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Income Tax Appellate Tribunal, DELHI BENCH ‘I’ : NEW DELHI
Before: SHRI B.P. JAIN & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Since common questions of facts and law have been raised in both the aforesaid cross appeals emanated from single impugned order, the same are being disposed off by way of consolidated order to avoid repetition of discussion.
The Appellant, Deputy Commissioner of Income-tax, Circle 11 (1), New Delhi (hereinafter referred to as ‘the taxpayer’) by filing the present appeal being sought to set aside the impugned order dated 30.10.2012, passed by the CIT (Appeals)-XX, New Delhi qua the assessment year 2007-08 on the ground that :-
“On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.58,25,317/- made on account of arm’s length price.” 3. The Appellant, M/s. Everest Business Advisory India Pvt.
Ltd. (hereinafter referred to as ‘the taxpayer’) by filing the present appeal being sought to set aside the impugned order dated 30.10.2012, passed by the CIT (Appeals)- XX, New Delhi qua the assessment year 2007-08 on the grounds inter alia that :-
“That on the facts and circumstances of the case, and in law;
The Ld. CIT-A & AO erred in rejecting the benchmarking approach adopted by the appellant in the transfer pricing study and thereby making a transfer pricing adjustment of Rs.42,17,582/- to the income of the appellant by holding that the international transaction of "Export of services" of the appellant does not satisfy the arm's length principle envisaged under the Income tax Act, 1961 (the Act).
2. The Ld. CIT-A has erred both in facts and in law in confirming the action of the Ld. Assessing Officer (" AO") as the reference made by the Ld. AO suffers from jurisdictional error. The Ld. AO has not recorded any reasons in the draft assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the Ld. Transfer Pricing Officer ('TPO') for computation of the arm's length price ('ALP'), as is required under section 92CA(1) of the Income-tax Act 1961 ('Act').
3. The Ld. CIT-A has erred both in facts and in law in confirming the action of the Ld. TPO of making an adjustment to the income of the appellant by Rs.42,17,582/- holding that the international transactions do not- satisfy the arm's length principle envisaged under the Act and in doing so, grossly erred in: 3.1. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the instant case.
3.2. not appreciating that the assessee had prepared the detailed contemporaneous Transfer Pricing documentation bona fide and in compliance with the Act and Income Tax Rules 1962 ("the Rules").
3.3. not appreciating the fact that the assessee had selected uncontrolled comparable companies based on a detailed Functional Asset and Risk ('FAR') analysis following a methodical benchmarking process thereby rejecting the comparable company set/ data which had been provided by the assessee for benchmarking its transactions of provision of IT enabled services, without giving reasons that were cogent or backed by any sound evidence.
3.4. disregarding multiple year/ prior years' data as used by the assessee in its Transfer Pricing ('TP') documentation report and holding that current year (i.e. FY 2006-07) data for comparable companies should be used despite the fact that the same was not available to the assessee at the time of preparing its TP documentation, and in interpreting the requirement of 'contemporaneous' data in the Rules to necessarily imply only current/ single year (i.e. FY 2006-07) data.
3.5. not appropriately considering the functions, assets and risk profile of the companies used for comparison with the IT enabled services provided by the assessee.
3.6. by excluding certain companies on the basis of declining sales/ declining profitability.
3.7. by including certain companies which are not comparable to the assessee in terms of functions performed, assets employed and the risks assumed;
3.8. by including certain companies which are not comparable to the assessee in terms of the turnover or abnormal margins , varied cost structures or in respect of controlled / uncontrolled transaction
3.9. by treating the assessee as a profit center and not considering the fact that the assessee is operating as a cost plus unit and thereby characterizing the appellant as a full risk bearing entrepreneur.
3.10. by including the segments of the companies despite knowing that margin calculations of such segments are subjective.
3.11. by using the power of under section 133(6) of the Income Tax Act,1961 for obtaining the information
3.12. violating the principles of natural justice by not providing the assessee a reasonable opportunity of being heard while rejecting / including certain companies;
3.13. denying a risk adjustment to the operating profit margins of the comparables, and in doing so have grossly erred in:
3.13.1. stating that detailed working or formula applied for calculation of risk adjustment has not been provided by the assessee while also failing to clarify what would constitute the I detailed working' for the purpose of undertaking a risk adjustment
3.13.2. reaching a conclusion that risk adjustment is required but in the absence of the formula cannot be provided for 3.14. violating the principles of natural justice by not sharing with the assessee (despite having adequate, time at their disposal to do so) the concerns/issues in this regard (in terms of the alleged/ purported shortcomings/ deficiencies in the assessee's claim for a risk adjustment) and thereby denying the assessee a reasonable opportunity to study/examine the said basis and provide its comments/ objections thereto;
3.15. disregarding the fact that the price of international transactions of the assessee in the past years have been accepted by the department as being at Arms' Length;
3.16. Computing the profit margins of the comparable companies by taking arbitrary decisions in respect of inclusion / exclusion of certain items of cost/ revenue and in total disregard to established judicial precedents;
3.17. disregarding judicial pronouncements in India in making the TP adjustment; and 3.18. disregarding the prevalent law by denying the benefit of (+ / -) 5% mentioned in the proviso to section 92C(2) of the Act to the assessee.
4. On the facts and in the circumstances of the case and in law, penalty cannot be initiated under section 271(1)(c) of the Act.
5. On the facts and in the circumstances of the case and in law, the Ld. AO has erred by charging interest u/s 234 Band 234 C of the Act.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : Everest Advisory India Private Limited, the taxpayer was incorporated as a captive unit of Everest Group of companies to provide advisory and Information Technology Enabled Services (ITES). It also provides ITES research and analysis on issue of “outsourcing market” and advisory services to support client engagement owned by the AE. During the year under assessment, taxpayer entered into international transactions with its AE as reported u/s 92CE Income-tax Act, 1961 (for short ‘the Act’) as under :-
IT Enabled Services Rs.5,01,05,563/- Advisory Services Rs.2,70,97,470/-
5. The taxpayer reported its financial result for FY 2006-07 as under :-
Description Amount Total Revenue Rs.9,00,74,177 Total Cost Rs.8,36,29,769 Operating Profit (PBIT) Rs.72,99,720 Operating Profit to Cost Ratio 8.72%
The taxpayer selected itself as a tested party, applied Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) for the purpose of search for uncontrolled comparables. The taxpayer taken 13 comparables with average profit margin of 12.06% on cost as against taxpayer’s margin of 15% on operating cost and found its international transaction at arm’s length.
