Feedback   New User   Login      
Tax Management India. Com TMI - Tax Management India. Com
Home Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles News Highlights
Extracts
Home List
← Previous Next →

Xchanging Technology Services India Pvt. Ltd. Versus ACIT, Circle 18 (1) , New Delhi

2015 (6) TMI 527 - ITAT DELHI

Transfer pricing adjustment - Information Technology enabled services (ITES) segment - selection of comparable - Held that:- Coral Hub Ltd. is not a suitable comparable were ITES segment of the assessee company. outsourcing charges of this company constitute 90% of the total operative cost, therefore, the same is functionally different from the present assessee. In the present case, neither the TPO nor the DRP has brought out any fact or evidence to establish that the present assessee is also ea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Ltd. cannot be considered as a suitable comparable for benchmarking of International transactions of the assessee in ITES segmental activities, because the factum of heavy outsourcing activity carried out by this company looses the tag of suitable comparability.

Eclerx Services Ltd. deserve to be deleted from the final set of comparables. Apparently, this company provides tailored process outsourcing and management services in addition to multitude of the data aggregation, and minin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ctionally dissimilar to the present assessee and Cosmic Global Ltd. is not a suitable comparable to the present assessee for benchmarking and determining the arm’s length price (ALP) of present assessee ITES segmental International transactions for AY 2008- 09. Accordingly, we hold that Cosmic Global Ltd. was wrongly included in the final set of comparables which deserves to be deleted. - ITA No. 5207/Del /2013 - Dated:- 10-6-2015 - Shri R. S. Syal And Shri Chandra Mohan Garg,JJ. For the Peti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

os. 1, 2 & 3 of the assessee are of general in nature, which need at no adjudication. Remaining grounds of the assessee on transfer pricing and other consequential issues reads as under:- Transfer pricing grounds 4. The learned AO / Transfer Pricing Officer ("TPO") erred in making an addition of ₹ 2,34,97,662, to the total income of the Appellant on account of adjustment in the arm's length price with respect to the IT enabled services transaction entered into by the Appe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

AO have erred, in law and in facts, by determining the arm's length margin! price using only FY 2007-08 data which was not entirely available to the Appellant at the time of complying with the transfer pricing documentation requirements. 7. The learned TPO and the learned AO have erred, in law and in facts, by accepting / rejecting companies based on unreasonable comparability criteria. 8. The learned TPO and the learned AO have erred, in law and facts, by not making suitable adjustments to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

corporated as Rebus India Pvt. Ltd., a wholly own subsidiary of Rebus Technologies Services Ltd., U.K. it provided Software Development Services in the field of Insurance and Human Resources to its group companies. Following the acquisition of Rebus UK by Xchanging Group, the company became a subsidiary of Xchanging Resourcing Services Limited UK, and was renamed as Xchanging India. The Xchanging India is in the business of providing sub contracted IT and IT enabled services, to its group compan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent. The assessee company is primarily engaged in the business process outsourcing, software development and research services. Above narrated business over view of the assessee company for AY 2007-08 related to AY 2008-09 have been mentioned in the transfer pricing study as well as TP order available at Pages 125 to 160 of the assessee paper book. 4. For the relevant assessment year, the assessee filed return of income, declaring taxable income of ₹ 66,71,933/- and book profit shown by th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent Services segmental International transactions were accepted at arm s length but the only dispute remained about the International transactions of ITES segment. The Assessing Officer made an adjustment of ₹ 2,34,97,662/- in accordance with the order of the TPO u/s 92CA(3) of the Act dated 20.10.2011 and in pursuant to the directions of DRP. 5. The assessee, in this appeal, has mainly challenged the selection of the inappropriate comparable by the TPO in the final set of comparables by m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

llows. Coral Hub Ltd. 6. We have heard rival arguments and perused the relevant material placed before us. Ld. Counsel of the assessee submitted that the DRP in its order dated 24.09.2012 wrongly held that the penal is not convinced by the argument of the assessee as the outsourcing of routine non discretionary function, call center paper entry, claimed processing etc. to other parties is very common feature of ITES segment industries. The Ld. counsel further pointed out that the business model .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Ld. counsel contended that the DRP itself in assessee own case for AY 2009-10 has rejected the Coral Hub Ltd. as a suitable comparable. The Ld. counsel placing reliance on the decision of ITAT Mumbai Bench in the case of ACIT Vs. Maersk Global Service Centre (India) Pvt. Ltd. in ITA No. 3774/Mum/2011 submitted that the ITAT has categorically held that the Coral Hub Ltd. is not a suitable comparable to the ITES segment. The Ld. counsel further drawn our attention towards objections of the assesse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rder at Page 25 after detailed deliberation rightly held that the Coral Hub Ltd. is a suitable comparables to the ITES segmental transactions of the assessee. However, the Ld. DR was candid enough in accepting that in the subsequent AY 2009-10 the DRP itself directed the TPO to delete this comparable from the final set of comparables. 9. On careful consideration of rival submissions of both the sides, we note that the DRP in assessee s own case AY 2009-10 has directed the TPO to delete Coral Hub .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t Ltd (145 TIJ 64) b. Capital IQ Information Systems (India) Pvt. Ltd. (ITA No.1961/Hyd/2011) c. Nomura Fin Services (India) Pvt. Ltd. vs. ACIT (ITA No. 7046/Mum/2012) d. Google India Pvt. Ltd. vs. DCIT (ITA No. 1368i8ang/201O) In view of this, the TPO is directed to delete this comparable. 10. We further note that in the case of Mercer Consulting (India) Pvt. Ltd. Vs. DCIT for AY 2009-10, ITAT New Delhi I Bench order dated 06.06.2014 in ITA No.966/Del/2014, as relied by the Ld. counsel of the a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

