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Income Tax Appellate Tribunal, DELHI BENCH : I-2 : NEW DELHI
Before: SHRI R.K. PANDA & MS SUCHITRA KAMBLE
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I-2 : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER Assessment Year: 2008-09 NTT DATA Global Delivery Services Ltd., Vs. ITO, (Formerly Keane Worldzen India Pvt. Ltd.), Ward-5(2), Unitech Trade Centre, Sector-43, New Delhi. Sushant Lok, New Delhi. PAN: AAACW3622M (Appellant) (Respondent) Assessee by : Shri S.D. Kapila, Advocate & Shri R.R. Maurya, Advocate Revenue by : Ms Nidhi Sharma, Sr. DR Date of Hearing : 18.02.2020 Date of Pronouncement : 06.05.2020 ORDER PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 29th October, 2012 passed u/s 144C(5)/143(3) of the IT Act for A.Y. 2008-09.
Facts of the case, in brief, are that the assessee is a majority owned subsidiary of Worldzen Holdings Ltd. The assessee along with Keane Worldzen Inc. (KWZ) and Worldzen Collection and Recovery LLC (WZ C&R) partners with global outsourcing companies and large global corporations to create dedicated and customized designed Indian facilities, for providing remote delivery of business processes services. Assessee has a state of the art facility located in Gurgaon, India, that is focused on servicing the business process services in the chosen field of insurance, healthcare, collection and financial services. It filed its return of income on 13th October, 2008 declaring the total income at Rs.7,85,738/-. Since the assessee had entered into certain international transactions, the AO referred the matter to the TPO u/s 92CA for determination of the arm’s length price of the international transaction entered into by the assessee. The TPO, during the course of TP assessment proceedings, observed that the assessee has entered into the following international transactions:- Nature of international Method selected Value of international transaction transaction Provision of IT Enabled services TNMM 603,687,685/- Provision of consultancy services TNMM 1,47,35,206 Reimbursement of expenses No benchmarking 1,47,34,062
The TPO noted that the assessee in its |TP study has chracterised itself as provider of IT enabled services and has selected it as the tested party. Further, the assessee has applied TNMM as the most appropriate method. He observed that the assessee has selected 15 comparables and has applied the following filters:- a) Companies for which sufficient financial data is not available to undertake analysis; b) Companies that have no sales or no operations; c) Companies that are undertaking different functions as compared to the tax payer d) Companies that do not have significant foreign exchange earnings (less than 25%); e) Companies which have been making persistent operating losses; f) Companies that have substantial RPT transactions; i.e., more than 25%; g) Companies that have exceptional year of operation; h) Companies that are duplicated in the data base with different names or merged to form another company.
He noted that on the basis of this search of the data base, the overall profit margin was determined at 20.33% on cost. Since the margin earned by the tax payer was at 15% of operating cost, the assessee treated the transaction with its AE at arm’s length as it is falling within +/- 5% range.
The TPO rejected the TP analysis of the assessee and selected 20 comparables. However, he accepted the TNMM as the most appropriate method, OP/OC as PLI and the assessee as the tested party. The TPO applied the following filters:- a) Companies whose data are not available for F.Y. 2007-8; b) Companies having turnover of less than 1 crore c) Excluded companies having RPT of more than 25%;
d) Excluded companies having ITES revenue of the total operating revenue at less than 75%; e) Excluded companies for diminishing revenues/persistent loss making f) Excluded companies having different financial year g) Excluded functionally different companies h) Excluded companies having operating revenue as export less than 25%.
The TPO, after giving working capital adjustment of 1.32%, determined the arm’s length PLI at 28.47 and proposed an adjustment of Rs.6,25,78,194/-. The DRP directed the exclusion of Coral Hub and Mold-tek and upheld the remaining 18 comparables. Post DRP direction, the OP/OC of the following 18 comparables comes to 25.47% and adjustment of Rs.4,70,19,716/-:- S.NO Comparables as per TPO/DRP OP/OC% -As per TPO order u/s 144C(5)/Pg. 12AM Accentia Technologies Ltd. (Seg.) 44.50 1. 2. Acropetal (Seg.) 35.30 3. Aditya Birla Minacs Worldwide Ltd. Earlier -0.55 4. Asit C. Mehta Financial Services Ltd. 9.42 5. Caliber Point Business Solutions Ltd. (Seg.)* 10.97 6. Cosmic Global Ltd. * 24.30 7. Crossdomain Solution Pvt Ltd. 26.96 8. Datamatics Financial services Ltd. (Seg) 34.87 9. e 4e Healthcare (Formerly known Nittany 16.87 Outsourcing) 10. eClerx Services Ltd. 66.50 11. Genesys International Corporation Ltd. 48.15 12. HCL Comnet Systems & Services Ltd. (Seg.) 32.97 13. ICRA (Seg.) 11.22 14. Infosys BPO 20.03 15. I Services India Pvt. Ltd. 9.73 16. R.Systems International Ltd. (Seg) 4.30 17. Spanco Ltd. (Seg.) 8.94
18. Wipro Ltd. BPO 30.23 Arithmetical Mean 24.15 Assessee Company 15.00
7. In the final assessment order, the AO made addition of Rs.4,70,19,716/- as against Rs.6,25,78,194/- made in the original order.
Aggrieved with such order of the AO/TPO/DRP, the assessee is in appeal before the Tribunal by raising the following grounds:-
“On the facts and circumstances of the case and in law, the hon’ble Dispute Resolution Panel — I, New (DRP’) grossly erred in conforming the addition of Rs 4,70,19,716 proposed by the Ld Income Tax Officer, Ward 5(2), New Delhi (‘Ld AO’) and Ld Additional Commissioner of Income Tax, Transfer Pricing Officer - 1(2) (‘Ld TPO’). In making the said additions, the Ld AO/TPO erred in principal and on facts on the following grounds The ld. AO/TPO has grossly erred in 1. Incorrectly accepting HCL Comnet Systems & services Ltd (segmental), a company having significant (25.26 per cent) related party transactions, as comparable to the Appellant Company. 2 Arbitrarily rejecting comparable companies by use of inappropriate and insufficient filters
2. Computing the adjustment on account of difference working capital employed by the Appellant Company and the comparable companies.
