TMI Blog2015 (1) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... tsourcing or KPO services, it cannot be held to be a good comparable for bench marking the assessee’s margin. R. System International Ltd. (Segmental), TPO himself has accepted it as a good comparable and DRP in A.Y. 2008-09 has also accepted the same to be comparable, which has been upheld by the Special Bench, therefore, we do not find any reasons to deviate from such a precedence of the earlier years, so as to come to a different conclusion without any material difference on record for this year. Thus, we direct the TPO/AO to include R. System International Ltd. in the list of final comparables for bench marking the assessee’s margin. Allsec Technologies Ltd. was considered to be a good comparable right from the A.Y. 2005-06 to 2007-08. In A.Y. 2008-09, it was not accepted to be comparable as there was an extraordinary event of merger. So far as TPO’s allegation that it is a consistent loss making company, we find that it is only in this year i.e., in A.Y. 2009-10 it has incurred loss, otherwise it was profit making company as stated above. This cannot be the sole ground for rejecting it as comparable. TPO/AO is directed to work out the final average mean of the comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer pricing adjustment of ₹ 18,03,47,422/- made to the assessee s total income on various legal and factual grounds. At the outset learned senior counsel, Shri Porus Kaka submitted that most of the issues have been decided by the Hon ble Special Bench in the case of the assessee in the A.Y. 2008-09 in ITA No. 7466/M/2012. The only issue which is now been contested before the Tribunal is, exclusion and inclusion of certain comparables. 3. The brief facts of the case are that, the assessee company is wholly own subsidiary of Maersk GSC Holdings A/S, which in term is a downstream subsidiary of APMM Group [called as Maersk Group] which is world s largest shipping company/group. The assessee company is mainly engaged in providing back office support to its AEs, which relates to processing, data entry, reconciliation of statements, audit of shipping documents such as bills of lading and other is technical support services. It also provides IT enabled services such as process support, process optimization and technical support. The functional profile of the assessee company whether it is a low end services or high end services has been dealt by the Hon ble Special Bench in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services rendered by it which essentially were in the nature of incidental services. 4. In the transfer pricing document for the A.Y. 2009-10 the assessee reported following international transaction with its AE in respect of the following services:- Nature of services Amount (Rs.) IT enabled services such as transaction processing, data entry, accounting and other support services 112,06,18,971/- IT Service Centre activity-IT Services 22,92,64,214/- The assessee had shown its operating profit upon total cost at 13.29%. In the transfer pricing study report, the assessee had chosen 13 comparable which were as under:- 1. Allsec Technologies Ltd. 2. Cosmic Global Ltd. 3. Systems International (Segmental) 4. Spanco Telesystems and Solutions Ltd. (Segmental) 5. Informed Technologies India Ltd. 6. ICRA Online Ltd. 7. ICRA Techno Analytics Ltd. 8. Datamatics Financial Services Ltd. 9. Caliber Point Business Solutions Ltd. 10. Inhouse Productions Limited 11. KPIT Cummins Global Business Solutions Ltd. 12. e4e Healthcare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id comparable on the ground that it is engaged in the high end IT enable services and data processing services and further, this company clears all the filters adopted by the assessee as well as by the TPO. He submitted that, the said company cannot be taken as comparable, because in the earlier years such a comparable has been rejected by the Tribunal in assessee s own case right from A.YL. 2005-06 to 2008-09. In the A.Ys. 2008-09, the DRP itself has rejected this comparable. The main reason for rejecting this comparable was that the said company has mainly outsourced its ITES services. Not only this, in A.Y. 2006-07 also the Tribunal has rejected the said company as comparable on same reasoning. Therefore, there being no change in the facts and circumstances of the case, consistent view should be taken. Regarding Eclerx Services Ltd. He submitted that, it too has been rejected by the Special Bench in the earlier years. Regarding, Accentia Technologies Ltd. he made his detail submissions, as to why, same cannot be included. The same shall be dealt in later part of this order. 8. On the other hand Ld. DR strongly relied upon order of the TPO as well as the DRP and submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the world and is recognized as experts in chosen markets financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automations. It is claimed to have employed over 1500 domain specialists working for the clients. It s claimed that Eclerx is a different company with industry specialized services for meeting in two business verticals financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s. eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated t development automation tools to support service delivery. These softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is mainly a captive service provider. Therefore, we are of the opinion that this company cannot be considered to be comparable in the present year for bench marking the margin of the assessee s company. Accordingly, the same is rejected. 