AI Drafter 
TaxTMI 
TaxTMI 
2020 (5) TMI 731
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....rvices in the chosen field of insurance, healthcare, collection and financial services. It filed its return of income on 13th October, 2008 declaring the total income at Rs.7,85,738/-. Since the assessee had entered into certain international transactions, the AO referred the matter to the TPO u/s 92CA for determination of the arm's length price of the international transaction entered into by the assessee. The TPO, during the course of TP assessment proceedings, observed that the assessee has entered into the following international transactions:- Nature of international transaction Method selected Value of international transaction Provision of IT Enabled services TNMM 603,687,685/- Provision of consultancy services TNMM 1,47,35,206 Reimbursement of expenses No benchmarking 1,47,34,062 3. The TPO noted that the assessee in its |TP study has chracterised itself as provider of IT enabled services and has selected it as the tested party. Further, the assessee has applied TNMM as the most appropriate method. He observed that the assessee has selected 15 comparables and has applied the following filters:- a) Companies for which sufficien....
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....5. Caliber Point Business Solutions Ltd. (Seg.)* 10.97 6. Cosmic Global Ltd. * 24.30 7. Crossdomain Solution Pvt Ltd. 26.96 8. Datamatics Financial services Ltd. (Seg) 34.87 9. e 4e Healthcare (Formerly known Nittany Outsourcing) 16.87 10. eClerx Services Ltd. 66.50 11. Genesys International Corporation Ltd. 48.15 12. HCL Comnet Systems & Services Ltd. (Seg.) 32.97 13. ICRA (Seg.) 11.22 14. Infosys BPO 20.03 15. I Services India Pvt. Ltd. 9.73 16. R.Systems International Ltd. (Seg) 4.30 17. Spanco Ltd. (Seg.) 8.94 18. Wipro Ltd. BPO 30.23 Arithmetical Mean 24.15 Assessee Company 15.00 7. In the final assessment order, the AO made addition of Rs.4,70,19,716/- as against Rs.6,25,78,194/- made in the original order. 8. Aggrieved with such order of the AO/TPO/DRP, the assessee is in appeal before the Tribunal by raising the following grounds:- "On the facts and circumstances of the case and in law, the hon'ble Dispute Resolution Panel - I, New (DRP') grossly erred in conforming the addition of Rs 4,70,19,716 proposed b....
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.... the circumstances of the case the Ld. AO /DRP were not correct in including the following entity in the list of appropriate comparable:- i) Genesys International." 10. So far as the additional ground No.1 is concerned, the ld. Counsel for the assesses submitted that the assessee company had taken Genesys International Corporation Ltd. as a proper comparable for TP analysis on the basis of then available information which is available in the data bases Prowess, etc. used by its independent accountants. However, subsequently it came to the notice of the assesseee on the basis of various decisions of the Tribunal that entity like Genesys International Corporation Ltd., was functionally dissimilar and incomparable. 11. So far as the additional ground No.2 is concerned, he submitted that since the original ground No.5 is unhappily worded and does not bring out the grievance clearly, therefore, the assesseeee by filing this additional ground of appeal has challenged the selection of certain comparables by the TPO. 12. Referring to the decisions of the Hon'ble Supreme Court in the case of NTPC Ltd. vs. CIT, reported in 229 ITR 383 and the decision in the case of Jute Co....
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....e comparables. Both the sides agreed that this issue needs to go back to the file of AO/TPO for correct determination of computation of working capital adjustment. We, therefore, deem it proper to restore the issue to the file of AO/TPO for determination of the working capital adjustment. Ground No.3 of the assesseee is accordingly allowed for statistical purposes. 20. Ground of appeal No.2, 4 and 5 and two additional grounds relate to inclusion/exclusion of certain comparables. 21. So far as Accentia Technologies Ltd. is concerned, the ld. Counsel for the assessee at the outset, referred to the order of the Tribunal in assesseee's own case for A.Y. 2007-08 and submitted that the Tribunal at para 5.3 to 5.3.2 has discussed this issue and has directed the AO/TPO to exclude this company form the list of comparables. Referring to the decision of the Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. vs. ACIT reported in (2018) 93 taxman.com 251, he submitted that the Tribunal has excluded this company from the list of comparables on the ground that extraordinary events have taken place during the year in case of Accentia Technologies Ltd. Referring to ....
