9911796707
TMI Blog2015 (6) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational transactions of the assessee in ITES segmental activities, because the factum of heavy outsourcing activity carried out by this company looses the tag of suitable comparability. Eclerx Services Ltd. deserve to be deleted from the final set of comparables. Apparently, this company provides tailored process outsourcing and management services in addition to multitude of the data aggregation, and mining and maintenance services from vigilant reading of annual report available at Page 659 to 738 of the assessee paper book Volume-II, it can be easily seen that it is not closed to the assessee ITES segmental services transaction which are impressed by the manual process ITES services. It is not a suitable comparable to the assessee company for AY 2008-09 due to high pitched financial result and the same deserve to be deleted from the final set of comparables. Cosmic Global Ltd. is functionally dissimilar to the present assessee and Cosmic Global Ltd. is not a suitable comparable to the present assessee for benchmarking and determining the arm’s length price (ALP) of present assessee ITES segmental International transactions for AY 2008- 09. Accordingly, we hold that C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred, in law and facts, by not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparables. 10. The learned AO erred, in law and in facts, in initiating penalty proceedings u/s 271(l)(c) of the Act. 3. Briefly stated the facts giving rise to this appeal are that the assessee company was incorporated as Rebus India Pvt. Ltd., a wholly own subsidiary of Rebus Technologies Services Ltd., U.K. it provided Software Development Services in the field of Insurance and Human Resources to its group companies. Following the acquisition of Rebus UK by Xchanging Group, the company became a subsidiary of Xchanging Resourcing Services Limited UK, and was renamed as Xchanging India. The Xchanging India is in the business of providing sub contracted IT and IT enabled services, to its group companies into three segments viz. IT segment, IT enabled segment service and resources segment. In the year under consideration, the International transactions under taken by the assessee with Associated Enterprises i.e. Xchanging Resourcing Service Ltd. UK was carried only in the IT segment and ITES segment. As per business overview placed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the argument of the assessee as the outsourcing of routine non discretionary function, call center paper entry, claimed processing etc. to other parties is very common feature of ITES segment industries. The Ld. counsel further pointed out that the business model of the Coral Hub Ltd. is different and there are significant outsourcing activity, which were undertaken by the that company as per annual report of Coral Hub Ltd. available at Pages 748 to 752 of the assessee Paper Book Volume-III. Ld. counsel further submitted that the outsourcing charges earned by Coral Hub Ltd. constitute 86% of the total operating expenses and employee cost constitute only 4.4% of the total cost therefore, the same was not a suitable comparable for the assessee company. 7. Ld. counsel contended that the DRP itself in assessee own case for AY 2009-10 has rejected the Coral Hub Ltd. as a suitable comparable. The Ld. counsel placing reliance on the decision of ITAT Mumbai Bench in the case of ACIT Vs. Maersk Global Service Centre (India) Pvt. Ltd. in ITA No. 3774/Mum/2011 submitted that the ITAT has categorically held that the Coral Hub Ltd. is not a suitable comparable to the ITES segment. The L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Tribunal (supra) reads as under:- Coral Hub Ltd. 12.1. This case was earlier included by the assessee in the list of comparables in the transfer pricing study by considering multiple-year data. However, when the TPO required the assessee to furnish data of comparables for the current year alone, the assessee requested for the exclusion of this case from the list of comparables. The ld. DR opposed this contention by urging that the assessee cannot be allowed to resile from its original stand. 12.2. We are disinclined to sustain the legal objection taken by the ld. DR that the assessee should be prohibited from taking a stand contrary to the one which was taken at the stage of the TP study or during the course of proceedings before the authorities below. It goes without saying that the object of assessment is to determine the income in respect of which the assessee is rightly chargeable to tax. As the income not originally offered for taxation, if otherwise chargeable, is required to be included in the total income, in the same breath, any income wrongly included in the total income, which is not otherwise chargeable, should be excluded. There can be no estoppel ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the case of Vishal Information Technologies Ltd. or Coral Hub Ltd. was not includible in the list of comparables because of major outsourcing. Since the facts of the instant case are on all fours with these two cases, we are of the considered opinion that this case is required to be excluded from the list of comparables. We order accordingly. 