13. Now coming to the two comparables included by the assessee. So far as R. System International Ltd. (Segmental) is concerned, it has been pointed out by the learned senior counsel that this company was accepted as a comparable by the TPO in assessee s own case in the A.Y. 2007-08 and also by the DRP in A.Y. 2008-09. The TPO has rejected this comparable in this year, simply on the ground that it is not purely a KPO service provider and having calendar year ending. On the contrary the BPO segment of R. System is functionally comparable to the assessee and simply because it is following calendar year accounting it cannot be rejected. In A.Y. 2008-09, the DRP in the light of functions performed by the assessee as well as BPO segment of R. System International, has accepted the same to be comparable company. This fact has also been noted by the Special Bench in para 12 of the order. 14. Thus, consistent with the fact that in A.Y. 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of normal operating business or some other factors has neither been discussed nor analyzed by the TPO. If this comparable has been accepted to be good comparable in the earlier years as well as in the subsequent year then, there is no reason to reject the same in this year. However, TPO is directed to carry out comparability analysis of this company and also examine the operating margin of this company to see whether loss is on account of some other factors other than business operations. Thus, this comparable is set aside to the file of the TPO/AO to carry out fresh analysis after giving opportunity to the assessee. 17. In view of the aforesaid finding, the TPO/AO is directed to work out the final average mean of the comparables as per the directions given above and bench mark the assessee s margin. If the margin of the comparables falls within +/- 5 range, then needless to say that, no adjustment should be made. Thus the grounds relating to TPO adjustment (ground no. 1 to 12) is treated as partly allowed for the statistical purpose. 18. In ground No. 13, the assessee has challenged the disallowance of ₹ 1,47,48,864/- on account of software license expenses. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s contention and added the amount of ₹ 15,64,558/-, being the difference in 26AS and interest receipts declared in P L Account. Before the DRP it was reiterated that difference is due to interest accrued and shown in the books of account in the earlier years but considered by the Bank for the year under consideration as per the TDS certificate issued by them. The reconciliation for such difference of interest which was filed before the AO was also filed before the DRP which has been reproduced by the DRP, at pages 15 and 16 of its order. However, the DRP upheld the contention of the AO on the ground that taxability of income has to be taken on the basis of income of that assessment year and the income of any other year cannot be assessed. 22. Before us learned senior counsel, Shri Porus Kaka submitted that the interest income in question has already been offered for tax on accrued basis in the earlier years and therefore same cannot be doubly taxed in this year on the ground that the bank has considered the income in this year as per their TDS certificate. Therefore, no addition is called for. The Ld. CIT/DR on the other hand submitted that this matter should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble DRP was correct in considering loss making as well as abnormally low margin companies as comparables for the purpose of benchmarking analysis under Transactional Net Margin Method (TNMM)? Whether on the facts and in the circumstances of the case and in law, The Hon ble DRP was correct in law in granting working capital adjustment to the assessee when it has failed to furnish scientifically worked out working capital adjustment with respect to the comparables adopted by it? 28. At the outset, learned senior counsel submitted that so far as ground no. 1 is concerned, the same has been discussed by the Hon ble Special Bench in detail and in view of the finding given therein, there is not much merit in the grounds raised by the department. So far as ground no., 2 and 3 is concerned, learned senior counsel submitted that the ground raised by the revenue is factually incorrect as the DRP has not taken any loss making comparable or has directed the TPO to grant any working capital adjustment. Ld. CIT/DR admitted this fact raised by the senior counsel. 29. So far as the issue raised in ground no. 1, we find that the Special Bench has discussed in detail the functional prof ..... X X X X Extracts X X X X X X X X Extracts X X X X
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