TMI Blog2020 (12) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... , this comparable company appears to be functionally comparable with the assessee company. The only point which TPO raised is related to different Financial Year ending. This cannot be the sole reason for rejecting any comparable.Therefore, we direct the TPO to include this comparable i.e. R Systems International Ltd. Accentia Technologies Ltd. and ICRA Online Ltd. (seg.) both are functionally dissimilar to assessee s ITeS Segment. In fact in Accentia Technologies Ltd. there is an influence to the pricing policy because of its possession of Brand Value/IPRs. Accentia Technologies Ltd. has also made acquisition/amalgamation which depicts that the company had plans to grow through tie-ups and acquisitions of other companies. As regards to ICRA Online Ltd. (seg.), this company is functionally different and has three segment in which TPO has taken into account outsourced service segment which cannot be compared to the assessee s functioning. Therefore, both comparables selected by the TPO i.e. Accentia Technologies Ltd. and ICRA Online Ltd. (seg.) Ltd. should be excluded. We direct the TPO to exclude these two companies from the final set of comparables. Jindal Intellicom Ltd. th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable for the Financial Year 2009- 10 were excluded. 3. The Learned AO / Learned TPO, while conducting the comparability analysis, erred in rejecting companies like Nittany Outsourcing Services Private Limited, Datamatics Financial Services Limited, R Systems International Limited, Caliber Point Business Solutions Limited, Ultramarine Pigments Limited and Jindal Intellicom Private Limited, which are functionally comparable to the Appellant. 4. The Learned AO / Learned TPO erred in including companies like Accentia Technologies Ltd., Fortune Infotech Ltd. and Jeevan Scientific Technology Ltd. which do not satisfy the test of comparability. 5. The Learned AO / Learned TPO has erred in computation of employee cost filter of 25%, by selecting Jeevan Scientific Technology Limited, which has an employee cost to sales ratio of 20.67%. 6. The Learned AO / Learned TPO erred in not considering the multiple year / prior year financial data of comparable companies while determining the ALP. 7. The Learned AO / Learned TPO erred in using data as at the time of assessment proceedings, instead of that available as on the date of preparing the TP documentation for com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.1.3. companies having different financial year ending (i.e. not March 31, 2011) or the data available does not fall within 12 month period i.e. 01- 04-2009 to 31-03-2010, were rejected; 1.1.4. companies whose data is not available for the Financial Year 2010-11 were excluded 1.2 including certain companies that are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 1.3 excluding certain companies on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 1.4 resorting to arbitrary rejection of low-profit/ loss making companies based on erroneous reasons; 1.5 considering the provision of bad and doubtful debts as nonoperating for computation of margins of the Appellant. 1.6 committing factual errors in the computation of the operating profit margins of the comparable companies. 1.7 not providing appropriate economic adjustments as provided under Rule Income-tax Rules, 1962. 2. The Ld. A.O has grossly erred on facts and in law by disregarding judicial pronouncements in India TP adjustment. 3. The ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 13, the same are not pressed. As regards to Ground No. 12, the same has become infructuous, as the TPO has passed an order dated 01/08/2016 under Section 154 of the Act. 6. Thus, we are dismissing Ground No. 1, 5, 6, 7, 8, 9, 10, 12 and 13 of the appeal for A.Y. 2010-11. 7. As regards to Ground No. 2, 3 and 4, relating to final set of comparables selected by the TPO, the Ld. AR submitted that two comparables has to be excluded and one comparable has to be included on the following reasons: i) Accentia Technologies Ltd.: This company has to be excluded from the final set of comparables as it is functionally dissimilar to the assessee s ITeS segment. This company is engaged in rendering IT enabled services and renders gamut of services under single segment Healthcare Receivable Cycle Management. The services range from medical transcription, billing and coding. Further, the company develops its own software products for Business Process Outsourcing. Accentia is the first company to offer Software as a Service ( SaaS ) model in the Healthcare Receivables Management area. The annual report of Accentia shows that it is providing software as a service to its clients and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1477 4833 of 2017) as well as decision of the Tribunal in case of Omniglobe Information Technologies (India) (P.) Ltd. vs. ITO (ITA No. 1003/Del/2016). ii) Fortune Infotech Ltd.: This company was not proposed by the TPO as a comparable company in the show cause notice dated 30/09/2013. However, the same was included as a comparable company in the final order passed by the TPO. This company is functionally dissimilar to the assessee company s ITES segment. Fortune Infotech is a web development service provider which offers consulting and technical solutions in web application development. It develops CMS based websites and web application using Joomla which is used to offer various custom development services such as custom design and template design services, e-commerce development, integration of Joomla with other web applications, search engine optimization, etc. Fortune Infotech has developed its own software called Finetran and image index for performing specialized services in medical transcription and patient record management. This company has developed unique software from which it would derive substantial benefits/advantages when compared with the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (ITA No. 217/2014), the Hon ble Delhi High Court held that if the comparable is functionally same as that of tested party then same cannot be rejected merely on the ground that data for entire financial year is not available. If from the available data on record, the results for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings. The Ld. AR also relied upon the decision in case of XL India Business Services (P) Ltd. vs. Addl. CIT ITA Nos. 1477 4833 of 2017 for A.Y. 2010-11. 