ITO 11(3)(4), MUMBAI vs. ZENTA P.LTD, MUMBAI

3.1. At the time of hearing, both the parties before us mutually agreed and stated that if one of the comparables namely Excel Infoways Ltd., which has been directed to be excluded by the ld. DRP from the list of total comparables chosen by the ld. TPO is held in assessee’s favour, then the adjudication of the other comparables would become academic in nature as the assessee would fall within +/-5% range. Accordingly, as decided by both the parties before us the bench decided to adjudicate the exclusion of comparable i.e. M/s. Excel Infoways Ltd., The margin of this comparable for the year under consideration was 243.69%. The crux of the arguments of the ld. AR with regard to the exclusion of this comparable are as under:-

M/s. Zenta Pvt. Ltd., i) This comparable has got employee cost of 8.82% whereas the employee cost of assessee works out to 54.55%. Since the employee cost of the comparable is less than 25% of the total cost, the same is to be excluded from the list of comparables. ii) The said comparable M/s. Excel Infoways Ltd., as per its Director’s report for the year ending 31/03/2009 has mentioned that it is in IT enabled services industry providing effective business solutions to the global and Indian companies with excellence in technology and robust processes. The said comparable had continued to win new assignments as well as achieved growth in traditional area of BPO / IT enabled services which has significant grown potential in the years to come. The said Directors report also mentioned that the said comparables is an ISO certified company and is a Customer Contact Center based in India, offering a range of customer care services including telecom fulfillment centre, providing technical services, financial services, healthcare, outbound sales and marketing, voice, email response, real time chat, knowledge management, eCRM architecture and other value added services, where each component of services delivery is critical. However, from the perusal of the Annual report of this comparable in the profit and loss account, the total receipts from BPO / IT enabled services was reflected at Rs.18,60,40,738/-. iii) The ld. AR argued that there is no break-up of this revenue of Rs.18.60 Crores profit in the Annual report of the said comparable.

M/s. Zenta Pvt. Ltd., Hence, in the absence of segmental data of the revenue, the same is to be excluded. The ld. AR also drew our attention to the balance sheet extract and the contents contained in General Business Profile reflected in part-IV of the Companies Act, 1956 enclosed in page 334 of the paper book wherein under the head “Generic Names of Three Principal Products/Services of the Company”, the said comparable had mentioned that they are engaged in providing following services:- a. Business auxiliary services b. Information technology enabled services iv) Ld. AR also relied on page 339 of the paper book containing details of activities carried out by M/s. Excel Infoways Ltd., downloaded from the website on 11/11/2013 wherein it is engaged in rendering following services:- Funds Overseas Property Collections Business, Financial Management e-media Transcription Inbound sales Inbound Sales Third Party Collection Financial Brief Outbound sales Outbound Sales Early Out Collection News Recording Enquiries & Exhibition Primary Collection Transcripted in Application Enquiries Secondary and Later literature in TAT Credit Inspection Inspections Trips Stage Collection Q & A Sessions of underwriting & After Sales Pre-legal Collection Funding Out Customer Support Skip Tracing Collections Excel Infoways is a leading company in providing collections & customer relations service to various clients since 2003.

M/s. Zenta Pvt. Ltd., v) Based on this, the ld. AR argued that the aforesaid services are not IT services and hence, the same are not functionally comparable with that of the assessee. vi) The ld. AR argued that the ld. TPO himself has removed M/s. Excel Infoways Ltd., from the list of comparables as functionally not comparable in the A.Y.2010-11. vii) The said comparable has got fluctuating margins. 3.2. In response, the ld. DR argued that the said comparable having high employee cost ratio is not relevant for the year under consideration in as much as the same was not considered as filter by the ld. TPO. The ld. DR vehemently argued that no fresh filters could be applied at the stage of appeal before ITAT. The ld. DR also argued that the activities of M/s. Excel Infoways Ltd., are functionally similar to that of the assessee and the highlighted portion in page 379 of the paper book only represents various other services that are relevant for the purpose of ISO certification only and not otherwise. The entire receipts are from BPO/ITES and hence the same are functionally comparable and no segmental data is warranted thereon.

