IQor India Services Pvt. Ltd., New Delhi v. ITO, New Delhi

ITA 6034/DEL/2012 | 2007-2008
Pronouncement Date: 27-04-2015 | Result: Allowed

Appeal Details

RSA Number 603420114 RSA 2012
Assessee PAN AABCI2835F
Bench Delhi
Appeal Number ITA 6034/DEL/2012
Duration Of Justice 2 year(s) 4 month(s) 23 day(s)
Appellant IQor India Services Pvt. Ltd., New Delhi
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 27-04-2015
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted I
Tribunal Order Date 27-04-2015
Date Of Final Hearing 25-03-2015
Next Hearing Date 25-03-2015
Assessment Year 2007-2008
Appeal Filed On 04-12-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I NEW DELHI BEFORE SHRI J. S. REDDY ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K. JUDICAL MEMBER ITA NO.6034/DEL/2012 (ASSESSMENT YEAR : 2007-08) IQOR INDIA SERVICES PRIVATE LTD. B-92 9 TH FLOOR HIMALAYA HOUSE 23 K.G. MARG NEW DELHI 110 001. (PAN: AABCI2835F) VS. ITO WARD 11(4) NEW DELHI ITA NO.5934/DEL/2012 (ASSESSMENT YEAR: 2007-08) ITO WARD 11(4) NEW DELHI VS. IQOR INDIA SERVICES PRIVATE LTD. B-92 9 TH FLOOR HIMALAYA HOUSE 23 K.G. MARG NEW DELHI 110 001. (PAN: AABCI2835F) (APPELLANT) (RESPONDENT) DATE OF HEARING : 25.03.2015 DATE OF PRONOUNCEMENT : .....04.2015 APPELLANT BY : SHRI ARUN CHHABRA & MS KANIKA MAKKAR CAS RESPONDENT BY : SHRI JUDY JAMES STANDING COUNSEL D R PER GEORGE GEORGE K. JM: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE C IT(A)S ORDER DATED 28.09.2012. THE RELEVANT ASSESSMENT YEAR IS 2007-0 8. 2 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 2. IN ASSESSEES APPEAL (ITA NO.6034/DEL/2012) 16 GROUNDS ARE RAISED HOWEVER IN THE COURSE OF HEARING THE LD. AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE COMPANY CONFINED HIS ARGUMENTS FOR EXCLUSI ON OF FOUR COMPANIES FROM THE COMPARABLE LIST AS TAKEN BY THE TPO. 3. IN REVENUES APPEAL (ITA NO.5934/DEL/2012) THE SOLITARY EFFECTIVE GROUND RAISED READS AS FOLLOWS: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE LD. CIT(A) WAS CORRECT IN DIRECTING TO KEEP COMPARA BLE M/S MOLD TEK TECHNOLOGIES LTD. AWAY FROM THE LIST OF CO MPARABLE IN VIEW OF THE CBDTS CIRCULAR NO SO 890(E) DATED 28.0 9.2000 WHEREIN IT IS HELD THAT ENGINEERING DESIGN IS WIT HIN THE AMBIT OF IT ENABLE SERVICES. 4. WE SHALL FIRST TAKE UP FOR ADJUDICATION THE ASSE SSEE S APPEAL. ITA NO.6034/DEL/2012 (ASSESSEES APPEAL) 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY INCORPORATED ON 30.09.2004. THE ASSESSEE IS SUBSIDI ARY OF INTELLIRISK MANAGEMENT CORPORATION (IRMC US) PROVIDING INFORMA TION TECHNOLOGY ENABLED SERVICES (ITES) TO ITS AE NAMELY IRMC US F OR THE RELEVANT FINANCIAL YEAR. IN THE TP DOCUMENTATION THE ASSESSEE WAS CHA RACTERIZED AS LIMITED RISK IT ENABLED SERVICE PROVIDER RENDERING CALL CENTRE AND SUPPORT SERVICE TO ITS AE. THE ASSESSEE HAD UNDERTAKEN THE FOLLOWING INTERNATI ONAL TRANSACTION WITH ITS AE :- 3 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 S. NO. DESCRIPTION OF EACH TRANSACTION AMOUNT 1. MANAGEMENT SUPPORT SERVICES FEE 1 89 72 148 2. INFORMATION TECHNOLOGY ENABLED 11 51 05 389 3. REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF AE 4 45 50 064 6. WITH REFERENCE TO INTERNATIONAL TRANSACTION IN S L.NOS. 1 & 2 IN ASSESSEES TRANSFER PRICING STUDY SEVEN COMPARABLES WERE TAKE N AND THREE YEARS WEIGHTED MARGIN OF THE COMPARABLES WERE DETERMINED AT 16.95% . THE ASSESSEE MARGIN WAS SHOWN AT 15.90% AND THEREFORE IT WAS STATED IN THE TP STUDY THE INTERNATIONAL TRANSACTIONS WERE AT ARMS LENGTH. 7. THE TPO REJECTED THE TRANSFER PRICING STUDY COND UCTED BY THE ASSESSEE. THE TPO CONDUCTED AN INDEPENDENT SEARCH OF COMPARAB LE BASED ON THE FUNCTIONS ASSETS AND RISKS (FAR) OF THE ASSESSEE. THE TPO ALSO USED A DIFFERENT SET OF FILTERS TO SELECT THE COMPARABLES AND ARRIVED AT TWENTY FIVE COMPARABLE COMPANIES. THE TPO ADOPTED THE CURRENT Y EARS DATA TO COMPUTE THE MARGINS OF THE COMPARABLES. AFTER PROVIDING THE WOR KING CAPITAL ADJUSTMENT PROFIT LEVEL INDICATOR (PLI) OF THE COMPARABLES WAS COMPUTED AT 28.29%. SINCE THE ASSESSEE MARGIN WAS NOT WITHIN THE PERMISSIBLE RANGE ADJUSTMENT OF RS. 1 43 39 353/- WAS MADE TO INTERNATIONAL TRANSACTION . THE COMPUTATION OF THE ARMS LENGTH PRICE DONE BY THE TPO READS AS FOLLOWS :- 25. COMPUTATION OF ARMS LENGTH PRICE : THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATOR I S TAKEN AS THE ARMS LENGTH MARGIN (PLEASE SEE ANNEXURE E FOR DETAI LS OF 4 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 COMPUTATION OF PLI OF THE COMPARABLES). BASED ON TH IS THE ARMS LENGTH PRICE OF THE IT ENABLED SERVICES RENDERED BY YOU IS COMPUTED AS UNDER : ARITHMETIC MEAN PLI : 30.07% LESS: WORKING CAPITAL ADJUSTMENT (ANNEXURE-F): 1.78% ADJ. ARITHMETIC MEAN PLI : 28.29% ARMS LENGTH PRICE: OPERATING COST RS.115 688 589 ARMS LENGTH MARGIN 28.29% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) RS.148 416 890 26. PRICE RECEIVED VIS-A-VIS THE ARMS LENGTH PRICE : THE PRICE CHARGED BY THE TAX PAYER TO ITS ASSOCIATE D ENTERPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER : ARMS LENGTH PRICE RS.148 416 890 PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS RS.134 077 537 SHORTFALL BEING ADJUSTMENT U/S 92CA RS. 14 339 353 8. THERE IS NO DISPUTE WITH REGARD TO THE MOST APPR OPRIATE METHOD ADOPTED BY THE ASSESSEE NAMELY TRANSACTION NET MARGIN MET HOD (TNMM). THE PLI USED BY THE TAXPAYER WAS OPERATING PROFIT/TOTAL COS T (OP/TC) WHICH ALSO ACCEPTED BY THE TPO. 9. AGGRIEVED BY THE ADJUSTMENT MADE TO THE ARMS L ENGTH PRICE ASSESSEE PREFERRED AN APPEAL TO THE CIT(A). THE CIT(A) PARTL Y REJECTED THE OBJECTION OF THE ASSESSEE. 