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TMI Blog2018 (2) TMI 1282X X X X Extracts X X X X X X X X Extracts X X X X ..... e export turnover without reducing the same from the total turnover - Held that:- Respectfully following the aforesaid referred to order in the case of DCIT Vs Global Logic India (P) Ltd.[2012 (12) TMI 1018 - ITAT DELHI] we direct the AO to reduce the aforesaid expenses out of the export turnover as well as the total turnover while working out the deduction u/s 10A - ITA No. 2200/Del/2014 And ITA No. 204/Del/2016 - - - Dated:- 15-2-2018 - Sh. N. K. Saini, AM And Sh. Kuldip Singh, JM For The Assessee : Sh. Manoneet Dalal, Adv., Sh. Yishu Goel, AR, Arvinder Singh, CA Sh. Veenu Agarwal, CA For The Revenue : Sh. H. K. Choudhary, CIT DR ORDER Per N. K. Saini, AM: These two appeals by the assessee are directed against the separate order dated 28.01.2014 and 16.11.2015 for the assessment years 2009-10 and 2011- 12 respectively passed by the AO u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act). 2. Since, the issues involved in these appeals are common and the appeals were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. The grounds raised in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign currency towards communication charges amounting to Rs, 2,00,327/- has to be excluded from the export turnover for the purpose of computing the amount of deduction under section 10A of the Income-tax Act, 1961 ( Act ), without appreciating the fact that the said expenses are not attributable to delivery of any article or thing or computer software outside India and have not been incurred in providing technical services outside India. 5.1 Without prejudice to the above ground, the Ld. AO as well as Hon'ble DRP have erred in law as well as on the facts of the case by excluding the foreign currency expenditure towards communication charges amounting to ₹ 2,00,327/- from 'export turnover' without correspondingly reducing the same from the 'total turnover' for the purpose of computing deduction under section 10 A of the Act. 6. The Ld. AO as well as Hon'ble DRP have erred in law as well as on facts of the case in holding that the expenditure incurred by the Appellant in foreign currency towards database fees amounting to ₹ 36,24,838/- has to be excluded from the export turnover for the purpose of computing the amount of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shortlists; Candidate Reports; One Pagers; Board CDM requests; Contact Research and Research Update 6. The assessee is responsible for processing informations contained in the resumes according to the pre-set criteria developed by AEs and including it into Search Palace. The database of resumes and Search Palace are accessible by AE s global operations. The assessee is also responsible for ensuring quality and consistency in data entry for Search Palace, database, minimize duplication of effort and reuse of information and to move into more proactive research work for business development. In addition to maintain data for the Search Palace database, the assessee also supports its AE s in performing adhoc research work and news alerts. The assessee entered into following international transactions: Sr. No. Nature of transaction Arm s length price as per taxpayer ( i) Provisions of services (ITES) Rs.16,93,48,801 ( ii) Database fees Rs.52,57,385 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.43% 7. Sparsh BPO Services Ltd. 6.72%% Average 26.67 The TPO worked out an addition of ₹ 1,75,54,795/- in the ITes segment, thereafter, the AO passed the draft assessment order. Against the said order, the assessee filed the objection before the ld. DRP. 8. After considering the submissions of the assessee, the ld. DRP was of the view that M/s Allsec Technologies Ltd., M/s Maple Esolutions Ltd., M/s Msource India Pvt. Ltd. and M/s Cosmic Global Ltd. selected by the assessee as comparables were rightly rejected by the TPO. As regards to the inclusion of Genesys International Corporation, the ld. DRP was of the view that this comparable was functionally different, hence, it was not a valid comparable. He, therefore, directed the TPO to exclude this company from final set of comparables. As regards to Eclerx Services Ltd., the ld. DRP observed that this company was providing KP/BPO services which is in the nature of ITes services, therefore, it is good comparable. According to the ld. DRP, the high turnover is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Marketing services. - Under financial services segment, it provides professional services including consulting, business analysis and solutions testing. Broad services provided in this segment includes trade processing, reference data, accounting and finance, and expense management activities. (Refer page 52 of Cnv. Paperbook) - Under sales and marketing services, it provides online operations web analytics, CRN and business intelligence, competitor benchmarking and pricing etc. (Refer page 53 of Cnv. Paper book). - As per website of the company it provides The company's service portfolio spans the range of data process and analytics services and includes activities such as reference data and risk management services, as well as financial control, accounting and reporting services, consulting services related to efficiency risk reduction and regulatory compliance, web and ecommerce operations support, data management services and reporting, competitive pricing and benchmarking, analytics and business intelligence, quality compliance and governance and process benchmarking. Thus, as can be seen from above the back office services rendered by the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra) which is also engaged into ITES services similar to that of the assessee. 