FORST & SULLIVAN (I) P.LTD,CHENNAI vs. ASST CIT (OSD) 8(1), MUMBAI

PER SHRI ANIKESH BANERJEE, JUDICIAL MEMBER: The instant appeal of the assessee filed against the order of Ld. Assistant Commissioner of Income Tax (OSD) Rg.-8(1), Mumbai (for brevity ‘Ld. AO’), order passed u/sec. 144C(13) r.w.s. 143(3) of the Income Tax Act,1961 [for brevity, the ‘Act’], for Assessment Year 2007-08, date of order 12.10.2011. By pursuing the order of the Ld. Dispute Resolution Panel-1, Mumbai (for brevity ‘Ld. DRP), order passed u/sec. 144C(5), date of direction 29.09.2011.

“Ground No. 1: On the facts and in the circumstances of the case and in law, the Assessing Officer ('AO') grossly erred, based on the directions of Dispute Resolution Panel - I ('DRP') under section 144C(5) of the Income-tax Act, 1961 ('the Act'), in disallowing prior period expenses of Rs 7,73,668/-. The appellant submits that disallowance of prior period expenses is not warranted in its case as it had knowledge of the liability to incur these expenses only subsequent to audit for year ending 31/03/2006, making it impossible for it to provide for these expenses in the books for the year ending 31/03/2006, as is clearly evident from the communications between the appellant and its parent company, copies of which were submitted to the AO as well as the DRP. Ground No. 2: On the facts and in the circumstances of the case and in law, the Assessing Officer ('AO') grossly erred, based on the directions of Dispute Resolution Panel I ('DRP') under section 144C(5) of the Income-tax Act, 1961 ('the Act'), in making the upward transfer pricing adjustment to the extent of Rs.7,13.12.912/- in respect of appellant's international transactions with associated enterprise ('AE') as well as appellant's transactions with Non- AEs. The appellant submits that no transfer pricing adjustment is warranted in its case and wishes to raise the following grounds of appeal, which are without prejudice to each other. i. The DRP erred in upholding the TPO/AO's action of conducting a fresh search, which was without jurisdiction as it was undertaken without complying with the conditions prescribed in Section 92C(3) of the Act. ii. The DRP/TPO/AO erred in not providing to the appellant the material and information pertaining to the entire search process and providing only certain limited information regarding the final set of the alleged comparables in the fresh search process carried out by the Ld. TPO once during the original assessment and again when the matter was remanded to him, thereby blatantly violating the principles of natural justice. iii. The DRP/AO failed to appreciate that their directions/orders were erroneous, as - (a) adjustments for risk and functional differences between appellant and the alleged comparables newly selected by the TPO has not been granted. (b) transfer pricing adjustment are made even with respect to appellant's transactions with Non AE customers, which is not at all permissible.

(c) appellant's reliance on Comparable Uncontrolled Price ('CUP') Method for determining the arm's length price in respect of the market analysis services provided by the CP division has been rejected on totally untenable grounds and the Transactional Net Margin Method ('TNMM'), which is not the most appropriate method under the circumstances, has been adopted. (d) the appellant's comparison has been made with entities having totally different functional and risks profile and in any event, such comparison is made without directing that adjustment for significant economic differences should be made. (e) the transfer pricing adjustments have been made at the entity level without appreciating that such entity level adjustments have been made not only with respect to the appellant's international transactions with its AEs, which were scrutinized and commented upon by the TPO (i.e., the revenues of CP and GIC division) but also (1) with respect to the international transactions with the AE which were not commented upon by him and therefore impliedly accepted by him (such as receipt of market analysis services, common corporate cost) and; (ii) with respect to the Non-AE transactions. (f) heavy reliance has been placed on information gathered by the TPO under section 133(6) of the Act for the purposes of accepting / rejecting companies as comparable companies, which information is not in the public domain and which has not been fully made available to the appellant. (g) multiple years' financial data has not been taken into account for computing the average operating profit margins of the allegedly comparable companies selected by the TPO, especially since use of multiple year financial data (l.e. financial data of relevant previous year and two years prior thereto) was justifiable as per the proviso to Rule 10B(4) of the Income-tax Rules, 1962 under the facts and circumstances of the appellant's case. iv. (a) The DRP/TPO/AO failed to appreciate that the directions of DRP as well as the order of the AO based on DRP's directions are untenable in law as they do not allow the benefit of adjustment of ± 5% as per proviso to section 92C(2) of the Act. (b) The DRP/TPO/AO failed to appreciate that the directions of DRP as well as the order of the AO based on DRP's directions are erroneous as they do not compute the transfer pricing adjustment with reference to the lower end of ± 5% arm's length range as provided in proviso to section 92C(2) of the Act. v. The DRP/TPO/AO failed to appreciate that their orders are invalid because: (a) They suffer from factually incorrect statements, observations and conclusions. (b) The appellant's various submissions have not been taken into account. 3 (c) Binding decisions cited before them have not been followed. Ground No. 3: The Ld. AO erred in initiating penalty proceedings under Section 271(1)(c) of the Act. Ground No. 4: The appellant craves to add, alter, amend or delete all or any of the grounds of appeal before or during the course of hearing.” 3. The assessee has taken the additional grounds as under: “ADDITIONAL GROUND OF APPEAL 1. On the facts and circumstances of the Appellant's case and in law, the impugned assessment order dated 12.10.2011 passed by the Ld. AO under provisions of section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 ('ITA') is barred by law of limitation in light of provisions of section 153 of the ITA and is, therefore, bad in law and illegal. The appellant craves leave to add, alter, modify, omit, substitute or amend all or any of the grounds of appeal before or during the course of hearing.” 4. Brief facts of the case are that the assessee-company is engaged in the business of market research and allied services. For the year under consideration, the assessee carried on its activities through two divisions, namely, the Consulting Practice (“CP”) Division, which rendered market analysis and consulting services, and the Global Innovation Centre (“GIC”) Division, which rendered back-office support services to the overseas entities of the Frost & Sullivan group. The assessee filed its return of income declaring total income of Rs.4,35,97,050/-. The assessment was ultimately completed by the Ld. AO u/s 143(3) r.w.s. 144C(13) of the Act, pursuant to the directions of the Ld. DRP dated 29.09.2011.