5 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 10. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US RAISING SIXTEEN GROUNDS. HOWEVER IN THE COURSE OF HEARING OF APPEAL THE AUTHORISED REPRESENTATIVE CONFINED HIS ARGUMENTS TO GROUND NO 7 NAMELY WHETHER THE CIT(A) WAS JUSTIFIED IN INCLUDING IN TH E LIST OF COMPARABLES COMPANIES THE FOLLOWING FOUR COMPANIES:- (I) ECLERX SERVICES PVT. LTD (II) VISHAL INFORMATION TECHNOLOGY LTD. (III) MAPLE E SOLUTIONS LTD. (IV) TRITON CORPORATION LTD. 11. THE BRIEF SUBMISSION MADE BY THE AUTHORISED REP RESENTATIVE FOR THE ASSESSEE WITH RESPECT TO EACH OF THE ABOVE COMPARAB LE FOUR COMPANIES READ AS FOLLOWS : ECLERX SERVICES LIMITED (ECLERX) (REFER PAGE 9 OF CHART OF ISSUES) THE DIFFERENCE IN THE OPERATING MARGINS OF ECLERX ( OP/TC OF 89.33%) VIS-A- VIS THE APPELLANT OPERATING WITH A MARGIN OF 15.90% . IN THIS REGARD IT IS RESPECTFULLY SUBMITTED THAT T HE ITAT SPECIAL BENCH (MUMBAI) IN CASE OF MAERSK GLOBAL CENTRES (INDIA) PRIVATE LIMITED VS. ACIT CIR 6(3) ( (I .T.A. NO.7466/MUM/2012 ) PARA NO. 99 (PAGE 695-696 OF THE PAPERBOOK) HAS HELD THAT COMPANIES EARNING ABNORMALLY HIGH PRO FITS SHOULD INVITE FURTHER INVESTIGATION TO ASCERTAIN WH ETHER THE ENTITIES EARNING SUCH SUPER NORMAL PROFITS SHOULD BE INCLUDED IN THE LIST OF FINAL COMPARABLES OR NOT. ECLERX IS ENGAGED IN PROVIDING DATA ANALYTICS SERVI CES WITH EXPERTISE IN FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. TH E SERVICES PROVIDED BY THE COMPANY ARE HIGH END IN NATURE INVOLVING SPECIAL KN OWLEDGE AND DOMAIN EXPERTISE AND HENCE THE COMPANY OUGHT NOT TO BE COM PARED TO A LOW END ITES SERVICE PROVIDER LIKE THE APPELLANT ENGAGED IN PROV IDING CALL CENTRE SERVICES FOR VARIOUS INDUSTRIES. THE ABOVE IS SUPPORTED BY T HIS COMPANYS OWN REPLY TO THE NOTICE U/S 133(6). (REFER PAGE 976-979 OF THE P APER-BOOK) 6 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 THE APPELLANT DRAWS YOUR ATTENTION TO THE RULING OF THE HONBLE SPECIAL BENCH IN THE MATTER OF 'MAERSK GLOBAL CENTRES (INDI A) PRIVATE LTD VS ACIT (I .T.A. NO.7466/MUM/2012) (PLEASE REFER PAGE 692-694 OF THE PAPER-BOOK). THE RELEVANT PORTION OF THE SAID RULING IS PRODUCED HERE-IN-UNDER: IN SO FAR AS M/S ECLERX SERVICES LIMITED IS CONCERN ED THE RELEVANT INFORMATION IS AVAILABLE IN THE FORM OF ANNUAL REPO RT FOR FINANCIAL YEAR 2007-08 PLACED AT PAGE 166 TO 183 OF THE PAPER BOOK. A PERUSAL OF THE SAME SHOWS THAT THE SAID COMPANY PROVIDES DA TA ANALYTICS AND DATA PROCESS SOLUTIONS TO SOME OF THE LARGEST BRAND S IN THE WORLD AND IS RECOGNIZED AS EXPERTS IN CHOSEN MARKETS-FINANCIA L SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE PROVI DING COMPLETE BUSINESS SOLUTIONS BY COMBINING PEOPLE PROCESS IMP ROVEMENT AND AUTOMATION. IT IS CLAIMED TO HAVE EMPLOYED OVER 150 0 DOMAIN SPECIALISTS WORKING FOR THE CLIENTS. IT IS CLAIMED THAT ECLERX IS A DIFFERENT COMPANY WITH INDUSTRY SPECIALIZED SERVICE S FOR MEETING COMPLEX CLIENT NEEDS DATA ANALYTICS KPO SERVICE PR OVIDER SPECIALIZING IN TWO BUSINESS VERTICALS FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE ENGAGED IN P ROVIDING SOLUTIONS THAT DO NOT JUST REDUCE COST BUT HELP TH E CLIENTS INCREASE SALES AND REDUCE RISK BY ENHANCING EFFICIENCIES AND BY PROVIDING VALUABLE INSIGHTS THAT EMPOWER BETTER DECISIONS. M/ S ECLERX SERVICES PVT. LTD. IS ALSO CLAIMED TO HAVE A SCALABLE DELIVE RY MODEL AND SOLUTIONS OFFERED THAT INCLUDE DATA ANALYTICS OPER ATIONS MANAGEMENT AUDITS AND RECONCILIATION METRICS MANA GEMENT AND REPORTING SERVICES. IT ALSO PROVIDES TAILORED PROCE SS OUTSOURCING AND MANAGEMENT SERVICES ALONG WITH A MULTITUDE OF DATA AGGREGATION MINING AND MAINTENANCE SERVICES. IT IS CLAIMED THAT THE COMPANY HAS A TEAM DEDICATED TO DEVELOPING AUTOMATION TOOLS TO SUPPORT SERVICE DELIVERY. THESE SOFTWARE AUTOMATION TOOLS I NCREASE PRODUCTIVITY ALLOWING CUSTOMERS TO BENEFIT FROM FU RTHER COST SAVING AND OUTPUT GAINS WITH BETTER CONTROL OVER QUALITY. KEEPING IN VIEW THE NATURE OF SERVICES RENDERED BY M/S ECLERX SERVI CES PVT. LTD. AND ITS FUNCTIONAL PROFILE WE ARE OF THE VIEW THAT THI S COMPANY IS ALSO MAINLY ENGAGED IN PROVIDING HIGH-END SERVICES INVOL VING SPECIALIZED KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT BE COMPARED WITH THE ASSESSEE COMPANY WHICH IS MAINLY ENGAGED IN PROVIDING LOW-END SERVICES TO THE GROUP CONCERNS. FOR THE REASONS GIVEN ABOVE WE ARE OF THE VIEW THA T IF THE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPANY FOR ITS AES ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES PVT. LTD. AND MOLD-TEK TECHNOLOGIES LTD. IT IS DIFFICUL T TO FIND OUT ANY RELATIVELY EQUAL DEGREE OF COMPARABILITY AND THE SA ID ENTITIES CANNOT BE TAKEN AS COMPARABLES FOR THE PURPOSE OF DETERMIN ING ALP OF THE TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. WE THEREFORE DIRECT THAT THESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF 