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TMI Blog2019 (5) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... f the International Transaction ( IA) was upheld. 2. The assessee has raised the following grounds of appeal:- "That on the facts and circumstances of the case, and in law; 1. The assessment order passed by the Learned Assessing Officer ('Ld. AO') pursuant to the directions of Learned Dispute Resolution Panel ('Ld. DRP') is bad in facts and law. 2. The Ld. AO (following the directions of the Ld. DRP), erred both on facts and in law in confirming the addition of Rs. 14,770,775/- to the income of the Appellant proposed by the Transfer Pricing Officer ('Ld. TPO') by holding that the related party international transactions pertaining to provision of IT Enabled back-office support ('ITES') services do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('the Act'). In doing so, the Ld. DRP and the Ld. AO have grossly erred in agreeing with and upholding the Ld. TPO's action of: 2.1 not appreciating that none of the conditions set out in section 920(3) of the Act are satisfied in the instant case; 2.2 disregarding the Arm's Length Price ('ALP') as determined by the Appellant in the Transfer Pricing (TP') documentation maintained as per sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase shows that assessee is a 100% subsidiary of Corporate Fundamentals Incorporation, USA engaged in the business of captive Data processing services provider to its group companies. The assessee is also involved in the sale of access to online databases in services of Morningstar incorporation USA. The assessee company filed its return of income (ROI) on 29/9/2010 declaring loss of INR 14666670/-. The assessment u/s 143 (3) of the act was taken up and it was found that assessee has entered into an international transaction amounting to INR 121476495/- with its associated enterprise. Case was referred to the learned transfer pricing officer for determining its arm's-length price. The learned transfer pricing officer found that assessee has entered into a transaction of provision of data processing and software services to its associated enterprise amounting to Rs. 116698529/- which was benchmarked by the assessee adopting the Transactional Net Margin Method (TNMM) is most appropriate method (MAM) using the profit level indicator (PLI) of operating profit/total cost (OP/TC) selecting 7 comparable wherein the comparable mean PLI was 12.19 percent and assessee has earned the margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the each of the comparable. Over and above, this he also pressed for inclusion of the comparable Mphasis finsources Ltd. 6. The learned departmental representative vehemently supported the order of the learned transfer pricing officer and the learned dispute resolution panel. 7. We have carefully considered the rival contention and perused the orders of the lower authorities. The only dispute is with respect to the software development and maintenance and data processing services of the assessee. Assessee is performing the IT support services to its associated enterprise. It is an IT support and software development and maintenance service provider to its associated enterprise whereas its associated enterprise are engaged in marketing and sales, quality control, invoicing on collection, client relationship, engagement control, execution of services and management support services for software development. Therefore according to the transfer pricing study report furnished by the assessee and not disputed by the learned assessing officer, Morningstar India, assessee provides, assistance in website and web application development of customers of associated enterprise, assistanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore there is no issue of supernormal profits. Therefore he stated that the comparable is robust comparable in case of the taxpayer and is retained as a suitable comparable. The learned dispute resolution panel was also of the view that the FAR profile of the company is essentially similar to that of the assessee hence it was retained as a comparable. 10. On careful consideration of the annual report of the above comparable company for financial year 2009 - 10 at page number 41 of the annual report it is stated that the comparable company provides healthcare and receivable management services involving medical transcription, medical coding, billing and receivables management (collections). At page number 42, description of the medical transcription services have been provided with shows brief process of the medical transcription giving the process flowchart and in the end it is stated that medical transcription profession is considered very much a skilled work which can be done only after undergoing 6 to 8 months of rigorous training as it involves the identifying the generic name and trade name of the various drugs. That can be done only after reference to the pharmacology refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer /learned AO to exclude the above company from the comparability analysis. 11. The next comparable challenged for its exclusion is E Clerx services Ltd stating that it is functionally dissimilar as it is engaged in rendering knowledge process services focused on financial services and sales and marketing support services and TPO services. It is further stated that it provides end-to-end financial transaction support services with services that span both on the sale side and buy-side of the financial transaction. The comparable company also provides strategy process consulting services helping clients devise solution to improve efficiency, reduce risk and meet regulatory and market demands. In the sales and marketing support division, the comparable company provides services in all elements of products and services marketing. It is further argued that honourable Delhi High Court in Ramp green solutions private limited vs. CIT it is held that it is engaged in the knowledge process outsourcing business and therefore it cannot be compared with simple ITeS service provider. 12. Before the learned transfer pricing officer assessee contested for exclusion of the above comparable s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in the nature of business transformation services, sourcing and procurement outsourcing et cetera and which has a significant intangible asset in the form of Infosys brand. It is further stated that it has acquired a company and therefore there is an extraordinary event hence it should be excluded. He further referred to page number 264 of the paper book wherein the amalgamation has taken place of PAN financial services India private limited with comparable company. Therefore it is stated that it should be excluded. 15. The learned transfer pricing officers considered the above objection of the assessee vide para number 15.5 page number 28 of his order. He held that as per the profit and loss account, significant accounting policies and notes on accounts of the above company, it is clear that this company is an ITeS company and fully comparable with the assessee. With respect to the presence of brand value the learned TPO noted that annual report of Infosys BPO does not mention anything regarding the brand deriving its profitability. He further stated that by spending a meager amount of revenue Infosys BPO could not have generated brand value as suggested by the taxpayer. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d mothers High Court of scheme of amalgamation to amalgamate PAN financial services India private limited which is engaged in providing business process management services with the Infosys BPO Ltd with effect from 01/04/2008. Therefore even if there is an amalgamation or merger, it has happened in financial year 2008 - 09, and impugned financial year before us is financial year 2009 - 10 , hence it does not pertain to this year and therefore for this reason Infosys BPO cannot be excluded. 19. However for the reasons given by us above, we direct the learned TPO/AO to exclude the Infosys BPO Ltd from the comparability analysis for the reasons of having huge brand value. 20. The 4th comparable TCS E serve international Ltd challenged by the learned AR on functional dissimilarity stating that it is engaged in transaction processing and technical services like software testing, verification and validation of the software. It is further contended that segment information is not available. The AR further stated that there are extraordinary event in the form of acquisition by the comparable company from Citigroup of certain business. It was further stated that there is a payment for TAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on panel also rejected the objection of the assessee. 25. On identical facts and circumstances we have excluded TCS E serve international Ltd that it belongs to a Tata group and has paid contribution for Tata brand. We have also perused the annual report of the comparable company which is placed at page number 372 - 507 of the paper book on careful analysis of the annual report it is found that in schedule 'N', Tata brand equity contribution of this comparable companies is Rs. 46065 thousands. Therefore we direct the learned transfer pricing officer to exclude the above comparable from the comparability analysis. 26. The next ground on the comparability analysis of the assessee is that one comparable selected by the assessee by the name of Mphasis Fincources Ltd has been rejected by the learned transfer pricing officer as it failed the employee cost filter. The learned authorised representative submitted that on perusal of the page number 13 of the annual report indicated that the total employee cost is INR 7 2651206 and the total expenditure incurred by the assessee is INR 1 63475456 and therefore the employee cost is only 44.44 percentage and thus meets the filter applied by th ..... 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