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TMI Blog2014 (9) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... DELHI] - 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 - 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 exclude this company. Cosmic Global Ltd. – Outsourcing of main activity - Held that:- Following the decision in M/s. Mercer Consulting (In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER Per B.Ramakotaiah, Accountant Member: These are cross appeals by assessee and Revenue against the orders of the Assessing Officer under S.143(3) read with order under S.144(C)(5) of the Income Tax Act, 1961 on the directions of the Disputes Resolution Panel, Hyderabad, vide order dated 27.11.2013. 2. The issues in these appeals are with reference to Transfer Pricing adjustments made by the Assessing Officer/TPO. 3. Briefly stated, M/s. Capital IQ Information Systems (India) Pvt. Ltd. is a wholly owned subsidiary of Capital IQ Inc, USA and is engaged in providing IT Enabled Services (ITES) to its AE, Capital IQ US. Assessee processes annual/ quarterly financial reports and press releases of various international companies and extracts required data from financial statements, notes to financial statements, audit reports, etc. through utilization of tools developed in house and also prepares business descriptions, biographies of key executives and tracks key developments in the companies. Assessee functions as a captive contract service provider. For the assessment year 2009-10, assessee filed return of income on 30.9.2009 declaring an income of ₹ 29,22,01,88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Aditya Birla Minacs Worldwide Ltd. 231.57 0.53 4. Cosmic Global Ltd. 7.76 48.20 5. Crossdomain 33.76 29.38 6. Eclerx Services Ltd. 187.98 53.44 7. Infosys B P O Ltd. 101.62 16.90 8. Jeevan Softech Technology Ltd. 1.79 16.56 9. Microland Limited 144.05 2.35 10. Microgenetic Systems Ltd. 1.27 10.11 11. R.Systems International Ltd.(Seg.) 26.55 5.77 12. Genesys International Ltd. 83.18 71.50 AVERAGE 27.42 6. Having arrived at the Arithmetic Mean PLI at 27.42%, the TPO allowed working capital adjustment at 2.19%. The Arithmetic Mean PLI was determined at 25.23% and taking the Operating Cost of ₹ 155.62 crores, the TPO suggested adjustment of ₹ 15,20,07,732 under S.92CA. 7. The Assessing Officer issued a Draft Assessment Order proposing to make th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Eclerx Services Ltd. 4. Cosmic Global Ltd. 5. Acropetal Technologies Ltd. (Seg.) 6. Accentia Technologies Limited That apart, assessee wants the inclusion of the following two comparables- (a) Allsec Technologies Limited (b) Cepha Imaging Private Limited It was submitted that if these comparables were considered, other issues become academic in nature. 15. We have considered the contentions of the parties and examined the documents and paper-books placed on record. Correctness of inclusion/exclusion of the above companies is decided hereunder case by case. (1) Infosys B P O Ltd. : 16. It was the contention of assessee that this BPO is a giant in its area and has brand value of Infosys Technologies limited. Assessee s main contention was that it is not functionally similar and its turnover is much more when compared to that of assessee. It was also contended that the Infosys BPO has done brand building exercise by incurring large amounts of brand building and advertisement expenditure and undertaking brand cam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 services relating to the relative position of things on the earth s surface. These basically include 3D mapping, Navigation maps, Image processing, Cadastral mapping, etc. If we take into account the nature of services provided by the assessee, being financial and retirement security, health, productivity of employees and employment relationships and then try to compare them with those rendered by Genesys, it is manifested that both are totally incomparable. 14.3. The TPO on page 48 of his order has examined CBDT Circular SO 890 (E) dated 26.9.2000 which provides a detailed list of products or services that can be covered under the ITES for the purposes of Section 10A and 10B of the Act. In this Circular, Information Technology Enabled Products/Services have been divided into fifteen categories, starting with Bank Office operations, Call centres et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and therefore has to be classified as high end KPO. In support of the stand of the assessee, extracts from the annual report of this company have been pointed out. Therefore, the functions of the above company are dissimilar to assessee, which is a captive service provider. On the principles laid down by the Hon ble Special Bench of the ITAT (Mumbai) in the case of Maersk Global Centres (India) Pvt. Ltd. V/s. ACIT (ITA No.7466/Mum/2012 for assessment year 2008-09 dated 7.3.2014) and the principles laid down by the coordinate bench of the Tribunal(Delhi) in the case of M/s. Mercer Consulting (India) Pvt. Ltd., (supra), assessee submits that this company cannot be selected as a comparable. 