TMI Blog2016 (12) TMI 1585X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the Act. - I.T.A. No. 1143/Hyd/2014 - - - Dated:- 21-12-2016 - P. Madhavi Devi (Judicial Member) And B. Ramakotaiah (Accountant Member) For the Assessee : Sampath Raghunathan, AR For the Revenue : P. Chandra Sekhar, DR ORDER B. Ramakotaiah (Accountant Member) This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-II, Hyderabad, dated 24-03-2014. 2. Briefly stated, assessee-company, BA Continuum Solutions Private Limited was incorporated on October 10, 2003 under Companies Act, 1956. Assessee provides Information Technology ('IT') enabled back office processing services to Bank of America Management Corporation (BAMC) Group from its three units located at Hyderabad, Mumbai Gurgaon. 3. During the previous year relevant to AY.2008-09, assessee had the following international transactions: International Transaction Associated Enterprise Amount (Rs) Most appropriate method Provision of ITES (received or receivable) Bank of America National Association 472,46,87,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax, Range 1, Hyderabad (AO) referred the international transactions reported by assessee vide Form 3CEB to the Additional Commissioner of Income-tax, Transfer Pricing (TPO) u/s. 92CA of the Act for verification of arm's nature of the international transactions. In the TP proceedings u/s. 92CA of the Act, assessee submitted relevant information/documents as called for by TPO. The TPO vide the show-cause notice dated 30 September 2011 has rejected the benchmarking analysis of assessee, conducted a fresh benchmarking analysis using various filters, selected 20 comparable companies for benchmarking the international transactions of assessee. The TPO determined the margin of assessee at 20.10% and the arm's length margin at 29.16% for the 20 companies and proposed to make a TP adjustment amounting ₹ 39,27,44,531/-. 6. Assessee made various submissions to the TPO. The TPO provided a positive working capital adjustment of 2.80% and revised the TP adjustment to ₹ 27,13,86,631/-. The following are the 20 companies selected by the TPO as per the TPO's order: Sr. No. Comparable Companies Operating Revenue ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.16 Subsequently, AO has passed the draft assessment order dated 26 December 2011 by incorporating the TP adjustment proposed by TPO. Assessee has communicated to the AO to exercise the option of filing an appeal before Ld.CIT(A). Thus the AO has passed a final assessment order dated 31 January 2012 confirming the TP adjustment as per the draft assessment order. 7. Aggrieved by the order of AO, assessee filed an appeal before the Ld. CIT(A). Subsequently in the order dated 24 March 2014, the Ld. CIT(A) has upheld the conclusions of the TPO and dismissed the grounds of assessee on the TP adjustment. However with regard to assessee's ground on erroneous computation of certain companies, the Ld. CIT(A) has directed TPO to verify the same. However, there was no relief given to assessee in the consequential order as submitted by assessee. 8. Aggrieved by the Ld. CIT(A) order, assessee filed the appeal has Assessee raised five grounds. Ground Nos. 1 2 are general in nature. Ground no. 5 was not pressed. Ground Nos. 3 4 pertain to TP adjustment, which are as under: Ground 3: On the facts and in the circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR pg. 58 Contribution to PF 5,76,925 AR pg. 58 Staff Welfare Expenses 17,08,901 AR pg. 58 Total employee cost (B) 5,71,69,011 Employee cost % 16.37% 10.1. The TPO did not agree to the contentions of assessee with regard to extraordinary business operations. Assessee did not raise its contentions with regard to employee cost filter before the TPO. Ld. CIT(A) has rejected the contention of assessee with regard to Accentia's extraordinary situation. With regard to employee cost, Ld. CIT(A) has rejected the contention of assessee as it was not raised before the TPO. 10.2. Assessee has placed reliance on the following Judicial precedents for rejection of Accentia as a comparable company: Symphony Marketing Solutions India Pvt. Ltd. - IT(TP)A No. 1316/Bang/2012; Vodafone India Services Private Ltd. [Formerly Known as 3 Global Services Private Ltd, ('GSPL'/'3GSPL')] (ITA No. 7514/Mum/2013); HSBC Electronic Data Process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the DRP for the assessment year 2008-09 in assessee's own case. It is seen that the DRP while considering similar objection placed by the assessee in the case of another company, viz. Mold Tek Technologies Ltd., in the proceedings relating to the assessment year 2008-09, has observed in the following manner- 17.5. In addition to the above, the Director's Report of the company for the FY 2007-08 revealed the merger and the demerger. A company known as Techmen Tools Pvt. Ltd. had amalgamated with Mold-tek Technologies Ltd. with effect form 1st October, 2006. There was a de- merger of Plastic Division of the company and the resulting company is known as Moldtek Plastics Limited. The de-merger from the Moldtek Technologies took place with effect from 1st April, 2007. The merger and the de- merger needed the approval of the Hon'ble High Court of Andhra Pradesh and also the approval of the shareholders. The shareholders of the company gave approval for the merger and the de-merger on 25.01.2008 and the Hon'ble High Court of Andhra Pradesh had approved the merger and de-merger