TaxTMI 
TaxTMI 
2019 (10) TMI 1439
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.... in selecting Infosys BPO Limited, Zylog Systems Limited and Excel Infoways Limited as companies comparable to the Appellant. 3. On the facts and in circumstances of the case, the Learned AO and the Learned TPO under the directions of the Hon'ble DRP erred in computing the profit level indicator of Jindal Intellicon Limited. 4. On the facts and in circumstances of the case, the Learned AO and the Learned TPO under the directions of the Hon'ble DRP erred in rejecting the transfer pricing documentation of the Appellant and resorting to cherry picking of comparables in order to arrive at a set of companies comparable to the Appellant. 5. On the facts and in circumstances of the case, the Learned AO and the Learned TPO under the directions of the Hon'ble DRP erred in disregarding the multiple year data analysis undertaken by the Appellant in accordance with Rule 10B(4) of the Income Tax Rules, 1962 ('Rules') for computing the margins of comparable companies. 6. On the facts and in circumstances of the case, the Learned AD and the Learned TPO under the directions of the Hon'ble DRP erred in not providing appropriate adjustments....
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.... 16.04 16.96 8 IDBI Intech Ltd. 4.58 2.33 9 Ideavata Solutions Pvt. Ltd. 31.47 22.96 10 In House Productions Ltd. (Seg.) 13.27 2.94 11 Jindal Intellicom Ltd. 13.12 1.40 12 L G S Global Ltd. 13.58 9.34 13 Melstar Information Technologies Ltd. (5.13) 2.36 14 Mindtree Ltd. 16.41 14.39 15 Omega Healthcare mgmnt services Pvt Ltd. 12.96 13.78 16 Persistent Systems and solution Ltd. 16.30 27.09 17 Proteans Software Solutions Pvt. Ltd. 1.90 NA 18 Savi Infoservices India Pvt. Ltd. 9.44 1.61 19 Sparsh B P O Services Ltd. 1.56 (26.66) 20 Synetairos Technologies Ltd. 15.13 17.53 21 Visesh Infotecnics Ltd. (seg.) 15.14 36.02 Arithmetic Mean 12.52 11.86 3. The margin on comparable based on average of was 12.52% and the assessee's margin for international transaction was 15.02%. Thus, the assessee claimed its transaction at the Arms Length. The Assessing Officer made a reference to Transfer Pricing officer (TPO) under section 92CA for computation of Arms Length Price (ALP). During th....
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.... assessee. The ld. AR of the assessee submits that Ground No. 1 to 6 relates to TP Adjustment and the ld. AR of the assessee is pressing only the exclusion of Infosys BPO and Excel Infosys BPO Ltd. It was further submitted that in case both these comparable are excluded the assessee's margin would be within tolerance range. For exclusion of Infosys BPO Ltd., the ld. AR of the assessee submits that this comparable is not functionally comparable due to Brand Value and high turnover of Rs. 1312.41 crore and extraordinary events during the year under consideration as its acquiring an Australian based company namely Portland Group Pty. Ltd. Function undertaken, asset employed and risk assumed (FAR) of Infosys BPO Ltd. is different from the assessee, who operates on minimum risk. Infosys BPO Ltd. provides end to end outsourcing services and enterprise-wise services to clients across various industry segments like banking, manufacturing, rental and energy sector. It also provides Legal Process outsourcing Services (LPO) which is different from assessee. It also provides Knowledge Processing Outsource (KPO) Activities like analytics, financial planning and analysis. It has diversified....
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....but no bifurcation or breakup of employee cost has been provided. In absence of such details, the contention of DRP that bulk of the employees cost is attributable to ITeS is unreliable. Further, merely because IT/BPO segment is employee oriented, it does not mean that the infra segment did not incur employee cost or incur very less employee cost. Thus, a company having low employee cost cannot be comparable to the assessee. It cannot be considered as comparable due to fluctuating margin and diminishing revenue trend. The operating margin of this company has shown drastic fluctuation ranging from 247.74% in F.Y. 2008-09 to 2% in A.Y. 2014-15. The ld. AR furnished the fluctuating margin of this comparable from F.Y. 2008-09 to 2014-15. In support of her submission, the ld. AR relied on the following decisions: a. Cases wherein Tribunal excluded Excel Infosys Ltd. for A.Y. 2012-13. i. Clear Info Analytics Private Limited vs. ACIT [IT(TP)A No. 2299/Mum/2017]. ii. GTS E-Services Private Ltd. v. ITO [ITA No. 1231/Mum/2017. iii. Emerson Comate Technologies (India) Pvt. Ltd. vs. DCIT [ITA No. 359 & 2847/PUN/2016]. iv. Ocwen Financial Soluti....
