TMI Blog2018 (3) TMI 2013X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable vis- -vis. the taxpayer which is into providing back office services related to maintenance and database working on minimal risk having meager turnover of Rs. 14.15 crores. TCS Eserve International is a big brand operating as full-fledged risk bearing company and its profitability has increased by 174% and 286% in FY 2008-09 and 2009-10 respectively due to acquisition and the fact that it is functionally dissimilar, it cannot be a valid comparable vis- -vis. taxpayer which is into providing back office services related to maintenance and database working on minimal risk as a captive service provider. So, we order to exclude TCS Eserve International as a comparable from the final list of comparables. Deduction u/s 10A - benefit of inclusion of expenditure incurred by the taxpayer in foreign currency towards communication charges and expenditure incurred by the taxpayer in foreign currency in database fee - HELD THAT:- When it is not in dispute that for the purpose of section 10A, the term total turnover is to be interpreted by computing the entire export turnover as well as domestic turnover and in case, expenses are to be excluded from export turnover, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducted in the transfer pricing documentation of the Appellant on inappropriate and inadequate grounds: 3.2 rejecting the applicability of functional filter applied in the search process by the Appellant: 3.3 adopting a new search criterion and inconsistently applying certain additional quantitative filters: 3.4 rejecting the comparable companies selected by the Appellant without providing cogent and sufficient reasoning: 3.5 selecting companies which were not comparable to the Appellant on various grounds: 3.6 confirming the selection of current year (i.e. financial year 2009-10) data for comparability; 3.7 erred in not appreciating the fact that there is no motive pm the part of the Appellant to shift the profits to any other jurisdiction since it claims tax holiday benefits as per the Software Technology Park of India. For Corporate Tax Matters: 4. Based on the facts and circumstances of the case, the Ld. AO has erred in law as well as on facts in holding that the expenditure incurred by the Assessee in foreign currency towards communication charges amounting to Rs. 1,84,211/- has to be excluded from the export turnover for the purpose of computing the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... database of prospective employees and candidates who have sent their resumes to Heidrick Struggles (H S) Group. The database is Search Palace, Heidrick Struggles group's proprietary software tool, used to perform all of Heidrick Struggles group's services whereas Group company is the owner of intangibles associated with Search Palace. The taxpayer is also responsible for maintaining and developing the software and other related tools. Thus, H S KMC India, the taxpayer's activities are supporting H S's intangible creation and maintenance activities particularly as it applies to the software tools. During the year under assessment, the taxpayer entered into international transaction with its Associated Enterprises (AE) as under:- S.No. Nature of transactions TNMM Arm s length price as per taxpayer (i) Database support and research services TNMM 14,15,50,138 (ii) Database Fees TNMM 19,07,772 (iii) Restricted share units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hmarking the international transactions after directions issued by the ld. DRP by allowing working capital adjustment to the taxpayer is as under:- Sl. No. Name of the comparable company Adjusted Average margin (2010) 1 Accentia Technology Ltd. 39.29% 2 Cosmic Global 15.78% 3 e4e Healthcare Ltd. 20.02% 4 Fortune Infotech Ltd. 20.39% 5 ICRA Techno Analystics Ltd. 22.49% 6 Infosys BPO Ltd. 28.89% 7 TCS Eserve International Ltd. 55.25% 8 TCS Eserve Ltd. 61.19% 9 Eclerx Services Ltd. 54.42% 10 Interglobe Technologies Ltd. 6.48% 11 Jindal Intellicom Ltd. 14.27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle management viz., Medical Transcription, Medical Coding and Billing and Receivables Management services, to different clients; in some cases separately and in some case, all the three different service are offered to the same client. The delivery of these services is using third party software in most cases and in some cases, using proprietary software. Same is the case with hardware infrastructure too. Furthermore, perusal of page 29 of the convenience paper book, which is schedule forming part of the consolidated balance sheet, shows that due to acquisition, there has been huge addition to the fixed