TMI Blog2019 (11) TMI 1739X X X X Extracts X X X X X X X X Extracts X X X X ..... available and that it is a risk bearing company whereas the taxpayer is low risk bearing captive service provider being remunerated on cost plus basis. Moreover, TCS E-serve has been excluded by the Revenue itself in taxpayer s case for subsequent years as a comparable for benchmarking the international transactions. So, we order to exclude TCS E-serve as a suitable comparable vis- -vis the taxpayer to benchmark the international transactions qua provision of ITES. Infosys BPO - Coordinate Bench of the Tribunal in the case of Societe Generale Global Solution Global Centre Pvt. Ltd. [ 2019 (2) TMI 1890 - ITAT BENGALURU] excluded Infosys BPO vis- -vis routine ITES provider on ground of huge turnover, having huge brand value, having no brand intangibles and having incurred huge advertisement expenditure of Rs.5.54 crores and marketing expenses of Rs.1.54 crores - we are of the considered view that Infosys BPO is not a suitable comparable vis- -vis the taxpayer to benchmark the international transactions qua provision of ITES services. - ITA No.1934/Del./2018 - - - Dated:- 22-11-2019 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ASSESSEE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 5. The Ld. AO has grossly erred in initiating penalty under section 271(1)(c) of the Act mechanically and without recording any satisfaction for its initiation. 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Convergys India Services Pvt. Ltd., the taxpayer is a 99.99% subsidiary of Convergys Customer Management Group Inc. (CMG), USA, incorporated in India in January 2001 to provide customer care support services to CMG. The taxpayer operates remote customer interaction call centers for providing customer care services to CMG. During the year under assessment, the taxpayer has entered into international transactions with its Associated Enterprises (AE) as reported in Form 3CEB as under :- Description of the transactions Amount (Rs.) Provision of services 6,330,546,049 Salary reimbursement 3,239,539 Payment of service fee and training expenses 10,131,501 Reimbursement of IPL cost 32,880,280 Reimbursement of expenses paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Technologies Ltd. 11.95 Excluded 2 Eclerx Services Ltd. 58.4 Excluded 3 Informed Technologies India Ltd. 19.11 19.11 4 Jindal Intellicom Ltd. 0.25 0.25 5 Infosys BPO Ltd. 36.75 36.75 6 Acroptal Technologies 18.3 Excluded 7 E4e Healthcare Solutions Ltd. 19.85 19.85 8 Caliber Point Business Solutions 9.06 9.06 9 R System International Ltd. -0.46 -0.46 10 Microgenetic Systems Ltd. 6.38 6.38 11 Excel Infoways Ltd. 41.48 41.48 12 TCS E Serve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,90,96,950 Total Revenue from Operations (B) 15,49,21,030 % revenue from ITES (A/B) 51.06% 15. Furthermore, when we examine pages 31 41 of the ARC, Excel s ratio of employee cost to sales is merely 13.05% as against filter of 25% applied by the ld. TPO. The taxpayer has given computation of employee cost to sales which matches with annual report, available at pages 31 41 of the ARC, is as under :- Particulars Amount (in Rs.) Salaries, wages other expenses 1,96,38,010 Contribution to PF Other Funds 1,85,720 Staff welfare expenses 3,91,570 Total Employee Benefits Expense (A) 2,02,15,300 Total Revenue from Operations (B) 154,921,030 Employee cost / Revenue (A/B) 13.05% 16. Ld. AR for the taxpayer also sought exclusion of Excel on the ground that it fails diminishing revenue filter as its revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When we examine page 143 of the ARC it is proved on record that TCS E-serve has made payment for brand TATA to the tune of 3.67% during the year under assessment. When we examine the functional profile of TCS E-serve at pages 131 145 of the ARC it has come on record that TCS E-serve is operating in inter alia delivering core business processing service, analytics/ insights and support services for both data and voice processes in the name of KPO services, whereas the taxpayer is rendering routine call center services to its group companies. 21. When we examine profit loss account of TCS E-serve, available at page 128 of the paper book, it has shown revenue from operation of Rs.1578.44 crores with no segmentation of revenue between ITES, IT and consultancy services. Furthermore, perusal of pages 84 85 of the ARC, TCS E-serve is bearing significant risks, such as, micro economic risk, regulatory risk, financial risk, etc., whereas the taxpayer is a low risk captive provider to its group companies remunerated at cost plus basis. 22. Hon ble Delhi High Court in the case of Avaya India Ltd. (supra), available at pages 32 to 52 of the case laws compendium, relevant pages 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infosys BPO has acquired Portland Group Pty Ltd., Australia during the year under assessment, as is evident form pages 170, 175, 184, 191 of ARC. Furthermore, Infosys BPO is a huge brand having significant investment in creating intangibles. 27. Hon ble Delhi High Court examined a comparable having huge brand value vis- -vis routine ITES service provider in the case of PCIT vs. Oracle (OFSS) BPOL Services Pvt. Ltd. ITA 124/2018 and ordered to exclude Wipro Limited on ground of huge brand value for the reason that brand value of an entity has a significant role in its ability to garner profits and negotiate contracts and as such, brand plays its own role in price and cost determination. 28. Coordinate Bench of the Tribunal in the case of Societe Generale Global Solution Global Centre Pvt. Ltd. (supra) excluded Infosys BPO vis- -vis routine ITES provider on ground of huge turnover, having huge brand value, having no brand intangibles and having incurred huge advertisement expenditure of Rs.5.54 crores and marketing expenses of Rs.1.54 crores. 29. In view of what has been discussed above, we are of the considered view that Infosys BPO is not a suitable comparable vis- -vis th ..... 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