AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (11) TMI 1094
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome of Rs 2,70,33,386 by the Appellant. 2. The DRP, further, erred in upholding the said action of the AO/ Transfer Pricing Officer ("TPO"). That on the facts and circumstances of the case and in law, reference made by the AO to the TPO is void ab-initio and bad in law as the AO failed to provide copy of approval granted by the Commissioner of Income tax and affording any opportunity of being heard to the Appellant, in violation of the principle of natural justice. 3. That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in making a transfer pricing adjustment of INR 1,58,54,643 on account of provision of Medical Transcription services alleging the same not to be at arm's length in terms of the provisions of section 92C of the Act read with Rule 10D of the Income-tax Rules, 1962 ("the Rules"). 4. That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in arbitrarily rejecting the comparable companies and modifying the comparable set selected by the Appellant in relation to provision of Medical transcription services alleging them to be functionally incomparable. 4.1 That on the facts and circumstances of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssociated Enterprises (AE) as under :- S.No. Nature of transaction Value (Rs.) Method Applied 1 Medical Transcription, Quality assurance and related services 217,958,433 TNMM 2 Recovery of Expenses 259.193 CUP 4. The taxpayer to benchmark its international transaction applied Transactional Net Margin Method (TNMM) with Operating Profit/Operating Cost (OP/OC) as the Profit Level Indicator (PLI) selected six comparables with mean margin of 11.86% as against tested party margin of 24.08% and found its transcription qua medical transaction, quality insurance and related services at arm's length. 5. Ld. TPO, after applying various filters, discussed in para 9 of the TP order accepted TNMM with OP/OC as the PLI as the Most Appropriate Method (MAM), rejected five comparables chosen by the taxpayer out of six and introduced ten new comparables to benchmark the international transactions undertaken by the taxpayer with its AE qua provisions of IT Enabled Services (ITES). Ld. TPO computed the mean margin of finally selected 11 comparables at 35.13% and proposed upward adjustment of Rs.1,94,02,855/-. 6. The taxpayer carried the matter before the ld. DRP by way of filing o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....serve Ltd. and sought inclusion of R. System International Ltd. on ground of functional dissimilarity, extra ordinary events, non-availability of segmental data, presence of brand, abnormal growth etc. We would discuss the suitability of the comparables sought to be excluded/included by the taxpayer one by one as under. COMPARABLES SOUGHT TO BE EXCLUDED ACCENTIA TECHNOLOGIES LTD. (ACCENTIA) 13. The taxpayer sought to exclude Accentia as a comparable on the grounds inter alia that it is functionally dissimilar vis-à-vis the taxpayer; that its segmental financials are not available; that during the year under assessment, extra ordinary events took place due to amalgamation of Asscent Infoserve Private Ltd.; and that this comparable has been excluded in taxpayer's own case by the Tribunal in AYs 2007-08 and 2009-10 on account of functional dissimilarity, extra ordinary events and non-availability of financial data. 14. When we examine annual report of Accentia, available at pages 430, 431 & 469 of the paper book, under a single segment of ITES, it renders numerous services viz. medical transcription, billing, coding, along with provision of development of software product....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of functional dissimilarity, having huge turnover, non-availability of segmental financials and extra ordinary events. Ld. DR relied upon the order passed by the TPO/ld.DRP. 19. When we examine annual report of I-gate, available at page 343 of the paper book, it shows that I-gate is into the business of software development and services, contact centre services and ITES whereas no segmental financials are available for driving revenue or profit attributable to the various segments to be under ITES, as is apparent from annual report at pages 343 and 354 of the paper book. 20. When we examine the turnover of I-gate from the annual report, available at pages 343 & 354 of the paper book, its turnover of Rs.932.19 crores as against Rs.21 crores of the taxpayer which is 42.77 times more than the taxpayer and as such is not a valid comparable as the high turnover certainly enhanced its revenue and profits as has been held by the Hon'ble Delhi High Court in PCIT vs. Agnity India Technologies in ITA 447/Del/2018 order dated 13.04.2018. 21. Furthermore, during the year under assessment, I-gate's wholly owned subsidiary of I-gate Global Solutions Sdn Bhd, Malaysia got merged with I-gate w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l on the grounds inter alia that it has presence of big brand being part of Tata Group; that it is functionally different; that it has huge abnormal growth in operation during the assessment year; that its profit after tax increased by 227% and operating income increased by 161%. However, TPO/ld. DRP have retained this comparable by rejecting the contentions raised by the taxpayer. 28. When we examine annual report of TCS E Serve International, available at pages 746 of the paper book, its principal activities are :- "TCS e-Serve International Limited is engaged in the business of providing Information Technology Enabled Services (ITES)/Business Processing Outsourcing (BPO) Services, primarily to Citigroup entities globally. The Company's operations broadly comprise of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving the processing, collections, customer care and payments in relation to the services offered by Citigroup to its corporate and retail clients. Technical services involve software testing, verification and validation of software at the time of implementation and data centre management acti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hnical services. Transaction processing includes the broad spectrum of activities involving the processing, collections, customer care and payments in relation to the services offered by Citigroup to its corporate and retail clients. Technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities." 34. TCS E Serve is engaged in the business ITES/BPO services primarily to Citi Group entities globally. So, when TCS E Serve is engaged in high end transaction processing, technical services involving software testing, verification and validation of software at the time of implementation and data centre management activities, it is functionally dissimilar to the taxpayer which is a routine ITES provider. 35. Moreover, TCS E Serve is having huge turnover of Rs.1359 crores which is 62.37 times the turnover of the taxpayer, available at page 669 of the paper book. Furthermore, TCS E Serve is a huge brand having supported by Tata Group in terms of its large scale operations and clientele and it has paid to Tata Sons Ltd. as Tata brand loyalty. Even there is no segmental information to bifurcate the in....