TaxTMI 
TaxTMI 
2023 (3) TMI 1440
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....t, 1961 ("the Act"). 2. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting the Transfer' Pricing ("TP") documentation maintained by the Appellant by invoking provisions of sub-section (3) of section 92C of the Act. 3. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting the economic and comparability analysis undertaken in the TP documentation and in conducting a fresh comparability analysis by introducing various filters for the purpose of determining the Arm's Length Price ('ALP') of the international transaction thereby following a non-transparent approach. 4. The learned AO/ learned TPO/Hon'ble DRP erred in applying the core service income filter of 75% to sales instead of 50%, thereby leading to a narrower set of comparable companies. 5. The learned AO/learned TPO/Hon'ble DRP erred in applying export earning filter of 75% of the total sales, leading to a narrower set of comparable companies. 6. The learned AO/ learned TPO/ Hon'ble DRP erred in selecting the companies only if the data pertaining to FY.2016-17 is available in the public databases. 7. The learned AO/ learned TPO/ Hon'ble DRP erred in applying different financial year ending filter ....
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....en Mauritius) is engaged in providing IT enabled services (in short "ITES to Ocwen Mauritius Services Inc, USA). The assessee provides call centre services and certain other loan servicing operations as well as back office/Corporate support function such as accounting, risk management, human resources, audit, training and other corporate support functions. The functions, asset and risk analysis (in short "FAR") as per the TP study of the assessee. The assessee assumed lower than normal risk associated with business of providing ITES to its AE. The assessee was characterised as (captive service provider) in impugned assessment year assessee declared taxable income Rs. 90,86,94,250/-. The assessee subsequently revised the return and declaring the total income Rs. 108,80,22,770/-. The assessee's case was selected for scrutiny. The assessee received Rs. 698,49,91,639/- from its AE in respect of ITES Provided. The assessee had selected TNMM as MAM and had computed margin at 15.06 on operating cost. The Transfer Pricing Officer (in short TPO) had conducted as fresh analysis the TPO agreed with the appellant that the TNMM was to be applied as MAM. The TPO applied certain filters and selec....
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....ss Process Outsourcing India Pvt. Ltd., (2018) taxcorp (DT) 73195 (HC Karnataka) wherein in an appeal against the order of the Tribunal holding that provision for bad and doubtful debts should be considered as part of the operating expenditure, the Hon'ble High Court confirmed the order of the Tribunal and dismissed the appeal of the Revenue as one not giving rise to any substantial question of law. 9. In the light of the aforesaid decision, we are of the view that provision for bad and doubtful debts should be treated as operating expense while computing the PLI OP/OC of the comparable companies which ultimately remains for comparison. We hold and direct accordingly." 6.1 Further, Tribunal in the case of Evolving Systems Networks India Pvt. Ltd. In MP No. 69/Bang/2021 in IT(TP)A No. 2751/Bang/2017 vide order dated 24.9.2021 held as under: 10. "We have given a very careful consideration to the rival submissions. We find that the DRP in rejecting the plea of the assessee has placed reliance on the decision of Mumbai Bench of the Tribunal in the case of M/s. Telcordia Technologies India Pvt. Ltd., (supra) and the decision in the cae of Thyssen Krupp Industries India Pvt. Ltd., (....
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.... price for immediate payment plus 60 days of interest on immediate payment price. For making working capital adjustment is an attempt to adjust for the differences in time value of money between the tested party and potential comparable for which is the work out the adjustment on account of working capital adjustment. Cost of capital is different for different companies. After working out the difference in the working capital employed between the tested party and the comparable companies, the cost of financing such working capital need to be adjusted to eliminate the impact of such difference in working capital on the profit margins of the tested party and comparable companies. To work out the cost of working capital, the rate of return/interest is an important factor. The cost of working capital for the tested party and each of the comparable / companies is different. The cost would depend on the source of funds and the credit standing of the borrower. The assumption of prime lending rate as the interest rate applicable for making the working capital adjustment suffers from risks of inaccuracy. The cost of capital for MNCs is determined more by the global interest rates rather tha....
