M/S. OKS SPAN TECH PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

Final Assessment Order dated 29/01/2015 passed subsequent to the directions of the Ld. Dispute Resolution Panel (DRP) for assessment year 2009-10.

2.0 The brief facts of the case are that the assessee company is primarily engaged in data processing and data entry services which are rendered to overseas affiliated and unrelated entities. Data Processing work is also out sourced in the market. During the year under consideration, the assessee company provided services to its Associated Enterprises (AEs) amounting to Rs. 16,56,08,843/- and to non-associated enterprises amounting to Rs. 61,57,005/-.

For benchmarking the international transactions entered into with its Associated Enterprises, the assessee company selected Cost Plus Method (CPM) as the most appropriate method u/s 92C of the Income Tax Act, 1961 (hereinafter called as ‘the Act’).

2.1 The return for the year under consideration was filed declaring a loss of Rs. 47,42,898/-. The case was selected for scrutiny and a reference was also made to the Transfer Pricing Officer (TPO) to determine the Arm’s Length Price (ALP), u/s 92CA(3) in respect of international transactions entered into by the Assessee company. Apart from the benchmarking the international transactions under the Cost Plus Method, the assessee company also carried out secondary benchmarking under TNMM. The average profit margin of the company was 6.57% as compared to the average margin of 7.31% which was derived by selecting 4 comparables companies. However, the TPO rejected the Transfer Pricing (TP) approach of the assessee company and applied TNMM and after selecting 10 companies as comparables arrived at an average margin of 31.73%.

Thereafter, the TPO proposed Transfer Pricing Adjustment of Rs. 3,27,13,144/-.

2.2 Aggrieved, the assessee filed objections before the Ld. Disputes Resolution Panel (DRP) which allowed only partial relief to the assessee and, subsequently, the Final Assessment Order was passed making a Transfer Pricing adjustment of Rs. 3,19,42,549/-. Apart from this, disallowance u/s 14A of the Act amounting to Rs. 3,68,759/- was also made.

2.3 Now the assessee has approached the ITAT and has raised the following grounds of appeal:-

“For Transfer Pricing Issue:

1.1 That on the facts and circumstances of the case and law on the point, the Learned Transfer Pricing Officer (Ld. TPO)/ Hon’ble DRP has erred in making adjustment of Rs. 3,19,42,549/- to the income of the appellant company on account of difference in Arm Length Price for international transactions entered with its AE. 1.2 That on the facts and circumstances of the case and law on the point, the Ld. TPO/Hon’ble DRP has erred in selecting the companies as comparable company which are functionally not comparable to the appellant company using TNMM and without understanding the business activity of the appellant company. 1.3 That on the facts and circumstances of the case and law on the point, the Ld. TPO/Hon’ble DRP has erred in applying turnover filter as “rejection of companies whose turnover is less than Rs. 5 Crores” instead of “rejection of companies whose turnover is less than Rs. 1 Crore”. 1.4 That on the facts and circumstances of the case and law on the point, the Ld. TPO/Hon’ble DRP has erred in selecting the companies as comparable company which are giant companies having very high turnover. As held by Hon’ble ITAT, Delhi and confirmed by Hon’ble Delhi High Court in case of CIT vs. Agnity India Technologies Pvt. Ltd. (2013) ITA 1204/2011 dated 10th July, 2013, “Companies having High Turnover cannot be considered as comparable.” 1.5 That on the facts and circumstances of the case and law on the point, the Ld. TPO/Hon’ble DRP have erred in selecting the companies as comparable companies which are earning super normal profits. 1.6 That on the facts and circumstances of the case and law on the point, the Ld. TPO/Hon’ble DRP has erred in rejecting comparable companies selected by Appellant Company on the basis of incorrect/inappropriate reasons. 1.7 That on the facts and circumstances of the case and law on the point, the Ld. TPO/Hon’ble DRP have erred in rejecting most appropriate method applied by Appellant Company. 1.8 That the Ld. TPO did not follow the directions fo the Hon’ble DRP relating to inclusion of misc. income as non- operating income, which is being disputed. 1.9 The appellant craves leave to add to, alter, modify, substantiate, delete and / or to rescind all or any of the grounds of objection on or before the final hearing, if necessity so arises. For Domestic Transactions issue: 2.1 That on the facts and circumstances of the case and law on the point, the Ld. Assessing Officer has erred in making addition of Rs. 3,68,759/- u/s 14A of the Income Tax Act, 1961 2.2 That on the facts and circumstances of the case and law on the point, the Ld. Assessing Officer has erred in erred in making disallowance u/s 14A of the Act without giving clear finding of incurring of expenditure in relation to exempt income and Hon’ble DRP has erred in confirming such rejection. 2.3 That on the facts and circumstances of the case and law on the point, the Ld. Assessing Officer has erred in calculating the disallowance of Rs. 3,68,759/- by applying the provisions of Rule 8D of the Income Tax Rules, 1962 incorrectly and Hon’ble DRP has erred in confirming such calculation.”

