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TMI Blog2018 (4) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA no. 944/Mum/2016, reads as under:- 1. " On the facts and in the circumstances of the case and in law, the Dispute Resolution Panel has erred in directing to reject M/s. Accentia Technologies Ltd (in respect of ITes Service) as comparable for benchmarking ALP of International Transaction of the assessee with the AEs. 2. On the facts and in the circumstances of the case and in law, the Dispute Resolution Panel has erred in directing to include M/s. R. System International Ltd and Caliber Point Business Solutions Ltd as the comparables for benchmarking ALP of International Transaction of assessee with the AEs. 3. The appellant craves leave to add, amend, or alter any grounds or add a new ground which may be necessary. 4. The appellant prays that the direction of the DRP, Mumbai on the above directions be set-aside and that of the assessing officer be restored." 3. The assessee has raised following grounds of Cross Objections filed with the tribunal in CO No. 50/Mum/2016 arising out of appeal in ITA no. 944/Mum/2016 for AY 2011-12 :- "The Grounds stated here under are independent of, and without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies namely Acropetal Technologies Limited and Infosys BPO Limited as comparables. The Assessee submits the said companies ought not to be taken as comparables. 6. Additional filters are unwarranted in the comparability analysis 6.1. On the facts and in the circumstances of the case and in law, the learned AO / TPO erred and the Hon'ble DRP further erred in applying additional filter of rejecting companies with less than 75 percent earnings from exports, which is unwarranted in the comparability analysis. 6.2. On the facts and in the circumstances of the case and in law, the learned AO / TPO erred and the Hon'ble DRP further erred in applying additional filter of rejecting companies with losses / diminishing revenue, which is unwarranted in the comparability analysis. The learned AO / TPO erred and the Hon'ble DRP further erred in not following the principles laid down by the jurisdictional Mumbai Tribunal (Special Bench) in Assessee's own case for AY 2008-09 (I.T.A. No.7466/Mum/2012), wherein it is principally held that further investigation should be made to ascertain whether losses reflects normal business conditions and the company satisfies th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any time before or at the time of hearing the appeal." 4. The assessee is captive service provider engaged in IT enabled services such as back office support services. The assessee filed its return of income on 26.11.2011, which was selected for scrutiny by Revenue. The assessee had entered into international transaction and had filed reports in form no. 3CEB u/s. 92E r.w.r. 10E of the Income-tax Rules,1962 on 29.11.2011. A reference u/s. 92CA(1) was made by the AO to Transfer Pricing Officer(hereinafter called " the TPO") who made adjustments to the tune of Rs. 20,12,29,190/- in the value of Arm Length Price(ALP) of transactions and the said order was passed by TPO u/s. 92CA(3), dated 27.01.2015. In pursuance to the aforesaid order passed by TPO, the draft assessment order was passed by the AO u/s. 143(3) r.w.s. 144C(1) of the 1961 Act on 20.02.2015. The assessee filed objections with DRP which were disposed of by DRP vide directions issued u/s. 144C(5) of the 1961 Act on 27.11.2015. 5. Now, being aggrieved by the directions issued by DRP which finally culminated into an assessment order passed by the AO u/s. 143(3) r.w.s. 144C(1) of the 1961 Act, dated 29.12.2015, the Revenue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held as under:- "80. A perusal of the functional profile of the assessee company shows that although the services claimed to be provided by it to the AEs as IT services such as process support, process optimization and technical support are not in the nature of low end services such as voice or data processing as they require some degree of special knowledge and domain expertise in the concerned field, the revenue generated from these services was only about 10% of the total revenue generated during the year under consideration. There were also some other services rendered by the assessee company to its AEs as IT enabled services such as reconciling the difference between equipment management system and transfer plan in global custom services study, contract drafting, various audit functions based on different business strategy, tender handling etc. which, as rightly submitted by the