TMI Blog2016 (1) TMI 1259X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Abhiroop Bhargav and Miss. H. Desai For The Revenue : Smt. K. Mythili Rani ORDER PER SMT. P. MADHAVI DEVI, J.M. This is assessee s appeal for the A.Y. 2010- 2011 against the final assessment order passed by the A.O. under section 143(3) read with section 144C of the I.T. Act, 1961, in accordance with the directions of the DRP. The assessee has raised the following grounds of appeal : The grounds mentioned herein are without prejudice to one another. 1. On the facts and in the circumstances of the case and in law, the Deputy Commissioner of Incometax Circle-1(2) ( Ld. AO ) / Dispute Resolution Panel ('Ld. Panel') / Additional Commissioner of Incometax (Transfer Pricing) ('Ld. TPO') erred in making an adjustment of ₹ 23,97,01,758 pertaining to provision of IT enabled back office services provided to AE in pre and post-acquisition period ; 2. On the facts and in the circumstances of the case and in law, the Ld. TPO and the Ld. Panel erred in: i. Aggregating the Appellant's international transactions pertaining to pre-acquisition and post-acquisition ii. Disregarding the segmented financials adopted by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the case and in law, the Ld. A.O. and the Ld. Panel erred in excluding the entire communication expenses from the export turnover of the Company, ignoring the fact that the Company also has a SEZ unit and part of the communication expenses pertains to the SEZ unit. 7. On the facts and in circumstances of the case and in law, the Ld. AO erred in levying interest under section 234A of the Act, ignoring the fact that the due date for filing the corporate tax return for the concerned A Y was extended to October 15,2010 and the same was filed by the Company on October 15, 2010. 8. On the facts and in circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B and 234D of the Act amounting to ₹ 99,72,062 and ₹ 1,29,95,904 respectively. 9. The Appellant prays that appropriate relief be granted. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 2. At the time of hearing, the Ld. Counsel for the assessee, submitted that assessee is not pressing Ground No.3 in view of alternate gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the file of the A.O. for giving consequential relief, if any, to the assessee while giving effect to the order of the Tribunal. Ground No.8 of the assessee is thus treated as allowed for statistical purposes. 7. Now coming to ground No.2, Ld. Counsel for the assessee has mainly argued on sub-ground (vii) thereof, which is against certain comparables adopted by the TPO and confirmed by the DRP as comparable to the assessee. The Ld. Counsel for the assessee has filed a chart showing various companies taken by the TPO as comparable to the assessee and the companies which have been excluded by the DRP itself and the companies which have been accepted by the assessee. In this appeal, the assessee is challenging the inclusion of the following companies viz., (1) Accentia Technologies Ltd., (2) TCS E-Serve International Ltd., (3) Eclerx Services Ltd., and (4) Cosmic Global Ltd. 7.1. Assessee has also given details of the decisions on which assessee is placing reliance upon for exclusion of these companies from the final list of comparables. 8. The Ld. D.R., on the other hand, argued on the basis of the written submissions filed by her and taking both the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the following 11 companies as final comparables. S.No. Name of the Company OR OP/OC 1. Accentia Technologies Ltd., 93,12,44,808 49.02 2. Acropetal Technologies Ltd., (Seg.) 46,39,36,810 10.12 3. Axis IT T Ltd., 20,29,67,892 11.89 4. Cosmic Global Ltd., 5,86,37,419 16.59 5. Eclerx Services Ltd., 2,57,02,10,000 42.17 6. Infosys BPO Ltd., 11,30,05,01,306 31.63 7. TCS e-Serve International Ltd., 1,49,29,56,000 51.51 8. TCS e-Serve Ltd., 14,05,10,05,000 67.58 9. Jeevan Softech Ltd., (seg.) 1,74,43,000 8.04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited is concerned, he has submitted that there is an extraordinary event during the relevant assessment year in the case of this company also which has been taken note of by this Tribunal in the case of ACIT vs. Hyundai Motors India Engineering P. Ltd., (cited supra) and for the said reason, this company is also to be excluded. 10.2. As regards the Eclerx Services Limited is concerned, the Ld. Counsel for the assessee, submitted that this company is also considered as not comparable to ITES company in the order of the Tribunal in the case of ACIT vs. Hyundai Motors India Engineering P. Ltd., (cited supra) and further in assessee s own case for the A.Ys. 2007-08 and 2008-09. He further drew our attention to the judgment of the Hon ble Delhi High Court in the case of Ramp Green Solutions P. Ltd., ITA.No.102 of 2015 dated 10.08.2015 wherein the Hon ble High Court has brought out all the differences between the BPO and KPO Services and has held that Eclerx Services Limited is not comparable to simple ITES companies such as the assessee herein. 