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TMI Blog2017 (6) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be included. Hence, TPO is directed to exclude it. E-Clerx Services Ltd - nature of business carried on by e- Clerx Services Ltd., it is patent that the same being a KPO company, is quite different from the assessee, providing only IT enabled services to its AE, which fall in the realm of BPO services. Apart from that, it is further observed that this company has significant intangibles which it uses in rendering KPO services, against which the assessee does not have any intangibles. A s such, e-Clerx Services Ltd. cannot be considered as comparable. Igate Global Solutions Ltd - As the functional profile of amalgamating company and amalgamated company are similar the mere fact of amalgamation during the year does not make a company otherwise comparable on FAR as non-comparable. On looking of the functional profile of Igate Global Solution it is found that it is engaged in provision of contract sample services and IT enables services. On the income revenue stream of the assessee is also with respect to ITES services. It is also engaged in BPO activities. In view of this we do not find that the functional profile of this company differs from assessee. In view of this w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparing TP documentation. In view of this, we reject the argument of the assessee for exclusion of this comparable. R Systems Pvt. Ltd - It is held in several decisions that if the assessee can demonstrate with publicly available authentic information for the remaining period and exclusionary period and further produces the tabulated data for the similar accounting year as followed by the assessee then if the FAR analysis of that company is comparable, it may be included. Therefore, it is now the duty of the assessee to satisfy the Assessing Officer/TPO with such information. Hence, we direct the ld Transfer Pricing Officer to verify the information with respect to this comparable in accordance with the law and then decide inclusion or exclusion. Omega Healthcare Ltd - This comparable was selected by the assessee but rejected by the ld Transfer Pricing Officer and ld DRP for the reason that the annual report of the relevant year is not available in the public domain. The ld AR stated that same is available in public domain and further same is also produced before us at page No. 1269 to 1284 of the paper Book. In view of this we direct the ld TPO to verify the annual report an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO/ Ld. DRP erred in modifying the comparable companies set adopted by the Appellant on the basis of additional/ modified quantitative filters selected by him and arbitrary statements which lacked valid and sufficient reasoning 4.1.1 Rejecting companies whose export revenues are less than 75 percent of the total revenues without taking cognizance of the Appellant's submissions 4.1.2 Rejecting companies whose sales turnover is less than INR 5 crores 4.1.3 Rejecting companies with diminishing revenue for the period under consideration instead of being guided by functional comparability. 3. Brief facts of the case is that the assessee is a company incorporated on 17.12.2007 but begun its operation from August 2008. It carries on IT enabled services[ ITes] in the form of research activities according to the terms of its agreement with its AE which is driven by business information, market research and intellectual property research. It carries on precisely three activities and its functional profile, assets employed and risk assume are as under:- a) Business Information : EVS SEZ India carries out business information research ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esearch: The intellectual property research services includes research on patents, drafting of patent applications, prior art search, etc. Essentially, EVS SEZ India offers the following kind of services to its AEs: Patent Assessment: This is concerned with evaluating whether a product can be patented or not. It involves finding out whether a patent exists for a similar product in the global market. Drafting of Patent Applications: The AEs are responsible for end to end patent application filing through patent counsels in the relevant jurisdiction. EVS SEZ India prepares a draft and sends it either to the client or patent attorney associated with AEs, to be filed .Thereafter, lawyers, associated with the AE vet the draft and file it. Intellectual Property Asset Management: EVS SEZ India offers patent to product mapping, IP research and analysis and patent consulting as part of Intellectual Property Research. It assists in maintaining a relevant portfolio of patents, offers consulting in overlap and infringement and helps in locating potential companies that may be interested in licensing a particular invention. Marketing and After Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittings, etc. Intangible Assets 'As EVS SEZ India operates in the research domain, human capital forms its core resource. However, the employees of EVS SEZ India typically only comprise undergraduates, graduates, engineers and MBAs. The business of the Evalueserve group does not result in the development of any form of intellectual property rights. The copyrights relating to the reports, if any are held by the client only. Further, the marketing intangible is owned by the Associated Enterprise - Evalueserve Limited, Bermuda. Accordingly, EVS SEZ India does not own any non-routine intangibles ana does not own trade secrets or undertake research and development activities on its account that would lead to the development of non-routine intangibles. 