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Sun Life India Service Centre Pvt. Ltd., Unitech World Tower-B, 2nd floor, Sector-39, Gurgaon. Vs. ACIT, Circle-II, Gurgaon.
May, 28th 2015
        IN THE INCOME TAX APPELLATE TRIBUNAL
             DELHI BENCHES : I : NEW DELHI

BEFORE SHRI R.S. SYAL, AM AND SHRI GEORGE GEORGE K., JM

                        ITA No.5799/Del/2012
                       Assessment Year : 2008-09


Sun Life India Service Centre       Vs. ACIT,
Pvt. Ltd.,                              Circle-II,
Unitech World Tower-B,                  Gurgaon.
2nd floor, Sector-39,
Gurgaon.
PAN: AAJCS6520K

  (Appellant)                               (Respondent)

            Assessee By         :    Shri G.C. Srivastava, Advocate &
                                     Shri Saurabh Srivastava, CA
            Department By       :    Shri Jasdeep Singh, CIT, DR

         Date of Hearing                :   26.5.2015
         Date of Pronouncement          :   27.5.2015


                                    ORDER
PER R.S. SYAL, AM:
     This appeal by the assessee is directed against the final order passed

by the Assessing Officer (AO) on 27.9.2012 u/s 143(3) read with section
                                                            ITA No.5799/Del/2012


144C(13) of the Income-tax Act, 1961 (hereinafter also called `the Act') in

relation to the assessment year 2008-09.

2.   The first issue raised in this appeal is against the addition on account

of transfer pricing adjustment under the segment of `Provision of software

development and maintenance support services' on one hand and

`Provision of back office support services' including `Provision of finance

and accounts support services' on the other.

3.   Briefly stated, the facts of the case are that the assessee is an Indian

company, a part of Sun Life Group,         which has diversified financial

services organization providing savings, retirement and pension products

and life and health insurance in Canada, US, UK and Asia. This group

also operates mutual funds and investment management businesses. The

assessee provided Software development and maintenance support services

and also back office support services to its associated enterprises (AEs) for

assistance in their projects.   The assessee reported four international

transactions in Form No.3CEB consisting of `Provision of software

development and maintenance support services' with the transacted value

                                      2
                                                            ITA No.5799/Del/2012


of Rs.30,08,48,648/-; `Provision of back office support services' with the

transacted value of Rs.5,65,34,293/-; and `Provision of F&A support

services' with the value of Rs.24,51,728/-. In order to demonstrate that its

international transactions were at arm's length price (ALP), the assessee

applied the transactional net margin method (TNMM) with the Profit level

indicator (PLI) of Operating Profit to Total Cost (OP/TC). On a reference

made by the AO, the Transfer Pricing Officer (TPO) noticed that the

segment of `Provision of back office support services' was no different

from the segment of `Provision of financial and accounts support services'.

He, therefore, merged these two segments into one for conducting the

benchmarking analysis. Though the assessee initially used multiple-year

data of comparables, however, during the course of the TP proceedings,

such data was restricted to a single year, at the TPO's instance. The TPO

observed that the assessee's OP/TC in the segment of `Provision of

software development and maintenance services' was at 13.23% and in

the `Merged provision of back office support services and F&A support

services' at 14.30%. The assessee initially chose 23 comparables in the

`Software development and maintenance services' segment.           However,
                                     3
                                                           ITA No.5799/Del/2012


during the course of the proceedings before the TPO and by using the

current year's data, the assessee came out with 20 comparables, which

have been listed on page 11 of the TPO's order. The TPO finally selected

20 comparable cases as listed on page 79 of his order. The average OP/TC

of such 20 companies was computed at 20.96%. By applying this PLI as a

benchmark, the TPO worked out transfer pricing adjustment of

Rs.2,05,24,879/- under this segment. As regards the `Merged back office

and F&A support service segment',        the assessee initially chose 12

comparables listed on page 6 of the TPO's order, which were reduced to 8

during the course of proceedings before the TPO on the basis of current

year's data. The TPO shortlisted four comparable companies which have

been listed on page 80 of his order. The average OP/TC of said four

comparable companies under this merged segment was computed at

22.85%. By applying this profit rate as benchmark, the TPO worked out

the transfer pricing adjustment amounting to Rs.44,12,714/-. The assessee

challenged before the dispute resolution panel (DRP) the draft order passed

by the AO pursuant to the TPO's order. The DRP reduced the total

addition on account of transfer pricing adjustment from Rs.2.49 crore to
                                     4
                                                             ITA No.5799/Del/2012


Rs.2,37,41,997/-. The AO finalized the assessment with such addition.