4. Arbitrarily rejecting the comparable companies selected by the Appellant Company i.e. rejection without identifying any specific deficiency in the benchmarking analysis or fully appreciating the functional capabilities of the selected comparable companies.
5. Selecting super normal profit making companies as comparable to the Appellant Company.
6. Computation of operating margins of finally selected comparable companies by not allowing cost of Fringe Benefits Tax (‘FBT’) as an allowable expenditure.
Not allowing the Appellant Company, a low risk entity i.e. captive service provider, adjustment towards differences in risk profile when compared with finally selected comparable companies.
8. Using single year data for benchmarking analysis as against multiple year data. The grounds of appeal are notwithstanding each other. The appellant craves leave to amend, alter or add fresh grounds of appeal during the course of proceeding before your good self.”
9. The assessee, at the time of hearing, filed the following additional grounds:- “1. In the facts and in the circumstances of the case, the Ld. TPO erred in selecting entities as comparable even though they are materially different in terms of function, assets or risk, which are as follows:- i) Accentia Technologies Ltd. ii) Crossdomain solution pvt. Ltd. Hi) Datamatics Financial (BPO Division) iv) Eclerex v) HCL Comnet System & Services Ltd. (Seg.) vi) Infosys BPO Ltd. vii) Acropetal Technologies Ltd. viii) Wipro BPO.
2. On the facts and in the circumstances of the case the Ld. AO /DRP were not correct in including the following entity in the list of appropriate comparable:- i) Genesys International.”
So far as the additional ground No.1 is concerned, the ld. Counsel for the assesses submitted that the assessee company had taken Genesys International Corporation Ltd. as a proper comparable for TP analysis on the basis of then available information which is available in the data bases Prowess, etc. used by its independent accountants. However, subsequently it came to the notice of the assesseee on the basis of various decisions of the Tribunal that entity like Genesys International Corporation Ltd., was functionally dissimilar and incomparable.
So far as the additional ground No.2 is concerned, he submitted that since the original ground No.5 is unhappily worded and does not bring out the grievance clearly, therefore, the assesseeee by filing this additional ground of appeal has challenged the selection of certain comparables by the TPO.
12. Referring to the decisions of the Hon’ble Supreme Court in the case of NTPC Ltd. vs. CIT, reported in 229 ITR 383 and the decision in the case of Jute Corporation of India Ltd. vs. CIT, reported in 187 ITR 688, he submitted that these additional grounds go to the root of the matter and no fresh facts are required to be investigated, therefore, these additional grounds should be admitted for adjudication.
The ld. DR, on the other hand, opposed the admission of the additional grounds filed by the assessee.
After hearing both the sides and considering the fact that no fresh facts are required to be investigated and these grounds go to the root of the matter, therefore, both the additional grounds raised by the assesseee are admitted.
The ld. Counsel for the assessee, at the time of hearing, did not press grounds of appeal No.6,7 and 8 for which the ld. DR has no objection. Accordingly, these grounds are dismissed as not pressed.
So far as Ground of appeal No.1 is concerned, the grievance of the assessee is that HCL Comnet Systems & Services Ltd. (Seg.) has been incorrectly considered as comparable although this company is having significant RPT of 25.26% which is more than 25%. The ld. Counsel for the assessee drew the attention of the Bench to paper book page 262 and submitted that before TPO it was clearly brought to his notice that RPT transaction is 25.26%. Referring to page 265 of the paper book, he submitted that the RPT was shown at 27.99% of the sales. He accordingly submitted that this comparable should have been excluded by the TPO and DRP.
The ld. DR, on the other hand submitted that she has no objection if this issue is restored to the file of AO/TPO for verification of the RPT and if it is less than 25%, then to be retained and if it is more than 25% then to be excluded.
After hearing both the sides, we are of the considered opinion that this matter requires verification at the level of TPO for determination of the inclusion and/or exclusion of this comparable on the basis of RPT filter as adopted by the assessee and the TPO. We, therefore, deem it proper to restore this issue to the file of the AO/TPO for deciding this issue afresh after verification of the RPT from the 8 financials already furnished by the assessee. Ground of appeal No.1 is accordingly allowed for statistical purposes.
19. In ground of appeal No.3, the assessee has challenged computation of the adjustment on account of difference of working capital employed by the assessee company and the comparables. Both the sides agreed that this issue needs to go back to the file of AO/TPO for correct determination of computation of working capital adjustment. We, therefore, deem it proper to restore the issue to the file of AO/TPO for determination of the working capital adjustment. Ground No.3 of the assesseee is accordingly allowed for statistical purposes.
Ground of appeal No.2, 4 and 5 and two additional grounds relate to inclusion/exclusion of certain comparables.
21. So far as Accentia Technologies Ltd. is concerned, the ld. Counsel for the assessee at the outset, referred to the order of the Tribunal in assesseee’s own case for A.Y. 2007-08 and submitted that the Tribunal at para 5.3 to 5.3.2 has discussed this issue and has directed the AO/TPO to exclude this company form the list of comparables. Referring to the decision of the Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. vs. ACIT reported in (2018) 93 taxman.com 251, he submitted that the Tribunal has excluded this company from the list of comparables on the ground that extraordinary events have taken place during the year in case of Accentia Technologies Ltd. Referring to the annual accounts of Accentia Technologies, copy of which is placed at page 325 to 408 of 9 the paper book, the ld. Counsel for the assesseee drew the attention to ‘Schedule 10 – Significant accounting policies’ and ‘Notes to Accounts for the year ended 31st March, 2008’ and submitted that in the Notes to Accounts, clause 4, it has been mentioned that Accentia Technologies has acquired M/s Thunga Software Pvt. Ltd., has purchased business in GSR Systems, purchased business in GSR Billing Services, purchased business in Denmed Transcriptions Services Inc., etc. Further, this company derives revenue from four sources, namely, Brokerage, Medical Transcription, Billing & collection and income from investment in subsidiary. However, no segmental are available. He accordingly submitted that in view of the decision of the Tribunal in assessee’s own case and in view of the decision of the Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. and various other decisions as mentioned in the synopsis, this company should be excluded from the list of comparables.
