TaxTMI 
TaxTMI 
2023 (3) TMI 1440
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....ppellant under section 92CA of the Income-tax Act, 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 lear....
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....ken for adjudication. 5. Brief fact of the case is that the assessee is a subsidiary of Ocwen Asia Holdings Limited I, Mauritius (Ocwen 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 conduct....
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....ts. The learned Counsel for the assessee filed before us copy of the decision of the Hon'ble Karnataka High Court in the case of Principal CIT Vs. Business 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 Mu....
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....echnologies India Pvt. Ltd.(2019) 101 taxmann.com 313 (Bang). 8.1. In our considered view the trade terms of payment of debtor is 60 days. So, the price of goods should equate to the 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 int....
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....does not contain break up of trade and nontrade debtors and creditors and therefore working capital adjustment done without such break up would result in computation being skewed. (iv) Cost of capital would be different 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....
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....e CIT (A) has not found any error in the TPO's working of working capital adjustment, the working capital adjustment as worked out by the TPO has to be allowed. We may also add that the complete working capital adjustment working has been 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 transactio....
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....er: "Manipal Digital Systems Private Limited 12.1.3 The contention of the Ld. A.R. is that it is not functionally similar to the assessee's case as no segmental details are available and advertisement & sales promotion expenses works out at 6.5% in assessment year under consideration, 7.19% in assessment year 2016-17 & 8.78% in assessment year 2015-16. 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....
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.... 12.1.7 The ld. D.R. further stated that the assessee contended that this comparable has incurred significant selling, marketing expenses. From the perusal of the annual report, ld. DR noted that the expenses on this count is only 5.05% of the total sales and which is not at all significant to affect the profitability of the comparable. Accordingly, ld. D.R. stated that that this plea is 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 rev....
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....upheld the findings of the TPO and included Manipal Digital Systems Private Limited in the final set of comparables companies. That again the prime observation of the Ld. DRP in this regard was that more than 90% of the total revenue of the operation of the company comes from ITes. 11. At the time of hearing, the Ld. Counsel for the assessee took us through the annual report of the company at Volume -II, Page 1279 onwards, Page 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 wherei....
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....of the Tribunal in Maersk Global Centers (India) Pvt. Ltd. (supra) struck a different cord. The Special Bench of the Tribunal held that even though there appears to be a difference between BPO and KPO Services, the line of difference is very thin. The Tribunal was of the view that there could be a significant overlap in their activities and it may be difficult to classify services strictly as falling under the category of either a BPO or a KPO. The Tribunal also 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....
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.... the categorization of services rendered cannot be defined with certainty, it would be apposite to employ the broad functionality test and then exclude uncontrolled entities, which are found to be materially dissimilar in aspects and features that have a bearing on the profitability of those entities. However, where the controlled transactions are clearly in the nature of lower-end ITeS such as Call Centers etc. for rendering data processing not involving domain knowledge, inclusion 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....
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....annot be doubted. These are all multinational companies and certain amount of honesty has to be attributed to them since all are functioning as per relevant rules and laws. With these observations and respectfully, following the judgment of the Hon'ble Delhi High Court (supra.) we direct the AO/TPO to exclude this company i.e. Manipal Digital Systems Private Limited from the final set of comparables with that of the assessee company." 17. Learned DR submitted that the aforesaid decision was in 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 ....
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....lied. In view of the above, ITeS services cannot be further classified as BPO and KPO services for the purpose of comparability analysis. Under the TNMM, functional similarity is more relevant than product similarity. Accordingly, ld. DR objected the plea of the assessee. Therefore, he stated that the company is functionally similar to the assessee as it is being predominantly into ITES company. 12.1.13 The ld. DR further stated that as regards lack of segmental information, the comparable company derives the whole revenue from sale 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 challenge....
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....ra 13 ............ We find on facts that the prayer of the tax payer for exclusion of the said comparable cannot be ousted on the ground that it was not objected to in the previous assessment year. Whether 5 particular comparable is accepted or rejected in a previous assessment year consciously or inadvertently by the assessee or the authorities is not the basis on which the issues can be decided. As and when challenge is posed of the inclusion or exclusion of a comparable the challenge has to be considered on the basis of facts and evidence on record for that year. It 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. ....
