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TMI Blog2015 (8) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... customer care operations including help desk, technical support, network management systems and security management and technology services including enterprise application implementation and software engineering services for software development. 3. Financial results of ISPE for the financial year 2006-07 Description Amount (Rs.) Operating revenue 64,87,05,072 Operating expenses (*) 56,04,33,299 Operating profit 8,82,71,773 Operating profit to expenses 15.75% (*) excluding The associated enterprise, non-associated enterprise financial result of the company (as per the transfer pricing report) is as under : Particulars With AE With non-AE Total Operating income (*) 54,64,40,687 10,22,64,385 64,87,05,072 Operating expenses 46,55,99,540 9,48,33,759 56,04,33,299 Operating profits 8,08,41,147 74,30,626 8,82,71,773 Profit margin = operating profit/cost 17.36% 7.84% 15.75% The above segmental details are considered for transfer pricing analysis. 4. During the financial year 2006-07, the taxpayer entered into international transactions mainly in e-customer relationship manager (information technology enabled services). 5. International t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer the call and resolve the customer's queries. 8. Final set of comparable companies considered by the Transfer Pricing Officer and the operating profit to total cost per cent. Sl. No. Name of the company OP/TC % (1) (2) (3) 1 Accentia Technologies Ltd. (Seg.) 30.61 2 Aditya Birla Minacs Worldwise Ltd. (Earlier known as Transworks Information Services Ltd.) 11.98 3 Allsec Technologies Ltd. 27.31 4 Apex Knowledge Solutions Pvt. Ltd. 12.83 5 Appollo Health Street Ltd. -13.55 6 Asit C Mehta Financial Services Ltd. (Seg.) 24.21 7 Bodhtree Consulting Ltd. (Seg.) 29.58 8 Caliber Point Business Solutions Ltd. 21.26 9 Cosmic Global Ltd. 12.40 10 Datamatics Financial Services Ltd. (Seg.) 5.07 11 Eclerx Services Ltd. 89.33 12 Flextronics Software Systems Ltd. (Seg.) 8.62 13 Genesys International Corporation Ltd. 13.35 14 HCL Comnet Systems and Services Ltd. (Seg.) 44.99 15 ICRA Techno Analytics Ltd. (Seg.) 12.24 16 Informed Technologies India Ltd. 35.56 17 Infosys BPO Ltd. 28.78 18 IServices India Pvt. Ltd. 49.47 19 Maple E Solutions Ltd. 34.05 20 Mold-Tek Technologies Ltd. 113.49 21 R Systems International Ltd. (Seg.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment suggested by the Transfer Pricing Officer. The adjustment confirmed by the Dispute Resolution Panel was added to the total income of the assessee by the Assessing Officer in the fair order of assessment. Against the said order of the Assessing Officer, the assessee has preferred the present appeal before the Tribunal. 10. We have heard the submissions of learned counsel for the assessee and the learned Departmental representative. The assessee filed a chart showing how some of the comparable companies chosen by the Transfer Pricing Officer are not comparable in the light of the decisions rendered by various Benches of the Tribunal in the case of similar information technology enabled services companies. The learned Departmental representative relied on the order of the Dispute Resolution Panel and made his submissions on some of the arguments advanced by learned counsel for the assessee. We will deal with each one of the comparables that are sought to be excluded. The assessee has also filed an additional ground of appeal which reads thus: "The learned Transfer Pricing Officer has in his fresh study, erred in selecting Accurate Data Converters P. Ltd., Accentia Techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presenting extreme positions. If Imercius Technologies has suffered heavy losses and, therefore, it is not treated as comparable by the tax authorities, they also have to consider that the Datamatics has earned extraordinary profit and has a huge turnover. Besides differences in assets and other characteristics. The Tribunal is a fact-finding body and, therefore, has to take into account all the relevant material and determine the question as per the statutory regulations. Taxpayer is not estopped from pointing out a mistake in the assessment though such mistake is the result of evidence adduced by the taxpayer. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. For the other side cannot claim to have a vested right in injustice being done due to some mistakes on its part." 12. In the light of the decision of the hon'ble Special Bench in the case of Quark Systems P. Ltd. (supra)we are of the view that the additional ground sought to be raised by the assessee has to be admitted and it has to be examined whether the claim made by the assessee in the additional ground can be sustain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and hence the financial results of these companies are distorted and cannot be relied upon and in this regard relied on several decisions rendered by the various Benches of the Income-tax Appellate Tribunal. Respectfully following the same, we direct the aforesaid two companies be excluded from the list of comparable companies chosen by the Transfer Pricing Officer. 15. The assessee next seeks exclusion of the following four companies from the list of comparable companies by applying the employee cost to sales filter, viz., Asit C. Mehta Financial Services Ltd., (previously known as Nucleus Netsoft and GIS Ltd.), Informed Technologies Ltd., Vishal Information Technologies Ltd. (now known as Coral Hub Ltd.) and Accentia Technologies Ltd. The employee cost filter is an accepted filter in the matter of choosing comparables. In the case of First Advantage Offshore Services P. Ltd., v. Deputy CIT IT (TP) A. No. 1086/Bang/2011 for the assessment year 2007-08 order dated April 30, 2013 in paragraph 35, this Tribunal has held that in information technology enabled services sector also the companies which has less than 25 per cent. of the sales as employee cost should not be selected for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion, we hold that companies at Sl. Nos. 5, 14 and 16 referred to above of the list of the comparable companies chosen by the Transfer Pricing Officer be excluded from the list of comparable companies while working out the arm's length price. In respect of comparable company Caliber Point, which is at Sl. No. 9 of the list of comparables chosen by the Transfer Pricing Officer, the related party transaction shown by the Transfer Pricing Officer is 13.70 per cent. The assessee has filed a chart before us showing related party transaction at 15.44 per cent. The same is given as annexure-III to this order. We therefore remand for fresh consideration by the Transfer Pricing Officer the related party transaction in the case of this company after affording an opportunity of being heard to the assessee. In the event of related party transaction being more than 15 per cent., the said company has to be excluded from the list of comparable companies. 