M/s. Zenta Pvt. Ltd., i) To obtain details of break-up of the revenue from M/s. Excel Inforways Ltd., in the manner known to law. ii) To seek clarification from M/s. Excel Infoways Ltd., as to whether any revenue was earned during the year i.e., A.Y.2009-10 from services other than ITES. iii) To obtain clarification as to whether the said comparable is engaged in outsourcing activity. iv) To obtain specific clarification from the said comparable with regard to detailed bifurcation of ITES services rendered by M/s. Excel Infoways Ltd., 4.1. The ld. TPO furnished the remand report through the ld. DR in reference No. MUM/DCIT(TP)-1(1)(1)/Remand Report / ASPL-09- 10/2019-20 dated 08/07/2019. The ld. TPO had issued notice u/s.133(6) to M/s. Excel Infoways Ltd.(Now known as M/s. Excel Realty N Infra Ltd) wherein the question raised by the ld. TPO and the reply given by the said party are reproduced herein:- “i. Please provide the details of break-up of services rendered by your company with respect to BPO/ITES Reply of EIL: In reference to details of breakup of services rendered, kindly note that we provided BPO/ITES enabled services to our client outside India only. ii. Please provide the details whether any revenue has been obtained from the services other than BPO/ITES by your company. Reply of EIL: Kindly note that our revenue was from BPO/1TES enabled services only, did not have any other income.

M/s. Zenta Pvt. Ltd., iii. Please provide detailed break-up of all the activities included under BPO/1TES of your company. Reply of E1L: Kindly note that we were providing Telecom fulfillment solution services as well as financial services to our clients. iv. Please provide the details whether your company is engaged in activities which require outsourcing. Reply of EIL: Kindly note we had our own employees, we were providing BPO/ITES enabled services to our clients outside India only.

4.2. We find that the ld. TPO in his final remarks in the remand report had stated that M/s. Excel Infoways Ltd. and the assessee company are engaged in the business of providing BPO/IT enabled services and hence are functionally comparable. The ld. TPO also remarked that M/s. Excel Infoways Ltd. has received Rs.18,60,40,738/- and Rs.23,09,11,000/- from BPO / IT enabled services for F.Ys 2008-09 and 2007-08 respectively. We find that these figures are nothing but the total revenue from operations of M/s. Excel Infoways Ltd. reflected in the audited financial statements for the year ended 31/03/2009 but we find from the Director’s report of M/s. Excel Infoways Ltd. that the said company is engaged in various activities and had classified every activity under BPO/IT enabled services. The list of various activities listed out in the Director’s report have already been incorporated by us in para 4 above while addressing the arguments of the ld. AR. We also find from the annual report of M/s. Excel Infoways

M/s. Zenta Pvt. Ltd., Ltd. that 31/03/2009, under part IV “BALANCE SHEET ABSTRACT AND COMPANIES GENERAL BUSINESS PROFILE” under the column “Generic names of three principal products / services of company” , the said company i.e., M/s. Excel Infoways Ltd. had reported the following two activities as principal activities:- (i) Business Auxiliary Services (ii)Information Technology Enabled Services 4.3. Moreover, we find from page 399 of the paper book containing details of activities carried out by M/s. Excel Infoways Ltd. which is downloaded from the website on 11/11/2013, that the said company was stated to be engaged in providing collections and customer relation services to various clients since 2003, apart from various other services as listed in para 3.1. (iv) above. This goes to prove beyond doubt that M/s. Excel Infoways Ltd. was also engaged in providing financial services which had been classified as business auxiliary services by M/s. Excel Infoways Ltd. under the “Generic names of principal services rendered” by it supra. Our observation in this regard is further strengthened by the reply given by M/s. Excel Infoways Ltd. before the ld. TPO in respect to question No.iii raised by the ld. TPO u/s.133(6) of the Act which has already been reproduced hereinabove. Hence, the total revenue of Rs.18.60 Crores credited in the P & L account does not belong primarily to IT enabled services simplicitor and that some part of such revenue should also pertain to financial services rendered by that comparable. Admittedly

