TMI Blog2020 (3) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO shall recomputed the ALP in the light of the directions given above after affording opportunity of being heard to the Assessee. - IT(TP)A No. 2485/DEL/2013, IT(TP)A No. 610/BANG/2013 - - - Dated:- 20-3-2020 - Shri N.V. Vasudevan, Vice President And Shri A.K. Garodia, Accountant Member For the Assessee : Shri S.Vasudevan, Advocate. For the Revenue : Smt R. Premi, JCIT (DR)(ITAT),Bengaluru ORDER PER N.V. VASUDEVAN, VICE PRESIDENT IT((TP)A No.2485/Del/2013 is an appeal by the Assessee while IT(TP)A No.610/Bang/2013 is appeal by the revenue. Both these appeals are directed against the order dated 25.2.2013 of CIT(Appeals)-XX, New Delhi, relating to assessment year 2008-09. 2. The grounds raised in the appeal by the Assessee (as per amended grounds) and the grounds of appeal raised by the revenue in its appeal are with regard to determination of Arm s Length Price (ALP) and are connected to the grounds raised by the revenue in its appeal. As far as the issue of determination of ALP of international transactions carried out by the assessee with its Associated Enterprise (AE) is concerned, the same is in respect of Information Technology Enabled Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny Outsourcing Services Pvt. Ltd.) 11 Eclerx Services Ltd. 12 Genesys International Corporation Ltd. 13 Infosys BPO Ltd. 14 IServices India Pvt. Ltd. 15 HCL Comnet Systems Services Ltd.(Seg.) 16 Mold-Tek Technologies Ltd. 17 R Systems International Ltd. (Seg.) 18 Spanco Ltd. (Seg.) [Earlier known as Spanco Telesystems Solutions Ltd.) 19 Wipro Ltd. (Seg.) 20 ICRA Techno Analytics Ltd. (seg.) 4. The Average Arithmetic mean profit margin of the aforesaid 20 companies after working capital adjustment was 25.40%. The TPO determined the ALP of the international transaction and the consequent addition/adjustment to the total income as follows:- Computation of Arms Length Price: The arithmetic mean of the Profit Level Indicators is taken as the arms length margin. (Please see Ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The same is elucidated below your goodself s reference: Company Name AY 2008-09 As per your goodself s order Rectified Margins Accentia Technologies Ltd. (Seg.) 39.60% 39.60% Acropetal Technologies Ltd. (Seg.) 2.56% 27.97% Aditya Birla Minacs Worldwise Limited 27.97% -9.25% Asit C Mehta Financial Services Ltd. -9.25% 6.86% Caliber Point Business Solutions Ltd. (Seg.) 6.86% 6.46% Coral Hubs Ltd. (Vishal Information)* 6.64% Rejected* Cosmic Global Ltd. 39.12% 23.38% Crossdomain Solution P. Ltd. 23.38% 25.37% Datamatics Financial (BPO Division) 25.37% 32.48% e4e (earlier known Nittany Outsourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,139,093 10,386,807 Based on the above, we humbly request your goodself to rectify the mistake apparent from record in your order dated 25 February 2013, as explained in above paragraphs by passing an order under section 154 of the Act. 7. It was stated that the said application is still pending consideration before the CIT(A). 8. Aggrieved by the order of the CIT(A) in excluding Genesys International Corporation Ltd., and Mold-tek Technologies Ltd., from the list of comparable companies, the revenue is in appeal before the Tribunal. 9. Aggrieved by the order of the CIT(A) in not excluding some of the comparable companies which the Assessee sought exclusion before the CIT(A), the Assessee is in appeal before the Tribunal. 10. At the time of hearing, the learned counsel for the Assessee prayed for adjudication of amended grounds relating to exclusion of the following six comparable companies, viz., Accentia Technologies Ltd., Acropetal Technologies Ltd., Crossdomain Solutions Pvt. Ltd., Eclerx Services Ltd., Infosys BPO Ltd., and WIPRO Ltd. Therefore the comparability of the 8 companies viz., the two companies excluded by CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Our attention was draw to the annual report of this company for the A.Y. 2007-08 wherein the fact that this company had acquired Thunga Software Pvt. Ltd., GSR Physicians Billing Services Inc., GSR Systems Inc. and Denmed Inc. is mentioned. Our attention was also drawn to the decision of the Hyderabad ITAT Bench in the case of Capital IQ Information Systems India Pvt. Ltd. v. DCIT (2013) 32 Taxman.com 21 (Hyd. Trib). In the aforesaid decision, the Hyderabad Bench of the Tribunal had to deal with a case of determination of ALP in the case of an assessee who was providing ITES business support services for the A.Y. 2007-08. The TPO had considered Accentia Technologies Ltd. as a comparable. The DRP however held that the said company cannot be compared as a comparable owing to extra ordinary events that took place during the previous year. The Tribunal upheld the order of the DRP observing as follows:- I. Accentia Technologies Ltd. 10. It is the submission of the assessee that this company cannot be treated as a comparable because of uncomparable financial results arising out of amalgamation in the company. In this regard, the assessee has relied upon the order of the DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger will have an effect on the profitability of the company in the financial year in which such event takes place. It is the contention of the assessee that in case of the aforesaid company, there is amalgamation in December, 2006, which has impacted the financial result. This fact has to be verified by the TPO. If it is found upon such verification that the amalgamation in fact has taken place, then the aforesaid comparable has to be excluded. 