INDECOMM GLOBAL SERVICES INDIA PRIVATE LIMITED,BANGALORE vs. DCIT, BANGALORE

Per Jason P. Boaz, Accountant Member

These are cross appeals by Revenue and the assessee, directed against the final order of assessment for Assessment Year 2010-11 dated

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 2 of 44 20.01.2015, passed u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (in short ‘the Act’) pursuant to the directions issued by the Dispute Resolution Panel-1, Bangalore (DRP) u/s 144C(5) of the Act on 11.12.2014. The assessee has also filed Cross Objections (CO) in respect of Revenue’s appeal.

2.1 The assessee company; a subsidiary of Indecomm Global Services (Mauritius) Pvt. Ltd., provides business process outsourcing (BPO) services in the healthcare, insurance, banking and financial services verticals. These services have been characterized by the assessee as being in the nature of Information Technology Enabled Services (ITES).

2.2 For Assessment Year 2010-11, the year under consideration in these appeals, the assessee filed its return of income on 08.10.2010 declaring a loss of Rs.30,09,405/- after claiming deduction of Rs.2,31,68,912/- under section 10A of the Act. The return was processed u/s 143(1) of the Act and the case was taken up for scrutiny for this year. A reference under section 92CA of the Act was made by the Assessing Officer (AO) to the Transfer Pricing Officer (TPO) for determination of the arms length price (ALP) of the international transactions entered into by the assessee with its Associated Enterprises (AE). The TPO passed an order under section 92CA of the Act on 29.01.2014 proposing an adjustment of Rs.3,69,85,888/- in respect of

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 3 of 44 the international transactions entered into by the assessee in its ITES segment. After receipt of the TPO’s order, the AO passed the draft order of assessment under section 143(3) rw.s. 144C of the Act vide order dated 11.03.2014; wherein the assessee’s income was determined at Rs.3,45,95,479/- after incorporating the TP adjustment of Rs.3,69,85,888/- and restricting the assessee’s claim for deduction under section 10A of the Act to Rs.2,25,49,916/-.

2.3 Aggrieved by the draft order of assessment dated 11.03.2014 for Assessment Year 2010-11, the assessee field its objections thereto before the DRP, which issued its directions thereon under section 144C(5) of the Act on 11.12.2014. Pursuant thereto, the AO passed the impugned final order of assessment dated 20.01.2015 wherein the assessee’s total income was determined at Rs.1,20,65,687/-; in view of the TP adjustment being reduced to Rs.1,48,92,739/- and deduction under section 10A of the Act being allowed to the extent of Rs.2,29,86,559/-.

3.1 The grounds of appeal raised in Revenue’s appeal are as under: The directions of the Dispute Resolution Panel are opposed to 1. law and facts of the case.

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 4 of 44 On the facts and in the circumstances of the case the Dispute 2. Resolution Panel erred in law in directing the AO to exclude reimbursement of specific expenditure both from the export turnover as well as from total turnover for the purpose of computation of deduction u/s 10A, without appreciating the fact that the statute allows exclusion of such expenditure only from export turnover by way of specific definition of export turnover as envisaged by sub clause (4) of Explanation 2 below Sub- section (8) of Section 10A and the total turnover has not been defined in this section. On the facts and in the circumstances of the case the Dispute 3. Resolution Panel erred in directing the AO to compute deduction u/s 10A in the above manner by placing reliance on the decision of Hon'ble High Court of Karnataka. In the case of M/s Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon'ble Supreme Court. On the facts and in the circumstances of the case, as per the 4. directions of the Dispute Resolution Panel, whether working capital adjustment can be made on the basis of advance received from AEs in absence of debtors and inventory in the case of assessee for calculating the cost of working capital built in the profit margin. On the facts and in the circumstances of the case the Dispute 5. Resolution Panel is not justified in directing the TPO to adjust the profit margin of the assessee for the entire amount of advances received from AE on the ground that there is time value for money. On the facts and in the circumstances of the case the Dispute 6. Resolution Panel erred in directing the TPO/AO to exclude the comparable M/s Acropetal Technologies Ltd., by applying new filter i.e Employee Cost filter in ITES Segment, without appreciating the fact that the direction actually amounts to setting aside of the draft order, which is beyond the mandate given to DRP vide provisions by Section 144C(8). On the facts and in the circumstances of the case the Dispute 7. Resolution Panel erred in directing the TPO/AO to exclude the comparable M/s ICRA Online Ltd & M/s Sundaram Business Services Ltd. by applying new filter i.e 75% Export filter in ITES segment, without appreciating the fact that the direction

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 5 of 44 actually amounts to setting aside of the draft order, which is beyond the mandate given to DRP vide provisions by Section 144C(8). On the facts and in the circumstances of the case, the Dispute 8. Resolution Panel erred in directing the TPO/AO to exclude the comparable M/s Infosys BPO Ltd., without considering the facts discussed by the TPO for selection of the comparables in the case of the assessee and without appreciating the fact that this is qualifying all the qualitative and quantitative filters applied by the TPO. On the facts and in the circumstances of the case, the Dispute 9. Resolution Panel erred in directing the TPO/AO to exclude the comparable M/s Eclerx Services Ltd., without appreciating the fact that the selection of comparables in a case depends on assessee specific FAR analysis and this is functionally comparable company which qualifies all the qualitative and quantitative filters applied by the TPO. For these and other grounds that may be urged at the time of 10. hearing, it is prayed that the directions of the Dispute Resolution Panel in so far as it relates to the above grounds may be reversed.

The appellant craves leave to add, alter, amend and / or delete 11. any of the grounds mentioned above.

