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TMI Blog2017 (12) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... IAL MEMBER : The Appellant, M/s. Vertex Customer Services India Private Limited (hereinafter referred to as the taxpayer ) by filing the present appeal sought to set aside the impugned order dated 30.01.2015, passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short the Act ) qua the assessment year 2010-11 on the grounds inter alia that :- 1. That on the facts and circumstances of the case and in law, the order of assessment framed by the learned Deputy Commissioner of Income-tax, Circle - 26(1), New Delhi (hereinafter referred to as 'the learned AO') pursuant to the directions of the Hon'ble Dispute Resolution Panel - II (hereinafter referred to as 'the Hon'ble DRP') under section 143(3) read with section 144C of the Act, is a vitiated order having been passed in violation of principles of natural justice and is otherwise arbitrary and is thus bad in law and void abinitio. 2. Based on the facts and circumstances of the case, the learned AO has erred in completing the assessment on the non-existing amalgamating entity instead of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d TPO erred, on facts and in law, in rejecting certain companies selected as comparable on the ground that it had different financial year end without appreciating the fact that the financial results displayed were for a period of 12 months. 4.7. That the learned TPO erred, on facts and in law, in applying lower turnover filter of INR 5 crore to reject certain companies otherwise comparable for the international transaction pertaining to provision of IT enabled services. Without prejudice, the learned TPO erred on facts and in law in not applying an upper turnover filter. 4.8. The learned TPO has erred, in law and on facts and in law, in rejecting certain comparable companies identified by the Appellant using 'Export income less than 75 percent of total income' as a comparability criterion. 4.9. The learned TPO has erred, in law and on facts and in law, by rejecting certain comparable companies identified by the Appellant on account of showing diminishing revenues trend. 4.10. That the learned TPO erred, on facts and in law, in rejecting certain companies selected as comparable by applying employee cost filter of 25 percent of the total cost. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the fact that such write-offs are allowed as a deductible expense under section 37(1) of the Act. 8. The learned AO / DRP have erred on facts, on the circumstances of the case and in law by alleging that the assessee has furnished inaccurate particulars of income, thereby proposing to initiate penalty proceedings under section 271 (1 )(c) of the Act. 9. The learned AO erred, on facts and in law, by proposing to levy consequential interest under section 234A and 234Bof the Act mechanically and without recording any satisfaction for its initiation. 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Vertex Customer Services India Pvt. Ltd., the taxpayer is a wholly owned subsidiary of Vertex India Limited UK engaged in the provision of services in the field of customer relationship management, managing call-centre and IT Enabled Services (ITES). The taxpayer is providing services to the Vertex Group Companies under various sub-contractual arrangements and can be characterized as a BPO and ITES provider to its Associated Enterprises (AE) and a less complex entity as it performs functions and assumes risks that are l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raising objections before the ld. DRP, which have been disposed off. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUNDS NO.1, 2, 3, 4 4.1 7. Grounds No. 1, 2, 3, 4 4.1are general in nature and do not require any adjudication. GROUNDS NO.4.2 TO 4.15 8. TPO, after conducting a thorough economic analysis in the light of the objections raised by the taxpayer for exclusion and inclusion of certain comparables finally selected 11 comparables as under :- S.No. Company Name Adjusted OP/TC (%) 1 Accentia Technologies Ltd. 49.39 2 Cosmic Global Ltd. 29.49 3 E4e Healthcare 40.75 4 Fortun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed specific ground that the taxpayer has also provided comparable services to unrelated parties as such the margin earned in this segment should be compared to the margin earned in the related party segment. The ld. DRP rejected this contention of the taxpayer on the ground that the volume of transaction in unrelated party segment is around 6% of the total turnover of the taxpayer and the nature of services to the related party and unrelated party may be different. 12. However, the ld. AR for the taxpayer without prejudice to this ground raised before ld. DRP proceeded to argue for exclusion of Accentia Technologies Limited, Cosmic Global Limited, Igate Global Solutions Limited, Infosys BPO Limited, TCS e-Serve International Limited and TCS e-Serve Limited and for inclusion of Asia IT T Limited, Datamatics Financial Services Limited, Satyam BPO Limited and R Systems International Limited (BPO Segment) for benchmarking the international transactions one by one as under. ACCENTIA TECHNOLOGIES LTD. (ACCENTIA) 13. The taxpayer sought to exclude Accentia on grounds of functional dissimilarity; that Accentia has undergone extra ordinary activities during the year under ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the balance sheet, shows huge intangible brands and goodwill approximately of 57% of the fixed assets. Further from the perusal of submissions made by the taxpayer before TPO, available at page 232 to 241 of the paper book, relevant page 238, the taxpayer raised specific objection as to non-availability of the segmental information. However, TPO has not controverted this fact while examining the suitability of this comparable. 