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2020 (8) TMI 441 - AT - Income TaxTP Adjustment - Comparable selection - Dispute Resolution Panel (DRP) for inclusion of Coral Hub Limited as comparable in design engineering service segments of assessee - HELD THAT - The company is primarily engaged in providing IT enabled services and the production and sale of such services cannot be expressed in any generic units. Further, he submitted that the TPO accepted Coral Hub Limited as comparable to the assessee for A.Y. 2010-11. We note that the DRP reproduced the comparable companies for A.Y. 2010-11 in its order which clearly shows the Coral Hub Limited was taken as comparable. We find in the annual report the entire income of Coral Hub Limited has been shown as income from IT enabled services. No infirmity in the order of AO/DRP in accepting the Coral Hub Limited as comparable to the activities of assessee in the final list of comparables. Thus, ground Nos. 1 and 2 raised by the Revenue are dismissed. Inclusion of Cosmic Global Limited as comparable in design engineering service segments of assessee - We find the DRP reproduced the Circular issued by the CBDT which clearly shows that the CBDT explained 15 categories which fall under the IT enabled services products or services amongst which medical transcription is treated as IT enabled services. Therefore, we find no infirmity in the order of AO/DRP in inclusion of Cosmic Global Limited in the final set of comparables. Thus, ground raised by the Revenue are dismissed. Include Microgentics Systems Limited in the final set of comparables - For medical transcription, training will be given by the Doctors and they are not at all engaged in medical transcription activity and the services of assessee are requires highly skilled personnel because it is engaged in designing. We note that the DRP having found the medical transcription services which represents IT enabled services treated the activities of Microgentics Systems Limited is functionally similar to the assessee and directed the TPO to include Microgentics Systems Limited as comparable in the final list of comparables. Thus, we find no infirmity in the order of DRP/AO. Accordingly, ground raised by the Revenue are dismissed. Rejection of Eclerx Services Limited - Eclerx Services Limited is not comparable and the Assessing Officer/TPO is directed to exclude for the purpose of benchmarking of the international transactions. Rejecting the R Systems International Limited in the comparable set on account of persistent loss making company - DR submits that the R Systems Limited should not be accepted as a comparable because of different year ending - there is no dispute that foreign exchange gain is treated as non operating revenue. The assessee is persistent loss making company. Therefore, we find no infirmity in the order of AO in excluding R Systems International Limited on account of persistent loss making company as comparable to the assessee and thus, ground raised by the assessee is dismissed.
Issues Involved:
1. Inclusion of Coral Hub Limited as a comparable in design engineering service segments. 2. Inclusion of Cosmic Global Limited as a comparable in design engineering service segments. 3. Inclusion of Microgentics Systems Limited as a comparable in design engineering service segments. 4. Rejection of Eclerx Services Limited as a comparable. 5. Rejection of R Systems International Limited as a comparable due to persistent loss-making. Issue-wise Detailed Analysis: 1. Inclusion of Coral Hub Limited as a Comparable: The Revenue contested the inclusion of Coral Hub Limited as a comparable for the assessee's design engineering services. The AO had rejected Coral Hub Limited, stating it was not functionally comparable. However, the DRP directed its inclusion, noting the functions of Coral Hub Limited and the assessee were similar. The Revenue argued that Coral Hub Limited's activities, particularly in digitization, were not comparable due to their lower skill requirements. The Tribunal upheld the DRP's decision, noting that Coral Hub Limited was engaged in IT-enabled services, and its inclusion as a comparable was consistent with the previous assessment year. Thus, the Tribunal found no infirmity in the DRP's order and dismissed the Revenue's grounds. 2. Inclusion of Cosmic Global Limited as a Comparable: The Revenue challenged the inclusion of Cosmic Global Limited, arguing it was primarily engaged in translation services, not IT-enabled services. The assessee contended that Cosmic Global Limited also provided other IT-enabled services, including BPO services, and had been accepted as a comparable in the previous assessment year. The DRP, referencing a CBDT circular that classified medical transcription as an IT-enabled service, directed the inclusion of Cosmic Global Limited. The Tribunal found no error in the DRP's decision, noting that the CBDT's classification supported the inclusion. Consequently, the Tribunal dismissed the Revenue's grounds. 3. Inclusion of Microgentics Systems Limited as a Comparable: The Revenue objected to the inclusion of Microgentics Systems Limited, arguing it was not functionally comparable and lacked the necessary computer hardware and software for medical transcription services. The DRP found the TPO's observations factually incorrect, noting that Microgentics Systems Limited's production expenses included medical transcription charges and that it possessed the required assets. The Tribunal upheld the DRP's decision, finding no infirmity in the inclusion of Microgentics Systems Limited as a comparable. Thus, the Tribunal dismissed the Revenue's grounds. 4. Rejection of Eclerx Services Limited as a Comparable: The assessee challenged the inclusion of Eclerx Services Limited, arguing it was not functionally comparable. The DRP and TPO had included Eclerx Services Limited, considering it a KPO like the assessee. The Tribunal noted that Eclerx Services Limited provided data analytics and process outsourcing services, which were functionally dissimilar to the assessee's engineering design services. Citing a similar case where Eclerx Services Limited was excluded based on functional dissimilarity, the Tribunal directed the exclusion of Eclerx Services Limited from the comparable list, allowing the assessee's ground. 5. Rejection of R Systems International Limited as a Comparable: The assessee contested the exclusion of R Systems International Limited, which the TPO and DRP had rejected due to persistent losses when foreign exchange gains were treated as non-operating income. The Tribunal found that the foreign exchange gains should be treated as non-operating revenue, consistent with the definition in Rule 10A of the Income Tax Rules, 1962. Consequently, R Systems International Limited was deemed a persistent loss-making company and not comparable to the assessee. Thus, the Tribunal upheld the exclusion and dismissed the assessee's ground. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection, directing the exclusion of Eclerx Services Limited from the comparable list while upholding the inclusion of Coral Hub Limited, Cosmic Global Limited, and Microgentics Systems Limited and the exclusion of R Systems International Limited. The order was pronounced on 18th August 2020.
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