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2015 (6) TMI 899 - ITAT DELHI

2015 (6) TMI 899 - ITAT DELHI - TMI - Transfer pricing adjustment - Information Technology enabled services (ITES) segment - selection of comparable - Held that:- Cosmic Global Ltd. be excluded from the list of comparables for the reason of its major activity, namely, Translation, with revenue of ₹ 6.99 crore (out of total revenue of ₹ 7.35 crore), being dissimilar with the assessee’s activities under this segment. The second reason for considering this company as incomparable on ent .....

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parable because of exceptional financial results due to mergers/demergers. It can be noticed from page 31 of the Annual report that during the year under consideration this company completed the acquisition of 96% of M/s Oak Technologies Inc., a healthcare back-office processing company engaged in medical billing, coding and transcription activities and having substantial global work force.

Microland Ltd. company was not originally selected by the assessee as comparable in its TP stu .....

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d to the file of AO/TPO for examining the comparability of this company. - Decided in favour of assessee for statistical purposes. - ITA No.1897/Del/2014 - Dated:- 24-4-2015 - Shri R.S. Syal And Shri C.M. Garg JJ. For the Appellant : Shri Nageshwar Rao, Shri S. Karhail and Shri Aniket D. Agrawal, Advocates For the Respondent : Shri Judy James, Standing Counsel ORDER Per R.S. Syal, AM: This appeal by the assessee is directed against the final order passed by the Assessing Officer on 18.3.2013 u/s .....

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o InformationTechnology-enabled services to Xchanging Group Companies. One of the international transactions reported by the assessee was the Provision of ITES with transacted value of ₹ 43,64,55,419/-. The assessee applied the Transactional Net Margin Method (TNMM) as the most appropriate method to demonstrate that the international transaction of providing ITES was at ALP. The Profit Level Indicator (PLI) of Operating Profit to Total Cost (OP/TC) was used. In this way, the assessee showe .....

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usions, the TPO finalized the following six companies as comparable with their respective profit margins as under:- Sl.No. Comparables OP/OC (%) 1. Cosmic Global Ltd. 50.70 2. Crossdomain Solution Pvt. Ltd. 25.63 3. Infosys BPO Ltd. 24.28 4. Coral Hub Ltd. 37.03 5. Accentia Technologies Ltd. 52.52 6. Aditya Birla Minacs Worldwide Ltd. 11.95 Average 33.68 4. In this way, the TPO worked out average profit margin of the above six comparable companies at 33.68%. This resulted into the transfer prici .....

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rieved against the inclusion of Cosmic Global Ltd. and Accentia Technologies Ltd. Apart from that, the assessee seeks the inclusion of Microland Ltd. 6. Before considering the above three companies from the angle of their comparability, it is essential to note the nature of activity carried out by the assessee under this segment. It can be seen from the TPO s order as well as the Transfer pricing study that the assessee provided the following services to its different associated enterprises as u .....

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ocessing, account reconciliation, AR & AP, etc. d) Xchanging Global Insurance Solutions Ltd.: The Services provided included helpdesk support services. e) Xchanging Transaction Bank GmbH, Germany: The services provided included security processing banking related processes. f) Xchanging HR Services Limited, United Kingdom: The Services provided included the HR related back office processes. g) Xchanging Claim Services, United Kingdom: The services provided included insurance-related back off .....

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ty. Cosmic Global Ltd. 8. The TPO considered Cosmic Global Ltd. as comparable with the assessee company on entity level. We have examined the Annual report of this company for the year in question, which is available in the paper book. It can be noticed that its revenue from operations stands at ₹ 7,37,02,584/-, which consists of three amounts, namely, Medical transcription and consultancy service charges amounting to ₹ 9,90,737/-; Translation charges amounting to ₹ 6,99,35,756 .....

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t of total revenue of ₹ 7.35 crore), being dissimilar with the assessee s activities under this segment. The second reason for considering this company as incomparable on entity level is the business model adopted by it. It can be seen that this company has outsourced major activities in comparison with the assessee doing its business inhouse. It goes without saying that these two business models, namely, outsourcing services and providing in-house services, cannot be compared with each ot .....

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mpany with profit margin of 52.52% as comparable. The assessee s objection for not treating it as comparable was jettisoned both by the TPO as well as the DRP. The assessee is aggrieved against the inclusion of this company in the final tally of comparables. 9.2. We have heard the rival submissions and perused the relevant material on record. We have also gone through the Annual report of this company for the year in question, which has been placed in the paper book. It can be noticed from page .....

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/demergers. Similar view has been taken by the Delhi Bench of the Tribunal in several cases including Ciena India Pvt. Ltd. Vs. DCIT (ITA No.3324/Del/2013) vide its order dated 23.4.2015. In view of the fact that there was merger of some entity with Accentia Technologies Ltd., we hold that this company cannot be considered as comparable. Accordingly, the same is directed to be excluded from the final list of comparables. Microland Ltd. 10.1. Before taking up the functional profile of this compan .....

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