TaxTMI 
TaxTMI 
2015 (10) TMI 2653
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....% on cost. As the profit margin earned by the taxpayer is more than the arithmetical mean margin, the price charged by the taxpayer was treated as at arm's length. 4. The TPO selected the final set of comparables as follows:- Sl. No. Name of the company OP/TC % 1 Accentia Technologies Ltd. (Seg) 41.77 2 Acropetal Technologies Ltd. (Seg) 35.30 3 Aditya Birla Minacs Worldwide Ltd. (Earlier known as Transworks Information Services Ltd.) - 4.00 4 Asit C Mehta Financial Services Ltd. (Seg.) 9.42 5 Caliber Point Business Solutions Ltd. 10.97 6 Coral Hubs Ltd. (Earlier known as Vishal Information Technologies Ltd.) 50.68 7 Cosmic Global Ltd. 23.30 8 Crossdomain Solutions Ltd. 27.03 9 Datamatics Financial Services Ltd. (Seg.) 29.11 10 e4e Healthcare Solutions Ltd. (formerly known as Nittany Outsourcing Services Pvt. Ltd.) 18.54 11 Eclerx Services Ltd. 58.80 12 Genesys International Corporation Ltd. 47.40 13 Infosys BPO Ltd. 19.66 14 IServices India Pvt. Ltd. 10.77 15 Jindal Intellicom Pvt, Ltd. -10.29 16 Mold-Tek Technologies Ltd. 96.66 17 R Systems International Ltd. (Seg.) 4.30 18 Spanco Ltd. (Seg.) [Earlier known as Spanco Telesys....
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....margin of 22.47 percent as determined by the TPO as against the ALP of 7.56 percent as determined by the appellant. In doing so, the Honourable DRP and learned AO have erred in upholding the following action of the TPO: 3.6 finalizing the transfer pricing order by applying certain filters for selection of comparable companies and in the process selecting comparable companies which fail the test of comparability as per the TP regulations;" 12. The ld. counsel for the assessee, Shri Ajay Jain, submitted a chart and stated that Accentia Technologies Ltd. is uncomparable as its financial results are arising out of amalgamation. He relied on the decision of the coordinate Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. v. ITO, IT(TP)A No.1316/Bang/2012, order dated 14.08.2013 (AY 2007-08), wherein it has been held as follows:- "(1) Accentia Technologies Ltd. (Seg.) 10. This was considered as a comparable by the TPO and listed at Sl.No.1 of the comparable companies chosen by the TPO. The ld. counsel for the assessee drew our attention to the fact that there are extra ordinary events that occurred during the previous year in this company. Our atten....
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....nnual report it is noticed that Teckmen Tools Pvt. Ltd. and the Plastic Division of the company were demerged and the resulting company was named as Moldtek Plastics Ltd. The KPO business remained with the company. A perusal of the Annual report revealed that to give effect to the merger and demerger, the financial statements were revised and restated after six months form the end of the financial year 31.3. 2008. The assessee filed Form No.21 under the Companies Act with the Registrar of Companies on 26th August, 2008. Thus the effective date of the scheme of merger and demerger was 26th August, 2008. The Annual Report supported the argument of the assessee that there were merger and demerger in the financial year and it was an exceptional year of performance as financial statements were revised by this company much after the closure of the previous year. The Panel agrees with the contention of the assessee that it is an exceptional year having significant impact on the profitability arising out of merger and demerger." 11. On careful consideration of the matter, we also agree with the aforesaid view of the DRP that extraordinary event like merger and de-merger will have an effe....
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....this company performs different functions and mainly engaged in the area of software development services and engineering design services. The TPO in his order has observed that the services rendered by this company fall in the definition of ITES. 13. We have considered the submissions of the learned counsel for the Assessee. On a perusal of the Note No.15 of notes to accounts which gives segmental revenue of this company, it is clear that the major source of income for this company is from providing Engineering Design Service and Information Technology Services. The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed 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]." 1....
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....is of detailed discussion in the TP order for the A.Y. 2007-08. In fact in A.Y. 2007-08, there was no determination of ALP and therefore there was no occasion for any order being passed by the TPO. It is also seen that this company entered into an area of business known as New Vertical Digital Library & Print on Demand in F.Y. 2007-08. In the case of Capital IQ Information Systems India Pvt. Ltd. (supra), the ITAT Hyderabad Bench in the case of ITES company considered the comparable of this company as an ITES company and held as follows:- "IV. Coral Hub Limited (Earlier known as Vishal Information Technologies Ltd.): 16. The assessee has objected for this company being taken as comparable mainly on the ground that the activities of the company is not only functionally different, but the business model of the company is also different as it sub-contracts majority of its ITES works to third party vendors and has also made significant payments to those vendors. The payments made to vendors towards the data entry charges also supports the fact that the company outsources its works. In the circumstances, it cannot be taken as a comparable to the ITES functions performed by the asses....
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....First Advantage Offshore Services Ltd. v. CIT, IT(TP)A No.1086/Bang/2011, order dated 30.4.2013, has taken the following view:- "36. Having heard both the parties and having considered their rival contentions and the material on record, we find that this issue had arisen in the assessee's own case for the assessment year 2006-07. This Tribunal has held that employee cost filter is to be the same even for ITES segment also. The learned DR's argument that the employee cost filter is applicable only to software development segment and not to ITES segment is not acceptable. Though it is without any dispute that the software development would require skilled employees and, therefore, the employee cost would definitely be more than 25% of the total expenses, it cannot be said that the said filter is not applicable to ITES segment, where comparably less skilled employees are employed. In the ITES segment, the entire work is to be done by the employees and, therefore, even though they may be less skilled compared to software development segment, the number of employees would definitely be more and thus the employee cost would be high and thus application of employee cost filter to the IT....
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....outine 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. 19. We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this company as a comparable, this company should be excluded from the list of comparables, accepting the plea of the Assessee. We hold accordingly." 16. As far as Eclerx Services Ltd. is concerned, the ld. counsel for the assessee submitted that it had super normal profit and is functionally not comparable with the assessee company relying on the coordinate Bench decision of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra), where in was held at paras 20 & 21 of its order as under:- "(5) Eclerx Services Ltd. 20. This company is listed at Sl.No.11 in the list of comparable companies chosen by the TPO. It is the stand of the assessee that this company offers solutions that include data analytics, operations management, audits and reconciliation and therefore has to be classified as high end KPO. In support of the stand....
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....ngibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. The assessee is a routine ITES provider who does not require such highly skilled employees. Besides the above, this company also carries out R&D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. We may also point out that the objection of the assessee in this regard has been disregarded by the TPO by mere observation that it cannot be rejected on the basis that it is into different functional line within ITES. In this regard, we may refer to the decision of the ITAT Bangalore Bench in the case of First Advantage Offshore Services Ltd. (supra), wherein it was observed as under:- "39. Having heard both the parties and having considered their rival cont....
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....services where no skills and required and providing services where highly professionalized skills are required. Depending on the skills required to perform ITES the comparability has to be done. In view of the above, we are of the view that this company cannot be regarded as a comparable and deserves to be excluded from the list of comparables." 18. As regards Infosys BPO Ltd., the ld. counsel for the assessee submitted that it had a different scale of operations on account of brand value of the parent company and relied on the decision of the coordinate Bench decision of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra), where in was held at para 24 of its order as under:- "(7) Infosys BPO Ltd 24. This company is listed at Sl.13 in the list of comparable companies chosen by the TPO. As far as this company is concerned, it is the submission of the ld. counsel for the assessee that this company has a brand value and therefore there would be significant influence in the pricing policy which will impact the margins. Schedule 13 to the profit & loss account of this company for the F.Y. 2007-08 shows that this company incurred huge selling and market....
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....detailing services which can be categorized as structural engineering services. The structural engineering services provided by the IT division of the company cannot be classified as falling with the scope and ambit of ITES services. On the contrary, the said services would fall under the category of engineering services. Excerpts from the Annual Report of the company Page 10 of the Annual Report for the FY 2007-08 contains the following observation regarding the KPO division of the Company: 'The Company has achieved about 56.49% growth in 2007-08 to register a turnover of Rs. 17.86 crore. The company having established its credentials in structural engineering services to US clients is devising aggressive marketing strategy to achieve rapid growth." This company is also engaged in providing a host of engineering services like civil and structural engineering services, mechanical product design, plant engineering, IT services and GIS services. As we have already seen, this company is to be classified as KPO and cannot be compared with the assessee. The decision of the Bangalore Bench of the ITAT in the case of First Advantage Offshore Services Ltd. (supra) which we have ref....