4.4 Risk Analysis Risks are those business factors that may expose a company to the possibility of loss or damage. In other words, risk is the probability that a particular adverse event may occur during a stated period of time, or may result from a particular challenge. The following section discusses the risk borne by Company vis-a-vis Group Companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o price risk. As the AEs compete in the open market, they are exposed to this risk. Manpower Risk Manpower is one of the most valuable resources employed by an organisation for carrying out its day-to-day operations. The increasing competition in the market place combined with other uncontrolled variables result in exposure to manpower risk. As the ITES industry is characterised by a high level of attrition, EVS SEZ India is exposed to this risk. The AEs are indirectly exposed to this risk for the Indian operations. 4. The assessee has shown international transaction provision of services through back office operations titled it as Research Services provided to its AE, EvalueServe Ltd, Bermuda of ₹ 480319168/- and some other reimbursement of expenses. To benchmark above international transaction the assessee adopted the Transaction Net Margin Method (TNMM) as the most appropriate method and also taking the PLI by OP/OC selected 10 comparables whose arithmetic mean of operating margins was derived at 13.60% and compared with assessee s margin of 20.36% submitted that its international transaction are at Arm s length. The compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealthGroup Information Services P. Ltd. (ITA No. 1038/D/15) (p 201-204 of CLC) 3) Equant Solutions India P. Ltd.(ITA No. 1202/D/2015)(pg.176-180 CLC) 4) Ameriprise India Pvt Ltd. (ITA No. 7014/Del/2014) (pg. 60-62 of CLC) 5) Bechtel India Pvt. Ltd. (ITA No. 1478/Del/2015) (pg. 95-96 of CLC) 6) Techbooks International Pvt. Ltd. (IT/ No. 240/Del/2015 for AY 2010-11) (pq. 119 of CLC) 7) Sun Life India Service Centre P. Ltd. (ITA No. 750/2015) (pg. 2. Eclerx services td.(pg. 734- 37- Vol. 3- Annual Report) 1) Functionally dissimilar (pg. 739, 740, 757, 758)- it is a KPO 2) Unreliable data- the standalone financials include the turnover of the subsidiaries also (pg. 784, 808, 827) 3) Significant intangible assets.-(computer software- pg. 787) ' 4) Insufficient Segmental details 1) Ameriprise India Pvt Ltd. (ITA No. 7014/Del/2014)(pg. 69-70 of CLC) 2) Rampgreen Solutions vs. CIT (ITA No. 102/2015)- 377 ITR 533 (Del) 3 Igat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rations (acquisitions) (pg. 950, 956)- hence fails TPO's own filter of peculiar economic circumstances 01. Delhi High Court- PCIT vs. Amen) India P. Ltd.- ITA No. 461/16- pg. 7 79B CLC 02. Equant Solutions India P. Ltd.(IT/1202/D/2015) (pg. 183-184 of CLC) 03. Techbooks International Pvt. Ltd. No. 240/Del/2015)(pg. 29-30 of CLC 04. Ameriprise India Pvt Ltd. (ITA No. 7014/Del/2014)(pg. 63 of CLC) 05. Sun Life India Service Centre P. L (ITA No. 750/2015) 6 TCS E-Serve lational '9- 1102- - Annual t) 01. Functional dissimilarity (pg. 1058) 02. No segmental data (pg. 1066) 03. Owns significant intangibles 04. Uses the 'TATA' brand- royalty is paid (pg. 1064) 05. Part of TATA group and benefits thereof (pg. 1035) v. 06. Primary client is Citigroup (pg. 10^8) 07. First full-year as step down subsidiary of TCS- which has led to substantial growth-Total income is 3 times higher as compared to last year (from 54 crores to 150 crores). Operating Income hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court (ITA No. 217/2014) in the case of CIT vs. Mckinsey Knowledge Centre India Ltd. has held that different financial year ending cannot be the sole basis of rejection of a comparable, (pg. 145-158 ofCLC) Even otherwise, the following cases have held for the same comparable, that different financial year ending cannot be the sole basis of excluding a comparable, which otherwise passes all the filters and is functionally comparable- 5) Macquarie Global Services Private Limited- ITA No. 6803/DEL/2013 6) Ameriprise India Pvt. Ltd. vs. ACIT- ITA No. 2010/Del/2014 Mercer Consulting India P. Ltd. ITA 966/Del- 2. Omega Healthcare Ltd (pg 1269-1284) Vol 4 Annual Report the TPO/DRP rejected the comparable only on the ground that the annual report is not available in the public domain. However, this is not true. 1) Bechtel India Pvt. Ltd. (ITA No. 1478/Del/2015) (pg. 96-97 of CLC) 7. The ld Departmental Representative vehemently objected the argument of the assessee for exclusion of various comparable which we will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this company is engaged in the business of healthcare cycle management which comprises of medical transcription, coding and billing and collection. The medical transcription business require special skill and also employs medical professional who finally vet the actual transcription. Further medical coding is related to procedure of financial assessment. Medical billing is maintenance of financial accounts on insurance company etc for the purposes of recovery of sums by Doctors. Therefore, medical transcription is a service which requires employment of medical professional also. However, the medical coding the billing may not require higher