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TMI Blog2020 (5) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... ealthcare, collection and financial services. It filed its return of income on 13th October, 2008 declaring the total income at Rs.7,85,738/-. Since the assessee had entered into certain international transactions, the AO referred the matter to the TPO u/s 92CA for determination of the arm's length price of the international transaction entered into by the assessee. The TPO, during the course of TP assessment proceedings, observed that the assessee has entered into the following international transactions:- Nature of international transaction Method selected Value of international transaction Provision of IT Enabled services TNMM 603,687,685/- Provision of consultancy services TNMM 1,47,35,206 Reimbursement of expenses No benchmarking 1,47,34,062 3. The TPO noted that the assessee in its |TP study has chracterised itself as provider of IT enabled services and has selected it as the tested party. Further, the assessee has applied TNMM as the most appropriate method. He observed that the assessee has selected 15 comparables and has applied the following filters:- a) Companies for which sufficient financial data is not available to undertake analysis; b) Companies tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own Nittany Outsourcing) 16.87 10. eClerx Services Ltd. 66.50 11. Genesys International Corporation Ltd. 48.15 12. HCL Comnet Systems & Services Ltd. (Seg.) 32.97 13. ICRA (Seg.) 11.22 14. Infosys BPO 20.03 15. I Services India Pvt. Ltd. 9.73 16. R.Systems International Ltd. (Seg) 4.30 17. Spanco Ltd. (Seg.) 8.94 18. Wipro Ltd. BPO 30.23 Arithmetical Mean 24.15 Assessee Company 15.00 7. In the final assessment order, the AO made addition of Rs.4,70,19,716/- as against Rs.6,25,78,194/- made in the original order. 8. Aggrieved with such order of the AO/TPO/DRP, the assessee is in appeal before the Tribunal by raising the following grounds:- "On the facts and circumstances of the case and in law, the hon'ble Dispute Resolution Panel - I, New (DRP') grossly erred in conforming the addition of Rs 4,70,19,716 proposed by the Ld Income Tax Officer, Ward 5(2), New Delhi ('Ld AO') and Ld Additional Commissioner of Income Tax, Transfer Pricing Officer - 1(2) ('Ld TPO'). In making the said additions, the Ld AO/TPO erred in principal and on facts on the following grounds The ld. AO/TPO has grossly erred in 1. Incorrectly accepting HCL Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, etc. used by its independent accountants. However, subsequently it came to the notice of the assesseee on the basis of various decisions of the Tribunal that entity like Genesys International Corporation Ltd., was functionally dissimilar and incomparable. 11. So far as the additional ground No.2 is concerned, he submitted that since the original ground No.5 is unhappily worded and does not bring out the grievance clearly, therefore, the assesseeee by filing this additional ground of appeal has challenged the selection of certain comparables by the TPO. 12. Referring to the decisions of the Hon'ble Supreme Court in the case of NTPC Ltd. vs. CIT, reported in 229 ITR 383 and the decision in the case of Jute Corporation of India Ltd. vs. CIT, reported in 187 ITR 688, he submitted that these additional grounds go to the root of the matter and no fresh facts are required to be investigated, therefore, these additional grounds should be admitted for adjudication. 13. The ld. DR, on the other hand, opposed the admission of the additional grounds filed by the assessee. 14. After hearing both the sides and considering the fact that no fresh facts are required to be investigated and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as Accentia Technologies Ltd. is concerned, the ld. Counsel for the assessee at the outset, referred to the order of the Tribunal in assesseee's own case for A.Y. 2007-08 and submitted that the Tribunal at para 5.3 to 5.3.2 has discussed this issue and has directed the AO/TPO to exclude this company form the list of comparables. Referring to the decision of the Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. vs. ACIT reported in (2018) 93 taxman.com 251, he submitted that the Tribunal has excluded this company from the list of comparables on the ground that extraordinary events have taken place during the year in case of Accentia Technologies Ltd. Referring to the annual accounts of Accentia Technologies, copy of which is placed at page 325 to 408 of the paper book, the ld. Counsel for the assesseee drew the attention to 'Schedule 10 - Significant accounting policies' and 'Notes to Accounts for the year ended 31st March, 2008' and submitted that in the Notes to Accounts, clause 4, it has been mentioned that Accentia Technologies has acquired M/s Thunga Software Pvt. Ltd., has purchased business in GSR Systems, purchased business in GSR Billing Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enmed Inc., a medical transcription company based in salem, Oregon, USA. Further, this company is engaged in providing diversified services. This company is engaged in transcription services which is considered as a high end service (KPO). 