TaxTMI 
TaxTMI 
2021 (2) TMI 1325
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....re- "a) Business Information : EVS SEZ India carries out business information research based assignments of the following nature: * Periodic Research: Periodic research projects are ongoing in nature. The projects include database content creation, management and updation of existing research. * Project Research: Project research involves research from secondary sources. It also makes use of forecasting, modelling and financial analysis. Typically, it involves industry studies covering the market size, value chair analysis, growth rates and demand and supply projections. EVS SEZ India has conducted studies and prepared research reports for the sectors like the telecom sector, pharmaceutical sectors, etc. The intellectual property rights for the reports are owned by the end customer. * Rapid Research: Rapid research assignments typically have 24 hours as tie turnaround time. These are mostly based on brief client requests received from AEs. b) Investment Research and Financial Analytics: EVS SEZ India has a team of employees exclusively dedicated to tracking stocks and mutual funds. Typically, an investment research and financial....
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....interested in licensing a particular invention. Marketing and After Sales: EVS SEZ India does not undertake any marketing and sales efforts as it carries out offshore research activities on behalf of its AE. The/AE is responsible for the business development, marketing activities and quality assurance for every project undertaken by EVS SEZ India. The AEs, based on the market and economic scenario prepares the general worldwide marketing strategy for the Group. EVS SEZ India secures contracts owing to the brand name and goodwill enjoyed by its AEs. For provision of the aforementioned services, AEs remunerate EVS SEZ India on an hourly basis. Additionally, AEs also reimburse EVS SEZ India at a cost plus 6% for expenses on telephone calls, translation charges, research reports purchased, web hosting and miscellaneous expenses. Routine Functions: These business support functions are a part of the normal course of business and are indispensable in the economic environment. Strategic Policies: All long-term policies are developed and formulated by EVS SEZ India in consensus with its AEs. The company's management personnel handle the corporate communic....
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....ompanies. Customer Credit Risk When a company provides services to a customer in advance of customer payment, the company runs the risk that the customer will fail to make payment. This risk is known as customer credit risk. EVS SEZ India is engaged in the provision of IT enabled services to its AEs for which it gets remunerated on the basis of the service agreement. Accordingly, EVS SEZ India is not exposed to the customer credit risk. The AEs cater to end customers and are responsible for recovery of payments. Accordingly, they are exposed to the customer credit risk. Foreign Exchange Risk Exchange rate risk relates to the potential variability of profits that can arise because of changes in foreign exchange rates. Such risks arise when doing business in any market that is affected by international trade and can arise even if a company does not conduct actual transactions in a foreign currency. EVS SEZ India is remunerated by its AEs for services provided to it in US Dollars. However, in the case of third party domestic contracts, EVS SEZ India receivesitsjjaymsntm INR. Accordingly, EVS SEZ India is exposed to foreign....
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....'s Report in Form 3CEB and in the transfer pricing study report following international transactions have been reported : Nature of transaction Value of international Provision of IT Enabled Services (ITES) 231,329,060 Cost of Reimbursements Received 2,136,683 The financial results of the taxpayer and the method of benchmarking as reported in the transfer pricing report is as under: Particulars ITES Operating Revenues 236,696,941 Opera ting Expenses 258,746,715 Operating Profit (22,049,7731) OP/Sales GP/Sales OP/OC 0.94% OP/OC after undertaking a capacity 2 3.28% adjustment on EVS SEZ India Method used TNMM PLI OP/OC No. of Comparables 8 Mean Margin of Comparable after adjustments for working capital and capacity -3.37% Mean Margin of Comparables after adjustments for working capital 12.84% Ld TPO, however, rejected the TP study of the appellant. Ld. TPO has taken TNMM as the most appropriate method and aggregated both the transactions for the purpose of benchmarking. The margins of comparables have been recomputed by Ld. TPO after considering forex....
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....smuch as Cosmic is engaged in the provision of medical transcription services, translation services and software development services; that it is engaged in medical transcription and translation services and hence not comparable with the Assessee; that it has different business model-Cosmic is engaged in outsourcing model- it is engaged in vendor outsourcing as it pays translation charges 57% of the total expenses; that there are insufficient segmental details; that there were abnormal growth of sales (106%); that Cosmic has revenue from 3 sources, i.e., medical transcription and consultancy services, translation and BPO services- it earns 95% of the revenue from translation services which are not comparable to the assessee - the revenue from BPO is only Rs. 27.7 lakhs (less than 75% and less than Rs. 5 crores) hence it fails two filters applied by Ld. TPO himself.at pg. 21 of Ld. TPO order Companies whose ITES revenue is <5 crores and ITES revenue is less than 75% of total operating revenues; and that it has volatile profits at 23.4%, 23.4%, 48.2%, 18.28% and 8.06% for F.Yrs. 2006-07 to 2010-11 respectively. It is therefore, argued on behalf of the assessee that this is not a good....
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.... crore, translation services Rs.6.99 crores and Accounts BPO segment Rs.0.27 crores. However, complete segmental data is not available. Furthermore, Cosmic is having abnormal growth of sales i.e. 106% as is evident from profit & loss account, available in the annual report. 11. It is noticed by theTribunal in the case of NCS Pearson India Pvt. Ltd in ITA No. 2556/Del/2014 for assessment year 2009-10 that this company has outsourced its activities and the outsourcing expenses constitute 57% of the total expenses and that the entire outsourcing is confined to translation charges paid of Rs.3 crores and in view of such activities, of outsourcing and having a different business model apart from having the abnormal growth of sale at 106%, this Cosmic Global is not a good comparable with the assessee which is confined to ITES alone. 12. Further, in the case of UTStarcom Inc. vs. DDIT in ITA No. 1829/Del/2014 for the assessment year 2009-10, the profile of this Cosmic Global Ltd. is considered by the Tribunal and after examining the financials of Cosmic Global Ltd., the Tribunal observed that the activities of outsourcing the translation services and payment of Rs.3 crores for such ....
