TaxTMI 
TaxTMI 
2018 (8) TMI 1928
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....ion of comparables such as Aditya Birla Minacs Worldwide Ltd. and Cross Domain Solutions Pvt. Ltd. ignoring the fact that the Annual Report of the companies were available in public domain during the TP scrutiny and also, us per AS-17 norms on Segment Reporting, the assessee had given its characterisation as BPO Services company in the annual report. 2. On the fact and in the circumstances of the case and in law, the Hon'ble DRP erred in rejecting the comparables of Excel Infoways Ltd and Mold Tek Technologies Ltd. without appreciating that the comparables are justified since Excel Infoways Ltd and Mold Tek Technologies Ltd carry out BPO and KP services (ITES). 3. On the fact and in the circumstances of the case and in law, the Hon'ble DRP erred in rejecting the comparables of Proximus Knowledge & Technologies Services Pvt. Ltd. on the grounds that (i) Foreign Exchange Revenue is NIL and (ii) JWL Account was not available without appreciating the fad that a comparable can be rejected only on three grounds i.e. Function, Asset or Risk. Since these comparables are engaged in providing BPO services, the Junctions are comparable. 4. On the fad and in ....
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....erformed, assets employed and risks undertaken between the Appellant and the company considered as comparable by the TPO and without finding any material deficiencies in the benchmarking analysis undertaken by the Appellant. 1.4 The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in violating the rules of natural justice by not providing/sharing the search process including the step by step accept/reject matrix and function, assets and risk analysis of the comparables selected by the TPO and not providing any basis for arriving at the margins of the comparable companies selected to arrive at the arm's length price of international transaction. 1.5 The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in requiring financial data of only the current year (i.e. FY 2008-09) of the comparable companies to be used for benchmarking the Appellant's international transaction of provision of support services. 1.6 The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in not allowing appropriate adjustments to the comparable companies as was compulsorily....
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....ge margin of the comparable cases identified by the assessee was determined at 9.82%. The assessee has worked out its margin for the previous year at 13.48%. The assessee has hence contended that as its margins are better than the margins earned by the comparable cases, its international transactions are at arm's length. 5. In the course of transfer pricing proceedings the A.O. has examined the various comparable cases identified by the assessee and out of the same has retained only, three cases. Out of the 12 cases identified by the assessee as comparable, the TPO has rejected 9 cases. The TPO has further adopted a search in the data base to identify more comparable cases. Finally after issuing various show cause notices and seeking the explanation of the assessee, the TPO has identified 25 cases as comparable to the assessee. The average margin of these 25 cases works out to 27.99%. The A.O. has also reworked the operating profit margin of the assessee at 12% after treating the amount of write off of fixed assets as an operating cost. After comparing the margin of 12% with 27.99%, the TPO has determined an adjustment of Rs. 3.53 crores in respect of the assessee's inte....
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....Ltd. in ITA No.4547/Mum/2012, this entity had utilized 80% of its seating capacity. This fact was also reiterated in M/s. Vodafone India Services Pvt. Ltd. in ITA NO.7140/Mum/2012. Thus, it cannot be said that on the basis of seating capacity that it is following the outsourcing model. Further, on perusal of the Schedule 14, it is seen that Rs. 40.31 crore is paid towards 'Data entry charges, vendor payments and expenses on conversion of books into POD titles'. From this, it cannot be known, what is the exact quantum of vendor payments. Thus, the claim of the assessee of different business model remains unsubstantiated in this year. Further, IT AT Delhi in the case of Agilent Technologies in ITA No.6047/Del/2Q12 relying on the decision of coordinate Delhi Bench in the case of RAM green Solutions Private Limited v. ACIT vide order dated 22.3.2013 in I.T.A. No. 6286/Del/2012 (A.Y. 2008-09) have extensively dealt with the above issue in Paras 38 to 41 of the order and have held this company to be a valid comparable. Thus, although this company was rejected as a comparable by the earlier DRP, in light of the new facts and judicial precedents as stated above, the claim of the as....
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....isdictional High Court has held that this company is functionally dissimilar inasmuch as it has outsourced a major part of its activity to third party, this company cannot be considered to be a valid comparable. Per contra, the ld. Departmental Representative ('ld. DR' for short) relied upon the orders of the authorities below. Upon careful consideration, we find that since the Hon'ble jurisdictional High Court in the decision as referred above has held that this company is functionally dissimilar inasmuch it outsourced substantial activities to be rendered to third party, we uphold the grievance of the assessee and direct that this comparable should not be taken as a valid comparable. (b) Eclerx Services Ltd.: In respect of this comparable, the assessee has submitted that this is engaged in data analytic KPO service specializing in the field of financial services and retail and manufacturing. The assessee has submitted that as Eclerx is a KPO whereas the assessee has been classified as an IT Enabled service provider by the TPO, Eclerx cannot be taken as a comparable case. The assesses in this regard explained that while under BPO services, the main activiti....
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....t be compared with the assessee. Hence, this comparable is retained.' In this regard, the ld. Counsel of the assessee submitted that unlike this comparable, Eclerx Services Ltd. is not involved in high-end services and it is not a KPO. It has been submitted that the assessee is engaged into various services like data analytical, data processing services, pricing analytics, bundling optimization, content operation, sales and marketing support, product data management, revenue management. For this, the ld. Counsel of the assessee has referred to extracts from the annual report. On the other hand, it has been submitted that the assessee is merely engaged in rendering of support services to its foreign AE. Hence, it has been claimed that Eclerx Services Ltd. is engaged into the various services which are functionally dissimilar to the assessee. It has been further submitted that no segmental financial data is available and, hence, in the absence of said data, it cannot be said to be comparable to the assessee. In this regard, the ld. Counsel of the assessee submitted that without prejudice to the submission of the assessee that it is not involved in high and services and that....
