WILLIS PROCESSING SERVICES (INDIA) P.LTD,MUMBAI vs. ASST CIT (OSD) 2(3), MUMBAI

आदेश / O R D E R RAVISH SOOD, JUDICIAL MEMBER : The present appeal has been filed by the assessee against the order passed by the Assistant Commissioner of Income-tax (OSD)-2(3) (for short ‘ACIT’) under Sec. 143(3) r.w Section 144C of the Income-tax act, 1961(for short ‘Act’), dated 26.03.2012 The assessee assailing the order passed by the ACIT had filed before the Tribunal ‘Summarized and Modified Grounds of appeal’, as under:- “On the fact and in the circumstances of the case and in law. the Learned Assessing Officer (‘AO’)/Dispute Resolution Panel ('Hon’ble DRP') has:

Use of contemporaneous data 3. erred in determining the arm’s length price using data for financial year (‘FY’) 2007-08 only and in undertaking a new search after the specified date i.e. 30 September 2008, disregarding the fact that 5 comparables from the Appellants set were accepted and hence a new search was not warranted. Comparable companies selected by the Appellant 4. erred in rejecting comparables selected by the Appellant under the Transactional Net Margin Method (‘TNMM') in its transfer pricing study report without providing adequate opportunity to the appellant to submit rebuttals as to why the comparable companies should not be rejected. Additional comparables identified by the Learned TPO 5. erred in selecting additional comparables for the benchmarking analysis, disregarding the Appellant's contentions as to why these comparable should be rejected. 6. erred In considering Crossdomain Solutions Private Limited and E4e (earlier Nittany Outsourcing Services Limited) as comparables without appreciating that the functional asset and risk profile of these companies is different and hence they are not comparable to the Appellant. 7. erred in considering Coral Hub(earlier known as Vishal information Technology Limited), as a comparable disregarding the fact that the company has very low employee cost implying that it outsources a major portion of its work to third party vendors and hence is functionally different from the Appellant. 8. erred in considering Eclerx Services Limited and Mold-Tek Technologies Limited as comparables disregarding the fact that the companies are engaged in high end knowledge process outsourcing services as compared to Appellant which is engaged in provision of routine IT enabled services. 9. erred in violating the rules of natural justice by not providing sharing the complete details of the bench marking analysis, carried out by him, Use of data obtained under Section 133 (6) of the Act 10. erred in using data/information obtained from various Third party companies under Section133 (6) of the Act, Erroneous margin computation 11. erred in not considering the evidence provided by the appellant in relation to the errors committed by the TPO while computing the operating margins of certain comparable companies. Working capital adjustment 12. erred in not allowing the Appellant the benefit of the working capital adjustment ignoring the fact that working capital adjustment has been previously allowed in Appellant's own case by the TPO for AY 2006-07. Risk adjustment 13. erred in not granting the Appellant the benefit of risk adjustments which is required to be undertaken to account for the differences in level of risks assumed between the comparable companies and the Appellant in terms of Rule 10C(2)(e) of the Rules. Benefit of +/- 5% range 14. erred by not considering that the adjustment to the arm's length price, if any, should be limited to the lower end of the 5 percent range as the Appellant has the right to exercise this option under the proviso to section 92C of the Act.

The Appellant craves Ieave to add, alter, amend or delete the above grounds of appeal at or before the time of hearing of the appeal so as to enable the Hon’ble Income Tax Appellate Tribunal to decide this appeal according to law.”

The assessee company after seeking liberty had thereafter vide its letter dated. 03.06.2014 raised ‘Additional grounds of appeal’, as under:- “ADDITI0NAL GROUNDS OF APPEAL Based on the facts and in the circumstances, of the case and in law, the Appellant respectfully crave leave to prefer an appeal against the order passed by the Assistant Commissioner of Income Tax, Range - 2(3). Mumbai (‘Learned AO’), under Section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (‘Act’) in pursuance of the directions Issued by the Dispute Resolution Panel-II, Mumbai (‘Hon’ble DRP’), on the following grounds: On the facts and in the circumstances of the case and in law, the TP0 has: Rejection of comparables on extraordinary activities. 21. erred in considering Accentia Technologies Limited and Mold-Tek Technologies Limited as comparable to the Appellant, without appreciating that the companies have earned supernormal profits due to extraordinary events. 22. erred in considering Eclerx Services Limited as comparabIe without appreciating the fact that an extraordinary event took place during the year and hence the company cannot be considered comparable to the Appellant Rejection of comparable on related party transaction filter 23. erred in considering HCL, Connect Systems and Services Limited and BNR Udyog Limited as comparable without appreciating the fact that The company fails the related party transactions (‘RPT') to sales filter of 25% applied by the TPO. Segmental results should not be considered when direct comparables are available

24. erred in considering the segmental results of certain companies viz: HCL Connect Systems and Services Limited and Datamatrics Financial Services Limited for the benchmarking analysis without appreciating that there were sufficient number of comparables engaged solely in Information Technology Enabled Services and hence use of such segmental data was not warranted. Inconsistent approach followed by the TPO while computing the operating margins. 25. erred in considering forex fluctuation as operating in nature for the purpose of computing the operating margins of certain comparables whereas the same has been considered as non- operating in nature while computing the operating margin of the Appellant, thereby, adopting an inconsistent approach.”

BRIEF BACKGROUND :

1.

2. The assessee company had filed its return of income for A.Y. 2008-09 as on 29/09/2008 declaring an income of Rs.1,48,60,850/- under the normal provisions of the ‘Act’, and Rs.6,79,18,437/- under the provisions of section 115JB. The assessee alongwith its return of income had filed an Audit Report in ‘Form 3CEB’, reporting therein the particulars of its international transactions with its AE. The return of income of the assessee was processed as such under Section 143(1) of the ‘Act’. BEFORE THE A.O & TPO : 3. The case of the assessee was taken up for scrutiny proceedings u/s 143(2).The AO during the course of the assessment proceedings made a reference under section 92CA(1) of the ‘Act’ to the Transfer Pricing Officer ('TPO') for determination of the arm’s length price ('ALP') of the international transactions entered by the assessee company with its AE. The international transactions of the assessee company with its AE during the year under consideration, in respect of which adjustment had been made by the TPO, were as under: Nature of Amount (Rs.) Method applied Operating profit International transactions. Provision of 60,69,23,951 Transaction Net 12.50% processing Margin Method services. (‘TNMM’)

S.No. Name of the Company PLI % (Cost plus ratio) 1. BNR Udyog 17.86 2. Galaxy Commercial Ltd. 11.63 3. ICRA Online Ltd. 15.48 4. Maars Software International Ltd. 2.48 5. Sparsh BPO Services 6.83 6. Transworks Information Services Ltd. 8.98 7. Visualsoft Technologies Ltd. 7.26 Arithmetic Mean 10.07 The assessee had used Operating Profit/Operating cost (OP/OC) as the Profit Level Indicator (PLI). The arithmetic mean PLI of comparable companies using 3 years weighted average worked out to 10.07%., as against the PLI of 12.50% of the assessee for the year under consideration, viz. A.Y. 2008-09. That as the PLI of the assessee was higher than the average PLI of the comparable companies, therefore the international transactions carried out by the assessee with its AE were taken to be at Arm’s Length.

The TPO thus on the basis of his aforesaid exercise applied the PLI differential of 13.25% (25.75% - 12.50%) to the value of the international transactions carried out by the assessee with its AE during the year under consideration, and therein made an adjustment of Rs. 7,14,97,299/- to the ALP.

BEFORE THE DRP & A.O : 9. The assessee filed objections against the draft assessment order before the DRP, who after accepting the assesses contention as regards exclusion of 1 comparable chosen by the TPO, viz Infosys BPO Ltd, therein recasted the operating margin at 26.02% and resultantly while passing the assessment order u/s 143(3) r.w Sec. 144C, on the basis of the average operating margin of the remaining 21 comparables, made a Transfer Pricing Adjustment of Rs. 7,29,53,949/- and assessed the income of the assessee company u/s 143(3) r.w Sec.144C, vide his order dated. 26.09.2012 at Rs. 14,60,99,780/-.

