9911796707
TMI Blog2018 (3) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the considered view that ld. CIT (A) has rightly directed the AO to exclude the telecommunication expenses amounting to 9,15,422/- from total turnover for the purpose of calculating the deduction u/s 10A of the Act. X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts and circumstances of the case and in law in directing to exclude M/s Mold-Tek Technologies Ltd from the list of comparables? 2. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in restricting the addition from ₹ 2,08,34,850/- to ₹ 1,63,19,800/-, made in the income of the assessee being difference between the Arm's Length Price? 3. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law directing the AO to exclude the telecommunication expenses amounting to ₹ 9,15,422/- from the total turnover while calculating the deduction u/s 10A?" 4. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. H & S Software Development and Knowledge Management Centre Pvt. Ltd., the taxpayer is a wholly owned subsidiary of Heidrick & Struggles Inc., USA ("HSI") which in turn is a subsidiary of Heidrick & Struggles International Inc., USA ("HSII"). The taxpayer is into providing Information Technology Enabled back office support services relating to creation and maintenance of database of prospective employers and candidates who have sent their resumes to HSII. The taxpayer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow in the light of the facts and circumstances of the case. TAXPAYER'S APPEAL (ITA NO.436/DEL/2013) GROUND NO.1 9. Ground No.1 is general in nature, hence does not require any adjudication. GROUND NO.3b & 3d. 10. Grounds No.3b & 3d are dismissed having not been pressed during the course of arguments. GROUNDS NO.3a, 3c, 3e & 3f 11. The taxpayer is providing back office services relating to creation and maintenance of database of prospective employers and candidates who have sent their resumes to HSII in accordance with the preset criteria developed by HSII and including into search palace. However, the ld. DR for the Revenue contended that the taxpayer is not a low end BPO rather it is high end BPO as it is responsible for maintaining and developing this software tool and other related tools. However, we are of the considered view that when the taxpayer is only providing back office services related to software development and maintenance in accordance with the preset criteria developed by HSII and including it into search palace to which HSII global operations have the access and it does not own any intangible, it cannot be treated as a high end BPO. 12. Undisputedly, T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by TPO and accepted by ld. CIT (A) for benchmarking the international transactions. We would take aforesaid comparables one by one to examine their suitability vis-à-vis the taxpayer. ACCENTIA TECHNOLOGIES LTD. (ACCENTIA 16. The taxpayer challenged inclusion of Accentia on grounds inter alia that it has undergone extra ordinary events during the year under assessment; that sufficient segmental data is not available; that it fails employee cost filter and relied upon assessee's own case for AY 2007-08 in ITA No.6455/Del/2012 (available at pages 130-131 of convenience paper book), Ameriprise India Pvt. Ltd. in ITA No.7014/Del/2014 for AY 2010- 11 (available at pages 46 to 48 of the convenience paper book) and Equant Solutions India Pvt. Ltd. in ITA No.1202/Del/2015 for AY 2010-11 (available at pages 83 to 87 of the convenience paper book). 17. Perusal of TP order at page 286 of the paper book shows that the Revenue of Accentia from ITES is 80.87%, hence passed 75% revenue filter applied by the TPO. 18. Perusal of the schedule forming part of the profit & loss account, available at pages 118 and 119 of the paper book, which is part of the annual report shows that suff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s AI Khaimah Free Trade Zone, to spearhead the marketing operations in the Middle East market. The Middle East is one of the markets which have a huge potential in the HRCM segment, and Accentia is one of the first Companies in the world to recognize this opportunity. We are confident of having a sizable share of our revenues from this geographical area in the coming years. 20. Moreover, Accentia has been excluded as a comparable in taxpayer's own case for AY 2007-08 (supra). Keeping in view the aforesaid dissimilarities vis-à-vis the taxpayer, Accentia is ordered to be excluded as a comparable. ACROPETAL TECHNOLOGIES LTD. (ACROPETAL) 21. Acropetal is TPO's comparable selected on the basis of information collected u/s 133 (6) of the Act. The taxpayer sought exclusion of Acropetal on ground of functional dissimilarity and also relied upon the case of Symphony Marketing Solutions India Pvt. Ltd. in IT(TP) A.No.1316/Bang/2912 for AY 2008-09 (available at pages 33 to 58 of the convenience paper book). 