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TMI Blog2018 (4) TMI 1621X X X X Extracts X X X X X X X X Extracts X X X X ..... - SH. AMIT SHUKLA, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For the Appellant : Sh. Ajay Vohra, Sr. Adv.; Sh. Neeraj Jain, Adv.; and Sh. Sahil Sharma, CA For the Respondent : Sh. Sanjay Kumar Yadav, Sr. DR ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 14/01/2015 passed by the Income-tax Officer, Ward- 24(1), New Delhi (in short the Ld. Assessing Officer') in compliance to the direction issued by the Ld. Dispute Resolution Panel (DRP). The grounds raised in the appeal are reproduced as under: 1. That the Assessing Officer erred on facts and in law in completing assessment under section 144C read with section 143(3) of the Income-tax Act, 1961 ( the Act ) at an income of ₹ 474,77,270/- as against income of ₹ 3,78,120/- returned by the appellant. 1.1 That the Assessing Officer/DRP erred on facts and in law denying deduction of ₹ 2,79,46,551/- claimed by the appellant under section 10B of the Act. 1.2 That the Assessing Officer/ DRP erred on facts and in law in holding that the appellant was ineligible to claim deduction under section 10B of the Act on the ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Allsec Technologies Ltd. 2 Linkson International Ltd. 3 Sundaram Business Services Ltd. 4 Axis - IT T Ltd. 5 HDO Technologies Ltd. 6 Firstsource Solutions Ltd. 7 Aditya Birla Minacs Worldwide Ltd. 8 Cameo Corporate Services Ltd. 9 Nucleus Gis ITES Ltd. 10 ICRA Online Ltd. 11 Hinduja Global Solutions Ltd. 12 Saraswatlnfotech Ltd. 13 Datamatics Financial Services Ltd. 2.3 That the DRP/TPO erred on facts and in law in rejecting Datamatics Financial Services Ltd. allegedly holding that the company fails the filter of service income greater than 75% and data for different financial has been considered by the appellant for the purpose of benchmarking analysis. 2.4 That the DRP/TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of comparability laid down under Rule 10B(2) of the Income Tax Rules, 1962, for being operating in different market conditions and level of competition: S.No. Name of the comparable company Turnover (crores) 1. Infosys BPO Limited 1,126 2. TCS E-Serve Limited 1,440 2.11 That the DRP/TPO erred on facts and circumstances of the case in rejecting Fortune Infotech Ltd. allegedly holding that the company is showing diminishing revenue on year on year basis. 2.12 That the DRP/TPO erred on facts and in law in not allowing appropriate risk adjustment to establish comparability on account of the appellant being a low-risk-bearing captive service provider as opposed to the comparable companies who were independent IT enabled service provider. 2.13 That on the facts and in the circumstances of the case and in law, the DRP/TPO erred in rejecting the contention of the appellant regarding risk adjustment, allegedly holding that no evidence has been provided by the appellant to prove that risk has actually been u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its directions dated 24/12/2014 upheld the transfer pricing adjustment as well as disallowance of deduction under section 10B/10A of the Act. The Assessing Officer in compliance to the direction of the Ld. DRP passed final assessment order under section 144C read with section 143(3) of the Act on 14/01/2015. Aggrieved with the said order, the assessee is before the Tribunal raising the grounds is reproduced above. 3. The ground No. 1 of the appeal being general in nature, we are not required to adjudicate upon specifically. 4. The ground Nos. 1.1 to 1.6 relates to disallowance of deduction under section 10B of the Act and alternate claim of deduction under section 10A of the Act. 4.1 At the outset, the Ld. Counsel of the assessee submitted that the Tribunal in the case of the assessee for assessment year 2007-08, has considered the alternative claim of the assessee for allowing deduction under section 10A of the Act and restored the matter to the file of the Assessing Officer for deciding in accordance with the decision of the Hon ble jurisdictional High Court in Regency creations Ltd 353 ITR 326 (Del) and CHT versus Valiant communication Ltd ( ITA 2002/2010). 4.2 The L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the assessee for deduction u/s 10A of the Act by affording an opportunity to the assessee. Accordingly, we set aside the matter to the fine of the AO to consider the case of the assessee u/s 10A of the Act. 4.4 Since in the year under consideration also the assessee has made alternative claim for allowing deduction under section 10A of the Act, we, therefore, respectfully following the above finding of the Tribunal, restore the matter to the file of the Assessing Officer for examining the claim of the assessee for allowing deduction under section 10A of the Act. It is needless to mention that assessee shall be afforded adequate opportunity of being heard. Accordingly, relevant grounds of the appeal are allowed for statistical purposes. 5. The Ground Nos. 2 to 2.13 relate to transfer pricing adjustment of ₹ 1,91,52,194/-. 5.1 The facts in respect of the transfer pricing addition are that the assessee claimed to be engaged in providing research and analyst services to its Associated Enterprises (AEs) by employing a team of professional specialized in delivering high-value customizing research and analysis. The assessee in its transfer pricing study reporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: Particulars Amout INR Operating Cost 152,493,592 Arm s length margin (%) 34.97% Arm s length margin (Rs.) 53,327,009 Arm s length price 205,820,601 Price charged by the assessee 186,668,007 105% of Price charged in international transaction 196,001,407 Difference for which adjustment is proposed to be made 19,152,594 5.3 Before the Ld. DRP, the assessee challenged applying of various filters and rejection of comparables selected by the assessee. The Ld. DRP rejected the contention of the assessee and approved the comparables selected by the Ld. TPO. The Ld. DRP also rejected the claim of the assessee for allowing risk adjustment. 5.4 Before us, the Ld. counsel argued for excluding few comparables from the set of comparables selected by the Ld. TPO/DRP. Before adjudicating exclusion/inclusion of the comparables, we may like to mention the functions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany has won many prestigious accolades, which has strengthen the reputation and goodwill of the company worldwide. 