TMI Blog2014 (3) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... 's filter adopted – thus, the grounds raised by the assessee on various filters are rejected. Transfer pricing adjustment - Selection of comparables - Accentia Technologies Ltd. – Held that:- The decision in Capital IQ Information Systems (India) (P.) Ltd. Versus Deputy Commissioner of Income-tax (International Taxation) [2014 (3) TMI 626 - ITAT HYDERABAD] followed - DRP was of the view that the extra-ordinary event like merger and de-merger will have an effect on the profitability of the company in the financial year in which such event takes place – in the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a comparable – thus, this company cannot be considered as a comparable. Acropetal technologies ltd. – Held 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emitted back to the TPO for fresh adjudication – Decided partly in favour of Assessee. - ITA. No. 1850/Hyd/2012 - - - Dated:- 21-2-2014 - Shri B. Ramakotaiah And Shri Saktijit Dey,JJ. For the Petitioner : Mr. Girish Dave For the Respondent : Mr. P. Somasekhar Reddy ORDER Per B. Ramakotaiah, A. M. This appeal by assessee is against the orders of the A.O. under section 143(3) read with section 144C(13) of the I.T. Act, 1961, consequent to the directions given by the Disputes Resolution Panel (in short DRP ), Hyderabad dated 13.09.2012. The issue in this appeal is with reference to the transfer pricing adjustments made by the TPO/A.O. 2. The assessee in its appeal has raised six grounds with sub-grounds which are generally cotentions/arguments. Ground No.1 and 6 are general in nature and therefore, they need no adjudication. Ground No. 2.1.1, 2.2, 2.4 have not been pressed in the course of arguments and as such, they are dismissed as not pressed. Ground No. 2.7, 3 and 4 also have not been pressed, consequent to A.O. rectifying the order under section 154 and accordingly, these grounds are also dismissed as not pressed. Ground No.5 is with reference to int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was not considered by the TPO. Assessee has selected six comparables in its T.P. study which the TPO, on reference from the A.O., rejected and selected 22 comparables by applying various filters. FILTERS: 4. There is no dispute with many filters except with reference to the filters like the turnover filter and RPT filter and export sales filter. The TPO excluded the companies whose receipts are less than Rs. 1 crore and above Rs.150 crores, whereas, assessee wants the companies with less than Rs. 1 crore also to be included. Even though this objection was raised before the DRP, there is no decision on it. Considering that extreme turnover companies are excluded generally from comparability, we also affirm the range of companies adopted by the TPO in its filter as the assessee's turnover was about Rs.15.79 crores. So, the range selected by the TPO is accepted. 4.2. The next filter on which there is dispute is with reference to related party transactions (RPT). Assessee applied this filter on related party transactions exceeding 10%, whereas, TPO selected companies having transactions exceeding 25%. This issue was objected to by the assessee whereas, DRP discussed this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tya Birla Minacs world wise Ltd 4. Asit CIT(A) Mehta Financial services Ltd 5. Caliber Point Business Solutions Ltd. (seg) 6. Cosmic Global ltd 7. Crossdomain Solutions P. Ltd. 8. Datamatics Financial Services (BPO) Div. 9. e4e Health care Solutions(earlier known as Nittany) 10. Eclerx Services Ltd 11. Genesys International Corporation Ltd 12. HCL Comnet Systems Services Ltd. (seg.) 13. ICRA Online Ltd. (seg.) 14. Infosys BPO 15. I-services India Pvt. Ltd. 16. R Systems International Ltd. (seg.) 17. Spanco Ltd. (seg.) 18. Wipro BPO 6. We have heard submissions of both the parties. The learned Counsel gav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany cannot be compared as a comparable owing to extra ordinary events that took place during the previous year. The Tribunal upheld the order of the DRP observing as follows :- I. Accentia Technologies Ltd. 10. It is the submission of the assessee that this company cannot be treated as a comparable because of uncomparable financial results arising out of amalgamation in the company. In this regard, the assessee has relied upon the order of the DRP for the assessment year 2008-09 in assessee's own case. It is seen that the DRP while considering similar objection placed by the assessee in the case of another company, viz. Mold Tek Technologies Ltd., in the proceedings relating to the assessment year 2008-09, has observed in the following manner- 17.5. In addition to the above, the Director's Report of the company for the FY 2007-08 revealed the merger and the demerger. A company known as Techmen Tools Pvt. Ltd. had amalgamated with Mold-tek Technologies Ltd. with effect form 1st October, 2006. There was a de- merger of Plastic Division of the company and the resulting company is known as Moldtek Plastics Limited. The de-merger from the Moldtek Technologies took p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olutions India(p) Ltd (supra) by the Bangalore Bench. It is clear that during the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a comparable. We therefore hold that this company cannot be considered as a comparable. II. ACROPETAL TECHNOLOGIES LTD. (Seg.) This company is listed at Sl.No.2 of the comparables chosen by the TPO. As far as this company is concerned, the objection of the assessee is that this company is not functionally comparable. The assessee is a BPO company that provides CAD/ CAE services.. As far as Acropetal Technologies Ltd. is concerned, this company does the business of export of software services. It is also seen from the segmental revenue of this company (Note 15 to the notes on accounts to Annual Report for 07-08) that it derives income from engineering design services and software development services. It is also pertinent to point out that before the TPO, the assessee raised an objection that this company performs different functions and mainly engaged in the area of software development services and engineering design services. The TPO in his order has observed that the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees in just 4 hours*. With Effipay Lite and Effipay Lite Plus, our bouquet of services cover end to end payroll, retrials, reimbursement, tax proof verifications upto issue of Form 16 for employees of our clients across different industry verticals. Our processes are highly scalable and provide end to end payroll solutions to clients with headcount ranging from 5 to 