10 7 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 COMPARABLES FINALLY TAKEN BY THE AO/TPO AS PER THE DIRECTION OF THE DRP. EMPHASIS SUPPLIED THE APPELLANT HUMBLY CONTENDS THAT THE AFORESAID RU LING IS EQUALLY APPLICABLE TO THE CASE OF THE APPELLANT. THE APPELLANT IS A LO W END SERVICE PROVIDER ENGAGED IN PROVIDING CALL CENTER SERVICES TO ITSAE. IT IS RESPECTFULLY SUBMITTED THAT MAJORITY OF THE WORKFORCE OF THE APPELLANT COM PRISES OF GRADUATES AND UNDERGRADUATES AND THE SERVICES PROVIDED BY APPELLA NT DOES NOT REQUIRE ANY SPECIALIZED KNOWLEDGE OR SKILLS. IN VIEW OF THE ABO VE IT IS PLEADED THAT THIS COMPANY BE REJECTED. THE APPELLANTS CONTENTIONS AR E FORTIFIED BY SEVERAL RULINGS OF THE COORDINATE BENCHES OF THE HONBLE IT AT. THESE RULINGS ARE PRODUCED HERE-IN-UNDER FOR THE KIND PERUSAL OF YOUR HONOURS: M/S. UNITED HEALTH GROUP INFORMATION V/S ACIT (ITA NO. 6312/DEL/2012) AY 2008-09 ITO VS. M/S. KNOAH SOLUTIONS (P) LTD. (ITA NO.1407/ HYD/13) AY 2007-08 PARA 8 (PAGE 705-706 OF THE PAPERBOOK) M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. L TD. (ITA NO.124/HYD/2014) AY 2009-10 PARA 18.2 (PAGE 700-701 OF PAPERBOOK ) COGNIZANT TECHNOLOGY SERVICES PVT. LTD. VS. ACIT (I TA.NOS. 2106 & 1864/HYD/2011) AY 2007-08 & 2008-09 (PAGE 709-719 OF THE PAPERBOOK) ZAVATA INDIA PRIVATE LIMITED VS. THE DCIT (ITA NO.1 781/HYD/2011) AY 2007-08 (PAGE 722-723 OF THE PAPERBOOK) C3I SUPPORT SERVICES P. LTD. VS. ACITT (TA.NO.2183/ HYD/2011) AY 2007-08 (PAGE 737-738 OF THE PAPERBOOK) M/S. EXCELLENCE DATA RESEARCH PVT. LTD. VS. INCOME TAX OFFICER WARD 2(1) AY 2009-10 (ITA NO.159/HYD/2014) (PAGE 746-747 OF THE PAPERBOOK) M/S. HYUNDAI MOTORS INDIA ENGINEERING P. LTD. VS. D CIT AY 2009-10 (ITA NO.255/HYD/14) (PAGE 753 OF THE PAPERBOOK) M/S. MAERSK GOLBAL SERVICE CENTRES (INDIA) PRIVATE LIMITED VS DCIT AY 2009-10 (ITA NO. 2594/MUM/2014) ( REFER PAGE 1204-1205 OF PAPERBOOK) HSBC ELECTRONIC DATA PROCESSING INDIA PRIVATE LIMIT ED VS DCIT AY 2009-10(ITA NO. 247/HYD/2014) ( REFER PAGE 1185-1190 OF PAPERBOOK) M/S. BERKADIA SERVICES INDIA PRIVATE LIMITED VS DCI T AY 2009-10(ITA NO. 1802/HYD/2013) (REFER PAGE 1339-1341 OF PAPERBOOK) VISHAL INFORMATIONTECHNOLOGIES PRIVATE LIMITED (VI SHAL) (REFER PAGE 18 OF CHART OF ISSUES) THE APPELLANT HAD RAISED THE CLAIM FOR REJECTION OF VISHAL DURING THE ASSESSMENT PROCEEDINGS AND BEFORE THE CIT(A). 8 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 VISHAL IS ENGAGED IN DIVERSIFIED ACTIVITIES SUCH AS E-PUBLISHING. IT IS THEREFORE FUNCTIONALLY DIFFERENT FROM THE APPELLANT. HONBLE DELHI BENCH OF THE TRIBUNAL HAS RULED IN TH E FAVOUR OF EXCLUSION OF THIS COMPANY IN THE MATTER OF UNITED HEALTH GROUP INFORMATION SERVICES PVT. LTD. VS. ACIT (ITA NO. 6312/DEL/2012) (PAGE885-886 OF THE PAPERBOOK) PARA 12.2 ON THE GROUNDS OF BEING ENGAGED IN DIFF ERENT BUSINESS VERTICAL NAMELY E PUBLISHING DOCUMENT SCANNING AN D INDEXING. FURTHER YOUR HONOURS' ATTENTION IS INVITED TO THE DIFFERENCE IN THE OPERATING MARGINS OF VISHAL (OP/TC OF 51.19%) VIS-A-VIS THE A PPELLANT OPERATING WITH A MARGIN OF 15.90%. IN THIS REGARD IT IS RESPECTFULLY SUBMITTED THAT T HE HONBLE HIGH COURT IN THE CASE OF B.A. CONTINUUM INDIA PRIVATE LIMITED (I.T.A.A. NO. 440 OF 2014) HAS UPHELD THE REJECTION OF VISHAL BY RELYING ON TH E ITAT RULING IN THE CASE OF M/S BRIGADE GLOBAL SERVICES PRIVATE LIMITED VS ITO WARD 1(1) AY 2005-06 [143 ITD 59] WHEREIN VISHAL HAS BEEN REJECTED ON ACCOUNT OF THE FACT THAT ITS EMPLOYEE COST TO TOTAL COST RATIO IS VERY LOW. IT IS ALSO RESPECTFULLY SUBMITTED THAT THE ITAT SPE CIAL BENCH (MUMBAI) IN CASE OF MAERSK GLOBAL CENTRES (INDIA) PRIVATE LIMITED VS. A CIT CIR 6(3) (SUPRA) PARA NO. 99 (PAGE 695-696 OF THE PAPERBOOK) HAS HELD THAT COMPANIES EARNING SUPER NORMAL PROFITS SHOULD INVIT E FURTHER INVESTIGATION TO ASCERTAIN WHETHER THE ENTITIES EARNING SUCH SUPER N ORMAL PROFITS SHOULD BE INCLUDED IN THE LIST OF FINAL COMPARABLES OR NOT. IN THAT CASE IT IS NOTED BY THE HON'BLE BENCH THAT THE DRP HAS ITSELF REJECTED VISHAL ON ACCOUNT OF FUNCTIONAL DIFFERENCES PARTICU LARLY TAKING NOTE OF ITS LOW EMPLOYEE COST AND OUTSOURCING MODEL. YOUR HONOURS ATTENTION IS ALSO INVITED TO THE RECE NT DECISION OF THE HONBLE DELHI BENCH IN CASE OF TECHBOOKS INTERNATIONAL PVT. LTD. VS. ACIT CIR-1 ITA NO.4990/DEL/2011 NOIDA AY 2007-08 PARA 21-24 (PAGE 854 OF THE PAPERBOOK) WHEREIN AFTER A DETAILED ANALYSIS HONBLE BENCH HAS REJECTED VISHAL AS A COMPARABLE EVEN THOUGH THE ASSESSEE HAD INITIALLY INCLUDED THE SAME AS A COMPARABLE COMPANY. THE TRIBUNAL TOOK NOT E OF THE LOW EMPLOYEE COST OF VISHAL AT 3% AS COMPARED TO 60% AND THE OUT SOURCED MODEL OF OPERATION AS SIGNIFIED BY DATA ENTRY CHARGES. THE S AID DECISION PERTAINS TO AY 2007-08 AND IS SQUARELY APPLICABLE TO THE APPELLANT 'S CASE WHOSE WAGES/TOTAL COST RATION STANDS AT 58.01%. ( REFER PAGE NO. 92 & 361 OF THE PAPER-BOOK ). SIMILAR VIEW HAS BEEN HELD BY HONBLE DELHI BENCH I N THE CASE OF HEARTLAND DELHI TRANSCRIPTION & SERVICES PRIVATE LIMITED VS I TO WARD 12(3)AY 9 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 2005-06 (ITA NO. 6043/DEL/2012) (REFER PAGE 1320-13 21 OF PAPERBOOK ) WHEREIN THE BENCH HAS REJECTED VISHAL ON ACCOUNT OF THE FACT THAT IT HAS DIFFERENT BUSINESS