TaxTMI 
TaxTMI 
2017 (1) TMI 1597
X X X X Extracts X X X X
X X X X Extracts X X X X
...., it has also started rendering infrastructure management services, which is in the nature of Information Technology Enabled Services ("ITES"). e4e India renders such IT enabled services to its Associated Enterprises ("AEs") and other third parties. 03. For the assessment year ("a y ") 2011-12, it e-filed its return on November 30, 2011 declaring a taxable income of INR 11,13,09,999. In its TP study, it has adopted Transactional Net Margin Method ("TNMM") as the most appropriate method ("MAM") to arrive at the Arm's length price ("ALP) in respect of ITES, the Profit Level Indicator ("PLI") adopted is operating profit to the total costs as applicable to the AE segment alone . On this basis, it had computed its PLI @ 15.74 percent. It has selected 9 comparable companies with an arithmetic mean of 15.82 % and since it fell within the specified range of 5 percent variation, treated the price of its international transaction at arm's length. 04. However, the Transfer Pricing Officer (TPO) rejected its TP Documentation for the reason , inter alia, that it had used multiple year data, re-determined the ALP considering 10 companies as comparable with certain filters , which inclu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fact that the AO/TPO himself in the Assessment order has computed the margins earned by the Appellant from transactions with Associated Enterprises and Non Associated enterprises. 6. The learned CIT(A) and AO have erred in upholding the action of the TPO in rejecting the Transfer Pricing ("TP") documentation maintained, and the detailed benchmarking analysis conducted by the Appellant, which has been prepared by the Appellant in the manner as contemplated under the relevant provisions of the Act and the Income-tax Rules, 1962 ("the Rules"). 7. The learned CIT(A) and AO have erred in upholding the action of the TPO in rejecting certain comparables identified by the appellant in its TP study using unreasonable comparability criteria and contrary to facts as evidenced by the audited financial statements of the said companies, despite the arguments submitted by the Appellant. 8. The learned CIT(A) and AO have erred in upholding the action of the TPO in finalizing the transfer pricing order with companies as comparable to the Appellant despite such companies failing the test of comparability on some or all of the factors such as functional dissimilarity, product led revenues, influen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er: 1. Accentia Technologies Ltd : A. Functionally different : Earns income from Medical Transcription business, billings and collections and coding activities(Schedule 8 of Finanacials ) as evidenced in page 773 of paper book vol-11 . B. Presence of goodwill, brands, IPRs 0wns goodwill, brands and IPRs as evidenced in page 729 of paper book vol-11 . C. Extra-ordinary events Merger of Geosoft Technologies Ltd and Iridium Technologies P. Ltd as evidenced in page 727 of paper book vol-11 . D. Rejected by ITAT in earlier years : Rejected in assessee's own case for a y 2008-09- IT (TP)A.1783/Bang/2013) and a y 2009-10; IT(TP)A.1777/Bang/2013] on the above basis. 2. Acropetal Technologies Ltd : A. Functionally different : Engaged in engineering design services which is not ITES as held by Bangalore ITAT in the case of Symphony Marketing Solutions India P. Ltd [ITA No.1316/Bang/2012) and Global E Business Operations [IT(TP)A No.1678/Bang/2012 as evidenced in page 781of paper book vol-11 . B. Fails Onsite Cost filter : Onsite development cost is 47% and thus not comparable to e4e as upheld by DRP for A. Y. 2010-11 as evidenced in page 472 of paper book vol-1 and pages 809,8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to its AE which is purely in the nature of call centre. Therefore, we are of the view that the company Accentia Technologies Ltd cannot be considered as a functionally comparable company with the services provided by the assessee to its AE. The TPO is directed to exclude the company from the set of comparables. 10. The relevant portion of the order from the assesse's case in IT (TP)A no. 1765/Bang/2013 & IT(TP)A.1783/Bang/2013 dt 04.11.2015 for ay 2008-09 is extracted as under : " 6.3. Acropetal Technologies Ltd : 6.3.1. The learned Authorised Representative for the assessee submitted that this company, selected by the TPO, is functionally different from the assessee as apart from being engaged in the business of export of software services, it is also engaged in rendering engineering design services and software development Services which are high end service and require highly skilled employees, whereas the ussessee in the case on hand is engaged in providing low end, routine BPO services. In support of its proposition for exclusion of this company from the list of comparables on grounds of functional