3.2.1 In the assessee’s appeal, the grounds raised are as under: I. Transfer pricing

The learned AO. TPO and the Hon'ble DRP have erred in law 1. and facts of the case in proposing a transfer pricing adjustment under section 92CA of the Income-tax Act. 1961 ("the Act") amounting to INR 1,48,92,739/-, in relation to the international transactions pertaining to provision of information technology enabled services (`'ITeS") to associated enterprise ("AE") by the Appellant. The learned AO, TPO and the Hon'ble DRP have erred in 2. rejecting operating mark-up on cost determined by the Appellant in the Transfer Pricing documentation and in

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 6 of 44 erroneously re-computing the operating mark-up by referring to the agreement which was not relevant for the year under consideration. The learned AO, TPO and the Hon'ble DRP ought to have 3. appreciated the fact that the Appellant provide ITeS services to its AEs under a contractual arrangement for an assured mark- up on the costs. The learned AO, TPO and the Hon'ble DRP erred in 4. disregarding the economic analysis performed by the Appellant in the Transfer Pricing ('TP') documentation justifying the arm's length nature of the international transactions with the AEs. The learned AO, TPO and the Honble DRP erred in rejecting 5. the TP documentation maintained by the Appellant on invoking provisions of sub-section (3) of 92C of the Act contending that the information or data used in the computation of the arm's length price is not reliable or correct. The learned AO, TPO and the Hon'ble DRP have erred in 6. rejecting the need for use of multiple year data of the companies selected as comparable in determination of arm's length price. The learned AO, TPO and the Hon'ble DRP have erred in 7. rejecting the application of upper turnover filter for selection/ rejection of companies as comparable. The learned AO, TPO and the Hon'ble DRP have erred in 8. rejecting companies selected as comparable by the Appellant in the TP documentation and in selecting/ introducing companies which are not comparable to the Appellant by conducting a fresh economic analysis during the transfer pricing assessment proceedings.. The learned AO, TPO and the Hon'ble DRP have erred in 9. applying the filter of export earnings less than 75% of the total revenue to select/ reject companies as comparable. The learned AO, TPO and the Hon'ble DRP have erred in 10. selecting Jeevan Scientific Technology Limited as a comparable despite the company failing the filter of employee cost less than 25% of sales. The learned AO. TPO and the Hon'ble DRP have erred in 11. rejecting comparable companies having different financial year

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 7 of 44 ending or does not fall within the 12 month period of 1st April, 2009 to 31st March, 2010. The learned AO, TPO and the Hon'ble DRP erred in considering 12. provision of doubtful debts as non-operating. The learned AO, TPO and the Hon'ble DRP have erred in 13. ignoring the limited risk nature of the contractual services provided by the Appellant and in not providing an appropriate adjustment towards the risk differential, even when the full- fledged entrepreneurial companies are selected as comparable companies. The Appellant reserves the right to apply the provision to 14. Section 92C(2), wherein if the variation between the arm's length price and the price at which the international transaction has been undertaken does not exceed 5%, then the international transaction would be deemed to be at arm's length.

II. Corporate Tax Computation of deduction under section 10A 15.  The learned Assessing Officer (AO') has erred in computing deduction under section 10A at Rs. 22,986,569 as against the original deduction of Rs. 23,168,911.  The learned AO ought have appreciated that no adjustments were made in the final assessment order by which the claim of deduction under section 10A would reduce.  The learned AO ought to have retained the deduction under section 10A as claimed in the return of income.

Short credit of tax deducted at Source 16.  The learned AO has erred in giving credit for tax deducted at source of Rs. 45,81,414 as against the original claim of Rs. 52,24,877.

Levy of interest under section 234D 17.  The learned AO has erred in levying interest under section 234D of Rs. 642,630 which is consequential in nature to the adjustments made to returned income.

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 8 of 44

3.2.2 The assessee has also raised the following additional grounds of appeal vide letter dated 27.04.2017

Transfer Pricing-Additional Ground of Appeal

It is most humbly prayed to the I lon'ble Tribunal to permit the Appellant to raise the following additional ground of appeal in continuation to the existing ground of appeal and be read as Ground No. 10.1, Ground No. 11.1, Ground No. 15 & Ground No. 16. Ground No. 10.1: Wrong Computation of net margin on cost of Jeevan Scientific Technology Limited ("Jeevan Scientific") The Appellant submits that the learned TPO/DRP has erred in wrongly computing the net margin on cost of Jeevan Scientific. Reason for filing Additional Ground of Appeal The Appellant humbly submits that though a ground for rejection of Jeevan Scientific has been taken in the Form — 36B, the Appellant is filing a without prejudice argument of wrong computation of margin of Jeevan Scientific by the Id. TPO/DRP. Accordingly, the Appellant humbly submits that without prejudice to the ground that the Jeevan Scientific should be rejected, the Id. TPO/DRP has wrongly computed the net margin on cost of Jeevan Scientific. Ground No. 11.1: Companies to be accepted The Appellant submits that the Ld. TPO has erred in not including R systems International Limited which is functionally comparable to the Appellant.

Reason for filing Additional Ground of Appeal

The Appellant during the preparation of Form 36B has taken a ground on wrongly applying the different financial year ending filter for rejecting

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 9 of 44 comparable companies. However, in order to bring clarity on the existing ground no. 11 and based on recent jurisdictional tribunal we are elaborating the name of R Systems International Limited which is sought for inclusion in the comparable set. On the above basis, we humbly request the Hon'ble bench members to accept the above-mentioned company in the final set of comparable. Ground No.15: Sundaram Business Services Limited ("Sundaram") should be accepted as a comparable The Appellant submits that the learned DRP has erred in rejecting Sundaram as a comparable company. Reason for filing Additional Ground of Appeal The Appellant humbly submits that during the transfer pricing assessment proceedings, the Ld. TPO has conducted fresh search process and accepted Sundaram as comparable as it qualified all the TPO's filters. Since the company was a perfect comparable to the IT enabled service provider company, the Appellant did not object against the inclusion either before Ld. TPO or before Ld. DRP. However, the Ld. DRP without giving any opportunity to the Appellant, has rejected Sundaram by stating that it fails export earning filter. However, the Appellant wishes to submit that Sundaram, being a functionally comparable company has qualified all filters of Id. TPO applied during the TP assessment proceedings. Accordingly, the Appellant humbly requests the Hon'ble Bench members to accept Sundaram as a comparable company. Ground No.16: ICRA Online Limited ("ICRA Online") ought to be rejected from the list of comparable set as it is functionally dissimilar company. The Appellant submits that the learned DRP has erred in not rejecting ICRA Online as it is functionally dissimilar company.

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 10 of 44 Reason for filing Additional Ground of Appeal The Appellant humbly submits that the ld. DRP has rejected ICRA Online as its fails export earning filter criteria. However, the ld. DRP has erred in not adjudicating on the functional dissimilarity reason of ICRA Online which is contradictory to the Appellant's functional profile. Accordingly, the Appellant humbly requests the Hon'ble Bench members to reject ICRA Online as it is functionally dissimilar.