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....for different companies and therefore working capital adjustment made disregarding this different based on broad approximations, estimations and assumptions may not lead to reliable results. 16. The CIT (A) also placed reliance on a decision of Chennai ITAT in the case of Mobis India Ltd. v. Dy. CIT [2013] 38 taxmann.com 231/[2014] 61 SOT 40. That decision was based on the factual aspect that the Assessee was not able to demonstrate how working capital adjustment was arrived at by the Assessee. Therefore nothing turns on the decision relied upon by the CIT (A) in the impugned order. In the matter of determination of Arm's Length Price, it cannot be said that the burden is on the Assessee or the Department to show what is the Arm's Length Price. The data available with the Assessee and the Department would be the starting point and depending on the facts and circumstances of a case further details can be called for. As far as the Assessee is concerned, the facts and figures with regard to his business has to be furnished. Regarding comparable companies, one has to fall back upon only on the information available in the public domain. If that information is insufficient, it....
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....given by the Assessee and a copy of the same is at pages 173 & 192 of the Assessee's paper book. No defect whatsoever has been pointed out in these working by the CIT (A). We may also further add that in terms of Rule 10B(1)(e) (iii) of the Rules, the net profit margin arising in comparable uncontrolled transactions should be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions which could materially affect the amount of net profit margin in the open market. It is not the case of the CIT (A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially affect the amount of net profit margin in the open market. If for reasons given by CIT (A) working capital adjustment cannot be allowed to the profit margins, then the comparable uncontrolled transactions chosen for the purpose of comparison will have to be treated as not comparable in terms of Rule 10B(3) of the Rules, which provides as follows: "(3) An uncontrolled transaction shall be comparable to an international transaction if- (i)....
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....5-16. Hence, he argued that this company be excluded from the list of comparables. 12.1.4 The ld. D.R. submitted that it is crystal clear from the annual report that the principal business activity of the company is given as IT enabled services which contributes 100% turnover of the company. On perusal of the breakup of the revenue given at page 41 of annual report, the revenue earned from IT enabled services is Rs. 23.63 out of total revenue of Rs. 24.34 crores, which comes to around 97.08%. He submitted that the other activities like pre-media work, e-distribution contributes around Rs. 0.70 crores, which is a minor revenue. The assessee, based on the website information, argued that the company is into diversified activities that can be classified as KPO services as per the definition of safe harbour rules. At the outset, he noted that the information put in Website cannot be given complete credence, as they are mere forward-looking information and statements with the motive of advertisement and other promotional gains. The functional aspect has to be determined by the information in the annual report, which is based on audited financial statements and management reports, for ....
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....rejected by the ld. DRP and selection of this company is upheld by ld DRP. 12.1.8 We have heard the rival submissions and perused the materials available on record. As per the annual report of the company, it is also in end-to-end content services across the value chain. From the website and annual report, it is clearly evident that the company is also engaged in web development, mobile application development. The company also provides publishing editorial composition services, which includes creating layout & artwork for advertisements and brochures, typesetting services and proof reading. As per revenue from operations, it includes "Revenue from web development and other services" (INR 2.18 Cr) and "income from e-book Distribution" (INR 69 lakhs), without providing the segmental revenue and profitability with respect to ITES segment. Advertising and sales promotion expenses at 6.50%, 7.19% & 8.78% of total expenditure in FY 2016-17, FY 2015-16 & FY 2014-15 respectively. 12.1.9 Further, the Tribunal in the case of Iron Mountain Services Ltd. in IT(TP)A No. 307/Bang/2022 dated 20.9.2022 has held as under:- 16. "The next company the assessee seeks to exclude is Manipal Digita....
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....age 1302 having notes of accounts. The Ld. Counsel vehemently submitted that on perusal of the annual report, notes of accounts, nothing can be stated whether at all this company i.e. Manipal Digital Systems Private Limited is engaged in the business of call center or not. The realm of ITes involves various activities and on general principle the Revenue cannot say that since majority of the earning of the said company comes from ITes, it is comparable company with that of the assessee company. 12. Placing strong reliance on the decision of the Honble Delhi High Court in the case of Ramp green Solutions Pvt. Ltd. Vs. CIT, ITA No. 102/2015 dated 10.08.2015 copy of which is placed before us, the Ld. Counsel brought to our notice at Para 31 wherein the Hon 'ble Delhi High Court observed that the Tribunal had held that once a service falls under the category of ITes then there is no subclassification of segment. Thus, according to the Tribunal, no differentiation could be made between the entities rendering ITes. The Hon 'ble Delhi High Court rejecting such view of the Tribunal had held that such a view, if upheld, would be contrary to the fundamental rationale of determining ALP by ....
