TaxTMI 
TaxTMI 
2016 (1) TMI 116
X X X X Extracts X X X X
X X X X Extracts X X X X
....support services in the nature of remote monitoring and maintenance of the Equant's global network platforms and services, coordination and remote configuration and implementation of quality customer networking solutions to its Group Company in Ireland, Equant Network Services International Ltd. (ii) Contract software development services (hereinafter referred to as 'CSD') for developing software applications for use within Equant Group/ Associated Enterprises (hereinafter referred to as 'AEs'). For rendering these services, the assessee was remunerated on an arm's length cost plus basis i.e. it was compensated for all its operating costs, plus a pre-agreed mark-up of 15% thereon. 3. During the relevant FY, the assessee undertook the following international transactions with its AEs which were duly reported in the Accountant's Report (Form No 3CEB) filed along with the return of Income :- Sr.No. Nature of Transactions Value (Rs.) Method Applied Outcome after DRP 1 Provision of Information Technology Services Provision of ITES services 1,32,75,03,839 Transactional Net Margin Method (TNMM) ADJUSTMENT Provision of CSD services 2 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sidered at 28% instead of 25.87%. The Ld. TPO then revised the ALP of the ITES Segment to 25.26% and proposed an adjustment of Rs. 7,79,45,050 to the income of the assessee from the ITES activity. 8. The final set of ITES comparables and their mark-up computations post DRP directions is tabulated below:- ITES - TP ORDER COMPARABLES S. No. Name of the company Working capital Adjusted (OP/TC)% 1. Accentia Technologies Ltd 39.60% 2. Aditya Birla Minacs Worldwide Ltd. -9.12% 3. Asit C. Mehta Financial Services Ltd. 6.93% 4. Caliber Point Business Solutions Ltd 6.72% 5. Coral Hub Limited (Vishal Information Technologies Ltd) 38.13% 6. Cosmic Global Ltd. 23.42% 7. Crossdomain Solution P Ltd. 25.40% 8. Datamatics Financial Services Ltd (BPO Division) 32.60% 9. e4e Healthcare Business Solutions P. Ltd. (earlier known as Nittan Outsourcing Services Ltd.) 14.08% 10. Eclerx Services Ltd. 64.02% 11. Genesys International Corporation Ltd 44.07% 12. H C L Comnet Systems & Services Ltd (Seg.) 29.60% 13. I C RA Online Ltd. (Seg.) 7.65% 14. Infosys B P O Ltd. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roducts, such as, IMTAS, IRTS, IAMS, IPMS etc. Ld. AR submitted that standalone segmental information is not available. Ld. AR relied on the following case laws :- * Vodafone India Services Pvt. Ltd. (formerly 3 Global Services P. Ltd.) (ITA No. 7140/Mum/2012 and ITA NO. 7097/Mum/2012)(AY 2009-10) * Maersk Global Service Centres (India) Pvt Ltd (ITA No. 2594/Mum/2014 (AY 2009-10) * TNS India Pvt Ltd (ITA No.604 & 419/Hyd/2014)(AY 2009-10) * BNY Mellon International Operations (India) Pvt. Ltd. [TS-3S8-ITAT-2014(PUN)-TP) (AY 2009-10) (ii) Asit C. Mehta Financial Services Limited ('Asit') Ld. AR submitted that transfer of business took place in this year and took our attention to Exhibit 2. He submitted that Asit is engaged in provision of high-end services in the nature of GIS services etc. which is functionally different from the ITES services undertaken by the assessee. Further, ld. AR submitted that the company also sells goods and products (stock-in-trade- Rs. 621,448 & cost of goods sold - Rs. 22,79,225). Ld. AR also submitted that during the year, Asit has transferred business of the company's ITES business to a wholly owne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent services along with product lifecycle management services (PLM), development of product suites and routine low end ITES service. Ld. AR submitted that no segmental information for ITES services is available. Ld. AR relied on the following case laws :- * Symphony Marketing Solutions India Put. Ltd (IT(TP) No.1316/Bang/2012)(AY 2008-09) * Market Tools Research Pvt Ltd (ITA No.1811/Hyd/2012)(AY 2008-09) * Hyundai Motors India Engineering Pvt. Ltd (ITA No.18501Hyd/2012) (AY 2008-09) (vi) Eelerx Services Limited ('Eclerx') Ld. AR submitted that this comparable company is engaged