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TMI Blog2020 (2) TMI 930X X X X Extracts X X X X X X X X Extracts X X X X ..... ') Functional Profile of the Appellant 2. On the facts and in circumstances of the case and in law, the learned AO / TPO erred and the Hon'ble DRP further erred in not appreciating that the Appellant is mainly a low- end back office support service provider, i.e. a low-end Business Process Outsourcing ('BPO') service provider thereby ignoring the findings of Hon'ble Income Tax Appellate Tribunal ('Tribunal') - Special Bench (I.T.A. No.7466/Mum/2012) in Appellant's own case. 3. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in not considering the observations of the Hon'ble Tribunal-Special Bench (I.T.A. No.7466/Mum/2012) in Appellant's own case wherein it had stated that the principal functions performed by the Appellant should be identified and the same should be compared with the principal functions performed by the comparable companies selected to find out the relatively equal degree of comparability in accordance with Rule 10B(3) of the Income-tax Rules, 1962 ('the Rules'). Incorrect selection of comparables by the learned TPO 4. On the facts and in circumstances of the case and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he comparability analysis. 8. On the facts and in the circumstances of the case and in law, the learned AO / TPO erred and the Hon'ble DRP further erred in not accepting the Appellant's filter of rejecting companies having turnover of less than INR 1 crore and applying additional lower turnover filter of 1/10th times of the Turnover of the Assessee and higher turnover filter of 10 times the turnover of the Assessee, which is unwarranted in the comparability analysis. 9. On the facts and in the circumstances of the case and in law, the learned AO /TPO erred and the Hon'ble DRP further erred in rejecting companies with losses / diminishing revenue, which is unwarranted in the comparability analysis. The learned AO / TPO erred and the Hon'ble DRP further erred in not following the principles laid down by the jurisdictional Mumbai Tribunal in Appellant's own case for AY 2009-10 (I.T.A. No. 2594/Mum/2014), wherein it is principally held that further investigation should be made to ascertain whether losses reflects normal business conditions and the company satisfies the comparability aspects. Erred in using single year data for margin computation 10. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reference to transfer pricing officer (TPO) for computation of arms lengths Price of the said international transaction. The assessee selected Transaction Net Margin Method (TNMM) as most appropriate method to bench mark provision of IT enabled services/data processing/business processing services. The profit level indicator (PLI) selected was operating profit/ total cost (OP/TC). The assessee has shown its margin at 14.52%. The assessee selected itself as tested party. The assessee bench marked its ALP under Transaction Net Margin Method (TNMM),the assessee selected 12 company as comparable and computed the margin in the following manner: Sr.No. Name of the comparable company 1 Allsec Technologies Limited 2 Caliber Point Business Solutions Limited 3 Cameo Corporate Services Ltd. 4 Cosmic Global Limited 5 Datamatics Financial Services Limited 6 E4e Healthcare Business Services Private Ltd. 7 In House Productions Limited 8 Informed Technologies India Limited 9 Microland Limited 10 R Systems International Limited 11 Spanco Limited 12 Sparsh BPO Services Ltd. 3. The margin on comparable based on average of was 4.28% and the assessee's margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aliber Point) is included in final set of comparable and MPS Limited is excluded, the assessee's margin would be within tolerance range and that the assessee would not pressed any other grounds of appeal. The ld. AR further submits that Caliber Point is functionally comparable with assessee. This fact has been accepted by ld. DRP in its direction for A.Y. 2013-14 and 2012-13 as well as by Tribunal for A.Y. 2012-13. The ld. AR of the assessee furnished the copy of direction of DRP for A.Y. 2012-13 & 2013-14 and copy of decision of Tribunal in assessee's own case for A.Y. 2009-10, 2010-11 & 2012-13. The ld. AR further submits that the Hon'ble Bombay High Court in PTC Software (395 ITR 176 Bom.) held that a different year ending cannot be a mere rejection of comparable, which is otherwise functionally comparable. 8. For exclusion of MPS Limited, the ld. AR of the assessee submits that this comparable company is engaged in business of software development and providing technology solution for publishing industry. MPS Limited is professional expertise, having Caliber Professional employee who have undertaken various research and development initiatives to develop end - to- end cloud b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble having different accounting period. We do not find substance in the aforesaid reasoning of the DRP. As could be seen from the material on record as well as while considering similar issue arising in respect of comparability of R. System International Ltd., this company was treated as comparable to the assessee in assessment years 2009- 10, 2010-11 and 2011-12 by the Tribunal in the orders referred to above notwithstanding the fact that it has a different accounting period. That being the case, following the consistent view of the Tribunal, we direct the Assessing Officer to treat this company as a comparable." 11. Considering the decision of Co-ordinate bench, wherein no variation of fact for this year is brought to our notice, therefore, respectfully following the same, we direct the AO to exclude Caliber Point from final set of comparable. 12. MPS Limited. This comparable was included by TPO while making benchmarking. The assessee objected for inclusion of this comparable on the ground that MPS Limited is engaged in business of providing publishing solution, typesetting and data digitization and in wide variety of services including data coding, conversion, indexing, edit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19, while examining the comparability of MPS Limited, with that assessee which provides IT services including database administration and help desk support to various members of the Emerson group, excluded this comparable holding as under; "9.1 Exclusion of MPS Limited We find from the annual report of MPS Ltd., for the year ending 31/03/2014, the said comparable provides end to end print and digital publishing solutions to its partners across the entire value chain from contained provision, enhancement and transformation to delivery and customer support, making it a trusted partner to the biggest publishers in the world. The Director's report under the heading "Management Discussion and Analysis" reflect that MPS Ltd., has developed end to end cloud based publishing platform, MPS Digicore, which addresses the need for an integrated work flow that publishers have started to ask for. As such, MPS Ltd., has a first mover advantage in exploiting the market and establishing it as a premier technology solutions provider for publishers. The same market forces have also created immense opportunities for MPS Digitrak, the production targeting system developed by MPS Ltd., and MPS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll any software based services to its customers. The ld. DRP further observed that software forms part of its intangible assets and it is more of a tool to offer ITeS to customers. 9.3 From the perusal of the annual report for the year ended 31/03/2014 of the said comparable, we find from page 707 of the paper book that the said comparable had incurred outsourcing cost of Rs. 1078.76 Crores which is included under the head "miscellaneous expenses" which goes to prove that it has got a different business model. From the various functions performed by MPS Ltd., we find that the said comparable is predominantly in the business of digital publishing which cannot be treated at par with ITeS which is the case of the assessee in ITeS segment. In this regard, we find that the reliance placed by the ld. AR on the Co-ordinate Bench decision of Bangalore Tribunal in the case of Google (India) (P). Ltd., v. Dy DCIT [2013] 29 taxmann.com 412/55 SOT 489 is well founded wherein it was held as under:- "16. As far as (4) Apex Knowledge Solutions Pvt. Ltd., is concerned, we find that the assessee had taken objections before the TPO that it is functionally different, as it is provides services su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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