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....o observed that one of the key success factors of the BPO Industry is its ability to move up the value chain through KPO service offering. For the aforesaid reasons, the Special Bench of the Tribunal held that ITeS Services could not be bifurcated as BPO and KPO Services for the purpose of comparability analysis in the first instance. The Tribunal proceeded to hold that a relatively equal degree of comparability can be achieved by selecting potential comparables on a broad functional analysis at ITeS level and that the comparables so selected could be put to further test by comparing specific functions performed in the international transactions with uncontrolled transactions to attain relatively equal degree of comparability. 34. We have reservations as to the Tribunal's aforesaid view in Maersk Global Centers (India) Pvt. Ltd. (supra). As indicated above, the expression 'BPO' and 'KPO' are, plainly, understood in the sense that whereas, BPO does not necessarily involve advanced skills and knowledge; KPO, on the other hand, would involve employment of advanced skills and knowledge for providing services. Thus, the expression 'KPO' in common parlance i....
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....nclusion of any KPO service provider as a comparable would not be warranted and the transfer pricing study must take that into account at the threshold. 36. As pointed out earlier, the transfer pricing analysis must serve the broad object of benchmarking an international transaction for 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/service characteristics, functions undertaken, assets used, risks assumed. This is essential to ensure the efficacy of the exercise. There is sufficient flexibility available within the statutory framework to ensure a fair ALP." 13. The Ld. Counsel for the assessee further submitted therefore, it is clear that merely because two companies are doing ITes services, on general categorization comparability is not permitted and one has to look into the specific services rendered in the spectrum of ITes and for this reason, the said company i.e. Manipal Digital Systems Private Limited is not a comparable company with that of the assessee company since absolutely functionally different. The Ld. Counsel also submitted that the TPO should h....
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.... relation to Assessment Year 2016-17 whereas the case of the assessee in this appeal is in reference to Assessment Year 2017-18. Learned Counsel for the assessee submitted that the functional profile of the comparable company as well as the assessee remains the same for both Assessment Years 201617 and 2017-18 and therefore the decisions cited above are applicable to Assessment Year 2017-18 also. 18. We have given a careful consideration to the rival submissions and are of the view that it would be just and appropriate to set aside the question of comparability of Manipal Digital Systems Pvt. Ltd., to the TPO/AO to examine as to whether the functional profile of the assessee and the assessees in the decisions cited by the learned AR remains the same in Assessment Year 2017-18 as it was in Assessment Year 2016-17." 12.1.10 Accordingly, the above comparable i.e. Manipal Digital Systems Pvt. Ltd. is directed to be excluded from the list of comparables. Datamatics Business Solutions Limited 12.1.11 The ld. A.R. submitted that the TPO erred in computing export revenue percentage. The correct percentage are 76%, 72% & 66%, respectively for FY 2016-17, FY 2015-16 & FY 201415. Thi....
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....of services and hence, there is no need of segmental reporting as per AS 17. As regards, the export revenue as given in Note No. 18, the revenue is around Rs. 50.43 crores as on 31.03.2017 as against total revenue of Rs. 62.70 crores, which comes to 80.43%. As the company is functionally similar and satisfies the filters adopted by the TPO including export revenue filter of more than 75%, the company is considered as comparable. Therefore, he stated that the action of the TPO considering the company is upheld by the Ld. DRP. 12.1.14 The ld. D.R. further stated that at the outset, it is pertinent to note, that the assessee has challenged the selection of some comparables, relying on some decisions of Tribunal either in assessee's own case or in some other case, holding that certain companies are to be excluded as comparable for some other years. The comparability of a company cannot be determined with regard to decisions of the appellate bodies rendered for some other year, as the business and economic factors are dynamic and different in each year both in the case of tested party and comparables. The issue is well settled that simply because a comparable has been included or ....