The assessee is aggrieved against the transfer pricing adjustment made in

the final assessment order.

4.   We have heard the rival submissions and perused the relevant

material on record. It has been noticed above that the assessee reported

international transaction of `Provision of software development and

maintenance support services' and two separate international transactions

of `Provision of back office support services' and `Provision of F&A

support services'.   For the purposes of computation of ALP, the TPO

merged the international transaction of provision of back office support

services with the provision of F&A support services and treated the two as

one international transaction. The assessee has not raised any serious

objection to the said merger of these two international transactions made

by the TPO. In our considered opinion, the TPO has rightly merged these

two transactions as both such services fall in the realm of provision of back

office support services.      As such, we will proceed to determine the

correctness of the approach adopted by the authorities in determining the


                                      5
                                                            ITA No.5799/Del/2012


ALP of the `Provision of software development and maintenance support

services' segment and the merged segment of `Provision of back office

support and F&A support services', one by one.

A. Provision of software development and maintenance support services.

5.   The assessee reported the value of this transaction at Rs.30.08 crore

with OP/TC at 13.23%. The TPO changed the composition of comparable

companies and without allowing the working capital adjustment claimed

by the assessee, computed the ALP of this transaction at Rs.32.13 crore.

Before proceeding further, we want to make it clear that the assessee is

aggrieved only against not allowing of working capital adjustment and

inclusion of five companies in the final tally of comparables drawn by the

TPO. Apart from these, the assessee is satisfied on all other aspects of the

computation of the ALP of this transaction by the TPO.

6.   As regards the working capital adjustment, the claim for which is

common for both the segments, namely, the `Provision of software

development and maintenance services' and the merged segment of

`Provision of back office support services', the assessee argued before the

                                     6
                                                             ITA No.5799/Del/2012


TPO that suitable adjustment on account of differences between the

working capital be allowed. The TPO refused to allow such adjustment by

noticing that the assessee has a consolidated profit and loss account and the

segmental reporting of software development and back office support

services was done only for the purposes of TP study of the international

transactions.   As the financials of the company showed consolidated

income from both the segments, he opined that it was not possible to

ascertain the creditors and debtors pertaining to each segment. When the

matter was taken up before the DRP, one more reason was assigned for

negativing the assessee's claim on working capital adjustment, being, the

necessity and non-availability of daily average of working capital

deployed, as against the use by the assessee of the average of such figures

of working capital on the first and the last day of the accounting period.

7.   We are not inclined to accept, in principle, the view canvassed by

the authorities below that the assessee cannot be allowed a working capital

adjustment. Such an adjustment is restricted to inventory, trade receivables

and trade payables. If a company carries high trade receivables, it would


                                      7
                                                             ITA No.5799/Del/2012


mean that it is allowing its customers relatively longer period to pay their

amounts, which will result into higher interest cost and the resultant low

net profit. Similarly, by carrying high trade payables, a company benefits

from a relatively longer period available to it for paying back to its

suppliers, which reduces the interest cost and increases profits. In order to

neutralize the difference on account of inventory, trade payables and trade

receivables, it is of utmost importance to allow working capital adjustment

for bringing the case of the assessee at par with the other otherwise

functionally comparable entities. We, therefore, agree in principle with the

grant of working capital adjustment.

8.   The view taken by the Dispute Resolution Panel (DRP) for computing

such adjustment on the basis of daily average of working capital deployed

by the tested party and also each of the comparables, is not tenable because

of the order passed by the Delhi Bench of the Tribunal in the case of

Navisite India Pvt. Ltd. Vs. ITO (ITA No.5329/Del/2012). Vide its order

dated 31.5.2013, the Tribunal has held that the components of the working

capital deployed should be considered on annual basis with the average of


                                       8
                                                            ITA No.5799/Del/2012


opening and closing. We, therefore, hold that the entitlement of the

assessee to the working capital adjustment, cannot be denied.