The ld. DR, on the other hand, heavily relied on the order of the AO/TPO/DRP.
After hearing both the sides, we find, the Tribunal, in assessee’s own case for A.Y. 2007-08 has excluded this company from the list of comparables by observing as under:- “5.3.2. We have perused the submissions advanced by both the sides in the light of the records placed before us. From the audited statements of this company placed at page 286-335 of paper book volume 2, it is clear that assessee has acquired 51% stake in Geo-Soft Technologies (Trivandrum) Ltd. and 51% stake in Iridium Technologies India Pvt. Ltd. It is observed that almost approximately 68% of operating cost is towards overseas business 10
expenses as against ‘nil’ in case of assessee and hence there is a difference in business model. Further substantial marketing expenses to an extent of approximately 28% of sales as against ‘nil’ of assessee have been undertaken by this company. Linder such circumstances, we are of the considered opinion that this company is not functionally similar as well as the risk profile is quite different from that of assessee and accordingly cannot be considered to be a fit comparable. We direct this company to be excluded from the list of comparables.”
We further find, Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. (supra) has excluded Accentia Technologies by observing as under:- “23. So far as exclusion/inclusion of Accentia Technologies Limited is concerned, we find from the Annual Report Compendium that the company in its annual report at page 29 has mentioned about the acquisition of Thunga Software Pvt. Ltd., acquired GSR Physician's Billing Service, acquired GSR systems, a software company specializing in HRCM based in Florida, USA, acquired Denmed Inc., a medical transcription company based in salem, Oregon, USA. Further, this company is engaged in providing diversified services. This company is engaged in transcription services which is considered as a high end service (KPO). 24. We find the Hyderabad Bench of the Tribunal in the case of BA Continuum India (P.) Ltd. (supra) has excluded Accentia Technologies Limited on account of extraordinary events that took place in this company. The Pune Bench of the Tribunal in the case of IT Cube Solutions (P.) Ltd. (supra) has also excluded Accentia Technologies Limited from the list of comparables on account of extraordinary events that have taken place. Similar view has been taken by the various Bench of the Tribunal. Since it is an admitted fact that extraordinary events have taken place during the year in case of Accentia Technologies Limited, therefore, we are of the considered opinion that this company cannot be held as a comparable with that of the assessee company on account of different functions as well as extraordinary events such as acquisitions that have taken place. We, therefore, direct the TPO/Assessing Officer to exclude this company from the list of comparables.”
The various other decisions relied on by the ld. Counsel for the assessee in the paper book also support his case to the proposition that Accentia Technologies has to be excluded from the list of comparables on account of extraordinary events 11 that had taken place and absence of segmental data. We, therefore, direct the AO/TP to exclude Accentia Technologies from the list of comparables.
So far as Crossdomain Solutions Pvt. Ltd. is concerned, the ld. Counsel for the assessee submitted that Crossdomain Solution Pvt. Ltd., is functionally different since the business profile of this company is re-engineered pay roll services and development of information systems. Referring to the decision of Mumbai Bench of the Tribunal in the case of BP India Services Ltd. vs. ACIT 55 taxmann.com 150, he submitted that this company was excluded by the Tribunal on the ground that this company is engaged in development of products suits and routine low end ITES services. The business of Crossdomain Solution Pvt. Ltd., ranges from high end KPO services, development of product suits and routine low end ITES services and, therefore, it was held as functionally different from that of BP India Services.
Referring to the decision of Hon’ble Bombay High Court in the case of Aptara Technology (P) Ltd., he submitted that Crossdomain Solution Pvt. Ltd., was excluded from the list of comparables upholding the order of the Tribunal that it was engaged in distinct activities such as pay role activities, knowledge process outsourcing (KPO) services, development of products and routine low end IT services. Referring to the decision of the Delhi Bench of the Tribunal in the case of H & S Software Development and Knowledge Management Centre Pvt. Ltd. vs. DCIT, 92 taxmann.com 284, he submitted that this company was excluded from the list of comparables on the ground that Crossdomain Solution Pvt. Ltd., is a high end KPO and into developing of product suits. While doing so, the Tribunal has followed the decision of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd.
The ld. DR, on the other hand, heavily relied on the order of the AO/TPO/DRP.
After hearing both the sides, we find the Hon’ble Bombay High Court in the case of Apatara Technology (P) Ltd. (supra) has upheld the decision of the Tribunal excluding Crossdomain Solution Pvt. Ltd., from the list of comparables by observing as under:- “(a) The impugned order of the Tribunal excluded M/s. Cross-domain Solutions Ltd. from the list of comparable. This after having rendered finding of fact that it was engaged in distinct activities such as payroll activity, 'Knowledge Process Outsourcing' (KPO) service, development of products and routine IT services. Further, the impugned order indicates that differences between the Elearning service and 'Knowledge Process Outsourcing' which would clearly establish that the activities are not comparable. The impugned order also records that M/s. Cross-domain Solutions Ltd. was engaged in payroll outsourcing on a substantive scale. Besides, there was no bifurcation available of profits earned individually on the various diversified activities being carried by M/s. Cross-domain Solutions Ltd. Thus, it held that comparison on an entity level of M/s. Cross-domain Solutions Ltd. with the Respondent's AE transaction is not correct.”