MODEL. FURTHERMORE IT IS HUMBLE SUBMISSION OF THE APPELLAN T THAT THE LD. TPO HAS USED THE INFORMATION OBTAINED U/S 133(6) TO REFUTE THE CONTENTIONS OF THE APPELLANT (REFER PAGE NO. 59-60 OF THE TPO ORDER). HOWEVER THE INFORMATION HAS BEEN USED IN RELATION TO SUBSEQUENT FINANCIAL Y EAR I.E. FY 2007-08. HOWEVER THE SAME HAS NOT BEEN SHARED WITH THE APPE LLANT. THE SIGNIFICANT FUNCTIONAL DIFFERENCES COUPLED WITH THE FACT THAT VISHAL IS A VERY HIGH PROFIT MAKING COMPANY AND OPERATES ON AN OUTSOURCING MODEL WARRANTS REJECTION OF THE SAME AS COMPARABLE PARTIC ULARLY IN VIEW OF THE ABOVE CITED DECISIONS. THE APPELLANT ALSO INVITES THE ATTENTION OF THE HON BLE BENCH TO THE FACT THAT THIS COMPANY WAS REJECTED BY THE LD. CIT(A) IN THE APPELLANTS OWN CASE PERTAINING TO AY 2008-09. IN THE FOLLOWING CASES WHERE THE ASSESSEE WAS AN I TES SERVICE PROVIDER REVENUE'S CONTENTION TO INCLUDE VISHAL WAS REJECTED BY THE HON'BLE TRIBUNAL: M/S. UNITED HEALTH GROUP INFORMATION V/S ACIT (ITA NO. 6312/DEL/2012) AY 2008-09 ( REFER PAGE885-886 OF PAPERBOOK) M/S MERCER CONSULTING (INDIA) PRIVATE LIMITED VS DC IT (ITA NO. 966/DEL/2014) M/S. GOOGLE INDIA PRIVATE LIMITED VS. DCIT (I.T.(TP ). A. NO. 1170/BANG/2011) AY 2007-08 PARA 20 (PAGE 881 OF THE PAPERBOOK) C3I SUPPORT SERVICES P. LTD. VS. ACITT (TA.NO.2183/ HYD/2011) AY 2007-08 PARA 12.4.1 (PAGE 736-738 OF THE PAPERBOOK) SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. VS ITO [IT(TP)A NO. 1316/BANG/2012] AY 2008-09 PARA 17 PAGE NO. OF PAP ERBOOK VOLUME (PAGE 865-869 OF THE PAPERBOOK) ACIT VS MAERSK GLOBAL SERVICE CENTRE (INDIA) PRIVAT E LIMITED ITA. NO.3774/MUM/2011 AY 2005-06 PARA 48 (PAGE 873 OF THE PAPERBOOK) CAPIAL IQ INFORMATION SYTEMS (INDIA) (P.) ITA NO. 1 961/HYD/2011 AY 2009-10 PARA 17 (PAGE 830-831 OF THE PAPERBOOK) ZAVATA INDIA PRIVATE LIMITED VS. THE DCIT (ITA NO.1 781/HYD/2011)AY 2007-08 PARA 17 (PAGE 720-721 OF THE PAPERBOOK) M/S. MAERSK GOLBAL SERVICE CENTRES (INDIA) PRIVATE LIMITED VS DCIT AY 2009-10 (ITA NO. 2594/MUM/2014) (PAGE 1203-1204OF THE PAPERBOOK) M/S. BNY MELLON INTERNATIONAL OPERATIONS INDIA (PRI VATE) LIMITED VS DCIT AY 2008-09 (ITA NO. 2380/PN/2012) (PAGE 1262-1265OF THE PAPERBOOK) 10 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 IN VIEW OF THE ABOVE IT IS PLEADED THAT THIS COMPAN Y BE REJECTED FROM THE COMPARABLES LIST. MAPLE ESOLUTIONS LIMITED (MAPLE)AND TRITON CORP L IMITED (TRITON) (REFER PAGE 24 OF CHART OF ISSUES) THE APPELLANT HUMBLY SUBMITS THAT THE PROMOTERS OF THESE COMPANIES WERE INVOLVED IN THE FRAUD ALBEIT FOR EARLIER YEARS. HE NCE THE FINANCIAL RESULTS OF THESE COMPANIES MAY BE DISTORTED AND ACCORDINGLY CA NNOT BE RELIED UPON. THE ABOVE VIEW IS FORTIFIED BY THE FOLLOWING JUDICIAL P RECEDENTS: M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. L TD. VS. DCIT (ITA NO.1961/HYD/2011) AY 2007-08 PARA 19 (PAGE 831-832 OF THE PAPERBOOK) ITO VS. CRM SERVICES INDIA (P) LTD.(ITA NO. 4068 (D EL)/2009) AY 2006- 07 (PAGE 889-891 OF THE PAPERBOOK) M/S.STREAM INTERNATIONAL SERVICES PVT.LTD VS. ACIT AY 2007-08 (ITA NO. 8290/MUM/2011) (PAGE 1351-1352 OF THE PAPERBOOK) M/S. PENTAIR WATER INDIA PVT. LTD. VS. ACIT (ITA NO . 02/PNJ/2013) AND ACIT VS. M/S. PENTAIR WATER INDIA PVT. LTD. (ITA NO . 05 /PNJ/2013) AY 2006-07 PARA 4.3.1 (I) (PAGE 893 OF THE PAPERBOOK) M/S. IVY COMPTECH PVT. LTD. VS. THE ACIT (ITA NO. 1 558/HYD/2010) AY 2005-06 PARA 7(B) (PAGE 899 OF THE PAPERBOOK) M/S. MARKET TOOLS RESEARCH PVT. LTD. VS. DCIT ((ITA NO.1150/HYD/2011) AY 2005-06 PARA 16 (PAGE 902 OF THE PAPERBOOK) M/S. HSBC ELECTRONIC DATA PROCESSING INDIA LTD. VS. ACIT AY 2006-07 (ITA NO.1624/HYD/2010 & STAY APPLICATION NO.210/HYD /2012 THEREIN) PARA 12.1 (PAGE 906 OF THE PAPERBOOK) M/S.STREAM INTERNATIONAL SERVICES PVT.LTD VS. THE D IRECTOR OF INCOME TAX (ITA NO.8997/MUM/2010) AY 2006-07 PARA 17 (PAGE 911 OF THE PAPERBOOK) FURTHERMORE THIS COMPANY HAS INCOME TO THE TUNE OF INR 5.8 CRORES FROM TRADING OF IT PERIPHERALS WHICH IS MORE THAN 10% O F THE TOTAL REVENUE OF THIS COMPANY. NO SEGMENTAL INFORMATION HAS BEEN REPORTED AND DURING FY 2008- 09 THE LD. TPO HAS HIMSELF REJECTED THIS COMPANY ON THIS GROUND. ALSO THE LD. TPO HIMSELF REJECTED TRITON IN THE FI RST SHOW CAUSE NOTICE ISSUED BY IT DATED 7 TH MAY 2010 AND INTRODUCED IT IN THE SET IN THE SECON D NOTICE DATED 27 TH AUGUST 2010. IN VIEW OF THE ABOVE IT IS PLEADED THAT THIS COMPA NY BE EXCLUDED FROM THE COMPARABLES LIST. 11 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 ALTHOUGH THE APPELLANT HAS CHALLENGED THE SELECTION OF FEW OTHER COMPARABLES HOWEVER IF THE REJECTION OF MOLD-TEK IS UPHELD AND ECLERX VISHAL MAPLE AND TRITON ARE LATER REJECTED THEN T HE MARGIN EARNED BY THE APPELLANT FROM THE INTERNATIONAL TRANSACTION FALLS WITHIN THE+/- 5% RANGE. 12. PER CONTRA THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ASSESSMENT ORDER. 13. