TaxTMI 
TaxTMI 
2015 (11) TMI 273
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....d inter alia in the business of providing back office accounting support to group's various hotels and corporate offices all over the world and registered as 100% export oriented unit for export of computer software/IT Enabled Services (ITES). This assessment year is the first year of commencing its operation. During the year, receipts from the exports of Rs. 16,87,42,181/- and other income of Rs. 3,64,378/- has been shown. 4. During the year under consideration, the assessee had entered into international transaction (as mentioned in the 92CE report) as under :- S.No. Description of the transactions Amount (in Rupees) 1 Provision of IT Enabled Services 16,87,42,180 2 Cost Reimbursement 37,71,220 The case was referred to the Transfer Pricing Officer (TPO) for computation of Arm's Length Price (ALP) for international transaction. 5. The ALP of the international transactions representing the ITES provided to the Associated Enterprises (AE) is determined by applying of Transactional Net Margin Method (TNMM) which is stated to be the most appropriate method in the facts and circumstances of the case. The operating profit to total cost (OP/T....
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....ereafter, the DRP vide order dated 03.09.2012 directed the TPO to recompute the transfer pricing adjustment after reexamining the ALP and excluded Moldtek from the list of comparables. As per the said direction, the revised final list of comparables is as under :- Sl.No. Name of Company NCP (%) 1. Caliber Point Business Solutions Limited 6.46 2. Cosmic Global Limited 23.24 3. R System International Ltd. 2.37 4. Spanco Telesystem & Solutions Ltd. 2.83 5. Accentia Technologies Limited 39.52 6. Aditya Birla Minacs -9.49 7. Asit C Mehta 6.68 8. Coral Hub (previously Vishal Info Tech) 39.04 9. Crossdomain Solution Private Ltd. 25.24 10. Datamatics Financial Services 32.37 11. e4e Healthcare (Nittany) 13.86 12. Eclerx Services Limited 64.05 13. Genesys International 44.01 14. HCL Comnet Systems & Services 29.46 15. ICRA Techno Analytics 7.39 16. Infosys BPO 17.96 17. I-Service Private Limited 7.53 18. Acropetal Technologies Limited 27.85 19. Wipro BPO 35.39 Average 21.88 Accor....
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....ss, stages 1 to 5 are performed by manpower vendors' personnel in the office premises of the company and stages 6 to 9 are performed by the employees of the company. The expenses incurred for Vendors' personnel are debited to data entry charges, vendor payments etc. Thus, as clarified by the company, the expenses under the head 'data entry and vendor payments' are towards personnel of vendors' working from the premises of the company. Hence, the taxpayers' argument that the company outsources its major work is incorrect and also clarified by the company as above. The company is thus rendering IT enabled services using its own assets and human resources (may not be on the roll of the company), and is functionally similar to the taxpayer. 10. Ld. AR submitted that the said comparable company has an expenditure head of 'data entry charges and vendor payments' amounting to Rs. 21.68 crores which is 84.52% of the total expenditure. He submitted that in other words, it is engaged in 'trading of services' on it's own. He submitted that the employee costs of comparable company is merely 4.40% of the operating revenue. The ld. AR submitted that the main Asset used in ITES industry is man....
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....rgins of the two companies cannot be on the same basis. We rely on the Hon'ble jurisdictional High Court decision in the case of Rampgreen Solutions Pvt. Ltd. vs. CIT (ITA 102/2015 order dated 10.08.2015) wherein the Hon'ble High Court held as under :- "38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal's expenditure on employment cost during the relevant period was a small fraction of the proportionate cost incurred by the Assessee, apparently, for the reason that most of its work was outsourced to other vendors/service providers. The DRP and the Tribunal erred in brushing aside this vital difference by observing that outsourcing was common in ITeS industry and the same would not have a bearing on profitability. Plainly, a business model where services are rendered by employing own employees and using one's own infrastructure would have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the outsourcing of services by Vishal would have no bearing on the profitability of the said entity." ....