’ raised before the Tribunal. That in the backdrop of the aforesaid concession of the Ld. A.R, we herein restrict ourselves to the 5 comparables as had been assailed before us, as under:- S.No. Name of Company As per TP study (3 year weighted margins)

1. Coral Hub (earlier Vishal 50.72% Information Technologies Ltd.) 2. Crossdomain Solution Private 27.00% Limited. 3. Eclerx Services Ltd. 65.87% 4. Mold-Tek Tchnologies Ltd. 106.79%

5. Accentia Technologies Ltd. 44.50% That in the backdrop of the aforesaid concession of the Ld. A.R, we herein restrict ourselves to the 5 comparables as had been assailed before us. The Ld. A.R had during the course of hearing of the appeal therein placed on record a chart, marked as ‘Summary of Objections’ raised by it in context of the 5 comparables adopted by the TPO for determining the ALP of the assessee. We thus in the backdrop of the aforesaid chart and the relevant pages of the ‘Fact sheet’/‘APB’ to which reference was made by the Ld. A.R during the course of hearing of the appeal, therein advert to and deal with the aforementioned 5 comparables, as under:- (A).CORAL HUB LIMITED (earlier known as Vishal Information Technology Ltd.): (1). That it was submitted by the Ld. A.R that the TPO/AO had erred in considering Coral Hub (earlier known as Vishal Information Technology Limited) as a comparable, and in order to drive home his contention had referred to Page 1190 of the ‘Chart’, as well as the relevant pages of the ‘Fact sheet’/‘APB’, as stood mentioned therein. It was submitted before us that the TPO had erred in failing to appreciate that unlike the assessee the aforesaid comparable had a very low employee cost, from where it could be safely gathered that it had outsourced a major portion of its work to third party vendors and hence was functionally different from the assessee company. The Ld. A.R distinguishing the glaring variance of the comparable as against the assessee company, had therein submitted that the said comparable outsourced a major portion of its work to third party vendors, which was evident from the fact that the personnel cost of the aforesaid comparable, viz. Coral hub Ltd., as a percentage of its turnover was only 2.93%, which was far lesser than the cost incurred with respect to provision of data digitization services which had been outsourced by the comparable. The details of employee cost and vendor payments for the current year and last 3 years of the said comparable and the assessee company as are found tabulated at Page 1178 of the ‘Fact sheet’ (for short ‘AFS’), are reproduced as under:- Particulars AY 2005-06 AY 2006-07 AY 2007-08 AY 2008-09 Data entry and 1,135.12 1,149.15 1,312.07 2,565 vendor payments Personnel Costs 19.71 32.02 70.28 111 Total Cost (including 1,444.57 1,741.72 2,028.35 2,533 other administration expenses) Total Revenue 2,082.33 2,564.29 3,060.10 3,808 Vendor Payment as 54.51% 44.81% 42.87% 67.37% a percentage of total revenue Personnel cost as a 0.94% 1.25% 2.30% 2.93% percentage of total revenue Personnel cost as a 1.36% 1.84% 3.46% 4.40% percentage of total cost Willies India: Personnel cost 1,688.18 2,500.04 2,610.86 3,179.15 Total cost 3,197,53 4,181.29 4,195.60 5,511.95 Total revenue 3,527.22 4,491.14 4,636.41 6,069.24 Personnel cost a 47.86% 54.45% 48.47% 52.38% percentage of total revenue Personnel cost as a 52.80% 59.79% 62.23% 57.68% percentage of total cost (2). That in the backdrop of the aforesaid facts, it was claimed by the Ld. A.R that the comparable did not operate like a pure play ITES company where the average employee cost to sales is relatively high as employees are the major assets employed by ITES companies. It was further claimed that the employee cost of the assessee company for A.Y: 2008-09 worked out to 57.68% of its revenue, while for the average employee cost of all the other comparables considered by the TPO was around 25% of revenue. That it was further submitted by the Ld. A.R that the Hon’ble Delhi High court in the case of: Rampgreen Solution Pvt. Ltd vs. CIT (ITA 102/2015) had rejected the aforesaid comparable, viz. Coral hub Ltd., on the basis of the functional dissimilarity of the aforesaid comparable, viz. Coral hub Ltd., for the reason that the latter was found to be a different business model. The Ld. A.R had further relied on the order of the coordinate bench of the Tribunal, viz ITAT, Mumbai so passed in the assesses own case for A.Y. 2005-06, wherein the aforesaid comparable had been rejected on the ground that the latters personnel cost as a percentage of its turnover was only 0.95%, which signified that the said company was not carrying out ITES activities on its own, but had rather outsourced it to third party vendors. That to fortify its contention that the aforesaid company, viz Coral Hub Limited (earlier known as Vishal Information Technology Limited) on account of its different business model, thus could not be taken as a comparable, reliance had been placed on the following orders of the coordinate benches of the Tribunal:- (i) ACIT vs M/s Hapag Llyod Global Services Pvt. Ltd- [AY 2005-06] dated28 February 2013 (Mum) (ii). ACIT vs M/s Maersk Global Service Centre (India) Pvt.Ltd- ITA No.3774/Mum/2011 [AY 2005-06] dated 9 November 2011 (Mum) 66 DTR (Mum) (iii). United Health Group Information Vs. ACIT- ITA No. 6312/Del/2012 [AY 2008-09] dated 28 August 2014

(iv). M/s HSBC Electronic Data Processing India Ltd vs ACIT - [AY 2006-07] dated 26 June 2013 (Hyd) (v). M/s Stream International Services Pvt. Ltd vs ACIT [AY 2006-07] 141 ITD 492 (Mum) dated 11 January 2013. (vi). M/s Symphony Marketing Solutions India P. Ltd. 37 CCH 253 [AY 2008-09 (Bang) 14 August2013. (vii) PTC Software (India) Private Limited Vs DCIT [AY 2009-10] - ITA No.336/PN/2014 dated 31October 2014. (viii). ITO vs M/s Nextlinx India Pvt. Ltd -ITANo.454/Bang/2011 [AY 2005-06]dated October 2012(Bang) (ix) Zavata India Pvt.Ltd VS DCIT- ITA No. 1781/Hyd/2011 [AY 2007-08] 36 CCH 136 (Hyd) dated07 June 2013 (x) M/s Avineon India Pvt Ltd vs DCIT - 37 CCH 487 [AY 2007- 08] dated 31 October 2013 (Hyd) (xi) M/s 24/7 Customer.Com Pvt. Ltd vs DCIT - 140 lTD 344 [AY 2004-05] dated 9 November 2012 (Bang) (xii). M/s Capital IQ Information Systems Pvt. Ltd vs DCIT- 57 SOT 14 [AY 2007-081 Dated 23November 2012 (Bang) (3). That it was further submitted before us that a review of the ‘Annual report’ and other information available in public domain of the aforesaid comparable therein revealed that it was engaged into data digitizing and conversion and E-publishing, and thus in the absence of segmental break-up for its ITES segment, the same was liable to be rejected as being functionally different. That it was further submitted before us that as the aforesaid comparable was earning super normal profits, therefore the same was liable to be excluded from the list of the comparables for the said very reason, because such alike companies have a tendency to skew the results and thus cannot be considered as a representative of the industry. That in support of the contention that companies which are showing abnormal profits are not to be adopted as comparable, reliance had been placed by the assessee on the following orders passed by the coordinate benches of the Tribunal:- (i). M/s Adobe Systems India Private Limited (ITA No. 5043/Del/2010) (ii). SAP Labs Pvt Ltd (ITA No. 398/Bang/20). (iii). Teva India Pvt Ltd (6107/Mum/2009). (iv) Saunay Jewels Pvt Ltd (5758/Mum/2007). (v). Mentor Graphics (P) Ltd (112 TTJ 408).

(4). That it was thus submitted before us that the aforesaid comparable, viz. Coral Hub Limited (earlier known as Vishal Information Technology Limited) was functionally different, therefore the same may be excluded from the list of the comparables. That on the other hand the Ld. Departmental representative (for short ‘D.R’) had placed heavy reliance on the order of the TPO/AO and therein submitted that the lower authorities after thorough vetting the various factors, had as such rightly adopted the aforesaid comparable. (5). We have heard the Ld. Authorized representatives of both the parties, perused the orders of the lower authorities and the records available before us. We find ourselves to be in agreement with the claim of the assessee that the facts made available on record therein revealed that the aforesaid comparable, viz. Coral Hub Limited (earlier known as Vishal Information Technology Limited) had a very low employee cost, on the basis of which it could be safely gathered that it was into outsourcing of a major portion of its work to third party vendors, and hence was functionally different from the assessee company. We find that during the year under consideration, viz. A.Y. 2008-09, as against the personnel cost as a percentage of the total cost of 57.68% in the case of the assessee, in the case of the aforesaid comparable, viz Coral Hub the same stood reflected at 4.40%. That it was on account of the said substantially low personnel cost that the Hon’ble High Court of Delhi had in the case of : Rampgreen Solutions Pvt. Ltd. Vs. CIT (2015) 377 ITR 533 (Del), therein observing that as the expenditure on employment cost during the relevant period of the aforesaid comparable was a small fraction of the proportionate cost incurred by the assessee, for the reason that most of its work was outsourced to other vendors/service providers, had thus concluded that the same in itself proved that the aforesaid comparable viz. Coral Hub Limited (earlier known as Vishal Information Technology Limited) had a business model where services are outsourced, as against the business model of the assessee where services are rendered by employing own employees and using one’s own infrastructure, was thus in itself a justifiable reason which did go to prove that the said comparable was functionally different, and as such would have a different cost structure as compared to a business model where inhouse services are employed, had held as under:-.

