TaxTMI 
TaxTMI 
2018 (7) TMI 951
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....ong with revised Form 36B. Present appeal has been filed by assessee against order dated 28/09/11 passed by Ld. ITO, Ward 5(2), New Delhi under section 143(3) read with section 144C (5) of the Income Tax Act, 1961 (the Act) for Assessment Year 2007-08, on the following grounds of appeal: On the facts and circumstances of the case and in law, the Ld Income tax Officer, Ward 5(2), New Delhi (hereinafter referred to as the 'Ld AO') and Ld Additional Commissioner of Income Tax, Transfer Pricing Officer - 1(3) (hereinafter referred to as the 'Ld TPO') grossly erred in making the addition of Rs. 7,63,56,998 to the Transfer Price in respect of ITES Segment of the Appellant Company. In making the said additions, the Ld AO/TPO erred in principal and on facts on the following grounds 1. The Ld AO/TPO erred in arbitrarily rejecting the comparables selected by the Appellant Company. 1.1. The Ld TPO arbitrarily rejected the comparables selected by the Appellant Company, without identifying any specific deficiency or insufficiency in the search process adopted by the Appellant Company. 1.2. The Ld TPO erroneously rejected 4 out of 15 comparables selected by....
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.... observed that assessee along with its global partners was involved in outsourcing to companies and large global corporations to create dedicated and customised designed Indian facilities, for providing remote delivery of business process services. Ld.AO observed that during the year under consideration assessee undertook international transactions with its Associated Enterprises (AEs), the value of which was more than Rs. 5 crores. Accordingly the case was referred to TPO. 2.1. Ld.TPO observed that assessee undertook international transaction in its IT Enabled Services (ITES) segments. It was observed that ITES support charges received by assessee was quantified at Rs. 46,625,914/-. Assessee selected TNMM as most appropriate method by adopting OP/OC as PLI for benchmarking international transaction. It was observed by Ld.TPO that assessee selected 15 comparables, with average profit margin at 21.51% on cost. It was submitted that assessee's margin by using OP/TC as PLI was at 15.48% and by using +/-5%, variance, assessee concluded its international transaction at arm's length price. 2.2. Ld.TPO called for various details regarding comparables selected by assessee and observe....
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....cessary. Though day-to-day management is carried out by assessee, overall project is undertaken by Keane group, which enters into contract with independent 3rd parties and outsources services to assessee. Keane group provides for technical and administrative support to assessee in delivery of its services. Assessee follows stringent quality standards as prescribed by Keane group to ensure high-level quality of services provided to the customers of Keane group. (B) Assets Assessee owns minimal asset in order to run its business in India without there being any involvement of intangible. (C) Risk analysis In TP study, assessee has been classified to be exposed to minimal risk, as it provides services only to Keane group (ITES) as per terms of contract. Assessee is compensated at cost plus basis and it bears limited price risk to the extent that when globally prices of services go down its revenues may be impacted. Even capacity utilisation risk for assessee is borne by AE's and assessee is compensated on full cost basis and is assured of recovery of cost of any underutilised/unutilised resources dedicated towards provision of services to Keane group. Thus on the basis ....
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....almost approximately 68% of operating cost is towards overseas business expenses as against 'nil' in case of assessee and hence there is a difference in business model. Further substantial marketing expenses to an extent of approximately 28% of sales as against 'nil' of assessee have been undertaken by this company. Under such circumstances, we are of the considered opinion that this company is not functionally similar as well as the risk profile is quite different from that of assessee and accordingly cannot be considered to be a fit comparable. We direct this company to be excluded from the list of comparables. 5.4. Bodhtree Consulting Ltd (SEG): This comparable has been included by ld.TPO in the list of comparables. Ld.Cunsel submitted that this company is functionally not similar, as it is into software development and data cleaning segment vis-a-vis captive service provider like assessee. It has been submitted that ld.TPO considered data cleaning segment as ITES, only on the basis of companies reply under 133 (6) of the Act. However on perusal of the reply it is very clear that company provides cleansing services only to those clients for whom it had developed software a....