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.... record. We have considered the arguments of both parties. In the assessment year 2016-17, in the assessee's own case in IT(TP)A No. 212/Bang/2021 dated 27.9.2022, the Tribunal has considered this company as not comparable wherein held as under: "10. As mentioned earlier, the limited submission of the assessee before the Tribunal as per ground 1.12 is seeking exclusion of three companies from the list of comparable companies, namely, (i) Infosys BPO Limited, (ii) SPI Technologies India Private Limited, and (iii) Eclerx Services Limited. We find in the case of assessee's group company namely EIT Services India 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, ....
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.... [2013] 30 taxmann.com 249/141 ITD 245 and other decisions wherein it was observed that TNMM requires only broad comparability. 14. The contention of the assessee that Infosys BPO has various Revenue Models and its revenues are generated principally on time and material basis, transaction basis and fixed price contracts and therefore, it should not be compared with the assessee, the DRP observed that as the assessed failed to demonstrate as to how the different methods of billing would affect the Functional comparability or impact the profitability. Unless the same is demonstrated with credible evidence, it remains a theoretical argument without any backing with facts and figures and 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. ....
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..... CIT [2020] 116 taxmann.com 716 (Bang. - Trib.) wherein it was observed as under :- "We have perused submissions advanced by both sides in light of records placed before us. We note that this company is providing services in various areas of sourcing and procurement, customer services, finance and accounting legal process outsourcing, sales and fulfilment, analytics, business platforms, business transformation services, human resource outsourcing and technology solution optimisation. It is noted that this comparable also provides services in financial services and insurance, manufacturing, energy utilities communications and services and retail, consumer packaged foods, logistics and life services. Further in the annual report it 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 compa....
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....as also considered this issue at Paras 6 to 9 in ITA No. 221/Hyd/2015 which reads as under: "6. The TPO has selected many comparables and among them M/s. Infosys BPO Ltd., TCS E-serve Ltd., and Eclerx Services Ltd., were objected to on the reason of high turnover and functionally different. With reference to Infosys BPO, the objection was that the said company renders vide array of services and has high brand value and turnover is also very high. With reference to TCS E-serve Ltd., there was exceptional event as the company was taken over by Tata Consultancy Services in the year 2008-09 and heavy turnover is due to its takeover. Further, it was submitted that the company was functionally different as it has three different services and segmental information was not arrived. As far as Eclerx Services Ltd., 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, e....
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....s regards the functional dissimilarity and huge turnover and brand value is concerned, we find that this Tribunal in assessee's own case for A.Y.2009-10 while considering the comparability of the assessee with Infosys BPO Ltd., has taken note of the possession of the brand value and intangibles which influenced the financial results of this company. The Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd., [2013] 219 Taxman 26 (Del.), held that huge turnover companies like Infosys and Wipro cannot be considered as comparable to smaller companies like assessee therein. In the case before the Hon'ble High Court (supra), the turnover of the assessee was about Rs. 15.79 crores as against the turnover of Rs. 1016 crores of the Infosys. Considering these facts, the Hon'ble High Court had directed for exclusion 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.....
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.....R. relied on the order of Ld. DRP. 14.4 We have heard the rival submissions and perused the materials available on record. This company has been considered as not a comparable in the case of Entercoms Solutions Pvt. Ltd. in assessment year 2015-16 in ITA No. 1826/Pune/2019 dated 25.10.2021 wherein held as under:- 8. We find the Hon'ble Jurisdictional High Court in the case of Pr. Commissioner of Income Tax Vs. PTC Software (I) (P) Ltd. (2019) 101 taxmann.com 117 (Bombay) has held that in case the assessee rendering ITES services to AE, a company in whose case extraordinary event of amalgamation took place during relevant year, could not be accepted as comparable and was decided in favour of the assessee. Similarly in the case of Pr. Commissioner of Income Tax Vs. J.P Morgan India (P) Ltd. (2019) 102 taxmann.com 335 (Bombay) , the Hon'ble Jurisdictional High Court on the same issue has held as follows: "(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. ....
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....T (A) says that there is no such amalgamation but his finding is totally incorrect. In this regard, reliance was placed on the ratio laid down by Pune Bench of Tribunal in Dover India (P.) Ltd. v. Dy. CIT [2017] 88 taxmann.com 115 (Pune - Trib.), wherein for assessment year 201011 itself, the said concern Accentia Technologies Ltd. was excluded being high end KPO service provider. Further, the Tribunal in BNY Mellon International Operations (India) (P.) Ltd. (supra) have noted the extraordinary event of acquisition and also amalgamation of another concern and held that the said concern could not be selected as comparable. The relevant findings of Tribunal are in paras 12 and 13, which read as under:- '12. The next concern against which the assessee has raised objections is Accentia Technologies Ltd. on the ground of extraordinary events during the year under consideration. The said concern had acquired IQ group of companies in the United Kingdom 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 ....
