TMI Blog2021 (6) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Tribunal has remanded this comparable back to Ld.TPO, for proper analysis and fresh consideration. See Indegene (P) Ltd vs ACIT [ 2017 (8) TMI 1576 - ITAT BANGALORE ] Thus we set aside this comparable back to Ld.TPO for considering it afresh. Excel Infoways Ltd. (segmental) - Objection raised by Ld.CIT DR stands clarified, as this company for year under consideration made a statement under 133 (6) regarding allocating entire employee cost to IT-BPO segment, with no allocation to other segment, which amounts to almost 49% of its total revenue during the year under consideration - We therefore agree with contention raised by assessee regarding this comparable not satisfying employee cost filter. Acropetal Technologies Ltd - We direct the Ld.AO/TPO to correct the margins in respect of Acropetal Technologies Ltd. Consider Accentia Technologies Ltd., Informed Technologies Ltd., and Jindal Intellicon Ltd., these comparables in the final list of comparables in accordance with law. Computing negative working capital adjustment - We find that in the case of Lam Research India (P.) Ltd. [ 2021 (2) TMI 183 - ITAT BANGALORE ] and Software AG Bangalore Technologies (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing different financial year ending filter while selecting the comparable companies, leading to a narrower comparable set and had also not considered the fact that the relevant data for the concerned financial year could be deduced from the corresponding financials. 6. The learned AO / learned TPO / Hon'ble DRP erred in applying export earning filter of 75% of the total sales, leading to a narrower comparable set. 7. The learned AO / learned TPO / Hon'ble DRP erred in applying the threshold limit of 25% in respect of employee cost on sales of the comparable companies leading to a narrower comparable set. 8. The learned AO / learned TPO I Hon'ble DRP erred in not applying the upper limit on turnover while selecting the comparable companies. 9. The learned AO/learned TPO/Honble DRP erred in not appreciating the fact that since the principle of applying lower limit on turnover has been mutually accepted by the Appellant as well as the learned TPO while carrying out the comparability analysis, the principle on upper limit on turnover should also have been applied. 10. The learned AO/learned TPO/Hon'ble DRP erred in selecting companies having higher margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NR 3,46,454 while computing the business income of the Appellant. Brief facts of the case are as under: 2. The assessee is a company engaged in the business of computer aided engineering analysis. For the year under consideration assessee filed its return of income on 30/11/2012 declaring total income of Rs.46,77,37,065/-. ROI was selected for scrutiny and notice under section 143(2) along with 142(1) was issued to assessee. In response to statutory notices, representative of assessee appeared before the Ld.AO and filed requisite details as called for. 3. During the assessment proceedings, the Ld.AO observed that, assessee had international transaction with its associated enterprise exceeding Rs. 15 crores, and accordingly reference was made to the Transfer Pricing officer to determined the arm s length price of the transaction. 4. On receipt of the reference, the Ld.TPO called upon assessee to file economic details of international transaction observed that assessee during the year had following international transaction with its AE: 5. The details of the margin earned by assessee under both the segments are as under: 6. From the details filed, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or services (including talent acquisition team) finance/accounting/taxation services is services related to Management Information Systems procurement/purchase quality control Treasury services global delivery operations information security services and legal services. Assets owned: 19. In the TP study at page 353 of paper book, it has been submitted that assessee owns tangible assets for carrying out its business like land and building, computer equipments, furniture s and fittings and other of office equipments and vehicles. It has been submitted that assessee do not own any non-routine intangibles and accordingly does not own trade secrets or undertake research and development activities on its account that would lead to development of any non-routine intangibles. Risk assumed: 20. It has been submitted that ITES services are intercompany service provided/availed within Quest group. The end customer in railing such services are the respective quest group companies and no specific risk in the nature of market risk/contractor s/credit risk/foreign exchange risk are all warranty risk are born by assessee in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice provider like that of assessee and has products sale as well as services sale, which is evident from page 335 of paper book (Index for Annual Reports). 4.1 Ld.CIT DR placed reliance upon orders of authorities below and submitted that this comparable is functionally comparable with that of assessee. 