3.2.3 The assessee further filed the following additional grounds vide letter dated 18.09.2017:

Transfer Pricing-Additional Ground of Appeal It is most humbly prayed to the Hon'ble Tribunal to permit the Appellant to raise the following additional ground of appeal in continuation to the existing ground of appeal and be read as Ground No. 8.1. Ground No. 8.1: Accentia Technologies Limited ("Accentia") ought to be rejected from the list of comparable set proposed by the Learned Transfer Pricing Officer ("Ld. TPO") The Appellant submits that the Learned Assessing Officer ("Ld. AO")/Learned TPO ("Ld. TPO")/Learned Dispute Resolution Panel ("Ld. DRP") has erred in not rejecting Accentia as it is a functionally dissimilar company. Reason for filing Additional Ground of Appeal The Appellant during the preparation of Form 36B has taken a ground that during the transfer pricing assessment proceedings, the Ld. AO, Ld. TPO and Ld. DRP have erred in selecting/introducing certain companies which are not comparable to the Appellant by conducting a fresh economic analysis. However, in order to bring clarity on the existing ground no. 8 and based on recent jurisdictional tribunal ruling, we are elaborating the name of Accentia Technologies Limited which is sought for exclusion from the comparable set proposed by the Ld. TPO.

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 11 of 44 Further, the Appellant would also like to highlight before the Hon'ble Tribunal that Indecomm India had already sought for exclusion of Accentia during the transfer pricing proceedings before the Ld. DRP and Ld. TPO. On the above basis, we humbly request the Hon'ble bench members to reject the above-mentioned company from the final set of comparable. Accordingly, the Appellant humbly requests the Hon'ble Bench members to reject Accentia as it is functionally dissimilar.

4.1 Before proceeding to deal with the above grounds of appeal, the approach of the assessee in its Transfer Pricing study and the approach of the TPO in his order under section 92CA of the Act are briefly summarized hereunder.

4.2 The assessee had reported the following international transactions in the TP study:

Sl. International Transactions Amount (Rs.) No. 1. BPO Services 23,54,82,123/- 2. Reimbursement of Expenses 38,49,263/- received

The assessee characterized the services rendered to its AEs as being in the nature of IT Enabled services (ITES) and aggregated all the international transactions by applying TNM as the most appropriate method (MAM). The assessee adopted “Operating Profit to Total Cost” as the Profit Level Indicator (PLI) and has conducted its comparability

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 12 of 44 analysis applying certain filters and selected a set of 10 companies with an arithmetic mean of 13.60% as comparables to the assessee. The assessee computed its own PLI at 21.14% and therefore concluded that its international transactions are at arms length.

4.3 The TPO analysed the assessee’s TP study report and rejected the same for the reasons given in his TP order u/s 92CA of the Act. The TPO then conducted his own comparability search process adopting various criteria/filters and selected the following 10 companies as the final set of comparable companies to the assessee: Sl. No. Name PLI Accentia Technologies Ltd 43.06% 1. Acropetal Technologies Ltd 22.27% 2. (Seg.) E-Clerx Services Ltd 55.97% 3. Fortune Infotech Ltd 22.80% 4. Icra Online Ltd(Seg) 43.39% 5. Informed Technologies India Ltd 26.15% 6. Infosys Bpo 31.23% 7. Cosmic Global Ltd 14.97% 8. Sundaram Business Services -12.31% 9. Ltd Jeevan Scientific Technology 21.05% 10. Ltd.(Seg.) Average 26.86%

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 13 of 44 4.4 The TPO computed the ALP of the assessee’s transactions in the ITES segment as under:

This adjustment of Rs.3,69,85,888/- was included by the AO in the draft order of assessment dated 11.03.2014. The assessee filed its objections thereto before the DRP which issued its directions under section 144C(5) of the Act on 11.12.2014, granting the assessee partial relief. Pursuant thereto, the AO passed the impugned final order of assessment dated 20.01.2015 determining the total income of the assessee at Rs.1,20,65,687/- which included TP adjustment of Rs.1,48,92,739/-.

5.1 Aggrieved by the final order of assessment dated 20.01.2015 for Assessment Year 2010-11, both Revenue and the assessee has filed cross appeals before the Tribunal. The assessee has also preferred Cross Objections (CO) vis-à-vis the said assessment order/Revenue’s appeal.

5.2 Before us, the assessee had filed paper book and also filed a chart containing the comparables and short arguments on each one of them. The assessee has also filed a compendium of case laws, which have been

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 14 of 44 considered while discussing the individual comparable companies. The learned AR of the assessee submitted that the DRP has granted partial relief to the assessee by excluding 5 of the 10 comparable companies selected by the TPO against which Revenue is in appeal. It was submitted that the assessee, in its appeal, is seeking exclusion of 2 more comparable companies, namely Accentia Technologies Ltd., and Jeevan Scientific Technology Ltd., and seeks inclusion of R Systems International Ltd. The learned DR for Revenue put forth detailed submissions on each of the grounds raised in Revenue’s appeal.

6.1 As regard the admission of the additional grounds raised by the assessee, the learned AR submitted that all the additional grounds related to the inclusion and/or exclusion of comparable companies. It was submitted that a generic ground was raised in Form No.36 on rejecting the comparable companies selected by the assessee and on including companies which are functionally not similar to the assessee and the additional grounds have been raised specifically mentioning the companies that are to be included/excluded, for the sake of clarity.

6.1.1 As regards the exclusion of Accentia Technologies Ltd., raised as additional ground No. 8.1, it was submitted that the assessee has sought exclusion of this company before the authorities below and since this

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 15 of 44 company was not specifically mentioned for exclusion in Form 36, the additional ground has been raised seeking exclusion of this company.

6.1.2 As regards additional ground No.10.1 regarding Jeevan Scientific Technologies Ltd., it is submitted that ground No.10 has been raised in Form 36 seeking its exclusion and the additional ground is on the wrong computation of its margin.

