Tribunal excludes TCS e-Serve and Accentia Technologies Ltd., adjusts margin within range. Assessee's appeal partly allowed.

The Tribunal directed the exclusion of TCS e-Serve and Accentia Technologies Ltd. from the comparability list, bringing the assessee's margin within the +/-5% range. As a result, the assessee's appeal was partly allowed, while the revenue's appeal was dismissed as infructuous.

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Issues Involved:
1. Transfer Pricing Adjustment for Information Technology Enabled Services (ITES)
2. Inclusion and exclusion of certain comparables
3. Levying of interest under Section 234B and 234C of the Income Tax Act

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment for ITES:
The main contention in the assessee’s appeal was the Transfer Pricing Adjustment of Rs. 36,54,65,763/- out of a total adjustment of Rs. 50,60,63,848/- made by the TPO. The grounds of appeal included:
- The rejection of the transfer pricing study maintained in good faith.
- The rejection of the methodical search process and the search criteria applied by the appellant.
- The rejection of multiple-year data and determination of the arm’s length price based on single-year data.
- The application of inappropriate filters while selecting comparables.
- The cherry-picking of comparable companies.
- The denial of working capital adjustment and risk management.
The assessee also sought the benefit of ±5% range as provided under the proviso to section 92C(2) of the Act.

2. Inclusion and Exclusion of Certain Comparables:
The revenue’s appeal contested the inclusion of M/s Informed Technologies and M/s Jindal Intellicom Pvt. Ltd. as comparables, questioning the segmental profit and loss account, the predominance of rental activities, and the size of the companies compared to the assessee. The DRP’s directions included the confirmation of some comparables and the rejection of others:
- The TPO had initially shortlisted five comparable companies, including Infosys BPO Ltd., e4e Healthcare Business Services Pvt. Ltd., Accentia Technologies Ltd., Acropetal Technologies Ltd. (Segmental), and TCS eServe Ltd.
- The DRP confirmed two of the TPO’s comparables (Accentia Technologies Ltd. and TCS eServe Ltd.) and rejected one (Acropetal Technologies Ltd. (Segmental)).
- The DRP further included two comparables selected by the assessee, M/s Informed Technologies India Ltd. and M/s Jain Intelecom Pvt. Ltd.

i) TCS e-Serve:
The assessee argued that TCS e-Serve, engaged in both BPO and ITES services, lacked segmental results, making it difficult to segregate revenues. The company’s high profit margins were attributed to its merger with TCS and its significant brand value, which the assessee lacked. The Tribunal noted that other decisions had found TCS e-Serve incomparable due to the absence of segmental details and the significant intangibles it owned.

ii) Accentia Technologies Ltd.:
The assessee contended that Accentia Technologies Ltd. provided KPO services and developed its own products, making it incomparable. The Tribunal noted that the company’s services included medical transcription, coding, and billing, which differed from the assessee’s ITES services. Previous decisions had excluded Accentia Technologies from comparability analysis with ITES companies.

3. Levying of Interest under Section 234B and 234C:
The assessee also contested the levying of interest under Section 234B and 234C of the Act. However, this issue was not adjudicated as it was considered academic, given that the exclusion of the two contested comparables would bring the assessee’s margin within the ±5% range of the arm’s length price.

Conclusion:
The Tribunal directed the AO/TPO to exclude TCS e-Serve and Accentia Technologies Ltd. from the comparability list. With these exclusions, the assessee’s margin fell within the tolerance range of ±5%, rendering other arguments academic. Consequently, the assessee’s appeal was partly allowed, and the revenue’s appeal was dismissed as infructuous. The order was pronounced in the open court on 19th September 2016.

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