TaxTMI 
TaxTMI 
TaxTMI 
2015 (2) TMI 1103
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....t'] in pursuance of the directions of the learned Dispute Resolution Panel, Pune ["DRP"] dated August 29, 2012 for the assessment year 2008-09 on the following among other grounds: 1. Transfer Pricing adjustment 1.1 The learned ACIT pursuant to the directions of the learned DRP erred in law and on the facts and in circumstances of the case in making an adjustment amounting to Rs. 37,891,404 to the value of international transactions entered into by the Appellant with its Associated Enterprise in respect of provision of Information Technology Enabled Services ["ITES"]. 2. Rejection of benchmarking done by the Appellant 2.1 The learned ACIT pursuant to the directions of the learned DRP erred in law and on the facts and in circumstances of the case in rejecting the benchmarking approach and methodology followed by the Appellant for benchmarking the international transaction of provision of ITES. 3. Erroneous selection of comparable companies The learned ACIT pursuant to the directions of learned DRP has erred in law and on the facts and in circumstances of the case in selecting the following comparable companies. 3.1 Accentia Technologies Ltd. 3.2 Coral Hub Ltd. 3.3 Cosmi....
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.... provided to the associated enterprise by applying the Transactional net Margin (TNM) Method. On application of the TNM Method, there is no dispute between the assessee and the Revenue. By applying the TNM Method, the TPO passed an order u/s 92CA(3) of the Act dated 31.10.2011 determining the arm's length price of the international transactions at an amount which is higher than the stated value of the international transactions by a sum of Rs. 4,58,87,284/-. Subsequently, consequent to the directions of the DRP dated 27.09.2012, the Assessing Officer had re-worked the adjustment at Rs. 3,78,91,404/- and accordingly added the said sum to the returned income. The aforesaid addition is the subject-matter of dispute before us. 4 5. The TPO selected the following final set of comparables:- Sr.No. Name of the comparable Op/Tc Working capital adjusted margin 1 Accentia Technologies Ltd. 42.70 42.36 2 Coral Hub Ltd. 51.79 37.91 3 Cosmic Clobal Ltd. 23.30 23.36 4 Crossdomain Solutions Ltd. 27.59 26.98 5 E4e Healthcare Solutions Ltd. 19.38 19.53 Arithmetic Mean 23.95% (164.76/5) 30.02% (150.14/5) 6. Before us, the plea of the assessee is that....
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....ould be included in the final set of comparables. The TPO had rejected the said concern in terms of his discussion contained in para 17.1 of the order. The TPO has noted that the said concern has reported a operating loss of 56% on costs in the year under consideration. Secondly, the TPO has been observed that the company's operations, as reported in the Annual report, fall under the single segment, namely, "Computer Software and Service Exports" and there is no segment wise performance data furnished. Therefore, the concern was having income from different sources and in the absence of segment wise bifurcation it could not be included as a comparable. The TPO has also noted that the concern has debited a stock variation in Profit & Loss Account which casts a doubt on the nature of activities because such an entry is unexplainable in the case of a service company. The TPO has also noted that the major expenditure is on software sourcing whereas a software service provider normally will spend on 'salary and personnel cost'. In view of the aforesaid facts, the TPO excluded the said concern from the final set of comparables. 12. Having regard to the discussion contained in the orde....
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....India) Private Limited (supra) and by the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) is squarely applicable to the present case also. The aforesaid Benches of the Tribunal found that during the year under consideration there were extraordinary events that took place in the said concern which warranted exclusion of this company as a comparable. We therefore hold that the said concern cannot be considered as a comparable. 16. The second concern, which is sought to be excluded from the list of comparables is Coral Hubs Ltd. (formerly Vishal Information Technologies Ltd.). In para 18.3 of the order of the TPO, the submissions of the assessee for excluding the said concern from the list of comparable have been elucidated. The plea of the assessee is that the said concern is functionally not comparable to the assessee as it is engaged in IT enabled services particularly selling and purchasing of products and goods whereas assessee is engaged into e-learning and content development activity. Secondly, it was canvassed on the basis of the Annual report of the said concern that it outsources its work to sub-vendors and therefore the ....
