TaxTMI 
TaxTMI 
2015 (3) TMI 1022
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....e assessee reported an international transaction amounting to Rs. 24,66,73,397/- towards Provision of Information Technology Enabled Services (ITES) rendered to its AEs. The Transactional Net Margin Method (TNMM) was employed as the most appropriate method with the Profit Level Indicator (PLI) of Operating Profit / Operating Cost for demonstrating that its international transaction was at arm's length price (ALP). Eight companies were chosen as comparable. The assessee's adjusted margin, as stated by the ld.AR, but, not precisely emanating from the TPO's order, was computed by the TPO at 16.29%. After making certain exclusions from the list of comparables given by the assessee and including some new cases, the TPO short-listed nine companies as comparable with the profit margins as under:- Sl. No. Name of the Company OP/OC 1. ICRA Online Ltd. 43.67 2. Informed Technologies Ltd. 23.13 3. Cosmic Global Ltd. 48.20 4. Genesys International 58.45 5. Vishal Information Technologies (Known as Coral Hub) 36.93 6. Accentia Technologies 43.44 7. Eclerx Services Pvt. Ltd. 46.92 8. Microgenetic Systems Ltd. 1.13 ....
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....g • Payment processing • Reconciliation and completing/completion of the Fixed Asset Register • Accounts reconciliation • Query resolution b. General Accounting for Funds: • Maintaining of journals • Reconciliations • Query resolution • Cash management • Budgeting & forecasting • Statutory reporting • Management reporting • Risk management reporting • Distributions. 8. Considering the CBDT Circular S.O.890(E) dated 26.9.2007, which gives a detailed list of products or services that can be claimed under the ITES segment, the TPO came to the conclusion that the services offered by the assessee fell within the domain of ITES. From the above description of the services rendered by the assessee, it can be seen that it is mainly into providing support services to its AEs in the areas of Accounts payable and General accounting. Whereas the Accounts payable services refer to Maintaining vendor data, Expenses processing, Invoice processing, Accounts reconciliation and Query resolution, etc., the General Accounts servic....
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.... the exclusion of this company from the list of comparables. (ii) Genesys International 12. This company was initially included by the assessee in its list of comparables. However, during the course of proceedings before the TPO, its exclusion was sought for the reasons given on page 14 of the TPO's order. Unmoved by the assessee's objections and without controverting the same, the TPO included this company in the final set of comparables simply on the ground that it was voluntarily chosen by the assessee as comparable. 13. We fail to appreciate the view point of the authorities in forcefully including a company in the list of comparables simply on the ground that since the assessee initially voluntarily treated it as comparable, now it cannot resile. The substance of the matter is to consider and decide the comparability of a company with the assessee on merits rather than harping on an inadvertent mistake committed by the assessee in this regard. If an assessee wrongly includes a company in the list of comparables and then puts up a case before the TPO that this company is, in fact, not comparable citing the reasons for its stand, the TPO is obliged to reject the content....
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....Genesys International falls under serial No. vi. of the Circular with the caption 'Geographic Information System Services.' There can be no comparison of the services carried out by this company with those rendered by the assessee to its AEs, which are basically in the nature of Accounts payable services and General accounting for funds, falling under (i) Back office operations; (ii) Call centres; (iv) Data processing; and (xiii) Revenue accounting. By no standard, Genesys International can be considered as comparable with the assessee company. Similar view has been taken by the Tribunal in the case of Mercer Consulting (I) Pvt. Ltd. (supra). We, therefore, order for the exclusion of this company from the list of comparables. (iii) Vishal Information Technologies (Coral Hub) 16. The TPO included this company in the list of comparables despite the assessee's objection about its wrongful inclusion in the list of comparables. The assessee's objection about the incomparability of this company was turned down by the authorities. 17. In view of the discussion made in the context of Genesys International above, we find no reason to stop the assessee from arguing that a particular....
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....during the year. The Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. vs. DCIT (2013) 154 TTJ (Mum) 176 has held that a company cannot be considered as comparable because of exceptional financial results due to mergers/demergers etc. Similar view has been taken by the Delhi bench of the tribunal in several cases including Toluna India P. Ltd. VS. ACIT (ITA No. 5645/D/2011) vide its order dt. 26.8.2014. The very fact that this is a year of acquisition of this company, is sufficient enough to characterize it as an extraordinary event justifying its exclusion from the final set of comparables. We, therefore, order for the exclusion of this company from the list of comparables. (v) Eclerx Services Pvt. Ltd. 23. The assessee objected to the inclusion of this company, proposed to be used in the final set of comparables by the TPO, by contending that it was not functionally comparable. The TPO rejected such contention by holding that it is also providing IT enabled services. 24. We have perused the Annual report of this company, a copy of which is available on pages 494 onwards of the paper book. It can be seen that it is a Knowledge Process Outsourcing (KPO) company provi....
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.... excluded on the basis of this filter. 28. The next objection taken by the TPO advocating the exclusion of this company is the non-availability of RPT data. It can be seen from the assessee's submissions made before the DRP, a copy of which is available on pages 59-96 of the paper book, that the assessee submitted the details of RPTs of this company at 15.82%. As the TPO has rightly applied filter of excluding companies with more than 25% of RPTs, the percentage of this company at 15.82% is well within the filter adopted by the TPO. This again cannot be a reason for the exclusion of this company from the list of comparable. 29. The third ground taken by the TPO for excluding this company is 'diminishing revenue'. It can be seen from the details of Profits (Losses) of this company given by the assessee in its Objections before the DRP that its loss before interest and taxes for the year under consideration was at Rs. 6.64 crore as against the preceding year's loss of Rs. 10.80 crore. It has been further shown by the assessee on page 64 of the paper book that this company reported loss before interest and taxes for the succeeding year at Rs. 6.43 crore and for the year thereaft....
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....is of another filter in a later case. 32. It can be seen from the order in the case of Mercer (supra) that this company was excluded by the TPO on the filter of 75% export sales as against this company's percentage at 74.55%. The filter of declining or consistent losses was not applied in that case. The declining revenue or consistent losses of a company against the industry's trend of profits is an important filter and a relevant factor, which skipped the attention of the TPO in that case. Merely because the TPO did not apply a proper filter in one case, cannot ipso facto be a reason to repeat the same mistake in all other cases to follow, more specifically, when the earlier error stands corrected in a later case. 33. Apart from that, it is also noticeable from the assessee's own submissions that there was acquisition and dissolution in Allsec during the year in question. We fail to appreciate the logic of the contention of the ld. AR for treating this company as comparable despite there being extra-ordinary events of acquisition etc., when in the same breath he pressed for not treating Accentia Technologies as comparable for the same reason. It is impermissible to take such....