TPO, after accepting all the filters or quantitative criteria applied by the taxpayer for benchmarking the international transaction applied additional filters viz. using financial information for FY 2006-07 and to exclude the companies having abnormal financials only after defining “abnormal variations”, introduced some other filters like rejecting companies having turnover less than Rs.1 crore; companies having ITES revenues of at least 75% of its revenue from ITES; rejecting companies having consistent losses/diminishing revenue filter; rejecting companies having export earnings of more than 25% of revenue etc. for benchmarking the international transaction.
8. Finally, TPO selected 25 comparables having average of 28.37% (30.07% less working capital adjustment of 1.70%) and consequently determined the arm’s length price as under :-
Arm’s Length Price Rs.5,59,30,880 Price shown in the Rs.5,01,05,563 international transactions Shortfall being adjustment u/s Rs.58,25,317 92CA
The taxpayer carried the matter before the ld. CIT (A) who has only removed three companies viz., Mold Tek Technologies Ltd., Triton Corp. Ltd. and Maple Solutions Ltd.. Feeling aggrieved, the taxpayer as well as the Revenue has come up before the Tribunal by way of filing the present appeals.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
The taxpayer by moving a separate application sought to raise additional grounds in this appeal to the following effect on the ground that these are legal grounds as the necessary facts are already on record :-
“1. That on facts and circumstances of the case the TPO erred in wrong computation of the NCP margin of the assessee, by not including Miscellaneous Income of Rs.4,09,843/- as operating income for the purpose of computing OP/OC.
2. That on facts and circumstances of the case and in law, the AO & CIT (A) grossly erred in not giving full credit of pre-paid taxes amounting to Rs.81,35,018/- paid by way of advance tax and tax deducted at source.”
Ld. DR for the Revenue opposed the application for additional evidences on the ground that by way of additional evidences, only question of law can be raised and the grounds now sought to be raised are factual one and all these expenses are operating in nature and that recovery from the employee from current salary cannot be non-operating in nature. Both ld. AR for the taxpayer as well as ld. DR for the Revenue relied upon the decision rendered by the Hon’ble Supreme Court in National Thermal Power Company Ltd. vs. CIT – (1998) 229 ITR 383 (SC).
Ratio of the judgment in case of National Thermal Power 13.
Company Ltd. (supra) is that, “the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.”
The Tribunal has jurisdiction to examine the question of law which arises from facts. Moreover, the facts now sought to be brought on record by way of additional grounds were not before TPO due to inadvertence on the part of the taxpayer, the perversity of facts certainly turned to be a question of law. So, when question of law arises from factual perversity as in the case at hand, we are of the considered view that additional grounds are required to be allowed as it will go to the roots of the case. Consequently, application for additional evidence moved by the taxpayer is allowed.
So far as international transaction qua provision of advisory services to the tune of Rs.2,70,97,470/- is concerned, TPO has accepted the profitability of this segment. However, TPO has disputed the back office research support services and has proposed the TP adjustment of Rs.58,25,317/-. The TPO has accepted the TNMM as the most appropriate method applied by the taxpayer with operating profit / operating cost as Profit Level Indicator (PLI). TPO also accepted billing method of AE as cost plus 15%.
Ld. DR for the Revenue contended that before examining the exclusion or inclusion of the comparables for benchmarking the international transaction qua ITES, it is required to decide as to whether the taxpayer is a low end Business Processing Office (BPO) or Knowledge Processing Office (KPO).
Undisputedly, neither TPO nor the taxpayer in their TP study has analyzed the verticals of the profile of comparables. It is also not in dispute that whatever search has been carried out by the taxpayer has been rejected by the ld. TPO and he has conducted fresh search himself. It is also not in dispute that TPO analyzed both the agreements entered into between taxpayer and AE, available at pages 75 and 85 of the paper book. TPO while conducting its search applied section 10B(4).
The ld. DR for the Revenue to support his argument that the taxpayer is not a low end BPO rather KPO referred to Master Intellectual Property Agreement (MIP Agreement) entered into between the taxpayer and its AE, available at pages 75 to 89 of the paper book. For ready perusal, operative part of MIP Agreement is reproduced as under :-
“MASTER INTELLECTUAL PROPERTY AGREEMENT
This MASTER INTELLECTUAL PROPERTY AGREEMENT (this Master IP Agreement'), is entered into, between Everest Global Inc., a Texas corporation (“IP Owner") which is the successor in Interest to Everest Partners. LP., and Everest Business Advisory India Private Limited, an India corporation ("IP Developer"), WHEREAS IP Owner owns certain valuable Intellectual property as below (the Intellectual Property”), and IP Owner may in the future need to have additional Intellectual Property developed; and,
WHEREAS IP Developer has in the past developed intellectual property on behalf of the IP Owner and may in the future develop additional intellectual property on behalf of the IP Owner; and WHEREAS IP Owner has in the past permitted IP Developer to use Its Intellectual Property in exchange for certain agreed fees and IP Owner is willing to continue to do so In the future; and.
WHEREAS the parties desire to document and ratify their previous agreements relating to the development and use of Intellectual Property and to formalize their agreements regarding the future development and use of Intellectual Property. ….. g. "Intellectual Property" refers collectively to all research, systems, methods, know-how, processes, specifications, forms, templates, operating procedures, patents, copyrights, trademarks, trade names, trade secrets, proprietary information, techniques, models, inventions, customer information, software programs, sourcing processes and procedures, methodologies, and trade secrets relating to the business of the IP Owner or its Affiliates, including, but not limited to, the items listed in Attachment B hereto all whether or not patented or copyrighted in any country.
DEVELOPMENT OF INTELLECTUAL PROPERTY. a. Development, IP Developer agrees that it will employ all personnel and make all efforts necessary for the continued development, maintenance expansion and/or enhancement of IP Owner’s Intellectual Property in a timely manner, in accordance with IP Owner’s specifications and with industry standards.
b. Costs, in consideration of the services stated in subsection "a" above, IP Owner agrees that it will pay to IP Developer all Costs of Development incurred by IP Developer for the development, maintenance, expansion and/or enhancement of Intellectual Property by IP Developer, together with a profit margin, or “uplift”, of 15% (FIFTEEN PERCENT) of such Costs of Development. Attachment C shows the allocation methodology for indirect cost. c. Payment. Costs of Development shall be paid by IP Owner in U.S. Dollars.