9.    Notwithstanding the allowability of the working capital adjustment,

we are unable to countenance its calculation given by the assessee at its

face value because of an important factor. It is an undisputed position that

the assessee made up its accounts on an entity level. It was only for the

purposes of showing that its international transactions were at ALP, that it

bifurcated the consolidated accounts into different segments.            Such

bifurcation of accounts into different segments has not been disputed by

the TPO inasmuch as he has not challenged the correctness of the figures

so deduced in respect of operating profits etc. of each segment. But, when

it comes to the computation of working capital adjustment, one needs to

look only at the figures of inventory, trade receivables and trade payables.

These figures can be culled out only from the balance sheet without any

reference to the segregated income statement of each segment.            On a

pointed query from the Bench, the ld. AR conceded that there may be some

trade receivables or payables common to the `Software development





                                     9
                                                            ITA No.5799/Del/2012


segment' and the other `Merged segment'. In such a situation, it becomes

relevant to see as to how the figures of such trade receivables or payables

have been placed in the computation of working capital adjustment under

each segment. The ld. AR argued that the working of the working capital

adjustment was not challenged by the TPO and, hence, it should not be

embarked upon afresh. We are not convinced with this proposition for the

obvious reason that when the TPO rejected the assessee's claim for the

grant of any working capital adjustment at the threshold itself, there was no

reason for him to examine the veracity of the computation of working

capital adjustment as put forth on behalf of the assessee. Under such

circumstances, we direct the AO/TPO to compute working capital

adjustment, if any, available under both the segments, namely, Provision of

software development and maintenance services and Merged provision of

back office support services and F&A support services distinctly in the

light of our above discussion. Needless to say, the assessee will be allowed

an opportunity of hearing in such fresh determination of the working

capital adjustment, if any.



                                     10
                                                           ITA No.5799/Del/2012


10.     The next issue raised by the assessee in the computation of ALP

under the `Provision of software development and maintenance services

segment' is against the inclusion of five companies in the final list of

comparables selected by the TPO, as under:-

  i)      Avani Cimcon Ltd.

  ii)     Helios & Matheson Information Technology Ltd.,

  iii)    Infosys Technologies Ltd.,

  iv)     KALS Information Systems Ltd. (Seg)

  v)      Thirdware Solutions Ltd.

11.     Before deciding the comparability or otherwise of these five

companies, it is sine qua non to ascertain the nature of services rendered

by the assessee under this segment. This segment has two classifications,

namely, Software development services and Maintenance support services.

Software development services refers to the development of modules by

the assessee and also parts of modules for software being used by its

overseas group entities. Maintenance support services refer to the services

including bug fixing, carrying out maintenance and support services of

                                       11
                                                           ITA No.5799/Del/2012


software used by its overseas group entities. The assessee entered into a

Services Agreement dated 1.4.2006 with Sun Life Ireland, under which, it

became responsible for providing software development and maintenance

support services to its overseas group entities. These services were to be

provided under the directions issued by Sun Life Ireland. For this purpose,

the assessee got compensation from Sun Life Ireland on the basis of cost

plus mark-up. Revenue from software development services accounts for

approximately 20% of total revenue under the software development and

maintenance support services earned by the assessee and the remaining

80% is towards software maintenance support services. During the year

under consideration, the assessee was compensated at cost plus 12.52%

mark-up under this segment by Sun Life Ireland for which the invoices

were raised on monthly basis in Canadian dollars.

12.   With the above understanding of the nature of services carried out by

the assessee in segment of `Provision of software development and

maintenance support segment', let us examine if the five companies

contested by the assessee are, in fact, comparable.


                                     12
                                                            ITA No.5799/Del/2012


Avani Cimcon Ltd.