ld. D.R., cannot be strictly considered as low-end services as they involved some degree of special knowledge and expertise in the relevant field. However, these services again were only incidental to the main services rendered by the assessee involving information collation from shipper/customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pulates assessee to be in the back office support services which are low end in nature. Thus, in our considered view finding of the Special Bench of the tribunal for AY 2008-09 will continue to apply to impugned assessment year i.e. AY 2010-11 under consideration before us as nothing has been brought on record by the Revenue as to any change in the nature and characteristic of the functions performed, assets deployed and risks assumed by the assessee during the year under consideration vis-a-vis AY 2008-09. The tribunal in the case of the assessee itself while adjudicating appeal for AY 2010-11 in ITA no. 1082/M/2015 vide its orders dated 29.07.2016 had rejected Accentia Technologies Limited as a comparable and hence finding of DRP in this year has virtually being confirmed by tribunal, albeit for AY 2010-11, by holding as under:- "ACCENTIA TECHNOLOGIES LTD. 9. Objecting to the selection of this company, learned Sr. Counsel submitted, the assessee is a back office service provider to its A.E., whereas Accentia Technologies Ltd. is a parent company. It takes all the risks. He submitted, the company is providing high end service in the nature of KPO service which is not compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the parties and perused the material available on record. Though, the Transfer Pricing Officer has categorized the assessee as a KPO service provider, however, as could be seen from the extracted portion from the order of the Tribunal, Special Bench decision in assessee's own case in Para-3.13 of the DRP's direction, the Special Bench has specifically observed that work force employed by the assessee comprised of 96% of graduates and post graduates and only 4% workforce was professional such as Chartered Accountant, B. Tech., etc., which goes to show that function performed by the assessee to its A.E. were mainly in the nature of providing back office support service of low end nature. Thus, the aforesaid observation by the Special Bench leaves no room for doubt that the nature of service provided by the assessee to its A.E. is low end BPO service and cannot be considered as KPO service. Whereas, on a perusal of the information contained in the annual report of Accentia Technologies Ltd., a copy of which has been placed in the paper book, we have noticed that the company is into diversified activities like development of software, legal process out sourcing, health care manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be rejected. In A.Y. 2008-09, the DRP in the light of functions performed by the assessee as well as BPO segment of R. System International, has accepted the same to be comparable company. This fact has also been noted by the Special Bench in para 12 of the order." 12. We have also noted, considering the aforesaid order of the Tribunal, the DRP in assessee's own case in assessment year 2011-12 and the Transfer Pricing Officer himself in assessment year 2012-13 have rejected Accentia Technologies Ltd. as a comparable. The Tribunal, Delhi Bench in Equant Solutions India Pvt. Ltd. v/s DCIT, in ITA no.1202/Del./2015 dated 21st January 2016 for the very same assessment year 2010-11, while examining the functionality of this company found that it provides KPO service, LPO and DPO besides operating software service. The Tribunal also found that this company was having substantial amount of Brands, IPRs and goodwill, hence, it cannot be compared to a low end ITES service provider. The Hon'ble Delhi High Court in Rampgreen Solutions Pvt. Ltd. v/s CIT, ITA no.102/2015 dated 10th August 2015, in fact, disagreed with the view expressed by the Tribunal, Mumbai Special Bench in Mearsk G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Thus we uphold the decision of the DRP and dismiss the appeal of the Revenue on this ground. Revenue fails on this ground. We order accordingly. 