4. USE OF INTELLECTUAL PROPERTY a. Use. In consideration of the payments stated below, during the term of this Master IP Agreement, IP Owner agrees to make the Intellectual Property freely available for the commercial use of IP Developer. Without limiting the foregoing, IP Owner agrees that it will:
i. Make available to IP Developer all Everest trademarks and trade names. ii. Make available to IP Developer all of its written or electronic marketing materials, including but not limited to all websites and pages, webinars, brochures, and other client communication materials iii. Provide to IP Developer all software used in assisting clients with use and implementation of its Intellectual Property. iv. Allow IP Developer to use any and all factual information, examples, models, samples, referrals. studies, to market Intellectual Property and related services or implement strategies relating to Intellectual Property. v. Allow IP Developer access to its proprietary databases (“Database Access”) b. Fees. In consideration for the agreements by IP Owner stated above, IP Developer shall pay IP Owner fees calculated in accordance with the Method for Calculating Fees for use of Intellectual Property set forth in Attachment A.
The ld. DR for the Revenue contended that since the taxpayer is “intellectual property developer” as is apparent from Para 1 of MIP Agreement and carrying out numerous works qua for developing intellectual property as has been referred in Para (g) above it is not a low end BPO. The ld. DR also referred to para 3(a) reproduced in the preceding paras wherein the taxpayer agreed that it will employ all personnel all personnel and make all efforts necessary for the continued development, maintenance expansion and/or enhancement of IP Owner’s Intellectual Property in a timely manner, in accordance with IP Owner’s specifications and with industry standards.
Para 4 of the MIP Agreement further provides that the AE has made available to the taxpayer (IP Developer) of Everest trademarks and trade names, all of its written or electronic marketing material, all software used in assisting clients with use and employment of its intellectual property, to use any and all factual information, examples, models samples, etc. allowed developer to access to the property data base and that IP developer shall pay IP owner fees calculated in accordance with the method for calculating fees for use of intellectual property set forth in Attachment A. Ld. DR contended that all these facts go to prove that the taxpayer is not a low end BPO.
However, when we examine MIP Agreement in totality, as contended by ld. AR for the taxpayer, it has become apparently clear that no doubt, the taxpayer has agreed to develop intellectual property for its AE with its own work force for which the entire know how has been undisputedly provided by the AE to the taxpayer including using the intellectual property owned by the AE for developing further intellectual property. Para 3a. is categoric enough that taxpayer will employ all personnel and make all efforts necessary for continued development, maintenance, expansion and/or enhancement of IP Owner’s Intellectual Property in a timely manner in accordance with the IP owner’s specifications and with industry standards. MIP Agreement is also categoric enough that AE shall pay to the taxpayer cost of development incurred by the IP developer with a profit margin or uplift of 15%, or with a profit margin or uplift of 15% of such cost of development.
As per para 7e. of the MIP Agreement, AE also agreed to indemnify, defend and hold harmless the IP developer against any claims that any intellectual property, it provides to them violates any intellectual rights of any third party.
Furthermore, when we examine Attachment B of MIP Agreement, it is categorically mentioned that intellectual property includes research and implementation materials; all research, white papers, manuals or other materials, whether print or electronic, relating to the Intellectual Property or to the strategies or services of IP owner; and software (any software created or owned by IP Owner), in addition to the definition mentioned in para 2g of the Agreement, which shows that all the materials necessary for developing intellectual property including intellectual property itself are owned by AE.
The ld. DR for the Revenue further contended that since AE is in the business of advisory services and is entitled to sell in the market, it cannot be a low end BPO or KPO. However, when the ld. TPO has not disputed international transactions qua advisory services which is admittedly a KPO rather made ALP adjustment qua ITES, both cannot be clubbed to examine the profile of the taxpayer.
Furthermore, when we examine the risk assumed by the taxpayer having been described in its TP report, available at pages 160 to 196 of the paper book, relevant pages 174 & 175, it is categorically clear that so far as provision of ITES (Research) services rendered by the taxpayer to its AE is concerned, the entire service delivery risk, market risk, foreign risk, credit risk, capacity utilization risk and Government policy risk is assumed by AE meaning thereby that the taxpayer is not a tax bearing entity rather working for its AE on cost plus mark up basis.
The ld. DR for the Revenue further contended that when the TPO has not examined the fact if the taxpayer is a KPO or BPO who is into development of IP, it cannot be said that it is a low end BPO. However, we are of the considered view that when it is a settled principle of law that content and value of the services rendered is necessary for comparability and the entire material including TP report of taxpayer was there before him.
No doubt, Hon’ble Delhi High Court in Rampgreen Solutions (P.) Ltd. vs. CIT – (2015) 60 TAXMANN.COM 355 (Delhi) held that as far as possible comparables must be selected keeping in view the comparable factor and while applying TNMM broad functionality is not sufficient. However, perusal of para 34 of Rampgreen Solutions (P.) Ltd. (supra), available at page 300 of the case laws compilation, categorically defines BPO and KPO which is reproduced as under for ready perusal :-
“34. We have reservations as to the Tribunal's aforesaid view in Maersk Global Centers (India) Pvt. Ltd. (supra). As indicated above, the expression 'BPO' and 'KPa' are, plainly, understood in the sense that whereas, BPO does not necessarily involve advanced skills and knowledge; KPO, on the other hand, would involve employment of advanced skills and knowledge for providing services. Thus, the expression 'KPO' in common parlance is' used to indicate an 1TeS provider providing a completely different nature of service than any other BPO service provider. A KPO service provider would also be functionally different from other BPO service providers, inasmuch as the responsibilities undertaken, the activities performed, the quality of resources employed would be materially different. In the circumstances, we are unable to agree that broadly ITeS sector can be used for selecting comparables without making conscious selection as to the quality of the content of services. Rule 10B(2)(a) of the Income Tax Rules, 1962 mandates that the comparability of controlled and uncontrolled transactions with reference to service/ product characteristics. This factor cannot be undermined by using a broad classification of ITeS which takes within its fold various types of service provider, an entity rendering KPO content and value. Thus, where the tested party is not a KPO service provider, an entity rendering KPO services cannot be considered as a comparable for the purposes of Transfer Pricing Analysis. The perception that a BPO service provider may have the ability to move up the value chain by offering KPO services cannot be a ground for assessing the transactions relating to services rendered by the BPO service provider by benchmarking it with the transactions of KPO services providers. The object is to ascertain the ALP of the service rendered and not of a service (higher in value chain) that may possibly be rendered subsequently.”