M/s. Zenta Pvt. Ltd., no segmental break-up of revenue and segmental results are available for various activities carried out by M/s. Excel Infoways Ltd. 4.4. The ld. DR on the contrary argued that all the services rendered by M/s. Excel Infoways Ltd. are only support services to the main activity of IT enabled serves and hence, are to be construed on a bundled manner and 100% functional similarity with that of the assessee company cannot be expected for the purpose of comparability. We are not inclined to accept to these arguments of the ld. DR for the simple reason that business auxiliary services are completely different form IT enabled services. From the various services rendered by M/s. Excel Infoways Ltd. since 2003 onwards as detailed hereinabove, it could be safely concluded that the said company was also predominantly rendering financial services which had been categorized by them as IT enabled services, whereas in the assessee’s case, it is rendering routine IT enabled services which are listed in paragraph 2.1 of our order hereinabove.

4.5. We also find lot of force in the argument made by the ld. AR wherein he submitted that in the transfer pricing assessment proceedings for A.Y.2010-11, the very same comparable i.e. M/s. Excel Infoways Ltd. was sought to be included by the ld. TPO as a valid comparable. The assessee had there pleaded it is not functionally comparable apart from other differences. The ld TPO after examining the various details and evidences submitted by the assessee for exclusion of the same, finally

M/s. Zenta Pvt. Ltd., excluded the said comparable from the list of comparables while completing the TP assessment for the A.Y.2010-11. In this regard, the ld. AR placed on record the letter dated 08/01/2011 addressed before the ld. TPO during TP assessment proceedings for A.Y.2010-11 and the copy of the TPO order for A.Y.2010-11 dated 17/01/2014 wherein M/s. Excel Infoways Ltd. was excluded.

4.6. Apart from the aforesaid observations, we also find that the co- ordinate Bench of this Tribunal under similar circumstances had excluded M/s. Excel Infoways Ltd. on functional dissimilarities among others in the following cases:- 1.Willis Processing Services (India) Private Limited - [AY 2009-10] 2. Goldman Sachs Services (P.) Ltd. - ITA No. 1315(Mum.) 2014 [AY 2009- 10] 3. Swiss Re-services India (P.) Ltd.-ITA No. 1465 & 1493/Mum/2014 [AY 2009-10] 4.7. The ld. AR had furnished a chart on a very conservative basis by excluding M/s. Excel Infoways Ltd.; by including Accentia Technologies Pvt. Ltd. which was actually excluded by the ld. TPO while giving effect to the order of the ld. DRP and by excluding loss making comparable [Triton Corp Ltd] which was sought to be included by the ld. DRP and stated that the assessee would be through if M/s. Excel Infoways Ltd. alone had been excluded from the list of comparables. We find lot of force in the said argument of M/s. Zenta Pvt. Ltd., the ld. AR and chart placed by him does not require any verification as the same has been prepared on a conservative manner by him and he has also explained the computation of comparable margin thereon before us at the time of hearing which have been verified by us. For the sake of convenience, the said chart is reproduced below:- Sr Name of the company Comparable set Comparable set Scenario - Department no as per TP Order post DRP appeal is dismissed only Directions on Excel Infoways

Assessee's comparables 1 BNR Udyog Ltd (Seg) 40.10% 40.10% 40.10% 2 Cameo Corporate 14.42% 14.42% 14.42% Services Ltd 3 Cosmic Global Ltd 40.68% 40.61% 40.61% 4 Optimus Global -3.52% -3.85% -3.52% Services 5 Proximus Knowledge 28.80% 28.80% & Technology Services Pvt Ltd 6 Sparsh BPO Services 3.98% 3.98% 3.98% Ltd 7 Triton Corp Ltd -22.17% Additional comparables introduced by the TPO 8 AOK In House BPO 12.48% 12.48% 12.48% Services Ltd 9 AXA Business 14.40% 14.40% 14.40% Services Pvt Ltd 10 Accentia 43.44% 43.44% Technologies Ltd