8. As regards to Ground No. 11, the Ld. AR submitted that the assessee should be given the benefit of range of +/- 5% as provided in proviso to Section 92C(2) of the Income Tax Act, 1961 ( the Act ), if required. 9. As related to exclusion of two comparables, the Ld. DR submitted that the TPO has taken all the cognizance of these comparables and after proper verification of these comparables has selected in the same in the final set. The Ld. DR relied upon the order of the TPO. The Ld. DR in respect of inclusion of one comparable submitted that the said company has a different financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of ₹ 1,53,78,701/-. Thereafter, the Draft Assessment Order was passed on 12.02.2015. Being aggrieved by the Draft Assessment Order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP passed directions dated 13.11.2015. Accordingly, the Assessing Officer vide assessment order dated 23.12.2015 assessed the total income at ₹ 3,63,90,732 and made various additions. As per directions of the DRP, a relief of ₹ 2,49,564/- was granted to the assessee. 14. Being aggrieved by the assessment order, the assessee filed appeal before us. 15. The Ld. AR submitted that from the final set of comparables selected by the TPO following two comparables has to be excluded, in one comparable margin taken by the TPO should be rectified and two comparables should be included for the following reasons: i) Accentia Technologies Ltd.: This comparable company is KPO and Product Development Company. Accentia renders KPO services in the healthcare sector by way of offering SaaS model. The software helps in managing all the healthcare documentation needs, receivables management needs, performance tracking and reporting. Therefore, SaaS mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations of other companies rather than by its operational activities. Accentia's operations are not classified under single segment 'Healthcare receivables management'. There is no mention of revenues derived or profits attributable to the segment/(s) considered under ITeS services. TPO has considered profitability of Accentia at an overall entity level which is incorrect. The Ld. AR relied upon the following decisions: PCIT vs B.C. Management Services (P.) Ltd.; ITA No 1064/2017 (Delhi High Court) Ominglobe Information Technologies (India) (P) Ltd Vs. ITO ITA NO. 1003/Del/2016 ii) ICRA Online Limited (Seg): ICRA is engaged in information services and technology solutions and therefore, functionally different from the assessee company. This Company is engaged in three segments i.e. Information Services, Outsourced Services, and Software Products Services. The TPO has considered Outsourced Services Segment of ICRA as a comparable to the functions performed by the assessee company. In this regard, the Ld. AR submitted that the aforesaid segment is engaged in maintenance and management of data. Thus, it is engaged in the provision of KPO services to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April 2010 to 31 March 2011 can be computed. Accordingly this company should be accepted as comparable company. Merely following a different financial year was not a valid reason for rejecting a comparable company as long as the data available were contemporaneous and in public domain at the time specified in the Rules. Further, the TPO ought to be consistent in his approach of selecting comparable companies year-on-year basis. R Systems has been accepted as a comparable company in the TP order passed by the TPO for the previous 3 A.Ys. i.e. A.Y. 2006- 07, 2007-08 and 2008-09, on the basis that it has an ITeS segment and qualifies all filters. Considering that there is no change in the business of R Systems in the current AY i.e. AY 2011-12, rejecting this company as a comparable company would be inappropriate. Thus, this comparable company should be excluded. ii) Microgenetics Systems Ltd.: The Ld. AR submitted that there is no dispute on the fact that Microgenetics is functionally comparable to the assessee company. In the search conducted by the TPO, this company was rejected as comparable for the data not available in the public domain. However, the data was available wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany had plans to grow through tie-ups and acquisitions of other companies. As regards to ICRA Online Ltd. (seg.), this company is functionally different and has three segment in which TPO has taken into account outsourced service segment which cannot be compared to the assessee s functioning. Therefore, both comparables selected by the TPO i.e. Accentia Technologies Ltd. and ICRA Online Ltd. (seg.) Ltd. should be excluded. We direct the TPO to exclude these two companies from the final set of comparables. In respect of Jindal Intellicom Ltd. the Ld. AR pointed out that incorrect margin was taken by the TPO and prima facie it appears that the margin taken by the TPO is not proper. Therefore, we direct the TPO to take appropriate margin for taking this comparable i.e. Jindal Intellicom Ltd. in final list of comparables. As regards inclusion of R Systems International Ltd., this comparable company appears to be functionally comparable with the assessee company. The only point which TPO raised is related to different Financial Year ending. This cannot be the sole reason for rejecting any comparable. Therefore, we direct the TPO to include this comparable i.e. R Systems International L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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