TMI Blog2018 (8) TMI 1928X X X X Extracts X X X X X X X X Extracts X X X X ..... rite off of fixed assets in any of the comparables finally considered, the TPO is directed to exclude such costs from the comparables also. Thus, in our considered opinion, is fair and reasonable direction and does not need any interference in our part. - IT APPEAL NO. 1465 & 1493 (MUM.) OF 2014 - - - Dated:- 31-8-2018 - Shamim Yahya, Accountant Member And Sandeep Gosain, Judicial Member V. Jenardhanan for the Appellant. Kamal Sawhney and Abhishek Tilak for the Respondent. ORDER Shamim Yahya, These are the cross appeals by the Revenue and the assessee against the order passed by the Assessing Officer ('A.O.' for short) dated 03.01.2014 pursuant to the direction of the Dispute Resolution Panel-II, Mumbai ('DRP' for short) dated 31.12.2013 and pertain to the assessment year ('A.Y.' for short) 2009-10. 2. The grounds of appeal in Revenue's appeal read as under: On the facts and in the circumstances of the case and in law, the Hon'ble DRP has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below: - 1. On the fact and in the circumstances of the case and in law, the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Pricing Officer ('TPO') and the learned Assessing Officer ( AO') under the directions of the Hon'ble Dispute Resolution Panel ('DRP') erred on facts and in law in making an addition of ₹ 2,21,25,308 to the international transaction of the Appellant based on the provisions of Chapter X of the Income-tax Act, 1961 ('the Act'). 1.2 The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in arbitrarily giving factually incorrect reasons to reject/disregard the detailed and methodical benchmarking analysis and comparable companies selected by the Appellant without appreciating the fact that such selection was based on the contemporaneous data and the transfer pricing study report prepared and maintained as per section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules'). 1.3 The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in applying an arbitrarily prepared set of companies to determine the arm's length nature of the international transaction of the Appellant, without taking into consideration the differences in the functions perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in levying interest under Section 234C of the Act of ₹ 7,58,958. Accordingly, the Appellant prays that the AO be directed to grant consequential relief in computing interest under Section 234C of the Act in accordance with the law. I. Apropos Transfer Pricing Adjustment: 4. Brief facts of the case are that the assessee is a wholly owned subsidiary of Swiss Reinsurance Limited, which is incorporated in Zurich, Switzerland. The assessee is engaged in providing consultancy services. During the previous year the assessee has provided total services amounting to ₹ 24,74,49,950/-. This is the main international transactions entered into by the assessee. Besides this transaction the assessee has also entered into two transactions relating to the reimbursements of expenses and advance received from its associated enterprise. The assessee has adopted the transactional net margin method to benchmark its International transactions. The assessee has identified various comparable companies from public data base which are engaged in providing various different types of services including software and IT Enabled services. The average margin of the comparable cases id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case is only 2% of the operating revenue whereas in assessee's case the employee cost constitutes more than 50% of the assessee's revenues. Hence, it was contended that this company is not functionally similar to the assessee. In this regard, the assessee has relied on Tribunal's decision in the case of Asstt. CIT v. Maersk Global Service Centre India (P.) Ltd. [2011] 133 ITD 543 (Mum.). The DRP in this regard has rejected the assessee's contention. It has given the following directions: The TPO has accepted this as a comparable, which the assessee is contesting on the ground that this entity is into sub-contracting of its ITES business and has made significant payment to vendors. As per page 43 of the Annual Report the operating expenditure for the year ending 31st March, 2009 has increased 77.15% and the increase in expenditure is primarily on account of increase in scale of operations. This shows that the data entry charges mentioned on page 74 are operational in nature and not subcontracted as contended by the assessee. Further, as held in Para 63.1 of M/s. Willis Processing Services (India) (P.) Ltd. in ITA No.4547/Mum/2012, this entity had utilized 80% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Counsel for the Respondent-Revenue very fairly states that being aggrieved by the two orders dated 30th April, 2014 for the Assessment Year 2006-07 and 2007-08 in the case of the same Respondent-Assessee, it had preferred appeals to this Court being Income Tax Appeal No. 732 of 2014 (CIT v/s. PTC Software (I) Pvt. Ltd.) and Income Tax Appeal No. 337 of 2014 (GIT v/s. PTC Software (I) Pvt. Ltd., Both the appeals by the Revenue had challenged the exclusion of the Vishal Information Technologies Ltd., as a comparable, were dismissed by orders dated 10th October, 2016 (Assessment Year 2006-07) and 26th September, 2016 (Assessment Year 2007-08), as not giving rise to any substantial question of law. No distinguishing features have been pointed out for the subject Assessment Year from that prevailing in Assessment Years 2006-07 and 2007-08 which would warrant a different view. (iii) Thus, sub-question (I) as proposed does not give rise to any substantial question of law. Thus, not entertained. Referring to the above, the ld. Counsel of the assessee stated that since the Hon'ble jurisdictional High Court has held that this company is functionally dissimilar inasmuch as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided by the assessee also assist the AE in suggesting suitable modification/improvement in the process that could reduce potential hazards and consequentially the premium. Similarly under the claims support the assessee facilities the claim survey process by supporting the international loss adjusters sent by the AE to assess the claim. Similarly loss of profit claim involves a considerable amount of estimation and is subjective. The process involved is inherently complicated and it is again explained at para 4.1.1.5 of the TPSR that the assessee supports and heips AE in processing such business insurance claims by gathering and processing all the relevant data in a suitable manner. All this clearly shows