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW ALONG WITH RELEVANT DOCUMENTARY EVIDENCES BROUGHT TO OUR NOTIC E DURING THE COURSE OF HEARING. LET US NOW CONSIDER THE COMPANIES WHICH H AVE BEEN STRONGLY OBJECTED BY THE LD. COUNSEL FOR BEING CONSIDERED IN THE FINA L LIST OF COMPARABLES. (I) ECLERX SERVICES LTD. ECLERX IS ENGAGED IN PROVIDING DATA ANALYTICS SERVI CES WITH EXPERTISE IN FINANCIAL SERVICE AND RETAIL AND MANUFACTURING. THE SERVICE PROVIDED BY THE COMPANY ARE HIGH END IN NATURE INVOLVING SPECIAL KN OWLEDGE AND DOMAIN EXPERTISE AND THEREFORE NOT FUNCTIONALLY COMPARABL E WITH THE ASSESSEE COMPANY WHICH IS ENGAGED IN PROVIDING LOW END ITES ENABLED CALL CENTRE SERVICES TO ITS AE. THE FACT ECLERX SERVICES LTD. IS PROVIDING HIG H END SERVICES INVOLVING SPECIAL KNOWLEDGE AND DOMAIN EXPERTISE IS EVIDENT F ROM THE COMPANYS OWN REPLY TO THE NOTICE U/S 133(6) WHICH IS PLACED AT P AGES 976 TO 979 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE HONBLE SPECIAL BE NCH OF THE TRIBUNAL IN CASE OF MAERSK GLOBAL CENTRE (INDIA) PRIVATE LTD. VS. AC IT (ITA NO.7466/MUMBAI/ 12 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 2012) HAD EXCLUDED ECLERX SERVICES PVT. LTD. FROM T HE LIST OF COMPARABLES FOR THE REASON THAT IT IS PROVIDING HIGH END SERVICES I NVOLVING SPECIALISED KNOWLEDGE AND DOMAIN EXPERTISE AND SAME CANNOT BE C OMPARED WITH COMPANIES WHICH ARE MAINLY ENGAGED IN PROVIDING LOW END SERVI CES TO GROUP COMPANIES. THE RELEVANT FINDING OF THE HONBLE TRIBUNAL READ A S FOLLOWS :- IN SO FAR AS M/S ECLERX SERVICES LIMITED IS CONCER NED THE RELEVANT INFORMATION IS AVAILABLE IN THE FORM OF ANNUAL REPO RT FOR FINANCIAL YEAR 2007-08 PLACED AT PAGE 166 TO 183 OF THE PAPER BOOK . A PERUSAL OF THE SAME SHOWS THAT THE SAID COMPANY PROVIDES DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORL D AND IS RECOGNIZED AS EXPERTS IN CHOSEN MARKETS-FINANCIAL SERVICES AND RE TAIL AND MANUFACTURING. IT IS CLAIMED TO BE PROVIDING COMPLETE BUSINESS SOL UTIONS BY COMBINING PEOPLE PROCESS IMPROVEMENT AND AUTOMATION. IT IS C LAIMED TO HAVE EMPLOYED OVER 1500 DOMAIN SPECIALISTS WORKING FOR T HE CLIENTS. IT IS CLAIMED THAT ECLERX IS A DIFFERENT COMPANY WITH INDUSTRY SP ECIALIZED SERVICES FOR MEETING COMPLEX CLIENT NEEDS DATA ANALYTICS KPO SE RVICE PROVIDER SPECIALIZING IN TWO BUSINESS VERTICALS FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE ENGAGED IN PROVI DING SOLUTIONS THAT DO NOT JUST REDUCE COST BUT HELP THE CLIENTS INCREASE SALES AND REDUCE RISK BY ENHANCING EFFICIENCIES AND BY PROVIDING VALUABLE IN SIGHTS THAT EMPOWER BETTER DECISIONS. M/S ECLERX SERVICES PVT. LTD. IS ALSO CLAIMED TO HAVE A SCALABLE DELIVERY MODEL AND SOLUTIONS OFFERED THAT INCLUDE DATA ANALYTICS OPERATIONS MANAGEMENT AUDITS AND RECONCILIATION M ETRICS MANAGEMENT AND REPORTING SERVICES. IT ALSO PROVIDES TAILORED P ROCESS OUTSOURCING AND MANAGEMENT SERVICES ALONG WITH A MULTITUDE OF DATA AGGREGATION MINING AND MAINTENANCE SERVICES. IT IS CLAIMED THAT THE CO MPANY HAS A TEAM DEDICATED TO DEVELOPING AUTOMATION TOOLS TO SUPPORT SERVICE DELIVERY. THESE SOFTWARE AUTOMATION TOOLS INCREASE PRODUCTIVITY AL LOWING CUSTOMERS TO BENEFIT FROM FURTHER COST SAVING AND OUTPUT GAINS W ITH BETTER CONTROL OVER QUALITY. KEEPING IN VIEW THE NATURE OF SERVICES REN DERED BY M/S ECLERX SERVICES PVT. LTD. AND ITS FUNCTIONAL PROFILE WE A RE OF THE VIEW THAT THIS COMPANY IS ALSO MAINLY ENGAGED IN PROVIDING HIGH-EN D SERVICES INVOLVING SPECIALIZED KNOWLEDGE AND DOMAIN EXPERTISE IN THE F IELD AND THE SAME CANNOT BE COMPARED WITH THE ASSESSEE COMPANY WHICH IS MAINLY ENGAGED IN PROVIDING LOW-END SERVICES TO THE GROUP CONCERNS. FOR THE REASONS GIVEN ABOVE WE ARE OF THE VIEW THA T IF THE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPANY FOR ITS AES ARE C OMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES PVT. LTD. AND MOLD-TEK TECHNOLOGIES LTD. IT IS DIFFICULT TO FIND OUT ANY RELATIVELY EQUAL DEGREE OF COMPARABILITY AND THE SAID ENTITIES CANNOT BE TAKEN AS COMPARABLES FOR THE PURPOSE OF DETERMINING ALP OF THE TRANSACTIONS OF T HE ASSESSEE COMPANY 13 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 WITH ITS AES. WE THEREFORE DIRECT THAT THESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF 10 COMPARABLES FINALLY TAKEN BY THE AO/ TPO AS PER THE DIRECTION OF THE DRP. THE ABOVE RULING OF HONBLE SPECIAL BENCH IS EQUALL Y APPLICABLE TO THE FACTS OF THIS CASE AS IT IS EVIDENT FROM THE FUNCTIONAL PRO FILE OF THE ASSESSEE COMPANY THAT IT IS A LOW END SERVICES PROVIDER NAMELY ENG AGED IN PROVIDING CALL CENTRE SERVERS TO ITS AE. FOR THE AFORESAID REASONS WE D IRECT THE TPO TO EXCLUDE ECLERX SERVICES LTD. FROM THE FINAL LIST OF COMPARA BLES. (II) VISHAL INFORMATION TECHNOLOGY LTD. VISHAL INFORMATION TECHNOLOGY LTD IS ENGAGED IN DIV ERSIFIED ACTIVITIES SUCH AS E-PUBLISHING THEREFORE IT IS F UNCTIONALLY DIFFERENT FROM ASSESSEE. FURTHER THE HONBLE TRIBUNAL IN THE CASE OF TECHBOOKS INTERNATIONAL PVT. LTD. VS. ACIT CIR-1 IN ITA NO.4 990/DEL/2011 IN AY 2007-08 HAS ALSO REJECTED VISHAL AS A COMPARABLE EV EN THOUGH THE ASSESSEE IN THAT CASE HAD INITIALLY INCLUDED THE SA ME AS COMPARABLE COMPANY. THE TRIBUNAL HELD VISHAL WAS HAVING LOW EM PLOYEE COST OF 3% IN COMPARISON TO 60% OF ASSESSEE IN THAT CASE. IN THE RELEVANT YEAR ASSESSEE WAGES/TOTAL COST RATIO STANDS AT 58.01%. A ND THEREFORE NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE COMPANY. MOREOVER VISHAL IS VERY HIGH PROFIT MAKING COMPANY AND OPERATES ON OUT SOURCING MODEL AND HENCE HAS DIFFERENT BUSINESS MODEL TO THAT OF ASSE SSEE. FURTHER THE 14 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 CIT(A) IN THE SUBSEQUENT YEAR I.E AY 2008-09 ALSO R EJECTED THE SAME FROM THE LIST OF COMPARABLE IN THE ASSESSEE S OWN CASE. THEREFORE WE ACCEPT THE CONTENTION OF THE LD. COUNSEL AND DIRECT FOR THE EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. (III) MAPLE E SOLUTIONS LTD. AND TRITON CORPORATIO N LTD. THE PROMOTERS OF THE COMPANY WERE INVOLVED IN THE F RAUD FOR EARLIER YEARS HENCE THE FINANCIAL RESULTS OF THESE COMPANIES ARE DISTORTED AND ACCORDINGLY CANNOT BE RELIED UPON. THE SAID VIE W HAS ALSO BEEN HELD IN VARIOUS JUDICIAL RULINGS NAMELY: M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. L TD. VS. DCIT (ITA NO.1961/HYD/2011) AY 2007-08 PARA 19 (PAGE 831-832 OF THE PAPERBOOK) ITO VS. CRM SERVICES INDIA (P) LTD.