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TMI Blog2021 (2) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in confirming the action of the learned TPO in not stating any reasons to show that either of the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied before making an adjustment to the income of the Appellant. 3. On the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble DRP further erred in upholding/confirming the action of the learned TPO of disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing study report maintained as per section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("the Rules") and the various submissions made by the Appellant. 4. On the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble DRP further erred in upholding/confirming the action of the learned TPO of conducting a fresh benchmarking analysis using non-contemporaneous data and substituting the Appellant's analysis with fresh benchmarking analysis on his own conjectures and surmises. Thus, the Appellant prays that the fresh benchmarking analysis conducted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit margins realised by the Appellant vis- a-vis alleged comparable uncontrolled transactions selected by the learned TPO. 12. On the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble DRP further erred in upholding I confirming the action of the TPO in denying the benefit of 5 percent from the arithmetic mean as provided in proviso to Section 92C(2) of the Act, while computing the adjustment to the total income of the Appellant 13. The AO erred in not granting credit for the tax deducted at source of INR 467,629, without assigning any reasons thereto. The Appellant prays that the AO be directed to grant credit for the balance tax deducted at source of INR 467,629." 2. Briefly stated, the assessee company which is a subsidiary of Deutsche Knowledge Services Pte. Ltd., Singapore and engaged in the business of Global Processing Centre for undertaking back office processing/support services mainly to support the various business lines of its overseas group entities, had e-filed its return of income for A.Y 2008-09 on 30-9-2008, declaring its total income at Rs. 70,59,620/-. The assessee had declared a 'book profit' of Rs. 13, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erations the A.O restricted the assessee's entitlement towards deduction under Sec. 10A to an amount of Rs. 18,15,92,931/-. Accordingly, the A.O worked out the net taxable income of the assessee at Rs. 12,86,52,782/-under the normal provisions. Further, the 'book profit' of the assessee was determined under Sec. 115JB at Rs. 13,48,51,798/-. 5. The assessee being aggrieved with the order passed by the A.O under Sec. 144C(13) r.w.s143(3), dated 31-10-2012 has carried the matter in appeal before us. The ld. Authorized Representative (for short 'A.R') for the assessee Shri Jehangir D. Mistri, Senior Advocate, at the very outset of the hearing of the appeal took us through the facts of the case. It was submitted by the ld. A.R that pursuant to the directions given by the DRP, vide its order passed under Sec.144C(5), dated 27-9-2012, the TPO vide his order passed u/s 92CA(4), dated 25-10-2012 had reworked out the ALP adjustment of the International transaction of the assessee at Rs. 12,15,93,156/-. Pursuant thereto, the A.O had vide his order passed under Sec. 144C(13) r.w.s 143(3), dated 31-10-2012 had assessed the income of the assessee at Rs. 12,86,52,580 under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as under: Sl. No. Company name Weighted average NCP (in %) 1. Allsec Technolgoies Limited 6.22 2. CMC Limited 19.64 3. C.S Software Enterprises Limited 24.04 4. Cosmic Global Limited 17.66 5. CRISIL Limited 22.98 6. Datamatics Technologies Limited 5.36 7. ICRA Management Consulting Services Limited 10.90 8. ICRA Online Limited 16.35 9. IDC (India) limited 14.66 10. Mphasis BFL Limited 12.46 11. R Systems International Limited 10.47 Arithmetical Mean (%) 14.61 However, in order to establish the comparability between the margins earned by the aforesaid comparable companies an economic adjustment was carried out by the assessee in the TP study report to the returns of the comparable companies, pursuant whereto the margins submitted by the assessee to justify the ALP of the international transactions was as under: Sl. No. Company Name 2006 2007 2008 Average In % In% In % In % 1. Allsec Technologies Limited 20.88 8.55 7.62 14.71 2. CMC Limited 6.35 29.42 14.20 17.88 3. CS Software Enterprises Limited 8.73 12.57 18.86 10.65 4. Cosmic Global Limited 12.17 7.44 21.00 9.80 5. CRISIL Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services and qualifies all the filter applied by the TPO. Thus the same is considered as a comparable. 