DCIT, NEW DELHI vs. M/S MICROFOFT INDIA (R&D) PVT. LTD, NEW DELHI

The assessee included this company, which got excluded by the TPO by observing on page 57 of his order that it was not engaged into any research and development, as was the assessee doing. The ld. AR fairly admitted that this company is not into rendering research and development services. He, however, maintained that rendering or not rendering of research and development software services cannot be a criterion to determine the comparability of a software company. In our considered opinion, this argument is far-fetched inasmuch as a company which is providing research and development software services cannot be compared with a routine software development service provider not rendering such R&D services because of glaring differences in the nature of work, type of skill required along with several other factors. As this company is, admittedly, not engaged in rendering any research and development services, the same cannot be considered as comparable with the assessee company. We, therefore, affirm the view taken by the lower authorities on this score. & 691/Del/2016 (vii) LGS Global Ltd.

The TPO held this company to be not comparable by noting on page 58 of his order that it was not rendering any high-end software services.

Having gone through the Annual report of this company, we find from its Director’s Report that it is talking of certain research and development to be undertaken in future, which is merely a goal or vision.

The TPO excluded this company by mainly observing on page 58 of his order that it was not involved in rendering high-end software services, against which the assessee has approached the Tribunal. & 691/Del/2016 64. We have examined the Annual report of this company, a copy of which is available on record. It can be seen from such Annual report that it is engaged in rendering routine software development services and not research and development software services. Though this company carried out some research and development, as is apparent from its Directors’ Report, but, the research and development was done for “creation of tools and frameworks that help ‘Design Better TEST Umbrella’ and ‘execute faster (automate) umbrella.’’ There is no income from rendering Research and development services as against its operating income of Rs.56.90 crore.

The TPO held this company to be not comparable by observing on page 58 of his order that it was not involved in rendering any high-end software services.

We have examined the Annual report of this company, a copy of which has been placed on record. Annexure to the Directors' Report provides under the head ‘Research and Development’ that this: “Company has a dedicated business unit for research and development which offers innovative solutions to clients and also fosters R&D within all business units to create intellectual property in the form of re-usable components, frameworks, etc., which help drive correct productivity.” On next page of the Annexure to the Directors’ Report, a list of patents registered either in India or the USA has been appended, which are 19 in number. Profit & Loss of this company shows ‘Income from software development’ at Rs.15,090 million. This company has three sub-segments which are covered within the overall ‘Income from software development.’ Details of such sub-segments are given on page 32 of the Annual report, which & 691/Del/2016 mainly comprise revenue from IT services at Rs.8,783 million; from Product engineering services at Rs.5653 million; and from Wireless services at Rs.654 million. Obviously, `Wireless services’ cannot be considered as a part of Research and development software services provided by this company. The assessee has also considered only IT service segment of this company as comparable with the exclusion of `Wireless services’. All the parameters, namely, rendering of research and development software services and also Product engineering services to its customers leading to the creation of patents, make this company fully comparable to the extent it earned revenues from IT services and Product engineering services, for which segmental information is available. We, therefore, direct the TPO to examine the PLI of this company from the IT services and Product engineering services and then treat the same as comparable with the segment of the assessee under consideration for the purposes of benchmarking. The impugned order is overturned to this extent. & 691/Del/2016 (x) R.S. Software (India) Ltd.

The TPO excluded this company by noting on page 58 of his order that it was not involved in any high-end software services and, further, on page 76 that it was not into any research and development.

We have examined the Annual report of this company. Income from software development has been shown in the Profit & Loss Account, whose copy is available on page 823 of the paper book. The ld. AR could not point out anywhere from the Annual report that this company is engaged in rendering R&D software services. Since it was a comparable chosen by the assessee, the onus is on it to show the comparability. The same being not involved in rendering any R&D software development services becomes functionally different and hence cannot be considered as comparable. It is therefore, held to have been rightly excluded.

The assessee included the `Software Development & Customisation Services Segment’ of the company in the list of comparables. The TPO excluded the same by noticing on page 58 of his order that it was not involved in high-end software services. Then, on page 76, the TPO also 64 12 months ending 31.12.2010. That is how, he held this company to be not includible in the list of comparables. The assessee is aggrieved by this exclusion.