in the business of high end knowledge process outsourcing services and took our attention to Exhibit 5. Ld. AR submitted that Eclerx is a Knowledge Process Outsourcing (KPO) company engaged in providing data analytics and data process solutions to the customers and it provides Sales & Marketing Services (comprising Online Operations Support, Offline Operations & Data Management and Competitive Pricing & Catalog Analytics) and Financial Services (comprising Back Office Services, Reference Data Management, Finance and Accounting, Risk Management and Ancillary Ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e under its IT enabled services segment which are primarily in the nature of back- office support, remote monitoring co-ordination etc. services. Ld. AR relied on the following case laws :- * Symphony Marketing Solutions India Pvt. Ltd [IT(TP) A.No. 1316/Bang/2012] (AY 2008-09) * Hyundai Motors India Engineering Pvt. Ltd (ITA No. 1850/Hyd/2012) (AY 2008-09) * Capital Health Group Information Services Pvt Ltd (ITA No.6312/Del/2012)(AY 2008-09) * Capital IQ Information Systems India Put. Ltd. u. DCIT [ITA NO.124/Hyd/2014 & ITA NO.170/Hyd/2014] (ix) Datamatics Financial Services Limited ('Datamatics') Ld. AR submitted that this comparable company is functionally different and took our attention to Exhibit 12. He submitted that the company is also involved in Registrar & Share Transfer activities as well as in processing & printing activities. Ld. AR submitted that segmental data is not available. Ld. AR further submitted that during the year, the company is following a mixed basis of accounting (cash as well as mercantile) which may have impacted the profitability of the company during the year. DIFFERENT BUSINESS MODEL (x) Cora....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... BPO spends amount on brand building. Ld. AR relied on the following case laws :- * Market Tools Research Pvt Ltd (ITA No. 1811/Hyd/2012, [TS-294-ITAT-2013CHYD)-TP], ITAT Hyderabad) (AY 2008-09) * Symphony Marketing Solutions India Pvt. Ltd [IT(TP) No. 1316/Bang/2012] (AY 2008-092 * Hyundai Motors India Engineering Pvt Ltd (ITA No. 18....../Hyd/2012) (AY 2008-09) * Parexel International India Pvt Ltd (ITA No.144/Hyd/2014) (AY 2009- 10) * INS India Pvt Ltd (ITA No. 604 & 419/Hyd/2014)(AY 2009-10) * International Specialty Products (I) Pvt Ltd (ITA No. 218/Hyd/2014) (AY 2009-10) * Capital IQ Information Systems India Pvt. Ltd. v. DCIT [ITA No.124/Hyd/2014 & ITA No.170/Hyd/2014] (AY 2009-10), Ld. AR submitted that the following comparables fails financial year filter :- (xii) H C L Comnet Systems & Services Ltd ('HCL Comnet') (Segmental) Ld. AR submitted that the comparable company fails financial year ending filter and took our attention to Exhibit 7. He submitted that HCL Comnet fails financial year ending filter applied by the TPO. He further submitted that company's financial year ends on June 30, 200....
X X X X Extracts X X X X
X X X X Extracts X X X X
....jected. Ground No. 3.12 ignoring the business/ commercial reality that since the assessee (vis-a-vis both its ITES/ CSD services) is remunerated on an arm's length cost plus basis, i.e. it is compensated for all its operating costs plus a pre-agreed mark-up based on a benchmarking analysis, the Assessee undertakes minimal business risks as against comparable companies that are full fledged risk taking entrepreneurs, and by not allowing a risk adjustment to the Assessee on account of this fact; and Assessee relied on Mentor Graphics where it was held that adjustment should be made to margins of comparable companies to account for differences In functions performed and risks assumed between the comparable companies and the Assessee. DRP's Observation: The income tax Rules provide reasonable and accurate adjustment should be made. As discussed above we do not find that this condition has been made. 3.12.1 DRP has considered all the submissions and is of the view that the assessee cannot be compared to a risk free security (5 year zero coupon Govt. Bond). Further mechanical adjustment cannot be made to the margins of the comparables without knowing which risk....