TMI Blog2016 (7) TMI 1437X X X X Extracts X X X X X X X X Extracts X X X X ..... Act ) in pursuance of the direction of the Dispute Resolution Panel (DRP) for the assessment year 2010 11. 2. Brief facts are, the assessee an Indian company is a wholly owned subsidiary of Maersk GSC Holdings A/S, which in turn is a down stream subsidiary of A.P. Moller Maersk (APMM). The assessee, as noted by the Transfer Pricing Officer, acts as a service provider carrying out limited functions based on instructions received from its Associate Enterprise (A.E). It does not undertake any marketing activity and does not bear entrepreneurial risk. Service provided by the assessee are in the nature of Information Technology Enabled Services (ITES) or commonly known as business process out sourcing (BPO) service relating to transaction processing, data entry, re conciliation of statements and other similar support services. As per the terms of agreement, for the service provided by the assessee to its A.E., it is remunerated on a cost plus mark up basis. For the assessment year under consideration, assessee filed its return of income on 12th October 2010, declaring total income of ₹ 2,20,660 under the normal provisions and book profit of ₹ 14,67,13,912 under section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act is bad in law as it is not passed in conformity with directions issued by Hon ble DRP and thereby violating section 144C(10) and section 144C(13) of the Act. 3. On the facts and in the circumstances of the case and in law, the Assessing Officer grossly erred in disregarding the following directions of the DRP. a) To reject certain companies alleged as comparable by the Transfer Pricing Officer (eClerx Services Limited, Coral Hubs Limited, ICRA Online Limited and BNR Udyog Limited; b) To accept certain comparable companies incorrectly rejected by the Transfer Pricing Officer (spanco Limited and Caliber Point Business Solutions Limited). c) To allow the working capital adjustment. 4. Learned Sr. Counsel submitted, the DRP after considering the objections of the assessee on the issue of comparability of certain companies had directed exclusion of some companies selected by the Transfer Pricing Officer and also directed him to include some companies proposed by the assessee. He further submitted, the DRP had also directed for allowance of working capital adjustment. However, the Assessing Officer in the final assessment order has completely ignored these directions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l submitted, the assessee is a back office service provider to its A.E., whereas Accentia Technologies Ltd. is a parent company. It takes all the risks. He submitted, the company is providing high end service in the nature of KPO service which is not comparable to routine ITES service. Further, segmental information is also not available. He submitted, during the relevant previous year, there is also a merger of Asscent Infoserve which is in healthcare service. Learned Sr. Counsel submitted, the business of this company is highly diversified including software development and related service which require specialized skill. It has also goodwill, brand name and IPRs. He submitted, the margin of medical coding is on higher side when compared to medical transcription. Medical coding constitutes 15% of operating revenue. He submitted, the information contained in the website of the company reveals that most of the key persons are engineer and highly qualified people whereas assessee s work force consists of mostly graduates with no special skills / training. Learned Authorised Representative submitted, for the reason that this company has diversified activity and is into high end KPO s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation contained in the annual report of Accentia Technologies Ltd., a copy of which has been placed in the paper book, we have noticed that the company is into diversified activities like development of software, legal process out sourcing, health care management, etc. A reference to the Profit Loss account of the company for the relevant financial year indicates that there is no segment wise data maintained by this company. Further, Schedule I forming part of the Balance Sheet indicates that during the relevant previous year, there was amalgamation of Asscent Infoserve. with the company. The Tribunal, Mumbai Bench while considering the comparability of Accentia Technologies Ltd. to the assessee in assessment year 2009 10 in ITA no.2594/Mum./2014 and Anr., dated 16th January 2015, has held as under: 12. Now coming to the Accentia Technologies Ltd., as pointed out by the Ld. Counsel, it is seen form the annual report of the said company, it is a parent company providing high end management solutions in health care. It is mainly medical transcription company doing medical coding, medical billing and receivables management services. The BPO services has not been started in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be