TMI Blog2021 (2) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... e had furnished before us a Chart , wherein it is stated that in case if the aforementioned three companies are excluded from the final list of comparables, then, its International transactions of provision of support services to its AEs would meet the arms length standard and no adjustment would be warranted. It is stated by the assessee that as the value of its International transactions i.e provision of ITeS services is higher than the tolerance limit of +/- 5% as per the erstwhile sec. 92C(2) . As we have excluded the aforementioned three companies from the final list of comparables, the A.O is therefore directed to verify the aforesaid claim of the assessee. In case the value of the International transactions of the assessee is found higher than the value of the tolerance band of +/- 5%, then, no adjustment shall be therein be made by the A.O. Disallowing credit for TDS - HELD THAT:- As despite the fact that the same was claimed in the return of income. As the aforesaid claim of the assessee would require verification of the facts from the records, we therefore, direct the A.O to look into the said issue. In case if the claim of the assessee is found to be correct the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s liable to be quashed or alternatively ignored. 5. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in upholding/confirming the action of the learned TPO of selecting companies using information gathered under section 133(6) of the Act. 6. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in upholding/confirming the action of the learned TPO of disregarding the Appellant's contention with respect to the functional non-comparability of the alleged comparables selected by the learned TPO. 7. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in upholding the action of the learned TPO of considering companies engaged in rendering high-end services such as knowledge processing services, engineering design services etc as comparable to the Appellant. 8. On the facts and circumstances of the case the learned AO erred and Hon'ble DRP further erred in upholding/confirming the action of the learned TPO in considering companies earning supernormal profits as comparable without appreciating I comparing the functions, asset and risk undertaken by such alleged c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13,48,51,798/- under Sec. 115JB of the Act and paid taxes on it. Subsequently, the assessee had filed a revised return of income on 31-3-2010, declaring its total income at ₹ 70,59,620/- and a 'book profit' of ₹ 13,48,51,798/-. The return of income filed by the assessee was processed as such under sec. 143(1) of the Act. Thereafter, the case of the assessee was selected for scrutiny assessment under sec. 143(2) of the Act. 3. During the course of the assessment proceedings, the A.O made a reference under sec. 92CA(1) of the Act to the Transfer Pricing Officer-1(3), Mumbai (for short TPO ) for benchmarking the International transactions of the assessee. The TPO vide his order passed under Sec. 92CA(3), dated 31-10-2011, on the basis of a detailed reasoning given in his order suggested an adjustment of ₹ 17,13,58,467/- to the Arm's Length Price (for short ALP ) of the International transactions of the assessee. After receiving the order passed by the TPO under Sec. 92CA(3), dated 31-10-2011, the A.O passed a draft assessment order under Sec. 144C r.w.s 143(3), dated 28-12-2011, and proposed an adjustment of ₹ 17,13,58,467/- to the returned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the assessee at ₹ 12,86,52,580 under the normal provisions and determined its 'book profit' u/s 115JB at ₹ 13,48,51,798/-. Adverting to the nature of the International transactions of the assessee, it was submitted by the ld. A.R that the controversy involved in the present appeal is confined to the benchmarking of the business support services (ITeS) of ₹ 135.83 crores that were inter alia provided by the assessee to its group entities across the world. It was averred by the ld. A.R that in case if three comparable companies viz. (i). Mold Tek Technologies Ltd.; (ii). Eclerx Services Ltd.; and (iii). Accentia Technologies Ltd that were wrongly included by the TPO/DRP as comparable in the final list of 20 comparables for benchmarking the business support services (ITeS) of ₹ 135.83 crores that were inter alia provided by the assessee to its group entities during the year under consideration were excluded from the list of comparables, then, the international transactions of the assessee would be within the tolerance limit +/- 5% and thus would be within arm's length. 6. 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 ..... (%) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s all the filters applied by the TPO. Thus the same is considered as a comparable . 2. R. Systems International (Segmental) The Company's BPO segment is into IT enabled services and qualifies all the filters applied by the TPO. Thus the same is considered as a comparable. 