18.1 The Learned Departmental Representative, however, submitted that having accepted Aditya Birla Minacs Worldwide Ltd., as a comparable company, this compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anslation 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 inthe realm of the Translation segment, revenues from which are to the tune of ₹ 6.99 crore. If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO. Thus it is held that this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment. 13.3. However, we find this case to incomparable on the alternative argument advanced by the ld. AR to the effect that total revenue of the Accounts BPO segment of Cosmic Global Limited is very low at ₹ 27.76 lacs. We have discussed this aspect above in the context of CG-VAK s case and held that a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at ₹ 86.10 lacs. As the segmental revenue of BPO segmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c growth as strategy to increase the profits because of the peculiar economic circumstances and brand value. The same in these circumstances cannot be selected. It was submitted that assessee was in medical transcription services. 21.1. The Departmental Representative however, objected to the pleas of assessee stating that the extraordinary events occurred in earlier year and therefore, the same cannot be considered as having any impact in the year under consideration. 21.2 We have considered the rival contentions and noticed that this company operates in a different business strategy 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tio of export revenue to total turnover of Allsec Technologies stands at 74.45% as shown on page 84 of the paper book. If we literally consider the filter applied by the TPO, this case does not pass the test. However, it is seen that the assessee included this case in the list of comparables by applying the filter of excluding thecases in which export revenue was less than 25% of the total revenue. There can be no hard and fast rule for putting a specific ceiling in a particular filter. The filters are not sacrosanct as not statutorily prescribed. These are used or modified for selection or rejection of comparables as per the convenience of the concerned party. If an assessee wants to include a certain case in the list of comparables which suits its requirements, then, it will suitably modify the filter itself or the ceiling in such filter, so as to fit the bill. Position is no different when it comes to the turn of the Revenue. If it wants to include a particular case in the list of comparables, it will also modify the filter or ceiling in such filter to suit its interest. Equally, if both the sides wantto exclude a case, they will modify the filter accordingly. The nutshell is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of e- publishing services. E-publishing services include typesetting, composition, art work, proof reading, project management, XML conversions and multimedia services provided to publishers of books and journals. When we consider the nature of services provided by Cepha Imaging vis-a-vis those rendered by the assessee, which are basically in the nature of human resources or payroll, we find that the same are not comparable. The view taken by the TPO in excluding this case from the list of comparables is upheld. Respectfully following the above decision, we are of the opinion that the said company is not comparable with that of the assessee on the basis of the services being provided. Accordingly, we uphold the view taken by the TPO in excluding this company from the list of comparables. 25. In view of the above discussion and decisions, in the context of the grounds of the assessee on selection of comparables, the TPO/Assessing Officer is directed to re-work out the Arithmetic Mean of the PLI after excluding six comparables discussed above, and including one comparable selected by the assessee but excluded by the TPO, viz. Allsec Technologies Ltd., and accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon ble Supreme Court in the case of CIT V/s. Textool Ltd. (supra). The fact pattern in the case before the Hon ble Supreme Court, which was similar to the facts of the assessee in the present case, was- a) Gratuity fund was not recognized upto the end of the previous year. b) Payment was made to LIC in the circumstances that the taxpayer was rendered out of control of funds. c) The payment was meant for the gratuity fund which was eventually approved. d) The approval was secured in the next previous year and the information as to approval was available with the AO at the time of assessment. e) In the above facts, the SC permitted allowability in terms of S.36(1)(v) of the Act. 32. The DRP found that the principles laid down in the aforesaid decision are applicable to this case. Since the facts and circumstances are similar, we do not find any merit in the Revenue pursuing the dispute in the appeal before this Tribunal. The grounds of the Revenue are accordingly rejected. 33. In the result, Revenue s appeal is dismissed. 34. To sum up, while appeal of the assessee, being ITA No.124/Hyd/20p14 is partly allowed, appeal of the Revenue, bein ..... X X X X Extracts X X X X X X X X Extracts X X X X
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