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TMI Blog2016 (6) TMI 1358X X X X Extracts X X X X X X X X Extracts X X X X ..... Jindal Intellicom Pvt. Ltd., M/s Mold-tek Technologies Pvt. Ltd.. M/s Wipro Ltd. (seg) and M/s Allsec Technologies Pvt. Ltd. in ITES segment as comparables. 3. On the facts and in the circumstances of the case the learned CIT(A) has erred in rejecting the diminishing revenue filter used by the TPO to exclude companies that do not reflect the normal industry trend. 4. On the facts and in the circumstances of the case the learned CIT(A) failed to appreciate that the different year ending, filter applied by the TPO is necessary to exclude companies which do not have the same or comparable financial cycle as the tested party. 5. On the facts and in the circumstances of the case the learned CIT(A) has erred in holding that M/s Accentia Technologies Ltd_ cannot be taken as comparable and rejecting the TPO's finding that there is no evidence on record to prove that events in the company had any bearing on the margins earned by the company. 6. On the facts and in the circumstances of the case the learned CIT(A) has erred in holding that M/s Genesys International Corporation Ltd. beim', functionally different, cannot be taken as comparable even though he has held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparables considered by the AO! TPO in the comparability analysis using unreasonable comparability criteria. 5. The learned CIT(A) has erred, in law and facts, by not making suitable adjustments to account for differences in the risk profile of the Respondent vis-à-vis the comparables. 6. The learned CIT(A) has erred, in law and facts by computing the arm's length price without giving benefit of +/- 5 percent under the proviso to section 92C of the Act. 7. The learned CIT(A) has erred, in law and facts in confirming interest of Rs. 226,506 computed by the AO u/s 234D of the Act and in not directing recomputation of such interest, which is consequential in nature." 4. Briefly, facts of the case are that the assessee is a company duly incorporated under the provisions of the Companies Act, 1956. The assessee-company is a wholly owned subsidiary of M/s.Novo Investments Pte.Ltd., Singapore, which, in turn, is a wholly owned subsidiary of M/s.Novo Nordisk A/S, Denmark. The assessee-company is engaged in (a) providing the services of distribution of insulin and other diabetic therapy products of its group companies (M/s.Novo Nordisk A/S, Denmark and M/s.Novo Nordisk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention of the assessee-company that the transaction in respect of trading, marketing support services and reimbursement of expenses are at arm's length. The TPO accepted TNMM adopted by the assessee-company as well as cost + margin as a profit level indicator but rejected the transfer pricing study report. The TPO proceeded to identify a different set of comparable entities for the purpose of determining the ALP. While doing so, the ld. TPO had applied the following filters in ITeS segment: * Use of current year data only; * Turnover filter i.e. excluding companies having income from ITeS less than INR 1 crore. * foreign exchange earnings less than 75% of total revenue in respect of ITeS segment. Appling the above filters, the TPO had proposed the following additional comparables: Sl. No. Comparable 1. Accentia Technologies 2. Acropetal Technologies Ltd. 3. Caliber Point Business Solutions Ltd.(Business Process Outsourcing Segment) 4. Coral Hub Ltd. 5. Cosmic Global Ltd. 6. Crossdomain Solutions Pvt. Ltd. 7. Datamatics Financial Services Ltd.(ITES Segment) 8. Eclerx Services Ltd. 9. Genesys International Corporation Ltd. 10. Infosy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue of the company. As regards M/s.Acropetal Technologies Ltd, M/s.Caliber Point Business Solutions Ltd., M/s.Cosmic Global Ltd., M/s.Crossdomain Solutions Pvt. Ltd. M/s.Datamatics Finaicial Services Ltd., and M/s.R Systems International Ltd., inclusion of these companies by the TPO in the list of comparables was upheld. 8.2 The ld.CIT(A) also denied the benefit of deduction under the proviso to sec.92C on the ground that the proviso to section 92C came into operation only from the assessment year 2009-10. 9. Being aggrieved by that part of the order of the ld.CIT(A), the revenue is in appeal and the assessee is also in cross objections aggrieved by that part of the order of the ld.CIT(A) 10. We shall first take up the revenue appeal. Before us, learned Departmental Representative argued that the ld.CIT(A) ought not to have applied the turnover filter and excluded the companies M/s.Aditya Birla Minacs Worldwide Ltd., M/s.Coral Hubs Ltd., M/s.Eclerx Services Ltd., M/s Infosys BPO Ltd., M/s Jindal Intellicom Pvt. Ltd., M/s.Mold-tek Technologies Pvt. Ltd., M/s.Wipro Ltd.