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TMI Blog2018 (8) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... he STPI. It entered into various international transactions with its AE and for determination of the ALP of such transactions, it adopted TNMM as the most appropriate method for each of the transactions and arrived at the PLI of 8.30% as against the average margin of the comparables at 10.60%. As the PLI fell within +_3% range, the transactions were concluded to be at Arm s Length. 3. Observing that the search process as well as the choice of filters adopted by the assessee are not in conformity with the Transfer Pricing regulations, the TPO rejected the assessee s T.P study and conducted fresh analysis aggregating all the transactions under TNMM. Out of the 7 companies adopted by the assessee as comparables, the TPO accepted only one company i.e. e4e Healthcare Business Services Private Ltd as a comparable to the assessee. Thereafter, he proposed six other companies as comparables. The assessee raised its objections to all the comparables proposed by the TPO. However, the TPO rejected the assessee s objections and finally adopted the following companies as comparables and arrived at the mean margin of 22.30%. i) Acropetal Technologies Ltd (Seg.) ii) Microgenetics Ltd i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,42,12,559 on account of provision of Information Technology enabled Services ('ITeS') by the Appellant to its Associated Enterprises ('AEs'). 2. That on the facts and circumstances of the case and in law, the TPO/AO/DRP erred in rejecting transfer pricing documentation maintained by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 19,62 ('Rules') and undertaking a fresh economic analysis during the course of assessment proceedings and thereby making an adjustment of ₹ 3,42,12,559 to the international transactions. Selection of Incomparable Companies 3. That on the facts and circumstances of the case and in law, the TPO/AO/ DRP erred in confirming acceptance of following companies as comparables as selected by the TPO: a) Capgemini Business services (India) Limited; b) Infosys BPO Limited and c) Hartron Communications Limited (Seg). 4. That on the facts and circumstances of the case, the TPO/AO/ DRP erred in accepting companies disregarding the comparability factors such as brand, giant size, scale of operations, having diversified operations, extra-ordinary events et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricted only to the value of international transactions with the AE. Use of Filters 13. That on facts and circumstances of the case and in law, the TPO/AO/DRP erred in upholding the use of different financial year end filter for rejection of comparable companies while undertaking the comparative analysis. 14. That on facts and circumstances of the case and in law, the TPO/AO/DRP erred in upholding the use of service income filter of 75% to sales for the purpose of selecting comparable companies while undertaking the comparative analysis. 15. That on facts and circumstances of the case and in law, the TPO/AO/DRP erred in not applying upper limit for sales turnover filter. Rejection of use of multiple year data 16. That on facts and circumstances of the case and in law, the TPO/AO/DRP erred in rejecting the use of multiple year data and using data for FY 2012-13 only. Adjustment for risk differences 17. That on the facts and circumstances of the case and in law, the AO/DRP erred in disregarding the risk profile of the Appellant vis-a-vis comparable companies selected by the TPO and not allowing risk adjustment as per the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. The DRP's order with reference to Infosys BPO Ltd., is as under: 2.13 Ground of Objection 13 Infosys BPO Limited ( Infosys or the Company ) has to be rejected based on the presence of the brand thereby warranting adjustments are required to eliminate the impact of brand on profits earned. Since it might not be possible, Infosys is to be rejected as a comparable. Infosys BPO Limited ( Infosys or the Company ) has to be rejected based on the fact that it is an oversized company as compared to the tested party. The Learned TPO erred by not rejecting Infosys as comparable, as exclusion of Infosys as comparable is upheld by Jurisdictional ITAT in assessee own case (ITAT No.255/Hyd/2014 ITA.No.1850/Hyd/2012) for AY 2009-10 and AY 2008-09. It is submitted that the company should be excluded due to the following reasons :- Functional dissimilarity - Niche Areas That Infosys SPO is backed by Infosys Technologies Limited which supports Infosys SPO to offer an integrated IT-BPO delivery model designed for 'one stop shop' solution model which helps managing the entire outsourcing operational chain of IT and process management services. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed diagram of the 13 comparable companies is presented below: The assessee relied on the decision of the Hon'ble I TAT, Hyderabad in assessee's own case for A.Y. 2009-10 in which the Hon'ble ITAT held that 'We are in agreement with the contentions of the comparability on turnover ratio of assessee with this company on the ground that assessee's turnover is about ₹ 15.79 crores, as against turnover of ₹ 1016 crores of the Infosys. We are also of the view that other contentions with regard to the brand value and brand building exercise, having huge asset base, can be considered to arrive at the conclusion that Infosys BPO is functionally not similar to that of assessee. Infosys BPO stands on its own as an exclusive BPO of the Infosys Technologies and in earlier years, generally Infosys BPO is excluded in many of the cases. Considering these aspects, we are of the opinion that even though the profits of the Infosys BPO Ltd. is reasonable and no super profits are earned, because of its big brand value this company has to be excluded on the grounds of functional dissimilarity on FAR Analysis. Therefore, we direct the Assessing Officer/TPO to exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersified than the activities of the assessee and unless and until a suitable adjustment can be made, the said company cannot be taken as a comparable. It has been held in a number of cases that where a comparable is into diversified activities, the same can be taken as a comparable provided the segmental results are available. As seen from Page No.1015 of the Paper Book, segmental results are not available for ITeS services. Therefore, we are of the opinion that Capgemini Business Services is to be excluded from the final list of comparables. 9. As regards Hartron Communications Ltd is concerned, the learned Counsel for the assessee submitted that this company is also functionally dissimilar as it provides multiple services like BPO, LPO, Back Office Software Development, Technical Solutions, Medical Building, etc., and that the segmental information is not available. It was also brought to our notice that the Auditor has clarified about the non-compliance regarding provisions for retirement benefits and impairment of the assets. Further, he submitted that the assessee has taken the objection about this company before the DRP, but the DRP has not discussed the same and has simpl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation about the RPT filter is available in the Annual Report. It is submitted that the said company is also engaged in ITeS services as per its Annual Report and the Company s Website and the RPT data is available in the Annual Report. 13. The learned DR, however, supported the orders of the authorities below. 14. Having regard to the rival contentions and the material on record, we find that from the Annual Report of Ace BPO Services Ltd, at Page Nos. 1318 and 1368 of the paper book, this company is into BPO services and the transactions with related parties are also reported. Therefore, we are of the opinion that this company needs to be considered as a comparable. The AO is directed to verify the information filed by the assessee and if it satisfies the RPT filter, then the same should be considered as a comparable. 15. As regards Caliber Point Business Solutions Ltd (Seg.) is concerned, the learned Counsel for the assessee reiterated the submissions made before the authorities below. However, on going through the material and the Annual Report of the company, we do not find it to be a comparable to the assessee. Therefore, the exclusion of the company from the list of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected this company on the ground that it did appear in the search analysis of the TPO and the DRP has confirmed the same. The learned Counsel for the assessee has drawn our attention to the Annual Report of the company to submit that this company is also a BPO Company and there is only a single segment and hence should be considered as a comparable. 20. As seen from the Paper Book filed by the assessee, the Annual Report of the company is available in the public domain and the assessee had submitted the same during the assessment proceedings. Since Crystal Voxx Ltd is engaged in only segment, BPO, and it also satisfied the other filters adopted by the TPO, we deem it fit and proper to direct the TPO to verify the comparability of this company. Therefore, the matter is remitted to the file of the TPO for fresh analysis. 21. In the result, grounds of appeal Nos. 8 to 11 are treated as partly allowed. 22. As regards Ground No.12, it is settled position that only the international transactions are to be considered for the ALP adjustment and for this purpose, only the operating revenue and operating cost of the international transaction is to be considered. Therefore, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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