Hon’ble High Court has categorically held that the perception that the BPO services provider may have the ability to move up the value chain by offering KPO services cannot be a ground for assessing the transaction relating to services rendered by BPO service provider by benchmarking it with the transaction of KPO service provider. The object is to ascertain the ALP of service rendered and not of a service (higher in value chain) that may possibly be rendered subsequently. So, in other words, we can say that the contents and value of the services is necessary for comparability.
When we examine flow of work between the taxpayer to its AE in ITES segment, it cannot be treated as a high end KPO as contended by ld. DR. For ready perusal, flow of work between the taxpayer and its AE is reproduced as under :-
“1. Theme on which research is to be performed is provided by Everest USA.
2. Concept and Overall Content of the report is provided by Everest USA.
3. Primary and secondary sources from where data is to be gathered is also specified by Everest USA.
4. The examples, models, samples, referrals, studies, data and recommendations for development of content are also provided by Everest USA.
Everest USA, monitors the progress of works performed by Everest India through weekly calls, video conferencing and visits.
6. Everest USA is responsible for content and quality of the report to the end client.
7. Everest India is being remunerated at cost plus 15% for the functions of content development of reports being performed.
Everest India does not own any intangibles.”
Hon’ble High Court on the basis of aforesaid categorization of KPO and BPO excluded Vishal and Eclerx which are into KPO in Rampgreen Solutions (P.) Ltd. (supra) case.
Hon’ble High Court in Rampgreen Solutions (P.) Ltd. (supra) has also held that the comparable transactions / entities must be selected on the basis of similarity with the controlled transaction / entity. Comparability of controlled and uncontrolled transaction has to be judged inter alia with reference to comparability factor as indicated under Rule 10B (2) of the Income-tax Rules, 1962. So, function and actual services rendered by the taxpayer vis-à-vis comparables are the relevant factors for benchmarking the international transaction and not that the taxpayer / comparables are KPO or BPO. Moreover, TPO has gone into detailed functional profile of all the comparables by introducing additional filters in his TP study. The contention of the ld. DR that the taxpayer has challenged only low margin comparable cannot be accepted because the issue of comparability is factual one which requires to be determined on case to case basis by going into their functional profile.
Furthermore, when we examine TP study conducted by TPO by conducting Search I and Search II, available at pages 180, 181 & 182 of the paper book, it has accepted the filters applied by the taxpayer for comparability which are reproduced as under for ready reference :- “Of the 644 companies identified for qualitative analysis, 631 companies were rejected for reasons including the following : • Companies undertaking different functions compared to Everest India; • Companies having persistent operating losses; • Companies having abnormal variation in financials, and; • Companies engaged in significant related party transactions.”
So, when the TPO has strictly compared the company strictly in the lights of their functions vis-à-vis the taxpayer by accepting segmental Profit & Loss account of the assessee, available at pages 88 * 89 of the paper book, it cannot be said that the comparability analysis has not been correctly conducted by TPO though the benefit of decision of Rampgreen Solutions (P.) Ltd. (supra) was not available with him.
The contention of the ld. DR for the Revenue that taxpayer is developing patents and as such cannot be treated as a low end BPO is not sustainable because MIP Agreement when read in entirety goes to prove that no doubt, the patents are being developed by the taxpayer that too with entire assistance of the AE but ultimately it becomes property of its AE which cannot change its business model.
So, when we examine the services rendered by the taxpayer to its AE in the light of the fact that the taxpayer is a risk free entity working on cost plus mark up and does not own any intangibles, the taxpayer is a low end BPO.
Now, in the backdrop of the aforesaid findings, facts and circumstances of the case and arguments addressed, we would examine suitability of companies viz., (i) Accentia Technologies Ltd. (Seg.), (ii) Eclerx Services Ltd.; (iii) HCL Comnet Ltd. (Seg.); (iv) Vishal Information Technologies Ltd.; (v) Wipro Ltd. (Seg.); (vi) Infosys BPO Ltd.; (vii) Informed Technologies India Pvt. Ltd.; (viii) R Systems International; and (ix) Iservices India Pvt. Ltd. as comparables sought to be excluded by the ld. AR for benchmarking its international transaction qua ITES (Research) one by one as under.
ACCENTIA TECHNOLOGY LTD (SEGMENT)
The ld. AR for the taxpayer sought to exclude Accentia from the final set of comparables for benchmarking the international transaction qua ITES segment on the grounds inter alia that it is functionally dissimilar; that Accentia has undergone merger and acquisitions leading to abnormal growth; that Accentia has more than 60% of the operating cost towards overseas expenses as against nil of the taxpayer; that Accentia incurs substantial marketing expenses to the extent of 28% (Rs.8.14 crores of Rs.28.7 crores of the sales against almost nil of the taxpayer) and drew our attention towards relevant documents of the annual report available at pages 212 to 225 of the paper book.
However, on the other hand, ld. DR for the Revenue opposing the exclusion of Accentia contended inter alia that when TPO as well as taxpayer have taken the entire verticals of ITES as comparables and now if strict functional comparability is insisted, then Flextronics Software is also to be excluded; that any comparable can be excluded on the ground of extra ordinary events only if it is demonstrated by the taxpayer that it has impacted net profitability and relied upon the case of the coordinate Bench of the Tribunal in M/s. Virage Logic International India Brand vs. JCTI – (2016) 72 taxmann.com 11 (Delhi).
As discussed in the preceding paras, comparability for the purposes of benchmarking the international transactions is to be examined on the basis of contents and value of services rendered by the taxpayer to its AE vis-à-vis comparables and not on the ground that if Accentia is excluded then some other comparable is also liable to be excluded. So far as functional profile of Accentia is concerned, it is into business of medical transcription, medical billing, medical coding, health care receivables management which includes development of software products. As per annual report of Accentia, available at page 212 to 225 of the paper book, to consolidate the company, it has successfully amalgamated M/s.
