TaxTMI 
TaxTMI 
2019 (9) TMI 972
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....logy Ltd as one of the comparable without appreciating the fact that the TPO while calculating the ALP has considered the segmental operating profit of KPO sector only of Mold- Teck Tecnology Ltd. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the relevant transaction of M/s ICRA Techno Analytics Ltd. As one of the comparable without appreciating the fact that M/s ICRA Techno Analytics Ltd. is also in the business of ITes Services. 3. The appellant prays that the order of CIT(A) on the grounds be set aside and that of the Assessing Officer be restored. 2. Vide application dated 11.05.2018, the revenue has raised the following additional grounds of appeal: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in not directing the A.O. to obtain the ITES segment details u/s 133(6) of the Act, in respect of M/s ICRA Techno Analytics Ltd. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in applying certain parameters selectively to certain comparables to exclude the same in contravention of the principles laid down under 10B(2) of IT rules, which provides th....
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.... by the learned AO based on data available at the time of the assessment, i.e. use of nonITA contemporaneous data which was not available to the Appellant at the time of complying with the transfer pricing provisions, for computing the ALP for ITES. 7. In upholding the application of certain inappropriate filters by the learned TPO for identifying comparable companies 8. Without prejudice to the above Grounds, in not granting working capital adjustment to the average Profit Level Indicator of identified comparable companies. 9. Without prejudice to the above Grounds, by not allowing the adjustment for difference in the level of risk assumed by the Appellant vis-a-vis the risk of identified comparable companies. 10. Without prejudice to the above Grounds, in not adopting the ALP after considering an amount varying by 5 percent of the arithmetic mean of the margins of identified comparable companies 11. Without prejudice to the above Grounds, in rejecting, out of 19 additional companies selected by the learned AO, only one company as not being comparable, resulting In an enhancement of the assessment without adequate opportunity being prov....
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.... (TNMM),the assessee selected 9 companies as comparable and computed the margin on the basis of two years and average margin in the following manner: Sr No. Name of comparable Margin (Avg of two years)- PB 1/180 Margin (for the relevant year)-PB 1/206 and TPO/3 1 Ace Software 11.29% -7.04% 2 Allsec Technologies 27.36% 27.21% 3 CS Software Enterprises Ltd. 13.61% 23.73% 4 Flextronics Software Systems Ltd. 3.24% -0.89% 5 Genesys International Corporation Ltd. -1.46% 12.52% 6 Nucleus Netfsoft & GIS India Ltd. 42.21% 30.52% 7 Saven Technologies Ltd. [rejected by TOP & CIT(A)] 61.57% -37.31% 8 Spanco Telesystems and Solutions Ltd. 16.12% 24.82% 9 Triton Corp Ltd. 20.65% 34.49% Arithmetic Mean 21.62% 12.01% 7. The margin on comparable based on average of two years was 21.62% and the assessee's margin for international transaction was 21.76%. Thus, the assessee claimed its transaction at the Arms Length. The Assessing Officer made a reference to Transfer Pricing officer (TPO) under section 92CA for computation of Arms Length Price (ALP). During the ....
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....ed under section 143(3). The assessee instead of filing objections before Dispute Resolution penal (DRP), exercised its option to file appeal before the ld. CIT(A). The ld. CIT(A) after considering the material placed before him and considering the submissions of assessee directed to exclude the ICRA Techno Analytics Ltd. from set of comparable and further directed to consider only IT (KPO) Division of Mold-Tek Technologies Ltd. for the purpose of comparability and bench marking and confirmed the inclusion of 19 additional comparable included by TPO while making ALP. Further, aggrieved by the order of ld. CIT(A), the revenue has filed appeal challenging the action of ld. CIT(A) for inclusion of ICRA Techno Analytics Ltd. and Mold-Tek Technologies Ltd. from the set of comparable. Similarly, the assessee has challenged the order of ld. CIT(A) and in sustaining the inclusion of 19 comparables included by TPO. 10. We have heard the submission of ld. Departmental Representative (DR) for the revenue and ld. Authorized Representative (AR) of the assessee and perused the material available on record. On the admission of additional grounds of appeals the ld. DR for the revenue submits th....