differences, the learned Authorised Representative of the assessee, inter a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ainly 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 fell 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 Services and information Technology Services. This 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]. Following the above decision of the co-ordi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nally different being an established market leader, enjoying huge brand value and goodwill, with huge economies of scale and diversity and geographical dispersion of customers. At para 24 of its order, the co-ordinate bench has held 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 marketing expenses. Page 133 of the annual report of this company for the F.Y. 2007-08 shows that this company realizing its brand value has chosen to value the same on the basis of its earnings and that of Infosys. The brand value of the Assessee and Infosys has been valued at Rs. 31,863 Crores. Infosys BPO, being a subsidiary of Infosys, has an element of brand value associated with it. This is also clear from the presence of brand related expenses incurred by this com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'call centre', whereas these three companies are into the business of 'knowledge process out sourcing (KPO)'. He submitted that while the assessee is into simple activities like credit check, in house support, bill search, people search, high check, automated services, document management etc. while the 'knowledge process outsourcing' includes specialized customer & software solutions such as data cleansing, e-learning and e-paper solution and also earns revenue from software products. As far as Eclerx Services Ltd. is concerned, he submitted that it is engaged in providing data process and analytics services as is evident from the website of the company. As regards Mold Tek Technologies Ltd., is concerned, he submitted that it is providing high-end engineering design and detailing services which are appropriately categorized as structural engineering services and are high end engineering services and cannot be considered as comparable to the ITES services rendered by the assessee. Thus, according to him, these three companies being functionally different from the assessee are to be excluded from the list of comparables. In support of his contention, he plac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cific business functions or process to a third party services provider. Often business processes outsourcing are information technology based and referred to as ITES-BPO. KPO is one of the sub-segment of the BPO industry. It involves outsourcing of core informat ion related business act ivi t ies which are compet i t ively important or form an integral part of a company's value chain. It thus requires advanced analytical and technical skills as well as a high degree of specialist expertise. The KPO services include all kinds of research and information gathering. Thus it can be seen that even though both BPO and KPO are offering information Technology based services, the skill and expertise and may be even the tools required are different which may result in different economic results of both the segments. Thus in such circumstances, we are of the opinion that they cannot be compared with each other and have to be excluded from the list of comparables." From the above, it is clear that those whose functions are of High end services among the BPO, which require high skill can not be compared with the ITES/BPO functions performed by the assessee which are routine low end ITES f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....11 . C. Presence of intangibles : 9.08% of asset base comprises of intangibles (both acquired goodwill and other intangibles). Appellant has none as evidenced in page 1292 of paper book vol-11 . D. High Turnover of Rs. 1,184.55 crores. We have considered the rival submissions and gone through relevant material. Although, the assessee objected this case before the TPO, the TPO inter alia , rejected it stating that iGate Global Solutions Ltd considers all services under ITES. In the facts and circumstances, this issue is set aside to the TPO who would re-adjudicate it after affording due opportunity to the assessee. The corresponding appeal ground is treated as allowed for statistical purposes. 16. The next issue is computation of deduction u/s 10A . In this regard, the AR relied on this Tribunal decision in ITA No 324(B)/2015 dt 04.11.2015 in its own case for ay 2010-11. The relevant portion is extracted as under : "8.6 Against the final assessment order both assessee and the department are in appeal. The assessee has raised ground no.11. The ground raised in the department appeal in IT (TP)A No.220(B)/2015 is as follows; "1. The directions of the DRP are opposed to law and ....