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....the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. v. ITO, (2013) 38 taxmann.com 55 (Bang.) has excluded the said concern from the list of comparables in a similar situation following the decision of the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited v. DCIT, (2013) 32 taxmann.com 21 (Hyd.). 15. We have considered the submissions of the Ld. Representative for the assessee and also the stand of the Revenue as emerging from the order of the TPO. In our view, the ratio laid down by the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited (supra) and by the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) is squarely applicable to the present case also. The aforesaid Benches of the Tribunal found that during the year under consideration there were extraordinary events that took place 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 ....
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....e between BPO and KPO services. KPO is termed as an upward shift of the BPO industry in the value. chain. Thus, BPO trying to upgrade itself as KPO is likely to render both BPO as well as KPO services in the process of evolution and therefore, such an entity cannot be considered strictly as either BPO or KPO. In view of the above, ITeS service's cannot be further classified as BPO and KPO services for the purpose of comparability analysis. Under the TNMM, functional similarity is more relevant than product similarity. The DRP noted that the functional profile of this company was similar to the assessee. 23. Regarding the amalgamation of wholly owned subsidiary Agilyst Consulting Pvt. Limited has taken place with effect from 1-4-2015, the DR observed that the assessee has not demonstrated any increase in profits due to this amalgamation. Therefore, this amalgamation has no impact on comparability. Accordingly, the plea was rejected. 24. With regard to acquisition resulting in inorganic growth, the DRP noted that the company has acquired entire shareholding of CLX Europe SPA, Italy, as on 22nd April 2015 and this acquisition was made by the company's oversea....
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....ering remote data processing in the field of reinsurance. In our opinion functions performed by this company is not similar to that of assessee even though assessee before us also carries out certain services on contract basis. Ld. AR has placed reliance upon decision of Hon'ble Delhi High Court in case of Rampgreen Solutions (P.) Ltd. v. CIT [2015] 60 taxmann.com 355/234 Taxman 573/377 ITR 533 Hon'ble Court had held that once a company falls into the category of high-end KPO, it cannot be functionally comparable with a BPO service provider like that of assessee. Applying this reissue in the present case, we direct Ld.AO to eliminate this comparable from final list." 30. In view of the above order of the Tribunal, we are inclined to direct that Eclerx Services Ltd. be excluded from the list of comparables. 15.2 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. 15.3 In view of the above-mentioned reasons, the Ld. A.R. requested to direct the TPO to exclude this comparable from the final list of ITeS Segment. 15.4. Ld. D.R. relied on....
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...., we find we find that the Co-ordinate Bench of this Tribunal in the assessee's own case not only for the A.Ys 2009-10 for the A.Y 201011 has also considered this issue at Paras 6 to 9 in ITA No. 221/Hyd/2015 which reads as under: "6. The TPO has selected many comparables and among them M/s. Infosys BPO Ltd., TCS e-serve Ltd., and Eclerx Services Ltd., were objected to on the reason of high turnover and functionally different. With reference to Infosys BPO, the objection was that the said company renders vide array of services and has high brand value and turnover is also very high. With reference to TCS E-serve Ltd., there was exceptional event as the company was taken over by Tata Consultancy Services in the year 2008-09 and heavy turnover is due to its takeover. Further, it was submitted that the company was functionally different as it has three different services and segmental information was not arrived. As far as E-clerx Services Ltd., 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 th....
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.... this company has to be excluded from the list of comparables, it cannot be excluded. Such claim has to be supported by evidence on record. As regards the functional dissimilarity and huge turnover and brand value is concerned, we find that this Tribunal in assessee's own case for A.Y.2009-10 while considering the comparability of the assessee with Infosys BPO Ltd., has taken note of the possession of the brand value and intangibles which influenced the financial results of this company. The Hon'ble Delhi High Court in the case of CIT vs. Agnity India Technologies P. Ltd., (2013) 219 Taxman 26 (Del.), held that huge turnover companies like Infosys and Wipro cannot be considered as comparable to smaller companies like assessee therein. In the case before the Hon'ble High Court (supra), the turnover of the assessee was about Rs. 15.79 crores as against the turnover of Rs. 1016 crores of the Infosys. Considering these facts, the Hon'ble High Court had directed for exclusion 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 tha....
