TaxTMI 
TaxTMI 
2017 (3) TMI 1302
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppellant's income. 2. The Ld. DRP erred both on facts and in law in confirming the addition of Rs. 12,94,11,325 to the income of the Appellant by holding that its international transaction of 'Provision of back office services' does not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('the Act'). 3. The Ld, DRP erred in confirming the deduction u/s.10A/10AA of the Act at Rs. 15,47,25,328 as against an amount of Rs. 15,71,52,337 claimed by the Assessee. 4. The Ld. DRP erred in confirming non allowing carry forward/set off of current year business loss of Rs. 3,37,37,937. 5. The Ld. DRP erred in confirming levying interest under section 234 D of the Act. 6. The Ld. DRP erred in confirming levying interest trader section 234D of the Act. 3. The original ground raised in respect of Transfer Pricing Adjustment is general without any specific comparable therefore the assessee raised the additional ground which reads as under: 1. The above referred appeal is in respect of the order passed by the learned Assistant Commissioner of Income-Tax. Circle 12(3), ('Assessing Officer'/'AO'). The AO had passed D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arability of certain companies. 6. The assessee is a part of Siemens Worldwide Group and engaged in the business of ITES services relating to back office operation on contract basis to its Associated Enterprises (AEs). Thus the assessee is a BPO and providing data services in respect of accounts and finance to its overseas group companies. The assessee has reported the following international transactions in 92C report which are reproduced by the TPO in para 2.5 as under: 2.5 International Transactions (as mentioned in the 92 CE report) The following are the international transactions entered into by the taxpayer with its Associated Enterprises (AEs) as per the 3 CEB report and as per the reference received from the AO. 1 Back office services Rs. 1,019,001,979/- 2 Recovery of expenses (Receipt) Rs. 46,613,897/- 3 Reimbursement of consultancy charges Rs. 6,356,856/- 4 Reimbursement of preventive maintenance charges Rs. 18,831,922/- 5 Reimbursement of license and royalty charges Rs. 5,567,546/- The assessee selected 13 companies to bench mark its international transactions as per the TNMM. The TPO accepted five compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion, coding, billing and receivable management therefore, this company is functionally not comparable with the assessee. In support of his contention, he has relied upon the decision of this Tribunal in the case of Symphony Marketing Solutions India (P.) Ltd. v. ITO 2014 (2) TMI 83 - ITAT BANGALORE and Kodiak Networks (India) (P.) Ltd. v. Dy. CIT in IT(TP)Appeal No.l540/Bang/2012. 9. On the other hand, the Id. DR has relied upon the orders of the authorities below and submitted that the TPO has not applied any filter of employee cost therefore it is not relevant to determine the functional comparability of this company. (ii) Acropetal Technologies Ltd.(Seg.) 10. The learned Authorised Representative has submitted that this company is not functionally comparable as it provides engineering design services which is a KPO service and therefore is not a good comparable to the BPO service of the assessee. He has relied upon the decision of Hon'ble Delhi High Court in the case of Rampgreen Solutions (P.) Ltd. v. CIT [2015] 377 ITR 533 and Kodiak Networks (India) (P.) Ltd. (supra). 11. On the other hand, the Id. DR has relied upon the orders of the authorities below and su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Rampgreen Solutions (P.) Ltd. (supra) and Kodiak Networks (India) (P.) Ltd. (supra). 19. On the other hand, the learned Departmental Representative has relied upon the orders of authorities below. (vii) Infosys BPO Limited. 20. The learned Authorised Representative has submitted that being subsidiary of Infosys Limited, a brand value is associated with this company and also it owns Intellectual Property Rights (1PR). This company is also a market leader being part of the Infosys Limited. In support of his contention, he has relied upon the decisions in the case of Rampgreen Solutions (P.) Ltd. (supra) and Kodiak Networks (India) (P.) Ltd. (supra). 21. On the other hand, the learned Departmental Representative has relied upon the orders of authorities below. (viii) Mold-tek Technologies Ltd. 22. The learned Authorised Representative has submitted that this company is in KPO activity as it provides engineering design sevices. Further this company also does not satisfy the filter of 75% export earnings. In support of his contention, he has relied upon the decisions in the case of Rampgreen Solutions (P.) Ltd. (supra) and Kodiak Networks (India) (P.) Ltd. (supra).....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompany and therefore, the objection of functional non-comparable is not sustainable. He has referred to the order of TPO and submitted that TPO has given reason for selecting this company as comparable. He has further contended that the amalgamation is not in ITES segment and therefore the result of ITES segment are not affected by demerger or amalgamation., He has the upon the order of TPO and DRP. 31. We have considered the rival submissions and material available on record. The assessee has raised main objection against the Accentia Technologies Ltd (seg) on the ground that during the year extra ordinary event of merger and amalgamation occurred and therefore, in view of the decision of the Tribunal in the case of Symphony Marketing Solutions India Private Limited (supra) the said company cannot be considered a good comparable for determining the ALP. The findings of the Tribunal in the case of Symphony Marketing Solutions India Private Limited (supra) is based on the another decision of Hyderabad Bench of the Tribunal in the case of CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P.) LTD. v. DCIT 2014 (3) TMI 626 - ITAT HYDERABAD. It is pertinent to note that an extra ordinary event....