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.... Tribunal in the case of Blackrock Services India (P). Ltd. (supra) has excluded Accentia Technologies by observing as under:- "23. So far as exclusion/inclusion of Accentia Technologies Limited is concerned, we find from the Annual Report Compendium that the company in its annual report at page 29 has mentioned about the acquisition of Thunga Software Pvt. Ltd., acquired GSR Physician's Billing Service, acquired GSR systems, a software company specializing in HRCM based in Florida, USA, acquired Denmed Inc., a medical transcription company based in salem, Oregon, USA. Further, this company is engaged in providing diversified services. This company is engaged in transcription services which is considered as a high end service (KPO). 24. We find the Hyderabad Bench of the Tribunal in the case of BA Continuum India (P.) Ltd. (supra) has excluded Accentia Technologies Limited on account of extraordinary events that took place in this company. The Pune Bench of the Tribunal in the case of IT Cube Solutions (P.) Ltd. (supra) has also excluded Accentia Technologies Limited from the list of comparables on account of extraordinary events that have taken place. Similar....
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....the ground that Crossdomain Solution Pvt. Ltd., is a high end KPO and into developing of product suits. While doing so, the Tribunal has followed the decision of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. 28. The ld. DR, on the other hand, heavily relied on the order of the AO/TPO/DRP. 29. After hearing both the sides, we find the Hon'ble Bombay High Court in the case of Apatara Technology (P) Ltd. (supra) has upheld the decision of the Tribunal excluding Crossdomain Solution Pvt. Ltd., from the list of comparables by observing as under:- "(a) The impugned order of the Tribunal excluded M/s. Cross-domain Solutions Ltd. from the list of comparable. This after having rendered finding of fact that it was engaged in distinct activities such as payroll activity, 'Knowledge Process Outsourcing' (KPO) service, development of products and routine IT services. Further, the impugned order indicates that differences between the Elearning service and 'Knowledge Process Outsourcing' which would clearly establish that the activities are not comparable. The impugned order also records that M/s. Cross-domain Solutions Ltd. was engaged in....
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.... the AO/TPO are directed to exclude this company from the list of comparables. 32. So far as Datamatics Financial Services Ltd. is concerned, the ld. Counsel for the assessee submitted that this company is functionally different since it is acting as registrar and share transfer agents as well as ITES and there is no segmental information available in the audited accounts. Therefore, the revenue from both the systems cannot be computed separately. Referring to the decision of the Delhi Bench of the Tribunal in the case of Blackrock Services India (P). Ltd. cited supra and the decision of the Delhi Bench of the Tribunal in the case of CIT vs. Tech Books 67 taxmann.com 169, he submitted that this company was excluded from the list of comparables. Referring to the decision of the Delhi Bench of the Tribunal in the case E-value serve.com reported in 97 taxmann.com 103, he submitted that this company was also directed to be excluded from the list of comparables on account of discrepancy in the information in Annual Report and 133(6) reply. He accordingly submitted that this company be excluded from the list of comparables. 33. The ld. DR, on the other hand, heavily relied on the o....
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....y has shown 450% profit and falls in the category of highly profitable business and as such, is liable to be excluded from the list of comparable company. TPO in his analysis for finally choosing this company as comparable, has categorically taken Datamatix Financial Ltd. as BPO division. There is no segmental information available on the file to make out if this comparable company is a BPO division. This is a mystery as to how the TPO has shown OP/TC @ 34.87% of this comparable company as shown in para 3.7 of the order. Even Ld. D.R. has failed to answer as to how this figure has come out on record. When the segmental information regarding IT Enabled Service is C.O.93/Del/2013 not available, it is beyond comprehension, as to how the TPO has chosen this company as comparable company. At the same time, CIT(A) has also summarily excluded this comparable as per contention of the assessee without examining if this company is a BPO division. So, we are of the considered view that the matter is required to be restored to the TPO to verify if the figures relied upon by him are of BPO division. If the comparable company is not ascertained as BPO division then it is to be excluded ....