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....is after the facts and evidences are taken into consideration that the relevance of applying a precedent would come into play. In the facts of the present case, we find that the revenues from the software development segment of this comparable constituted 96% and this finding of fact has not been assailed by the assessee." 12.1.16 Therefore, the ld. DR submitted that inclusion or exclusion of a comparable has to be necessarily justified on the basis of facts available on record, the FAR analysis and the information in the annual reports submitted for each year and not on the basis of judicial precedent. 12.1.17 We have heard the rival submissions and perused the materials available on record. The main contention of the ld. AR is that segmental financials are not available and also TPO has not considered the correct percentage of export revenue in the earlier 3 assessment years and also margin of last 2 assessment years cannot be considered in view of the export revenue filter. In our opinion, these facts are required to be examined by the AO/TPO. Accordingly, we remit this issue to the file of AO/TPO for reconsideration of this comparable and include this comparable i.e. Datama....
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....a Pvt. Ltd. v. DCIT (supra), the above three companies were excluded from the list of comparables on account of functional dissimilarities. We find that profile of the assessee in the instant case and that of the assessee in case of EIT services India Pvt. Ltd. are identical. Moreover, the assessment year is the same. The relevant finding of the Tribunal in the case of EIT Services India Pvt. Ltd. v. DCIT (supra) reads as follows (For exclusion of (i) Infosys BPO Limited, (ii) SPI Technologies India Pvt. Ltd. and (iii) Eclerx Services Limited) :- "13. Further, the assessee wants exclusion of following comparables in IT enabled services. i. Infosys BPO Ltd. ii. SPI Technologies Pvt. Ltd. iii. Eclerx Services Ltd. i. Infosys BPO Ltd. 13.1 The Ld. A.R. submitted that that Infosys BPO offers business process outsourcing solutions to its global clients by leveraging process, domain and people management expertise. The nomenclature in the profit and loss account indicates that the income is earned from 'Revenue from business process management services' which suggests that the company is engaged in consultancy and management services unlike the Appellant which is involved on....
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....d hence rejected it. 15 The assessee pointed out that this company has reported an amount of Rs. 136 crore as 'cost of Technical sub-contractors' which constitutes about 4.45% of total revenue of the company during the year. The DRP observed that the annual report mentions that these sub-contractors are used for operational activities. This is a common practice in almost all the companies to give a small portion of the work to some other subcontractors for a variety of reasons. This may allow the company to focus on its core activities. Sometimes it may be to meet the mismatch in certain skill-sets that are required in various projects. These expenses are incurred in the routine course of business. This cannot be held to be a criteria to affect the functional comparability of a company and more so in the facts of this case, wherein the sub-contracting expenses are about 4.45% only. This objection was accordingly rejected. 16. Regarding the lack of segment data to reject it as a comparable, the DRP was of the view that when it has been held that all the services being done by this company falls in the category of ITeS, then the absence of segmental information remains a ....
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.... has been mentioned that this comparable provides services that are different from routine back-office services. This noting itself makes this comparable not functionally similar with that of assessee. Accordingly we direct this comparable to be excluded from finalist." 21. In view of the above order of the Tribunal, we are inclined to hold that this company should be excluded from the list of comparables. 13.3 The company has also been excluded in the case of ADP (P.) Ltd. [2022] 135 taxmann.com 44 (Hyderabad - Trib.) AY 2016-2017 by the Hyderabad Tribunal. 13.4 In view of the above-mentioned reasons, Ld. A.R. requested to direct the TPO to exclude this comparable from the final list of ITeS Segment. 13.5 Ld. D.R. relied on the order of Ld. DR 13.6 We have heard the rival submissions and perused the materials available on record. This company has been considered as in the case of ADP Pvt. Ltd. cited (supra and held that this company cannot be included by observing as under:- "16.1 Infosys BPO Ltd.: The ld. AR submitted that this company may be excluded from the final set of comparables for the reason that this company has incurred outsourcing costs for FY 2013-14, FY....
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....it was submitted that this company caters to high end KPO services and cannot be compared to routine BPO services provided by assessee. The DRP vide para 3.10 has accepted the assessee's objections and accordingly, directed the TPO to exclude the above three companies. There are other directions of the DRP on TP adjustments on which neither party has raised grounds, except the Revenue on the above exclusion of three companies. 7. Referring to the order of the TPO, it was the contention of Ld.DR that DRP was not correct in excluding them on the basis of the turnover, whereas Ld. Counsel submitted that DRP has followed the decisions of the Coordinate Benches in excluding the above three comparables. 8. We have considered the rival submissions and perused the order of the DRP and Co-ordinate Benches. As far as M/s. TCS E-Serve Ltd., is concerned, the Co-ordinate Bench of ITAT in the case of M/s Hyundai Motors India Engineering P. ltd in ITA Nos. 1743/Hyd/2014 (AY.2010-11) & ITA No. 1917/Hyd/2014 (AY.2010-11) dt. 13-11-2015, has decided the issue as under: ITA No 2233 of 2018 ADP Private Ltd Hyderabad "TCS e-SERVE LIMITED 11.2.1. As regards TCS e-Serve Limited is concerned, w....