13.   This company was not chosen by the assessee as a comparable for the

software development segment. The TPO included it by observing that it

was also engaged into software development consulting company with

client base in Australia, US, UK, Africa and the European Union with

major focus on the travel and insurance industry. The DRP also rejected

the assessee's contention against the inclusion of this company.

14.   We have perused the Annual accounts of this company available in

the assessee's paper book from pages 96 to 99. Apart from its Balance

sheet, Profit & loss account and some Schedules, the Director's Report and

Auditor's Report, etc. of this company are not available. The ld. AR

contended that the information of this company available in the public

domain for the year under consideration has been downloaded and placed

before us and except for these documents, no other reports, etc.

constituting part of Annual report for the year ending 31.3.2008, are

available. However, our attention was drawn towards certain Tribunal

orders which have considered the functional profile of this company on the

                                     13
                                                         ITA No.5799/Del/2012


basis of information available on its website. First is Tribunal order in

Agnity India Technologies Pvt. Ltd. Vs. DCIT (ITA No.6485/Del/2012).

Vide its order dated 20.9.2013, the tribunal considered the functional

profile of this company by noticing it to be a Product company owning

software products like Dxchange, Travel Solutions, Insurance Solutions,

Customer Appreciation, etc. Similar view has been taken by the Mumbai

Bench of the Tribunal in the case of NetHawk Networks India Pvt. Ltd.

Vs. ITO (ITA No.7633/N/2012). Vide its order dated 6.11.2013, the

Tribunal for the assessment year 2008-09 has noticed Avani Cimcon Ltd.,

to be a Product based company and not providing software development

services. No contrary material has been placed before us by the ld. DR to

show the functional profile of this company matching with the assessee.

When contrasted with the assessee company,         which is engaged in

providing software development and maintenance services to its group

concerns, we fail to see as to how a software product company like Avani

Cimcon having intellectual property rights over some of the products

developed by it, can be compared with the assessee on an entity level.



                                   14
                                                           ITA No.5799/Del/2012


We, therefore, order for the elimination of this company from the list of

comparables.

KALS Information Systems Ltd. (Seg.)

15.   This company was not chosen by the assessee as its comparable.

However, the TPO included it in the list by discussing its comparability

jointly with that of Avani Cimcon Ltd. and Thirdware Solutions Ltd. The

sum and substance of the reasoning adopted by the TPO for considering

this company as comparable is that it is also a software development and

consulting company, meeting the filters adopted by him.

16.   We have gone through the Annual report of this company which is

available at pages 24 onwards of the paper book.          Schedule no. 16

comprising Notes to the Financial Statements gives background of this

company to be `engaged in development of software and software products

since its inception.' This company consists of STPI unit engaged in

development of software and software products. Page 42 of the paper

book contains segmental information of this company which has been

divided into two parts, namely,     `Application software segment' and

                                   15
                                                           ITA No.5799/Del/2012


`Training segment'.    It is the `Application software segment' of this

company, which has been adopted by the TPO. The development of

software and all software products have been clubbed under the

`Application software' segment. Since the figures of this company taken

by the TPO for making comparison with the assessee include the effect of

software products as well, apart from software development services, the

same cannot be considered as comparable for the same reasons as assigned

above for eliminating Avani Cimcon Ltd. A product company cannot be

compared with a company engaged in providing software development

services because of difference in the inherent characteristics of both. We,

therefore, order for the removal of this company from the set of

comparables.

Infosys Technologies Ltd.

17.   The TPO noticed that this company was finding place in the

accept/reject matrix. He found this company to be into software

development services qualifying all the filters applied by him.           The

assessee raised certain objections before the DRP against the inclusion of

                                    16
                                                             ITA No.5799/Del/2012


this company, but without any success. The TPO computed operating

profit margin of this company at 40.41% and included it in the final list of

comparables.    The assessee is aggrieved against the inclusion of this

company in the ultimate set of comparables.