25. When we examine the functional profile of the assessee company which is into providing Information Technology (IT) Enables Back Office Support Services related to creation and maintenance of data base of prospective employers and candidates who sent their resumes to Hendrick Struggles International Inc. (HSII), the assessee provides services to HSII only having minimal risks whereas as per the information supplied by ECLERX u/s 133 (6), it is into data analytical services; operation management services; accounts reconciliation services which are aimed at reducing process errors and operational risks and that it is KPO rather than routine service provider as is evident from the annual report. 26. Comparability of ECLERX has been examined by the coordinate Bench with Copal Research India Pvt. Ltd. (supra), a similarly situated company, by making following observations:- 11. We have considered the submissions of both the parties and have perused the record of the case. We find that in the case of Maersk Global Centres (India) Pvt. Ltd., which company was, inter alia, engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the assessee company which is mainly engaged in providing low-end services to the group concerns. 11.1. We find that the assessee also cannot be said to have relatable degree of comparability because primarily assessee was engaged in providing primary data for various field of activities but not complete business solutions. Therefore, this company could not be treated as comparable for the purpose of determining ALP of the transactions between the assessee company with its AEs. We, accordingly, direct that this company be excluded from the list of comparables finally taken by the AO/ TPO as per the direction of the DRP. 27. So, keeping in view the functional dis-similarity of assessee company with ECLERX, which is a knowledge process outsourcing company engaged in providing consulting services, process outsourcing, process reengineering and automation services, we do not find ECLERX as a valid comparable for benchmarking the international transaction qua ITES services undertaken by the assessee. 13. Since, the facts for the year under consideration are similar to the facts involved in the assessment year 2007-08. So, respectfully following the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT, Delhi Bench in assessee's own case for assessment year 2005-06 relying upon the decision of the ITAT, Special Bench in the case of ITO v. Sak Soft Ltd. [2009] 30 SOT 55 (Chennai) has allowed the appeal of the assessee and directed the Assessing Officer to recomputed the deduction u/s. 10A after reducing communication expenses from the export turnover as well as total turnover. 18. So, by respectfully following the aforesaid referred to order in the case of DCIT Vs Global Logic India (P) Ltd., we direct the AO to reduce the aforesaid expenses out of the export turnover as well as the total turnover while working out the deduction u/s 10A of the Act. 19. Next issue vide Ground No. 7 relating to initiation of penalty proceedings u/s 271(1)(c) of the Act is pre-maturely raised, so no adjudication is required. 20. Vide Ground No. 8, the grievance of the assessee relates to the charging of interest u/s 234B and 234D of the Act. As regards to this issue, it was the common contention of both the parties that it is consequential in nature. We order accordingly. 21. Now we will deal with the appeal of the assessee in ITA No. 204/Del/2016 for the assessment year 2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day benefits as per the Software Technology Park of India. For Corporate Tax Matters: 4. Based on the facts and circumstances of the case, the Ld. AO has erred in law as well as on facts in holding that the expenditure incurred by the Assessee in foreign currency towards communication charges amounting to ₹ 69,955/- has to be excluded from the export turnover for the purpose of computing the amount of deduction under section 1OA of the Act, without appreciating the fact that the said expenses are not attributable to deliver any article or thing or computer software outside India and have not been incurred in providing technical services outside India. The same relates only to the input services used by the Assessee for software development in India. 4.1 Without prejudice to the above, based on the facts and circumstances of the case, the Ld. AO has erred in law as well as on the facts of the case by excluding the foreign currency expenditure towards communication charges amounting to ₹ 69,955/- from 'export turnover' without reducing the same from the 'total turnover' for the purpose of computing deduction under section 10A of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the Company Remarks 1. Aditya Birla Minacs Worldwide Ltd. This company fails export filter (60.51%). Hence, not a suitable comparable. 2. Caliber point Business Solutions Ltd. This company is having different financial year ending i.e. December. Hence, can t be considered as suitable comparable. 3. Cosmic Global Ltd. This company fails export filter (52.96%). Hence, not a suitable comparable. 4. Fortune Infotech Ltd. This company is having significant RPT (98.70%). Hence, not a suitable comparable. 5. Jindal Intellicom Pvt. Ltd. This is a suitable comparable. 6. Omega Healthcare Management Services Complete financialinformation is not available. Hence, can t be considered as a suitable comparable. 