1.3. Reliance is also placed on the judgment in WTW Global Delivery and Solutions India Pvt. Ltd. v. DCIT 2(3)(1) [TS-589-ITAT-2022Mum] (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “(i) Accentia Technologies Ltd.:- The assessee submitted that this company is functionally different and the TPO himself has excluded this company in the assessee’s own case in AY 2010-11. Further, the Tribunal has excluded this company in the assessee’s own case in AY 2006-07 (ITA No.690/Mum/2016) and in AY 2008-09 (ITA No.6877/Mum/2012). The Ld A.R also relied upon the decision rendered by the Tribunal in the case of Stream International Services (ITA No.8290/Mum/2011 dated 10th October, 2014) in AY 2007-08. Thus, we notice that this company has been held as not a good comparable in various years in the assessee’s own case and in the hands of other assessee’s also. Accordingly, we direct exclusion of this company.” 1.4. Reliance is also placed on the judgment in Deputy Commissioner of Income-tax-9(2) v. Morgan Stanley Advantage Services (P.) Ltd. [2019] 109 taxmann.com 101 (Mumbai - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: (3) Accentia Technology Ltd. The ld. AR of the assessee submitted that this comparable has neither been selected as comparable in earlier years nor in subsequent Assessment Year in 2008-09. The Accentia Technologies Ltd. is engaged in developing its own Software products and rendering Medical transcription services and cannot be compared to the assessee engaged in providing back office support services. Further, it has undertaken extraordinary events during the year under review which have an impact on its financials. The TPO included Accentia Technology Ltd. by taking his view that this comparable company is in healthcare receivable management and rendered ITeS Services in respect of such healthcare receivable management to its client. The TPO further took his view that this company is mainly into ITeS and accordingly functionable comparable. The ld. CIT(A) confirmed the action of TPO. The co-ordinate bench in Willis Processing Servicing (India) Ltd. (supra) while considering the similar contention held as under: We have heard both the Ld. Representatives, perused the orders of the lower authorities and the records made available before us. We find that the aforesaid comparable, viz. Accentia Technologies Ltd. was engaged in software development services and was thus functionally different from the assessee company. We find that the fact that the aforesaid comparable was functionally different from the assessee company had duly been acknowledged by the TPO himself who for the said reason had rejected the said comparable, viz. Accentia Technologies Ltd. in the case of the assessee for A.Y 2010-11 and A.Y 2011-12. We further find that that the aforesaid comparable, viz. Accentia Technologies Ltd. was rejected by the DRP in assesses own case for A.Y 2009-10, for the reason that unlike the assessee company the said comparable earned revenue from sale of software services and was thus functionally different, and there was no separate segmental information available in this regard, and the said order of the DRP having not been further assailed by the department before the Tribunal had thus attained finality. We further find that as stands gathered from a perusal of the 'Annual report' and 'Profit & loss a/c' of the aforesaid comparable, the latter was generating income from three sources, i.e. Medical Transcription, Billing & Coding and Software development & implementation, but however no segmental information was available in the annual report. We are further persuaded to be in agreement with the assessee that the TPO had considered the profitability of the aforesaid comparable, viz. Accentia Technologies Ltd. at an overall entity level, which includes income from software development, which had led to an infeasible comparison in the hands of the assessee company. We are of the considered view that on the basis of such incomplete information, the aforesaid company could not have been considered as a comparable. We have given a thoughtful consideration to the facts of the case and are of the considerate view that in the backdrop of the aforesaid facts, it can safely be concluded that the comparable, viz. Accentia Technologies Ltd., being functionally different on an entity level, thus in the absence of complete segmental information could not be taken as a comparable. That as observed by us hereinabove, our view stands fortified by the very fact that the TPO himself in the case of the assessee company for the A.Y.2010-11 and 2011-12, for the aforesaid reasons had rejected the said company, viz. Accentia Technologies Ltd. as a comparable. Still further the order passed by the DRP in the case of the assessee company, therein rejecting the said comparable viz. Accentia Technologies Ltd., having been accepted by the department by not assailing the same before the Tribunal, further strengthens and supports our aforesaid view. Thus in light of our aforesaid observations, we herein being of the view that the comparable, viz. Accentia Technologies Ltd. being functionally different, thus cannot be taken as a comparable, and therefore direct the exclusion of the same from the list of the comparables. That as the aforesaid comparable, viz. Accentia Technologies Ltd., being found to be functionally different, has been directed to be excluded from the list of the comparables. 36. Considering the decision of Tribunal wherein it was held that this comparable company is engaged in developing software product and rendering medical transcription services cannot be compared with the assessee engaged in providing back office support services. Further, extraordinary events took place during the year which has impact on its financial. Therefore, we direct to exclude this comparable. 1.5. Reliance is also placed on the judgment in Capital IQ Information Systems (India) (P.) Ltd. v. Deputy Commissioner of Income-tax (International Taxation), Hyderabad [2013] 32 taxmann.com 21 (Hyderabad - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: I. Accentia Technologies Ltd. 10. It is the submission of the assessee that this company cannot be treated as a comparable because of un comparable financial results arising out of amalgamation in the company. In this regard, the assessee has relied upon the order of the DRP for the assessment year 2008-09 in assessee's own case. It is seen that the DRP while considering similar objection placed by the assessee in the case of another company, viz. Mold Tek Technologies Ltd., in the proceedings relating to the assessment year 2008-09, has observed in the following manner- "17.5. In addition to the above, the Director's Report of the company for the FY 2007-08 revealed the merger and the demerger. A company known as Techmen Tools Pvt. Ltd. had amalgamated with Mold-tek Technologies Ltd. with effect form 1st October, 2006. There was a de-merger of Plastic Division of the company and the resulting company is known as Moldtek Plastics Limited. The de-merger from the Moldtek Technologies took place with effect from 1st April, 2007. The merger and the de-merger needed the approval of the Hon'ble High Court of Andhra Pradesh and also the approval of the shareholders. The shareholders of the company gave approval for the merger and the de-merger on 25.01.2008 and the Hon'ble High Court of Andhra Pradesh had approved the merger and de-merger on 25th July, 2008.Subsequently, the accounts of Moldtek Technologies for FY 2007-08 were revised. On a perusal of the annual report it is noticed that Teckmen Tools Pvt. Ltd. and the Plastic Division of the company were demerged and the resulting company was named as Moldtek Plastics Ltd. The KPO business remained with the company. A perusal of the Annual report revealed that to give effect to the merger and demerger, the financial statements were revised and restated after six months form the end of the financial year31.3. 2008. The assessee filed Form No.21 under the Companies Act with the Registrar of Companies on26th August, 2008. Thus the effective date of the scheme of merger and demerger was 26th August,2008. The Annual Report supported the argument of the assessee that there were merger and demerger in the financial year and it was an exceptional year of performance as financial statements were revised by this company much after the closure of the previous year. The Panel agrees with the contention of the assessee that it is an exceptional year having significant impact on the profitability arising out of merger and demerger.” 11. On careful consideration of the matter, we also agree with the aforesaid view of the DRP that extra-ordinary event like merger and de-merger will have an effect on the profitability of the company in the financial year in which such event takes place. It is the contention of the assessee that in case of the aforesaid company, there is amalgamation in December, 2006, which has impacted the financial result. This fact has tobe verified by the TPO. If it is found upon such verification that the amalgamation in fact ahs taken place, then the aforesaid comparable has to be excluded.”

