TaxTMI 
TaxTMI 
2018 (4) TMI 1759
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....s (ITES) and marketing support services to its Associated Enterprises (AE). In the appeal by the revenue and the C.O. by the Assessee the disputes relate to determination of Arm's Length Price (ALP) in respect of provision of SWD services and ITES to the AE. 3. SOFTWARE DEVELOPMENT SERVICES SEGMENT: Grounds No. 1 to 6 raised by the revenue relate to the addition made consequent to determination of Transfer Price by the Transfer Pricing Officer(TPO) in the SWD Services segment, which addition was deleted by the DRP in its directions on the adjustment to Arm's Length Price (ALP) suggested by the TPO. We have already seen that during the relevant previous year, one of the international transactions that took place between the Assessee and its AEs was the provision of software development services ("SWD services for short) to them at a price of Rs. 223,06,23,932/-. Since the transaction of provision of Software service by the Assessee was an international transaction, income from such international transaction has to be determined having regard to Arm's Length Price (ALP) as laid down in the provisions of Sec.92 of the Act. 4. The TPO to whom the question of determination of ALP ....
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.... 42.89 Larsen & Toubro Infotech Ltd. 19.83 19.61 Mindtree Ltd.(seg) 10.66 9.15 Persistent Systems & Solutions 22.12 20.92 Persistent Systems Ltd. 22.84 21.35 R.S.Software (India) Ltd. 16.37 16.02 Sasken Communication Technologies Ltd. 24.13 24.20 Tata Elxsi Ltd.(seg) 20.91 18.71 AVERAGE MARK-UP 24.82 23.52 8. The TPO thereafter computed the Arm's Length Price as follows: Arm's Length Mean Mark-up 24.82% Less: Working Capital Adjustment 1.30%* Adjusted mean an mark-up of the comparables 23.52% Operating Cost Rs. 197,04,10,457/- Arm's Length Price h Price - 123.19% of Operating Cost Rs. 243,38,50,996/- Price Received Rs. 223,06,23,932/- Shortfall being adjustment u/s. 92CA Rs. 20,32,27,064 /- 9. The Assessee objected to the manner of determination of ALP by the TPO before the DRP. Briefly, the directions issued by the DRP are as follows: Functionality Filter: The following companies were directed to be excluded by accepting the contentions o....
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....ative filters applied by the TPO. (Ground No.1 & 2) (ii) That the DRP erred in deleting E-infochips Ltd. on the ground that it fails the filter of service revenue income less than 75% of the sales. (Ground No.4) 12. The grounds in the cross-objections which are being pressed are as follows: (i) That the TPO erred and the DRP further erred in including two companies, viz. Persistent Systems Ltd. and Sasken Communications Technologies Ltd., in the list of comparables although they fail the test of comparability. (Ground No.1.6) (ii) That the DRP erred in suo moto rejecting RS Software Pvt. Ltd., Mintree Ltd., and Evoke Technologies Ltd., from the list of comparables (Ground No.2). 13. As far as Gr.No.2 is Revenue's appeal is concerned, the sum and substance of the ground of appeal is that the DRP ought not to have excluded 2 comparable companies from the list of final comparable companies chosen by the TPO for comparison of profit margin of the Assessee with comparable companies. The two companies that were excluded by the DRP which is in challenge by the Revenue before the Tribunal are (i) Acropetal Technologies Ltd., and (ii) RS Software (India) Ltd....
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.... basis that it was allegedly predominantly engaged in the onsite development of software in FY 2010-11. In this regard, it is seen that this company was selected by the TPO and accepted by the Assessee as a comparable, and it was accordingly included by the TPO in the list of comparables. In the proceedings before the DRP, the Assessee did not object to its inclusion in the list of comparables. However, despite the above, the DRP on its own directed its exclusion. We are of the view that since the revenue as well as the Assessee wants to retain this company as a comparable company, this company should be regarded as comparable company. 16. As far as Ground No.4 raised by the revenue is concerned, the Revenue seeks to challenge the exclusion of E-Infochips Ltd. on the ground that it failed the software service income filter at 75%. At the outset, the Assessee submits that EInfochips Ltd. was excluded by the DRP on the ground that: (i) no segmental information regarding its diverse functions is available; (ii) it failed the software service income filter at 75%; (iii) there were major fluctuations in profit and turnover every year which seems to be influenced by extraordinary/pecu....
