TMI Blog2020 (12) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... mployees or the employees of the respondent and oversees the running of the entire project. The assessee functions all along under the guidance and supervision of the holding company. The assessee's resources log into the application to retrieve the said data. Based on the claims submitted by the clients, the assessee performs the necessary data entry functions. In case any clarification or guidance is required by the assessee, these are provided by the holding company's subject matter experts. Respectfully following the judgment of the Coordinate Bench in assessee's case [ 2015 (6) TMI 677 - ITAT KOLKATA] we hold that assessee is engaged in providing captive BPO services to its holding company and hence we dismiss grounds Nos. 1, 2 and 3 raised by the Revenue. Comparable o selection - HELD THAT:- We note that the comparables chosen by the Ld. TPO are primarily engaged in KPO services, unlike the assessee which is engaged in providing BPO services. We note that the assessee is engaged in performing captive BPO services to its holding company and such view has been accepted by the Ld. CIT(A). When a tested party is a BPO service provider (akin to the assessee), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable. We agree with the view taken by the ld CIT(A). In House Productions Ltd-Segment - As per its annual report, the year under review has seen the company having income from Medical BPO activities - Therefore, based on the facts narrated above, the In House Productions Ltd-Segment should be accepted as a comparable.e Fortune Infotech Ltd. should be accepted as a comparable as this company is engaged in providing IT Enabled Services such as claims and document processing. Since the margin earned by the assessee is higher than the margin of the comparables, therefore the transaction of services rendered is at arm's length. We do not find any infirmity in the order of ld CIT(A) except that we have rejected Cosmic Global Ltd, and this does not give any impact so far the arm's length price adjustment is deleted by the ld CIT(A).That being so, we decline to interfere with the order of Id. C.I.T.(A) in deleting the aforesaid ALP adjustment. - ITA No. 1458/Kol/2017 - - - Dated:- 20-10-2020 - S.S. Godara, Member (J) And Dr. A.L. Saini, Member (A) For the Appellant : Sanjay Paul, ACIT (DR) For the Respondents : J. P. Khaitan, Sr. Advocate ORDER Dr. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporated on 6th June 2003 as a subsidiary of Acclaris Inc. (formerly known as Acclaris LLC and hereinafter referred to as the holding company). The assessee claimed that it is a captive service provider and during the year under consideration, the assessee provided back office processing services or business process outsourcing services ('BPO') to some of the clients of its holding company. The BPO activities included various types of services, primarily related to collation and checking of medical claims and travel expense claims with their respective bills. The assessee all along operated under constant support and guidance from its holding company for these services. The assessee in its Form 3CEB reported two international transactions: services rendered and expenses recovered . The transaction under litigation is the transaction of services rendered and there is no dispute with respect to the transactions in the category of expenses recovered . As per the Form No. 3CEB filed by the assessee the transaction of services rendered was reported at INR 191,423,932/-. Such amounts were paid by the assessee's holding company to the assessee for the abovementi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e group. Acclaris India leverages on all the valuable intellectual property rights (know-how, copyrights etc.) and other commercial or marketing intangibles (brand names, trademarks etc.) owned by Acclaris Inc. Acclaris Inc. also bears all the significant business and entrepreneurial risks of product acceptability and performance in the market. Acclaris India does not own any interest in these intangibles and is a mere service provider. Further, in response to the notice of the Ld. TPO dated 18th September, 2013, the assessee, vide its letter dated 17th October 2013 filed before the Ld. TPO, made detailed submissions inter alia regarding the functions performed and activities undertaken by the assessee. The relevant portions of such submissions, which are at Pages 119-120 of the paper book, are given below: Claims Processing (Claims Indexing Data Entry): For each of the clients, the first step in the process of claim approval is claims processing . During the said process, the clients submit their healthcare claims through fax/images in the Acclaris Inc. web-based application. The assessee's resources log into the application to retrieve the said data. Based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be willing to provide on the terms and conditions of the service agreement. The said Addendum was also valid from June 30, 2003 which is the date from which the service arrangement came into force. The assessee claimed that such agreement had been filed with the Departmental Authorities in the course of the assessment proceedings for the earlier assessment years also and in such years, it was all along accepted by the Department that the assessee was engaged in providing BPO services and there was no dispute with respect thereto in those assessment years. The relevant portion of such addendum is as under: 1. In accordance with the terms and conditions of the agreement between Acclaris, LLC ( ACCLARIS ) and Acclaris Business Services Pvt. Ltd. ( ABSPL ) dated June 30, 2003, ( the Agreement ) it is agreed between the parties that the services described below are not currently included in the scope of services of the Agreement and the Addenda as they may have been modified from time to time. 2. .... ABSPL agrees to provide and ACCLARIS agrees to utilise the services of up to 4 software developers, one of whom may also function in a supervisory capacity. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich we have already noted in our earlier para and is not being repeated for the sake of brevity. 