1.6. Reliance is also placed on the judgment in ICICI Bank Ltd. v. Deputy Commissioner of Income-tax [2023] 156 taxmann.com 725 (Mumbai - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “Accentia Technologies Ltd. The Ld. AR submitted that the company is functionally different and is providing medical transcription, coding and software development. In this regard, we noticed that in the statement of accounts of the company, the income from operations (schedule-O page 716 of the PB) mainly consists of medical transcription, coding and software development. We also noticed that income from medical transcription is more than 50% of the revenue, therefore, we see merit in the submission of ld. AR that the company is not functionally comparable with the assessee which is engaged in providing back office support services to its AE, therefore, we hold that Accentia Technologies Ltd. be excluded from the list of comparables.”

1.7. Reliance is also placed on the judgment in PCIT v. Honeywell International (India) (P.) Ltd. [2024] 158 taxmann.com 376 (Delhi HC) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “(i) Accentia: It was found that it had encountered an extraordinary circumstance in the form of amalgamation during the Financial Year (FY) 2006-07 (AY 2007-08).”

“(xi) eClerx Services Ltd. & Mold-Tek Technologies Ltd.:- For both these companies, the ld. Counsel for the assessee stated that these companies are functionally different, therefore, cannot be considered as comparables. We find that the Mumbai Special Bench of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. v. Asstt. CIT [2014] 147 ITD 83/43 taxmann.com 100(Mum. - Trib.) has rejected eClerx Services Limited because solutions offered by this company included data analytics, operations, management, audits and reconciliation, metrics management and reporting services. The Special Bench opined that if these functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Limited 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 comparable for the purpose of determining ALP of the transactions of the assessee company with its AEs. Facts being identical, respectfully following the observations of the Special Bench (supra), we direct that these two entities be excluded from the list of final comparables.”

2.3. Reliance is also placed on the judgment in WTW Global Delivery and Solutions India Pvt. Ltd. v. DCIT 2(3)(1) [TS-589-ITAT-2022Mum] (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “(iii) E-clerx Services Ltd.:- The assessee submitted that is functionally different, as it is engaged in KPO activities. The Tribunal has excluded this company in AY 2008-09 (ITA No.6877/Mum/2012) and in AY 2010-11 (ITA No.1890/Mum/2015) in the assessee’s own case. The Ld A.R also relied upon the decision rendered by the Tribunal in the case of Stream International Services (ITA No.8290/Mum/2011 dated 10th October, 2014) in AY 2007-08. Thus, we notice that this company has been held as not a good comparable in various years in the assessee’s own case and in the hands of other assessee’s also. Accordingly, we direct exclusion of this company.”

