TMI Blog2021 (2) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... ctional dissimilarity, related party transactions, high turnover and payment for brand fee to Tata and abnormal profitability trend discussed in the preceding paras, we are of the considered view that TCS E-Serve is not a suitable comparable vis- -vis the taxpayer who is a BPO/ITES service provider, hence ordered to be excluded. EXCEL INFOWAYS LTD. (EXCEL) - Excel has been rejected by the Tribunal in taxpayer's own case of earlier years. So, in these circumstances, we are of the considered view that Excel is not a suitable comparable vis- -vis the taxpayer as it fails employee cost/net sales ratio filter applied by the TPO and segmental financials are not available, which is into new infrastructure activities, real estate, etc.. So, we order to exclude Excel from the final set of comparables. BNR UDYOG LTD. (BNR) - It is engaged in medical transcription and medical coding which is different from the taxpayer who is a routine ITES service provider working on cost plus mark-up business model. So, we are of the considered view that since BNR fails RPT filter of 25% applied by the TPO himself, having super normal growth, having functional dissimilarity vis- -vis taxpayer is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. 3. That on facts and in the circumstances of the case and in law, the DRP/AO/TPO erred in not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case. 4. That on the facts and in the circumstances of the case and in law, DRP/AO/TPO erred in holding the functions performed by the Appellant to be in the nature of knowledge process outsourcing ( KPO ) company without appreciating the facts on record and thereby accepting certain companies which were performing high end and different services as compared to the Appellant. 5. That on the facts and in the circumstances of the case and in law, DRP/AO/TPO erred in re-computing the arm's length price of the international transactions with its associated enterprises by rejecting the quantitative filters selected by the Appellant and instead applying his additional/modified quantitative filters which lacked valid and sufficient reasoning. 6. That on the facts and in the circumstances of the case and in law, DRP/AO/TPO erred in rejecting the comparable companies selected by the Appellant without providing cogent reasons and accepting companies which are func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omer contracts. During the year under assessment, the taxpayer entered into international transactions with is AEs: S. No. Type of International Transaction Method Selected Total value of transaction (Rs.) MAM PLI 1 Provision of IT Enabled Services TNMM OP/OC 871,922,767 2 Reimbursement of Expense to AEs TNMM OP/OC 12,304,322 3 Payment of interest on ECB CUP NA 1,002,818 4 Reimbursement of Expenses from AEs CUP NA 40,439,829 4. The taxpayer in order to benchmark its main international transaction qua business processing services/ITES applied Transactional Net Margin Method (TNMM) as the Most Appropriate Met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.54% 5. T C S E-Serve Ltd. 66.21% 6. Excel Inforways Ltd. (Seg)(IT/BVPO) 42.89% 7. R Systems International Ltd.(Seg./BPO) 2.31% 8. Infosys BPO Limited 39.04% 9. Acropetal Technologies Ltd. (segment) 19.91% 10. B N R Udyog Limited 50.72% 11. e4e Healthcare Business Services Pvt.Ltd. 23.52% 12. Microgenetics Systems Ltd. 10.19% Average 29.70% 9. Ld. TPO also computed the margin of taxpayer at 12.53% as against 17.20% computed by the taxpayer by considering foreign exchange as non-operating as under:- Particulars IT Enabled Services Operating revenues 871 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processes for more than 50 clients that include global leaders in Financial Services, Manufacturing, Retail, Media, Travel and Hospitality. About 97% of our revenues come from Fortune 500 or Financial Times 500 clients. 15. Functional profile of Eclerx shows that it is a Knowledge Process Outsourcing (KPO) company and is providing domain specific reengineering expertise in partnership with financial services firms to increase control and execute ongoing functions. It is also providing consulting, business analysis and solution testing services which provides a broad suite of services that allows its clients to operate on day-to-day basis including trade processing, reference data, accounting finance and expense management activities. Similarly, under sales and marketing services segment, as has been described at page 767 of the annual report paper book, Eclerx provides web content management merchandising execution, web analytics, social media moderation and analytics, search engine analytics support, CRM platform support, lead generation, supply chain and channel analytics, price catalogue competitive intelligence etc. 16. Coordinate Bench of the Tribunal in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiary companies and drew our attention to pages 821, 849 and 872 of the paper book which is tabulated as under:- Name of the company Rupees in Millions Reference Standalone Financials Turover eClerx Services Limited 4,724.66 Page 821 Consolidated Financial Statements Turnover of eClerx Services Ltd. along with its subsidiaries 4,728.85 Page 849 Revenue of subsidiaries included under Consolidated Financial Statements - eClerx Limited 245.79 Page 872 - eClerx LLC 355.48 - eClerx Investments Ltd. - - Igentica Travel Solutions Ltd. - - eClerx Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scale and large client base. TCS E-Serve also contributed brand equity to the tune of ₹ 3.67 crores to Tata Sons Ltd. by using its brand name 'Tata' which makes it incomparable vis- -vis the taxpayer. 27. Hon'ble Delhi High Court in case of Avaya India Pvt. Ltd. in ITA 532/2019 order dated 24.07.2019 excluded TCS E-Serve as a comparable for the purpose of determining the ALP of international transactions involving the assessee and its AE on account of huge turnover and non-availability of segmental revenues by returning following findings:- 27. There is merit in the contention of the Assessee that the scale of operations of the comparables with the tested entity is a factor that requires to be kept in view. TCS E-Serve has a turnover of ₹ 1359 crores and has no segmental revenue whereas the Assessee's entire segmental revenue is a mere 24 crores. As observed by this Court in its decision dated 5th August 2016 in ITA 417/2016(PCIT v. Actis Global Services Private Limited) Size and Scale of TCS's operation makes it an inapposite comparable vis- -vis the Petitioner. As already pointed out earlier there is a closer comparison of TCS E-Serve Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales 4659 5965 7936 9400 12176 13594 14424 15784 17916 Operating Profit 593 772 1642 1835 3510 5114 5889 6145 7288 O P / O C % 14.59% 14.87% 26.10% 24.27% 40.50% 60.39% 69.02% 63,75% 68.57% Average O P / O C Margins 19.96% 60.45% 29. So, the post acquisition period shows huge profitability trend in the TCS E-Serve which was average OP/OC margin of 19.96% in FY 2004-05 to 2007-08 and shoot up to 60.45% in post acquisition period of FY 2008-09 to 2012-13 which is also a factor to be reckoned with for TP analysis. 30. So, keeping in view the function ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... randum of Association of the Company, at the appropriate time and depending on the availability of resources and opportunity. 35. Excel has been rejected by the Tribunal in taxpayer's own case of earlier years. So, in these circumstances, we are of the considered view that Excel is not a suitable comparable vis- -vis the taxpayer as it fails employee cost/net sales ratio filter applied by the TPO and segmental financials are not available, which is into new infrastructure activities, real estate, etc.. So, we order to exclude Excel from the final set of comparables. BNR UDYOG LTD. (BNR) 36. The taxpayer sought exclusion of BNR on the ground that it fails related party transactions of 25% applied by the TPO. The TPO has himself applied filter to reject companies where related party transactions exceeds 25% of the sales and that this company is earning super abnormal profit and is also functionally dissimilar. 37. However, on the other hand, ld. DR for the Revenue drew our attention towards findings given by the ld. DRP in para 19 of its order and thereby relied upon the DRP findings. 38. Perusal of financials of BNR, available at pages 744 745 of the paper ..... 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