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....emand the issue to the file of ld. A.O./TPO for considering the capacity underutilization adjustment in the light of the TP study and by requiring the details, if any, from the assessee. 15. In respect of Eclerx Services Ltd., exclusion of which is challenged by the Revenue, according to the Revenue, this is a good comparable and reliance is placed on the report of Ld. TPO, whereas according to the assessee, this entity is functionally dissimilar, inasmuch as it is a KPO, engaged in financial services; that it is engaged in data analytics and data process solutions; that it provides very high-end services; that it is recognised as expert in chosen market financial services and retail and manufacturing; that the year of acquisitions is extra-ordinary events; and that it has abnormal margins earned due to extra-ordinary circumstances. 16. Apart from this, it is brought to our notice that in the assessment year 2010-11 in assessee's own case, this comparable is considered by the Tribunal in ITA No. 1467/Del/2015 and was rejected with the following observations : "12. The next comparable by the assessee is that eClarx Services submitting that it is a knowledge process ou....
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....olio of platform attached services, by creating a suite of services that are complementary to industry standard it platforms. A glance at the functional profile of this company divulges that it is basically a Knowledge Process Outsourcing (KPO) company providing data analytics and data process solutions to global clients. This company provides end to end support through trade life cycle including trade confirmations and settlements etc. It also provides sales and marketing support services to leading global manufacturing, retail, travel and leisure companies through its pricing and profitability services. Further this company has also developed it tool and process automation. From the above discussed nature of business carried on by e- Clerx Services Ltd., it is patent that the same being a KPO company, is quite different from the assessee, providing only IT enabled services to its AE, which fall in the realm of BPO services. Apart from that, it is further observed that this company has significant intangibles which it uses in rendering KPO services, against which the assessee does not have any intangibles. The Hon'ble jurisdictional High Court in Rampgreen Solutions (P.) Ltd. ....
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....he business model of Genesys is different from that of the Appellant. Geographical Information Services (GIS): Your goodself s attention is drawn to the following extract of the annual report for FY 2008-09 (Page 39) which evidences the fact that the business model of Genesys is different from that of the Appellant and hence should be rejected:.... Further, as mentioned on page xvi and xvii of the Annual Report of Genesys, the company is engaged in following range of activities GIS consulting: Offers consultancy services for needs assessment, system requirement, analysis and design, geospatial data services and application development; 3D Mapping: Large scale .3D content building; Navigation Maps: created data, base for maps navigation and running an "offshore production centre'for data updates and enhancements; Lidar: Includes ground point classification, building and power line classification vectorization and vegetation classification; Photogrammetry remote sensing services: offers complete range of photogrammetric services for municipal mapping, utilities mapping, road and highway planning, cadastral ma....
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....nal considered the issue in the light of CBDT Circular SO 890 (E) dated 26.9.2000 in para 14.3 of the order as under : "Ld. TPO on page 48 of his order has examined CBDT Circular SO 890(E) dated 26.09.2000 which provides a detailed list of products or services that can be covered under the ITES for the purposes of Section 10A and 10B of the Act. In this Circular, the Information Technology Enabled Products/Services have been divided into fifteen categories, starting with Bank Office operations, Call centres etc. and ending with Website services. From the very description of such services, it is palpable that even though these fall under the overall ITES category, but some of them are quite different from each other. To cite, service at SI.No. (vi) of this Circular is 'Geographic Information System services and at SI. No. (vii) is 'Human Resources Services.' No doubt, all these fifteen categories of products/services have been included under the major head of 'Information Technology Enabled Services' (ITES), but most of them are quite distinguishable from others. In our considered opinion, the fifteen broad categories set out in this Circular cannot per ....
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....vices provided by Genesys International Corporation Ltd, we have no hesitation to hold that it is not a good comparable to the assessee and rightly excluded by the ld. CIT(A). We decline to interfere with the exclusion of Eclerx Services Ltd. and Genesys International Corporation Ltd and to that extent, Revenue's case is rejected. 22. Lastly coming to the working capital adjustment, ld. CIT(A) gave a very detailed reasoning vide paragraph No. 5.5 of his order. For the sake of completeness, we extract such observations hereunder : "5.5 As regards working capital adjustment, the appellant has submitted as under: "From an economic perspective, the Appellant would like to submit that, in terms of business and risk comparability, a significant aspect for all entities is the requirement of working capital. There are three critical elements in the working capital policy of a firm: (a) lags between the time products are sold and payments on these sales are received, which create accounts receivable, (b) lags between the time inputs are purchased and payments on these purchases become due, which create accounts payable and (c) lags in the physical process of production ....
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....d a valid sanction of the law........... The Appellant, wishes to submit that the Appellant has demonstrated that the difference in working capital is resulting in a difference in the margins earned by the Appellant and the comparables. As mentioned above the Appellant relied on the available guidance from, the OECD's guidelines 2010 and performed working capital adjustments to the comparable companies as per the formula provided in OECD. " I have examined the issue of working capital adjustment. For the purposes of proper comparability differences in the prices charged by the appellant and the comparables arising on account of different levels of working capital are required to be eliminated. The OECD guidelines also support, this view, In a competitive environment the price should include an element to reflect the different payment and receipt terms and compensate for the timing effect. Guidelines further say that making a working capital adjustment is an attempt to adjust for the difference in time value of money between the tested party and potential comparables with an assumption that the difference should be reflected in profits. Though guidelin....