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....Health street Ltd.,(iv) Caliber Point Business Solutions Ltd., (v) Datamatics Financial Services Ltd. & (vi) R. Systems International Ltd. from the comparable selected by TPO and confirmed by ld. CIT(A). 14. The ld. AR of the assessee further submits that he is disputing the inclusion of 14 comparables which are (i) Eclerx Services Ltd.,(ii)Mold Tek Technologies, (iii) Accentia Technologies Ltd., (iv) I Services India Pvt. Ltd., (v) Bodhtree Consulting Ltd., (vi) Vishal Information Technologies Ltd. (now known as Coral Hubs Ltd.), (vii) Cosmic Global Ltd.,(viii) Informed Technologies Ltd.,(ix) HCL Comnet Systems & Services Ltd., (x) Infosys BPO Ltd.,(xi) Wipro Ltd., (xii) Maple Esolutions Ltd.,(xiii) Triton Corp Ltd (in additional Grounds of appeals) and ICRA Technology Analytics Ltd ( in Revenue's appeal). 15. For exclusion, each of the comparable, the ld. AR of the assessee furnished the chart showing the case laws/ decisions of Tribunal or High Courts, wherein the comparable were not considered as good comparable with the companies engaged in providing ITES Services, which are referred in subsequent paras. 16. For Eclerx Services Ltd., the ld. AR of the assessee submits....
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....cisions of (1) Wills Processing Services (India) P Ltd. vs. ACIT [2017] 83 taxmann.com 198 (Mum. Trib.) (2) Stream International Services (P.) Ltd. vs. ACIT [2015] 152 ITD 664(Mum) (3) H&S Software Development & Knowledge Management Centre (P.) Ltd. vs. ACIT [2017] 78 taxmann.com 159 (Del. Trib.) (4) Vishay Components (P.) Ltd. vs. ACIT [2017] 83 taxmann.com 319 (Pune Trib.) (5) Global e:business Operations (P.) Ltd. vs. Dy.CIT [2015] 63 taxmann.com 282 (Bangalore Tribn.) (6) Symphony Marketing Solutions India (P.) Ltd. vs. ITO [2013] 38 taxmann.com 55 (Bangalore Trib.) (7) BNY Mellon International Operations (India) (P.) Ltd. vs. Dy.CIT [2015] 173 TTJ 354 (Pune) and Rampgreen Solutaion P Ltd Vs CIT (2015) 377 ITR 533 (Delhi). 19. For I services, the ld. AR of the assessee submits that this company is in divergent high end services like web hosting, email services, spam filtering, domain names and DNS hosting, web hosting, email services, spam filtering, domain names and DNS hosting is also providing web design services, domain management services and email management services which cannot be compared to the assessee engaged in providing back office support services. In support ....
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..... The ld. AR has taken support of case laws in Stream International Services (P.) Ltd. vs. ACIT [2015] 152 ITD 664 (Mum). 24. For HCL Comnet Ltd. the ld. AR for the assessee submits that the said comparable has neither been selected as comparable in the earlier years nor in AY 2008-09. HCL Comnet Ltd having different financial year ending i.e. June ended and therefore cannot be considered as comparable n light of Rule 10B(2). The ld AR has taken support of case laws in H&S Software Development & Knowledge Management Centre (P.) Ltd. vs ACIT-[2017] 78 taxmann.com 159 (Del. Trib.) and DCIT vs Everest Business Advisory India (P.) Ltd. (ITA No. 41/Del/2013 & 1191/Del/2013. 25. For Infosys BPO Ltd. the ld. AR for the assessee submits that the said comparable has neither been selected as comparable in the earlier years nor in AY 2008-09. Infosys PBO Ltd will not qualify on FAR analysis owning to various factors including its brand value, size, owing of intangibles, etc. The company has also incurred selling and marketing expenses. Accordingly, it cannot be considered as comparable to the assessee, a captive service provider. The ld. AR has taken support of case laws in Hinduj....