3.0 The Ld. Authorised Representative (AR) submitted that the assessee was seeking exclusion of 10 comparable companies and inclusion of 3 comparable companies.

3.1 The Ld. Authorised Representative submitted his arguments for exclusion of the various comparables as under:-

(i) E4E Healthcare:

It was submitted that this company was functionally dissimilar to the assessee company as e4e is mainly engaged in providing Healthcare Business Services, Receivable Cycle Management Services and Software Development for Health Care industry. It was submitted that E4e is providing high- end services to their client in the area of Healthcare business and is also in Receivable cycle management. It was further submitted that the profit and loss account was not available in this company’s case in the Prowess TM Database. It was also submitted that the assessee had also conducted a search on the MCA portal and it was found that this company had not filed its profit and loss account, and, therefore, the calculation of operating margin may be erratic.

The Ld. AR further submitted that while calculating the operating margin, the TPO has taken figures from the Directors’ Report and the profit figure given in the Directors’ Report has been assumed as the operating profit which is not correct. It was submitted that the amount of profit given in the Directors’ Report may be inclusive of non-operating incomes/cost which are not excluded by the TPO while computing the operating margin. The Ld. AR submitted that in absence of complete information, E4E should not be used as comparable company.

(ii) Fortune Infotec:

It was submitted that this company was functionally dissimilar as Fortune Infotech Ltd. was engaged in the business of providing BPO and KPO services to its third party clients. The Ld. AR submitted that this company serves a wide array of services to its clients that include document management, insurance claim processing, cheque processing, taxation, etc. It was further submitted that during the captioned year this company had faced the impact of an extraordinary activity i.e. sale of subsidiary company by the company during the year under consideration. The Ld. AR submitted that during the Financial Year 2008-09, the company sold one of its business units situated in Bangalore and further during the Financial Year 2009-10, the company sold one of its subsidiary situated in USA which affected the sales drastically. Since, the company has entered into an extraordinary activity during the year it would not be justifiable to take it as a comparable for the determination of the arm’s length price. It was also submitted that the turnover of Fortune Infotech Ltd. is abnormally low and, hence, not a suitable comparable company.

(iii) I-Gate Global:

The Ld. AR submitted that this company was functionally dissimilar to the assessee company as the assessee company is providing data processing services and is having low paid employees and is categorized under Business Process Outsourcing (BPO) sector whereas iGATE provides customized global sourcing solutions to a diverse group of clients. It was further submitted that in addition to a broad range of horizontal services including IT Helpdesk, Finance & Accounting, HR Services, Enterprise- wide Service Desk and Product Support, this company also provides a comprehensive suite of CIS & BPO services for the Insurance, Financial Services, Telecom, Life Sciences vertical markets. It was also submitted that this company also offers offshore services pertaining to Benefits Administration Lifecycle and, thus, there are significant functional differences between the two companies.

(iv) Jindal Intellicom Ltd:

The Ld. AR submitted that on perusal of the Annual Report of this company for F.Y. 2009-10, it was observed that the financial year of this company comprised of 15 months as against 12 months of the assessee company. Our attention was drawn to the very first page of the Annual Report wherein it is mentioned that the report is for fifteen months. It was submitted that this company cannot be taken as a comparable for this reason.