22. Undisputedly, Acropetal has two segments : one, ITES and another, engineering design services and TPO has taken engineering design service segment as a comparable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n services which only a Knowledge Process Outsourcing {KPO] would do and not a Business Process Outsourcing (BPO)." 25. In view of functional dissimilarity, we are of the considered view that Acropetal is not a suitable comparable vis-à-vis the taxpayer, hence ordered to be excluded. CROSS DOMAIN SOLUTION PVT. LTD. (CROSS DOMAIN) 26. Cross Domain is a TPO's comparable. The taxpayer sought its exclusion on ground of functional dissimilarities. It being into the business of provision of high end KPO services and development of product suites for payroll processing services and relied upon the cases of Markit Tool Research Pvt. Ltd. in ITA No.1811/Hyd/2012 for AY 2008-09 and Symphony Marketing Solutions Pvt. Ltd. (supra). 27. Perusal of the information brought on record by the taxpayer from the website of the Cross Domain, available at pages 156 to 163 of the paper book, shows that Cross Domain is into combining extensive industry knowledge and advanced technical expertise to enable enterprises to realize significant return on investment; that Cross Domain has more than a decade of expertise in software development and delivery in payroll, HR and process automation/BPM d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the extract of the annual report, available at pages 124 to 127 of the paper book, goes to prove that Eclerx is a KPO company providing data analytics/process solutions to some of the largest brand of the world. Eclerx is also into providing financial services and retail and manufacturing by providing a unique blend of consulting services and process outsourcing. 28. The ld. AR for the taxpayer drew our attention to Safe Harbour Rules notified by Department of Revenue, Central Board of Direct Taxes, relevant page 18 of the paper book, wherein engineering and design services have been considered as Knowledge Process Outsourcing. For facility of reference, relevant part of Safe Harbour Rules is reproduced as under :- "(g) knowledge process outsourcing services" means the following business process outsourcing services provided mainly with the assistance or use of information technology requiring application of knowledge and advanced analytical and technical skills, namely:- (i) geographic information system; (ii) human resources services; (iii) engineering and design services; (iv) animation or content development and management; (v) business analytics; (vi) fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a valid comparable vis-à-vis taxpayer for benchmarking the international transactions qua ITES undertaken by the taxpayer. HCL COMNET SYSTEMS & SERVICES LTD. (HCL COMNET) 32. Again, HCL Comnet is a TPO's comparable which is on the basis of information obtained u/s 133 (6) of the Act. The taxpayer sought exclusion of HCL Comnet on grounds inter alia that HCL is having different financial year ending; that it has significant related party transactions; that it has significant high turnover and relied upon the assessee's own case for AY 2007-08 (supra) and Motorola Solutions India Private Limited vs. ACIT in ITA No.5637/Del/2011 for AY 2007-08. 33. When we peruse TP order, relevant pages 297 to 299 of the paper book, the taxpayer raised objection that HCL has failed related party transaction filter as well as it has having different financial year ending and the data obtained u/s 133 (6) is unreliable. However, the TPO has not disposed of all these objections. When apparently HCL has financial year from July 1 to June 30, it fails the filter not to adopt company having different financial year applied by the TPO himself. Furthermore, TPO has applied RPT filter. The ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved that Genesys is engaged in providing Geographical Information Services comprising Photogrammetry, Remote Sensing, Cartography, Data Conversion, related Computer based Services and other related services, which are certainly not routine ITES. Moreover, Genesys has been rejected by the DRP in taxpayer's own case for AY 2009-10 order dated 23.12.2013 on ground of functional dissimilarity by returning following findings : "7.3.4 Genesys International Corporation This comparable is functionally different hence it is not a valid comparable. • For sake of darity different extracts from AR is extracted below:- • As per Page-5 of Annual Report- "We are progressing well towards our goal to be an innovation and IP-led geospatial solutions provider touching a/l core areas of the economy." Further, as per Page-6 of AR:- "your company is the exclusive Reseller for Navteq data for the Enterprise space in India Navteq is the world leader in navigable maps and sheet data" Further, as per Page-14 of AR - "Genesys is today one of India's fastest growing geospatial services and content