TMI Blog2017 (4) TMI 1448X X X X Extracts X X X X X X X X Extracts X X X X ..... analysis and data process solution and is recognised as experts in chosen market financial cruises, retail and manufacturing It was found to have being providing complete business solutions. The nature different field of services provided by this company clearly show that it is not functionally comparable with the software development services. Accordingly, we direct the TPO/AO to exclude this company from the set of comparables. Infosvs BPO Ltd engaged in the business of software product, therefore, it is clear that the company apart from having its own IPR and brand value also engaged in the software product. Therefore, this company cannot be considered functionally similar to that of assessee and accordingly, we direct the AO/TPO to exclude from the list of comparables. Accentia Technologies Ltd (seg) company is engaged in providing engineering design services and software development services. In the segment ITES this company is deriving income from engineering design services and software development services and segmental data of this company does not give separate revenue and margin relating to the software development services. Therefore, in view of the facts tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 for the assessment year 2010- 11. The assessee also filed cross objections against the assessment order dated 30/01/2015 for the assessment year 2010-11. 2. Briefly, facts of the case are that the assessee is a company incorporated under the provisions of the Companies Act, 1956. It is a wholly owned subsidiary of ScanCafe Inc., USA. It is engaged in the business of providing digital imaging services falling within the category of IT enabled Services (ITeS) to its AEs. The assessee-company is compensated by the AE at cost +17% mark0up basis. It has filed return of income for the assessment year 2010-11 on 27/09/2010 declaring total income of ₹ 52,010/-. The assessee-company also reported international transaction of provision of digital imaging services (ITeS) of ₹ 17,58,08,037/- in its Form 3CEB. The assessee-company sought to justify the consideration received for the international transaction entered with its AE to be at arm s length. The assessee-company had also submitted transfer pricing study report adopting the operating profit to the total cost as profit level indicator (PLI) for the transfer pricing study. The assesseecompany also adopted TNMM whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le entities for the purpose of determining ALP. While doing so, TPO applied the following filters: Companies for which current year data was available Companies whose ITE Service income ₹ 1 cr. were excluded Companies whose service income is less than 75% of the total operating revenues were excluded. Companies who have more than 25% related party transactions (sales as well as expenditure combined) of the sales were excluded. Companies who have export sales less than 25% of the sales were excluded. Companies who have persistent losses for the last three years upto and including FY 2009-10 were excluded. Companies having different financial year ending (i.e. not March 31, 2010) or data of the company does not fall within 12 month period i.e. 01/04/2009 to 31/03/2010 were rejected. Companies that are functionally different from the taxpayer were excluded. Companies that are having peculiar economic circumstances were excluded. 3.1 The TPO also considered foreign exchange fluctuation as non-operating in nature and accordingly re-computed operating margin of the assessee-company at 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infosys BPO and inclusion of the following companies: Sl.No. Particulars 1 R Systems International Ltd. 2 Jindal Intellicom P 3 Microgenetics Systems Ltd. 4 Microgenetics Systems Ltd. 5 Cepha Imaging Pvt. Ltd 9. During the course of hearing of the appeal, learned AR of the assessee had not pressed inclusion of the following comparable companies. Sl.No. Particulars 1 R Systems International Ltd. 2 Jindal Intellicom P 3 Microgenetics Systems Ltd. 4 Microgenetics Systems Ltd. 5 Cepha Imaging Pvt. Ltd 10. As reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen marketsfinancial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the ITES segment. 15.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee in the case on hand. The learned Authorised Representative drew our attention to various parts of the Annual Report of this company to submit that this company commands substantial brand value, owns intellectual property rights and is a market leader with brand value, whereas the assessee is merely an ITES operating its business in India and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). It was also submitted by the learned Authorised Representative that:- (i) the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com (P.) Ltd. v. Dy. CIT [2013] 140 ITD 344/[2012] 28 taxmann.com 258 (Bang.) has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enjoys the benefits of scale and market leadership. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly. Since we have directed the A.O/TPO to exclude these companies from the set of comparables therefore the TPO is directed to compute the ALP on the basis of remaining comparables. 11. Further in the case of M/s.Siemens Technology Services Pvt. Ltd. vs. ACIT (IT(TP)A No.1601/Bang/2012 dated 16/12/2016, the comparability of Accentia Technologies Ltd., Acropetal Tech. Ltd. (Seg.) E-Clerx Services Ltd., and Infosys BPO was considered by the co-ordinate bench of this Tribunal. The relevant para. is extracted below: Accentia Technologies Ltd (seg). The ld, AR of the assessee has submitted that this company fails employee cost filter as well as there was an extraordinary event of amalgamation during the year, therefore, in view of the decision of the Co-ordinate Bench in the case of Symphony Marketing Solutions India Private Limited v. ITO in IT(TP) No.l316/Bang/2012 (AY-2008-09) dated 14.8.2013, this company cannot be considered as good comparable for determinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Eclerx Servivces Ltd: 32. The Id. AR submitted that this company is rendering services like engineering, designing services which requires highly skilled employees. Thus, this company cannot be selected as comparable because their functions are different He has relied upon the decision of Special Bench of Mumbai Tribunal in the case of Maersk Global Centres (India) (P) Ltd. v. ACIT in ITA No.7466(Mum) of 2012 dated March 7,2014(AY-2008-09) and submitted that this company is rendering highly skilled services and cannot be compared with the service of ITES and accordingly, this company should be deleted from the set of comparables 33: On the other hand, the Id. DR has relied upon the orders of authorities below and submitted that the TPO has considered the functional comparability at the time of selecting this company. 