LANXESS INDIA P.LTD,THANE vs. DCIT CIR 1, THANE

PER OM PRAKASH KANT, AM PER OM PRAKASH KANT, AM

These cross-appeals by the assessee and Revenue and cross appeals by the assessee and Revenue and cross- appeals by the assessee and Revenue and cross objection by the assessee are directed against final assessment objection by the assessee are directed against final assessment objection by the assessee are directed against final assessment order dated 28.01.2016 passed by the Ld. Dy. Commissioner of order dated 28.01.2016 passed by the Ld. Dy. Commissioner of order dated 28.01.2016 passed by the Ld. Dy. Commissioner of Income-tax, Circle-1, Thane (in short ‘the Assessing Officer’) for 1, Thane (in short ‘the Assessing Officer’) for 1, Thane (in short ‘the Assessing Officer’) for assessment year 2011 ment year 2011-12, pursuant to the order of Ld. Dispute 12, pursuant to the order of Ld. Dispute Resolution Panel-1, Mumbai (in short ‘the DRP’). 1, Mumbai (in short ‘the DRP’).

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It is prayed that the learned AO/TO be directed to consider It is prayed that the learned AO/TO be directed to consider It is prayed that the learned AO/TO be directed to consider the international transaction of the Assessee as arm's length rnational transaction of the Assessee as arm's length rnational transaction of the Assessee as arm's length and and and accordingly accordingly accordingly the the the transfer transfer transfer pricing pricing pricing adjustment adjustment adjustment of of of Rs.292,07.863/ Rs.292,07.863/- should be deleted. The Appellant prays that the aforesaid additions be deleted. The Appellant prays that the aforesaid additions be deleted. The Appellant prays that the aforesaid additions be deleted. 2. On the facts and circumstances of the case and in la 2. On the facts and circumstances of the case and in la 2. On the facts and circumstances of the case and in law, the AO erred in granting short credit for Advance Tax (Rs. AO erred in granting short credit for Advance Tax (Rs. AO erred in granting short credit for Advance Tax (Rs. 1,50,00,000/ 1,50,00,000/-) and TDS (Rs. 44,881/-). The Appellant prays that the credit for Advance Tax and TDS The Appellant prays that the credit for Advance Tax and TDS The Appellant prays that the credit for Advance Tax and TDS be granted. 3. On the facts and in the circumstances of the case and in 3. On the facts and in the circumstances of the case and in 3. On the facts and in the circumstances of the case and in law and in law, the AO law and in law, the AO erred in not giving effect to the erred in not giving effect to the rectification application letter dt. April 6, 2015 with respect to rectification application letter dt. April 6, 2015 with respect to rectification application letter dt. April 6, 2015 with respect to Ground no. 2 while passing the order under section 143(3) 2 while passing the order under section 143(3) r.w.s. 144C(13) of the Act. r.w.s. 144C(13) of the Act. 2.1 The grounds raised by the Revenue are reproduced as under: The grounds raised by the Revenue are reproduced as under: The grounds raised by the Revenue are reproduced as under:

1.1 Whether on the facts and in the circumstances of the ether on the facts and in the circumstances of the ether on the facts and in the circumstances of the case, and in law, the DRP was justifed in directing the case, and in law, the DRP was justifed in directing the case, and in law, the DRP was justifed in directing the Assessing Officer to include MIs. Microgenetic Assessing Officer to include MIs. Microgenetics Systems Pvt s Systems Pvt Ltd & Mis. e4e H Ltd & Mis. e4e Health care business services Put. Ltd as ealth care business services Put. Ltd as comparables despite the fact tha comparables despite the fact that 'medical transcription' and t 'medical transcription' and 'health care outsourcing' activities cannot be functionally 'health care outsourcing' activities cannot be functionally 'health care outsourcing' activities cannot be functionally comparable with the activity of providing technical support comparable with the activity of providing technical support comparable with the activity of providing technical support (IT) services for the purpose of installation & implementation (IT) services for the purpose of installation & implementation (IT) services for the purpose of installation & implementation of the Axapta ERP licenses software. of the Axapta ERP licenses software. 1.2 Whether on the facts and in the circumstances of the ether on the facts and in the circumstances of the ether on the facts and in the circumstances of the case, and in lay, the DRP was justified in directing the case, and in lay, the DRP was justified in directing the case, and in lay, the DRP was justified in directing the Assessing Officer to include M/s. Jindal Intellicom Pvt. Ltd. Assessing Officer to include M/s. Jindal Intellicom Pvt. Ltd. Assessing Officer to include M/s. Jindal Intellicom Pvt. Ltd. As comparables despite the fact that 'call centre services" As comparables despite the fact that 'call centre services" As comparables despite the fact that 'call centre services" activity cannot be functio activity cannot be functionally comparable with the activity of nally comparable with the activity of providing technical support (IT) services for the purpose of providing technical support (IT) services for the purpose of providing technical support (IT) services for the purpose of installation & implementation of the Axapta ERP licenses installation & implementation of the Axapta ERP licenses installation & implementation of the Axapta ERP licenses software. 1.3 Whether on the facts and in the circumstances of the Whether on the facts and in the circumstances of the Whether on the facts and in the circumstances of the case, and in law, the DR was justified in directing the case, and in law, the DR was justified in directing the case, and in law, the DR was justified in directing the