that the services performed by the assessee are not purely in the nature of BPO services as contended by it or even as considered by the TPO. A reference to the annual report of Eclerx also indicated that the e-clerk is engaged in similar services of providing market research, market support, analysis of data etc. Hence, functionally there appears to be no reason why Eclerx should not be compared with the assessee. Hence, this comparable is retained.' In this regard, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. v. ACIT [ITA No.l24/Hyd/2014] (ii) M/s. Excellence Data Research Pvt. Ltd. v. ITO [ITA No. 159/Hyd/2014] 13. Furthermore we note that in the case of Rampgreen Solutions Private Limited (supra) has held that although super profits could not be the only reason to exclude the comparable, however, Hon'ble High Court had expounded that in such circumstances it may be necessary to bear in mind the super normal profits in a certain cases indicated functional dissimilarity. That a wide deviation in the PLI amongst selected comparables could be indicative that the comparables selected are either materially dissimilar or the data used is not reliable. The Hon'ble High Court in (he decision noted the findings of Special Bench of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd. wherein it was noted that Eclerx Services is engaged in data analytical, data processing services, pricing analytics, bundling optimization, content operation, sales and marketing support, product data management, revenue management. Furthermore it is noted that Eclerx Services also offered financial services such as real-time capital markets, middle and back-office support, po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of total operational revenue, further, in case of M/s. Willis Processing Services (India) (P.) Ltd. in ITA No.4547/Mum/2012 in Para 18, as well as Delhi Benches of the Tribunal in the case of Actis Advisors (P.) Ltd. in ITA No. 5277/Del/2011 have accepted this as a comparable. Hence, the claim of the assessee is rejected and the action of TPO is upheld in this case. The ld. Counsel of the assessee in this regard submitted that the Hon'ble jurisdictional High Court in the case of PTC Software (I) (P.) Ltd. (supra) has upheld the exclusion of Accentia Technologies Ltd. on the ground of it being functionally different inasmuch as it develops its own software and render medical transcription services and that profit of Accentia Technologies Ltd included external event of merger and amalgamation. The Hon'ble High Court has held as under: (i) The impugned order of the Tribunal has excluded M/s. Accentia Technologies Ltd., from the list of comparables to determine the ALP of the Respondent's transactions. (ii) The impugned order renders a finding of fact that the nature of activities carried out by M/s. Accentia Technologies Ltd., are different from that carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... review of performance and business prospect. The company during this financial year has achieved growth by tapping the IT enabled translation services and earned the optimum profit. The company is trying to expand the customer base by the specialisation in translation services and also pursuing their IT enabled services such as BPO services and tries to establish a brand in this field 3.5.2.1 From the above it is clear that Cosmic Global Ltd operates in the IT enabled segment just like the assessee. The translation services provided by the company are based on the usage of specialised software just as one uses CAD/CAM for engineering drawing purposes. Further there is no outsourcing of translation work as evident from the above description. The assessee's contention is hence rejected and this company is to be in the included in the comparable set. As far as the assessee is concerned, the functions performed by Cosmic Global Ltd as indicated in the annual report is comparable to that of the assessee. Further, the argument of rejection on the basis of a different business model has been suitably rebutted in the case of Agilent Technologies in ITA No.6047/Del/2012 relying on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the assessee has submitted that this company is engaged in voice based services in the area of collection, telemarketing and customer care and hence the same should not be considered as a comparable particularly because the profit fluctuation is very high in telemarketing business. The assessee had further submitted that this company has earned super normal profits and for that reason also the same is not comparable to the assessee. The DRP upheld the assessee's submissions and directed as under: Having regard to the various decisions of 1TAT relied upon by the assessee wherein cases of super normal profits have been excluded from the comparable set, the assessee's argument is accepted and the TPO is directed to exclude Excel Infoways from the comparable set. In this connection, the ld. DR relied upon the order of the Transfer Pricing Officer ('TPO' for short). Per contra, the ld. Counsel of the assessee supported the order of the DRP. He further referred to ITAT such decision in the case of Baxter India (P.) Ltd. v. ACIT [2017] 85 taxmann.com 285 (Delhi - Trib.) for the following proposition : 24. So far as exclusion of Excel Infoways Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently from financial years 2009-10 to 2011-12 i.e. including the year under consideration. Further, the above company has super normal profits. We further find the submissions of the assessee that Excel Infoways Ltd. has super normal profits during the current year has not been controverted by the Revenue. We find the Mumbai Bench of the Tribunal the case of DCIT v. Willis Processing Services (India) Pvt. Ltd. vide ITA No.2152/Mum/2014 has upheld the order of the DRP rejecting Excel Infoways Ltd. as comparable company on the ground that the company has a super normal profit of 203.80% and low employee cost 10.02%. We, therefore, find merit in the submissions of the ld. counsel for the assessee that Excel Infoways Ltd. should be excluded from the list of comparable on account of super normal profit of the said company in the preceding year. ITA No.6158/Del/2016 25.1 Further, from the order of the TPO we find he has obtained the employee cost and the sale for the ITES segment by exercise of his powers u/s. 133(6), wherein the said company has allocated entire employee cost to IT - BPO segment with no allocation to Infra Activity segment which accounts to 49% of Excel's tota ..... X X X X Extracts X X X X X X X X Extracts X X X X
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