TaxTMI 
TaxTMI 
2015 (5) TMI 301
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....means of electronic and information technology enabled infrastructure. 3.1. The assessee had reported following international transactions in form 3CEB: S. No. Nature of Transaction Method used by assessee Amount(Rs.) 1. Processing information and data through means of electronic and information technology TNMM 119,755,134/- 3.2. The AO had made a reference to TPO for determination of ALP u/s 92CA(3) in respect of above transactions. The TPO noticed that assessee was engaged in the services of online financial services, which included strategic advisory services, industry and operation expertise, compliance focus services, web marketing services, electronic commerce knowledge services, and intelligence and best practice services. He noted that IT enabled back office processing services were provided to New River US, which was involved in full fledged marketing, encompassing a wide range of other allied activities. The assessee had shown PLI of OP/OC at 10.33%, which had been benchmarked with the arithmetic mean of 8.45% in respect of 17 comparables selected by the assessee and, therefore, the assessee's contention was that the assessee's net ....
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....P, the assessee had, inter alia, taken a ground that ld. AO/TPO erred on facts and in law by cherry picking companies which had shown very high margins vis-a-vis the industry benchmark, without considering the functional and operational comparability. 4.1. The assessee's contention was that it was a low risk captive unit, as it was remunerated on cost plus basis by its AEs for software development services to them and, therefore, it should not have been compared with companies with very high margins due to difference in functional and risk profile. 4.2. Ld. DRP rejected the assessee's contention, inter alia, observing that the profit margins of any company is not an indicator of its functional profile. It was further pointed out that in a set of functionally comparable companies, there could be companies with low margin as well as high margins. What is material is the functional comparability. Moreover, while taking arithmetic mean, such difference will ultimately average out. 4.3. Ld. DRP had relied on the decision of ITAT Mumbai in the case of Exxon Mobil Co. India Pvt. Ltd. (2011-TII-68-ITAT-MUMTP). The assessee had also object4ed to the inclusion of eClerx Services Ltd....
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....sed on outsourcing. In this regard he pointed out that data entry charges incurred by this company are 84.52% of total expenditure and there is negligible personnel cost incurred by it. Ld. counsel relied on following decisions in support of its contention for exclusion of this company from list of comparables: - Maersk Global Centers (India) Pvt. Ltd. (ITA no. 3774/Mum/2011 & CO 111/Mum/2011- order dated 9-11-2011); - United Health Group Information Services Pvt. Ltd. [2014] 50 Taxmann.com 177 (Del-Trib.); - BNY Mellon International Operations (India) Pvt. Ltd. [2014] 52 Taxmann.com 306 (Pune-Trib.) - Techbooks International Pvt. Ltd. [2014] 45 Taxmann.com 528 (Delhi-Trib.). 5.2. Ld. counsel submitted that in assessee's case salary cost is 54.67% whereas in the case of Coral Hub salary cost is 4.4% and, therefore, it cannot be compared with assessee. 5.3. Eclerx Services Ltd.: As regards Eclerx Services Ltd., ld. counsel submitted that it is not functionally comparable because this company is carrying on KPO activities. Further, he submitted that as per the annual report, this company was engaged in providing high end services like data analytics and customized p....
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....ge of other allied activities, which are comparable to a KPO and not to BPO. 6.1. Ld. Standing Counsel submitted that this company has now merged with Broadridge Financial solutions (India) Pvt. Ltd. w.e.f. 1-7-2011, but not in asstt. year under consideration. He submitted that in case of BPO normally following activities would be there : (a) Call facility (b) Selling products; marketing demands; no high end service. 6.2. Employees are trained to take up calls and give informations to specified customers. In BPO No mastery is required e.g. insurance companies and manual is laid down for procedure. 6.3. Whereas in case of KPO, training is important, where the trained person has to use knowledge and accordingly specialists are required in case of KPO who deal with high end services. He submitted that KPO is the latest outsourcing process which involves application of training, expertise to research data analysis, other information based activities. 6.4. Ld. standing counsel advanced his submissions with reference to various impugned comparables selected by TPO. 6.5. Coral Hub. As regards this company, ld. Standing counsel submitted that nothing is there on record....
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.... Vs Deolite Consulting India Pvt. Ltd. (a copy of order placed on record) in which it has been held that such a filter does not impact the overall profitability and the specific case of VITL has been held to be comparable." 6.9. He submitted that Tribunal did not follow the contrary view taken in the case of Deolite Consulting India Pvt. Ltd. (supra) on the ground of consistency and, therefore, this decision cannot be of any assistance to the assessee. 6.10. As regards reliance of Tribunal in the case of M/s Maersk global Service Center (India) P. Ltd. (supra) is concerned, ld. counsel referred to para 29 and pointed out that this company was captive service provider rendering back office support services to its AEs. The activities undertaken by the assessee were essentially IT enabled services such as data entry, transcription and data of shipping documents such as bill of lading etc. Therefore, this decision is not applicable to assessee which is primarily carrying on strategic advisory services which are high end financial services, whereas M/s Maersk global Service Center (India) P. Ltd. was carrying on low end services. 6.11. As regards Eclerx Services Ltd., ld. Stand....
