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TMI Blog2015 (2) TMI 897X X X X Extracts X X X X X X X X Extracts X X X X ..... providing Niche services as well as developed its own brand ‘Exdion’ to target the insurance industry in US. Thus we uphold assessee’s plea for exclusion of Crossdomain Solutions Ltd. from the final set of comparables. For M/s Cosmic Global Ltd.in relation to the financial year under consideration, the business model in which M/s Cosmic Global Ltd. has functioned is quite dissimilar to the business model of the assessee while carrying out the activity of an ITES provider. Moreover, none of the objections raised by the assessee have been met by the TPO on the basis of any cogent reasoning. On that count also, we find that the plea of the assessee to exclude M/s Cosmic Global Ltd. from the final set of comparables is justified. The objection of the TPO that the said concern was found comparable by the assessee in earlier year cannot be the sole basis to include the said concern in the list of comparables. For Eclerx Services Ltd. the plea of the assessee that the said concern is functionally dissimilarly to the assessee, has been wrongly rejected by the TPO. Even before us, there is no cogent reasoning brought out by the Revenue to assail assessee’s plea for exclusion of M/s E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into by the Appellant with its associated enterprise ( AE ) with respect to export of transaction processing services. 2. Erroneous selection of comparable companies The learned DCIT, pursuant to the directions of the Hon'ble DRP has erred in law and on the facts and circumstances of the case in confirming the following companies as the comparable companies: 2.1 Accentia Technologies Limited 2.2 Coral Hub Limited 2.3 Eclerx Services Limited 2.4 Cosmic Global Limited 2.5 Crossdomain Solutions Limited 3. Erroneous rejection of comparable companies The learned DCIT, pursuant to the directions of the Hon'ble DRP has erred in law and on the facts and in circumstances of the case in rejecting following companies as comparable companies: 3.1 Transworks Information Services Limited 3.2 Allsec Technologies Limited 3.3 Professional Management Consultants Private Limited 3.4 Sundaram Business Services Limited 3.5 Teletech Services (India) Pvt Limited 4. Erroneous selection of Information Technology Enabled Services (ITES) and Knowledge Process Outsourcing (KPO) companies unlike Business Process Outsourcing (BPO) companies as comparable to the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s erred on the facts and in law by levying interest under sections 234B and 234D of the Act. 12.2 The Appellant pleads that the shortfall in advance tax and excess refund has resulted in view of the transfer pricing adjustment which have been objected in the grounds above. 13. Each one of the above grounds of appeal is without prejudice to the other. 14. The Appellant reserves the right to amend, alter or add to the grounds of appeal. 3. Although, assessee has raised multiple Grounds of Appeal but the solitary addition in dispute is a sum of ₹ 9,56,21,498/- made by the Assessing Officer while determining the arm's length price of the international transactions entered by the assessee with its associated enterprises. 4. In brief, the relevant facts are that the assessee is a company incorporated under the provisions of the Companies Act, 1956 in June, 2004 as a subsidiary of MBC Investments Corporation, USA. MBC Investments Corporation, USA is a subsidiary of erstwhile Mellon Financial Corporation, USA, which has since merged with the Bank of New York, USA. As a consequence, the Bank of New York Mellon Corporation, USA is the ultimate holding company of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. The TPO after allowing the assessee an opportunity of being heard passed an order u/s 92CA(3) of the Act dated 28.01.2013 determining the arm's length price of the international transactions of ITES at a figure higher than the stated consideration by a sum of ₹ 9,56,21,498/-. As a consequence, the Assessing Officer passed a draft assessment order u/s 143(3) r.w.s. 144C(1) of the Act conformity with the order of the TPO. Assessee raised objections before the Dispute Resolution Panel (in short the DRP ) who vide its directions u/s 144C(5) of the Act dated 12.11.2013 dismissed the objections of the assessee. As a consequence, the Assessing Officer passed an assessment order u/s 143(3) r.w.s. 144C(13) of the Act dated 14.11.2013 after making an addition of ₹ 9,56,21,498/- on account of the transfer pricing adjustment. 6. At the time of hearing, the Ld. Representative for the assessee has made arguments only on a single issue relating to the inclusion of following five concerns by the TPO in the final set of comparables, namely, (i) Accentia Technologies Limited; (ii) Crossdomain Solutions Limited.; (iii) Cosmic Global Limited; (iv) Eclerx Services Limited; an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on from the list of comparables. Before the TPO, assessee had contended that the said concern was showing an abnormal trend of profitability. Secondly, it was also canvassed that the said concern was having different streams of income, namely, (i) medical transcription billing; (ii) coding; and, (iii) software development and implementation services; and, that there was no separate segmental information available in the Annual financial statements. Thirdly, it was canvassed that functionally the said concern was carrying out different functions than the assessee. As per the assessee, the main segment of the said concern is IT enabled services in Health Care Receivables Cycle Management (medical transcription, medical coding, billing and collections in the Medical Transcription Industry) using mostly third party software and in some cases proprietary software also. The said concern was also into Legal Process Outsourcing. The said concern was also offering Saas model in the Health Care Receivable Cycle Management areas and in this connection, a typical software was deployed by the said concern. The aforesaid was canvassed before the TPO on the basis of the Annual financial statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing IT enabled services. The arguments putforth by the TPO, which has been reiterated before us, do not justifiably meet with the assessee s plea for exclusion of M/s Accentia Technologies Ltd. from the final set of comparables. The plea of the assessee is quite potent and is in-fact based on the discussion available in public domain in the form of Annual financial statement of the said concern. Moreover, in the light of the decision of the Pune Bench of the Tribunal in the case of