We find the Delhi Bench of the Tribunal in the case of H&S Software Development and Knowledge Management Centre Pvt. Ltd. (supra) while excluding Cross Domain Solutions Pvt. Ltd., from the list of comparables, has observed as under:- 13
27.1 So, when it is not in dispute that the taxpayer is a low end BPO, the Cross Domain being a high end KPO and into developing of product suites, it cannot be a suitable comparable. Comparability of Cross Domain has been examined by the coordinate Bench of the Tribunal Symphony Marketing Solutions India Pvt. Ltd. (supra), relevant page 4 of the convenience paper book, wherein Cross Domain has been held to be not a suitable comparable vis-à-vis Symphony Marketing Solutions India Pvt. Ltd. (supra) which is also low end BPO. Operative part of the findings of the coordinate Bench of the Tribunal in Symphony Marketing Solutions India Pvt. Ltd. (supra) is reproduced below :-
As can be seen from the above, the business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider.
We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this company as a comparable, this company should be excluded from the list of comparables, accepting the plea of the Assessee. We hold accordingly." 27.2. In view of what has been discussed above and more particularly in view of functional dissimilarity, we are of the considered view that Cross Domain is not a suitable comparable vis-à-vis the taxpayer, hence ordered to be excluded.”
31. Respectfully following the decision of the Hon’ble Bombay High Court and the decision of the Delhi Bench of the Tribunal cited (supra), we hold that Crossdomain Solution Pvt. Ltd., is not a good comparable. Accordingly, the AO/TPO are directed to exclude this company from the list of comparables.
So far as Datamatics Financial Services Ltd. is concerned, the ld. Counsel for the assessee submitted that this company is functionally different since it is acting as registrar and share transfer agents as well as ITES and there is no segmental information available in the audited accounts. Therefore, the revenue from both the systems cannot be computed separately. Referring to the decision of the Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. cited supra and the decision of the Delhi Bench of the Tribunal in the case of CIT vs. Tech Books 67 taxmann.com 169, he submitted that this company was excluded from the list of comparables. Referring to the decision of the Delhi Bench of the Tribunal in the case E-value serve.com reported in 97 taxmann.com 103, he submitted that this company was also directed to be excluded from the list of comparables on account of discrepancy in the information in Annual Report and 133(6) reply. He accordingly submitted that this company be excluded from the list of comparables.
The ld. DR, on the other hand, heavily relied on the orders of the AO/TPO/DRP.
34 After hearing both the sides, we find the Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. (supra), while excluding Datamatics Financial Services from the list of comparables has observed as under:-
“28. So far as Datamatics Financial Services Limited is concerned, we find this company is acting as Registrar and share transfer agent as well as ITES. There is no segmental information available in the audited accounts. Therefore, the revenues from both the streams are not separable. It has been held in various decisions that when segmental details are not available, the company cannot be accepted as a comparable. Since admittedly in the instant case no segmental details are available, therefore, we direct the Assessing Officer/TPO to exclude Datamatics Financial Services Limited from the list of comparables.
35. However, we find the Delhi Bench of the Tribunal in the case ACIT vs. Techbook (supra) while deciding the issue has restored the issue to the file of AO/TPO with certain directions which are as under:-
“TPO has chosen this company as comparable by making following observations: "This company can also be used as comparable. The services that it is providing are very much I T Enabled Services." The assessee challenged the inclusion of this company as comparable company on the grounds inter-alia that this is a functionally different company; that its segmental information is not available and this company had shown 450% profits in its P & L account meaning thereby, it is highly profitable business; that assessee has not been provided with any opportunity to cross examine the evidence taken on record; that there is no material to reach out at the conclusion that as to how 34.8% profit has been computed by the TPO. Ld. CIT(A) by accepting the contention of the assessee, excluded this comparable company on account of functional disparity as well as on ground of non availability of the audited segmental information. From the perusal of material available on record relied upon by the TPO in arriving at the decision to include the Datamatix Financial Services as comparable company, it is apparently clear that the TPO has chosen this comparable on the basis of assumptions and presumptions by ignoring the fact that the comparable company has shown 450% profit and falls in the category of highly profitable business and as such, is liable to be excluded from the list of comparable company. TPO in his analysis for finally choosing this company as comparable, has categorically taken Datamatix Financial Ltd. as BPO division. There is no segmental information available on the file to make out if this comparable company is a BPO division. This is a mystery as to how the TPO has shown OP/TC @ 34.87% of this comparable company as shown in para 3.7 of the order. Even Ld. D.R. has failed to answer as to how this figure has come out on record. When the segmental information regarding IT Enabled Service is C.O.93/Del/2013 not available, it is beyond comprehension, as to how the TPO has chosen this company as comparable company. At the same time, CIT(A) has also summarily excluded this comparable as per contention of the assessee without examining if this company is a BPO division. So, we are of the considered view that the matter is required to be restored to the TPO to verify if the figures relied upon by him are of BPO division. If the comparable company is not ascertained as BPO division then it is to be 16 excluded and in case figures relied upon by TPO are of BPO division then it is to be included as a comparable company. In case, the figures are of entity level, it is to be excluded. “
Respectfully following the decision of the coordinate Bench of the Tribunal, cited (supra) we deem it proper to restore this issue to the file of the AO/TPO to adjudicate the issue afresh in the light of the directions of the Tribunal and exclude this company in case the figures are of entity level.
37. So far as eClerx Services Ltd. is concerned, the ld. Counsel for the assesseee submitted that this company is functionally different since it is engaged in the business of providing Knowledge Process Outsourcing (KPO). The company is operating in data analytics space and provides operations, management audit and reconciliation services. It falls in the domain of KPO segment. However, the assessee company, on the other hand, is providing back office support services to its AEs. Therefore, this company which is providing high end services should be excluded from the list of comparables. Referring to the decision of the Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. (supra) and H& S Software Development and Knowledge Management Centre Pvt. Ltd. (supra) and the decision of the Bangalore Bench of the Tribunal in the case of Flextronics Technologies (I) Pvt. Ltd. vs. DCIT, reported in 67 taxmann.com 244 and various other decisions as per the synopsis and paper book, he submitted that this company should be excluded from the list of comparables.
