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2019 (5) TMI 1849 - AT - Income TaxTP Adjustment - Comparability of Accentia Technologies Ltd. ( Accentia ) - HELD THAT - As per the Management Discussion Analysis of the annual report, the company is engaged in software development as it has SaaS model. Further, the company has also developed software solutions such as Instakare and Insta PMS which helps healthcare providers with a holistic and comprehensive solutions that fulfils all the medical and administrative support needs. In the absence of segmental financial information for software development product sales (which would form part of income earned from medical transcription) the company cannot be considered as a comparable. Thus direct the TPO/AO to delete Accentia Technologies Ltd. from the final list of comparables. Acropetal Technologies Ltd. (Seg) - Acropetal operates various services such as architectural, structural, electrical engineering etc. which are functionally different from the ITeS rendered by the appellant. We find that the Safe Harbour Rules issued by CBDT clearly demarcates between BPO and KPO services and has also provided separate Safe Harbour Margin for these type of services. We follow the above order of the Tribunal in assessee s own case for the immediate preceding assessment year and direct the TPO/AO to delete Acropetal Technologies Ltd.(Seg) from the list of final comparables. ICRA Online Ltd. (Seg) - Following the decision of Tesco Hindustan Service Centre Pvt. Ltd. 2017 (1) TMI 1673 - ITAT BANGALORE and the observations in the Tribunal decision in appellant s own case for AY 2010-11, we reject ICRA Online as a comparable.
Issues Involved:
1. Inclusion of Accentia Technologies Ltd. as a comparable. 2. Inclusion of Acropetal Technologies Ltd. (Seg) as a comparable. 3. Inclusion of ICRA Online Ltd. (Seg) as a comparable and computation of its operating margin. 4. Consequential and academic grounds of appeal. Detailed Analysis: 1. Inclusion of Accentia Technologies Ltd. as a comparable: The appellant contended that Accentia Technologies Ltd. (Accentia) is functionally different as it is engaged in software services and operates under peculiar circumstances. The Transfer Pricing Officer (TPO) included Accentia on the grounds that it is a BPO involved in healthcare receivable management. The appellant argued that Accentia is involved in software development and KPO services without separate segmental information, making it an unsuitable comparable. The Tribunal noted that Accentia's annual report indicates engagement in software services and sales of software products without segmental breakup. Citing various Tribunal and High Court decisions, the Tribunal directed the TPO/AO to exclude Accentia from the final list of comparables, thereby allowing the 13th ground of appeal. 2. Inclusion of Acropetal Technologies Ltd. (Seg) as a comparable: The appellant argued that Acropetal Technologies Ltd. (Seg) (Acropetal) is engaged in KPO services, specifically in 'Engineering Design Services,' which are functionally different from the appellant's ITeS. The TPO/AO included Acropetal citing no distinction between BPO and KPO per CBDT Notification No. 11521. The Tribunal found that Acropetal's services, such as design engineering and architectural services, are indeed KPO services and functionally dissimilar to the appellant's BPO services. Following the Tribunal's decision in the appellant's own case for AY 2010-11, the Tribunal directed the TPO/AO to exclude Acropetal from the list of comparables, allowing the 14th ground of appeal. 3. Inclusion of ICRA Online Ltd. (Seg) as a comparable and computation of its operating margin: The appellant contended that ICRA Online Ltd. (Seg) (ICRA) is engaged in KPO services, making it functionally different from the appellant's BPO services. The TPO included ICRA, considering it engaged in data processing and mining, similar to ITeS. The Tribunal found that ICRA's annual report does not describe the nature of services in the 'Outsourced Services' segment, but references to ICRA Ltd.'s annual report indicate KPO and online software services. The Tribunal also noted the incorrect computation of ICRA's margin by the TPO. Following the Tribunal's decision in the appellant's case for AY 2010-11, the Tribunal directed the exclusion of ICRA from the list of comparables and corrected the margin computation, allowing the 15th and 17th grounds of appeal. 4. Consequential and academic grounds of appeal: Since the 13th, 14th, 15th, and 17th grounds of appeal were allowed, the 8th to 12th, 16th, 18th, and 19th grounds became academic in nature. The 20th ground of appeal regarding the benefit of +/- 5% under proviso to section 92C(2) of the Act and the 21st ground regarding levy of interest u/s 234B became consequential. The 22nd ground of appeal regarding initiation of penalty u/s 271(1)(c) was deemed premature. Conclusion: The appeal filed by the assessee was allowed, with the Tribunal directing the exclusion of Accentia Technologies Ltd., Acropetal Technologies Ltd. (Seg), and ICRA Online Ltd. (Seg) from the list of comparables, and correcting the computation of ICRA's margin. The consequential and academic grounds of appeal were addressed accordingly.
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