TMI Blog2023 (12) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... Info Group Pvt. Ltd., [ 2019 (5) TMI 1211 - DELHI HIGH COURT] in which after examining the judgment in the case of Chryscapital [ 2015 (4) TMI 949 - DELHI HIGH COURT] it was observed that none of the remaining comparables involved in the said case was a giant corporation like Infosys. Same is in the present case as well, in the sense that none of the said nine comparables is of the size of Infosys. Besides, Infosys BPO Ltd. is even functionally dissimilar to the respondent/assessee in the sense that it is largely engaged in the area of software development, assuming all risks leading to higher profits, which is not in the case of respondent/assessee. That being so, we find no error in decision of the Tribunal in rejecting Infosys BPO Ltd. as a comparable. Acropetal Technologies Ltd. TPO took segmental information for income from engineering design services and treated it as IT enabled services. The Acropetal has high on-site development expenses whereas the respondent/assessee is engaged only in offshore activities, therefore, the two are not comparable on functional level. The TPO failed to analyse as to how the engineering design services of Acropetal can be compared with low en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, this ground was treated as infructuous by the Tribunal. This question thus does not arise for our consideration. - HON'BLE MR. JUSTICE RAJIV SHAKDHER AND HON'BLE MR. JUSTICE GIRISH KATHPALIA For the Appellant Through: Mr Vipul Agrawal, Sr. Standing Counsel with Mr Gibran Naushad and Ms Sakshi Shairwal, Jr. Standing Counsels. For the Respondent Through: Ms Ananya Kapoor, Adv. GIRISH KATHPALIA, J. 1. By way of this appeal brought under Section 260A of the Income Tax Act (hereinafter referred to as the Act ), the revenue raised following proposed questions: A. Whether on facts in the circumstances of the case and law, the Hon'ble ITAT erred in law on facts in deleting addition made by the AO on account of ALP adjustment of international transaction from associated enterprises? B. Whether the Hon'ble ITAT was justified in laying down stringent standards of comparability and attempting to identify exact replica of the taxpayer for comparability analysis, whereas the Indian Law and the international jurisprudence recognize the reality that there cannot be an exact comparable in a given situation without any difference without appreciating that such astringen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income as Rs. 8,34,16,421/-. The case having been selected for scrutiny, notice under Section 143(2) of the Act was issued. 2.3 By way of order dated 26.12.2012, the Transfer Pricing Office (TPO) under Section 92CA(3) of the Act benchmarked the transaction of the respondent/assessee using Transactional Net Margin Method (TNMM) with Profit Level Indicator (PLI) of Operating Profit to Operating Cost (OP/OC) with nine comparables with a margin of 22.72% and proposed the adjustment of Rs. 3,42,98,762/-. 2.4 Accordingly draft assessment order dated 13.03.2013 was passed by the Assessing Officer incorporating the addition on account of Arms Length Price (ALP) determined by the Assessing Officer besides the additions, namely, disallowance of rent paid by the respondent/assessee without deducting TDS and payment made to person specified under Section 40A(2)(b) of the Act. 2.5 Vide Assessment Order dated 29.04.2013, in consonance with the Draft Assessment Order total income of the respondent/assessee was assessed to be Rs. 13,57,28,290/-. 2.6 The respondent/assessee challenged the Assessment Order by way of appeal before the Commissioner, Income Tax (Appeals). Vide order dated 18.11.2016, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes of determination of Arms Length Pricing and in such circumstances an inquiry under Rule 10B(3) of the Income Tax Rules must be carried out to determine as to whether the material differences between the assessee and the said entity can be eliminated and unless such differences cannot be eliminated the entity should be determined as comparables. 3.2 On the other hand, learned counsel for respondent/assessee pointed out various differences between the respondent/assessee and e-Clerx as regards the structure and functionalities of the two entities. It was pointed out by learned counsel for respondent/assessee that unlike e-Clerx, the primary function of the respondent/assessee is simply punching in data through freshly employed graduates with no trading experience, without even entering any market risk. It was argued that the distinction between a BPO and a KPO is a vital aspect in the present case to be kept in mind. Learned counsel for respondent/assessee referred to the view taken by other co-ordinate benches of this court by way of rejecting Infosys BPO Ltd. as comparable for the reason of it being a giant corporation in comparison with the litigating assessees of those ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that over 90% of Futures First employees are either fresh graduates or have no trading experience. The employees analyze data on various online tools and use their knowledge skills to enter buy-sell details. The employees are trained with rules which help them to enter these details. Futures First employs over 370employees who support execution of main activities of AEs which are performing derivative trades in equities futures(primarily in U.S. and European Stock Indices), commodities futures (e.g. oil. gold, cocoa, coffee, sugar and corn commodity futures) and interest rate futures (e.g. Euro, Sterling and Canadian currency derivatives). Futures First enters buy-sell details for tick trading which essentially means buying and selling on very low margins. These details are primarily system and software driven and the role of employee in India is limited to entering the buy-sell details based on broad guidelines provided by AEs. In addition each employee is allocated only one or two products for which he enters buy-sell details within specified limits. IT support tools: Futures First has a small support team involved in provision of technical support. These tools help employees in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the size of Infosys. Besides, Infosys BPO Ltd. is even functionally dissimilar to the respondent/assessee in the sense that it is largely engaged in the area of software development, assuming all risks leading to higher profits, which is not in the case of respondent/assessee. That being so, we find no error in decision of the Tribunal in rejecting Infosys BPO Ltd. as a comparable. 7. As regards the other rejected comparable, namely Acropetal Technologies Ltd., the TPO took segmental information for income from engineering design services and treated it as IT enabled services. The Acropetal has high on-site development expenses whereas the respondent/assessee is engaged only in offshore activities, therefore, the two are not comparable on functional level. The TPO failed to analyse as to how the engineering design services of Acropetal can be compared with low end IT enabled services of the respondent/assessee. Even the segmental detail of Acropetal has not been discussed by the TPO. Therefore, we find no error in the decision of the Tribunal in rejecting Acropetal Technologies Ltd. as a comparable. 8. Lastly in the list of the rejected comparables, comes e-Clerx Services Ltd. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lecting comparables without making a conscious selection as to the quality and nature of the content of services. Rule 10B(2)(a) of the Income Tax Rules, 1962 mandates that the comparability of controlled and uncontrolled transactions be judged with reference to service/ product characteristics. This factor cannot be undermined by using a broad classification of ITeS which takes within its fold various types of services with completely different content and value. Thus, where the tested party is not a KPO service provider, an entity rendering KPO services cannot be considered as a comparable for the purposes of Transfer Pricing analysis. The perception that a BPO service provider may have the ability to move up the value chain by offering KPO services cannot be a ground for assessing the transactions relating to services rendered by the BPO service provider by benchmarking it with the transactions of KPO services providers. The object is to ascertain the ALP of the service rendered and not of a service (higher in value chain) that may possibly be rendered subsequently. Therefore, as regards rejection of e-Clerx as comparable in the present case, we find no error in the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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