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....process solutions to the customers which in our opinion are functionally different from the functions performed by the assessee under outsourced business processes like technical support services, account management, etc.. We find the Delhi Bench of the Tribunal in the case of Avaya India (P.) Ltd. (supra) following the decision of the Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. vs. CIT in ITA No.102/2015 order dated 10.08.2015 has held that E Clerx Services Limited and Coral Hub Limited (Vishal Information Technologies Limited) being high-end service providers cannot be compared with low-end service provider. Similar view has also been taken by the Hyderabad Bench of the Tribunal in the case of BA Continuum India (P.) Ltd. (supra) on the ground that this company is classified as high-end KPO and was having supernormal profit. The Bangalore Bench of the Tribunal in the case of Goldman Sachs Services (P.) Ltd. (supra) has also excluded this company from the list of comparables on account of the said company being mainly engaged in providing high-end KPO services involving specialized expertise in the field and the same cannot be compared with company ma....
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....ces. Clearly, the aforesaid services are not comparable with the services rendered by the Assessee. Further, the functions undertaken (i.e. the activities performed) are also not comparable with the Assessee. In our view, the Tribunal erred in holding that the functions performed by the Assessee were broadly similar to that of eClerx or Vishal. The operating margin of eClerx, thus, could not be included to arrive at an ALP of controlled transactions, which were materially different in its content and value. In Maersk Global Centers (India) Pvt. Ltd. (supra), the Special Bench of the Tribunal had noted the same and had, thus, excluded eClerx as a comparable. It is further observed that the comparability of eClerx had also been examined by the Hyderabad Bench of the Tribunal in M/s Capital Iq Information Systems(India) (P.) Ltd. v. Additional Commissioner of Income- tax (supra), wherein, the Tribunal directed the exclusion of eClerx as a comparable for the reason that it was engaged in providing KPO Services and further that it had also returned supernormal profits." In the light of the aforesaid decision of the Hon'ble jurisdictional High Court in the case of Rampgreen ....
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....nfosys BPO is 49 times than that of the tested party (assessee), cannot be countenanced in view of the Hon'ble jurisdictional High Court's decision in the case of ChrysCapital Investment Advisors (India) Pvt. Ltd in ITA 417/2014 judgment dated 27.04.2015. Though we have held in the case of Avaya India (P) Ltd. vs. Addl.CIT, Range 2, New Delhi in ITA No.5528/Del./2011 order dated 18.09.2015 for AY 2007-08 that the Infosys BPO is a comparable company to Avaya, since it is rendering ITES services, however, we take note that an extra-ordinary event has been reported at page 36 of the Annual Report for financial year 2007-08, which has been recorded as given below :- "Infosys BPO Limited has acquired the shared service centres of Philips at Poland, Thailand and Chennai through its investment in P - Financial Services Holding B.V. Netherlands as per sale and purchase agreement dated July 25, 2007 with Koninklijke Philips Electronic N.V. for a purchase consideration of 107.12 crores of which Rs.5.59 crores is yet to be paid towards additional purchase consideration. The shared service centres at Poland and India have become 100% subsidiary of the company on October 1, 200....
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.... We, therefore, direct the AO/TPO to exclude this company from the list of comparables. 48. So far as Acropetal Technologies Ltd. (Seg) is concerned, the ld. Counsel for the assessee submitted that this company is engaged in development of software products whereas the assessee is doing ITES services and, therefore, this company is functionally different and cannot be considered as a good comparable. 49. The ld. DR, on the other hand, heavily relied on the order of the AO/TPO. 50. After hearing both the sides, we find Acropetal Technologies Ltd. is engaged in development of software products. We find, the coordinate Bench of the Tribunal in the case of H&S Software Development and Knowledge Management Centre Pvt. Ltd. (supra) has directed exclusion of this company from the list of comparables by observing as under:- "4. So far as Acropetal Technologies Limited is concerned, we find this company is engaged in development of software products, whereas assessee is doing ITES services which in our opinion cannot be compared with software development company. From the notes of account, copy of which is placed at page 104 of the Paper Book, we find this company is engag....
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.... would do and not a Business Process Outsourcing [BPO]. As can be seen above, said company was excluded on the differentiation of high end services being provided by this company. Assessee does not provide high end services as submitted. Therefore we are of the opinion that functions of assessee are not similar to the above Company. We direct the TPO/AO to exclude this company." 35. In view of the decision of Hyderabad Bench of the Tribunal which, in turn, has followed the Bangalore Bench of the Tribunal and in absence of any contrary material brought to our notice, we hold that Acropetal Technologies Limited should be excluded from the list of comparables." 51. We find, the Delhi Bench of the Tribunal in the case of IHG IT Services (India) (P) Ltd. (supra) while directing to exclude Acropetal Technologies Ltd. has observed as under:- "34. We have heard both the parties and perused the records. We find from a perusal of the said letter dated 08.03.2011 to the TPO that Acropetal is into software development also and since the segmental information is not available, it would not be safe to rely on the finance of this company. Therefore, we order exclusio....
