2019 (9) TMI 1059 - AT - Income Tax

Tribunal allows appeal, excludes comparables, remands issues for fresh adjudication

M/s VWR Lab Products Pvt. Ltd., Versus The Asst. Commissioner of Income Tax, Circle-7 (1) (2), Bangalore

M/s VWR Lab Products Pvt. Ltd., Versus The Asst. Commissioner of Income Tax, Circle-7 (1) (2), Bangalore - TMI Issues Involved:1. Inclusion of Universal Print Systems Limited as a comparable.2. Inclusion of BNR Udyog Ltd. as a comparable.3. Inclusion of Excel Infoways Ltd. as a comparable.4. Inclusion of Infosys BPO Ltd. as a comparable.5. Inclusion of TCS E-Serve Ltd. as a comparable.6. Computation of working capital adjustment for back-office support services segment.7. Computation of margin of Microgenetics Systems Ltd.8. Consideration of certain expenses as operating in nature.Detailed Analysis:1. Inclusion of Universal Print Systems Limited as a Comparable:The Tribunal observed that Universal Print Systems Limited should be excluded as a comparable due to its functional dissimilarity with the appellant. The company is primarily involved in providing integrated print solutions and not routine ITES services. It also fails the employee cost filter. The Tribunal relied on the decision in the case of CGI Information Systems & Management Consultants Pvt. Ltd., where similar grounds were cited for exclusion. The Tribunal remanded this issue back to the TPO/AO for fresh adjudication, ensuring proper opportunity for the appellant to present its case.2. Inclusion of BNR Udyog Ltd. as a Comparable:The Tribunal noted that BNR Udyog Ltd. is into medical transcription and other services, which are not functionally similar to the appellant’s services. The Tribunal observed that medical transcription services are basic back-office services and do not add significant value, unlike the appellant's services. The Tribunal remanded this issue back to the TPO for fresh consideration, following the decisions in Indegene (P) Ltd. vs ACIT and M/s Nielson Sports India Pvt.Ltd. vs ACIT, which required a detailed analysis of the functional comparability.3. Inclusion of Excel Infoways Ltd. as a Comparable:The Tribunal found that Excel Infoways Ltd. is not functionally comparable as it handles business relations and customer management, which are different from the appellant’s services. Additionally, it fails the employee cost filter. The Tribunal relied on the decision in the case of Baxter India Pvt. Ltd. vs ACIT, where similar grounds were used to exclude this company. The Tribunal directed the TPO to exclude Excel Infoways Ltd. from the list of comparables.4. Inclusion of Infosys BPO Ltd. as a Comparable:The Tribunal excluded Infosys BPO Ltd. due to its functional dissimilarity and the presence of significant intangibles and brand value, which the appellant does not possess. The Tribunal referred to the decision in Baxter India Pvt. Ltd. vs ACIT, where Infosys BPO Ltd. was excluded for similar reasons. The Tribunal directed the exclusion of Infosys BPO Ltd. from the list of comparables.5. Inclusion of TCS E-Serve Ltd. as a Comparable:The Tribunal noted that TCS E-Serve Ltd. provides both BPO and KPO services without segmental reporting and owns a significant brand. The Tribunal referenced the decision in Zyme Solutions Pvt Ltd. vs ACIT and other cases where TCS E-Serve Ltd. was excluded due to its high-end KPO services and lack of segmental information. The Tribunal directed the TPO to exclude TCS E-Serve Ltd. from the list of comparables.6. Computation of Working Capital Adjustment for Back-office Support Services Segment:The Tribunal did not provide a detailed analysis of this issue in the judgment text provided.7. Computation of Margin of Microgenetics Systems Ltd.:The Tribunal did not provide a detailed analysis of this issue in the judgment text provided.8. Consideration of Certain Expenses as Operating in Nature:The Tribunal directed the AO to compute the provisions claimed in the case of comparables by considering those which pertain to the year under consideration. The Tribunal relied on the decision in Commscop Connectivity Services India Pvt.Ltd. vs DCIT, which held that only current year’s turnover with corresponding operating revenue and expenses should be considered for determining ALP. The Tribunal remanded this issue back to the TPO/AO for fresh adjudication.Conclusion:The Tribunal partly allowed the appeal, directing the exclusion of certain comparables and remanding other issues back to the TPO/AO for fresh adjudication, ensuring the appellant is given a proper opportunity to present its case.