Geosoft Technologies (Trivandrum) Limited and Iridium Technologies (India) Private Limited, during the relevant year leading to its 150% growth as compared to previous years i.e. from Rs.10.5 crores to RS.24.7 crores which is 1007% in revenue and 3197% in profitability as compared to the earlier years, as is evident from balance sheet of Accentia, available at page 214 of the annual report.
Furthermore, balance sheet available at page 212 to 214 of the paper book shows that Accentia incurred 68% of the operating cost towards overseas business expenses as against nil of the taxpayer leading to different business model by debiting Rs.5.98 crores towards employee cost and debiting Rs.8.14 crores towards overseas business marketing cost. Accentia during the relevant year incurred substantial marketing expenses of 28% i.e. Rs.8.14 crores on the sale of Rs.28.7 crores as against almost nil of the taxpayer. For ready reference, financials of Accentia extracted by the ld. AR from annual report are reproduced as under :-
Accentia Technologies Ltd. FY 05-06 FY 06-07 FY 07-08 Particulars Heavy Heavy mergers & mergers & acquisitions acquisitions TOTAL OPERATING 285,000 287,231,663 509,346,944 REVENUE %age increase in revenue 1007% 77% TOTAL EXP. 2,603,757 215,411,684 349,332,496 OPERATING PROFIT (2,318,758) 71,819,979 155,450,748 % increase in profits 3197% 116% OP/OC -89.05% 33.34% 44.50% Ltd. in available at page 183 of the case law compilation and Ciena India (P.) Ltd. vs. DCIT – (2015) 57 taxmann.com 329 (Delhi – Trib.) decided the issue of merger and demerger for the purpose of comparability and held that company cannot be considered as comparable because of financial results distorted due to mergers and demergers etc.
Coordinate Bench further ordered to exclude Accentia in ICC India Pvt. Ltd. vs. DCIT in available at page 348 of the Case Law Compilation Vol.2, by following Ciena India (P.) Ltd. and Taluna India Pvt. Ltd. (supra) ordered to exclude Accentia as comparable vis-à-vis ICC India, both into providing low end BPO services on ground of merger and demerger.
So in view of what has been discussed above, when we see the financial results of Accentia discussed in the preceding paras, extra ordinary growth, extra ordinary operating cost towards overseas business expenses and substantial market cost towards overseas business expenses, it leads to the irresistible conclusion that growth of 3197% in profitability of Accentia in comparison to its earlier year itself is an eye opener to make it incomparable with the taxpayer. So, we order to exclude Accentia from the final list of comparables.
ECLERX SERVICES LTD. (ECLERX)
The taxpayer sought to exclude Eclerx from the final set of comparables for benchmarking the international transaction qua ITES on ground of functional dissimilarity; having huge brand value being in top 20 companies; having significant intangibles and that Eclerx has been excluded by TPO on ground of functional dissimilarity in assessee’s own case in AYs 2011-12, 2012-13 and CIT (A) excluded Eclerx in AY 2009-10.
Ld. DR for the Revenue reiterated his arguments that taxpayer itself is a KPO and even if TPO has excluded Eclerx in earlier years, he cannot be debarred from including the same for the year under consideration.
When we examine the functional profile of Eclerx from its annual report, relevant page 321 of the paper book, which is Chairman’s message, it is categorically mentioned that, “Eclerx is a very different company, with industry specialized services for meeting complex client needs. We are sometimes compared to a BPO or an IT offshoring company, which we are not. We are a data analytics KPO service provider specializing in two business verticals – Financial Services and Retail and Manufacturing. We provide solutions that do not just reduce cost, but help our clients increase sales and reduce risk, by enhancing efficiencies and by providing valuable insights that empower better decisions. We provide services to 50 large global corporations across multiple geographies.”
Furthermore, Eclerx is having huge brand value as is evident form annual report, relevant page 317 of the paper book, wherein Eclerx is considered as, “we win our fair share of accolades – we’ve been named as one of the “Top 20 Companies to Watch” by Business Today, “Best of Breed” by AT Kearney, “Pricing Experts” by the Yankee Group and “Leading KPO” by Nelson Hall. Industry associations have also recognized us for our contribution – we are Pricing Experts at the Professional Pricing Society and the only KPO on the rolls of the International Swaps and Derivatives Association.”
Furthermore, as per annual report and information collected u/s 133 (6), available at pages 313 to 329 of the paper book, Eclerx is providing diverse nature of services having own segmental data for providing numerous such services to its clients. Moreover Eclerx has employed 1500 domain specialized to render services to its clients as against 20 employees of the taxpayer having turnover of Rs.5 crores only. Moreover, the Eclerx is having huge intangibles to the tune of 13% of the gross total assets.
So, when we compare the profile of the Eclerx vis-à-vis the taxpayer which is a captive unit of Everest Group of companies providing ITES and also providing ITES research and analysis on the issue of outsourcing market and advisory services to support client engagement owned by the AE as has been discussed in detail in the preceding paras and as such, is not a valid comparable.
Moreover, Eclerx has been ordered to be excluded by the Hon’ble High Court of Delhi in Rampgreen Solutions (P) Ltd. (supra) and the coordinate Bench of the Tribunal in Macquarie Global Services (P.) Ltd vs. DCIT – (2015) 55 taxmann.com 259 (Delhi – Trib.) on the ground that, “Eclerx is engaged in data analytics, data processing services, pricing analytics, bundling optimization, content operation, sales and marketing support, product data management, revenue management. In addition, eClerx also offered financial services such as real-time capital markets, middle and back-office support, portfolio risk management services and various critical data management services. Clearly, the aforesaid services are not comparable with the services rendered by the assessee.”
Furthermore, TPO in AYs 2011-12 and 2012-13 and CIT (A) in AY 2009-10 in taxpayer’s own case have ordered to exclude Eclerx on ground of functional dissimilarity. When business model of the taxpayer had not undergone any change during the year under assessment to adopt consistent approach is also cardinal principle of law. So, in view of the matter, we order to exclude Eclerx from the final set of comparables for benchmarking the international transactions qua ITES.
