TMI Blog2021 (8) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... n case of payment to M/s Annapurna Builders, assessee has produced TDS exemption certificate and himself has deleted the disallowance. Accordingly, this ground is treated as infructuous. In so far as short deduction of TDS, rather TDS deducted at lower rate in the case of M/s Hind Hosiery Mills Pvt. Ltd, again no disallowance can be made in view of the judgment of Hon ble Calcutta High Court in the case of CIT vs. S.K. Tekriwal [ 2012 (12) TMI 873 - CALCUTTA HIGH COURT] . Accordingly, this issue is decided against the revenue. Disallowance u/s.40A(2) - HELD THAT:- On perusal of the relevant finding given in the impugned order, we find that first of all Assessing Officer without any reason or material facts on record had simply disallowed 50% on the ground that there is no justification for giving such huge amount of remuneration. Such an ad hoc reasoning cannot be accepted as AO has to justify that such a remuneration paid is not commensurate with the services rendered by the Managing Director having regard to the services rendered and market value of its services. The profile of Managing Director and the services rendered by him as incorporated in the impugned appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on facts in deleting disallowance u/s 40a(ia) as assessee paid rent in excess of amount allowed in certificate of lower deduction u/s 197(1). 3. The Ld.CIT(A) erred in deleting the addition of ₹ 1,03,53,150/- made by the AO u/s 40A(2)(b) in spite of the fact that assessee, during the course of assessment proceedings, failed to justify the services being rendered by the director Shri Sunil Baijal to the company for which he was earning such a huge amount of remuneration. 3. We will first take up the Revenue s appeal wherein the main issue involved as raised in ground no.1 are; exclusion of three comparables, i.e., i) M/s. Acropetal Technologies Ltd.; ii) eClerx Services Ltd.; and iii) Infosys BPO Ltd. The facts in brief qua the issue are that assessee is a subsidiary of GHF Holdings Ltd., Mauritius. It provides IT enabled services to its AE through the use of IT infrastructure which includes use of online software, live information services, research on international data base. During the year, assessee has entered into following two international transactions:- Sl. No. Types of International Transaction M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial markets. This can be judged from the fact that over 90% of Futures first employees are either fresh graduates or have no trading experience. The employees analyze data on various online tools and use their knowledge skills to enter buy-sell details. The employees are trained with rules which help them to enter these details. Futures First employs over 370 employees who support execution of main activities of AEs which are performing derivative trades in equities futures (primarily in U.S. and European Stock Indices), commodities futures (e.g. oil. gold, cocoa, coffee, sugar and corn commodity futures) and interest rate futures (e.g. Euro, Sterling and Canadian currency derivatives). Futures First enters buy-sell details for tick trading which essentially means buying and selling on very low margins. These details are primarily system and software driven and the role of employee in India is limited to entering the buy- sell details based on broad guidelines provided by AEs. In addition each employee is allocated only one or two products for which he enters buy-sell details within specified limits. IT support tools: Futures First has a small support team involved in provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd., eClerx Services Ltd. and Infosys BPO Ltd., therefore, the other comparables are not the subject matter of dispute either which has been rejected by the TPO or which has been finally selected by him. 7. The relevant finding of the ld. CIT (A) for excluding three comparables are as under: M/s Acropetal Technologies Ltd. Ld. AR has argued that this company is engaged in the development of software and has given the extracts from the annual report reproduced as under:- The Company is engaged in the development of computer software. The production and sale of such items cannot be expressed on any generic term. Hence it is not possible to give the quantitative details of sales and information as required under paragraph 3, 4 C 4 D of Part II of the Schedule VI to the Companies Act. Ld. AR has further argued that Acropetal has huge on site development expenses whereas the appellant is only engaged in offshore activities. I agree with the arguments of the Ld. AR that the possibilities of software development activity and on site development activity of this company makes it unfit to be call a good comparable for ITES segment. Accordingly, I direct, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT vs. Agnity India Technologies Pvt. Ltd. which held this company as a lager and bigger company in the area of development of software etc. hence non comparable. Considering the scale of operations and substantial intangible assets of this company amounting to ₹ 19.03 crs as goodwill, 1 direct, the AO/TPO to exclude this company from the final set of comparables. On the basis of my above findings, the AO/TPO has to recompute average PLI of the final set of comparables and make the adjustment in arm s length price accordingly. As a result, these grounds of appeal are partly allowed. 