(v) Omega Healthcare:

The Ld. AR submitted that Omega Healthcare is engaged mainly in the business of medical coding and medical billing.

It mainly caters to the healthcare industry. Omega provides financing to qualified operators of skilled nursing facilities, assisted living facilities, rehabilitation centers, and acute care facilities and, therefore, this company was functionally dissimilar to the assessee company. It was further submitted that relevant financial data for FY 2009-10 of this company is not available in the Prowess database. It was further submitted that the assessee also conducted a search on the MCA portal and found that this company has not filed its profit and loss account and, therefore, the calculation of the operating margin may be erratic. It was submitted that while calculating the operating margin, the TPO might have used the figures from the Directors’ Report and the profit figure given in Directors’ Report might have been assumed as the operating profit which is not correct because the amount of profit given in the Directors’ Report may be inclusive of non-operating incomes which were not excluded while computing the operating margin. It was submitted that in absence of complete information Omega Health Care should not be used as a comparable company or alternatively complete financial statements of the company should be provided to the assessee.

(vi) TCS E-Serve International Limited:

It was submitted that this company was functionally dissimilar for the reason that the assessee company is providing data processing services and is having low paid employees and is categorized under Business Process Outsourcing service (BPO) sector whereas TCS E-Serve International Ltd. has maintained its leadership position in providing Information Technology enabled Services (ITeS) or Business Process Outsourcing (BPO) (transaction processing) Services to the Banking & Financial Services Industry domain (BFSI) and Travel, Tourism and Hospitality (TTH), which are considered as industry segment. It was further submitted that the geographic segments of this company are America, Europe and others. The Ld. AR also submitted that the company is 100% Subsidiary of TCS E- Serve Ltd. With reference to the Annual Report of the company, it was submitted that this company provides similar services as TCS E-Serve Ltd. and is not comparable to the appellant company for the reason of Different Business Model and High Supernormal Profit.

(vii) TCS E-Serve Ltd:

The Ld. AR submitted that this company is mainly engaged in providing Business Process Outsourcing services to the Banking & Financial service Industry and, therefore, it was functionally dissimilar to the assessee company. It was further submitted that the turnover of this company is Rs. 1359.41 crore for the year under consideration which is 79.14 times the turnover of assessee company. It was further submitted that this company is managed by the Tata Group and during the year under consideration, this company has made payments towards the use of the Tata brand. Consequentially, the use of the TCS brand has substantially increased the operating profits. It was also submitted that this company was a giant company as compared to the assessee company and, therefore, it could not be taken as a comparable.

(viii) Accentia Technologies Ltd:

The Ld. AR submitted that this comparable was rejected by the ITAT in assessee’s own case being functionally dissimilar in for the AY 2009-10 and there being no change in the functional profiles of both the companies, this company could not be taken as a comparable.

(ix) Cosmic Global Ltd:

The Ld. AR submitted that this comparable was rejected by the ITAT in assessee’s own case being functionally dissimilar in for the AY 2009-10 and there being no change in the functional profiles of both the companies, this company could not be taken as a comparable.

(x) Infosys BPO Limited:

The Ld. AR submitted that this comparable was rejected by the ITAT in assessee’s own case being functionally dissimilar in for the AY 2009-10 and there being no change in the functional profiles of both the companies, this company could not be taken as a comparable.

3.2 The arguments advanced for the inclusion of the 3 companies as comparables were as under:

(i) Microgenetic Systems Limited:

It was submitted that this company was rejected as a comparable by the TPO by applying the turnover filter of Rs.

