TaxTMI 
TaxTMI 
2019 (10) TMI 900
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.... medical and health care centres, customer interaction services, business processing of medical claims for hospitals and medical centres, technical support and desk support, claim processing, remote data entry, etc. The assessee extends BPO and other services to parent company Tela Sourcing Inc, Baltimore, Maryland USA. The assessee filed the return of income declaring at Nil income. The transfer pricing issue is involved in this case and therefore, the matter was referred to the TPO. The TPO passed an order u/s 92CA(3) of the Act on 28.01.2015 suggesting the TP adjustments amounting to Rs. 6,02,78,090/- on the international transactions with parent company amounting to Rs. 25,98,46,050/-. 4. During the TP proceedings before the TPO, there are a couple of issues which were subject matter of TP analysis. A. First one relates to the amendment to the assessee PLI (OP/OC) qua the claim of rebate, being a prior period expenditure, of Rs. 5,32,10,455/-. While the assessee did not reduce the same from 'operating income', the TPO treated the rebate, otherwise. However, the DRP granted relief to the assessee on this issue relying on certain discussion of the Pune Bench of the Tri....
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....dered the explanation of the assessee and directed for exclusion of the same as per the discussion given in paras 6.27 to 6.30 of his order. As per the DRP, Eclerx, being a KPO company, is not comparable to the ITES or BPO company like the present assessee. The relevant paragraphs from the said order of the DRP are extracted hereunder :- "E-clerx Services Ltd: 6.27 We have considered the submissions of the assessee and the order of the TPO. The assessee contended that this company is functionally different from its ITES activities as it is engaged in high end KPO services. In this regard, it would be useful to refer to the relevant part of the annual report explaining the functions being performed by the company: "Our Key Differentiators As a leading offshore provider of end-to-end services to the Sales & Marketing universe, eClerx has deep domain knowledge and process expertise that enable it to serve and adapt to the fast growing and evolving digital marketplace. We deploy skilled resources together with process redesign and automation to provide best-in-class service delivery to industry leading firms. Our sales and marketing clients view us as trusted and expert partner....
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....matters and audit related matters. The scrutiny report in the case was called for from the Transfer Pricing Officer on 01/01/2016. Moreover, the report of the TPO recommending filing of further appeal was received by e-mail on 07/04/2016. No hard copy has been received till date. The delay has been caused inadvertently and due to the above reasons. It is most humbly and with sincere apologies requested that the delay in filing appeal may kindly be condoned." 11. Considering the above reasons given by the Revenue in the affidavit, we find it is a fit case for condoning the delay of 14 days. After condoning the delay, we proceed to adjudicate the appeal of the assessee in the following paragraphs. 12. We shall now take up the issue-wise adjudication in the following paragraphs. 1. Inclusion/Exclusion of E-clerx Services Ltd. - Ground No.1 13. Before us, at the outset, ld. Counsel for the assessee suitted that this is a covered issue and the said comparable is functional different as it is engaged in KPO services; while the assessee is a ITeS/BPO company. This is good enough reason for exclusion of the said comparable from the scope of the TP study. Further, ld. Counsel submit....
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....h March, 2018, - as follows:- 'merely because the tested party and the comparable provide ITES, they do not become comparable. The content of the services rendered by virtue of IT is to be examined before holding it to be comparable.' (iv) Further, our attention is invited to the decision of the Delhi High Court in Rampgreen Solutions (P.) Ltd. v. CIT [2015] 60 377 ITR 533 wherein Delhi High Court held that KPO services could not be compared to call centre services, although both would fall under the umbrella of ITES. Therefore, the functions of two cannot be considered to be similar for the purpose of being comparable. (v) In the above view, this question also does not give rise to any substantial question of law. It is essentially a finding of fact which is not shown to be perverse. Thus, not entertained." 14. Further, Id. Counsel for the assessee brought our attention to the decision of the Co-ordinate Bench of the Tribunal in the case of MACOM Technology Solutions (India) Private Limited v. Dy. CIT ITA No.2831/PUN/2016 and submitted that the Tribunal in the said decision excluded "Eclerx Services Ltd." from the final set of comparables. The contents of paras 8 to ....