6.1.3 As regards the exclusion of ICRA Online Ltd., raised in additional ground No. 16, it was submitted that the DRP had excluded this company on grounds of Export earning filter, which has been challenged by Revenue in its appeal and this additional ground has been raised that the DRP did not adjudicate on the functional comparability of this company.

6.1.4 As regards the inclusion of R Systems International Ltd., raised in additional ground No.11.1, it was submitted that a general ground was raised in Form 36 on inclusion of comparable companies and this additional ground has been raised specifically mentioning this company.

6.1.5 As regards the plea for inclusion of Sundaram Business Services Ltd., raised in ground No.15, it was submitted that the DRP has excluded this company unilaterally and Revenue is also in appeal against the exclusion of this company.

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 16 of 44 6.2 In view of the above submissions; those put forth in the assessee’s letters dated 27.04.2017 and 18.09.2017, and also considering that all the additional grounds raised relate to the inclusion/exclusion of comparable companies and in view of the decision of the Hon’ble Punjab and Haryana High Court in the case of Quark Systems India Pvt. Ltd., in ITA No.594 of 2010, the additional grounds raised are admitted for consideration / adjudication, when the individual companies will be discussed in the subsequent paragraphs of this order.

Revenue’s Appeal in IT(TP)A No.404/Bang/2015

8.1 These grounds are raised on the issue of exclusion of expenditure from both the export turnover and total turnover for the purposes of computation of deduction u/s 10A of the Act.

8.2 In its return of income, while claiming deduction u/s10A of the Act, the assessee had reduced the expenses towards telecommunication both from its export turnover as well as total turnover. The AO, did not accept the assessee’s claim and proceeded to re-compute the deduction by reducing these expenses only from its Export turnover, without making a corresponding reduction in its total turnover. The DRP

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 17 of 44 accepted the assessee’s objections and directed that the expenses be reduced from both the export turnover as well as the total turnover. Aggrieved by the aforesaid decision of the DRP, Revenue has challenged its decision in ground Nos. 2 and 3 of its appeal.

8.3 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements on this issue of computing the deduction u/s 10A of the Act. This issue before us stands covered by the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Tata Elxsi Ltd., (2512) 349 ITR 98 (Kar); which proposition has been upheld by the Hon’ble Apex Court in the case of CIT Vs. HCL Technologies Ltd., (2018) 404 ITR 719 (SC). The only grievance of Revenue in the grounds raised was that the decision of the Hon’ble Karnataka High Court in the case of Tata Elxsi Ltd., (supra) had not attained finality and an SLP by the Department is pending before the Hon’ble Apex Court. Now, in view of the decision of the Hon’ble Apex Court in HCL Technologies Ltd., (supra), this issue is no longer res integra and therefore we find no reason to interfere in the decision of the DRP on this issue. Consequently, grounds 2 and 3 of Revenue’s appeal are dismissed.

9.1 In these grounds (supra), Revenue assails the decision of the DRP in restricting the working capital adjustment on the basis of advances received from AEs in the absence of debtors and inventory in the case

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 18 of 44 of the assessee for calculating the cost of working capital built in the profit margin.

9.2 Before us, it was submitted that though the TPO, in the body of the TP order, has discussed about restricting the working capital adjustment to 0.23%, in the computation at page 18 of the order u/s 92CA of the Act, the actual working capital adjustment granted by the TPO is (-)1.40%. Based on the discussions in the body of the TP order, the assessee had raised objections before the DRP, which had issued directions that no such restriction shall be made on the working capital adjustment and it shall be granted as per actuals. As the working capital adjustment has been granted at actuals i.e., (-)1.40%, without making any restriction as contended by Revenue in the grounds of appeal, ground Nos. 4 and 5 raised on this issue are infructuous as they require no adjudication and are accordingly dismissed as infructuous.

10.1 In this ground (supra), Revenue contends that this company, ‘Acropetal’ has been excluded by DRP from the set of comparables by applying a new filter, namely, employee cost filter, which amounts to setting aside the draft order of assessment on this score, which is beyond the mandate given to the DRP by the provisions of section 144C(8) of the Act.

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 19 of 44 10.2 This company was selected by the TPO as a comparable company on the grounds that it is functionally similar to the assessee, despite the assessee’s objection to the contrary. The assessee filed objections before the DRP for exclusion of this company on the ground that ‘Acropetal’ is not functionally similar as it is in the business of rendering Engineering Design Services, as against BPO services rendered by the assessee. The DRP did not adjudicate on the grounds of functional dissimilarity, but directed exclusion of ‘Acropetal’ on the ground that it has expenses incurred on on-site development; which is 64% of the total expenses and is therefore engaged in providing predominantly on-site services. The DRP also held that employee cost filter of 25% is to be applied and as the employee cost is less than 25%, ‘Acropetal’ is to be excluded from the final set of comparable companies.

10.3 Before us, the learned DR for Revenue assailed the action of the DRP in excluding this company by applying on-site services filter and employee cost filter, suo moto. According to the DR, the action of the DRP in applying such filters amounted to setting aside the draft order of assessment, which is not tenable under the provisions of law.

10.4 Per contra, the learned AR of the assessee submitted that ‘Acropetal’ is not functionally comparable to the assessee and ought to be excluded from the set of comparables, on this ground. It is submitted that ‘Acropetal’ has been held to be not comparable to a captive service provider of ITES in several decisions of ITAT, Bangalore Benches and placed reliance on the decision of a Co-ordinate Bench of this Tribunal

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 20 of 44 in the case of DCIT Vs. Tesco Hindustan Service Centre Pvt. Ltd., in IT(TP)A Nos.191 and 596/Bang/2015 dated 25.01.2017 also for Assessment Year 2010-11, which is the year under consideration in this appeal.

10.5.1 We have considered the rival contentions on this issue and carefully perused the material on record; including the judicial pronouncements cited. From the details on record, we find that the assessee has objected to the inclusion of ‘Acropetal’ in the set of comparables on the ground that it is not functionally comparable to the assessee; both before the TPO and the DRP. However, it is seen that the DRP has not adjudicated on the functional comparability of ‘Acropetal’ vis-à-vis the assessee in the case on hand. Instead, the DRP has rendered a finding that the services rendered by ‘Acropetal’ are predominantly on-site services and applied the on-site filter. The DRP further directed that ‘Acropetal’ needs to be excluded from the set of comparables as its employee cost is less that 25% and employee cost filter should be applied.

