TaxTMI 
TaxTMI 
2022 (4) TMI 1505
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.... in Information Technology enabled Services (ITeS) segment. 4. The assessee, WNS Business Consulting Services Pvt. Ltd. (formerly known as WNS Mortgage Services Pvt. Ltd.) is a wholly owned subsidiary of WNS North America Inc ("WNS NA"). The assessee is engaged in the business of provision of ITeS and development of computer software services to WNS NA. The assessee is a captive service provider and thus provides such services only to its Associated Enterprises ("AEs"). 4.1 During assessment year 2009-10, the assessee reported the following international transactions with its AEs:- Nature of transaction Total value of transaction (in Rs.) ITeS 4,36,63,774 Software development services 7,28,522 As can be seen from the above table one of the international transactions reported by the assessee was the provision of ITeS with transaction value of Rs. 4,36,63,774/. The assessee applied the Transactional Net Margin Method ("TNMM") as the most appropriate method to demonstrate that the international transaction of providing ITeS was at arm's length price ("ALP"). As reported in the transfer pricing study the assessee used the Profit Level Indicator ("PLI") of Ope....
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....s. 1,78,63,746/- on transaction of provision of ITeS, for which equal amount of addition was made by the AO in his final order. 5. On appeal, before the CIT(A) the assessee objected to the inclusion of the following three companies amongst others as comparables :- (i) Accentia Technologies Ltd. (ii) Coral Hub Ltd. (iii) Cosmic Global Ltd. After considering the detailed submissions of the assessee and relying on various decisions of jurisdictional Delhi ITAT and Hon'ble Delhi High Court, the Ld. CIT(A) directed the Ld. AO to exclude the aforementioned three companies from the list of comparable companies. The other comparables included by the Ld. AO/TPO were not considered by the Ld. CIT(A) on the ground that if the above three comparables are excluded from the list of comparables (alongwith other contentions regarding erroneous margin computation of the assessee and claim for working capital adjustment), then the inclusions/exclusions in respect of other comparables becomes academic. 5. Aggrieved, the Revenue is before us challenging the exclusion of Accentia Technologies Ltd., Coral Hub Ltd. and Cosmic Global Ltd. by the Ld. CIT(A) from the list of....
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..../TPO to exclude this company from the list of comparable companies by recording the following finding :- "6.1.1.2. I have perused the submission of appellant and the Annual Report of the Company for FY 2008-09. It is observed that Accentia is engaged in several mergers and acquisitions during the said year. Besides, the company is functionally different vis-a-vis the Appellant, being engaged in software services and products and KPO services (which are not comparable to ITenabled Services rendered by the Appellant). This viewpoint has also been upheld in several rulings for AY 2009-10, including Delhi ITAT rulings in the case of Sun Life India, Xchanging Technology and Macquarie Global. Accordingly, the AO/TPO is directed to exclude this company from the list of comparable companies." 6.4 The case of the assessee is supported by several decisions of the Jurisdictional ITAT and Hon'ble Delhi High Court wherein it has consistently been held that a company cannot be considered as comparable because of exceptional financial results due to mergers, demergers etc, one of such comparable companies considered by the authorities/ courts being Accentia Technologies Ltd. The Delhi....
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.... appears to have been included in the other heads of the expenditure instead of wages-employee cost. Moreover, the intangibles will not materially affect the price or profit earning. By outsourcing the manpower, the VITL would have incurred more cost compared to the assessee company, thus resulting in lesser operating profit. But, having considering the findings of the TPO, we find that the intangibles or outsourcing the manpower will not materially affect the price or profit margin. In our considered opinion, no two comparable companies can be replicas of each other. The application of Rule 10B should be carried out and judged not with technical rigor, but on a broader prospective. In this view of the matter, we find no infirmity in the order of the CIT(A) in confirming the action of the TPO by selecting the VITL as comparable company." Minor functionality differences, if any, are tolerated in TNMM as already discussed above. Hence the company is retained as a comparable. In support of the Ld. TPO's remarks extracted above, the Ld. DR argued that even if this company is outsourcing its services to third parties, it is still incurring personnel costs forming part of the other ex....
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....the Assessee, apparently, for the reason that most of its work was outsourced to other vendors/service providers. The DRP and the Tribunal erred in brushing aside this vital difference by observing that outsourcing was common in ITeS industry and the same would not have a bearing on profitability. Plainly, a business model where services are rendered by employing own employees and using one's own infrastructure would have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the outsourcing of services by Vishal would have no bearing on the profitability of the said entity. 39. It is also relevant to note that in the case of Maersk Global Centers (India) (P.) Ltd. (supra), the DRP itself had accepted the objection of the Assessee and had excluded Vishal as a comparable for the reason as quoted below:- "... that it had a very low employment cost and very high cost on account of venture payment, which suggested that its business model was that of an outsourcing company and in view of this functional difference, Vishal Ltd. could not be considered as a comparable." Based o....
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....e, this company should not be considered as comparable to that of the assessee. The Ld. CIT(A) after considering the detailed submissions made by the assessee in respect of exclusion of this company and various judicial pronouncements relied upon by the assessee in support thereof, directed the Ld. AO/TPO to exclude this company from the list of comparable companies by recording the following finding :- "6.1.3.2 I have perused the submission of appellant and the Annual Report of the Company for FY 2008-09 and it is observed that Cosmic Global is engaged in outsourcing of business operations. It is also noted that the Appellant does not outsource any part of its operations to any third-party whatsoever. This point has also been upheld in several rulings for AY 2009- 10, including Delhi ITAT and High Court rulings in the cases of Sun Life India and Xchanging Technology. Accordingly, the Appellant's claim in respect of this company is allowed and the AO/TPO is directed to exclude this company from the list of comparable companies." The Ld. CIT(A) arrived at his final conclusion to exclude this company by recording cogent reasons supported by precedents based on aforementio....