M/S. 24/7 CUSTOMER PRIVATE LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 2(1)(1), BANGALORE

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by assessee is directed against order passed by DCIT Circle-2(1)(1), Bangalore passed u/s 143(3) r.w.s. 144C r.w.s. 254 of the Income-tax Act,1961 ['the Act' for short] dated 27.1.2023.

Page 2 of 10 3. The Ld. TPO/DRP have grossly erred in determining an adjustment of Rs. 17,04,89,703 to the value of international transactions entered into by the Appellant.”

These grounds are general in nature, which do not require any adjudication.

" 4.1. The appellate order passed by the Hon'ble ITAT in April 2019 in the first round of litigation, directing the Ld. TPO to consider various case laws and objections of the Appellant have not been followed by the Ld. TPO/DRP.

4.2. The net margin of BPO Segment of Hartron Communications was distorted as the company accounted its export income on cash basis and expenditure on accrual basis. 4.3. Hartron Communications is functionally different from the Appellant as apart from back-office services, it is also engaged in diversified services such as custom soft development services, intellectual property services, web hosting, tech solutions

4.4. The impugned year was an exceptional year of operations for Hartron Communications, as the company recorded steep increase in revenue earned from BPO business to the tune of 483.72% over the last year.

5.1. Unallocable corporate expenses have been allocated in the ratio of gross revenue among the segments.

Page 3 of 10 6. The Ld. TPO/Hon'ble DRP have violated the doctrine of judicial discipline, inter alia because

6.1.0n each of the objections raised by the Appellant against inclusion of Hartron Communication as a comparable company, various benches of the Hon'ble ITAT have repeatedly held that in the impugned year the said company was not a good comparable for ITES segment and the said decisions relied upon by the Appellant have either been totally ignored or not appreciated by the Ld. TPO/Hon'ble DRP.

6.2.That the Ld. TPO/Hon'ble DRP have erred in not following the directions of the Hon'ble ITAT rendered vide order dated April 2019 in Appellant's own case in the first round of litigation.

3.1 The contention of the ld. A.R. is that M/s. Hartron Communications Ltd. is functionally different from the assessee as the company is engaged in diversified services such as Customer Software Development Services, Intellectual property services, Web Hosting Deck Solutions apart from Back-office services. Against this assessee’s functions are as follows: 3.2 The ld. A.R. submitted that the present assessee i.e. 24/7 India was incorporated on March 22, 2000 as a private limited company under the provisions of the Companies Act, 1956, 24/7 India performs services in the nature of contract Centre and customer relationship management services based on work orders procures by 24/7 India’s AEs from third party customers. Functions performed by the 24/7 1. Marketing strategy 2. Identification of customers 3. Requirement analysis 4. Request for proposal 5. Request for quote (RFQ) & Negotiation with prospective customers 6. Contracting with customers.

Page 4 of 10 7. Conceptualization 8. Personnel Management 9. Technology 10. Delivery of call centre services 11. Quality assurance 12. Post delivery services 13. General administration and management function

3.3 Further, it was submitted that this company M/s. Hartron Communications Ltd. issue came for consideration in the case of M/s. Software Paradigms Infotech Pvt. Ltd. in IT(TP)A No.2828/Bang/2017 dated 27.12.2021, wherein they relied on the earlier of the Tribunal in the case of ISG Novasoft Technologies Ltd. Vs. DCIT in IT(TP)A No.42/Bang/2018 for the assessment year 2013- 14 dated 29.4.2019 and held as under:

"Hartron Communications Ltd. Further the learned AR emphasized that this comparable company is also engaged in real estate activity. The learned AR referred to page 1344 and 1350 of the paper book 2 and emphasized the entry into real estate business. The learned AR made submissions on the trading of shares of this company and relied on the observations of the Auditors. We found that the Chennai Bench of Tribunal in the case of M/s. Cameron Manufacturing India Pvt. Ltd. vs. DCIT in ITA No.336/ Chny/ 2018 dated 16/ 10/2018 has observed at para 7 which read as under: "7. Ground No.2.3: M/ s. Hartron Communications as the comparable company:- The Ld.AR submitted before us that M/ s. Hartron Communications had diversified operations amongst which many relates to activities that are not similar to the activity of the assessee company. Further it was submitted that the company M/ s. Hartron Communication's profit from BPO business both export and domestic for the current year is 18.43 crores while as for the previous year the profit was 3.81 crores which shows an increase of profit to the tune of 483.72%. Therefore, in the relevant assessment year there was extraordinary operations Page 5 of 10 and hence 8 ITA No.336/ Chny/ 2018 cannot be taken as comparable company. Before us the facts presented by the Ld.AR could not be disputed by the Ld.DR. After considering the issue, we are of the view that when the company is functionally dissimilar and when in a particular year there is an extraordinary profit, then the company cannot be taken as a comparable company. In the case of M/ s. Hartron Communication, it is apparent that the company has achieved extraordinary profits during the relevant assessment year and further it has diversified activities and therefore functionally dissimilar to that of the assessee company. Hence as pleaded by the Ld.AR, we are of the considered view that M/ s. Hartron Communication cannot be accepted as a comparable company.” We, considering the submissions of the learned AR and the decision of co-ordinate bench of Tribunal in the case of M/s. Cameron Manufacturing India Pvt. .Ltd.(supra) are of the opinion the company has extraordinary profits/ losses in subsequent years. We are of the substantive opinion that this company cannot be considered as comparable to the assessee's functional profile and accordingly, direct the AO/ TPO to exclude this this comparable for determining ALP.