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.... been perused. The company is not persistent loss making. Hence it satisfies all the accepted filters. Further, rule 10TA(g) of the Income Tax Rules, gives the definition KPO. In this definition, Geographical Information System and Design Engineering service has been considered as KPO only. Hence, the objection of the assessee is not accepted." 10. From the above, it is evident that the data analysis function of (i) E-clerx Services Ltd. are loss making company and (ii) Genesys International Corporation Ltd. are not comparable that of the assessee. It is also a fact that the TPO never granted any adjustments to the functional differences. 11. Further, bringing our attention to the order of the DRP, ld. Counsel submitted that the reasoning given by the TPO was approved without application of mind to the actual functions of the comparables qua the assessee. Further, referring to the persistence of this issue, ld. Counsel brought our attention to the various decisions to demonstrate that the data analysis as function is no way comparable to the function of engineering designs reported by the assessee. The ld. Counsel for the assessee brought our attention to the decision of the Ho....
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....bles only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous...." 5. It is urged by Mr Sanjay Kumar, learned counsel for the Revenue, that the ITAT ought not to have excluded ESL as a comparable because both ESL and the assessee were KPOs and both were catering to high-end clients. 6. The above submission overlooks what ITAT itself has noted in its impugned order, that the function profile of the two companies were different. While the Assessee is catering to the capital and financial services markets, ESL works in the area of sales, marketing and supporting financial services. The financial profile of the two KPOs could not be said to be similar from the point of view of the type of businesses they were catering to." 12. Explaining the above said principle laid down by the Hon'ble Delhi High Court, ld. Counsel brought our attention to the various other decisions to demonstrate that mere grouping of KPO companies will not sufficient for identifying a good comparable by the TPO. 13. Further, referring to the Genesys International Corporation Limited, ld. Counsel for the assessee brought our attentio....
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....t be regarded as comparable and deserves to be excluded from the list of comparables. ...................... 31. We have considered the rival arguments made by both the sides, perused the orders of the TPO/AO/DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. As regards the selection of Genesys International Corporation Ltd. as comparable company is concerned we find the said company has not been considered as comparable by the TPO himself in A.Ys. 2010-11 and 2011-12. During A.Y. 2010-11 a specific show-cause notice was given to the assessee and the same was excluded after considering the detailed reply filed thereto. In A.Y. 2011-12, the said company was not included as comparable company even in the show cause notice. ....................... 33. Since the assessee-company is engaged in providing Engineering Design Services and since the Hyderabad Bench of the Tribunal in the case of Hyundai Motors India Engg. Pvt. Ltd. (supra) has excluded Genesys International Corporation Ltd. from the list of comparables on the ground that the company i....
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....rpose of benchmarking of the international transactions. Accordingly, ground No.4 raised by the assessee stands allowed." 15. The ld. DR, on the other hand, relied heavily on the order of the TPO. 16. Thus, it is a settled issue that the 'E-clerx' constitutes a KPO company and the same is not comparable to that of a BPO company like the present assessee. Considering the settled nature of the issue at the level of the Jurisdictional High Court on this issue, we find the order of the DRP and the Assessing Officer is fair and reasonable and it does not call for any interference. Accordingly, ground No.1 raised by the Revenue is dismissed. 2. - Computation of operating profit margin without considering the one-time price rebate - Ground No.2 17. Ground No.2 relates to the computation of operating profit margin of the assessee without considering the "one-time price rebate" of Rs. 5,32,10,455/-. 18. Briefly stated the relevant facts on this issue include that the rendered services to the parent company and receives service charges. These are certain acquisition and revision of pricing policy with effect from 01.04.2009. The same resulted in grant of rebate to the parent c....
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....order. Eventually, the Assessing Officer passed the final order allowing the claim of the assessee on this rebate issue. Resultantly, the operating income before adjusting the said rebate as claimed by the assessee, is considered for PLI calculations of the assessee. 22. Aggrieved with the above views of the DRP, the Revenue is in appeal before the Tribunal with the above extracted ground No.2. 23. Before us, at the outset, ld. Counsel for the assessee submitted that the issue raised in the present ground No.2 relates to whether the prior period expense (rebate) is to be reduced from the operating profits of the year under consideration for computing the PLI for the current year. It has the effect of reducing the operating profits of the assessee for the year under consideration. On explaining the same, the ld. Counsel submitted that the similar issue was considered by the Co-ordinate Bench of the Tribunal in the case of Dy CIT v. Aam Services India (P.) Ltd. vide ITA No.553/PUN/2015 for the assessment year 2010-11, dated 23.03.2018 (copy of this order is placed at page 535 of the Paper Book) and the issue was decided in favour of the assessee as per the discussion given in paras....