TMI Blog2015 (3) TMI 1022X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Revenue accounting. By no standard, Genesys International can be considered as comparable with the assessee company. Vishal Information Technologies (Coral Hub) has outsourcing charges constitute 90% of the total operating cost. The business model adopted by this company in outsourcing its activities in contrast to that of the assessee in rendering services at its own, makes the two incomparable to each other. Thus we order for the exclusion of this company from the list of comparables. Accentia Technologies company, apart from being engaged in the business of rendering ITES, is also dealing with software products. As the segmental figures of this company are not available and the TPO has taken its entity level figures, it ceases to be comparable. To what extent the overall profitability of this entity is affected because of software products, is not capable of ascertainment with precision. Also the Annual report of this company that it completed acquisition of Oak Technologies Inc. USA during the year. The Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. vs. DCIT (2015 (3) TMI 1010 - ITAT MUMBAI) has held that a company cannot be considered as comparable because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2009-10. 2. The only dispute raised in this appeal is against the addition on account of transfer pricing adjustment amounting to ₹ 3,36,37,317/- made by the AO. 3. Briefly stated, the facts of the case are that the assessee is an Indian private limited company set up as a wholly owned subsidiary of Macquarie Global Finance Services (Mauritius) Ltd., to support the back office functions exclusively of its Associated Enterprises (AE). The assessee reported an international transaction amounting to ₹ 24,66,73,397/- towards Provision of Information Technology Enabled Services (ITES) rendered to its AEs. The Transactional Net Margin Method (TNMM) was employed as the most appropriate method with the Profit Level Indicator (PLI) of Operating Profit / Operating Cost for demonstrating that its international transaction was at arm s length price (ALP). Eight companies were chosen as comparable. The assessee s adjusted margin, as stated by the ld.AR, but, not precisely emanating from the TPO s order, was computed by the TPO at 16.29%. After making certain exclusions from the list of comparables given by the assessee and including some new cases, the TPO sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Eclerx Services Pvt. Ltd. 46.92 6. Apart from that, the assessee is insisting on the inclusion of the following two companies, which were not included by the TPO in his list of comparables:- i) Allsec Technologies Ltd.; and ii) R. Systems. 7. We will take up these companies one by one to ascertain their comparability or otherwise with the assessee company. Before embarking upon this exercise, it is sine qua non to precisely consider the functional profile of the assessee. The Macquarie Group, headquartered in Australia, is a provider of investment banking and financial services. It has six operating groups within which individual business divisions operate. It has more than 70 office locations in 26 countries. The assessee was set up in March, 2007 for providing services exclusively to its AEs. The support services rendered by the assessee are only to its AEs and it has no interaction with the third party clients. The assessee manages the following processes for its AEs globally :- a. Accounts Payable Services: Maintaining vendor data Expenses processing Invoice processin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts BPO at ₹ 27.76 lac. It is apparent that this company outsourced its activities and the outsourcing expenses constitute 57% of the total expenses. The entire outsourcing is confined to Translation charges paid at ₹ 3.00 crore. We can see from the TPO s order that he considered the results of this company on entity level, thereby reckoning income from all the three segments. Since Translation charges constitute a larger chunk of this company s income, for which the services were mainly outsourced, we cannot consider this company as comparable on an entity level. 11. We find it pertinent to mention that the nature of activities carried out by our assessee is largely similar to that of Mercer Consulting (India) Pvt. Ltd. The case of that company for the same assessment year came up for consideration before the tribunal. Vide its order dated 6th June, 2014 in Mercer Consulting (India) Pvt. Ltd.Vs. DCIT (ITA No.966/Del/2014), the tribunal has directed the exclusion of this company on the basis of the outsourcing issue. Following the precedent, we order for the exclusion of this company from the list of comparables. (ii) Genesys International 12. This company was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the proposition that the list in Circular No. S.O.890(E) dated 26.9.2007, taken note of by the TPO, contains 15 products or services, under the overall umbrella of Information Technology Enabled Services. We find that most of them are diverse in nature. It can be seen that the Item at Sr. No. (v) in this list is: Engineering and design ; Item at Sr. No. (vi) is: Geographic Information System Services ; Item at Sr. No. (viii) is: Insurance Claim Processing ; Item at Sr. No. (x) is: Medical Transcription ; Item at Sr. No. (xiv) is: Support centres ; and Item at Sr. No. (xv) is: Website services. We can easily find out from the above elaboration of some of the services picked up from the Circular that some of them are entirely different from one another. Different proportions of skills and the extent of capital employed are required for rendering such services. It is wholly illogical to consider one product or service from this list of 15 products or services as similar and comparable to all the remaining 14. 