“38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal’s expenditure on employment cost during the relevant period was a small fraction of the proportionate cost incurred by the Assessee, apparently, for the reason that most of its work was outsourced to other vendors/service providers. The DRP and the Tribunal erred in brushing aside this vital difference by observing that outsourcing was common in ITeS industry and the same would not have a bearing on profitability. Plainly, a business model where services are rendered by employing own employees and using one’s own infrastructure would have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the outsourcing of services by Vishal would have no bearing on the profitability of the said entity.” We further find that as averred by the Ld. A.R, a coordinate bench of the Tribunal, viz ITAT, Mumbai while disposing of the assesses own appeal for A.Y. 2005-06 had rejected the aforesaid comparable on the basis that the latters personnel cost as a percentage of its turnover was only 0.95%, which signified that the said company was not carrying out ITES activities on its own, but had rather outsourced it to third party vendors. We further find that though it has been averred by the Ld. A.R that a review of the ‘Annual report’ and other information available in public domain of the aforesaid comparable, viz. Coral Hub Limited (earlier known as Vishal Information Technology Limited) therein revealed that it was engaged into data digitizing and conversion and E-publishing, and thus in absence of segmental break-up for its ITES segment, the same was liable to be rejected as being functionally different, but then we are not impressed by the said contention of the Ld. A.R for the reason that except for the said hollow statement, neither the copy of the ‘Annual report’ of the said comparable had been placed on our record, nor our attention had been drawn to any such material from where we could safely concur with the said view of the assessee. Thus in light of the half hearted attempt on the part of the assessee, we decline to entertain the unsubstantiated objection so raised before us. That as regards the contention of the Ld. A.R that the aforesaid comparable was earning super normal profits and hence was liable to be excluded from the list of the comparables, for the very reason that such alike companies have a tendency to skew the results and thus cannot be considered as a representative of the industry, we find that the said issue had came up before the Tribunal in the assessees own appeal for A.Y. 2007-08, titled as Wills Proceesing Services (I) Pvt. Ltd. Vs. DCIT-2(3), Mumbai [ITA NO. 4429 & 4547(Mum) of 2012], wherein the Tribunal had held as under:

“The factors for determining inclusion or exclusion of any case in the list of comparables are specifically provided under Rule 10B(2). Therefore, unless and until there are specific reasons and factors as provided under the Rule 10B, an entity cannot be excluded or eliminated from the list of comparables solely on the basis of high profit making unit or loss making unit because no such factor finds place either in Rule 10B(2) or 10B(3) of IT Rule.”

Further held : “Even the loss making or high profit making comparables that satisfy comparability analysis should not be rejected on the same basis that they suffer loss or earned high profit.”

Further held : “Inclusion and exclusion of the comparables cannot be decided on the basis of the factors other than the factor specified under Rule 10B(2). Hence, the objections of the assessee cannot be accepted that because of the abnormal profit margin this company should be rejected as a comparable.”

Thus in light of the aforesaid view already taken by the Tribunal while disposing of the assesses own appeal for the immediately preceding year, viz. A.Y. 2007-08, that inclusion and exclusion of the comparables cannot be decided on the basis of the factors other than those specified under Rule 10B(2), we are thus unable to persuade ourselves to subscribe to the aforesaid contention of the Ld. A.R that because of the abnormal profit margin the aforesaid comparable should be rejected as a comparable. (6). We though in light of our aforesaid observations had partly disagreed with certain grounds as had been averred by the Ld. A.R to facilitate exclusion of the aforesaid comparable, however as observed by us hereinabove that the aforesaid comparable viz. Coral Hub Limited (earlier known as Vishal Information Technology Limited) had a business model where services are outsourced, as against the business model of the assessee where services are rendered by employing own employees and using one’s own infrastructure, on the basis of which we are of the considered view that it can safely be concluded that the said comparable was functionally different, and as such was liable to be excluded from the final list of comparables. That our aforesaid view stands fortified by the aforesaid order passed by the Tribunal while disposing of the appeal of the assesses own appeal for A.Y. 2005-06, as well as the judgment of the Hon’ble High Court of Delhi in the case of : Rampgreen Solutions Pvt. Ltd. Thus as there has been no material shift in the facts involved in the case of the assessee for the year under consideration, as observed by us hereinabove, we are thus of the considered view that as the business model of the aforesaid comparable, viz. Coral Hub Limited (supra) is substantially different from that of the assessee, therefore the same cannot be accepted as a comparable and hence is directed to be excluded from the list of comparables. (B).CROSSDOMAIN SOLUTIONS PRIVATE LIMITED : (1). It was submitted by the Ld. A.R that the TPO/AO had erred in considering Crossdomain Solutions Private Limited as a comparable, without appreciating that the functional, asset and risk profile of the company was substantially different, and hence was not comparable to the assessee. That in order to drive home the aforesaid contention, reliance had been placed on Page 1190 of the ‘Chart’, as well as the relevant pages of the ‘Fact sheet’/‘APB’ as stood mentioned therein. That it was averred by the Ld. A.R that the aforesaid comparable, viz. Crossdomain Solutions Private Limited being functionally different, therefore had wrongly been selected by the TPO as a comparable. That in support of the aforesaid contention that the comparable, viz. Crossdomain Solutions Private Limited was functionally different, it was submitted that as per the information which could be gathered from the website of the aforesaid comparable, viz. www.cross- domain.com, it stood revealed that the activities carried out by the said comparable were more in the nature of Knowledge Process Outsourcing ('KPO'). It was submitted before us that the business and functions of the said comparable were primarily providing high end ‘Knowledge Process Outsourcing’ (for short ‘KPO’) services which varies from the services provided by a low end ITES service provider. It was further submitted that the ‘Annual report’ of the comparable company, viz. Crossdomain Solutions Private Limited did not provide adequate information on the company's operations, on the basis of which its functional comparability could be evaluated. That in order to fortify the claim that the aforesaid comparable was a KPO provider, reference had been made to the website extract of the aforesaid comparable, which proved the said fact. It was further submitted that even the logo of the aforesaid comparable, viz. Crossdomain Solutions Private Limited highlights that it is a "Partner of Choice for Knowledge Process Outsourcing Services", which clearly specifies that the said comparable functions as a KPO service provider, and not as a Business process outsourcing ('BPO') service provider. Thus in the backdrop of the aforesaid facts, it was submitted before us that as the primary business of the aforesaid comparable, viz. Crossdomain Solutions Private Limited is provision of high end KPO services, which varies from a routine low end ITES service provider in terms of skill sets used and nature of services provided, therefore the said comparable, viz. Crossdomain Solutions Private Limited was thus liable to b excluded from the list of the comparables. (2). It was further submitted that the aforesaid comparable, viz. Crossdomain Solutions Private Limited was rejected by the ITAT, Mumbai while disposing of the appeal of the assessee for the immediately succeeding year, viz. A.Y 2009-10, titled as : DCIT Vs. M/s Willis Processing Services (India) Limited (ITA No. 2152/Mum/2014; Dt. 10/10/2014) on the basis that the said comparable, viz. Crossdomain Solutions Private Limited was a KPO engaged in providing value based quality services in payroll, HR Finance, accounting, administration and tax processes, etc., and hence cannot be considered as a comparable to the assessee company which is a routine BPO service provider. That in order to fortify the aforesaid contention, support was drawn from the cases of similarly placed assesses, where too the coordinate benches of the Tribunal had excluded the aforesaid comparable, viz. Crossdomain Solutions Private Limited on the basis that it was functionally different, as under: (i). DCIT Vs M/s Willis Processing Services (India) Limited – (ITA No. 2152/Mum/2014 [AY 2009-10] dated 10 October 2014.) (ii). Mindcrest (India) Pvt Ltd. Vs. DCIT (AY 2008-09- 12; dated 12 December, 2014). (iii). M/s Symphony Marketing Solutions India P. Ltd. (37 CCH 253 [AY 2008-09] (Bang) 14 August2013) (iv). Market Tools Research Pvt. Vs DCIT. (37 CCH 605 [AY 2008-09] (1-lyd) dated 24 October 2013). That on the other hand the Ld. Departmental representative (for short ‘D.R’) had placed heavy reliance on the order of the TPO/AO and therein submitted that the lower authorities after thorough vetting the various factors, had as such rightly adopted the aforesaid comparable, viz. Crossdomain Solutions Private Limited.

