TaxTMI 
TaxTMI 
2019 (9) TMI 1059
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....TPO and the directions of the Ld. DRP erred on facts and law while including BNR Udyog Ltd. as a comparable whereas the same should have been excluded for the reason that it fails RPT filter of 25% and that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7 and additional ground 7). 3. The Ld. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including Excel Infoways Ltd. (Segmental) as a comparable whereas the same should have been excluded for the reason that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7) 4. The Ld. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including Infosys BPO Ltd. as a comparable whereas the same should have been excluded for the reason that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7) 5.The IA. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including TCS E-Serve Ltd. as a comparable whereas the same should have been excluded for the reason....
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....enses 5,593,104 6 Reimbursement of business promotion expenses 602,936 7 Payment for EDP/Software maintenance charges 6,605,232 8 Reimbursement of bank charges 2,318,210 2.3 It was observed that, assessee computed arm's length price of international transaction for back office support services rendered by assessee to its AE being IT enabled services, with OP/TC as PLI. Assessee thus computed its margin at 15.80%. It selected following 7 comparables, with average margin of 11%. Sl. No. Comparable Company Average adjusted Mark-upon total cost 1 Cameo Corporate Services Ltd. 10% 2 Cosmic Global Ltd. 13% 3 Sparsh BPO Service Ltd. 2% 4 E4e Healthcare Business Services Pvt.Ltd. 14% 5 Jindal Intellicom Ltd. 13% 6 Inhouse Productions Ltd. 14% 7 Vishesh Infotechnics Ltd. 15% 2.4 Ld. TPO on application of various filters accepted 2 comparables of assessee and on basis of fresh search included following comparables with average margin of 28.11%: Sl.No. Name of the Case Op/OC 1 Accentia Technologies Ltd. 11.75 2 Universal Print Systems Ltd.....
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....) (medical transcription) • Excel Infoways Ltd (segmental) (IT) (BPO) 5.1 Before dwelling into comparability, it is sine qua non to understand the functions performed, assets owned and risk assumed by assessee under the segment. Functions: In TP study, assessee has been submitted to be providing back-office support services on behalf of the group concerns. It has been submitted that assessee carries out various services through various departments including Accounts Payable, the customer master data team the cross-reference team the backorders, marketing communications and material safety that. It is also been submitted that for the services assessee is compensated on cost plus markup basis. Assessee is also held to be providing support services to its AE is in relation to sourcing of laboratory supplies, equipment and instruments from benders in India. It is also held to be providing marketing support services in respect of direct sales undertaken by the AE and distribution services in respect of equipments manufactured by group to third-party customers in India. Assets employed: Assessee utilises computer systems,....
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....of Universal Print Systems Ltd. has also been considered by the co-ordinate bench of this Tribunal in the case of CGI Information Systems & Management Consultants Pvt. Ltd. (supra) wherein it was held as follows: "47. The next submission of the learned counsel for the Assessee was with regard to exclusion of 2 comparable companies from the list of 7 comparable companies that remain after the order of the DRP. The first comparable company sought to be excluded is Universal Print Systems Ltd. This company was chosen as a comparable company by the TPO. In reply to the proposal of the TPO to include this company as a comparable company, the Assessee vide its letter dated 22.12.2015 had pointed out its objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP TC of this company will be only 51.80%. The Assessee further pointed out (Page 764 of paper book) that the TPO had applied revenu....
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....t on a segmental search these two companies satisfied the requirement of being considered as companies engaged in providing ITES. Aggrieved by the directions of the DRP, the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee reiterated submissions that were made before the TPO/DRP. In particular it was submitted that the service revenue filter was applied by the TPO himself at the entity level and on such search this company was not regarded as engaged in providing ITES. At this stage the TPO ought to have dropped this company as a comparable company because this filter has to be applied at the entity level and not at the segmental level. The learned DR submitted that if the service revenue filter isapplied at the segmental level there can be no objection by the Assessee. She relied on the order of the DRP/TPQ. 50. The requirements of Rule 10B(1)(2) & (3) of the Rules in the matter of comparability of companies under TNMM needs to be seen. The same reads as follows: "10B. (1) For the purposes, of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of....
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....e transactions: (d)conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and. capital in the markets, overall economic development and level of competition and whether the markets are wholesale retail (3) An uncontrolled transaction shall be comparable to an internatiorial (i) none of the differences, if any, between the transactions being compared or between the enterprises entering into such transactions are likely materially affect the price or cost charged or paid in, or the profit arising from such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 5.2.There appears to be no bar in the Rules referred to above to considering segmental data under TNMM because the comparison is of "net profit margin realized by the enterprise from an international transaction" with the "net profit realized from a comparable uncontrolled transaction". Therefore comparison is of similar transaction. When se....