M/s. Zenta Pvt. Ltd.,

11 Aditya Birla Minacs 23.88% 23.88% 23.88% Worldwide 12 Coral Hub (Vishal 36.90% 36.93% 36.93% Information Technologies Ltd) 13 Crossdomain 29.40% 29.40% Solutions Ltd 14 Datamatics Financial 3.07% 3.07% 3.07% Services Ltd 15 Eclerx Services Ltd 46.92% 46.98% 46.98% 16 Excel Infoways Ltd 243.69% 17 Firstsource Solutions 6.58% 6.58% 6.58% Ltd 18 HDO Technologies 13.94% 13.94% 13.94% Ltd 19 Informed 23.13% 23.13% 23.13% Technologies Ltd 20 Karvy Data 4.97% 4.97% 4.97% Management Services Ltd 21 Maple eSolutions Ltd 4.90% 4.90% 4.90% 22 Mold Tek 60.92% 60.92% Technologies Ltd 23 Mphasis Finsource 20.56% 20.56% 20.56% Ltd 24 Nucleus CIS and 18.78% 18.78% 1 8.78% ITES Ltd 25 One Two Three 1 .77% 1 .77% 1 .77% Greetings India Pvt Ltd 26 Sundaram Business 2.45% 2.45% 2.45% Services Ltd 27 Surevin Internet 3.14% 3.14% 3.14%

M/s. Zenta Pvt. Ltd., Services Ltd

Arithmetic Mean 28.45% 14.15% 19.84% ZPL's margin 14.63% 14.63% 14.63% Upper range of 5% 20.36% 20.36% 20.36% Whether at ALP Not ALP ALP ALP 4.8. In view of the above observations and by respectfully following the various judicial precedents relied upon hereinabove, we hold that M/s. Excel Infoways Ltd. is functionally not comparable with that of the assessee company.

4.9. Apart from this, we find that M/s. Excel Infoways Ltd. had earned super normal profit of 243.69% on which ground also, this comparable deserves to be excluded from the list of comparables with that of the assessee company.

4.10. In view of the aforesaid observations, the ground No.1 of revenue appeal in is dismissed and Ground Nos.1-18 of Cross Objections of the assessee in CO No.222/Mum/2014 for A.Y.2009- 10 are allowed.

M/s. Zenta Pvt. Ltd., 5. We find that the assessee has also filed the additional cross objection with regard to department not complying with statutory provision of filing fees. This was stated to be not pressed at the time of hearing and accordingly, the same is dismissed as not pressed.

“11. So far as the main issue is concerned, that is regarding the allowability of the interest, I am unable to agree with the ld. Judicial Member that the assessee's claim should be dismissed. As already noted by me, the correct break up of the interest requires to be considered in proper perspective. Further, again as already noted by me, the Id. Judicial Member has proceeded on the assumption that the taxes paid to the US Government by the assessee represented taxes on the assessee's income earned in America. This is, with respect to an erroneous assumption that has permeated through the entire decision of the Id. Judicial Member as also the order of the CIT. The authorities on which the Id. Judicial Member has relied are also relevant only if the taxes paid are the taxes on the income earned by the assessee in foreign countries. The factual position, however, is that the taxes are withholding taxes which the assessee had deducted from the payments made to its employees in USA. The assessee merely deducted the taxes from M/s. Zenta Pvt. Ltd., such payments and deposited them with the US Government but after a delay. The interest is payable for such delay. The question is whether the interest is allowable as a deduction. In the light of this factual position, the decision of the Id. Judicial Member that the taxes paid by the assessee on its foreign income are not allowable as a deduction and the interest, being an adjunct of the tax, cannot also allowed as a deduction cannot be upheld.”

