TaxTMI 
TaxTMI 
2019 (9) TMI 1677
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....cts and law while including BNR Udyog Ltd. as a comparable whereas the same should have been excluded for the reason that it fails RPT filter of 25% and that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7 and additional ground 7). 3. The Ld. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including Excel Infoways Ltd. (Segmental) as a comparable whereas the same should have been excluded for the reason that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7) 4. The Ld. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including Infosys BPO Ltd. as a comparable whereas the same should have been excluded for the reason that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7) 5. The I.A. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including TCS E-Serve Ltd. as a comparable whereas the same should have been excluded for the reasons of functional dissimilarity (corresponding to original ground 4.7)....
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....nt of bank charges 2,318,210 2.3. It was observed that, assessee computed arm's length price of international transaction for back office support services rendered by assessee to its AE being IT enabled services, with OP/TC as PLI. Assessee thus computed its margin at 15.80%. It selected following 7 comparables, with average margin of 11%. Sl. No. Comparable Company Average adjusted Mark-upon total cost 1 Cameo Corporate Services Ltd. 10% 2 Cosmic Global Ltd. 13% 3 Sparsh BPO Service Ltd. 2% 4 E4e Healthcare Business Services Pvt.Ltd. 14% 5 Jindal Intellicom Ltd. 13% 6 Inhouse Productions Ltd. 14% 7 Vishesh Infotechnics Ltd. 15% 2.4. Ld. TPO on application of various filters accepted 2 comparables of assessee and on basis of fresh search included following comparables with average margin of 28.11%: Sl.No. Name of the Case Op/OC 1 Accentia Technologies Ltd. 11.75 2 Universal Print Systems Ltd.(Seg. (BPO) 52.46 3 Informed Technologies Ltd. 6.08 4 Infosys BPO Ltd. 36.30 5 Jindal Intellicom Ltd. -0.05 6 Microgenetic Systems Ltd. 19.61 7 TCSE -Serve Ltd. 63.69 8 BNR Udyog Ltd.(Seg.) (IT/BVPO) 50.61 9 Excel Infoways Ltd.(Seg)(I....
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....tted that assessee carries out various services through various departments including Accounts Payable, the customer master data team the cross-reference team the backorders, marketing communications and material safety that. It is also been submitted that for the services assessee is compensated on cost plus markup basis. Assessee is also held to be providing support services to its AE is in relation to sourcing of laboratory supplies, equipment and instruments from benders in India. It is also held to be providing marketing support services in respect of direct sales undertaken by the AE and distribution services in respect of equipments manufactured by group to third-party customers in India. Assets employed: Assessee utilises computer systems, office equipments et cetera for the purposes of business. And it does not own any non-routine intangibles. Risks assumed: it has been submitted that assessee do not own any significant risk except for foreign exchange risk as compensation for the services rendered is received by assessee in foreign currency which is subjected to foreign exchange fluctuations. Thus in toto assessee has been characterised as less than minimal risk serv....
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.... This company was chosen as a comparable company by the TPO. In reply to the proposal of the TPO to include this company as a comparable company, the Assessee vide its letter dated 22.12.2015 had pointed out its objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP TC of this company will be only 51.80%. The Assessee further pointed out (Page 764 of paper book) that the TPO had applied revenue filter of more than 75% being from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.6% of the total revenue from operations of this company as per its annual report. The Assessee also pointed out that in the Pre-press BPO segment this company was providing integrated print solutions to its customers, which includes scanning, design/layout, trapping, hand-outlined clipping path and image masking and magazine and catalogue publishing. The Ass....
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....ve dropped this company as a comparable company because this filter has to be applied at the entity level and not at the segmental level. The learned DR submitted that if the service revenue filter is applied at the segmental level there can be no objection by the Assessee. She relied on the order of the DRP/TPQ. 50. The requirements of Rule 10B(1)(2) & (3) of the Rules in the matter of comparability of companies under TNMM needs to be seen. The same reads as follows: "10B. (1) For the purposes, of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:-- (a) to (d). ****** (e) transactional-margin method, by which, (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable unco....
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....iminate the material effects of such differences." 5.2. There appears to be no bar in the Rules referred to above to considering segmental data under TNMM because the comparison is of "net profit margin realized by the enterprise from an international transaction" with the "net profit realized from a comparable uncontrolled transaction". Therefore comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitled to apply the filters at segmental level. As we have already stated if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore the objection with regard to this company failing the employee cost filter and service revenue filter in our view was rightly rejected by the TPO and DRP. It is however seen that this company has four segments viz., Repro. Label Printing, Offset Printing and Prepress BPO. Whether the label printing and offset printing segments supplement the functions performed in the Prepress BPO segment ha....
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.... ACIT vide order dated 28/06/19 in ITA (TP) a No. 1661/Bang/2016, wherein this comparable has been excluded by observing as under: '5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case of Baxter India Pvt. Ltd. Vs. ACIT ITA No. 6158/Del/2016 for AY 2012-13 in the case of a company rendering ITES such as the Assessee, vide order dated 24.8.2017 Paragraph 23 held that Infosys BPO is not comparable with a company rendering ITES for the following reasons:- "23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Officer/TPO/DRP is that Infosys BPO Ltd. is predominantly into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche areas, unlike the assessee. Further it was also submitted that the Infosys BPQ Ltd. comprises brand value which will tend to influence its business operation and the pricing policy thereby directly impacting the margins earned by the Infosys BPO Ltd. We find the submissions of the ld. counsel for the assessee before TPO/DRP that in order to maintain the brand ima....