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.... Eclerx Services also offered financial services such as real-time capital markets, middle and back-office support, portfolio risk management services and various critical data management services. 14. The observation of the learned DRP that assessee and Eclerx Services are KPOs and hence comparable is also not sustainable. The Hon'ble Delhi High Court in the case of Actis Global Services Private Limited (supra) had held that even though both being KPOs two entities are not comparable if they were catering to different types of business. 15. From this it is amply clear that the said diverse activities are not comparable with the service of providing analytical solution rendered by the assessee. Moreover though some functions are similar, there are lot of other functions by M/s. EcIerx Services which are not done by the assessee. Hence, absence of segmental data make comparability not feasible. In these circumstances and in the facts and circumstances discussed above considering the precedents as above, we are of the considered opinion that Eclerx Services is not comparable in this case to that of the assessee because of diverse nature of its functions. A large....
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....ed order renders a finding of fact that the nature of activities carried out by M/s. Accentia Technologies Ltd., are different from that carried out by Respondent. M/s. Accentia Technologies Ltd., developes its own software and rendered Medical transcription services while the Respondent is providing BPO Services. Besides, the impugned order of the Tribunal held that high profit margins of M/s. Accentia Technologies Ltd., was attributable to amalgamation which took place in the previous years relevant to subject Assessment Year. Therefore, not comparable. (iii) In fact, this Court in GIT v. Aptara Technology Ltd., (Income Tax Appeal No. 1209 of 2015) has upheld the view of the Tribunal in not accepting the Accentia Technologies Ltd., as comparable, inter alia, on account of fact that extra ordinary event such as merger/amalgamation would affect the profitability of M/s. Accentia Technologies Ltd., Thus, making it incomparable. (iv) Further, in that case, as in this case, the Tribunal has also recorded a finding of fact that the/activities of M/s. Accentia Technologies Ltd., and the Respondent are different. Thus, not comparable. The above finding of fact is not sh....
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....essee. Further, the argument of rejection on the basis of a different business model has been suitably rebutted in the case of Agilent Technologies in ITA No.6047/Del/2012 relying on the decision of coordinate Delhi Bench in the case of RAM green Solutions Private Limited v. ACIT vide order dated 22.3.2013 in I.T.A. No. 6286/Del/2012 (A.Y. 2008-09 (supra) at Paras 38 to 41 of the order. For all these reasons the said company must be retained as a part of the comparable set. As a matter of fact this case was part of assessee's comparable set and hence, the TPO has not gone into detailed analysis. So there is no reason to now exclude the same. Hence, the said company needs to considered for comparative analysis.' In this regard, the ld. Counsel of the assessee referred to the decision of the Hon'ble jurisdictional High Court in the case of PTC Software (I) Pvt. Ltd. (supra), wherein this company was held to be out sourcing its services and hence could not be considered as comparable. Hence, it was held to be functionally dissimilar. Per contra, the ld. DR relied upon the orders of the authorities below. Upon careful consideration, we note that the Hon'ble jur....
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....he DRP. He further referred to ITAT such decision in the case of Baxter India (P.) Ltd. v. ACIT [2017] 85 taxmann.com 285 (Delhi - Trib.) for the following proposition : "24. So far as exclusion of Excel Infoways Ltd. is concerned, we also find merit in the submissions of the ld. counsel for the assessee that the above company should be excluded from the list of comparables. This company fails TPO's own filter of diminishing revenue and abnormal volatility in revenue and margins. We find from the order of the TPO at para 7.5 (page 24 - 25 of the TPO order) where the TPO has observed that the department has applied consistent diminishing revenue/loss making filter wherein the companies with losses/diminishing revenue for the last three years upto and including the financial year 2010-11 were rejected as comparables. The department has excluded such companies with consistent losses/diminishing revenue in an environment where Indian economy is growing at consistent rate. Having held so, the Assessing Officer included Excel Infoways Ltd. as a comparable without considering the fact that the said company does not pass the diminishing ITA No.6158/Del/2016 revenue filter. Fro....
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....Excel Infoways Ltd. is unreliable and should not be used to compute employee cost for ITES segment. The Delhi Bench of the Tribunal in the case of Motorola Solutions India Private Limited vide ITA No.5637/Del/2011 has held that a company should be rejected as comparable in case there is contradiction in the facts or data sourced from annual report and as per the information gathered u/s. 133(6). In view of above discussion, we hold that Excel Infoways Ltd. cannot be considered as comparable and should be excluded from the list of comparables. We hold and direct accordingly." In view of the above discussion and precedent, we uphold the inclusion of this comparable. 9. On the basis of the above discussion, the direction of the DRP with regard to the inclusion and exclusion of comparables is modified as under: "Comparables to be excluded which have been directed by the DRP to be included as canvassed by the ld. Counsel of the assessee : (a) Coral Hubs Ltd. (b) Eclerx Services Ltd. (c) Accentia Technologies Ltd. (d) Cosmic Global Ltd." Out of Revenue's grievance against the ld. CIT (A)'s direction for exclusion of certain co....