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Assessing Officer to include MIs. Jindal Intellicom Pvt. Ltd. as Assessing Officer to include MIs. Jindal Intellicom Pvt. Ltd. as Assessing Officer to include MIs. Jindal Intellicom Pvt. Ltd. as comparable despite the fact that there was substantial comparable despite the fact that there was substantial comparable despite the fact that there was substantial expansion of the capacity o expansion of the capacity of said comparable during the f said comparable during the relevant year, which has direct impact on the profitability of relevant year, which has direct impact on the profitability of relevant year, which has direct impact on the profitability of the said comparable company during the relevant period. the said comparable company during the relevant period. the said comparable company during the relevant period. 2. Whether on the facts and in the circumstances of the case, Whether on the facts and in the circumstances of the case, Whether on the facts and in the circumstances of the case, and in law, the DRP erred in not confirming ad and in law, the DRP erred in not confirming addition of Rs. dition of Rs. 97,50,004/- in respect of unexplained differences in the in respect of unexplained differences in the credit balances of two purchase parties despite the fact that credit balances of two purchase parties despite the fact that credit balances of two purchase parties despite the fact that the the the assessee assessee assessee failed failed failed to to to explain explain explain even even even after after after repeated repeated repeated opportunities during the assessment proceedings. In fact the opportunities during the assessment proceedings. In fact the opportunities during the assessment proceedings. In fact the assessee co assessee could not explain the differences even during uld not explain the differences even during proceedings before the DR (para 4.1 on page 16 of order of proceedings before the DR (para 4.1 on page 16 of order of proceedings before the DR (para 4.1 on page 16 of order of DRP. 3. The directions of the DR may be vacated and that of the The directions of the DR may be vacated and that of the The directions of the DR may be vacated and that of the Assessing Officer may be restored. Assessing Officer may be restored. 2.2 The grounds raised in the cross The grounds raised in the cross-objection are repr objection are reproduced as under:

“1. On the facts and circumstances of the case, and in law, On the facts and circumstances of the case, and in law, On the facts and circumstances of the case, and in law, the Hon'ble DRP / Ld. AO erred in retaining Accentia the Hon'ble DRP / Ld. AO erred in retaining Accentia the Hon'ble DRP / Ld. AO erred in retaining Accentia Technologies Technologies Technologies Limited Limited Limited as as as comparable comparable comparable company company company in in in its its its comparability analysis which is functionally dissimilar to the comparability analysis which is functionally dissimilar to the comparability analysis which is functionally dissimilar to the cross-objecto objector / respondent. It is therefore prayed that Accentia Technologies Limited It is therefore prayed that Accentia Technologies Limited It is therefore prayed that Accentia Technologies Limited ought to be excluded from the final set of comparable ought to be excluded from the final set of comparable ought to be excluded from the final set of comparable companies since it is functionally not comparable to the companies since it is functionally not comparable to the companies since it is functionally not comparable to the cross-objector / respondent. objector / respondent. 2. On the facts and circumstances of the c On the facts and circumstances of the case, and in law, ase, and in law, the Hon'ble DRP / Ld. AO erred in retaining Acropetal the Hon'ble DRP / Ld. AO erred in retaining Acropetal the Hon'ble DRP / Ld. AO erred in retaining Acropetal Technologies Limited (IT segment) as comparable company in Technologies Limited (IT segment) as comparable company in Technologies Limited (IT segment) as comparable company in its comparability analysis which is functionally dissimilar to its comparability analysis which is functionally dissimilar to its comparability analysis which is functionally dissimilar to the cross-objector / respondent. objector / respondent. It is therefore prayed that Ac It is therefore prayed that Acropetal Technologies Limited (IT ropetal Technologies Limited (IT segment) ought to be excluded from the final set of segment) ought to be excluded from the final set of segment) ought to be excluded from the final set of

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comparable companies since it is functionally not comparable comparable companies since it is functionally not comparable comparable companies since it is functionally not comparable to the cross-objector / respondent. objector / respondent.” 3. Briefly stated, facts of the case are that Briefly stated, facts of the case are that the assessee the assessee-company is a subsidiary of Lanxess Deutschland GmbH ubsidiary of Lanxess Deutschland GmbH. During the year During the year under consideration, the under consideration, the assessee-company was engaged in the company was engaged in the business of manufacturing and trading of chemical and chemical business of manufacturing and trading of chemical and chemical business of manufacturing and trading of chemical and chemical intermediaries, through three plants located at intermediaries, through three plants located at Nagada (Madhya Nagada (Madhya Pradesh), Jhagadia (Gujarat) and Madurai (Tamil Nadu). adia (Gujarat) and Madurai (Tamil Nadu). adia (Gujarat) and Madurai (Tamil Nadu). The assessee filed return of income on 28.11.2011 which was revised at assessee filed return of income on 28.11.2011 which was revised assessee filed return of income on 28.11.2011 which was revised loss of (-) Rs.116,34,73,438/ ) Rs.116,34,73,438/- on 13.09.2012. The return of income on 13.09.2012. The return of income filed by the assessee was selected for scrutiny and statutory notices filed by the assessee was selected for scrutiny and statutory notices filed by the assessee was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and tax Act, 1961 (in short ‘the Act’) were issued and tax Act, 1961 (in short ‘the Act’) were issued and complied with. In view of various international transactions complied with. In view of various international transactions complied with. In view of various international transactions reported by the assessee, the matter of determination of arm’s reported by the assessee, the matter of determination reported by the assessee, the matter of determination length price of those international transactions, length price of those international transactions, was was referred to the Ld. Transfer Pricing Officer (TPO). The Ld. TPO vide his order dated d. Transfer Pricing Officer (TPO). The Ld. TPO vide his order dated d. Transfer Pricing Officer (TPO). The Ld. TPO vide his order dated 27.01.2015 in terms of section 92CA(3) of the Act, proposed 27.01.2015 in terms of section 92CA(3) of the Act 27.01.2015 in terms of section 92CA(3) of the Act transfer pricing adjustment to manufacturing segment and transfer pricing adjustment to manufacturing segment and transfer pricing adjustment to manufacturing segment and technical support service. Under manufacturing segment, the Ld. technical support service. Under manufacturing segment, the Ld. technical support service. Under manufacturing segment, the Ld. TPO computed adjustment for Nagada plant at Rs.2,77,11,082/ adjustment for Nagada plant at Rs.2,77,11,082/ adjustment for Nagada plant at Rs.2,77,11,082/- and for Jhagadia Plant at Rs.14,96,781/ and for Jhagadia Plant at Rs.14,96,781/-. In this manner, total . In this manner, total adjustment to manufacturing segment was worked out at adjustment to manufacturing segment was worked out at adjustment to manufacturing segment was worked out at Rs.2,92,07,863/-. The adjustment to technical support services was . The adjustment to technical support services was . The adjustment to technical support services was proposed at Rs.1,22,69,002/ .1,22,69,002/-. In this manner, the Ld. TPO . In this manner, the Ld. TPO proposed total adjustment of Rs.4,14,76,865/ proposed total adjustment of Rs.4,14,76,865/-. In the Draft . In the Draft

