P.M. JAGTAP, ACCOUNTANT MEMBER 
AND SAKTIJIT DEY, JUDICIAL MEMBER

Utpal Sen and Amit Mishra for the Appellant. 
D. Sudhakar Rao, DR for the Respondent.

ORDER

The order of the Bench was delivered by

P.M. Jagtap, Accountant Member - This appeal filed by the assessee is directed against the order of the Dy. Commissioner of Income-tax, Circle (3), Hyderabad (Assessing Officer) dated 31.10.2013 passed under S.143(3)of the Act read with the directions given by the Dispute Resolution Panel(DRP) under S.144C(5) of the Act.

2. The assessee in the present case is a company which is engaged in the business of providing back office processing services and IT Enabled services. It mainly provides transaction services, and services related to financial analysis, global solutions and accounts and finance. Return of income for the year under consideration was filed by it on 24.9.2009, declaring total income of Rs.15,39,573, after claiming deduction of Rs.3,11,89,850 under S.10A of the Act. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee company has provided IT Enabled back office processing services to holding company, M/s. Capmark Finance Inc., USA and a total amount of Rs.20,52,96,951 is charged for such services. In order to determine the Arm's Length Price(ALP) of three transactions of the assessee company with its Associated Enterprise(AE), a reference, therefore, was made by the Assessing Officer to the Transfer Pricing Officer (TPO) under S.92CA(1) of the Act. In the TP Study Report submitted by the assessee, TP analysis was done by applying Transactions Net Margin Method (TNMM), taking Operating Profit to Total Cost (OP/TC) as Price Level Indicator (PLI). In the said report, fourteen comparables were selected by the assessee by applying certain filters and since the Arithmetic Mean of OP/TC of the said fourteen comparables was 11.19%, as against the OP/TC of 14.62% of the assessee in relation to its international transactions with AE, the price charged to the AE in respect of three transactions was claimed by the assessee to be as at Arm's Length.

3. After going through the relevant documents maintained by the assessee and after analyzing the relevant transactions, the TPO was of the opinion that the method adopted by the assessee for selecting the comparables suffered from defects and the same, therefore, had resulted in selection of inappropriate comparables and rejection of appropriate comparables. He accordingly confronted the assessee with his observations in this regard, seeking the latter's explanation/objections and after taking into consideration the objections raised by the assessee, the new search conducted by him for selecting the appropriate comparables and the analysis of the data base, the relevant annual reports and the information collected under S.133(6) as made by him, the TPO finally selected the following 12 companies as comparables with Arithmetic Mean of their OP/TP at 27.42%.

Sl. No.	Company Name	Operating Reve Rs.(in crores)	PBIT/Cost %
1.	Accentia Technologies Limited	78.73	49.40
2.	Acropetal Technologies Ltd. (Seg.)	33.13	25.01
3.	Aditya Birla Minacs Worldwide Ltd.	231.57	0.53
4.	Cosmic Global Ltd.	7.76	48.20
5.	Crossdomain	33.76	29.38
6.	Eclerx Services Ltd.	187.98	53.44
7.	Infosys B P O Ltd.	108.23	16.90
8.	Jeevan Softech Technology Ltd.	1.79	16.56
9.	Microland Limited	144.05	2.35
10.	Microgenetic Systems Ltd.	1.27	10.11
11.	R.Systems International Ltd.(Seg)	26.55	5.77
12.	Genesys International Ltd.	83.18	71.50
	AVERAGE		27.42

4. After allowing working capital adjustment of 1.15%, Arithmetic Mean margin of the selected comparables at 26.27% was taken by the TPO as adjusted Arm's Length Margin and applying the same to the corresponding Operating Cost of Rs.17,84,82,779, the Arm's Length Price of the international transactions of the assessee company with its AE was worked out by him at Rs.22,52,59,189, as against the price of Rs.20,52,96,951 charged by the assessee. The difference of Rs.1,83,11,450 accordingly was worked out by the TPO, as TP adjustment that is required to be made in respect of international transactions of the assessee with its AE.

