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TMI Blog2017 (1) TMI 1489X X X X Extracts X X X X X X X X Extracts X X X X ..... ant Member) For the Assessee : Ravi Bharadwaj For the Revenue : G. Aparna Rao & U. Mini Chandran ORDER S. Rifaur Rahman (Accountant Member) These appeals are preferred by the assessee as well as the revenue against the orders passed u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (in short 'Act') dated 03/12/2013 relating to AY 2009-10. 2. Brief facts of the case are, the assessee, a wholly owned subsidiary of ADP group, is engaged in the business of computer software development services. The company had set up a 100% EoU under the STPI scheme at Hyderabad in June 1999. For this AY 200910, the assessee filed its return of income on 29/09/2009 disclosing an income of ₹ 6,87,22,369/-after claim of deduction u/s 10A of the Act in respect of profit from STPI unit. The AO vide his draft order enhanced the total income of the assessee to ₹ 16,47,75,806/-, transfer pricing adjustment being ₹ 7,74,11,952/-in accordance with the TPO's order passed u/s 92CA(3) and in computing deduction u/s 10A of the Act, the AO made the following adjustments in applying the prescribed formula. Export Turnover: Reduced communication charges of ₹ 8,73,53,250/-from export t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... level indicator, operating profit to cost ratio, for the assessee was 17.53%. Its TP study based on 8 comparables yielded PLI of 17.53%. Hence the margin earned was considered at arm's length by the assessee. But, the TPO carried out a fresh search, rejected 4 comparables of the assessee, and added another 8 on the basis of information called for u/s 133(6) of the Act. This led to an average (arithmetic mean) PLI of the comparables at 27.42%.The final comparables selected by the TPO are as under: Sl.No. Name of the company OP to Total cost 1. Accentia Tech. 49.40 2. Acropetal Technologies Ltd. (Seg.) 25.01 3. Aditya Birla Minacs Worldwide Ltd. 0.53 4. Cosmic Global ltd. 48.20 5. Crossdomain 29.38 6. Eclerx Services Ltd. 53.34 7. Infosys BPO Ltd. 16.90 8. Jeevan Scientific/Softech Technology Ltd. 16.56 9. Microland ltd. 2.35 10. Microgenetic Systems Ltd. 10.11 11. R Systems International ltd. 5.77 12. Genesys International ltd. 71.50 Arithmetic Mean 27.42 2.6 Working capital adjustment was allowed by the TPO which reduced the PLI to 23.55%. All these actions led to an adjustment of ₹ 7,74,11,952/-. Calculation for the Arm's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R objecting to the aforesaid company being treated as comparable, submitted that the said company has extraordinary events and acquisitions. He submitted that in the following rulings ITAT rejected the said company as comparable: 1. HSBC Electronic Data Processing India Pvt. Ltd., ITA No. 247&295/Hyd/14. 2. M/s Capital IQ Information Systems (India) Pvt. Ltd., ITA No. 124/Hyd/14. 3. TNS India Pvt. Ltd., ITA No. 604 & 419/Hyd/14. 4. Excellence Data Research , ITA No. 159/hyd/14 5. Hyundia Motor Engg. P. Ltd., ITA No. 255/H/14 6. OSI Systems Pvt. Ltd., ITA No. 683&542/H/14 1.2 In the case of Capital IQ Information Systems India Pvt. Ltd., (supra), the coordinate bench has held as under: 21.2 We have considered the rival contentions and noticed that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy. In earlier years on the reason of acquisition of various companies, being an extraordinary event which had an impact on the profit, this company was excluded. As submitted by the ld. Counsel, this year also, the acquisition of some companies by that company may have impact on the profit. Considering the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at segment level also, as engineering design services are high end services, as considered in other cases. It is further submitted that allocation of expenses between segments is not possible and depreciation was not allocated between the segments. There are extra-ordinary events which impact profit also, as can be seen from the Annual Reports. It is further submitted that this company is not selected in the list of comparables selected in the case of Mercer Consulting (India) Pvt. Ltd. and therefore, selection of the company by the TPO in this case, which is also in similar ITES services, is not proper." 2.3 The ld. DR, on the other hand, relied on the orders of revenue authorities. 2.4 After considering the submissions of both the parties and keeping in tune with the consistent view of different benches of the Tribunal in respect of rejecting this company as comparable due to functionally different and improper segmental data (refer page 235 of paper book). We, therefore, direct the AO/TPO to exclude the aforesaid company from the list of comparables. 3. Cosmic Global Ltd.: 3.1 The ld. AR objecting to the aforesaid company being treated as comparable, submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total expenses. The reason for which we are not agreeable with the Id. AR is that we have to examine the revenue of this case only from Accounts BPO segment and not on the entity level, being also from Medical transcription and Translation charges. When we are examining the results of this company from the Accounts BPO segment alone, there is no need to examine the position under other segments. The entire outsourcing is confined to Translation charges paid at ₹ 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of ₹ 6.99 crore. If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO. Thus it is held that this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment. 13.3. However, we find this case to incomparable on the alternative argument advanced by the Id. AR to the effect that total revenue of the accounts BPO segment of Cosmic Global ltd. is very low at ₹ 27.76 lacs. We have discussed this aspect ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his company is not comparable to assessee's services. We, therefore, direct the AO/TPO to exclude this company." 4.3 The ld. DR, on the other hand, relied on the orders of revenue authorities. 4.4 After considering the submissions of both the parties and keeping in tune with the consistent view of different benches of the Tribunal in respect of the aforesaid company, we direct the AO/TPO to exclude the aforesaid company from the list of comparables. 5. Genesys International Corporation Ltd.: 5.1 The ld. AR objecting to the aforesaid company being treated as comparable, submitted that the said company is functionally different and has provision for geographical information system services. He submitted that the in the following rulings ITAT rejected the said company as comparable: 1. HSBC Electronic Data Processing India Pvt. Ltd., ITA No. 247&295/Hyd/14. 2. M/s Capital IQ Information Systems (India) Pvt. Ltd., ITA No. 124/Hyd/14. 3. TNS India Pvt. Ltd., ITA No. 604 & 419/Hyd/14. 4. Excellence Data Research , ITA No. 159/hyd/14 5. Hyundia Motor Engg. P. Ltd., ITA No. 255/H/14 6. OSI Systems Pvt. Ltd., ITA No. 683&542/H/14 5.2 In the case of Capital IQ Informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head of 'Information Technology Enabled Services' (ITES), but most of them are quite distinguishable from others. In our considered opinion, the fifteen broad categories set out in this Circular cannot per se be claimed as similar to each other. A cursory look at these products/services transpires that some of them are functionally quite different from each other. Further the level of investment required for providing such services is also not consistent. In our considered opinion, the mere fact that two services are placed under this category do not become automatically comparable. If a case providing one category of services under ITES is claimed as comparable with another in the category service under ITES as per this circular, then it must be shown ex facie that it is broadly similar. Adverting to the facts of the instant case, we find that the services rendered by Genesys fall under clause (vi) with the heading 'Geographical Information Systems Services', whereas those rendered by the assessee fall partly under clause (vii) with the heading 'Human Resources Services' and partly under clause (xi) with the heading 'Payroll'. On juxtaposition examination of these two sets of serv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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