TaxTMI 
TaxTMI 
2020 (12) TMI 589
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....arious cases or portals and website of the company. Ground No. 3-The CIT(A) erred in stating that the TPO has not considered functional, asset and risk profile of the assessee and has overlooked the evidence filed by the assessee. Ground No. 4-The CIT(A) erred in rejecting companies that are functionally comparable of the assessee from the final list of the comparable without providing any cogent reasons for non-comparability of FAR of these companies. 1. Accentia Technologies Ltd. 2. TCS E-Serve International Ltd. 3. e4e Healthcare Business Services Pvt. Ltd. 4. Crossdomain Solutions Pvt. Ltd. Ground No. 5-The CIT(A) erred in accepting companies that are functionally different from that of the assessee without providing any cogent reasons for comparability of FAR of these companies 1. Cosmic Global Ltd. 2. Timex Group India Ltd- 3. AOK In-House BPO Services Ltd 4. Aditya Birla Minacs Worldwide Ltd. 5. Omega Healthcare Management Services Pvt. Ltd. 6. In House Productions Ltd.-Seg 7. Fortune Infotech Ltd. Ground No. 6-The CIT(A) erred in deleting AL....
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.... 5. A reference was made by the Ld. Assessing Officer ('AO') for determining the arm's length price ('ALP') of the international transactions to the Ld. Transfer Pricing Officer ('TPO'). In the course of the proceedings before the Ld. TPO, the assessee filed the Transfer Pricing Study Report (vide letter dated 10th May, 2013 addressed to the Ld. TPO which is at Pg. 3 of the paper book, wherein the activities undertaken by the assessee were described in detail and the relevant portions thereof are as follows: "1.2.2 Acclaris Business Solutions Private Limited ... Acclaris India provides back office processing ('BPO') services to Acclaris Inc. as a captive service provider in relation to some of Acclaris Inc's clients. The BPO services includes various types of services including e-recruitment services, financial accounting services and routine back office services which could be like indexing and enrollment for clients. Our analysis recognizes that Acclaris India works as an IT enabled service provider providing back-office services to Acclaris Inc. Acclaris Inc. bears all the significant business a....
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....rectified. Alternatively, if no errors are present, these queries are sent across to the US SMEs for resolution. Operational Accounting: Operational accounting refers to a reconciliation process performed by the assessee to confirm whether all payments that were required to be made to the clients have been processed by Acclaris Inc. The reconciliation process is performed using the rules and steps provided by the US SMEs. If any errors are found, these are informed to the US SMEs for initiation of corrective action." In such letter, the assessee further submitted that for the rendering of the above mentioned BPO services, Acclaris Inc (AE) had developed a software module which was its own proprietary product intended only for the purpose of claim processing. The assessee in certain situations, provided support to Acclaris Inc., which were based on specific customer needs ascertained by Acclaris Inc. Assessee's functions were limited to making incidental changes to the module necessary for rendering BPO services; requiring basic coding activities, under the guidance and based on the requirements shared by subject matter experts ('SME') emplo....
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....services' for clients of ACCLARIS as well as for 'Software services' for running such 'BPO Services. A Direct FTE for Software Services is defined as any FTE assigned in the development (either in part or in full) or maintenance of any software, which is used by ACCLARIS for running its 'BPO Services'..." 7. The Ld. TPO, however, rejected the contention of the assessee and held that since some of the activities of the assessee pertained to adjudication over claims, the assessee carried out higher functions than a routine BPO, leaning towards a Knowledge Process Outsourcing ('KPO'). Reference in this regard was also made by the Ld. TPO on online job profiles of some of the employees of the assessee. Further, the Ld. TPO also held that the assessee carried out software development work and maintenance of software for the work of its holding company. The Ld. TPO therefore undertook a fresh search for selecting comparables. In said search, the Ld. TPO selected six companies (mainly engaged in KPO services) as comparables with an arithmetic mean PLI of 29.83%. Accordingly, adjustment was made to the assessee's Arm Length Price (ALP) and th....
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....undertake any significant Research and Development on its account that leads to the development of non-routine intangibles. It leverages on the process, know-how, technical data software, operating/quality standards etc. developed/owned by Acclaris Inc. for undertaking the above functions. (c) Risks The risks assumed by the appellant and AE in course of performing the above functions are summarised below. Since, the appellant is operating under the captive arrangement and entirely under the support and guidance of the AE, it is absolved of most of the business and operational risks arising out of the operation. As it can be seen from above that the appellant does not assume any significant risk from its business operation. (c) Characterisation In light of the above, the appellant being a captive service provider remunerated on a cost-plus model does not bear risks like R&D risk, price risk... whereas Acclaris Inc., being an entrepreneur is exposed to all risks associated with its business operations. Considering the same, the appellant was characterised as a routine IT enabled service provider providing back-offi....