2.4. Reliance is also placed on the judgment in Deputy Commissioner of Income-tax-9(2) v. Morgan Stanley Advantage Services (P.) Ltd. [2019] 109 taxmann.com 101 (Mumbai - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “(1) Eclerx Services Ltd. 32. As noted earlier the ld AR for the assessee submitted that the assessee submits that Eclerx Services Ltd. has not considered as a comparable in earlier years. Eclerx Services Ltd. is a Knowledge Process Outsourcing (KPO) Service provider which is not comparable to assessee; assessee is engaged in providing back office support services. In support of his submission, the ld. AR of the assessee relied upon the decision of Delhi High Court in Rampgreen Solution (P.) Ltd. (supra). The TPO included this comparable by taking his view that this company is in date process and analytical services. The ld CIT(A) confirmed the action of the TPO by taking his view that this comparable company is into the health care receivable management and therefore renders ITeS services. The Hon'ble Delhi Court in Rampgreen Solution (P) Ltd (supra)held entities rendering voice call center services for customer support and a KPO service provider employ IT-based delivery systems, but characteristics of services, functional aspects, business environment, risks and quality of human resource employed are materially different; and therefore, benchmarking international transactions on basis of comparison of PLI of high-end KPO service providers with PLI of Voice Call Centers, would be unreliable. Further, Mumbai Tribunal in WillisProcessing Services (India) Ltd (supra) on considering similar contentions excludedthis comparable holding as under: "(5) We have heard the Ld. Representatives of both the parties, perused the orders of the lower authorities and the records made available before us. We have given a thoughtful consideration to the facts of the case and are of the considered view that though we find ourselves to be in agreement with the contention of the Ld. D.R and have not found favor with the contention of the assessee that as the aforesaid comparable had carried out an acquisition of a U.K based company, therefore simpliciter on the said count, without establishing that such acquisition had rendered the aforesaid comparable functionally different, could not be accepted as a factor for exclusion of the said comparable, but then we are of the considered view that the fact as averred by the Ld. A.R before us that the aforesaid comparable, viz. Eclerx Services Limited was providing high end data analytics and customized process solution and was a leading Indian provider of KPO services, which substantially varies from a low end ITES service provider, while for the assessee was engaged in providing BPO services, viz-processing of insurance claims and insurance premiums and data processing service for which it employed ordinary graduates, therefore the aforesaid comparable, viz. Eclerx Services Limited was functionally different from the assessee company, and as such could not be selected as a comparable. We find that the DRP had vide its order dated 27.11.2015 passed in the case of assessee for AY 2011-12 had accepted the contention of the assessee and rejected the aforesaid comparable company, viz. Eclerx Services Limited on the basis that it was engaged in KPO service, and the department by accepting the said order of the 'DRP' for A.Y. 2011-12 by not carrying the matter in further appeal before the Tribunal, had thus allowed it to attain finality. We further find that in the assessee's own case for the immediately succeeding year, i.e A.Y 2009-10, the DRP as well as the Tribunal had held that companies engaged in KPO services cannot be compared to the routine BPO services provided by the assessee. That still further the Tribunal while disposing of the appeal of the assesses for AY 2010-11 had held that as the assessee was a routine BPO service provider, therefore it cannot be compared to high end KPO service providers such as Eclerx Service Limited. We further find that the 'Special bench' of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. (supra), had specifically rejected the aforesaid comparable, viz. Eclerx Services Limited, on the basis that companies predominantly engaged in KPO services cannot be considered as a comparable to a company predominantly engaged in BPO activities. We are thus of the considered view that in the backdrop of the view taken by the Tribunal while disposing of the appeals of the assessee for A.Y(s): 2009-10 & 2010-11, therein concluding that the aforesaid comparable, viz. Eclerx Services Limited which was a KPO could not be taken as a comparable as against the assessee company which is providing BPO services, coupled with the fact that in the assesses own case for A.Y 2011-12 the exclusion by the DRP of the aforesaid comparable, viz. Eclerx Services Limited from the list of comparables had been accepted by the department, and last but not the least the 'Special bench' of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. (supra) had therein held that the aforesaid comparable, viz. Eclerx Services Limited which is a KPO cannot be compared as against the assessee which is providing BPO services, we thus finding no reason to take a different view and being of the considered view that the aforesaid comparable, viz. Eclerx Services Limited was functionally different from the assessee company, therefore hold that it cannot be accepted as a comparable and hence is directed to be excluded from the list of comparables." 33. Considering the decision of Delhi High Court in Rampgreen Solution (P.) Ltd (supra) and Tribunal in Willis Processing Services (India) (P.) Ltd. (supra), we direct to exclude Eclerx Services from the comparables.”