(4). We have heard the Ld. Authorized representatives of both the parties, perused the orders of the lower authorities as well as the records made available before us. We have given a thoughtful consideration to the facts of the case and are of the considered view that as the aforesaid comparable, viz. Crossdomain Solutions Private Limited, which stands irrebutably proved to be primarily providing high end ‘Knowledge Process Outsourcing’ (for short ‘KPO’) services, which substantially varies from a low end ITES service provider, therefore it can safely be concluded that the said comparable was functionally different, and as such could not be adopted as a comparable. That our aforesaid view stands fortified by the order passed by the Tribunal while disposing of the appeal of the assessee for the immediately succeeding year, viz. A.Y. 2009-10, titled as : DCIT Vs. M/s Willis Processing Services (India) Limited (ITA No. 2152/Mum/2014; Dt. 10/10/2014) wherein the Tribunal on the basis that the said comparable, viz. Crossdomain Solutions Private Limited was a KPO engaged in providing value based quality services in payroll, HR Finance, accounting, administration and tax processes, etc., had therein concluded that the same thus could not be considered as a comparable to the assessee company which is a routine BPO service provider. Thus finding no reason to take a different view as against that arrived at by the coordinate bench of the Tribunal in the assesses own case for A.Y. 2009-10, we herein conclude that as the aforesaid comparable, viz. Crossdomain Solutions Private Limited was functionally different from the assessee company, therefore the same is liable to be excluded from the list of the final comparables, and hence direct accordingly.

(C). ECLERX SERVICES LIMITED:- (1). It was submitted by the Ld. A.R that the TPO/AO had erred in considering Eclerx Services Limited as a comparable, disregarding the fact that the said comparable, viz. Eclerx Services Limited was engaged in high end Knowledge process outsourcing (for short ‘KPO’) services, as compared to the assessee company which was engaged in providing routine IT enabled services (ITES). The Ld. A.R in order to drive home his contention had referred to Page 1190 of the ‘Chart’, as well as the relevant pages of the ‘Fact sheet’/’APB’ as stood mentioned therein. That it was submitted before us that the aforesaid comparable, viz. Eclerx Services Limited being functionally different, had therefore wrongly been selected by the TPO as a comparable. It was submitted by the Ld. A.R that the aforesaid comparable company, viz. Eclerx Services Limited was providing high end data analytics and customized process solution, and was a leading Indian provider of KPO services. The Ld. A.R in order to fortify his contention had referred to the relevant extracts of the ‘Annual report’ of the comparable, which clearly suggested that it was engaged into knowledge process outsourcing (‘KPO’), CRM, data integration services etc. It was further submitted that in the absence of separate segmental, the said company was liable to be rejected as a comparable. That in order to fortify the aforesaid claim that the comparable, viz. Eclerx Services Limited was a KPO, reliance had been placed on the relevant extracts of the ‘Annual report’ (Page 785 & Page 789 of the ‘APB’) which did go to substantiate beyond any scope of doubt that the aforesaid comparable was a data analytics KPO service provider, specializing in two business verticals – Financial Services and Retail and Manufacturing, and was a leading Indian Provider of Knowledge Process Outsourcing (KPO) services. The aforesaid comparable, viz. Eclerx Services Limited was Established in 2001 and was providing data analytics and customized process solutions to complex business needs through a cost-effective combination of people, processes and technology. Thus in the backdrop of the aforesaid facts, it was submitted that as the assessee was engaged in providing BPO services viz-processing of insurance claims and insurance premiums and data processing service for which it employed ordinary graduates, therefore it could by no means be compared to the aforesaid comparable, viz. Eclerx Services Limited which was providing KPO services.

(2). That the Ld. A.R by referring to the relevant pages of the ‘Fact sheet’ had therein submitted that the ‘Special bench’ of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd. Vs. ACIT [A.Y: 2008-09] – 39 CCH 130 (Mum); dated. 07.03.2014, had specifically rejected the aforesaid comparable, viz. Eclerx Services Limited, on the basis that companies predominantly engaged in KPO services cannot be considered as a comparable to a company predominantly engaged in BPO activities, by observing as under:-

“Keeping in view the nature of services rendered by M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns.”

That it was further submitted that the aforesaid comparable had also been rejected by the Hon’ble High Court of Delhi in the case of : Rampgreen Solutions Pvt. Ltd. Vs. CIT (2015) 377 ITR 533 (Del) , which had upheld the action of the Tribunal and rejected the aforesaid comparable, viz. Eclerx Services Limited, stating that as the latter was engaged in KPO activities, therefore it could not be compared to routine BPO service providers. It was further submitted that the DRP had vide its order dated 27.11.2015 in the case of assessee for AY 2011-12 had accepted the contention of the assessee and rejected the aforesaid comparable company, viz. Eclerx Services Limited on the basis that it was engaged in KPO service, and the department had accepted the said order of the DRP and had not carried the same in further appeal before the Tribunal. That the Ld. A.R by referring to the ‘Fact sheet’, had therein further submitted that in the assesse’s own case for AY 2009-10, the DRP as well as the Tribunal had held that companies engaged in KPO services cannot be compared to the routine BPO services provided by the assessee company. Additionally, it was submitted that the ITAT in the assesses own case for AY 2010-11 in its recent order passed in dated. 09.12.2015 (Page 1135–1152 of ‘APB’), had held that as the assessee is a routine BPO service provider, therefore it cannot be compared to high end KPO service providers such as Eclerx Service Limited. Thus in light of the aforesaid judicial precedents and consistent view of the Tribunal in the assesses own cases, it was submitted that the aforesaid comparable, viz. Eclerx Services Limited was liable to excluded from the list of the comparables.

(3). That in order to support the contention that the aforesaid comparable, viz. Eclerx Services Limited was liable to be excluded from the list of the comparables, reliance was placed by the assessee on a host of decisions of the different coordinate benches of the Tribunal which have upheld the rejection of aforesaid viz. Eclerx Services Limited from the final set of comparables, as under :

ITAT order dated 9 December 2015 in the case of the Willis India  for AY 2010-11 (ITA No. 1890/Mum/2015).  DRP order dated 27 November 2015 in the case of Willis India for AY 2011-12 ITAT order dated 10 October 2014 in the case of the Willis India  for AY 2009-10 (ITA No. 2152/Mum/2014).  DRP order dated 30 December 2013 in the case of Willis India for AY 2009-10. [Department is not in appeal for AY 2011-12) BP India Services Private Limited Vs ACIT (ITA No.  6977/Mum/2012) [AY 2008-09] dated 21 January 2015.  Maersk Global Centres (India) Pvt. Ltd. Vs. ACIT [AY 2009-10] dated 16 January 2015. Maersk Global Centres (India) Pvt. Ltd. Vs. ACIT [AY 2008-09] 39  CCH 130 (Mum) dated 7 March 2014.

