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TMI Blog2019 (9) TMI 1059X X X X Extracts X X X X X X X X Extracts X X X X ..... ALP, distorted results will arise, there will be change in numerator without corresponding changes in the denominator i.e., bad debts etc., would be taken into account without taking into account the turnover of the earlier years. Further our view is also supported by the fact that ALP is to be determined with reference to the international transaction entered for the year under consideration. However the details of the various heads namely bad debts doubtful debts etc., are not available which are restricted to the year under consideration, as consolidated figures are available on record - ground remanded back to the file of the TPO/AO for granting bad debts, doubtful debts et cetera as permissible expenses, if the same appertaining to be under consideration - IT(TP)A No.779(Bang)/2017 - - - Dated:- 24-7-2019 - B.R.BASKARAN (ACCOUNTANT MEMBER) AND BEENA PILLAI (JUDICIAL MEMBER) Appellant by : Sri P. K. Prasad, Sri. Uma Shankar Gautam, Advocates Revenue by : Miss. Neera Malhotra, CIT ORDER SMT BEENA PILLAI, Present appeal has been filed by assessee against order passed by Ld. ACIT, Circle 7 (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n expenses as operating in nature such as provision for bad debts, provision for doubtful debts, provision for warranties, etc. on the premise that these are not the routine operating costs in determining the operating mark-up of the comparable companies. (corresponding to ground no. 6) That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal. 2. Brief facts of the case are as under: Ld. AO observed that assessee was incorporated in India as a wholly owned subsidiary of VWR International Pte. Ltd, Singapore which is a part of VWR Group, Assessee filed its return of income on 29/11/12 declaring nil income. Subsequently notice under section 143 (2) was issued to assessee, in response to which representative of assessee appeared before Ld. AO and filed requisite details. 2.1 Ld. AO observed that assessee is engaged in trading and distribution of laboratory products and chemicals, strategy sourcing, information technology enabled services. It was observed that, assessee during year had entered into int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E4e Healthcare Business Services Pvt.Ltd. 14% 5 Jindal Intellicom Ltd. 13% 6 Inhouse Productions Ltd. 14% 7 Vishesh Infotechnics Ltd. 15% 2.4 Ld. TPO on application of various filters accepted 2 comparables of assessee and on basis of fresh search included following comparables with average margin of 28.11%: Sl.No. Name of the Case Op/OC 1 Accentia Technologies Ltd. 11.75 2 Universal Print Systems Ltd.(Seg. (BPO) 52.46 3 Informed Technologies Ltd. 6.08 4 Infosys BPO Ltd. 36.30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record and was raised before DRP. The inadvertent error in not including this comparable therefore amounts to bona fides mistake. We are therefore inclined to admit the additional ground. 5. Ground No. 1-5 and additional ground raised are in respect of exclusion of following comparables. Universal Print Systems Ltd (segmental) (BPO) Infosys BPO Ltd TCS E-Serve Ltd BNR Udyog Ltd (segment) (medical transcription) Excel Infoways Ltd (segmental) (IT) (BPO) 5.1 Before dwelling into comparability, it is sine qua non to understand the functions performed, assets owned and risk assumed by assessee under the segment. Functions: In TP study, assessee has been submitted to be providing back-office support services on behalf of the group concerns. It has been submitted that assessee carries out various services through various departments including Accounts Payable, the customer master data team the cross-reference team the backorders, marketing communications and material safety that. It is also been submitted that for the services assessee is compensated on c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of Zyme Solutions Pvt Ltd., vs ACIT reported in (2019) 101 taxman.com 292, wherein this comparable has been excluded by observing as under: 10.4 We heard rival submissions and perused the material on record. The issue of comparability of universal Print Systems Ltd. with that of the assessee-company has been duly considered by TPO after referring to information contained in Annual Report. The relevant findings of the TPO had not been countenanced by learned AR of the assessee. However, the issue of comparability of Universal Print Systems Ltd. has also been considered by the co-ordinate bench of this Tribunal in the case of CGI Information Systems Management Consultants Pvt. Ltd. (supra) wherein it was held as follows: 47. The next submission of the learned counsel for the Assessee was with regard to exclusion of 2 comparable companies from the list of 7 comparable companies that remain after the order of the DRP. The first comparable company sought to be excluded is Universal Print Systems Ltd. This company was chosen as a comparable company by the TPO. In reply to the proposal of the TPO to include this company as a comparable company, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering services of more than 75% of its total revenue, the TPO again held that the pre-press BPO segment's entire income is from services and therefore this objection is not to be accepted. 49. On objections by the Assessee before the DRP, the DRP confirmed the action of the TPO. One of the objection before the DRP was that this company did not figure in the list of companies engaged in ITES. On this objection the DRP held that though this company did not figure in the list of companies in 1TES in the main search of capital line and prowess database but on a segmental search these two companies satisfied the requirement of being considered as companies engaged in providing ITES. Aggrieved by the directions of the DRP, the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee reiterated submissions that were made before the TPO/DRP. In particular it was submitted that the service revenue filter was applied by the TPO himself at the entity level and on such search this company was not regarded as engaged in providing ITES. At this stage the TPO ought to have dropped this company as a comparable company because this filter has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions (c) the specific characteristics of the property transferred or services provide: either transaction; (d) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions (e) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or Implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions: (d)conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and. capital in the markets, overall economic development and level of competition and whether the markets are wholesale retail (3) An uncontrolled transaction shall be comparable to an internatiorial (i) none of the differences, if any, between the transactions being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO.' Respectfully following the decision, we remand this comparable to the file of the TPO/AO for fresh adjudication on the above lines. Respectfully following aforesaid decision, we remand this comparable to file of Ld.AO/TPO, for fresh adjudication, on the basis of directions reproduced hereinabove. Needless to say that proper opportunity shall be granted to assessee as per law. Accordingly we set aside this comparable back to Ld.TPO. b) Infosys BPO Ltd. Assessee objected for inclusion of this comparable primarily on the basis of functional incompatibility and presence of intangibles. It has been submitted that this company owns huge brand and not a fit comparables for comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot comparable, presence of brand and extraordinary event that has taken place during the year on account of acquisition of Australian based company, we are of the considered opinion that Infosys BPO Ltd. should not be included in the list of comparables. We accordingly direct the Assessing Officer/TPO to exclude Infosys BPO Ltd. from the list of comparables for the purpose of computing the average margin. 