TMI Blog2019 (9) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011. The Assessing Officer passed the assessment order in pursuance of order of Transfer Pricing Officer (TPO) passed under section 92CA(3) dated 26.10.2010. The revenue in its appeal has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the relevant transaction of M/s Mold-Tech technology Ltd as one of the comparable without appreciating the fact that the TPO while calculating the ALP has considered the segmental operating profit of KPO sector only of Mold- Teck Tecnology Ltd. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the relevant transaction of M/s ICRA Techno Analytics Ltd. As one of the comparable without appreciating the fact that M/s ICRA Techno Analytics Ltd. is also in the business of ITes Services. 3. The appellant prays that the order of CIT(A) on the grounds be set aside and that of the Assessing Officer be restored. 2. Vide application dated 11.05.2018, the revenue has raised the following additional grounds of appeal: 1. On the facts and in the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable in public domain 4. In upholding the rejection of one of the Appellant's comparable companies, viz. Saven Technologies Limited, engaged in the provision of ITES provided by the Appellant. 5. In upholding the use of single year data for Financial Year 2006-2007 for the transaction pertaining to ITES and rejecting the data for Financial Year 2005- 2006 and 2004-2005 used by the Appellant for computing the ALP for ITES. 6. In upholding the identification of com parables selected by the learned AO based on data available at the time of the assessment, i.e. use of nonITA contemporaneous data which was not available to the Appellant at the time of complying with the transfer pricing provisions, for computing the ALP for ITES. 7. In upholding the application of certain inappropriate filters by the learned TPO for identifying comparable companies 8. Without prejudice to the above Grounds, in not granting working capital adjustment to the average Profit Level Indicator of identified comparable companies. 9. Without prejudice to the above Grounds, by not allowing the adjustment f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see furnished report under Form 3CEB. The return was selected for scrutiny. During the scrutiny assessment the assessing officer noted that the assessee in the report under Form 3CEB reported the following international transactions: S.No. Nature of Transactions FY 2006-07 Method used by the assessee FY 2005-06 1 Provision of ITES (Revised) 174,12,36,675 TNMM 123,97,44,681 2 Reimbursement of personnel cost to AEs (paid) 20,79,24,950 Actuals 16,87,00,654 Total 194,91,61,625 140,84,45,335 6. The assessee bench marked its ALP under Transaction Net Margin Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer (TPO) under section 92CA for computation of Arms Length Price (ALP). During the proceedings before TOP, the TPO rejected one of the assessee s comparable i.e. Seven Technologies Ltd., and accepted remaining 8 comparable. However, the TPO carried out its own research and included the following 19 comparable: 1. Eclerx Services Ltd. 2. Mold Tek Technologies, 3. Accentia Technologies Ltd. 4. I Services India Pvt. Ltd. 5. Bodhtree Consulting Ld. 6. Vishal Information Technologies Ltd. 7. Cosmic Global Ltd. 8. Informed Technologies Ltd. 9. HCL Comnet Systems Services Ltd. 10. Infosys BPO Ltd. 11. Wipro Ltd. 12. Maple Esolutions Ltd. 13. ICRA Techno Analytics Ltd. 14. Aditya Birla Minacs Worldwide (Transworks Information Services Ltd.) 15. Apex Knowledge Solutions Ltd., 16. Apollo Healthstreet Ltd. 17. Caliber Point Business Solutions Ltd., 18. Datamatics Financial Services Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. CIT(A) after considering the material placed before him and considering the submissions of assessee directed to exclude the ICRA Techno Analytics Ltd. from set of comparable and further directed to consider only IT (KPO) Division of Mold-Tek Technologies Ltd. for the purpose of comparability and bench marking and confirmed the inclusion of 19 additional comparable included by TPO while making ALP. Further, aggrieved by the order of ld. CIT(A), the revenue has filed appeal challenging the action of ld. CIT(A) for inclusion of ICRA Techno Analytics Ltd. and Mold-Tek Technologies Ltd. from the set of comparable. Similarly, the assessee has challenged the order of ld. CIT(A) and in sustaining the inclusion of 19 comparables included by TPO. 10. We have heard the submission of ld. Departmental Representative (DR) for the revenue and ld. Authorized Representative (AR) of the assessee and perused the material available on record. On the admission of additional grounds of appeals the ld. DR for the revenue submits that no new facts are required to be brought on record, all facts are emanating the orders of the authorities below. During the hearing of appeal on 24/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Services Ltd. (vi) R. Systems International Ltd. from the comparable selected by TPO and confirmed by ld. CIT(A). 