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TMI Blog2015 (5) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... lar No SO 890(E) dated 28.09.2000 wherein it is held that "Engineering Design" is within the ambit of IT Enable Services". 4. We shall first take up for adjudication the assessee 's appeal. ITA NO.6034/Del/2012 (ASSESSEE'S APPEAL) 5. The brief facts of the case are that the assessee is a company, incorporated on 30.09.2004. The assessee is subsidiary of Intellirisk Management Corporation (IRMC, US) providing information technology enabled services (ITES) to its AE namely, IRMC US for the relevant financial year. In the TP documentation, the assessee was characterized as limited risk IT enabled service provider, rendering call centre and support service to its AE. The assessee had undertaken the following international transaction with its AE :- S. No. Description of each transaction Amount 1. Management support services fee 1,89,72,148 2. Information Technology enabled 11,51,05,389 3. Reimbursement of expenses incurred on behalf of AE 4,45,50,064 6. With reference to international transaction in Sl.Nos. 1 & 2 in assessee's transfer pricing study, seven comparables were taken and three years weighted margin of the comparables were determined at 16.95%. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) was justified in including in the list of comparables companies, the following four companies:- (i) Eclerx Services Pvt. Ltd (ii) Vishal information Technology Ltd. (iii) Maple E Solutions Ltd. (iv) Triton Corporation Ltd. 11. The brief submission made by the Authorised Representative for the assessee with respect to each of the above comparable four companies read as follows : "Eclerx Services Limited ('Eclerx') - (Refer Page 9 of Chart of Issues) The difference in the operating margins of Eclerx (OP/TC of 89.33%) vis-avis the Appellant operating with a margin of 15.90%. In this regard, it is respectfully submitted that the ITAT Special Bench (Mumbai), in case of Maersk Global Centres (India) Private Limited Vs. ACIT Cir 6(3) ((I .T.A. No.7466/Mum/2012),para no. 99, (page 695-696 of the paperbook) has held that companies earning abnormally high profits should invite further investigation to ascertain whether the entities earning such super normal profits should be included in the list of final comparables or not. Eclerx is engaged in providing data analytics services with expertise in financial services and retail and manufacturing. The services provided by the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Keeping in view the nature of services rendered by M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pvt. Ltd. and Mold-Tek Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP." Emphasis supplied The Appellant humbly contends that the aforesaid ruling is equally applicable to the case of the Appellant. The Appellant is a low end service provider engaged in providing call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the grounds of being engaged in different business vertical namely E Publishing , document scanning and indexing. Further, your Honours' attention is invited to the difference in the operating margins of Vishal (OP/TC of 51.19%) vis-a-vis the Appellant operating with a margin of 15.90%. In this regard, it is respectfully submitted that the Hon'ble High Court in the case of B.A. Continuum India Private Limited (I.T.A.A. No. 440 of 2014) has upheld the rejection of Vishal by relying on the ITAT ruling in the case of M/S Brigade Global Services Private Limited vs ITO ward 1(1) AY 2005-06 [143 ITD 59] wherein Vishal has been rejected on account of the fact that its employee cost to total cost ratio is very low. It is also respectfully submitted that the ITAT Special Bench (Mumbai), in case of Maersk Global Centres (India) Private Limited Vs. ACIT Cir 6(3) (Supra),para no. 99, (page 695-696 of the paperbook)has held that companies earning super normal profits should invite further investigation to ascertain whether the entities earning such super normal profits should be included in the list of final comparables or not. In that case it is noted by the Hon'ble bench that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 170/Bang/2011) AY 2007-08 Para 20 (page 881 of the paperbook) * C3i Support Services P. Ltd. Vs. ACITT (TA.No.2183/Hyd/2011) AY 2007-08 Para 12.4.1 (page 736-738 of the paperbook) * Symphony Marketing Solutions India Pvt. Ltd. vs ITO [IT(TP)A No. 1316/Bang/2012] AY 2008-09 para 17, page no. of paperbook volume (page 865-869 of the paperbook) * ACIT VS Maersk Global Service Centre (India) Private Limited ITA. No.3774/Mum/2011, AY 2005-06 para 48 (page 873 of the paperbook) * Capial IQ Information Sytems (India) (P.) ITA No. 1961/Hyd/2011, AY 2009-10 Para 17, (page 830-831 of the paperbook) * Zavata India Private Limited Vs. The DCIT (ITA No.1781/Hyd/2011)AY 2007-08 Para 17 (page 720-721 of the paperbook) * M/s. Maersk Golbal Service Centres (India) Private Limited vs DCIT AY 2009-10 (ITA No. 2594/Mum/2014) (page 1203-1204of the paperbook) * M/s. BNY Mellon International Operations India (Private) Limited vs DCIT AY 2008-09 (ITA No. 2380/PN/2012) (page 1262-1265of the paperbook) In view of the above it is pleaded that this company be rejected from the comparables list. Maple ESolutions Limited ('Maple')and Triton Corp Limited ('Triton')(Refer page 24 of Chart of Issues) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the authorities below along with relevant documentary evidences brought to our notice during the course of hearing. Let us now consider the companies which have been strongly objected by the Ld. Counsel for being considered in the final list of comparables. (i) Eclerx Services Ltd. Eclerx is engaged in providing data analytics services with expertise in financial service and retail and manufacturing. The service provided by the company are high end in nature involving special knowledge and domain expertise and therefore, not functionally comparable with the assessee company which is engaged in providing low end ITES enabled call centre services to its AE. The fact Eclerx Services Ltd. is providing high end services involving special knowledge and domain