38. The ld. DR, on the other hand, heavily relied on the order of the AO/TPO/DRP and submitted that since this company was correctly selected by the TPO and upheld by the DRP, therefore, the same should be retained.
We have considered the rival arguments made by both the sides and perused the record. We have also considered various decisions cited before us. We find, the Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. (supra), following the decision of the Hon’ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. vs. CIT, reported in 377 ITR 537 has directed exclusion of e-Clerx from the list of comparables by observing as under:-
“29. So far as E Clerx Services Limited is concerned, we find this company is engaged in providing data analytics and data process solutions to the customers which in our opinion are functionally different from the functions performed by the assessee under outsourced business processes like technical support services, account management, etc.. We find the Delhi Bench of the Tribunal in the case of Avaya India (P.) Ltd. (supra) following the decision of the Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. vs. CIT in order dated 10.08.2015 has held that E Clerx Services Limited and Coral Hub Limited (Vishal Information Technologies Limited) being high-end service providers cannot be compared with low-end service provider. Similar view has also been taken by the Hyderabad Bench of the Tribunal in the case of BA Continuum India (P.) Ltd. (supra) on the ground that this company is classified as high-end KPO and was having supernormal profit. The Bangalore Bench of the Tribunal in the case of Goldman Sachs Services (P.) Ltd. (supra) has also excluded this company from the list of comparables on account of the said company being mainly engaged in providing high-end KPO services involving specialized expertise in the field and the same cannot be compared with company mainly engaged in providing low-end services to its group ITA No.6408/Del/2012 concerns. Since the assessee in the instant case is a low-end service provider, therefore, following the decision of the Delhi Bench of the Tribunal in the case of Avaya India (P.) Ltd. (supra) and the various decisions citied (supra), we hold that the E Clerx Services Limited cannot be held as comparable with that of the assessee company. The various other decisions relied on by the ld. counsel for the assessee in the synopsis also support its case. We, therefore, direct the exclusion of E Clerx Services Limited from the list of comparables.
We find, the Delhi Bench of the Tribunal in the case of IHG IT Services (India) (P) Ltd. vs. DCIT, reported in 64 taxmann.com.427, has thoroughly analysed the functions of e-Clerx Services Ltd. and directed exclusion of the said company from the list of comparables by observing as under:-
“16. We have heard both the sides and perused the material available on record. The Hon'ble jurisdictional High Court in the case of Rampgreen Solutions Pvt. Ltd. (supra) has held as under :- "36. As pointed out earlier, the transfer pricing analysis must serve the broad object of benchmarking an international transaction for determining an ALP. The methodology necessitates that the comparables must be similar in material aspects. The comparability must be judged on factors such as product/service characteristics, functions undertaken, assets used, risks assumed. This is essential to ensure the efficacy of the exercise. There is sufficient flexibility available within the statutory framework to ensure a fair ALP.
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) Pvt. Ltd. (supra), the Special Bench of the Tribunal had noted that eClerx is engaged in data analytics, data processing services, pricing analytics, bundling optimization, content operation, 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) Pvt. 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 19
the Tribunal in M/s Capital Iq Information Systems(India) (P.) Ltd. v. Additional Commissioner of Income- tax (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." In the light of the aforesaid decision of the Hon'ble jurisdictional High Court in the case of Rampgreen Solutions Pvt. Ltd. (Supra) wherein concurring with the view of Special Bench of the Tribunal in Maersk Global Centres (India) Pvt. Ltd. (supra) it was held that eClerx need to be excluded taking into consideration the fact that eClerx is engaged in data analytics, data processing services, pricing analytics, bundling optimization, content operation, sales and marketing support, product data management, revenue management and 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 and the Hon'ble High Court held that this company is engaged in KPO services and so, this company cannot be compared with the low end service provider like the assessee in this case. We order the exclusion of this company from the set of comparables.”
We further find e-Clerx was excluded by the Tribunal in assessee’s own case for A.Y. 2007-08 on account of different functionality. In view of the decisions cited (supra) and in view of the various other decisions relied on by the ld. Counsel for the assessee in the paper book where e-Clerx has been excluded from the list of comparables on account of different functionality, this company is directed to be excluded from the list of comparables.
So far as Infosys BPO is concerned, the ld. Counsel for the assessee submitted that this company has got high brand value and it is a large and diversified service provider. He submitted that its brand value is 31,863/- crore and has incurred 6.17% of the total revenue as sales and marketing expenses. Further, this company is a market leader in ITES whereas the assessee is not a market leader and does not enjoy such advantages. Therefore, this company should be excluded from the list of comparables.
The ld. DR, on the other hand, heavily relied on the order of the AO/TPO/DRP.
After hearing both the sides, we find the Delhi Bench of the Tribunal in the case of IHG IT Services (India) (P) Ltd. vs. DCIT, 64 taxmann.427, following various decisions has excluded Infosys BPO from the list of comparables by observing as under:-
“9. We have heard both the parties and perused the records. The contention of the ld. AR that this company cannot be used as comparable because the operating revenue of the Infosys BPO is 49 times than that of the tested party (assessee), cannot be countenanced in view of the Hon'ble jurisdictional High Court's decision in the case of ChrysCapital Investment Advisors (India) Pvt. Ltd in ITA 417/2014 judgment dated 27.04.2015. Though we have held in the case of Avaya India (P) Ltd. vs. Addl.CIT, Range 2, New Delhi in ITA No.5528/Del./2011 order dated 18.09.2015 for AY 2007-08 that the Infosys BPO is a comparable company to Avaya, since it is rendering ITES services, however, we take note that an extra-ordinary event has been reported at page 36 of the Annual Report for financial year 2007-08, which has been recorded as given below :- "Infosys BPO Limited has acquired the shared service centres of Philips at Poland, Thailand and Chennai through its investment in P - Financial Services Holding B.V. Netherlands as per sale and purchase agreement dated July 25, 2007 with Koninklijke Philips Electronic N.V. for a purchase consideration of 107.12 crores of which Rs.5.59 crores is yet to be paid towards additional purchase consideration. The shared service centres at Poland and India have become 100% subsidiary of the company on October 1, 2007 where as the shared service centre at Thailand has become a wholly owned subsidiary on December 3, 2007, the date on which all necessary conditions in the agreement were fulfilled." We take note that the aforesaid extra ordinary event of amalgamation during the year has helped Infosys BPO in acquiring domains skill sets in the finance, 21 administration space as well as enhanced its global presence with centers at Thailand and Poland. In view of the said extra ordinary event brought to our notice, we exclude Infosys BPO from the list of comparables.
