TaxTMI 
TaxTMI 
2016 (12) TMI 1645
X X X X Extracts X X X X
X X X X Extracts X X X X
....and adopted operating profit/operating cost as profit level indicator. The assessee selected comparables to bench mark its international transactions on the basis of FAR analysis. The average unadjusted margin of the comparables in the international transactions related to ITeS was determined by the assessee at 14.95% as against 11.64% of its own. The Transfer Pricing Officer (TPO) determined arms length margin of the comparable at 32.12% and made adjustment of Rs. 2,62,00,000/-in respect of international transactions relating to ITeS. Aggrieved by the order of TPO dated 28.01.2014, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide directions dated 26.12.2014 partly accepted the objections raised by the assessee. On the basis of directions of the DRP, the Assessing Officer vide impugned order made upward adjustment of Rs. 2.41crores in the income returned by the assessee. 3. The assessee in appeal before the Tribunal as assailed the assessment order by raising following grounds: "1. Transfer Pricing Adjustment: 1.1 The learned DCIT pursuant to the directions of learned DRP erred in law and on the facts and in circumstances of the case in mak....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thmetic mean 8.1 The learned DCIT pursuant to the directions of learned DRP has erred in law and on the facts and in circumstances of the case in not granting the benefit of +/-5 percent as per proviso to section 92C (2) of the Act. 9. Non applicability of transfer pricing provisions to the Appellant enjoying tax holiday regime under Section 10A of the Act 9.1 The learned DCIT pursuant to the directions of learned DRP has erred in law and on the facts and in circumstances of the case in applying the transfer pricing provisions to the Appellant even though the Appellant is enjoying the tax holiday regime under section 10A of the Act. 10. Initiation of Penalty Proceedings 10.1 The learned DC IT erred on the facts and in law in initiating penalty proceedings under section 271 (1) (c) of the Act. 11. Each one of the above grounds of appeal is without prejudice to the other. 12. The Appellant reserves the right to amend, alter or add to the grounds of appeal." The assessee has also filed additional grounds of appeal on 26.07.2016 which are as under: "1. "The Assessing Officer/Dispute Resolution Panel/Transfer Pricing Officer has erred in incorrectly computing the Profit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AR placed reliance on the decision of Hyderabad Bench of the Tribunal in the case of HSBC Electronic Data Processing India (P) Limited vs. Deputy Commissioner of Income Tax (DCIT) reported 56 taxmann.com 78. In the said case, GENESYS was rejected as comparable due to functional disparity. GENESYS is providing geospatial services to its customers. This is highly specialized service with respect to relative position of things on the earth surface. These basically include 3D mapping, navigation maps, image processing, cadastral mapping etc., The services provided by GENESYS are quite different from the services rendered by the assessee and there cannot be any comparison between the two. 5.2 In respect of Accentia Technologies Limited (hereinafter referred to as 'ACCENTIA') the ld.AR submitted that certain extraordinary events have taken place during the year under consideration in case of ACCENTIA. These extraordinary events refer to: (i) Acquisition if IQ Group of companies in U.K; and (ii) Amalgamation of Accentia Infoserve Private Limited with the assessee company. The ld.AR submitted that the co-ordinate Bench of the tribunal in the case of Aptara Technologies Private Limite....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usion of ICRA Online Ltd(segmental), in the list of comparables, the ld.AR submitted that the company is functionally different and is a super profit making company. In the year under consideration the export turnover of the company is Rs. 1,114.09 lakhs as against the total turnover of Rs. 1835.9 lakhs which is less than 75% of the total turnover. Therefore, the company fails to qualify export turnover filter of 75%. The DRP in assessment year 2009-10 had excluded the company from list of comparables on export turnover filter. The ld.AR prayed for maintaining consistency and remove ICRA Online Ltd (segmental) from the final set of comparables. 5.6 The ld.AR submitted that if the companies mentioned above are exclude from the final set of comparables, the other grounds raised in the appeal will become academic and he would not be pressing the remaining grounds. 6. On the other hand, Shri T.Vijaya Bhaskar Reddy representing the department vehemently supported the findings of DRP and Assessing Officer for including above said companies in the final list of comparables. The ld.DR submitted that the department in its appeal has assailed the findings of DRP in excluding functionally c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he operating margin of Fortune Infotech Ltd. -recomputing PLI of Jeevan Scientific Technology Ltd(segmental). The objections raised by the assessee in respect of above companies are dealt with in seriatim as under: 9.1 Genesys International Corporation Limited. The assessee has objected to inclusion of GENESYS in the final list of comparables on the ground of abnormal profits, as well as functional differences. It is pointed that in the period relevant to assessment year 2010-11 the said company has unadjusted operating margin of 112.31%. The assessee has given operating margin trend of the company over the three years. The same is tabulated herein below: Financial Year Unadjusted operating margin (OP/OC) 2007-08 46.82% 2008-09 57.91% 2009-10 112.31% We find that the co-ordination Bench of the tribunal in the appeal of assessee for assessment year 2007-08 & 2008-09 has excluded GENESYS from the list of comparables on account of abnormally high profits. The relevant extract of the findings of Tribunal are as under: 29. The next plea of the assessee is to exclude Genesys International Corporation Ltd. from the list of final comparables on the ground that for the finan....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., TPO has classified the assessee as ITE Service Provider. Further, comparability of aforesaid companies objected by assessee came up for consideration by the coordinate bench of this Tribunal in case of Capital IQ Information Systems (India) (P.) Ltd. (supra) for A Y 2009-10. The Tribunal after examining the functionality of these companies held them not to be comparable with ITE service provider. The relevant extract from the order of the Tribunal is reproduced hereunder for ready reference: '(2) Genesys International Ltd. 17. It was the contention that this company functions in two horizontals, and is having super profits. It was further submitted that this company is not only in software development but also in Geospatial Services, which are highly technical. It also involves in consulting activity. It was the contention that this company was analysed by the coordinate Bench of the Tribunal at Delhi in the case of M/s. Mercer Consulting (India) Ltd. v. DCIT (vide order dated 6th June, 2014 in ITA No. 966/Del/2014), wherein this company was excluded in that case. Learned counsel for assessee relied upon the findings of the Tribunal vide paras 14.2 and 14.3, in that case,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mere fact that two services are placed under this category do not become automatically comparable. If a case providing one category of services under ITES is claimed as comparable with another in the category of service under ITES as per this circular, then it must be shown ex facie that it is broadly similar. Adverting to the facts of the instant case, we find that the services rendered by Genesys fall under clause (vi) with the heading 'Geographical Information Systems Services', whereas those rendered by the assessee fall partly under clause (vii) with the heading 'Human Resources Services' and partly under clause (xi) with the heading 'Payroll'. On juxtaposition examination of these two sets of services, we find that there is a vast difference which make one quite distinct from the other. In view of such functional incomparability between assessee and Genesys, we hold that this company cannot be treated as comparable. We, therefore, direct to exclude this case from the list of comparables." 17.1 On careful consideration of the matter, respectfully following the above decision of the coordinate Bench, we are also of the opinion that there is vast differ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oncern, copy of which is placed at page 467 of the Paper Book. Further, there was amalgamation of Asscent Infoserve Pvt. Ltd. with the company as per notings on page 472 of Paper Book. Hence, there was the case of amalgamation and acquisition, which constituted extraordinary events taken place for the year under consideration. The learned Authorized Representative for the assessee pointed out that for the year under consideration i.e. assessment year 2010-11, the Tribunal in various other cases have held that Accentia Technologies Ltd. was not comparable to entities engaged in ITES activities since even during the year under consideration, the said entity had extraordinary events. In this regard, reliance was placed on following decisions:- a. Techbooks International Pvt. Ltd. Vs. DCIT (ITA No.240/Del/2015) b. Xchanging Technology Services India Pvt. Td. Vs. DCIT (ITA No.1222/Del/2015 c. Amba Research (India) Pvt. Ltd. Vs. DCIT (ITA No.286/Bang.2015 d. Cognizant Technologies Services Pvt. Ltd. Vs. DCIT (ITA No.459/Hyd/2015 13. Under the transfer pricing provisions, while benchmarking the international transaction entered into by the assessee with its associate enterprises....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e same by merely noticing that 75% of the revenue/income of the said concern is from ITES and therefore it is to be considered as a comparable. Before us, the Ld. Representative for the assessee has reiterated the submissions put-forth before the TPO in order to justify exclusion of the said concern from the list of comparables. In particularly, it has been pointed out that for the very same assessment year, the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. vs. ITO, (2013) 38 taxmann.com 55 (Bang.) has excluded the said concern from the list of comparables in a similar situation following the decision of the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited vs. DCIT, (2013) 32 taxmann.com 21 (Hyd.). 15. We have considered the submissions of the Ld. Representative for the assessee and also the stand of the Revenue as emerging from the order of the TPO. In our view, the ratio laid down by the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited (supra) and by the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pointed that the TPO while considering the margin of the company has only considered BPO operations. The TPO has not considered ERP segment revenue. The correct segmental results have to be considered for analysis-ITeS being the correct segment in the present case. We find that in the case of Aptara Technologies vs. ACIT (supra) the co-ordinate Bench has directed the Assessing Officer to work out the margins of relevant segment of Jeevan Softech Ltd and thereafter determine the average margins of the comparables. The relevant extract of the directions of the Tribunal are re-produced as under: 26. "Another concern which was selected by the TPO was Jeevan Softech Ltd. The learned Authorized Representative for the assessee before us pointed out that the TPO has erred in working of the margins of said concern by adopting sales at Rs. 1.41 crores, which admittedly is revenue from BPO operations. However, the TPO has failed to consider ERP segment revenue which is also classified in the audited financial statement of Jeevan Softech Ltd. as being from ITES segment and if the segmental margins of ITES segment are taken up, which includes total sales/income of Rs. 1,74,43,276/-. The margi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith law. Accordingly, additional ground of appeal no.2 is allowed for statistical purpose. 13. Eclerx Services Ltd. The department in its appeal has raised single issue challenging exclusion of functionally comparable company on the basis of turnover. The ld.DR referred to exclusion of Eclerx Services Ltd by DRP from the final list of comparables by applying turnover filter. The assessee in its additional ground no.3 has assailed the findings of AO/DRP in not rejecting Eclerx Services Ltd. on account of functional difference. We find that the co-ordinate Bench of the Tribunal in assessee's appeal for AY 2009-10(supra) has considered the issue relating to inclusion/exclusion of Eclerx Services Ltd. in the final list of comparables. The Tribunal vide order dated 30.03.2016 directed to exclude the said company from the final set of comparables on account of functional disparity. The relevant extract of findings of Tribunal are as under: 20. The next concern which the assessee wants to be excluded from final set of comparables is Eclerx Services Ltd., which was engaged in the business of KPO services and hence not functionally similar. We have in the paras hereinabove already held....