on 25th July, 2008. Subsequently, the ITA No.1316/Bang/2012 accounts of Moldtek Tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of comparables. II. Coral Hub Limited ('Coral') Formerly known as Vishal Information Technologies Limited: 11. It was submitted that Coral Hub Limited (formerly known as Vishal Information Technologies Limited) is functionally different and operates on a different business model. It primarily outsources its work to the vendor's vis-a-vis the Assessee which carries out the entire work on its own. The relevant details are tabulated below: Computation of outsourcing cost to total cost of Coral: Particulars Amount (Rs) Reference Salary Cost 21,68,01,923 AR pg. 84 Total Cost 25,07,83,662 As per TPO s order pg. 100 11.1. Even though Assessee did not raise objections on Coral before TPO, it has raised ground on Coral before Ld. CIT(A). However, Ld. CIT(A) has rejected the contentions of assessee as it was not raised before the TPO. 11.2. Assessee placed reliance on the following Judicial precedents for rejection of Coral: United Health Group Information Services Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cs management and reporting services. Further there was an extraordinary situation of merger during the year. Eclerx acquired UK-based Igentica Travel Solutions Limited on July 27,2007. The integration process was on track as of March 2008. This fact was evident as per Page Nos. 14, 18 19 of annual report of Eclerx. The TPO did not agree to the contention of assessee that Eclerx is functionally different and involved in high end KPO services. However, assessee has not raised contention on extraordinary situation before TPO. Ld. CIT(A) rejected the contentions of assessee on functional difference, however has not commented on contention of assessee with regard to extraordinary situation of Eclerx. 12.1. Assessee placed reliance on the following Judicial precedents for rejection of Eclerx as a comparable company: Maersk Global Centres (India) Private Limited vs. ACIT, Mumbai (I.T.A. No.7466/Mum/2012/AY 2008-09); United Health Group Information Services Pvt. Ltd. [ITA No.6312/Del/2012/AY 2008-09]; Calibrated Healthcare Systems India Pvt. Ltd. [ITA No.5271/De1/2012/AY 2007-08]; Hyundai Motors India Engineering P. Ltd. [ITA No. 1850/Hyd/2012/AY 2008-09] Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able for the reason that it was having extraordinary event and super normal profits. Similar view was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. 12.3. Respectfully following the decision of the Co-ordinate Bench, we direct the AO/TPO to exclude Eclerx Services Limited from the list of comparables. IV. Mold-tek Technologies Limited ('Moldtek'): 13. It was submitted that this company is functionally different as it is engaged in providing engineering design services for construction of buildings by using design tools like CADI CAM, Stadd Pro by employing highly skilled software engineers for the purpose. These services are in nature of KPO and sharp contrast to the nature of work undertaken by assessee. Further, Teck-men Tools Pvt. Ltd. Was amalgamated with the Moldtek with effect from 01 October, 2006. There was a de-merger of Plastic Division of Mold-Tek which has been named as Mold Tek Plastics Limited after de-merger. This de-merger from the Mold Tek took place with effect from 01 April. 2007. As per page nos. 9, 10,41 42 of the annual report shows that there were mergers and demergers during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the company) of the company specializes in providing structural design and detailing services which can be categorized as structural engineering services. The structural engineering services provided by the IT division of the company cannot be classified as falling with the scope and ambit of ITES services. On the contrary, the said services would fall under the category of engineering services. Excerpts from the Annual Report of the company Page 10 of the Annual Report for the FY 2007-08 contains the following observation regarding the KPO division of the Company: 'The Company has achieved about 56.49% growth in 2007-08 to register a turnover of ₹ 17.86 crore. The company having established its credentials in structural engineering services to US clients is devising aggressive marketing strategy to achieve rapid growth. This company is also engaged in providing a host of engineering services like civil and structural engineering services, mechanical product design, plant engineering, IT services and GIS services. As we have already seen, this company is to be classified as KPO and cannot be compared with the assessee. The decision of the Bang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the TPO. As far as this company is concerned, the stand of the assessee has been that this company is functionally not comparable and that it has a different employee skill set and that this company performs R D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Besides the above, this company also carries out R D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. Similar view was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. In view of the above, we are of the view that this company cannot be regarded as a comparable and deserves to be excluded from the list of comparables . 14.3. Respectfully following the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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