10.5.2 In this regard, it is seen that neither the assessee in its TP study nor the TPO has applied the on-site filter while determining the ALP. Similar is the case with employee cost filter; which has neither been applied by the assessee nor by the TPO while determining the ALP. As such the DRP has applied these filters suo moto. When new filters are applied, it is necessary to examine whether such an application of a new filter has any impact on the other companies about their inclusion

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 21 of 44 or exclusion. It is also seen that the DRP has not rendered a finding on the functional comparability of ‘Acropetal’ even though a specific ground has been raised and the judicial decisions in this regard have been brought to the notice of the DRP. In view of the above, we deem it appropriate to remand the issue of comparability of Acropetal Technologies Ltd., back to the file of the TPO with a direction that the two filters i.e., on-site filter and employee cost filter, applied by the DRP suo moto, may be applied to the other comparable companies as well and functional capacity be decided in the light of the judicial pronouncement cited by the assessee (supra).

11.1 In this ground (supra), Revenue assails the order of the DRP in excluding the above two companies, ‘ICRA’ and ‘Sundaram’ from the set of comparables by applying the 75% Exports earnings filter in the ITES segment, which amounts to setting aside the draft order of assessment, which is beyond the mandate given to the DRP by virtue of provisions of section 144C(8) of the Act.

11.2 ICRA Online Ltd., (‘ICRA’) was selected as a comparable by the TPO despite objections of the assessee to its inclusion on the ground that this company is not functionally comparable to the assessee. However, the DRP has directed ‘ICRA’s exclusion from the set of comparables on the ground that it fails the 75% Export earning

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 22 of 44 filter. Before us, the learned DR for Revenue assailed the action of the DRP in suo moto introducing a new filter, not applied either by the assessee nor by the TPO, which amounts to setting aside the draft order of assessment; which is not tenable in law. It was submitted that introducing a new filter amounts to changing the entire comparability analysis, which is not within the scope of the powers of the DRP.

11.2.1 The assessee on its part submitted that ‘ICRA’ anyhow ought to be excluded from the set of comparables on the grounds of functional comparability.

11.3.1 We have considered the rival contentions and carefully perused the material on record. We find that the assessee has objected to the inclusion of ‘ICRA’ on the ground that it is not functionally comparable to the assessee; both before the TPO as well as the DRP. The DRP, however, has not adjudicated on its functional comparability of ‘ICRA’, but instead proceeded to render a finding that this company requires to be excluded by applying 75% export earning filter. In this regard, it is seen that the TPO applied the filter of 25% of export earnings. The DRP order however states that “In the preceding paras, it has been held by us that 75% export earning filter needs to be applied consistently for the ITES segment also as against the 25% export earning filter applied by the TPO.” But, we find that there is no such discussion or decision been rendered by the DRP as claimed. In the absence of any such discussion or decision being rendered, as claimed, applying the 75% export earning filter suo moto is not tenable. Further, if any new

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 23 of 44 filters are applied, it is imperative to examine whether the application of such a filter has any impact on the other companies about their inclusion or exclusion in the set of comparables. That ‘ICRA’ was not selected as a comparable by TPO’s in other cases cannot be a valid ground for exclusion in this case also, unless the reasons for such exclusion in other cases are known. In view of the above, we deem it appropriate to remand the issue of comparability of this company i.e., ICRA Online Ltd., to the file of the TPO with the direction that the filter applied suo moto by the DRP in the case of ‘ICRA’ be applied to the entire set of comparable companies.

11.4 Sundaram Business Services Ltd., (‘Sundaram’) was selected as a comparable company by the TPO. The assessee had accepted the same and not objected to its inclusion before the DRP. The DRP had, suo moto, excluded this company ‘Sundaram’ from the set of comparables on the ground that it fails the 75% export earning filter.

11.4.1 Before us, the learned DR assailed the action of the DRP in suo moto introducing a new filter, which amounts to setting aside the draft order of assessment and is not tenable. It was submitted that changing a filter amounts to changing the entire comparability analysis, which is not within the scope of the powers of the DRP.

11.4.2 The learned AR of the assessee also objected to the decision of the DRP in excluding this company from the set of comparables. It was submitted that this company, ‘Sundaram’, was included by the TPO

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 24 of 44 in the set of comparables and the assessee had accepted the same and not objected to its inclusion before the DRP. It was also submitted that the DRP had erred in unilaterally reversing the decision of the TPO and excluding this company from the set of comparables, without affording any opportunity of being heard in the matter to either the TPO or assessee. It is contended that since both parties are seeking inclusion of this company in the set of comparables, there is no dispute surviving before the Tribunal and therefore the decision of the DRP needs to be reversed. In support of its contentions that this company ‘Sundaram’ requires to be included in the set of comaparables, reliance was placed on the decision of the Co-ordinate Bench in the case of ITO Vs. Interwoven Software Services (India) Pvt. Ltd., in IT(TP)A No.461/Bang/2015, wherein in similar circumstances, at para 23 thereof, it was held that this company, Sundaram Business Services Ltd., should be reinstated as a comparable.

11.4.3 We have considered the rival contentions and carefully perused the material on record. This company, ‘Sundaram’, was selected as a comparable by the TPO and the assessee had accepted the same without any objection. We find that the DRP suo moto examined the comparability of this company and directed its exclusion from the set of comprables on the ground that it fails the 75% export earning filter, a new filter introduced by the DRP, which was not applied either by the TPO or the assessee. The DRP order, in this regard, states that “It has already been held in the preceding paras that 75% export earning filter has to be consistently applied for ITES segment also”. We, however,

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 25 of 44 find that there is no such discussion or decision rendered by DRP, as claimed. In the absence of any such discussion or decision, as claimed, applying the 75% export earning filter suo moto is not tenable. Also, if any new filters are applied, it is necessary to examine whether the application thereof has any import on the other comparbles companies regarding their inclusion or exclusion from/into the final set of comparables. Since we have taken the stand that if any new filter is applied, it should be applied uniformly on the entire set of comparable companies, we deem it appropriate to remand the issue of comparablity of this company, Sundaram Business Services Ltd., back to the file of the TPO with a direction that the 75% export earning filter, applied, suo moto, by the DRP, be applied on the entire set of comparable companies.

