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TMI Blog2017 (11) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... red by accepting assessee s contention that comparables selected by it after conducting TP study should be considered when Rule 10D(4) maintains that documents and information should exists latest by the specified date specified in s.92F94, i.e. the due date for filing the ROI. 3. The DRP erred to exclude Eclerx Services Limited from the list of comparable as it is KPO company, when CBDTs Circular No.890 (E) dated 26-09-2000 clearly mentions that KPO services are also information technology enabled products of services. 3. Similarly, in the assessee s appeal, the assessee raised 4 grounds, which has many sub-grounds, questioning the Transfer Pricing Adjustment amounting to ₹ 69,68,175/- confirmed by the DRP. All the grounds raised by the assessee are extracted as under : On the facts and circumstances of the case, and in law : 1. The Ld Assessing Officer ( AO') pursuant to the directions of the Ld. Dispute Resolution Panel ( DRP') erred in rejecting the benchmarking approach adopted/contemporaneous documentation maintained by the appellant and thereby making a transfer pricing adjustment of ₹ 69,68,175 to the income of the appellant by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii. Disregarding the provisions of Rule 10B(3) read with Rule 10C of the Rules. The above grounds are without prejudice to each other. 4. Further, bringing our attention to the Cross Objection, i.e. C.O.No.38/PUN/2015 filed by the assessee, Ld. AR for the assessee submitted that the said Cross Objections becomes an academic issue once the grounds raised by the Revenue are adjudicated in favour of the assessee, Ld. AR opines that the issues raised by the Revenue are of covered nature by the order of the Tribunal in the assessee s own case for the earlier A.Y. 2009-10. Therefore, we shall now take up the Revenue s appeal to examine the claim of covered nature of the issues relating to the Transfer Pricing Adjustment. ITA No.572/PUN/2015 (By Revenue) : 5. Ground No.1 of the Revenue relates to the correctness of the exclusion of FCS Software Ltd. as a comparable against the decision of the TPO who considered the same as a good comparable. 6. Ld. DR relied on the order of the AO and also on the order of the Delhi Bench of the Tribunal in the case of Navisite India Pvt. Ltd., which is actually referred in the Ground No.1 of Revenue s appeal. In connection with the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s own case (supra) and the same read as under : 12. Both sides heard. The assessee has assailed inclusion of FCS Software Solution Ltd. in final set of comparables primarily on ground that the company is functionally different, fails to qualify filter of 75% income from software development services and has abnormally high profits. We find that the issue regarding exclusion/inclusion of FCS Software Solutions Ltd. has been considered by the Co-ordinate Bench of Tribunal in the case of TIBCO Software India Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (supra). The ld. Counsel has given a comparative analysis as to how the activities of the assessee and TIBCO Software India Pvt. Ltd. are at par with each other. The ld. DR has not disputed the same. In the case of TIBCO Software India Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (supra) the Tribunal has excluded FCS Software Solutions Ltd. by observing as under : 23. We have carefully considered the rival submissions. In fact, the TPO has reproduced in para 15.7 the written submissions of the assessee on this aspect. The first plea raised by the assessee was that income earned by the said concern from rendering of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s involve setting up of support centres and remote maintenance, which have been duly categorized as ITES by the CBDT‟s Circular dated 26.09.2000 itself, which has been reproduced by the TPO in the impugned order. Therefore, even the said segment is not to be included as part of the software development services, as asserted by the assessee. Once the segment of application support and infrastructure management services are removed along with the exclusion of E-learning and Digital consulting segment, then the income of the said concern from software development services falls below 75% of its total income and therefore, it deserves to be excluded even on the basis of the filter applied by the TPO. Thus, on this aspect, assessee succeeds. 13. Reliance has also been placed by the assessee on the decision of Barclays Technology Centre Vs. ACIT (supra) to contend that FCS Software Solutions Ltd. has abnormally high profit margin. The Co-ordinate Bench of Tribunal while excluding FCS Software Solutions Ltd. in the said case has held as under : 28. We have carefully considered the rival submissions. The argument of the assessee in order to exclude FCS Software Soluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has resulted because of certain abnormal conditions prevailing in a particular year. As per the Special Bench, in order to carry out the aforesaid analysis, the profit margins earned by such concern in the proximate preceding and succeeding years should also be taken into consideration so as to establish whether the high profit margins reflect a normal business trend or otherwise. In this background of the matter, we find that in the case of FCS Software Solutions Ltd., the margins for the two preceding financial years are 14.75% and 19.94%, whereas in the financial year succeeding to the year under consideration, the margin is 37.07%; and, the margin declared for the year under