We have heard both the sides and perused the relevant material on record. First of all, we take up the functional difference as noticed by the TPO on page 58 of his order. We have gone through the Annual report of this company, a copy of which has been provided in the paper book. It can be seen from the message of the company’s Chairman, which is there on page 13 of the Annual report that under the heading `Our business’, it has been narrated that its : `core service offerings include Product Engineering, sold under our brand of iPLM Services; IT enabled Business Process Outsourcing (BPO) services and consulting services for Enterprise Applications such as Business Intelligence and Analytics, ERP and Mobility’. It has further been mentioned on the same page that: “R Systems products group consists of two units. Indus® which address the retail lending, telecommunication and insurance industry and ECnet® which addresses supply chain, warehousing and inventory management.” internal page no. 81, which shows `Income’ into three parts, namely ‘Sales and service income’; ‘Sale of third party hardware and software’; and ‘Other income.’ Page 97 contains information about the segments. For the year ending 31.12.2011, there are only two segments, namely ‘Software development & Customization services’ and ‘Business process outsourcing’. It is, therefore, overt that income from the relevant segment of ‘Software development & Customization services’ taken by the assessee for the purposes of comparison includes Sale of products not only of its own but also those of third parties. Since the sale of Products is also included in this segment, and the assessee is not into sale of its own hardware or software and also the software of third parties, this company on segmental level becomes functionally different and ceases to be comparable with the assessee engaged in providing only research and development services under this international transaction. We, thus, hold that this company is not comparable to the assessee company.

In view of the above functional differences, there is no need to look for data relevant to the period 01.04.2010 to 31.03.2011. We, therefore, comparables on account of functional dissimilarity as noted by the TPO.

The TPO excluded this company by assigning two reasons. One has been given on page 58 of his order to the effect that this company is not involved in high-end software services and the second reason is given on page 76, being, the non-availability of data for the relevant financial year ending.

We have gone through the Annual report of the company whose copy has been provided in the paper book. It can be seen from internal page 3 of the Annual report, which is a message from the Chairman that the : `Company’s Service Management team has announced that its Software-as-a-Service ‘SaaS’ based ITIL incident management software, iCare, is now available on Research in Motion’s Playbook platform as well as on website’. This graphically demonstrates that the company is also engaged in sale of Products like iCare, which fact becomes more glaring from its Profit & Loss Account which has the first item under the head income as ‘Sales and services.’ It is further pertinent to note that though from page 9 of its Annual report, but, the : “R&D activities include tools development with the object of devising efficient methods of pre- production phase.” Thus, the R&D activity carried out by this company is meant for creating tools for its internal use and is not done as a service to its customers, as the assessee in question is doing. In view of the fact that this company has also income from software products and is not engaged in rendering research and development software services, we hold that this company was rightly excluded.

Having dealt with the inclusions or exclusions challenged by the assessee in the international transaction of ‘Provision of software development services’, we, now take up other points urged by the assessee in its appeal.

The ld. AR argued that the authorities below erred in not granting working capital adjustment.

It can be seen from page 37 of the TPO’s order that the assessee’s claim for working capital adjustment has been denied primarily on the practice and routine. No relief was allowed by the DRP.

We are not inclined to accept the view canvassed by the authorities that the working capital adjustment cannot be allowed as the assessee is in service industry. Such an adjustment is restricted to inventory, trade receivables and trade payables. If a company carries high trade receivables, it would mean that it is allowing its customers relatively longer period to pay their dues, which will result into higher interest cost and the resultant low net profit. Similarly, by carrying high trade payables, a company benefits from a relatively longer period available to it for paying back the dues to its suppliers, which reduces the interest cost and increases profits.

The only other point urged by the ld. AR under this international transaction is with reference to the computation of the assessee’s own PLI.

Having heard both the sides and perused the relevant material on record, it is seen that the assessee did earn rental income amounting to Rs.17,22,16,198/- apart from income from operations as charges towards Software development and IT enabled services. Once rental income has been treated as non-operating qua the international transactions, as a sequitur, the corresponding expenses incurred in relation to earning of such rental income are also required to be removed from total operating expenses for the purposes of computation of ALP of the international transactions. We, therefore, direct the TPO/A.O. to examine the amount of expenses incurred in relation to earning of rental income and reduce such amount from the total amount of operating expenses to be bifurcated in all sources of revenues from operations.

