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2017 (12) TMI 1731 - AT - Income TaxAddition on account of arm’s length price - Comparable selection - HELD THAT:- When we examine the services rendered by the taxpayer to its AE in the light of the fact that the taxpayer is a risk free entity working on cost plus mark up and does not own any intangibles, the taxpayer is a low end BPO. Accentia Technologies Ltd. (Seg.) - extra ordinary growth, extra ordinary operating cost towards overseas business expenses and substantial market cost towards overseas business expenses, it leads to the irresistible conclusion that growth of 3197% in profitability of Accentia in comparison to its earlier year itself is an eye opener to make it incomparable with the taxpayer. So, we order to exclude Accentia from the final list of comparables. Eclerx Services Ltd excluded on ground of functional dissimilarity. When business model of the taxpayer had not undergone any change during the year under assessment to adopt consistent approach is also cardinal principle of law. So, in view of the matter, we order to exclude Eclerx from the final set of comparables for benchmarking the international transactions qua ITES. HCL Comnet Ltd. (Seg.) has been ordered to be excluded by the coordinate Bench of the Tribunal in ICC India Pvt. Ltd. [2016 (6) TMI 1309 - ITAT DELHI] on account of functional dissimilarity by following Rampgreen Solutions (P) Ltd. [2015 (8) TMI 931 - DELHI HIGH COURT] . HCL Comnet is also operating 24x7 in three shifts whereas the taxpayer is operating with single shift only. Moreover, HCL Comnet is a risk bearing company whereas the taxpayer is a captive service provider to its AE. So, there is stark functional dissimilarity. HCL Comnet is having huge asset’s base of ₹ 188.90 crores and ITES revenue of ₹ 260 crores as against the total turnover of ₹ 5 crores of the taxpayer. So, in view of the matter, we order to exclude HCL Comnet from the final set of comparables Vishal Information Technologies Ltd.- different business model as it outsourced its work to external vendors to save the cost on employees which is apparent form the figure of employee cost visà- vis sales detailed in the preceding paras. So, we order to exclude Vishal from the final set of comparables for benchmarking the international transactions. Wipro Ltd. (Seg.) - business profile of Wipro vis-à-vis the taxpayer, there are stark dissimilarities as Wipro is a giant company having huge asset base, brand value, goodwill and presence in the global market, spending 8.5% of the total revenue on R&D and it is a full fledged risk bearing service provider. Moreover, marketing expenses of Wipro is 3% of the total turnover. So, we are of the considered view that Wipro is not a suitable comparable for benchmarking the international transactions. Infosys BPO Ltd.- when we examine business profile of the Infosys BPO vis-à-vis the taxpayer, Infosys BPO is a full fledged risk bearing company having huge asset base, turnover of ₹ 649 crores and total asset base of ₹ 450 crores having employee base of 11226 as against 20 employee of the taxpayer and turnover of ₹ 5 crores only; Infosys BPO is into providing high end services; whereas the taxpayer is a small scale captive service provider to its AE for ITES services and does not own any intangibles or brand value and is working on cost plus basis. Informed Technologies India Pvt. Ltd. - AR for the taxpayer sought to exclude Informed from the final list of comparables for benchmarking the international transaction on ground of sale/employee cost filter but later on candidly admitted that functionality of Informed is similar to the taxpayer so far as ITES are concerned. However, after arguing for sometimes, the ld. AR for the taxpayer preferred not to press her arguments for exclusion of Informed. So, we decide this issue against the taxpayer and Informed is ordered to be retained as a suitable comparable. R Systems International - Following the decision rendered by the coordinate Bench of the Tribunal in M/s. Kanexa Technologies Pvt. Ltd. [2014 (11) TMI 1209 - ITAT HYDERABAD] we direct the TPO to consider the provision for doubtful debts as operating expenses and then compute the profit & loss of the comparable company for benchmarking the international transaction. Iservices India Pvt. Ltd. - Business profile of Iservice shows that the same is into high end diversifying services vis-à-vis the taxpayer who is into 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 makes it functionally dissimilar to the taxpayer. The contention of the ld. DR that this argument has not been addressed before the TPO is not sustainable because the TPO in its analysis has to compare functional profile of comparable company with the taxpayer at the very outset before going into further detail. Iservice is also not a suitable comparable for benchmarking the international transaction. Non granting of risk adjustment - TPO is directed to decide the issue afresh after considering the contentions raised by the taxpayer in the light of the Intellinet Technologies India Pvt. Ltd. [2012 (6) TMI 237 - ITAT BANGALORE] and Motorola Solutions [2014 (10) TMI 358 - ITAT DELHI] .So, the issue of risk adjustment is decided in favour of the taxpayer for statistical purposes.
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