consideration is 57.02%. At the time of hearing, the Ld. Representative pointed out that in the financial year 2007-08 relevant to the assessment year under consideration the said concern s revenues from the software activity was ₹ 86.73 crores as against ₹ 143.43 crores in immediately preceding year. On the contrary the expenditure incurred on development of software for the year under consideration stood at ₹ 30.44 crores as against ₹ 104.35 crores in the immediately preceding ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services. Without disputing the same is a KPO company, it is the case of the Revenue that the KPO services are akin to the IT Software services of the assessee company and relied heavily on the CBDT Circular No.890 (E) dated 26-09-2000. Relying on the said circular, Revenue reasons that the KPO services constitutes Information Technology Services and therefore, the same constitutes a good comparable. Revenue is aggrieved against the direction of the DRP who directed for exclusion of the same for the reasons given in their direction at para 25 of the order of the DRP dated 28-12-2014. 13. Before the DRP, assessee reasoned that the KPO (Knowledge, Process and Outsourcing) services are neither the IT Software services nor the ITES services. For this proposition, assessee relied on various decisions. Further, it is the case of the assessee that the said circular of CBDT is not up-to-date in view of the subsequent stand of the CBDT on this issue. Bringing our attention to the copy of the CBDT Safe Harbour Rules dated 18-09-2013 (Page 324 of the paper book), Ld. AR for the assessee demonstrated that the fact of CBDT distinguishing the KPO services from the BPO services while fixing di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices such as trade booking, trade confirmation, asset servicing, cash settlements, client servicing, risk management and reference data integrity across all asset classes, and its services span both sellside (the large banks) and buy-side (the funds and asset managers). At Additional Supplementary PB - 1038, Sales and marketing support - The company supports clients in all elements of product and services marketing and sales-with a focus on online support to include content development and management, search engine management, web operations, pricing and customer analytics, product database management and catalog audits. The assessee has also highlighted the differences between KPO and BPO services at Appeal PB 187-188. At Stay PB 324-325, The assessee has also highlighted that the Safe Harbour Rules notified by the Central Board of Direct Taxes on September 18,2013 (which is post the CBDTs circular No. 890(E) dated 20/09/2000), wherein the KPO services have not been categorized under the ITES services. Further, the assessee places reliance on the following decisions which have rejected the said company on account of it having supernormal profit and it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R for the assessee submitted that the Pune Bench has rejected the said company Eclerx Services Ltd. as a good comparable as the same is engaged in KPO services only which are not functionally comparable to that of the assessee. 17. Ld. DR for the Revenue relied heavily on the order of the AO and the CBDT Circular No.890 (E) dated 20-09-2000. 18. We heard both the parties on the issue of exclusion of Eclerx Services Ltd. from the list of comparables as the same constitutes KPO services. The case of the AO and the TPO is that the company with KPO services is comparable to that of the assessee which is a Software Developers. Revenue relies heavily on the CBDT Circular No.890 (E) dated 20-09-2000. Per Contra, the case of the assessee is another CBDT Notification issued in 2013 in connection with the publishing of Safe Harbour Rules defines clearly the KPO services from that of BPO services/ITES services. 19. On hearing both the parties, we find the arguments of the Ld. AR for the assessee requires to be accepted. Further, we examined the order of the Tribunal in ITA No.336/PN/2014 order dated 31-10-2014 in the assessee s own case for the A.Y. 2009-10. The said company Eclerx S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is the submission of the Ld. AR for the assessee that the cross objection filed by the assessee in connection with the Revenue s appeal in ITA No.572/PUN/2015 becomes academic once the Revenue appeal is dismissed on all the grounds. We have adjudicated the appeal of the Revenue in the above paragraphs and dismissed the appeal of the Revenue in its entirety. Consequently, as stated by the Ld. AR for the assessee, we are of the opinion that the objections raised by the assessee are required to be dismissed as academic. Accordingly, the cross objections raised by the assessee is dismissed. 23. In the result, the cross objection filed by the assessee is dismissed. ITA No.352/PUN/2015 (By Assessee) : 24. Before us at the outset, deviating from the specific grounds raised in its appeal, Ld. AR for the assessee mentioned that the TP adjustments are required to be deleted if three of the comparables which are considered by the TPO while benchmarking the international transactions of ITES services segment, are excluded. Naming the same, Ld. Counsel for the assessee submitted that the AO/TPO included (a) Accentia Technologies Ltd. (2) Infosys BPO Ltd. and (3) BNR Udyog Ltd. f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PB-467, 502, 505-508 for relevant annual report extracts). Further at Supplementary PB-502, the annual report of the said company mentions on the Software as a Service (SaaS) model. It is evident from the above that the company