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TMI Blog2014 (9) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... n relation to human resources which are more or less centered around the employees of the prospective clients - the mere fact that two services are placed under this category do not become automatically comparable - If a case providing one category of services under ITES is claimed as comparable with another in the category of service under ITES as per this circular, then it must be shown ex facie that it is broadly similar - the services rendered by Genesys fall under clause (vi) with the heading ‘Geographical Information Systems Services’, whereas those rendered by the assessee fall partly under clause (vii) with the heading ‘Human Resources Services’ and partly under clause (xi) with the heading ‘Payroll’ - there is a vast difference which make one quite distinct from the other - there is vast difference between the functions of the above company and that of assessee - This company cannot be treated as comparable on FAR analysis – the AO was directed to AO to exclude this company. Cosmic Global Ltd. – Outsourcing of main activity - Held that:- Following the decision in M/s. Mercer Consulting (India) Ltd. V/s DCIT [2014 (7) TMI 715 - ITAT DELHI] - Outsourcing charges constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to the assessee and considering the objections of the assessee – Decided partly in favour of assessee. - ITA No. 255/Hyd/14 - - - Dated:- 31-7-2014 - Shri B. Ramakotaiah And Shri Saktijit Dey,JJ. For the Appellant : Shri H. Srinivasulu For the Respondent : Shri P. Soma Sekhara Reddy DR ORDER Per B.Ramakotaiah, Accountant Member: This appeal by assessee is directed against the order of assessment dated 13th January, 2014 passed under S.143(3) read with S.92CA and 144C(5) of the Act, in pursuance of the order of the Dispute Resolution Panel, Hyderabad dated 26.12.2013, for the assessment year 2009- 10. 2. The assessee raised four grounds involving various sub-grounds out of which ground no.1, ground No.2.1.1, 2.1.2, and ground No.4 are general in nature. In the course of arguments, the learned counsel has not pressed the grounds No. 2.4. on rejection of usage of multiple year data by the assessee in its TP study. Issue in these appeals is with reference to Transfer Pricing adjustments made by the Assessing Officer/TPO; and charging of interest under S.234B and 234C. In the course of arguments, the learned counsel confined his arguments to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sign (in short CAD ). The assessee is involved in providing support services in connection of modeling and iterative simulation. It receives the basic design from its group company. With respect to CAD modelling, assessee makes a 3-D CAD modelling data of vehicle components using CAD software tools. The CAE modelling services comprises of finite modelling for the computer simulation which would involve breaking down the model into various structures. The TPO as well as the assessee charecterised assessee as a routine support service provider with skilled and trained workforce and it assumes less than normal risk associated with carrying out such business. 5. During the year assessee s operating revenue was to the tune of ₹ 24.91 crores and operating cost was ₹ 23.40 crores. The operating profit to cost ratio was 6.44%. In its transfer pricing report, assessee reported I.T. Enabled services (in short ITES ) at ₹ 22.03 crores and reimbursement of expenditure of ₹ 45,568. Assessee in its Transfer Pricing Study selected TNMM as the most appropriate method. Even though there is no dispute with reference to the method adopted, the TPO rejected the documentati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g adjustments, like rejection of assessee s TP Study, use of filters, obtaining data under S.133(6) of the Act which is not available in public domain, selection of comparables and risk profile of assessee company vis- -vis comparable companies. As already stated, In the course of arguments, learned counsel restricted his arguments to the selection of comparables. Assessee is objecting to seven comparables selected by the TPO. 9. We have heard the learned counsel for assessee and the learned Departmental Representative in detail, and their arguments are considered at the appropriate stages of this order. As briefly stated, assessee is objecting to the following seven comparables out of twelve comparables selected by the TPO. Sl. No. Company Name 1. Infosys B P O Ltd. 2. Genesys International Ltd. 3. Eclerx Services Ltd. 4. Cosmic Global Ltd. 5. Acropetal Technologies Ltd. (Seg.) 6. Accentia Technologies Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zontals, and is having super profits. It was further submitted that this company is not only in software development but also in Geospatial Services, which are highly technical. It also involved in consulting activity. It was the contention that this company was analysed by the coordinate Bench of the Tribunal at Delhi in the case of M/s. Mercer Consulting (India) Ltd. V/s DCIT (vide order dated 6th June, 2014 in ITA No.966/Del/2014), for same assessment year, wherein this company was excluded in that case. Learned counsel for assessee relied upon the findings of the Tribunal vide paras 14.2 and 14.3, in that case, which read as follows- 14.2. We have heard the rival submissions and