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....clusion of Infosys BPO because of its brand value and also on the grounds of functional dissimilarity and huge turnover. Though, the company before us is TCS e-Service Ltd., and not Infosys BPO, we find that the turnover of the assessee company for this assessment year is around Rs. 50 crores as against the turnover of TCS EServe Limited of Rs. 1405.10 crores. Therefore, following the turnover filter as well as taking note of the fact that it owns and possesses brand value and intangibles as compared to the assessee which does not own such assets, we direct that this company be excluded from the list of final comparables. Accordingly, assessee's grounds of appeal No. 6 is partly allowed. 8.1 Respectfully following the above decision of the Coordinate Bench, we confirm the order of DRP excluding the above company from the list of comparables.' We observe from the financial statements of this company, that this company is functionally dissimilar and use robotics automation and diversified activities. Therefore, following the decision of the coordinate bench, we direct the AO/TPO to exclude this company as comparable for determining ALP. 13.7 In view of the above order o....
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....(iv) Mr. Percy Pardiwalla, learned senior counsel appearing on behalf of the respondent invited our attention to the final decision of this Court in Pr. CIT v. Aptara Technology (P.) Ltd. [2018] 92 taxmann.com 240 and Pr. CIT v. PTC Software (I) (P.) Ltd. [2019] 101 taxmann.com 117 (Bom.). In both the above decisions this Court has taken a view that merger/amalgamation is an extra ordinary event and would have an impact /effect on the financial results of the company. Thus, in both the aforesaid decisions, this Court upheld the view of the Tribunal that where merger/amalgamation have taken place and it is not a normal event then such a company would cease to be comparable. This of course is subject to the Revenue being able to show that amalgamation/merger did not have any effect of the profitability of the company. This has not been shown by the Revenue either to the Tribunal or before us. Therefore, this issue stands covered by the decision of this Court in Aptara Technology (P.) Ltd.'s case (supra) and PTC Software (I) (P.) Ltd.'s case (supra) in favour of the respondent. This more particularly in view of the absence of the Revenue even attempting to show that the merger....
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.... and there was amalgamation of Asscent Infoserve Pvt. Ltd. with the said concern and because of these extraordinary events, the margins of said companies should not be included in the final set of comparables. The Pune Bench of Tribunal in Aptara Technologies Pvt. Ltd. v. ACIT (2016) 72 taxmann.com 352 (Pune - Trib) and Cummins Turbo Technologies Ltd. v. DCIT (2017) 79 taxmann.com 260 (Pune - Trib) has held that the said concern cannot be accepted as comparable. The Tribunal in Aptara Technologies Pvt. Ltd. v. ACIT (supra) held as under:- "14. We find that the Tribunal in assessee's own case in assessment year 2008-09 in ITA No. 2235/PN/2012, order dated 02.02.2015 had held that the said concern could not be considered as comparable because of certain extraordinary events. The said ratio was also applied in assessee's own case while benchmarking the international transaction of assessee with its associate enterprises in assessment year 2009-10 in ITA No. 267/PN/2014, order dated 29.04.2015. The Tribunal vide order dated 02.02.2015 had held that the concern Accentia Technologies Ltd. could not be included in the final set of comparables holding as under:- "13. Next, asse....