 Stream International Services Private Limited Vs. ACIT (ITA No. 8290/Mum/2011) [AY 2007-08] dated 10 October 2014. Lionbridge Technologies Private Limited Vs. ITO – ITA No.  7498/Mum/2012 [AY 2008-09] dated 9 July 2014. Mindcrest (India) Pvt Ltd. Vs. DCIT [AY 2008-09] – ITA No.  7289/Mum/2012] dated 12 December 2014.  Market Tolls Research Pvt. Vs. DCIT. 37 CCH 605 [AY 2008-09] (Hyd) dated 24 October 2013. United Health Group Information Services Pvt. Ltd. Vs. ACIT [AY  2008-09] dated 28 August 2014  M/s Symphony Marketing Solutions India P. Ltd. 37 CCH 253 {AY 2008-09] (Bang) 14 August 2013. Zavata India Private Limited Vs DCIY 36 CCH 136 (AY 2007-08)  (Hyd) dated 7 June 2013.  Cognizant Technology Services Pvt. Ltd VS. ACIT 37 CCH 155 [AY 2007-08 & 2008-09] (Hyd),dated 22 may 2013 M/s Hyundai Motors India Engineering P. Ltd Vs. DCIT [AY 2009-  10] – ITA No. 225/Hyd/2014 dated 31 July 2014.  M/s Parexel International (India) Pvt. Ltd. Vs. ACIY [AY 2009-10] ITA No. 607/Hyd/2014 dated 30 September 2014. Capital IQ Information System (India) Pvt Ltd [AY 2009-10] – ITA  No. 170/Hyd/2014 and ITA No. 124/Hyd/2014, dated 31 July 2014 (Hyd)  PTC Software (India) Private Limited Vs DCIT [AY 2009-10] – ITA No. 336/PN/2014 dated 31 October 2014. M/s Excellence Data Research Pvt. Ltd. [AY 2009-10] ITA No.  159/Hyd/2014 dated 31 July 2014 (Hyd)

 M/s Berkadia Services India Private Ltd. [AY 2009-10] dated 19 September 2014 (Hyd) Capital IQ Information System (India) Pvt Ltd [AY 2007-08] – ITA  No. 1961/Hyd/2011 dated 23 November 2012 (Hyd) HSBC Electronic Data Processing India P. Ltd. Vs. ACIT [AY 2007-  08] – ITA No. 1826/Hyd/2011 dated 24 October 2014.  HSBC Electronic Data Processing India P. Ltd. Vs. ACIT [AY 2008- 09] – ITA No. 1647/Hyd/2012 dated 24 October 2014.

(3). That it was further submitted by the Ld. A.R that during the year, the aforesaid comparable company viz. Eclerx Services Limited had acquired UK based company,viz. Ignetica Travel Solutions Ltd., which thus had led to the acquisition of new customers. Thus in the backdrop of the aforesaid event, it was submitted that this kind of inorganic growth during the year had contributed to increased revenues to the said comparable, viz. Eclerx Services Limited, during the year under consideration. That in order to fortify the aforesaid fact of acquisition by the aforesaid company, the assessee had referred to the ‘Annual report’ of the company (Page 796 of ‘APB’). Thus in the backdrop of the aforesaid facts, it was thus submitted that the aforesaid comparable was liable to be excluded from the final list of the comparables. That on the other hand the Ld. Departmental representative (for short ‘D.R’) had placed heavy reliance on the order of the TPO/AO and therein submitted that the lower authorities after thorough vetting the various factors, had as such rightly adopted the aforesaid comparable, viz. Eclerx Services Limited. The Ld. D.R further adverting to the contention which was raised by the assessee on the basis of an additional ground of appeal, that in light of the extraordinary event as that of acquisition by the aforesaid comparable, viz. Eclerx Services Limited of a UK based company, viz. Ignetica Travel Solutions Ltd.(for short ITS) during the year under consideration, the aforesaid company could not have been safely selected as a comparable, therein referring to the relevant pages of the ‘Annual report’ of the said comparable (Page 796 of ‘APB’) averred that a perusal of the ‘Annual report’ did not reveal as to whether the company which had been taken over, i.e ITS was engaged in the same line of business as that of the aforesaid comparable, or not. Thus in the backdrop of the aforesaid facts, the Ld. D.R taking support of the order of the Tribunal passed in the assesses own case for A.Y. 2007- 08, viz. Wills Processing Services (I) Ltd. Vs. DCIT-2(3), Mumbai (2013) 30 taxmann.com 350 (Mumbai-Trib) (copy placed on record by the Ld. D.R), therein referred to the observations of the Tribunal at Para 18.3 of the order, wherein it had been held that even if there is an extraordinary event in the form of merger/demerger, it is only when it is shown that pursuant to such extraordinary event the comparable had become functionally different, and as such incomparable, it is only then that the same would render it liable to be excluded as a comparable. It was thus averred by the Ld. D.R that in the absence of any material which could go to irrebutably prove that the aforesaid comparable, viz. Eclerx Services Limited, pursuant to acquisition of ITS had become functionally incomparable, the contention of the assessee that it may be excluded from the list of the final comparables, thus could not be summarily accepted.

(4). We have given a thoughtful consideration to the contention of the assessee that the TPO/AO had erred in considering the aforesaid comparable, viz. Eclerx Services Limited as a comparable, without appreciating the fact that the extraordinary event as that of acquisition of UK-based Ignetica Travel Solutions Limited (‘ITS’) on July 27, 2007 had taken place during the year, which as per the assessee, being an extraordinary item that had taken place during the year under consideration, therefore justified the exclusion of the aforesaid company as a comparable. We find that a perusal of the relevant extract of the ‘Annual report’ of the comparable (Page 796 of ‘APB’) relied upon by the assessee therein reads as under:-

“Acquisition eClerx has acquired UK-based ignetica Travel Solutions Limited (‘ITS’) on July 27, 2007. This acquisition is consistent with the Company’s strategy of looking for inorganic growth via ‘bolt on’ acquisition which fit well with the existing strengths of the company. ITS has provided the company with a set of 28 large customers, primarily in Europe, thus strengthening the Company’s presence in that geography. It has also given the company an entry platform into a new vertical travel and hospitality, besides consolidating the Company’s position in the retail and manufacturing space. The integration process was on track as of March 2008.”

, however we are unable to persuade ourselves to subscribe to the contention of the assessee that the said event in itself would justify exclusion of the aforesaid comparable from the list of comparables. We find that the issue as to where a merger and demerger or amalgamation of two functionally similar companies takes place, then can the said event of merger itself cannot be a reason for exclusion of a company from the list of comparables, had been adjudicated by the Tribunal while disposing of the assesses own appeal for AY: 2007-08, reported as : Wills Processing Services (I) P. Ltd. Vs. DCIT-2(3), Mumbai [(2013) 30 taxmann.com 350 (Mumbai-Trib), wherein the Tribunal had answered the said issue, by observing as under:-

“We are also of the view that if extraordinary events like merger and de-merger or amalgamation took place during the financial year relevant to the Assessment year under consideration, and because of the merger/de-merger the company became functionally different then the said company should be excluded from the comparables. However, if the merger of two functionally similar companies took place then event of merger itself cannot be taken as a factor for exclusion of the said comparable. Accordingly, we direct the AO/TPO to verify this fact and accordingly decide the comparability of the company namely Accentia Technologies Ltd.”

We find ourselves to be in agreement with the view taken by the Tribunal in the assesses own case for A.Y. 2007-08, that merely the event of acquisition by the aforesaid comparable company, viz. Eclerx Services Limited of the UK-based company, viz. Ignetica Travel Solutions Limited (‘ITS’) on July 27, 2007, itself cannot ipso facto form the basis for exclusion of the aforesaid comparable. That neither from a perusal of the ‘Annual report’ it is revealed that the said acquisition of the UK based company by the assessee during the year had therein rendered the comparable functionally different, nor any such material which could go to prove so had been brought on record before us. We rather find from the extract of the ‘Annual report’ that the integration process of such acquisition was on track only in the month of March, 2008. Thus in the backdrop of the aforesaid facts, in the absence of any material which could go to justify that the aforesaid comparable had been rendered functionally different because of the aforesaid acquisition, we herein decline to accept the said contention of the assessee that on the said basis the said comparable is liable to be excluded.