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Assessment Order passed on 24.03.2015, the Assessing Officer Assessment Order passed on 24.03.2015, the Assessing Officer Assessment Order passed on 24.03.2015, the Assessing Officer proposed the transfer pricing adj proposed the transfer pricing adjustment computed by the Ld. TPO ustment computed by the Ld. TPO and also proposed proposed an addition of Rs.97,50,004/ ion of Rs.97,50,004/- for being difference in amount of the creditors appearing in the ledger difference in amount of the creditors appearing in the ledger difference in amount of the creditors appearing in the ledger account of the assessee and ledger account of the two parties account of the assessee and ledger account of the two parties account of the assessee and ledger account of the two parties namely ‘Trans Tech Turnkey Pvt. Ltd. Trans Tech Turnkey Pvt. Ltd.’ and ‘Ray Engineering Pvt. Ray Engineering Pvt. Ltd.’ Against the draft assessment o Against the draft assessment order, the assessee filed objection rder, the assessee filed objection before the Ld. DRP. The Ld. DRP after considering the submission before the Ld. DRP. The Ld. DRP after considering the submission before the Ld. DRP. The Ld. DRP after considering the submission of the assessee, on the issue of adjustment to manufacturing of the assessee, on the issue of adjustment to manufacturing of the assessee, on the issue of adjustment to manufacturing segment followed finding of the Ld. DRP for immediately preceding segment followed finding of the Ld. DRP for immediately preceding segment followed finding of the Ld. DRP for immediately preceding assessment year i.e. 2010 assessment year i.e. 2010-11. In respect of adjustment to technical In respect of adjustment to technical support service, the Ld. DRP admitted additional evidence under support service, the Ld. DRP admitted additional evidence under support service, the Ld. DRP admitted additional evidence under Rule 46 of the Income Rule 46 of the Income-tax Rules, 1962 (in short ‘the Rules’) and tax Rules, 1962 (in short ‘the Rules’) and after considering report from after considering report from AO/TPO, accepted three comparables accepted three comparables namely Microgenetics Sy Microgenetics Systems Ltd., E4e Healthcare Business stems Ltd., E4e Healthcare Business Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. The Ld. DRP also Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. The Ld. DRP also Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. The Ld. DRP also accepted inclusion of the certain comparables by the Ld. TPO accepted inclusion of the certain comparables by the Ld. TPO accepted inclusion of the certain comparables by the Ld. TPO including Accentia Technologies Ltd. and Acropetal Technologies including Accentia Technologies Ltd. and Acropetal Technologies including Accentia Technologies Ltd. and Acropetal Technologies Ltd. The Ld. DRP deleted th Ltd. The Ld. DRP deleted the addition for difference in credit e addition for difference in credit balance of two companies companies. Pursuant to the direction of the Ld. DRP . Pursuant to the direction of the Ld. DRP dated 15.12.2015, the Ld. Assessing Officer passed impugned the Ld. Assessing Officer passed impugned the Ld. Assessing Officer passed impugned assessment order, wherein he upheld the transfer pricing wherein he upheld the transfer pricing adjustment to manufacturing segment adjustment to manufacturing segment whereas transfer pricing whereas transfer pricing adjustment in respect of technical support service was deleted. The adjustment in respect of technical support service was deleted. The adjustment in respect of technical support service was deleted. The

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addition in respect of discrepancy/difference in credit amount of addition in respect of discrepancy/difference in credit amount of addition in respect of discrepancy/difference in credit amount of two parties was also deleted pursuant to the direction of the Ld. two parties was also deleted pursuant to the direction of the Ld. two parties was also deleted pursuant to the direction of the Ld. DRP.

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“Since there is no change in the facts of the case, Since there is no change in the facts of the case, Since there is no change in the facts of the case, following the decision of the DRP in the case of the following the decision of the DRP in the case of the following the decision of the DRP in the case of the assessee for A.. 2010 assessee for A.. 2010 - 11 objection of the assessee is 11 objection of the assessee is hereby rejected. So far as our alternative plea of the hereby rejected. So far as our alternative plea of the hereby rejected. So far as our alternative plea of the assessee seeking range benefit prescribed under section seeking range benefit prescribed under section seeking range benefit prescribed under section 92C(2) of the IT Act is concerned, we are not in 92C(2) of the IT Act is concerned, we are not in 92C(2) of the IT Act is concerned, we are not in agreement with the working made by the assessee. The agreement with the working made by the assessee. The agreement with the working made by the assessee. The suo motto adjustments made by the assessee have suo motto adjustments made by the assessee have suo motto adjustments made by the assessee have been considered as part of operating income in this been considered as part of operating income in this been considered as part of operating income in this working which is incorrect. The TO has correctly worked which is incorrect. The TO has correctly worked which is incorrect. The TO has correctly worked out the adjustments required to be made under TNMM out the adjustments required to be made under TNMM out the adjustments required to be made under TNMM and after giving set off for the adjustments made by the and after giving set off for the adjustments made by the and after giving set off for the adjustments made by the assessee on its own, the TO has arrived at the correct assessee on its own, the TO has arrived at the correct assessee on its own, the TO has arrived at the correct amount of final adjustments. Therefore, alte amount of final adjustments. Therefore, alternative plea rnative plea of the assessee is also rejected. of the assessee is also rejected.” 7.1 We find that in assessment year 2010 We find that in assessment year 2010-11, the Tribunal (supra) 11, the Tribunal (supra) has rejected this approach of the Ld. DRP and directed to accept has rejected this approach of the Ld. DRP and directed to accept has rejected this approach of the Ld. DRP and directed to accept comparison of margin using internal TNMM for comparison of comparison of margin using internal TNMM for comparison of comparison of margin using internal TNMM for comparison of to AE’s with the export sales made to 3rd parties export sales made to AE’s with the export sales made to 3 to AE’s with the export sales made to 3 (non-AE’s). The relevant finding of the Tribunal AE’s). The relevant finding of the Tribunal AE’s). The relevant finding of the Tribunal (supra) is reproduced as under: reproduced as under:

“11. We have considered the rival submissions and We have considered the rival submissions and We have considered the rival submissions and perused the material on record. The only grievance perused the material on record. The only grievance perused the material on record. The only grievance raised by the Appellant raised by the Appellant before DRP was that while before DRP was that while applying applying applying internal internal internal TMM TMM TMM for for for benchmarking benchmarking benchmarking the the the international transactions of export of goods from Thane international transactions of export of goods from Thane international transactions of export of goods from Thane Plant, the TO had compared OP/OC from total sales to Plant, the TO had compared OP/OC from total sales to Plant, the TO had compared OP/OC from total sales to non-AEs (i.e. domestic sales as well as export sales) AEs (i.e. domestic sales as well as export sales) AEs (i.e. domestic sales as well as export sales) which stood at 11.90% w which stood at 11.90% with the OP/OC of export sales ith the OP/OC of export sales from Thane Plant which stood at 3.56%. It was from Thane Plant which stood at 3.56%. It was from Thane Plant which stood at 3.56%. It was contended on behalf of the Appellant that the segment contended on behalf of the Appellant that the segment contended on behalf of the Appellant that the segment of export to AEs should have been compared with the of export to AEs should have been compared with the of export to AEs should have been compared with the segment of export to non segment of export to non-AEs since the data was AEs since the data was available and the margins available and the margins were not disputed. Under TNMM broad similarity in FAR is acceptable since the TNMM broad similarity in FAR is acceptable since the TNMM broad similarity in FAR is acceptable since the net margins, which are tested, are more tolerant to the net margins, which are tested, are more tolerant to the net margins, which are tested, are more tolerant to the

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differences. Contention Contention of of the the Appellant Appellant before before Assessing Officer and DR was that exports made to Assessing Officer and DR was that exports made to Assessing Officer and DR was that exports made to different geographical l different geographical location to non-AEs could be AEs could be considered to benchmark export sales to AEs by considered to benchmark export sales to AEs by considered to benchmark export sales to AEs by adopting internal TNMM method since the transactions adopting internal TNMM method since the transactions adopting internal TNMM method since the transactions undertaken with the AEs and Non undertaken with the AEs and Non-AEs were in the AEs were in the same industry, and had high level of similarity with same industry, and had high level of similarity with same industry, and had high level of similarity with respect to products, cost o respect to products, cost of goods sold, manufacturing f goods sold, manufacturing processes, etc. In our view, the DRP erred in adopting processes, etc. In our view, the DRP erred in adopting processes, etc. In our view, the DRP erred in adopting the aforesaid reasoning given by the Appellant to the aforesaid reasoning given by the Appellant to the aforesaid reasoning given by the Appellant to include even the domestic sales made by the Appellant include even the domestic sales made by the Appellant include even the domestic sales made by the Appellant for benchmarking the export sales made to AEs from for benchmarking the export sales made to AEs from for benchmarking the export sales made to AEs from Thane Plant. Accor Thane Plant. Accordingly, we set aside the transfer dingly, we set aside the transfer pricing pricing addition addition of of IN IN 54,62,391/- 54,62,391/ and and direct direct TPO/Assessing Officer to re O/Assessing Officer to re-compute ALP of the compute ALP of the international transaction of export of goods from Thane international transaction of export of goods from Thane international transaction of export of goods from Thane Plant by taking OP/OC of the export sales to non Plant by taking OP/OC of the export sales to non Plant by taking OP/OC of the export sales to non-AEs. In view of the afor In view of the aforesaid directions, Ground No. 1 raised Ground No. 1 raised by the Appellant allowed. by the Appellant allowed.” 7.2 Since, the issue Since, the issue-in-dispute in the year under consideration is dispute in the year under consideration is identical identical identical to to to issue issue issue in in in assessment assessment assessment year 2010-11, year 2010 year 2010 therefore, respectfully following the finding of the Tribunal (supra) on the respectfully following the finding of the Tribunal respectfully following the finding of the Tribunal issue-in-dispute, we direct the Ld. AO/TPO for computing the e direct the Ld. AO/TPO for computing the e direct the Ld. AO/TPO for computing the transfer pricing adjustment to the manufacturing segment for each transfer pricing adjustment to the manufacturing segment for each transfer pricing adjustment to the manufacturing segment for each plant separately using internal plant separately using internal TNMM as most appropriate method, TNMM as most appropriate method, comparing the margin of export sales to third parties with t he comparing the margin of export sales to third parties with t he comparing the margin of export sales to third parties with t he export sales the AE’s. export sales the AE’s. The ground of appeal of the assessee is The ground of appeal of the assessee is accordingly allowed for statistical purposes. accordingly allowed for statistical purposes.