However, when the TPO required the assessee to furnish data of comparables for the current year alone, the assessee requested for the exclusion of this case from the list of comparables. The ld. DR opposed this contention by urging that the assessee cannot be allowed to resile from its original stand. 12.2. We are disinclined to sustain the legal objection taken by the ld. DR that the assessee should be prohibited from taking a stand contrary to the one which was taken at the stage of the TP stu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

visions of the Act. Extending this proposition further to the context of the transfer pricing, if the assessee fails to report an otherwise comparable case, then the TPO is obliged to include it in the list of comparables, and in the same manner, if the assessee wrongly reported an incomparable case as comparable in its TP study and then later on claims that it should be excluded then, there should be nothing to forbid the assessee from claiming so, provided the TPO is satisfied that the case so .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s rather simple inasmuch as the assessee, having originally included this case in the list of comparables, made a categorical claim before the TPO for excluding it because of non-comparability. As no reason has been given by the TPO for accepting or rejecting the assessee s request, it would be worthwhile to take up the reasons now given by the assessee for consideration and decision. The ld. AR has pointed out that Vishal Information Technologies Ltd., now known as Coral Hub Ltd., outsources si .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Services (supra) has held that Vishal Information Technologies Ltd. cannot be considered as comparable because of the overwhelming outsourcing activity carried out by it. This view was taken by relying on another order passed by the Mumbai Bench of the Tribunal in ACIT vs. Maersk Global Service Centre (India) Pvt. Ltd. (ITA No.3774/M/2011). In the later case also, the Tribunal held that the case of Vishal Information Technologies Ltd. or Coral Hub Ltd. was not includible in the list of comparabl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and circumstances, ITAT New Delhi I Bench in order dated 06.06.2014 (supra) has categorically held that the outsourcing charges of this company constitute 90% of the total operative cost, therefore, the same is functionally different from the present assessee. In the present case, neither the TPO nor the DRP has brought out any fact or evidence to establish that the present assessee is also earning income from outsourcing charges, hence, we are inclined to hold that the present assessee undertoo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e assessee in ITES segmental activities, because the factum of heavy outsourcing activity carried out by this company looses the tag of suitable comparability. Since, the facts of the present case are similar to the facts of AY 2009-10, wherein the DRP itself not found the Coral Hub Ltd. as a suitable comparable in the assessee company, therefore, respectfully following the view taken by ITAT Delhi I Bench in the order dated 06.06.2014 in the case of Mercer Consulting (India) Pvt. Ltd. Vs. DCIT .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ental services of Eclerx Services Ltd. from the present assessee company. The Ld. counsel vehemently contended that the TPO/DRP/AO were grossly erred in holding that no comparable can be rejected on the ground of abnormal profit margin if its functionally similar. Ld. counsel further elaborated that the Eclerx Services Ltd. is engaged in providing the high services which involves special knowledge, therefore, the same is not comparable with the assessee. Ld. counsel for the assessee further draw .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

will fall from 27.19% to 20.74% of the TP adjustment which would reduce the ALP of the ITES segmental transaction of the assessee company. Thereafter the ALP of ITES segmental activities would fall within +/-5% range. Ld. counsel of the assessee further drawn our attention towards various orders of the Tribunal including order dated 28.08.2014 of ITAT New Delhi I Bench in ITA No.6312/Del/2012 for AY 2008-09 in the case of United Health Group Information Services Pvt. Ltd. Vs. ACIT submitted tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on and thoughtful consideration the DRP rightly held that the functional difference pointed out by the assessee is not significant enough to warrant rejection of this company as comparable. Justifying the conclusion of the DRP, the Ld. DR further contended that no comparable can be rejected on the ground of abnormal profits if it is functionally comparable to the tested party. 14. On careful consideration of above, at the very outset, we respectfully take cognizance of the decision of the ITAT I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Tribunal (Supra) for the same AY 2008-09 reads as under:- Eclerx Services Ltd. 10.1. This company was included by the TPO in his list of comparables. The assessee objected to its inclusion by pointing out some functional differences. Not convinced, the TPO went ahead with its inclusion, which got the seal of approval from the DRP. 10.2. Having heard the rival submissions and perused the relevant material on record, it is observed that this company is engaged in providing data analytics and custo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