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ook. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ices Pvt Ltd in IT(TP)A No.l086/Bang/2011 and (c) M/s Symphony Marketing Solutions India Pvt Ltd in TT(TP) No. 1316/Bang/2012 (For AY2008-09) 36. On the other hand, the Id. DR relied on the orders of authorities below. 37. We have carefully considered the rival contentions and relevant material available on record. The main contention of the assessee is that this company is engaged In the business of rendering highend services which are intangible. It is pertinent to note that whether a particular company is rendering high end services or not has to be decided by considering the real functions and services and not by mere nomenclature of KPO or BPO. This aspect has been considered in the case of Maersk Global Centres (India) (P) Ltd (supra) in paras 73,75 and 78 and the Special Bench has observed and held as under: "73. On a careful study of the material placed before us to highlight the distinction between BPO services and KPO services, we are of the view that even though there appears to be a difference between the BPO and KPO services, the line of difference is very thin. Although the BPO services are generally referred to as the low end services while KPO services a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and KPO services for the purpose of comparability analysis. In our opinion, there could exist significant overlap between the ITES activities or functions with some activities/functions being very fact-sensitive and introducing an artificial segregation within ITES may lead to creation of more problems in the comparability analysis than solving the same. 76. Having held that ITES services cannot be further bifurcated as BPO and KPO services for the purpose of comparability analysis, the next question that arises is what could be the basis of such dissection, bifurcation or classification of ITES services to facilitate relatively equal degree of comparability when the broad functional analysis based on ITES sector is taken into account by applying TNMM. In our opinion, this purpose of attaining a relatively equal degree of comparability can be achieved by taking into consideration the functional profile of the tested party and comparing the same with the entities selected as potential comparables on broad functional analysis taken at ITES level. The principal functions performed by the tested party should be identified and the same can be compared with the principal functions per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsure transparency in the application of subjective judgments. Keeping in mind all these factors, it is necessary in the present context that all the relevant facts peculiar to ITES sector should be taken into account including particularly the problems discussed by us in para 73 to 75 of this order and accordingly the relatively equal degree of comparability should be sought to be achieved by taking into consideration the functional profile of the tested party and comparing the same with functional profile of the potential comparables selected at ITES level. 78. To sum up, we hold that the potential comparables of ITES sector level can be selected by applying broad functional test at first stage and although the comparables so selected can be put to further test depending on feels of each case, by comparing the specific functions performed in the international transactions with that of uncontrolled transactions to attain the relatively equal degree of comparability as discussed above, the classification of ITES into low-end BPO services and high-end KPO services for comparability analysis would not be fair and proper. The first question referred to this Special Bench is whether....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iency and turn-around-time for business critical processes." Source: http://www. cross-domain, com As can be seen from the above, the business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider." 40. The Id. DR submitted that the functional comparability has to be examined on the basis of the nature of services and function performed by the company and not on the basis of the nomenclature. 41. Having considered the rival submissions and material available on record, we note that in the case of Symphony Marketing Solutions India (P) Ltd (supra), the Tribunal has noted that the said company is engaged in to provide end to end payroll solutions to clients. It is pertinent to note that Payroll Outsourcing, payroll services prima facie does not require any expertise and are routine low end ITES service. The pay roll outsourcing does not require any special skill or expertise etc and it is routine work of just like data entries. However,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stablished player who is not only a market leader but also a company employing sheer breadth in terms of economies of scale and diversity and geographical dispersion of customers. The presence of the aforesaid factors will take this company out of the list of comparables. We therefore accept the contention of the assessee that this company cannot be regarded as a comparable." Apart from this, the company is also engaged in the business of software product, therefore, it is clear that the company apart from having its own IPR and brand value also engaged in the software product. Therefore, this company cannot be considered functionally similar to that of assessee and accordingly, we direct the AO/TPO to exclude from the list of comparables. 