compared to a low end ITES service provider. The Hon'ble Delhi High Court in Rampgreen Solutions Pvt. Ltd. v/s CIT, ITA no.102/2015 dated 10th August 2015, in fact, disagreed with the view expressed by the Tribunal, Mumbai Special Bench in Mearsk Global Centers India Pvt. Ltd., that ITES services cannot further be bifurcated to the BPO and KPO service for the purpose of comparative analysis. The Hon'ble High Court held that even though KPO may be coming under the broad category of ITES but the nature of service provided by KPO is completely different from the nature of service provided by a BPO service provider. The Hon'ble High Court held while the KPO is on the higher end of the spectrum involving employment of advanced skills and knowledge for providing service, BPO does not necessarily involve advanced skill and knowledge. Therefore, BPO service provider cannot be functionally comparable to a KPO. Reverting back to the facts of the present case, there is no discernible difference in the functional profile of the assessee and Accentia Technologies Ltd. in the impugned assessment year compared to the earlier assessment years. Therefore, applying the ratio laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubtful debt signifies the risk taken by the assessee. Learned Authorised Representative submitted, because of its high turnover, brand value, etc., the Hon'ble Jurisdictional High Court in Pentair Water India Pvt. Ltd., Tax Appeal no.18 of 2015 dated 16th September 2015, has held that it cannot be comparable with a low turnover company. The learned Sr. Counsel submitted, the Tribunal Delhi Bench in Equant Solutions India Pvt. Ltd. (supra) for the very same assessment year has excluded Infosys BPO Ltd. as a comparable. Finally, learned Sr. Counsel submitted, Infosys BPO Ltd. was never considered as a comparable in the earlier year nor in the subsequent assessment year. Therefore, applying the rule of consistency this company should be excluded from the list of comparables. 14. Learned Departmental Representative submitted, Transfer Pricing Officer while selecting comparables has not applied any high turnover filter. He submitted, if companies having turnover of more than ten times are to be excluded, as pleaded by the assessee, then applying the same logic companies having turnover ten times lesser than the assessee should also be excluded. Learned Departmental Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised Representative submitted, this company has been accepted as a comparable in assessee s own case in assessment year 2007 08 and 2008 09. In fact, the Tribunal while considering the issue of rejection of R. Systems International Ltd. as a comparable on identical reasoning took note of the fact that the company was not only accepted by the Transfer Pricing Officer / DRP in assessment year 2007 08 and 2008 09 but also referred to the observations of the Tribunal, Mumbai Special Bench in assessee s own case for assessment year 2008 09 wherein the Special Bench took note of the observations of the DRP regarding the nature of service provided by the assessee as low end BPO hence, accepted R. Systems International Ltd. as a comparable. Learned Authorised Representative submitted, the DRP again in assessment year 2011 12 has accepted R. Systems International Ltd. as comparable. In this context, he referred to the order of the DRP for assessment year 2011 12 a copy of which is placed at Page 143 of case law compilation. Learned Authorised Representative also relied upon the decision of the Hon'ble Delhi High Court in CIT v/s Mckinsey Knowledge Centre India Pvt. Ltd., ITA no. 217/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be rejected. In A.Y. 2008-09, the DRP in the light of functions performed by the assessee as well as BPO segment of R. System International, has accepted the same to be comparable company. This fact has also been noted by the Special Bench in para 12 of the order. 14. Thus, consistent with the fact that in A.Y. 2007-08, TPO himself has accepted R. System as a good comparable and DRP in A.Y. 2008-09 has also accepted the same to be comparable, which has been upheld by the Special Bench, therefore, we do not find any reasons to deviate from such a precedence of the earlier years, so as to come to a different conclusion without any material difference on record for this year. Thus, we direct the TPO/AO to include R. System International Ltd. in the list of final comparables for bench marking the assessee s margin. 20. Following the aforesaid decision of the Tribunal, the DRP also in assessee s own case for assessment year 2011 12 has accepted R. Systems International Ltd. as a comparable. As could be seen from the impugned order of the DRP, the only reason on which the company was rejected is on account of different financial year. As already stated while assessee is following fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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