(seg) and M/s.Allsec Technologies Pvt. Ltd., in ITES segment as comparables. The Learned DR argued tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of functional dissimilarity by the co-ordinate bench in the case of Symphony Marketing Solutions India Pvt. Ltd. vs. ITO [IT(TP)A.1316/Bang/2012 dated 14/08/2013] wherein it was held as follows: "20............It is the stand of the assessee that this company offers solutions that include data analytics, operations management, audits and reconciliation and therefore has to be classified as high end KPO. In support of the stand of the assessee, extracts from the annual report of this company have been pointed out. It has further been submitted that extra ordinary events and peculiar circumstances prevail in the case of the assessee in as much as this company acquired a UK based company which has significantly contributed to the increase in the customer and revenue base of the company. This Tribunal in the case of Capital IQ Information Systems India Pvt. Ltd. (supra) had an occasion to deal with comparability of this company in the case of an ITES company such as the Assessee and the Tribunal held as follows:- "14. The assessee has objected for this company being taken as comparable mainly on the ground that it was having a supernormal profit of 89%, and as such it cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablished player who is not only a market leader but also a company employing sheer breadth in terms of economies of scale and diversity and geographical dispersion of customers. The presence of the aforesaid factors will take this company out of the list of comaparables. We therefore accept the contention of the assessee that this company cannot be regarded as a comparable. " Respectfully following the decision of the co-ordinate benches, in the cases cited supra we direct the AO/TPO to exclude this company from the list of comparables. 12.3 M/s.Wipro Ltd., was held to be incomparable by on the ground of functional dissimilarity by the co-ordinate bench in the case of Symphony Marketing Solutions India Pvt. Ltd. vs. ITO [IT(TP)A.1316/Bang/2012 dated 14/08/2013] wherein it was held as follows: 26. .........As far as this company is concerned, the discussion made while deciding Infosys BPO Ltd. as a comparable will equally apply to this company also. This company owns substantial intellectual property on software products. This company cannot therefore be regarded as a comparable. For the reasons given while disregarding Infosys BPO Ltd. as a comparable, this company is also d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following manner- "17.5. In addition to the above, the Director's Report of the company for the FY 2007-08 revealed the merger and the demerger. A company known as Techmen Tools Pvt. Ltd. had amalgamated with Mold-tek Technologies Ltd. with effect form 1st October, 2006. There was a de-merger of Plastic Division of the company and the resulting company is known as Moldtek Plastics Limited. The de-merger from the Moldtek Technologies took place with effect from 1st April, 2007. The merger and the demerger needed the approval of the Hon'ble High Court of Andhra Pradesh and also the approval of the shareholders. The shareholders of the company gave approval for the merger and the de-merger on 25.01.2008 and the Hon'ble High Court of Andhra Pradesh had approved the merger and de-merger on 25th July, 2008. Subsequently, the accounts of Moldtek Technologies for FY 2007-08 were revised. On a perusal of the annual report it is noticed that Teckmen Tools Pvt. Ltd. and the Plastic Division of the company were demerged and the resulting company was named as Moldtek Plastics Ltd. The KPO business remained with the company. A perusal of the Annual report revealed that to give ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. The assessee is a routine ITES provider who does not require such highly skilled employees. Besides the above, this company also carries out R&D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. We may also point out that the objection of the assessee in this regard has been disregarded by the TPO by mere observation that it cannot be rejected on the basis that it is into different functional line within ITES. In this regard, we may refer to the decision of the ITAT Bangalore Bench in the case of First Advantage Offshore Services Ltd. (supra), wherein it was observed as under:- "39. Having heard both the parties and having considered their rival contentions, we find that the assessee had raised elaborate objections to each of the comparables in group 3 before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pending on the skills required to perform ITES the comparability has to be done. In view of the above, we are of the view that this company cannot be regarded as a comparable and deserves to be excluded from the list of comparables." Respectfully following the decision of the co-ordinate bench in the case supra, we uphold the action of the ld.CIT(A) in excluding this company from the list of comparables. Hence, the grounds of appeal raised by the revenue are dismissed. 16. Ground No.8 is general in nature and does not require adjudication. 17. In the result, the revenue appeal is partly allowed. 18. Now let us take up the cross objections by the assessee company. In the cross objections filed, the only objection pressed by the learned counsel for assessee is that the ld.CIT(A) ought to have granted the deduction of +/- 5% under proviso to Sec.92C of the Act. An Explanation was added to section 92C(2) with retrospective effect from 1/10/2009. This Explanation was considered by the Special Bench of Tribunal in the case of High IT Services (India) Pvt. Ltd. vs. ITO (33 taxmann.com 1 (Del.Trib.) wherein it was held that the benefit of 5% tolerance margin would be available only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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