34. We have considered the rival submissions and relevant record. At the outset, we note that the comparability of M/s Eclerx Services Ltd. has been examined by the Special Bench of the Tribunal in the case of Maersk Global Centres (India ) (P.) Ltd (supra) in para 82 and 83 as under: 82. In so far as M/s eclerx Services Limited is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gree of comparability and the said entities 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. 34.1 As discussed by the Special Bench in the case of Maersk Global Centres (India ) (P.) Ltd (supra), this company provides data analysis and data process solution and is recognised as experts in chosen market financial cruises, retail and manufacturing It was found to have being providing complete business solutions. The nature different field of services provided by this company clearly show that it is not functionally comparable with the software development services. Accordingly, we direct the TPO/AO to exclude this company from the set of comparables. ........................................................................................................... Infosvs BPO Ltd 42. The Id. AR submitted that the assessee has raised objection against the inclusion of this company in the list of comparables on the ground that this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in the software product. Therefore, this company cannot be considered functionally similar to that of assessee and accordingly, we direct the AO/TPO to exclude from the list of comparables. ............................................................................................. 55. In view of the above findings and respectfully following the same, we direct the TPO/AO to exclude from the list of comparables. 9. Accentia Technologies Ltd (seg) 56. The Id. AR submitted that this company is functionally different and is engaged in the business of high end services. He has relied upon the decision of the Tribunal in the case of Symphony Marketing Solutions India (P.) Ltd. (supra). 57. The Id. DR relied upon the decisions of authorities below. 58. Having considered the rival contentions of both the parties and on perusal of the record, we note that functional comparability of this company has been examined by co-ordinate Bench of this Tribunal in the case of Symphony Marketing Solutions India (P.) Ltd. (supra) in paras 12 and 13 which are reproduced below: 12. This company is listed at SI.No.2 of the comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neering design services and software development services. In the segment ITES this company is deriving income from engineering design services and software development services and segmental data of this company does not give separate revenue and margin relating to the software development services. Therefore, in view of the facts that this company is engaged in the various different functions including the design engineering services, this company cannot be considered as functionally comparable with the assessee. Accordingly, we direct the TPO/AO to exclude this company from the list of comparables.' We find that in paras 55 56 of the above decisions, the name of company is mistakenly recorded as Accentia Technologies Limited instead of Acropetal Technologies Limited. In view of the above decision of the Tribunal as well as the decision of the Hon'ble High Court in the case of Rampgreen Solutions (P.) Ltd. (supra), we direct the A.O./TPO to exclude the following companies from the set of comparables : (i) E-clerx Services Ltd. (ii) Infosys BPO Ltd. (iii) Coral Hubs Ltd. (Vishal information Technologies Ltd.) (iv) Wip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious Tribunals having been holding that an entity can be taken as uncontrolled if RPT does not exceed 25% of the total revenue. Reliance in this regard can be placed on the decision of Global Logic India P.Ltd. vs. DCIT (12 taxman.com 295(Del) (ii) ThyssenKrupp Industries (33 taxman.com107)(Bom) (iii) ADP P Ltd .vs. DCIT (45 SOT 172)(Hyd) and (iv) ACIT vs. Hapag Lloyd Global Services (34 taxman.com 241). The relevant para of the Tribunal order in the case of Global Logic India P.Ltd. (supra) is extracted below: 5. We have heard the rival submissions and have gone through the material available on record. We find that the assessee had initially included 15 comparable including this company i.e., 3 DPLM Software Ltd., having OP/TC rate of 44.34 per cent. Out of these 15 comparable, the TPO has accepted four comparables i.e., 3 DPLM Software Ltd., M/s Soft Ware Ltd., M/s Lanco Global and M/s NSEIT. The average mean had been worked out by the TPO at 21.56 per cent. We also find that if this one comparable i.e., 3 DPLM Software is excluded from the four comparables selected by the TPO, the average mean of the remaining three comparables will be 13.97 per cent which is within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if that is done then no transfer pricing adjustment is required and therefore the remaining issues are of academic interest only. We find force in this argument of ld. AR of the assessee that if the assessee succeeds on this issue that RPT in the case of one comparable i.e., 3 DPLM Software Ltd. is high and for this reason that comparable has to be excluded resulting in bringing the average mean within plus minus 5 per cent of operating profit margin of the assessee then all other issues raised by the assessee in this appeal are of academic interest only and hence, we do not adjudicate upon on these issues at present. But in case, the assessee fails on that count then the assessee can raise these issues again before the Assessing Officer and the Assessing Officer should pass necessary order as per law in that situation. Following this ratio, we hold that the DRP was not justified in applying 0% RPT. Accordingly, we reverse the findings of the DRP to this extent. Ground Nos.4 and 5 are allowed. 19. Ground No.6 challenges the direction of the DRP to treat foreign exchange gain as part of operating income. The direction of the DRP is in line with settled propositi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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