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..... The Ld. CIT(A) also selected a further two comparables which were selected by the Ld. TPO and which were not disputed by the assessee and rejected the four other comparables selected by the Ld. TPO which were functionally different from the assessee. Considering the profit level margins of seven companies (five from the transfer pricing study and remaining two comparables of the Ld. TPO), the Ld. CIT(A) held that no adjustment was warranted in assessee's case and allowed the appeal of the assessee. We note that Ld. TPO has erred, in law and in facts, by not considering the FAR profile of the assessee being the key comparability factor in selection of comparable companies. The Ld. TPO has erroneously characterized the assessee as a business engaged in higher functions than a routine BPO, leaning towards a Knowledge Process Outsourcing (KPO). The assessee provides BPO services to its holding company as a captive service provider in relation to some of the clients. The BPO services includes various types of services including e-recruitment services, financial accounting services and routine back office services which could be like indexing and enrollment for clients. The a....
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....sessee does not own any intangibles interest in the intangibles owned by Acclaris Inc. and is only a service provider." Taking into account the above discussions and order of ld CIT(A), we note that there is no any infirmity in the order passed by the ld CIT(A). Besides, the Coordinate Bench in assessee's case (supra), held that assessee was engaged in providing captive BPO services to its holding company. Therefore, respectfully following the judgment of the Coordinate Bench in assessee's case (supra), we hold that assessee is engaged in providing captive BPO services to its holding company and hence we dismiss grounds Nos. 1, 2 and 3 raised by the Revenue. 14. Now we shall take ground Nos. 4, 5 and 6 raised by the Revenue which relate to comparables selected and rejected by the ld TPO and ld CIT(A). The grievance of the Revenue in ground No. 4 is that the CIT(A) erred in rejecting following companies that are functionally comparable to the assessee: 1. Accentia Technologies Ltd. 2. TCS E-Serve International Ltd. 3. e4e Healthcare Business Services Pvt. Ltd. 4. Crossdomain Solutions Pvt. Ltd. In ground No. 5 the grievance of the....
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....ar. The ld Counsel placed reliance on the order the Delhi High Court in the case of Pr. Commissioner of Income Tax v. BC Management Services Pvt. Ltd. Delhi High Court dated 28th November 2017 in ITA 1064/2017 & CM No. 43177/2017 & ITA 1083/2017 & CM No. 43280/2017. The assessee in this case was engaged in providing IT enabled services to its AE and the Hon'ble High Court rejected Accentia as a comparable company by holding in Paragraph 13 Page 3 of its order as under:- "The assessee was aggrieved by the inclusion of Accentia a Software Development Company. The Revenue is aggrieved by the exclusion of Accentia from the TP analysis. The DRP had directed its deletion. We observe that the ITAT has noticed the unavailability of the segmental data so far as these comparables are concerned. Furthermore, the functionality of this entity was concerned, it is different from that of the assessee; Accentia was engaged in KPO services in the healthcare sector." Therefore, considering the above facts and precedents Accentia Technologies Ltd. should be rejected as a comparable. Thus, we accept the view taken by the ld CIT(A). (2). TCS E-Serve International Ltd TCS E-Serve I....
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....re being provided as a part of an acquisition deal, pricing and the terms on which TCS E-serve International provided services would not have been at market defined rates. In this regard, the ld Counsel relied on the judgment of the Coordinate Bench of Delhi ITAT in the case of Morningstar India Pvt. Ltd. v. DCIT, Circle-17(1), (ITA No. 1520/Del/2015) dated 6th May 2019 for AY 2010-11. The assessee in this case was engaged in providing data processing services to its AEs (Para 3 Page 4 of the order) and the Hon'ble Tribunal rejected TCS E-Serve International as a comparable company (Paragraph 22 Page 17 of the order) by holding as under: "22. We have carefully considered the contentions and find the annual account of the above comparable company placed at page number 297-371 of the paper book. Apparently TCS E serve international is a subsidiary of Tata consultancy services Ltd. Behind the above comparable company, there is a Tata brand. On the perusal of schedule M of the profit and loss account there is a payment of 3738000 towards the Tata brand equity contribution. For this reason that it belongs to Tata group and has also contributed to Tata brand which is one of ....