5. We have heard submissions advanced by both sides in light of record placed before us. On perusal of annual report of this company placed in paper book, we are of considered opinion that this comparable is basically into sale of products and services unlike a captive service provider such as assessee, who works on cost plus basis, providing services only to its AE's. It is also observed that this comparable is basically providing BPO services from its Prepress units. In written submission filed, assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Put Ltd., vs ACIT reported in (2019) 101 taxmcm.com 292, wherein this comparable has been excluded by observing as under: 10.4 We heard rival submissions and perused the material on record. The issue of comparability of Universal Print Systems Ltd. with that of the assesseecompany has been duly co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by this company, it cannot be regarded as ITES company, The Assessee also submitted that this company fails the employee cost filter. The employee cost filter requires that the employees cost incurred by the company must be more than 25% of its revenue. 48. The TPO at page-20 of his order has dealt with the above objections by observing as follows: (a) Pre-Press BPO unit provides back office support services. (b) This company has four major segments viz., Repro, Label Printing, Offset Printing and pre-press BPO. The employee cost of pre-press BPO was more than 25% of the revenue from pre- press BPO and therefore the employee cost filter is satisfied in the case of this company. (c) On the service revenue filter viz., the requirement that a comparable company must have revenue from rendering services of more than 75% of its total revenue, the TPO again held that the pre-press BPO segment's entire income is from services and therefore this objection is not to be accepted 49. On objections by the Assessee before the DRP, the DRP confirmed the action of the TPO. One of the objection before the DRP was that this company did not figure in the list of companies eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket; (iv) the net profit margin realised by the enterprise and referred to in subclause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arms length price in relation to the international transaction. (2) For the purposes of sub-rule (1), the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely: (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. As far as the argument that this company fails functional comparability, we find that none of the objections raised by the Assessee in this regard about lack of information about allied services performed by the pre-press BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Sirict the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO.' Respectfully following the decision, we remand this comparable to the file of the TPO/AOforfresh adjudication on the above lines. Respectfully following aforesaid decision, we remand this comparable to file of Ld.AO/TPO, for fresh adjudication, on the basis of directions reproduced hereinabove. Needless to say that proper opportunity shall be granted to assessee as per law. Accordingly we set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2011-12. They provide sourcing and category management services in Sydney, Australia. Therefore, this company also failed the TPO's own filter of rejecting companies with peculiar circumstances. In view of the above i.e. functionally not comparable, presence of brand and extraordinary event that has taken place during the year on account of acquisition of Australian based company, we are of the considered opinion that Infosys BPO Ltd. should not be included in the list of comparables. We accordingly direct the Assessing Offlcer/ TPO to exclude Infosys BPO Ltd. from the list of comparables for the puipose of computing the average margin. It was also brought to our notice that the Hon'ble Delhi High Court in ITA No.26012028 in the appeal filed by the Revenue against the aforesaid order dismissed the appeal at the admission stage observing that rationale given by the ITAT for exclusion was correct. In view of the aforesaid decision, we direct exclusion of Infosys BPO from the list of comparable companies chosen by the TPO. From above, it is clear that this company is functionally not comprab1e with captive service provider. Respectfully following the same we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferings' that offer global customers an integrated portfolio of services ranging from IT services to BPO services. The Company provides its services from various processing facilities, backed t) a robust and scalable infrastructure network tailored to meet clients' needs. A detailed Business Continuity Plan has also been put in place to ensure the services are provided to the customers without any disruptions. Thus, this company is also stated to be a Knowledge Process Outsourcing and therefore for reasons stated by us while dealing with this issue of comparability of the company Infosys BPO Ltd. shall equally hold good and therefore we direct the AO/TPO to exclude this company from : list of comparables. Since the appellant company is into low end BPO, it cannot be compared with KPO service provider. 