5 crore as against the turnover filter of Rs. 1 crore applied by the assessee. It was further submitted that the TPO had himself applied the turnover filter of Rs. 1 crore in AY 2008-

09 and, therefore, the TPO had erred in changing the filter. Reliance was placed on the order of the ITAT Banglore Bench in the case of Assistant Commissioner of Income- Tax, Circle-12 (1), Bangalore vs. McAfee Software (India) (P.) Ltd reported in [2016] 68 taxmann.com 293

(Bangalore - Trib.) wherein the Tribunal, while discussing the issue of Turnover filter had held that as a general proposition, various filters are required to be adopted in selecting a company as a comparable. This is part of FAR analysis. However, there cannot be rigid rule or percentage fixed in adopting various filters. Generally, a turnover filter is adopted to avoid selection of high end companies (big companies) with that of 'minnows' in the similar line of business. How to adopt the filter depends on each case.

Reliance was also placed on the order of ITAT Delhi Bench in the case of Techbooks International Pvt. Ltd. Vs. DCIT reported in (2015) 7 TMI 473 – ITAT Delhi, wherein Micro

Genetics Systems Ltd. was directed to be included as a comparable.

(ii) Suntech Web Services P. Ltd:

This comparable was rejected by the TPO on the ground of functional dissimilarity. The Ld. AR submitted that this comparable can neither be rejected on the ground of functional disparity nor by applying the turnover filter. It was submitted that the turnover of the company is Rs. 7,88,55,854/- which is more than Rs. 5 crores and, thus, it cannot be rejected on the basis of turnover. It was also submitted that it is functionally a good comparable and the same was not rebutted by the TPO. It was prayed that this comparable be included.

(iii) BSI Financial Services:

The Ld. AR submitted that the TPO had rejected this comparable on the ground that it was an internal comparable and also on the ground of it failing the turnover filter. It was submitted that it is well settled law that when internal comparables are available the same need to be preferred. The Ld. AR placed reliance on the following judicial precedents in support of his contention that internal comparables should be preferred:

(i) Sumitomo Corporation India Pvt. Ltd. vs. DCIT, Cirde-24 (2), New Delhi reported in [2013] 24 ITR 385 (ITAT Delhi)

(ii) Hughes Systique India Pvt. Ltd. Versus ACIT, Circle 12(1), New Delhi, reported in [2013] 25 ITR (Trib) 556 (ITAT [Del]) (iii) UCB India (P) Ltd. vs. ArrT.10 (ST) 95 (Mumbai). (iv) Gharda Chemicals Limited vs. Dell, 130 TTJ 556 (Del) (v) Birlasoft (India) Ltd. vs. ACIT 136 ITJ 505 (Del) (vi) Destination of the World vs. DCIT [ITA no. 55341/Del/2010].

3.3 With respect to the assessee’s challenge to the disallowance of Rs. 3,10,542/- u/s 14A of the Act, the Ld. AR submitted that this ground was not being pressed in view of the smallness of amount in this year. The Ld. AR also submitted that the assessee reserves the right to raise the issue of disallowance in other assessment years should the need so arise.

5.0 We have heard the rival submissions and perused the material on record. It is seen that the Transfer Pricing Officer has rejected the CPM method applied by the assessee company and has applied TNMM for benchmarking the international transactions with the Associated Enterprises. The TPO selected 10 companies in the final list of comparables viz. Accentia Technologies Ltd., Cosmic Global Ltd., e4e Healthcare, Fortune Infotech Ltd., I-Gate Global Ltd., Infosys BPO Ltd., Jindal Intellicom Ltd., Omega Healthcare TCS E- Serve International Ltd., TCS E- Serve Ltd. The assessee is contesting all of these 10 companies and wants them to be excluded from the list of comparables. The assessee is praying for inclusion of three companies viz. Microgenetic Systems Ltd., Suntec Webservices (P)

Ltd. and BSI Financial Services inc. It is also seen that Cosmic Global Ltd., which was initially selected by the assessee as a comparable, is now being sought to be excluded.

5.1 We now take up the comparables being prayed for exclusion one by one as under:

(i) e4e Healthcare:

It has been submitted that this company is functionally dissimilar as this company is mainly engaged in providing healthcare business services, receivables cycle management services and software development for healthcare industry whereas the assessee company is only providing data processing and data entry services. It has also been submitted that the Profit & Loss account of this company is not available in the data base.

