TMI Blog2018 (7) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... P.Ltd. to NTT DATA Global Delivery Services Ltd., having address at: Splendor Trade Tower, 2nd, 3rd, 4th, 5th, 6th 7th Floor, Golf Course Extension Road, Sector 65, Village Tigra, Gurgaon, Haryana 122 001. In support of the change of name, Certificate of Incorporation issued by Ministry of Corporate Affairs has been filed along with revised Form 36B. Present appeal has been filed by assessee against order dated 28/09/11 passed by Ld. ITO, Ward 5(2), New Delhi under section 143(3) read with section 144C (5) of the Income Tax Act, 1961 (the Act) for Assessment Year 2007-08, on the following grounds of appeal: On the facts and circumstances of the case and in law, the Ld Income tax Officer, Ward 5(2), New Delhi (hereinafter referred to as the Ld AO ) and Ld Additional Commissioner of Income Tax, Transfer Pricing Officer - 1(3) (hereinafter referred to as the Ld TPO ) grossly erred in making the addition of ₹ 7,63,56,998 to the Transfer Price in respect of ITES Segment of the Appellant Company. In making the said additions, the Ld AO/TPO erred in principal and on facts on the following grounds 1. The Ld AO/TPO erred in arbitrarily rejecting the comparables sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claring a total income of ₹ 1,15,753/-. The case was selected for scrutiny and notice under section 143(2) was served upon assessee, in response to which Representatives of assessee appeared from time to time. Ld.AO observed that assessee is a majority owned subsidiary of Keane Worldzen Inc. It was observed that assessee along with its global partners was involved in outsourcing to companies and large global corporations to create dedicated and customised designed Indian facilities, for providing remote delivery of business process services. Ld.AO observed that during the year under consideration assessee undertook international transactions with its Associated Enterprises (AEs), the value of which was more than ₹ 5 crores. Accordingly the case was referred to TPO. 2.1. Ld.TPO observed that assessee undertook international transaction in its IT Enabled Services (ITES) segments. It was observed that ITES support charges received by assessee was quantified at ₹ 46,625,914/-. Assessee selected TNMM as most appropriate method by adopting OP/OC as PLI for benchmarking international transaction. It was observed by Ld.TPO that assessee selected 15 comparables, with av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s nor undertake any marketing and business development activities. Assessee undertakes recruitment, hiring and training process and is responsible for day-to-day supervision and control of its employees. Besides training provided by Keane group, assessee provides training to new joiners whenever necessary. Though day-to-day management is carried out by assessee, overall project is undertaken by Keane group, which enters into contract with independent 3rd parties and outsources services to assessee. Keane group provides for technical and administrative support to assessee in delivery of its services. Assessee follows stringent quality standards as prescribed by Keane group to ensure high-level quality of services provided to the customers of Keane group. (B) Assets Assessee owns minimal asset in order to run its business in India without there being any involvement of intangible. (C) Risk analysis In TP study, assessee has been classified to be exposed to minimal risk, as it provides services only to Keane group (ITES) as per terms of contract. Assessee is compensated at cost plus basis and it bears limited price risk to the extent that when globally prices of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s placed before us. From the audited statements of this company placed at page 286-335 of paper book volume 2, it is clear that assessee has acquired 51% stake in Geo-Soft Technologies (Trivandrum) Ltd. and 51% stake in Iridium Technologies India Pvt. Ltd. It is observed that almost approximately 68% of operating cost is towards overseas business expenses as against nil in case of assessee and hence there is a difference in business model. Further substantial marketing expenses to an extent of approximately 28% of sales as against nil of assessee have been undertaken by this company. Under such circumstances, we are of the considered opinion that this company is not functionally similar as well as the risk profile is quite different from that of assessee and accordingly cannot be considered to be a fit comparable. We direct this company to be excluded from the list of comparables. 5.4. Bodhtree Consulting Ltd (SEG): This comparable has been included by ld.TPO in the list of comparables. Ld.Cunsel submitted that this company is functionally not similar, as it is into software development and data cleaning segment vis-a-vis captive service provider like assessee. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ytics services with expertise in financial service and retail and manufacturing. The service provided by the company are high end in nature involving special knowledge and domain expertise and therefore, not functionally comparable with the assessee company which is engaged in providing low end ITES enabled call centre services to its AE. The fact Eclerx Services Ltd. is providing high end services involving special knowledge and domain expertise is evident from the company's own reply to the notice u/s 133(6) which is placed at pages 976 to 979 of the paper book filed by the assessee. The Hon'ble Special Bench of the Tribunal in case of Maersk Global Centre (India) (P.) Ltd. v. Asstt. CIT [2014] 147 ITD 83/43 taxmann.com 100 (Mum.) had excluded Eclerx Services Pvt. Ltd. from the list of comparables for the reason that it is providing high end services involving specialised knowledge and domain expertise and same cannot be compared with companies which are mainly engaged in providing low end services to group companies. The relevant finding of the Hon'ble Tribunal read as follows :- In so far as M/s eClerx Services Limited is concerned, the relevant informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP. ' 5.5.3. The above ruling of Special Bench is equally applicable to facts of assessee, as is evident from functional profile of assessee. For the aforesaid reasons, we direct Eclerx Services Ltd. be excluded from final list of comparables. 