24. We find the Hyderabad Bench of the Tribunal in the case of BA Continuum India (P.) Ltd. (supra) has excluded Accentia Technologies Limited on account of extraordinary events that took place in this company. The Pune Bench of the Tribunal in the case of IT Cube Solutions (P.) Ltd. (supra) has also excluded Accentia Technologies Limited from the list of comparables on account of extraordinary events that have taken place. Similar view has been taken by the various Bench of the Tribunal. Since it is an admitted fact that extraordinary events have taken place during the year in case of Accentia Technologies Limited, therefore, we are of the considered opinion that this company cannot be held as a comparable with that of the assessee company on account of different functions as well as extraordinary events such as acquisitions that have taken place. We, therefore, direct the TPO/Assessing Officer to exclude this company from the list of comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the list of comparables by observing as under:- "(a) The impugned order of the Tribunal excluded M/s. Cross-domain Solutions Ltd. from the list of comparable. This after having rendered finding of fact that it was engaged in distinct activities such as payroll activity, 'Knowledge Process Outsourcing' (KPO) service, development of products and routine IT services. Further, the impugned order indicates that differences between the Elearning service and 'Knowledge Process Outsourcing' which would clearly establish that the activities are not comparable. The impugned order also records that M/s. Cross-domain Solutions Ltd. was engaged in payroll outsourcing on a substantive scale. Besides, there was no bifurcation available of profits earned individually on the various diversified activities being carried by M/s. Cross-domain Solutions Ltd. Thus, it held that comparison on an entity level of M/s. Cross-domain Solutions Ltd. with the Respondent's AE transaction is not correct." 30. We find the Delhi Bench of the Tribunal in the case of H&S Software Development and Knowledge Management Centre Pvt. Ltd. (supra) while excluding Cross Domain Solutions Pvt. Ltd., from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra and the decision of the Delhi Bench of the Tribunal in the case of CIT vs. Tech Books 67 taxmann.com 169, he submitted that this company was excluded from the list of comparables. Referring to the decision of the Delhi Bench of the Tribunal in the case E-value serve.com reported in 97 taxmann.com 103, he submitted that this company was also directed to be excluded from the list of comparables on account of discrepancy in the information in Annual Report and 133(6) reply. He accordingly submitted that this company be excluded from the list of comparables. 33. The ld. DR, on the other hand, heavily relied on the orders of the AO/TPO/DRP. 34 After hearing both the sides, we find the Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. (supra), while excluding Datamatics Financial Services from the list of comparables has observed as under:- "28. So far as Datamatics Financial Services Limited is concerned, we find this company is acting as Registrar and share transfer agent as well as ITES. There is no segmental information available in the audited accounts. Therefore, the revenues from both the streams are not separable. It has been held in various de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e segmental information regarding IT Enabled Service is C.O.93/Del/2013 not available, it is beyond comprehension, as to how the TPO has chosen this company as comparable company. At the same time, CIT(A) has also summarily excluded this comparable as per contention of the assessee without examining if this company is a BPO division. So, we are of the considered view that the matter is required to be restored to the TPO to verify if the figures relied upon by him are of BPO division. If the comparable company is not ascertained as BPO division then it is to be excluded and in case figures relied upon by TPO are of BPO division then it is to be included as a comparable company. In case, the figures are of entity level, it is to be excluded. " 36. Respectfully following the decision of the coordinate Bench of the Tribunal, cited (supra) we deem it proper to restore this issue to the file of the AO/TPO to adjudicate the issue afresh in the light of the directions of the Tribunal and exclude this company in case the figures are of entity level. 