10.3. As regards the Cosmic Global Limited is concerned, he reiterated the submissions made before the authorities below that this company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a comparable company. The TPO, though considered these submissions, rejected the same, on the reason that this does not impact the profit margin of the company. Opposing the view taken by the TPO, it is submitted that this company cannot be selected as comparable, as similar issue was discussed by the coordinate Bench of the Tribunal(Delhi) in the case of Mercer Consulting (India) P. Ltd. (supra), vide paras 13.2 to 13.3 which read as under- 13.2. Now coming to the factual matrix of this case, we find from the material on record that outsourcing charges of this case constitute 57.31% of the total operating costs. This does not appear to us to be a valid reason for eliminating this case from the list of comparables. On going through the Annual accounts of Cosmic Global Limited, a copy of which has been placed on record, we find that its total revenue from operations are at ₹ 7.37 crore divided into three segments, namely, Medical transcription and consultancy services at ₹ 9.90 lacs, Translation charges at ₹ 6.99 crore and Accounts BPO at ₹ 27.76 lac. The ld. AR has made out a case that outsourcing activity carried out by this company constitutes 57% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n over a period of 9.5 years. This definitely is an exceptional circumstance which has been taken note of by the TPO in the case of M/s. IGS Imaging Services (India) P. Ltd., to exclude the same from the list of comparable. This exceptional circumstance was not taken note of by the TPO and the DRP failed to appreciate the objection of the assessee in proper perspective. Any circumstance which would influence or result in abnormal result in the financials of a company have to be adjusted or where no adjustment can be done to make it comparable to the tested party, such a company has to be excluded from the list of comparables. This Tribunal in a number of decisions held that exceptional circumstance is a reasonable filter to exclude a company from the list of comparables. Therefore, we direct the A.O./TPO to exclude this company from the final list of comparables. 11.2.1. As regards TCS e-Serve Limited is concerned, we find that it possesses brand value as is evident from the Schedule-N (Operation and Other expenses) to the P L A/c of the annual report for the financial year 2009-10 of ₹ 46,065 thousands and also that it possesses intangibles in the form of software li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 50 crores as against the turnover of TCS e- Serve Limited of ₹ 1405.10 crores. Therefore, following the turnover filter as well as taking note of the fact that it owns and possesses brand value and intangibles as compared to the assessee which does not own such assets, we direct that this company be excluded from the list of final comparables. Accordingly, assessee s grounds of appeal No.6 is partly allowed. 12.2. As regards Accentia Technologies Limited is concerned, the Tribunal at para 18 and 18.1 has held as under : 18. As regards M/s. Accentia Technologies Ltd., is concerned, we find that the DRP has directed to exclude this company by placing reliance upon the order of the ITAT in the assessee s own case for the A.Y. 2009-10 by holding that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy and considering the profit margins of the company and insufficient segmental data, held that this company cannot be selected as a comparable. It was also held by the DRP that on the very same reason of acquisition of various companies, being an extraordinary event, it had an impact on the profit of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endering ITeS. We find it difficult to accept this view as it is contrary to the fundamental rationale of determining ALP by comparing controlled transactions/entities with similar uncontrolled transactions/entities. ITeS encompasses a wide spectrum of services that use Information Technology based delivery. Such services could include rendering highly technical services by qualified technical personnel involving advanced skills and knowledge, such as engineering, design and support. While, on the other end of the spectrum ITeS would also include voice-based call centers that render routine customer support for their clients. Clearly, characteristics of the service rendered would be dissimilar. Further, both service providers cannot be considered to be functionally similar. Their business environment would be entirely different, the demand and supply for the services would be different, the assets and capital employed would differ, the competence required to operate the two services would be different. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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