providers The Company caters to the needs of consumer mapping, naviga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Moreover because of high brand value, the Infosys BPO's revenue is abnormally higher having turnover of ₹ 825.09 crores vis-à-vis taxpayer's turnover of ₹ 16.64 crores. Comparability of Infosys BPO has been examined by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 (supra) and in Symphony Marketing Solutions India Pvt. Ltd. (supra) and has been ordered to be excluded as a comparable because of significant brand value having significant expenditure on R&D and that Infosys BPO is a market leader in ITES vis-à-vis the taxpayer which is a captive service provider taking minimal risk as against Infosys BPO which is a full-fledged risk bearing company having diversifying business. So, we order to exclude Infosys BPO from the final list of comparables. VISHAL INFORMATION TECHNOLOGIES LIMITED (VISHAL) 42. TPO retained Vishal as a comparable on the basis of information u/s 133 (6) of the Act despite the objections raised by the taxpayer; that it is functionally different; that erroneous margins have been calculated by the TPO and relied upon the decision of taxpayer's own case for AY 2007-08 (supra), Symphony Marketing Solutions I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsystem), Remote Patient Monitoring, Image Processing, Supply Chains, Retail Instore, Retail Pharmacy, Automotive, Open Source and Gaming. 46. Furthermore, Wipro has significant ownership of IPR whereas the taxpayer has no such ownership of IPR. Furthermore, Wipro is a giant company having turnover of ₹ 17492.62 crores as against taxpayer's turnover of ₹ 16.64 crores. Furthermore the Wipro has undergone extra ordinary events, duly detailed at page 440 of the paper book by the taxpayer by way of amalgamation of the companies viz. Wipro Infrastructure Engineering Limited, Wipro Healthcare IT Limited, Quantech Global Services Limited (subsidiary companies) with Wipro Limited, approved during the FY 2007-08 by the Hon'ble High Court of Karnataka and the Hon'ble High Court of Andhra Pradesh. 47. Wipro was ordered to be excluded by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 (supra) and in Symphony Marketing Solutions India Pvt. Ltd. (supra) on the ground that it has a significant brand value having high turnover and a market leader in its field whereas the taxpayer is a tiny company and having diversified business and huge expenditure on R&D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclude Moldtek from the final set of comparables in taxpayer's own case in ITA No.6509/Del/2012 for AY 2007-08 (supra) by returning following findings :- "11. When we examine the functional profile of assessee company vis-à-vis Mold-Tek Technologies Ltd., both are functionally dis-similar. Undisputedly, assessee company is into ITES services as a captive service providers whereas Mold-Tek is operating in two business segment i.e. (i) plastic divisions which is into manufacturing of lube and oils, paints, pet projects, consumer products etc.; and (ii) IT Division specialized in providing structural design and detailing services which could be categorized as structural engineering services. CIT (A) has also excluded this company as comparable on ground of abnormal growth which is 204% in FY 2006-07 with a CAGR of 113% for 3 years. 12. Assessee relied upon the decisions rendered by ITAT, Hyderabad Bench in the case of Capital IQ Information Systems (India) Private Ltd. (ITA No.1961/Hyd/2011) (available at pages 812 to 839 of the Paper Book-III, wherein comparability of Mold-Tek Technologies Ltd. has been examined with Capital IQ Information Systems (India) Private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure attributable to the delivery of the goods. 55. The ld. CIT (A) after thrashing the controversy at hand at length in the light of the settled proposition of law in various judgments rendered by the Tribunal as well as Hon'ble High Court particularly in DCIT vs. Binay Semantics Ltd. - (2007) 109 TTJ 556 returned the following findings :- "7.4 I have carefully considered the submission of the appellant as well as the order of the AO. The AO is not right in excluding other income while computing the profit eligible for deduction u/s 10A once again when the appellant itself had deducted it while computing the eligible deduction u/s 10A. This amounts to double disallowance. Therefore, the AO is directed to delete the deduction of ₹ 1,41,274/- while calculating 10A deduction. There is merit in excluding the 20% of the telecommunication expenses as calculated by him from the total turnover a well. This issue has been decided by the Higher Authorities in Tata Elxsi and other cases (supra). Therefore, AO is directed to exclude the telecommunication expenses amounting to ₹ 5,307,691/- (pertaining to this assessment year) from the total turnover while calculating ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
