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TMI Blog2017 (1) TMI 1597X X X X Extracts X X X X X X X X Extracts X X X X ..... ork the same. - I.T (TP).A No.1397/Bang/2016 - - - Dated:- 13-1-2017 - SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER For The Assessee : Shri. Sharat Rao, CA For The Revenue : Shri. Kamaladhar, Standing Counsel ORDER PER S. JAYARAMAN, ACCOUNTANT MEMBER : This is an appeal filed by the assessee against the order of CIT (A), Bengaluru -2, dt.19.07.2016, for the assessment year 2011-12. 02. The facts in brief are that the e4e Business Solutions India Private Limited , formerly known as iSeva Systems Private Limited, the assessee, is engaged in the business of customer relationship management services and related business process outsourcing services through a variety of customer contract channels such as voice, e-mail, chat and web-based services. It acquired all the business (all assets, liabilities, employees and business) from e4e Tech Support (India) Private Limited, a group company, with effect from April 1, 2007 on slump sale basis. Consequently, it has also started rendering infrastructure management services, which is in the nature of Information Technology Enabled Services ( ITES ). e4e India renders such IT enable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have erred in fact and in law in confirming the action of the AO and TPO in making an adjustment amounting to INR 136,642,740 to Arm's Length Price ( ALP ) of the international transactions of the Appellant. 3. The learned CIT(A) has erred in not accepting the international transactions to be at Arm's length under the internal Transactional Net Margin Method ( TNMM ). considering that the Appellant has rendered similar services to third parties and that the margin earned by the appellant from its Associated Enterprises are comparable to the margin earned by the Appellant from third parties. 4. The learned CIT(A) has erred in not the considering the decision of the Honourable income Tax Appellate Tribunal in Appellant's own case for the immediately preceding AY wherein the international transactions entered into by the Appellant were accepted to be at arm's length under the internal TNMM. 5. The Learned CIT(A) has erred in ignoring the margin computation under internal TNMM as not reliable without considering the fact that the AO/TPO himself in the Assessment order has computed the margins earned by the Appellant from transactions with Associated Enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant has rendered similar service to third parties, the margin earned by the appellant from its AE is comparable to the margin earned by it from third parties and hence its international transactions should be accepted at arm s length. Further, it is submitted that this Tribunal has also accepted the application of internal TNMM in its case in ay 2010-11 in IT(TP)A No 324(B)/2015 dt 04.11.2015. On such plea, the CIT (A) held , inter alia, that TNMM has been upheld by the ITAT for ays 2007-08,2008-09, 2009-10. Also, it is seen that the Managed Service business which catered primarily to the Non-AE business has been sold w e f 08.02.2011, and therefore, a comparison of internal TNMM is not possible as the comparison is not of the same period in respect of AE and non-AE business with which we are in agreement. Hence, the corresponding grounds of appeal fail. 08. On the TP matters, the AR submitted that the following comparables are to be rejected as they are functionally different, fails RPT filter etc . The gist of his arguments and the cases relied on, are as under: 1. Accentia Technologies Ltd : A. Functionally different : Earns income from Medical Transcriptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Excellence Data Research P. Ltd in ITA No.159/Hyd/2014. Bangalore Bench in Symphony Marketing Solutions India P. Ltd [ITA.1316/Bang/2012) Hyderabad Bench in International Speciality Products (I) P. Ltd [ITA No.218/Hyd/2014. 09. We have considered the rival submissions and gone through relevant materials .The relevant portion of the order from the assesse s case in IT (TP)A no. 1845/Bang/2015 IT(TP)A.1777/Bang/2013 dt 10.11.2015 for ay 2009-10 is extracted as under : Accentia Technologies Ltd : ..................................................................................... .................................................................................... (iii) As regards the functional dissimilarity, we note that Accentia Technologies Ltd is engaged in diversified activity of medical transcription, medical coding, billing, receivable management. Thus it is clear that the said company is engaged in the healthcare activity and providing specific services of medical transcription, medical coding, medical billing etc., We note that these activities are quite different from the service of contact centre provided by the assessee to its AE which is purel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isted at SI No, 2 of the comparables chosen by the TRO. As for as this company is concerned, the objection of the assessee is that this company is not functionally comparable. The assessee is a BPO company that provides market analytics and data management services. To provide market analytics solutions, the assessee gives strategies that impact on client revenue including data based marketing strategies for customer acquisition, devising customer retention strategies and excluding loss mitigation strategies through cutting edge forecasting fools. The data management services provided by the assessee include routine business data reporting and management, website management, market/rig data analysis and top line reporting As far as Acropetal Technologies Ltd. is concerned, this company does the business of export of software services. It is also seen front segmental revenue of this company (Note 15 to the notes on accounts to Annual Report for 07-08) that it derives income from engineering design services and software development services, It is also pertinent to point out that before the TPO, the assessee raised an objection that this company performs different functions and mainl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eadth in terms of economies of scale with diversity and worldwide geographical dispersion of customers. It is submitted that in view of these factors, Infosys BPO Ltd. is functionally dissimilar and different from the assessee in the case on hand. In support of its proposition for excluding this company from the list of comparables, the learned Authorised Representative placed reliance on the decision of the coordinate bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) for Assessment Year 2008-09 wherein this company was excluded from the set of comparables. 