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....AO/TPO, for fresh adjudication, on the basis of directions reproduced hereinabove. Needless to say that proper opportunity shall be granted to assessee as per law. Accordingly we set aside this comparable back to Ld.TPO. b) Infosys BPO Ltd. Assessee objected for inclusion of this comparable primarily on the basis of functional incompatibility and presence of intangibles. It has been submitted that this company owns huge brand and not a fit comparables for company like assessee, who provide captive service to its AE's. Ld. CIT DR opposed the exclusion and placed reliance upon orders passed by authorities below. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt Ltd., vs ACIT vide order dated 28/06/19 in ITA (TP) a No. 1661/Bang/2016, wherein this comparable has been excluded by observing as under: '5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case of Baxter India Pvt. Ltd. Vs. ACIT ITA No.6158/Del/2016 for AY 2012-13 in the ....
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....xclusion of Infosys BPO from the list of comparable companies chosen by the TPO. From above, it is clear that this company is functionally not comparable with captive service provider. Respectfully following the same we direct this company to be excluded from the list of comparables. c) TCS e-Serve Ltd. Ld. AR submitted that this company has been objected by assessee for its functional dissimilarity as it renders both BPO and KPO services without segmental reporting. It is submitted that this company owns huge brand of TATA group and has also incurred brand related expenses and therefore cannot be accepted to be compared with a captive service provider like assessee. Ld.CIT DR on the contrary opposed its exclusion and placed reliance upon orders passed by authorities below. We have perused submissions advanced by both sides in light of records placed before us. Assessee placed reliance upon following decisions in support of its argument for exclusion of this comparable: • Zyme Solutions Pvt Ltd. vs ACIT (supra) • Baxter India Pvt. Ltd vs ACIT reported in (2017) 85 Taxmann.com • 285 (Delhi-T....
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...., we direct for exclusion this company from the list of comparable". It has been observed that this company is into high-end KPO services and an assessee rendering low end BPO services cannot be compared with it. Further, this company has been excluded due to absence of segmental information. Respectfully following aforesaid decision, we direct Ld. TPO to exclude this company from the list of comparables. d) BNR Udyog Ltd. (segmental) Ld.AR submitted that this company fails RPT filter and also fails export filter applied by Ld.TPO. It is submitted that this company is into medical transcription, coding, business support services and e-governance projects and therefore functionally not similar with that of assessee. Ld. CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech India (P) Ltd vs DCIT reported in (2018) 97 taxman.com 2 in support. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee is challenging funct....
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.... Indegene (P) Ltd. (Supra) which is also rendered on similar facts, we deem it appropriate to remand the matter of the comparability of this company, TCS E-serve Ltd. To the file of the TPO for fresh consideration in the light of out abov observations. Needless to add, the TPO shall afford the assessee adequate opportunity of being heard and to file details/submissions in this regard. It is also been observed that similar view has been taken by decision of this Tribunal in case of M/s Nielson Sports India Pvt.Ltd., Vs ACIT in IT(TP)A No.196(B))/2017 vide order dated 28-06-2019. Respectfully following the same, we set aside this comparable back to Ld.TPO for considering it afresh. Needless to say that proper opportunity shall be granted to assessee as per law. Accordingly we set aside this comparable back to Ld.TPO. e)Excel Infoways Ltd. (segmental) This comparable elected by ld. TPO is alleged to be functionally not comparable with assessee, as it is handling business relations and managing customer relationships. It has been submitted by Ld.AR that this comparable fails employee cost filter. 20. Ld.CIT DR however contended that....
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.... aspects have not been considered by the Tribunal in its order. On the above objections in the MA, the Tribunal held as follows:- "8. We have examined the contents in the misc. petition and we find that there has been omission to consider the application of employee cost filter by the Tribunal though attention of the Bench was invited to relevant pages pointed out in the misc. petition. We do not however agree with the assessee that functional comparability of this company has not been examined by the Tribunal in paragraph 14.4. The Tribunal has come to the conclusion that this company is a ITeS company and that cannot be reviewed in the misc. application. However there has been omission to adjudicated exclusion of this company on account of extraordinary events. We therefore recall the order of the Tribunal to the limited extent of examining of the employee cost filter and the presence of extraordinary events on warranty exclusion of this company." 3. We have heard the rival submissions on the exclusion of this company on the basis of extraordinary events that occurred during the relevant previous year which had impact on the profit margin of this company and therefore....
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....st to IT-BPO segment, with no allocation to other segment, which amounts to almost 49% of its total revenue during the year under consideration. At this stage, we clarify that, we are not inclined to express our opinion regarding functional similarities/dissimilarity of this company with that of present assessee before us and the same is kept open to be considered in an appropriate case. We therefore agree with contention raised by assessee regarding this comparable not satisfying employee cost filter. Respectfully following aforestated decision of Delhi Tribunal reproduced hereinabove, we direct Ld.TPO to exclude this comparable from the final list. 6. Ground No. 8 is raised by assessee in respect of not treating provision for doubtful debts, provision for warranty is, provision for doubtful deposits as operating expenses. It has been submitted that these items cannot be considered as normal expenses as the nature of these being doubtful depends upon various factors. He submitted that assessee is a risk insulated company and therefore such exclusion has to be provided in the case of comparables while computing margin. In support of his contention, Ld.AR placed reliance up....