5. When the addition on account of TP adjustment worked out by the TPO was proposed to be made by the Assessing Officer to the total income of the assessee in the draft assessment, objections were filed by the assessee before the Dispute Resolution Panel, which inter alia included the objections of the assessee in respect of comparability analysis carried out in the TP study report given by the TPO and the application of additional filters by the TPO, which according to the assessee, resulted in inclusion of certain companies in the comparability analysis which did not satisfy the test of comparability. The Dispute Resolution Panel did not find merit in the submissions made by the assessee on this issue and holding the action of the TPO to be proper, they declined to interfere with the same. The DRP also overruled substantially the other objections raised by the assessee. Accordingly, final assessment order was passed by the Assessing Officer on 31.10.2013 under S.143(3) as per the directions given by the DRP under S.144C(5), making therein the addition of Rs.1,83,11,454 to the total income on account of TP Adjustment.

6. Aggrieved by the order of the Assessing Officer under S.143(3) read with S.144C(5) of the Act, assessee has filed this appeal before the Tribunal, taking the following grounds:—

"1	That the Learned AO and Hon'ble DRP have erred in determining the arm's length mark-up for provision of IT enabled back office services as 26.27% (after working capital adjustment) and consequently made an addition of Rs.18,311,464 to the total income of the Appellant as an adjustment to the arm's length price under Section 92CA of the Act.
2.	That on the facts and circumstances of the case, Hon'ble DRP erred in upholding the decision of the Learned Assessing Officer/Learned TPO in rejecting the transfer pricing ("TP") documentation.
3.	That the Learned. Assessing Officer/Learned TPO erred in rejecting the comparability analysis carried out by the Appellant in the TP documentation and should not have carried out a fresh comparability analysis for determining the arm's length price.
4.	That the Learned. Assessing Officer/Learned. TPO erred in rejecting the companies similar to the Appellant in functions, asset base and risk profile while performing comparability analysis.
5.	That the Learned Assessing Officer/Learned TPO erred in rejecting companies similar to the Appellant in functions, asset base and risk profile while performing comparability analysis.
6.	That the Learned Assessing Officer/Learned TPO erred in erred in selecting fresh companies which are larger in size as compared to the Appellant and companies that are earning super normal profits.
7.	That the Learned Assessing Officer/Learned TPO erred in :

-		Using the data available at the time of assessment proceedings instead of those available as on the date of preparing the TP documentation,
-		Not applying multiple year data for comparable companies and using data for the financial year 2008-09 alone, and
-		Collecting selective information of the companies by exercising power granted to him u/s. 133(6) of the Income Tax Act, 1961 that was not available to the Appellant in the public domain.

8.	That the Hon'ble DRP/learned AO erred in ignoring the limited risk nature of the contractual services provided by the Appellant and in not providing an appropriate adjustment towards the risk differential even when the full fledged entrepreneurial companies are selected as comparables.
9.	That the Hon'ble DRP/Learned. Assessing Officer erred in not granting an adjustment for the difference in rate of depreciation charged by the Appellant and for comparable companies.
10.	On the facts and in the circumstances of the case and in law, the learned Assessing Officer has erred in adding the transfer pricing adjustment made by the transfer Pricing Officer under Section 92C of the Act while determining the book profits under Section 1165JB of the Act."

7. As submitted by the learned counsel for the assessee, grounds no.1 to 3 raised in the appeal of the assessee are general in nature seeking no decision thereon.

8. In grounds No.4 to 6, the assessee has challenged the comparables selected by the TPO for the purpose of TP analysis and as submitted by the learned counsel or the assessee, the assessee is objecting to the selection of only the following six comparables, out of the twelve companies selected as comparables.

