TMI Blog2016 (1) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... the DRP for passing a speaking order in respect of all the grounds raised before it and has to deal with each of the comparables contested above by the assessee. Needless to say that when considering the arguments in respect to selection of the comparables, the DRP must keep in mind the following aspects:- (a) Companies with extra ordinary circumstances, like those which suffered events like merger/demerger, impacting the financial results could not be treated as comparables; (b) Companies which are functionally dissimilar cannot be taken as comparables; (c) Companies acting merely as intermediary having outsourced its activity cannot be considered as comparables; (d) Companies whose directors were involved in fraud cannot be taken as comparable, as their financials are not reliable. The aforesaid aspects may be kept in mind by the DRP while addressing the objections in respect to inclusion / exclusion of comparables and pass a speaking order after giving adequate opportunity to the assessee. - Decided in favour of assessee for statistical purposes - ITA No.5906/Del./2012 - - - Dated:- 18-9-2015 - SHRI J.S. REDDY, ACCOUNTANT MEMBER and SHRI A.T. VARKEY, JUDICIAL M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reimbursement of expenses paid 2,58,57,152 Accepted 4 Interest on loan 1,89,13,353 Comparable Uncontrolled Price Method (CUP) Accepted 4. During the course of TP assessment proceedings, the Transfer Pricing Officer s (hereinafter referred to as TPO ) asked for current year i.e. FY 2007-08 data, so fresh search results were submitted by the assessee. A summary of the fresh search results for the ITES and the CSD services is as follows : Particulars ITES CSD No. of comparables 11 9 Mean OP/TC 10.47% 12.01% Assessee's OP/TC considering forex gain/Loss as non-operating in nature 15.03% 15.03% Assessee's OP/TC considering forex gain/Loss as operating in nature 17.47% 17.47% 5. The TPO, after rejecting the assessee s benchmarking study in the TP report as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation Technologies Ltd) 38.13% 6. Cosmic Global Ltd. 23.42% 7. Crossdomain Solution P Ltd. 25.40% 8. Datamatics Financial Services Ltd (BPO Division) 32.60% 9. e4e Healthcare Business Solutions P. Ltd. (earlier known as Nittan Outsourcing Services Ltd.) 14.08% 10. Eclerx Services Ltd. 64.02% 11. Genesys International Corporation Ltd 44.07% 12. H C L Comnet Systems Services Ltd (Seg.) 29.60% 13. I C RA Online Ltd. (Seg.) 7.65% 14. Infosys B P O Ltd. 18.16 15. IServices India Pvt Ltd. 7.78% 16. Mold- Tek Technologies Ltd. 89.40% 17. Spanco Ltd. (Seg.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Employee cost filter (B)/(A) 11.78% Ld. AR relied on the decision of Symphony Marketing Solutions India Pvt. Ltd [TS-234-ITAT-2013(Bang)-TP](A.Y 2008-09) Ld. AR also submitted that Accentia provides medical transcription, medical coding, medical billing services and also software development services and operates in one segment and company owns products, such as, IMTAS, IRTS, IAMS, IPMS etc. Ld. AR submitted that standalone segmental information is not available. Ld. AR relied on the following case laws :- Vodafone India Services Pvt. Ltd. (formerly 3 Global Services P. Ltd.) (ITA No. 7140/Mum/2012 and ITA NO. 7097/Mum/2012)(AY 2009-10) Maersk Global Service Centres (India) Pvt Ltd (ITA No. 2594/Mum/2014 (AY 2009-10) TNS India Pvt Ltd (ITA No.604 419/Hyd/2014)(AY 2009-10) BNY Mellon International Operations (India) Pvt. Ltd. [TS-3S8-ITAT-2014(PUN)-TP) (AY 2009-10) (ii) Asit C. Mehta Financial Services Limited ( Asit ) Ld. AR submitted that transfer of business took place in this year and took our attention to Exhibit 2. He submitted that Asit is engaged in provision of high-end services in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation u/s 133(6). Ld. AR submitted that the following comparables are functionally different :- (v) Crossdomain Solution P Ltd. ( Cross Domain ) Ld. AR submitted that this comparable company is in the business of software development services and took our attention to Exhibit 9. He submitted that Cross Domain provides software development services along with product lifecycle management services (PLM), development of product suites and routine low end ITES service. Ld. AR submitted that no segmental information for ITES services is available. Ld. AR relied on the following case laws :- Symphony Marketing Solutions India Put. Ltd (IT(TP) No.1316/Bang/2012)(AY 2008-09) Market Tools Research Pvt Ltd (ITA No.1811/Hyd/2012)(AY 2008-09) Hyundai Motors India Engineering Pvt. Ltd (ITA No.18501Hyd/2012) (AY 2008-09) (vi) Eelerx Services Limited ( Eclerx ) Ld. AR submitted that this comparable company is engaged in the business of high end knowledge process outsourcing services and took our attention to Exhibit 5. Ld. AR submitted that Eclerx is a Knowledge Process Outsourcing (KPO) company engaged in providing data