TaxTMI 
TaxTMI 
2019 (9) TMI 972
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting 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 that a comparability parameters should be applied uniformly to all the comparables....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 provided to the Appellant as required under the provisions of section 251 of the Act. 12. Without prejudice to the above Grounds, by ignoring the fact that since the Appellant is availing tax holida....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-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 proceedings before TOP, the TPO rejected one of the assessee's comparable i.e. Seven Technologies Ltd., and accepted remaining 8 comparable. However, the TPO carried out its own research and included the following 19 comparable: 1. Eclerx Services Ltd. 2. Mold Tek Technologies, 3. Accentia Technologi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nfirmed 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 that no new facts are required to be brought on record, all facts are emanating the orders of the authorities below. During the hearing of appeal on 24/05/2018, the ld. AR for the assessee submits that he has no objection if the additional ground of appeal raised by the revenue is allowed. Accordingly, additional ground of appeal raised by the revenue is allowed. Similarly, the assessee has also raised additional ground of appeal; we have noted that no new facts are required to be brought ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 that Eclerx Services Ltd. has not considered as a comparable in earlier years. Eclerx Services Ltd. is a Knowledge Process Outsourcing (KPO) Service provider which is not comparable to assessee; assessee is engaged in providing back office support services. In support of his submission, the ld. AR of the assessee relied upon the decision of Delhi High Court in Rampgreen Solution P Ltd Vs CIT (2015) ITR 533 (Delhi), decisions of Tribunal in Wills Processing Services (India) P. Ltd. vs. ACIT [2017] 83 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 of his submission, the ld. AR of the assessee relied upon the decision of Delhi Tribunal in DCIT vs. Everest Business Advisory India (P.) Ltd. (ITA No. 41/Del/2013 & 1191/Del/2013. 20. For Bodhtree Consulting Ltd., the ld. AR of the assessee submits that Bodhtree Consulting Ltd. is a software solution company, is engaged in providing open-end to end web solution, software consultancy, design and development of solutions, using the latest technology, without adequate segmental information and therefore cann....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Hinduja Global Solution Ltd. Vs DCIT [2017] 78 taxmann.com 199 (Mumbai Trib.). 26. For Wipro 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. Wipro Ltd will not qualify on FAR analysis owing to various factors including its brand value, size, owning of intangibles, expenditure on R&D, etc and cannot be considered as comparable as the assessee a captive service provider. The ld AR has taken support of case laws in Hinduja Global Solut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 perused the record carefully. We have also deliberated on various case laws relied by the ld. AR/DR for the parties and the case laws relied by them. Considering the submissions of both the representatives of the parties, now we are require only to consider the exclusion or inclusion of 11 comparable. (1) Eclerx Services Ltd. 32. As noted earlier the ld AR for the assessee submitted that the assessee submits that Eclerx Services Ltd. has not considered as a comparable in earlier years. Eclerx Services Ltd. is a Knowledge Process Outsourcin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....remiums 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 further appeal before the Tribunal, had thus allowed it to attain finality. We further find that in the assessee's own case for the immediately succeeding year, i.e A.Y 2009-10, the DRP as well as the Tribunal had held that companies engaged in KPO services cannot be compared to the routine BPO services provided by the assessee. That still further the Tribunal while disposing of the appeal of the assesses for AY 2010-11 had held that as the assessee was a routine BPO service provider, therefore it cannot be compared to high end KPO service providers such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompany. 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, perused the orders of the lower authorities and the records made available before us. We find that the aforesaid comparable, viz. Mold-Tek Technologies Limited was engaged in high end knowledge process outsourcing (KPO) services, and therein providing high end structural engineering consulting services, which is a high end segment service, as in comparison to the assessee company which was engaged in providing routine IT enabled services. We find that that the said comparable, viz. Mold- Tek Technologies Limited was rejected by the TPO himself in the assesses own case for AY 2006....
X X X X Extracts X X X X
X X X X Extracts X X X X
....upra) 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 Assessment Year in 2008-09. The Accentia Technologies Ltd. is engaged in developing its own Software products and rendering Medical transcription services and cannot be compared to the assessee engaged in providing back office support services. Further, it has undertaken extra-ordinary events during the year under review which have an impact on its financials. The TPO included Accentia Technology Ltd. by taking his view that this comparable company is in healthcare receivable management and rendered ITeS Services in respect of such healthcare receivable management to its client. The TPO furth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omparable, 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 Ltd., having been accepted by the department by not assailing the same before the Tribunal, further strengthens and supports our aforesaid view. Thus in light of outr aforesaid observations, we herein being of the view that the comparable, viz. Accentia Technologies Ltd. being functionally different, thus cannot be taken as a comparable, and therefore direct the exclusion of the same from the list of the comparables. That as the aforesaid comparable, viz. Accentia Technologies Ltd., being found to be functionally different, has been directed to be excluded from the list of the comparables. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 rendered by employing own employees and using one's own infrastructure, on the basis of which we are of the considered view that it can safely be concluded that the said comparable was functionally different, and as such was liable to be excluded from the final list of comparables. That our aforesaid view stands fortified by the aforesaid order passed by the Tribunal while disposing of the appeal of the assesses own appeal for A.Y. 2005-06, as well as the judgment of the Hon'ble High Court of Delhi in the case of : Rampgreen Solutions (P.) Ltd. (supra). Thus as there has been no material shift in the facts invo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 the view that this company is in business process outsourcing (BPO). The ld. CIT(A) upheld the action of TPO holding that the TPO benchmarked the analysis after calling information under section 133(6) and that the higher or lower profit rate are not determinative factor for a comparable. The co-ordinate bench in Stream International Services (supra) while considering the similar ground for exclusion on the ground of low cost employee compared to assessee held that where employee cost to sale is 27.77% as compared to that of other assessee which is 49.34% , this comparable was directed to be excluded. Therefore, considering the d....