2.5. Reliance is also placed on the judgment in Capital IQ Information Systems (India) (P.) Ltd. v. Deputy Commissioner of Income-tax (International Taxation), Hyderabad [2013] 32 taxmann.com 21 (Hyderabad - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “III. Eclerx Services Ltd. 14. The assessee has objected for this company being taken as comparable mainly on the ground that it was having a supernormal profit of 89%, and as such it cannot be taken as a comparable in view of the decision of the Mumbai Bench of the tribunal in the case M/s. Teva India Ltd. (supra). That apart, relying upon the annual report of the company, the learned Authorised Representative for the assessee has contended that that the concerned company is engaged in providing Knowledge Process Outsourcing (KPO) Services. 15. On considering the objections of the assessee in relation to this company, we accept the contention of the assessee that this company cannot be taken as a comparable both for the reasons that it was having supernormal profit and it is engaged in providing KPO services, which is distinct from the nature of services provided by the assessee.” 2.6. Reliance is also placed on the judgment in ICICI Bank Ltd. v. Deputy Commissioner of Income-tax [2023] 156 taxmann.com 725 (Mumbai - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “Eclerx Services Ltd. The contention of the ld. AR with regard to exclusion of the company is that it is functionally different and is providing data analysis, data process solutions. The ld. AR is also seeking exclusion on the basis that the company is having unusual margin during the year under consideration as compared to earlier years. In this regard, we noticed that as per the financial statements of the company (page 847 of PB), we noticed that for the year ended 31-3-2007 the income of the company has almost doubled. Further, we noticed that as per the annual report wherein the functional profile of the company is stated to be that of KPO. Accordingly, we are of the view that the company cannot be compared with assessee which is rendering captive back office services to its AE. It is also relevant to notice here that in various decisions of the Co-ordinate Bench of the Tribunal, the inclusion of the said company has been rejected on the ground that the company is providing KPO services and therefore there is merit in the argument that the company which is rendering KPO services cannot be compared with the assessee. Accordingly, we direct the TPO to exclude Eclerx Services Ltd. from the list of comparables. 2.7. Reliance is also placed on the judgment in PCIT v. Honeywell International (India) (P.) Ltd. [2024] 158 taxmann.com 376 (Delhi HC) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “Eclerx and Mold-Tek: The finding returned was that these entities were in the business of Knowledge Process Outsourcing (KPO) and in particular, were providing services concerning data analytics, data process solutions, and other high end services. It was found that these entities had a dedicated team that developed automation tools and thus, were not comparable with companies providing low end services, like that of the assessee.”

2.8. Reliance is also placed on the judgment in Deputy Commissioner of Income-tax, 8(1), Mumbai v. DBOI Global Services (P.) Ltd. [2021] 130 taxmann.com 488 (Mumbai - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “eClerx Services Ltd. 7.8 It is the submission of the assessee that this company is functionally different; hence, not comparable. On perusal of facts on record we find that eClerx Services Ltd is basically engaged in knowledge process outsourcing (KPO) services. Further, this company has incurred a major part of its expenses towards outsourcing of services, whereas, the assessee is a routine BPO service provider without outsourcing any of its activities. Thus, in our view, this company cannot be comparable to the assessee. This view of ours is further fortified by the following decisions of the Tribunal:– 1. Maersk Global Centres (India) (P.) Ltd. (supra) 2. Stream International Services (P.) Ltd. (supra) 3. Pole to Win India (P.) Ltd. (supra) 4. iQor India Services (P.) Ltd. (supra) 5. Avaya India (P.) Ltd. (supra) 6. Capital IQ Information Systems (P.) Ltd. (supra) 7. Avincon India (P.) Ltd. (supra) 8. Zavata India (P.) Ltd. (supra)9. Cognizant Technology Services (P.) Ltd. (supra)” 2.9. Reliance is also placed on the judgment in Franklin Templeton International Services (India) Private Limited v. ACIT / DCIT, ITA No. 6986/Mum/2011 & ITA No. 7216/Mum/2012 (Assessment Year: 2007-08 & 2008-09). The relevant extract from the said judgment is reproduced below for ease of reference: “8.11 It is noted that assessee is a captive service provider insofar as the services rendered are concerned, whereas Eclarx Services Ltd has been found to be a KPO. A captive service provider cannot be compared with an entrepreneur like the comparable under consideration. We therefore respectfully following the above observations, do not find any reason to consider this company to be functionally similar that of assessee. Revenue has not been able to bring out any factual differences between the year under consideration or any decision contrary to the view taken by the coordinate bench DICT vs Morgan Stanley Advantages Pvt. Ltd. (supra) Accordingly, we direct Eclarx Services Ltd., to be excluded from the final list.”

