TaxTMI 
TaxTMI 
2023 (4) TMI 1417
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....the additional grounds of appeal raised by 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 ....
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....% 22.64% 7 Manipal Digital systems Pvt. Ltd. (Merged) 24.34 30.01% 23.10% 8 C E S Ltd. 67.11 32.27% 32.23% 9 M P S 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 opini....
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....ions of the assessee. The DRP in its order at page 78 of the appeal memo confirmed the view of TPO in selecting 24/7 Customer Pvt. Ltd. as comparable taking into account the annual report showing of 100% from 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 relationsh....
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....,499.32 Millions of Rs. and other income is of 905.84 Millions of Rs. We find no further details. The case of the TPO/DRP is that the said company is in the business of providing ITES and therefore it is comparable 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. ....
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....3G Ireland Limited. It is also noted the main contention of the assessee before the TPO was that the Tech Mahindra Business Services Ltd. commands a premium price due to brand value and objected the billing mechanism. According 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....
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.... "Manipal Digital Systems Private Limited:- 8. The assessee submits that the Manipal Digital Systems Private Limited is functionally different from the assessee which is involved in provision of ITes services. As per the 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....
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....n'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 comparing controlled transactions/entities with similar uncontrolled transactions/entities. ITes encompasses 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 factor....
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....ve 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 is used to indicate an ITeS provider providing a completely different nature of service than any other 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 ca....
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....he 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 have specifically stated why he has selected this company as comparable with that of the assessee company 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 comparab....
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....e Limited at paras 15 to 19 are reproduced here-in-below for ready reference : "CES Limited :- 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 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....
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....8223;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." 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 ....
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....hat the high end activities performed by MPS Ltd. are akin to IT services and not ITes. 23. The Ld. Counsel for the assessee heavily relied on the decision of the Pune Bench of the Tribunal in the case of Symantec Software India Private Limited Vs. DCIT, ITA No.1824/PUN/2018 for the assessment year 2014- 15 dated 17.02.2020 wherein the Tribunal in respect of MPS Limited has held and observed as follows : "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:....
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....e chosen by the ld. TPO, M/s. MPS Ltd., is functionally not comparable with that of the assessee and accordingly, we direct the ld. TPO to exclude the same from the list of comparables." 21. We further observe in the case of United Health Group Information Services Pvt. Ltd. Vs. ACIT (supra.) wherein with regard to Vishal Informatics which is engaged in e-publishing business like the company in the instant case i.e. MPS Limited, on 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 res....
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....elopment are in the nature of "Knowledge Processing Outsourcing Services (KPOs) and not BPO. Accordingly, MPS Limited cannot be treated as comparable company and the AO/TPO is directed to exclude MPS Limited from final list of comparable companies with regard to its technical support service segment." 24. Having gone through the annual report of the company, findings of the Sub-ordinate Authorities and the submissions of the assessee placed on record along with judicial pronouncements, 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 exclusio....
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....n in website which they intend to carry out but however at the present moment they may not be dealing with those activities. 27. Per contra, the Ld. Counsel for the assessee took us through the annual report, P & L account and reiterated the submissions placed before the Revenue Authorities. Here again as per facts placed on record, this company is primarily a KPO company as per Note-II of Annexure to Auditor's report for FY 2014-15. Here again the Revenue Authorities have not specifically stated the reason 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 ....