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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 ..... s and law while including BNR Udyog Ltd. as a comparable whereas the same should have been excluded for the reason that it fails RPT filter of 25% and that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7 and additional ground 7). 3. The Ld. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including Excel Infoways Ltd. (Segmental) as a comparable whereas the same should have been excluded for the reason that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7) 4. The Ld. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including Infosys BPO Ltd. as a comparable whereas the same should have been excluded for the reason that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7) 5.The IA. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including TCS E-Serve Ltd. as a comparable whereas the same should have been excluded for the reasons of functional dissimilarity (corresponding to original ground 4.7) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges 6,605,232 8 Reimbursement of bank charges 2,318,210 2.3 It was observed that, assessee computed arm's length price of international transaction for back office support services rendered by assessee to its AE being IT enabled services, with OP/TC as PLI. Assessee thus computed its margin at 15.80%. It selected following 7 comparables, with average margin of 11%. Sl. No. Comparable Company Average adjusted Mark-upon total cost 1 Cameo Corporate Services Ltd. 10% 2 Cosmic Global Ltd. 13% 3 Sparsh BPO Service Ltd. 2% 4 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 5 Jindal Intellicom Ltd. -0.05 6 Microgenetic Systems Ltd. 19.61 7 TCSE -Serve Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted 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 cost plus markup basis. Assessee is also held to be providing support services to its AE is in relation to sourcing of laboratory supplies, equipment and instruments from benders in India. It is also held to be providing marketing support services in respect of direct sales undertaken by the AE and distribution services in respect of equipments manufactured by group to third-party customers in India. Assets employed: Assessee utilises computer systems, office equipments et cetera for the purposes of business. And it does not own any non-routine intangibles. Risks assumed: it has been submitted that assessee do not own any significant risk except for foreign exchange risk as compensation for the services rendered is received by assessee in foreign currency which is subjected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emain 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 Assessee vide its letter dated 22.12.2015 had pointed out its objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP TC of this company will be only 51.80%. The Assessee further pointed out (Page 764 of paper book) that the TPO had applied revenue filter of more than 75% being from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.6% of the total revenue from operations of this company as per its annual report. The .Assessee also pointed out that in the Pre-press BPO segment this company was providing integrated print solutions to its customers, which includes scanning, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity 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 to be applied at the entity level and not at the segmental level. The learned DR submitted that if the service revenue filter isapplied at the segmental level there can be no objection by the Assessee. She relied on the order of the DRP/TPQ. 50. The requirements of Rule 10B(1)(2) & (3) of the Rules in the matter of comparability of companies under TNMM needs to be seen. The same reads as follows: "10B. (1) For the purposes, of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely: - (a) to (d). ****** (e) transactional-margin method, by which, (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompared or between the enterprises entering into such transactions are likely materially affect the price or cost charged or paid in, or the profit arising from such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 5.2.There appears to be no bar in the Rules referred to above to considering segmental data under TNMM because the comparison is of "net profit margin realized by the enterprise from an international transaction" with the "net profit realized from a comparable uncontrolled transaction". Therefore comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitled to apply the filters at segmental level. As we have already stated if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore the objection with regard to this company failing the employee cost filter and service revenue filter in our view was rightly rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he exclusion and placed reliance upon orders passed by authorities below. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt Ltd., vs ACIT vide order dated 28/06/19 in ITA (TP) a No. 1661/Bang/2016, wherein this comparable has been excluded by observing as under: '5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case of Baxter India Pvt. Ltd. Vs. ACIT ITA No.6158/Del/2016 for AY 2012-13 in the case of a company rendering ITES such as the Assessee, vide order dated 24.8.2017 Paragraph 23 held that Infosys BPO is not comparable with a company rendering ITES for the following reasons:- "23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Officer/TPO/DRP is that Infosys BPO Ltd. is predominantly into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche areas, unlike the assessee. Further it was also submitted that the Infosys BPQ Ltd. comprises brand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re cannot be accepted to be compared with a captive service provider like assessee. Ld.CIT DR on the contrary opposed its exclusion and placed reliance upon orders passed by authorities below. We have perused submissions advanced by both sides in light of records placed before us. Assessee placed reliance upon following decisions in support of its argument for exclusion of this comparable: * Zyme Solutions Pvt Ltd. vs ACIT (supra) * Baxter India Pvt. Ltd vs ACIT reported in (2017) 85 Taxmann.com * 285 (Delhi-Trib) * PCIT vs BC Management Services Pvt. Ltd. reported in TS-948-HC- 2017 (Del)-TP It is observed that this comparable has been excluded by this Tribunal. Assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt Ltd., vs ACIT reported in (2019) 101 taxman.com 292, by observing as under: "11.3 We have heard rival submissions and perused material on record. The issue of comparability of this company was considered by the co-ordinate bench of Tribunal in the case of XLHealth Corpn. India (P.) Ltd. (supra). The relevant findings of the Tribunal are as under: '. . . . We have heard the rival submissions and perused the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech India (P) Ltd vs DCIT reported in (2018) 97 taxman.com 2 in support. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee is challenging functional dissimilarity of this company with that of assessee as it is into medical transcription. We have our reservation to consider medical transcription services to be one of KPO services. In our considered opinion medical transcription services is basically back-office services provided by graduates who are trained for short period of 6 months to one year. These are short crash courses undertaken by graduates who are trained to understand and speak English. There is no value addition in the services rendered by people in medical transcription. To our understanding, basically these people who carry out medical transcription services are trained to understand language spoken by doctors, outside India to whom medical reports of patience are sent for expert opinion. Medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside this comparable back to Ld.TPO. e)Excel Infoways Ltd. (segmental) This comparable elected by ld. TPO is alleged to be functionally not comparable with assessee, as it is handling business relations and managing customer relationships. It has been submitted by Ld.AR that this comparable fails employee cost filter. 20. Ld.CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech India (P) Ltd vs DCIT reported in (2018) 97 taxman.com 2 in support. 21. We have perused submissions advanced by both sides in light of records placed before us. Annual report of this company is placed at page 795 of paper book (Index for Annual Reports) volume 1. In the Significant Accounting Policies reported at page 830 of paper book, it is observed that these companies operating businesses are organized and managed separately, according to nature of business and services provided with each segment, representing different strategic business unit. Note 15 at page 834 refers to revenues from operations under the head information techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of examining of the employee cost filter and the presence of extraordinary events on warranty exclusion of this company." 3. We have heard the rival submissions on the exclusion of this company on the basis of extraordinary events that occurred during the relevant previous year which had impact on the profit margin of this company and therefore rendering this company from being chosen as a comparable company. The Delhi ITAT in the case of BT e-Serve (India) Ltd. Vs. ITO ITA No.6690/Del/2016 for AY 2012-13 order dated 19.6.2018 considered the comparability of this company and came to the conclusion in paragraph 5.4 of its order that there was abnormal volatility of revenue of this company from 2009-10 to 2014-15 and therefore this company should not be regarded as comparable company. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid company from the list of comparable companies chosen by the TPO. It is observed from order passed by Ld.TPO at page 10 that assessee objected this company that employee cost filter being more than 25% has not been examined by Ld.TPO. It is observed that in decision of coordinate bench of Delhi Tribunal in case of B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that these items cannot be considered as normal expenses as the nature of these being doubtful depends upon various factors. He submitted that assessee is a risk insulated company and therefore such exclusion has to be provided in the case of comparables while computing margin. In support of his contention, Ld.AR placed reliance upon decision of this Tribunal in case of Commscop Connectivity Services India Pvt.Ltd. vs DCIT in ITA (TP)A No. 285/B/2017 for assessment year 2012-13 vide order dated 30/05/19 placed at page 1157 of case law compendium II. 6.1 Ld. DR placed reliance upon the orders of authorities below. 6.2 We have perused submissions advanced by both sides in the light of the records placed before us. Ld.AR contends that Ld.AO while computing margins of the comparables has not included certain provisions. It is observed that this Tribunal in case of Commscop Connectivity Services India Pvt.Ltd. vs DCIT (supra), held as under: "9.2 we have heard the rival contentions and perused the record. Under the scheme of income tax act mentioned in chapter 10 a LP is required to be determined of the tested party by comparing price percentage charged by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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