5.6. HCL Comnet Systems and Services Ltd. (Seg.) Ld.TPO included this company. It has been submitted by Ld. Counsel that ld.TPO obtained certain data relating to Financial Year 2006-07 from this company which has not been shared with assessee. It has also not been explained the basis of extrapolation of data for first-quarter from the earlier years annual report ending June, 2007. Ld.Counsel also submitted that adjustment in respect of forex loss has also not been given in computing the margin of this company. 5.6.1. On the contrary Ld.DR submitted that segmental information available in audited report of this company placed at page 417-498 of pap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outsource services consists of financial database and back-office activity for research/advisory reports. It has been submitted in the TP study of this company that it focuses on the niche market segment of financial content and has developed repeat business with its customers which are well-known and respected American incorporates. It also focuses on enhancing expertise and domain knowledge. 5.7.3. Based on the above functions performed by this company, we do not find it to be a fit comparable with assessee, which is a captive service provider providing services only to its group concern. We accordingly direct this company to be excluded from the list of comparables. 5.8. Infosys BPO Ltd. This company has been included by ld.TPO. Ld.Counsel submits that this company is into high-end knowledge process outsourcing services, whereas assessee is a captive service provider to its Associated Enterprises only. He placed reliance upon the decision of Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd. [2013] 36 Taxmann.com 289. It was further submitted that, it also provides product based solutions such as source to pay business platfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsus DCIT (supra). 5.9.3. Respectfully following the same we direct this comparable to be excluded from the list of comparables. 5.10. Wipro Ltd (SEG) 5.10.1. This Comparable has been included by Ld.TPO. This is TPO's comparable in which segmental details has been obtained u/s. 133(6) of the Act. However, assessee has sought its exclusion on grounds of significantly higher turnover, abnormal margins, presence of intellectual property, diversified business, brand value and turnover. He placed reliance upon the decision of ICC India Pvt.Ltd., vs. ACIT (supra).. On the contrary, Ld.DR submitted that there is no related party transaction during the year under consideration. 5.10.2. We have heard the rival submissions of both sides in the light of records placed before us. It is observed that Co-ordinate Bench of the Delhi Tribunal in ICC India Pvt.Ltd., vs. ACIT (supra) has excluded this comparable by placing reliance upon Calibrated Healthcare Systems (I) (P) Ltd. Vs ACIT (OSD) reported in (2015) 54 Taxmann.com 53. It is observed that in this decision this tribunal has examined comparability of WIPRO and ordered its exclusion on the ground that this is a giant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vishal Informations Technologies Ltd. iv. Flextronics Software Systems Ltd. v. R Systems International Ltd. 6.1. Assessee raised additional ground, wherein inclusion of following comparables has been challenged. It has been submitted that details in respect of these comparables were available before authorities below and thereby under Rule 11 of ITAT Rules, assessee is entitled to raise this additional ground before us today. 6.2. Ld. DR did not object to the additional ground being raised/admitted at this juncture. 6.3. We therefore allow assessee to argue upon comparables challenged for its inclusion/exclusion in additional ground which are as under: Vishal Information Technologies Ltd This comparable was selected by Ld.TPO. Ld.Counsel submitted that this company is not similar in function, assets and risk profile with that of assessee and it has a different business module. Further it has been submitted that Hon ble Delhi High Court in the case of Rampgreen Solutions Pvt Ltd., (supra) categorised this comparable to be a KPO service provider. Further Ld.Counsel submitted that this entity outsources its ITES services to third-party vendor thereby inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O after proper verification in this regard. Assessee is directed to provide all necessary information/details to assist Ld.TPO. 9 . Maple E- Solutions Ltd., Triton Corp Ltd It is submitted that directors of these companies were involved in fraud and money-laundering during the year under consideration. And therefore has been held to be not an appropriate comparables. This view has been expressed by Hydrabad Tribunal in the case of Market Tools Research Pvt.Ltd vs. ACIT reported in (2013) 32 Taxmann.com 358. 9.1. Ld. DR do not have any objection in exclusion of this comparable. 9.2. Respectfully following the decisions of Coordinate Bench of this Tribunal, we direct Ld.TPO to exclude these companies from the final list of comparables. 10. In regards to comparables that has been set aside to ld. TPO, we direct the transfer pricing analysis to be carried out on the broad object of benchmarking the international transaction. Comparables must be similar in material aspects and must be compared on the basis of the products/services characteristics, functions undertaken, assets used and risk assumed. 11. Accordingly ground No. 3 raised by assessee stands partly a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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