TaxTMI 
TaxTMI 
2023 (6) TMI 506
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.... of Mumbai International Airport Private Limited Vs. Golden Chariot Airport with regard to the "Doctrine of Election" and the "Doctrine of approbation and Reprobation", wherein it has been laid down that litigant cannot change and choose its stand to suit its convenience. 2. Whether the Ld. CIT(A) was justified in laying down stringent standards of capability and attempting to identify exact replica of the taxpayer for comparability analysis, whereas the Indian law and the international jurisprudence recognize the reality that there cannot be an exact comparable in a given situation without any difference without any differences appreciating that such stringency will defeat the purpose of flexibility provided in comparability analysis for determination of ALP. 3. Whether the Ld. CIT(A) was justified in rejecting M/s Eclerx Services Ltd., M/s Accentia Technologies Limited and M/s Cosmic Global Limited as a comparable companies and relying upon the concept of KPO Vs. BPO in comparability analysis, super normal profit and functional difference whereas in reality there is a seamlessness in ITES functions and the comparability analysis is based upon functions, assets and risks than ....
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.... margin to operating cost (OP/OC) on its international transactions was shown as under:- Profit and Loss Account F.Y. 2008-09 Operating Income Data/Software Receipts 360,021,854 IT enables Services Receipts 13,034,487 Other Operating Income 911,337 TOTAL OPERATING INCOME 373,967,678 OPERATING EXPENSES Other Operating Expenses 1,325,143 Employee Cost 217,096,399 Administration Cost 55,015,770 Selling Cost 615,926 Managerial Remuneration 13,824,027 Depreciation 14.10,9109 TOTAL OPERATING EXPENSES 301,987,103 OPERATING PROFIT 71,980,574 Non- Operating Income Interest on Fixed Deposit 5,453,381 Profit on Exchange Fluctuation 13,570,696 Non Operating Expense Donation 5,000 Interest Paid 251,905 Loss on Sale/Discard of assets 62,565 PROFIT BEFORE TAX 90,685,181 OP/OC 23.84% 5. The Arm's Length Price of the international transaction representing data processing services provided by the assessee to its Associated Enterprises (AE) had been determined by applying Transactional Net Margin Method (TNMM). The operating profit to total cost (OP/OC) ratio had been taken as the profit level indicator (PLI) in the TNMM ana....
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....ge 31 of the assessment order submits that this comparable is selected by the assessee and he has not objected in inclusion of this comparable in the final set of comparables before the TPO, but the ld. CIT (Appeals) excluded the same. The ld. DR submits that since this comparable was picked up by the assessee and not by the TPO the ld. CIT (Appeals) should not have excluded this comparable. Therefore, ld. DR requests that this comparable be retained and only for the purpose of computing margins direction may be given to the Assessing Officer in respect of this comparable. 12. On the other hand, the ld. Counsel for the assessee, Shri Tarandeep Singh, referring to the written submissions filed before the ld. CIT (Appeals) submits that the assessee demonstrated with statistics before the ld. CIT (Appeals) that M/s. Cosmic Global is outsourcing major portion of its BPO activities and hence is having a different FAR profile in comparison to that of the assessee as the assessee is itself carrying on BPO activities with 71.81% of its total expenditure comprising of employee cost. The ld. Counsel submits that the financial statement of Cosmic Global clearly show that the said concern has....
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....same. The ld. DR submits that since the observations of the TPO that the objection of the assessee that there are no segmentals, negated by the TPO since Accentia Technology Ltd., has one segment i.e. healthcare receivable management and the reporting of the segments does not arise. The ld. DR submits that the TPO has rightly rejected the contentions of the assessee to exclude Accentia Technology Ltd. from final set of comparables. 15. Referring to para 5.1.1 of CIT (Appeal) order, the ld. Counsel submits that Accentia had acquired 96% stake in M/s. Oak Technologies Inc. during financial year 2008-09 relevant to assessment year under consideration i.e. 2009-10 and, therefore, it should be rejected as comparable having peculiar economic circumstances and TPO himself has set criteria of rejecting companies affected by some peculiar economic circumstances. The ld. AR also submits that Accentia Technologies Ltd., in its management discussion and analysis stated that owing to the acquisition the company was able to increase its customer base from New Jersey and neighboring areas. Therefore, based on this it can be definitely inferred that the acquisition has certainly helped in the inc....
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....td. (formerly known as M/s. Vishal Technologies Ltd.): The ld. DR referring to page Nos. 28 of TPO's order submits that the TPO rejected the contention of the assessee that Coral Hub should be excluded from comparables on the ground that in ITES sector the number of employees is not very important and the determining factor for doing business. The ld. DR supported the order of the ld. TPO. 19. The ld. Counsel for the assessee submits that the assessee has objected for inclusion of Coral Hub Ltd., for the reason that Coral Hub Ltd., is out-sourcing its activities to third party ventures and, therefore, its business model is different. The ld. Counsel for the assessee submits that the Hon'ble Delhi High Court in the case of Rampgreen Solutions (P.) Ltd. Vs. CIT (supra) at para 38 held that a company which out-sourced its activities cannot be held comparable of a company which carries BPO activities with its own employee man-power. The ld. Counsel submits that the decision of the Hon'ble Delhi High Court squarely applies to the facts of the assessee's case. 20.1 Heard rival submissions perused the orders of the authorities below. With respect to Cosmic Global we find that the ld. CI....