It has been pointed out that the TPO has taken figures from the Directors’ Report and the profit figure disclosed in the Directors’ Report is taken as the operating profit. We have gone through the Annual Report of e4e Healthcare and we note that the averment of the Ld. Authorised Representative is correct with respect to this company being functioning dissimilar. We note that e4e is providing high end services to their clients in the field of Healthcare business and are also in receivables cycle management. This company is also developing software for the Healthcare industry. We also note that this company was excluded by the ITAT Delhi Bench in the case of Bechtel India (P)

Ltd. vs. DCIT reported in 2016 taxmann. com 6 (Del. Tribunal) in AY 10-11 wherein this company was found to be functionally dissimilar to a company providing engineering design and related services to its AE whereas this company was into Healthcare outsourcing services as well as into software development. It has also been noted that this company was 100% Export Oriented Unit under the STPI guidelines. It is undisputed that the assessee company is only providing data entry services and data processing services and, therefore, the same cannot be considered to be a good comparable. Therefore, in view of the functional dissimilarity we direct the TPO to exclude this company from the final list of comparables.

(ii) Fortune Infotec:

It has been submitted that this company is engaged in the business of providing BPO and KPO services to its third party clients and it also provides services like document management, insurance claim processing, cheque processing and taxation.

Undisputedly, the assessee company is only providing data entry and data processing services and, therefore, it is evident that this company is functioning not similar to the assessee company. We also note that this company was directed to be excluded from the final set of comparables by the ITAT Delhi Bench in the case of Equant Solutions India (P.) Ltd. vs. DCIT in assessment year 2010-11 and reported in (2016) 66 taxmann.com.192 (Delhi Trib.) on the ground that this company has developed and owns its unique web based software by which it provides niche services to its customers and, therefore, it was not comparable with a company providing ITES services having no intangibles of its own. The ITAT Delhi Bench followed the order of ITAT Bangalore Bench in the case of 24/7 customer.com(P.) Ltd. vs. DCIT reported in (2013) 140 ITD 344 Bangalore while directing the exclusion of this company wherein it was noted that Fortune Infotec had developed its own software called ‘Finetran’ and ‘Image Index’ for performing specialized services in medical transcription and patient record management. Accordingly, in view of the funcational dissimilarity as noted by the coordinate benches and keeping in mind that the assessee company is only providing data entry and data processing services, we direct exclusion of Fortune Infotec Ltd. from the final list of comparables.

(iii) I-Gate Global:

It has been submitted that this company is also functionally dissimilar as I-Gate is providing customized global sourcing solutions to a diverse group of clients as well as shared corporate services along with IT Helpdesk, Finance and Accounting, HR services, Enterprise wide Service Desk etc. whereas assessee company is providing only data processing services. We have gone through the annual report to the company I-Gate Global and we find that this company, apart from providing Customized Global Solutions and Shared Corporate services, is also providing CIS & BPO services for the Insurance, Financial Services, Telecom, Life Sciences. In addition, this company is also offering offshoring services of the entire Benefits Administration Lifecycle.

Thus, it is very much evident that this company is not a good comparable for the assessee company. We also note that this company was excluded as comparable in assessment year 2010- 11 in the case of Ameriprise India (P) Ltd. vs. DCIT reported in 2016 taxmann.com 246 (Delhi Trib.) in the case of assessee providing IT enable services on the ground that an event of amalgamation had taken place and the financial results of the company had also included the results of amalgamating company and, therefore, in view of this extra ordinary financial event it was unfit for comparison with the assessee company. Similar view was taken by the ITAT Delhi Bench by excluding this company in the case of Techbooks International (P) Ltd. vs. DCIT reported in 2015, 63 taxmann.com 114 (Delhi Trib.). Accordingly, respectfully following the orders of the coordinate bench, we direct the TPO to exclude this company from the final set of comparables.

(iv) Jindal Intellicom Ltd:

This company has been objected to on the ground that the annual report of this company covers a period of 15 months as against 12 months of the assessee company. A perusal of the annual report of this company placed on record clearly mentions that this report is for 15 months. The Ld. Sr. DR also could not point out if the Data/Financial results for the 12 months period was available in the case of this company. In such a situation, we have no other option but to direct the TPO to exclude this company for the final set of comparables. It is directed accordingly.