18.   We are disinclined to sustain the legal objection taken by the ld. DR

that the assessee should be prohibited from taking a stand contrary to the

one which was taken at the stage of the TP study or during the course of

proceedings before the TPO. It goes without saying that the object of

assessment is to determine the income in respect of which the assessee is

rightly chargeable to tax. As the income not originally offered for taxation,

if otherwise chargeable, is required to be included in the total income, in

the same breath, any income wrongly included in the total income, which

is otherwise not chargeable, should be excluded. There can be no estoppel

against the provisions of the Act. Extending this proposition further to the

context of the transfer pricing, if the assessee fails to report an otherwise

comparable case, then the TPO is obliged to include it in the list of

comparables, and in the same manner, if the assessee wrongly reported an


                                     17
                                                             ITA No.5799/Del/2012


incomparable case as comparable in its TP study and then later on claims

that it should be excluded then, there should be nothing to forbid the

assessee from claiming so, provided the TPO is satisfied that the case so

originally reported as comparable is, in fact, not comparable. The Special

Bench of the Tribunal in DCIT vs. Quark Systems Pvt. Ltd. (2010) 132 TTJ

(Chd) (SB) 1 has also held that a case which was included by the assessee

and also by the TPO in the list of comparables at the time of computing

ALP, can be excluded by the Tribunal, if the assessee proves that the

same was wrongly included.


19.   Reverting to the facts of the instant case, we find that the assessee is

only a captive unit rendering services to its AE alone without acquiring

any intellectual property rights in the work done by it in the development

of software.   The Hon'ble Delhi High Court in CIT vs. Agnity India

Technologies (P) Ltd. (2013) 219 Taxmann 26 (Del) considered the

giantness of Infosys Ltd., in terms of risk profile, nature of services,

number of employees, ownership of branded products and brand related

profits, etc. in comparison with such factors prevailing in the case of


                                     18
                                                          ITA No.5799/Del/2012


Agnity India Technologies Pvt. Ltd., being, a captive unit providing

software development services without having any IP rights in the work

done by it. After making comparison of various factors as enumerated

above, the Hon'ble Delhi High Court held Infosys Ltd. to be incomparable

with Agnity India Technologies Pvt. Ltd. The facts of the instant case are

more or less similar inasmuch as the extant assessee is also a captive

service provider with a limited number of employees at its disposal and

also not owning any branded products with no expenditure on R&D etc.

When we consider all the above factors in a holistic manner, there remains

absolutely no doubt in our mind that Infosys Technologies Ltd. is

incomparable to the assessee company.        Respectfully following the

judgment of the Hon'ble jurisdictional High Court in Agnity India (supra),

we hold that Infosys Technologies Ltd., cannot be held as comparable with

the assessee company. This company is, therefore, directed to be excluded

from the list of comparables.




                                    19
                                                           ITA No.5799/Del/2012


Thirdware Solutions Ltd.


20.   This company was not chosen by the assessee as its comparable.

However, the TPO, considering it along with Avani Cimcon Ltd. and

KALS Information Systems Ltd. (Seg.), treated it as comparable. The

DRP refused to accept the assessee's contention for the removal of this

company from the list of comparables.


21.   We have perused the Annual report of this company which is

available on pages 100 onwards of the paper book. The Profit & Loss

Account of this company is at page 107, which shows `Sales & Other

income'. Bifurcation of `Sales ' is available as per Schedule 12, which

comprises of `Sale of licence'     amounting to Rs.39.16 lac, `Software

services' amounting to Rs.7.67 crore, `Export from SEZ unit' amounting

to Rs.26.39 crore, `Export from STPI unit' amounting to Rs.16.88 crore

and `Revenue from subscription'      amounting to Rs.92.93 lac.        These

figures indicate that apart from the revenue from `Software services'

which is only to the tune of Rs.7.67 crore, this company earned total gross

revenue from `Sales' to the tune of Rs.52.27 crore including from export

                                    20
                                                          ITA No.5799/Del/2012


from SEZ/STPI units. When we consider the figures of this company on an

entity level as have been adopted by the TPO for comparison, it becomes

vivid that it ceases to be comparable with the assessee's `Software

development and maintenance support services' segment. The reason

hardly needs any highlighting, being the income of this company also

largely including revenues from exports from SEZ/STPI units apart from

sale of licence. These distinguishing features make this company as non-

comparable. We, therefore, order for the removal of this company from

the list of comparables.