The next international transaction under challenge is ‘Provision of IT enabled services’ with the transacted value of Rs.323,46,26,948/-. The assessee adopted TNMM as the most appropriate method with the PLI of 71 & 691/Del/2016 OP/OC for benchmarking this international transaction. It selected 17 companies as comparable with average PLI, on multiple year basis, at 4.63%. The assessee computed its own PLI at 15.39%. On this basis, it was claimed that the international transaction was at ALP. The TPO made certain exclusions and inclusions from/to the list of comparables drawn by the assessee. In all, 8 companies were shortlisted with average PLI of 29.57%. This led to proposing transfer pricing adjustment of Rs.39,67,65,085/-. The A.O. passed the draft order accordingly. The assessee carried the matter before the DRP, which directed to exclude e- Clerx Services Pvt. Ltd. from the list of comparables. Giving effect to the direction given by the DRP, the TPO recomputed revised transfer pricing adjustment at Rs.28,73,66,004/-. The Assessing Officer passed the final order making transfer pricing addition at this level. The assessee has assailed the transfer pricing addition before the Tribunal.

We have heard both the sides and perused the relevant material on record. The assessee has challenged the inclusion/exclusion of certain companies from/to the final tally drawn by the TPO. Before adverting to the comparability analysis, it is sine qua non to examine the functional & 691/Del/2016 profile of the assessee under the international transaction of ‘Provision of IT enabled services.’ It is seen from the TPO’s order that the assessee entered into a Product Support Services Agreement dated 01.07.2002 with MS Corporation to provide IT enabled services and such services were rendered through the establishment of Global Support Centre (India GSC) in Bangalore. It is further noticed from the TPO’s order that ITES rendered by the assessee are a part of the ‘Customer Support Services’ arm of the Microsoft group, which supports a wide array of customer segments, from individual home users to corporate users. We have also gone through the assessee’s Transfer pricing study report, which also throws some light on the nature of services provided under this international transaction. It is borne out from page 59 of the TP Study Report that the assessee’s team in India tracks the calls made by the customers and routes them to the relevant support team. These teams, on receiving calls from the customers, understand their requirements, verify the service contracts of the customers and prepare the support requests and forward the same to the right support teams. The support requests prepared is serviced by India GSC’s support engineer as a part of its product support services. In case any specific support request is not resolved by the support engineers at India GSC, the same is escalated to specific escalation queues and handled by the escalation teams based elsewhere in the world. In certain cases, the team at India GSC acts as escalation team and handles the cases escalated by other teams. We have also gone through the Product Support Service Agreement (PSSA) effective from 01.07.2002 between the assessee and Microsoft Corporation, USA. This Agreement provides that the assessee shall provide ‘Product support services’, which term has been defined in clause II of the Agreement as under :-

We have also gone through the interview of Shri Thomas Payyapalli with designation General Manager, India Global Technical Support Centre (I-GTSC), conducted by the APA Authorities, a copy of which has been placed in the Paper book. In response to query about the nature of work 74 customers and also providing technical assistance to MPN (Microsoft Partner Network) Partner Ecosystem. In answer to question no. 2, he stated that the support calls are routed through Microsoft and the systems of various support centres including India GTSC. Once the call ends here, the engineers interact with the customer, understand the root cause of the problem and provide a resolution. He further answered to question no.12 that MS Corporation provides process tools with the help of which the assessee renders services to its customers. From the above discussion, it is clear that unlike the international transaction of ‘Provision of software development services’, there is no conflict in the version of nature of services as given in TP documentation, PSSA Agreement and the interviews done by APA Authorities. There is complete unison in all of them about the nature of services rendered under this international transaction, being that of receiving calls and resolving technical problems of the customers of Microsoft Corporation. With the above understanding of the nature of work done by the assessee in this segment, we now proceed to examine the comparability of the companies challenged before us. contested as not comparable.

The TPO treated this company as comparable despite the assessee’s initial inclusion and later exclusion, by observing that it is engaged in Medical transcription and income from coding and billing and collection, which falls under the overall umbrella of IT enabled sector. The assessee is aggrieved by the inclusion of this company.