19. Suitability of Accentia as a comparable company into ITES like taxpayer has been examined by the coordinate Bench of the Tribunal in Equant Solutions India Pvt. Ltd. vs. DCIT in ITA No.1202/Del/2015 for AY 2010-11, available at pages 207 to 237 of the paper book of case laws. Coordinate Bench of the Tribunal in Equant Solutions India Pvt. Ltd. (supra) ordered to exclude Accentia from the list of comparables by following the order of Hyderabad Bench of the Tribunal in Excellence Data Research Pvt. Ltd., Hyderabad vs. ITO, Ward 2 (1), Hyderabad in ITA No.159/Hyd./2014 dated 31.07.2014 , by returning following findings :- c. We have considered the rival contention. During the year this comparable has been gone into substantial busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise functional results and in absence of such segmental information, it cannot be used for comparing the PLI of the assessee. It is also noted that it is also having significant amount of brands, intellectual property rights and goodwill as compared to the assessee. Therefore, in view of the above reasons this company is required to be excluded. Further relying on the decision of Jurisdictional high court in case of Rampgreen Solutions Pvt Ltd (TS-387-HC-2015(DEL)-TP) where in it is held that KPO are ITeS where the service providers have to employ advanced level of skills and knowledge. This is absent in this case of assessee which is low end ITES service provider such as which enables network management and other back office support services performed by assessee which primarily include remote monitoring and maintenance of Equant global network platforms and services, coordination, remote configuration, and implementation of quality customer networking solutions. Therefore this comparable is ordered for its exclusion accordingly. 20. Accentia has been excluded as a comparable in taxpayer s own case for AY 2009-10 on ground of having been engaged in different and diversi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hmarking the international transactions for two reasons : one, it is functionally different; two, due to peculiar economic circumstances. Ld. AR also relied upon Equant Solutions India Pvt. Ltd. (supra). 25. Perusal of the screenshot of the website of the Fortune relied upon by the taxpayer, available at page 243of the paper book, shows that Fortune is into web application development including mobile applications, eCommerce applications and SEO services, developing CMS based website using Drupal, Joomla, WordPress, eCommerce Magento etc., offering onsite and offsite services to various clients and also into web designing services whereas the taxpayer is into providing routine ITES to its AE. 26. The taxpayer also brought on record the peculiar economic circumstances showing its diminishing revenue to 54.52% as compared to FY 2008-09. This fact is evident from annual report relied upon, relevant page 127 of the paper book vol.I. 27. However, on the other hand, ld. DR contended that the entire revenue of Fortune is from ITES and for providing ITES, some software requires to be used and balance sheet available at page 131 of the paper book does not show any intangible. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s annual report. So, this sole reason makes Fortune incomparable with taxpayer which is a routine ITES provider. 33. Moreover, IGATE has undergone restructuring by way of amalgamation as has been discussed in preceding paras, IGATE is also having huge turnover of ₹ 932.18 crores as against turnover of the taxpayer from the relevant segment at ₹ 76.91 crores which is 12 times of the turnover of the taxpayer as is evident from annual report available at page 183 of the paper book vol.I. 34. In view of what has been discussed above, we are of the considered view that IGATE is not a suitable comparable for benchmarking the international transactions, hence ordered to be excluded from the final set of comparables. INFOSYS BPO LIMITED (INFOSYS BPO) 35. The taxpayer sought to exclude Infosys BPO from the final set of comparables on grounds of different and diversifying functions, high turnover, high brand value, and having exceptional year of operation. Infosys BPO was ordered to be excluded as comparable in taxpayer s own case for AY 2009-10. 36. Ld. DR relied upon the order passed by TPO. 37. Keeping in view the fact that Infosys BPO is into different an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and payments in relation to the services offered by Citigroup to its corporate and retail clients. Technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities whereas for all the diversifying services no break up is given. So, in the absence of complete segmental data, TCS cannot be treated as ITES. Moreover abnormal growth in operating income of 174% and operating profit of 355% as is evident from page 389 of the annual report paper book vol.I makes it incomparable with the taxpayer which is a routine ITES provider having turnover of ₹ 76.91 crores. So, in the absence of incomplete segmental data, peculiar circumstances and normal growth, we are of the considered view that TCS Eserve International Ltd. and TCS Eserve Ltd. are not a valid comparable. 43. Comparability of TCS Intl. and TCS has been examined by the Tribunal in Ameriprise India Pvt. Ltd. (supra) and has been ordered to be excluded as comparable with Ameriprise India Pvt. Ltd. (supra) which was also a routine ITES provider on the ground that TCS Intl. and TCS is engaged in rendering BPO services to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for inclusion as contended by the taxpayer. So we confirm the findings returned by the ld. TPO/DRP. R. SYSTEMS INTERNATIONAL LIMTIED (BPO SEGEMENT (R. SYSTEMS) 48. Ld. DRP rejected this company on the ground that the same was not taken before TPO and it is having a different financial year ending. 49. Inclusion of R. Systems was also rejected by the TPO in United Health Group Information Services (P) Ltd. (supra) on ground of different financial year ending. However, the coordinate Bench held that different financial year cannot be the sole reason to reject a comparable when functional similarity exist. In case, the taxpayer is in a position to provide reconciliation of the profitability with authentic and reliable data reconciliation of profitability of R. Systems vis- -vis with the taxpayer with authentic and reliable data, it can be retained as a comparable. So, following the order passed by the coordinate Bench of the Tribunal in United Health Group Information Services (P) Ltd. (supra), we hereby set aside this comparable to the ld. TPO to examine R. Systems as comparable by also examining its functional comparability. 50. In view of what has been d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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