Sl. No.	Company Name
1.	Accentia Technologies Limited(seg)
2.	Acropetal Technologies Ltd. (Seg.)
3.	Cosmic Global Ltd.
4.	Eclerx Services Ltd.
5.	Genesys International Ltd.
6.	Infosys B P O Ltd.

9. We have heard the arguments of both the sides on the issue of inclusion/exclusion of the above six companies as comparables, and also perused the relevant material on record including the various decisions of the coordinate benches of the Tribunal cited by both the sides.

Accentia Technologies Limited (seg)

10. As regards the selection of Accentia Technologies Limited (Seg) as comparable, the learned counsel for the assessee has relied on the decisions of this Tribunal in the cases of Capital IQ Information System (India) (P.)Ltd v. Addl. Dy CIT [IT Appeal Nos. 124 & 170 (Hyd.) of 2014, dated 31-7-2014];Excellence Data Research (P.) Ltd. v. ITO [IT Appeal No. 159 (Hyd.) of 2014, dated 31-7-2014];Hyundai Motors India Engg. (P.) Ltd. v. Dy. CIT [IT Appeal No. 215 (Hyd.) of 2014, dated 31-7-2014]; wherein Accentia Technologies Limited (Seg) was excluded by the Tribunal from the list of comparables on the ground that it was a case of mergers and acquisition, and the company was also found to be functionally different. It is, however, observed that in assessee's own case for assessment year 2008-09 (ITA No.1812/Hyd/2012), the Tribunal vide its order dated 11.4.2014 has set aside the issue in relation to the selection of this comparable to the file of the Assessing Officer/TPO with a direction to decide the same afresh following the decision of the coordinate bench in the case of Market Tools Research (P.) Ltd. v. Dy. CIT [2013] 40 taxmann.com 390/[2014] 148 ITD 631 (Hyd. - Trib.), wherein, it was held as under:—

"9.3 …..

It is no doubt true that exceptional events like merger/demerger does impact the profitability of a company. Hence, it is necessary to look into this aspect before selecting a particular company as comparable. In the aforesaid circumstances and keeping in view the decisions of the coordinate benches as aforesaid, we remit the matter back to the file of the Assessing Officer, who shall verify the fact whether in fact, the exceptional events like amalgamation and acquisition, which have taken place in this case, has any impact on the profitability of the company as claimed by the assessee, and thereafter decide the issue of the acceptability or otherwise of the aforesaid company as a comparable. While doing so, the Assessing Officer shall also consider the contention of the assessee with regard to the functional difference of the said company with the assessee. The Assessing Officer shall accordingly redecide this issue in accordance with law after giving reasonable opportunity of hearing to the assessee."

Applying the rule of consistency, we prefer to follow the decision of this Tribunal rendered in assessee's own case for the immediately preceding year, viz. assessment year 2008-09, and restore this issue to the file of the Assessing Officer/TPO for deciding the same afresh as per the same directions as given in assessment year 2008-09. We also direct the Assessing Officer/TPO to take into consideration, the decisions of the Tribunal rendered in the cases of Capital IQ Information Systems (India) (P.) Ltd. (supra); Excellence Data Research (P.) Ltd. (supra); and Hyundai Motors India Engineering (P.) Ltd. (supra), cited by the learned counsel for the assessee while deciding this issue.

Acropetal Technologies Ltd. (Seg.)

11. As regards selection of Acropetal Technologies Ltd. (Seg.) as comparable, it is observed that the said company was excluded by the Tribunal from the list of comparables in assessment year 2008-09, after having found the same to be functionally different from that of the assessee-company. The relevant observations of the Tribunal as recorded in paragraph 25 of its order dated 11.4.2014 are reproduced hereunder—

'25. We have heard the submissions of the parties and perused the materials on record. In case ofMarket Tools Research Private Limited (supra) the coordinate bench of this Tribunal held this company as incomparable to a purely IT Enabled Service Provider observing as under:-