14. The ld. AR of the assessee further submits that he is disputing the inclusion of 14 comparables which are (i) Eclerx Services Ltd.,(ii)Mold Tek Technologies, (iii) Accentia Technologies Ltd., (iv) I Services India Pvt. Ltd., (v) Bodhtree Consulting Ltd., (vi) Vishal Information Technologies Ltd. (now known as Coral Hubs Ltd.), (vii) Cosmic Global Ltd.,(viii) Informed Technologies Ltd.,(ix) HCL Comnet Systems Services Ltd., (x) Infosys BPO Ltd.,(xi) Wipro Ltd., (xii) Maple Esolutions Ltd.,(xiii) Triton Corp Ltd (in additional Grounds of appeals) and ICRA Technology Analytics Ltd ( in Revenue s appeal). 15. For exclusion, each of the comparable, the ld. AR of the assessee furnished the chart showing the case laws/ decisions of Tribunal or High Courts, wherein the comparable were not considered as good comparable with the companies engaged in providing ITES Services, which are referred in subsequent paras. 16. For Eclerx Services Ltd ., the ld. AR of the assessee submits that Eclerx Services Ltd. has not conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) Wills Processing Services (India) P Ltd. vs. ACIT [2017] 83 taxmann.com 198 (Mum. Trib.) (2) Stream International Services (P.) Ltd. vs. ACIT [2015] 152 ITD 664(Mum) (3) H S Software Development Knowledge Management Centre (P.) Ltd. vs. ACIT [2017] 78 taxmann.com 159 (Del. Trib.) (4) Vishay Components (P.) Ltd. vs. ACIT [2017] 83 taxmann.com 319 (Pune Trib.) (5) Global e:business Operations (P.) Ltd. vs. Dy.CIT [2015] 63 taxmann.com 282 (Bangalore Tribn.) (6) Symphony Marketing Solutions India (P.) Ltd. vs. ITO [2013] 38 taxmann.com 55 (Bangalore Trib.) (7) BNY Mellon International Operations (India) (P.) Ltd. vs. Dy.CIT [2015] 173 TTJ 354 (Pune) and Rampgreen Solutaion P Ltd Vs CIT (2015) 377 ITR 533 (Delhi). 19. For I services , the ld. AR of the assessee submits that this company is in divergent high end services like web hosting, email services, spam filtering, domain names and DNS hosting, web hosting, email services, spam filtering, domain names and DNS hosting is also providing web design services, domain management services and email management services which cannot be compared to the assessee engaged in providing back office support services. In su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.77%) as compared to the assessee (i.e. 48.85%) cannot be considered as comparable. The ld. AR has taken support of case laws in Stream International Services (P.) Ltd. vs. ACIT [2015] 152 ITD 664 (Mum). 24. For HCL Comnet Ltd. the ld. AR for the assessee submits that the said comparable has neither been selected as comparable in the earlier years nor in AY 2008-09. HCL Comnet Ltd having different financial year ending i.e. June ended and therefore cannot be considered as comparable n light of Rule 10B(2). The ld AR has taken support of case laws in H S Software Development Knowledge Management Centre (P.) Ltd. vs ACIT-[2017] 78 taxmann.com 159 (Del. Trib.) and DCIT vs Everest Business Advisory India (P.) Ltd. (ITA No. 41/Del/2013 1191/Del/2013. 25. For Infosys BPO Ltd. the ld. AR for the assessee submits that the said comparable has neither been selected as comparable in the earlier years nor in AY 2008-09. Infosys PBO Ltd will not qualify on FAR analysis owning to various factors including its brand value, size, owing of intangibles, etc. The company has also incurred selling and marketing expenses. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in providing back office support services. The ld. AR has taken support of case laws in Pr CIT Vs BC Management Services P Ltd. [2018] 89 taxmann.com 68 (Delhi.). 30. On the other hand the ld. DR for the revenue supported the order of the TPO/ AO. The ld. DR for the revenue opposed the exclusion all the comparable as argued by ld. AR for the assessee. The ld DR further submits that while excluding ICRA Techno Analytics Ltd the ld CIT(A) has not followed the principles provided under Rule 10B(2) of Income Tax Rules. The ld DR further submits that as per Rule 10B(2) there should be uniformity to all comparables while determining the ALP under section 92C of the Act. The ld DR for the revenue further submits that ld CIT(A) also erred in excluding the relevant transaction of Mold- Tech technology ltd, without appreciating the facts that TPO has considered the segmental operating profit of KPO sector only while determining ALP. In support of his submissions the ld DR for the revenue also relied on the decision of Delhi High Court in PCIT Vs BC Management services (P) ltd [2018] 98 taxmann.com 68(Delhi). However, for Bodhtree Consulting Ltd., Infosys BPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted as a comparable and hence is directed to be excluded from the list of comparables. 