7. Before us, ld. counsel for the assessee submitted that in so far as exclusion of Infosys BPO Ltd. is concerned, the Tribunal in assessee s own case for the subsequent assessment year, i.e., Assessment Year 2010-11 in ITA No.3382/Del/2016 have excluded this comparables, on the grounds that, firstly , Infosys BPO is a giant company having revenue of more than 12 times of the assessee company; secondly , it has fixed assets which are more than 18 times of the assessee company including the employees strength which are also 44 times more than of the assessee; and lastly , relying u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... captioned assessment year, upheld the order of the ITAT in rejecting Infosys BPO Ltd. as a comparable on the ground of being a giant company. In this case, the Tribunal, while ordering exclusion of this company, had relied on decision of the Hon ble Delhi High Court in Agnity India Technologies Pvt. Ltd. The Hon ble Delhi High Court noted that Infosys BPO Ltd. was a giant corporation. Similar observations were made by the Hon ble Delhi High Court in the case of Avaya India Pvt. Ltd. (ITA No.532/2019 for Asst. Year 2010-11) wherein M/s TCS EServe Limited and M/s TCS E-Serve International Limited were held to be having high brand value and operating on a huge economic upscale and were, therefore, able to command and generate better profits making them functionally dissimilar to the assesee. The Hon ble Delhi High Court noted that Infosys BPO Ltd. had been excluded by the ITAT for the very same reason. Similarly, ITAT Delhi Bench in the case of Cengage Learing India Pvt. Ltd. vs. DCIT (ITA No.6484/Del/2012) held that Infosys BPO Ltd. had huge turnovers, owns IPR and brand value on products and provides services to vast clientele. Under such circumstances this company cannot be acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany has not been discussed by the TPO, to buttress his claim. Accordingly, we do not find any reason to infer with the finding of the ld. CIT (A) and the same is confirmed. 10. Lastly, with regard to the Eclerx Service Ltd., the Revenue in its ground has not disputed with the exclusion of the said company because the same being a KPO company and is covered by the decision of Hon ble Delhi High Court in the case of Rampgreen (supra), albeit it has raised the issue on the ground that against the judgment of Hon ble Delhi High Court appeal has been filed before the Hon ble Supreme Court. The ld. TPO also in his order has noted that the only segment of Eclerx is data analytics and process outsourcing services which is nothing but ITe services. From the bare perusal of the functions carried out by the assessee company and the nature of services rendered by the Eclerx Service, as incorporated in the appellate order and also noted by us above, it is an undisputed fact that Eclerx service is a leading KPO services provider wherein it carried out high end KPO data analytic base services. Further, from perusal of page 708, which is part of its annual accounts, it is seen that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered by the directors so as to command such a huge remuneration. Therefore, an amount of ₹ 1,03,53,150/- being 50% of the total remunerations paid to Mr. Sunil Baijal, Director of the assessee company is hereby disallowed and added back to the income of the assessee. Since. 1 am satisfied that assessee has concealed the income by furnishing inaccurate particulars of its income, penalty proceedings u/s 271(1 )(c) is initiated separately. 13. Before ld. CIT(A) the assessee had submitted as under: (i) The Managing Director Shri Sunil Baijal is associated with the assessee company right from the beginning. Due to its association turnover and profit before tax has increased many times. He is involved in financial market since 1994 in trading in Forex, Interest Rates and Credit Markets in Delhi, Mumbai. and Singapore. He holds a degree in (Mechanical) Engineering from Delhi Collage of Engineering and MBA from university of Delhi. Therefore his remuneration commensurate to his qualification and working of the company. (ii) Subsequently the Assessment Year 2010-11 Mr. Sunil Baijal was paid an increase remuneration of ₹ 2,66,37,300/-. The same was accepted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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