technical skill. In annual report the company has mentioned that it has only one segment and therefore it does not have segmental results pertaining to medical transcription vis- -vis coding and billing activity. According to us the medical transcription itself cannot be said to be comparable with the functions performed by the assessee. However, the medical coding and billing activities are similar to the functions performed by the assessee. But , in absence of the segmental accounts with respect to medical coding and billing activities t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagement, search engine management, web operations, pricing and customer analytics, product database management and catalog audits. The company is also pursuing a strategy of creating a portfolio of platform attached services, by creating a suite of services that are complementary to industry standard it platforms. A glance at the functional profile of this company divulges that it is basically a Knowledge Process Outsourcing (KPO) company providing data analytics and data process solutions to global clients. This company provides end to end support through trade life cycle including trade confirmations and settlements etc. It also provides sales and marketing support services to leading global manufacturing, retail, travel and leisure companies through its pricing and profitability services. Further this company has also developed it tool and process automation. From the above discussed nature of business carried on by e- Clerx Services Ltd., it is patent that the same being a KPO company, is quite different from the assessee, providing only IT enabled services to its AE, which fall in the realm of BPO services. Apart from that, it is further observed that this company has signif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, web development and hosting services. It is also noted that it has two income segments of services and sales and it does not have the complete segmental information with respect to both the segments of services and sales as fixed assets and services are used inter-changeability. In view of this we find that this company is functionally not comparable as well as it does not have complete segmental information with respect to the sales and service segments. In the result we direct the Transfer Pricing Officer to exclude the above comparable. 19. The assessee has challenged the inclusion of Infosys BPO Ltd. the main reason seeking its exclusion was high brand value, intangibles, benefit of Infosys branch and large scale operation. 20. The ld DR objected to this and relied upon the order of the ld Transfer Pricing Officer submitting that all these arguments of the assessee has been considered by the ld TPO. 21. We have carefully considered the rival contentions and also verified the annual accounts of Infosys BPO Ltd from page No. 943 to 1026, undoubtedly the Infosys BPO is driving leverage from the client of Infosys Technologies Ltd for cross selling t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer and ld DRP. 27. We have carefully considered the rival contentions and also perused the annual report of the company for year ended 31.03.2010. The company is mainly engaged in IT enabled services and business process outsourcing. It is also providing technical services which involve software testing, verification and validation. It also contributes similarly to Tata Brand Equity and for this year the contribution was ₹ 42 crores. Therefore, following the same reasoning given by us for exclusion of TCS eserve International Ltd we also direct the ld TPO to exclude this comparable. 28. The next comparable contested by the assessee is e4e Healthcare Ltd contesting that it is engaged in software development services and owns its own intangibles. The ld Departmental Representative contested relying upon the order of the ld TPO and DRP and submitted that this comparable is assessee s own comparable. 29. We have carefully considered the rival contentions and perused the annual report of the company placed at Page No. 1185 to 1082. However, before analyzing the balance sheet it is very important to note that above comparable was selected by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to satisfy the Assessing Officer/TPO with such information. Hence, we direct the ld Transfer Pricing Officer to verify the information with respect to this comparable in accordance with the law and then decide inclusion or exclusion. 31. The next comparable is Omega Healthcare Ltd, which were selected by the assessee but rejected by the ld Transfer Pricing Officer and ld DRP for the reason that the annual report of the relevant year is not available in the public domain. The ld AR stated that same is available in public domain and further same is also produced before us at page No. 1269 to 1284 of the paper Book. In view of this we direct the ld TPO to verify the annual report and decide the issue about inclusion of this comparable. 32. In this appeal ground Nos. 1 to 6 is on transfer pricing issues, however except the exclusion or inclusion of the comparables no other issues were agitated therefore, other than the issue of comparability which has already been adjudicated by us in earlier paras we reject all other contentions in other grounds of appeal. 33. The ground No. 7 and 8 are with respect to charging of interest as well as initiatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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