TaxTMI 
TaxTMI 
TaxTMI 
2015 (6) TMI 527
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....gth price with respect to the IT enabled services transaction entered into by the Appellant with its associated enterprise. 5. The learned TPO and the learned AO have erred, in law and in facts, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules, and conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction and holding that the Appellant's international transaction is not at arm's length. 6. The learned TPO and the learned AO have erred, in law and in facts, by determining the arm's length margin! price using only FY 2007-08 data which was not entirely available to the Appellant at the time of complying with the transfer pricing documentation requirements. 7. The learned TPO and the learned AO have erred, in law and in facts, by accepting / rejecting companies based on unreasonable comparability criteria. 8. The learned TPO and the learned AO have erred, in law and facts, by not making suitable adjustments to account for differences in the working capital position of the Appellant vis-à-vis the comparables . 9....
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....segmental International transactions were accepted at arm's length but the only dispute remained about the International transactions of ITES segment. The Assessing Officer made an adjustment of Rs. 2,34,97,662/- in accordance with the order of the TPO u/s 92CA(3) of the Act dated 20.10.2011 and in pursuant to the directions of DRP. 5. The assessee, in this appeal, has mainly challenged the selection of the inappropriate comparable by the TPO in the final set of comparables by mainly harping that the inclusion of Coral Hub Ltd. (subsequently Vishal Information Technologies Ltd.), Eclerx Services Ltd. and Cosmic Global Ltd. was not justified and all these three comparables are not suitable comparables for the purpose of comparing and benchmarking the International transactions of the assessee in regard to IT enables Services segment for the year consideration, now we find it appropriate to deal with the impugned comparables, as disputed by the assessee, one by one as follows. Coral Hub Ltd. 6. We have heard rival arguments and perused the relevant material placed before us. Ld. Counsel of the assessee submitted that the DRP in its order dated 24.09.2012 wrongly held that the pena....
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....nted out that this company is outsourcing its activity whereas the assessee does not outsource. Therefore, the business modal of the assessee is different. Reliance in this regard is also placed on the following decisions of the Tribunal, wherein Vishal Information Technologies Ltd. ('Coral Hub limited') has been directed to be excluded: a. ACIT vs Maersk Service Center (India) Pvt Ltd (145 TIJ 64) b. Capital IQ Information Systems (India) Pvt. Ltd. (ITA No.1961/Hyd/2011) c. Nomura Fin Services (India) Pvt. Ltd. vs. ACIT (ITA No. 7046/Mum/2012) d. Google India Pvt. Ltd. vs. DCIT (ITA No. 1368i8ang/201O) In view of this, the TPO is directed to delete this comparable." 10. We further note that in the case of Mercer Consulting (India) Pvt. Ltd. Vs. DCIT for AY 2009-10, ITAT New Delhi 'I' Bench order dated 06.06.2014 in ITA No.966/Del/2014, as relied by the Ld. counsel of the assessee, held that the Coral Hub Ltd. was not includable in the list of comparable because of major outsourcing and therefore, the same required to be excluded from the list of comparables for measuring arm's length price of the ITES segmental transactions. The relevant operative part of the order o....
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....s no reason has been given by the TPO for accepting or rejecting the assessee's request, it would be worthwhile to take up the reasons now given by the assessee for consideration and decision. The ld. AR has pointed out that Vishal Information Technologies Ltd., now known as Coral Hub Ltd., outsources significant portion of its work from outside vendors. We find from the material on record suggests that outsourcing charges constitute 90% of the total operating cost in this case. On a specific query, the ld. DR admitted that our assessee is engaged in the business of doing activities at its own without any outsourcing. This crucial factor, having a greater bearing on the profitability, makes it distinguishable from the assessee. The Mumbai Bench of the Tribunal in the case of Hapag Lloyd Global Services (supra) has held that Vishal Information Technologies Ltd. cannot be considered as comparable because of the overwhelming outsourcing activity carried out by it. This view was taken by relying on another order passed by the Mumbai Bench of the Tribunal in ACIT vs. Maersk Global Service Centre (India) Pvt. Ltd. (ITA No.3774/M/2011). In the later case also, the Tribunal held that the c....
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....ee pointed out that the direction of the DRP available at Page 23-24 of the assessee paper book Volume-I and submitted that the DRP wrongly held that there is no significant functional difference in the ITES segmental services of Eclerx Services Ltd. from the present assessee company. The Ld. counsel vehemently contended that the TPO/DRP/AO were grossly erred in holding that no comparable can be rejected on the ground of abnormal profit margin if its functionally similar. Ld. counsel further elaborated that the Eclerx Services Ltd. is engaged in providing the high services which involves special knowledge, therefore, the same is not comparable with the assessee. Ld. counsel for the assessee further drawn our attention towards page 666 of the assessee paper book Volume-II and submitted that as per annual report of the Eclerx Services Ltd. it is ample clear that the same company is not comparable to a BPO company and profits from different services. Ld. counsel drawn our attention towards detailed objections of the assessee before DRP available at Pages 112-113 of the assessee paper book Volume-I and submitted that on exclusion of Eclerx Services Ltd. the average of the net margin of....
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....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, mining and maintenance services. A look at the functional profile of this company from its Annual report, it can be seen that it is nowhere close to the assessee's instant segment of 'manual claim processing services'. 10.3. It is further relevant to note that this company acquired UK based Igenica and Travel Solutions Ltd. on 27.7.2007 and the financial results of that company are also included in its. Recently, the Delhi Bench of the Tribunal in Toluna India Pvt. Ltd. Vs ACIT (ITA No.5645/Del/2013) vide its order dated 26.8.2014 has held that the mergers/de-mergers in a company make such year as unfit for comparison. In reaching this conclusion, the D....
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....rvices and Accounts BPO constitutes only miniscule share of 6% of its total revenue and, therefore, Cosmic Global Ltd. not a suitable comparable to the ITES segmental International transactions of the assessee. Ld. counsel for the assessee has also placed reliance on the various decision of the ITAT including recent decision of ITAT Delhi in the case of United Health Group Information Services Pvt. Ltd. Vs. ACIT (Supra) wherein it was held as under:- "Cosmic Global Ltd. 9.1. This company was initially chosen by the assessee as its comparable and resultantly, the TPO included the same in the final list of comparables without any discussion. The ld. AR contended that this company was inadvertently chosen as comparable and hence the same should be eliminated on account of functional differences. 9.2. After considering the rival submissions and perusing the relevant material on record, we find from the Annual Report of this company that the financial results in the Balance sheet and Profit and loss account are available only on entity level. Income from operations has been shown as Rs. 5.86 crore, the break-up of which is available in Schedule 9. It is discernible from the Schedule ....
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....from claiming and contending that it was included by mistake. In our considered opinion, the Revenue authorities and the Tribunal has to see that whether the company is, in fact, functionally comparable or not. We further make it clear that the objection to the inclusion of a particular comparable cannot be rejected at threshold only because the same was included by the assessee under a bonafide mistake in the list of proposed comparable. On this issue, we respectfully follow the view taken by the ITAT Delhi in the case of Mercer Consulting (India) Pvt. Ltd. Vs. DCIT (Supra) wherein similar contention of the Revenue has been dismissed in Para 12.2, which reads as under:- "12.2. We are disinclined to sustain the legal objection taken by the ld. DR that the assessee should be prohibited from taking a stand contrary to the one which was taken at the stage of the TP study or during the course of proceedings before the authorities below. It goes without saying that the object of assessment is to determine the income in respect of which the assessee is rightly chargeable to tax. As the income not originally offered for taxation, if otherwise chargeable, is required to be included in the....