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TMI Blog2015 (5) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... e had reported following international transactions in form 3CEB: S. No. Nature of Transaction Method used by assessee Amount(Rs.) 1. Processing information and data through means of electronic and information technology TNMM 119,755,134/- 3.2. The AO had made a reference to TPO for determination of ALP u/s 92CA(3) in respect of above transactions. The TPO noticed that assessee was engaged in the services of online financial services, which included strategic advisory services, industry and operation expertise, compliance focus services, web marketing services, electronic commerce knowledge services, and intelligence and best practice services. He noted that IT enabled back office processing services were provided to New River US, which was involved in full fledged marketing, encompassing a wide range of other allied activities. The assessee had shown PLI of OP/OC at 10.33%, which had been benchmarked with the arithmetic mean of 8.45% in respect of 17 comparables selected by the assessee and, therefore, the assessee's contention was that the assessee's net margins were within the range of + 5%. 3.3. The TPO show caused the assessee and observing as under: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out considering the functional and operational comparability. 4.1. The assessee's contention was that it was a low risk captive unit, as it was remunerated on cost plus basis by its AEs for software development services to them and, therefore, it should not have been compared with companies with very high margins due to difference in functional and risk profile. 4.2. Ld. DRP rejected the assessee's contention, inter alia, observing that the profit margins of any company is not an indicator of its functional profile. It was further pointed out that in a set of functionally comparable companies, there could be companies with low margin as well as high margins. What is material is the functional comparability. Moreover, while taking arithmetic mean, such difference will ultimately average out. 4.3. Ld. DRP had relied on the decision of ITAT Mumbai in the case of Exxon Mobil Co. India Pvt. Ltd. (2011-TII-68-ITAT-MUMTP). The assessee had also object4ed to the inclusion of eClerx Services Ltd. as a comparable company to the assessee on following grounds: (a) Functionally non comparable services as it was a KPO and carried on diversified operations. (b) Company was engaged in financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersk Global Centers (India) Pvt. Ltd. (ITA no. 3774/Mum/2011 & CO 111/Mum/2011- order dated 9-11-2011); - United Health Group Information Services Pvt. Ltd. [2014] 50 Taxmann.com 177 (Del-Trib.); - BNY Mellon International Operations (India) Pvt. Ltd. [2014] 52 Taxmann.com 306 (Pune-Trib.) - Techbooks International Pvt. Ltd. [2014] 45 Taxmann.com 528 (Delhi-Trib.). 5.2. Ld. counsel submitted that in assessee's case salary cost is 54.67% whereas in the case of Coral Hub salary cost is 4.4% and, therefore, it cannot be compared with assessee. 5.3. Eclerx Services Ltd.: As regards Eclerx Services Ltd., ld. counsel submitted that it is not functionally comparable because this company is carrying on KPO activities. Further, he submitted that as per the annual report, this company was engaged in providing high end services like data analytics and customized process solutions. He submitted that since the company's activities were specialized and complex, therefore, it is not comparable to BPO or an IT outsourcing company in which assessee is engaged. He pointed out that this company delivered data solutions to companies business needs through cost effect combination of delivery proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Selling products; marketing demands; no high end service. 6.2. Employees are trained to take up calls and give informations to specified customers. In BPO No mastery is required e.g. insurance companies and manual is laid down for procedure. 6.3. Whereas in case of KPO, training is important, where the trained person has to use knowledge and accordingly specialists are required in case of KPO who deal with high end services. He submitted that KPO is the latest outsourcing process which involves application of training, expertise to research data analysis, other information based activities. 6.4. Ld. standing counsel advanced his submissions with reference to various impugned comparables selected by TPO. 6.5. Coral Hub. As regards this company, ld. Standing counsel submitted that nothing is there on record to substantiate functional profile of this company. 6.6. In this regard ld. Standing counsel referred to the annual report contained at page 476 of the PB. However, he referred to para 12.2 at page 10 of the decision in the case of United Health Group Information Services Pvt. Ltd. (supra), wherein the Tribunal has noticed from annual report that it was mainly engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, this decision cannot be of any assistance to the assessee. 6.10. As regards reliance of Tribunal in the case of M/s Maersk global Service Center (India) P. Ltd. (supra) is concerned, ld. counsel referred to para 29 and pointed out that this company was captive service provider rendering back office support services to its AEs. The activities undertaken by the assessee were essentially IT enabled services such as data entry, transcription and data of shipping documents such as bill of lading etc. Therefore, this decision is not applicable to assessee which is primarily carrying on strategic advisory services which are high end financial services, whereas M/s Maersk global Service Center (India) P. Ltd. was carrying on low end services. 