6. Datamatics Technologies Ltd. The company is providing different kinds of business solutions like billing and payment solutions, e-retail solutions, publishing solutions, research and analysis, service automation, document processing and web enablement. The business profile does not match with assessee company, functionally different. Hence, rejected. 7. ICRA Management Consulting Services Ltd The company is engaged in mainly in advisory services. Functionally different, not a good comparable, hence rejected. 8. IDC India Ltd. The company is engaged in research and information services, functionally different not a good comparable hence, rejected. 9. CMC Ltd.- ITES The company fails 25% RPT filter applied by the TPO. Thus the company is not considered as a comparable. 10. Mphasis Limited The company is providing application development and maintenance services, infrastructure outsourcing services and BPO solutions. The assessee has not considered segmental data. Entity level data has been taken as a comparable which is not correct accordingly this is not a good c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42379 23.81% 22. Wipro Ltd. (Seg.) 1157200000 0 889800000 0 267400000 0 30.05% Average 27.53% In reply, the assessee objected to the adoption of the aforesaid companies as comparable for the purpose of benchmarking of its international transactions, which however were met out by the TPO as per his observations recorded at Para 8.2 of his order u/s 92CA(3), dated 31-10-2011. Accordingly, the TPO adopting the mean margin of 27.53% of the aforesaid comparable companies worked out the ALP of the international transactions of the assessee at Rs. 152,96,90,467/- and suggested an adjustment of Rs. 17,13,58,467/-. Disposing off the objections filed by the assessee, the DRP directed the A.O to re-compute the ALP after considering the following 20 comparables: Sl. No. Company Name NCPT 1. Accentia Technologies Ltd. (seg) 41.76 2. Acropetal Technologies (Seg) 35.30 3. Aditya Birla Minacs Worldwide Ltd. 2.20 4. Asit C Mehta Financial Services Ltd. (Seg.) 9.42 5. Caliber Point Business solutions Ltd. 10.97 6. Cosmic Global Ltd. 23.30 7. Crossdomain Solutions Ltd 26.96 8. Datamatic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... events during the year under consideration, it thus, could not have been selected as a comparable for benchmarking the International transactions of the assessee. Further, it was averred by the ld. A.R that the aforesaid company viz. Mold-Tek Technologies Ltd. was also functionally incomparable to the assessee company. In support of his aforesaid contention it was submitted by the ld. A.R that unlike the assessee company which as a captive entity was providing business support service (ITeS) to its group entities across the world, the aforesaid company was rendering engineering and design KPO services to its clients, which was being used in construction of buildings. Further, it was submitted by the ld. A.R that the aforesaid company was using design tools like CAD/CAM, Stadd Pro and its employees unlike those of the assessee company were highly skilled software engineers. By drawing support from the aforesaid facts, it was submitted by the ld. A.R that the abovementioned company being differently placed in comparison to the assessee company was thus liable to be excluded from the final list of comparables. 10.1 Per contra, the ld. Departmental Representative (for short 'D.R& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta for amalgamation and the demerger were 1st October, 2006 and 1st April, 2007, respectively, and the effective date of the scheme was 26th August, 2008. In our considered view, pursuant to the aforesaid restructuring of the aforementioned company i.e Mold-Tek Technologies Ltd., the same could not have been adopted as a comparable for benchmarking the international transactions of the assessee for the year under consideration. In fact, we find, that a similar view had been taken by the ITAT, Mumbai, in the case of Dialogic Networks (I) P. Ltd. Vs. ACIT, Circle 3(3), Mumbai [ITA No. 7280/Mum/2012, dated 27.07.2018]. In the aforesaid case, the Tribunal had concluded that pursuant to the restructuring of the aforesaid company i.e Mold-Tek Technologies Ltd. in A.Y 2008-09, it could not have been considered as a comparable. Also, we find that the aforementioned comparable is even otherwise functionally dissimilar as in comparison to the assessee before us. On a perusal of its 'annual report' for the year under consideration, we find, that the aforesaid company i.e Mold-Tek Technologies Ltd. was providing structural engineering services and had also ventured into rebar detailing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally dissimilar to the assessee company, which was providing business support services (ITeS) to its group entities across the world. Accordingly, we find ourselves to be in agreement with the claim of the ld. A.R, that in the backdrop of the functional dissimilarity also the aforementioned company i.e Mold-Tek Technologies Ltd., could not have been included in the final list of the comparables for the purpose of benchmarking international transactions of the assessee company for the year under consideration. 