45. We find, the coordinate Bench of the Tribunal in the case of eValueserve.Com (P) Ltd. (supra) has excluded Infosys BPO from the list of comparables by observing as under:-
“44.18 We have heard both the parties and perused all the relevant material available on record. There is an extraordinary event that of acquisition of a group during A.Y. 2008-09. The Hon'ble Delhi High Court in case of PCIT vs. Actis Global Services held that size and scale of operations of a company does make it unsuitable as comparable. Therefore, it will be appropriate to exclude this comparable. Therefore, we direct the TPO/AP to exclude this comparable from the final list of the comparables.”
We further find this company was excluded by the Tribunal from the list of comparables in assessee’s own case for A.Y. 2007-08 by observing as under:- “5.8.1 We have perused the submissions advanced by both the sides in the light of the records placed before us. From TP study placed at page 539-638 of the paper book, it is observed that this company has huge turnovers, owns IPR and brand value on products and provides services to vast clientele. Under such circumstances this company cannot be accepted to be a fit comparable in case of assessee who is a captive service provider providing services only to its group concerns. 5.8.3 Accordingly we direct this company to be excluded from the list of comparables.”
47. Since brand value of Infosys is 31.83 crores and has acquired the shared service centre of Philippines at Poland, Thailand and Chennai through its investment in P-Financial Services Holdings BV Netherlands and, therefore, extraordinary event of amalgamation has taken place during the year, therefore, following the decisions cited supra, we hold that Infosys BPO is not a good 22 comparable. We, therefore, direct the AO/TPO to exclude this company from the list of comparables.
So far as Acropetal Technologies Ltd. (Seg) is concerned, the ld. Counsel for the assessee submitted that this company is engaged in development of software products whereas the assessee is doing ITES services and, therefore, this company is functionally different and cannot be considered as a good comparable.
The ld. DR, on the other hand, heavily relied on the order of the AO/TPO.
After hearing both the sides, we find Acropetal Technologies Ltd. is engaged in development of software products. We find, the coordinate Bench of the Tribunal in the case of H&S Software Development and Knowledge Management Centre Pvt. Ltd. (supra) has directed exclusion of this company from the list of comparables by observing as under:-
“4. So far as Acropetal Technologies Limited is concerned, we find this company is engaged in development of software products, whereas assessee is doing ITES services which in our opinion cannot be compared with software development company. From the notes of account, copy of which is placed at page 104 of the Paper Book, we find this company is engaged in development of computer software. We find the Hyderabad Bench of the Tribunal in the case of HSBC Electronic Data Processing India (P.) Ltd. (supra) has excluded this company from the list of comparables by observing as under :- "14.2.1 This company is listed at Sl.No.2 of the comparables chosen by the TPO. As far as this company is concerned, the objection of the assessee is that this company is not functionally comparable. The assessee is a BPO company that provides CAD/ CAE services. As far as Acropetal Technologies Ltd. is concerned, this company does the business of export of software services. It is also seen from the segmental revenue of this company 23 (Note 15 to the notes on accounts to Annual Report for 07-08) that it derives income from engineering design services and software development services. It is also pertinent to point out that before the TPO, the assessee raised an objection that this company performs different functions and mainly engaged in the area of software development services and engineering design services. The TPO in his order has observed that the services rendered by this company fall in the definition of ITES. 14.2.2 We have considered the submissions of the learned counsel for the Assessee. Ld Counsel submission was that this company was excluded in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench, so the same require exclusion. In the above case it was considered like this: 13. We have considered the submissions of the learned counsel for the Assessee. On a perusal of the Note No.15 of notes to accounts which gives segmental revenue of this company, it is clear that the major source of income for this company is from providing Engineering Design Service and Information Technology Services. The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee. The performance of Engineering Design Services is regarded as providing high end services among the BPO which requires high skill whereas the services performed by the Assessee are routine low end ITES functions. We therefore hold that this company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcing [KPO] would do and not a Business Process Outsourcing [BPO]. As can be seen above, said company was excluded on the differentiation of high end services being provided by this company. Assessee does not provide high end services as submitted. Therefore we are of the opinion that functions of assessee are not similar to the above Company. We direct the TPO/AO to exclude this company."
In view of the decision of Hyderabad Bench of the Tribunal which, in turn, has followed the Bangalore Bench of the Tribunal and in absence of any contrary material brought to our notice, we hold that Acropetal Technologies Limited should be excluded from the list of comparables.”
We find, the Delhi Bench of the Tribunal in the case of IHG IT Services (India) (P) Ltd. (supra) while directing to exclude Acropetal Technologies Ltd. has observed as under:- 24
34. We have heard both the parties and perused the records. We find from a perusal of the said letter dated 08.03.2011 to the TPO that Acropetal is into software development also and since the segmental information is not available, it would not be safe to rely on the finance of this company. Therefore, we order exclusion of this comparable from the set of comparables.
In view of the decisions cited above, we hold that Acropetal Technologies Ltd. is not a good comparable and, therefore, we direct the AO/TPO to exclude this company from the list of comparables.