analytics and data process soluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices and took our attention to Exhibit 6. He submitted that Genesys is mainly engaged in the area of Geographical Information System Services. The GIS performed by Genesys is functionally different from the functions performed by the assessee under its IT enabled services segment which are primarily in the nature of back- office support, remote monitoring co-ordination etc. services. Ld. AR relied on the following case laws :- Symphony Marketing Solutions India Pvt. Ltd [IT(TP) A.No. 1316/Bang/2012] (AY 2008-09) Hyundai Motors India Engineering Pvt. Ltd (ITA No. 1850/Hyd/2012) (AY 2008-09) Capital Health Group Information Services Pvt Ltd (ITA No.6312/Del/2012)(AY 2008-09) Capital IQ Information Systems India Put. Ltd. u. DCIT [ITA NO.124/Hyd/2014 ITA NO.170/Hyd/2014] (ix) Datamatics Financial Services Limited ( Datamatics ) Ld. AR submitted that this comparable company is functionally different and took our attention to Exhibit 12. He submitted that the company is also involved in Registrar Share Transfer activities as well as in processing printing activities. Ld. AR submitted that segmental data is not available. Ld. AR further submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of outsourced business processes, like, remote monitoring and maintenance of AEs network platforms and co-ordination etc. services is low-end in nature bearing minimal risks. Ld. AR further submitted that Infosys BPO earns higher profits on its cost on account of its highly established brand in the marketplace and Infosys BPO spends amount on brand building. Ld. AR relied on the following case laws :- Market Tools Research Pvt Ltd (ITA No. 1811/Hyd/2012, [TS-294-ITAT-2013CHYD)-TP], ITAT Hyderabad) (AY 2008-09) Symphony Marketing Solutions India Pvt. Ltd [IT(TP) No. 1316/Bang/2012] (AY 2008-092 Hyundai Motors India Engineering Pvt Ltd (ITA No. 18 /Hyd/2012) (AY 2008-09) Parexel International India Pvt Ltd (ITA No.144/Hyd/2014) (AY 2009- 10) INS India Pvt Ltd (ITA No. 604 419/Hyd/2014)(AY 2009-10) International Specialty Products (I) Pvt Ltd (ITA No. 218/Hyd/2014) (AY 2009-10) Capital IQ Information Systems India Pvt. Ltd. v. DCIT [ITA No.124/Hyd/2014 ITA No.170/Hyd/2014] (AY 2009-10), Ld. AR submitted that the following comparables fails financial year filter :- (xii) H C L Comnet Systems Services Ltd ( HCL Comnet ) (Segme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh a filtration process to arrive at a set which is broadly comparable with reference to FAR to that of the assessee. In the circumstances, DRP finds no reason to disturb the order of TPO on these grounds. Hence, objections are rejected. Ground No. 3.12 ignoring the business/ commercial reality that since the assessee (vis-a-vis both its ITES/ CSD services) is remunerated on an arm s length cost plus basis, i.e. it is compensated for all its operating costs plus a pre-agreed mark-up based on a benchmarking analysis, the Assessee undertakes minimal business risks as against comparable companies that are full fledged risk taking entrepreneurs, and by not allowing a risk adjustment to the Assessee on account of this fact; and Assessee relied on Mentor Graphics where it was held that adjustment should be made to margins of comparable companies to account for differences In functions performed and risks assumed between the comparable companies and the Assessee. DRP s Observation: The income tax Rules provide reasonable and accurate adjustment should be made. As discussed above we do not find that this condition has been made. 3.12.1 DRP has considered all the submissions an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... governing the subject. Since the DRP has not met the contention of the assessee in respect of inclusion/exclusion of comparable in its order, we deem it fit to remand the matter back to the file of DRP for fresh adjudication. Ex consequenti, the DRP order is set aside and the matter remanded back to the file of the DRP for passing a speaking order in respect of all the grounds raised before it and has to deal with each of the comparables contested above by the assessee. Needless to say that when considering the arguments in respect to selection of the comparables, the DRP must keep in mind the following aspects:- (a) Companies with extra ordinary circumstances, like those which suffered events like merger/demerger, impacting the financial results could not be treated as comparables; (b) Companies which are functionally dissimilar cannot be taken as comparables; (c) Companies acting merely as intermediary having outsourced its activity cannot be considered as comparables; (d) Companies whose directors were involved in fraud cannot be taken as comparable, as their financials are not reliable. The aforesaid aspects may be kept in mind by the DRP while addressing the ob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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