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....resaid services are not comparable with the services rendered by the Assessee. Further, the functions undertaken (i.e. the activities performed) are also not comparable with the Assessee. In our view, the Tribunal erred in holding that the functions performed by the Assessee were broadly similar to that of eClerx or Vishal. The operating margin of eClerx, thus, could not be included to arrive at an ALP of controlled transactions, which were materially different in its content and value. In Maersk Global Centers (India) Pvt. Ltd. (supra), the Special Bench of the Tribunal had noted the same and had, thus, excluded eClerx as a comparable. It is further observed that the comparability of eClerx had also been examined by the Hyderabad Bench of the Tribunal in M/s Capital Iq Information Systems(India) (P.) Ltd. v. Additional Commissioner of Incometax (supra), wherein, the Tribunal directed the exclusion of eClerx as a comparable for the reason that it was engaged in providing KPO Services and further that it had also returned supernormal profits." In the light of the aforesaid decision of the Hon'ble jurisdictional High Court in the case of Rampgreen Solutions Pvt. Ltd. (Supra) where....
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....India) Pvt. Ltd in ITA 417/2014 judgment dated 27.04.2015. Though we have held in the case of Avaya India (P) Ltd. vs. Addl.CIT, Range 2, New Delhi in ITA No.5528/Del./2011 order dated 18.09.2015 for AY 2007-08 that the Infosys BPO is a comparable company to Avaya, since it is rendering ITES services, however, we take note that an extra-ordinary event has been reported at page 36 of the Annual Report for financial year 2007-08, which has been recorded as given below :- "Infosys BPO Limited has acquired the shared service centres of Philips at Poland, Thailand and Chennai through its investment in P - Financial Services Holding B.V. Netherlands as per sale and purchase agreement dated July 25, 2007 with Koninklijke Philips Electronic N.V. for a purchase consideration of 107.12 crores of which Rs. 5.59 crores is yet to be paid towards additional purchase consideration. The shared service centres at Poland and India have become 100% subsidiary of the company on October 1, 2007 where as the shared service centre at Thailand has become a wholly owned subsidiary on December 3, 2007, the date on which all necessary conditions in the agreement were fulfilled." We take note that the a....
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....t decision in the case of ChrysCapital Investment Advisors (India) Pvt. Ltd in ITA 417/2014 judgment dated 27.04.2015. The DRP is silent to the objections i.e. this company is rendering different services and there is insufficient segmental information and it fails RPT filter. So, when the assessee asked for the complete annual report at the time of the original TP proceedings or the proceedings pursuant to the DRP, the TPO failed to provide the complete annual report of the said comparable to the assessee. If the TPO wanted to use Wipro BPO as a comparable, the onus was on him to provide the complete annual report to the assessee. It is a settled law that onus is on the person who asserts the facts. In any case, we fail to see how without the complete annual report of Wipro BPO, the DRP upheld the inclusion of the said company. From the Annual Report, which is few pages of the extract, we take note that no revenue or segmental break up is available between software services and infrastructure support services and no information about the nature of business is available in the annual report. We find force in the submissions advanced by ld. AR that in the absence of the Director's R....
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....ayer regarding horizontals or functional lines within IT enabled services. Neither the taxpayer nor the TPO did go into functional lines / horizontals within IT enabled services. Thus the taxpayer cannot take the plea that the data conversion, migration, maintenance services being provided by Genesys are not similar to the IT enabled services being performed by the taxpayer. As discussed above under the head "Definition of IT Enabled Services", the services rendered by the company comes within the purview of the CBDT circular SO 890 (E) dt. 26.9.2000, which had given a detailed list of products or services that, could be claimed under ITES for the purpose of 10A and 10B as under. "The information technology enabled products or services to mean: (i) Back Office operations (ii) Call centers (iii) Content development or animation; (iv) Data processing (v) Engineering and design (vi) Geographic Information System services. (vii) Human Resources services. (viii) Insurance Claim Processing. (ix) Legal databases. (x) Medical Transcription; (xi) Payroll; (xii) Remote Mainten....
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.... though has not commented upon the functional dis-similarity with the assessee. 29. We have heard both the parties, have gone through the records and gone through the Annual Report of Genesys International Corporation Ltd. We find that the assessee is engaged in the back office support ITES system for its AE in respect of accounting support for hotels and its corporate offices whereas we find that Genesys International Corporation Ltd. is into mapping business and it provides geographical information services comprising Photogrammetry, Remote Sensing, Cartography, Data Conversion, related Computer based Services and Information Technology enabled and other related services, which cannot be by any stretch of imagination be said to be comparable to that of the assessee. Since Genesys International Corporation Ltd. is functionally dis-similar with that of the assessee, we direct the TPO to exclude the said company from the list of comparables. (vii) ACROPETAL 30. According to the assessee, this company is into engineering services being in the nature of design and drawing and so, these services are high end in nature and cannot be compared with the back office services provid....