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....s company was involved in providing support services in connection of modeling and iterative simulation. It received the basic design from its group company. 6.14. As regards Infosys BPO and Wipro BPO, ld. standing Counsel pointed out that no objection was taken before TPO. Objection was taken before DRP. There is no dispute about functional similarity and only objection is with respect to turn over of the assessee. As regards assessee's reliance on the decision of the Tribunal in the case of Aginity India Technologies Pvt. Ltd. (ITA no. 3856/Del/2010) and that of Hon'ble Delhi High court in CIT Vs. Agnity India Technologies Pvt. Ltd. (2013) 219 Taxman 26 (Delhi), he submitted that the decision of Hon'ble Delhi High court in the case of Agnity India Technologies Pvt. Ltd. was not dealing with Infosys BPO but dealt only with software development services segment. He pointed out that Agnity Technologies Ltd. carries on following functions: -software service development - BPO operation through Infosys BPO. - KPO operation - LPO operation 6.15. He further referred to Agnity Technologies Ltd. decision and pointed out that Tribunal had not discussed the Infosys BPO. 7. ....
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....sed the record of the case. Keeping in view the foregoing discussion, the short controversy before us is now confined to inclusion of following four companies, being included in the list of comparables by TPO, whether justified in the facts and circumstances of the case or not. (i) Coral Hub (Vishal Information Technologies Ltd.); (ii) Eclerx Services Ltd. (iii) Infosys BPO Ltd. (iv) Wipro Ltd. (segmental) 8.1. Before we embark upon to consider different comparables, it is necessary to first examine the submission of ld. Standing Counsel regarding nature of services rendered by assessee. The main contention of ld. Standing counsel is that assessee was imparting high end knowledge service which come within the ambit of KPO and not mere BPO. He has also elucidated a distinction between BPO and KPO as we have noticed in the detailed arguments advanced by ld. Standing counsel. If we examine the services imparted by assessee on the touch stone of the distinction highlighted by the ld. Standing counsel, we find considerable substance in his submissions. Admittedly assessee was engaged in the service of online financial services, which included strategic advisory services, ....
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.... of total expenditure and, therefore, this cannot be compared to assessee, which was primarily imparting high end services. We, accordingly, direct for exclusion of this company from the list of comparables. 8.4. Eclerx Service Ltd.: Ld. counsel for the assessee has, inter alia, relied on the decision of Tribunal in the case of M/s Calibrated Healthcare Systems India Pvt. Ltd. (supra). In this decision we note that the Tribunal has observed that this company was a knowledge process outsourcing KPO company, providing data analytic and data processing solutions to its clients. It is further observed that it is a recognized expertise in financial services and retail manufacturing and provide consultancy services and also process outsourcing. This company was rejected by the Tribunal observing that the nature of asessee's business viz. M/s Calibrated Healthcare Systems India Pvt. Ltd. (supra) was in processing insurance claim and data entry. Therefore, this decision, in our opinion, is of no help to assessee. In the present case all the functions are carried out by assessee for its AEs and, there is no doubt it was a captive service provider. However, the important aspect which is t....
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....ng, applicationdesign, development, re-engineeringand maintenance, systemintegration, package evaluation andimplementation and businessprogress management etc. (referpage 117 of the paper book) Contract Software Development Services. Revenue Rs. 9,028 crores Rs. 16.09 crores Ownership of branded/ proprietary products Develops/ owns proprietaryproducts like Finacle, InfosysActiceDesk, Infosys iProwe, InfosysmConnect. Also, the companyderives substantial portion of itsrevenue from sale of its proprietaryproducts (including its flagshipbanking product suite 'Finacle')As per the annual report of thecompany, it has intangibles assetsworth approx. Rs. 69,500 crores forthe period ended March 31,2006 Onsite Vs. Offshore As much as half of the softwaredevelopment services rendered byInfosys are onsite (i.e. servicesperformed at the customer's locationoverseas). Revenue Split Onsite(49.80%) and offshore (50.20%)(Refer page 117 of the paper book)Typically, onsite services commandhigher billable rates andconsequently it would not beappropriate to compare the appellant which earns its entire income from offshore services with Infosys which earns more than half ....