expertise is evident from the company's own reply to the notice u/s 133(6) which is placed at pages 976 to 979 of the paper book filed by the assessee. The Hon'ble Special Bench of the Tribunal in case of Maersk Global Centre (India) Private Ltd. vs. ACIT (ITA No.7466/Mumbai/ 2012) had excluded Eclerx Services Pvt. Ltd. from the list of comparables for the reason that it is providing high end services involving specialised know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pvt. Ltd. and Mold-Tek Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP." The above ruling of Hon'ble Special bench is equally applicable to the facts of this case, as it is evident from the functional profile of the assessee company that it is a low end services provider, namely, engaged in providing call centre servers to its AE. For the aforesaid reasons, we direct the TPO to exclude Eclerx Services Ltd. from the final list of comparables. (ii) Vishal Information Technology Ltd. Vishal Information Technology ltd is engaged in diversified activities such as e-publishing, therefore, it is functionally different from assessee. Further, the Hon'ble Tribunal in the case of Techbooks International Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the functional analysis of this company discussed hereinabove and in the light of the various orders of the Tribunal (supra), we direct for the exclusion of the Eclerx Services Ltd., Vishal Information Technologies Pvt. Ltd. Maple E Solutions Ltd. and Triton Corporation Ltd. from the final list of comparables and the matter is restored back to the file of the AO/TPO for reworking of the margins. ITA NO 5934/Del/2012 (REVENUE'S APPEAL) 15. The DR has relied on the AO/TPO order and objected for exclusion of Mold-tek Technologies Limited by CIT(A). 16. The CIT(A) in his order has worked out the margins of the comparables after removing Moldtek Technologies. The relevant findings of the CIT (A) at para 8.20 reads as follows : "8.20 I have considered the submission and the order of the TPO. The segmental reporting of the company as quoted in the earlier paragraphs creates a sufficient doubt about the truthfulness of the results of ITES segment. This company has two segments, ITES and Plastic division. ITES is having 100% exemption whereas on the profits of plastic division the company has to pay tax. It is not uncommon to see such financial results where the tax exempt unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT Special Bench (Mumbai), in case of Maersk Global Centres (India) Private Limited Vs. ACIT Cir 6(3) (Supra),para no. 99, (page 695-696 of the paperbook)has held that companies earning super normal profits should invite further investigation to ascertain whether the entities earning such super normal profits should be included in the list of final comparables or not. The company is engaged in providing engineering consulting services as part of its IT operations. The company has specifically categorized its IT operations as KPO in its annual report (Refer page 518 of the paperbook). Further as per the reply u/s 133(6) the company provides engineering design drawing and detailed structural engineering using 3D and 2D software(Refer page 980-983 of the paperbook) of the Act. The structural engineering services rendered by the company are high end in nature and are in no way comparable to the low-end back office support services rendered by the assessee. In relation to this, following are the extracts of the annual report: "Mold-Tek has designed & detailed more than 4000 buildings (120,000 tons) of various complexities following various US/ Canadian national & state codes. Our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 840 of the paperbook) it was held that a company cannot be considered as comparable because of exceptional financial results due to merger/demerger. The respondent humbly draws your attention to the ruling of the Hon'ble Special Bench in the matter of 'Maersk Global Centres (India) Private Ltd vs ACIT (Supra)(Page 691-694 of the Paperbook). The relevant portion of the said ruling is produced here-in-under: "In so far as the case of Mold-Tek Technologies Ltd. is concerned, it is observed from the annual report of the said company for the financial year 2007-08 placed at page 139 to 151 of the paper book that the said company was pioneer in structural engineering KPO services and its entire business comprised of providing only structural engineering services to various clients. Further information of Mold-Tek Technologies Ltd. available on their Website is furnished in the form of printout at page 158 to 165 of the paper book and a perusal of the same shows that it is a leading provider of engineering and design services with specialization in civil, structural and mechanical engineering services. It is stated to have a strong team of skilled resources with world class reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent. The respondent is a low end service provider engaged in providing call center services to its AE. In view of the above, it is pleaded that this company be rejected. The respondent's contentions are fortified by several rulings of the coordinate benches of the Hon'ble ITAT. These rulings are produced here-inunder for the kind perusal of your honours: * Capial IQ Information Sytems (India) (P.) ITA No. 1961/Hyd/2011, AY 2007-08Para 17, (page 828-828A of the paperbook) ITO vs. M/s. Knoah Solutions (P) Ltd. (ITA No.1407/Hyd/13) AY AY 2007-08 Para 8 (Page 706 of the Paperbook) * Zavata India Private Limited Vs. The DCIT (ITA No.1781/Hyd/2011) AY 2007-08 Para 29-31 (Page 725-726 of the Paperbook) * Lionbridge Technologies Private Limited vs. ITOAY 2008-09 (ITA No.7498/Mum/2012) Para 7 (Page 969 of the Paperbook)" 18. We have heard the rival submissions and perused the relevant material on record. During the year under consideration, the financial results of Moldtek Technologies as available are after the acquisition of Cross Road Detailing Inc., an engineering service KPO. Further as evidenced from the annual report of the company for FY 2007-08, the company gave ef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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