2015 (5) TMI 354 - AT - Income Tax

Transfer pricing adjustment - selection of comparable - Held that - Eclerx Services Ltd. engaged in providing data analytics services with expertise in financial service and retail and manufacturing as thus be excluded from the list of comparables for the reason that it is providing high end services involving specialised knowledge and domain expertise and same cannot be compared with companies which are mainly engaged in providing low end services to group companies as of assessee. See Maersk Global Centre (India) Private Ltd. vs. ACIT 2014 (3) TMI 891 - ITAT MUMBAI Vishal Information Technology Ltd. be excluded from the comparable list as it is functionally different from assessee also having low employee cost of 3%. Vishal is very high profit making company and operates on outsourcing model and hence, has different business model to that of assessee. Maple E Solutions Ltd. and Triton Corporation Ltd. be excluded from the comparable list as The promoters of the company were involved in the fraud for earlier years, hence the financial results of these companies are distorted and accordingly cannot be relied upon. Mold-tek Technologies Limited is engaged in providing engineering consulting services as part of its IT operations. The Company has specifically categorized its IT operations as KPO in its annual report. The Company has also accepted in its reply u/s 133(6) that the company provides engineering design drawing and detailed structural engineering using 3D and 2D software s. The Engineering design services provided by the company are high end in nature involving special knowledge and domain expertise and therefore, not functionally comparable with the assessee company which is engaged in providing low end ITES enabled call centre services. Therefore, we hold CIT (A) is justified in excluding this company from the final list of comparable.

Issues Involved:
1. Exclusion of Eclerx Services Pvt. Ltd. from the list of comparables.
2. Exclusion of Vishal Information Technology Ltd. from the list of comparables.
3. Exclusion of Maple E Solutions Ltd. and Triton Corporation Ltd. from the list of comparables.
4. Exclusion of Mold-Tek Technologies Ltd. from the list of comparables.

Issue-wise Detailed Analysis:

1. Exclusion of Eclerx Services Pvt. Ltd. from the list of comparables:
The assessee argued for the exclusion of Eclerx Services Pvt. Ltd. due to its high-end data analytics services, which involve specialized knowledge and domain expertise, making it functionally different from the assessee's low-end ITES call center services. The Tribunal referred to the ITAT Special Bench's decision in Maersk Global Centres (India) Pvt. Ltd. vs. ACIT, which excluded Eclerx for similar reasons. The Tribunal directed the TPO to exclude Eclerx from the final list of comparables, noting that the services provided by Eclerx were high-end and not comparable to the low-end services provided by the assessee.

2. Exclusion of Vishal Information Technology Ltd. from the list of comparables:
The assessee contended that Vishal Information Technology Ltd. is engaged in diversified activities such as e-publishing, making it functionally different from the assessee. The Tribunal noted that Vishal had a low employee cost ratio and operated on an outsourcing model, which differed significantly from the assessee's business model. The Tribunal referred to multiple judicial precedents where Vishal was excluded due to these differences. Consequently, the Tribunal directed the exclusion of Vishal from the final list of comparables.

3. Exclusion of Maple E Solutions Ltd. and Triton Corporation Ltd. from the list of comparables:
The assessee argued for the exclusion of Maple E Solutions Ltd. and Triton Corporation Ltd. due to the involvement of their promoters in fraud, which could distort their financial results. The Tribunal cited various judicial precedents supporting the exclusion of companies with unreliable financial data due to fraud. Additionally, Maple had significant income from trading IT peripherals, and Triton was initially rejected by the TPO. The Tribunal directed the exclusion of both companies from the final list of comparables.

4. Exclusion of Mold-Tek Technologies Ltd. from the list of comparables:
The Revenue challenged the exclusion of Mold-Tek Technologies Ltd. by the CIT(A). The CIT(A) excluded Mold-Tek due to its extraordinary profits and functional differences, as it provided engineering design services, which are high-end and involve specialized knowledge. The Tribunal upheld the CIT(A)'s decision, noting that Mold-Tek's services were not comparable to the assessee's low-end ITES services. The Tribunal also referred to the ITAT Special Bench's decision in Maersk Global Centres (India) Pvt. Ltd. vs. ACIT, which excluded Mold-Tek for similar reasons.

Conclusion:
The Tribunal directed the exclusion of Eclerx Services Pvt. Ltd., Vishal Information Technology Ltd., Maple E Solutions Ltd., and Triton Corporation Ltd. from the final list of comparables. The Tribunal upheld the CIT(A)'s exclusion of Mold-Tek Technologies Ltd. from the list of comparables. The matter was restored to the AO/TPO for reworking of the margins. The appeal filed by the assessee was allowed for statistical purposes, and the appeal filed by the Revenue was dismissed.

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