HCL COMNET LTD. (SEG.) (HCL COMNET) 51. The taxpayer further sought exclusion of HCL Comnet on ground of functional dissimilarity; that HCL Comnet is a big company having significant brand value; that HCL Comnet is having huge assets base of Rs.188.90 crores and having ITES revenue of Rs.260 crores as against taxpayer’s turnover of Rs.5 crores. Business profile of HCL Comnet as intimated u/s 133 (6) of the Act is as under :-
“The business of the assessee company is categorized as ITES. Further the assessee company seeks to submit that the assessee company also offers life-cycle services for strategic off-sharing the operation and management of IT infrastructure, client server or internet engagement to enhance visibility, improve performance and reduce costs. It provides end-to-end infrastructure management encompassing network devices, server management, databases, systems, helpdesk services and internet site operation management. The assessee company deliver the IT infrastructure management services through the Operations Management Center (“OMC”) in India. The OMC provides a comprehensive outsourcing solution for managing a multi-vendor or multi-technology environment with services customized to meet customer's unique requirements. Further, the company also renders Internet services to a whole host of customers.”
Keeping in view the functional profile of the HCL Comnet which is into high end KPO services and by applying the principle laid down in Rampgreen Solutions (P) Ltd. (supra), it cannot be compared with taxpayer which is a captive ITES service provider.
Moreover, HCL Comnet is having huge employee cost for Rs.185.28 crores as against total turnover of the taxpayer to the tune of Rs.5 crores.
HCL Comnet has been ordered to be excluded by the coordinate Bench of the Tribunal in ICC India Pvt. Ltd. (supra) on account of functional dissimilarity by following Rampgreen Solutions (P) Ltd. (supra). HCL Comnet is also operating 24x7 in three shifts whereas the taxpayer is operating with single shift only.
Moreover, HCL Comnet is a risk bearing company whereas the taxpayer is a captive service provider to its AE. So, there is stark functional dissimilarity. HCL Comnet is having huge asset’s base of Rs.188.90 crores and ITES revenue of Rs.260 crores as against the total turnover of Rs.5 crores of the taxpayer.
So, in view of the matter, we order to exclude HCL Comnet from the final set of comparables for benchmarking the international transactions.
VISHAL INFORMATION TECHNOLOGIES LTD. (VISHAL) 55. The taxpayer sought to exclude Vishal on ground of functional dissimilarity having huge assets and company is operating on outsourcing business model having low asset base with employee cost of 2% of the turnover vis-à-vis the taxpayer who has employee cost/turnover ratio of 36%.
The ld. DR for the Revenue contended that in case Vishal is to be excluded on ground of outsourcing its work then Cosmic Global and Spanco are also liable to excluded. However, to counter this argument, the ld. AR for the taxpayer contended that even exclusion of Cosmic and Spanco will not cause prejudice to the taxpayer in any manner. In these circumstances, we are not going into the merits of this argument as the comparability of a company is required to be examined on the basis of functional comparability and in the light of section 10B (2) of the Act.
Annual report of Vishal is available at pages 336 to 347 of the paper book shows that its sales is pegged at Rs.30,60,10,382/-, salaries and wages to the tune of Rs.70,27,632/- i.e. 2.3% as against sales of the taxpayer at Rs.5,01,05,563/- and salaries/wages at Rs.1,82,37,882/- i.e. @ 36%. Vishal has been excluded by the coordinate Bench of the Tribunal in ITO vs. Heartland Delhi Transcription & Services Pvt. Ltd.- Techbooks International Ltd. vs. ACIT – ITA No.4990/Del/2011 and IQOR India Services (P) Ltd. vs. ITO – (2015) 69 SOT 37 (Delhi – Trib.), on ground of different business model as it outsourced its work to external vendors to save the cost on employees which is apparent form the figure of employee cost vis- à-vis sales detailed in the preceding paras. So, we order to exclude Vishal from the final set of comparables for benchmarking the international transactions.
WIPRO LTD. (SEG.) (WIPRO) 58. The taxpayer further sought to exclude Wipro from the final set of comparables on the ground inter alia that it is functionally dissimilar being into wide spectrum of services; that the nature of Wipro is highly capital intensified having 24x7 operation; that the Wipro is having revenue of Rs.940 crores and operating assets employed in BPO business is Rs.781 crores; that Wipro incurred huge expenditure on research and development to the tune of 8.5% of the total revenue; having employee base of 17464; that Wipro is a giant in its area of business having huge brand value and goodwill and owns significant intangibles; that Wipro is having inorganic method of growth which it acquires from goodwill, brand value and presence in the global market.
Ld. DR for the Revenue contended that before TPO and CIT (A) the taxpayer have only argued high turnover and abnormal margin as the reason for its exclusion which cannot be a reason for exclusion as has been held by Hon’ble High Court in Chryscapital Investment Advisors (India) (P.) Ltd. vs. DCIT – (2015) 56 taxmann.com 417 (Delhi). Ld. DR further contended that since the TPO did not have the opportunity to examine the argument now addressed before the Tribunal, it should be restored back for fresh decision. However, we are of the considered view that when the entire annual reports relied upon by the taxpayer to examine the business profile of Wipro was there and comparability issue is to be decided in view of the settled principle of law though not argued specifically, the matter is not liable to be restored.
Comparability of the Wipro has been examined by the Hon’ble Delhi High Court and coordinate Bench of the Tribunal in cases of CIT vs. Agnity India Technologies Pvt. Ltd. in ITA 1204 / 2011 dated 10.07.2013, Calibrated Healthcare Systems India Pvt. Ltd. vs. ACIT – New River Software Services (P.) Ltd. vs. ACIT – ITA No.451/Del/2013 and United Health Group Information Services (P.) Ltd. vs. ACIT – ITA No.6312/Del/2012 and ordered to be excluded by taking into account its functional profile, risk profile, nature of services, ownership of IP rates, expenditure on R&D etc.
When we compare the aforesaid business profile of Wipro vis-à-vis the taxpayer, there are stark dissimilarities as Wipro is a giant company having huge asset base, brand value, goodwill and presence in the global market, spending 8.5% of the total revenue on R&D and it is a full fledged risk bearing service provider.
Moreover, marketing expenses of Wipro is 3% of the total turnover.
So, we are of the considered view that Wipro is not a suitable comparable for benchmarking the international transactions.
INFOSYS BPO LTD. (INFOSYS BPO) 63. The taxpayer sought to exclude Infosys BPO on ground of diversifying business process management services being high end in nature; that it provides end to end process solution from discovery, transition and steady state operations; that it provides product based solution such as source to pay business platform, hire to retire business platform, order management business platform, lifecycle management solution etc. and that the Infosys BPO is a giant company having turnover of Rs.649 crores and total asset base of Rs.450 crores having employee base of 11226; having significant expenditure on selling and marketing to the tune of 6% of the turnover; that Infosys BPO has client across the globe and has rendered business process management services across diversified business verticals and it has having huge brand value and goodwill and owns significant intangibles and is a full-fledged risk bearing service provider.
