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TMI Blog2019 (4) TMI 1517X X X X Extracts X X X X X X X X Extracts X X X X ..... Es and in this process it extracts the required data from the financial statements, notes to financial statements, audit report etc., and collating in the form of ratios, standardized graphs etc., and also prepares business descriptions, biographies of key executives and tracks key developments in the companies on a regular basis. Therefore, he treated the assessee as a Contract I.T. Enabled Service Provider, operating in a low risk or almost risk mitigated environment. 3. From the 3CEB report/T.P. document, the AO observed that the international transaction was for a sum of Rs. 372,38,88,703 and that the assessee's margin was 15.38% and that the reimbursement of expenses to the AE was to the tune of Rs. 31,64,046. After going through the TP document, the TPO was of the opinion that the method of search adopted by the assessee suffers from defects which resulted in selection of inappropriate comparables and rejection of comparable companies. Therefore, he rejected the TP document of the assessee and conducted an independent analysis by aggregating both the transactions under the TNMM. He observed that the assessee has selected 10 companies as comparables. The TPO accepted only 3 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gth. 3. The learned AO/TPO/DRP have erred in: a. Not accepting the use of multiple year data, as adopted by the appellant in transfer pricing (TP') documentation; and b. Determining the arm's length margins I prices using data pertaining only to Financial Year ('FY') 2012-13 which was not available to the appellant at the time of complying with the Indian TP documentation requirements. 4. The learned AO/TPO/DRP have erred, in rejecting certain comparable companies selected by the appellant by applying inappropriate comparability criteria such as : a. Different accounting year; and b. Employee cost less than 25 percent of total cost 5. The learned AO/TPO/DRP have erred in passing an order which has computational errors in the margin of the comparable companies used in determination of arm's length margin for the impugned transaction. 6. The learned AO/TPO/DRP has erred, in law and on facts and circumstances of the case, by wrongly rejecting certain companies from and adding certain companies to the final set of comparables for the impugned transactions on an adhoc basis, thereby resorting to cherry-picking of comparable for benchmarking the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the learned Counsel for the assessee submitted that the said company was functionally different from the assessee. He submitted that as per the Annual Report of the company, it is engaged in providing diversified high end services in the nature of engineering services, IT Enabled share services, supply chain, procurement, technical publication, operational control assessments for compliance with SOX Act, IT Risk assessment, assurance and risk management. Therefore, according to the assessee, it is a company which is providing KPO services and therefore, cannot be treated as comparable to the assessee. Further, it is submitted that Capgemeni Business Services (India) Ltd is a well known brand, which is used by the said company without any payment of royalty and therefore, the presence of intangible is a factor which has to be considered for excluding this company from the final list of comparables. He referred to the relevant observations of TPO and DRP wherein the relevant objections were raised by the assessee, but were not dealt with by the TPO and by the DRP in detail but were summarily rejected. He has also led us to the relevant papers in the relevant annual reports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Services - Infrastructure Services Services Business Services - Insights & Data _ Cloud Choice - Technology and Engg. Services Consulting Services - Mobile Solutions Cybersecurity - Ready2Series Digital Services - Secure Your Assets The aforesaid activities cannot be considered comparable to the assessee which is engaged in providing low end IT enabled services and is a risk mitigated entity. Further, a news article in Business Wire India, dated 25 October 2012, categorically mentions that Capgemini provides a wide variety of services such as Finance & Accounting, Management Assurance, Engineering Services, Content Management, Research & Advisory, Supply Chain Management, Procurement Services and Human Resources outsourcing etc. However quite many of these services such as engineering services, research and advisory are high-end KPO services which cannot be compared with the routine IT enabled services". As regards exploitation of brand value, we are in agreement with the contentions of the learned DR that both the companies used brands of their holding companies and therefore, are on par with each other. However, due to functional dissimilarity, we direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounted from accrual basis, except for processing charges (export income), interest on calls arrears, listing fee and leave encashment which are accounted for on cash basis. At Para 12 of the said report, it is stated that the income from BPO services is Rs. 17,99,52,212 which has been booked on the basis of Indian currency realized. At note 17, the revenue from operations is reported, we find that the export income has been reported at Rs. 17,99,52,211/-. Further, from the data published by the assessee, this year is an exceptional year of operation. The financial results of Hartron Communications Ltd cannot be considered for the preceding and succeeding financial years is as under: F.Y 2009-10 (-) 22.07% F.Y 2010-11 (-) 97.56% F.Y 2011-12 (-) 37.15% F.Y 2012-13 25.05% F.Y 2013-14 (-) 2.52% F.Y 2014-15 (-) 26.02% Therefore, it can be seen that this year has been an exceptional year for the said company. Therefore, we are of the opinion that Hartron Communication Ltd cannot be considered as a comparable company to the assessee. In this view of the matter, without commenting on the other objections of the assessee, against this company, we direct the AO/TPO to e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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