11. In view of above noted facts, we observe that the DRP in assessee s own case for succeeding AY 2009-10, has held that the Coral Hub Ltd. is not a suitable comparable were ITES segment of the assessee company. We further observe that in the similar set of facts and circumstances, ITAT New Delhi I Bench in order dated 06.06.2014 (supra) has categorically held that the outsourcing charges of this company constitute 90% of the total operative cost, therefore, the same is functionally different from the present assessee. In the present case, neither the TPO nor the DRP has brought out any fact or evidence to establish that the present assessee is also earning income from outsourcing charges, hence, we are inclined to hold that the present assessee undertook ITES segmental activities, during the period under consideration, at its own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e net margin of comparables will fall from 27.19% to 20.74% of the TP adjustment which would reduce the ALP of the ITES segmental transaction of the assessee company. Thereafter the ALP of ITES segmental activities would fall within +/-5% range. Ld. counsel of the assessee further drawn our attention towards various orders of the Tribunal including order dated 28.08.2014 of ITAT New Delhi I Bench in ITA No.6312/Del/2012 for AY 2008-09 in the case of United Health Group Information Services Pvt. Ltd. Vs. ACIT submitted that the Eclerx Services Ltd. has not been found as suitable comparable to the ITES segmental International transactions in the similar set of facts and circumstances, therefore, the same should be directed to be deleted for the final set of comparable. 13. Replying to the above, Ld. DR supporting the action of the authorities below and drawn our attention towards comparability chart prepared by the DRP available at Pages 23-24 of the paper book Volume-I and submitted that after detailed deliberation and thoughtful consideration the DRP rightly held that the functional difference pointed out by the assessee is not significant enough to warrant rejection of this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing this conclusion, the Delhi Bench followed an order passed by the Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. Vs DCIT (2013) 154 TTJ (Mum.) 176 in which it has been held that a company cannot be considered as comparable because of exceptional financial results due to merger/de-merger etc. In view of the foregoing discussion, we are of the considered opinion that this company cannot be included in the list of comparables. The assessee succeeds. 15. In view of above, we note that the Eclerx Services Ltd. is engaged in providing data analytics and customized process to its host of global clients which also provides services to the banking, manufacturing, retail, travel and hospitability business entities. Ld. DRP has not disputed this fact that the ITES segmental solutions offered by it also include data analytics operation management, audit and reconciliation, metrics management and reporting services. Apparently, this company provides tailored process outsourcing and management services in addition to multitude of the data aggregation, and mining and maintenance services from vigilant reading of annual report available at Page 659 to 738 of the assessee paper boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 9. It is discernible from the Schedule that the Medical transcription and consultancy services are only to the tune of ₹ 7.04 lac, whereas the major chunk is the amount of Translation charges standing at ₹ 5.59 crore with the last component of revenue from BPO at a figure of ₹ 19.63 lac. When we peruse the Expenditure side of the Profit and Loss of this company, it is palpable that it paid Translation charges amounting to ₹ 2.86 crore. Thus, it is manifest that the revenue from Medical transcription services, which could bear somewhat similarity with the assessee, is hardly 1% of the total revenues of this company. The major part is the income from Translation charges at ₹ 5.59 crore out of total revenues of ₹ 5.86 crore, which is totally dissimilar to that of the assessee. The assessee is not into any Translation business. As the assessee is engaged in rendering insurance claim processing services to it s A.E under this segment, we find no logical comparison of Cosmic Global with that of the assessee. 9.3. We are not agreeable with the ld. DR that this company cannot be excluded because it was initially included by the assessee in its lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for taxation, if otherwise chargeable, is required to be included in the total income, in the same breath, any income wrongly included in the total income, which is not otherwise chargeable, should be excluded. There can be no estoppel against the provisions of the Act. Extending this proposition further to the context of the transfer pricing, if the assessee fails to report an otherwise comparable case, then the TPO is obliged to include it in the list of comparables, and in the same manner, if the assessee wrongly reported an incomparable case as comparable in its TP study and then later on claims that it should be excluded then, there should be nothing to forbid the assessee from claiming so, provided the TPO is satisfied that the case so originally reported as comparable is, in fact, not comparable. The Special Bench of the Tribunal in DCIT vs. Quark Systems Pvt. Ltd. (2010) 132 TTJ (Chd) (SB) 1 has also held that a case which was included by the assessee and also by the TPO in the list of comparables at the time of computing ALP, can be excluded by the Tribunal if the assessee proves that the same was wrongly included. 18. While, we considered the functionally comparabili ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