(v) Omega Healthcare:

It has been submitted that this company is functionally dissimilar to the assessee company as Omega Healthcare is engaged mainly in the business of medical coding and medical billing. It has also been submitted that this company provides financing to qualified operators of skilled nursing facilities, assisted living facilities, rehabilitation centres, and acute care facilities. Undisputedly, the assessee company is only into providing data processing and data entry services and a perusal of the Annual Report/Directors’ Report of Omega Healthcare shows that Omega Healthcare is providing services like medical coding, medical billing as well as providing facilities, rehabilitation centres and acute care facilities. Thus, we agree with the averments of the Ld. Authorised Representative that this company is not functionally similar to the assessee company. We also note that this company was directed to be excluded as a comparable by the ITAT Delhi Bench in the case of Bechtel India (P) Ltd. vs. DCIT in assessment year 2010-11 and reported in 2016 taxmann.com 6 (Delhi Trib.). The ITAT Delhi bench directed the exclusion of this company from the set of comparables on the ground that this company was involved in provision of off shoring Healthcare business services like medical coding, billing, accounts receivable management, claims processing, and healthcare revenue management etc. and was, thus, functioning dissimilar to a company providing engineering design and related services. On similar reasoning and duly noting the fact that the functional dissimilarity between the assesseecompany and Omega Healthcare is undisputedly established, we direct the TPO to exclude this company from the final list of comparables.

(vi) TCS E-Serve International Limited :

This company has been objected to as a comparable on the ground of having a different business model and having super normal profits. A perusal of the annual report shows that TCS E- Serve International Ltd. provides Information Technology enabled services/Business Processing Outsourcing services to the banking and financial industrial services industry, Travel, Tourism and Hospitality industry. It is also seen that the geographic segments of the company are Americas, Europe and others continents. On the other hand, the assessee company is only providing Data Processing and Data Entry Services and we have no hesitation in holding that TCS E-Serve International Ltd. is functionally dissimilar to the assessee company and the same cannot be taken as a comparable. We also note that this company was excluded by the ITAT Delhi bench from the final list of comparables in the case of Bechtel India Pvt. Ltd. vs. DCIT for assessment year 2010-11 and reported in 66 taxmann.com 6 (Delhi Trib.) on the ground that this company had made payments towards the use of Tata brand and the use of the brand had substantially increased the operating profits. In view of the observations and findings of the coordinate bench of the Tribunal in the case of Bechtel India Pvt. Ltd. (supra), which remain undisputed, we direct the TPO to exclude this company from the final set of comparables.

(vii) TCS E-Serve Ltd:

This company has been objected on the grounds of being functionally different, having super normal profits and having a turn over which is 79 times more than that of the assessee company. Even if, we do not consider the assessee’s contention for exclusion on the ground of the turnover being 79 times more than that of the assessee company, we note that the ITAT Delhi Bench in the case of Bechtel India Pvt. Ltd. vs. DCIT in assessment year 2010-11 and reported in (2016) 66 taxmann.com 6 (Delhi Trib.) has directed exclusion of this company on the ground that this company had made payments towards use of Tata brand which had substantially increased the operating profits. It is very much undisputed that the assessee company does not enjoy the benefits of brand value and on this ground itself, TCS E-serve Ltd. cannot be considered to be a good comparable to the assessee company. In view of the order of the coordinate bench in the case of Bechtel India Pvt. Ltd. vs. DCIT (supra) we direct the TPO to exclude of this company from the final set of comparables.

(viii) Accentia Technologies Ltd:

It is seen that this comparable has been excluded by the ITAT Delhi Bench in assessee’s own case for assessment year 2009-10 in on the ground of being functionally different. It is undisputed that the functional profile of the assessee as well as Accentia Technologies Ltd. has remained unchanged. Therefore, in view of this company having been excluded by the ITAT assessee’s own case for assessment year 2009-10 and having due regard to the principle of consistency we direct exclusion of this company in the year under consideration also.