7. R Systems Internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the Company OP/OC 1. Accentia Technologies Ltd. 29.18% 2. Zavata India Pvt. Ltd. 23.07% 3. E4e Healthcare Business Services Pvt. Ltd. 9.77% 4. Eclerx Services Ltd. 56.82% 5. ICRA Techno Analytics Ltd. (Segment) 25.54% 6. Infosys BPO Ltd. 17.86% 7. Jindal Intellicom Ltd. 13.70% 8. TCS E-serve Ltd. 69.31% Average 30.66% 27. The TPO proposed an adjustment of ₹ 2,22,87,118/-. Thereafter, the AO passed the draft assessment order against which the assessee filed the objection before the ld. DRP. The assessee has taken up the issue relating to modification/rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned. It is noticed that for the assessment year 2009-10 also, the assessee argued for exclusion of this company from the set of the comparable which we have already adjudicated in the former part of this order. For the same reasoning, we direct the AO to exclude this comparable from the set of the comparables for the year under consideration also. As regards to M/s TCS e-serve Ltd., it is noticed that in the case of Equant Solutions India (P.) Ltd. Vs DCIT (supra), the ITAT Delhi Bench I , New Delhi in ITA No. 1202/Del/2015 for the assessment year 2010-11 directed to exclude and the relevant findings have been given in para 24 which read as under: 24. TCS E Serve Limited a. TPO included this comparable, which has a margin of 63.42%. The ld. DRP has also held that the far profile of the company is similar. Before us, ld. AR submitted that the company is dissimilar functionally. In addition to BPO services, it is also engaged in technical services such as software testing, verification and validation. It has also developed software such as transport management software. It does not have segmental reporting too. It was further submitted that the company owns substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Maersk Global Centres India Pvt. Ltd. (supra), but a host of other decisions referred to earlier, wherein, it has been held that the company is involved in providing high end services which is in the nature of KPO, hence, cannot be compared to a general ITES provider. In fact, the Hon'ble Delhi High Court in Rampgreen Solutions Pvt. Ltd., ITA no.102 o 2015, has held that this company being a KPO service provider cannot be considered as a comparable to ITES companies. We may further mention, many of the orders passed by the co ordinate benches of the Tribunal rejecting Eclerx Services Ltd. as a comparable to ITES service provider is for the very same assessment year 2008 09. Therefore, respectfully following the view expressed by various judicial authorities, we hold that Eclerx Services Ltd. being functionally different cannot be treated as comparable to the assessee. 67.We have considered the submissions of the parties and perused the material available on record. We have noted that the Tribunal, Bangalore Bench, in Symphony Marketing Solutions India Pvt. Ltd. (supra), after perusing the annual report of this company found that major source of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re no segmental details and any other bifurcation as to what comprised of transaction processing charges and other services. That apart, it is seen that, this company is a part of Tata Group and has a huge brand value across the world and also owns huge intangibles. Thus, there is a huge difference in the assets employed by this Company as compared to the assessee which also reflects in its revenue and profit margin. Its intangible assets itself is more than ₹ 3337.4 crores as on 1st April, 2010 and additions during the year were more than ₹ 756.24 crores. Thus, this company having huge intangibles assets cannot be compared with the assessee who has no significant intangibles. That apart, it has been pointed out by the Ld. Counsel that, this company has been emerged with TCS in the year 2009 which has led to shooting up of its profit margin to 13% to 68%-70%. This factor itself points out that its high profit margin were due to its huge brand value, which cannot be held to be comparable with captive service provider like Assessee Company. So far as the decision of ITAT Delhi Bench in the case of Techbooks International Pvt. Ltd is concerned as pointed out by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also following the precedence in the aforesaid cases, we hold that TCS e- Serve cannot be held to be comparable company, accordingly, we direct the AO/TPO to exclude the same from comparability list. Respectfully following the same, we hold that TCE e- Service cannot be considered a valid comparable in the case of the assessee. 33. A similar view has been taken by the ITAT Delhi Bench I , New Delhi in the case of Ameriprise India Pvt. Ltd. Vs DCIT (supra) wherein the relevant findings have been given in paras 12 to 12.5 which read as under: 12. TCS e-Serve Ltd. 12.1 The assessee objected to its inclusion by contending that this is exceptional year of operation for this company as it is the first full year of operations after its takeover by TCS. It was also contended that this company is functionally dissimilar and the segmental information are insufficient. The TPO repelled the assessee s objections and included it in the final set of comparables. 12.2. We have heard the rival submissions and perused the relevant material on record. A copy of the Annual report of this company is available on page 398 of the paper book. Ld. Counsel for the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of this company on a broader basis is no different from that of the assessee, both being involved in rendering ITES, we are not inclined to treat this company as incomparable. The ld. AR argued that the nature of the ITES provided by this company is different from that of the assessee and hence the same be excluded. We are disinclined to sustain this objection. Matching of the exact functional similarity is dispensed with under the TNMM, which is not so under the Comparable uncontrolled price method. The TNMM approves comparability on the basis of broader overall similarity. When we consider the nature of services provided by this company, being the ITES, which is similar to that of those rendered by the assessee, again the ITES, we cannot order its exclusion simply for the reason that the verticals of ITES are somewhat different. If one goes to make a comparison in the way suggested by the ld. AR under the TNMM, then it will be very difficult, if not impossible, to find out a ditto comparable. A company which satisfies the broader parameters of comparability in the overall same segment, cannot be excluded due to somewhat different nature of such overall activity. An examination ..... X X X X Extracts X X X X X X X X Extracts X X X X
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