TaxTMI 
TaxTMI 
2020 (12) TMI 589
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....d 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 ALP adjustment of Rs. 2,97,51,782/-." 3. First we shall take Ground No. 1, 2 and 3 raised by the Revenue, which relate to functional, asset and risk ('FAR') ....
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....e 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 and entrepreneurial risks of product acceptability and performances in the market. Acclaris India does not own any interest in these intangibles and is a mere service provider. Based on the functio....
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....her 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') employed by its holding company. 6. The assessee, vide its above letter dated 17th October, 2013 filed before the Ld. TPO, annexed the agreement dated June 30, 2003 which it had entered into with its holding company, Acclaris Inc (Pages 122-131 of the paper book) under....
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....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 the adjusted amount of Rs. 2,97,51,782/- was added to the income of the assessee. 8. Aggrieved by the order of the TPO/AO, the assessee carried the matter in appeal before the ld CIT(A) who has deleted the Arm Length Price (ALP) determined by the TPO at Rs. 2,97,51,782/- and also held that the asses....
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.... 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-office services exclusively to Acclaris Inc., which assumes less than normal risks associated with carrying out such business." The submissions were also made by assessee to counter the erroneous and arbitrary findings of the Ld. TPO. After considering the actions of the Ld. TPO and the submissions and reasons offered by the assessee before the Ld. TPO and also in the appellate proceedings, the Ld.....
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....at 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 assessee reconciles claims to confirm that all payments required to be made to client's employees have been processed by the holding company. All client relations are maintained by the holding company and only a part of the data entry functions is outsourced to the assessee. The holding company, on the other hand, undertakes the entire marketing and business development activity to generate business, negotiates an....
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....pectfully 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 revenue is that the CIT(A) erred in accepting following companies that are functionally different from the assessee: 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 raised by the Revenue is general in nature. Now, we shall discuss these comparables one by....
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....ion 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 International Ltd. has provided services largely to Citi Group based on the agreement entered into by TCSL and Citi concurrent to the acquisition transaction. This would imply that pricing and terms on which services are provided by TCSE to Citi is influenced by Citi itself. The company is 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. As per the annual report of TCS E-Serve International Ltd.-, * The Company....
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....national 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 the largest brand in the information technology segment, there is a definite impact on the pricing capacity of the comparable which the assessee lacks. Hence, we find that TCS E serve international Ltd. deserves to be excluded. Accordingly we direct the learned TPO-AO to exclude the above comparable." In light of the above facts, the TCS E-Serve International Ltd. should be rejected as a comparable. Hence, we accept the view taken by the ld CIT(A). (3). e4e Healthcare Business Services Pvt. Ltd. As per annual report of the company, the company Provides healt....
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....main 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 Tools Research Pvt. Ltd. in ITA No. 1811/Hyd/2012 dated 24th October 2013. In this case, the assessee was engaged in providing IT enabled back office services to its AE (Para 2 Page 1 of the order) and the Tribunal rejected Crossdomain Solutions Private Ltd. as a comparable company (Paragraphs 11.1-11.3 Pages 17-19 of the order) by holding as under- "We have heard the submissions of the parties and perused the material on record with regard to the aforesaid company. As can be seen from the website extract of the aforesaid company, it is engaged in providing services which are i....
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....r 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. The company was providing software development, medical transcription and translation services in various streams including legal, marketing, technical, medical, etc. Therefore, this company cannot be compared to the assessee. In this regard, the ld Counsel relied on the judgment of the Coordinate Bench of Pune ITAT in the case of Schlumberger India Technology Centre Pvt. Ltd. V. The Dy. Director of Income Tax (IT)-II, Pune (ITA No. 640/PUN/2014) dated 10th January 2018 (AY 2010-11).The assessee in this case was engaged in providing technical support services to its AEs (Para 4 of the order) and the Hon'ble Tribunal rejected Cosmic Glob....
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....s 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 agree with the view taken by the ld CIT(A). 5. Omega Healthcare Management Services Pvt. Ltd. As per its annual report, the company was into BPO services like medical billing, coding, accounts receivable management, clinical staff augmentation, and total healthcare revenue management services, data entry services and physician and hospital claims services. (Pg. 345, Pg. 352 PB). In this regard, the ld Counsel relied on the judgment of the Coordinate Bench of Delhi in the case of Bechtel India Pvt. Ltd. vs. DCIT (I.T.A No. 1478/Del/2015, AY 2010-11). The assessee in this case was engaged in providing captive support services to its AE (Para 3 Pages 1-2 of the order) and t....
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....nabled 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 through the submissions of the assessee in that regard, rightly concluded that the transaction is at arm's length, by observing the as follows: "07. DECISION: 1. I have carefully considered the action of the Ld. TPO and the submissions and reasons offered by the appellant before the Ld. TPO as well as in appeal. After examining the issues at hand, as also the different judicial decisions placed on record by the appellant/Ld. A/Rs for the appellant, I am inclined to agree with the contention of the appellant that the Ld. TPO has not taken into account the Functional Asset and Risk (FAR) profile of the appellant-company and the AE, and has overlooked the evidence provided by the appellant before him ....
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....h 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 domains. The company also offers Business Excellence, Market Research & Data Analytics and IT Services. Case of M/s. Market Tools Research Pvt. Ltd., V/s. Dy. Commissioner of Income-tax Circle 16(2) and BNY Mellon International Operations (India) Private Limited, V/s. Dy. Commissioner of Incometax Circle 1(1), Pune. Reject 5. Based on above, final comparables are as below: SI NO Company Name Disposition OP/TC 1 AOK In-House BPO Services Ltd. Accept 12.58% 2 Aditya Birla Minacs Worldwide Ltd. Accept 8.06% 3 Omega Healthcare Management Services Pvt.Ltd Accept 9.34% 4 In House Productions Ltd. Accept 4.32% 5 Timex Group India Ltd. Accept 8.38% 6 Fortune Infotech Ltd. Accept 22.77% 7 Cosmic Global Ltd. Accept 14.97% Mean....