So far as Wipro BPO is concerned, the ld. Counsel reiterated the same arguments as advanced while arguing the case of Infosys BPO and submitted that Wipro BPO is similar to that of Infosys BPO as far as its size and scale of operation are concerned. It has got huge brand value and is a market leader. It has incurred huge expenditure on R & D. Referring to the decision of the Hon’ble Delhi High Court in the case of PCIT vs. New River Software Services Pvt. Ltd., he submitted that the Hon’ble High Court has directed to exclude this company from the list of comparables. Referring to the decision in the case of H&S Software Development and Knowledge Management Centre Pvt. Ltd. (supra), he submitted that this company was excluded from the list of comparables on account of significant brand value and huge expenditure on R&D apart from advertisement business activities.
After hearing both sides we find, the Tribunal at para 44 to 47 of the order has discussed this issue and excluded this company by observing as under:-
“44. TPO retained Wipro As a comparable despite objections raised by the taxpayer. The taxpayer sought exclusion of Wipro from the final set of comparables on grounds inter alia that Wipro has significant ownership of intellectual property; that it has high turnover of Rs.17492.62 crores and that it has undergone extra ordinary events during the year under assessment and is having diversified business and relied upon the decision of the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 and Symphony Marketing Solutions India Pvt. Ltd. (supra).
Perusal of page 140 of the paper book proves that the Wipro is into diversified business activities and excelled in areas of technologies and industry and incubate new practices for business growth; it is managing 60CoE's across different technologies and industry verticals, viz., Service Oriented Architecture, Virtualisatin, Unified Communication SaaS (Software as a Service), Data Privacy & Protection, IMS (IP multimedia subsystem), Remote Patient Monitoring, Image Processing, Supply Chains, Retail Instore, Retail Pharmacy, Automotive, Open Source and Gaming.
46. Furthermore, Wipro has significant ownership of IPR whereas the taxpayer has no such ownership of IPR. Furthermore, Wipro is a giant company having turnover of Rs.17492.62 crores as against taxpayer's turnover of Rs.16.64 crores. Furthermore the Wipro has undergone extra ordinary events, duly detailed at page 440 of the paper book by the taxpayer by way of amalgamation of the companies viz. Wipro Infrastructure Engineering Limited, Wipro Healthcare IT Limited, Quantech Global Services Limited (subsidiary companies) with Wipro Limited, approved during the FY 2007-08 by the Hon'ble High Court of Karnataka and the Hon'ble High Court of Andhra Pradesh.
Wipro was ordered to be excluded by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 (supra) and in Symphony Marketing Solutions India Pvt. Ltd. (supra) on the ground that it has a significant brand value having high turnover and a market leader in its field whereas the taxpayer is a tiny company and having diversified business and huge expenditure on R&D. So, in view of what has been discussed above and following the decisions rendered by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 (supra) and in Symphony Marketing Solutions India Pvt. Ltd. (supra), we do not find Wipro as a suitable comparable, hence ordered to be excluded.”
We further find this company was also excluded in assessee’s own case for the immediately preceding assessment year by observing as under:-
“5.1 0.2. We have heard the rival submissions of both sides in the light of records placed before us. It is observed that Co-ordinate Bench of the Delhi Tribunal in ICC India Pvt.Ltd., vs. ACIT (supra) has excluded this comparable by placing reliance upon Calibrated Healthcare Systems (I) (P) Ltd. Vs ACIT (OSD) reported in (2015) 54 Taxmann.com 53.lt is observed that in this decision this tribunal has examined comparability of WIPRO and ordered its exclusion on the ground that this is a giant entity with marked differences as regards risk profile, nature of services, ownership of IP rights, expenditure on R&D, etc-* So, following the decision rendered by co-ordinate bench as well as the fact that the assessee company is a captive service provider taking minimum risk having no intangibles cannot be compared with WIPRO which is having diversified business, ownership of significant intangibles and huge expenditure on R&D etc. So, it is directed to exclude this company from the final list of comparables”
Similar view has been taken in the various other cases relied on by the ld. Counsel for the assesseee in the case law compilation. In view of the above discussion and considering the fact that Wipro BPO has significant brand value, has advertisement business activities, has incurred huge expenditure on R&D and has undergone extraordinary events on account of amalgamation of various companies, therefore, we hold that Wipro BPO is not a good comparable. Accordingly, this company is directed to be excluded from the list of comparables.
So far as Genesis International is concerned, the ld. Counsel for the assessee submitted that this company is functionally different since it is engaged in the business of providing geographical information services comprising of Photogrammetry, Remote Sensing, Cartography, Data Conversion services, etc. Further, there was abnormal growth of 605.43% of its geospatial services for the F.Y. 2007-08. Referring to the following decisions, he submitted that this company has been excluded from the list of comparables on account of different functionality:- i) Blackrock Services India (P) Ltd.vs. ACIT (2018) 93 taxmann.com 251 (Delhi-Trib) (A.Y. 2008-09) ii) IHG IT Services (India) (P) Ltd. vs. DCIT, Circle 1(1), New Delhi (2015) 64 taxmann.com 427 (Delhi-Trib.) (A.Y. 2008-09)
The ld. DR, on the other hand, strongly supported the order of the AO/TPO/DRP. She submitted that this is a comparable that has been selected by the assessee itself based on the FAR analysis in its own TP study. It was also used as a comparable in the case of the assessee in earlier years. Since this comparable has passed all the filters selected by the TPO, therefore, the TPO has accepted this as a comparable. He submitted that it is not proper to arbitrarily reject a comparable that has been arrived at after a carefully applied select/reject matrix followed by a quantitative screening based on FAR analysis by the assessee as well as the TPO.
Referring to the decision of the Tribunal in the case of Interra Information Technologies (P) Ltd. vs. DCIT reported in 2012-ITS-2021-ITAT, she drew the attention of the Bench to the following observation of the Tribunal:- "..Hence, in transfer pricing cases the parties should devote much time to the nature of the companies' business operations, nature of transactions, FAR analysis, study and method of choosing comparables etc. The logic or reasons behind selection of comparables for benchmarking and supporting these studies should be based on the Act and Rules rather than picking up 28
orders of the different benches on the ground that they are precedent, without reference to the facts and nature of transactions. It should be understood that businesses are so varied and no two transactions are similar. Business models followed by the AEs and assesses are different."