(ITA NO. 4068 (D EL)/2009) AY 2006- 07 (PAGE 889-891 OF THE PAPERBOOK) M/S.STREAM INTERNATIONAL SERVICES PVT.LTD VS. ACIT AY 2007-08 (ITA NO. 8290/MUM/2011) (PAGE 1351-1352 OF THE PAPERBOOK) M/S. PENTAIR WATER INDIA PVT. LTD. VS. ACIT (ITA NO . 02/PNJ/2013) AND ACIT VS. M/S. PENTAIR WATER INDIA PVT. LTD. (ITA NO . 05 /PNJ/2013) AY 2006-07 PARA 4.3.1 (I) (PAGE 893 OF THE PAPERBOOK) M/S. IVY COMPTECH PVT. LTD. VS. THE ACIT (ITA NO. 1 558/HYD/2010) AY 2005-06 PARA 7(B) (PAGE 899 OF THE PAPERBOOK) M/S. MARKET TOOLS RESEARCH PVT. LTD. VS. DCIT ((ITA NO.1150/HYD/2011) AY 2005-06 PARA 16 (PAGE 902 OF THE PAPERBOOK) M/S. HSBC ELECTRONIC DATA PROCESSING INDIA LTD. VS. ACIT AY 2006-07 (ITA NO.1624/HYD/2010 & STAY APPLICATION NO.210/HYD /2012 THEREIN) PARA 12.1 (PAGE 906 OF THE PAPERBOOK) 15 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 M/S.STREAM INTERNATIONAL SERVICES PVT.LTD VS. THE D IRECTOR OF INCOME TAX (ITA NO.8997/MUM/2010) AY 2006-07 PARA 17 (PAGE 911 OF THE PAPERBOOK) IN VIEW OF THE ABOVE WE DIRECT FOR THE EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 14. CONSIDERING THE FUNCTIONAL ANALYSIS OF THIS COM PANY DISCUSSED HEREINABOVE AND IN THE LIGHT OF THE VARIOUS ORDERS OF THE TRIBUNAL ( SUPRA ) WE DIRECT FOR THE EXCLUSION OF THE ECLERX SERVICES LTD . VISHAL INFORMATION TECHNOLOGIES PVT. LTD. MAPLE E SOLUTIONS LTD. AND TRITON CORPORATION LTD. FROM THE FINAL LIST OF COMPARABLES AND THE MATTER I S RESTORED BACK TO THE FILE OF THE AO/TPO FOR REWORKING OF THE MARGINS. ITA NO 5934/DEL/2012 (REVENUES APPEAL) 15. THE DR HAS RELIED ON THE AO/TPO ORDER AND OBJE CTED FOR EXCLUSION OF MOLD-TEK TECHNOLOGIES LIMITED BY CIT(A). 16. THE CIT(A) IN HIS ORDER HAS WORKED OUT THE MAR GINS OF THE COMPARABLES AFTER REMOVING MOLDTEK TECHNOLOGIES. THE RELEVANT FINDINGS OF THE CIT (A) AT PARA 8.20 READS AS FOLLOWS : 8.20 I HAVE CONSIDERED THE SUBMISSION AND THE OR DER OF THE TPO. THE SEGMENTAL REPORTING OF THE COMPANY AS QUOTED IN THE EARLIER PARAGRAPHS CREATES A SUFFICIENT DOUBT ABOUT THE TRU THFULNESS OF THE RESULTS OF ITES SEGMENT. THIS COMPANY HAS TWO SEGMENTS ITES AND PLASTIC DI VISION. ITES IS HAVING 100% EXEMPTION WHEREAS ON THE PROFITS OF PLASTIC 16 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 DIVISION THE COMPANY HAS TO PAY TAX. IT IS NOT UNC OMMON TO SEE SUCH FINANCIAL RESULTS WHERE THE TAX EXEMPT UNIT HA S EXTRAORDINARY PROFIT WHILE THE TAXPAYING UNIT SUFFERS LOSSES UNDE R THE SAME MANAGEMENT CONTROL. THE EXTRAORDINARY PROFITS IN TH E ITES SEGMENT REACHING UPTO 113% FOR THE FY 2006-07 IS A POINTER IN THIS DIRECTION. IN THE SUBSEQUENT AUDITED ACCOUNTS THIS FACT OF ENDING THE TAX HOLIDAY FOR ITES SEGMENT IS MENTIONE D BY THE ANNUAL REPORT AND SOME CORRECTIVE ENTRIES HAVE BEEN PASSED. THE EMPLOYEE COST FILTER MIGHT NOT HAVE BEEN USED B Y THE TPO BUT IN THE PRESENCE OF EXTRAORDINARY DEVIATION FROM THE RATIO OF EMPLOYEE COST TO SALES OF THE APPELLANT'S CASE CANN OT BE SIMPLY BRUSHED. ASIDE. AS SUBMITTED BY THE APPELLANT THI S RATIO (EMPLOYEE COST / SALES) IS MUCH HIGHER IN THE CASE OF THE APPELLANT AND 7.6% IN THE CASE OF MOLD-TEK TECHNOLOGIES LTD. BY IMPLICATION EITHER MOLD-TEK TECHNOLOGIES LTD. HAS EMPLOYED LARGER CAPITAL AGAINST THE MAN POWER TO GET THE KIN D OF PRODUCTIVITY TO GENERATE PROFIT OF 113% OR THE EMPL OYEES ARE SO EXTRAORDINARY THAT THEY HAVE ACCEPTED THE LOWER WAG ES AND STILL WORK SO HARD FOR THE COMPANY TO GENERATE THAT KIND OF PROFITABILITY. IN EITHER SITUATION THE COMPANY BEC OMES NOT COMPARABLE TO THE APPELLANT. EVEN ON FUNCTIONALITY GROUND MOLD-TEK TECHNOLOGIES LTD. IS NOT COMPARABLE BECAUSE THE APPELLANT IS IN THE BACK OFF ICE RESEARCH SERVICES AREA WHEREAS THIS COMPARABLE IS MAINLY DEA LING IN ENGINEERING DESIGN AND DETAILING SERVICES WEB SITE DESIGN SERVICES SOFTWARE TESTING IN-HOUSE SOFTWARE DEVEL OPMENT ETC. THEREFORE I HOLD THAT THIS COMPANY SHOULD BE EXCLU DED FROM THE LIST OF COMPARABLES. 17. THE AR HAS SUBMITTED AS FOLLOWS : THE DEPARTMENT IS CHALLENGING REJECTION OF MOLD-TE K TECHNOLOGIES LIMITED (MOLD-TEK) IN VIEW OF THE CBDT CIRCULAR NO.SO890( E) DATED 28/09/2000 WHEREIN IT WAS HELD THAT ENGINEERING DESIGN IS WITH IN THE AMBIT OF IT ENABLED SERVICES. THERE IS NO INFIRMITY IN THE ORDER OF CIT (A) HAS PASSED A DETAILED WELL-REASONED ORDER CITING COGENT REASONS FOR REJEC TION OF THE SAID COMPARABLE. (REFER PAGE 52 TO 56 OF CIT(A)). 