TaxTMI 
TaxTMI 
2014 (9) TMI 201
X X X X Extracts X X X X
X X X X Extracts X X X X
....' to the assessee', 'Reimbursement of expatriates' salaries' by the assessee and 'Advance money received' - were reported by the assessee. The assessee furnished segment wise financial data to demonstrate that its international transactions were at ALP on segmental level under the Transactional Net Margin Method (TNMM). The TPO examined the results of various segments separately by applying TNMM with the same filter of the OP/TC. The TPO accepted the last four transactions at Arm's Length Price (ALP). He clubbed first two transactions of 'Provision of claim processing services' and 'Provision of data analytics services' under a common 'ITES segment' and benchmarked them on a consolidated basis. Similarly he did not accept the price declared by the assessee for 'Provision of software development services' at ALP. 3. The position which, therefore, emerges is that the TPO did not dispute the correctness of the segmental data. He has also benchmarked the international transactions of the assessee at the segmental level rather than entity level. Since the dispute in the present appeal relates to the transfer pricing adjustment in two segments, viz., ITES and Software development serv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lated the Transfer Pricing Adjustment under ITES segment at Rs. 6,34,01,567/-. The Assessing Officer made such addition for a sum of Rs. 6.34 crore on account of Transfer Pricing Adjustment under ITES segment. 7. The assessee is aggrieved on this issue on two counts, viz., i. not allowing working capital adjustment and ii. the inclusion of the following four companies in the list of comparables : - i) Cosmic Global Ltd. ii) Eclerx Services Ltd. iii) Genesys International Corpn Ltd. iv) Vishal Information Technologies Ltd. 8. Before considering the comparability or otherwise of the above companies with the assessee, it is sine qua non to first ascertain the assessee's functional profile. Under this segment, the assessee is engaged in providing the 'Manual claim processing services' to its foreign A.E. and also providing services relating to analyzing data on health insurance, launching lucrative insurance products. Here it is important to mention that the United Health Corp. group is, inter alia, engaged in health related insurance business. So the services provided by the assessee under this segment are mainly in the nature of processing on manual basis, the insur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at is essential in this regard is to see whether the company is, in fact, comparable or not; and not whether it was included by the assessee or the TPO in the list of comparables. We, therefore, hold that Cosmic Global Ltd. is incomparable to the assessee and direct to exclude it from the list of comparables. The assessee succeeds. Eclerx Services Ltd. 10.1. This company was included by the TPO in his list of comparables. The assessee objected to its inclusion by pointing out some functional differences. Not convinced, the TPO went ahead with its inclusion, which got the seal of approval from the DRP. 10.2. Having heard the rival submissions and perused the relevant material on record, it is observed that this company is engaged in providing data analytics and customized process solutions to a host of global clients. It provides services to the Banking, Manufacturing, Retail, Travel and Hospitability verticals. The solutions offered by it include data analytics, operation management, audit and reconciliation, metrics management and reporting services. This company also provides tailored process outsourcing and management services along with a multitude of data aggregation,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omparable. 12.2. Having heard the rival submissions and perused the relevant material on record, we find from the Annual report of this company that it is mainly engaged in e-publishing business. It has more than 10,000 classic books to its credit which are also converted into large font titles for visually challenged. Apart from e-publishing, this company is also engaged in Documents scanning & Indexing. It can be seen from the financial results of this company that both the segments viz., epublishing and Documents scanning etc. have been combined and there are no separate financial results in respect of Documents scanning work, which may be comparable with the assessee to some extent. As the assessee is not engaged in any e-publishing business and the financials given by this company are on consolidated basis, we direct to exclude this company from the list of comparables. The assessee succeeds. 13.1. Now, we espouse the next contention raised by the ld. AR about the denial of working capital adjustment, which was claimed before the TPO. The DRP echoed the TPO's order on this score by noticing that the assessee took the average of the amount of working capital deployed by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd. B. Software Development Segment 18. The assessee reported international transactions under this segment to the tune of Rs. 93.86 crore. Certain comparables were chosen to show that the international transactions were at ALP. In doing so, the assessee selected TNMM as the most appropriate method. The TPO carried out a fresh exercise for selecting new comparables. After seeking objections from the assessee, he finally drew a list of twenty companies as comparable which also included some of those chosen by the assessee. The arithmetic mean of OP/TC of such comparable companies was determined at 25.63%. Accordingly a TP adjustment of Rs. 10.95 crore was proposed. The assessee objected to the same before the DRP. On receipt of directions from the DRP, the TPO recomputed the working capital adjustment under this segment at Rs. 5,11,33,714/-. The Assessing Officer made addition for this sum. The assessee is aggrieved against the Transfer Pricing Adjustment under the 'Software development' segment by contending that firstly, the working capital adjustment ought to have been allowed and secondly, the following three comparables should have been excluded from the list of comparabl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....genix is an altogether different work totally unrelated to the health services. Page 7 of this report indicates that Ingenix offers database and data management services, software products, publications, consulting and actuarial services, business process outsourcing services and pharmaceutical data consulting and research services. The description of the fourth function, namely, Prescription solutions has been set out on page 8 of this report, which includes retail network, pharmacy management, mail order pharmacy services, specialty pharmacy services, benefit design consultation, drug utilization review and disease therapy management etc. From the above four broader functions carried out by the assessee's A.E, in which the assessee is providing software development services, it can be seen that the nature of software development by the assessee is of quiet a wide range. We want to make it manifest from the Services agreement that the intellectual property rights in respect of the software developed by the assessee do not vest in it but with its A.E. Further, the Ownership and Copyright of the software developed by the assessee also lie with its A.E and the assessee has no right i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of branded/proprietary products, onsite and offshore services, etc., cannot be compared with the assessee. Our view is fortified by the judgment of the Hon'ble jurisdictional High Court in the case of CIT vs. Agnity India Technologies Pvt. Ltd. [(2013) 219 Taxman 26 (Del)]. The parameters on which Infosys Technologies Ltd., was held to be not comparable with that assessee, are fully applicable here also. We, therefore, direct the exclusion of this company from the list of comparables. The assessee succeeds. KALS Information System Ltd. (segment) 25.1. The TPO included the 'Software development segment' of this company in the list of comparables. The assessee is aggrieved against this inclusion. 25.2. After considering the rival submissions and perusing the relevant material on record, it is found as an admitted position that the TPO adopted 'Software development' segment of this company. From the Annual report of this company it can be noticed that this segment also includes revenues from software products. In view of the fact that the assessee is not engaged in selling any software products, we hold that the financials of this company under this segment cannot be compare....