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TMI Blog2014 (4) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of software services being two segments of Assessee's business under transfer pricing provisions. 4. On appeal, the CIT(A) deleted the addition altogether with reference to the software services and the addition towards BPO/ITES was partly modified by the CIT(A) sustaining the addition to the extent of Rs. 4,94,26,276/-. The adjustment in the software division is not before us as Revenue is not in appeal on that, which was deleted by the CIT(A). The issue before us is with reference to the addition under TP provisions on BPO/ITES services. 5. Assessee, IVY Comptech Pvt. Ltd. is a company primarily engaged in the business of software development and provision for Information Technology Enabled Services. Assessee provides these services to its group companies. Its office is situated in Hyderabad and it is registered as Software Technology Park (STP) with Software Technology Parks of India, Hyderabad. Assessee has entered into international transactions with its group concerns. It has revenues in software development about Rs. 12.85 crores and ITES about Rs. 40.69 crores, totaling to Rs. 53.54 crores. Assessee has arrangement with the group concerns to reimburse at 15% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted by the TPO along with Assessee as comparable, on the reason that functional profile of the company is quite different (as discussed in para 6.7.1 of his order in page 19). Thus, out of Assessee's comparables only one company was accepted by the CIT(A). 10. Out of the companies selected by TPO, Assessee objected to the inclusion of Fortune Infoteck Ltd., Tricom India and Wipro BPO Solutions Ltd. while accepting Spanco Telesystems Solutions Ltd. and Vishal technologies. Even though Assessee objected to 3 comparables as can be seen from the submissions before the CIT(A) vide letter dated 12-07-2007 placed in the paper book at page 102 onwards, the learned CIT(A) went on to decide about 4 comparables vide para 6.8.2. He accepted that profits of M/s Fortune Infotech Ltd. cannot be included as comparable because of abnormal variation in profitability on which Revenue is not in appeal. With reference to Tricom India Ltd., he accepted it as a comparable. With reference to Wipro BPO Solutions, Assessee's objection that it has more than 10 times turnover than Assessee and hence not comparable on account of adjustability on the scale of transactions was not accepted by the CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts, however, restricted his arguments to the exclusion by ld. CIT(A) of Mercury Outsourcing Management Ltd., which was accepted by both the parties i.e. Assessee and TPO and has not contested before the CIT(A). He also restricted his arguments to the exclusion of Wipro BPO Solutions Ltd, which has high range of turnover based on the decisions of coordinate benches at Bangalore and Hyderabad and also the decision of Hon'ble Delhi High Court in the case of Agnity India Ltd. He also made submissions on Spaco Telesystems & solutions ltd. 13. The contention of Assessee with reference to Mercury Outsourcing Management's whose PLI is at 5.88% was that it was held functionally comparable by TPO and AO, which the CIT(A) cannot reject. The learned counsel, then, referred to the submissions made before the TPO and before the CIT(A) to submit that Mercury Outsourcing Management Ltd. was considered as a BPO and accepted by Assessee (PB-421). Accordingly, both the AO and TPO have accepted it as functionally comparable. He further pointed out to the finding of the CIT(A) that it is functionally different without any valid reason. He contended that the CIT(A) has no role to play in reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of software and it assumed of risks leading to higher profits whereas respondent-assessee captive unit of assessee company assumed only limited risk. He relied on this decision to submit that Wipro's turnover being at 430 crores cannot be compared with assessee's turnover of Rs. 40 crores. Therefore, he submitted that the same is to be excluded from the list of comparables. 15. As regards Spanco Telesystems & Solutions Ltd., the learned counsel submitted that this comparable was not discussed by the CIT(A). Assessee in the table provided in Paper Book stated that this comparable was deleted by CIT(A) but when pointed out, the learned counsel admitted the mistake and submitted that the same CIT(A) for the same assessment year in another case has considered and deleted Spanco Telesystems, consequently, the mistake occurred. Then on merits, it was submitted that learned CIT(A) in another case of HSBC Electronic Data Processing India (P.) Ltd., for the same AY in ITA No. 379/DCIT Cir-2(2)/CIT(A)-III/06-07, dated 18-10-2007 considered and held as under: (iii) Spanco Telesystems & Solutions Ltd.:- "The operating profit margin of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the findings of the CIT(A) to support that the order of the CIT(A) is very reasonable and on the basis of facts. 18. We have considered the issue and examined the paper books and documents placed on record. As far as assessee's six comparables are concerned, there is no dispute that 4 comparables selected by Assessee are not comparable either on functional profile or on other parameters as considered by TPO and accepted by Assessee after CIT(A)'s order. There is no dispute with reference to two comparables i.e. Nucleus Net Soft & GIS India, whose operating profit by cost is at 16.87%, which is accepted as comparable by Assessee and TPO. The other company, which is also accepted by Assessee and TPO are Mercury Outsourcing Management Ltd., whose operating profit by cost is at 5.88%. We are of the opinion that when TPO and Assessee accepted a particular company as functionally comparable and when assessee has not agitated before the CIT(A), it cannot be excluded from list of comparables. CIT(A) may have original jurisdiction coterminous with AO, but, when the issue is not agitated, we are of the opinion that he cannot review the decision of AO/TPO on selection of comparables. Onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded by the CIT(A), without any discussion. B. Wipro BPO Solutions Ltd: Next comparable objected to by Assessee is Wipro BPO Solutions Ltd. on the basis of turnover filter. It is true that coordinate benches of ITAT have considered turnover filter as one of the valid reasons to exclude a comparable. In the case relied upon by Assessee in the case of Agnity India Technologies Ltd. (supra), the Hon'ble Delhi High Court has considered the principle of turnover parameter as one of the consideration and has accepted the said company as not comparable with the assessee company. However, in Assessee's case applying this comparable filter for excluding Wipro BPO Solutions Ltd. cannot be accepted as Assessee has accepted other comparables in the case of lower turnover filter. For example, one comparable, which Assessee has selected and has not objected before TPO or before CIT(A) is Nucleus Net Soft and GIS India Ltd., whose operating profit on cost was accepted at 16.87% and the turnover in this case as reported in various statements was about 1.95 crores only as against Assessee's turnover of Rs. 53.54 crores.( Ratio of 1:26 approx) Likewise, in the case of Merc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; "On turnover it is held that in the case of Genisys Integrating Systems (India) (P.) Ltd. v. DCIT, [2012] 20 Taxmann. Com 715/53SOT 159 (Bang.-Trib) (URO)it has made a classification of company having turnover of 1 crore to Rs. 200 crores as the comparable range of size of companies and further from Rs. 200 crores to Rs. 2000 crores as another slab of turnover. This classification is based on Dun & Bradstreet having given different ranges of size of companies i.e. large, medium and smaller. Such classification by Dun & Bradstreet was not made in the context of comparables under TP Regulations. It is pertinent to note that as per this classification of the company on the basis of turnover from Rs. 1 crore to Rs. 200 crores, an entity having Rs. 1 crore can be compared with an entity having Rs. 200 crores turnover; but at the same time, an entity having Rs. 200 crores turnover cannot be compared with the entity having Rs. 201 crores turnover. Thus, this classification gives unrealistic result as far as the comparability of two entities having difference of Rs. 1 crore only cannot be compared. For the purpose of comparing the profit margin of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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