"We have heard the submissions of the parties and perused the materials on record. As can be seen from the material on record, the TPO has admitted that the aforesaid company has two segments and only the IT Enabled Services Segment, relating to engineering design services was considered by the TPO for comparability analysis. However, the Income-tax Appellate Tribunal Bangalore Bench in the case or Symphony Marketing Solutions India P. Ltd. (supra) has held that the functions performed by the Engineering Design services segment of the company cannot be considered as a comparable to the ITES/BPO functions. The relevant portion from the decision of the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India P. Ltd. (supra), is extracted below for ready reference-

"13. We have considered the submissions of the learned counsel for the Assessee. On a perusal of the Note No.15 of notes to accounts which gives segmental revenue of this company, it is clear that the major source of income for this company is from providing Engineering Design Service and Information Technology Services. The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee. The performance of Engineering Design Services is regarded as providing high end services among the BPO which requires high skill whereas the services performed by the Assessee are routine low end ITES functions. We therefore hold that this company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcing [KPO] would do and not a Business Process Outsourcing [BPO]."

Respectfully following the above decision of the Bangalore Bench of the Tribunal, we direct the Assessing Officer/TPO to exclude this company from the list of comparables while determining the Arm's Length Price."

Facts being materially same, we follow the aforesaid view of the co-ordinate bench and direct the AO/TPO to exclude this company from list of comparables.'

At the time of hearing before us, the Learned Departmental Representative has not brought anything on record to show that the relevant facts involved in the year under consideration are different from assessment year 2008-09. We, therefore, respectfully follow the decision of the coordinate bench of this Tribunal for assessment year 2008-09 and direct the Assessing Officer/TPO to exclude Acropetal Technologies Ltd.(seg) from the list of comparables.

Cosmic Global Ltd.

12. As regards the selection of Cosmic Global Ltd. as comparable, the learned counsel for the assessee has relied on the decisions of this Tribunal in the cases of CapitalIQ Information Systems (India) (P.) Ltd.(supra); Excellence Data Research (P.) Ltd. (supra); and Hyundai Motors India Engineering (P.) Ltd.,(supra), wherein. Cosmic Global Ltd. was excluded by the Tribunal from the list of comparables on the ground that it was found to be functionally different. It is, however, observed that in assessee's own case for assessment year 2008-09 (ITA No.1812/Hyd/2012), the Tribunal vide its order dated 11.4.2014 has set aside the issue in relation to the selection of this comparable to the file of the Assessing Officer/TPO, vide para 19 of its order dated 11.4.2014 which reads as under:—

"19. We have heard submissions of the parties and perused the material on record. As can be seen, this Tribunal in case of Capital IQ Information Systems Pvt. Ltd. (supra) and other decisions cited by the learned AR, directed the exclusion of companies who have out sourced their activities to third party vendors and held that they cannot be treated as comparables. Considering the submissions of the learned AR that the aforesaid company has outsourced the IT enabled series to third party vendors, we remit the issue back to the file of the AO/TPO for considering afresh the issue of comparability or otherwise of the said company, in accordance with law and after giving reasonable opportunity of hearing to the assessee."

Applying the rule of consistency, we prefer to follow the decision of this Tribunal rendered in assessee's own case for the immediately preceding year, viz. assessment year 2008-09, and restore this issue to the file of the Assessing Officer/TPO for deciding the same afresh as per the same directions as given in assessment year 2008-09. We also direct the Assessing Officer/TPO to take into consideration, the decisions of the Tribunal rendered in the cases of CapitalIQ Information Systems (India) (P.) Ltd. (supra); Excellence Data Research (P.) Ltd., (supra); and Hyundai Motors India Engineering (P.) Ltd. (supra), cited by the learned counsel for the assessee while deciding this issue.
Eclerx Services Ltd.