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....ding low end ITES enabled call centre services to its AE. The fact Eclerx Services Ltd. is providing high end services involving special knowledge and domain expertise is evident from the company's own reply to the notice u/s 133(6) which is placed at pages 976 to 979 of the paper book filed by the assessee. The Hon'ble Special Bench of the Tribunal in case of Maersk Global Centre (India) (P.) Ltd. v. Asstt. CIT [2014] 147 ITD 83/43 taxmann.com 100 (Mum.) had excluded Eclerx Services Pvt. Ltd. from the list of comparables for the reason that it is providing high end services involving specialised knowledge and domain expertise and same cannot be compared with companies which are mainly engaged in providing low end services to group companies. The relevant finding of the Hon'ble Tribunal read as follows :- "In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007- 08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recogn....
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.... DRP."' 5.5.3. The above ruling of Special Bench is equally applicable to facts of assessee, as is evident from functional profile of assessee. For the aforesaid reasons, we direct Eclerx Services Ltd. be excluded from final list of comparables. 5.6. HCL Comnet Systems and Services Ltd. (Seg.) Ld.TPO included this company. It has been submitted by Ld. Counsel that ld.TPO obtained certain data relating to Financial Year 2006-07 from this company which has not been shared with assessee. It has also not been explained the basis of extrapolation of data for first-quarter from the earlier years annual report ending June, 2007. Ld.Counsel also submitted that adjustment in respect of forex loss has also not been given in computing the margin of this company. 5.6.1. On the contrary Ld.DR submitted that segmental information available in audited report of this company placed at page 417-498 of paper book classifies itself to be an ITES company. He placed reliance upon schedules to accounts, wherein revenue recognition has been categorised to be from IT enabled services, which is derived from both the time based and unit priced contracts separately specified. Ld.DR thus suppo....
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....ell-known and respected American incorporates. It also focuses on enhancing expertise and domain knowledge. 5.7.3. Based on the above functions performed by this company, we do not find it to be a fit comparable with assessee, which is a captive service provider providing services only to its group concern. We accordingly direct this company to be excluded from the list of comparables. 5.8. Infosys BPO Ltd. This company has been included by ld.TPO. Ld.Counsel submits that this company is into high-end knowledge process outsourcing services, whereas assessee is a captive service provider to its Associated Enterprises only. He placed reliance upon the decision of Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd. [2013] 36 Taxmann.com 289. It was further submitted that, it also provides product based solutions such as source to pay business platform, Hire to retire business platform, Order management business platform, Newspaper in a box, Integrated Date Lifecycle Management solution, etc. It was submitted that Infosys BPO is a giant and a top BPO services provider. It has turnover of 649 cr and total asset base of approx. 450 cr (Gross Fi....
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.... Act. However, assessee has sought its exclusion on grounds of significantly higher turnover, abnormal margins, presence of intellectual property, diversified business, brand value and turnover. He placed reliance upon the decision of ICC India Pvt.Ltd., vs. ACIT (supra).. On the contrary, Ld.DR submitted that there is no related party transaction during the year under consideration. 5.10.2. We have heard the rival submissions of both sides in the light of records placed before us. It is observed that Co-ordinate Bench of the Delhi Tribunal in ICC India Pvt.Ltd., vs. ACIT (supra) has excluded this comparable by placing reliance upon Calibrated Healthcare Systems (I) (P) Ltd. Vs ACIT (OSD) reported in (2015) 54 Taxmann.com 53. It is observed that in this decision this tribunal has examined comparability of WIPRO and ordered its exclusion on the ground that this is a giant entity with marked differences as regards risk profile, nature of services, ownership of IP rights, expenditure on R&D, etc. So, following the decision rendered by co-ordinate bench as well as the fact that the assessee company is a captive service provider taking minimum risk having no intangibles cannot ....
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.... available before authorities below and thereby under Rule 11 of ITAT Rules, assessee is entitled to raise this additional ground before us today. 6.2. Ld. DR did not object to the additional ground being raised/admitted at this juncture. 6.3. We therefore allow assessee to argue upon comparables challenged for its inclusion/exclusion in additional ground which are as under: Vishal Information Technologies Ltd This comparable was selected by Ld.TPO. Ld.Counsel submitted that this company is not similar in function, assets and risk profile with that of assessee and it has a different business module. Further it has been submitted that Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt Ltd., (supra) categorised this comparable to be a KPO service provider. Further Ld.Counsel submitted that this entity outsources its ITES services to third-party vendor thereby increasing operating expenses. 6.3.1. Ld. DR placed reliance upon the orders of authorities below. 6.3.2. We have perused the submissions advanced by both the sides in the light of the records placed before us. It is observed that Hon'ble Delhi High Court in the case of Rampgreen Solutions Private ....