TaxTMI 
TaxTMI 
2020 (11) TMI 1094
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....come of Rs 4,32,10,640 as against returned income 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 functionall....
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....asis. 3. During the year under assessment, the taxpayer entered into international transactions with its Associated 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 comparable....
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....al transaction 22,88,56,355 Adjustment to be made 1,94,02,855 12. By way of filing present appeal, the taxpayer has sought exclusion of five companies viz. Accentia Technologies Limited, I-gate Global Solutions Ltd., Infosys BPO Ltd., TCS E-serve International Ltd. & TCS E-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-avai....
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....entia is not a suitable comparable vis-à-vis the taxpayer which is into providing routine low end services of coordination and related services for medical transcription work of its AE on cost plus model, hence ordered to be excluded. I-GATE GLOBAL SOLUTIONS LTD. (I-GATE) 18. The taxpayer sought exclusion of I-gate on grounds 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 th....
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....ed the matter to the TPO on the question of working capital adjustment." 26. In these circumstances, we are of the considered view that Infosys BPO is not a valid comparable vis-à-vis the taxpayer, hence ordered to be excluded. TCS E-SERVE INTERNATIONAL LTD. (TCS E-SERVE INTERNATIONAL) 27. The taxpayer sought exclusion of TCS E-Serve International 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 t....
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....ctional profile of TCS E Serve, at page 746 of the paper book volume III annual report, it reads as under :- "TCS e-Serve Limited is engaged in the business of providing Information Technology - Enabled Services (ITES) / business Process 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 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 provi....