13. As regards selection of Eclerx Services Ltd. as comparable, it is observed that the said company was excluded by the Tribunal from the list of comparables in assessment year 2008-09, after having found the same to be functionally different from that of the assessee-company. The relevant observations of the Tribunal as recorded in paragraph 7 of its order dated 11.4.2014 are reproduced hereunder:—

'25. We have heard the submissions of the parties and perused the materials on record. Undisputedly, the TPO has accepted the assessee as a purely ITES provider. It is a fact that the Income Tax Appellate Tribunal Hyderabad Bench in case of Market Tools Research Ltd. (ITA No.1811/Hyd/11 dated 24.10.2013), which is a purely IT enabled service provider like the assessee, considering the fact that the aforesaid company is engaged in providing KPO services held that this company cannot be treated as comparable to an assessee which is engaged in provision of IT enabled services in BPO sector. The finding of the Tribunal in this regard is extracted hereunder for convenience.

"7.3 We have heard submissions of the parties and perused the materials on record. It is not disputed that the aforesaid company has shown very high profit of 66.91% during the year. The annual report of the company also mentions the activity of the company as a KPO service. In the circumstances, it cannot be said that the aforesaid company is comparable to the assessee. The Income-tax Appellate Tribunal Hyderabad Bench in the case of Capital IQ Information Systems India (P.) Ltd. (supra) has held the aforesaid company, to be not a comparable to a company providing purely ITE services, as it is engaged in providing purely KPO services. Following the aforesaid decision of the coordinate bench, the Income-tax Appellate Tribunal Hyderabad in assessee's own case for the assessment year 2007-08 (supra), has also directed the exclusion of the aforesaid company from the list of comparables. There are number of other decisions of different benches of the Tribunal including the decision of Bangalore Bench in the case of Symphony Marketing (IT(TP)A No.1316/Bang/2012 dated 14.8.2013),wherein the aforesaid company has been treated as not to be a comparable, as it is involved in providing KPO services as well as it is earning super-normal profits. Respectfully following the consistent view of different benches of the Tribunal, including the decision of the coordinate bench of the Tribunal in assessee's own case for assessment year 2007-08, we hold that the aforesaid company cannot be treated as a comparable with the assessee."

Facts being materially the same, following the finding of the coordinate bench in case of Market Tools Research (P.) Ltd. (supra), we direct the Assessing officer/TPO to exclude the aforesaid company from the list of comparables.'

At the time of hearing before us, the Learned Departmental Representative has not brought anything on record to show that the relevant facts involved in the year under consideration are different from assessment year 2008-09. We, therefore, respectfully follow the decision of the coordinate bench of this Tribunal in assessee's own case for assessment year 2008-09 and direct the Assessing Officer/TPO to exclude Eclerx Service Ltd. from the list of comparables.
Genesys International Ltd.

14. As regards the selection of Genesys International Ltd. as comparable, the learned counsel for the assessee has relied on the decisions of this Tribunal in the cases of Capital IQ Information Systems (India) (P.) Ltd. (supra); Excellence Data Research (P.) Ltd., (supra); and Hyundai Motors India Engineering (P.) Ltd. (supra), wherein Genesys International Ltd. was excluded by the Tribunal from the list of comparables on the ground that it was found to be functionally different. It is, however, observed that in assessee's own case for assessment year 2008-09 (ITA No.1812/Hyd/2012), the Tribunal vide its order dated 11.4.2014 has set aside the issue in relation to the selection of this comparable to the file of the Assessing Officer/TPO with a direction to decide the same afresh with the following observations:—

"13. We have hard submissions of the parties and perused the material on record. As can be seen, the coordinate bench of the Tribunal had an occasion to consider the comparability of the aforesaid company in the case of Cognizant Technology Services P. Ltd. v. ACIT (ITA No.2106/ & 1864/Hyd/2011 dated 22.5.2013). The Tribunal after analysing the activities undertaken by the assessee company vis-à-vis the activities of the assessee before it, which is engaged only ITE services to its AE, had remitted the issue to the file of the TPO for considering afresh. Following the same, we also remit the issue with regard to comparability of the above company, to the file of the TPO to consider the issue afresh in the light of the direction given by the coordinate bench in that case, of course, after giving reasonable opportunity of hearing to the assessee."