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proceedings. Accordingly, the ground No proceedings. Accordingly, the ground Nos. 2 & 3 of the appeal of the . 2 & 3 of the appeal of the assessee are dismissed as infructuous. dismissed as infructuous.

“7.6 Hence that final comparables of the TPO are as Hence that final comparables of the TPO are as Hence that final comparables of the TPO are as under: Sl. No. Name of the comparable Name of the comparable Margin Margins Comparable (%) as per

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OP/TO OP/TO 1. Accentia Technologies Ltd. Accentia Technologies Ltd. 29.18% 29.18% TPO TPO 2. Acropetal Technologies Ltd. (Segmental) Acropetal Technologies Ltd. (Segmental) 23.95% 23.95% TPO 3. TCS e-Serve Ltd. Serve Ltd. 69.31% 69.31% TPO 4. Infosys BPO Ltd. Infosys BPO Ltd. 17.86% 17.86% Mean 35.08 35.08 TPO Assessee’s Margin 15.00 15.00 The mean margin of 35.08% as per the departmental The mean margin of 35.08% as per the departmental The mean margin of 35.08% as per the departmental comparables is applied in the case of t comparables is applied in the case of the assessee.” he assessee.” 10.1 The Ld. TPO then worked out adjustment of Rs.122,69,022/ The Ld. TPO then worked out adjustment of Rs.122,69,022/ The Ld. TPO then worked out adjustment of Rs.122,69,022/- as under:

“7.7 Adjustment: Adjustment: The OP/TC of Technical Support The OP/TC of Technical Support services is 15.00% is lesser than that OP/TC of 35.08% services is 15.00% is lesser than that OP/TC of 35.08% services is 15.00% is lesser than that OP/TC of 35.08% earned by comparable companies. The OP/TC of the earned by comparable companies. The OP/TC of the earned by comparable companies. The OP/TC of the software development segment is outside the 5% range software development segment is outside the 5% range software development segment is outside the 5% range available under the regulations. It can thus be available under the regulations. It can thus be available under the regulations. It can thus be concluded that the international transactions of the d that the international transactions of the d that the international transactions of the assessee are not at arm's length price, and therefore an assessee are not at arm's length price, and therefore an assessee are not at arm's length price, and therefore an adjustment of Rs. 1,22,69,002 / adjustment of Rs. 1,22,69,002 /- is made as per the is made as per the below working: below working: Working of TP adjustment Working of TP adjustment Particulars Particulars P&L A/c ALP @ 35.05% ALP @ 35.05% Revenue 7,02,74,760 8,25,43,762 8,25,43,762 Total Cost 6,11,07,316 6,11,07,316 6,11,07,316 Operating Profit Operating Profit 91,67,444 2,14,36,446 2,14,36,446 OP/TC 15.00% 35.08% 35.08%

International Transaction (IT) International Transaction (IT) 7,02,74,760 7,02,74,760 Arm’s Length Price Arm’s Length Price 8,25,43,762 8,25,43,762 ITx1.05 8,66,70,950 8,66,70,950 ITx0.95 7,84,16,574 7,84,16,574 Adjustment Adjustment 1,22,69,002 1,22,69,002 In view of the above, the assessee will suffer an In view of the above, the assessee will suffer an In view of the above, the assessee will suffer an adjustment of Rs.1,22,69,002/ adjustment of Rs.1,22,69,002/- in respect of fees in respect of fees received by provision of ITES. received by provision of ITES.”

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11.1 Regarding Microgentics Systems Ltd., Regarding Microgentics Systems Ltd., the Ld. DRP rejected the the Ld. DRP rejected the contention of the Ld. TPO contention of the Ld. TPO for rejection on the ground of for rejection on the ground of turnover of the assessee being seven times, seven times, as TPO himself observed that the TPO himself observed that the high turnover is no criteria for rejection of a company. As regard high turnover is no criteria for rejection of a company. As regard high turnover is no criteria for rejection of a company. As regard objection of company engaged in the company engaged in the medical transcription services, medical transcription services, the Ld. DRP accepted he Ld. DRP accepted that the company as engaged in the company as engaged in ITeS industry.

“10TA(e) information technology enabled services" information technology enabled services" means the following business process outsourcing means the following business process outsourcing means the following business process outsourcing services provided mainly with the assistance services provided mainly with the assistance or use of or use of information technology, namely: information technology, namely: i. back office operations: back office operations: ii. call centres or contact centre services: call centres or contact centre services: iii. data processing and data mining: data processing and data mining: iv. insurance claim processing; insurance claim processing; v. legal databases: legal databases:

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vi. creation creation creation and and and maintenance maintenance maintenance of of of medical medical medical transcription excluding medical adv transcription excluding medical advice; ice; vii. translation services; translation services; viii. payroll; payroll; ix. remote maintenance, remote maintenance, x. revenue accounting revenue accounting xi. support centres support centres xii. website services: website services: xiii. data search integration and analysis; data search integration and analysis; xiv. remote education excluding education content remote education excluding education content remote education excluding education content development; or development; or xv. clinical database management services excluding clinical database management services excluding clinical database management services excluding clinical trials. clinical trials. but does not include any research and development but does not include any research and development but does not include any research and development services whether or not in the nature of contrac research services whether or not in the nature of contrac research services whether or not in the nature of contrac research and development services. and development services.” 12.1 We also agree with the contention of the Ld. Counsel of the We also agree with the contention of the Ld. Counsel of the We also agree with the contention of the Ld. Counsel of the assessee that ‘Accentia Tech Accentia Technology Ltd.’ which is which is engaged in providing medical transcription providing medical transcription has been accepted by the Ld. TPO accepted by the Ld. TPO as valid comaparable as valid comaparable, then the AP/TPO is not for exclusion of the AP/TPO is not for exclusion of Microgenetics as justified, Microgenetics as justified, there is no reason to object inclusion of to object inclusion of Microgenetics on the ground of Microgenetics on the ground of being engaged in the medical engaged in the medical transcription services transcription services i.e. functional dissimilarity. We accordingly . We accordingly, uphold the finding of the Ld. DRP on the issue uphold the finding of the Ld. DRP on the issue-in-dispute. dispute.