(5). We have heard the Ld. Representatives of both the parties, perused the orders of the lower authorities and the records made available before us. We have given a thoughtful consideration to the facts of the case and are of the considered view that though we find ourselves to be in agreement with the contention of the Ld. D.R and have not found favor with the contention of the assessee that as the aforesaid comparable had carried out an acquisition of a U.K based company, therefore simpliciter on the said count, without establishing that such acquisition had rendered the aforesaid comparable functionally different, could not be accepted as a factor for exclusion of the said comparable, but then we are of the considered view that the fact as averred by the Ld. A.R before us that the aforesaid comparable, viz. Eclerx Services Limited was providing high end data analytics and customized process solution and was a leading Indian provider of KPO services, which substantially varies from a low end ITES service provider, while for the assessee was engaged in providing BPO services, viz-processing of insurance claims and insurance premiums and data processing service for which it employed ordinary graduates, therefore the aforesaid comparable, viz. Eclerx Services Limited was functionally different from the assessee company, and as such could not be selected as a comparable. We find that the DRP had vide its order dated 27.11.2015 passed in the case of assessee for AY 2011-12 had accepted the contention of the assessee and rejected the aforesaid comparable company, viz. Eclerx Services Limited on the basis that it was engaged in KPO service, and the department by accepting the said order of the ‘DRP’ for A.Y. 2011-12 by not carrying the matter in further appeal before the Tribunal, had thus allowed itto attain finality. We further find that in the assesse’s own case for the immediately succeeding year, i.e A.Y 2009-10, the DRP as well as the Tribunal had held that companies engaged in KPO services cannot be compared to the routine BPO services provided by the assessee. That still further the Tribunal while disposing of the appeal of the assesses for AY 2010-11 had held that as the assessee was a routine BPO service provider, therefore it cannot be compared to high end KPO service providers such as Eclerx Service Limited. We further find that the ‘Special bench’ of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd. Vs. ACIT [A.Y: 2008-09] – 39 CCH 130 (Mum); dated. 07.03.2014, had specifically rejected the aforesaid comparable, viz. Eclerx Services Limited, on the basis that companies predominantly engaged in KPO services cannot be considered as a comparable to a company predominantly engaged in BPO activities. We are thus of the considered view that in the backdrop of the view taken by the Tribunal while disposing of the appeals of the assessee for A.Y(s): 2009-10 & 2010-11, therein concluding that the aforesaid comparable, viz. Eclerx Services Limited which was a KPO could not be taken as a comparable as against the assessee company which is providing BPO services, coupled with the fact that in the assesses own case for A.Y 2011-12 the exclusion by the DRP of the aforesaid comparable, viz. Eclerx Services Limited from the list of comparables had been accepted by the department, and last but not the least the ‘Special bench’ of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd.(supra) had therein held that the aforesaid comparable, viz. Eclerx Services Limited which is a KPO cannot be compared as against the assessee which is providing BPO services, we thus finding no reason to take a different view and being of the considered view that the aforesaid comparable, viz. Eclerx Services Limited was functionally different from the assessee company, therefore hold that it cannot be accepted as a comparable and hence is directed to be excluded from the list of comparables.

(D) MOLD-TEK TECHNOLOGIES LTD : (1). It was submitted by the Ld. A.R that the TPO/AO had erred in considering Mold-Tek Technologies Limited as a comparable, therein disregarding the very fact that the said company was engaged in high end knowledge process outsourcing (KPO) services, as in comparison to the assessee company which was engaged in providing routine IT enabled services. It was further submitted by the assessee that as the aforesaid comparable, viz. Mold-Tek Technologies Limited had earned supernormal profits, therefore the said comparable in light of the said extraordinary event could not be selected as a comparable. It was further submitted that the DRP disregarding the fact that the said comparable, viz. Mold-Tek Technologies Limited was functionally different from the assessee company, had thus wrongly accepted it as a comparable. (2). The assessee therein submitted that as the aforesaid comparable, viz. Mold-Tek Technologies Limited was engaged in providing high end structural engineering consulting services which is a high end segment service and cannot be compared to the routine IT enabled services provided by the assessee, therefore it was functionally different from the assessee company, and as such could not have been selected as a comparable. The assessee referring to the ‘Annual report’ of the aforesaid comparable, viz. Mold-Tek Technologies Limited, therein submitted that at Page 10 of the said report (Page 843 of APB), under the head "Review of Operations" the company had mentioned that it is engaged in KPO business. It was further submitted that as per the website of the company, viz. www.moldtekindia.com/about-us.html (Page 1051 of the ‘APB’), which read as under: "Mold-Tek Technologies is a leading KPO in Engineering and Design Services. Located in Hyderabad, Mold-Tek specializes in Civil, Structural and Mechanical Engineering Services. MoldTek has a strong team of Skilled resources with world class resources and skill sets complemented by two subsidiaries in USA - CROSSROADS DETAILING, INC. Indianapolis, IN & RMM Global LLC Akron, OH."

, it could safely be gathered that the aforesaid comparable, viz. Mold- Tek Technologies Limited was a leading KPO. (3). That it was further submitted by the assessee that the aforesaid comparable, viz. Mold-Tek Technologies Limited was rejected by the TPO himself in the assesses own case for AY 2006-07 on the basis that as it was found to be an extreme outlier, therefore it could not be compared to the assessee company. Still further it was submitted that the Tribunal in assesses own case for AY 2010-11 had held that as the assessee company was a routine BPO service provider, therefore it could not be compared to high end KPO service providers. Thus in the backdrop of the aforesaid observations of the Tribunal, it was submitted that now when it was an established fact that the aforesaid comparable, viz. Mold-Tek Technologies Limited was also engaged in KPO business, therefore following the view taken by the Tribunal in assesses own case for the subsequent year, the said comparable was liable to be excluded from the final set of comparables. That in order to fortify its aforesaid contention, it was further submitted that the ‘Special bench’ of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd. Vs. ACIT [A.Y: 2008-09] – 39 CCH 130 (Mum); dated. 07.03.2014, had specifically held that companies predominantly engaged in KPO services cannot be considered as a comparable to a company predominantly engaged in BPO activities (4). The assessee in further support of its contention that the aforesaid comparable, viz. Mold-Tek Technologies Limited was liable to be excluded from the list of the comparables, thus relied on a host of orders of the Tribunal in the case of similarly placed assesses, as under:- (i). Maersk Global Centres (India) Pvt Ltd Vs ACIT [AY 2008-09- 39 CCH 130 (Mum), dated 7March 2014] (ii). Lionbridge Technologies Private Limited Vs ITO (ITA No.7498/Mum/2012 [AY 2008-09], dated 9 July 2014). (iii). Mindcrest (India) Private Limited Vs DCIT (ITA No.7289/Mum/201 2 [AY 2008-09] dated 12,December 2014). (iv). Cognizant Technology Services Pvt. Ltd. Vs. ACIT. (37 CCH 155 [AY 2007-08 & 2008-09] (Hyd), dated 22 May 2013). (v). Stream International Services Pvt Ltd. [(AY 2007-08) (ITA No.8920/Mum/201 1), dated 10 October 2014.] (vi). e4e business Solutions India Pvt. Ltd (AY 2007-08) [(ITA No. 819/bang/2011), dated 26 May 2015] (vii). M/s Symphony Marketing Solutions India P. Ltd. [37 CCH 253 [AY 2008-09 (Bang), 14 August2013] (5). That it was further submitted that as the year under consideration was an exceptional year of performance of the company and there was a drastic increase in turnover during the year under consideration. It was submitted before us that the year under consideration had witnessed an amalgamation between M/s Teck-men Tools Private Limited (TPL), the transferor company and the aforesaid comparable, viz. Mold-Tek Technologies Limited. It was thus submitted that on the said ground itself the aforesaid comparable, viz. Mold-Tek Technologies Limited was liable to be excluded from the list of the comparables. That on the other hand the Ld. Departmental representative (for short ‘D.R’) had placed heavy reliance on the order of the TPO/AO and therein submitted that the lower authorities after thorough vetting of the various factors, had as such rightly selected the aforesaid comparable, viz. Mold-Tek Technologies Limited. The Ld. D.R further adverting to the contention which was raised by the assessee that on the basis of an additional ground of appeal, that in light of the extraordinary event as that of amalgamation between M/s Teck-men Tools Private Limited (TPL) and the aforesaid comparable, viz. Mold-Tek Technologies Limited during the year under consideration, the aforesaid company could not have been taken as a comparable, therein referring to the relevant pages of the ‘Annual report’ of the said comparable (Page 842 of ‘APB’), therein averred that it did not emerge from the records as to whether M/s Teck-men tools Pvt. Ltd., the company which was taken over by the aforesaid comparable, viz. Mold-Tek Technologies Limited, was engaged in the same line of business, or not. Thus in the backdrop of the aforesaid facts, it was averred by the Ld. D.R that in light of the order of the Tribunal passed in the assesses own case for A.Y. 2007-08, wherein it had been held that even if there is an extraordinary event in the form of merger/demerger, it is only when it is shown that pursuant to such extraordinary event the comparable had become functionally different, and as such incomparable, that the same would render it liable to be excluded as a comparable. It was thus averred by the Ld. D.R that in light of the aforesaid facts, the contention of the assessee that the aforesaid comparable may be excluded from the list of the final comparables, thus could not be summarily accepted on the very face of it, as such. (6). That still further it was submitted by the assessee that as during the year under consideration the company had earned abnormally high profits (i.e. Operating profits/Operating cost of 106.82%), it was thus on the said count itself liable to be excluded from the list of comparables, as such like companies have a tendency to skew the results and cannot be considered as representative of the industry. Accordingly, it was submitted that this company should be rejected on account of being an outlier. It was further submitted that the Tribunal had upheld the rejection of a company earning super normal profits, viz Excel Infoways Ltd in the assesses own case for AY 2009-10. Reliance in support of the aforesaid contention was placed by the assessee on the following orders of the coordinate benches of the Tribunal:- (i). M/s Adobe Systems India Private Limited (ITA No. 5043/Del/2010). (ii). SAP Labs Pvt Ltd (ITA No. 398/Bang/20 (iii). Teva India Pvt Ltd (6107/Mum/2009) (iv) Saunay jewels Pvt Ltd (5758/Mum!2007) (v). Mentor Graphics (P) Ltd (112 TTJ 408.