12.1 In this ground (supra), Revenue assails the order of the DRP in excluding this company ‘Infosys’ from the set of comparables. The TPO had selected this company, ‘Infosys’, as a comparable despite the assessee’s objections to its inclusion as a comparable, on the ground that this company is, inter alia, functionally not comparable to the assessee. The DRP has directed exclusion of this company from the set of comparables on the ground that it has tremendous brand value attached to it which has a significant impact on its pricing and consequently on the margins earned. In support of its decision, the DRP, inter alia, relied on the view taken by the Co-ordinate Bench of this Tribunal in the case

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 26 of 44 of Symphony Marketing Solutions India Pvt. Ltd., (ITA No.1316/Bang/2012).

12.2 Before us, the learned DR for Revenue assailed the decision of the DRP, contending that this company, ‘Infosys’ qualified all the filters applied by the TPO and also that the DRP has failed to consider all the material facts discussed in the TP order. It was also submitted that the DRP had, suo moto, applied new filters like on-site filter employee cost filter, 75% export earning filter, etc., not applied by either the assessee in its TP study or the TPO in his order u/s 92CA of the Act. Therefore, it would be proper if the entire issue of comparability of all comparable companies be remanded back to the file of the TPO for fresh consideration, in the light of the introduction of new filters by the DRP.

12.3 The learned AR of the assessee submitted that this company, ‘Infosys’ is not at all comparable to the assessee. In support of his contention, the learned AR placed reliance on the decision of the Co- ordinate Bench of this Tribunal in the case of DCIT Vs. Tesco Hindustan Services Centre Pvt. Ltd., in IT(TP)A No.191 and 569/Bang/2015 dated 25.01.2017.

12.4.1 We have considered the rival contentions and carefully perused the material on record; including the judicial pronouncements cited. The DRP has rendered a clear finding that this company ‘Infosys’ cannot be considered as functionally comparable and have given their detailed reasoning for arriving at the decision, including reliance on

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 27 of 44 various judicial pronouncements. Further, as submitted by the learned AR of the assessee, the Co-ordinate Bench of this Tribunal in the case of DCIT Vs. Tesco Hindustan Service Centre Pvt. Ltd., (supra) has held that this company cannot be compared with a company rendering ITES. The relevant portion of the order at para 15.4 thereof is extracted hereunder:

“15.4 We have heard the rival submissions and perused and carefully considered the material on record. We —find that the assessee has brought on record sufficient evidence to establish that this company is functionally dissimilar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India (P.) Ltd. v. Dy. CIT {2013] 29 taxmann.com 310/140 ITD 540 (Bang.) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys BPO Ltd. is not functionally comparable since it has the benefit of market value as well as brand value. This company enjoys the benefits of scale and market leadership. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly.”

12.4.2 In view of the above, we find no reason to interfere with the order of the DRP and consequently the DRP’s direction to exclude this company, ‘Infosys’ is upheld. Since this company, ‘Infosys’ is excluded on grounds of functional dissimilarity, the application of new filters by the DRP will have no bearing on its exclusion or inclusion as it would continue to remain excluded on grounds of functional comparability. Therefore, we find there is no need to remand the comparability of this company to the file of the TPO, as sought for by the learned DR. Consequently, ground No. 8 of Revenue’s appeal is dismissed.

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13.1 This company, ‘Eclerx’, was selected by the TPO as a comparable to the assessee despite the assessee’s objection that this company is functionally dissimilar and hence not comparable to the assessee. The DRP has directed exclusion of this company from the set of comparables on the ground that ‘Eclerx’ is functionally dissimilar to the assessee, following, inter alia, the decision of the Co-ordinate Bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd., (ITA No.1316/Bang/2012).

13.2 Before us, the learned DR for Revenue assailed the decision of the DRP for excluding ‘Eclerx’ from the set of comparables, submitting that it qualifies all the filters applied by the TPO and is functionally comparable to the assessee in the case on hand. It was also submitted that the selection of comparables depends on assessee specific FAR analysis and once the filters applied are satisfied, the company has to be selected as a comparable company. It was further submitted that since the DRP has introduced new filters, like employee cost filter, on-site filter, etc., the entire issue of comparability of all comparable companies may be remanded back to the file of the TPO for fresh consideration; in the light of new filters introduced by the DRP.

13.3 The learned AR of the assessee submitted that this company, ‘Eclerx’ is not comparable to the assessee, as the functions performed

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 29 of 44 by this company are not similar to the functions of the assessee in the case on hand; which only renders BPO services. In support of this contention, the learned AR placed reliance on the decision of the Co- ordinate Bench of this Tribunal in the case of DCIT Vs. Tesco Hindustan Service Centre Pvt. Ltd., (supra).

13.4.1 We have considered the rival contentions and carefully perused the material on record; including the judicial pronouncements cited. The DRP has rendered a clear finding that the functions performed by ‘Exlerx’ are not similar to that of assessee in the case on hand and therefore cannot be as comparable and has given its detailed reasoning for arriving at this decision; including placing reliance on certain judicial pronouncements. We find that, as pointed out by the learned AR of the assessee, the Co-ordinate Bench of this Tribunal in the case of DCIT Vs. Tesco Hindustan Service Centre Pvt. Ltd., (supra) has held that this company cannot be compared with a company rendering ITES. The relevant portion of the order at para 14.1 and 14.2 thereof is extracted hereunder:

“E-clerx Services Limited. 14.1 We have considered the rival submissions and relevant record. At the out set, we note that the ..31-pparability of M/s Eclerx Services Ltd. has been examined by the Special Bench of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. v. Asstt. C/T12014] 43 taxmann.com 100/147 ITD 83 (Mum.) (SB) in paras 82 and 83 as under: "82. In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 30 of 44 the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns. 83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services P Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entitles cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP." 14.2 As discussed by the Special Bench in the case of Maersk Global Centres (India) (P.) Ltd. (supra), this company provides data analysis, operating management, audits, reconciliation, metrics management and operating services, it has two business verticals - financial services, retail and manufacturing. It was found to have being providing complete business solutions in the nature of

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 31 of 44 high end services. The nature and different field of services provided by this company clearly show that it is not functionally comparable with the ITES. Accordingly, we direct the TPO/AO to exclude this company from the set of comparables.”