12.2 Regarding E4e Healthcare Business Services Pvt. Ltd. also the Regarding E4e Healthcare Business Services Pvt. Ltd. also the Regarding E4e Healthcare Business Services Pvt. Ltd. also the Ld. DRP has rejected the objec Ld. DRP has rejected the objection of the Ld. TPO of functionally tion of the Ld. TPO of functionally dissimilarity being engaged in the healthcare services. We have dissimilarity being engaged in the healthcare services. We have dissimilarity being engaged in the healthcare services. We have heard rival submission of the parties on the issue-in-dispute and heard rival submission of the parties on the issue heard rival submission of the parties on the issue perused the relevant material on record. In view of our finding on perused the relevant material on record. In view of our finding perused the relevant material on record. In view of our finding the comparable Microgen Microgenetics Pvt. Ltd., the contention of the Ld. etics Pvt. Ltd., the contention of the Ld.

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DR of functionally dissimilarity DR of functionally dissimilarity are rejected and finding of the Ld. rejected and finding of the Ld. DRP on the issue-in-dispute is upheld. dispute is upheld.

12.3 Regarding Jindal Intellicom Pvt. Ltd. Regarding Jindal Intellicom Pvt. Ltd., finding of the Ld. DRP is finding of the Ld. DRP is reproduced as under: reproduced as under:

“Jindal Intellicom Pvt. Ltd.: Intellicom Pvt. Ltd.: The TPO in its remand report rejected this company on The TPO in its remand report rejected this company on The TPO in its remand report rejected this company on the ground that it is engaged only in call centre services. the ground that it is engaged only in call centre services. the ground that it is engaged only in call centre services. Further Further Further the the the company company company did did did major major major expansion expansion expansion and and and increased its capacity by 45% which is one of the increased its capacity by 45% which is one of the increased its capacity by 45% which is one of the extraordinary events. The extraordinary events. The assessee has argued that call assessee has argued that call centre services are covered under the definition fITS centre services are covered under the definition fITS centre services are covered under the definition fITS industry as mentioned in the safe harbour rules. The industry as mentioned in the safe harbour rules. The industry as mentioned in the safe harbour rules. The assessee has also argued that mere expansion of the assessee has also argued that mere expansion of the assessee has also argued that mere expansion of the capacity cannot be a reason to exclude a functionally capacity cannot be a reason to exclude a functionally capacity cannot be a reason to exclude a functionally comparable comparable company. co mpany. The The TO TO has has also also not not demonstrated that the expansion in capacity has any demonstrated that the expansion in capacity has any demonstrated that the expansion in capacity has any impact on the profit/loss of the company. impact on the profit/loss of the company. We have considered the facts of the case and the We have considered the facts of the case and the We have considered the facts of the case and the submissions made. We agree that mere submissions made. We agree that mere capacity capacity expansion cannot be a reason to reject expansion cannot be a reason to reject an olherwise an olherwise functionally comparable company. functionally comparable company. The company is The company is functionally comparable and has passed all TPO filters. functionally comparable and has passed all TPO filters. functionally comparable and has passed all TPO filters. TO is directed to accept it as comparable. The objection TO is directed to accept it as comparable. The objection TO is directed to accept it as comparable. The objection is therefore accepted is therefore accepted.” 13. We have heard rival submission of the parties and per We have heard rival submission of the parties and per We have heard rival submission of the parties and perused the relevant material on record. The objection of the Ld. DR that call relevant material on record. The objection of the Ld. DR that relevant material on record. The objection of the Ld. DR that centre activity cannot be characterized as ITeS is activity cannot be characterized as ITeS is rejected in view of rejected in view of safe harbor Rules (reproduced above), Rules (reproduced above), where call centre where call centre activity is included as one of ITeS activity as one of ITeS activity. Therefore, we agree with the finding agree with the finding of the Ld. DRP that company cannot be company cannot be rejected for comparison for comparison on

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this ground. Accordingly, we upho this ground. Accordingly, we uphold the finding of the Ld. DRP on ld the finding of the Ld. DRP on the issue-in-dispute. dispute.

13.1 In view of the above discussion, the ground No. 1.1 to 1.3 of In view of the above discussion, the ground No. 1.1 to 1.3 of In view of the above discussion, the ground No. 1.1 to 1.3 of the appeal of the Revenue are dismissed. ppeal of the Revenue are dismissed.