Ld. DR for the Revenue opposing exclusion of Infosys BPO on the grounds inter alia that Infosys BPO has been selected by the taxpayer as a comparable in AY 2009-10 accepted by the TPO and no appeal has been filed before the CIT (A) and ITAT. But we are of the considered view that any of the comparable cannot be excluded or included merely on the ground of acceptance or rejection of the taxpayer during the earlier years because there is no estoppel to argue afresh on any of the comparable on the basis of facts and case laws.
So, when we examine business profile of the Infosys BPO vis-à-vis the taxpayer, Infosys BPO is a full fledged risk bearing company having huge asset base, turnover of Rs.649 crores and total asset base of Rs.450 crores having employee base of 11226 as against 20 employee of the taxpayer and turnover of Rs.5 crores only; Infosys BPO is into providing high end services; whereas the taxpayer is a small scale captive service provider to its AE for ITES services and does not own any intangibles or brand value and is working on cost plus basis.
The comparability of Infosys BPO has been examined by the coordinate Bench of the Tribunal in Rampgreen Solutions (P)
Ltd., Agnity India Technologies Pvt. Ltd., Calibrated Healthcare Systems India Pvt. Ltd., New River Software Services (P.) Ltd. and United Health Group Information Services (P.) Ltd. (supra) and ordered to be excluded by following Agnity India Technologies Ltd. (supra) rendered by Hon’ble Delhi High Court.
So, in view of the matter, we order to exclude Infosys BPO from the final set of comparables.
INFORMED TECHNOLOGIES INDIA PVT. LTD. (INFORMED)
Initially, the ld. AR for the taxpayer sought to exclude Informed from the final list of comparables for benchmarking the international transaction on ground of sale/employee cost filter but later on candidly admitted that functionality of Informed is similar to the taxpayer so far as ITES are concerned. However, after arguing for sometimes, the ld. AR for the taxpayer preferred not to press her arguments for exclusion of Informed. So, we decide this issue against the taxpayer and Informed is ordered to be retained as a suitable comparable.
R. SYSTEMS INTERNATIONAL (R. SYSTEMS) 68. The taxpayer sought to exclude R. Systems from the final set of comparables on ground that the provision for doubtful debts of Rs.5.08 crores should be treated as operating expenses and relied upon the case of M/s. Kanexa Technologies Pvt. Ltd. vs. DCIT - and Sony India Pvt. Ltd. vs. DCIT – ITA No.11189/Del/2005.
The ld. DR for the Revenue contended that this issue has not been raised before the TPO and it should be restored to the TPO to examine the factual matrix.
Coordinate Bench of the Tribunal in M/s. Kanexa Technologies Pvt. Ltd. (supra), available at pages 392 to 394 of the paper book, held that bad debts and provision for bad and doubtful debts are part of the operating expenses and TPO has been directed to recompute the margin of comparable company by including bad debts and provision for bad and doubtful debts as operating expenses for the purpose of computing profit and loss account of the comparable companies.
Following the decision rendered by the coordinate Bench of the Tribunal in M/s. Kanexa Technologies Pvt. Ltd. (supra), we direct the TPO to consider the provision for doubtful debts as operating expenses and then compute the profit & loss of the comparable company for benchmarking the international transaction.
ISERVICE INDIA PVT. LTD. (ISERVICE)
The taxpayer sought to exclude Iservice on ground of functional dissimilarity as it is into internet service and consulting services. When we examine the functional profile of Iservice from website provided by the taxpayer, the Iservice is into web hosting, email services, spam filtering, domain names and DNS hosting.
The ld. DR again opposed the Iservice on the ground that this argument is never addressed before the TPO and when the taxpayer has taken the entire vertical of ITES providing companies as comparable and now if strict functional comparable is insisted then this filter should be universally applied to all comparables.
When we examine the arguments addressed by the ld. AR for the taxpayer in the light of the Rampgreen Solutions (P.) Ltd. (supra) only functional comparability is the hallmark for benchmarking the international transaction. Business profile of Iservice shows that the same is into high end diversifying services vis-à-vis the taxpayer who is into divergent high end services like web hosting, email services, spam filtering, domain names and DNS hosting. web hosting, email services, spam filtering, domain names and DNS hosting is also providing web design services, domain management services and email management services which makes it functionally dissimilar to the taxpayer. The contention of the ld. DR that this argument has not been addressed before the TPO is not sustainable because the TPO in its analysis has to compare functional profile of comparable company with the taxpayer at the very outset before going into further detail. So, we are of the considered view that Iservice is also not a suitable comparable for benchmarking the international transaction.
RISK ADJUSTMENT 75. The ld. AR for the taxpayer contended that the TPO has not granted risk adjustment despite the fact that the taxpayer gets assured business from its AE and is remunerated on cost plus basis and relied upon the case of Motorola Solutions vs. ACIT – ITA No.5637/Del/2011.
The coordinate Bench of the Tribunal in the case of M/s.
Intellinet Technologies India Pvt. Ltd. vs. ITO – ITA No.1238/Bang./2010 order dated 30.03.2012 examined the issue of risk adjustment in case of a single customer and decided the same by returning the following findings :-
“7. Having heard both the parties and having considered the rival contentions, we find that the assessee has claimed the risk adjustment which is not allowed by the TPO on the ground that the assessee also has the risk of having a single customer. The question before us is as to whether the risk of having a single customer is equivalent to the marketing and technical risk attached to the comparables. According to the TPO, the assessee has the ‘single customer risk’ meaning, if the single customer refuses to have any dealings with the assessee, the assessee would lose all of its business and there would be no profit at all. But, as we see it, the risk of having a single customer is anticipated risk which may or may not happen. What we have to see is the position in the relevant period whether the assessee had encountered such a risk during the relevant period. 7.1 As seen from the records, the assessee had acquired the business and also earned income out of the said transaction by cost plus basis. Thus, it can be seen that the assessee has not encountered the risk of having a single customer, whereas the same cannot be said as regards the comparables. As pointed out by the learned counsel for the assessee, the comparables were dealing in open market and therefore, they were prone to the marketing and technical risks. They would have incurred certain expenditure on marketing services and also to safeguard the technical use by them. In such a case, the risk encountered by the assessee cannot be said to be the equivalent risks attached to the comparables. The risk attributed to the assessee by the TPO is an anticipated risk whereas the risk attributed by the assessee to the comparables is an existing risk. In such situation, the TPO ought to have given the risk adjustment to the net margin of the comparables for bringing them on par with the assessee company. The assessee’s contention that the risk adjustment should be at 5.5% or at the difference of prime lending rate of the RBI and the banks is not acceptable to us. Therefore, we direct the TPO to consider all the contentions of the assessee and after taking into account all the relevant material decide the percentage of risk adjustment to be made in accordance with law. This ground is accordingly, allowed for statistical purposes.”