33. Considering the decision of Delhi High Court in Rampgreen Solution P Ltd (supra) and Tribunal in Wills Processing Services (supra), we direct to exclude Eclercx Services from the comparables. (2) Mold Tek Technologies Ltd 34. The ld. AR of the assessee submitted that Mold Tek Technologies Ltd. has been excluded by ld. CIT(A) for Assessment Year 2008-09 and department is not in appeal against such exclusion. It was further submitted that the Mold Tek Technologies Ltd. provides engineering design, detailing services, website design services etc. It provides highly technical and specialized engineering service which comes in the category of KPO and cannot be compared to the assessee engaged in providing back office support services. The ld. DR for revenue opposed to excluded this company. The TPO included this comparable by taking view that this company is in ITES (Engineering solution). The ld CIT(A) directed to consider the IT (KPO) division of the company for the purpose of benchmarking. Before us the revenue has chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected 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. 35. The Hon ble Delhi High Court in PCIT vs. Evalueserve.com Pvt. Ltd. (supra) also upheld the exclusion of Mold-Tek Technology holding that it provides engineering design, detailing services, website design services etc. cannot be compared with the assessee which provides back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end services like web hosting, email services, spam filtering , domain names and DNS hosting, web hosting, email services and directed to exclude from comparing with ITeS enabled services. Therefore, considering the decision of Delhi Tribunal, we direct the exclusion of I Services. (5) Coral Hubs Ltd. (Vishal Information) 38. The ld. AR submitted as we recorded earlier that Coral Hubs Ltd. was outsourcing its significant part of its operation as evident from its low employee cost and have substantial different business model compared to assessee and prayed for exclusion. The ld. DR has supported the inclusion. The TPO while making benchmarking taking his view that this comparable company is in the business of IT enabled services to overseas markets and included in the list of comparable. The ld. CIT(A) confirmed the action of TPO holding that the TPO conducting benchmarking after calling information under section 133(6) and is benchmarking analysis are correct. We have noted that, though the ld. AR has relied upon a number of decisions of Tribunal/co-ordinate bench. We have noted that in a recent decision of Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) confirmed the action of TPO holding that benchmarking was conducted after seeking information under section 133(6). We have noted that Delhi Tribunal in United Health Group Information (P.) Ltd. vs. ACIT (supra) while considering this comparable held that revenue of this company from medical transcription services is hardly 1% of total revenue. The major part is the income from translation charges at ₹ 5.59 Crore out of the total revenue of ₹ 5.89 Crore, which is totally dissimilar to that assessee. Further, Pune Tribunal in BNY Mellon International Operation (India) (P.) Ltd Vs DCIT (supra) held that a company indulged in high skill IT services is non-comparable to a routine IT enabled service provider. 41. Considering the fact that major part of income of this comparable is from translation charges and function of this comparable is different to the assessee-company, therefore, we direct the exclusion of Cosmic Global from the list of comparable. Similar view was taken by Pune Tribunal in BNY Mellon International Operations (India) Pvt. Ltd. vs. DCIT (supra) holding that this comparable company had outsourced its vendor an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and parcel of Rastogi Group which was under serious indictment and its financials were distorted and cannot be relied. However, the ld. DR for the revenue supported the inclusion of this comparable. The ld. TPO included this comparable by taking his view that this company is in the call centre services. The ld CIT(A) upheld the action of ld TPO by taking view that benchmarking was conducted by calling information under section 133(6). We have seen that Mumbai Tribunal in Stream International (P) ltd (supra) held that, a Company under serious indictment in fraud cases is to be excluded from list of comparables on ground of unreliability of data. Thus, following the order of the Tribunal we direct to exclude this company from the comparable. (10) Triton Corp Ltd .(in additional ground of appeal by assessee ) 46. The contention of ld AR for the assessee is this company was rejected by ld TPO himself in AY 2008-09. Triton Corp is also a part of is part and parcel of Rastogi Group which was under serious indictment and its financials were distorted and cannot be relied. However, the ld. DR for the revenue supported the inclusion of this compara ..... X X X X Extracts X X X X X X X X Extracts X X X X
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