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....No.1 to 6 raised by the Revenue are dismissed. 21. Since, the inclusion of R.S.Software Pvt.Ltd., will not have any impact on the upward revision of ALP of the international transaction, we are of the view that there is no necessity to decide the various grounds raised by the Assessee in it's cross objection in so far as it relates to determination of ALP of SWD services segment. The cross-objection is therefore dismissed as infructuous in respect of SWD Services segment. 22. ITES SEGMENT: As far as ITES segment is concerned, the final list of companies chosen by the TPO was 10 and the addition on account of ALP based on the average profit margin of these 10 companies was a sum of Rs. 3,66,42,275/-. Pursuant to the directions of the DRP only 4 companies remain in the list of comparable companies viz., (i) Accentia Technologies Ltd., (ii) ICRA online Ltd. (Seg.) (iii) Jindal Intellicom Pvt.Ltd. and (iv) Mindtree Ltd. 23. The Revenue in its appeal has challenged the order of the AO incorporating the directions of DRP excluding Acropetal Technologies from the final list of comparable companies chosen by the TPO (Gr.No.7 & 8). In its cross-objection the Assessee has objecte....
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....noticed by us that the assessing officer has considered the revenue from the engineering design segment, which is not comparable with the function of the assessee company. It is also noticed by us from page 9 of the annual report that the company's services facilitate reduced product design cycle time and cost. It is also noticed from page 12 that the company is committed to deliver the cost effective software products, services and solutions to its customers for which no segmental information is available. It is also noticed that in the profit and loss a/c, software development expenses of 7 69.92 crore has been debited out of which RS. 55.77 crore has been incurred on technical sub contract. In respect of such on-site expense, segmental information is not available, Further, in the segmental information, the unallocated expenses are to the extent of Rs. 21,52 crore. All these differences makes it clear that even if the engineering design segment is considered as comparable, the correct margin and comparability cannot be arrived at, Further, due to the functional differences, Hon'ble Bengaluru ITAT in the case of - Symphony Marketing Solutions India Pvt. Ltd. vs. ITO (IT (....
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.... preparation of customised notes of patients, record keeping of patients, insurance verification of patients, appointment scheduling of patients, providing accessible practice management system, providing EMR systems including EMR coding, billing, bill payment management system, adhoc reporting etc., As per the Ld.AR, said company catered to the health care industry and their products were customised and not similar to what assessee was doing. As per the Ld. AR the work done by Accentia Technologies Ltd, required skilled knowledge and advanced analytics. Ld. AR submitted that during the relevant previous year, the said company had invested in another company which had an expertise in EMR Software and Saas. In any case, as per the Ld. AR, segmental results of Accentia was not available in between various segments like MT billing collection and coding. When segmental results were not available, as per the Ld. AR it was not proper to consider Accentia Technologies Ltd, as a good comparable. Reliance was also placed on decision of Delhi Bench of the Tribunal in the case of Equant Solutions India P. Ltd v. DCIT [ITA.1202/Del/2015, dt.21.01.2016] and that of coordinate bench in the case ....
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....than keeping physical reports as done in orthodox medical transcription methods. That M/s. Accentia Technologies Ltd, was providing integrated end to end software services and remodelling its own business is clear from page 25 of its annual report which is reproduced hereunder : 13. Type of work done by the said company has been explained in detail at pages 24 and 25 of annual report. This is reproduced hereunder : 14. If we have a look at the billings made by M/s. Accentia Technologies Ltd, its income for the relevant previous year read as under : Not only was the medical transcription work done by it of a highend variety, it also had substantial income from coding coming to about 16% gross receipts. No segmental results were also available. Its audited financial statements at para 7 of the notes to accounts mentioned as under : 15. As against the above, Assessee was providing back office support to its group companies and affiliates, in the field of reinsurance, which its affiliates were engaged in. Work done by the assessee has been captured by us at para three above. This in our opinion was entirely different from the type of activities that ....