“5. Issue of discrepancies found on verification Issue of discrepancies found on verification Issue of discrepancies found on verification by issuing notices u/s 133(6) of the I.T. Act, 1961: by issuing notices u/s 133(6) of the I.T. Act, 1961: by issuing notices u/s 133(6) of the I.T. Act, 1961: The assessee company has claimed expenses by The assessee company has claimed expenses by The assessee company has claimed expenses by debiting to Profit & Loss account under that head debiting to Profit & Loss account under that head debiting to Profit & Loss account under that head purchases expenses. The authorized purchases expenses. The authorized representative representative furnished the partywise details giving name, address furnished the partywise details giving name, address furnished the partywise details giving name, address and and and amount. amount. amount. To To To verify verify verify the the the genuineness genuineness genuineness and and and reasonableness of these transactions, notices u/s reasonableness of these transactions, notices u/s reasonableness of these transactions, notices u/s 133(6) of the Act, were sent to certain parties. The 133(6) of the Act, were sent to certain parties. The 133(6) of the Act, were sent to certain parties. The analysis of the responses received from var analysis of the responses received from various parties ious parties was done and a letter issued to the assessee company s done and a letter issued to the assessee company s done and a letter issued to the assessee company vide letter dated 03.02.2015 to reconcile the same with vide letter dated 03.02.2015 to reconcile the same with vide letter dated 03.02.2015 to reconcile the same with their books of accounts and produce the parties their books of accounts and produce the parties their books of accounts and produce the parties alongwith the documentary evidences to prove the alongwith the documentary evidences to prove the alongwith the documentary evidences to prove the genuineness genuineness of of transactions. transactions. The The letter lett er dated dated 03.02.2015 is reproduced below: 03.02.2015 is reproduced below: Kindly refer to the above. Kindly refer to the above. 2. During the course of assessment proceedings to During the course of assessment proceedings to During the course of assessment proceedings to verify the genuineness of Sundry creditors as shown by verify the genuineness of Sundry creditors as shown by verify the genuineness of Sundry creditors as shown by you, information u/s 133(6) of the I.T. Act, was called you, information u/s 133(6) of the I.T. Act, was called you, information u/s 133(6) of the I.T. Act, was called for from some of the cred for from some of the creditors on test check basis. itors on test check basis. Details of the same are tabulated as under: Details of the same are tabulated as under: Sr. No. Name of the Party Name of the Party Reply Sundry Sundry Sundry Difference

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(Creditor) Received Balance as balance balance as as per the per reply of per reply of assessee the party the party 1. Grasim Grasim Industries Yes Industries 3,44,83,559 Closing Closing Ltd. balance not balance not 2. Crescent Crescent Organics Yes Organics 3,42,33,938 3,42,31,435 3,42,31,435 2,503 Pvt. Ltd. 3. Trans Tech Turnkey Trans Tech Turnkey No 2,07,71,597 -- Pvt. Ltd. 4. Jupiter Jupiter Dyechem Dyechem Yes 1,51,11,000 1,54,41,840 1,54,41,840 (-)3,30,840 Pvt. 5. H.J. H.J. Arochem Arochem (P) Yes (P) 1,10,79,478 1,00,06,359 1,00,06,359 10,73,119 Ltd. 6. Grasim Grasim Industries Yes Industries 86,23,085 1,27,02,374 1,27,02,374 (-)40,79,289 Ltd. S. F. 7. Philips Philips Carbon Yes Carbon 77,21,250 25,17,322 25,17,322 42,03,928 Black Ltd. 8. Time Time Technoplast Technoplast No 70,04,093 -- Ltd. 9. Noble Noble Resources Resources No 67,94,167 -- and and Trading Trading Pvt. Pvt. Ltd. 10. Turbomach India Yes India 67,29,890 69,85,000 69,85,000 Pvt. Ltd. 11. Onshore No 36,94,367 -- Construction Construction Co. Co. Pvt. Ltd. 12. Abhilasha Abhilasha Tex No Tex 34,08,543 -- Chem Pvt. Ltd. 13. ICICI ICICI Lombard Lombard Returned 34,08,543 -- General General Insurance Insurance back Co. Ltd. 14. Poonam Enterprises Poonam Enterprises Returned 31,70,030 -- back 15. Bayer Bayer Cropscience Yes Cropscience 28,46,734 31,40,115 31,40,115 (-)2,93,381 Ltd. 16. Acord Acord Shipping Shipping Yes 15,13,107 17,79,355 17,79,355 (-)2,66,248 Agencies (India) Pvt. Agencies (India) Pvt. Ltd. 17. Cox and Kings India Cox and Kings India No 14,32,475 28,21,763 28,21,763 (-)13,89,288 Ltd. 18. Ray Ray Engineering Engineering No 13,08,718 52,08,888 52,08,888 (-)39,00,170 Pvt. Ltd. 19. Hindustan Yes 12,99,444 -- Chemicals Co. 20. Paras Paras Commercial No Commercial 10,13,971 -- Centre Pvt. Ltd.

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As discussed above, you are requested to kindly As discussed above, you are requested to kindly As discussed above, you are requested to kindly reconcile the same along with supporting necessary reconcile the same along with supporting necessary reconcile the same along with supporting necessary documents on or before 10/02/2015 positively. documents on or before 10/02/2015 positively. The authorized representative of the assessee company The authorized representative of the assessee company The authorized representative of the assessee company has attended on 10.02.2015 and filed the reconciliation has attended on 10.02.2015 and filed the reconciliation has attended on 10.02.2015 and filed the reconciliation in respect of certain parties vide submissions dated in respect of certain parties vide submissions dated in respect of certain parties vide submissions dated 10.02.2015 and 19.03.2015. 10.02.2015 and 19.03.2015. After going through the submissions of the assessee, it After going through the submissions of the assessee, it After going through the submissions of the assessee, it is seen that in two cases in which the notices u/s is seen that in two cases in which the notices u/s is seen that in two cases in which the notices u/s 133(6) of the I.T. Act, 1961 were sent on the addresses 133(6) of the I.T. Act, 1961 were sent on the addresses 133(6) of the I.T. Act, 1961 were sent on the addresses furnished by furnished by the assessee company, there are negative the assessee company, there are negative differences i.e. party has confirmed more differences i.e. party has confirmed more amount than amount than shown by the assessee company. The total amount of shown by the assessee company. The total amount of shown by the assessee company. The total amount of such transactions are summarized as under: such transactions are summarized as under: Sr. Name of Sundry Creditors Name of Sundry Creditors Balance as per Balance as per the ce as per the Differences No. the assessee reply of the party reply of the party 1. Trans Tech Trunkey Pvt. Trans Tech Trunkey Pvt. 20,771,597 26,621,431 -5,849,834 Ltd. 2. Ray Engineering Pvt. Ltd. Ray Engineering Pvt. Ltd. 1,308,718 5,208,888 -3,900,170 Total Negative differences Total Negative differences -9,750,004 Although the assessee company has Although the assessee company has established the established the identity of these two parties, it has failed to establish identity of these two parties, it has failed to establish identity of these two parties, it has failed to establish the genuineness of the transactions to the extent of the genuineness of the transactions to the extent of the genuineness of the transactions to the extent of Rs.97,50,004/ Rs.97,50,004/-. . Therefore, Therefore, the the transactions transactions are are considered as not genuine to the extent of discrepancies considered as not genuine to the extent of discrepancies considered as not genuine to the extent of discrepancies found. Hence, the differ found. Hence, the difference amounts of Rs.97,50,004/ ence amounts of Rs.97,50,004/- is added to the income of the assessee company as is added to the income of the assessee company as is added to the income of the assessee company as income from undisclosed sources. Penalty proceedings income from undisclosed sources. Penalty proceedings income from undisclosed sources. Penalty proceedings u/s 271(1)(c) of the Act, are hereby initiated separately u/s 271(1)(c) of the Act, are hereby initiated separately u/s 271(1)(c) of the Act, are hereby initiated separately for furnishing inaccurate particulars of income. for furnishing inaccurate particulars of income.” 14.1 The Ld. DRP however deleted the addition observing as under: DRP however deleted the addition observing as under: DRP however deleted the addition observing as under:

“4.3 Discussion and Directions of DRP: Discussion and Directions of DRP: We have considered the submission made by the We have considered the submission made by the We have considered the submission made by the assessee and the reasons assessee and the reasons recorded by the AO. We recorded by the AO. We arelof the opinion that in this case no addition was arelof the opinion that in this case no addition was arelof the opinion that in this case no addition was called for because there are only two possible reasons called for because there are only two possible reasons called for because there are only two possible reasons for a creditor showing more amount as receivable from for a creditor showing more amount as receivable from for a creditor showing more amount as receivable from

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the assessee than shown by the assessee. The first the assessee than shown by the assessee. The first the assessee than shown by the assessee. The first possibility is that possibility is that some payment made by the assessee some payment made by the assessee is not reflected in the books of the creditor for the money is not reflected in the books of the creditor for the money is not reflected in the books of the creditor for the money has been diverted somewhere else and shown as has been diverted somewhere else and shown as has been diverted somewhere else and shown as payment to the creditor. In this case since the source of payment to the creditor. In this case since the source of payment to the creditor. In this case since the source of money is explained no addition may be called for. The money is explained no addition may be called for. The money is explained no addition may be called for. The second possibility is that some bill raised by the creditor nd possibility is that some bill raised by the creditor nd possibility is that some bill raised by the creditor has not been recorded by the assessee in its books of has not been recorded by the assessee in its books of has not been recorded by the assessee in its books of account. In this situation also, no addition is called for account. In this situation also, no addition is called for account. In this situation also, no addition is called for because there is no allegation of any unexplained because there is no allegation of any unexplained because there is no allegation of any unexplained payment for the expenditure. Accordin payment for the expenditure. Accordingly, addition of addition of Rs.97,50,004/ 97,50,004/- made by the AO is hereby deleted. made by the AO is hereby deleted.” 15. We have heard rival submission of the parties on the issue We have heard rival submission of the parties on the issue We have heard rival submission of the parties on the issue-in- dispute and perused the relevant material on record. It is dispute and perused the relevant material on record. It is dispute and perused the relevant material on record. It is undisputed that balances undisputed that balances appearing in the ledger account of the in the ledger account of the assessee in respect of those two parties and balances of the assessee in respect of those two parties and balances of the assessee in respect of those two parties and balances of the assessee in the ledger accounts of those two respective parties, are assessee in the ledger accounts of those two respective parties assessee in the ledger accounts of those two respective parties different. The Ld. DRP has presumed possible Ld. DRP has presumed possible reasons for Ld. DRP has presumed possible differences however this is the issue of verification from those two differences however this is the issue of verification from those two differences however this is the issue of verification from those two parties as to the reason parties as to the reason for the difference in balances and the onus balances and the onus was on the assessee to reconcile those differences. The Assessing was on the assessee to reconcile those differences. The Assessing was on the assessee to reconcile those differences. The Assessing Officer also did not make effort by way of inquiring from those Officer also did not make effort by way of inquiring from those Officer also did not make effort by way of inquiring from those parties for the reasons of difference. In the facts and c the reasons of difference. In the facts and circumstances, the reasons of difference. In the facts and c we feel appropriate to restore this issue back to the file of the we feel appropriate to restore this issue back to the file of the we feel appropriate to restore this issue back to the file of the Assessing Officer for verifying from those parties for the reason of Assessing Officer for verifying from those parties for the reason of Assessing Officer for verifying from those parties for the reason of discrepancy in the ledger ledger balance appearing in the books of account balance appearing in the books of account of the assessee and then decide the iss and then decide the issue in accordance with law ue in accordance with law. The ground No. 2 is accordingly allowed for statistical purposes. The ground No. 2 is accordingly allowed for statistical purposes. The ground No. 2 is accordingly allowed for statistical purposes.

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Order pronounced Order pronounced under Rule 34(4) of the ITAT Rules, under Rule 34(4) of the ITAT Rules, 1963 on 10/02/2023. 02/2023. Sd/- Sd/- - (KAVITHA RAJAGOPAL KAVITHA RAJAGOPAL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 10/02/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai

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BY ORDER, BY ORDER, //True Copy// (Assistant Registrar Assistant Registrar) ITAT, Mumbai ITAT, Mumbai