Having heard both the sides and gone through the relevant material on record, we find from the Annual report of this company, whose copy is available on page 2153 onwards of the paper book, that it is engaged in rendering KPO services. The Managing Director of this company has said in his message to the shareholders on page 6 of the Annual report that the company decided to develop its own EMR (Electronic Medical Records) software rather than depending on third party offering and market the same all over the US. It has further been mentioned that due to these developments, the company invested large amount of funds in the development of EMR software and SaaS model marketing of the same in 76 & 691/Del/2016 the US. It has still further been mentioned on page 2175 of the paper book that this company supported a Product Division under the name of Iridium and with a focused approach. The product team was able to come up with end-to-end global work flow automation system that help in the day-to-day work flow. The products like Iridium Medical Transcription Automation software, Iridium certified home based medical transcription, Iridium certified medical transcription, Falcon-2000, etc., are few of the products which have been accepted by customers. It has also been mentioned on page 2177 of the Annual report that: “since August, 2010 Accentia’s products development team, along with their functional experts and development partners have been involved in the mission of designing and developing a world class fully integrated multi-disciplined cloud based host………. Application which integrates all services from electronic medical record (EMR) Practices…… Management System (PMS) - Code Mapping/Scrubbing – Medical Billing and Receivables Management System (RCM……) – Electronic Data Interchange with insurance companies. The above seamlessly integrated (SaaS) system functions as a one stop shop for a clinical provider that manages all their healthcare & 691/Del/2016 documentation needs, receivables managements needs……….”. Profit & Loss Account of this company is available on page no. 2195, from which it can be seen that under the head ‘Income’, there is a first item of ‘Sales and services.’ Under the head ‘Segment information’ in ‘Notes to Accounts’, it has been mentioned that: ‘Company has only one segment of activity, namely, ‘healthcare receivable management’, therefore, segment reporting as defined in AS-17 does not apply.’ From the above discussion, it transpires that this company is not only earning income from sale of software Products as well, but is having a common pool of income both from products and services and there is no bifurcation of income available from sale of products and rendering of services. In this view of the matter, it becomes clear that this company is nowhere close to the exclusive ITES segment of the assessee company. The Hon'ble Delhi High Court in Principal CIT vs. B.C. Management Services Pvt. Ltd. (2018) 403 ITR 45 (Del), has held that Accentia Technologies Pvt. Ltd. is engaged in KPO services and is, hence, not comparable with a company providing ITES.

The TPO included this company in the list of comparables despite the assessee’s objection of functional non-comparability etc., against which the assessee has come up before the Tribunal.

We have gone through the Annual report of this company, a copy of which is available on page 2237 of the paper book. Internal page 27 of this Annual report divulges that: ‘the company is engaged in the software development and consultancy, engineering services, web development and hosting and subsequently diversifying itself into the domain of business analytics and business process outsourcing.’ Under the head ‘Revenue recognition’, this company has recorded that: ‘Revenue from services consists of revenue earned from services performed for software development and consultancy, licensing and sub-licensing fee, annual maintenance charges for software support, web development and hosting which is recognized to the extent services are performed.’ Page 2284 is a copy of the Profit & Loss Account of this company which shows operating & 691/Del/2016 revenue of Rs.1,58,401/- (in thousands of Indian rupees), bifurcation of which is available at page 2285. It shows revenues from sale of goods and revenue from other services separately at Rs.949/- (in thousands of Indian rupees) and 1,57,452/- (in thousands of Indian rupees) respectively. Since this company is, admittedly, engaged in software products, apart from rendering ITES and software development services and there is no separate segmental information, it cannot be considered as comparable with the assessee’s IT enabled services segment under consideration. The Hon'ble jurisdictional High Court in B.C. Management Services (P) Ltd. (supra) has also held this company to be not comparable with a company providing IT enabled services only. We, therefore, direct to exclude this company from the list of comparables.

The TPO included this company in the list of comparables despite the assessee’s several objections on functional non-comparability, ownership of intangibles and payment of brand equity. & 691/Del/2016 88. Having gone through the Annual report of this company, it is seen that this company is engaged in the business of providing ITES/BPO services, primarily to Citi group entities globally. It has been recorded on page 88 of its Annual report that the company’s operations broadly comprise transaction processing and technical services. `Transaction processing includes the broad spectrum of activities involving the processing, collections, customer care and payments in relation to the services offered by the Citi group to its corporate and retail clients.