17 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 THE REJECTION OF MOLD-TEK IS ALSO WARRANTED FOR THE FOLLOWING REASONS: YOUR HONOURS' ATTENTION IS INVITED TO THE DIFFERENC E IN THE OPERATING MARGINS OF MOLD-TEK TECHNOLOGIES LTD. ('MOLDTEK') (OP/TC OF 113.49%) (REFER ANNEXURE E OF THE TPO ORDER) VIS-A-VIS THE RESPONDE NT OPERATING WITH A MARGIN OF 15.90%. (REFER PAGE 22 OF THE PAPERBOOK). IN THIS REGARD IT IS RESPECTFULLY SUBMITTED THAT T HE ITAT SPECIAL BENCH (MUMBAI) IN CASE OF MAERSK GLOBAL CENTRES (INDIA) PRIVATE LIMITED VS. ACIT CIR 6(3) (SUPRA) PARA NO. 99 (PAGE 695-696 OF THE PAPERBOOK) HAS HELD THAT COMPANIES EARNING SUPER NORMAL PROFITS SH OULD INVITE FURTHER INVESTIGATION TO ASCERTAIN WHETHER THE ENTITIES EAR NING SUCH SUPER NORMAL PROFITS SHOULD BE INCLUDED IN THE LIST OF FINAL COM PARABLES OR NOT. THE COMPANY IS ENGAGED IN PROVIDING ENGINEERING CON SULTING SERVICES AS PART OF ITS IT OPERATIONS. THE COMPANY HAS SPECIFICALLY CATEGORIZED ITS IT OPERATIONS AS KPO IN ITS ANNUAL REPORT ( REFER PAGE 518 OF THE PAPERBOOK ). FURTHER AS PER THE REPLY U/S 133(6) THE COMPANY PRO VIDES ENGINEERING DESIGN DRAWING AND DETAILED STRUCTURAL ENGINEERING USING 3D AND 2D SOFTWARE( REFER PAGE 980-983 OF THE PAPERBOOK) OF THE ACT. THE STRUCTURAL ENGINEERING SERVICES RENDERED BY THE COMPANY ARE HI GH END IN NATURE AND ARE IN NO WAY COMPARABLE TO THE LOW-END BACK OFFICE SUP PORT SERVICES RENDERED BY THE ASSESSEE. IN RELATION TO THIS FOLLOWING ARE THE EXTRACTS OF THE ANNUAL REPORT: MOLD-TEK HAS DESIGNED & DETAILED MORE THAN 4000 BU ILDINGS (120 000 TONS) OF VARIOUS COMPLEXITIES FOLLOWING VA RIOUS US/ CANADIAN NATIONAL & STATE CODES. OUR TEAM HAS EXPERTISE RANGING FROM THE CONVENTIONA L DESIGN &DETAILING TOOLS LIKE CAD/CAM/STADD PRO TO THE CONT EMPORARY SOFTWARE TOOLS LIKE X-STEEL SDS-2 AND RISA. THE RESPONDENT WOULD LIKE TO DRAW YOUR ATTENTION TO THE FACT THAT THE COMPANY WITNESSED CERTAIN EXTRAORDINARY CIRCUMSTANCES IN TH E YEAR. AS EVIDENT FROM THE ANNUAL REPORT OF THE COMPANY FOR FY 2006-07 TH E COMPANY HAS ACQUIRED CROSS ROAD DETAILING INC. AN ENGINEERING SERVICES KPO IN APRIL 2007. FURTHER THE COMPANY HAS PLANS TO MERGE M/S. TECK M EN TOOLS PRIVATE LIMITED WHILE AT THE SAME TIME IT ALSO PLANS TO DE MERGE ITS ENTIRE PLASTIC PACKAGING BUSINESS INTO A SEPARATE BUSINESS ENTITY. FURTHER THE COMPANY HAS WITNESSED EXPONENTIAL GROWTH AS EVIDENCED BY THE FO LLOWING STATEMENT FROM THE ANNUAL REPORT: YOUR COMPANY HAS MAINTAINED ACCELERATED GROWTH AS ENVISAGED IN THE PREVIOUS REPORT BOTH IN TERMS OF REVENUES AND NET PROFITS. OVERALL SALES HAVE GONE UP BY 35.17% FROM RS.70.87 CRORE TO RS.95.80 CRORE LARGELY FUELLED BY GROWTH OF 204% IN THE IT (KPO) 18 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 DIVISION BILLINGS FROM RS.375 LAKHS IN 2005-06 TO R S.1140 LAKHS IN 2006-07. APART FROM ENHANCING BILLINGS IT (KPO) DI VISION HAS CONTRIBUTED TOWARDS MORE THAN DOUBLING THE PROFITAB ILITY OF YOUR COMPANY. .THE MANPOWER WHICH WAS 40 IN THE YEAR 2005 IS NOW MORE THAN 200. (REFER PAGE NO. 475 OF THE PAPERBOOK) IN ADDITION TO THE ABOVE IT IS ALSO WORTH NOTING T HAT THE TPO HAS HIMSELF APPLIED DIMINISHING REVENUE FILTER WHEREIN THE COMPANIES WITH DIMINISHING REVENUE FOR LAST THREE YEAR INCLUDING T HE RELEVANT YEAR WERE REJECTED AS COMPARABLES BY STATING THAT THE SA ME DOES NOT REFLECT ITES INDUSTRY TREND WHICH IS GROWING AT A CAGR OF M ORE THAN 40% DURING THE LAST 10 YEARS. (REFER PAGE NO. 21 OF THE TPO ORDER) DRAWING ANALOGIES FROM THE ABOVE THE RESPONDENT HU MBLY SUBMITS MOLDEK HAVING A CAGR OF 210.82 % FROM FY 2004-05 TO FY 2006-07 (PAGE NO. 973 OF THE PAPERBOOK) IS ALSO NOT IN LINE WITH THE INDUSTRY TREND AND IS AN OUTLIER. ACCORDINGLY MOLDEK SHOULD BE REJECTED AS COMPARABLE COMPANY. FURTHER AS EVIDENCED FROM THE ANNUAL REPORT OF THE COMPANY FOR FY 2007-08 THE COMPANY GAVE EFFECT TO THE ABOVE SCHEME OF AMAL GAMATION AND DEMERGER WITH EFFECT FROM OCTOBER 2006 AND THE ENTIRE ACCOUN TS OF THE COMPANY FOR FY 2006-07 WERE ALSO REVISED. IN THE CASE OF TOLUNA INDIA PRIVATE LIMITED VS. ACI T AY 2007-08 (ITA NO. 5645/ DEL/2011) (REFER PAGE 840 OF THE PAPERBOOK) IT WAS HELD THAT A COMPANY CANNOT BE CONSIDERED AS COMPARABLE BECAUSE OF EXCEPTIONAL FINANCIAL RESULTS DUE TO MERGER/DEMERGER. THE RESPONDENT HUMBLY DRAWS YOUR ATTENTION TO THE R ULING OF THE HONBLE SPECIAL BENCH IN THE MATTER OF 'MAERSK GLOBAL CENTRES (INDIA) PRIVATE LTD VS ACIT (SUPRA)(PAGE 691-694 OF THE PAPERBOOK). THE RELEVANT PORTION OF THE SAID RULING IS PRODUCED HERE-IN-UNDER: IN SO FAR AS THE CASE OF MOLD-TEK TECHNOLOGIES LTD . IS CONCERNED IT IS OBSERVED FROM THE ANNUAL REPORT OF THE SAID C OMPANY FOR THE FINANCIAL YEAR 2007-08 PLACED AT PAGE 139 TO 151 OF THE PAPER BOOK THAT THE SAID COMPANY WAS PIONEER IN STRUCTURAL ENG INEERING KPO SERVICES AND ITS ENTIRE BUSINESS COMPRISED OF PROVI DING ONLY STRUCTURAL ENGINEERING SERVICES TO VARIOUS CLIENTS. FURTHER INFORMATION OF MOLD-TEK TECHNOLOGIES LTD. AVAILABLE ON THEIR 19 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 WEBSITE IS FURNISHED IN THE FORM OF PRINTOUT AT PAG E 158 TO 165 OF THE PAPER BOOK AND A PERUSAL OF THE SAME SHOWS THAT IT IS A LEADING PROVIDER OF ENGINEERING AND DESIGN SERVICES WITH SP ECIALIZATION IN CIVIL STRUCTURAL AND MECHANICAL ENGINEERING SERVIC ES. IT IS STATED TO HAVE A STRONG TEAM OF SKILLED RESOURCES WITH WORLD CLASS RESOURCES AND