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TMI Blog2014 (11) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... le segmental details. Exclusion of Genesys International Corporation Ltd. – eClerx Services Ltd. - Cosmic Global Ltd. - Functionally different company - Held that:- Following the decision in M/s. Parexel International (India) Private Limited Versus Asst. Commissioner of Income-tax [2014 (11) TMI 129 - ITAT HYDERABAD] - 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 - they are providing full range of geospatial services to its customers - 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 - there is a vast difference which make one quite distinct from the other - this company cannot be treated as comparable – Decided in favour of assessee. Computation of deduction u/s 10A - Inclusion/exclusion of the communication costs from the total turnover – Held that:- Following the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions of the assessee company with its Associated Enterprises(AE), a reference was made by the Assessing Officer to the Transfer Pricing Officer (TPO) under S.92CA(1) of the Act. In the TP Study Report submitted by the assessee, TP analysis was done by applying Transactional Net Margin Method (TNMM), taking Operating Profit to Operating Cost (OP/OC) as Price Level Indicator (PLI). In the said report, seventeen comparables were selected by the assessee by applying certain filters and since the Arithmetic Mean of OP/OC of the said seventeen comparables was 11.91%, as against the OP/OC of 17.50% of the assessee in relation to its international transactions with AE, the price charged to the AE in respect of these transactions was claimed by the assessee to be as at Arm s Length. 4. After going through the relevant documents maintained by the assessee and after analyzing the relevant transactions, the TPO was of the opinion that the method adopted by the assessee for selecting the comparables suffered from defects and the same, therefore, had resulted in selection of inappropriate comparables and rejection of appropriate comparables. He accordingly confronted the assessee with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e draft assessment, objections were filed by the assessee before the Dispute Resolution Panel, which inter alia included the objections of the assessee in respect of comparability analysis carried out by the TPO and the application of additional filters by the TPO, which according to the assessee, resulted in inclusion of certain companies in the comparability analysis which did not satisfy the test of comparability. These objections raised by the assessee were found to be only partly sustainable by the Dispute Resolution Panel and accordingly the Assessing Officer/TPO was directed by the DRP to include Datamatics Financial Services P. Ltd. in the final list of comparables. The Assessing Officer/TPO was also directed by the DRP to apply the Arm s Length Margin only to the cost of the assessee relating to the international transaction with AE instead of applying the same to the entire cost as done by the Assessing Officer/TPO. As per these direction of the DRP, the Assessing Officer/TPO recomputed the Arm s Length Price of the international transactions of the assessee company with its AE and based on that, an addition of ₹ 2,70,81,312 was made to the total income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded eClerx Services Ltd. as not comparable on the ground that the said company being a KPO is not comparable to BPO. 5) The learned Assessing Officer has erred in law and in the facts and circumstances of the case in not excluding Cosmic Global Ltd. as a comparable Company, without taking into account the fact that the said company follows a different business module viz., outsourcing its work and hence is not comparable. 8. We have heard the arguments of both the sides and also perused the relevant material on record. As submitted by the learned counsel for the assessee, ground No.1 is general in nature, which does not require any specific adjudication. As regards the issue raised in ground No.2 relating to assessee s claim for inclusion of Axis IT T Ltd in the list of final comparables, it is observed that the said company was found to be engaged in the business of providing ITES services as well as software development services and the Revenue generated from ITES services was only 53.26% of the total revenue. Since the relevant details of ITES segment were not available, the TPO held that M/s. Axis IT T Ltd. could not be included in the list of final comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its order- 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 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the decision of the Tribunal rendered in the case of M/s. Excellence Data Research Ltd. (supra) to exclude Genesys International Ltd. from the list of comparables on the ground of functional difference, cannot be straight away applied in the case of the assessee, to exclude this comparable. As noted by the Tribunal in its order, Excellence Data Research P. Ltd. was rendering back office/ data segregation, content development and support services in relation to analysis, content research and projections for all types of business information, while the assessee company in the present case, as pointed by the TPO in his order, is engaged in the business of providing IT enabled services to its group concerns, such as operationalising the case-report form in the computer system, and undertaking quality control tests of the images sent by the AEs. After having considered the nature of functions performed by the assessee company vis-a-vis M/s. Excellence Data Research P. Ltd., we find that both these companies basically are providing data management and data processing services which are in the nature of low end services, and the same therefore, cannot be considered as functionally diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) to exclude Eclerx Services Ltd. from the list of comparables on the ground of functional difference, cannot be straight away applied in the case of the assessee, to exclude this comparable. As noted by the Tribunal in its order, Excellence Data Research P. Ltd. was rendering back office/ data segregation, content development and support services in relation to analysis, content research and projections for all types of business information, while the assessee company in the present case, as pointed by the TPO in his order, is engaged in the business of providing IT enabled services to its group concerns, such as operationalising the case-report form in the computer system, and undertaking quality control tests of the images sent by the AEs. After having considered the nature of functions performed by the assessee company vis-a-vis M/s. Excellence Data Research P. Ltd., we find that both these companies basically are providing data management and data processing services which are in the nature of low end services, and the same therefore, cannot be considered as functionally different for the purpose of comparability analysis. We, therefore, reject the contention raised by the Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 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 aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International Ltd., (2) eClerx Services Ltd., and (3) Cosmic Global Ltd. out of the twelve comparables selected by the TPO are thus liable to be excluded from the final list of comparables for the purpose of comparability analysis. In this regard, the learned counsel for the assessee has submitted that if it is done so, the Arithmetic Mean Margin of all the remaining nine comparables would come to 17.33% and the same being in the range of plus/minus 5% of the margin of the assessee company charged to its AE in respect of the relevant international transactions, no addition on account of TP adjustment is required to be made in the case of the assessee. We accordingly direct the Assessing Officer/TPO to recompute the Arm s Length Price by excluding the above three comparables from the final list of comparables and allow appropriate relief to the assessee on this issue. Grounds No.3 to 5 of the assessee s appeal are allowed. Revenue s Appeal: ITA No.291/Hyd/2014 14. Now we shall take up the appeal of the Revenue, which involves a solitary issue regarding the inclusion/exclusion of the communication costs from the total turnover, while computing the deduction under S.10A. 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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