2.10. Reliance is also placed on the judgment in Rampgreen Solutions (P.) Ltd. v. CIT [2015] 60 taxmann.com 355 (Delhi HC) (Assessment Year: 2008-09). The relevant extract from the said judgment is reproduced below for ease of reference: “37. Applying the aforesaid principles to the facts of the present case, it is once again clear that both Vishal and eClerx could not be taken as comparables for determining the ALP. Vishal and eClerx, both are into KPO Services. In Maersk Global Centers (India) (P.) Ltd. (supra), the Special Bench of the Tribunal had noted that eClerx is engaged in data analytics, data processing services, pricing analytics, bundling optimization, contentoperation, sales and marketing support, product data management, revenue management. In addition, eClerx also offered financial services such as real-time capital markets, middle and back-office support, portfolio risk management services and various critical data management services. Clearly, the aforesaid services are not comparable with the services rendered by the Assessee. Further, the functions undertaken (i.e. the activities performed) are also not comparable with the Assessee. In our view, the Tribunal erred in holding that the functions performed by the Assessee were broadly similar to that of eClerx or Vishal. The operating margin of eClerx, thus, could not be included to arrive at an ALP of controlled transactions, which were materially different in its content and value. In Maersk Global Centers(India) (P.) Ltd. (supra), the Special Bench of the Tribunal had noted the same and had, thus, excluded eClerx as a comparable. It is further observed that the comparability of eClerx had also been examined by the Hyderabad Bench of the Tribunal in Capital IQ Information Systems (India) (P.) Ltd. (supra), wherein, the Tribunal directed the exclusion of eClerx as a comparable for the reason that it was engaged in providing KPO Services and further that it had also returned supernormal profits.” 3. Genesys International Corporation Ltd. 3.1. The Appellant submits that Genesys International Corporation Ltd. is functionally dissimilar to the GIC division of the Appellant. The company is engaged in providing specialised Geographical Information Services (“GIS”), including photogrammetry, remote sensing, cartography, data conversion, 3D mapping, navigation mapping and other geospatial and related computer-based services. These activities require specialised technical capabilities and are fundamentally different from the routine back- office support services rendered by the Appellant. Accordingly, considering the materially different functional profile of the company, Genesys International Corporation Ltd. ought to be excluded from the set of comparables. 3.2. In support of the exclusion of Genesys International Corporation Ltd., the Ld. AR placed reliance on the judgment in Reliance is also placed on the judgment in ICICI Bank Ltd. v. Deputy Commissioner of Income-tax [2023] 156 taxmann.com 725 (Mumbai - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “Genesys International Corporation Ltd. The exclusion of this company is contended for the reason that the company is functionally different wherein the company is providing geographical information services comprising photogrammetry remote sensing data conversion and related computer based services. In this regard our attention was drawn to the annual report of the company where the business profile of the company is stated (page 1088 of PB schedule-M). Therefore, in our considered view there is merit in the contention of the assessee that the company is not functionally comparable to the assessee which is a back office service provider to its AE in various banking related activities. Accordingly, we hold that Genesys International Corporation Ltd. is not functionally comparable with the assessee and therefore to be excluded from the list of comparables.”

4.3. Reliance is also placed on the judgment in WTW Global Delivery and Solutions India Pvt. Ltd. v. DCIT 2(3)(1) [TS-589-ITAT-2022Mum] (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “(iv) Vishal Information Technologies Ltd.:- The assessee submitted that this company follows different business model, which is evidenced by the fact that this company’s personnel cost works out 2.3% of the turnover. This company has been excluded by the Tribunal in the assessee’s own case in AY 2005-06 (ITA No.1832/Mum/2016), in AY 2006-07 (ITA No.690/Mum/2016) and in AY 2008-09 (ITA No.6877/Mum/2012). The Ld A.R also relied upon the decision rendered by the Tribunal in the case of Stream International Services (ITA No.8290/Mum/2011 dated 10th October, 2014) in AY 2007-08. Thus, we notice that this company has been held as not a good comparable in various years in the assessee’s own case and in the hands of other assessee’s also. Accordingly, we direct exclusion of this company.”

4.4. Reliance is also placed on the judgment in Deputy Commissioner of Income-tax-9(2) v. Morgan Stanley Advantage Services (P.) Ltd. [2019] 109 taxmann.com 101 (Mumbai - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “(5) Coral Hubs Ltd. (Vishal Information) 38. The ld. AR submitted as we recorded earlier that Coral Hubs Ltd. was outsourcing its significant part of its operation as evident from its low employee cost and have substantial different business model compared to assessee and prayed for exclusion. The ld. DR has supported the inclusion. The TPO while making benchmarking taking his view that this comparable company is in the business of IT enabled services to overseas markets and included in the list of comparable. The ld. CIT(A) confirmed the action of TPO holding that the TPO conducting benchmarking after calling information under section 133(6) and is benchmarking analysis are correct. We have noted that, though the ld. AR has relied upon a number of decisions of Tribunal/co- ordinate bench. We have noted that in a recent decision of Tribunal in Willis Processing Services (I) Pvt. Ltd. (supra) on comparability, the Tribunal held as under: We though in light of our aforesaid observations had partly disagreed with certain grounds as had been averred by the Ld. A.R to facilitate exclusion of the aforesaid comparable, however as observed by us hereinabove that the aforesaid comparable viz. Coral Hub Limited (earlier known as Vishal Information Technology Limited) had a business model where services are outsourced, as against the business model of the assessee where services are rendered by employing own employees and using one's own infrastructure, on the basis of which we are of the considered view that it can safely be concluded that the said comparable was functionally different, and as such was liable to be excluded from the final list of comparables. That our aforesaid view stands fortified by the aforesaid order passed by the Tribunal while disposing of the appeal of the assesses own appeal for A.Y. 2005-06, as well as the judgment of the Hon'ble High Court of Delhi in the case of: Rampgreen Solutions (P.) Ltd. (supra). Thus as there has been no material shift in the facts involved in the case of the assessee for the year under consideration, as observed by us hereinabove, we are thus of the considered view that as the business model of the aforesaid comparable, viz. Coral Hub Ltd. (supra) is substantially different from that of the assessee, therefore the same cannot be accepted as a comparable and hence is directed to be excluded from the list of comparables.