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....aced before us. Assessee placed reliance upon following decisions in support of its argument for exclusion of this comparable: * Zyme Solutions Pvt. Ltd. vs. ACIT (supra) * Baxter India Pvt. Ltd. vs. ACIT reported in (2017) 85 Taxmann.com 285 (Delhi-Trib) * PCIT vs. BC Management Services Pvt. Ltd. reported in TS-948-HC-2017 (Del)-TP It is observed that this comparable has been excluded by this Tribunal. Assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt. Ltd., vs. ACIT reported in (2019) 101 taxman.com 292, by observing as under: "11.3 We have heard rival submissions and perused material on record. The issue of comparability of this company was considered by the co-ordinate bench of Tribunal in the case of XLHealth Corpn. India (P.) Ltd. (supra). The relevant findings of the Tribunal are as under: '. . . . We have heard the rival submissions and perused the material on record. From the perusal of the Annual Report of this entity placed at page Nos. 583 to 678 of paper book, at page No. 604 it is stated as under. "2. COMPANY OVERVIEW Your Company, along with its subsidiary companies - TCS e-Serve International Limited and TCS e-....
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....ave perused submissions advanced by both sides in the light of the records placed before us. Assessee is challenging functional dissimilarity of this company with that of assessee as it is into medical transcription. We have our reservation to consider medical transcription services to be one of KPO services. In our considered opinion medical transcription services is basically back-office services provided by graduates who are trained for short period of 6 months to one year. These are short crash courses undertaken by graduates who are trained to understand and speak English. There is no value addition in the services rendered by people in medical transcription. To our understanding, basically these people who carry out medical transcription services are trained to understand language spoken by doctors, outside India to whom medical reports of patience are sent for expert opinion. Medical transcriptionist simply reproduces opinion expressed by Doctor, which is then communicated to the patients. It is observed from annual report placed at page 745 of paper book Volume (Index to Annual Reports) that this company has segmental information of medical transcription and revenue earne....
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....mparable fails employee cost filter. 20. Ld. CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech India (P) Ltd. vs. DCIT reported in (2018) 97 taxman.com 2 in support. 21. We have perused submissions advanced by both sides in light of records placed before us. Annual report of this company is placed at page 795 of paper book (Index for Annual Reports) volume 1. In the Significant Accounting Policies reported at page 830 of paper book, it is observed that these companies operating businesses are organized and managed separately, according to nature of business and services provided with each segment, representing different strategic business unit. Note 15 at page 834 refers to revenues from operations under the head information technology/BPO related services separately. It is observed that function performed by this company as reported at page 806 reveals that it is engaged in business of providing customer care services and handling client business relations on their behalf by maintaining relation with customers and also....
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.... on the profit margin of this company and therefore rendering this company from being chosen as a comparable company. The Delhi ITAT in the case of BT e-Serve (India) Ltd. Vs. ITO ITA No. 6690/Del/2016 for AY 2012-13 order dated 19.6.2018 considered the comparability of this company and came to the conclusion in paragraph 5.4 of its order that there was abnormal volatility of revenue of this company from 2009-10 to 2014-15 and therefore this company should not be regarded as comparable company. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid company from the list of comparable companies chosen by the TPO. It is observed from order passed by Ld. TPO at page 10 that assessee objected this company that employee cost filter being more than 25% has not been examined by Ld. TPO. It is observed that in decision of coordinate bench of Delhi Tribunal in case of Baxter India private limited vs. ACIT reported in (2017) 85 Taxmann.com 285 this comparable failing employee cost filter has been analyzed as under: "Further, from the order of the TPO we find he has obtained the employee cost and the sale for the ITES segment by exercise of his powers u/s. 133(....
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....upport of his contention, Ld. AR placed reliance upon decision of this Tribunal in case of Commscop Connectivity Services India Pvt. Ltd. vs. DCIT in ITA(TP)A No. 285/B/2017 for assessment year 2012-13 vide order dated 30/05/19 placed at page 1157 of case law compendium II. 6.1. Ld. DR placed reliance upon the orders of authorities below. 6.2. We have perused submissions advanced by both sides in the light of the records placed before us. Ld. AR contends that Ld. AO while computing margins of the comparables has not included certain provisions. It is observed that this Tribunal in case of Commscop Connectivity Services India Pvt. Ltd. vs. DCIT (supra), held as under: "9.2 we have heard the rival contentions and perused the record. Under the scheme of income tax act mentioned in chapter 10 a LP is required to be determined of the tested party by comparing price percentage charged by the assessee whiz comparable in respect of international transactions entered by the assessee with its AE. If the bad debts, provisions of warranty, doubtful interest, miscellaneous expenditures are taken for earlier years then formula for calculating the profit percentage would be disturbed, as on....