3. C.S. Software Enterprises This company is also engaged in software services. In the assessee was asked to provide a copy of the annual report of the company which the assessee has failed to provide. The assessee is not taken segmental data instead services. As the extent of revenue from software services has not been excluded in calculating the margin this is not a good comparable. Hence, rejected. 4. Crisil Ld. Te company is engaged in providing credit rating and research services. Functionally, different, not engaged in ITES area hence not a good comparable, rejected. 5. Cosmic Global Ltd. The company is into IT enabled services and qualifies all the filter applied by the TPO. Thus the same is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 407293974 287301205 119992769 41.76% 2. Acropetal Technologies (Seg.) 208000505 153737300 54263205 35.30% 3. Aditya Birla Minacs Worldwide Ltd. 1881373000 184086000 0 40513000 2.20% 4. Asit C Mehta Financial Services ltd. (Seg.) 42434946 38782844 3652102 9.42% 5. Caliber Point Business Solutions Ltd. 531355282 478836110 52519172 10.97% 6. Coral Hubs Ltd. (Formerly Vishal Information Technologies ltd.) 380784348 252713811 128070537 50.68% 7. Cosmic Global Ltd. 58663285 47577163 11086122 23.30% 8. Crossdomain So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 152,96,90,467/- and suggested an adjustment of ₹ 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gies Ltd: It is the claim of the ld. A.R that the aforementioned comparable company, viz. Mold-Tek Technologies Ltd. was wrongly included by the TPO/DRP in the final list of comparables for the purpose of benchmarking the International transactions of the assessee for the year under consideration. In order to drive home his aforesaid claim, it was submitted by the ld. A.R that the aforesaid company had acquired Crossroads Detailing Inc., an engineering services KPO, in April, 2007, and as a result thereof had witnessed an abnormally high growth of 56% in its IT. division. Apart from that, it was submitted by the ld. A.R that the aforesaid company had during the year earned an abnormal profit of 95.71%. It was further submitted by him that the aforesaid company had during the year under consideration witnessed a scheme of arrangement involving amalgamation between Tekmen Tool Pvt. Ltd. and the said company AND a merger between the said company and Mold Tek Plastics Ltd., which was sanctioned by the Hon'ble High Court of Andhra Pradesh vide its order dated 25-7-2008. It was thus the claim of the ld. A.R that as the aforesaid company had witnessed extraordinary events during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany i.e Mold-Tek Technologies Ltd had achieved about 56.49% growth during the year under consideration and registered a turnover of 17.86 crore. In fact, we find, that a coordinate bench of the Tribunal i.e ITAT, Delhi Bench in the case of M/s H S Software Development and Knowledge Management Centre Pvt. ltd. Vs. DCIT, Circle 10(1), new Delhi [ITA No. 436/Del/2013, dated 20.03.2018] , had after inter alia considering the abnormal growth of 56% of the aforesaid comparable i.e Mold-Tek Technologies Ltd. directed exclusion of the same as a comparable forthe purpose of benchmarking the International transactions of the assessee before them. Further, the 'annual report' of the aforementioned company i.e Mold-Tek Technologies Ltd reveals that a scheme of arrangement involving Tekmen Tools Pvt. Ltd., i.e the transferor company and Mold-Tek Technologies Ltd, the transferee company (the aforementioned company) AND the demerger between Mold-Tek Technologies Ltd, i.e the demerged company (the aforesaid company) and Mold-Tek Plastics Ltd, resulting company was sanctioned by the Hon'ble High Court of Andhra Pradesh, vide its order dated 2th July, 2008. The appointed data for am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said company had in-house software development team, quality control training and trouble shooting facilities. As observed by the Tribunal, the aforementioned company was also rendering web design and development services with experience in turning them into an effective graphic design representation and creating dynamic and graphic rich web application from IT specs, design prints etc. In the backdrop of its aforesaid observations, it was observed by the Tribunal that as per the information available in the 'annual report' of the aforementioned company i.e Mold Tek Technologies Ltd, as well as from the details available on its website, it could safely be concluded that the company was involved in providing high-end services to its clients involving higher special knowledge and domain expertise in the field and, thus, the same could not be taken as a comparable to the assessee before them which was mainly involved in providing low-end services. On the basis of our aforesaid observations, we are of a strong conviction that in the backdrop of the high-end services provided by the aforementioned company i.e Mold-Tek Technologies Ltd, it could