6.2. We find that the ld. AO did not adduce any reason as to on what account this payment made by the assessee is to be treated as penal in nature or under what provisions of the Act it has to be construed as penal in nature. The entire reading of the assessment order (both draft as well as the final assessment order) is silent in this regard. We find that the ld. AO merely states that such interest payment on delayed payment of TDS is inadmissible under statute and disallowed accordingly. This goes to prove that it was never the case of the ld. AO to have even remotely contemplated / categorizing the payment of interest to be penal in nature. Hence, there is no need in the instant case to look into the fact as to whether the said payment of interest of delayed payment of TDS could be penal in nature so as to be disallowed in the light of the provisions of Explanation to Section 37(1) of the Act. Accordingly, the reliance placed by the ld. DR on certain decisions viz. 88 Taxman 184 and 230 ITR 733 need not to be adjudicated at all. We find that the main crux of the argument of the ld. DR was that there is no penalty provision provided in the statement for delayed payment of TDS. In this regard, the ld. AR rightly clarified before us that the statute indeed provides for levy of penalty u/s.271C of the Act for such violation. Hence, the argument of the M/s. Zenta Pvt. Ltd., ld. DR deserves to be dismissed and accordingly, we do not find any infirmity in the order of the ld. DRP granting relief to the assessee in this regard. Accordingly, the ground No.2 raised by the revenue for A.Y.2009- 10 is dismissed.

(i) Foreign exchange gain earned as a result of hedging contracts -Rs.36,54,431/- (ii) Octroi refund -Rs.21,25,585/- (iii) Income received on sale of old papers and cartons -Rs. 49,050/- 7.1. We have heard rival submissions. We find that the ld. AO had challenged the deduction u/s.10A of the Act in respect of the aforesaid three items on the ground that they do not fall under the ambit of the expression “profits derived from export of articles or things”. In other words, in the opinion of the ld. AO, they are not linked or connected with the export activity of the assessee and hence, they are not eligible for deduction u/s.10A of the Act. We are unable to persuade ourselves to appreciate the contentions of the ld. AO in view of the specific provisions contained in the statute u/s.10A(4) of the Act which is as under:-

M/s. Zenta Pvt. Ltd., (4) For the purposes of sub-sections (1) and (1A), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.

7.2. It is not in dispute that the foreign exchange gain earned as a result of hedging contracts Rs.36,54,431/-, Octroi refund- Rs.21,25,585/- and Income received on sale of old papers and cartons- Rs.49,050/- were earned by the assessee from this eligible undertaking eligible for deduction u/s.10A of the Act. Infact the ld. AR also submitted during the course of hearing that this is the only undertaking available with the assessee. Hence, as per the specific provisions of Section 10A(4) of the Act is reproduced supra, the entire profits of the business of the eligible undertaking shall be eligible for deduction in the proportion of export turnover to total turnover. We find that the ld. DRP had duly considered this aspect while granting relief to the assessee, which in our considered opinion, does not call for any interference. Accordingly, the ground No.3 raised by the revenue for A.Y.2009-10 is dismissed.

M/s. Zenta Pvt. Ltd., 8.1. We have heard rival submissions. We find that the ld. AO had made an addition of Rs.12,000/- towards interest income from HDFC bank allegedly earned by the assessee on the ground that the same was reflected in form 26AS of the assessee and the same was not disclosed by the assessee in its return of income. We find that the assessee had pleaded complete ignorance of the same before the ld. AO and had also placed bank statements to demonstrate that it had never made any deposits with HDFC bank and had not earned any interest thereon. However, the ld. AO did not appreciate the contention and proceeded to make the addition. We find that the ld. DRP had granted relief to the assessee by accepting its contentions and had also observed that it would be impossible for the assessee to prove that it had not received any interest from HDFC bank. We are inclined to accept to these observations of the ld. DRP in as much as the assessee cannot be directed to prove the negative. In the instant case, the assessee had categorically stated before the ld. AO itself that it had never earned any interest income from HDFC bank and had also adduced evidences in the form of its bank statements, books of accounts, balance sheet to demonstrate the same. This has not been rebutted by the ld. AO. The ld. AO had also not made any verification from HDFC bank to understand the real facts. 8.2 On the contrary, we find the assessee had taken efforts by addressing the letter to HDFC bank asking them to revise their annual information return submitted to the Income Tax Department by removing

M/s. Zenta Pvt. Ltd., the alleged interest transactions to the tune of Rs.12,000/- with corresponding TDS of Rs.1236/- in the name of assessee. The assessee had adduced evidences in this regard before the lower authorities and hence, we find that the ld. DRP was right in deleting the addition made in the sum of Rs.12,000/- towards alleged interest from HDFC bank. Accordingly, the ground No.4 raised by the revenue for A.Y.2009-10 is dismissed.