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....tion Technologies Ltd. (VIT) - In the case of this comparable, we find that the Mumbai Tribunal in the case of Mearsk Global Services (I) Pvt Ltd in ITA No.3774/Mum/2011 by order dt.9.11.2011 has held that since Vishal Information Technologies Ltd is outsourcing most of its work it has to be excluded from the list whereas the assessee in the cited case was carrying out the work by itself. In the instant case of the assessee also the assessee was carrying out its work by itself whereas in the case of VITL, it is outsourcing most of its work. We are therefore of the considered opinion that the decision of the ITAT, Mumbai in the cited case on the issue of excluding VITL as a comparable squarely applies. This decision was followed by the decision of the co-ordinate bench of this Tribunal in the case of Netlinx India (P) Ltd in ITA No.454/Bang/2011 dt. 19.10.2012 wherein it was held that Vishal Information Technologies Ltd cannot be considered as a comparable. We, therefore, respectfully following the decision of the Mumbai Tribunal in the case of Mearsk Global Services (I) Pvt Ltd, direct the Assessing Officer / TPO to exclude Vishal Information Technologies Ltd. from the list of comp....
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....the composition of the vendor payments of Coral Hub for the last three years, and the fact that it has also commenced a new line of business of Printing on Demand (POD), wherein it prints upon clients request, concluded as follows- "18.4. In view of this major difference in functionality and the business model, this Panel is of the view that 'Coral Hub' is not a suitable comparable to the taxpayer and hence needs to be dropped from the final list of comparables." In case of Maersk Global service Centre India (P.) Ltd. (supra), the ITAT Mumbai Bench has also directed for exclusion of the aforesaid company, by observing in the following manner- "Insofar as the cases of tulsyan Technologies Limited and Vishal Information Technologies Limited are concerned, it is noticed from their annual accounts that these companies outsourced a considerable portion of their business. As the assessee carried out entire operations by itself, in our considered opinion, these two cases were rightly excluded." In view of the observations made by the DRP as well as the decision of the ITAT Mumbai in the case of Maersk Global Service Centre, (supra), we accept that this company cannot be taken ....
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....ion services whereas assessee was an ITES provider, and therefore concern was functionally dissimilar. However, the TPO rejected the pleas of the assessee and considered the said concern as a comparable on the ground that export income of the said concern was more than 50%. 22. Before us, Ld. Representative for the assessee referred to the objections raised before the DRP to point out that the said concern was liable to be excluded from the final set of comparables. Firstly, it is pointed out that the said concern was offering Accounts processing services and transcription services and was not comparable to the activities of the assessee as the said concern was into BPO and Translation services. It was also pointed out by referring to the website of the said concern that it was engaged in the diversified business activity. It was also pointed out that though the activities of the said concern are in medical transcription, consultancy, translation and Accounts BPO services but there was no segmental information available in the Annual accounts of the said concern. Apart therefrom, it has been pointed out that the said concern has incurred a substantial expenditure of Rs. 2,86,29,34....
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....hen the margin derived by the said concern would be attributable to services rendered by the outsourced vendor. Per contra, where IT enabled services are being rendered by a concern through its own employees, the margins from rendering of services by the said concern would be attributable to its own employees. Obviously, the level of margins in the two business models would not be comparable. The Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited (supra) has held that concerns who act as intermediateries having outsourced it activity cannot be said to be comparable with a concern who is rendering services through its own employees. The said proposition has also been upheld by the Hyderabad Bench of the Tribunal in the case of Brigade Global Services Private Limited (supra). Having regard to the aforesaid discussion, in our view, the said concern is not a good comparable to be included for the purposes of comparability analysis as it operates under a different business model which impacts operating margins. As a 14 consequence, we direct the Assessing Officer to exclude the said concern from the final set of comparables. 25. The la....
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....wledge and experience which cannot be found in most of their competitors. Thus, they tend to command higher margins of profits. Low-end IT enabled service providers employ workers who have the basic knowledge and can be trained to perform the necessary functions. KPO firms earn extraordinary profits due to the highly skilled resources they employ in the form of highly qualified professionals. 26. On the other hand, the Ld. CIT-DR appearing for the Revenue contended that the TPO as well as the DRP have rejected the plea of the assessee as the submissions were on a wrong footing. It was reiterated that the nature of services rendered by the said concern were falling in the category of IT enabled services which is also broadly the category of the services being rendered by the assessee. Therefore, the said concern was rightly included by the TPO in the list of comparables. 27. We have carefully considered the rival submissions. Ostensibly, the reason advanced by the TPO to reject the plea of the assessee are too general and are not justified. Even where two concerns may be undertaking activities which can be broadly categorized as ITES in common parlance but where an assessee is a....