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....in the said concern which warranted exclusion of this company as a comparable. We therefore hold that the said concern cannot be considered as a comparable." 15. Further, similar proposition has been laid down by different Benches of Tribunal while deciding the appeals relating to assessment year 2010-11 and it has been held that because of extraordinary events during the year, the concern Accentia Technologies Ltd. was not comparable to the entities engaged in ITES. Following the same parity of reasoning, we hold that Accentia Technologies Ltd. is to be excluded from the final set of comparables." 13. Following the same parity of reasoning as in Aptara Technologies Pvt. Ltd. v. ACIT (supra) and Cummins Turbo Technologies Ltd. v. DCIT (supra), we hold that Accentia Technologies Ltd. cannot be compared as comparable because of extraordinary events of acquisition and amalgamation during the year. Accordingly, we direct the Assessing Officer/TPO to exclude Accentia Technologies Ltd. from final list of comparables." 10. We, place reliance on the afore-stated judicial precedents where there is an emerging consistent view in this regard that if an extraordinary event has taken plac....
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....ired entire shareholding of CLX Europe SPA, Italy, as on 22nd April 2015 and this acquisition was made by the company's overseas subsidiary eClerx Investments (UK) Ltd. Therefore, there is no merit of the objection, as the standalone financials of this company are considered for comparability. 25. The assessee also raised the objection that there is increase in revenue, but according to the DRP, it has failed to bring on record any evidence to suggest that this abnormal inorganic growth has impacted the profit margin of the company. It is observed that the profit margin of this company has been consistently at the same level during the last few years. The ALP margin is determined with reference the average profit margin of a comparable for three years and also taking into account the defined median value of the PLIs of the comparable. These will even out such differences. The DRP was of the opinion that it will not be proper to reject a comparable only on account of inorganic growth of top line, which otherwise is functionally comparable. 26. The DRP further observed that it was consistently held that high profit margin as such cannot be reason for exclusion when it is othe....
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....final list of ITeS Segment. 15.4. Ld. D.R. relied on the order of Ld. DRP 15.5 We have heard the rival submissions and perused the materials available on record. This company is not considered as comparable in the case of ADP Pvt. Ltd. cited (supra) in assessment year 2016-17, wherein they excluded the comparable ground No. 7 of that order vide para 17 to 17.4 wherein held as under:- "17. Eclerx Services Ltd.: The ld. AR of the assessee submitted that this company may be excluded as comparable from the final set of comparables as this company is engaged in providing KPO services, different to low end BPO services provided by the assessee. He submitted that Safe Harbor Rules recognizes ITeS activities under tow distinct categories i.e., BPO and KPO and activities of this company falls under KPO services. He submitted that the services provided by this company of following: (a) Contract Risk Review, (b) Margin Exposure Management, (c) Online Operations and web analytics, (d) CRM and business intelligence, (e) Content creation, (f) business process consulting. 17.1 He further submitted that as per NIC code provided in the annual report, this company has been classi....
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....r directions of the DRP on TP adjustments on which neither party has raised grounds, except the Revenue on the above exclusion of three companies. 7. Referring to the order of the TPO, it was the contention of Ld.DR that DRP was not correct in excluding them on the basis of the turnover, whereas Ld. Counsel submitted that DRP has followed the decisions of the Co-ordinate Benches in excluding the above three comparables. 8. We have considered the rival submissions and perused the order of the DRP and Coordinate Benches. As far as M/s. TCS e-Serve Ltd., is concerned, the Co-ordinate Bench of ITAT in the case of M/s Hyundai Motors India Engineering P. ltd in ITA Nos. 1743/Hyd/2014 (AY.2010-11) & ITA No. 1917/Hyd/2014 (AY.2010-11) dt. 13-11-2015, has decided the issue as under: ITA No 2233 of 2018 ADP Private Ltd Hyderabad "TCS eSERVE LIMITED 11.2.1. As regards TCS e-Serve Limited is concerned, we find that it possesses brand value as is evident from the ScheduleN (Operation and Other expenses) to the P & L A/c of the annual report for the financial year 200910 of Rs. 46,065 thousands and also that it possesses intangibles in the form of software licenses which have not been take....
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....s as against the turnover of TCS e-Serve Limited of Rs. 1405.10 crores. Therefore, following the turnover filter as well as taking note of the fact that it owns and possesses brand value and intangibles as compared to the assessee which does not own such assets, we direct that this company be excluded from the list of final comparables. Accordingly, assessee's grounds of appeal No. 6 is partly allowed. 8.1 Respectfully following the above decision of the Co-ordinate Bench, we confirm the order of DRP excluding the above company from the list of comparables. We observe from the financial statements that this company is functionally dissimilar and engaged in KPO and BPO services and amalgamation of Agilest Consulting Pvt. Ltd., vide page No. 23 of paper book volume -1 para 8 and acquisition of CLX Europe which impacts on the profits of the company. From the financial statements of the Chairman's message placed at page No. 18 of paper book volume - 1, it has been categorically stated that after acquisition of CLX Europe, the revenue has grown by 30%, which clearly shows that it impacts on the profitability of the company. These are extraordinary events. Therefore, If an ex....