That as regards the aforesaid contention that the comparable, viz. Mold-Tek Technologies Limited, which during the year under consideration had earned abnormally high profits, was liable to be excluded as a comparable on the said count itself, it was submitted by the Ld. D.R that the Tribunal had in a number of decisions therein held that a company which is otherwise functionally comparable will not be rejected solely on the ground of super normal profits, and in order to fortify his contention, therein relied on the judgment of the Hon’ble High Court of Delhi in the case of : Chryscapital Investment advisors (India) (P). Ltd. Vs. DCIT (2015) 56 taxmann.com 417 (Delhi), Thus in the backdrop of his aforesaid contention, it was submitted by the Ld. D.R that the contention of the assessee, therein seeking exclusion of the aforesaid comparable thus was liable to be rejected. (7). We have heard both the Ld. Representatives, perused the orders of the lower authorities and the records made available before us. We find that the aforesaid comparable, viz. Mold-Tek Technologies Limited was engaged in high end knowledge process outsourcing (KPO) services, and therein providing high end structural engineering consulting services, which is a high end segment service, as in comparison to the assessee company which was engaged in providing routine IT enabled services. We find that that the said comparable, viz. Mold-Tek Technologies Limited was rejected by the TPO himself in the assesses own case for AY 2006-07 for the reason that the said company was an extreme outlier, and hence could not be compared with the assessee company. That still further the Tribunal in assesses own case for AY 2010-11, has held that as the assessee company is a routine BPO service provider, therefore it cannot be compared to high end KPO service providers. We further find that the ‘Special bench’ of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd.

Vs. ACIT [A.Y: 2008-09] – 39 CCH 130 (Mum); dated. 07.03.2014, had specifically rejected the aforesaid comparable, viz. Mold-Tek Technologies Limited, on the basis that companies predominantly engaged in KPO services cannot be considered as a comparable to a company predominantly engaged in BPO activities. We are of the considered view that as the aforesaid comparable, viz. Mold-Tek Technologies Limited is a leading KPO in Engineering and Design Services, specializing in Civil, Structural and Mechanical Engineering Services, with a strong team of Skilled resources with world class resources and skill sets complemented by two subsidiaries in USA - CROSSROADS DETAILING, INC. Indianapolis, IN & RMM Global LLC Akron, OH, therefore the same being substantially functionally different from the assessee company which is a routine BPO service provider, therefore cannot be taken as a comparable. We find that the ‘Special bench’ of the Tribunal in the case of : Maersk Global Centres (India) Pvt. Ltd. Vs. ACIT [A.Y: 2008-09] – 39 CCH 130 (Mum) had rejected the aforesaid comparable on the basis that it was engaged in KPO services, and as such could not be compared to a company predominantly engaged in BPO services. We thus are of the considered view that the aforesaid comparable, viz. Mold-Tek Technologies Limited which is a KPO cannot be compared as against the assessee which is providing BPO services, and as such being functionally different from the assessee company, therefore cannot be accepted as a comparable and is thus directed to be excluded from the list of comparables. That as the aforesaid comparable, viz. Mold-Tek Technologies Limited being found to be functionally different, has been directed to be excluded from the list of the comparables, therefore the remaining issues on the basis of which the inclusion of the said comparable had been assailed before us are rendered as infructuous and are thus not being adjudicated upon. ACCENTIA TECHNOLOGIES LTD : (E). (1). The Ld. A.R had submitted at the very outset that the aforesaid comparable, viz. Accentia Technologies Ltd. was rejected by the DRP in assesses own case for A.Y 2009-10 for the reason that unlike the assessee company the said comparable earned revenue from sale of software services and was thus functionally different, as well as the fact that there was no separate segmental information available in this regard. That it was submitted that the said order of the DRP was not further carried in appeal by the Department before the ITAT, and by so doing the said findings of the DRP could safely be held to have been accepted by the department, and as such had been allowed to attain finality. It was further submitted that the TPO himself had rejected the said comparable in the case of the assessee for A.Y 2010-11 and A.Y 2011-12, for the reason that the said comparable, unlike the assessee was engaged in software development services and was thus functionally different from the assessee company. The ‘Annual report’ of the aforesaid comparable, viz. Accentia Technologies Ltd. for the year under consideration therein reveals that its operations have been classified under a single segment, viz. "Healthcare Receivables Management". That still further from a perusal of the ‘Profit and loss account’ of the aforesaid comparable, though it can fairly be gathered that it had generated income from three sources, i.e. Medical Transcription, Billing & Coding and Software Development & implementation, but however no segmental information is provided in the said annual report. It was further submitted before us that the TPO had considered the profitability of the aforesaid comparable, viz. Accentia Technologies Ltd. at an overall entity level, which includes income from software development, which had led to an infeasible comparison. That in the backdrop of the aforesaid facts it was submitted that on the basis of such incomplete information, the aforesaid company could not have been considered as a comparable. That in support of the aforesaid contention reliance was placed on the following judgements: (i) Vodafone India Services P. Ltd. Vs DCIT. 36 CCH 550 [AY 2007-08] (Mum) dated 26 April .2013 (ii) Maersk Global Service Centres (India) Pvt. Ltd. [AY 2009- 10] - dated 16 January 2015 (iii). Stream International Services (AY 2007-8) (ITA No.8920/Müm/2011) dated 29 September 2014. (iv). Xchanging Technology Services India Private Limited (ITA No. -813/2015/ Del HC) [AY 2009-101 dated 20 October 2015. (v). Xchanging Technology Services India Private Limited (ITA No. 1897/Del/2014) dated 24 April 2015. (vi) M/s Mindteck (India) Ltd (ITA No. 70/2014) [AY 2009-10 dared 21 August 2014. (vii). TNS India Pvt Ltd [AY 2008-09] - ITA No. 1875/hyd/2012 dated 17 April 2015.