3.4 In view of the above order of the Tribunal, we direct the AO/TPO to exclude M/s. Hartron Communications Ltd. from the list of comparables on the same reasons. 4. Ground No.7 of the assessee’s appeal reads as follows:

7.1.That in the original TP order dated 22.09.2017 passed by the Ld. TPO, Microland's PLI was correctly taken as 9.84% whereas in the OGE dated 28.01.2022, Microland's PLI has been wrongly taken as 17.83%, which in fact is the PLI of Microgenetic System Limited.”

4.1 In this ground, the ld. A.R. submitted that in first TP order PLI in respect of Micro Land Ltd. has been computed at 9.84%. However, Page 6 of 10 he has taken it at 17.83% consequent to the order passed by the Tribunal in IT(TP)A No.2541/Bang/2017 dated 5.4.2019.

4.2 In this assessment year, the TPO considered the margin in respect of M/s. Microgenetic Systems Ltd. at 17.83%. Similarly, he has considered the margin in the case of Microland Ltd. at 17.83%. The contention of the ld. AR. is that this is a typographical mistake committed by TPO and on earlier occasion, in the first round the TPO considered the margin of Microland Ltd. at 9.84%. In our opinion, this is required to be re-examined by AO/TPO. Accordingly, the issue is remitted to the file of AO/TPO for fresh consideration and take the correct PLI on this comparable. 5. Ground No.8 of the assessee’s appeal reads as follows:

8.1.That the Ld. TPO has erred in holding that the risk adjustment has already been granted - vide order dated 28.01.2022.” 5.1 This ground is with regard to non-giving of risk adjustment by AO/TPO though ld. DRP has directed to grant risk adjustment.

5.2 After hearing both the parties, we remit the issue to the file of AO/TPO to pass consequent order on this issue in conformity with the earlier direction of ld. DRP read with earlier order of the Tribunal in IT(TP)A No.2541/Bang/2017 dated 5.4.2019, wherein held as under:

“21. We have heard the rival contentions and perused the record. Since we are remanding the matters in respect of nine comparables to the file of TPO therefore we deem it appropriate to remand this matter also back to the file of the AO / TPO with a direction that the assessee shall provide detailed working of the risk assumed by the assessee and also by comparables on the basis of the parameters laid down by various pronouncements including in the_ matter of Mercedes Benz Research & Development India (P.) Ltd [2018] 90 Page 7 of 10 taxmann.com 300 (Bangalore - Trib.) wherein the Bench had held as under: "7.1 In this ground, Revenue assails the order of the DRP for granting 1% risk adjustment arbitrarily without appreciating the facts of tilt case 154)1d the comparables. According to the learned Departmental, representative since, except for making the claim, no working of the assessee's claim for risk adjustment had been filed, therefore the assessee is not entitled for being granted any risk adjustment. In support of this, reliance was placed on the decision of the co-ordinate bench of this Tribunal in the case of Syniverse Teledata Systems Ltd. v. Dv. CIT [2017180 taxmann.00171 196 (Bang. - Trib.) (2017). 7.2 Per contra, the learned Authorised Representative of the assessee submitted that the working of assessee's claim for risk adjustment was filed before the DRP. However, in the course of proceedings, the learned Authorised Representative of the assessee submitted that ground No.11 of assessee's appeal related to risk adjustment is not being pressed. 7.3.1 We have heard both parties, perused and carefully considered the material on record. We find that the DRP, at para 14 of its order, had relied on its decision in the earlier Assessment Year 2010-11 and directed the TPO to allow risk adjustment and decide the percentage of risk adjustment to be allowed. As a matter of guidance, the DRP referred to a decision of the ITAT, Hyderabad in the case of Dv. CIT v. Hellosoft (P.) Ltd.f20137 32 taxmann.com 101/57 SOT 4 wherein 1% risk adjustment was allowed. From the above, it is seen that the DRP has merely referred to a decision in which 1% risk adjustment was granted and it is not correct to say that DRP directed that 1%. risk adjustment is to be granted in this case. 7.3.2 The Bangalore Benches of the Tribunal, while allowing risk adjustment to captive service providers, as a matter of principle has held in many cases, including the one cited (supra), that risk adjustment cannot be granted unless the assessee has submitted computation of the same before the authorities below. In the case on hand, we find that though the assessee in Form 35A submitted before the DRP, at Annexure/Objection 13 thereof mentioned risk adjustment at 4.92%, no scientific basis or working in respect of the assessee's claim vis-à-vis the comparable companies had been provided. Even on pages 890 & 891 of paper book (Annexure 9-B), no working has been given in respect of risk adjustment claimed at 6.26% vis-a-vis the comparable companies. Since the assessee has not given the computation of risk adjustment of the assessee vis-a-vis the comparable companies, we hold that the assessee shall not be entitled to any risk adjustment and accordingly reverse the DRP's decision granting the assessee risk adjustment. In coming to this view, we place reliance on the decision of the co-ordinate bench of this Tribunal in the case of Syniverse Teledata Systems (P.) Ltd. (supra) which covers the issue squarely in .favour of the revenue in the light of Page 8 of 10 the factual matrix of the case. Consequently. Ground No.4 of Revenue's appeal for Assessment Year 2011-12 is allowed."

Since in present case computation of risk adjustment is not provided by the assessee, hence respectfully following the decision of the Bench in the matter of Mercedez (supra) we send back additional ground no.1, to the file of TPO.”

5.3 In view of the above, this ground of the appeal is remitted to the AO/TPO for fresh consideration as directed above. Ordered accordingly. 6. Ground Nos.9 of the appeal is with regard to non-giving of working capital adjustment which reads as follows:

6.1 The contention of ld. A.R. is that AO/TPO has not followed earlier direction of the Tribunal on this issue of granting working capital adjustment to the assessee.

6.2 After hearing both the parties, we are of the opinion that this issue came for consideration on earlier round in IT(TP)A No.2541/Bang/2017 dated 5.4.2019 wherein held as under: “23. We have heard the rival contentions and perused the material on record. In terms of the submission made by the ld. D.R., we remand this issue to the file of the TPO for the calculating the working capital adjustment, if any, in accordance with law and the TPO shall consider all the binding decisions of the High Court/coordinate bench. These grounds are allowed for statistical purpose. 24. Additional ground No.5 pertain to working capital adjustment at interest rate applicable to US currency. The TPO had considered average PLR of 14.58% while computing the working capital adjustment. Ld. AR had submitted that the assessee is only receiving in US currency therefore rate as appliable in US should be considered for working out working capital adjustment. He relied Page 9 of 10 upon various judgement including Cotton Natural 276 CTR 445, Rampgreen Solutions etc. The ld. D.R. had submitted that this ground may also be sent back to the TPO to recompute the working capital adjustment, after taking into various judgement relied upon by the assessee.”

6.3 In view of above order of the Tribunal, we direct the AO/TPO to pass consequential order in conformity with the above direction as Tribunal on earlier occasion as reproduced herein above. 7. Ground No.10 of the assessee’s appeal reads as follows: 10. “The Ld. AO has grossly erred in computing tax on assessed income at the erroneous rate of 34.37% (before surcharge and education cess instead of the applicable tax rate of 30%.”

7.1 After hearing both the parties, we are of the opinion that this ground is consequential since we have remitted certain issue involved in this appeal to the file of AO/TPO for reconsideration, as such the computation of tax liability will change accordingly and the AO is directed to recompute all tax liability in accordance with law.

11.2. No interest u/s 234D can be levied as refund in Appellant's case was granted u/s 143(3) r.w.s. 154 of the Act.”

8.1 The contention of the ld. A.R. is that the interest u/s 234D of the Act could be levied only when refund is granted to the assessee u/s 143(1) of the Act. In the present case, there was no refund granted to the assessee u/s 143(1) of the Act. Hence, levy of interest u/s 234D of the Act bad in law.

Order pronounced in the open court on 26th June, 2023

Sd/- Sd/- (Beena Pillai) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 26th June, 2023. VG/SPS

Copy to:

Asst. Registrar, ITAT, Bangalore.