15. Coming back to our point, it can be seen that Genesys International falls under serial No. vi. of the Circular with the caption Geographic Information System S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in medical transcription and billing activities which fall within the overall ambit of ITES and more than 80% of its revenue is realized from these sectors. 20. The ld. AR contended that this company deserved to be excluded for two reasons, first, being it engaged in software products also and second, being, some acquisitions taking place in this year. In support of such exclusion, he relied on certain decisions. 21. We find it as an admitted position that this company, apart from being engaged in the business of rendering ITES, is also dealing with software products. As the segmental figures of this company are not available and the TPO has taken its entity level figures, it ceases to be comparable. To what extent the overall profitability of this entity is affected because of software products, is not capable of ascertainment with precision. 22. As regards the other objection of the ld. AR about the acquisition undertaken by this company during the year, we find from the Annual report of this company that it completed acquisition of Oak Technologies Inc. USA during the year. The Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. vs. DCIT (2013) 154 TTJ (Mum) 176 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rend. The assessee s objections before the DRP could not persuade the Panel to change the view canvassed by the TPO. 26. We find that the TPO excluded this company by mainly on three consideration, namely, the non-availability of RPT data, diminishing revenues and failing of the export filter. 27. As regards failing the export filter, it is found that the TPO employed the filter of : Companies whose revenue from service activity is less than 75% of the total operating revenues are excluded. It can be seen that this company s ratio of export to sales stands at 74.45%. There is hardly any difference between 75% and 74.45% when we consider a percentage in the context of using a particular filter. The ld. AR has rightly relied on the Tribunal order in the case of Mercer Consulting (I) Pvt. Ltd. (supra), to contend that the difference is nominal and this company cannot be excluded for such a miniscule difference. We agree with the contention of the ld. AR on this issue, which emanates from the tribunal order in Mercer (supra) to the effect that this company cannot be excluded on the basis of this filter. 28. The next objection taken by the TPO advocating the exclusion of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been rightly excluded by the TPO. 31. The ld. AR vehemently argued that the tribunal in the case of Mercer (supra) has directed to consider this company as comparable and hence it should be so considered here also. We do not agree with this contention. It has been held in several decisions including Toluna India P. Ltd. VS. ACIT (ITA No. 5645/D/2011) dt. 26.8.2014 that if a particular company, (say A), has been held to be incomparable in case B, it is not essential that A will be incomparable in all other cases and vice versa. Basically, we need to see the filter on the basis of which company A was held to be incomparable. If there is a same filter in a later case, then the company held to be incomparable in the former case would also cease to be comparable in a later case. However, if filter is different, then it can also assume the character of a comparable depending upon the applicability of a different filter applied in a later case. Similar is true for one company considered as comparable in a former company on the basis of a particular filter, losing comparability on the basis of another filter in a later case. 32. It can be seen from the order in the case of Mercer ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed accounts of this company that the audited data for the quarter ending 31.3.2009 and 31.3.2008 has been provided by the company itself. Ordinarily, there should be no difficulty in determining the relevant figures for the year ending 31.3.2009 by excluding the results for the quarter ending 31.3.2008 and including the results of the quarter ending 31.3.2009 to the annual figure for the year ending 31.12.2008. Thus, it is apparent that the figure of profit for the year ending 31.3.2009 is capable of ascertainment. We, therefore, set aside the impugned order on this issue and direct to include R. Systems in the list of comparables by working out the figures relevant to the financial year ending 31.3.2009 from the audited accounts of R. Systems International Ltd. Similar view has been taken by the Delhi Bench of the Tribunal in the case of Mercer Consulting (I) Pvt. Ltd. (supra). 37. We want to make it clear that the apprehension expressed by the ld. DR about the impossibility of the working of the relevant figures for the year ending 31st March, 2009 on the basis of data given by this company, also needs consideration. It is but natural that only if correct figures of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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