Tribunal decision: Revenue appeal dismissed, assessee cross-objection partly allowed.

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection. It directed the exclusion of Eclerx Services Limited from the comparable list while upholding the inclusion of Coral Hub Limited, Cosmic Global Limited, and Microgentics Systems Limited. Additionally, the exclusion of R Systems International Limited was upheld. The decision was pronounced on 18th August 2020.

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Issues Involved:
1. Inclusion of Coral Hub Limited as a comparable in design engineering service segments.
2. Inclusion of Cosmic Global Limited as a comparable in design engineering service segments.
3. Inclusion of Microgentics Systems Limited as a comparable in design engineering service segments.
4. Rejection of Eclerx Services Limited as a comparable.
5. Rejection of R Systems International Limited as a comparable due to persistent loss-making.

Issue-wise Detailed Analysis:

1. Inclusion of Coral Hub Limited as a Comparable:
The Revenue contested the inclusion of Coral Hub Limited as a comparable for the assessee's design engineering services. The AO had rejected Coral Hub Limited, stating it was not functionally comparable. However, the DRP directed its inclusion, noting the functions of Coral Hub Limited and the assessee were similar. The Revenue argued that Coral Hub Limited's activities, particularly in digitization, were not comparable due to their lower skill requirements. The Tribunal upheld the DRP's decision, noting that Coral Hub Limited was engaged in IT-enabled services, and its inclusion as a comparable was consistent with the previous assessment year. Thus, the Tribunal found no infirmity in the DRP's order and dismissed the Revenue's grounds.

2. Inclusion of Cosmic Global Limited as a Comparable:
The Revenue challenged the inclusion of Cosmic Global Limited, arguing it was primarily engaged in translation services, not IT-enabled services. The assessee contended that Cosmic Global Limited also provided other IT-enabled services, including BPO services, and had been accepted as a comparable in the previous assessment year. The DRP, referencing a CBDT circular that classified medical transcription as an IT-enabled service, directed the inclusion of Cosmic Global Limited. The Tribunal found no error in the DRP's decision, noting that the CBDT's classification supported the inclusion. Consequently, the Tribunal dismissed the Revenue's grounds.

3. Inclusion of Microgentics Systems Limited as a Comparable:
The Revenue objected to the inclusion of Microgentics Systems Limited, arguing it was not functionally comparable and lacked the necessary computer hardware and software for medical transcription services. The DRP found the TPO's observations factually incorrect, noting that Microgentics Systems Limited's production expenses included medical transcription charges and that it possessed the required assets. The Tribunal upheld the DRP's decision, finding no infirmity in the inclusion of Microgentics Systems Limited as a comparable. Thus, the Tribunal dismissed the Revenue's grounds.

4. Rejection of Eclerx Services Limited as a Comparable:
The assessee challenged the inclusion of Eclerx Services Limited, arguing it was not functionally comparable. The DRP and TPO had included Eclerx Services Limited, considering it a KPO like the assessee. The Tribunal noted that Eclerx Services Limited provided data analytics and process outsourcing services, which were functionally dissimilar to the assessee's engineering design services. Citing a similar case where Eclerx Services Limited was excluded based on functional dissimilarity, the Tribunal directed the exclusion of Eclerx Services Limited from the comparable list, allowing the assessee's ground.

5. Rejection of R Systems International Limited as a Comparable:
The assessee contested the exclusion of R Systems International Limited, which the TPO and DRP had rejected due to persistent losses when foreign exchange gains were treated as non-operating income. The Tribunal found that the foreign exchange gains should be treated as non-operating revenue, consistent with the definition in Rule 10A of the Income Tax Rules, 1962. Consequently, R Systems International Limited was deemed a persistent loss-making company and not comparable to the assessee. Thus, the Tribunal upheld the exclusion and dismissed the assessee's ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection, directing the exclusion of Eclerx Services Limited from the comparable list while upholding the inclusion of Coral Hub Limited, Cosmic Global Limited, and Microgentics Systems Limited and the exclusion of R Systems International Limited. The order was pronounced on 18th August 2020.

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