10. Learned Counsel for the assessee, has relied on the order of the ld CIT(A). 11. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld TPO and findings of ld CIT(A) and other materials brought on record. We note that during the appellate proceedings, the assessee company submitted letter dated 18th January 2017 before the Ld. CIT(A), wherein the assessee reiterated its submissions made before the Ld. TPO (Pages 377-381 of the paper book). Relevant extracts of the said submissions are given below: The appellant provides back office processing services ('BPO') to some of the clients of its holding company, Acclaris Inc. The BPO activities include various types of services which include medical claims and travel expense claims. On the other hand, Acclaris Inc undertakes the entire marketing and business development activity to generate business, negotiates and enters into contracts with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant findings of the Ld. CIT(A) are reproduced below: 1. I have carefully considered the action of the Ld. TPO and the submissions and reasons offered by the appellant before the Ld. TPO as well as in appeal. After examining the issues at hand, as also the different judicial decisions placed on record by the appellant/Ld. AR for the appellant, I am inclined to agree with the contention of the appellant that the Ld. TPO has not taken into account the Functional Asset and Risk (FAR) profile of the appellant company and the AE, and has overlooked the evidence provided by the appellant before him in respect of the Comparables selected or rejected by him. 2. The basic facts as emanating in the case are that the appellant is shielded from any risks and performs functions in a captive arrangement. As such, in my considered view of the matter, the functions undertaken by the appellant and AE which forms the basic premise of undertaking the search process and identifying the comparable companies, are to be guided by the fact that the appellant is purely engaged in processing claims relating to medical claims and travel. It has been submitted, the client relationships are ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sees the running of the entire project. The assessee functions all along under the guidance and supervision of the holding company. A user manual is provided to the assessee from the holding company for guiding and aiding the assessee in the performance of its functions. These rule books are based on the statutory rules and guidelines applicable in the holding company's country, i.e. USA, and are collated and prepared by the holding company's subject matter experts. For each of the clients, the first step in the process of claim approval is claims processing . During the said process, the clients submit their healthcare claims through fax/images in the web-based application of the holding company. The assessee's resources log into the application to retrieve the said data. Based on the claims submitted by the clients, the assessee performs the necessary data entry functions. In case any clarification or guidance is required by the assessee, these are provided by the holding company's subject matter experts. 13. We note that the Tribunal in the assessee's own case in AY 2007-08 and AY 2008-09 had held that the assessee is engaged in providing BPO services to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g comparable companies. We note that the comparables chosen by the Ld. TPO are primarily engaged in KPO services, unlike the assessee which is engaged in providing BPO services. We note that the assessee is engaged in performing captive BPO services to its holding company and such view has been accepted by the Ld. CIT(A). When a tested party is a BPO service provider (akin to the assessee), KPOs cannot be considered as comparables from a transfer pricing perspective. On the basis of the aforesaid detailed discussions and the FAR profile of the assessee discussed above, we shall examine the acceptance/rejection reasons of each comparable which have been selected by the assessee as well as those selected by the Ld. TPO and ld CIT(A) as follows: (1). Accentia Technologies Ltd The company is engaged in development of software products and rendering KPO services in the healthcare sector. As per its annual report, Accentia is a multi-location diversified Knowledge Process Outsourcing company, operating from multiple locations in India, USA, UK and the Middle East. It is engaged in SaaS (Software as a Service) model, services under Healthcare Receivables Cycle management includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts and enterprise support functions, which include Financial Information Processing (data processing) and Customer Contact (voice based) (Pg. 117 of SPB) Such voice-based services are completely different from the low-end claim processing services provided by the assessee. It is engaged in the business of providing Information Technology-Enabled Services (ITES)/Business Processing Outsourcing (BPO) services, primarily to Citigroup entities globally (Pg. 140 of SPB). The company became part of the TCS/Tata group and is supported by the scale and large client base brought by these groups. During the year under consideration, this company has made payments towards use of Tata brand. (Pgs. 116-117, 145-146 of the PB). Due to this, there is a 300% increase in profits of the company (Pg. 129 of the SPB). The Ld Counsel submits that TCS E-Serve International is a subsidiary of Tata Consultancy Services Ltd. The company is backed by the Tata brand. The benefits of being a part of the world's largest IT services group and also, part of India's largest business houses render the company uncomparable to the assessee. Further, as per various media reports, TCS purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guidelines. (Pgs. 211 and 222 of the PB). Further, as per their website, e4e Healthcare Business Services was formed by a group of oncologists based in State College, Pennsylvania as their captive operational center. This group owned and operated a large chain of Oncology and Radiology centers throughout the East Coast and was one of the first to see the Quality and Cost advantage