Now, we take up the companies challenged by the assessee, which were included by it, but, excluded by the TPO from the list of comparables.

The TPO excluded this company from the list of comparables drawn by the assessee on the ground that it was incurring persistent operating losses under the relevant segment considered by the assessee. The TPO has drawn a table on page 25 of his order which shows that the concerned segment is showing OP/TC at (-) 12.94%, (-) 3.79% and (-) 19.51% in respect of year ending 2011, 2010 and 2009 respectively. The assessee is aggrieved by this exclusion.

We have heard both the sides and perused the relevant material on record. The ld. AR contended that the TPO erred in considering persistent losses in the relevant segment by ignoring that this company was not into consistent losses on entity level. We have gone through the Annual report of this company, whose copy has been made available. On page 2524 of the Rs.16,20,426/- (in Thousands of Indian Rs.), described as ‘Revenue information technology consultancy.’ Segmental reporting of this company has been given on pages 2509/2510, which divulges that it has revenues from `Infrastructure management services’ and `IT enabled services’. Note to accounts no. 16 clearly mentions that: “The company renders software services comprising of networking and infrastructure management services and IT enabled services which comprise the primary basis of segmental information set out in these financial statements.” It is, thus, seen that the company has revenues from two streams. Though there is a positive income from rendering of `Software services’, there is negative OP/TC from the relevant segment of `IT enabled services’. Since the assessee’s `IT enabled services’ segment is under consideration and the assessee has also considered Microland Ltd. as comparable on segmental basis, this segment, fetching persistent losses, sheds the character of comparability notwithstanding the fact that the other segment of software development services is not showing losses. Had there been comparison between the company’s software development services segment and the assessee’s have paled into insignificance. As Microland Ltd. (Seg.) is persistently in losses, the same cannot be considered as comparable. We, therefore, uphold the exclusion of this company from the list of comparables. ii) R. Systems International Ltd. (Seg.);

The assessee included this company on segmental level in its list of comparables. However, the TPO eliminated the same by noting that it was following different year ending, namely, 31st December and, hence, was not comparable. The ld. AR fairly accepted that the above company was following calendar year for maintaining its accounts in contrast to the assessee following financial year ending 31st March. It was, however, submitted that this company should not have been excluded for this reason alone when it was otherwise functionally similar, a fact which has not been denied by the TPO. The ld. DR opposed this contention by submitting that the data for the year ending of this company was not similar to that of assessee company and hence it was rightly excluded. & 691/Del/2016 93. We have heard both the sides on the issue. Unlike the international transaction of `Provision of Software development services’, the TPO has not disputed functional similarity of the relevant segment of this company with the assessee’s international transaction of `Provision of IT enabled services’ under consideration. However, it is noticed that the assessee company is having financial year covering the period 1.4.2010 to 31.3.2011. In that view of the matter, a valid comparison can be made only if the potential comparable company has also the same financial year. In this regard, we consider it appropriate to note the relevant part of sub-rule (4) of Rule 10B which provides that: “the data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction had been entered into.” It is obvious from the language of sub-rule (4) that the comparability of an uncontrolled transaction can be analyzed only with the “data relating to the financial year” in which the international transaction has been entered into. In other words, if the tested party has March year ending, then, the comparables must also have the data relating to the financial year ending 31st March & 691/Del/2016 itself. If such a data is not available, then, a company albeit functionally comparable, disqualifies. Espousing the facts of the extant case, we find that insofar as the functional comparability of this company on segmental level is concerned, the TPO has not disputed the same. The only reason assigned for its exclusion is non-availability of data for the relevant financial year. The ld. AR contended that though the year ending of the above company was different, yet, the assessee was in a position to put forward the data of the relevant segment of this company for the financial year 1.4.2010 to 31.3.2011 from their Annual reports only. It was so stated on the basis of the availability of the quarterly data from the Annual reports of this company, which could, as per his opinion, be adjusted for the financial year ending 31.3.2011. If the contention of the assessee is correct, that the relevant data for the concerned financial year can be deduced from the information available from its Annual reports, then, there can be no objection to the inclusion of the relevant segment of this company in the list of comparables with the adjusted data for the relevant financial year itself.