6.11. As regards Eclerx Services Ltd., ld. Standing Counsel submitted that the reliance placed by assessee on the Tribunal's decision in the case of M/s Calibrated Healthcare Systems India Pvt. Ltd. (ITA no. 5271/Del/2012 - order dated 4-12-2014) is not correct. In this regard he submitted that in regard to Eclerx Services Ltd., as comparable, the Tribunal in para 8 observed as under: iv) Eclerx Service Ltd. 8. We have heard the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver of the assessee. As regards assessee's reliance on the decision of the Tribunal in the case of Aginity India Technologies Pvt. Ltd. (ITA no. 3856/Del/2010) and that of Hon'ble Delhi High court in CIT Vs. Agnity India Technologies Pvt. Ltd. (2013) 219 Taxman 26 (Delhi), he submitted that the decision of Hon'ble Delhi High court in the case of Agnity India Technologies Pvt. Ltd. was not dealing with Infosys BPO but dealt only with software development services segment. He pointed out that Agnity Technologies Ltd. carries on following functions: -software service development - BPO operation through Infosys BPO. - KPO operation - LPO operation 6.15. He further referred to Agnity Technologies Ltd. decision and pointed out that Tribunal had not discussed the Infosys BPO. 7. Ld. counsel for the assessee in the rejoinder submitted that broad comparability is to be seen. He pointed out that the Coral Hub was TPO's comparable and not of assessee. Therefore, it cannot be argued at this stage that the functional profile of the same was not available. He pointed out that business model of coral hub is different and, therefore, in the case M/s Techbooks International Pvt. Ltd., it was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r different comparables, it is necessary to first examine the submission of ld. Standing Counsel regarding nature of services rendered by assessee. The main contention of ld. Standing counsel is that assessee was imparting high end knowledge service which come within the ambit of KPO and not mere BPO. He has also elucidated a distinction between BPO and KPO as we have noticed in the detailed arguments advanced by ld. Standing counsel. If we examine the services imparted by assessee on the touch stone of the distinction highlighted by the ld. Standing counsel, we find considerable substance in his submissions. Admittedly assessee was engaged in the service of online financial services, which included strategic advisory services, industry and operation expertise, compliance focus services, web marketing services, electronic commerce knowledge services, and intelligence and best practice services. These services were provide to New River US, AE of assessee. All these services which the assessee was imparting, required special knowledge and could not be imparted in a routine manner. The employee actually undertaking these services was required to analyse various datas by employing his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a knowledge process outsourcing KPO company, providing data analytic and data processing solutions to its clients. It is further observed that it is a recognized expertise in financial services and retail manufacturing and provide consultancy services and also process outsourcing. This company was rejected by the Tribunal observing that the nature of asessee's business viz. M/s Calibrated Healthcare Systems India Pvt. Ltd. (supra) was in processing insurance claim and data entry. Therefore, this decision, in our opinion, is of no help to assessee. In the present case all the functions are carried out by assessee for its AEs and, there is no doubt it was a captive service provider. However, the important aspect which is to be considered is as to what functions were being performed by assessee. If assessee was merely providing data to its AE without any analysis and performing its functions only in a mechanical manner, then no doubt it would be comparable to BPO but when the results provided to AE are after detailed analysis after employing skills of highest standards, then it would come within the ambit of BPO. Therefore, merely on the ground that assessee is a captive service pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of its proprietaryproducts (including its flagshipbanking product suite 'Finacle')As per the annual report of thecompany, it has intangibles assetsworth approx. Rs. 69,500 crores forthe period ended March 31,2006 Onsite Vs. Offshore As much as half of the softwaredevelopment services rendered byInfosys are onsite (i.e. servicesperformed at the customer's locationoverseas). Revenue Split Onsite(49.80%) and offshore (50.20%)(Refer page 117 of the paper book)Typically, onsite services commandhigher billable rates andconsequently it would not beappropriate to compare the appellant which earns its entire income from offshore services with Infosys which earns more than half of its service, income from onsite services. The appellant provide only offshore serices (i.e. remotely from India) Expenditure on advertising/ sales promotion and brand building Rs. 61 crores Rs. Nil (as the 100% services are provided to AEs) Expenditure on Research & Development Rs. 102 crores Rs. Nil Other 100% offshore (from India). 8.7. We, therefore, are not inclined to accept the submissions advanced by ld. Standing Counsel that Tribunal did not discuss Infosys BPO and was confi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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