6. Ground no. 2 raised by the Revenue is to challenge the decision of DRP wherein it directed TPO/AO to include R System International Ltd. and Caliber Point Solutions Ltd. as comparable. The TPO vide its order u/s. 92CA(3) had rejected R System International Ltd. and Caliber Point Solutions Ltd. on the ground that financial year of these two companies have ended in December while assessee is following financial year ending 31st March. The TPO rejected these comparables namely R System International Ltd. and Caliber Point Solutions Ltd, by holding as under: "Caliber Point Business Solutions Ltd. The BPO segment is involved in process management, outsourcing and transitioning services in respect of HR solutions and sales & marketing solutions. The activities of this company are low end as compared to the assessee because the assessee is involved in high end activities. The year ending for this company is December. Also company has diminishing returns. Therefore, this company is rejected as comparable. R Systems International Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l while deciding assessee's appeal for assessment year 2009-10, ITA no.2594/Mum./2014 dated 16th January 2015, accepted R. Systems International Ltd. as comparable to the assessee observing as under:- "13. Now coming to the two comparables included by the assessee. So far as R. System International Ltd. (Segmental) is concerned, it has been pointed out by the learned senior counsel that this company was accepted as a comparable by the TPO in assessee's own case in the A.Y. 2007-08 and also by the DRP in A.Y. 2008-09. The TPO has rejected this comparable in this year, simply on the ground that it is not purely a KPO service provider and having calendar year ending. On the contrary the BPO segment of R. System is functionally comparable to the assessee and simply because it is following calendar year accounting it cannot be rejected. In A.Y. 2008-09, the DRP in the light of functions performed by the assessee as well as BPO segment of R. System International, has accepted the same to be comparable company. This fact has also been noted by the Special Bench in para 12 of the order. 14. Thus, consistent with the fact that in A.Y. 2007-08, TPO himself has accepted R. System as a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 286 of PB II) Hon'ble Punjab and Haryana High Court in the case of Mercer Consulting (India) Pvt Ltd [TS-664-HC-2016(P & H)-TPJ (Page no. 246ofPB II) Hon'ble Mumbai Tribunal in the case of Aegis Limited (ITA No. 7694/Mum/20l4) - (Page no. 309 of PB II) Hon'ble Mumbai Tribunal in the case of Pangea3 & Legal Database Systems Pvt. Lid [ITA Nos.2128 &1958/M/2014] The Revenue on the other hand has relied upon decision of Hon'ble Bombay High Court in the case of CIT v. PTC Software India P. Ltd.(2017) 395 ITR 176(Bom.), wherein Hon'ble Bombay High Court held as under:- "(a) The Assessing Officer on the basis of the order of the TPO included M/s. Transworks Information Services Ltd. (Transworks Ltd.) in his comparability analysis. The grievance of the respondent assessee before the Tribunal was that Transwork Ltd. cannot be a comparable as the respondent assessee's financial period is from 1st April, 2006 to 31st March, 2007 while the financial period in respect of the comparable is from 1st July, 2006 to 30th June, 2007. This grievance based on fact was not disputed by the Revenue before the Tribunal or even before us. In terms of Rule 10B(4) of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted R System International Limited as comparable for AY 2009-10 in ITA no. 2594/Mum/2014 vide orders dated 16-01-2015 and also accepted said comparable R System International Limited as comparable for AY 2010-11 and rejected contention that merely because financial year is ending on 31st December vis-a-vis assessee's financial year ending on 31st March, the comparable cannot be accepted. Thus, we direct for inclusion of R System International Ltd. and Caliber Point Solutions Ltd. as comparable for computing ALP of international transactions entered into by the assessee with its AE. Revenue also fails on this ground. We order accordingly. 7. The assessee has filed CO and now the main grievance of the assessee is with respect to inclusion of Infosys BPO Ltd. as comparable. The assessee has submitted that assessee is into low end back office support services to its AE. The TPO included this comparable Infosys BPO Ltd. as comparable to the assessee by holding as under:- " 13 Comments of the TPO on functional comparability of companies objected by the assessee: (i) Infosys BPO Ltd. This comparable has been taken by the TPO in A.Y. 10-11. DRP has confirmed this comparable in A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover of Rs. 8.15 crs. was held as comparable to a company of turnover upto Rs. 200-crs. i.e. around 25 times. Regarding the other arguments taken by the assessee, it may be mentioned that comparability of Infosys was considered by ITAT in the case of Willis Processing case (ITA No.4547/Mum/2012) and