PTC Software (India) Private Limited (supra), we find no reason to negate the plea raised by the assessee for exclusion of Accentia Technologies Ltd. from the final set of comparables. We hold so. 12. Another plea raised by the assessee is for exclusion of Crossdomain Solutions Ltd. from the final set of comparables. In this regard, assessee canvassed before the TPO that the said concern was functionally not comparable to the activity of IT enabled services being carried out by the assessee. It was pointed out by the assessee before the TPO that the said concern was involved in various activities which involved outsourcing, human resources, insurance, healthcare/accounting and consulting, business exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phold assessee s plea for exclusion of Crossdomain Solutions Ltd. from the final set of comparables. We hold so. 16. The third concern, which is sought to be excluded by the assessee is Cosmic Global Ltd.. Before the TPO also, assessee had canvassed that the said concern was functionally not comparable to the assessee. It was pointed out that the said concern is engaged into translation, transcription of data which is entirely different from the functions being performed by the assessee. The TPO has rejected the plea of the assessee by merely noticing that in the preceding assessment year 2008-09, the stated concern was selected by the assessee as a comparable concern. 17. Before us, the Ld. Representative for the assessee pointed out that the plea of the assessee for exclusion of Cosmic Global Ltd. is supported by the decision of the PTC Software (India) Private Limited (supra), which has also been rendered in the context of a concern rendering similar services as the assessee. The following discussion in the order of the Tribunal dated 31.10.2014 is relevant in this regard :- 50. The next company as per the assessee which should not be taken as comparable is Cosmic Glob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reason that this does not impact the profit margin of the company. Opposing the view taken by the TPO, it is submitted that this company cannot be selected as comparable, as similar issue was discussed by the coordinate Bench of the Tribunal(Delhi) in the case of Mercer Consulting (India) P. Ltd. (supra), vide paras 13.2 to 13.3 which read as under- 13.2. Now coming to the factual matrix of this case, we find from the material on record that outsourcing charges of this case constitute 57.31% of the total operating 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 Id. 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 Id. AR is that we have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rables is justified. The objection of the TPO that the said concern was found comparable by the assessee in earlier year cannot be the sole basis to include the said concern in the list of comparables, in view of the aforesaid discussion. Thus, assessee succeeds on this aspect. 20. The next concern whose inclusion has been objected by the assessee is Eclerx Services Ltd.. In this regard, assessee submitted before the TPO that the said concern was carrying out functionally different business activities and therefore it was not a comparable concern. The detailed submissions in this regard have been reproduced by the TPO in para 30 of his order. It was pointed out that the said concern was engaged in the provision of sale and marketing services, Online Operations Support, Data Management Services, Pricing Operations Support, Reporting, Analytics and Business Intelligence services, etc.. It was thus canvassed that the aforesaid functions are quite different from functions of an ITES provider. The TPO has rejected the aforesaid pleas of the assessee. 21. Before us, the Ld. Representative has relied upon the decisions of the Pune Bench of the Tribunal in the case of PTC Software (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company should also be included, as otherwise, both the companies should be excluded. 18.2 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 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. 23. The aforesaid discussion by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the TP study carried out by the TPO in the ITES segments, fresh search criteria were applied by the TPO and list of comparables which were not selected by the assessee were picked up in the TP study and the margins of the said comparables were applied to determine the arm s length price of the transactions of the assessee in ITES segments. The assessee was aggrieved by the selection of the said comparables and the plea of the assessee was that in case said comparables were not included in the TP study, the margins shown by the assessee would be at arm s length. The first comparable referred to by the learned Authorized Representative for the assessee was M/s. Vishal Information Technologies Ltd. The said company was providing IT enabled services and was also engaged in other diversified activities. Further, it has outsourced its services to third party vendor and acted as intermediary between the final customer and the vendor. The assessee on the other hand was engaged in the running of a call centre and was providing technical support to its AEs. We find that the Tribunal in assessee s own case relating to assessment year 2006-07 in ITA No.1346/PN/2010 and in assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn have been placed. As per the available information, the said concern has related party transactions as reported by the concern at para 7 of the said Notes at 86.92%, which breaches the RPT filter. Furthermore, the functional profile of the said concern brought out by the assessee also reveals differentiation in the activity profile. The TPO, in our view, has not appreciated the qualitative difference in the functions performed by the said concern as sought out to be brought out by the assessee. Considering the aforesaid, we therefore, find that the assessee was justified in ascertaining that the said concern be excluded from the list of comparables for the reasons canvassed. Thus, on this aspect assessee succeeds. 46. The Tribunal in the assessee s own case had held that the said concern was found to be operating in different functional environment and the same was excluded for the purpose of comparability analysis. Following the ratio laid down by the Tribunal in assessee s own case in assessment years 2006-07 and 2007-08 (supra), we uphold the plea of the assessee in excluding the margins of the said concern M/s. Vishal Technologies Ltd. 26. In the context of the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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