TMI Blog2019 (10) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 2006-07. 2. This is the second round of litigation before the Tribunal. Earlier, the Tribunal, vide ITA No.3955/Del/2010, order dated 8th May, 2015, had restored the issue back to the file of the DRP on the ground that the assessee has raised a number of contentions before the DRP and none of these contentions were considered by the DRP and they have not passed a speaking order in this case. Subsequently, the DRP, vide order dated 28th June, 2016, passed the order. The Assessing Officer, vide order dated 31st August, 2016, revised the TP adjustment to ₹ 1,28,30,310/- as against the original adjustment of ₹ 1,77,38,869/-. 3. Aggrieved with such order of the DRP/Assessing Officer/TPO, the assessee is in appeal before the Tribunal by raising the following grounds:- That on the facts and circumstances of the case, and in law:- 1. The Ld. AO following the directions of the Ld. TPO/ Hon ble DRP erred on facts and in law in making an upward adjustment to the income of the appellant by INR 1,28,30,310 holding that the international transactions of the appellant pertaining to provision of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of ₹ 12,02,77,639/-, the Assessing Officer referred the matter to the TPO for determination of the arm s length price of the international transaction entered into by the assessee. The TPO, during the course of TP assessment proceedings observed that the assessee has undertaken the following international transaction:- S.No. Description of transaction Method Value (in Rs.) 1. IT enabled back office services TNMM 120,277,639 5. The assessee selected the PLI based on the operating cost for determining the arm s length result. The PLI used is the net operating profit based on cost which is the ratio of net operating profit to total expenses. The assessee selected 14 comparables and the mean margin of the comparables was 11.72%. Since the margin of the assessee was 12.20%, it was explained that the transaction of the assessee with its AE is at arm s length from the perspective of the Indian transfer prici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23.76% 7. The Assessing Officer accordingly passed the final assessment order making an upward adjustment of ₹ 1,28,30,310/-. Aggrieved with such order of the A.O./TPO/DRP the assessee is in appeal before the Tribunal. 8. The ld. counsel, referring to the final set of comparable companies selected by the DRP, submitted that he is challenging the inclusion of only the following comparables:- S.No. Name of the company OP/TC 1. Vishal Information Technologies Limited 48.03% 2. Maple eSolutions Limited 31.46% 3. Triton Corp Limited 16.98% 4. Asit C Mehta Financial Services Ltd. (segmental) (Nucleus Netsoft and GIS India Ltd.) 60% 9. So far as the inclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee cost to revenue from operations is 23.35% whereas in the case of the assessee this percentage is 46.74%. This lower ratio of employee cost to turnover is unusual in BPO business. Further amalgamation of Nucleus Netsoft GIC (India) Ltd. and Asit C. Mehta Financial Services Ltd. was concluded in the assessment year 2006-07. Referring to the decision of the Hyderabad Bench of the Tribunal in HSBC Electronic Data Processing India Ltd. vs. Addl. CIT, 38 taxman.com 141, copy of which is placed at pages 64-78 of the paper book, he submitted that this company was excluded from the list of comparables for failing the employee cost filter and amalgamation during the year which has changed the business model of the company. It was observed that as against 0.24 crores of employee cost in F.Y. 2004-05, the employee cost increased to 1.33 crores in F.Y. 2005-06. Further, the data processing charges increased from Rs.nil to ₹ 1.04 crores during the same period which proves a change in the business model and also outsourcing of work. Referring to the decision of the Hon'ble Delhi High Court in the case of PCIT vs. Ameriprise India Pvt. Ltd, vide ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that this company also should be excluded from the list of comparables on the ground of amalgamation with three companies during the year. Further, the company is in BIFR and is declared a sick company and now being discharged. Further, this company is functionally dissimilar since it is engaged in IT peripherals. Further, the comparable is engaged in both IT and IT enabled services, but, no segmental information is available. He submitted that the statement of income of the comparable includes change in inventories and purchases the details of which are not given. Referring to the order of the TPO in assessee s own case for assessment year 2008-09, he submitted that the TPO himself has rejected this comparable on the ground that it is functionally incomparable. Referring to the decision of the coordinate Bench in the case of CRM Services India Pvt. Ltd. (supra), he submitted that this company was excluded from the list of comparables on the ground that the business reputation of Rastogi owning Maple eSolutions Limited and Triton Corp Limited is under serious indictment and these comparables cannot be taken as comparable. He submitted that similar view has been taken by the Panaj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne comparables so selected by the DR/TPO/A.O., four comparables, namely, Vishal Information Technologies Limited, Maple eSolutions Limited, Triton Corp Limited and Asit C Mehta Financial Services Ltd. (segmental) (Nucleus Netsoft and GIS India Ltd.) should be excluded from the list of comparables. 14. So far as Vishal Information Technologies Limited is concerned, we find this company (earlier known as Coral Hub Ltd.) was excluded by the Tribunal in assessee s own case for assessment year 2009-10. When the Revenue challenged the order of the Tribunal, the Hon'ble High Court, vide ITA No.894/2015, order dated 23rd November, 2015, dismissed the appeal filed by the Revenue on the ground that detailed reasons have been given by the ITAT for coming to the conclusion regarding exclusion of this entity and, therefore, no substantial question of law arises from the conclusion of the ITAT on the above issue. Further, the ld. counsel for the assessee also demonstrated with details that Vishal Information Technologies Limited provides agency services by way of outsourcing services to third party vendor and acting as an intermediary between final customer and vendor. This in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the outsourcing of services by Vishal would have no bearing on the profitability of the said entity. 15. In view of the above discussion and in view of the decisions taken by the coordinate Benches of the Tribunal excluding Vishal Information Technologies Limited from the list of comparables on account of functional dissimilarities, we direct the A.O./TPO to exclude Vishal Information Technologies Limited from the list of comparables. 16. So far as Asit C Mehta Financial Services Ltd. (segmental) is concerned, we find this company is functionally dissimilar since a perusal of the annual report indicates that the income from operation is derived from portfolio management fees, IT enabled services and software development. Although this company is engaged in both IT and IT enabled services we find no segmental information is available. It also adopts a different business model since total employee cost to revenue from operations is 23.35% whereas in the case of the assessee this is 46.74%. We also find th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e eSolutions Limited from the list of comparables on account of fraudulent activities committed by the promoters and non-availability of segmental data, we direct the TPO/A.O./DRP to exclude this company from the list of comparables. 18. So far as Triton Corp Limited is concerned, this company, in our opinion, also should be excluded from the list of comparables on account of functional dissimilarities, non-availability of segmental data, unclear financials and extraordinary event that has taken place during the year. We find this company is engaged in the sale of IT peripherals. Although this comparable is engaged in both IT and IT enabled services, however, no segmental data is available. As mentioned earlier, the promoters of the company are involved in fraudulent activities and, therefore, the financials are not reliable. Further, the statement of income of the comparable includes change in inventories and purchases the details of which are not given. We also find this company was excluded by the TPO himself in assessee s own case for assessment year 2008-09. In view of the above discussion and in view of the various decisions placed in the paper book (case law c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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