(viii). Aegis Limited Vs ACIT - [AY 2009-10] dated 27 July 2015. (ix). PTC Software (India) Private Limited Vs DCIT [AY 2009-10 - ITA No.336/PN/2014 dated 31 October 2014. It was submitted that the aforesaid company was rejected by the TPO in the case of the assessee company for AY 2010-I1. It was further submitted that the DRP had rejected the said comparable in the case of the assessee company for A.Y 2009-10, for the reason that unlike the assessee company the said comparable was also engaged in software development activities, and in the absence of segmental breakup could not be considered as a comparable. That the aforesaid order of the DRP was accepted by the department, and no appeal was filed against the same before the Tribunal. Thus in the backdrop of the aforesaid facts, it was submitted before us that as the comparable company, viz. Accentia Technologies Ltd., was functionally incomparable, therefore it had wrongly been selected as a comparable. (2). That still further, it was submitted that Page 29 of the ‘Annual report’ of the aforesaid comparable, viz. Accentia Technologies Ltd.(Page 717 of ‘APB’) revealed that during the year, two of the companies, viz. M/s Geosoft Technologies (Trivandrum) Limited (a company engaged in provision of medical transcription services) and M/s Indium Technologies India Pvt. Ltd.,(a company engaged in product development for healthcare industry) had amalgamated into the parent company, viz. Accentia Technologies Ltd. That still further during the year the aforesaid comparable, viz. Accentia Technologies Ltd., had acquired certain companies viz Thunga Software Private Limited, GSR systems Inc., GSR Physician billing services Inc., Denmed Transcription services Inc and Accentia FZE. Thus in the backdrop of the aforesaid facts it was submitted that as one of amalgamating company was functionally not comparable to the assessee company, and as such the said comparable ,viz. Accentia Technologies Ltd. was engaged in rendering two activities, i.e medical transcription services and development of products for the healthcare industry, therefore in light of the fact that there was no segmental reporting for these two activities, it could not have been selected as functionally comparable to the assessee. That still further it was submitted that due to the aforesaid restructuring undertaken by the comparable, viz. Accentia Technologies Ltd., which as claimed by the assessee was an exceptional circumstance resulting in an exceptional year of performance, which had led to significant increase of the revenues of the said comparable from 28.72 crores in FY 2006-07 to 50.93 crores in FY 2007-08, i.e. an increase by 77.38%, it was therefore submitted that even on the count of the said exceptional event occasioned by the restructuring of the aforesaid comparable, the latter was liable to be excluded from the list of the comparables. The assessee in support of its aforesaid contention had relied on a host of judicial pronouncements. That on the other hand the Ld. Departmental representative (for short ‘D.R’) had placed heavy reliance on the order of the TPO/AO and therein submitted that the lower authorities after thorough vetting the various factors, had as such rightly selected the aforesaid company, viz. Accentia Technologies Ltd., as a comparable. The Ld. D.R further adverting to the contention which was raised by the assessee on the basis of an additional ground of appeal, that in light of the extraordinary event as that of amalgamation of units in Trivandrum, namely Iridium Technologies and Geosoft Technologies in the parent company, viz. Accentia Technologies Ltd., during the year under consideration, the aforesaid company could not have been safely selected as a comparable, therein referring to the relevant pages of the ‘Annual report’ of the said comparable (Page 717 of ‘APB’), therein averred that the assessee could not demonstrate as to whether a merger had actually taken place during the year under consideration, and even if it was so, still nothing was placed on record from where it could be gathered that the merged entity was engaged in a different line of business. Thus in the backdrop of the aforesaid facts, it was averred by the Ld. D.R that in light of the order of the Tribunal passed in the assesses own case for A.Y. 2007-08, wherein it had been held that even if there is an extraordinary event in the form of merger/demerger, it is only when it is shown that pursuant to such extraordinary event the comparable had become functionally different, and as such incomparable, that the same would render it liable to be excluded as a comparable. It was thus averred by the Ld. D.R that in light of the aforesaid facts, the contention of the assessee that the aforesaid comparable may be excluded from the list of the final comparables, thus could not be accepted. (3). We have heard both the Ld. Representatives, perused the orders of the lower authorities and the records made available before us. We find that the aforesaid comparable, viz. Accentia Technologies Ltd. was engaged in software development services and was thus functionally different from the assessee company. We find that the fact that the aforesaid comparable was functionally different from the assessee company had duly been acknowledged by the TPO himself who for the said reason had rejected the said comparable, viz. Accentia Technologies Ltd. in the case of the assessee for A.Y 2010-11 and A.Y 2011-12. We further find that that the aforesaid comparable, viz. Accentia Technologies Ltd. was rejected by the DRP in assesses own case for A.Y 2009-10, for the reason that unlike the assessee company the said comparable earned revenue from sale of software services and was thus functionally different, and there was no separate segmental information available in this regard, and the said order of the DRP having not been further assailed by the department before the Tribunal had thus attained finality. We further find that as stands gathered from a perusal of the ‘Annual report’ and ‘Profit & loss a/c’ of the aforesaid comparable, the latter was generating income from three sources, i.e. Medical Transcription, Billing & Coding and Software development & implementation, but however no segmental information was available in the annual report. We are further persuaded to be in agreement with the assessee that the TPO had considered the profitability of the aforesaid comparable, viz. Accentia Technologies Ltd. at an overall entity level, which includes income from software development, which had led to an infeasible comparison in the hands of the assessee company. We are of the considered view that on the basis of such incomplete information, the aforesaid company could not have been considered as a comparable. We have given a thoughtful consideration to the facts of the case and are of the considerate view that in the backdrop of the aforesaid facts, it can safely be concluded that the comparable, viz. Accentia Technologies Ltd., being functionally different on an entity level, thus in the absence of complete segmental information could not be taken as a comparable. That as observed by us hereinabove, our view stands fortified by the very fact that the TPO himself in the case of the assessee company for the A.Y.2010-11 and 2011-12, for the aforesaid reasons had rejected the said company, viz. Accentia Technologies Ltd. as a comparable. Still further the order passed by the DRP in the case of the assessee company, therein rejecting the said comparable viz. Accentia Technologies Ltd., having been accepted by the department by not assailing the same before the Tribunal, further strengthens and supports our aforesaid view. Thus in light of outr aforesaid observations, we herein being of the view that the comparable, viz. Accentia Technologies Ltd. being functionally different, thus cannot be taken as a comparable, and therefore direct the exclusion of the same from th list of the comparables. That as the aforesaid comparable, viz. Accentia Technologies Ltd., being found to be functionally different, has been directed to be excluded from the list of the comparables, therefore the remaining issues on the basis of which the inclusion of the said comparable had been assailed before us are rendered as infructuous and are thus not being adjudicated upon. We in light of the contention of the Ld. A.R that if the aforesaid 5 comparables are excluded from the list of the comparables and the ALP of the International transactions of the assessee company with its AE is recomputed by taking into consideration the arithmetic mean of the margins of the remaining comparables, the difference between such ALP and the price charged by the assessee would be within the safe harbor limit of 5%, thus requiring no TP adjustment. We accordingly direct the A.O to recompute the ALP of the transactions of the assessee company with its AE by applying the average profit margin of the remaining comparables, after giving effect to our aforesaid directions as regards exclusions of the abovesaid comparables. If the difference between the ALP so recomputed and the price actually charged by the assessee is within the safe harbor limit of (+) or (-) 5%, the A.O is directed not to make any TP adjustment as per the second proviso to Sec. 92C(2) of the ‘Act’. In so far as Ground of appeal

No. 12 and 13 are concerned, the same relate to the adjustment for differences in working capital and risks assumed. Though the Tribunal has allowed such claim for A.Y(s).2006-07 and 2007-08, but the same are rendered academic in view of our earlier observations. Thus in light of our aforesaid observations, the ‘Ground of appeal No(s).1 to 15’ are allowed, which are to be considered in the backdrop of the concession of the Ld. A.R as recorded by us hereinabove, therein averring that the order of the AO/TPO is being assailed by him to the extent of inclusion of the aforementioned 5 comparables. Further, the relatable additional grounds of appeal raised by the assessee before us, marked as ‘Ground of appeal No. 21 to 25 are also not adjudicated as the same were not pressed, and are accordingly dismissed.

11. The Ld. A.R further adverting to ‘Ground of appeal No. 18’ so raised before us, therein assailed the disallowance by the A.O of claim of deduction of Rs. 6,70,56,096/- which was raised by the assessee u/s 10A of the ‘Act’ in its return of income for the year under consideration. It was averred by the Ld. A.R that the A.O had erred in excluding the ‘Miscellaneous Income’ amounting to Rs.2,47,374/-from the ‘eligible profits’ for the purpose of computing the deduction under section 10A. It was further submitted by the Ld. A.R that the AO had gravely erred in law and facts of the case by declining to allow the claim of the assessee towards deduction of Rs.6,70,56,096/- under Sec. 10A in toto, for the reason that as per him the method adopted by the assessee for computing the deduction was not correct. The Ld. A.R had at the very outset submitted that the issue under consideration, viz. the entitlement of the assessee towards claim of deduction u/s 10A involving the same facts on the basis of which the same had been declined by the A.O during the year under consideration, was covered by the ITAT order for AY 2006-07 in the assesses own case, and to support his contention he took us to the order of the Tribunal forming part of his ‘Paper book’ (Page 504-505 of ‘APB’). It was further submitted by the Ld. A.R that the said order of the Tribunal had thereafter been followed by the DRP in the assesses own case for AY 2009-10 (Page 964-968 of ‘APB’), which was accepted by the department by not assailing the same before the Tribunal.

No. 19’ therein assailing the levy of interest u/s 234B, no averment as regards the same had been raised before us during the course of hearing of the appeal, therefore the same being consequential to the assessment, the A.O is thus directed to give effect to the same after determining the income in the ‘set aside’ proceedings. The ‘Ground of appeal No. 20’ therein assailing the initiation of the penalty proceedings u/s 271(1)(c), being premature, is therefore dismissed.

15. The appeal of the assessee is thus partly allowed in light of our aforesaid observations.

Order pronounced in the open court on 22/03/2017