6.7.2 Per contra, the learned Departmental Representative supported the orders of the TPO in including this company as a comparable to the assessee. 6.7.3 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement relied on by the assessee. We find that the coordinate bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) for Assessment Year 2008-09 has excluded this company i.e. Infosys BPO Ltd. from the list of comparables to low end ITES / BPO support service providers as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infosys BPO Ltd from the list comparables and the assessee s corresponding appeal grounds are allowed. 12. On ICRA Online Ltd (Seg), the gist of the AR s arguments are as under: A. Functionally different : It is a KPO which is different from BPO as held in First Advantage Offshore P. Ltd (ITA.1096/Bang/2011), Symphony Marketing Solutions India P. Ltd [ITA.1316/Bang/2012) and Capital IQ Information Systems (India) P. Ltd [ITA.1961/Hyd/2011]. B. Rejected by DRP in a y 2010-11 : Rejected by DRP in a y 2010-11 for failing export earning filter of 75% and the current year export earning is 64% only. 13. We have considered the rival submissions and gone through relevant materials. The relevant portion of the order from the case of First Advantage Offshore Services P. Ltd (ITA.1096/Bang/2011) for ay 2007-08 dt 30.4.2013 is extracted as under : 36. As far as 3rd group is concerned, the learned counsel for the assessee submitted that this group consists of- 1) Bodhtree Consulting Ltd. 2) Eclerx Services Ltd. 3) Mold Tek Technologies Ltd, 37. According to the learned counsel for the assessee, these companies are functionally different from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered their rival contentions, we find that the assessee had raised elaborate objections each of the comparables in group 3 before the TPO. The TPO has also reproduced the said objections in his order para 6.5.1 of page 178 of his order. He has rejected the contention of the assessee by holding that every function within BPO sector can be from low end to high end and the activities of the assessee such as accounting, web management , network management are BPO services using technology but these services are not categorized as KPO. He held that a call centre may offer support services like telemarketing to high end services like technical support services, where not only the level of knowledge, skill required would be high, but the technical knowledge as well would be high. According to him, back office transaction process services may be as remarkable and as complicated as insurance/market transaction processing services. He, therefore, rejected the contention of the assessee and treated the BPO as equivalent to KPO services. 40. We have to now consider whether a BPO and a KPO are functionally similar and are comparable to each other. BPO is a subset of outscoring and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount (in lakhs) Amount (in lakhs) Income from exports (A) 79.21 79.21 Refer Page 1038 of Paper book-Vol II Total income (B) 246.75 172.14 Export income (in %) (A/B) 32.10 46.01 We have considered the rival submissions and gone through relevant material. Although, the assessee objected this case before the TPO, the TPO inter alia rejected stating that the assessee accepted this comparable in the earlier year. In the facts and circumstances, this issue is set aside to the TPO who would re-adjudicate it after affording due opportunity to the assessee. The corresponding appeal ground is treated as allowed for statistical purposes. 15. On iGate Global Solutions Ltd , the gist of his arguments are as under: A. Functionally different : Renders both IT and ITES services and provides both onshore and offshore services. As per the segmental information provided by iGate, it is engaged in the business of software development and services, contact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of M/s Tata Elxsi Ltd. which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon ble Supreme Court. 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the directions of the DRP in so far as it relates to the above grounds may be reversed. 5. The assessee craves leave to add, alter, amend and/or delete any of the grounds mentioned above . 9. The learned counsel for the assessee submitted before us that the telecommunication expenses and travel expenses incurred in foreign currency should not be reduced from both ET and TT as the same have not been incurred towards rendering of technical services outside India as contemplated under section 10A of the Act. 9.1 The learned counsel for the assessee submitted that the second limb of the definition of ET under section 10A of the Act, provides for exclusion of expenditure incurred in foreign currency in connection with providing the technical services outside India. The presence of the word the before the term technical service indicates that the assessee needs to provide a particular or specific techni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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