37. So far as eClerx Services Ltd. is concerned, the ld. Counsel for the assesseee submitted that this company is functionally different si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provider. Similar view has also been taken by the Hyderabad Bench of the Tribunal in the case of BA Continuum India (P.) Ltd. (supra) on the ground that this company is classified as high-end KPO and was having supernormal profit. The Bangalore Bench of the Tribunal in the case of Goldman Sachs Services (P.) Ltd. (supra) has also excluded this company from the list of comparables on account of the said company being mainly engaged in providing high-end KPO services involving specialized expertise in the field and the same cannot be compared with company mainly engaged in providing low-end services to its group ITA No.6408/Del/2012 concerns. Since the assessee in the instant case is a low-end service provider, therefore, following the decision of the Delhi Bench of the Tribunal in the case of Avaya India (P.) Ltd. (supra) and the various decisions citied (supra), we hold that the E Clerx Services Limited cannot be held as comparable with that of the assessee company. The various other decisions relied on by the ld. counsel for the assessee in the synopsis also support its case. We, therefore, direct the exclusion of E Clerx Services Limited from the list of comparables. 40. We fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. It is further observed that the comparability of eClerx had also been examined by the Hyderabad Bench of the Tribunal in M/s Capital Iq Information Systems(India) (P.) Ltd. v. Additional Commissioner of Income- tax (supra), wherein, the Tribunal directed the exclusion of eClerx as a comparable for the reason that it was engaged in providing KPO Services and further that it had also returned supernormal profits." In the light of the aforesaid decision of the Hon'ble jurisdictional High Court in the case of Rampgreen Solutions Pvt. Ltd. (Supra) wherein concurring with the view of Special Bench of the Tribunal in Maersk Global Centres (India) Pvt. Ltd. (supra) it was held that eClerx need to be excluded taking into consideration the fact that eClerx is engaged in data analytics, data processing services, pricing analytics, bundling optimization, content operation, sales and marketing support, product data management, revenue management and in addition, eClerx also offered financial services such as real- time capital markets, middle and back-office support, portfolio risk management services and various critical data management services and the Hon'ble High Court held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infosys BPO Limited has acquired the shared service centres of Philips at Poland, Thailand and Chennai through its investment in P - Financial Services Holding B.V. Netherlands as per sale and purchase agreement dated July 25, 2007 with Koninklijke Philips Electronic N.V. for a purchase consideration of 107.12 crores of which Rs.5.59 crores is yet to be paid towards additional purchase consideration. The shared service centres at Poland and India have become 100% subsidiary of the company on October 1, 2007 where as the shared service centre at Thailand has become a wholly owned subsidiary on December 3, 2007, the date on which all necessary conditions in the agreement were fulfilled." We take note that the aforesaid extra ordinary event of amalgamation during the year has helped Infosys BPO in acquiring domains skill sets in the finance, administration space as well as enhanced its global presence with centers at Thailand and Poland. In view of the said extra ordinary event brought to our notice, we exclude Infosys BPO from the list of comparables. 45. We find, the coordinate Bench of the Tribunal in the case of eValueserve.Com (P) Ltd. (supra) has excluded Infosys BPO from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd. (supra) has directed exclusion of this company from the list of comparables by observing as under:- "4. So far as Acropetal Technologies Limited is concerned, we find this company is engaged in development of software products, whereas assessee is doing ITES services which in our opinion cannot be compared with software development company. From the notes of account, copy of which is placed at page 104 of the Paper Book, we find this company is engaged in development of computer software. We find the Hyderabad Bench of the Tribunal in the case of HSBC Electronic Data Processing India (P.) Ltd. (supra) has excluded this company from the list of comparables by observing as under :- "14.2.1 This company is listed at Sl.No.2 of the comparables chosen by the TPO. As far as this company is concerned, the objection of the assessee is that this company is not functionally comparable. The assessee is a BPO company that provides CAD/ CAE services. As far as Acropetal Technologies Ltd. is concerned, this company does the business of export of software services. It is also seen from the segmental revenue of this company (Note 15 to the notes on accounts to Annual Report for 07-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) while directing to exclude Acropetal Technologies Ltd. has observed as under:- "34. We have heard both the parties and perused the records. We find from a perusal of the said letter dated 08.03.2011 to the TPO that Acropetal is into software development also and since the segmental information is not available, it would not be safe to rely on the finance of this company. Therefore, we order exclusion of this comparable from the set of comparables." 52. In view of the decisions cited above, we hold that Acropetal Technologies Ltd. is not a good comparable and, therefore, we direct the AO/TPO to exclude this company from the list of comparables. 