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TMI Blog2018 (8) TMI 1970X X X X Extracts X X X X X X X X Extracts X X X X ..... ly put into bracket of high-end KPO service provider, but at the same time it cannot be said that that it is purely low-end ITES service provider in line of BPO services. KPO services normally carry out high end data analysis and data processing solutions which requires highly qualified and technical human resource and skilled persons to carry out such kind of activities. As compared to the BPO where focus is on processing and call service, the KPO requires specialize knowledge and ability to handle more complex activities thus companies functionally dissimilar with that of assessee need to be deselected from final list. E Clerx Services Ltd. cannot be held as comparable to assessee as functional different. Vishal Information Technologies Ltd has a different business model in as much as its outsourcing charges is 90.57%, which reflects that it has a different business model all together and outsourcing model is different from a company which carries out its work through its own resources as it reflects huge difference in employee cost ratio to turnover. The assets in the form of human resources and other intangible are completely different in such kind of companies. Further this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n discussed in detail by this Tribunal in the case of Cadence Design Systems (India) Ltd. [ 2017 (10) TMI 49 - ITAT DELHI] we direct the TPO to consider the quarterly results and work out the proportionate profit margin. CG-VAK Software Exports Ltd.company has been rejected for inclusion on the ground it has low turnover, which is less than 1 crore - We find that in the case of Chrys Capital Investment Advisors India Pvt. Ltd. Vs. DCIT [ 2015 (4) TMI 949 - DELHI HIGH COURT] after detailed analysis of rule 10B(3), has been reiterated the same principle that if the company is functionally comparable then same cannot be rejected on the basis of turnover. The Hon ble High Court in its very detailed judgment, wherein it was required to answer, whether the comparable can be rejected on the ground that they have high profit margin as compared to the assessee in TP analysis, has also dealt upon the turnover factor in detail and held that if the company is functionally comparable then same cannot be rejected on the basis of turnover. Thus, we hold that the company cannot be held to be incomparable simply on the ground of low turnover, unless it is demonstrated that the assets and risk are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus treated as infructuous. Entitled for deduction u/s 10A on the ground that it has established a new unit - HELD THAT:- Once already deduction u/s 10A on the same unit has been allowed in the earlier years by the Tribunal, therefore, no different view can be taken for the same unit on similar set of facts for denying the deduction in A.Y. 2009-10. Accordingly, we direct the AO to allow deduction u/s 10A in respect to the said unit. Credit of the TDS denied as claimed in the return of income - HELD THAT:- Direct AO to verify the claim of the assessee and give credit of the TPS after verifying and in accordance with law. X X X X Extracts X X X X X X X X Extracts X X X X ..... e, AEIPL is insulated from all key business risks. The functions performed by AEIPL were as under: - a) Input AEIPL receives raw data/raw information ("raw data") in electronic form or in the form of paper-based inputs (documents, vouchers, reports etc.). The raw data is received through mail/courier, fax and electronic transmission from clients' respective locations to AEIPL servers via data links. The raw data comprises unprocessed or semiprocessed accounting, financial and commercial information relating to the business of American Express locations worldwide. The various kinds of raw data received by AEIPL are as follows: • Card member Data: Data pertaining to transactions executed by American Express card members. • American Express Company Data: Data pertaining to day-to-day transactions undertaken within American Express companies which need to be recorded and reported to the respective American Express Companies ('customer country') in different reports and accounting formats. Various types of inputs received for processing and recording in electronic or physical form are as follows: - Invoices: - Vouchers: - Vendor Purchase Orders; and - Emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware, operating/ quality standards etc. developed and owned by the group companies. Thus, assessee is captive service provider, with no significant intangible assets and is a risk mitigated entity. However, its functions ranges from low end services like call centres and BPO services to preparation of ready to use business reports; financial reports like balance sheets, profit & loss accounts, trial balances, etc.; bank account control reports and host of other reports from raw data. If entity like assessee is carrying myriad of such services, then it is very difficult to classify it as a simply low-end service provider company or pure high-end service provider or KPO. The distinction of low-end service and high-end service becomes very thin in such cases. Hence the comparability with the uncontrolled transactions has to be on deeper FAR analysis. 