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TMI Blog2021 (8) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... its overseas associated enterprises (AEs) by providing back office support services and has earned revenue of Rs. 33,62,71,615/-. Assessee has benchmarked the transactions with the AEs by adopting transactional net margin method (TNMM) as the most appropriate method. For comparability analysis, the assessee selected 13 companies which was subsequently reduced to 7 with arithmetic mean of 16.91%. Since, the margin shown by the assessee was higher than the average margin of the comparables, the transaction with AEs was claimed to be at arm's length. The transfer pricing officer, however, did not accept the benchmarking of the assessee. After analyzing the functionality of the assessee, he held that the services provided by the assessee are in the nature of knowledge process outsourcing (KPO) services which falls within the broad category of ITES/BPO services. Thus, he was of the view that the companies providing KPO services would be functionally similar to assessee; hence, have to be selected as comparables. Whereas, he observed, the assessee has excluded all KPO companies. Further, applying certain additional filters, he rejected almost all the comparables of the assessee. Having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the companies selecting same set of comparables. He submitted, even in the case of successor company, the TPO had re-characterized the services as KPO services. He submitted, when the successor company disputed the selection/rejection of comparables before the Tribunal in order dated 23-07-2020, the Tribunal, holding that the assessee as an ITES/BPO service provider, rejected KPO companies, such as, eClerx Services Ltd, Coral Hubs Limited (Vishal Information Technologies Limited) and Crossdomain Solutions Limited. Further, the Tribunal directed inclusion of three comparables selected by the assessee, viz. Allsec Technologies, R Systems International Ltd and CG Vak Software & Exports Ltd. Thus, he submitted, issue is squarely covered by the decision of the Tribunal. 7. The learned departmental representative submitted, the assessee has not properly applied the filters which otherwise are applicable for selection of comparables. He submitted, the nature of services provided by the assessee would categorize it as a high end BPO service provider. He submitted, the comparables selected should be retained. 8. As regards inclusion of certain comparables selected by the assessee, the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, Vishal Information Technologies Limited), it is a fact on record that it has abnormally low employee cost, which, pre-supposes that most of the work of this company is outsourced to third party vendors. Whereas, assessee itself provides services without outsourcing. Therefore, the business model of the company is completely different from the assessee. Though, it may be a fact that in the TP study analysis, the assessee has included Vishal Information Technologies Limited as a comparable, may be, due to insufficient data available in public domain, however, as has been held in a number of judicial precedents including the decision of the Hon'ble jurisdictional High Court in case of Rampgreen Solutions Pvt Ltd vs CIT (supra), due to its different business model the company cannot be treated as comparable. Therefore, the aforesaid three companies cannot be treated as comparable to the assessee. 12. As regards assessee's contention regarding inclusion of three comparables, viz. Allsec Technologies, CG Vak Software & Exports Ltd and R Systems International Ltd, the primary objection of the learned departmental representative is, Allsec Technologies and CG Vak Software & Exports Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer Pricing officer made general comments on the selection systems adopted by the assessee. He proceeded to reject the same. He did not specify as to which of the comparables is being rejected for which specific reasons thereof. Thereafter, the transfer pricing officer mentioned his own criteria and proceeded to select comparables and accordingly made the transfer pricing adjustment. Upon the assessee's appeal, the Id. CIT(A) has accepted that the characterization by the transfer pricing ' officer of the assessee's functions as knowledge process outsourcing was not correct. Thereafter, the Id. CIT(A) contradicted himself by stating that the functions of the assessee are in alignment with the knowledge process outsourcing comparable dealt with by the transfer pricing officer. In this regard, the learned CIT appeals relied upon the ITAT decision in the case of Maersk Global Centers (India) (P.) Ltd. Thereafter, the learned CIT(A) upheld the assessing officer's action of selection of four of the comparables and accepted the assessee's contention in rejection of the two comparables. Now in appeal before us, the submission of the learned counsel of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons excluded this comparable. services to overseas markets and included in the list of comparable. The Id. CIT(A) confirmed the action of TPO holding that the TPO conducting benchmarking after calling information under section 133(6) and is benchmarking analysis arc correct. We have noted that, though the Id. AR has relied upon a number of decisions of Tribunal/co-ordinate bench. We have noted that in a recent decision of Tribunal in Wills Processing Services (I) (P.) Ltd. (supra) on comparability, the Tribunal held as under: We though in light of our aforesaid observations had partly disagreed with certain grounds as had been averred by the Ld. AR to facilitate exclusion of the aforesaid comparable, however as observed by us hereinabove that the aforesaid comparable viz. Coral Hub Limited (earlier known as Vishal Information Technology Limited) had a business model where services are outsourccd, as against the business model of the assessee where services are rendered by employing own employees and using one's own infrastructure, on the basis of which we are of the considered view that it can safely be concluded that the said comparable was functionally different, and as suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata, subsequently, it has duly submitted the current year data. The transfer pricing officer has also mentioned that he is rejecting the persistent loss making companies. Though some of these companies have suffered loss in the current assessment year the average of two years showed the robust positive figure. Hence, it cannot be said that these are persistently loss making company. Furthermore, we note that these comparables have been duly accepted as comparable in earlier assessment year by the officer himself. Hence, taking a contrary stand by the transfer pricing officer without giving a specific reasoning is not sustainable. Accordingly, we direct for inclusion of these comparables." 14. Thus, as could be seen, in parallel proceedings undertaken in case of the successor company having identical business model, the Tribunal has already decided issues relating to selection/rejection of comparables as are disputed in the present appeal. Thus, facts being identical, the aforesaid decision of the coordinate bench would squarely apply. 15. In view of the aforesaid, we direct the assessing officer to include R System International Ltd, Allsec Technologies and CG Vak Software & Expo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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