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TMI Blog2018 (8) TMI 1712X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the market. During the year under consideration, the assessee company provided services to its Associated Enterprises (AEs) amounting to ₹ 16,56,08,843/- and to non-associated enterprises amounting to ₹ 61,57,005/-. For benchmarking the international transactions entered into with its Associated Enterprises, the assessee company selected Cost Plus Method (CPM) as the most appropriate method u/s 92C of the Income Tax Act, 1961 (hereinafter called as the Act ). 2.1 The return for the year under consideration was filed declaring a loss of ₹ 47,42,898/-. The case was selected for scrutiny and a reference was also made to the Transfer Pricing Officer (TPO) to determine the Arm s Length Price (ALP), u/s 92CA(3) in respect of international transactions entered into by the Assessee company. Apart from the benchmarking the international transactions under the Cost Plus Method, the assessee company also carried out secondary benchmarking under TNMM. The average profit margin of the company was 6.57% as compared to the average margin of 7.31% which was derived by selecting 4 comparables companies. However, the TPO rejected the Transfer Pricing (TP) approach of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in rejecting comparable companies selected by Appellant Company on the basis of incorrect/inappropriate reasons. 1.7 That on the facts and circumstances of the case and law on the point, the Ld. TPO/Hon ble DRP have erred in rejecting most appropriate method applied by Appellant Company. 1.8 That the Ld. TPO did not follow the directions fo the Hon ble DRP relating to inclusion of misc. income as non- operating income, which is being disputed. 1.9 The appellant craves leave to add to, alter, modify, substantiate, delete and / or to rescind all or any of the grounds of objection on or before the final hearing, if necessity so arises. For Domestic Transactions issue: 2.1 That on the facts and circumstances of the case and law on the point, the Ld. Assessing Officer has erred in making addition of ₹ 3,68,759/- u/s 14A of the Income Tax Act, 1961 2.2 That on the facts and circumstances of the case and law on the point, the Ld. Assessing Officer has erred in erred in making disallowance u/s 14A of the Act without giving clear finding of incurring of expenditure in relation to exempt income and Hon ble DRP has erred in confirming such rejection. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtraordinary activity i.e. sale of subsidiary company by the company during the year under consideration. The Ld. AR submitted that during the Financial Year 2008-09, the company sold one of its business units situated in Bangalore and further during the Financial Year 2009-10, the company sold one of its subsidiary situated in USA which affected the sales drastically. Since, the company has entered into an extraordinary activity during the year it would not be justifiable to take it as a comparable for the determination of the arm s length price. It was also submitted that the turnover of Fortune Infotech Ltd. is abnormally low and, hence, not a suitable comparable company. (iii) I-Gate Global: The Ld. AR submitted that this company was functionally dissimilar to the assessee company as the assessee company is providing data processing services and is having low paid employees and is categorized under Business Process Outsourcing (BPO) sector whereas iGATE provides customized global sourcing solutions to a diverse group of clients. It was further submitted that in addition to a broad range of horizontal services including IT Helpdesk, Finance Accounting, HR Services, Enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee company is providing data processing services and is having low paid employees and is categorized under Business Process Outsourcing service (BPO) sector whereas TCS E-Serve International Ltd. has maintained its leadership position in providing Information Technology enabled Services (ITeS) or Business Process Outsourcing (BPO) (transaction processing) Services to the Banking Financial Services Industry domain (BFSI) and Travel, Tourism and Hospitality (TTH), which are considered as industry segment. It was further submitted that the geographic segments of this company are America, Europe and others. The Ld. AR also submitted that the company is 100% Subsidiary of TCS E- Serve Ltd. With reference to the Annual Report of the company, it was submitted that this company provides similar services as TCS E-Serve Ltd. and is not comparable to the appellant company for the reason of Different Business Model and High Supernormal Profit. (vii) TCS E-Serve Ltd: The Ld. AR submitted that this company is mainly engaged in providing Business Process Outsourcing services to the Banking Financial service Industry and, therefore, it was functionally dissimilar to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral proposition, various filters are required to be adopted in selecting a company as a comparable. This is part of FAR analysis. However, there cannot be rigid rule or percentage fixed in adopting various filters. Generally, a turnover filter is adopted to avoid selection of high end companies (big companies) with that of 'minnows' in the similar line of business. How to adopt the filter depends on each case. Reliance was also placed on the order of ITAT Delhi Bench in the case of Techbooks International Pvt. Ltd. Vs. DCIT reported in (2015) 7 TMI 473 ITAT Delhi, wherein Micro Genetics Systems Ltd. was directed to be included as a comparable. (ii) Suntech Web Services P. Ltd: This comparable was rejected by the TPO on the ground of functional dissimilarity. The Ld. AR submitted that this comparable can neither be rejected on the ground of functional disparity nor by applying the turnover filter. It was submitted that the turnover of the company is ₹ 7,88,55,854/- which is more than ₹ 5 crores and, thus, it cannot be rejected on the basis of turnover. It was also submitted that it is functionally a good comparable and the same was not rebutted by the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese 10 companies and wants them to be excluded from the list of comparables. The assessee is praying for inclusion of three companies viz. Microgenetic Systems Ltd., Suntec Webservices (P) Ltd. and BSI Financial Services inc. It is also seen that Cosmic Global Ltd., which was initially selected by the assessee as a comparable, is now being sought to be excluded. 