10.3 On the basis of our aforesaid observations and the reasons given hereinabove, we are of a strong conviction that the aforesaid company i.e Mold-Tek Technologies Ltd could not have been selected as a comparable for benchmarking the International transactions of the assessee company. Accordingly, we herein direct the A.O to exclude the aforesaid company i.e Mold-Tek Technologies from the final list of comparables for the purpose of benchmarking the International transactions of the assessee for the year under consideration. 11. Eclerx Services Ltd: It is the claim of the ld. A.R before us that the aforementioned company had wrongly been included as a comparable by the TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tsourced its ITeS services, it cannot be said that its business results would be comparable to any other ITeS service provider rendering services entirely on its own, had been so held by a coordinate bench of the Tribunal in the case of Google India Pvt.Ltd.Vs. DCIT [ITA No. 1368/Bang/2010]. Considering the outsourcing of services to the extent of 20.39% of its total expenses by the aforesaid company, we are of the considered view that the said company i.e Eclerx Services Ltd. on the said count also could not have been adopted as a comparable for benchmarking the international transactions of the assessee for the year under consideration. 11.3 Lastly, we find that even otherwise the aforesaid comparable viz. Eclerx Services Ltd. is functionally dissimilar to the assessee company. The factum of functional dissimilarity of the aforesaid comparable had been looked into by the 'Special bench' of the Tribunal in the case of Maersk Globle Centre (India) (P.) Ltd. (supra). It was observed by the Tribunal, that a perusal of the 'annual report' of the aforesaid company i.e Eclerx Services Ltd. for the year under consideration i.e F.Y.2007-08, therein revealed, that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's International transactions. 11.4 On the basis of our aforesaid observations, we herein direct the A.O to exclude the aforementioned company i.e Eclerx Services Ltd. from the final list of comparables for the purpose of benchmarking the international transactions of the assessee for the year under consideration. 12. Accentia Technologies Limited: The ld. A.R had stated that the aforesaid company had wrongly been included by the TPO/DRP in the final list of the comparables, for the reason, viz. (i) that the profitability of the aforesaid company was substantially impacted pursuant to the amalgamation of Iridium Technologies and Geosoft Technologies, into the assessee company; (ii) that the aforesaid company unlike the assessee had developed and owned unique intangibles/intellectual property; (iii) the employee costs of the aforesaid company was lowly pitched at 12%; and (iv) the aforesaid company was functionally dissimilar to the assessee company. Accordingly, the ld. A.R had on the basis of his aforesaid contentions therein sought exclusion of the aforesaid company from the final list of comparables. 12.1 Per contra, the ld. Departmental Representative (for short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement System (iHMS). In our considered view, the owning of the aforesaid intangible property by the aforementioned company therein renders it incomparable to the assessee before us. 12.4 Insofar, the employee cost of the aforesaid company i.e Accentia Technologies Ltd. is concerned, we find, that a perusal of its financials for the year under consideration, Page 25 of APB, therein reveals that the same works out at 12% of its total cost. Keeping in view the low employee costs of the aforesaid company, we are of the considered view that it could not have been feasibility selected as a comparable for benchmarking the International transactions of the assessee. 12.5 As regards the claim of the ld. A.R that the aforementioned company is functionally dissimilar to the assessee, we shall for the purpose of adjudicating the same look into the functional profile of the company. On a perusal of the 'annual report' for the year under consideration, we find that the aforementioned company had ventured into areas of the health care sector viz. Medical Transcription, Medical Coding, Medical Billing, Receivables Management (Collections). In the backdrop of the aforesaid functional pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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