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....evenue supported the order of the TPO/ AO. The ld. DR for the revenue opposed the exclusion all the comparable as argued by ld. AR for the assessee. The ld DR further submits that while excluding ICRA Techno Analytics Ltd the ld CIT(A) has not followed the principles provided under Rule 10B(2) of Income Tax Rules. The ld DR further submits that as per Rule 10B(2) there should be uniformity to all comparables while determining the ALP under section 92C of the Act. The ld DR for the revenue further submits that ld CIT(A) also erred in excluding the relevant transaction of Mold- Tech technology ltd, without appreciating the facts that TPO has considered the segmental operating profit of KPO sector only while determining ALP. In support of his submissions the ld DR for the revenue also relied on the decision of Delhi High Court in PCIT Vs BC Management services (P) ltd [2018] 98 taxmann.com 68(Delhi). However, for Bodhtree Consulting Ltd., Infosys BPO Ltd and Wipro Ltd. the ld. DR for the revenue that these three companies are not comparable with the assessee. 31. We have considered the rival submissions of the parties have gone through the orders of the authorities below and per....
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....oresaid comparable functionally different, could not be accepted as a factor for exclusion of the said comparable, but then we are of the considered view that the fact as averred by the Ld. A.R before us that the aforesaid comparable, viz. Eclerx Services Limited was providing high end data analytics and customized process solution and was a leading Indian provider of KPO services, which substantially varies from a low end ITES service provider, while for the assessee was engaged in providing BPO services, viz-processing of insurance claims and insurance premiums and data processing service for which it employed ordinary graduates, therefore the aforesaid comparable, viz. Eclerx Services Limited was functionally different from the assessee company, and as such could not be selected as a comparable. We find that the DRP had vide its order dated 27.11.2015 passed in the case of assessee for AY 2011-12 had accepted the contention of the assessee and rejected the aforesaid comparable company, viz. Eclerx Services Limited on the basis that it was engaged in KPO service, and the department by accepting the said order of the 'DRP' for A.Y. 2011-12 by not carrying the matter in fur....
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.... Ltd 34. The ld. AR of the assessee submitted that Mold Tek Technologies Ltd. has been excluded by ld. CIT(A) for Assessment Year 2008-09 and department is not in appeal against such exclusion. It was further submitted that the Mold Tek Technologies Ltd. provides engineering design, detailing services, website design services etc. It provides highly technical and specialized engineering service which comes in the category of KPO and cannot be compared to the assessee engaged in providing back office support services. The ld. DR for revenue opposed to excluded this company. The TPO included this comparable by taking view that this company is in ITES (Engineering solution). The ld CIT(A) directed to consider the IT (KPO) division of the company for the purpose of benchmarking. Before us the revenue has challenged action for considering the IT (KPO) division and the assessee is against the inclusion of the comparable. The co-ordinate bench of Tribunal in Wills Processing Services (India) P. Ltd. (supra) while considering for exclusion of Mold-Tek Technology on similar arguments excluded Mold-Tek Technology holding as under: We have heard both the Ld. Representatives, pe....
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....ferent from the assessee company, therefore cannot be accepted as a comparable and is thus directed to be excluded from the list of comparables. That as the aforesaid comparable, viz. Mold-Tek Technologies Limited being found to be functionally different, has been directed to be excluded from the list of the comparables, therefore the remaining issues on the basis of which the inclusion of the said comparable had been assailed before us are rendered as infructuous and are thus not being adjudicated upon. 35. The Hon'ble Delhi High Court in PCIT vs. Evalueserve.com Pvt. Ltd. (supra) also upheld the exclusion of Mold-Tek Technology holding that it provides engineering design, detailing services, website design services etc. cannot be compared with the assessee which provides back office research services in IT Sector. Considering the decision of Mumbai Tribunal and the Hon'ble Delhi High Court in PCIT vs. Evalueserve.com Pvt. Ltd. (supra), we direct the exclusion of Mold-Tek Technology from the comparable. (3) Accentia Technology Ltd. The ld. AR of the assessee submitted that this comparable has neither been selected as comparable in earlier years nor in subsequent Assessmen....
