TaxTMI 
TaxTMI 
2018 (11) TMI 1793
X X X X Extracts X X X X
X X X X Extracts X X X X
....rkup basis. It is stated that the nature of software services provided are in the field of data processing services pertaining to support to data management services with minimum application of knowledge and limited to nil analytical and technical skills. The return of income for the assessment year 2012-13 was filed on 28/11/2012 disclosing total income of Rs. 1,65,93,100/- under normal provisions. The said return of income was picked up for scrutiny assessment. During the course of scrutiny proceedings, the Assessing Officer (AO) noticed the appellant had international transaction of providing support to data analysis services to its AE of Rs. 30,36,02,320/-. Therefore, AO referred the matter to the Transfer Pricing Officer (TPO) for the purpose of bench marking the above international transaction u/s 92CA(3) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short]. 3. The appellant submitted transfer pricing study report classifying its activities as ITeS and software services segment and the appellant had adopted TNMM as the most appropriate method for the purpose of bench marking the above international transaction. The appellant also adopted ope....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 9. Excel Infoways Ltd.,(Seg)(IT/BVPO) 10. e4e Healthcare Services Pvt. Ltd., whose arithmetical average operating margin was computed at 28.11% and after granting working capital adjustment of 0.06%, adjusted average arithmetical mean was worked out at 28.11%. The TPO computed ALP as under: IT ENABLED SERVICES Arm's Length Mean Margin on cost 28.11% Less: Working capital adjustment (as per Annex.C) -0.06% Adjusted margin 28.17% Operating Cost 28,23,33,670 Arm's Length Price (ALP) 36,18,67,065 128.17% of Operating Cost 30,36,02,320 Price Received 30,36,02,320 Shortfall being adjustment u/s 92CA 5,82,64,745 5% of price received ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....PO by holding that high profit margin by ipse facto cannot be a reason to exclude it from list of comparables. Reliance is also placed on the decision of the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P.)Ltd vs. Dy.CIT (376 ITR 183) (Delhi) 11.2 Aggrieved, assessee-company is in appeal before us in the present appeal. It is contended before us that M/s.Universal Print Systems Ltd., cannot be selected as comparable as it is functionally different as it is engaged in rendering services in printing industry and also fails employee cost filter. Reliance in this regard was placed on the following decisions: i. M/s XL Health Corporation India Pvt. Ltd. V. ACIT IT(TP)A No. 231 1/Bang/2016 ii. CGI Information Systems and Management Consultants Private Ltd.-ITAT-2018(Bang)-TP iii. First Advantage Offshore Services Pvt. Ltd. v DCIT [IT(TP)A No. 1086/Bang/2011] 11.3 On the other hand, ld.CIT(DR) opposed its exclusion. The findings of the TPO are based on information contained in the Annual Report and the TPO had considered only relevant segmental details. 11.4 We heard rival submissions and perused the material on rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mitted that this company does not satisfy the definition of ITES as contained in Rule IOTA(e) of the Rules. Since use of information technology is absent .in the various services provided by this company, it cannot be regarded as ITES company. The Assessee also submitted that this company fails the employee cost filter. The employee cost filter requires that the employees cost incurred by the company must be more than 25% of its revenue. 48. The TPO at page-20 of his order has dealt with the above objections by observing as follows: (a) Pre-Press BPO unit provides back office support services. (b) This company has four major segments viz., Repro, Label Printing, Offset Printing and pre-press BPO. The employee cost of pre-press BPO was more than 25% of the revenue from pre-press BPO and therefore the employee cost filter is satisfied in the case of this company. (c) On the service revenue filter viz., the requirement that a comparable company must have revenue from rendering services of more than 75% of its total revenue, the TPO again held that the pre-press BPO segment's entire income is from services and therefore this objection is not to b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....djusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction. (2) For the purposes of sub-rule (1), the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions....
X X X X Extracts X X X X
X X X X Extracts X X X X
....justed taking into account the fact that two other segments supplement the pre-press BPO segment. If such adjustment cannot be reasonably or accurately made then this company has to be excluded from the list of comparable companies. The TPO for this purpose can use his powers u/s. 133(6) of the Act to get required details from this company. As far as the argument that this company fails functional comparability, we find that none of the objections raised by the Assessee in this regard about lack of information about allied services performed by die pre-press BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO." Respectfully following the decision, we remand this comparable to the file o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nking, Financial Services and Insurance domain. The Company's operations include delivering core business processing services, analytics & insights (KPO) and support services for both data and voice processes. Your Company is an integral part of the Tata Consultancy Services' (TCS) strategy to build on its 'Full Services Offerings' that offer global customers an integrated portfolio of services ranging from IT services to BPO services. The Company provides its services from various processing facilities, backed by a robust and scalable infrastructure network tailored to meet clients' needs. A detailed Business Continuity Plan has also been put in place to ensure the services are provided to the customers without any disruptions." Thus, this company is also stated to be a Knowledge Process Outsourcing and therefore for the reasons stated by us while dealing with this issue of comparability of the company Infosys BPO Ltd. shall equally hold good and therefore we direct the AO/TPO to exclude this company from the list of comparables." Since the appellant company is into low end BPO, it cannot be compared with KPO service provi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... company passes RPT filter as well as income from providing ITES being more than 75% of its revenue, this company has to be regarded as comparable company. No other arguments were advanced for exclusion of this company. Hence this company is held to be comparable with that of the Assessee." 13.2 Respectfully following the decision of the co-ordinate bench, we direct the AO/TPO to include this company in the list of comparables. 14. Excel Infoways Ltd.: This company was selected by the TPO and objected by the assessee on the ground that its functions are not comparable with that of the assessee-company as it provides high-end BPO services and also fails employee cost i.e. 13.24%. Even before the Hon'ble DRP, it was urged that the company has diminishing revenue in BPO segment including peculiar economic circumstances and also fails employee cost. However, Hon'ble DRP had confirmed the findings of the TPO by holding as under: "vi. Excel Infoways Ltd.: This company was objected to on the ground of failure in employee cost filter of 25%. The TPO has taken the segmental data of the company for ITES/BPO services segment. There is no dispute by the assessee as to....