is providing software solutions in the Healthcare Receivables Cycle Management sector and also that it has made acquisitions during the year to enhance its capabilities in SaaS. This clearly indicates that the company is into providing software services which is different to the services provided by the Appellant. Further at Supplementary PB - 547, the annual report of the company specifies software as generic principal product / service of the company along with services. The Ld DRP at Stay PB 56 also confirms that the company also rendering software services. Further, at Additional Supplementary PB 744, the website of the company clearly mentions of the software products that Accentia has developed for rendering healthcare services. Further, at Supplementary PB 467, 480, 516-518, the annual report of the said company mentions that it has diversified its business into rendering high end services like KPO and LPO which is functionally different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in ITeS services. (Legal Compendium Pages - 894 to 896, 922 to 924 942 to 943) Given the above, the said company has a different functional profile/ revenue model compared to the appellant and has peculiar economic circumstances during the year. Hence this company is not comparable to the appellant's IT Enabled Services segment, and should be rejected. 27. On hearing both the parties and perusing the said written submissions of the assessee, amongst many arguments, we find that Accentia Technologies Ltd. was not found to be a good comparable by the Tribunal in the assessee s own case for the A.Y. 2008-09 and 2009-10 vide ITA No.336/PUN/2014 and ITA No.2546/PUN/2012 respectively. For the sake of completeness, we proceed to extract the relevant paragraphs from Page 154 and 155 and 882 and 883 of the legal compendium : Extract from ITA No.336/PUN/2014 : 47. The next objection of the learned Authorized Representative for the assessee was with regard to the inclusion of M/s. Accentia Technologies Ltd. which admittedly was engaged in developing its own software products and was rendering medical transcription services. Further, the said company dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of Asscent Infoserve Pvt. Ltd. one of its subsidiary, Iridium Technologies and Geosoft Technologies amalgamated into parent company i.e. Accentia Technologies Ltd. The company had also acquired 3 companies in the USA. Thus, on account of extra-ordinary events viz. merger, consolidation and amalgamation there would be aberration in the financial results of the company. It is a well settled principle that where there are extraordinary events in a particular financial year of a company, the said company should not be selected as comparable. Thus, in the light of facts of the case and the decision of Co-ordinate Bench of Tribunal, Accentia Technologies Ltd. cannot be considered as good comparable. Therefore, the same is directed to be excluded from the final list of comparables. 28. Considering the above stated position, we are of the view that the said company is held to be not a good comparable and there is no change in facts in this year also. There are extraordinary events exist in this year under consideration as well. In our opinion, the Ld. DRP is not privy to the said orders of the Tribunal as the Tribunal passed these orders subsequently posterior to the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Refer Legal Compendium Pages - 154 ) wherein a company was rejected a company on account of having extraordinary events such as acquisitions and amalgamations. In case of Aegis Ltd. for AY 2010-11 (ITA No.7694/Mum/2014) (refer Legal Compendium Page 947 948), the Hon ble Tribunal rejected said company as it was engaged in providing high end integrated services whereas the assessee was providing routine BPO services to its AEs and observed that this company had a significantly large scale of operations and a high brand value, which made it incomparable with the assessee on a qualitative basis. Further, in the case of Symphony Marketing Solutions India Pvt Ltd (presently merged with Genpact India) (IT/TP) A No. 1316/Bang/2012) (Refer Legal Compendium Pages- 790 - 791), the Hon. Tribunal has rejected the said company on account of being a subsidiary of Infosys Ltd, this company has brand value associated with it. The Hon. Tribunal held that this is apparent from the presence of brand related expenses incurred by this company and the presence of a brand commands premium price which customers would be willing to pay. Further, the Hon. Tribunal has held that Infosys BPO is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided below (Refer Supplementary PB - 571 and 581 for relevant Annual Report Extracts): Nature of RPT Transactions Amount (Rs.) Purchases of Sales Services 106,964,256 Commission 75,127 RPT 107,039,383 Sales 14,472,194 RPT/Sales 739.62% The Ld. TPO has not demonstrated the quantum of related party transactions mentioned in the schedule of the Company that pertains to the medical transcription segment of the company. Further, the appellant wishes to highlight that the said company was rejected by the Ld TPO during the course of TP assessment proceedings for AY 09-10 on account of the RPT transactions being greater than 25%. The Ld. TPO has accepted the RPT working for AY 2009-10 which has the same nomenclature of items in the RPT schedule of annual report of BNR Udyog. (Refer Supplementary PB - 721 to 735 for Show cause Notice and extracts of TP Order pertaining to AY 2009-10). Moreover, the said company was also rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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