11. We have considered the submissions of the ld. counsel for the assessee and are of the view that the ratio laid down by the Hyderabad Bench of the ITAT is squarely applicable to the present case also. It is clear that during the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a comparable. We therefore hold that this company cannot be considered as a comparable. (2) Acropetal Technologies Ltd. (Sea.) 12. This company is listed at Sl.No.2 of the comparables chosen by the TPO. As far as this company is concerned, the objection of the assessee is that this company is not functionally comparable. The assessee is a BPO company that provides market analyti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO rejected the plea of the assessee on the basis of a non-existent TP order passed for the A.Y. 2007-08. It is seen that the business profile of this company is re-engineered payroll service. This company is also engaged in the development of information systems. These activities are totally different from the activities of the assessee which perform very limited/low end functions back office services. The review and business functions of Cross Domain is as follows:- With a decade of experience in Payroll Outsourcing, Crossdomain has created a re-engineered payroll service EFFIPAY - that processes and delivers accurate payroll to clients with headcount up to 1000 employees in just 4 hours*. With Effipay Lite and Effipay Lite Plus, our bouquet of services cover end to end payroll, retrials, reimbursement, tax proof verifications upto issue of Form 16 for employees of our clients across different industry verticals. Our processes are highly scalable and provide end to end payroll solutions to clients with headcount ranging from 5 to 65,000. Crossdomain s IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons that it was having supernormal profit and it is engaged in providing KPO services, which is distinct from the nature of services provided by the assessee. 21. We are of the view that in the light of the decision of the Hyderabad Bench referred to above, this company cannot be regarded as a comparable for the reason that it was functionally different. (6) Genesys International Corporation Ltd. 22. This company is listed at Sl. No.12 in the list of comparable companies chosen by the TPO. As far as this company is concerned, the stand of the assessee has been that this company is functionally not comparable and that it has a different employee skill set and that this company performs R D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes 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 engine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal and technical skills as well as a high degree of specialist expertise. The KPO services include all kinds of research and information gathering. Thus it can be seen that even though both BPO and KPO are offering information Technology based services, the skill and expertise and may be even the tools required are different which may result in different economic results of both the segments. Thus, in such circumstances, we are of the opinion that they cannot be compared with each other and have to be excluded from the list of comparables. 23. It is thus clear from the aforesaid decision of the Tribunal that among the ITES companies there is a hierarchy in terms of skill required to provide services. It ranges from providing routine services where no skills and required and providing services where highly professionalized skills are required. Depending 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. (7) Infosys BPO Ltd. 24. This company is listed at Sl.13 in the list of comparable companies c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company specializes in providing structural design and detailing services which can be categorized as structural engineering services. The structural engineering services provided by the IT division of the company cannot be classified as falling with the scope and ambit of ITES services. On the contrary, the said services would fall under the category of engineering services. Excerpts from the Annual Report of the company Page 10 of the Annual Report for the FY 2007-08 contains the following observation regarding the KPO division of the Company: The Company has achieved about 56.49% growth in 2007-08 to register a turnover of ₹ 17.86 crore. The company having established its credentials in structural engineering services to US clients is devising aggressive marketing strategy to achieve rapid growth. This company is also engaged in providing a host of engineering services like civil and structural engineering services, mechanical product design, plant engineering, IT services and GIS services. As we have already seen, this company is to be classified as KPO and cannot be compared with the assessee. The decision of the Bangalore Bench of the ITAT in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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