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....ot affect the account on stands alone basis. The co-ordinate bench of Mumbai Tribunal in Maersk Global Services vs. ACIT(supra) while considering the comparability/exclusion of Infosys BPO Ltd. held as under: "10. We have considered rival submissions and perused materials on record. From the material on record, it is evident that the assessee is not only a captive service provider, but the nature of service provided by the assessee can be categorized as simple BPO services. Even, the DRP has also accepted that the nature of service provided by the assessee will not come within the purview of High End BPO or KPO services. It is relevant to observe, the Transfer Pricing Officer while examining the functional profile as well as skill set employed by the assessee has observed that 97% of the employees are simple graduates. Whereas, only three per cent are professionals. Thus, from the aforesaid fact, it appears that the assessee is providing simple voice and data services to its A.Es. Whereas, the same cannot be said about Infosys BPO Ltd. which apart from its brand value being part of Infosys Group, is not comparable to the assessee in various other aspects also. Notably, whi....
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....events which took place during the year. Similar is the view of Bangalore Tribunal in Mobily Infotech India Pvt. Ltd. Vs DCIT [supra]." 14. The Hon'ble Bombay High Court in CIT vs. Principle Global Services (P.) Ltd. while considering the question of law whether Tribunal was right in excluding on turnover basis held as under: "8. Re Question (d):- (i) M/s. Infosys BPO Ltd., was excluded by the Tribunal from the list of comparable to determine ALP in respect of International Transaction of the Respondent's activity of rendering of back office support services to its AE. (ii) The impugned order of the Tribunal noted the facts that turnover of the comparable was to the tune of R.9028 Crores while the turnover of the Respondent-Assessee, as noted by the TPO was only Rs. 18 Crores. (iii) The impugned order further records that in view of the difference in turnover between M/s. Infosys BPO Ltd., and the Assessee, the two are not comparable. In fact, the impugned order placed reliance upon the decision of the Delhi High Court in CIT v. Agnity India Technologies (P.) Ltd. [2013] 36 taxmann.com 289/219 Taxman 26 wherein, it was held that the h....
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....erefore, allocation of manpower expenses on the basis of ITeS/BPO segment and infra segment is not correct. On asset turnover ratio, the DRP concluded that once company is functionally comparable, is cannot be rejected on the ground of difference of fixed asset to operating income, low employee cost, unless the assessee demonstrate how these factors have impacted profitability and also quantify the difference in profitability. The ld. AR of the assessee vehemently submitted that this comparable cannot be comparable as its Director were considering closing of its ITeS/BPO segment and diversify in new area of construction, development of property and real estate. The ld. AR also demonstrated that the fluctuating margin of this comparable in different Financial Year in the following manner: Financial Year OP/TC (%) Revenue (Rs.) 2008-09 247.74% 1,86,040.74 2009-10 267.31% 2,04,161.34 2010-11 238.71% 2,03,526.40 2011-12 41.48% 79,096.95 2012-13 75.70% 76,098.54 20013-14 30% 52,972.12 2014-15 2% 22,994.38 17. The ld. AR for the assessee strongly relied on the decision of co-ordinate bench in Clear Info Analytics ....
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....uating to be excluded from final set of comparables. Accordingly, we h ld The Assessing Officer is directed to recompute mean margin of the comparables and determine ALP of the international transactions of provision of Oracle support services (ITes) by the assessee to its AEs after affording reasonable opportunity of hearing to the assessee. Thus, ground No. 3 raised in appeal by assessee is allowed." In the case of Excel Infoways Limited, a chart provided before us wherein we have seen that there is fluctuating profit margins and IT(TP)A No. 2299/Mum/2017 following the same parity of reasoning, Excel Infoways Limited because of fluctuating profit margin, is to be excluded from the final set of comparables. 13. Further, the TPO has applied diminishing revenue filter to exclude the companies from the comparable set whereas, the revenue of Excel Infoways Limited also clearly demonstrated diminishing revenue trend. In such situation, we refer to the decision of Co-ordinate Bench of the Tribunal, Delhi in the case of Baxter India Pvt. Ltd. Vs. ACIT (supra.) where the Tribunal has held as follows: "24. So far as exclusion of Excel Infoways Ltd. is concerned, we also f....
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....segment by exercise of his powers u/s. 133(6), wherein the said company has allocated entire employee cost to IT - BPO segment with no allocation to Infra Activity segment which accounts to 49% of Excels total revenue. In our opinion, it is highly impractical that no employee has been hired by Excel for Infra Activity segment. We, therefore, find merit in the argument of the Id. counsel for the assessee that the information provided as per section 133(6) by 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." Therefore, it is examined that both, Universal Print Systems Limited and Excel Infoways Limited cannot be considered as comparable companies with th....
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....re contained in Para 24 and 25 of the said order and are being reproduced for a ready reference: "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 revenue filter. From the submissions of the assessee before the TPO (at page 232 of Volume - 1 of the Paper Book)....