The TPO held this company to be not comparable on the ground that it was having a different financial year ending i.e., December. But for that, the functional similarity under the instant segment is not disputed.

We have gone through the Annual report of this company, a copy of which is placed in the paper book. Its income from operation has been divided into two segments, namely, ‘Business process outsourcing (BPO)’ and ‘Others’. Only the BPO segment of this company has been considered by the assessee as comparable. The only reason assigned by the TPO for excluding the BPO segment of this company is that its figures for the year ending 31st March, 2011 are not available. But for that, the functional comparability has not been challenged. We have discussed above the case of M/s R. Systems in which the TPO made exclusion only on the ground that its year ending was different from that of the assessee. The same has been disposed with some directions. Our observations made above in the context of M/s R. Systems apply to this company on segmental level as well. The TPO is directed to decide the inclusion or otherwise of this company in the light of the discussion made while dealing with M/s R. & 691/Del/2016 Systems Ltd. under the instant international transaction of rendering IT enabled services.

The TPO excluded these companies on the basis of turnover filter inasmuch the first two companies were having turnover less than Rs.5 crore and CG-Vak Software and Exports Ltd. (Seg.) was having income from BPO business at less than Rs.1 crore. This is the sole reason given by the TPO for their exclusion, without controverting the functional similarity of the above companies or the relevant segment. No change was made by the DRP in the views taken by the AO/TPO.

After considering the rival submissions and perusing the relevant material on record, we find that the assessee’s turnover under this segment is to the tune of Rs.323.46 crore. The TPO excluded the companies with the turnover of less than Rs.5 crore. The preliminary question which looms large before us is whether the application of this filter is correct? In this regard, it is pertinent to note that the computation of arm's length price the Act. Sub-section (1) of this section provides that the arm's length price in relation to an international transaction shall be determined by any of the given methods, being the most appropriate method, having regard to certain factors. Proviso to sub-section (2), which assumes significance for the present purpose, states that : ‘where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices’. In contrast, some countries have adopted the inter-quartile range, which is also called the mid-spread or middle-fifty, instead of arithmetic mean of all, as used in India. When arithmetic mean is taken of the all the otherwise comparables companies, it tends to iron out the differences due to higher or lower size of a company or vacillating profitability rates. A company otherwise found to be functionally comparable cannot be excluded either on the ground of higher or lower profit rate or higher or lower turnover. There is no mention in the language of the provision for the exclusion of potential comparable companies simply on account of high or low turnover or profit rate. The Special bench of the tribunal in Maersk Global Centres (India) (P.) Ltd. VS. & 691/Del/2016 ACIT (2014) 147 ITD 83 (Mum)(SB) has also held that potential comparables cannot be excluded merely on the ground that their profit is abnormally higher. There can be no justifiable reason to exclude such high or low profit companies unless it is shown that such high or low profit was due to abnormal factors. Same logic applies to the high or low turnover companies also. The mere fact that a company has a high or low turnover can be no reason to justify its exclusion if it is otherwise functionally comparable. The exclusion of companies on such a rationale runs contrary to the express provisions of the Act. The Hon’ble jurisdictional High Court in ChrysCapital Investment Advisors (India) P. Ltd. VS. DCIT (2015) 376 ITR 183 (Del) has also laid down to the same effect. We, therefore, direct to include Informed Technology; Micro Genetics Systems Ltd.; and CG-Vak Software and Exports Ltd. (Seg.) in the list of comparables.

Having considered the companies challenged by the assessee from the angle of comparability, we now take up the assessee’s contention for grant of working capital adjustment and also allowing reduction of expenses in relation to rental income from total operating expenses in the computation of its PLI. The arguments advanced by both the sides on these 91 ‘Provision of software development services.’ In fact, the arguments given earlier were adopted for this international transaction as well. Following the view taken hereinabove, we direct the A.O./TPO to allow working capital adjustment after due verification of the claim, whether it goes for or against it, and also recompute the assessee’s PLI from this international transaction by reducing operating expenses in relation to the earning of rental income from the overall operating expenses to be bifurcated amongst all the sources of the revenues of the assessee from operations including the instant international transaction.