perused the rival materials on record. It has been noticed supra that assessee is basically providing various services to the customers of its AEs in relation to human resources which are more or less centered around the employees of the prospective clients. When we consider the nature of services provided by Genesys International Corporation Ltd., it comes to the forefront that they are providing full range of geospatial services to its customers. In simple terms, geospatial services means the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and partly under clause (xi) with the heading Payroll . On juxtaposition examination of these two sets of services, we find that there is a vast difference which make one quite distinct from the other. In view of such functional incomparability between assessee and Genesys, we hold that this company cannot be treated as comparable. We, therefore, direct to exclude this case from the list of comparables. 12.1. On careful consideration of the matter, respectfully following the above decision of the coordinate Bench, we are also of the opinion that there is vast difference between the functions of the above company and that of assessee. This company as such, cannot be treated as comparable on FAR analysis. We therefore, direct the Assessing Officer/TPO to exclude this company. (3) Eclerx Services Ltd. 13. The objection of assessee to this comparable is that this company is functionally dissimilar. It is in the business of consultancy and advisory service and provides only analytical data. It is also involved in quality monitoring. It is the stand of the assessee that this company offers solutions that include data analytics, operations management, audits and reconciliation an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g costs. This does not appear to us to be a valid reason for eliminating this case from the list of comparables. On going through the Annual accounts of Cosmic Global Limited, a copy of which has been placed on record, we find that its total revenue from operations are at ₹ 7.37 crore divided into three segments, namely, Medical transcription and consultancy services at ₹ 9.90 lacs, Translation charges at ₹ 6.99 crore and Accounts BPO at ₹ 27.76 lac. The ld. AR has made out a case that outsourcing activity carried out by this company constitutes 57% of total expenses. The reason for which we are not agreeable with the ld. AR is that we have to examine the revenue of this case only from Accounts BPO segment and not on the entity level, being also from Medical transcription and Translation charges. When we are examining the results of this company from the Accounts BPO segment alone, there is no need to examine the position under other segments. The entire outsourcing is confined to Translation charges paid at ₹ 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of ₹ 6.99 crore. If this segmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. As seen from the Annual Report, this company is involved in engineering design services and has products also, which makes it functionally not comparable at entity level. However TPO has considered only segmental profits of ITES. At the segmental level, it provides engineering design services, which was considered as high end, by the coordinate bench of the Tribunal in the case of Mercer Consulting (India) Pvt. Ltd. (supra). Assessee also provides engineering design services. Last year also this comparable was analysed in assessee s own case by ITAT and held as under: We have considered the submissions of the learned counsel for the Assessee. Ld Counsel submission was that this company was excluded in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench, so the same require exclusion. In the above case it was considered like this: 13. We have considered the submissions of the learned counsel for the Assessee. On a perusal of the Note No.15 of notes to accounts which gives segmental revenue of this company, it is clear that the major source of income for this company is from providing Engineering Design Service and Information Technology Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of acquiring companies for inorganic growth as its strategy. In earlier years on the reason of acquisition of various companies, being an extraordinary event which had an impact on the profit, this company was excluded. As submitted by the learned counsel, this year also, the acquisition of some companies by that company may have impact on the profit. Considering the profit margins of the company and insufficient segmental data, we are of the opinion that this company cannot be selected as a comparable. Moreover, this is also not a comparable in the case of M/s. Mercer Consulting (India) P. Ltd. (supra), which indicates that the TPO therein has excluded it at the outset. In view of this, we direct the Assessing Officer/TPO to exclude this comparable, from the list of comparables selected. (7) Crossdomain solutions P.Ltd: 17. Assessee s main objection pertains to violation of principles of natural justice in selecting this comparable. Before the TPO, assessee objected to obtaining information under S.133(6) which is not available in the public domain. Vide Annexure 16 to the objection assessee raised two grounds, mainly on obtaining information under S.133(6) and violation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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