5. Though assessee had entered as many as 26 transactions with its AEs, however the main dispute in this appeal relates to 'export of data processing and office support services' for the value of ₹ 782,63,63,57,677/-; and for purchase of fixed assets ₹ 41,67,500/-. For benchmarking the margin of ITES segment, the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er detailed discussion, further added two more comparables from the reject matrix of the assessee; i.e., E Clerx Services Ltd.; and Microgenetics Systems Ltd. The average margin of the seven comparables chosen by the TPO was arrived at 29.91 which were as under: - S. No. Name OP/OC (%) 1. Aditya Birla Minaacs Worldwide Ltd. 0.50 2. Vishal Information Technology Limited 36.93 3. Cosmic Global Ltd. 48.2 4. Informed Technologies India Ltd. 23.16 5. Eclerx Ltd. 47 6. ICRA Online Ltd. 43.6 7. Microgenetics Systems Limited 9.98 AVG. 29.91 8. The TPO not only denied the working capital adjustment and risk adjustment, etc., but further tinkered with the calculation of operating margin of the assessee holding that, sum of ₹ 1,53,40,901/- which has been termed as reimbursement of expenditure is required to be considered for applying mark up and consequently for the purpose of computing the arm's length price. Finally, the adjustment made by the TPO under ITES was as under: - Computation of margin of the tested party: (Rs.) Operating income (excluding reimbursement) 7855449647 Operating Expenditure (excluding reimbursement) 6566523449 Reimbursement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be said to be performing routine ITES services which is evident from the various kind of functions carried out by it. In the profile of the assessee company, it has been stated that it also includes software development; hence it is much more than KPO. American Express Group is into finance business, the data processed by the assessee is far more complex, hence it has rightly been included by the TPO and upheld by the DRP. 12. By way of rejoinder, Ld. Counsel submitted that, there is no software development for export by the assessee at all and there are no highly qualified manpower which is evident not only from the TP study report, but it has been also accepted by the Tribunal in assessee's own case for the assessment year 2007-08. That it is lowend service provider. The earlier agreement also contained similar scope of work and there is no change except for the mark up. 13. We have heard the rival submissions and also perused the relevant finding given in the impugned orders as well as material referred to before us. The functions carried out by the assessee for the export of data process and back of its support services has already been highlighted above, which is, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplex activities. Now if we compare E Clerx Services with the assessee, we find that first of all, it is a high end KPO Company which provides data analytics, business knowledge process outsourcing company, re-engineering and automation services. E Clerx Services Ltd. is providing end to end support in trade lifecycle including trade confirmation, settlement, transaction maintenance, risk analysis and reporting and most of its activities relates to settlement etc. Though some of the assessee's activities could be reckoned as slightly more than lower end services provider, but if we compare with E Clerx Service, then functionally it cannot be said to be comparable. On asset side, it is seen that, it has significant intangibles which 7.24% of the total assets, whereas in case of assessee there is none. E Clerx has also outsourced its substantial work to the third parties during the year which in the case of the assessee is only from its own human resources. This is evident from the fact that sum of ₹ 266.56 million has been spent on 'contract services' apart from own employee cost of ₹ 577.31 million. This signifies that substantial part of its services is being outsource ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this company should be excluded from the comparability list. iii) ICRA Online Limited (segment): 16. This company has been included by the TPO as it was engaged in rendering market research and data analysis and services which falls under the category of ITES. Its KPO division provides financial and analytical services and support to the clients in the area of data extraction, aggregation, electronic conversion of financial statements, validation and analysis, accounting and finance research and analytics. The assessee's contention has been that this company is rendering KPO services, therefore, functionally it is not comparable with the assessee. Before us, the Ld. Counsel from the annual report pointed out that this company is rendering KPO services which is different from the activities carried out by the assessee, which is purely low-end service provider. 17. On the other hand Ld. DR, strongly relying upon the order of the authorities below submitted that in so far as functional profile is concerned, ICRA Online carries out almost similar functioning as that of the assessee, because this is also into financial and analytical services accounting and finance etc., and the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile of the assessee as well as ICRA Online, we find that there is not much of functional differences. On deployment of assets and risks assumed again no distinguishing features has been brought on record. Moreover, this company has been selected by the assessee in its T.P study analysis and was not challenged before AO, which goes to prove that on FAR analysis this company is comparable to the assessee. Therefore, this company has rightly been included by the TPO from assessee's list. Accordingly, we hold that the ICRA Online is good comparable company for benchmarking the assessee's margin. 