(ix) Cosmic Global Ltd:

It is seen that this comparable has been excluded by the ITAT Delhi Bench in assessee’s own case for assessment year 2009-10 in on the ground of being functioning different. It is undisputed that the functional profile of the assessee as well as Cosmic Global Ltd. has remained unchanged.

Therefore, in view of this company having been excluded by the ITAT assessee’s own case for assessment year 2009-10, having due regard to the principle of consistency we direct exclusion of this company in the year under consideration also.

(x) Infosys BPO Limited:

It is seen that this comparable has been excluded by the ITAT Delhi Bench in assessee’s own case for assessment year 2009-10 in on the ground of being functioning different. It is undisputed that the functional profile of the assessee as well as Infosys BPO Ltd. has remained unchanged.

Therefore, in view of this company having been excluded by the ITAT assessee’s own case for assessment year 2009-10, having due regard to the principle of consistency we direct exclusion of this company in the year under consideration also.

5.2 Now, we take up the companies which the assessee is praying for being included in the list of comparables – (i) Microgenetic Systems Limited:

The Ld. Authorised Representative has argued at length that this company should be included in the list of comparables as it was rejected only on the ground of application of turn over filter of below Rs. 5 crores. We find that this comparable was not included as a comparable in assessment year 2009-10 also and the ITAT Delhi bench had rejected the assessee’s plea for including this company as a comparable vide order dated 9th June, 2016 in ITA no. 481/Del./2014 and reported in (2016) 6 TMI 1253 ITAT Delhi by holding that as this company was into activity of medical prescription, the same cannot be considered to be a low end BPO as the activity involved a process of knowledge.

The ITAT Delhi Bench observed in its order for assessment year 2009-10 as aforesaid that applying the functional test is a primary requirement for consideration of a company as a comparable. It was observed that since the assessee company was carrying out the work through low skilled or under graduates, it cannot be set to be functionally comparable to Microgenetic Systems Limited. Respectfully following the order of the co-ordinate bench in assessee’s own case and in view of the principle of consistency, we reject the assessee contention for including this company in the final set of comparables.

(ii) Suntech Web Services P. Ltd:

It is seen that the TPO has rejected the assessee’s contention for including this company as a comparable on the ground that this company was not functionally similar to the assessee company.

We have gone through the annual report of this company and we find that the services from which income is generated in the case of this company has not been specified and the Profit & Loss Account only mentions income from services. Therefore, it is our considered opinion that the observations of the TPO regarding functional similarity not having been established are correct. We also note that this company was sought to be included by the assessee before the ITAT in assessment year 2009-10 also and the ITAT vide order dated 9th June, 2016 in ITA no. 481/Del./2014 had restored the issue to the file of the TPO for due verification and to consider the same afresh for inclusion or exclusion in the final list of comparables based on the determination of functional similarity. Respectfully following the order of the coordinate bench in assessee’s own case for assessment year 2009-10, we restore this comparable to the file of the TPO for due verification reconsideration for inclusion or exclusion in the final list of comparables subject to the assessee establishing functional similarity with this company.

(iii) BSI Financial Services:

This comparable has been rejected by the TPO on the ground that it is an internal comparable of the assessee. It has been submitted by the Ld. Authorised Representative that internal comparables are to be preferred over external comparables for undertaking the benchmarking analysis for determining the Arm’s Length Price of the international transactions. A perusal of the order of the TPO shows that the TPO has not assigned any reason for rejecting this company as a comparable. In view of the fact that this comparable has been rejected without assigning any reason, we deem it fit to restore this comparable to the file of the TPO to examine it afresh and decide on the includibility or excludability of this company as a comparable after giving proper opportunity to the assessee to present its case and, thereafter, adjudicate the issue by recording a specific finding.

5.3 Coming to the issue of disallowance u/s 14A amounting to Rs. 3,68,759/-, it has been submitted by the Ld. Authorised Representative that this issue is not being pressed in view of the smallness of amount. Accordingly, we dismiss this ground as not pressed with liberty to the assessee to raise a similar ground in other assessment years if the need so arises.

Order pronounced in the open court on 23.08.2018