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TMI Blog2016 (4) TMI 1292X X X X Extracts X X X X X X X X Extracts X X X X ..... edient' to refer the matter to the Ld. TPO for computation of the Arm's Length Price ('ALP'), as is required under section 92CA(i) of the Act. 3. The Ld. DRP and the Ld. AO (following the directions of the Ld. DRP), erred both on facts and in law in confirming the addition of Rs. 15,19,62,H2/- to the income of the appellant (as against the total addition of Rs. 15,03,12,595/- as proposed by the Ld. TPO/ AO in its draft assessment order u/s 143 (3) read with section 1440) by holding that its international transactions do not satisfy the arm's length principle envisaged under the Act. In doing so, the Ld. DRP and the Ld. AO has grossly erred in agreeing with and upholding the Ld. TPO's action of: 3.1 not appreciating that none of the conditions set out in section 92C(s) of the Act are satisfied in the present case; 3.2 disregarding the ALP as determined by the Appellant in the TP documentation maintained by it in terms of section 920 of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules') as well as fresh search; and in particular modifying/ rejecting the filters applied by the Appellant; 3.3 disregarding multiple year/ prior ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled a rectification letter u/s 154 of the Act with the Ld. AO; 3.7 including high-profit making companies in the final comparables' set for benchmarking a routine service provider such as the Appellant (disregarding judicial pronouncements on the issue), thus demonstrating an intention to arrive at a pre-formulated opinion without complete and adequate application of mind with the single-minded intention of making an addition to the returned income of the Appellant and on the other hand resorting to arbitrary rejection of low-profit/loss making companies based on erroneous and inconsistent reasons; 3.8 including certain companies that are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed; and 3.9 excluding certain companies on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 4. The Ld. AO and Ld. TPO erred in not correcting the factual errors in computation of the Operating Profit to Total Cost ('OP/TC') of the comparables. 5. The Ld. AO has grossly erred on facts and in law by initiating penalty under section 271(1X0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38.03% Margin (B) 250924425 Arms's length Price (A+B)=C 910730961 Price charged by the assessee (D) 760418366 Difference (C-D) 150312596 % of difference with ALP 16.50% Adjustment proposed 150312595 6. Before us the assessee has filed revised grounds of appeal vide letter dated 01.04.2014. In the revised grounds of appeal the assessee has taken 10 grounds of appeal however, at the time of hearing it was submitted that it is just contesting the exclusion of comparables by TPO selected by assessee and inclusion of comparables by ld. TPO. The assessee is contesting inclusion of following comparables by the TPO:- i. Accentia Technologies Ltd. ii. Cosmic Global Ltd. iii. Infosys BPO Ltd iv. Croossdomain Solutions Pvt. Ltd. 7. Assessee is furthercontesting rejection of following comparables by TPO i. Omega Healthcare Management services Pvt Ltd. ii. Jindal Intelecom Ltd. 8. During the course of appeal assessee proposed one more comparable in the name of R. Systems International Ltd. for its inclusion. 9. Before considering the above comparables from the angle of their comparability it is important to understand the brief profile of the company. Vertex India is wholl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtex India provides internal support services such as human resources, business intelligence, knowledge management, IT support service, accounts parable services etc. The cost for this purpose includes all estimated direct and indirect costs associated with the provision of such services. The compensation received by Vertex India is based on a cost plus mark- up arrangement between the two entities. Over and above Vertex India avails routine call center services form its foreign AE and they are reimbursed on a cost plus mark-up basis. It also avails the business promotion services and reimburses the actual expenses to its AE. It has also purchased software and reimburses certain other expenses. 11. Before we proceed to examine the comparables several decisions of various tribunals have been cited by the rival parties regarding inclusion or exclusion of certain comparables submitting that these comparables should be excludible or includible at the first instances based on those decisions. We are of the view that each decision has rendered a particular comparable excludible or includible based on the facts of that case as well as the FAR of the assessee whose issues are decided. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this comparable as according to him it is suitable comparable but assessee has submitted that it is engaged in different and diversified business. It was also submitted that it has acquired another company. However TPO rejected the same stating that the acquisition has happened in March 2009 and therefore its acquisition does not have any impact in the current financial year therefore he retained the comparable. Ld. DRP has accepted the view of the TPO and has retained the same as comparable. 