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TMI Blog2013 (6) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO has not given any opportunity to the assessee to raise his objections with regard to the aforesaid company, remit this issue to the file of the AO who shall decide the acceptability or otherwise of the company as comparable after considering the assessee 's objections. Vishal Information Technologies Ltd. - Held that:- As can be seen from the order of Capital IQ Information Systems India Pvt. Ltd [2014 (3) TMI 626 - ITAT HYDERABAD] the aforesaid company unlike the assessee has outsourced considerable portion of its business to third party vendor. Hence, it cannot be considered as a comparable. Asit C Mehta Financial Services Ltd. - Held that:- The company has a employee cost of 24.78% compared to assessee's 44%. That besides also the DRP in assessee's own case for asst. year 2008-09 has excluded this company which has not been controverted by the DR. Exclusion directed. Bodhtree Consulting Limited - Held that:- From the annual report of the aforesaid company it is seen that the said company earns its revenue from software development. Therefore it is functionally different from the assessee. This fact has not properly considered by either by the TPO or DRP. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 243 - ITAT MADRAS-D] thus direct AO to reduce communication charges both from the export turnover as well as the total turnover for computing exemption u/s 10A. This ground of the assessee is allowed. - ITA No.1781/Hyd/2011 - - - Dated:- 7-6-2013 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Sri Ravi Bharadwaj Sri Mithilesh Sai For the Respondent : Smt. Amisha S. Gupt ORDER Per Saktijit Dey, Judicial Member. Assessee's appeal is directed against the assessment order passed u/s 143(3)read with section 144C of the Income-tax Act on the direction of the Dispute Resolution Panel ( DRP in short), Hyderabad pertaining to the assessment year 2007-08. 2. Briefly the facts are, the assessee a wholly owned subsidiary of Zavata, USA (hereinafter called the associated enterprise in short AE) provides business process outsourcing (BPO) services in the field of health care administration to its AE). The assessee is a 100% EOU registered under the software technology park of India (STPI) Scheme. For the impugned assessment year, the assessee has filed its return of income on 30-10-2007 declaring a total income of ₹ 7,22,010/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nect between the search for the comparables and the comparability analysis. (v) Assessee has considered companies as comparables although they have related party transaction of more than 25% of the operating revenue. (vi) The assessee has selected companies which are into domestic operations with marginal and no export earnings. 4. After rejecting the TP study, the Assessing Officer undertook a fresh search of the data bases for selecting comparables. While doing so, the TPO applied certain additional filters and also obtained information u/s 133(6) of the Act. In this process, the TPO selected 20 companies as comparables with average margin of 30.55% and further making negative working capital adjustment of (-)0.37% determined the ALP at ₹ 27,95,19,630/- against the price shown by the assessee for the international transaction at ₹ 25,54,45,590/- thereby determining the shortfall of ₹ 2,40,74,013/- as the TP adjustment u/s 92CA of the Act. In pursuance to the order passed by the TPO proposing the aforesaid TP adjustment, the Assessing Officer passed a draft assessment order on 28-12-2010 proposing to add the TP adjustment of 2,40,74,013/- to the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicator to the fact that the company is either not a service company or into further outsourcing of work or a distributor company. It was further submitted that the unaudited segmental information obtained u/s 133(6) of the Act has been used to compute margins which may not be authentic. 7. It was submitted that due to multiple acquisitions by the company during the year under dispute, it was an exceptional year impacting the profitability of the company. In this context, the learned authorised representative of the assessee referred to the annual report of Accentia Technologies Limited in the paper book. The learned authorised representative of the assessee also relied upon the decision of Income-tax Appellate Tribunal, Hyderabad Bench in case of Capital IQ Information Systems India Pvt. Ltd. (ITA No.1961/Hyd/2011. 8. The learned departmental representative, on the other hand, submitted that there is no reason to exclude the aforesaid company as the TPO has given justifiable reasons for treating it as a comparable company. 9. We have heard the contentions of the parties with regard to the aforesaid companies and perused the material on record. From the facts and material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies on 26th August, 2008. Thus the effective date of the scheme of merger and demerger was 26th August, 2008. The Annual Report supported the argument of the assessee that there were merger and demerger in the financial year and it was an exceptional year of performance as financial statements were revised by this company much after the closure of the previous year. The Panel agrees with the contention of the assessee that it is an exceptional year having significant impact on the profitability arising out of merger and demerger. On careful consideration of the matter, we also agree with the aforesaid view of the DRP that extra-ordinary event like merger and de-merger will have an effect on the profitability of the company in the financial year in which such event takes place. It is the contention of the assessee that in case of the aforesaid company, there is amalgamation in December, 2006, which has impacted the financial result. This fact has to be verified by the TPO. If it is found upon such verification that the amalgamation in fact ahs taken place, then the aforesaid comparable has to be excluded. 10. As can be seen from the order of the co-ordinate bench, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver before utilising the information obtained, he has to give fair opportunity to the assessee to have his say in the matter. The DRP has also over-looked this aspect. Another important aspect is the company has shown profit of 50.15% which may have weighed with the Assessing Officer for accepting this company as comparable. Be that as it may since the TPO has not given any opportunity to the assessee to raise his objections with regard to the aforesaid company, we are inclined to remit this issue to the file of the Assessing Officer who shall decide the acceptability or otherwise of the company as comparable after considering the assessee 's objections. Vishal Information Technologies Ltd. 14. Objecting to the aforesaid company being selected as comparables by the TPO, the learned authorised representative of the assessee submitted before us that the aforesaid company is not only functionally different on account of employee cost filter as the employee cost of the company is only 2% of its revenue, but it also has huge vendor payment for data entry which is indicative of the fact that it does not provide IT enabled services by itself but outsources the work with third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, it cannot be considered as a comparable. That besides the DRP in assessee's own case for asst. year 2008-09 has held that this company cannot be treated as a comparable. Therefore, considering the aforesaid fact, we are of the view that M/s Vishal Information Technology Ltd., cannot be taken as a comparable and direct for excluding the same from the list of comparables. Asit C Mehta Financial Services Ltd. 18. The learned authorised representative of the assessee objecting to the aforesaid company being selected as comparable submitted that the employee cost of the company is only 24.78% of its revenue compared to assessee's 44%. The learned authorised representative of the assessee further submitted that in assessee's own case for asst. year 2008-09 the DRP has excluded this company from the list of comparables. 