6.1 The Ld. counsel also submitted that during the year under consideration the company acquired MaCanish systems LLC, which provides premium business process outsourcing services to the insurance, retirement and financial service industries and revenue of the company has increased from ₹ 1081.53 crores in preceding financial year to ₹ 1126.63 crores in current financial year. In support of contention of excluding the company from the set of comparables, the Ld. counsel relied on following judicial pronouncement: (i) Delhi bench Tribunal in the case of Ameriprise India (P) Ltd Vs. DCIT (ITA No. 7014/Del/2014) (ii) Hyderabad bench of Tribunal in the case of Hyundai Motors Engineering India Private Limited Vs. ITO (ITA No. 1850/Hyd/2012) (iii) Delhi bench of Tribunal in the case of Equant Solutions India Private Limited Vs. DCIT (ITA No. 1202/Del/2015) (iv) Delhi bench of Tribunal in the case of United Healthcare Information Services Private Limited versus DCIT( ITA No. 1038/Del/2015 (v) Delhi High Court in the case of New River software se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrived at are based on a comparison that the condition in any uncontrolled transaction between an independent enterprises for the purpose of such comparison, economically relevant characteristics must be sufficiently comparable if two parties are to be placed in a similar situation. Learned Counsel as such submitted that it is not open for the appellant to now contend a different criteria to ascertain the comparability. In fact the Tribunal whilst passing the impugned Order has considered the said principles whilst coming to the conclusion that the said three Companies cannot be treated to be comparable to the Respondent-Assessee Company. The turnover is obviously a relevant factor to consider the comparability. 6.4 In the instant case also the turnover of the assessee is merely ₹ 18.67 crores as compared to turnover of ₹ 1126.63 crores of Infosys BPO i.e. the company under comparison. The decision of the Hon ble jurisdictional High Court, being a binding precedent for the Tribunal, respectfully following the finding of the Hon ble Delhi High Court in the case of New River Software Services Private Limited (supra), we direct the Ld. TPO/AO to exclude the Infosys BP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2009-10 is 43.07% as compared to margin of the company in financial year 2008-09 and 2007-08 as 52.50% and 44.34% respectively. Thus, according to the Ld. CIT(DR) there is no impact of amalgamation on the profitability of the company and, therefore, it cannot be a ground for exclusion on the basis of extraordinary event of amalgamation. The Ld. CIT(DR) also opposed the argument of the learned counsel of functional dissimilarity. According to him, the services in the nature of medical transcription, medical coding, billing etc have been classified by the CBDT as in the nature of BPO or ITes. The Ld. CIT(DR) submitted that in medical transcription, billing, coding etc. also data is processed and, thus, the company is functional similar to the data analysis functions of the assessee. According to him, under the TNMM standards of comparability are relatively relaxed and only broad similarity of functions is required. On the issue of non-availability of segment data, the Ld. DR submitted that the company is not engaged in software development and entire revenue is from ITes services and thus it is comparable at entity level. 7.3 We have heard the rival submissions and perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of financial statements of the company, the technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities. According to him, the activity of software testing, verification and validation falls under the functions of software development. There is no bifurcation available in respect of revenue of the company from transaction processing and technical services and therefore in absence of any segmental data, the company cannot be compared at entity level. 8.1 He further submitted that the company exploits the brand TATA and therefore enjoys the goodwill and recognition associated with the said brand leading to higher volume of business and/or premium pricing. 8.2 The learned counsel relied on the decision of the Tribunal in the case of Techbook International Pvt. Ltd Vs. DCIT (ITA No. 240/Del/2015), wherein the company has been excluded on account of unavailability of segmental information in the Annual Report of the company. 8.3 On the contrary, Ld. DR referred to the notes of accounts of the company and submitted that technical service of testing verification and validation of the sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel is that the activities of technical services are software development services. We do not agree with the above contention of the Ld. counsel due to the reason that in the notes to the account, the company has been characterised as information technology enabled services. Further, in our opinion, the technical services of software testing, verification and validation of the software have been carried out at the time of implementation of the software and no independent activity of software development has been carried out by the assessee. The Ld. counsel has not pointed out any expenditure, which has incurred towards software development. In view of the aforesaid facts and circumstances, the company is primarily engaged in IT enabled services only and functionally similar to the assessee. Further, the contention of the Ld. counsel of impact of TATA brand on profitability of the company is also not tenable in view of the facts that no evidence has been brought on record to support this contention. Further the expenditure corresponding to contribution to TATA brand by the company is also very small part (0.43%) of the total operational expenses of the company. Further we may lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been rejected on diminishing revenue. 2. Datamatics financial services omitted:- The company has been rejected by the Ld. TPO on the ground of failure of export sales filter, whereas according to the assessee, company is earning export sales to total sales at 80%. 3. Optimus global services Ltd:- The company has been rejected by the Ld. TPO due to negative net worth, whereas according to the assessee, the company is having positive net worth of ₹ 23,99,14,602/-. 4. Sparsh BPO services Ltd:- The company has been rejected by the Ld. TPO due to negative net worth of the company, whereas according to the assessee the company is having positive net worth of ₹ 18,75,87,253/-. 12.1 The Ld. DR objected for including these companies in the set of comparables and relied on the order of the Ld. TPO. 12.2 We have heard the rival submission of the parties on the issue of including companies in the set of comparables. On perusal of the grounds raised by the assessee challenging the comparables, we do not find mention of Fortune Infotech Ltd. Since no ground has been raised specifically challenging the company for its inclusion, we reject the contention raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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