TaxTMI 
TaxTMI 
2017 (11) TMI 117
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....pecified date' specified in s.92F94, i.e. the due date for filing the ROI. 3. The DRP erred to exclude Eclerx Services Limited from the list of comparable as it is KPO company, when CBDTs Circular No.890 (E) dated 26-09-2000 clearly mentions that KPO services are also information technology enabled products of services." 3. Similarly, in the assessee's appeal, the assessee raised 4 grounds, which has many sub-grounds, questioning the Transfer Pricing Adjustment amounting to Rs. 69,68,175/- confirmed by the DRP. All the grounds raised by the assessee are extracted as under : "On the facts and circumstances of the case, and in law : 1. The Ld Assessing Officer ('AO') pursuant to the directions of the Ld. Dispute Resolution Panel ('DRP') erred in rejecting the benchmarking approach adopted/contemporaneous documentation maintained by the appellant and thereby making a transfer pricing adjustment of Rs. 69,68,175 to the income of the appellant by holding that the international transactions pertaining to provision of customer support back office services ("ITES Services') to the associated enterprise ('AE') are not at arm's length under the Income-tax Act, 1....
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....or the assessee submitted that the said Cross Objections becomes an academic issue once the grounds raised by the Revenue are adjudicated in favour of the assessee, Ld. AR opines that the issues raised by the Revenue are of covered nature by the order of the Tribunal in the assessee's own case for the earlier A.Y. 2009-10. Therefore, we shall now take up the Revenue's appeal to examine the claim of covered nature of the issues relating to the Transfer Pricing Adjustment. ITA No.572/PUN/2015 (By Revenue) : 5. Ground No.1 of the Revenue relates to the correctness of the exclusion of FCS Software Ltd. as a comparable against the decision of the TPO who considered the same as a good comparable. 6. Ld. DR relied on the order of the AO and also on the order of the Delhi Bench of the Tribunal in the case of Navisite India Pvt. Ltd., which is actually referred in the Ground No.1 of Revenue's appeal. In connection with the exclusion of M/s. Eclerx Services Ltd. (a KPO sompany), Ld. DR for the Revenue also relied on the circular of the CBDT for the proposition that the KPO services of Eclerx Services Ltd. are functionally comparable to the ITeS of the assessee. 7. In this regard, the ca....
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....rom software development services and has abnormally high profits. We find that the issue regarding exclusion/inclusion of FCS Software Solutions Ltd. has been considered by the Co-ordinate Bench of Tribunal in the case of TIBCO Software India Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (supra). The ld. Counsel has given a comparative analysis as to how the activities of the assessee and TIBCO Software India Pvt. Ltd. are at par with each other. The ld. DR has not disputed the same. In the case of TIBCO Software India Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (supra) the Tribunal has excluded FCS Software Solutions Ltd. by observing as under : "23. We have carefully considered the rival submissions. In fact, the TPO has reproduced in para 15.7 the written submissions of the assessee on this aspect. The first plea raised by the assessee was that income earned by the said concern from rendering of application support services and infrastructure management services, which constitute 11% and 15% respectively of the total revenue, are in the nature of IT enabled services and not linked to the software development services. On this basis, it was sought to be pointed out that if th....
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....re development services, as asserted by the assessee. Once the segment of application support and infrastructure management services are removed along with the exclusion of E-learning and Digital consulting segment, then the income of the said concern from software development services falls below 75% of its total income and therefore, it deserves to be excluded even on the basis of the filter applied by the TPO. Thus, on this aspect, assessee succeeds." 13. Reliance has also been placed by the assessee on the decision of Barclays Technology Centre Vs. ACIT (supra) to contend that FCS Software Solutions Ltd. has abnormally high profit margin. The Co-ordinate Bench of Tribunal while excluding FCS Software Solutions Ltd. in the said case has held as under : "28. We have carefully considered the rival submissions. The argument of the assessee in order to exclude FCS Software Solutions Ltd. from the final set of comparables is based on twin grounds. Firstly, it is contended that the said concern has declared an abnormally high profit margin of 57.02% for the financial year under consideration; and, secondly, that the margins of the said concern widely fluctuate in over the years.....
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....r the high profit margins reflect a normal business trend or otherwise. In this background of the matter, we find that in the case of FCS Software Solutions Ltd., the margins for the two preceding financial years are 14.75% and 19.94%, whereas in the financial year succeeding to the year under consideration, the margin is 37.07%; and, the margin declared for the year under consideration is 57.02%. At the time of hearing, the Ld. Representative pointed out that in the financial year 2007-08 relevant to the assessment year under consideration the said concern's revenues from the software activity was Rs. 86.73 crores as against Rs. 143.43 crores in immediately preceding year. On the contrary the expenditure incurred on development of software for the year under consideration stood at Rs. 30.44 crores as against Rs. 104.35 crores in the immediately preceding year. It is pointed out that the ratio of software development expenditure to total income has fallen drastically from 72.75% to 35.10%, which shows that the current year has witnessed abnormal events. All the aforesaid factual aspects of the matter have not been disputed by the Revenue before us. From the aforesaid analysis, it i....
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....gy Services and therefore, the same constitutes a good comparable. Revenue is aggrieved against the direction of the DRP who directed for exclusion of the same for the reasons given in their direction at para 25 of the order of the DRP dated 28-12-2014. 13. Before the DRP, assessee reasoned that the KPO (Knowledge, Process and Outsourcing) services are neither the IT Software services nor the ITES services. For this proposition, assessee relied on various decisions. Further, it is the case of the assessee that the said circular of CBDT is not up-to-date in view of the subsequent stand of the CBDT on this issue. Bringing our attention to the copy of the CBDT Safe Harbour Rules dated 18-09-2013 (Page 324 of the paper book), Ld. AR for the assessee demonstrated that the fact of CBDT distinguishing the KPO services from the BPO services while fixing different Safe Harbour margins for the different services. Thus, the Ld. AR for the assessee demolished the TPO's view on the similarity of BPP services with that of KPO services. Referring to the order of the DRP, Ld. AR for the assessee submitted that the DRP gave the relief to the assessee as per the discussion given in Pages 46 to 49 o....
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....y supports clients in all elements of product and services marketing and sales-with a focus on online support to include content development and management, search engine management, web operations, pricing and customer analytics, product database management and catalog audits. The assessee has also highlighted the differences between KPO and BPO services at Appeal PB 187-188. At Stay PB 324-325, The assessee has also highlighted that the Safe Harbour Rules notified by the Central Board of Direct Taxes on September 18,2013 (which is post the CBDTs circular No. 890(E) dated 20/09/2000), wherein the KPO services have not been categorized under the ITES services. Further, the assessee places reliance on the following decisions which have rejected the said company on account of it having supernormal profit and it is engaged in providing KPO services: At Legal compendium PB 108, 109 and 121, the Hon. Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd (TS-387-HC-2015 (Del)-TP) has held that Eclerx, rendering KPO services cannot be compared to an entity rendering voice call services. The Hon High Court further states that voice call services contemplate lower end of ....
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.... Services Ltd. from the list of comparables as the same constitutes KPO services. The case of the AO and the TPO is that the company with KPO services is comparable to that of the assessee which is a Software Developers. Revenue relies heavily on the CBDT Circular No.890 (E) dated 20-09-2000. Per Contra, the case of the assessee is another CBDT Notification issued in 2013 in connection with the publishing of Safe Harbour Rules defines clearly the KPO services from that of BPO services/ITES services. 19. On hearing both the parties, we find the arguments of the Ld. AR for the assessee requires to be accepted. Further, we examined the order of the Tribunal in ITA No.336/PN/2014 order dated 31-10-2014 in the assessee's own case for the A.Y. 2009-10. The said company Eclerx Services Ltd. is found excluded by the Tribunal as the same is engaged in KPO services which is found to be not comparable functionally with that of the assessee's functions of Software services/ITES services. We find from the said CBDT Notification dated 18-09-2013 that the KPO services command Safe Harbour range of 25% whereas IT Enabled Services is only 20%. The said differentiation supports the assessee's argum....
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....at the objections raised by the assessee are required to be dismissed as academic. Accordingly, the cross objections raised by the assessee is dismissed. 23. In the result, the cross objection filed by the assessee is dismissed. ITA No.352/PUN/2015 (By Assessee) : 24. Before us at the outset, deviating from the specific grounds raised in its appeal, Ld. AR for the assessee mentioned that the TP adjustments are required to be deleted if three of the comparables which are considered by the TPO while benchmarking the international transactions of ITES services segment, are excluded. Naming the same, Ld. Counsel for the assessee submitted that the AO/TPO included (a) Accentia Technologies Ltd. (2) Infosys BPO Ltd. and (3) BNR Udyog Ltd. for arriving at Arithmetic Mean of the 11 comparables of 25.35%. This is worked out against the assessee's Arithmetic Mean of 17.30% (OP/TC). As per the assessee, the said 3 comparables are not to be considered as good comparable for various reasons and therefore if the same are decided accordingly the Arithmetic Mean of the assessee will be in the permitted range of around 20%, which is within the range +/-5% qua that of the assessee. In order to s....
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....es which is different to the services provided by the Appellant. Further at Supplementary PB - 547, the annual report of the company specifies software as generic principal product / service of the company along with services. The Ld DRP at Stay PB 56 also confirms that the company also rendering software services. Further, at Additional Supplementary PB 744, the website of the company clearly mentions of the software products that Accentia has developed for rendering healthcare services. Further, at Supplementary PB 467, 480, 516-518, the annual report of the said company mentions that it has diversified its business into rendering high end services like KPO and LPO which is functionally different from that of the appellant's business. The same is also evidenced from the fact that the company has dedicated management personnel leading the LPO services. At Supplementary PB-501, 503 and 504, mentions about acquisition of IQ Group of Companies which are engaged in the area of software product development and IT infrastructure solutions. At Supplementary PB 542 the company in its annual report mentions that it has made certain acquisitions in earlier years the effect o....
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....hnologies Ltd. was not found to be a good comparable by the Tribunal in the assessee's own case for the A.Y. 2008-09 and 2009-10 vide ITA No.336/PUN/2014 and ITA No.2546/PUN/2012 respectively. For the sake of completeness, we proceed to extract the relevant paragraphs from Page 154 and 155 and 882 and 883 of the legal compendium : Extract from ITA No.336/PUN/2014 : "47. The next objection of the learned Authorized Representative for the assessee was with regard to the inclusion of M/s. Accentia Technologies Ltd. which admittedly was engaged in developing its own software products and was rendering medical transcription services. Further, the said company during the year under consideration had made certain acquisitions which in turn affected the margins of the year of the acquisition. We find that Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Pvt. Ltd. (supra) had rejected Accentia Technologies Ltd. for having extraordinary circumstances i.e. amalgamation. Following the parity of reasoning as adopted by the Hyderabad Bench of the Tribunal, we hold that the said company had different functional profile as compared to the assessee, which in....
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....in the light of facts of the case and the decision of Co-ordinate Bench of Tribunal, Accentia Technologies Ltd. cannot be considered as good comparable. Therefore, the same is directed to be excluded from the final list of comparables." 28. Considering the above stated position, we are of the view that the said company is held to be not a good comparable and there is no change in facts in this year also. There are extraordinary events exist in this year under consideration as well. In our opinion, the Ld. DRP is not privy to the said orders of the Tribunal as the Tribunal passed these orders subsequently posterior to the order of the DRP. Therefore, we are of the view that the directions given by the DRP on this issue are required to be amended accordingly. INFOSYS BPO LTD. : 29. The case of the assessee on this comparable include that the said company constitutes a Giant company and deals with variety of functions and integrated services. Considering the high brand value and the skill of operations the said Infosys BPO Ltd. cannot be considered as comparable to the case of the assessee. Referring to the various decisions including that of the assessee in its own case for the ....
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....ive basis. Further, in the case of Symphony Marketing Solutions India Pvt Ltd (presently merged with Genpact India) (IT/TP) A No. 1316/Bang/2012) (Refer Legal Compendium Pages- 790 - 791), the Hon. Tribunal has rejected the said company on account of being a subsidiary of Infosys Ltd, this company has brand value associated with it. The Hon. Tribunal held that this is apparent from the presence of brand related expenses incurred by this company and the presence of a brand commands premium price which customers would be willing to pay. Further, the Hon. Tribunal has held that Infosys BPO is an established 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. Accordingly, the said company was rejected by the Hon. Tribunal. Further, the said company is also rejected by the Hon. Hyderabad tribunal for having brand value associated with it in case of the following cases: Capital IQ Information Systems (India) Pvt. Ltd. [TS-229-ITAT-2014 (HYD)-TP] (Refer Legal Compendium Pages 803- 804) Excellence Data Research Pvt. Ltd. [TS-230-ITAT-2014 (HYD)-TP] (Refer Legal C....
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.... than 25%. The Ld. TPO has accepted the RPT working for AY 2009-10 which has the same nomenclature of items in the RPT schedule of annual report of BNR Udyog. (Refer Supplementary PB - 721 to 735 for Show cause Notice and extracts of TP Order pertaining to AY 2009-10). Moreover, the said company was also rejected by the Ld. TPO in AY 2008-09 TP assessment proceedings on account of having RPT transactions more than 25% of sales. This amply evidences complete shift in the approach adopted by the Ld. TPO and lacks consistency (Refer Supplementary PB - 702 to 720 for Show cause Notice and extracts of TP Order pertaining to AY 2008-09). Accordingly, based on the above inconsistent approach of the TPO, the said company needs to be excluded from the final set of comparables." 32. Ld. DR for the Revenue relied heavily on the orders of AO/TPO. 33. The TPO adopted the RPT filter of 25% in this year against the 10% of the earlier year. Whereas the RPT of the said comparable (BNR Udyog Ltd.) is in the range of 739%. This comparable was not considered a good comparable in the yester year too. Thus, it is the case of the assessee that such comparable is, not a good comparable for benchm....