The only issue raised by the Revenue in its appeal, as argued by the ld. DR, is against the exclusion of E-Clerx Services Ltd. on the direction of the DRP. The TPO included this company in the list of comparables, which was objected to by the assessee before the DRP by contending that it was functionally not comparable and was engaged in KPO activities. Apart from that, it was also submitted that it was outsourcing substantial amount of its work to outsiders. The DRP did not approve the view canvassed by the TPO. Relying on the judgment of the Hon'ble Delhi High Court in the & 691/Del/2016 case of Rampgreen Solutions Pvt. Ltd. vs. CIT (2015) 279 CTR 441 (Del), the DRP directed to exclude this company from the list of comparables.

We have heard both the sides and gone through the relevant material on record. The ld. DR contended that this company ought to have been retained in the list of comparables as the assessee was also providing KPO services, which was countered by the ld. AR.

We are unable to approve the view taken by the ld. DR for the reason that under the international transaction of Provision of ITES, instantly under consideration, the assessee company is not rendering any KPO services. As noticed above, the nature of work carried on by the assessee under this international transaction is that of receiving complaints from the customers of Microsoft Corporation and then resolving their technical problems. Thus, this activity cannot be described as KPO. The Hon'ble Delhi High Court in Rampgreen Solutions (supra), has held that E- Clerx, being engaged in KPO, cannot be compared with a company providing BPO services. Recently, the Hon'ble Delhi High Court in B.C.

To sum up, we set aside the impugned order on the issue of transfer pricing additions in the above referred two international transactions of `Provision of Software development services’ and `Provision of IT Enabled services’ and remit the matter to the file of AO/TPO for fresh determination of their ALP in consonance with our above observations/directions. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings.

Now, we take up corporate tax grounds raised by the assessee.

Ground no. 16 is against the addition towards realized foreign exchange fluctuation gain/loss and ground no. 17 is against the adjustment of Rs.13,40,482/- against the opening written down value of computers towards unrealized foreign exchange fluctuation gain arising out of re- statement of liability u/s 43A of the Act. Ground no.18 is against denial of Rs.8,73,11,096/-. Ground no. 20 is against the taxability of rental income under the head ‘Income from house property.’

The Assessing Officer decided the above issues against the assessee. The ld. DRP also upheld the view taken by the Assessing Officer in the draft order by noticing that similar view was taken by it on the above issues in the immediately preceding year.

Having heard both the sides, it is observed that the immediately preceding year came up for consideration before the Tribunal. Vide order dated 28.06.2016, the Tribunal in has restored the above issues to the Assessing Officer for a fresh decision. Since the issues in the instant appeal are admittedly of the similar nature as in the preceding year, respectfully following the precedent, we set aside the impugned order on the above scores and remit the matter to the file of Assessing Officer for deciding them afresh in accordance with the view taken in such immediately preceding year, after allowing a reasonable opportunity of being heard to the assessee. & 691/Del/2016 107. Ground no. 19 is against not treating interest income of Rs.3,13,60,627/- earned on fixed deposits by the Bangalore undertaking as eligible for benefit u/s 10A of the Act. The ld. AR candidly admitted that this issue was neither raised before the Assessing Officer or DRP and the same being a legal issue, should be admitted by the Tribunal. The ld. DR objected to the admission of this ground.

Having gone through the nature of issue raised through this ground, we find that this is a legal issue and can be raised before the Tribunal for the first time. We, ergo, admit this issue for consideration.

In support of its contention, the assessee has filed additional evidence to bring home its point about the availability of benefit u/s 10A in respect of interest income. Since this issue has not been examined by the authorities below and the assessee has filed additional evidence, we are of the considered opinion that it would be in the fitness of things if the Assessing Officer is directed to decide this issue afresh as per law, after allowing an opportunity of being heard to the assessee. The assessee will be at liberty to file any fresh evidence before the AO in support of its claim on this issue. & 691/Del/2016 110. Ground no. 21 is against not allowing MAT tax credit. The Assessing Officer is directed to verify the assessee’s contention and allow the necessary MAT credit as per law, if available.

Ground no. 23 about not granting credit for TDS to the extent of Rs.1,71,729/- was not pressed by the ld. AR. The same is, therefore, dismissed as not pressed.

Ground nos. 23 and 24 about charging of interest are consequential and are disposed off accordingly.

In the result, the appeal of the Revenue is dismissed and that of the assessee is partly allowed for statistical purposes.