4.5. Reliance is also placed on the judgment in Capital IQ Information Systems (India) (P.) Ltd. v. Deputy Commissioner of Income-tax (International Taxation), Hyderabad [2013] 32 taxmann.com 21 (Hyderabad - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “IV. Coral Hub Limited (Earlier known as Vishal Information Technologies Ltd.): 16. The assessee has objected for this company being taken as comparable mainly on the ground that the activities of the company is not only functionally different, but the business model of the company is also different as it sub-contracts majority of its ITES works to third party vendors and has also made significant payments to those vendors. The payments made to vendors towards the data entry charges also supports the fact that the company outsources its works. In the circumstances, it cannot be taken as a comparable to the ITES functions performed by the assessee. Since this company is acting as agent only by outsourcing its works to the third party vendors. In this context, the assessee relied upon the order of the DRP in assessee's own case for the assessment year 2008-09, wherein the DRP, after taking into consideration, the aforesaid aspect, has accepted the claim of the assessee. The assessee further submitted that the Income-tax Appellate Tribunal Mumbai Bench in the case of Asstt. CIT v. Maersk Global Service Centre (India) (P.) Ltd. [2011] 133ITD 543/16 taxmann.com 47 (Mum.), a copy of which is submitted before us, has also directed for the exclusion of the aforesaid company since it has outsourced a considerable portion of its business. 17. After considering the submissions of the learned Authorised Representative for the assessee, we find that the DRP, in the proceedings for the assessment year 2008- 09 in assessee's own case, after taking note of the composition of the vendor payments of Coral Hub for the last three years, and the fact that it has also commenced a new line of business of Printing on Demand(POD), wherein it prints upon clients request, concluded as follows- "18.4. In view of this major difference in functionality and the business model, this Panel is of the view that 'Coral Hub' is not a suitable comparable to the taxpayer and hence needs to be dropped form the finallist of comparables." In case of Maersk Global service Centre India (P.) Ltd. (supra), the ITAT Mumbai Bench has also directed for exclusion of the aforesaid company, by observing in the following manner- "Insofar as the cases of tulsyan Technologies Limited and Vishal Information Technologies Limited are concerned, it is noticed from their annual accounts that these companies outsourced a considerable portion of their business. As the assessee carried out entire operations by itself, in our considered opinion, these two cases were rightly excluded."

In view of the observations made by the DRP as well as the decision of the ITAT Mumbai in the case of Maersk Global Service Centre, (supra), we accept that this company cannot be taken as a comparable.”

4.6. Reliance is also placed on the judgment in ICICI Bank Ltd. v. Deputy Commissioner of Income-tax [2023] 156 taxmann.com 725 (Mumbai - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “Vishal Information Technologies Ltd. The exclusion of this company is sought for the reason that the company has out sourced its activities and the business model is different. We in this regard notice that the exclusion of the company has been considered by the Delhi Bench of the Tribunal, in the case of American Express (India) (P.) Ltd. v. Dy. CIT [2017] 83 taxmann.com 345 (Delhi - Trib.), where it is held that - "The annual accounts of this company have been perused where the data entry charges and vendor payments have been specified at approximately 64.68 per cent of the total cost. This itself shows that this company is getting things done through outside vendor and is not carrying on work by employing its own human resources where as in case of the assessee, it carries on its business through its own employees for whom during the year it has incurred cost of almost 59 per cent of the total cost The order of the co-ordinate bench in assessee's own case for the assessment year 2006 - 07 has also been perused where in the co-ordinate bench has directed for exclusion of this comparable holding that the outsourcing model has its impact on the overall profitability of the company and therefore the business model of the comparable company is different than the assessee and hence it is required to be excluded. In view of this there is no reason to deviate from the order of the co- ordinate bench in assessee's own case for earlier years. Further, the Delhi High Court had also an occasion to consider the exclusion of Vishal information technologies Ltd. in Rampgreen Solutions (P.) Ltd. v. CIT [2015] 377 ITR 533/234 Taxman 573/60taxmann.com 355 (Delhi) wherein, the High Court has held that this comparable could not be considered, as a comparable because of its business model was completely different. In view of the decision of the Delhi High Court as well as the decision of the co-ordinate bench in assessee's own case, the Assessing Officer/TPO was to be directed to exclude Vishal information technologies Ltd. from comparability analysis." The ratio laid down by the Tribunal in the above case is that the outsourcing model has its impact on the overall profitability of the company and therefore the business model of the comparable company is different than the assessee and hence it is required to be excluded. In assessee's case, the back office support services are rendered by the assessee through its own staff and therefore the business model of the assessee is different from that of the company. According we hold that Vishal information technologies Ltd. be excluded from the list of comparables.”

