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TMI Blog2013 (6) TMI 374X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the assessee before TPO as well as DRP but no specific findings have been given on that. Therefore, it just and proper to restore this issue also to the file of AO/TPO to give specific finding on that and after giving the assessee a reasonable opportunity in this regard, the correct profit margin should be taken. So far as it relates to contention of the assessee that only segmental result should be taken in the case of Datamatics Financial Services Ltd., this issue is also supported by the decision of the Tribunal in the case of Willis Processing Services (I) (P.) Ltd. (supra). Accordingly direct the A0/TPO to take segmental result for the purpose of computing the arithmetic mean of the said comparable. Assessee should be given reasonable opportunity of hearing and after giving such opportunity the mean margin of comparables should be computed and if the mean margin computed is within the safe harbour of ± 5% then no adjustment should be made - appeal filed by the assessee is partly allowed for statistical purposes. - IT Appeal No. 7046 (Mum) of 2012 - - - Dated:- 28-3-2013 - I.P. BANSAL AND B. RAMAKOTAIAH, JJ. For the Appellant : Nishant Thakkar. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 6,27,24,685/-. The assessee carried on the business of Information Technology Enabled Services (ITES) and software development services. Following international transactions were entered into by the assessee in the year under consideration with its Associated Enterprises(AEs): Sr. No. Nature of service F.Y. 2007-08 Method adopted by assessee 1. Provision of information technology enabled services (Received) 34,91,33,150 TNMM 2. Allocation of cost 94,71,002 TNMM 3. Reimbursement of expenses to AE's (Paid) 1,71,77,007 TNMM 4. Reimbursement of Salary cost 4,25,61,190 TNMM 5. Recovery cost 93,899 TNMM 6. Recovery of Salary Costs 1,05,03,518 TNMM Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47.40 12. Infosys BPO Ltd. 20.01 13. I services India Pvt. Ltd. 9.58 14. Maple eSolutions Ltd. 20.43 15. Mold-Tek Technologies Ltd. 96.66 16. R Systems International (Seg) 4.30 17. Spanco Ltd. (Seg) 11.04 18. Triton Corp. Ltd 23.81 19. Wipro Ltd (Seg) 30.05 20. Crisil Ltd 30.96 21. Datamactic Technology Ltd 3.03 22. First Source Solutions Ltd. 15.25 23. Titus Technologies Ltd. 39.05 Average Mean 28.55 2.2 Taking into account the assessee's margin of 22% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned three grounds the submissions of Ld. A.R on each of the grounds are as under: (i) Firstly, Ld. AR submitted that according to several decisions of 1TAT Coral Hubs Ltd (formerly Vishal Information Technology Ltd.) cannot be compared with the assessee who is carrying on of ITES as the said concern is not carrying out the said activity at its own and such activity is outsourced. To support such contention Ld. AR referred to the submissions made before TPO and DRP, wherein the assessee had objected the inclusion of Coral Hubs Ltd. as comparable and reference was made to Annexure-2 filed at page 191 of the paper book, wherein inclusion of Coral Hubs Ltd. was objected on the ground that employee cost of Coral Hubs Ltd. is only 4.39% of its operating cost and its substantial vendor payments, hire charges etc. of ₹ 21.82 cores being 87% of its total expenditure evidencing that the company has outsourced and has not provided the services by itself. Reference was also made to the accounts of the said company, copy of which is filed at pages 7 to 18 of the paper book and reference was made to page-13, where the revenue of Vishal Information Technology i.e. Coral Hubs Ltd. is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 20.64% and TPO has wrongly taken it at 96.66%. Ld. AR has furnished following chart to substantiate such contention. Particulars As computed by the TPO Correct margin Sales-IT Division 178,458 178,458 Add: Other operating income - 9,215 Operating Revenues 178,458 187,673 Expenses debited to P L account 160,568 160,568 Less: Interest finance charges 5,435 5,435 Less: Preliminary deferred expenses written off 13 13 Less: Provision for derivative loss 64,377 - Add: Provision for Fringe benefit tax - 442 Operating Expenses 90,743 155,562 Operating Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in short, Ld. AR pleaded that Coral Hubs Ltd. should be excluded from the comparables; correct profit rate should be determined in the case of Mold-tek Technologies Limited for the purpose of computing arithmetic mean and segmental profit should be taken in the case of Datamatics Financial Services Ltd. He submitted that if it is so done, then the arithmetic mean of the comparable would come to 27.55% and assessee's mean margin being 22%, no upward adjustment can be made as it would be within the safe harbour of 5%. 5. On the other hand, it was submitted by Ld. DR that the case of the assessee cannot be simply accepted as in the case of Coral Hubs Ltd. it has not shown that the said party has outsourced its activity. He submitted that the decisions relied upon by Ld. AR relate to earlier years, therefore, for the year under consideration, unless verified from accounts, the contentions of the assessee should not be accepted. He referred to the decision in the case of Willis Processing Services (I) (P.) Ltd. (supra), wherein similar issue was considered by the Tribunal and matter was restored back to the file of AO/TPO for proper examination of the relevant facts. The rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, mis information has not been considered by the lower authorities. 63.1 We find that the CIT(A) while rejecting this comparable has not examined the relevant evidence in respect of this fact whether this company has outsourced majority of its business or used 80% of seat capacity. Therefore, in the interest of justice, we remand this comparable to the record of the AO/TPO for proper examination of the relevant facts and then decide the comparability of this company as per law. 5.1 In respect Mold-tek Technologies Limited, DR submitted that profit has rightly been taken by TPO. For Datamatic Financial Services Ltd. Ld. DR submitted that the matter may be sent back to AO/TPO for verification. 6. We have heard both the parties and their contentions have carefully been considered. Since the appeal was argued by Ld. AR only on limited issue of exclusion of Coral Hubs Ltd. as comparable and for the purpose of taking correct rate of profit in hands of Mold-tek Technologies Limited and Datamatics Financial Services Ltd. (Seg), we proceed to decide this appeal on these submissions as according to Ld. AR, if such exercise is done then profit margin of the assessee will f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.1 So far as it relates to exclusion of Coral Hub Ltd., the contention of the Ld. AR is supported by aforementioned two decisions i.e. in the case of Maersk Global Service Center (India) (P.) Ltd. (supra) and Capital IQ Information Systems (India) (P.) Ltd. (supra). The relevant observation of Tribunal in the case of Maersk Global Service Center (India) (P.) Ltd. (supra) are as under: 47. Now we turn to the list of twelve comparable cases drawn by the TPO as per Table B. It is found that the case of Nucleus Netsoft GIS India Ltd. finds place in the list of assessee's comparable also. As such no infirmity can be found in the impugned order in including this case in the final list of comparables. Out of the remaining eleven cases, the learned CIT(A) has included five cases, thereby excluding the following cases: Parts of Table B Sr. No. Name of the company 1. Tulsyan Technologies Ltd. (Cosmic Global) 2. WIPRO BPO Solutions Ltd. 3. Vishal Information Technologies Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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