TMI Blog2015 (3) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... ully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded from the list of comparables. Acropetal Technologies Ltd. (Seg.) - As seen from the Annual Report, this company is involved in engineering design services and has products also, which makes it functionally not comparable. Even at the segmental level, it provides engineering design services, which was considered as high end. Therefore, we are of the opinion that this company cannot be selected as a comparable. Accentia Technologies Limited. - This company operates in a different business strategy of acquiring companies for inorganic growth as its strategy. In earlier years on the reason of acquisition of various companies, being an extraordinary event which had an impact on the profit, this company was excluded. As submitted by the learned counsel, this year also, the acquisition of some companies by that company may have impact on the profit. Considering the profit margins of the company and insufficient segmental data, we are of the opinion that this company cannot be selected as a comparable. Moreover, this is also not a comparable in the case of M/s. Mercer Consulting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related services (BPO services) to its group companies/Associated Enterprises (AE) across the globe. Assessee s service centres in India are registered as 100% export oriented unit under the Software Technology Parks of India (STPI) scheme. Assessee has also established a branch in the UK to facilitate the identification and effective migration of work to India from AEs. Assessee renders services as a captive contract service provider and is remunerated on a full time equivalent/cost budgeted plus mark-up basis for providing services to its AEs. For the AY under consideration, assessee filed its return of income on 29/09/2009 declaring total income of ₹ 38,81,449 after claiming deduction u/s 10A of the Act in respect of the profits from export of services from the STPI units. Assessee also declared book profit of ₹ 226,59,06,197 under MAT provisions. During the assessment proceeding, AO while verifying the details, noticed that assessee has entered into the following international transactions with its AEs.: Provision of BPO services ₹ 16,64,69,21,643 Interest received on fixed deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertook a search in the data bases independently by applying certain additional filters which yielded 12 companies including two selected by assessee with average margin of 28.06% after making a negative working capital adjustment of 0.64%. As a result, ALP was determined at ₹ 1928,12,74,956 as against the price shown by assessee of ₹ 1742,63,06,354. The resultant shortfall of ₹ 185,49,68,602 was treated as adjustment to be made u/s 92CA. In terms with the adjustment made by TPO u/s 92CA(3) to the price charged for international transaction, AO passed a draft assessment order proposing additions on account of TP adjustment. Further, AO also recomputed the deduction claimed u/s 10A of the Act, as a result of which, exemption was reduced to a lesser figure. Being aggrieved of the draft assessment order, assessee filed objections before the DRP by raising various issues on transfer pricing adjustment as well as corporate matters. 4. The DRP after considering the submissions of assessee, however, did not find merit in any of the objections raised with regard to transfer pricing issues. However, as far as corporate tax issues are concerned, DRP granted relief to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rced services. 7.3 Cosmic Global Ltd. Objecting to selection of this company, ld. AR submitted, a reference to the annual report of the company for FY 2008-09 will indicate, the company has outsourced its work and does not undertake the BPO services by itself which is proved from the low employee cost. Hence, it cannot be treated as a comparable. 7.4 Eclerx Services Ltd. With reference to this company, ld. AR submitted, it should be rejected on the functionality test as it is engaged in providing high end KPO services in the field of data analytics operations management and audit reconciliation services. In support of his contention, ld. AR referred to the annual report of the company for the FY 2008-09. 7.5 Genesys International Ltd. Ld. AR referring to the annual report of this company submitted, it cannot be selected as comparable as it is engaged in the business of geographical information services comprising photogrammetry, remote sensing, cartography, data conversion, related computer based services and other related services. 8. Ld. AR submitted, in various rulings of the ITAT for the same AY, functionality of these companies were examined and it was held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 by Genesys, it is manifested that both are totally incomparable. 14.3. The TPO on page 48 of his order has examined CBDT Circular SO 890 (E) dated 26.9.2000 which provides a detailed list of products or services that can be covered under the ITES for the purposes of Section 10A and 10B of the Act. In this Circular, Information Technology Enabled Products/Services have been divided into fifteen categories, starting with Bank Office operations, Call centres etc. and ending with Website services. From the very description of such services, it is palpable that even though these fall under the overall ITES category, but some of them are quite different from each other. To cit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee that this company offers solutions that include data analytics, operations management, audits and reconciliation and therefore has to be classified as high end KPO. In support of the stand of the assessee, extracts from the annual report of this company have been pointed out. Therefore, the functions of the above company are dissimilar to assessee, which is a captive service provider. On the principles laid down by the Hon ble Special Bench of the ITAT (Mumbai) in the case of Maersk Global Centres (India) Pvt. Ltd. V/s. ACIT (ITA No.7466/Mum/2012 for assessment year 2008-09 dated 7.3.2014) and the principles laid down by the coordinate bench of the Tribunal(Delhi) in the case of M/s. Mercer Consulting (India) Pvt. Ltd., (supra), assessee submits that this company cannot be selected as a comparable. 