6. Mold-tek Technologies Ltd. (Seg.) 45. The Id. AR submitted that this company is functionally different and is engaged in the business of rendering high end services. This company is also having extra ordinary event of merger. He has also contended that this company is having floated profit over the period of 5 years, therefore, it cannot be considered as a good comparable. In support of this contention, he has relied upon the decision....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nologies Ltd. (VTT) - 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 comparables....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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 form 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 as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....other hand, the ld. DR has relied upon the orders of the authorizes below. 54. We have heard the rival contentions and considered the material placed on record. The functional and comparability of this company has been examined by the Tribunal in the case of Symphony Marketing Solutions India (P) Ltd (supra) in para 26 of the order which is reproduced below: "26. This company is listed at Sl. No. 18 in the list of comparable companies chosen by the TPO, As far as this company is concerned, the discussion made while deciding Infosys BPO Ltd. as a comparable will equally apply to this company also. This company owns substantial intellectual property on software products. This company cannot therefore be regarded as a comparable. For the reasons given while disregarding Infosys BPO Ltd, as a comparable, this company is also directed to be excluded from the list of comparables." 55. In view of the above findings and respectfully following the same, we direct the TPO/AO to exclude from the list of comparables. 9. Accentia Technologies Ltd (seg) 56. The Id. AR submitted that this company is functionally different and is engaged in the business of high end services. He has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the Assessee. The performance of Engineering Design Services is regarded as providing high end services among the BPO which requires high skill whereas the services performed by the Assessee are routine low end ITES functions. We therefore hold that this company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcing [KPO] would do and not a Business Process Outsourcing [BPO]. 59. It is not in dispute that this company is engaged in providing engineering design services and software development services. In the segment ITES this company is deriving income from engineering design services and software development services and segmental data of this company does not give separate revenue and margin relating to the software development services. Therefore, in view of the facts that this company is engaged in the various different functions including the design engineering services, this company cannot be considered as functionally comparable with the assessee. Accordingly, we direct the TPO/AO to exclude this company from the list of comparables. We find that in paras 55 & 56 of the above....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e India, or expenses if any incurred in foreign exchange, in providing the technical services outside India should not be included. However, the word total turnover is not defined for the purpose of this section. It is because of this omission to define 'total turnover', the word 'total turnover' falls for interpretation by this Court; ........In section 10A, not only the word 'total turnover' is not defined, there is no clue regarding what is to be excluded while arriving at the total turnover. However, while interpreting the provisions of section 80HHC, the courts have laid down various principles, which are independent of the statutory provisions. There should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10A is a beneficial section which intends to provide incentives to promote exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fore computing the deduction of the other STPI unit under Section 10A of the Act. 29. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. An identical issue was considered by the co-ordinate bench of this Tribunal in assessee's own case for the Assessment Year 2007-08. Further this issue is also covered by the decision of Hon'ble jurisdictional High Court in the case of CIT v. Yokogawa India Ltd. [2012] 341 ITR 385 (Kar.). By following the said decisions of the Hon'ble jurisdictional High Court, the co-ordinate bench of this Tribunal in the case of Mindteck (India) Ltd. v. ITO 2015 (4) TMI 56 - ITAT BANGALORE has decided in paras 36 & 37 as under: " 36. We have considered the rival submissions. The legal position that emanates from the decisions referred to above can be summed up thus:- (i) The carried forward business loss of Sec.10A unit cannot be set off or carried forward during the tax holiday period against any income. (ii) The carried forward business loss to the extent it pertains to non- 10A unit can be set off against income of non-10A unit. (iii) Sec.....