Helios and Matheson Information Technology Ltd.


22.   This company was included by the assessee in the list of

comparables. Accordingly, the TPO treated it so. The comparability of

this company was not challenged before the DRP. However, for the first

time before the Tribunal, the assessee has come out with a contention that

this company be removed from the list of comparables because it does not

pass the filter of employee cost.



                                    21
                                                              ITA No.5799/Del/2012


23.   We are not inclined to accept this contention advanced on behalf of

the assessee. The ld. DR, with reference to the relevant figures, has pointed

out that this company passes the filter of employee cost. This submission

put forward by the ld. DR, was not controverted on behalf of the assessee.

On a specific query, it was admitted that this company is otherwise

functionally comparable. Under such circumstances, we approve the view

taken by the authorities below in including this company in the final set of

comparables.


B. Merged back office and F&A support services segment.


24.   We have noticed above that the assessee rightly did not agitate the

clubbing of back office support services with F&A support services

segment by the TPO for the purposes of benchmarking. The assessee's

grievance against the computation of ALP under this merged segment is

only confined to not allowing the working capital adjustment and against

the inclusion of two companies in the final set of comparables. Apart from

these, the assessee is satisfied on all other aspects of the computation of the

ALP of this merged set transactions by the TPO.

                                      22
                                                           ITA No.5799/Del/2012


25.   While discussing the `Software development services segment'

above, we have analyzed the otherwise availability of working capital

adjustment    and held that such adjustment should be allowed after

verification in terms indicated supra. The same reasons and conclusion

apply mutatis mutandis to this Merged back office and F&A support

services segment as well.


26.   The next grievance of the assessee is against the inclusion of two

companies, namely, Cosmic Global Ltd. and Coral Hub (Vishal

Information Technologies Ltd) in the list of comparables. Before deciding

about the comparability or otherwise of these two companies, it is

necessary to go through the functional profile of the assessee under this

segment. Back office support service provided by the assessee include

Policy administration and maintenance and also Contract generation.

Generating insurance contracts for the customers of overseas group entities

and sending them to the respective overseas of Sun Life group entities is

one of the activities performed by the assessee for its AEs.          It also

encompasses updating the financial and personnel data of the clients of


                                    23
                                                            ITA No.5799/Del/2012


overseas group entities. Finance and Accounts support services are in the

nature of financial and accounting support services rendered by the

assessee under the directions issued by Sun Life, Canada.         Under the

provisions of both back office support and F&A support services, the

assessee was compensated at cost plus 12.82%.             With the above

information about the nature of activities carried out by the assessee under

this merged segment of provision of services, we will now explore as to

whether the above referred two companies are, in fact, comparable or not.


Coral Hub (Vishal Information Technologies Ltd)

27.   The assessee chose this company as comparable.          As such, no

objection was taken before the TPO against the inclusion of this company.

However, the assessee argued before the DRP that this company was

wrongly included. The DRP refused to accept the assessee's contention.

That is how the assessee is aggrieved before us.

28.   We are not inclined to accept the preliminary objections raised by the

ld. DR against the inclusion of this company on the premise that the

assessee had itself chosen it as comparable. The reasons given above
                                     24
                                                            ITA No.5799/Del/2012


while dealing with the case of Infosys Technologies Ltd., apply with full

force here as well.

29.   Coming to its functional comparability of this company, we observe

from the Annual report of this company available at pages 114 onwards of

the paper book that it is outsourcing its major activities. Such outsourcing

charges constitute around 90% of the total operating cost. As against this,

the assessee is engaged in providing the services under this segment at its

own without any outsourcing. This critical difference between the manner

of performing services has an important bearing on the ultimate

profitability. The Delhi Bench of the Tribunal in the case of Mercer

Consulting (India) Pvt. Ltd. Vs. DCIT in ITA No.9666/Del/2014, has

approved the exclusion of this company from the list of comparables by, in

turn, relying on the two Tribunal orders passed by the Mumbai Benches in

Hapag Lloyd Global Services and ACIT vs. Mersk Global Services Centre

(India) Pvt. Ltd. In view of the above reasons and respectfully following

the precedents, we direct to eliminate this company from the list of

comparables.