om its Annual report, it can be seen that it is nowhere close to the assessee s instant segment of manual claim processing services . 10.3. It is further relevant to note that this company acquired UK based Igenica and Travel Solutions Ltd. on 27.7.2007 and the financial results of that company are also included in its. Recently, the Delhi Bench of the Tribunal in Toluna India Pvt. Ltd. Vs ACIT (ITA No.5645/Del/2013) vide its order dated 26.8.2014 has held that the mergers/de-mergers in a compan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ee succeeds. 15. In view of above, we note that the Eclerx Services Ltd. is engaged in providing data analytics and customized process to its host of global clients which also provides services to the banking, manufacturing, retail, travel and hospitability business entities. Ld. DRP has not disputed this fact that the ITES segmental solutions offered by it also include data analytics operation management, audit and reconciliation, metrics management and reporting services. Apparently, this comp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

luded on the ground of abnormal margin if its functionally comparable to the tested party because mergers/demergers brings exceptional financial result which make a such order as unfit for comparison. In view of our foregoing discussion, we reach to a logical conclusion that the Eclerx Services Ltd. is not a suitable comparable to the assessee company for AY 2008-09 due to high pitched financial result and the same deserve to be deleted from the final set of comparables. We ordered accordingly. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

constitutes only miniscule share of 6% of its total revenue and, therefore, Cosmic Global Ltd. not a suitable comparable to the ITES segmental International transactions of the assessee. Ld. counsel for the assessee has also placed reliance on the various decision of the ITAT including recent decision of ITAT Delhi in the case of United Health Group Information Services Pvt. Ltd. Vs. ACIT (Supra) wherein it was held as under:- Cosmic Global Ltd. 9.1. This company was initially chosen by the asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ilable only on entity level. Income from operations has been shown as ₹ 5.86 crore, the break-up of which is available in Schedule 9. It is discernible from the Schedule that the Medical transcription and consultancy services are only to the tune of ₹ 7.04 lac, whereas the major chunk is the amount of Translation charges standing at ₹ 5.59 crore with the last component of revenue from BPO at a figure of ₹ 19.63 lac. When we peruse the Expenditure side of the Profit and Lo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

usiness. As the assessee is engaged in rendering insurance claim processing services to it s A.E under this segment, we find no logical comparison of Cosmic Global with that of the assessee. 9.3. We are not agreeable with the ld. DR that this company cannot be excluded because it was initially included by the assessee in its list of comparables. The obvious reason is the differentiation in the functional profiles of two companies. Merely because the assessee inadvertently included this company i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion of the Ld. DR that this company is includable as a suitable comparable because it was included by the assessee in its list placed before the TPO in the TP study. We are of the considered view that merely because the assessee company included this company in the list of comparables the functionally different company cannot be accepted at suitable comparables. When the assessee is claiming that the Cosmic Global Ltd. was included due to inadvertent mistake in the set of comparables proposed by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ake in the list of proposed comparable. On this issue, we respectfully follow the view taken by the ITAT Delhi in the case of Mercer Consulting (India) Pvt. Ltd. Vs. DCIT (Supra) wherein similar contention of the Revenue has been dismissed in Para 12.2, which reads as under:- 12.2. We are disinclined to sustain the legal objection taken by the ld. DR that the assessee should be prohibited from taking a stand contrary to the one which was taken at the stage of the TP study or during the course of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing this proposition further to the context of the transfer pricing, if the assessee fails to report an otherwise comparable case, then the TPO is obliged to include it in the list of comparables, and in the same manner, if the assessee wrongly reported an incomparable case as comparable in its TP study and then later on claims that it should be excluded then, there should be nothing to forbid the assessee from claiming so, provided the TPO is satisfied that the case so originally reported as co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ourselves view taken by the Tribunal in its order in the case of United Health Group Information Services Pvt. Ltd. Vs. ACIT (Supra) wherein for the same AY 2008-09 it was held that the major part of income from translation charges is amounting to ₹ 5.59 crores out of total revenues of ₹ 5.86 crore, which is totally dissimilar to that of the assessee of that case. In the present case, the DRP/AO has only disputed the International transaction of the present assessee only ITES segment .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Forum
what is new what is new
  ↓     bird's eye view     ↓  


|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version