Following the decision rendered by the coordinate Bench of the Tribunal, the TPO is directed to decide the issue afresh after considering the contentions raised by the taxpayer in the light of the Intellinet Technologies India Pvt. Ltd. and Motorola Solutions (supra). So, the issue of risk adjustment is decided in favour of the taxpayer for statistical purposes.
The Revenue challenged the impugned order passed by ld. CIT (A) deleting the addition of Rs.58,25,317/- made on account of arm’s length price by excluding Moldtek Technologies Ltd., Triton Corp and Maple Esolutions from the final list of comparables. We would examine suitability of aforesaid comparables sought to be included for benchmarking the international transaction one by one as under.
MOLDTEK TECHNOLOGIES LTD. 79. The ld. DR for the Revenue contended that Moldtek Technologies Ltd. is a suitable comparable and the reasons given by the ld. CIT (A) that indulging in evasion of tax by overstating profit in the 100% exempt ITES Division and understating the profit in the plastic division which is without any evidence.
However, ld. AR for the taxpayer while supporting the order passed by the ld. CIT (A) justified the exclusion of Moldtek Technologies Ltd. on two grounds : one, functional dissimilarity and two, merger of Tech-men Tools Pvt. Ltd. w.e.f. 01.10.2006 and acquisition of Crossroads Inc. USA w.e.f. 28.04.2007. When we examine the reply filed by Moldtek Technologies Ltd. u/s 133 (6), available at pages 253 & 254 of the paper book, as well as in the light of the annual report, it is not in dispute that, “Mold-Tek Technologies Ltd. is engaged in Engineering Consulting Services as part of its IT of KPO division of the company. The company specializes in providing Structural Design & Detailing services for a range of PEMB, Industrial, Commercial, structures with attachments for Canada, USA, Europe, Dubai & Australia. We are an ITES company registered with Software Technology Parks of India.” So, business profile of Moldtek Technologies Ltd. is diametrically dissimilar vis-à-vis the taxpayer being engaged in Engineering Consulting Services, being specialist in Structural Design & Detailing services, Industrial, Commercial, structures with attachments for Canada, USA, Europe, Dubai & Australia.
Moldtek Technologies Ltd. also used software tools to provide structural engineering outputs. So, on ground of functional dissimilarity, Moldtek Technologies Ltd. has been rightly excluded by the ld. CIT (A).
The ld. CIT (A) has rightly taken the view that extra ordinary profit in ITES segment reaching up to 113% for the year under assessment shows that the company has diverted its profit to evade taxes of its plastic division by showing losses to the ITES segment which is 100% exempted unit. So, the ld. CIT (A) has rightly excluded Moldtek Technologies Ltd. on ground of extra ordinary profit of 113% which needs no interference.
So far as the question of merger of Teck-men Tools Pvt. Ltd. and acquisition of Crossroads Inc. USA w.e.f. 01.10.2006 and 28.04.2007 respectively by the taxpayer is concerned, its financial results, available at page 245 of the paper book (Annual Report), shows that Moldtek Technologies Ltd.’s segmental sale have gone up by 35.17% from Rs.70.87 crores to Rs.85.80 crores largely fuelled by growth of 204% in IT (KPO) Division Billings from RS.375 lakhs in 2005-06 to Rs.1140 lakhs in 2006-07. Moldtek Technologies Ltd. has also achieved a profit of Rs.830.71 lakhs as against Rs.394.97 lakhs in the previous year registering a growth of 134%. IT/KPO Division rose sharply from Rs.1.60 crores to Rs.5.75 crores registering a growth of 259.4%. It is also categorically referred in Director’s report, available at page 246 of the paper book, that the company is planning to pursue further acquisition opportunities to maintain a better average rate of growth for structural engineering services. So, we are of the considered view that the factum of merger and acquisitions also make Moldtek Technologies Ltd. as unsuitable comparable vis-à- vis the taxpayer and has been rightly excluded by the ld. CIT (A).
TRITON CORP AND MAPLE ESOLUTIONS 83. The Revenue challenged the exclusion of Triton Corp. and Maple Esolutions by the ld. CIT (A) on the ground that both the comparables are part and parcel of Rastogi Group which is under serious indictment and relied upon the decision rendered by the coordinate Bench of the Tribunal in CRM Services India Pvt. Ltd. vs. CIT. The ld. DR for the Revenue opposed the exclusion of Triton Corp. and Maple Esolutions on the ground that CRM Services India Pvt. Ltd. is an old judgment and till date no charges have been framed against the Directors of the aforesaid company.
However, we are of the considered view that promoters of Triton Corp. and Maple Esolutions were not only involved in fraud in earlier years but they have also been into merger and acquisitions. Not only this, Triton Corp. and Maple Esolutions have been ordered to be excluded on the ground of fraud committed by its promoters not only in CRM Services India Pvt. Ltd. (supra) but also in numerous cases viz. IQOR India Services (P) Ltd., ICC India Pvt. Ltd., Calibrated Healthcare Systems India Pvt. Ltd. (supra) and Techbooks Electronics Pvt. Ltd. – (AY 2008-09). Moreover, when under TNMM huge pool of companies is available for TP analysis companies with shady past cannot be taken as comparable. So, we are of the considered view that following the decisions rendered by the coordinate Bench of the Tribunal in the aforesaid cases, the ld. CIT (A) has rightly excluded Triton Corp. and Maple Esolutions from the final set of comparables.
Resultantly, the appeal filed by the taxpayer is partly allowed for statistical purposes and the appeal filed by the Revenue is dismissed. Order pronounced in open court on this 15th day of December, 2017.