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TMI Blog2023 (5) TMI 1236X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2.2019 held on this issue as under: "17. As far as ICRA Online Ltd., is concerned, in the case of Swiss Re Shared Services India Pvt. Ltd., (Supra) the Tribunal held that this company was into knowledge process out sourcing and online software. The Tribunal took a view that this company was functionally comparable. However in the case of Zyme Solution Pvt. Ltd., Vs. ACIT, IT(TP)A No.85/Bang/2016 dated 28/4/2017, this Tribunal remanded the issue with regard to existence of related Party Transactions and thereafter directed comparability of this company and exclude this company if the RPT is more than 15% of the total revenue. As far as Jeevan Scientific Technology Ltd., is concerned this Tribunal in the case of Swiss Re Shared Services India Pvt. Ltd., (Supra) set aside and remanded for fresh consideration by the TPO of the comparability of this company with the following observations. "31. We have heard the rival contentions. Audited balance sheet and financial statement of Jeevan Scientific Technologies Ltd, (seg), taken from capitaline data base has been filed before us by the assessee at paper book page.677 to 740. Net revenue of the said company for the relevant previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons would be more than Rs.1 crore and included this company Jeevan Scientific Technologies Ltd. in the list of comparables for the purpose of computing ALP of international transactions. 3. Further, the ld. A.R. submitted that the learned AO, the DRP and the TPO have erred in including the above companies as comparable to the assessee even though these companies are clearly not comparable on account of various factors such as functional differences, low turnover, absence of segmental information, abnormal profitability and low service income filter applied by the TPO himself. 3.1 According to the ld. A.R., the Learned AO/ DRP/ TPO had erred in law and on facts by not following the directions of this ITAT, Bengaluru ("ITAT") wherein the Tribunal had required exclusion of M/s. Jeevan Scientific Solutions in case the turnover of BPO operations is less than one crore rupees. 3.2 He submitted that the Learned AO/ DRP/ TPO had erred in law and on facts by including M/s. Jeevan Scientific Solutions despite noting that the turnover of the BPO operations is INR 79.21 Lakhs and therefore, fails the minimum turnover filter of one crore rupees adopted by the TPO himself. 3.3 He further sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. D.R. relied on the order of the lower authorities. 5. We have heard the rival submissions and perused the materials available on record. Admittedly, the income from BPO operations in the case of M/s. Jeevan Scientific Technologies Ltd. for the assessment year under consideration was of Rs.79.21 lakhs. However, the TPO included income from enterprise resource planning segment along with income of BPO operations and computed as follows: Total receipt from the BPO operations - Rs. 79.21 lakhs Total receipt from ERP operations - - Rs. 92.93 lakhs Total - Rs.172.14 lakhs 5.1 In our opinion, the Tribunal placed reliance on the decision of Swiss Re Services India Pvt. Ltd. Vs. ACIT (2016) 76 Taxmann.com 22 and remitted the issue back to the file of AO/TPO to examine the turnover from the BPO segment and if the turnover is less than Rs.1 crore from BPO operations and it should be excluded from the list of comparables. However, while giving effect to the Tribunal order, the AO/TPO wrongly included the turnover from ERP segment along with BPO operations and computed the turnover at Rs.172.14 lakhs, which is inappropriate. As seen from the financial of M/s. Jeevan Scientific Tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration. We draw support for same from Indegene (P) Ltd vs ACIT reported in (2017) 85 Taxmann.com 60, wherein it has been held as under: "9.3.1. We have heard the rival contentions and perused and carefully considered the material 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, we also notice that that the TPO has held all the services rendered by the assessee to be BPO services with any proper analysis. In this factual matrix of the case, we find that on similar facts, the coordinate Bench o ITAT Bangalore in the case of Indegene (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 matrix of the case on hand, as laid out above and following the decision of the coordinate Bench in the case of Indegene (P) Ltd. (Supra) which is also rendered on similar facts, we deem it appropriate to remand the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated party transactions, as pointed out above, have not happened in the medical transcription segment. Since, only the results of medical transcription segment have been taken for our study, it is only appropriate that the related party transactions pertaining to this segment alone be considered. From the notes to accounts to the financial statements of M/s. BNR Udyog Pvt. Ltd., it is seen that the entire revenue of the medical transcription segment has been earned in foreign exchange. The related party transactions during the year have been with two domestic company viz. B.N. Rathi Securities Limited and BNR Capital