Applying the rule of consistency, we prefer to follow the decision of this Tribunal rendered in assessee's own case for the immediately preceding year, viz. assessment year 2008-09, and restore this issue to the file of the Assessing Officer/TPO for deciding the same afresh as per the same directions as given in assessment year 2008-09. We also direct the Assessing Officer/TPO to take into consideration, the decisions of the Tribunal rendered in the cases of Capital IQ Information Systems (India) (P.) Ltd. (supra); Excellence Data Research (P.) Ltd. (supra); and Hyundai Motors India Engineering (P.) Ltd. (supra), cited by the learned counsel for the assessee while deciding this issue.

Infosys BPO

15. As regards selection of Infosys BPO as a comparable company, the learned counsel for the assessee has contended that the said company cannot be taken as comparable because of its uncomparable size of operations. He has contended that the turnover of the said company was 52 times larger than that of the assessee during the year under consideration. Although the Learned Departmental Representative has contended that the size of operations does not matter as far as selection of comparables is concerned, especially in the sector of IT Enabled services, it is observed that similar issue has been decided by the Hon'ble Delhi High Court in the case of CIT v. Agnity Technologies (P.) Ltd. [2013] 219 Taxman 26/36 taxmann.com 289 holding that huge turnover companies like Infosys and Wipro cannot be considered as comparables with smaller companies like the assessee in the present case. Respectfully following the decision of the Hon'ble Delhi High Court in the case of Agnity Technologies (P.) Ltd. (supra), we direct the Assessing Officer/TPO to exclude Infosys BPO from the list of comparables.

16. As discussed above, the issue relating to inclusion/exclusion of the companies selected by the TPO from the list of finalized comparables as raised in grounds No.4 to 6 accordingly is decided in favour of the assessee in respect of three comparables, and in respect of the remaining three comparables, the matter is set aside to the file of the AO/TPO to decide the same afresh taking into consideration the respective directions, given hereinabove, after giving the assessee proper and sufficient opportunity of being heard. The Assessing Officer/TPO is accordingly directed to decide the final list of comparables and recompute the Arm's Length Price on the basis of Arithmetic Mean of OP/TC of the comparables finally selected.

17. As regards grounds no.7 to 9, the learned representatives of both the sides have agreed that the issues raised therein have become infructuous at this stage in as much as if the Arm's Length Price to be determined by the AO/TPO as per the directions given while disposing of grounds No.4 to 6 falls within the range of +/-5%, there would be no case of any TP adjustment and the issues involved in grounds No.7 to 9, in such a case, would become academic only. We, therefore, do not consider it necessary or expedient to decide the issues involved in grounds no.7 to 9.

18. As regards the issue involved in ground No.10 relating to the addition made by the Assessing Officer on account of TP adjustments, while determining the book profit of the assessee company under S.115JB of the Act, it is observed that the income of the assessee having been finally assessed by the Assessing Officer as per the normal provisions of the Act, this issue is merely of academic nature. Nevertheless, as agreed by the learned representatives of both sides, this issue is squarely covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 wherein it is held that the Assessing Officer has limited power of making adjustments to the book profit as declared by the assessee, and the same is restricted only to the additions and reductions as provided in Explanation to S.115JB. Since the adjustments so provided in the Explanation to S.115JB do not include the addition on account of TP adjustments, we respectfully follow the decision of the Supreme Court in the case of Apollo Tyres Ltd. (supra) to hold that the addition made by the Assessing Officer on account of TP adjustment while determining the book profit of the assessee company under S.115JB of the Act is not sustainable. The same is therefore, deleted and ground No.10 of the assessee's appeal is allowed.

19. In the result, appeal of the assessee is treated as partly allowed.

The order pronounced in the open court on the 19th September, 2014.