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....Instore, Retail Pharmacy, Automotive, Open Source and Gaming. 46. Furthermore, Wipro has significant ownership of IPR whereas the taxpayer has no such ownership of IPR. Furthermore, Wipro is a giant company having turnover of Rs.17492.62 crores as against taxpayer's turnover of Rs.16.64 crores. Furthermore the Wipro has undergone extra ordinary events, duly detailed at page 440 of the paper book by the taxpayer by way of amalgamation of the companies viz. Wipro Infrastructure Engineering Limited, Wipro Healthcare IT Limited, Quantech Global Services Limited (subsidiary companies) with Wipro Limited, approved during the FY 2007-08 by the Hon'ble High Court of Karnataka and the Hon'ble High Court of Andhra Pradesh. 47. Wipro was ordered to be excluded by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 (supra) and in Symphony Marketing Solutions India Pvt. Ltd. (supra) on the ground that it has a significant brand value having high turnover and a market leader in its field whereas the taxpayer is a tiny company and having diversified business and huge expenditure on R&D. So, in view of what has been discussed above and follo....
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....following decisions, he submitted that this company has been excluded from the list of comparables on account of different functionality:- i) Blackrock Services India (P) Ltd.vs. ACIT (2018) 93 taxmann.com 251 (Delhi-Trib) (A.Y. 2008-09) ii) IHG IT Services (India) (P) Ltd. vs. DCIT, Circle 1(1), New Delhi (2015) 64 taxmann.com 427 (Delhi-Trib.) (A.Y. 2008-09) 58. The ld. DR, on the other hand, strongly supported the order of the AO/TPO/DRP. She submitted that this is a comparable that has been selected by the assessee itself based on the FAR analysis in its own TP study. It was also used as a comparable in the case of the assessee in earlier years. Since this comparable has passed all the filters selected by the TPO, therefore, the TPO has accepted this as a comparable. He submitted that it is not proper to arbitrarily reject a comparable that has been arrived at after a carefully applied select/reject matrix followed by a quantitative screening based on FAR analysis by the assessee as well as the TPO. 59. Referring to the decision of the Tribunal in the case of Interra Information Technologies (P) Ltd. vs. DCIT reported in 2012-ITS-2021-ITAT, she drew the ....
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....contentions and perused the orders relied on. As far as this comparable is concerned, the same has been decided by the Co-ordinate Bench in the case of Hyundai Motors India Engineering P. Ltd., Vs. ITO in ITA No. 1850/Hyd/2012 (AY. 2008-09) dt. 21-02-2014, wherein the Co- ordinate Bench held as under: "V. GENESYS INTERNATIONAL CORPORATION LTD. This company is listed at Sl. No.11 in the list of comparable companies chosen by the TPO. As far as this company is concerned, the stand of the assessee has been that this company is functionally not comparable and that it has a different employee skill set and that this company performs R&D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Besides the above, this company also carries....
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....tracted below:- * As per Page-5 of Annual Report- "We are progressing well towards our goal to be an innovation and IP-led geospatial solutions provider touching a/l core areas of the economy." Further, as per Page-6 of AR:- "your company is the exclusive Reseller for Navteq data for the Enterprise space in India Navteq is the world leader in navigable maps and sheet data" Further, as per Page-14 of AR - "Genesys is today one of India's fastest growing geospatial services and content providers The Company caters to the needs of consumer mapping, navigation, internet portals as well as infrastructure players Including state and local governments." Further, as per Page-16 of AR :- "Our capabilities 1. GIS Consulting, 2. 3D Mapping, 3. Navigation maps, 4. LiDAR. 5. Photogrammetry Remote Sensing services, 6. Utility Services, 7. Image Processing, 8. Surveying, 9. Business Geographies & Logistics, 10. Cadastral Mapping, 11 City Scape, 12 Telecommunications From the above, it is observed that the functionality of this company is significantly different from that of the assessee. The TPO is directed to exclude thi....