65,000. Crossdomain's IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation and continuously increase efficiency and turn-around-time for business critical processes. Source : http:/www.cross-domain.com As can be seen from the above, the business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider. III.1. We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this company as a comparable, this company should be excluded from the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is listed at Sl. No.11 in the list of comparable companies chosen by the TPO. As far as this company is concerned, the stand of the assessee has been that this company is functionally not comparable and that it has a different employee skill set and that this company performs R D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Besides the above, this company also carries out R D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. Similar view was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. In view of the above, we are of the view that this company cannot be regarded as a comparable and deserves to be excluded f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (2011-TII-92-ITAT-HYD-TP). The Authorised Representative for the assessee further contended that when the TPO has rejected companies with turnover of less than Rs. One crore, by stating that these companies may not be representing the industry trend, by applying the very same logic, he should not have also considered the companies having turnover of more than Rs.200 crores. In this context, the learned Authorised Representative for the assessee has relied upon the decision of the ITAT Bangalore Bench in the case of M/s. Genesys Integrating System(India) P. Ltd. (2011) (2012) 53 SOT 159 / 20 taxmann.com 715 (Bang.) (URO) / 64 DTR 225. On considering the submissions of the assessee in relation to these companies, we find that the TPO has excluded the companies whose turnover is less than Rs.One Crore, on the ground that they may not be representing the industry trend. That very logic also applies to the companies having high turnover of over Rs.200 crores as against the assessee's turnover of only Rs.15 crores, and therefore, it would be fair enough to exclude those companies also. In the case of Agnity India Technologies P. Ltd. (supra), the Delhi Bench of the Tribunal, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal when companies which are loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun Bradstreet and NASSCOM has given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs.1.00 crore to 200 crores have to be taken as a particular range and the assessee being in the range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study. In view of the aforesaid consistent decisions of the Tribunal, we accept the contention of the learned Authorised Representative for the assessee that the aforesaid companies cannot be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as it is not functionally comparable and specifically raised objection in annexure-16 where detailed objections on each company selected has been mentioned. It was the contention that the assessee was in the finance business whereas, the assessee is in I.T. enabled services( ITES) to provide support services in connection with CAE/CED. It was submitted that Datamatics Financial (BPO) Div. cannot be compared to the assessee. Further, it was also submitted that if at all be compared, the same can be compared at the entity level and not at ITES segment. However, after initially objecting to selection of the comparables, the assessee raised further objections vide letter dated 30th July, 2012 specifically mentioning about Datamatics Financial (BPO) Div. that it fails revenue filter. It was submitted that ITES revenue is Rs.6.06 crores which is 48.97% of the operating revenue of Rs.12.37 crores. The learned D.R. however submitted that what is adopted is only segmental profit and not the entity profit and the filters applicable to the data is within the parameters. We have considered the issue. As seen from the objections raised by the assessee, the Datamatics Financial (BPO) Div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of related party transactions filter. The entire objections placed before the DRP is about calculating related party filter. It further submitted that assessee is performing similar functions as compared to the assessee and does not fail the RPT filter. After perusing the business of Jindal Intellicom Pvt. Ltd. as well as the arguments of the learned Counsel, we are of the opinion that this company is functionally different from the assessee company, as it is in the call centre activity and not exactly in provision of services of high end in the area CAD/CAE services. Since that company in the call centre activity, we agree with the initial objection of the assessee that the company should be rejected on functionality. Even though assessee is contesting only on the basis of related party transactions, no arguments were extended before us about the functionality aspect of the above company. Keeping original objections in mind, we are of the opinion that the above company is not functionally similar to the assessee's operations and accordingly, the same cannot be selected. The arguments of the assessee on this issue are rejected. B. INFORMED TECHNOLOGIES : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, this company satisfies parameters/filters adopted by the TPO, then, this should be considered afresh, after giving due opportunity of hearing to the assessee. Therefore, selection of this comparable is restored to the file of the TPO/A.O. to examine and decide accordingly. 9. RISK ADJUSTMENT : Assessee raised ground No. 2.5 with reference to disregard of Rule 10B(2) and Rule 10B(3) and vide sub-rule 2.5.2. assessee has raised the risk adjustment issue. Assessee raised this issue before the DRP vide annexure-9 in the objections to the draft order. Assessee admits that it did not provide any risk adjustment in the T.P. documentation as margin of the comparable companies presented in the T.P. return was in line with the assessee's operating margin. It was the submission that assessee at any point of time did not deny the fact that comparable companies selected in the T.P. report have fair market risk. Therefore, assessee reserves the right to conduct such risk adjustment in future during the time of assessment. It was submitted that risk adjustments quantified was at 0.1%. Learned Counsel referred to annexure-9 and ground taken in this regard before the DRP to submit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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