TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 1417
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee. Thus, additional ground Nos. 1 to 4 raised by the assessee are dismissed. 3. Ground Nos. A1, B4 and B5 are general in nature, hence, require no adjudication. 4. The ld. AR submits that the assessee is not interested to prosecute ground No. 8. Hence, the same is dismissed as not pressed. 5. Ground Nos. B2, B3, B6 and B7 raised by the assessee are with regard to benchmarking analysis of comparable companies selected by the assessee, rejecting the same as not comparable which are functionally comparables, not accepting the additional comparable companies and erroneously computing the operating margins of the comparable companies selected by the TPO. 6. Brief facts of the case are that the assessee is a wholly owned subsidiary of Vodafone Tele-Services (India) Holdings Limited, Mauritius and Vodafone Mauritius Limited. (VGSPL). The assessee engaged in the business of providing telecommunication networking services including network design, project management and implementation, network management and maintenance services. The assessee entered into five international transactions with its AEs. The only dispute is with regard to nature of transaction as provision of net....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ltd. 224.13 59.67% 57.79% 10 Domex E-Data Pvt. Ltd. 22.24 69.62% 60.40% 35th percentile 17.78% Median 20.50% 65th percentile 23.10% 10. The ld. AR did not dispute the inclusion of comparable company at Sr. No. 1 i.e. Microland Ltd. 11. The assessee seeking exclusion of Parexel International (India) Services Pvt. Ltd. 12. It was contended by the ld. AR that the Parexel is into wide range of clinical service offerings like medical communication, consulting, medical and scientific services, clinical development etc. The ld. AR argued that the assessee assists its AEs in running day-to-day operations, monitor issues, troubleshooting and other back office support, but however, Parexel is not at all comparable functionally to the assessee. We note that the TPO on an examination of annual report of Parexel opined that it is into single business segment i.e. ITES segment. Further, he was of the opinion, the said company is into single business segment engaged in the Business Process Outsourcing unit and providing Information Technology and IT enabled services. The TPO rejected the contention of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m ITES. The Financial Statement for 01-04-2016 to 31-03-2017 is placed at page 1586 of the paper book, wherein, it is noted in the auditor report that the said company is engaged in the BPO and IT enabled services. Further, it is noted at page 1595 of the paper book, where, a declaration was made regarding the main products/services by the 24/7 Customer Pvt. Ltd. as the total turnover from Customer Relationship Management Services is 100% which supports from page 1665 of the paper book showing revenue from communication services is of Rs. 52,17,69,87,803/-. On perusal of the said statement the said company derived total revenue from communication services only i.e. sale of services. We note that in segmental report at page 1659 of the paper book shows that the said company is engaged in the business of providing IT enabled services. 15. The ld. AR vehemently contended that the assessee is into troubleshooting that monitor the fault and rectify the same. There is no relationship with the customer that the assessee as that of 24/7 Customer Pvt. Ltd. The ld. DR supported the findings of DRP/TPO and argued the customer analytics is one function, is very difficult to find out the exact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e to the functions of the assessee. The ld. AR vehemently argued that the assessee is not into BPO and the functions of the said company are entirely different from the functions of the assessee. The ld. DR submits that the assessee is into highly technical services like that of KPO, but it is only BPO and there is no difference between KPO and BPO. On an examination of the record, we note that the Exlservice.Com (I) Pvt. Ltd. disclosed revenue from operations under BPO as it is main products/services. Though, it is mentioned BPO and KPO in its business process, but revenue earned at 100% from BPO. Admittedly, no further details were given in the financials, therefore, we find no infirmity in the findings of DRP in confirming the view of TPO in retaining Exlservice.Com (I) Pvt. Ltd. as comparable consequently which resulted in final assessment order holding the same. 18. The assessee is seeking exclusion of Datamatics Business Solutions Ltd. 19. According to the ld. AR the Datamatics Business Solutions Ltd. is engaged in providing intelligent Business Process Management services and Database Solutions & B2B Marketing, Demand Generation & Sales etc. He argued that the said company....