Services Private Limited. These related party transactions could not have happened in the medical transcription segment where the entire receipts viz. Rs. 147,39,9037-has been received out of exports in foreign exchange. For easy reference, the relevant portion in financial statement is extract below: Earnings in foreign currency (Amount in Rs.) Particulars 2011-12 2010-11 Medical Transcription 1,47,39,903 94,45,903 The segmental revenue of BNR Udyog Pvt. Ltd. BNR Udyog Pvt. Ltd. (seg) (Medical Transcription) Segmental Revenue 1,47,39,303 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a comparable and the AO/TPO has not examined the issue as per the direction of earlier order of the Tribunal cited (supra). In our opinion, the TPO/AO is duty bound to follow the earlier direction of Tribunal, which was reproduced (supra) and accordingly, we direct the AO/TPO to pass the consequent order in conformity with the Tribunal order extracted herein above. This ground of assessee is partly allowed for statistical purposes. 11. Next ground in this appeal is with regard to inclusion of M/s. Universal Print Systems Ltd. in the list of comparables. 12. In this regard, the ld. A.R. submitted that the Learned AO/ DRP/ TPO has erred in law and on facts by including M/s. Universal Print Systems Limited as comparable to the assessee despite absence of sufficient information to determine segmental margins. 12.1 The ld. A.R. further submitted that the Learned AO/ DRP/ TPO had erred in law and on facts by not following the directions of this ITAT, Bengaluru with respect to the comparability analysis of M/s. Universal Print Systems Limited wherein the ITAT had specifically directed to adjust the margins of pre-press BPO segment after verifying whether label printing and offset, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Pvt Ltd., vs ACIT reported in (2019) 101 taxman.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 assessee-company has been duly considered by TPO after referring to information contained in Annual Report. The relevant findings of the TPO had not been countenanced by learned AR of the assessee. However, the issue of comparability of Universal Print Systems Ltd. has also been considered by the co-ordinate bench of this Tribunal in the case of CGI Information Systems & Management Consultants Pvt. Ltd. (supra) wherein it was held as follows: "47. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 engaged in ITES. On this objection the DRP held that though this company did not figure in the list of companies in ITES in the main search of capital line and prowess database but on a segmental search these two companies satisfied the requirement of being considered as companies engaged in providing ITES. Aggrieved by the directions of the DRP, the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stics of the property transferred or services provide: 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 specific characteristics of the property transferred or services provide: either transaction; (d) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions (e) 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 markets, the laws and Government orders in force, costs of labour and. capital in the markets, overall economic development and level of competition and whether the markets are wholesale retail (3) An uncontrolled transaction shall be comparable to an international (i) none of the differences, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n dealt with specifically by the TPO or DRP. Since 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/AO for fresh 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 this comparable back to Ld. TPO." 14.1 While giving effect to the order, TPO issued notice u/s 133(6) of the Act vide letter dated 30.12.2021 to M/s. Universal Print Systems Ltd. to furnish the required information on or before 7.1.2022. The requisite information is not received by the TPO. Hence, he passed the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. On the issue of functionally dissimilar: The TPO has applied TNMM method as most appropriate method to determine the ALP in this case. This method requires broad comparability of the functionality of the comparable. So, in the case. the company is into ITES/BPO, it would not matter as to what kind of customer it serves as the broad range of services remain the same and that is back end support. The functions of the comparable are similar in the sense that the Pre-press BPO unit provides back office support services. As seen from page 70 of annual report of the company for AY 2012-13, the business segregation is provided segment wise: a). This business segregation forms the basis for review of. operational performance by the management The Repro business comprises two repro houses which are engaged in PrePress activities. The Label business comprises a Label printing unit. The Offset Printing business comprises Offset Printing Machine alongwith all standard Finishing Equipments The Pre-press BPO business unit is engaged in Pre-press Services Export As seen from the above. it is clear that the comparable is engaged in pre-press BPO services which is similar as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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