18. With regard to (1) Eclerx Services Ltd. ; (2) Mold-Tek Technologies Ltd. (Seg.) at Sl. Nos. 11 and 20 of the list of comparable companies chosen by the Transfer Pricing Officer, being chosen as comparable companies, the Income-tax Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Hyderabad Bench referred to above, this company cannot be regarded as a comparable for the reason that it was functionally different . (8) Moldtek Technologies Ltd. 25. This company is listed at Sl. No.16 of the list of comparable companies chosen by the Transfer Pricing Officer. As far as this company is concerned, the submission of the assessee before us is that it is in the business of knowledge process outsourcing and cannot be considered as a comparable. The functional profile of this company is as follows : 'As per the annual report for the financial year 2007-08, the company primarily operates in two business segments : Plastic division : The plastic division is engaged in the manufacture of tube and oils, paints, pet products, consumer products, etc. The company demerged the said segment effective from April 1, 2007 and transferred the business unit to the Company Plastics Ltd. The extract from the annual report confirms the fact that the company had restructured its operations resulting in demerging the plastic segment business. Information technology (IT) division : The information technology division (also referred to as the knowledge process outso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outsourcing companies can be considered as comparable. The Special Bench however went into the comparability of the aforesaid two companies in information technology enabled services sector rendering shared service centre, transaction processing, data entry reconciliation of statements, audit of shipping documents and other similar support services and concluded at para 83 of its order that the aforesaid two companies are not comparables. As to whether the nature of services rendered by the assessee in the present case is similar to the one rendered by M/s. Maersk Global Centres (India) Pvt. Ltd., is an aspect which in our view will have to be looked into by the Transfer Pricing Officer/Assessing Officer. We accordingly remand the issue of deciding the comparability of the aforesaid two companies for fresh consideration in the light of the decisions referred to above. 20. The next company which was considered as comparable by the Transfer Pricing Officer/Assessing Officer is Bodhtree Consulting Ltd. (Seg). This company is listed at Sl. No. 7 of the list of comparables chosen by the Transfer Pricing Officer. The objection of the assessee in regard to choosing this company as a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is clear that Bodhtree Consulting Ltd., had four distinct sources of revenue viz., (i) software development- offshore ; (ii) data cleansing ; (iii) e-paper Ads ; (iv) e-paper processing. The revenue from these activities are given in the Transfer Pricing Officer's order. The nature of services performed by Bodhtrees in its division of data cleansing was confirmed by it as in the nature of information technology enabled services. The assessee did not dispute this fact before the Transfer Pricing Officer. The assessee took a plea of extraordinary profit due to hiving off of e-paper activity. The Transfer Pricing Officer however has demonstrated that the margin of data cleansing business alone was being considered for comparability and hence the plea of the assessee was not sustainable. The decisions referred to by learned counsel for the assessee are concerned, the facts as brought out by the Transfer Pricing Officer in his order are not discussed. In the case of NXP Semi Conductors India P. Ltd. v. Deputy CIT I. T. A. No. 1560/Bang/2012 [2015] 41 ITR (Trib) 23 (Bang) in its order the Tribunal at paragraphs 59 and 60 has held that the company profits are fluctuating and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r choosing companies as comparables. 28. Before us the limited prayer of learned counsel for the assessee was that the assessee should be given a copy of the annual report of this company and afforded an opportunity of explaining as to how this company is not comparable. We are of the view that the request made by the assessee has to be accepted in view of the lack of opportunity provided by the Transfer Pricing Officer/Dispute Resolution Panel. Accordingly, the Transfer Pricing Officer/Assessing Officer is directed to furnish a copy of the annual report of this company to the assessee. The assessee will thereafter furnish his explanation as to whether this company can be considered as a comparable company or not. The Transfer Pricing Officer will thereafter decide the comparability of this company after affording an opportunity of being heard to this company. 29. The assessee seeks to challenge the action of the Transfer Pricing Officer in considering the IServices India Ltd., as a comparable. This company is listed at Sl. No. 18 of the list of comparables chosen by the Transfer Pricing Officer. For choosing this company as a comparable, the Transfer Pricing Officer has made the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for fresh consideration and the issue decided in the light of the published annual report for the financial year 2006-07 and also on the basis of the information furnished by this company to the Assessing Officer in response to notice under section 133(6) of the Act. We have considered the submissions and are of the view that the same deserves to be accepted. The Transfer Pricing Officer/Assessing Officer will obtain the annual report of the company for the financial year 2006-07 and also furnish the assessee copies of the same together with the information obtained by the Transfer Pricing Officer pursuant to issue of notice under section 133(6) of the Act. The assessee will thereafter furnish its reply as to why this company should not be considered as a comparable company. The Transfer Pricing Officer/ Assessing Officer will thereafter decide the question of considering this company as a comparable company after affording opportunity of being heard to the assessee. 31. The assessee in the grounds of appeal before the Tribunal has also projected its grievance regarding the action of the learned Assessing Officer and the honourable Dispute Resolution Panel in excluding while comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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