13. Before us ld. AR contended that this company has extra ordinary event during the year related to acquisition of a foreign entity and further the company has significant amount of goodwill which contributes to higher profitability. It was further submitted that this company is engaged in providing healthcare receivable cycle management and software development services, therefore it is functionally dissimilar. It was further stated that it is earning abnormally high profit. Therefore it should be excluded. Further several decisions of the Tribunal were cited specific to this company where it is held to be excluded. Numbers of decisions were also cited to submit that companies with extra or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable. Accordingly, the same is directed to be excluded from the final list of comparables." 15. As the above order of coordinate bench is also for AY 2009-10 on the similar facts respectfully following the same we hold that this company cannot be considered as comparable as there is an acquisition of certain companies which is an extra ordinary event. Accordingly the same is directed to be excluded. b) Cosmic Global Ltd. 16. This company has also been included by the TPO as the margin is 50.70%. However the assessee has objected to inclusion of this company before us stating that it has an extra ordinary event, has a different business model of outsourcing services to third parties and also functionally dissimilar as it is engaged in the business of translation. Ld. DR relied on the order of TPO as well as DRP. We have carefully considered the rival contentions and we have considered the details filed before us and according to page 332 of the paper book it is noted that it has engaged in translation service and also perusing BPO services. In the case of Xchaing Technology service India Pvt. Ltd Vs. DCIT in ITA 1897/Del/2014 for AY 2009-10 this comparable is considered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations and it has high brand value as it is associated with Infosys Ltd. It was also submitted that there are extra ordinary events on account of liquation and merger in case of this company and therefore it should be excluded. Ld. DR relied on the orders of TPO as well as DRP. 19. We have perused the balance sheet filed by the assessee at page 354 to page No.363 of the paper book. At page no.355 there is a details given in Director's report of the company about liquidation of one company and merger of one company with this company. It is amongst the top 10 third party BPO Company in India. As the company in the BPO services it cannot be compared with the assessee who is engaged in ITES services. Hon'ble Delhi High Court in case of Rampgreen has held that ITES companies and BPO companies are not comparable. Therefore following the decision of Hon'ble Delhi High Court we direct for exclusion of this comparable. d) Crossdomain Solutions Pvt. Ltd. 20. This comparable has been included by the TPO having 25.63% margin and rejected the contention of the assessee that it is engaged in high end services in the area of payroll mater file employee query management and tax calculation. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider. 25. We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this company as a comparable; this company should be excluded from the list of comparables, accepting the plea of the Assessee. We hold accordingly." 23. Further Honourable Delhi high court has also held in Rampgreen solutions Pvt Ltd V CIT in 60 taxmann.com 355 as under :- "25. Whilst Voice Call Center represents the lower-end of ITeS, KPO represents services involving a higher level of skills and knowledge. India has vast human resources and a large number of highly-skilled technical professionals. The expression "KPO" indicates the involvement of domain knowledge in providing ITeS. Typically, KPO includes involvement of advance skills; the services provided may include analytical services, market research, legal research, engineering and design services, intellectual management etc. On the other hand, Voice Call Centers are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted the computation of operating margin and annual reports of the company for AY 2009-10 and 2010-11. Ld. DR did not object to the additional evidence. In view of this additional evidence is admitted and this comparable is set aside to the file of TPO to deal with this comparable on merit. 27. The next comparable is an additional comparable submitted before in the form R System International Ltd. And Microland Ld. It is submitted by the ld. AR that it passes all the filters of the TPO except the year end filer. Ld.AR has also cited decision of Xchanging Technology Services India Pvt. Ltd. wherein it has been held that even if the comparable was not taken in the TP study report or before the DRP same may be admitted. As the assessee has submitted an application for admission of additional evidence in case of these comparable as well as relevant details justifying its inclusion. The ld. DR did not object to the same. In view of this this comparable is set aside to the file of ld. TPO for examining the comparability of this company. 28. NO other adjustment on the aspect of the transfer pricing has been assailed before us. We therefore set aside the impugned order to this extent a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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