TaxTMI 
TaxTMI 
2017 (1) TMI 1489
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....me of the assessee to Rs. 16,47,75,806/-, transfer pricing adjustment being Rs. 7,74,11,952/-in accordance with the TPO's order passed u/s 92CA(3) and in computing deduction u/s 10A of the Act, the AO made the following adjustments in applying the prescribed formula. Export Turnover: Reduced communication charges of Rs. 8,73,53,250/-from export turnover considering the same as attributable to the delivery of software outside India. The above adjustment resulted in reduction on amount of profits eligible for deduction u/s 10A by Rs. 1,86,41,485/-. 2.1 The Assessee entered into the following international transactions for Software Development services and ITES as per Form 3CEB: Associate Enterprise Amount (Rs.) ADP Inc., USA 172,76,74,579 ADP Cobra Services Inc. 8,58,45,694 Automatic Data Processing Ltd., Australia 15,19,11,112 ADP Tax Services Inc 34,26,09,948 ADP Benefit Services Inc 14,45,84,606 ADP Nederlands, BV 2,53,48,070 ADP Screening and Selection Services Inc 4,67,82,601 ADP Insurance Agency Inc 3,03,93,335 Business Management Software Ltd. 31,40,0186 ADP Global View BV 5,56,25,346 ADP Canad....
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....6. Eclerx Services Ltd. 53.34 7. Infosys BPO Ltd. 16.90 8. Jeevan Scientific/Softech Technology Ltd. 16.56 9. Microland ltd. 2.35 10. Microgenetic Systems Ltd. 10.11 11. R Systems International ltd. 5.77 12. Genesys International ltd. 71.50 Arithmetic Mean 27.42 2.6 Working capital adjustment was allowed by the TPO which reduced the PLI to 23.55%. All these actions led to an adjustment of Rs. 7,74,11,952/-. Calculation for the Arm's Length Price is as below: Description Amount Arithmetic mean of PLI as arrived at by the TPO 27.42% Less: WCA 3.87% Arm's length margin as arrived at by the TPO 23.55% Operation Cost (OC) 116,70,57,059 Adjusted Arm's Length Margin (%) (AALM) 23.55% of the operating cost Arms length price (ALP) @ 123.55% of operating cost 144,18,98,996 Price received by the assessee 136,44,87,044 Shortfall being adjustment u/s 92CA 7,74,11,952 The above shortfall of Rs. 7,74,11,952/-was treated as transfer pricing adjustment u/s 92CA of the IT Act by TPO. 2.7 Accordingly, the TPO passed an order u/s 92CA(3) of the Act on....
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.... Ltd., ITA No. 683&542/H/14 1.2 In the case of Capital IQ Information Systems India Pvt. Ltd., (supra), the coordinate bench has held as under: 21.2 We have considered the rival contentions and noticed that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy. In earlier years on the reason of acquisition of various companies, being an extraordinary event which had an impact on the profit, this company was excluded. As submitted by the ld. Counsel, this year also, the acquisition of some companies by that company may have impact on the profit. Considering the profit margins of the company and insufficient segmental data, we are of the opinion that this company cannot be selected as comparable. Moreover, this is also not a comparable in the case of M/s Mercer Consulting (India) P. ltd. (supra), which indicates that the TPO therein has excluded it at the outset. In view of this, we direct the AO/TPO to exclude this comparable, from the list of comparables selected." 1.3 The ld. DR, on the other hand, relied on the orders of revenue authorities and submitted that the acquisition was completed duri....
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....ting (India) Pvt. Ltd. and therefore, selection of the company by the TPO in this case, which is also in similar ITES services, is not proper." 2.3 The ld. DR, on the other hand, relied on the orders of revenue authorities. 2.4 After considering the submissions of both the parties and keeping in tune with the consistent view of different benches of the Tribunal in respect of rejecting this company as comparable due to functionally different and improper segmental data (refer page 235 of paper book). We, therefore, direct the AO/TPO to exclude the aforesaid company from the list of comparables. 3. Cosmic Global Ltd.: 3.1 The ld. AR objecting to the aforesaid company being treated as comparable, submitted that the segmental revenue of BPO segment of this company is only Rs. 27.76 lakhs and also brought to our notice the company has engaged in sub-contracting the business by incurring huge translation charges (Refer page 241 of paper book). He submitted that in the following rulings ITAT rejected the said company as comparable: 1. HSBC Electronic Data Processing India Pvt. Ltd., ITA No. 247&295/Hyd/14. 2. M/s Capital IQ Information....
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....he entire outsourcing is confined to Translation charges paid at Rs. 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of Rs. 6.99 crore. If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO. Thus it is held that this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment. 13.3. However, we find this case to incomparable on the alternative argument advanced by the Id. AR to the effect that total revenue of the accounts BPO segment of Cosmic Global ltd. is very low at Rs. 27.76 lacs. We have discussed this aspect above in the context of CG-VAK's case and held that a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at Rs. 86.10 lacs. As the segmental revenue of BPO segment of Cosmic Global Ltd. at Rs. 27.76 lacs is still on much lower side, the reasons give above would fully apply to hold Cosmic Global ltd. as incomparable. This case is, therefor....
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....benches of the Tribunal in respect of the aforesaid company, we direct the AO/TPO to exclude the aforesaid company from the list of comparables. 5. Genesys International Corporation Ltd.: 5.1 The ld. AR objecting to the aforesaid company being treated as comparable, submitted that the said company is functionally different and has provision for geographical information system services. He submitted that the in the following rulings ITAT rejected the said company as comparable: 1. HSBC Electronic Data Processing India Pvt. Ltd., ITA No. 247&295/Hyd/14. 2. M/s Capital IQ Information Systems (India) Pvt. Ltd., ITA No. 124/Hyd/14. 3. TNS India Pvt. Ltd., ITA No. 604 & 419/Hyd/14. 4. Excellence Data Research , ITA No. 159/hyd/14 5. Hyundia Motor Engg. P. Ltd., ITA No. 255/H/14 6. OSI Systems Pvt. Ltd., ITA No. 683&542/H/14 5.2 In the case of Capital IQ Information Systems India Pvt. Ltd., (supra), the coordinate bench following the decision of the Delhi Bench in the case of M/s Mercer Consulting (India) Ltd. Vs. DCIT in ITA No. 966/Del/2014, dated 6^th June, 2014, held that there is a vast difference betwee....
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....ach other. A cursory look at these products/services transpires that some of them are functionally quite different from each other. Further the level of investment required for providing such services is also not consistent. In our considered opinion, the 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 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, therefo....