it has been held that comparability has to be decided strictly on functionality and these arguments are not relevant. Accordingly, Infosys BPO is held as valid comparable." The assessee has also relied upon several decisions of the Hon'ble Courts/tribunal so as to support its contention with respect to rejection of the Infosys BPO Ltd., as under:- " Infosys BPO is specifically rejected as comparable by Hon'ble Mumbai tribunal in Assessee's own case of AY 2010-11 (Page No 124 of PB II) -Infosys BPO is not comparable to back office support services also upheld by: - Hon'ble Delhi High Court in case of Agnity India Technologies Pvt. ltd. [ITA 1204/2011](Page no. 329 to 331 of PB II); - Hon'ble Bombay High Court in case of CIT vs. Pentair Water India Pvt. Ltd.[TS-566-HC-2015(BOM)-TP]; - Hon'ble Mumbai Tribunal in case of Aegis Limited [ITA No. 7694/Mum/2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which signifies that it has taken marketing risk unlike the assessee. Further, referring to Schedule-13 of Profit & Loss account, learned Sr. Counsel submitted, the provisions made for bad and doubtful debt signifies the risk taken by the assessee. Learned Authorised Representative submitted, because of its high turnover, brand value, etc., the Hon'ble Jurisdictional High Court in Pentair Water India Pvt. Ltd., Tax Appeal no.18 of 2015 dated 16th September 2015, has held that it cannot be comparable with a low turnover company. The learned Sr. Counsel submitted, the Tribunal Delhi Bench in Equant Solutions India Pvt. Ltd. (supra) for the very same assessment year has excluded Infosys BPO Ltd. as a comparable. Finally, learned Sr. Counsel submitted, Infosys BPO Ltd. was never considered as a comparable in the earlier year nor in the subsequent assessment year. Therefore, applying the rule of consistency this company should be excluded from the list of comparables. 14. Learned Departmental Representative submitted, Transfer Pricing Officer while selecting comparables has not applied any high turnover filter. He submitted, if companies having turnover of more than ten times ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the assessee are allowed and we direct the AO to exclude this company Infosys BPO Limited as comparable for computing ALP of international transactions entered into by the asseseee with its AE. We order accordingly. 8. The assessee is also aggrieved by the inclusion of the Acropetal Technologies Ltd. as comparable for computing ALP of the assessee's international transactions with its AE. The assessee has contended that this company is primarily engaged in development and exporting of software products and offering integrated enterprise solution. The TPO included Acropetal Technologies Ltd. by holding as under:- "13. Comments of the TPO on functional comparability of companies objected by the assessee: (iii). Acropetal Technologies The objection of regarding Acropetal Technologies is that it is engaged in diversified, activities. It needs to be mentioned here that Acropetal Technologies has three segments, namely engineering design services, information technology services and health care segments. The TPO has taken only Health care Service, which is into Hospital Management System, Electronic Medical Record, Workflow Management Services, therefore the objection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions and not actual and hence the segmental result would require further investigation/analysis. The assessee relied upon the following case laws to contend that the companies carrying out business of software /product development cannot be compared with the assessee, as detailed hereunder:- " Hon'ble Mumbai Tribunal in Assessee's own case of AY 2005-06 (Page no. 156 of PB II) Hon'ble Mumbai Tribunal in Assessee's own case of AY 2009-10 (Page no. 100 & 101 of PB II) Hon'ble Bangalore Tribunal in case of Siemens Technology & Services (P.) Ltd. vs. Assistant Commissioner of Income-tax [(2017) 79 taxmann.com/190/(Page no. 409 of PB II) Hon'ble Bangalore Tribunal in case of Pole to Win India (P.) Ltd. vs. Deputy Commissioner of Income-lax [[2016] 70 taxmann.com 318] (Page no.431 of PB II) Hon'ble Mumbai Tribunal in case of DBOI Glahal Services (P.) Ltd. vs. Assistant Commissioner of Income-tax [[2016] 74 taxmann.com 83] (Page no. 443 of PB II) Hon'ble Delhi Tribunal in case of Ameriprise India Pvt. Ltd. vs. A.C.I.T [2015] 62 taxmann.com 237] The assessee contended that this company Acropetal Technologies Ltd.ought not to have been inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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