2. It was also brought to our notice that the Hon ble Delhi High Court in ITA No.260/2018 in the appeal filed by the Revenue against the aforesaid order dismissed the appeal at the admission stage observing that rationale given by the ITAT for exclusion was correct. In view of the aforesaid decision, we direct exclusion of Infosys BPO from the list of comparable companies chosen by the TPO. From above, it is clear that this company is functionally not comparable with captive service provider. Respectfully following the same we direct this company to be excluded from the list of comparables. c) TCS e-Serve Ltd. Ld. AR submitted that this company has been objected by assessee for its functional dissimilarity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Company provides its services from various processing facilities, backed t) a robust and scalable infrastructure network tailored to meet clients' needs. A detailed Business Continuity Plan has also been put in place to ensure the services are provided to the customers without any disruptions. Thus, this company is also stated to be a Knowledge Process Outsourcing and therefore for I'- reasons stated by us while dealing with this issue of comparability of the company Infosys BPO Ltd. shall equally hold good and therefore we direct the AO/TPO to exclude this company from list of comparables Since the appellant company is into low end BPO, it cannot be compared with KPO service provider. 11.4 Respectfully following the decision of the co-ordinate bench of Tribunal, we direct for exclusion this company from the list of comparable . It has been observed that this company is into high-end KPO services and an assessee rendering low end BPO services cannot be compared with it. Further, this company has been excluded due to absence of segmental information. Respectfully following aforesaid decision, we direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered the material on record including the judicial pronouncements cited. From the details on record we observe that while the assessee has contended that the services rendered by this company M/s TCS E-serve Ltd are high end KPO services, it has not brought out as to which of these are the services that would come under technical services. On the other hand, w also notice that that the TPO has held all the services rendered by the assessee to be BPO services with any proper analysis. In this factual matrix of the case, we find that on similar facts, the co-ordinate Bench o ITAT Bangalore in the case of Indegene (P) Ltd., (supra) has remanded the matter of comparability of this company to the file of the TPO for fresh consideration. In view of the factual matrix of the case on hand, as laid out above and following the decision of the co-ordinate Bench in the case of Indegene (P) Ltd. (Supra) which is also rendered on similar facts, we deem it appropriate to remand the matter of the comparability of this company, TCS E-serve Ltd. To the file of the TPO for fresh consideration in the light of out abov observations. Needless to add, the TPO shall afford the assessee adequate opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e list of comparable companies is Exclusion of Excel Info Ltd. The Tribunal had retained this company as a comparable company in its original order. The assessee sought exclusion of this company on the ground that this company was functionally different from the assessee company and the employee cost to the revenue was less than the threshold limit of 25% and that there were peculiar economic circumstances which impacted the profit margin of this company thereby rendering this company as not comparable company. The Tribunal while adjudicating of exclusion of this company in paragraph 14.3 of its order held that on application of employee cost filter that the Assessee has failed to show as to how the findings of the TPO and DRP are not correct. 2. The assessee has pointed out certain facts with regard to employee cost and diminishing revenue of this company which takes it out of the comparability and these aspects have not been considered by the Tribunal in its order. On the above objections in the MA, the Tribunal held as follows:- 8. We have examined the contents in the misc. petition and we find that there has been omission to consider the applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y segment. We therefore. find merit in the argument of the Id. counsel for the assessee that the information provided as per section 133(6) by Excel Infoways Ltd. is unreliable and should not be used to compute employ ee cost for ITES segment. The Delhi Bench of the Tribunal in the case of Motorola Solutions India (P.) Ltd. v. Assts. CIT[2014] 48 taxmann.com 24842015] 152 ITD 158 (Delhi) has held that a company should be rejected as comparable in case there is contradiction in the facts or data sourced from annual report and as per the information gathered u/s. 133(6). In view of above discussion, we hold that Excel Infoways Ltd. cannot be considered as comparable and should be excluded from the list of comparables. We hold and direct accordingly . From the above observation by coordinate bench, objection raised by Ld.CIT DR stands clarified, as this company for year under consideration made a statement under 133 (6) regarding allocating entire employee cost to IT-BPO segment, with no allocation to other segment, which amounts to almost 49% of its total revenue during the year under consideration. At this stage, we clarify that, we are not inclined to express our opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining ALP, distorted results will arise, there will be change in numerator without corresponding changes in the denominator i.e., bad debts etc., would be taken into account without taking into account the turnover of the earlier years. Further our view is also supported by the fact that ALP is to be determined with reference to the international transaction entered for the year under consideration. However the details of the various heads namely bad debts doubtful debts etc., are not available which are restricted to the year under consideration, as consolidated figures are available on record. In view of the above, ground No. 8 is remanded back to the file of the TPO/AO for granting bad debts, doubtful debts et cetera as permissible expenses, if the same appertaining to be under consideration. 6.3 We are also therefore respectfully following the same direct Ld. AO to compute the provisions claimed in case of comparables by considering those which pertains to the year under consideration. Accordingly this ground raised by assessee stands allowed for statistical purposes. In the result, appeal filed by assessee stands partly allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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