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TMI Blog2019 (10) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... ,310/- as against the original adjustment of Rs. 1,77,38,869/-. 3. Aggrieved with such order of the DRP/Assessing Officer/TPO, the assessee is in appeal before the Tribunal by raising the following grounds:- "That on the facts and circumstances of the case, and in law:- 1. The Ld. AO following the directions of the Ld. TPO/ Hon'ble DRP erred on facts and in law in making an upward adjustment to the income of the appellant by INR 1,28,30,310 holding that the international transactions of the appellant pertaining to provision of Information Technology Enabled Services ('ITeS') does not satisfy the arm's length principle envisaged under the Act and in doing so, have grossly erred in: 1.1. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 1.2. ignoring the functions, risks and asset profile of the appellant provided in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Incometax Rules, 1962 ('the Rules'); 1.3. disregarding the Arm's Length Price ('ALP') as determined by the appellant in the TP documentation maintained by it in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 12.20%, it was explained that the transaction of the assessee with its AE is at arm's length from the perspective of the Indian transfer pricing regulations. 6. However, the TPO rejected the economic analysis submitted by the assessee and undertook a fresh search and proposed a TP adjustment of Rs. 1,74,55,101/- on account of the provision of ITES. The assessee approached the DRP. The DRP directed the correction of margins of certain comparables, however, no relief was granted on the exclusion/inclusion of the comparables. When the assessee filed an appeal before the Tribunal, the Tribunal, vide ITA No.3955/Del/2010, order dated 8th May, 2015, restored the issue to the file of DRP for passing a speaking order and to deal with all the objections raised before it by the assessee. The DRP, in the set aside proceedings, directed the corrections of margin for certain comparables, but, did not accept the contention of the assessee in respect of inclusion/exclusion of comparables. The final set of comparable companies post DRP directions are as under:- S.No. Name of the company OP/TC 1. Allsec Technologies Limited 28.84% 2. City Online Services Limited 0.1% 3. Spanco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which rendered it incomparable with the assessee. Referring to the decision of the Hon'ble High Court in assessee's own case, vide ITA No.894/2015, order dated 23.11.2015, he submitted that the order of the Tribunal has been upheld by the Hon'ble High Court and the appeal filed by the Revenue has been dismissed. Relying on various other decisions as per the synopsis filed, he submitted that Vishal Information Technologies Limited cannot be compared with that of the assessee and, hence, should be excluded from the list of comparables. 9.1. So far as Asit. C. Mehta Financial Services Ltd. (Seg.) is concerned, he submitted that this company is also functionally dissimilar since a perusal of the annual report indicates that the income from operation is derived from portfolio management fees, IT enabled services and software development. Further, no segmental details are available although the comparable is engaged in both IT and IT enabled services. He submitted that Asit C. Mehta Financial Services Ltd. (Seg) has a distinct business model and the total employee cost to revenue from operations is 23.35% whereas in the case of the assessee this percentage is 46.74%. This lowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he list of comparables on the ground that the financials of the company for the assessment year 2006-07 and 2007-08 were not reliable as no separate segmental appeared in the audited financials of the entity. Further, the reliability of the financials was also doubted on account of fraudulent activities committed within the company. Referring to the decision of the Tribunal in the case of ITO vs. CRM Services India Pvt. Ltd., vide ITA No.4068/Del/2009 and 4796/Del/2010, order dated 30th June, 2011, he submitted that the Tribunal in the said decision has held that the business reputation of Rastogi group owning Maple eSolutions Limited and Triton Corp Limited is under serious indictment and, therefore, these companies cannot be taken as comparables. Referring to various other decisions placed in the case law compilation and the synopsis, he submitted that the Maple eSolutions Limited also cannot be considered as a comparable. 11. So far as Triton Corp Limited is concerned, he submitted that this company also should be excluded from the list of comparables on the ground of amalgamation with three companies during the year. Further, the company is in BIFR and is declared a sick comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld. 13. We have considered the rival arguments made by both the sides, perused the orders of the A.O./TPO/DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee, in the instant case, is engaged in the provision of information technology (IT) enabled back office support service in the nature of customized proprietary research and analytic support to Copal group. The assessee in the year under consideration has entered into international transaction to the tune of Rs. 12,02,77,693/- on account of provision of Information Technology Enabled Services. We find the TPO, rejecting the economic analysis submitted by the assessee undertook a fresh search and considered nine comparables with OP/TC of 23.76% and made an upward adjustment of Rs. 1,28,30,310/-. It is the submission of the ld. counsel for the assessee that out of nine comparables so selected by the DR/TPO/A.O., four comparables, namely, Vishal Information Technologies Limited, Maple eSolutions Limited, Triton Corp Limited and Asit C Mehta Financial Services Ltd. (segmental) (Nucleus Netsoft and GIS India Ltd.) should be excluded from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies; the value addition in respect of products and services provided by parties; the business model; and the assets and resources employed........ ................................................................................................ 38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal's expenditure on employment cost during the relevant period was a small fraction of the proportionate cost incurred by the Assessee, apparently, for the reason that most of its work was outsourced to other vendors/service providers. The DRP and the Tribunal erred in brushing aside this vital difference by observing that outsourcing was common in ITeS industry and the same would not have a bearing on profitability. Plainly, a business model where services are rendered by employing own employees and using one's own infrastructure would have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the outsourcing of services by Vishal would have no bearing on the profitability of the said entity." 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s margin and its financial data is not reliable since the promoters were involved in fraud. We find the coordinate Bench of the Tribunal in the case of CRM Services India (P) ltd. (supra) has held that the business reputation of Rastogi group owning Maple eSolutions Ltd. and Triton Corp Limited is under serious indictment and these companies cannot be taken as comparables. The Mumbai Bench of the Tribunal in the case of M/s Deutsche Networking Services Pvt. Ltd. (supra) has held that the financials of the company for assessment years 2006-07 and 2007-08 are not reliable as no separate segmental appeared in the audited financials of the entity Maple eSolutions. Further, the reliability of the financials are doubted on account of fraudulent activities committed. In view of the above discussion and in view of the decision of the coordinate Bench of the Tribunal excluding Maple eSolutions Limited from the list of comparables on account of fraudulent activities committed by the promoters and non-availability of segmental data, we direct the TPO/A.O./DRP to exclude this company from the list of comparables. 18. So far as Triton Corp Limited is concerned, this company, in our opinion, al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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