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TMI Blog2014 (9) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... ices Ltd. - Functionally different unit – Held that:- Following the decision in M/s. Mercer Consulting (India) Ltd. V/s DCIT [2014 (7) TMI 715 - ITAT DELHI] - 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 - there is a vast difference which make one quite distinct from the other - In view of such functional incomparability between assessee and Genesys, this company cannot be treated as comparable – Eclerx Services is involved in diverse nature of services, and there was no segmental data for diversified service port folio - the company can be considered as KPO and we are of the opinion that this company is not comparable to assessee’s services - the AO is directed to exclude this company. Cosmic Global Ltd. – Held that:- Following the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat:- Following the decision in The Commissioner of Income Tax Versus M/s. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] - communication charges, though have to be excluded from the export turnover for the purpose of computing deduction u/s 10A of the Act, it should also be excluded from the total turnover - the AO is directed to compute the deduction u/s 10A, after reducing the communication expenses both from the export turnover as well as total turnover – Decided partly in favour of Assessee. Setting off of brought forward business losses – Held that:- Following the decision in Assistant Commissioner Of Income-tax, Circle - 4, Ahmedabad. Versus Goldmine Shares And Finance (P.) Limited [2008 (4) TMI 405 - ITAT AHMEDABAD] - if brought forward losses pertains to the undertaking which was claiming the deduction u/s 10A, even if they are set off against other income in respective years, the same should be notionally set off against the income of this year - the AO is directed to give an opportunity to the assessee and examine the brought forward losses issue, and then make the disallowance, if any – Decided partly in favour of Assessee. - ITA No. 159/Hyd/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the factual matrix of each case in each assessment year. Therefore, while considering some of the principles established in various decisions of the coordinate benches of earlier years, we could not completely rely on the findings thereon. Suffice to say that we have considered all case-law while deciding the issues, particularly, of the Hyderabad Benches of the Tribunal, in Hyundai Motors India Engineering P. Ltd., Hyderabad V/s. ITO Ward 2(2) Hyderabad (ITA No.1850/Hyd/2012 for assessment year 2008-09 dated 21.2.2014); in Capital IQ information Systems (India) Pvt. Ltd., Hyderabad V/s. Dy. CIT (ITA No.1961/Hyd/2011 for assessment year 2007-08 dated 23.11.2012), and M/s. Zavata India Private Ltd., Hyderabad V/s. ITO Ward 3(2), Hyderabad (ITA No.628/Hyd/2008 for assessment year 2004-05 dated 13.1.2013), and of the Bangalore Bench of the Tribunal in the case of Symphony Marketing (IT(TP)A No.1316/Bang/2012 dated 14.8.2013), which basically pertain to earlier assessment years and not for the year under appeal in this case. 5. Briefly stated, M/s. Excellence Data Research P. Ltd. is rendering back office data creation, content development and support services in relation to analysi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 14 comparables. Ultimately, the TPO determined the following twelve companies as comparables and arrived at the average Profit Level Indicator (PLI) of 27.42%, as per the details tabulated hereunder- Sl. No. Company Name Operating Revenue Rs.(in crores) PBIT/Cost % 1. Accentia Technologies Limited 78.73 49.40 2. Acropetal Technologies Ltd. (Seg.) 33.13 25.01 3. Aditya Birla Minacs Worldwide Ltd. 231.57 0.53 4. Cosmic Global Ltd. 7.76 48.20 5. Crossdomain solutions p. Ltd 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectness of inclusion of the above companies is decided hereunder case by case. (1) Infosys B P O Ltd. : 14. 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 campaigning outside India. Further, it also has huge asset base and therefore, this company is not functionally comparable to assessee. Assessee relied on the decision of the Hon ble Delhi High Court in the case of CIT V/s. Agnity India Technologies Pvt. Ltd. (2013) 219 Taxman 26 (Del), wherein it was held that huge turnover companies like Infosys and Wipro cannot be considered as comparable to smaller companies like assessee. 14.1 We are in agreement with the contentions of the comparability on turnover ratio of assessee with this company on the ground that assessee s turnover is about ₹ 42.06 crores, as against turnover of ₹ 1016 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpare 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 etc. and ending with Website services. From the very description of such services, it is palpable that even though these fall under the overall ITES category, but some of them are quite different from each other. To cite, service at Sl.No. (vi) of this Circular is Geographic Information System services and at Sl. No. (vii) is Human Resources Services. No doubt, all these fifteen categories of products/services have been included under the major head of Information Technology Enabled Services (ITES), but most of them are quite distinguishable from others. In our considered opinion, the fifteen broad categories set out in this Circular cannot per se be claimed as similar to each other. A cursor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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. 16.1 The Learned Departmental Representative, however, submitted that having accepted Aditya Birla Minacs Worldwide Ltd., as a comparable company, this company should also be included, as otherwise, both the companies should be excluded. 16.2 We have considered the issue and examined the Annual Report and the objections of assessee. As seen from the Annual Report, the above company is involved in diverse nature of services, and there was no segmental data for diversified service port folio. Moreover this company can be considered as KPO and we are of the opinion that this company is not comparable to assessee s services. We therefore, direct the Assessing Officer/TPO to exclude this company. (4) Cosmic Global Ltd. 17. The main objection of assessee with reference to the inclusion of this company is with reference to outsourcing of its main a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 CGVAK 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 segment of Cosmic Global Limited at ₹ 27.76 lac is still on much lower side, the reasons given above would fully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded from the list of comparables. In view of the detailed analysis of the coordinate Bench of the Tribunal in the above referred case, in this case also we accept the contentions of assessee and direct the Assessing Officer/TPO to exclude this comparable for the same reasons. (5) Acropetal Technologies Ltd. (Seg.) 18. The objection of assessee with reference to this company is that the company is involved in engineering design services and high end services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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: 20. 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 principles of natural justice. Before us also, the main contention is with a refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orking Capital Adjustment already provided in the computation by the TPO. This ground is decided accordingly. 22. Ground No.3 pertains to exclusion of internet expenses from export turnover. The Assessing Officer, while computing deduction under S.10A of the Act reduced internet expenses of ₹ 7,26,221 from export turnover. In doing so, the Assessing Officer relied on the definition of the term export turnover in clause (iv) of Explanation 2 to S.10A of the Act. It was submitted that these communication expenses comprise of expenses incurred towards telephone expenses, and internet, and these are spent in India and do not come within the purview of the said Explanation. In the alternative, it was submitted that the same should also be excluded from the total turnover as well. The TPO rejected the contention and the DRP also declined to interfere on this ground. 23. We have heard the rival contentions on this issue. Hon ble Bombay High Court in the case of Gemplus Jewellery (330 ITR 175) and the Special Bench (Chennai) of the Tribunal in the case of Sak Soft Ltd. (121 TTJ 865) have held that communication charges, though have to be excluded from the export turnover for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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