13.4.2 In view of the above, we find no infirmity in the order of the DRP and the direction of the DRP to exclude ‘Eclerx Services Ltd.,’ from the set of comparables is upheld, since this company ‘Eclerx’ is excluded on grounds of functional dissimilarity, the application of new filters by the DRP will have no bearing on its exclusion or inclusion as it would continue to remain excluded on grounds of functional comparability. Therefore, there is no need to remand the matter to the TPO, as sought for by the learned DR. Consequently ground No.9 of Revenue’s appeal is dismissed.

Assessee’s appeal in IT(TP)A No.553/Bang/2015 for Assessment Year 2010-11

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16.1 In these grounds / additional grounds (supra), the assessee assails the orders of the TPO and DRP in not excluding this company, ‘Accentia’ from set of comparables. This company ‘Accentia’ was selected by the TPO and included in the set of comparables even though the assessee objected to its inclusion on several grounds, including being functionally different. The DRP, however, rejected the assessee’s objections and held that the functions performed by this company are similar to that of the assessee and upheld ‘Accentia’ inclusion in the set of comparable companies.

16.2 Before us, the assessee submitted that this company ‘Accentia’ has significant income from software products and services and segmental details are not available. It was also submitted that ‘Accentia’ owns intangibles and that there have been extraordinary events; such as amalgamations/acquisitions impacting the margin earned. In support of the assessee’s contentions for exclusion of ‘Accentia’, the learned AR of the assessee placed reliance on the decision of the Co-ordinate Bench of this Tribunal in the case of DCIT Vs. Tesco Hindustan Service Centre Pvt. Ltd., (supra).

16.3 Per contra, the learned DR for Revenue placed reliance on the TPO’s order, wherein it has been held that this company ‘Accentia’ is engaged in providing ITES only and is not into software products or licencing activities.

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16.4.1 We have considered the rival contentions and submissions and perused the material on record; including the judicial pronouncement cited. We find that a Co-ordinate Bench of this Tribunal in the case of DCIT Vs. Tesco Hindustan Service Centre Pvt. Ltd., (supra) has held that this company, ‘Accentia’ is not functionally comparable to an assessee rendering ITES and in this regard at para 13 of its order, the Co-ordinate Bench held as under:

“13. As regards Accentia Technologies Ltd. and ICRA Online Ltd. this Tribunal in the assessee's own case for Assessment Year 2008-09 has excluded these two companies from the set of comparables in para 5 as “5. Thereafter he submitted that the following companies should be excluded on the basis of functional dissimilarity and in support of his contention, he placed reliance on the Tribunal order rendered in the case of M/s. Flextronics Tech. (India) Pvt. Ltd. v. DCIT in IT(TP)A No.1559(B)/2012 dated 23.10,2015, copy available on page Nos.17 to 38 of compilation of case laws submitted before the Tribunal. Accential Tech. Ltd. (Seg.) (a) Acropetal Tech. Ltd. (Seg.) (b) Coral Hubs Ltd. (c) Crossdomain Solutions Ltd. (d) Eclerx Services Ltd. (e) (/) Genesys International Corpn. Ltd, (g) Mold Tek Technologies Ltd," We further note that the functional comparability has been examined in detailed by the co-ordinate bench of this Tribunal in the case of Equant Solutions India (P.) Ltd. v. Dy. CIT j2016] 157 ITD 292/66 taxmann.com 2 (Delhi - Trib.) as well as in the case of ITO v. Interwoven Software Services (India) (P.) Ltd. [2016] 74

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 34 of 44 taxmann.com 103 (Bang. - Trib.). Further in the case of Acropetal Technologies Ltd. (Seg.), the co-ordinate bench of this Tribunal in the case of Kodiak Networks (India) Pvt. Ltd. v. Dy. CIT [IT(TP)A No.1540 (Bang) of 2012] has considered the functional comparability and found that this company is not comparable with a captive service provid r. Accordingly we direct the Assessing Officer/TPO to exclude these companies from set of comparables.”

16.4.2 Respectfully following the above decisions of the Co- ordinate Bench in the case of Tesco Hindustan Service Centre Pvt. Ltd., (supra), we hold and direct that Accentia Technologies Ltd., be excluded from the list of comparable companies on grounds of functional dissimilarity.

17.1 In this ground, the assessee has assailed the DRP in applying the filter of export earnings less than 75% of total revenue selectively. While disposing Revenue’s appeal (supra), we have already held that if DRP applies a new filter, the same filter shall be applied uniformly to the entire set of comparables.

18.1 In ground No.10 (supra), the assessee has assailed the orders of the authorities below in selecting this company, ‘Jeevan’ as a

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 35 of 44 comparable even though it fails the filter of employee cost of less than 25% of sales. In the additional ground, the assessee submits that without prejudice to ground No. 10 seeking rejection/exclusion of ‘Jeevan’ from the set of comparables, the TPO/DRP have wrongly computed the net margin on cost.

18.2.1 The assessee contends that in this company, ‘Jeevan’ the employee cost to total sales is only 20.87% and therefore it fails the employee cost filter of 25% of sales applied by the TPO. The DRP, however, has held that the employee cost is more than 25% and rejected the assessee’s contentions. Before, us, the assessee reiterated that the employee cost is only 20.87% of sales and therefore fails the employee cost filter of 25% of sales. It is also contended that the margin of this company ‘Jeevan’ has been wrongly computed.

18.3 We have considered the rival submissions and carefully perused the material on record. The assessee’s contentions are that ‘Jeevan’ fails the employee cost filter of 25% applied by DRP. The issue of applying the employee cost filter at 25% of sales, suo moto, by the DRP has been discussed earlier in this order, while dealing with the comparability of ‘Acropetal Technologies Ltd.,’ at paras 10 to 10.5.2 of this order (supra). From the record, it is seen that neither the assessee nor the TPO have applied the employee cost filter while determining the ALP. As such, the DRP has applied this filter suo moto. When new filters are applied, it is necessary to examine whether such an application of a new filter has any impact on the inclusion or exclusion of other

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 36 of 44 companies. In view of the above, we deem it appropriate to remand the issue of comparability of this company back to the file of the TPO with the direction that the new filters applied suo moto may be applied on the other comparable companies as well and then the inclusion/exclusion of this company as a comparable be decided.

