OF CREDIT PERIOD 3. COMPUTATION OF INTEREST UNDER SECTION 234D OF TH E ACT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO ERRED IN COMPUTING INTEREST UNDER SECTION 234D F O THE ACT AT RS. 2 60 10 303/- 5. INITIATION OF PENALTY PROCEEDINGS UNDER SE CTION 271(1)(C) OF THE ACT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 27(1 )(C) OF THE ACT. THE APPELLANT PRAYS THAT THE LEARNED AO BE DIRECTED TO DROP THE PENALTY PROCEEDINGS INITIALED UNDER SECTION 271(1)(C) OF TH E ACT. THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN AND TO SUBMIT SUCH STA TEMENT DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 21. THE FIRST ISSUE THAT CAME UP OF OUR CONSIDERATI ON FROM GROUND NO. 2.7 OF ASSESEE APPEAL IS INCORRECT SELECTION OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION. THE TPO HAS SELECTED M/S EXCEL TECH MAHINDRA BUSINESS SERVICES LTD. 23 INFOWAYS LTD IN THE FINAL SET OF COMPARABLES. WE FI ND THAT FOR THE EARLIER YEAR THE TRIBUNAL HAS DIRECTED THE AO TO E XCLUDE M/S EXCEL INFOWAYS LTD FROM THE FINAL SET OF COMPARABLES TO D ETERMINE ALP OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH AE S. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPH FOR AY 2012-13 S HALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE FOR SIMILAR REASONS WE DIRECT THE AO TO EXCLUDE M/S EXCEL INFOWAYS LTD FROM THE FINAL SET OF COMPARABLES AND THEN COMPARE ALP OF INTERNATION AL TRANSACTIONS OF THE ASSESSE WITH ITS AES. 22. THE NEXT ISSUE THAT CAME UP OF OUR CONSIDERATIO N FROM GROUND NO. 3 OF ASSESEE APPEAL IS TP ADJUSTMENT OF RS. 22 30 298/- IN RESPECT OF INTEREST ON OUTSTANDING RECEIVABLES FROM THE AE. WE FIND THAT A SIMILAR ISSUE HAS BEEN CONSIDERED BY US IN P RECEDING PARAGRAPH IN ITA IT(TP)A NO. 977/MUM/2017 FOR AY 20 12-13. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPHS SHALL M UTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE FOR DETAILS R EASONS RECORDED IN PRECEDING PARAGRAPH FOR AY 2012-13 WE DIRECT THE A O TO RECOMPUTE INTEREST RECEIVABLES ON RECEIVABLES FROM AE IN LIG HT OF OUR FINDING GIVEN FOR THE AY 2012-13. 23. THE NEXT ISSUE THAT CAME UP OF OUR CONSIDERATIO N FROM GROUND NO.4 OF ASSESSEE APPEAL IS COMPUTATION OF INTEREST US/ 234D OF THE I.T.ACT 1961. INTEREST U/S 234D IS CONSEQUENTIAL A ND MANDATORY IN NATURE AND IT DEPENDS UPON TOTAL INCOME AND TAX PAY ABLE OR REFUNDABLE DETERMINED BY THE AO. THEREFORE WE DIRE CT THE AO TO RECOMPUTE INTEREST PAYABLE IF ANY U/S 234D AFTER C OMPUTING TOTAL INCOME AS PER THE LAW. TECH MAHINDRA BUSINESS SERVICES LTD. 24 24. IN THE RESULT APPEAL FILED BY THE ASSESEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSE. 25. AS A RESULT BOTH APPEALS FILED BY THE ASSESEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 /11 /2019 SD/- ( C.N.PRASAD) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 22/11/2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER (ASSTT. REGISTRAR) ITAT MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) MUMBAI. 4. CIT 5. DR ITAT MUMBAI 6. GUARD FILE. //TRUE COPY//