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....ee that the TPO had considered the profitability of the aforesaid comparable, viz. Accentia Technologies Ltd. at an overall entity level, which includes income from software development, which had led to an infeasible comparison in the hands of the assessee company. We are of the considered view that on the basis of such incomplete information, the aforesaid company could not have been considered as a comparable. We have given a thoughtful consideration to the facts of the case and are of the considerate view that in the backdrop of the aforesaid facts, it can safely be concluded that the comparable, viz. Accentia Technologies Ltd., being functionally different on an entity level, thus in the absence of complete segmental information could not be taken as a comparable. That as observed by us hereinabove, our view stands fortified by the very fact that the TPO himself in the case of the assessee company for the A.Y.2010-11 and 2011-12, for the aforesaid reasons had rejected the said company, viz. Accentia Technologies Ltd. as a comparable. Still further the order passed by the DRP in the case of the assessee company, therein rejecting the said comparable viz. Accentia Technologies L....
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....stantial different business model compared to assessee and prayed for exclusion. The ld. DR has supported the inclusion. The TPO while making benchmarking taking his view that this comparable company is in the business of IT enabled services to overseas markets and included in the list of comparable. The ld. CIT(A) confirmed the action of TPO holding that the TPO conducting benchmarking after calling information under section 133(6) and is benchmarking analysis are correct. We have noted that, though the ld. AR has relied upon a number of decisions of Tribunal/co-ordinate bench. We have noted that in a recent decision of Tribunal in Wills Processing Services (I) Pvt. Ltd. (supra) on comparability, the Tribunal held as under: We though in light of our aforesaid observations had partly disagreed with certain grounds as had been averred by the Ld. A.R to facilitate exclusion of the aforesaid comparable, however as observed by us hereinabove that the aforesaid comparable viz. Coral Hub Limited (earlier known as Vishal Information Technology Limited) had a business model where services are outsourced, as against the business model of the assessee where services are render....
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....y indulged in high skill IT services is non-comparable to a routine IT enabled service provider. 41. Considering the fact that major part of income of this comparable is from translation charges and function of this comparable is different to the assessee-company, therefore, we direct the exclusion of Cosmic Global from the list of comparable. Similar view was taken by Pune Tribunal in BNY Mellon International Operations (India) Pvt. Ltd. vs. DCIT (supra) holding that this comparable company had outsourced its vendor and was making high vendor payments as compared to sales and hence was not comparable. 42. Considering the decision of Tribunal, wherein this comparable was held as not comparable and particularly the TPO himself excluded it from the list of comparable in A.Y. 2008-09. Therefore, we direct for exclusion of this comparable. (7) Informed Technologies Ltd. 43. The ld. AR for assessee argued that this comparable was not selected in earlier years nor in A.Y. 2008-09. This company having low employee cost has compared to assessee cannot be considered as comparable. The ld. DR supported the inclusion of this comparable. The TPO while including this comparable took....
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....n additional ground of appeal by assessee ) 46. The contention of ld AR for the assessee is this company was rejected by ld TPO himself in AY 2008-09. Triton Corp is also a part of is part and parcel of Rastogi Group which was under serious indictment and its financials were distorted and cannot be relied. However, the ld. DR for the revenue supported the inclusion of this comparable. The ld. TPO included this comparable by taking his view that this company is in the call centre services. The ld CIT(A) upheld the action of ld TPO by taking view that benchmarking was conducted by calling information under section 133(6). We have seen that Mumbai Tribunal in Stream International (P) ltd (supra) held that, a Company under serious indictment in fraud cases is to be excluded from list of comparables on ground of unreliability of data. Thus, following the order of the Tribunal we direct to exclude this company from the comparable. (11) ICRA Techno Analytics Ltd. (objected in the ground of appeal by revenue) 47. The ld. AR for the assessee had argued that this company was no selected as comparable in earlier year nor in AY 2008-09. ICRA is engaged in processing and providing soft....