We have considered the rival arguments made by both the sides and perused the record. Although this company was selected by the assessee itself based upon the FAR analysis, however, the ld. Counsel for the assessee submitted that on the basis of the annual report of the said company, the various Benches of the Tribunal have held that Genesys International was functionally dissimilar and unverifiable. It has been held in various decisions that the assessee can challenge the comparable at the appellate stage even though the same was taken by it as a comparable in the TP study. We find, the Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. (supra) while excluding Genesys International Corporation Ltd. as a comparable has held as under:-
“30. So far as Genesys International Corporation Limited is concerned, we find this company also is functionally different from that of the functions of the assessee company. From the annual report of the company, we find it is engaged in the business of providing Geographical Information Services comprising Photogrammetry, Remote Sensing, Cartography, Data Conversion services etc.. Further, as per the decision of the Hyderabad Bench of the Tribunal in the case of BA Continuum India (P.) Ltd. (supra), we find there was abnormal growth of around 605.43% for its Geospatial services for the financial year 2007-08. We find after considering the arguments advanced by the assessee, the Hyderabad Bench of the Tribunal excluded the Genesys International Corporation Limited from the list of comparables by observing as under :- "14.2. We have considered the rival contentions and perused the orders relied on. As far as this comparable is concerned, the same has been decided by the Co-ordinate Bench in the case of Hyundai Motors India Engineering P. Ltd., Vs. ITO in (AY. 2008-09) dt. 21-02-2014, wherein the Co- ordinate Bench held as under: 29
V. GENESYS INTERNATIONAL CORPORATION LTD. This company is listed at Sl. No.11 in the list of comparable companies chosen by the TPO. As far as this company is concerned, the stand of the assessee has been that this company is functionally not comparable and that it has a different employee skill set and that this company performs R&D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Besides the above, this company also carries out R&D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. Similar view was also taken in the case of Symphony Marketing Solutions India (P) Ltd (supra) by the Bangalore Bench. In view of the above, we are of the view that this company cannot be regarded as a comparable and deserves to be excluded from the list of comparables . 14.3. Respectfully following the decision of the Co-ordinate Bench, we direct the AO/TPO to exclude Genesys International Corporation Ltd., from the list of comparables."
Similar view has been taken by the various other decisions relied on by the ld. counsel for the assessee in the synopsis. We, therefore, direct the TPO/Assessing Officer to exclude Genesys International Corporation Limited from the list of comparable on account of functionally different.”
We find, the Delhi Bench of the Tribunal in the case of H&S Software Development and Knowledge Management Centre Pvt. Ltd. (supra) while excluding Genesys International Corporation Ltd. (supra) has observed as under:-
"36. TPO retained Genesys as a comparable despite taxpayer's objections on the ground that in the preceding years, the taxpayer has itself not raised any objection to take Genesys as a comparable. However, the taxpayer sought exclusion of Genesys on the grounds inter alia that it is functionally different; that Genesys has different employee scale set; that it has significant intangibles and engaged in R&D activities and having high fluctuation margins and relied upon Symphony Marketing Solutions India Pvt. Ltd. (supra). 30
When we examine functional profile of Genesys from the annual report, relevant at page 144 of the paper book. it is proved that Genesys is engaged in providing Geographical Information Services comprising Photogrammetry, Remote Sensing, Cartography, Data Conversion, related Computer based Services and other related services, which are certainly not routine ITES. Moreover, Genesys has been rejected by the DRP in taxpayer's own case for AY 2009-10 order dated 23.12.2013 on ground of functional dissimilarity by returning following findings : "7.3.4 Genesys International Corporation. This comparable is functionally different hence it is not a valid comparable. • For sake of darity different extracts from AR is extracted below:- • As per Page-5 of Annual Report- "We are progressing well towards our goal to be an innovation and IP-led geospatial solutions provider touching a/l core areas of the economy." Further, as per Page-6 of AR:- "your company is the exclusive Reseller for Navteq data for the Enterprise space in India Navteq is the world leader in navigable maps and sheet data" Further, as per Page-14 of AR – "Genesys is today one of India's fastest growing geospatial services and content providers The Company caters to the needs of consumer mapping, navigation, internet portals as well as infrastructure players Including state and local governments." Further, as per Page-16 of AR :- "Our capabilities 1. GIS Consulting, 2. 3D Mapping, 3. Navigation maps, 4. LiDAR. 5. Photogrammetry Remote Sensing services, 6. Utility Services, 7. Image Processing, 8. Surveying, 9. Business Geographies & Logistics, 10. Cadastral Mapping, 11 City Scape, 12 Telecommunications From the above, it is observed that the functionality of this company is significantly different from that of the assessee. The TPO is directed to exclude this company from final set of comparables."
Furthermore, Genesys is engaged in R&D activities and creating significant intangibles as is event from pages 146 & 147 of the annual report. Moreover, the Genesys is having high fluctuating margin duly detailed at page 415 of the paper book by the taxpayer; in FY 2006-07 Genesys's margin was 13.35% and in FY 2007-08 it was 51.91% and 145.92% in the year under assessment. So, high fluctuating margin is also a ground to reject a comparable for benchmarking the international transaction.
39. Coordinate Bench of the Tribunal in Symphony Marketing Solutions India Pvt. Ltd. (supra) has rejected Genesys as a comparable vis-à-vis routine ITES company on ground of functional dissimilarity. So, in view of the matter, we order to exclude Genesys as a comparable on ground of its functional dissimilarity having significant intangibles and having been engaged in R&D activities and having high fluctuating margin and having highly skilled manpower.”
Similar view has been taken by the coordinate Benches of the Tribunal in various other decisions relied on by the ld. Counsel for the assesseee in the paper book.
In view of the above discussion we hold that Genesys International Corporation Ltd. has to be excluded from the list of comparables on account of different functionality. The grounds raised by the assessee including the additional grounds are accordingly partly allowed.