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....nt. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous. 18. Thus when characteristics of services rendered were dissimilar and the competence required to operate the services were different, it will not be correct to compare the results of two companies. 19. In the case of Amba Research India P. Ltd (supra), this Tribunal had directed exclusion of Accentia Technologies Ltd, for comparison purposes. Assessee in the said case was providing ITES services to its holding company at British Virgin Islands. Observation of the Tribunal at para 8 of the order dt.09.03.2016, is reproduced hereunder : 08. We have perused the orders and heard the rival contentions. No doubt Accentia Technologies Ltd, formed a part of the list of comparables considered by the assessee in its TP study. However assessee had objected to its inclusion citing functional dissimilarity before the AO as well as the DRP. Question regarding comparability of Accentia Technol....
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.... the case of Excellence Data Research Pvt. Ltd., Hyderabad (supra), being relevant in this case, are reproduced below- "19.2 We have considered the rival contentions and noticed that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy. In earlier years on the reason of acquisition of various companies, being an extraordinary event which had an impact on the profit, this company was excluded. As submitted by the learned counsel, this year also, the acquisition of some companies by that company may have impact on the profit. Considering the profit margins of the company and insufficient segmental data, we are of IT(TP)A No.146/Bang/2015 Page 42 of 52 the opinion that this company cannot be selected as a comparable. Moreover, this is also not a comparable in the case of M/s. Mercer Consulting (India) P. Ltd. (supra), which indicates that the TPO therein has excluded it at the outset. In view of this, we direct the Assessing Officer/TPO to exclude this comparable, from the list of comparables selected." 13. As pointed out by the learned counsel for the assessee, there was acquisition of a company by M/s. Accentia T....
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....pany were incorporated in the amgalamated company. As far as Infosys BPO Ltd., is concerned, the observations made by the Tribunal in the decision referred in the earlier paragraph will hold good for the present AY 2010-11 also. Respectfully following the decision of the Tribunal referred to above, we direct that the aforesaid 2 companies be excluded from the list of comparable companies for the purpose of computing arithmetic mean for comparability purpose. The TPO is directed to give effect accordingly. Even after exclusion of Accentia Technologies Ltd, along with the exclusion of four comparable companies directed by DRP, there will be four companies left in the list of comparables which, in our opinion, cannot be considered as too small a sample for an effective TP study. In the circumstances, we direct exclusion of Accentia Technologies Ltd also from the list of comparables. Ordered accordingly. 20. No doubt the said decision was for A. Y. 2010-11, but the conditions which prevailed in the said previous year more or less existed in the impugned assessment year also. Considering all these aspects, we are therefore of the opinion that Accentia Technologies Ltd,....
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....ervices from electronic medical records (EMR)-practice management system(PMS)- code mapping/scrubbing-medical billing & receivables management system(RCM)-electronic data interchange (EDI) with insurance companies (payer). The above seamlessly integrated SaaS system functions as a one-stop shop for a clinical provider that manages all their healthcare documentation needs receivables management SaaS needs, performance tracking and reporting and would eliminate the need to keep networking and technology personnel at their end to manage the software system, since it is served by a hosted server. Document 2 ACCENTIA'S SAAS PLATFORM Information Gateway Customized Notes After the physician's patient visit, they can make new records based on diagnosis and log them in by keying in data, selecting the right templates or even dictating. InstaKare allows physicians to follow their own method of maintaining records. These templates are customized to their existing report structure. Physicians don't need to change their ways. We'll adapt to theirs. And if they like they can create new templates. DRT, is ....
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....ules are strict, but we've got it all covered. The EMR maintains all aspects of meaningful use and government standards. This includes maintaining patient re- test reports, and e-prescription. Coding We help physicians to get the most out of the codes. Integrated EMR and PMS ensures the coding and billing are managed with just a click. Physician's diagnosis is fed into the Coding Module which automati- cally generates procedure and diagnosis code. These codes can be changed, added or deleted as per their requirement. Certified coders will review the notes and codes and ensure that all the reimbursement procedures are followed as per required insurance reimbursement standards. Billing Claims Processing is done after verification of the billing including procedure codes and claim amount validation. This ensures physi- clans get maximum reimbursement. The experts at Accentia manage all their billing, appealing refilling and documentation. We want physicians to get their dues and we will do the chasing for phy sicians. We manage electronic and paper claims and have a tracking system for monitoring and tracking progress of payment....