                                     25
                                                            ITA No.5799/Del/2012


Cosmic Global Ltd.

30.   This company was included by the assessee in its list of comparables.

However, it was argued before the Tribunal that it be eliminated. In

support of the exclusion of this company, the ld. AR relied on the Tribunal

order passed in the case of Mercer Consulting India Pvt. Ltd. (supra).

31.   We have heard the rival submissions and perused the relevant

material on record. It is observed that the Tribunal in Mercer Consulting

India Pvt. Ltd. (supra), has ordered for the exclusion of Cosmic Global

Ltd., from the list of comparables by relying on the fact that the total

revenue of the accounts BPO segment of Cosmic Global Ltd. was very low

at Rs.27.76 lac as against the huge turnover recorded by that assessee. We

have repeatedly laid down that a company which is not comparable with

one company does not per se becomes non-comparable with all other

companies. What is relevant is to see the reasons on which such company

was held to be incomparable in first case. If the same reasons persist in the

case of the later case also, then that company should again be treated as

non-comparable. If however, the reasons which were present while making

                                     26
                                                            ITA No.5799/Del/2012


comparison in the first case are absent in the second case, then there can be

no exclusion of the company. When we peruse the facts of the instant case,

we find the receipts by the assessee on account of accounts BPO service

segment for the year in question stand at Rs.19.63 lac, which is in close

vicinity with that of Cosmic Global Ltd. This factor which prevailed in

Mercer Consulting India Pvt. Ltd., for excluding this company from the

list of comparables, is not present in the instant case.           No other

distinguishing feature in the functional profile of the assessee as well as

Cosmic Global Ltd., was brought to our notice. We, therefore, approve the

view taken by the TPO in including this company in the list of

comparables.

32.   In view of our above discussion, we set aside the impugned order on

the question of determination of ALP under both the segments and remit

the matter to the file of AO/TPO for making a fresh determination of ALP

in consonance with our directions given above.        Needless to say, the

assessee will be allowed a reasonable opportunity of being heard in such

fresh proceedings.


                                     27
                                                             ITA No.5799/Del/2012


33.   The only other ground which survives for our consideration in this

appeal is against not reducing lease line charges from `total turnover', after

excluding it from `export turnover'. The assessee claimed the benefit of

section 10A. Considering the mandate of Explanation 2 (iv) to section

10A of the Act, the AO opined that lease line charges amounting to

Rs.2,09,67,887/- were in the nature of telecommunication charges incurred

in foreign currency attributable to delivery of computer software outside

India. He, therefore, reduced this amount from `export turnover'. The

assessee's contention for giving similar treatment to this amount in the

computation of `total turnover', was rejected.

34.   After considering the rival submissions and perusing the relevant

material on record, we find force in the contention raised by the ld. AR,

requiring the exclusion of this amount from `total turnover' as well. The

obvious reason is that when a particular item does not form part of export

turnover, which, in turn, is a necessary ingredient of the total turnover, the

same has to be necessarily excluded from the computation of latter. It has

been brought to our notice that the Tribunal in assessee's own case for the


                                      28
                                                                 ITA No.5799/Del/2012


AY 2007-08 has decided this issue in the assessee's favour. A copy of the

order passed by the Tribunal in ITA No.2575/Del/2012 dated 20.6.2014

has been placed on record. The ld. AR also invited our attention to the

judgment of the Hon'ble High Court rendered in the case of the assessee

approving the view taken by the tribunal. Respectfully following the

precedents, we allow this ground of appeal.

35.       In the result, the appeal is partly allowed.

36.       The order pronounced in the open court on 27.05.2015.

               Sd/-                                           Sd/-
[GEORGE GEORGE K.]                                    [R.S. SYAL]
 JUDICIAL MEMBER                                  ACCOUNTANT MEMBER

Dated, 27th May, 2015.
dk
Copy forwarded to:
     1.   Appellant
     2.   Respondent
     3.   CIT
     4.   CIT (A)
     5.   DR, ITAT

                                                         AR, ITAT, NEW DELHI.

                                           29

 
 
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