19.1 In these grounds/additional ground (supra), the assessee has assailed the exclusion of companies from the list of comparables which have different financial year ending; and specifically exclusion of M/s. R Systems International Ltd. The TPO has applied the filter of different financial year to, inter alia, exclude R. Systems International Ltd. It was submitted by the learned AR of the assessee that the Hon’ble Punjab and Haryana High Court in the case of CIT Vs. Mercer Consulting Pvt. Ltd., in its order in ITA No.101 of 2015 dated 24.08.2016 has held that a company need not be excluded merely because of different financial year ending and this decision has been specifically rendered in respect of this company, R. Systems International Ltd.

19.2.1 We have considered the rival submissions / contentions and carefully perused the material on record; including the judicial pronouncements cited. We find that the Hon’ble Punjab and Haryana High Court in the case of CIT Vs. Mercer Consulting Pvt. Ltd., (supra)

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 37 of 44 has held that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then its comparability ought to be examined / considered. In this regard, the Hon’ble High Court at paras 27 to 32 of its order (supra) has held as under:

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 38 of 44

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IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 40 of 44 19.2.2 Respectfully following the decision of the Hon’ble Punjab and Haryana High Court in the case of Mercer Consulting Pvt. Ltd., (supra), we also deem it appropriate to follow the principle that if data, relating to the financial year in which the international transaction has been entered into, is directly available from the annual accounts of that company, then the company ought be examined / considered for comparability. We, accordingly, remand the matter of comparability of R Systems International Ltd., back to the file of the AO to examine / decide the same in the light of the decision of the Hon’ble Punjab and Haryana High Court (supra). We hold and direct accordingly.

20.1 These additional grounds (supra) have been raised seeking (i) inclusion of Sundaram Business Services Ltd., in the list of comparables and (ii) exclusion of ICRA Online Ltd., from the list of comparables. The comparability of both these companies has been examined and considered by us in the earlier portion of this order while disposing off Revenue’s appeal in ground No. 7 at paras 11 to 11.4.3.

CORPORATE TAX

21.1 In this ground (supra), the assessee contends that the AO had erred in computing deduction u/s 10A of the Act at Rs.22,986,569/- as

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 41 of 44 against its claim of Rs.23,168,911/-. According to the learned AR, since no adjustments were made in the final order of assessment, the AO ought to have allowed / retained the deduction u/s 10A of the Act as claimed by the assessee in the return of income. It is submitted that the AO may be directed to examine and allow the assessee’s claim.

21.2 We have considered the assessee’s submissions/contentions in this regard. The AO is directed to examine and verify the assessee’s claims / contentions in respect of the incorrect computation of its eligible quantum of deduction u/s 10A of the Act in accordance with law.

22.1 In this ground, the assessee contends that the AO has erred in giving it credit for TDS of Rs.45,81,414/- instead of Rs.52,24,877/- claimed. The AO directed to examine and verity the assessee’s claim in respect of grant of short credit for TDS in accordance with law.

23.1 In this ground (supra), the assessee denies himself liable to be charged interest u/s 234D of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon’ble Apex Court in the case of Anjum H. Ghaswala (252 ITR 1) (SC) and I, therefore,

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 42 of 44 uphold the action of the AO in charging the assessee the aforesaid interest u/s 234D of the Act. The AO is, however, directed to re- compute the interest chargeable u/s 234D of the Act, if any, while giving effect of this order.

Assessee’s Cross Objections No. 123/Bang/2015 for AY 2010-11

26.1 In the C.O, the assessee has raised the following grounds: On facts and circumstances of the case and in law, the respondent 1. wishes to rely upon the directions (dated 11 December, 2014) passed under section 144C (5) of the Income-tax Act, 1961 by the Hon'ble Dispute Resolution Panel ("DRP") and grounds of appeal filed in Form 35A before the DRP which was disregarded by the Learned Assessing officer ("Ld. AO")/ Learned Transfer Pricing Officer ("Ld. TPO") while filing an appeal before the Hon'ble DRP. On facts and circumstances of the case and in law, the Ld. AO/ Ld. 2. TPO erred in objecting to the rejection of Acropetal Technologies Limited ("Acropetal") on the basis of the employee cost filter without providing any supporting analysis.

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 43 of 44 Subject to the above, in the case of Acropetal, the Hon'ble DRP has 3. erred in not adjudicating on the other ground pertaining to functional non-comparability of Acropetal apart from the employee cost filter, raised by the Assessee.

On facts and circumstances of the case and in law, the Ld. AO / Ld. 4. TPO erred in objecting to the exclusion of Infosys BPO Limited ("Infosys") by the Hon'ble DRP, on the grounds that the company satisfies all the qualitative and quantitative filters, although the company owns substantial brand value.

The Ld. AO / Ld. TPO erred in objecting to the exclusion of E-Clerx 5. Services Limited ("E-Clerx") on the ground that it is functionally comparable to the business of the Appellant although the company has been held functionally not comparable to ITES Service providers by the Hon'ble DRP as well as by the Hon'ble Tribunal in various cases.

Subject to the above, the Hon'ble DRP has erred in not adjudicating on 6. the other grounds pertaining to the application of the upper turnover filter and extraordinary events of amalgamation/acquisitions during the year raised by the Assessee, in the case of E-Clerx.

26 .2 At the Bar, the learned AR for the assessee submitted that the assessee is not pressing the C.O. In these circumstances, the grounds raised by the assessee in the C.O. are rendered infructuous and the C.O. is dismissed as not pressed.

To sum up, Assessee’s appeal for AY 2010-11 and Revenue’s cross appeals are partly allowed and cross objections filed by the assessee are dismissed.

IT(TP)A No. 404/Bang/2015 IT(TP)A No. 553/Bang/2015 C.O. No. 123/Bang/2015 Page 44 of 44 Pronounced in the open court on 13th February, 2019.

Sd/- Sd/- (N. V. VASUDEVAN) (JASON P. BOAZ) Vice President Accountant Member Bangalore. Dated: 13th February, 2019. /NS/*

Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order

Assistant Registrar, ITAT, Bangalore.