4.7. Reliance is also placed on the judgment in Deputy Commissioner of Income-tax, 8(1), Mumbai v. DBOI Global Services (P.) Ltd. [2021] 130 taxmann.com 488 (Mumbai - Trib.) (Assessment Year: 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “Vishal Information Technologies Ltd. 7.5 This company was sought to be excluded primarily on the reasoning that the company has very low employee cost since it mostly outsources its activities to third party vendors. We have found that in assessee's own case in assessment year 2005- 06 this company was rejected for the reason that it outsources its activities. We have also noticed, the DRP has excluded this company in assessee's own case for the very same reason in assessment years 2006-07 & 2008-09. In fact, in various other decisions cited before us, this company has been excluded for the reason that instead of performing the work itself, it outsources the work to third party vendors. The facts in the impugned assessment year are more or less identical. In view of the aforesaid, we exclude this company from the list of comparables.” 4.8. Reliance is also placed on the judgment in Transworld ICT Solutions (P.) Ltd. v. DCIT [2022] 139 taxmann.com 258 (Bangalore - Trib.) (Assessment Year: 2006-07 & 2007-08). The relevant extract from the said judgment is reproduced below for ease of reference: “16. We have heard the rival submissions and the plea of the assessee is for exclusion of 5 comparable companies out of 13 comparable companies chosen by the TPO. We have considered the rival submissions. As far as comparable companies chosen by the TPO at S. Nos. 1,6,7 & 8 viz., Maple E Solution Ltd., Vishal Information Technological Services Ltd., Asit C. Mehta Financial Services Ltd., and Gold Stone Infratech Ltd., we find that the Hyderbad Bench of the ITAT in the case of HSBC Electronic Data Processing India Ltd.v. Addl. CIT [2013] 38 taxmann.com 141 considered comparability of these companies in the case of a company engaged in rendering IT enabled services to its AE similar to that of the Assessee in the present case. The tribunal held that the aforesaid companies are not comparable. The following were the relevant observations of the Tribunal. "8. The first objection is with reference to selection of comparable data by the TPO with reference to the following five companies- (a) Vishal Information Technologies Ltd. (b) Goldstone Infratech Ltd. (c) ……… (d) Maple e-Solutions Ltd. (e) Nucleus Netsoft& GIS(India) Ltd. (now known as (Asit C. Mehta Financial Services Ltd.) Vishal Information Technologies Ltd.

4.11. Reliance is also placed on the judgment in PCIT v. EDS Electronics Data System India (P.) Ltd. [2024] 162 taxmann.com 761 (Delhi HC) (Assessment Year: 2006-07). The relevant extract from the said judgment is reproduced below for ease of reference: “1. The Principal Commissioner questions the correctness of the judgment rendered by the Income TaxAppellate Tribunal ['ITAT'] dated 30 July 2021 and has principally assailed the exclusion of VishalInformation Technologies Ltd. and Nucleus Netsoft& GIS (India) Ltd. Dealing with the aforesaid twocomparables and the justification for their exclusion, the ITAT has in terms of the impugned order renderedthe following conclusions:- "7. We have heard both the parties and perused the material on record. As far as Vishal Information Technologies Ltd. is concerned, on the business mode, we find that the employee cost of this company is 47.39% as against 47.39% of the assessee as per the following details:-

Particulars Assessee (Amt. in Rs.) Comparable (Amt. in Rs.) Employee Cost 13,26,998 32,01,756 Total Cost 28,00,186 17,41,957 Employee Cost/ Total Cost 47.39% 1.84% 8. The assessee does not outsource the work, while Vishal Information Technologies Ltd. has major operating expenses of Rs.11.49 crores towards Data entry charges and Vendor payments which comes to 75% of the total expenses as under:-

Particulars Comparable (Amt. in Rs.) Data entry charges and vendor payments 11,49,14,563 Total operating expenses 15,35,64,263 Data entry charge / Total expenses 75% 9. The services rendered by the assessee and the comparables are functionally different. The assessee provides services including voice and communication, data entry and financial management. On other hand, Vishal Information Technologies Ltd. is engaged in data conversion and digitization of documents i.e., text conversion and epublishing which is functional different. 10. The onsite expenses of the comparable company is substantial as follows:-

Particulars Comparable (Amt. in Rs.) Onsite expenditure 14,42,81,708 Total expenditure 17,41,71,957 Onsite expenditure / Total expenditure 83% 11. As against the above, the assessee is mainly engaged in offshore activities and does not have any onsite expenditure. 12. The comparability of this company also came up for consideration before the Mumbai Tribunal in the case of ACIT v. Maersk Global Service Center (India) (P.), 14 ITR (Trib.) 541 (Mumbai) and the Tribunal upheld the exclusion of Vishal Information Technologies Ltd. observing as under:- "48. Insofar as the cases of Tulsyan Technologies Limited and Vishal Information Technologies Limited are concerned, it is noticed from their annual accounts that these companies outsourced a considerable portion of their business. As the assessee carried out entire operations by itself, in our considered opinion, these two cases were rightly excluded. Coming to the cases of Cepha Imaging Private Limited and Asian Cerc Information Technology Ltd. (Seg.), we find that these companies are engaged in providing software development services as is evident from their annual reports available on pages 52 onwards and 64 onwards of the paper book. Thus these companies become functionally different. Insofar as WIPRO BPO Solutions Limited is concerned, we find that their turnover is eleven times greater than that of the assessee. This company having such a high brand value along with much higher turnover, in our considered opinion, has been rightly excluded by the ld. CIT(A). The last case being that of Airline Financial Support Services (I) Ltd. has 31.76% of the total service fees received from the controlled transactions with the related parties. This fact is evident from pages 62 of the paper book, which makes it incomparable with the assessee" 13. In view of the above reasons, Vishal Information Technologies Ltd. is directed to be excluded from the list of comparables.”

Order pronounced in the open court on 24th day of September 2026 Sd/- Sd/- (RATNA DASGUPTA) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 24/09/2026 SAUMYA Sr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file.

BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI