TaxTMI 
TaxTMI 
2016 (4) TMI 1292
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....he conclusion that it was 'necessary or expedient' to refer the matter to the Ld. TPO for computation of the Arm's Length Price ('ALP'), as is required under section 92CA(i) of the Act. 3. The Ld. DRP and the Ld. AO (following the directions of the Ld. DRP), erred both on facts and in law in confirming the addition of Rs. 15,19,62,H2/- to the income of the appellant (as against the total addition of Rs. 15,03,12,595/- as proposed by the Ld. TPO/ AO in its draft assessment order u/s 143 (3) read with section 1440) by holding that its international transactions do not satisfy the arm's length principle envisaged under the Act. In doing so, the Ld. DRP and the Ld. AO has grossly erred in agreeing with and upholding the Ld. TPO's action of: 3.1 not appreciating that none of the conditions set out in section 92C(s) of the Act are satisfied in the present case; 3.2 disregarding the ALP as determined by the Appellant in the TP documentation maintained by it in terms of section 920 of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules') as well as fresh search; and in particular modifying/ rejecting the filters applied ....
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....argins of Accentia Technologies Limited by excluding foreign exchange gain/ loss from operating income and for which the Appellant has filed a rectification letter u/s 154 of the Act with the Ld. AO; 3.7 including high-profit making companies in the final comparables' set for benchmarking a routine service provider such as the Appellant (disregarding judicial pronouncements on the issue), thus demonstrating an intention to arrive at a pre-formulated opinion without complete and adequate application of mind with the single-minded intention of making an addition to the returned income of the Appellant and on the other hand resorting to arbitrary rejection of low-profit/loss making companies based on erroneous and inconsistent reasons; 3.8 including certain companies that are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed; and 3.9 excluding certain companies on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 4. The Ld. AO and Ld. TPO erred in not correcting the factual errors in computation of the Operating Profit to Total C....
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....Infosys BPO Ltd. 24.28 4. Coral Hub Ltd. 37.03 5. Accentia Technologies Ltd. 52.52 Average 38.03 Based on this adjustment was worked out as under :- Operating cost (A) 659806536 OP/TC 38.03% Margin (B) 250924425 Arms's length Price (A+B)=C 910730961 Price charged by the assessee (D) 760418366 Difference (C-D) 150312596 % of difference with ALP 16.50% Adjustment proposed 150312595 6. Before us the assessee has filed revised grounds of appeal vide letter dated 01.04.2014. In the revised grounds of appeal the assessee has taken 10 grounds of appeal however, at the time of hearing it was submitted that it is just contesting the exclusion of comparables by TPO selected by assessee and inclusion of comparables by ld. TPO. The assessee is contesting inclusion of following comparables by the TPO:- i. Accentia Technologies Ltd. ii. Cosmic Global Ltd. iii. Infosys BPO Ltd iv. Croossdomain Solutions Pvt. Ltd. 7. Assessee is furthercontesting rejection of following comparables by TPO i. Omega Healthcare Management services Pvt Ltd. ii. Jindal Intelecom Ltd. 8. During the course of....
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....ets its fee quotes based on the expected volumes and may renegotiate the rate based on actual volumes. During FY 2008-09, the service fee rates were re-negotiated and Vertex India received additional revenue based on the revised service fee. (ii) Internal support services to Vertex UK: Vertex India provides internal support services such as human resources, business intelligence, knowledge management, IT support service, accounts parable services etc. The cost for this purpose includes all estimated direct and indirect costs associated with the provision of such services. The compensation received by Vertex India is based on a cost plus mark- up arrangement between the two entities. Over and above Vertex India avails routine call center services form its foreign AE and they are reimbursed on a cost plus mark-up basis. It also avails the business promotion services and reimburses the actual expenses to its AE. It has also purchased software and reimburses certain other expenses. 11. Before we proceed to examine the comparables several decisions of various tribunals have been cited by the rival parties regarding inclusion or exclusion of certain comparables submitting that thes....
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....Therefore while deciding the comparability the decisions cited definitely would be perused from this angle. 12. Now we proceed, based on the above noted service profile of the assessee to examine the FAR of the assessee company with the comparables contested before us. a) Accentia Technologies Ltd. The TPO selected this comparable as according to him it is suitable comparable but assessee has submitted that it is engaged in different and diversified business. It was also submitted that it has acquired another company. However TPO rejected the same stating that the acquisition has happened in March 2009 and therefore its acquisition does not have any impact in the current financial year therefore he retained the comparable. Ld. DRP has accepted the view of the TPO and has retained the same as comparable. 13. Before us ld. AR contended that this company has extra ordinary event during the year related to acquisition of a foreign entity and further the company has significant amount of goodwill which contributes to higher profitability. It was further submitted that this company is engaged in providing healthcare receivable cycle management and software development service....
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.... mergers/demergers.Similar view has been taken by the Delhi Bench of the Tribunal inseveral cases including Ciena India Pvt. Ltd. Vs. DCIT (ITANo.3324/Del/2013) vide its order dated 23.4.2015. In view of the factthat there was merger of some entity with Accentia Technologies Ltd.,we hold that this company cannot be considered as comparable. Accordingly, the same is directed to be excluded from the final list of comparables." 15. As the above order of coordinate bench is also for AY 2009-10 on the similar facts respectfully following the same we hold that this company cannot be considered as comparable as there is an acquisition of certain companies which is an extra ordinary event. Accordingly the same is directed to be excluded. b) Cosmic Global Ltd. 16. This company has also been included by the TPO as the margin is 50.70%. However the assessee has objected to inclusion of this company before us stating that it has an extra ordinary event, has a different business model of outsourcing services to third parties and also functionally dissimilar as it is engaged in the business of translation. Ld. DR relied on the order of TPO as well as DRP. We have carefully considered....
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....lusion of this comparable. c) Infosys BPO Ltd. 18. This comparable is selected by the ld. TPO with 24.28% margin. The assessee as objected that there is incorrect computation margin of this company has not given the details of computation. Before us ld. AR contended that it is engaged in high end diversified BPO services with very large operations and it has high brand value as it is associated with Infosys Ltd. It was also submitted that there are extra ordinary events on account of liquation and merger in case of this company and therefore it should be excluded. Ld. DR relied on the orders of TPO as well as DRP. 19. We have perused the balance sheet filed by the assessee at page 354 to page No.363 of the paper book. At page no.355 there is a details given in Director's report of the company about liquidation of one company and merger of one company with this company. It is amongst the top 10 third party BPO Company in India. As the company in the BPO services it cannot be compared with the assessee who is engaged in ITES services. Hon'ble Delhi High Court in case of Rampgreen has held that ITES companies and BPO companies are not comparable. Therefore following the decis....
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.... "Cross domain's IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation and continuously increase efficiency 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. 25. 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." 23. Further Honourable Delhi high court has also held in Rampgreen solutions Pvt Ltd V CIT in 60 taxmann.com 355 as under :- "25. Whilst Voice Call Center represents the lower-end of ITeS, KPO represents services involving a higher level of skills and knowledge. India has vast human resources and a large ....