2015 (12) TMI 1662 - AT - Income Tax

TPA - selection of companies as comparables - Held that - Any company engaged in the KPO activities or dissimilar activities could not be compared with a routine BPO service provider as that of assessee.

Issues Involved:

1. Inclusion of R-Systems International Ltd. as a comparable.
2. Inclusion of Eclerx Services Limited as a comparable.
3. Inclusion of Infosys BPO Limited as a comparable.
4. Inclusion of TCS e-serve International Limited as a comparable.

Issue-wise Detailed Analysis:

1. Inclusion of R-Systems International Ltd. as a Comparable:

During the course of hearing, the assessee argued for including R-Systems International Ltd. as a comparable. The TPO rejected this company on the ground that it was engaged in software development, while the DRP rejected it due to its different financial year. The assessee submitted the margins for the period April 2009 to March 2010, based on calendar year data available in the public domain, which were not considered by the lower authorities. The Tribunal referenced the Delhi Bench decision in MERCER CONSULTING (INDIA) PVT. LTD. and the Mumbai Bench decision in AEGIS LTD., which allowed the inclusion of such data. The Tribunal remitted the issue to the TPO/AO to include R-Systems International Ltd. in the list of comparables after re-computing the margins for the financial year under consideration based on the audited accounts, taking segmental data of the BPO segment into consideration. This ground was allowed for statistical purposes.

2. Inclusion of Eclerx Services Limited as a Comparable:

The assessee contended that Eclerx Services Limited was functionally different, providing high-end KPO services, while the assessee was engaged in routine BPO services. The Tribunal noted that the Delhi High Court in Rampgreen Solutions Pvt. Ltd. and the Tribunal in the assessee's own case for A.Y. 2009-10 had held that KPO service providers are not comparable to BPO service providers. The Tribunal directed the exclusion of Eclerx Services Limited from the list of comparables, following the precedent set by the Delhi High Court and the Tribunal's earlier decisions.

3. Inclusion of Infosys BPO Limited as a Comparable:

The assessee argued that Infosys BPO Limited was functionally different and had a significantly higher turnover, driven by its brand value and entrepreneurial nature. The Tribunal referenced multiple judgments, including the Delhi High Court decision in Agnity India Technologies Pvt Ltd., which upheld the exclusion of Infosys BPO due to functional differences and its large turnover. The Tribunal agreed with the assessee's arguments and directed the exclusion of Infosys BPO Limited from the list of comparables.

4. Inclusion of TCS e-serve International Limited as a Comparable:

The assessee argued that TCS e-serve International Limited was not comparable due to its transactions with Citigroup entities, functional differences, and an exceptional year of operations. The Tribunal noted that TCS e-serve was part of a large group and provided various technical services, making it functionally distinct from the assessee's BPO services. The Tribunal referenced the decision in Techbooks International Pvt. Ltd., which excluded TCS e-serve due to the absence of segmental data for its software development services. The Tribunal directed the AO to exclude TCS e-serve International Limited from the list of comparables.

Other Grounds:

Ground Nos. 1 to 6, 9, 12, 16, 17, 18 & 19, and 20 & 21 were dismissed as no specific arguments were made by the Ld. Counsel or were deemed consequential.

Conclusion:

The appeal of the assessee was partly allowed, with specific directions to exclude certain companies from the list of comparables and to reconsider the inclusion of R-Systems International Ltd. based on re-computed margins. The order was pronounced in the open court on 9th December 2015.

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