of offshore processing of their medical billing and transcription functions. The company has also invested heavily on developing rigorous process controls, in systems and software platforms and in information security. (Pg. 236 of SPB).The assessee submits that it is thus evident that the above company was engaged in business of providing healthcare outsourcing services and software development for the healthcare industries, the same cannot be compared with the assessee which was engaged in providing BPO services. In this regard, the ld Counsel relied on the judgment of the Coordinate Bench of Delhi ITAT in the case of Bechtel India Pvt. Ltd. vs. DCIT dated 21st December 2015 in I.T.A. No. 1478/Del/2015 for AY 2010-11. The assessee in this case was engaged in providing captive support services to its AE ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished in the paper book, it is seen that the said company is engaged in providing Niche services, as well as developed its own brand 'Exdion' to target the insurance industry in US. The Annual Report further reveals that the company has been running marketing campaigns in the US for expanding its plant base in relation to the brand developed by it. The assessee however, is only providing IT Enabled Services to its AE and does not have the diversified activities like the aforesaid company. The Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India P. Ltd. V/s. ITO (supra), while considering the issue of aforesaid company as a comparable accepted the assessee's contention that Crossdomain cannot be compared to a routine ITES provider and directed for exclusion of the same from the list of comparables. Respectfully following the aforesaid decision of Income-tax Appellate Tribunal Bangalore in the case of Symphony Marketing Solutions (supra), we also direct the Assessing Officer to exclude the aforesaid company from the list of comparables for the purpose of determining ALP. In light of the above facts, the Crossdomain Solutions Pvt. Ltd. sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the order) by holding as under- 19. ..... In view of the findings of Tribunal in the case of assessee and another IT enabled service provider and the ratio laid down by Hon'ble Delhi High Court, we hold that where Cosmic Global Ltd. was operating in different business model than the assessee in the year under consideration also, the same needs to be excluded from the final set of comparables. Accordingly, we hold so. Based on the above facts, we reject Cosmic Global Ltd. as a comparable. We do not agree with the view taken by the ld CIT(A). 2. Timex Group India Ltd-Segment The Global Services segment of the above comparable is engaged in providing IT and finance related back office support services. The same has been confirmed in the financial statements of the company provided in Pg. 297 of PB. Moreover, in Timex Group India Ltd.'s own case, M/s. Timex Group India Limited v. DCIT, Circle 25 (2), (ITA No. 845/Del./2016) at Pgs. 16 and 25 of its order, the Tribunal mentioned that the company was into IT-ES services in the payroll processes, account processes, etc. The relevant portion of the decision is produced below: 29. The taxpayer during the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Tribunal accepted Omega Healthcare Management Services Pvt. Ltd. as a comparable company by holding in Paragraph 1 Pages 17-18 of the order as under: ....The company is involved in the provision of offshore healthcare business outsourcing services, like medical coding, billing, accounts receivable management, claims processing, and healthcare revenue management. It also provides services to AR Management companies, and their hospital clients, for their credit balance account, regular accounts receivable and facility coding needs. It is noticed that this company is basically into ITES business... The services provided by Omega Healthcare Management Services Pvt. Ltd. are similar to those provided by the assessee. Therefore, based on the facts and precedent narrated above the Omega Healthcare Management Services Pvt. Ltd. should be accepted as a comparable. We agree with the view taken by the ld CIT(A). 6. In House Productions Ltd-Segment As per its annual report, the year under review has seen the company having income from Medical BPO activities (Pages 386, 388, 390, 398 of PB).The services provided by In House Productions Ltd-Segment are similar to those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provided by the appellant before him in respect of the Comparables selected or rejected by him. 2. The basic facts as emanating in the case are that the appellant is shielded from any risks, and performs functions in a captive arrangement. As such, in my considered view of the matter, the functions undertaken by the appellant and AE which forms the basic premise of undertaking the search process and identifying the comparable companies, are to be guided by the fact that the appellant is purely engaged in processing claims relating to medical claims and travel. It has been submitted, the client relationships are maintained by Acclaris Inc. and only a part of the data entry functions are being outsourced to the appellant in India. The services are rendered by appellant under constant support and guidance of Acclaris Inc. It has also been submitted that Acclaris Inc. provides user manual to the appellant for provision of claim processing services Accordingly, the appellant is completely shielded from any risks arising out of the operation under the captive arrangement. 3. The appellant has been able to demonstrate that considering the FAR profile in its own case vis- -vis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SI NO Company Name Disposition OP/TC 1 AOK In-House BPO Services Ltd. Accept 12.58% 2 Aditya Birla Minacs Worldwide Ltd. Accept 8.06% 3 Omega Healthcare Management Services Pvt.Ltd Accept 9.34% 4 In House Productions Ltd. Accept 4.32% 5 Timex Group India Ltd. Accept 8.38% 6 Fortune Infotech Ltd. Accept 22.77% 7 Cosmic Global Ltd. Accept 14.97% Mean 11.49% The appellant's margin is 12.37%. 6. Based on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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