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.... Ld. TPO/AO/CIT(A). The very first contention of the Ld. AR is that even if the assessee did not take up the issue of considering this company as comparable during the transfer pricing proceedings, the assessee cannot be prohibited from adopting a different stand later before the appellate authorities. We agree with the contention of the Ld. AR in view of the decision of the Special Bench of the Tribunal in the case of Quark Systems (P.) Ltd. (supra) wherein the Hon'ble Bench held the company which was included by the assessee and also by the Ld. TPO in the list of comparables at the time of computing arm's length price can be excluded by the Tribunal, if the assessee proves that the same was wrongly included. 8.4 From the perusal of the Ld CIT(A)'s order, we notice that before the Ld. CIT(A) the assessee has submitted that this company is functionally different from that of the assessee and outsources major part of its work and that this company had an exceptional performance, high turnover, abnormal profits in the relevant assessment year. Hence, this company should not be considered as comparable to that of the assessee. The Ld. CIT(A) after considering the detailed submission....
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....hat carried out by Respondent M/s. Accentia Technologies Ltd. develops its own software and rendered Medical transcription services while the Respondent is providing BPO Services. Besides the impugned order of the Tribunal held that high profit margins of M/s. Accentia Technologies Ltd., was attributable to amalgamation which took place in the previous years relevant to subject Assessment Year. Therefore, not comparable. (iii) In fact, this Court in Pr. CIT Vs. Aptara Technologies (P.) Ltd. [(2018) 92 taxmann.com 240] has upheld the view of the Tribunal in not accepting the Accentia Technologies Ltd., as comparable, inter alia, on account of fact that extraordinary event such as merger/amalgamation would affect the profitability of M/s. Accentia Technologies Ltd., Thus making it incomparable. (iv) Further, in that case, as in this case, the Tribunal has also recorded a finding of fact that the activities of M/s. Accentia Technologies Ltd., and the Respondent are different. Thus not comparable. The above finding of fact is not shown to be perverse." 21.2 As could be seen from the above the Hon'ble Bombay High Court affirmed the order of the Tribunal in holding that the nature o....
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....tted that there were certain extraordinary events that took place in this company in the form of mergers and acquisitions in the relevant financial year and hence this company should not be considered as a comparable company. He further placed reliance on the submissions made by the assessee before the Ld. CIT(A) which are recorded by him in para 6.1.1.1 of his order and pleaded for exclusion of this company on the ground of functional dissimilarity and high turnover of this company as compared to that of the assessee. He submitted that the case of the assessee is squarely covered by several decisions of the jurisdictional Delhi ITAT and Hon'ble Delhi High Court for AY 2009- 10 itself wherein this company has been held to be a noncomparable company. 6.3 We have heard the Ld. Representative of the parties and perused the material on record as well as the orders of the Ld. TPO/AO/CIT(A). In the light of the detailed submissions of the assessee and various judicial precedents in support of its contention, the Ld. CIT(A) directed the Ld. AO/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....
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....ee company and the comparable selected by the TPO with that of Accentia Technologies Ltd., are dissimilar and also since during the assessment year 2009-10 there were extra-ordinary events such as merger/amalgamation, this company cannot be considered as comparable. Thus, the ld. CIT (Appeals) has rightly excluded Accentia Technologies Ltd. from the final set of comparables selected by the TPO. We affirm the order of the ld. CIT (Appeals) on this score. 23.1 With regard to Eclerx Services Ltd. we find that the activities of Eclerx Services Ltd., is a KPO providing specialized services whereas the activities of the assessee are in the nature of routine BPO services. We observe that the ld. CIT (Appeals) following the decision of the Hyderabad Bench of the Tribunal in the case of Daksh Services Ltd. (supra) held that Eclerx Services Ltd., cannot be used as a comparable. We observe from the order of the Hyderabad Bench of the Tribunal in the case of Daksh Business Process Services Ltd., (which was extracted by the ld.CIT (Appeals) in his order at page 11) that Eclerx Services Ltd. provides data analytics and data process solutions to some of the largest brands in the world and is rec....
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....determining an ALP. The methodology necessitates that the comparables must be similar in material aspects. The comparability must be judged on factors such as product/sendee characteristics, functions undertaken, assets used, risks assumed. This is essentia! to ensure the efficacy of the exercise. There is sufficient flexibility available within the statutory framework to ensure a fair ALP. 37. Applying the aforesaid principles to the facts of the present case, it is once again clear that both Vishal and eClerx could not be taken as comparables for determining the ALP. Vishal and eClerx, both are into KPO Services. In Maersk Global Centers (India) (P.) Ltd. (supra), the Special Bench of the Tribunal had noted that eClerx is engaged in data analytics, data processing services, pricing analytics, bundling optimization, contenT operation, sales and marketing support, product data management, revenue management. In addition, eClerx also offered financial services such as real-time capital markets, middle and back-office support, portfolio risk management services and various critical data management services. Clearly, the aforesaid services are not comparable with the services render....
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....he 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 out-sourcing of services by Vishal would have no bearing on the profitability of the said entity." 24.2 We also observe that the Pune Bench of the Tribunal in the case of Cummins Turbo Technologies Ltd. (supra) observed that the Hyderabad Bench of the Tribunal in the case of Capital IQ Systems Pvt. Ltd. (supra) held that concerns, who act as inter-mediatories having out-sourced its activity cannot be said to be with a concern which is rendering services through its own employees and, therefore, the concerns are out-sourced its activities are not a good comparable company to include for the purpose of comparability analysis as such companies operates under a different business model which impairs operating margins. In view of....