TMI Blog2019 (8) TMI 1870X X X X Extracts X X X X X X X X Extracts X X X X ..... ressed by Doctor, which is then communicated to the patients. It is observed from annual report placed that this company has segmental information of medical transcription and revenue earned under this segment is Rs.147.40 Lacs. It is also been observed that various other decisions by co-ordinate Benches of this tribunal has remanded this comparable back to Ld.TPO, for proper analysis and fresh consideration. Thus we set aside this comparable back to Ld.TPO for considering it afresh. Excel Infoways Ltd. (segmental) - 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 appropriate case. We therefore agree with contention raised by assessee regarding this comparable not satisfying employee cost filter. Informed Technologies India Ltd. - It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export sales less than 75% of the sales e) Rejecting companies that have sales from ITES less than 75% of the total operating revenue. f) Not applying reasonable employee cost filters. g) Applying related party filter at 25% of sales. 7. The TPO and the AO ought to have restricted the upper limit of turnover at 10 times that of the assessee as held by the. Jurisdictional Tribunal in the case of ACIT vs. McAfee Software (India)(P.) Ltd., reported in 8. Without prejudice, the TPO and AO ought to have applied the turnover filter of Rs. 1 crore to Rs. 200 crores for selection of comparables as held by the Bombay High Court in the case of CIT vs. M/s. Pentair Water India Pvt. Ltd., reported in 381 ITR 216. 9. The TPO and the AO erred in selecting companies with super-profit margins namely TCS E-Serve Ltd., Universal Print Systems Ltd.(Seg), B N R Udyog Ltd. and thus the ALP margin computed is wrong and consequently the orders of TPO AO need to be cancelled on the facts of the case. 10. a) The authorities below failed to appreciate that the company Universal Print Systems Ltd. is functionally dissimilar and thus erred in treating the same as comparable on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest under sections 234B and 234C was not provided to the appellant as regard to the rate, period and method of calculation of interest under the facts and circumstances of the case. 18. The appellant craves leave to 'add, alter, delete, and modify any of the grounds which are urged above. 19. For the above and such other grounds as may be urged at the time of hearing, the appellant prays your Honour to consider the facts and circumstances of the case and justice rendered. The additional grounds raised by assessee are as under: The appellant begs to submit the under mentioned additional grounds of appeal which were not urged specifically in the original grounds of appeal filed at the time of institution of appeal. These grounds do not involve any investigation of any facts otherwise on the record of the department and therefore, it is prayed that the additional pounds may kindly be admitted and disposed off on merits for the advancement of substantial cause of justice. Reliance is placed on the decision of the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. Vs. CIT reported in 229 ITR 383 and on the decision of Mysore High Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m transfer pricing report observed that assessee renders IT enabled services to Inspinity and Software Development Services to SPI LLC. It was observed that assessee was providing backend customer care and administrative services to U.S.-based clients from healthcare and financial services sectors. Ld.TPO observed that assessee entered into following international transaction with its AE s: Particulars Amount Medical transcription service 3,45,71,603 Provision of Software Services 55,66,75,560 It was observed that assessee used TNMM as most appropriate method by using OP/OC as PLI and computed its margin under software development services at 15.84% and ITeS Services (BPO division) at 12.36%. Assessee used 11 comparables for software development services and 9 comparables in respect of IT enabled services. It has been submitted that only disputed segment by Ld.TPO, is IT enabled service segment. For IT enabled service segment assessee used following 9 comparables with an average margin of 15.27%: Sl.No. Name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. TPO, however excluded Accentia Technologies based on functional differences. DRP also excluded M/s informed technologies India Ltd though it was not objected by assessee. Upon receipt of DRP directions Ld. AO passed final assessment order by making an addition of Rs.64,16,427/-as TP adjustment. L.AO also disallowed donation claimed by assessee is expenses amounting to Rs.1,41,240/-. 6. Aggrieved by order passed by Ld. AO, assessee is in appeal before us now. It has been submitted that Ground No. 1,4 18-19 are general in nature and therefore do not require any adjudication. 7 Ground No. 5-16 along with Additional Ground 1-2 are in respect of comparables alleged to be excluded/included by assessee. Assessee placed before us chart, wherein following comparables are sought to be exclude/include Comparables sought to be excluded: Universal Print Systems Ltd (segmental) (BPO) Infosys BPO Ltd TCS E-Serve Ltd BNR Udyog Ltd (segment) (medical transcription) Excel Infoways Ltd (segmental) (IT) (BPO) Comparables sought for inclusion Informed Technologies India Ltd Before we undertake comparability analysis, it is sine qua non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties below and submitted that this comparable is functionally comparable with that of assessee. 9. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 engaged in ITES. On this objection the DRP held that though this company did not figure in the list of companies in 1TES in the main search of capital line and prowess database but on a segmental search these two companies satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established is then taken into account an arm's length price in relation to the international transaction. (2) For the purposes of sub-rule (1), the comparability of an (a) the specific characteristics 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 mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions raised 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. 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. 9. Infosys BPO Ltd. Assessee objected for inclusion of this comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Officer/TPO to exclude Infosys BPO Ltd. from the list of comparables for the purpose of computing the average margin. 2. It was also brought to our notice that the Hon ble Delhi High Court in ITA No.260/2018 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 comparable with captive service provider. Respectfully following the same we direct this company to be excluded from final list. 12. TCS e-Serve Ltd. Ld. AR submitted that thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 I'- reasons stated by us while dealing with this issue of comparability of the company Infosys BPOLtd. 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 has been 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. Respectfully following aforesaid decision, we direct Ld.TPO to exclude this company from the list of comparables. 15. BNR Udyog Ltd. (segmental) 15.1 Ld.AR su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, w 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 co-ordinate 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 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 abov observations. Needless to add, the TPO shall afford the assessee adequate opportunity of being heard and to file details/submissions in this regard. It is also been observed that similar view has been taken by decision of this Tribunal in case of M/s Nielson Sports India Pvt.Ltd., Vs ACI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 3. 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:- 8. 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 misc. petition. We do not however agree with the assessee that functional comparability of this company has not been examined by the Tribunal in paragraph 14.4. The Tribunal has come to the conclusion that this company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 152 ITD 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 . 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 appropriate case. We therefore agree with contention raised by assessee regarding this comparable not satisfying employee cost filter. Respectfully following aforestated decision of Delhi Tribunal reproduced hereinabov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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