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ording to the TPO that the Tech Mahindra Business Services Ltd. is not global and since the software services in India is outsourced to abroad clients and the billing is cost plus revenue and held the brand of Tech Mahindra Business Services Ltd. does not fetch higher margin. Further, the assessee could not point out the billing mechanism affects the functional comparison. The DRP basing on its earlier decisions in taking the Tech Mahindra Business Services Ltd. as comparable in similar ITES segment and also in assessee's own case for A.Y. 2016-17 confirmed the finding of TPO in selecting the Tech Mahindra Business Services Ltd. as comparable. We find the annual report of Tech Mahindra Business Services Ltd. from page 1438 of the paper book-3. On perusal of page 1443, the said company discloses its principal business as Information Technology Enabled Services voice-based call center services which is contributing 100% of the total turnover. The Board's report is at page 1439 of the paper book-3 which shows that there was no change in the nature of business carried out relevant to the year under consideration. We note that the Revenue from operations is disclosed the profit and loss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....annual report of the company, the activity undertaken by the company is in the nature of pre-press activities which is not comparable to the assessee. That further in the website of the company, it is engaged in the diversified set of activities which involves graphic solutions, packaging brand management, digital publishing and digital content solutions. Therefore, the assessee submits that this company should be rejected from the final set of comparables companies. 9. The TPO was of the opinion that in this company i.e. Manipal Digital Systems Private Limited, 90% of the revenue is earned from ITes which is similar to that of the assessee company. The TPO further observed that most of the information provided by the assessee was from website and it cannot be said reliable source of information as any company while projecting itself in public domain tries to shows its diverse functioning and range of products so as to create a brand image of itself. With these observations, the contention of the assessee was rejected and the company was taken as comparable company. 10. That before the Ld. DRP, objections have been raised by the assessee which are at running Page No.34 of the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompasses a wide spectrum of services that use Information Technology based delivery. Such service could include rendering highly technical services by qualified technical personnel involving advanced skills and knowledge, such as engineering, design and support. While, on the other end of the spectrum ITes would also include voice based call centers that render routine customer support for their clients. The relevant portion of the judgment is extracted as follows for the sake of completeness: ".............Clearly, characteristics of the service rendered would be dissimilar. Further, both service providers cannot be considered to be functionally similar. Their business environment would be entirely different, the demand and supply for the services would be different, the assets and capital employed would differ, the competence required to operate the two services would be different. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous. 32. It has been pointe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er BPO service provider. A KPO service provider would also be functionally different from other BPO service providers, inasmuch as the responsibilities undertaken, the activities performed, the quality of resources employed would be materially different. In the circumstances, we are unable to agree that broadly ITeS sector can be used for selecting comparables without making a conscious selection as to the quality and nature of the content of services. Rule 10B(2)(a) of the Income Tax Rules, 1962 mandates that the comparability of controlled and uncontrolled transactions be judged with reference to service/product characteristics. This factor cannot be undermined by using a broad classification of ITeS which takes within its fold various types of services with completely different content and value. Thus, where the tested party is not a KPO service provider, an entity rendering KPO services cannot be considered as a comparable for the purposes of Transfer Pricing analysis. The perception that a BPO service provider may have the ability to move up the value chain by offering KPO services cannot be a ground for assessing the transactions relating to services rendered by the BPO servi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany since the onus is on him to give reason for such inclusion. The logic was shown from the decision of the Pune Bench of the Tribunal in the case of M/s. Tasty Bite Eatables Limited Vs. ACIT, ITA No.1823/PUN/2018 for the assessment year 2014-15 dated 03.06.2021 wherein it was held that since the comparable chosen by the assessee, the onus is upon it to prove the functional comparability of this company. Extending the same logic, the Ld. Counsel submitted that it was also for the TPO to explain the reasons for inclusion of this company i.e. Manipal Digital Systems Private Limited since it was chosen as comparable by him. 14. We are of the considered view on going through the order of the TPO, findings of the Ld. DRP and the various judicial pronouncements placed on record, first of all the Revenue has selected Manipal Digital Systems Private Limited as comparable to that of the assessee company based on the earning of the company from ITes. However, there is no segmental specification provided neither by the TPO nor by the Ld. DRP for the reason of such inclusion of this company in the final set of comparable companies with that of the assessee company. In the decision of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re 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 annual report of this company at Page 39 where IT enabled services are comprising of BPO and KPO and still the TPO was of the opinion that since 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 com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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." 