AI Drafter 
TaxTMI 
TaxTMI 
2018 (2) TMI 1821
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.... by Blackrock India mainly include web search, data entry, data management support services etc. The assessee filed its return of income on 29.09.2008 declaring total income of Rs. 2,07,80,346/-. The Assessing Officer made a reference to the TPO for determining the arm's length price u/s 92CA(3) in respect of the international transaction entered into by the assessee during the financial year 2007-08 relevant to the impugned assessment year i.e. A.Y. 2008-09. During the TP assessment proceedings, the TPO observed that the assessee during the impugned assessment year has undertaken the following international transactions with its AE as per the report in Form No.3CEB :- 1) Provision of IT enabled back office process outstanding and related service Rs.16,80,92,913/- 2) Reimbursement of expenses Rs.1,17,837/- 3. The TPO observed that as per the TP study report, the assessee undertook a detailed functions, assets and risk analysis in accordance with Rule 10B(2) and selected itself as the tested party based on its least complex character while undertaking the international transactions with AEs. The assessee selected TNMM as the most appropriate method a....
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....ms Length Price: The price charged by the tax payer to its Associated Enterprises is compared to the Arms Length price as under : Arms Length Price Rs.189,356,676 Price shown in the international transactions Rs.168,092,913 Shortfall being adjustment u/s 92CA Rs.21,263,763 The above shortfall of Rs. 21,263,763 is treated as transfer pricing adjustment u/s 92CA." 6. The Assessing Officer, thereafter, framed the draft assessment order determining the total income of the assessee at Rs. 4,20,44,109/- as against returned income of Rs. 2,07,80,346/-. 7. The assessee filed its objections before the DRP, who vide order dated 03.09.12012 upheld most of the comparables taken by the TPO/Assessing Officer. However, the DRP directed the TPO to exclude the comparable namely Mold-Tek Technologies Ltd. for determination of the arm's length price. The DRP also directed the Assessing Officer/TPO for exclusion of foreign exchange gains/loss from the calculation of operating income/expenditure of the assessee as well as the companies selected by the TPO. 8. Based on the directions of the DRP, the TPO issued a revised order dated 19.10.2012 re-computi....
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....ns of the Ld. DRP), erred both on facts and in law in confirming the addition to the extent of Rs. 1,48,66,764 holding that the international transactions pertaining to provision of routine IT enabled services do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred by: 3.1 not finding any merit in the objections of the Appellant that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 3.2 rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant under section 92D of the Act and Rule 10D of the Rules and disregarding the ALP as determined by the Appellant in the TP documentation; 3.3 disregarding the fact that the Appellant is a captive IT enabled service provider which does not bear substantial risks associated with its functions and therefore cannot be compared to full fledged entrepreneur service providers; 3-4 disregarding multiple year/prior years' data used by the Appellant in the TP documentation and holding that current year (i.e. Financial Year ('FY') 2007-08) data for comparable companies should be used despite th....
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....to arbitrary rejection of low-profit/ loss making companies based on erroneous and inconsistent reasons; 3.10 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; 3.11 ignoring the business/ commercial reality that since the Appellant is remunerated on an a cost plus basis, (i.e. it is compensated for all its operating costs plus a pre-agreed mark-up) the Appellant undertakes minimal business risks as against comparable companies that are full-fledged risk taking entrepreneurs, and by not allowing a risk adjustment to the Appellant on account of this fact; 3.12 collecting selective information of the companies by exercising power granted to him under section 133(6) of the Act that was not available to the Appellant in the public domain and relying on the same for comparability purposes (and to the extent of completely ignoring reliable data available in public domain/ annual reports in numerous cases); 3.13 exclusion of certain cost such as provision for doubtful debts from the cost base in computation of mark-up of comparab....
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.... decisions he submitted that Accentia Technologies Ltd. has been held as not a good comparable because of different functions and extraordinary circumstances that company occurred during the year :- a. BA Continuum India (P.) Ltd. vs. Addl.CIT, (2017) 79 taxmann.com 85. b. IT Cube Solutions (P.) Ltd. vs. ITO, (2016) 76 taxmann.com 187. c. Avaya India (P.) Ltd. vs. DCIT, (2016) 71 taxmann.com 76. d. Flagstone Underwriting Support Services India (P.) Ltd. (2014) 52 taxmann.com 408. 13. So far as inclusion of Coral Hub Limited (Formerly known as Vishal Information Technologies Limited) is concerned, he submitted that the above company is also functionally different from that of the assessee company. He submitted that Coral Hub Limited is into data digitization, conversion and publishing whereas the assessee's activity is with regard to provision of routine outsourced business processes like finance and accounting, collections, insurance, customer fulfillment, data modeling and analytics support, etc. which is low-end in nature. Accordingly, Coral Hub Limited cannot be included as it is not functionally comparable to the assessee's business. He su....