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....is also a 100% EOU, under STPI guidelines. We are therefore inclined to accept the contention of the assessee that this company should be excluded as a comparable. Hence we direct the Assessing Officer to do so." In light of the above facts, the E4e Healthcare Business Services should be rejected as a comparable. Hence, we accept the view taken by the ld CIT(A). (4). Crossdomain Solutions Pvt. Ltd. As per the website of this company, Crossdomain is a Business Process Management Company relentlessly focusing on knowledge intense processes. The service offerings of Crossdomain include Medical Billing and Transcription, Knowledge Services Outsourcing in Insurance, Healthcare, HR and Accounting domains. The company also offers Business Excellence, Market Research & Data Analytics and IT Services. (Pg. 237 of PB).The Ld Counsel submits that it is evident that the said concern operates as a Knowledge Process Outsourcing services provider (KPO) and not a simple business process outsourcing services provider and cannot therefore be compared with the assessee. In this regard, the ld Counsel relied on the judgment of the Coordinate Bench of Hyderabad ITAT in the case of M/s. Market ....
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....of this company was taken into consideration by the Ld. TPO in making the adjustment of the arm's length price of the assessee (Pg. 268 Para 13 of the paper book).Even in the appellate proceedings before the Ld. CIT(A) such company was accepted in the order of the Ld. CIT(A). The ld Counsel submits that as per the annual reports of Cosmic Global Ltd. and various judicial pronouncements, such company is not comparable to the assessee as it has different functions which cannot be compared to those of the assessee. The ld Counsel submits that Cosmic Global should be excluded as a comparable for the reasons stated hereunder- As per the annual reports of Cosmic Global Ltd., * The company's activities were IT enabled services like Medical Transcription, Translation and Software Development. (Pgs. 243-244, Pg. 250 of PB) * The company employs only experienced and trained professionals as transcriptionists. (Pg. 250 of PB) * Medical translation service income accounts for 94% of total revenue. (Pg. 248 of PB) The ld Counsel submits that Cosmic Global Ltd. was engaged in providing services which were in the nature of KPO. T....
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....y the assessee. Therefore, based on the facts and precedent narrated above the Timex Group India Ltd. (segment) should be accepted as a comparable. We agree with the view taken by the ld CIT(A). 3. AOK In-House BPO Services Ltd The company is engaged in providing BPO services. As per their annual report, the company is a BPO service provider (Pg. 322 of SPB). As per its website, the company is a leading outsourced IT Enabled Business Processing and backend Support Services, Insurance policy issuance and claims processing etc. (Page 342 of SPB). Therefore, based on the facts and precedent narrated above the AOK In-House BPO Services Ltd. should be accepted as a comparable. We agree with the view taken by the ld CIT(A). 4. Aditya Birla Minacs Worldwide Ltd As per its annual report, the company provides a variety of business process outsourcing services which are non-voice based. (Pages 305 and 318 of PB).The services provided by Aditya Birla Minacs Worldwide Ltd, being non-voice based BPO services, are similar to those provided by the assessee. Therefore, based on the facts narrated above the Aditya Birla Minacs Worldwide Ltd. should be accepted as a comparable. We ....
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....3) dated 3rd February 2016 reported in [2016] 66 taxmann.com 92(Ahmedabad-Trib.), the Tribunal held that the company was engaged in the business of providing IT enabled services. The relevant portion of the decision, is reproduced below: "7. In order to adjudicate on these issues, it is essential to take a look at the relevant material facts, and developments leading to this appeal before us. The assessee is engaged in the business of providing information technology enabled services in the areas of insurance claim processing, mortgage loan processing and document processing services...." The ld Counsel submits that it is evident from the above that this company is engaged in providing IT Enabled Services such as claims and document processing. This company had been selected as a comparable by the Ld. TPO and the Respondent-assessee does not dispute that this company is functionally comparable to the assessee. Therefore, based on the facts and precedent narrated above the Fortune Infotech Ltd. should be accepted as a comparable. We agree with the view taken by the ld CIT(A). 17. We note that Ld. CIT(A) after detailed examination of the comparables and after going ....
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.... comparables also includes the two accepted companies from the list. 4. Based on the above submission and apparent demonstration, I find merit in the submissions of the appellant-company. Considering the business operation of the appellant, I find merit in the appellant's argument summarised as below: SI NO Name of the Company Reason for Disposition Disposition 1 Accentia Technologies Ltd. Medical transcription services, coding services, offering SaaS model. Case of Bechtel India Pvt. Ltd. vs DCIT (I.T.A No. 1478/Del/2015, AY 2010- 11). Reject 2 TCSE-Serve International Ltd. Engaged in provision of services to Citigroup Inc. and its affiliates ('Citi Group') based on the long term agreement for 9.5 years which is a part of sale consideration. Reject 3 e4e Healthcare Business Services Pvt. Ltd. Provides healthcare outsourcing services and software development Case of Bechtel India Pvt. Ltd. vs DCIT (I.T.A No. 1478/Del/2015, AY 2010-11) Reject 4 Crossdomain Solutions Private Limited The service offerings of Crossdomain include Knowledge Services Outsourcing in Insurance, Healthcare, HR and Accounting domain....