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.... exclude these 3 comparables. 14(e) CES Limited: 12. This issue came for consideration in ITA No. 133/Pune/2021 dated 18.6.2021 in the case of Credence Resources Management Pvt. Ltd., wherein the Tribunal has held as under: "15. The contention of the assessee are that as per the annual report of CES Limited for FY 2015-16, the company is engaged in providing IT and ITes services. The Director's report has further provides the detailed disclosure of activities carried out under ITes segment which describes that the revenue under this segment is generated from BPO as well as KPO activities for which the bifurcated information is not available. Therefore it cannot be comparable to the business of the assessee which is engaged in BPO services. Further the assessee contended that as per the website of the company the BPO segment is engaged in providing varied activities which includes fraud prevention and process automation. Thus, CES Limited is engaged in high end activities which are distinguished from low end back office activities of the assessee. 16. The TPO has observed that CES limited is engaged in the business of ITes only. The TPO even referred the ....
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....sion of KPO along with BPO is also not disputed by the Department and in respect thereof, following the decision of the Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. Vs. CIT, ITA No. 102/2015 dated 10.08.2015, it is an undisputed fact therefore that the assessee in the present case is involved in ITes services which is primarily a call center. However, CES Ltd is doing both BPO and KPO services. The principle involved in the judgment of the Hon'ble Delhi High Court (supra.) is crystal clear that segregation of ITes services has to be categorically conducted before classifying as functionally comparable with another. In this case Revenue Authorities have only looked into the revenue earning from ITes segment and included this company as comparable. The facts remains both these companies are functionally different. We therefore, direct the AO/TPO to exclude CES Limited from the final set of comparables with that of the assessee company." 12.1 Accordingly, in view of the above we direct the AO/TPO to exclude CES Limited from the list of comparables. 14(f) Ultramine Pigments Ltd. 13. Regarding exclusion of this comparable, the ld. DRP observed t....
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....materially affect the profit arising from such transactions in the open market. Hence, these pleas were rejected by the ld. DRP. 14. In our opinion, the above findings of the ld. DRP are self-contradictory. This should be re-examined at the end of AO/TPO. Accordingly, this issue is set aside to the file of AO/TPO for reconsideration. 14(g) SPI Technologies Ltd. 15. After hearing both the parties, we are of the opinion that this has been considered in assessee's own case in assessment year 2016-17 in IT(TP)A No. 342/Bang/2021 vide order dated 14.10.2022 wherein it has been excluded by observed as under: "18. Since the profile of the assessee in the instant case and the assessee in the case of M/s.Global E-Business Operations Pvt. Ltd. are the same and the assessment year also being 2016-2017, following the above order of the Tribunal, we direct the TPO to exclude (i) Infosys BPO Limited, (ii) SPI Technologies Pvt. Ltd., and (iii) Eclerx Services Limited from the list of comparables and re-compute the ALP of the international transaction." 15.1 In view of this, we direct the AO/TPO to exclude this company from the list of comparables. Ground No. 15 - For Inclu....
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....l Report for the F.Y. 2015-16 that earnings in foreign exchange is Rs. 24.77 crore whereas the total revenue from operations is R$.34.99 crore, Therefore, ithas an export revenue of70.79% of total revenue from operations and hence it is rightly rejected as comparable as it is not satisfying the export revenue filter adopted by the TPO. As a result, this objection is found unacceptable by the ld. DRP. 17.2 As seen from above findings of ld. DRP, the assessee has passed through the foreign exchange filter and it should be considered as a comparable. Accordingly, this issue is remitted to AO/TPO for fresh consideration. Ground No. 15 b- Crystal Voxx Ltd. 18. The ld. A.R. submitted that this comparable passed throuigh the search matrix followed by the TPO and qualifies all filters and may go back to the TPO for reconsideration. 18.1 We accede to the request of the assessee's counsel and remit it back to the file of AO/TPO for fresh consideration to examine whether assessee passed through all the filters adopted by the TPO or not. The issue is remitted to the file of AO/TPO for fresh consideration. Ground No. 15 c- R System International Ltd. 19. After hearing both ....
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....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." 20.2 In view of the above, this issue is also remitted back to the file of AO/TPO for similar consideration. 20.3 Regarding inclusion of ISN Global Ltd., after hearing both the parties, we are of the opinion that as held by the Tribunal in Global e-Business Operations Pvt. Ltd. In IT(TP)A No. 174/Bang/2022 cited (supra), wherein held as under: "13.5 The ld. DR stated that the Ld. DRP has observed in his order that this c....