53. So far as Wipro BPO is concerned, the ld. Counsel reiterated the same arguments as advanced while arguing the case of Infosys BPO and submitted that Wipro BPO is similar to that of Infosys BPO as far as its size and scale of operation are concerned. It has got huge brand value and is a market leader. It has incurred huge expenditure on R & D. Referring to the decision of the Hon'ble Delhi High Court in the case of PCIT vs. New River Software Services Pvt. Ltd., he submitted that the Hon'ble High Court has directed to exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in taxpayer's own case for AY 2007-08 (supra) and in Symphony Marketing Solutions India Pvt. Ltd. (supra) on the ground that it has a significant brand value having high turnover and a market leader in its field whereas the taxpayer is a tiny company and having diversified business and huge expenditure on R&D. So, in view of what has been discussed above and following the decisions rendered by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 (supra) and in Symphony Marketing Solutions India Pvt. Ltd. (supra), we do not find Wipro as a suitable comparable, hence ordered to be excluded." 55. We further find this company was also excluded in assessee's own case for the immediately preceding assessment year by observing as under:- "5.1 0.2. We have heard the rival submissions of both sides in the light of records placed before us. It is observed that Co-ordinate Bench of the Delhi Tribunal in ICC India Pvt.Ltd., vs. ACIT (supra) has excluded this comparable by placing reliance upon Calibrated Healthcare Systems (I) (P) Ltd. Vs ACIT (OSD) reported in (2015) 54 Taxmann.com 53.lt is observed that in this decision this tribunal has examined com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly reject a comparable that has been arrived at after a carefully applied select/reject matrix followed by a quantitative screening based on FAR analysis by the assessee as well as the TPO. 59. Referring to the decision of the Tribunal in the case of Interra Information Technologies (P) Ltd. vs. DCIT reported in 2012-ITS-2021-ITAT, she drew the attention of the Bench to the following observation of the Tribunal:- "..Hence, in transfer pricing cases the parties should devote much time to the nature of the companies' business operations, nature of transactions, FAR analysis, study and method of choosing comparables etc. The logic or reasons behind selection of comparables for benchmarking and supporting these studies should be based on the Act and Rules rather than picking up orders of the different benches on the ground that they are precedent, without reference to the facts and nature of transactions. It should be understood that businesses are so varied and no two transactions are similar. Business models followed by the AEs and assesses are different." 60. We have considered the rival arguments made by both the sides and perused the record. Although this company was selec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Besides the above, this company also carries out R&D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. Similar view was also taken in the case of Symphony Marketing Solutions India (P) Ltd (supra) by the Bangalore Bench. In view of the above, we are of the view that this company cannot be regarded as a comparable and deserves to be excluded from the list of comparables". 14.3. Respectfully following the decision of the Co-ordinate Bench, we direct the AO/TPO to exclude Genesys International Corporation Ltd., from the list of comparables." 31. Similar view has been taken by the various other decisions relied on by the ld. counsel for the assessee in the synopsis. We, therefore, direct the TPO/Assessing Officer to exclude Genesys International Corporation Limited from the list of comparable on account of functionally different." 61. We find, the Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... astral Mapping, 11 City Scape, 12 Telecommunications From the above, it is observed that the functionality of this company is significantly different from that of the assessee. The TPO is directed to exclude this company from final set of comparables." 38. Furthermore, Genesys is engaged in R&D activities and creating significant intangibles as is event from pages 146 & 147 of the annual report. Moreover, the Genesys is having high fluctuating margin duly detailed at page 415 of the paper book by the taxpayer; in FY 2006-07 Genesys's margin was 13.35% and in FY 2007-08 it was 51.91% and 145.92% in the year under assessment. So, high fluctuating margin is also a ground to reject a comparable for benchmarking the international transaction. 39. Coordinate Bench of the Tribunal in Symphony Marketing Solutions India Pvt. Ltd. (supra) has rejected Genesys as a comparable vis-à-vis routine ITES company on ground of functional dissimilarity. So, in view of the matter, we order to exclude Genesys as a comparable on ground of its functional dissimilarity having significant intangibles and having been engaged in R&D activities and having high fluctuating margin and having highl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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