TaxTMI 
TaxTMI 
2014 (9) TMI 123
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.... learned counsel confined his arguments to the selection of comparables on various filters and the arguments are accordingly made. Ground No.2.3.5 seeking inclusion of comparables selected by the assessee in its Transfer Pricing Study was not pressed. Therefore, the main arguments relate to exclusion of seven comparables included by the TPO in his transfer pricing order. 3. We have heard the learned Authorised Representative and the learned Departmental Representative in detail, perused the paper-books placed on record along with the summary of the charts prepared about statements of various comparables. In the course of arguments, the learned counsel relied on various decisions of the coordinate benches for exclusion of certain comparables. What we notice is that many of the orders pertain to earlier years and not for the assessment year involved in this appeal. Transfer pricing issues mainly rely on the factual matrix of each case in each assessment year. Therefore, while considering some of the principles established in various decisions of the coordinate benches of earlier years, we could not apply the findings thereon unless facts are similar. Suffice to say that we have cons....
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....cted the documentation maintained by assessee on the reasons that multiple year data was used; has not applied export filters properly; and also selected some of the companies which are not functionally similar. After analyzing the reasons, the TPO undertook fresh search of comparables and after detailed analysis, gave a show cause notice to assessee for its objections to the selection of 14 comparables. Ultimately, the TPO determined the following twelve companies as comparables and arrived at the average Profit Level Indicator (PLI) of 27.42%, as per the details tabulated hereunder- Sl. No. Company Name Operating Revenue Rs.(in crores) PBIT/Cost % 1. Accentia Technologies Limited 78.73 49.40 2. Acropetal Technologies Ltd. (Seg.) 33.13 25.01 3. Aditya Birla Minacs Worldwide Ltd. 231.57 0.53 4. Cosmic Global Ltd. 7.76 48.20 5. Crossdomain solutions p. Ltd 33.76 29.38 6. Eclerx Services Ltd. 187.98 53.44 7. Infosys B P O Ltd. 101.62 16.90 8. Jeevan Softech Technology Ltd. 1.79 16.56 9. Microland Limited 144.05 2.35 10. Microgenetic Systems Ltd. 1.27 10.11 11. R.Systems International Ltd.(Seg.) 26.55 5.77 12. Genesys International Ltd. 83.18 71.50 Arithmetic....
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.... exercise by incurring large amounts of brand building and advertisement expenditure and undertaking brand campaigning outside India. Further, it also has huge asset base and therefore, this company is not functionally comparable to assessee. Assessee relied on the decision of the Hon'ble Delhi High Court in the case of CIT V/s. Agnity India Technologies Pvt. Ltd. (2013) 219 Taxman 26 (Del), wherein it was held that huge turnover companies like Infosys and Wipro cannot be considered as comparable to smaller companies like assessee. 11.1 We are in agreement with the contentions of the comparability on turnover ratio of assessee with this company on the ground that assessee's turnover is about Rs. 15.79 crores, as against turnover of Rs. 1016 crores of the Infosys. We are also of the view that other contentions with regard to the brand value and brand building exercise, having huge asset base, can be considered to arrive at the conclusion that Infosys BPO is functionally not similar to that of assessee. Infosys BPO stands on its own as an exclusive BPO of the Infosys Technologies and in earlier years, generally Infosys BPO is excluded in many of the cases. Considering these aspects,....
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....teen categories, starting with Bank Office operations, Call centres etc. and ending with Website services. From the very description of such services, it is palpable that even though these fall under the overall ITES category, but some of them are quite different from each other. To cite, service at Sl.No. (vi) of this Circular is 'Geographic Information System services and at Sl. No. (vii) is 'Human Resources Services.' No doubt, all these fifteen categories of products/services have been included under the major head of 'Information Technology Enabled Services' (ITES), but most of them are quite distinguishable from others. In our considered opinion, the fifteen broad categories set out in this Circular cannot per se be claimed as similar to each other. A cursory look at these products/services transpires that some of them are functionally quite different from each other. Further the level of investment required for providing such services is also not consistent. In our considered opinion, the mere fact that two services are placed under this category do not become automatically comparable. If a case providing one category of services under ITES is claimed as comparable with anot....
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....a Minacs Worldwide Ltd., as a comparable company, this company should also be included, as otherwise, both the companies should be excluded. 13.2 We have considered the issue and examined the Annual Report and the objections of assessee. As seen from the Annual Report, the above company is involved in diverse nature of services which are of high end nature. In earlier year this comparable was accepted as a KPO and excluded. Similar facts exist in this year also. We therefore, direct the Assessing Officer/TPO to exclude this company. (4) Cosmic Global Ltd. 14. The main objection of assessee with reference to the inclusion of this company is with reference to outsourcing of its main activity. Even though this company was selected as comparable in assessee's TP study, it has raised objection before the TPO that this company's employee cost is less than 21.30% and most of the cost is with reference to the outsourcing charges or translation charges, and as such this is not a comparable company. The TPO, though considered these submissions, rejected the same, on the reason that this does not impact the profit margin of the company. Opposing the view taken by the TPO, it is submitted th....
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....ited at Rs. 27.76 lac is still on much lower side, the reasons given above would fully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded from the list of comparables." In view of the detailed analysis of the coordinate Bench of the Tribunal in the above referred case, in this case also we accept the contentions of assessee and direct the Assessing Officer/TPO to exclude this comparable for the same reasons. (5) Acropetal Technologies Ltd. (Seg.) 15. The objection of assessee with reference to this company is that the company is involved in engineering design services and high end services and has products in its inventory. It is also involved in R&D activity and developing sophisticated delivery system. It was further submitted that this company is not functionally comparable at segment level also, as engineering design services are high end services, as considered in other cases. It is further submitted that allocation of expenses between segments is not possible and depreciation was not allocated between the segments. There are extra-ordinary events which impact profit also, as can be seen from the Annual Reports. It is furthe....
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..... These are High end services as considered by the Bangalore bench. Therefore we are of the opinion that functions of assessee are similar to the above Company. The objections of assessee are rejected. 15.2. We accordingly hold that this company is functionally similar at segment level. However assessee objects on adopting segmental profits particularly lack of information how the expenditure/ depreciation was apportioned. Therefore the issue of adopting the segmental results in analyzing the profit and PLI is restored to TPO/AO for fresh examination. Assessee should be given due opportunity to make its objections which should be dealt with appropriately. (6) Accentia Technologies Limited. 16. This company was objected to by assessee on the reason of super profits as well as extra-ordinary events. It was submitted that acquisition of Oak Technologies & Trans Services has impact on the profits of the company and has taken inorganic growth as strategy to increase the profits because of the peculiar economic circumstances and brand value. The same in these circumstances cannot be selected. It was submitted that assessee was in medical transcription services. 16.1. The Departmental....