SKILL SETS. IT IS ALSO STATED TO HAVE CONSISTEN TLY HELPED THE CLIENTS TO CUT DOWN DESIGN AND DEVELOPMENT COSTS OF CIVIL STRUCTURAL MECHANICAL AND PLANT DESIGN BY 30-40% AND DELIVERED TECHNOLOGICALLY SUPERIOR OUTPUTS TO MATCH AND EXCEE D EXPECTATIONS. IT IS CLAIMED TO HAVE IN-HOUSE SOFTWARE DEVELOPMENT TEAM QUALITY CONTROL TRAINING AND TROUBLE-SHOOTING FACILITIES. M /S MOLD-TEK IS ALSO RENDERING WEB DESIGN AND DEVELOPMENT SERVICES WITH EXPERIENCE IN TURNING THEM INTO AN EFFECTIVE GRAPHIC DESIGN RE PRESENTATION AND CREATING DYNAMIC AND GRAPHIC RICH WEB APPLICATIONS FROM IT SPECS DESIGN PRINTS ETC. KEEPING IN VIEW THIS INFORMATION AVAILABLE IN THE ANNUAL REPORT OF MOLD-TEK AS WELL ON ITS WEBSITE W E ARE OF THE VIEW THAT THE SAID COMPANY IS MAINLY INVOLVED IN PROVIDI NG HIGH-END SERVICES TO ITS CLIENTS INVOLVING HIGHER SPECIAL KN OWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT B E TAKEN AS COMPARABLE TO THE ASSESSEE COMPANY WHICH IS MAINLY INVOLVED IN PROVIDING LOW-END SERVICES.. IT IS ALSO PERTINEN T TO NOTE THAT WHILE WORKING OUT THE OPERATING MARGIN OF THE SAID COMPANY PROVISION FOR DERIVATIVE LOSS OF RS. 6.43 CRORES MA DE BY MOLD-TEK TECHNOLOGIES LTD. WAS EXCLUDED BY THE A.O. TREATING THE SAME AS NON-OPERATING EXPENSES WHEREAS IN THE CASE OF RUSHA BH DIAMONDS (SUPRA) IT WAS HELD BY THE DIVISION BENCH OF THIS TRIBUNAL THAT THE GAIN OR LOSS ARISING FROM THE FORWARD CONTRACT ENTE RED INTO FOR THE PURPOSE OF FOREIGN CURRENCY EXPOSURE ON THE EXPORT AND IMPORT HAS TO BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE OPERATING PROFIT. ..FOR THE REASONS GIVEN ABOVE WE ARE OF THE VI EW THAT IF THE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPAN Y FOR ITS AES ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECL ERX SERVICES PVT. LTD. AND MOLD-TEC TECHNOLOGIES LTD. IT IS DIFFICUL T TO FIND OUT ANY RELATIVELY EQUAL DEGREE OF COMPARABILITY AND THE SA ID ENTITIES CANNOT BE TAKEN AS COMPARABLES FOR THE PURPOSE OF DETERMIN ING ALP OF THE TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. WE THEREFORE DIRECT THAT THESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF 10 COMPARABLES FINALLY TAKEN BY THE AO/TPO AS PER THE DIRECTION OF THE DRP. EMPHASIS SUPPLIED THE RESPONDENT HUMBLY CONTENDS THAT THE FINDINGS OF THE AFORESAID RULING IN RESPECT OF FUNCTIONAL COMPARABILITY OF THE COMPANY ARE EQUALLY APPLICABLE TO THE CASE OF THE RESPONDENT. THE RESPONDENT IS A LOW END SERVICE PROVIDER 20 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 ENGAGED IN PROVIDING CALL CENTER SERVICES TO ITS AE . IN VIEW OF THE ABOVE IT IS PLEADED THAT THIS COMPANY BE REJECTED. THE RESPONDENTS CONTENTIONS ARE FORTIFIED BY SEVER AL RULINGS OF THE COORDINATE BENCHES OF THE HONBLE ITAT. THESE RULIN GS ARE PRODUCED HERE-IN- UNDER FOR THE KIND PERUSAL OF YOUR HONOURS: CAPIAL IQ INFORMATION SYTEMS (INDIA) (P.) ITA NO. 1 961/HYD/2011 AY 2007-08PARA 17 (PAGE 828-828A OF THE PAPERBOOK) ITO VS. M/S. KNOAH SOLUTIONS (P) LTD. (ITA NO.1407/ HYD/13) AY AY 2007-08 PARA 8 (PAGE 706 OF THE PAPERBOOK) ZAVATA INDIA PRIVATE LIMITED VS. THE DCIT (ITA NO.1 781/HYD/2011) AY 2007-08 PARA 29-31 (PAGE 725-726 OF THE PAPERBOOK) LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED VS. ITOAY 2 008-09 (ITA NO.7498/MUM/2012) PARA 7 ( PAGE 969 OF THE PAPERBOOK) 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. DURING THE YEAR UNDER CONSIDERATION THE FI NANCIAL RESULTS OF MOLDTEK TECHNOLOGIES AS AVAILABLE ARE AFTER THE ACQUISITION OF CROSS ROAD DETAILING INC. AN ENGINEERING SERVICE KPO. FURTHER AS EVIDENCED F ROM THE ANNUAL REPORT OF THE COMPANY FOR FY 2007-08 THE COMPANY GAVE EFFECT TO THE ABOVE SCHEME OF AMALGAMATION AND DEMERGER WITH EFFECT FROM OCTOBER 2006 AND THE ENTIRE ACCOUNTS OF THE COMPANY FOR FY 2006-07 WERE ALSO RE VISED. IN THE CASE OF TOLUNA INDIA PRIVATE LIMITED VS. ACIT AY 2007-08 (I TA NO.5645/DEL/2011) IT WAS HELD THAT A COMPANY CANNOT BE CONSIDERED AS COM PARABLE BECAUSE OF EXCEPTIONAL FINANCIAL RESULTS DUE TO MERGER/ DEMERG ER. 19. FURTHER THE COMPANY MOLDTEK TECHNOLOGY IS ENGA GED IN PROVIDING ENGINEERING CONSULTING SERVICES AS PART OF ITS IT O PERATIONS. THE COMPANY HAS SPECIFICALLY CATEGORIZED ITS IT OPERATIONS AS KPO I N ITS ANNUAL REPORT. THE 21 ITA NO.6034/DEL/2012 ITA NO.5934/DEL/2012 COMPANY HAS ALSO ACCEPTED IN ITS REPLY U/S 133(6) T HAT THE COMPANY PROVIDES ENGINEERING DESIGN DRAWING AND DETAILED STRUCTURAL ENGINEERING USING 3D AND 2D SOFTWARES. THE ENGINEERING DESIGN SERVICES PROV IDED BY THE COMPANY ARE HIGH END IN NATURE INVOLVING SPECIAL KNOWLEDGE AND DOMAIN EXPERTISE AND THEREFORE NOT FUNCTIONALLY COMPARABLE WITH THE ASS ESSEE COMPANY WHICH IS ENGAGED IN PROVIDING LOW END ITES ENABLED CALL CENT RE SERVICES. THEREFORE WE HOLD CIT (A) IS JUSTIFIED IN EXCLUDING THIS COMPANY FROM THE FINAL LIST OF COMPARABLE. 20. IN THE RESULT THE APPEAL FILED BY THE ASSESSE E IS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FILED BY THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 27 TH DAY OF APRIL 2015. SD/- SD/- (J.S. REDDY) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 27 TH DAY OF APRIL 2015 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XX NEW DELHI. 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.