18.1 The Learned Departmental Representative, however, submitted that having accepted Aditya Birla Minacs Worldwide Ltd., as a comparable company, this company should also be included, as otherwise, both the companies should be excluded. 18.2 We have considered the issue and examined the Annual Report and the objections of assessee. As seen from the Annual Report, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n charges paid at ₹ 3.00 crore, which is strictly inthe 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. Thus it is held that this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment. 13.3. However, we find this case to incomparable on the alternative argument advanced by the ld. AR to the effect that total revenue of the Accounts BPO segment of Cosmic Global Limited is very low at ₹ 27.76 lacs. We have discussed this aspect above in the context of CG-VAK s case and held that 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, the reasons given above would fully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services. 21.1. The Departmental Representative however, objected to the pleas of assessee stating that the extraordinary events occurred in earlier year and therefore, the same cannot be considered as having any impact in the year under consideration. 21.2 We have considered the rival contentions and noticed that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy. In earlier years on the reason of acquisition of various companies, being an extraordinary event which had an impact on the profit, this company was excluded. As submitted by the learned counsel, this year also, the acquisition of some companies by that company may have impact on the profit. Considering the profit margins of the company and insufficient segmental data, we are of the opinion that this company cannot be selected as a comparable. Moreover, this is also not a comparable in the case of M/s. Mercer Consulting (India) P. Ltd. (supra), which indicates that the TPO therein has excluded it at the outset. In view of this, we direct the Assessing Officer/TPO to exclude this comparable, from the list of comparables selected. Same view has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by the Tribunal in ITA No. 1647/Hyd/12 (supra) was placed on record. Ld. DR, on the other hand, relied upon the order of TPO/DRP. 14. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. As can be seen, in assessee s own case for AY 2008-09, similar issue came up for consideration before the coordinate bench in ITA No. 1647/Hyd/12 (supra), the coordinate bench held as under: 16.1 After considering the rival submissions and following the principles laid down in the decisions of the Tribunal cited above, we are of the opinion that reimbursement costs should be excluded as they do not involve any functions to be performed so as to consider it for profitability purposes. In the case of Four Soft Ltd., supra, Hyderabad bench of the Tribunal considered this issue and held as under: 15. We have considered the rival submissions and perused the material on record. First, we will take up the issue relating to the adjustments made by the assessing officer in respect of the international transactions with Four Soft Limited, Hyderabad vs Assessee on 9 September, 2011its associated enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect accordingly. Similar view was also taken in assessee s own case in AY 2006-07. Respectfully following the same, we direct the AO/TPO to exclude the reimbursement costs while working out the operating costs. This ground is considered allowed. Respectfully following the view taken by the coordinate bench in assessee s own case, we direct AO/TPO to exclude reimbursement cost while working out the operating cost. In view of above, we direct AO/TPO to recompute ALP afresh and if warranted, make necessary adjustment to the price charged by assessee for the international transaction. 15. As far as corporate tax issues are concerned, Ground No. 12 is on the issue of interest charged u/s 234B of the Act. Since chargeability of interest u/s 234B of the Act, will ultimately depend upon the outcome of the adjustment to be made to the ALP, it is premature to decide this issue at this stage. Accordingly, this ground being infructuous is dismissed. 16. Ground No. 13 is not pressed, hence, dismissed as not pressed. 17. In ground no. 14, assessee has raised the issue of set off of losses from the income assessed. 18. Briefly, facts relating to the issue are, in the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter taking into consideration of CBDT Circular No. 7, dated 16/07/13 decided the issue in favour of assessee. In that view of the matter, we hold that assessee s claim of set off of losses of the STPI Unit against other income has to be allowed. The direction of the DRP in the particular circumstances of the case is correct. One more aspect we need to observe that while implementing directions of the DRP, AO has to act strictly in accordance with the provisions contained u/s 144C. As per sub-section (10) of section 144C, every direction of DRP is binding on AO. Therefore, AO cannot and should not deviate from the directions of DRP. In the aforesaid view of the matter, we uphold the direction of DRP and allow assessee s claim. This ground is considered to be allowed. ITA No. 295/Hyd/14 by revenue 22. The effective grounds raised by Department are 2, 3 4. Ground No. 2 is on the direction of DRP to exclude communication charges both from the export and total turnover. This issue is no more res-integra in view of a number of decisions not only of different High Courts but also different benches of the Tribunal including ITAT, Chennai Special Bench in case of ITO Vs. Saksoft, 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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