safely be held to be functionally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K based company viz. Igentica Travel Solutions Ltd. on July, 2007. Further, as per the 'annual report' of the aforementioned company i.e Eclerx Services Ltd., the acquisition of Igentica Travel Solutions Ltd. had provided the aforementioned company with a set of 28 large customers primarily in Europe which had strengthened its presence in the said geographic region. Also, the acquisition of Igentica Travel Solutions Ltd. had given the company an entry platform in a new vertical - travel and hospitality besides consolidating its position in the retail and manufacturing space. As the aforesaid company pursuant to the acquisition of Igentica Travel Solutions Ltd. on July, 2007 had witnessed an abnormal profit of 65.88% during the year under consideration, therefore, in our considered view it could not have been selected as a comparable for benchmarking the International transactions of the assessee for the year under consideration. 11.2 Further, a perusal of the financial results of the aforesaid company, Page 12 of APB, therein reveals that it had outsourced services to third party vendors which therein constituted 20.39% of its total expenses. The aspect that when a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a multitude of data aggregation, mining and maintenance services. The aforesaid company had a team dedicated to developing automation tools to support service delivery which increased productivity and allowed customers to benefit from further cost saving and output gains with better control over quality. In the backdrop of the aforesaid functional profile of the abovementioned company i.e Eclerx Services Ltd, the Tribunal was of the view that as the said company was mainly engaged in providing high-end services involving specialised knowledge and domain expertise in the field, thus, it could not be compared that the assessee before them which was mainly into providing of low-end services to its group concerns. In the backdrop of the functional profile of the aforementioned company i.e Eclerx Services Ltd., we find that beyond any scope of doubt it is functionally dissimilar to the assessee before us, which is engaged in providing of business support services (ITeS) to its group entities across the world. Accordingly, due to the functional dissimilarity of the aforesaid company i.e Eclerx Services Ltd, the same could not have been included in the final list of comparables for bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anic growth and project itself as a global player. Also, the aforesaid company had acquired three companies in USA, which therein had added a host of long standing clients to its portfolio. In the backdrop of the aforesaid facts, we are of the considered view that as the amalgamation of the aforesaid units into the aforementioned company i.e Accentia Technologies Ltd., being an extraordinary event during the year under consideration i.e A.Y. 2008-09, had had resulted in the enormous growth of the company and impacted its profitability, therefore, it could not have been selected as a comparable for benchmarking the international transactions of the assessee for the year under consideration. 12.3 Further, we find, that as per the 'annual report' of the aforementioned company, i.e Accentia Technologies Limited, it had developed and owned unique intangibles/intellectual property/process i.e copyrighted products namely Iridium Medical Transcription Automation System (iMTAS); Iridium Real Time School (iRTS); Iridium Accounts Management System (iAMS); Iridium Inventory Management System (iIMS); Iridium Payroll Management System (iPMS); Iridium Business Transcription System (iBT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct the A.O/TPO to exclude the aforesaid three companies from the final list of comparables for the purpose of benchmarking the International transactions of the assessee for the year under consideration. Before parting, we may herein observe, that the assessee had furnished before us a Chart , wherein it is stated that in case if the aforementioned three companies are excluded from the final list of comparables, then, its International transactions of provision of support services to its AEs would meet the arms length standard and no adjustment would be warranted. It is stated by the assessee that as the value of its International transactions i.e provision of ITeS services amounting to ₹ 135,83,32,000/- is higher than the tolerance limit of +/- 5% as per the erstwhile sec. 92C(2) of the Act of ₹ 133,19,63,011/- [₹ 140,20,66,327/- X 95%], therefore, no adjustment would be warranted. As we have excluded the aforementioned three companies from the final list of comparables, the A.O is therefore directed to verify the aforesaid claim of the assessee. In case the value of the International transactions of the assessee is found higher than the value of the tolera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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