11.4 Respectfully following the decision of the co-ordinate bench of Tribunal, we direct for exclusion this company from the list of comparable . It is observed that this company is into high-end KPO services and an assessee rendering low end BPO services cannot be compared with it. Further, this company has been excluded due to absence of segmental information. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial on record including the judicial pronouncements cited. From the details on record we observe that while the assessee has contended that the services rendered by this company M/s TCS E-serve Ltd are high end KPO services, it has not brought out as to which of these are the services that would come under technical services. On the other hand, iv also notice that that the TPO has held all the services rendered by the ass essee to be EPO services with any proper analysis. In this factual matrix of the case, we find that on similar facts, the co-ordinate Bench o ITAT Bangalore in the case of mdc gene (P) Ltd., (supra) has remanded the matter of comparability of this company to the file of the TPO for fresh consideration. In view of the factual inatrx of the case on hand, as laid out above and following the decision f the co-ordinate Bench in the case of Inclegene (P) Ltd. (Supra) which is also rendered on similar facts, we deem it appropriate to remand the matter of the comparability of this company, TCS E-serve Ltd. To the file of the TPO for fresh consideration in the light of out ahoy observations. Needless to add, the TPO shall afford the assessee adequate opportunity of bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany as a comparable company in its original order. The assessee sought exclusion of this company on the ground that this company was functionally different from. the assessee company and the employee cost to the revenue was less than the threshold limit of 25% and that there were peculiar economic circumstances which impacted the profit margin of this company thereby rendering this company as not comparable company. The Tribunal while adjudicating of exclusion of this company in paragraph 14.3 of its order held that on application of employee cost filter that the Assessee has failed to show as to how the findings of the TPO and DRP are not correct. 2. The assessee has pointed out certain facts with regard to employee cost and diminishing revenue of this company which takes it out of the comparability and these aspects have not been considered by the Tribunal in its order. On the above objections in the MA, the Tribunal held as follows:- We have examined the contents in the misc. petition and we find that there has been omission to consider the application of employee cost filter by the Tribunal though attention of the Bench was invited to relevant pages pointed out in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. is unreliable and should not be used to compute employ ee cost for ITES segment. The Delhi Bench of the Tribunal in the case of Motorola Solutions India (P.) Ltd. u. Assts.CIT/2014J 48 taxmann.com 24842015] 152 lTD 158 (Delhi) has held that a company should be rejected as comparable in case there is contradiction in the facts or data sourced from annual report and as per the information gathered u/s. 133(6). In view of above discussion, we hold that Excel Infoways Ltd. cannot be considered as comparable and should be excluded from the list of comparables. We hold and direct accordingly . 39. From the above observation by coordinate bench, objection raised by Ld.CIT DR stands clarified, as this company for year under consideration made a statement under 133 (6) regarding allocating entire employee cost to IT-BPO segment, with no allocation to other segment, which amounts to almost 49% of its total revenue during the year under consideration. At this stage, we clarify that, we are not inclined to express our opinion regarding functional similarities/ dissimilarity of this company with that of present assessee before us and the same is kept open to be considered in an appropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licon Ltd., these comparables in the final list of comparables in accordance with law. Accordingly this ground raised by assessee stands partly allowed. 46. Ground No. 15 has been raised by assessee for computing negative working capital adjustment. At the outset is reliance has been placed on coordinate bench of this Tribunal in case of e4e-business Solutions India Pvt.Ltd in ITA No.2900/B/2018 by order dated 08/12/2020. Consistently this Tribunal has been taking a view that negative working capital cannot be granted to assessee. 47. The grievance of the assessee is with regard to negative working capital adjustment carried out by the Ld.TPO which was confirmed by the DRP. It is the plea of the assessee that though the Ld.TPO has observed that the Assessee has a healthy margin, the Ld.TPO has erred in making an adjustment towards working capital and the DRP further erred in upholding the same. 48. It was submitted that Working capital adjustment is made for the time value of money lost when credit time is given to the customers. The Assessee however does not bear any risk and has no working capital contingencies. The Assessee has not incurred any expenses for me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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