(A.Y.2010-11) Revenue appeal 11. The Ground No.1 raised by the revenue of A.Y.2010-11 is exactly similar to Ground No.3 raised by it in A.Y.2009-10. The decision rendered for A.Y.2009-10 would apply here with equal force for A.Y.2010-11 also except with variance in figures. Accordingly, Ground No.1 raised by the revenue for A.Y.2010-11 is dismissed.

M/s. Zenta Pvt. Ltd., 12. The Ground No.2 raised by the revenue for A.Y.2010-11 is exactly similar to ground No.4 raised by the revenue for A.Y.2009-10 and the decision rendered thereon would apply with equal force for A.Y.2010-11. Accordingly, the Ground No.2 raised by the revenue for A.Y.2010-11 is dismissed. 13. The Ground Nos. 3 & 4 raised by the revenue are general in nature and does not require any specific adjudication.

CO No.164/Mum/2015 ( By assessee) – (A.Y.2010-11) 14. The Ground Nos. 1-3 raised by the assessee in its cross objections are supportive of the order of the ld. DRP.

15.1. We have heard rival submissions. It is not in dispute that the disallowance u/s.40(a)(ia) of the Act in the sum of Rs.20,94,076/- and addition on account of advances written off in the sum of Rs.16,41,800/- pertain to the eligible undertaking of the assessee. Once any disallowance is made in respect of eligible undertaking of the assessee, it would only

M/s. Zenta Pvt. Ltd., go to increase the profits of such eligible undertaking, consequently it would be eligible for enhanced deduction u/s.10A of the Act thereby making the entire exercise revenue neutral. We find that the Central Board of Direct Taxes in its Circular No.37/2016 dated 02/11/2016 had duly clarified the same, which is not reiterated herein for the same of brevity. Accordingly, we hold that assessee is entitled for enhanced deduction u/s.10A of the Act in the sums of Rs.20,94,076/- and Rs.16,41,800/- in respect of aforesaid two additions / disallowances. Accordingly, the Ground No.4 raised by the assessee in its cross objections is allowed.

M/s. Zenta Pvt. Ltd., (Revenue Appeal ) (A.Y.2011-12)

CO No.86/Mum/2016 (A.Y.2011-12) (By Assessee)

21.1. We have heard rival submissions. In this regard, the following list of dates and events require consideration:- Date Event 20/02/2015 Date of passing of draft assessment order by the ld. AO

M/s. Zenta Pvt. Ltd., 27/11/2015 Date of directions issued by the ld. DRP wherein the ld. DRP had directed the ld. TPO to include one of the comparables E-clerx services ltd 31/12/2015 Date of passing of final assessment order by the ld. AO without waiting for the order of the ld. TPO pursuant to directions of the ld. DRP. 05/01/2016 Date of order passed by the ld. TPO pursuant to directions of the ld. DRP 21.2. The above list of dates and events clearly demonstrate that the ld. AO has passed the final assessment order on 31/12/2015 without waiting for the giving effect order to be passed by the ld. TPO pursuant to the directions of ld. DRP. We have gone through the order of the ld. TPO dated 05/01/2016 passed pursuant to directions of ld. DRP, wherein the ld. TPO had indeed excluded E-clerx Services Ltd., and had arrived at the revised margin of the comparables and had also categorically held that no adjustment to arm’s length price is warranted in the case of the assessee. Since the AO had passed the order prior to passing of the giving effect order by the ld. TPO, we direct the ld. AO to rectify the order and delete the addition made towards adjustment to arm’s length price in the light of the TPO’s order dated 05/01/2016. Accordingly, the ground No.4 raised by the assessee in its cross objections are allowed for statistical purposes.

M/s. Zenta Pvt. Ltd.,

M/s. Zenta Pvt. Ltd., for statistical purposes 5. 2009-10 Revenue Dismissed 6. CO No.222/Mum/2014 2009-10 Assessee Allowed for statistical purposes

Order pronounced in the open court on this 04/09/2019