5.1 We now take up the comparables being prayed for exclusion one by one as under: (i) e4e Healthcare: It has been submitted that this company is functionally dissimilar as this company is mainly engaged in providing healthcare business services, receivables cycle management services and software development for healthcare industry whereas the assessee company is only providing data processing and data entry services. It has also been submitted that the Profit Loss account of this company is not available in the data base. It has been pointed out that the TPO has taken figures from the Directors Report and the profit figure disclosed in the Directors Report is taken as the operating profit. We have gone through the Annual Report of e4e Healthcare and we note that the averment of the Ld. Authorised Representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing specialized services in medical transcription and patient record management. Accordingly, in view of the funcational dissimilarity as noted by the coordinate benches and keeping in mind that the assessee company is only providing data entry and data processing services, we direct exclusion of Fortune Infotec Ltd. from the final list of comparables. (iii) I-Gate Global: It has been submitted that this company is also functionally dissimilar as I-Gate is providing customized global sourcing solutions to a diverse group of clients as well as shared corporate services along with IT Helpdesk, Finance and Accounting, HR services, Enterprise wide Service Desk etc. whereas assessee company is providing only data processing services. We have gone through the annual report to the company I-Gate Global and we find that this company, apart from providing Customized Global Solutions and Shared Corporate services, is also providing CIS BPO services for the Insurance, Financial Services, Telecom, Life Sciences. In addition, this company is also offering offshoring services of the entire Benefits Administration Lifecycle. Thus, it is very much evident that this company is not a good co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was directed to be excluded as a comparable by the ITAT Delhi Bench in the case of Bechtel India (P) Ltd. vs. DCIT in assessment year 2010-11 and reported in 2016 taxmann.com 6 (Delhi Trib.). The ITAT Delhi bench directed the exclusion of this company from the set of comparables on the ground that this company was involved in provision of off shoring Healthcare business services like medical coding, billing, accounts receivable management, claims processing, and healthcare revenue management etc. and was, thus, functioning dissimilar to a company providing engineering design and related services. On similar reasoning and duly noting the fact that the functional dissimilarity between the assesseecompany and Omega Healthcare is undisputedly established, we direct the TPO to exclude this company from the final list of comparables. (vi) TCS E-Serve International Limited : This company has been objected to as a comparable on the ground of having a different business model and having super normal profits. A perusal of the annual report shows that TCS E- Serve International Ltd. provides Information Technology enabled services/Business Processing Outsourcing services to the banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. It is undisputed that the functional profile of the assessee as well as Accentia Technologies Ltd. has remained unchanged. Therefore, in view of this company having been excluded by the ITAT assessee s own case for assessment year 2009-10 and having due regard to the principle of consistency we direct exclusion of this company in the year under consideration also. (ix) Cosmic Global Ltd: It is seen that this comparable has been excluded by the ITAT Delhi Bench in assessee s own case for assessment year 2009-10 in ITA no. 481/Del/2014 on the ground of being functioning different. It is undisputed that the functional profile of the assessee as well as Cosmic Global Ltd. has remained unchanged. Therefore, in view of this company having been excluded by the ITAT assessee s own case for assessment year 2009-10, having due regard to the principle of consistency we direct exclusion of this company in the year under consideration also. (x) Infosys BPO Limited: It is seen that this comparable has been excluded by the ITAT Delhi Bench in assessee s own case for assessment year 2009-10 in ITA no. 481/Del/2014 on the ground of being functioning different. It is undisputed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that this company was sought to be included by the assessee before the ITAT in assessment year 2009-10 also and the ITAT vide order dated 9th June, 2016 in ITA no. 481/Del./2014 had restored the issue to the file of the TPO for due verification and to consider the same afresh for inclusion or exclusion in the final list of comparables based on the determination of functional similarity. Respectfully following the order of the coordinate bench in assessee s own case for assessment year 2009-10, we restore this comparable to the file of the TPO for due verification reconsideration for inclusion or exclusion in the final list of comparables subject to the assessee establishing functional similarity with this company. (iii) BSI Financial Services: This comparable has been rejected by the TPO on the ground that it is an internal comparable of the assessee. It has been submitted by the Ld. Authorised Representative that internal comparables are to be preferred over external comparables for undertaking the benchmarking analysis for determining the Arm s Length Price of the international transactions. A perusal of the order of the TPO shows that the TPO has not assigned any rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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