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....ince at Page 12 of the annual report of this company, there are ITes activities which formed 79% of the revenue and therefore, it is functionally comparable with that of the assessee company and hence, it was retained. 17. The Ld. DRP while upholding the observation of the TPO at running Page 70 of its order observed that the company derives revenue mainly from provision of ITes which works out to 79.75% of its total operational revenue for the year. Therefore, this company is very much functionally comparable with that of the assessee company. In respect of the submissions of the assessee that ITes comprises two services i.e. BPO & KPO services, referring to the Director‟s report, the Ld. DRP observed that they have only made reference in the ITes segment only and whether it is BPO or KPO services has nowhere been referred to. That further, the Ld. DRP also observed that most of the information was gathered from website of the company which may not always be reliable and relevant. 18. The Ld. Counsel for the assessee at the time of hearing reiterated the submissions made in respect of exclusion of Manipal Digital Systems Private Limited, for this company also. He took us....
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..... The filters are applied to select a group of similar companies and hence, all the filters are to be applied at entity level only. Then the functional comparability is seen with respect to specific companies. So, if this company fails at entity level in application of the service income filter, then this cannto be taken as a comparable. It is seen that from the Annual Report submitted before us, the figures of earnings in foreign exchange through BPO and its operational income is as under as perpage 79 of the annual report: Earnings from ITES and BPO activities is Rs.31,36,30,189/- Total revenue Rs.256,08,95,877/- 13.1 Thus, the ld. DRP observed that the BPO earning comes to only 12.24% and thus, that it fails the service income filter adopted by the TPO. We are of the opinion that this is the initial filter on the basis of which the comparables are selected. So if a company falls this filter, then it will not be selected as a comparable at the first place. Therefore, the service income has to be seen at the entity level in all the cases. Hence, the TPO is directed to exclude the company as comparable. As it fails the service income filter adopted by the TPO, we do not find i....
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....llsec Technologies Ltd. & Cosmic Global Ltd. Which are dismissed as not pressed. Ground No. 15 a- BNR Udyog Ltd. 17. Regarding this issue, the ld. DRP observed that the TPO has applied the filter-that minimum 75% of operating revenue should be from exports. We find that the Indian Law supports the use of export sales/ total sales as a filter vide Rule 10B(2)(d} which provides that 'comparability of an international transaction shall be judged with respect to conditions prevailing in markets in which respective parties to the transactions operate, including the geographical location and size of the market.....,'. Further, para 4.43 of the OECD Transfer Pricing Guidelines 2010 provide 'foreign sales/total sales' as one of the quantitative filter. When tested party's international transaction is compared, then it is implicit that comparison should be made with the entity having sjmilar transaction: Therefore, if two transactions were to be substantially similar, the export sales should be substantially similar if not same. The amount of substantial similarity by convention is accepted as 75% export sales to total sales. In this connection, it is presumed that ne....
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.... not figure in the search matrix of the TPO. The ld. DRP has already upheld the rejection of TP document of the assessee which in turn means that a fresh search has to be conducted by the TPO. Based on the fresh search, the TPO has identified the comparables. The assessee can only ask those companies out of the TPO's search matrix which have been wrongly rejected by the TPO. As these companies do not figure in the TPO's search matrix, ld. DRP opined in his report that the functionality is not required to be seen at all, as it amounts to cherry picking. 13.4 We have heard the rival submissions and perused the materials available on record. The ld AR submitted that this comparable may go back to file of AO/TPO to verify whether it satisfies all the filters adopted by AO/TPO. We accede to the request of the ld. AR. Accordingly, these two comparables i.e. Bhilwara Infotechnology Ltd. and R. Systems International Limited are remitted to the file of AO/TPO for fresh consideration to verify whether they satisfy all the filters adopted by AO/TPO while selecting comparables. Ordered accordingly." 19.1 In view of the above order of the Tribunal, the issue is remitted to the file o....