19. The learned departmental representative, on the other hand, supported the orders of the revenue authorities. 20. We have considered the submissions of the parties and perused the material on record. From the information obtained u/s 133(6) of the Act by the TPO, which is at page 381 of the paper book, it is seen that the company has a e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unctionally different from the assessee, the aforesaid company has shown extraordinarily high profit at 88.11% hence cannot be treated as comparable. In support of such contention, the learned authorised representative of the assessee relied upon the decision of co-ordinate bench in case of Capital IQ Information Systems (supra). 24. The learned departmental representative however supported the orders of the revenue authorities with regard to the aforesaid company. 25. We have heard rival submissions of the parties and perused the material on record. It is seen that in case of Capital IQ Information Systems (supra), the co-ordinate bench accepted the objection of the assessee with regard to the aforesaid company being treated as a comparable by holding that not only the said company is functionally different being engaged in providing KPO services but it has also shown extraordinary high profits. Following the aforesaid decision of co-ordinate bench of Tribunal in case of Capital IQ Information Systems, we hold that this company cannot be treated as comparable. Informed Technologies India Limited and Iservices India Private Ltd:- 26. Objecting to the aforesaid compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mold Tek is providing highly technical and specialised engineering services and use of information technology is only incidental. The learned authorised representative of the assessee submitted that the Income- tax Appellate Tribunal, Hyderabad Bench considering these aspects has held M/s Mold Tek is not to be treated as comparable in case of M/s Capital IQ Information Systems Pvt. Ltd. (supra). The learned authorised representative of the assessee further submitted that even in assessee's own case for asst. year 2008-09, the DRP has directed for exclusion of M/s Mold-Tek from list of comparables. 30. The learned departmental representative however supported the orders of the revenue authorities. 31. We have heard contentions of the parties and perused the material on record with regard to the aforesaid company being treated as comparable. As can be seen from the facts on record M/s Mold- Tek during the year under dispute had shown extraordinarily high profit of 117%. That besides the activities of M/s Mold-Tek is also found to be functionally different as it is engaged in providing highly technical engineering consultancy services. In case of Capital IQ Information syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparables. Therefore, following the decision of co- ordinate Bench in case of Capital IQ (supra) we direct the Assessing Officer to exclude M/s Mold-Tek Technologies Limited from the list of comparables. HCL Comnet Systems Services Limited, Infosys BPO Limited and Wipro Limited:- 32. Objecting to the aforesaid companies being treated as comparables, the learned authorised representative of the assessee submitted that while the assessee's turnover during the year is about 25.54 crores, these companies have huge turnovers compared to the assessee. It was submitted that the turnover of these companies are as under:- Company Turnover in Rs. (Crores) HCL Comnet Systems Services Limited 260.18 Infosys BPO Limited 649.56 Wipro Limited (Seg.) 939.78 It was further submitted that HCL Comnet System is also functionally different as it is engaged in the business of providing telecommunication and remote infrastructure management services. So far as Infosys BPO is concerned, it was submitted that this company ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. in spite of the fact that its data is not reliable as publicly known. On the basis of these arguments, the DRP excluded the case of Satyam Computers Services Ltd., thereby reducing the arm's length margin to 25.6%. It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the later is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk. Having considered these points, we are of the view that the case of the aforesaid Infosys and the assessee are not comparable at all as seen from the financial data etc. of the two companies mentioned earlier in the order. Therefore, we are of the view that this case is required to be excluded. Similar view has also been expressed by the Hyderabad Bench of the Tribunal in the case of Trinity Advanced Labs P. Ltd. (supra). In the case of M/s. Genesys Integrating India P. Ltd. (supra), the Bangalore Bench of the Tribunal has observed in the following manner- 9. Having heard both the parties and having considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as comparable, in the case of the assessee. 34. Apart from the fact that these companies cannot be considered as comparables as the turnover is more than 200 crores compared to the assessee's turnover of 25.54 crores they also cannot be treated as comparables due to various other functional dissimilarities. Therefore, following the observation made by the co-ordinate bench in the case of Capital IQ Information Systems India Ltd. (supra) we direct the Assessing Officer to exclude the aforesaid three companies from the list of comparables for determining the ALP. 35. In aforesaid view of the matter, we direct the Assessing Officer to determine the ALP keeping in view the directions given by us hereinbefore in respect of each of the comparables specifically objected to by the assessee. Assessee's grounds are partly allowed. 36. In ground No.12, the assessee has challenged the reduction of communication charges of ₹ 1,16,73,252/- from the export turnover without reducing it from the total turnover while computing deduction u/s 10A of the Act. 37. We have heard submissions of the parties and perused the material on record. This issue is squarely co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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