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....5) 53 taxmann.com 43. e. Goldman Sachs Services (P.) Ltd. vs. DCIT, (2015) 60 taxmann.com 310. 16. So far as Genesys International Corporation Limited is concerned, he submitted that the above comparable is functionally different from the functions performed by the assessee under outsourced business processes like finance and accounting, collections, insurance, customer fulfillment, data modeling and analytics support, managed IT services, etc. He submitted that the GIS services being provided by Genesys is more value added and high end in nature than the outsourced service functions being performed by the assessee. Relying on the following decisions, he submitted that Genesys International Corporation Limited cannot be considered as a comparable :- a. BA Continuum India (P.) Ltd. vs. Addl.CIT, (2017) 79 taxmann.com 85. b. Flagstone Underwriting Support Services India (P.) Ltd. (2014) 52 taxmann.com 408. c. HSBC Electronic Data Processing India (P.) Ltd. vs. ACIT, (2015) 53 taxmann.com 43. 17. So far as HCL Comnet Systems and Services Limited is concerned, he submitted that the above company is functionally different from that of the assess....
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....at page 26 of the appeal set (page 13 of the DRP order), he drew the attention of the Bench to the findings of the DRP and submitted that the TPO included foreign exchange gain amounting to Rs. 13,28,776/- and determined the profit margin of the company at 34.87% as against correct profit margin at 29.11%. He submitted that since there is an error on the part of the TPO in not following the direction of the DRP, he may be directed to make correct computation of OP/TC at 29.11% as against 34.87% determined by him. 20. Ld. DR on the other hand strongly relied on the order of the TPO/DRP. He submitted that since it is not possible to find out identical comparables, therefore, the TPO has selected comparables which are more or less matching with or very near to the activities carried out by the assessee company. He submitted that the DRP after considering the various submissions made by the assessee had retained these comparables and, therefore, no interference is called for of the comparables retained by the DRP. He accordingly submitted that the order of the DRP/Assessing Officer/TPO be upheld and the grounds raised by the assessee should be dismissed. 21. So far as the submiss....
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....on account of different functions as well as extraordinary events such as acquisitions that have taken place. We, therefore, direct the TPO/Assessing Officer to exclude this company from the list of comparables. 25. So far as Coral Hub Limited is concerned, we find from the Annual Report Compendium of the above company, copy of which is placed at page 354 to 374 of the Paper Book that this company is into data digitization, conversion and publishing whereas the activities of the assessee company is with regard to the provision of routine outsourced business processes like finance and accounting, collection, insurance, customer fulfillment, data modeling and analytics support, etc., which is low-end in nature. Further, we observe from page 84 of the Annual Report (page 336 of the Annual Report Compendium) that this company has made significant payment towards vendors. Thus, intermediary functions of this company can only be compared to that of a distributor which takes title to service/ products for resale to the customers. However, the assessee company is a provider of back office services on its own. We, therefore, find merit in the argument of the ld. counsel for the assessee ....
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....considering the fact that this company is functionally different from that of the assessee company and it has significant outsourcing of work, we direct exclusion of Coral Hub Limited from the list of comparables. 28. So far as Datamatics Financial Services Limited is concerned, we find this company is acting as Registrar and share transfer agent as well as ITES. There is no segmental information available in the audited accounts. Therefore, the revenues from both the streams are not separable. It has been held in various decisions that when segmental details are not available, the company cannot be accepted as a comparable. Since admittedly in the instant case no segmental details are available, therefore, we direct the Assessing Officer/TPO to exclude Datamatics Financial Services Limited from the list of comparables. 29. So far as E Clerx Services Limited is concerned, we find this company is engaged in providing data analytics and data process solutions to the customers which in our opinion are functionally different from the functions performed by the assessee under outsourced business processes like technical support services, account management, etc.. We find the Delhi....
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.... "14.2. We have considered the rival contentions and perused the orders relied on. As far as this comparable is concerned, the same has been decided by the Co-ordinate Bench in the case of Hyundai Motors India Engineering P. Ltd., Vs. ITO in ITA No. 1850/Hyd/2012 (AY. 2008-09) dt. 21-02-2014, wherein the Co- ordinate Bench held as under: "V. GENESYS INTERNATIONAL CORPORATION LTD. This company is listed at Sl. No.11 in the list of comparable companies chosen by the TPO. As far as this company is concerned, the stand of the assessee has been that this company is functionally not comparable and that it has a different employee skill set and that this company performs R&D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Beside....
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....ht of the direction of the Tribunal cited (supra). Needless to say, the TPO shall given due opportunity of being heard to the assessee as per fact and law. 34. So far as Acropetal Technologies Limited is concerned, we find this company is engaged in development of software products, whereas assessee is doing ITES services which in our opinion cannot be compared with software development company. From the notes of account, copy of which is placed at page 104 of the Paper Book, we find this company is engaged in development of computer software. We find the Hyderabad Bench of the Tribunal in the case of HSBC Electronic Data Processing India (P.) Ltd. (supra) has excluded this company from the list of comparables by observing as under :- "14.2.1 This company is listed at Sl.No.2 of the comparables chosen by the TPO. As far as this company is concerned, the objection of the assessee is that this company is not functionally comparable. The assessee is a BPO company that provides CAD/ CAE services. As far as Acropetal Technologies Ltd. is concerned, this company does the business of export of software services. It is also seen from the segmental revenue of this company (Note ....