TMI Blog2014 (11) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... ation charges paid at ₹ 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of ₹ 6.99 crore - If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO - a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at ₹ 86.10 lacs - As the segmental revenue of BPO segment of Cosmic Global Limited at ₹ 27.76 lac is still on much lower side - M/s. Cosmic Global Limited cannot be considered as comparable with the assessee-company. Eclerx Services Ltd. – Genesys International Ltd. - Held that:- The assessee company is engaged in the business of providing IT enabled services to its group concerns, such as operationalising the case-report form in the computer system, and undertaking quality control tests of the images sent by the AEs – the company is basically providing data management and data processing services which are in the nature of low end services, and cannot be considered as functionally di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals are as follows :- The assessee is a company which is engaged in the business of providing IT enabled services to the other group concerns. It is a wholly owned subsidiary of Parexel International Holding (BV) Netherlands, which in turn is owned by Parexel International Corporation, USA. The assessee company mainly provides routine services such as operationalising the casereport form in computer system and undertaking certain control tests of the images sent by the Associate Enterprises (AE). The return of income for the year under consideration was filed by it on 30.9.2009 declaring total income of ₹ 3,66,153 after claiming deduction of ₹ 4,86,25,156 under S.10AA of the Act. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee company has provided IT enabled processing services to its AEs and a total amount of ₹ 28,90,32,391 is charged for such services as under- A.E. Nature of transaction Amount (Rs.) Perceptive Informatics Inc. USA Provision of ITES 28,26,28,797 Parexel international Ltd., UK Payment for pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crossdomain 33.76 29.38 6. Eclerx Services Ltd. 187.98 53.44 7. Infosys B P O Ltd. 108.23 16.90 8. Jeevan Softech Technology Ltd. 1.79 16.56 9. Microland Limited 144.05 2.35 10. Microgenetic Systems Ltd. 1.27 10.11 11. R.Systems International Ltd.(Seg) 26.55 5.77 12. Genesys International Ltd. 83.18 71.50 AVERAGE 27.42 4. After allowing working capital adjustment of 0.71%, Arithmetic Mean margin of the selected comparables at 26.71% was taken by the TPO as adjusted Arm s Length Margin and applying the same to the corresponding Operating Cost of ₹ 24,89,73,773, the Arm s Length Price of the international transactions of the assessee company with its AE was worked out by him at ₹ 31,54,74,618, as against the price of ₹ 29,13,84,003 charged by the assessee. The difference of ₹ 2,40,85,665 accordingly was worked out by the TPO, as TP adjustme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e export turnover as well as the total turnover. Accordingly, the entire claim of the assessee for deduction under S.10AA was allowed by the Assessing Officer in the assessment completed under S.143(3) as per the direction of the Dispute Resolution Panel. 7. Aggrieved by the order of the Assessing Officer passed under S.143(3) read with read with S.144C(5) of the Act, assessee as well as Revenue are in appeal before us. Assessee s Appeal: ITA No.144/Hyd/2014: 8. In its appeal, the assessee company has raised the following grounds- 1 That the Learned AO and Hon ble DRP have erred in determining the arm s length mark-up for provision of IT enabled back office services as 26.71% (after working capital adjustment) and consequently made an addition of ₹ 2,40,85,665 to the total income of the Appellant as an adjustment to the arm s length price under Section 92CA of the Act. 2. That on the facts and circumstances of the case, Hon ble DRP erred in upholding the decision of the Learned Assessing Officer/Learned TPO in rejecting the transfer pricing ( TP ) documentation. 3. That the Learned. Assessing Officer/Learned TPO erred in rejecting the comparability analysis ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infosys B P O Ltd. 11. We have heard the arguments of both the sides on the issue of inclusion/exclusion of the above five companies as comparables and also perused the relevant material on record including the various decisions of the coordinate benches of the Tribunal cited by the learned counsel for the assessee. Accentia Technologies Limited 12. As regards the selection of Accentia Technologies Limited as comparable, the learned counsel for the assessee has relied on the decisions of this Tribunal in the cases of Capital IQ Information Systems (India) Pvt. Ltd. V/s. Addl./Dy. Commissioner of Income-tax, Circle 1(2), Hyderabad and vice versa (ITA No.124 and 170/Hyd/2014 dated 31.7.2014); Excellence Data Research Pvt. Ltd., Hyderabad V/s. ITO Ward 2(1), Hyderabad (ITA No.159/Hyd/2014 dated 31.7.2014); and Hyundai Motors India Engineering P. Ltd., Hyderabad V/s. DCIT, Circle 2(2), Hyderabad (ITA NHo.255/Hyd/2014 dated 31.7.2014), wherein M/s. Accentia Technologies Limited(Seg) was excluded by the Tribunal from the list of comparables on the ground that it was a case of mergers and acquisition, and the company was also found to be functionally different. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following the decision of the Delhi Bench of the Tribunal in the case of Mercer Consulting (India) Ltd. V/s DCIT (vide order dated 6th June, 2014 in ITA No.966/Del/2014), wherein M/s. Cosmic Global Limited was not accepted as comparable by the Tribunal for the following reasons given in paras 13.2 and 13.3 of its order- 13.2. Now coming to the factual matrix of this case, we find from the material on record that outsourcing charges of this case constitute 57.31% of the total operating costs. This does not appear to us to be a valid reason for eliminating this case from the list of comparables. On going through the Annual accounts of Cosmic Global Limited, a copy of which has been placed on record, we find that its total revenue from operations are at ₹ 7.37 crore divided into three segments, namely, Medical transcription and consultancy services at ₹ 9.90 lacs, Translation charges at ₹ 6.99 crore and Accounts BPO at ₹ 27.76 lac. The ld. AR has made out a case that outsourcing activity carried out by this company constitutes 57% of total expenses. The reason for which we are not agreeable with the ld. AR is that we have to examine the revenue of this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of comparables. We may clarify here for the sake of completeness that the Learned Departmental Representative has pointed out at the time of hearing before us that M/s. Cosmic Global Limited was initially selected by the assessee company itself as a comparable in the TP study report. In our opinion, this aspect on its own is not sufficient to include M/s. Cosmic Global Ltd. in the list of comparables, as the assessee has always a right to object selection of a company taken as comparable earlier, if it is subsequently found to be not comparable, as a result of difference in functions performed etc., and such objection is required to be considered on merits. Eclerx Services Ltd. 16. As regards selection of Eclerx Services Ltd. as comparable, it is observed that the said company was excluded by the Tribunal from the list of comparables inter alia in the case of Excellence Data Research P. Ltd. (supra), after having found the same to be functionally different. The relevant observations of the Tribunal as recorded in paragraph 16.2 of its order in that case are reproduced below- 16.2 We have considered the issue and examined the annual Report and the objections of assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer Consulting (India) Ltd. V/s DCIT (vide order dated 6th June, 2014 in ITA No.966/Del/2014), wherein M/s. Genesys International Ltd. was not accepted as comparable by the Tribunal for the following reasons given in paras 14.2 and 14.3 of its order- 14.2. We have heard the rival submissions and perused the rival materials on record. It has been noticed supra that assessee is basically providing various services to the customers of its AEs in relation to human resources which are more or less centered around the employees of the prospective clients. When we consider the nature of services provided by Genesys International Corporation Ltd., it comes to the forefront that they are providing full range of geospatial services to its customers. In simple terms, geospatial services means the services relating to the relative position of things on the earth s surface. These basically include 3D mapping, Navigation maps, Image processing, Cadastral mapping, etc. If we take into account the nature of services provided by the assessee, being financial and retirement security, health, productivity of employees and employment relationships and then try to compare them with those rendered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparables. 19. At the time of hearing before us, the Learned Departmental Representative has raised a contention that M/s.Excellence Data Research P. Ltd. is not functionally similar with that of the assessee company, and therefore, the decision of the Tribunal rendered in the case of M/s. Excellence Data Research Ltd. (supra) to exclude Genesys International Ltd. from the list of comparables on the ground of functional difference, cannot be straight away applied in the case of the assessee, to exclude this comparable. As noted by the Tribunal in its order, Excellence Data Research P. Ltd. was rendering back office/ data segregation, content development and support services in relation to analysis, content research and projections for all types of business information, while the assessee company in the present case, as pointed by the TPO in his order, is engaged in the business of providing IT enabled services to its group concerns, such as operationalising the case-report form in the computer system, and undertaking quality control tests of the images sent by the AEs. After having considered the nature of functions performed by the assessee company vis-a-vis M/s. Excellence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , delete the addition made by the Assessing Officer to total income of the assessee by way of TP adjustment, and allow ground No.4 to 6 of the assessee s appeal. 22. As regards grounds Nos.7 to 8 of the assessee s appeal, it is observed that the issues raised therein have become infructuous as a result of our decision rendered above, while deciding ground Nos. 4 to 6, whereby the addition made on account of TP adjustment is held to be unsustainable. These grounds of the assessee s appeal are accordingly dismissed as infructuous. Revenue s Appeal: ITA No.609/Hyd/2014 23. Now we shall take up the appeal of the Revenue, which involves a solitary issue regarding to the inclusion/exclusion of the communication costs from the total turnover, while computing the deduction under S.10AA. 24. At the time of hearing before us, the learned representatives of both the sides have agreed that this issue is squarely covered in favour of the assessee by the decision of the Hon ble Bombay High Court in the case of Gem Plus Jewellery Ltd. (supra), wherein it was held that although the expression total turnover has not been defined at all by the Parliament for the purposes of S.10A, when ..... X X X X Extracts X X X X X X X X Extracts X X X X
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