27. On perusal of the same, we note that this Tribunal directed the AO to exclude the CES Limited from the final set of comparables. The ld. DR did not bring on record any contrary view in this regard. Therefore, following the same, we direct the AO/TPO to exclude the CES Limited from the final list of comparables. 28. The assessee is seeking exclusion of MPS Ltd. 29. The ld. AR drew our attention to the order dated 18-06-2021 passed by this Tribunal in the case of Credence Resource Management Private Limited in ITA No. 133/PUN/2021 for A.Y. 2016-17 and submitted that this Tribunal considered comparability of MPS Ltd. and directed the AO/TPO to exclude the same as comparable company in the final l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llows : "20. We have perused the case records and heard the rival contentions. We find from the annual report of MPS Limited is engaged in high end activity i.e. type-setting, data digitization, content and product development for learners which is in the nature of "knowledge processing outsourcing services. From the various functions performed by MPS Limited, we find that the said comparable is predominantly in the business of digital publishing which cannot be treated at par with ITes which is in the name of the assessee in ITes segment. In this regard, we find in the case of Emerson Electric Company (India) Private Limited Vs. ACIT (supra.) wherein the Co-ordinate Bench of the Tribunal, Mumbai held the MPS Limited as functionally not comparable by observing as follows: "9.3. From the perusal of the annual report for the year ended 31/03/2014 of the said comparable, we find from page 707 of the paper book that the said comparable had incurred outsourcing cost of Rs. 1078.76 Crores which is included under the head "miscellaneous expenses" which goes to prove that it has got a different business model. From the various functions performed by MPS Ltd., we find that the said comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... same issue, the Coordinate Bench of the Tribunal, Delhi has held as follows: "Vishal Informatics 12.1. The TPO included this company in the list of comparables by noticing that it was engaged in providing BPO services. The assessee failed to convince him and the DRP that it was incomparable. 12.2. Having heard the rival submissions and perused the relevant material on record, we find from the Annual report of this company that it is mainly engaged in e-publishing business. It has more than 10,000 classic books to its credit which are also converted into large font titles for visually challenged. Apart from e-publishing, this company is also engaged in Documents scanning & Indexing. It can be seen from the financial results of this company that both the segments viz., e-publishing and Documents scanning etc. have been combined and there are no separate financial results in respect of Documents scanning work, which may be comparable with the assessee to some extent. As the assessee is not engaged in any e-publishing business and the financials given by this company are on consolidated basis, we direct to exclude this company from the list of comparables. The assessee succeeds....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ronouncements, it is evident that MPS Limited is functionally different from that of the assessee company in more-so that high end activities of MPS Ltd is akin to IT services and not ITes. Respectfully following the decision of the Co-ordinate Bench of the Tribunal (supra.) we direct the AO/TPO to exclude MPS Limited from final list of comparable companies." 30. On perusal of the same, we note that this Tribunal directed the AO to exclude the MPS Ltd. from the final set of comparables. The ld. DR did not bring on record any contrary view in this regard. Therefore, following the same, we direct the AO/TPO to exclude the MPS Ltd. from the final list of comparables. 31. The assessee is seeking exclusion of Domex E-Data Private Limited. 32. The ld. AR drew our attention to the order dated 18-06-2021 passed by this Tribunal in the case of Credence Resource Management Private Limited in ITA No. 133/PUN/2021 for A.Y. 2016-17 and submitted that this Tribunal considered comparability of Domex E-Data Private Limited and directed the AO/TPO to exclude the same as comparable company in the final list of comparables. Both the parties agreed that the facts and circumstances covering the comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....son why this company is made comparable to that with the assessee company. That as per the logical principle following from the decision in the case of M/s. Tasty Bites Eatables Limited Vs. ACIT (supra.), it is for the TPO to explain the reason for inclusion of this company since it was chosen as comparable by him. That even the Ld. DRP had emphasized on the revenue earning of this company from ITes. Here also, the decision of the Hon'ble Delhi High Court (supra.) is clear that if two companies performing ITes are to be considered as comparable then the specific business of the said two companies has to be analyzed and then decide upon whether they are at all comparable or not. In this case, we do not find such exercise was conducted neither by TPO nor by the Ld. DRP. Therefore, we are of the considered view that in the given set of facts, this company is functionally not comparable with that of the assessee company. We, therefore, direct the AO/TPO to exclude this company i.e. Domex E-Data Pvt. Ltd. from the final set of comparables." 33. On perusal of the same, we note that this Tribunal directed the AO to exclude the Domex E-Data Private Limited from the final set of comparable....