assets by way of recognition of goodwill amounting to Rs. 19,06,51,057/-. So, during the year under assessment, Accentia has acquired IG Group of companies consisting of three companies viz. Tactiq Ltd., Centric Ltd. and Neologiq Ltd., which are engaged in Full Product Development Lifecycle involving Electronic Design and development etc. 14. When we examine pages 30 31 of the Schedule forming part of the profit and loss account of Accentia, it becomes apparently clear that apart from the income of the Accentia, medical transcription, billing an decoding, it is also into devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rve is having highly fluctuating margins which is tabulated by the taxpayer in its synopsis and reproduced as under for ready reference:- Particulars FY 2010-11 FY 2009-10 FY 2008-09 FY 2007-08 Operating revenue 15,045,559 14,051,005 12,247,385 9,967,959 Growth (Y-o-Y) 7% 15% 23% NA Operating Cost 8,508,785 8,384,788 11,129,169 7,564,985 Growth (Y-o-Y) 1% -25% 47% NA Operating Profit 6,536,774 5,666,217 1,118,216 2,402,974 Growth (Y-o-Y) 15% 407% -53% NA OP/OC 76.82% 67.58% 10.05% 31.76% 19. Furthermore, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abase working on minimal risk having meager turnover of Rs. 14.15 crores. TCS ESERVE INTERNATIONAL LTD. (TCS ESERVE INTERNATIONAL) 22. TPO retained this comparable despite objections raised by the taxpayer and DRP also concurred with the TPO in retaining this company as a comparable. Now, the taxpayer sought exclusion of TCS Eserve International on grounds inter alia that it is functionally dissimilar; that segmental data is not available; that it is providing services predominantly to the CITI Group; that the company's revenue and profitability has increased by 174% and 286% in FY 2008-09 and 2009-10 respectively as compared to preceding years; that it has huge brand value; that it has acquired CITI Group and relied upon the decisions of the coordinate Bench of the Tribunal in Ameriprise India Pvt. Ltd. (supra) and Equant Solutions India Pvt. Ltd. (supra). 23. When we examine profile of the TCS Eserve International from page 39 of the convenience paper book, its operations broadly comprise of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving the processing, collections, customer care and payroll r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o acquisition of TCS Eserve International by the Tata Group to whom it has paid Rs. 3,737 thousands as Tata Brand Loyalty, its margin has been directly impacted. 26. The coordinate Bench of the Tribunal in Ameriprise India Pvt. Ltd. (supra) has held as under: 11.2 We have heard the rival submissions and perused the relevant material on record. Notes to Accounts indicate that this company is engaged in the business of providing IT enabled services/BPO services primarily to Citigroup entities globally. The operations of this company : 'broadly comprise of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving processing, collections, customer care and payments in relation to the services offered by Citigroup to its corporate and retail clients. Technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities.' It is manifest that this company is engaged in rendering BPO services to the banking and financial services industry (BFSI) and Travel, Tourism and Hospitality (TTH). It is providing services to BFSI and TTH an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while computing the profit eligible for deduction u/s. 10A once again when the appellant itself had deducted it while computing the eligible deduction u/s. 10A. This amounts to double disallowance. Therefore, the AO is directed to delete the deduction of Rs. 1,41,274/- while calculating 10A deduction. There is merit in excluding the 20% of the telecommunication expenses as calculated by him from the total turnover a well. This issue has been decided by the Higher Authorities in Tata Elxsi and other cases (supra). Therefore, AO is directed to exclude the telecommunication expenses amounting to Rs. 5,307,691/- (pertaining to this assessment year) from the total turnover while calculating the deduction u/s. 10A of the IT Act. To this extent, relief is given to the assessee. 29. When it is not in dispute that for the purpose of section 10A, the term total turnover is to be interpreted by computing the entire export turnover as well as domestic turnover and in case, expenses are to be excluded from export turnover, the same are to be excluded from the total turnover for the purpose of computing the deduction u/s. 10A of the Act. So, we are of the considered view that the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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