19. The assessee has challenged the following companies for inclusion which has been rejected by the TPO: - iv) Allsec Technologies Limited 20. TPO has rejected this comparable on the ground that it has a diminishing sale for the last three years and it fails filter of 75% of export turn over. Before us, the Ld. Counsel submitted that Allsec Technologies' operating revenue has increased in financial year 200809 from the previous year, hence it cannot be held that it has diminishing revenue trend. Moreover, the export income to service income ratio is 74.45% in the financial year 2008-09, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, Ld. Counsel submitted that the quarterly audited results are available in the public domain and hence proportionate profit margin can be worked out. He further submitted that in A.Y. 2007-08 this company was held to be comparable by the TPO; and moreover this issue now stands covered by the decision of ITAT Delhi Bench in the case of Mercer Consulting (India) vs. CIT (supra) and Cadence Design Systems (India) Pvt. Ltd. ITA No. 2074/Del/2014, wherein they have followed the judgment of Hon'ble Delhi High Court in the case of McKinsey Knowledge Centre India Pvt. Ltd. On the other hand Ld. DR strongly relied upon the order of the authorities below. 23. After considering the aforesaid submissions, we find that this comparable has not been rejected not on the ground of functionality, albeit on the ground that it is following different accounting period. If the quarterly results are available in the public domain wherein the figures between, 1st January, 2009 to 31st March, 2009 are available, then there cannot be any difficulty to work out the proportionate profit margin. This issue has been discussed in detail by this Tribunal in the case of Cadence Design Systems (India) Ltd. (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Mumbai Bench of the Tribunal in ACIT vs. Hapag Lloyd Global Services Ltd. 2013-TH-68-ITATMUM-TP in which it had been held that a company with a different financial year ending cannot be compared. 28. We are unable to agree with the decision of the Transfer Pricing Officer and of the DRP that affirmed it. The view taken by the Tribunal commends itself to us. It is not the financial year per se that is relevant. Even if the financial years of the assessee and of another enterprise are different it would make no difference. If it is possible to determine the value of the transactions during the corresponding period, the purpose of comparables would be served. The question in each case is whether despite the financial years of the assessee and of the other enterprise being different, the financials of the corresponding period of each of them are available. If they are, the Transfer Pricing Officer must refer to the corresponding period of both the entities in determining whether the two are comparable or not for the purpose of determining the ALP. 29. As noted by the Tribunal, the audit accounts of R System International Ltd. for the year ending 31.12.2008 had been given u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd moreover in assessee's own case it has been held to be a good comparable in A.Y.s 2004-05, 2005-06 and 2006-07. 25. After considering the rival submissions and on perusal of the relevant records, we find that this company has been rejected for inclusion on the ground it has low turnover, which is less than ₹ 1 crore. So far as exclusion of this comparable on basis of turnover filter criteria of less than ₹ 1 crore, we find that, first of all, it was a comparable chosen by the assessee and at the time of selection process the assessee as stated that it had not applied any turnover filter for accepting or rejecting the comparables. Once the turnover filter has not been applied at the quantitative level then comparability has to be done on qualitative level based on FAR analysis. If on FAR analysis it is found that there are differences on account of either assets deployed, risk assumed materially affecting the cost or margin then only comparability analysis fails in such cases. Further, under the TNMM, the comparability of an international transaction with an uncontrolled transaction is to be seen with reference to functions performed after taking into assets employed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to be 100%, then how the TPO has held that it fails export turn over and what is the source of information is not borne from the records. Ld. Counsel has drawn our attention to the annual report and pointed out that during the year all its revenues are from export only. Thus, the reason given by the TPO to reject this comparable is contrary to the facts and records; and accordingly, we deem it proper to direct the TPO to examine this aspect of export turnover and if the contention of the assessee is found to be correct then he must include this company as comparable. viii) Fortune Infotech Limited; and ix) Microland Limited:- 28. These comparables were taken up by the assessee for inclusion before the DRP for the first time. However, there is no discussion in the said DRP order. Therefore, we remit these comparables to the file of the TPO to examine the functionality and other parameters for inclusion or exclusion of this comparable. 29. In view of the aforesaid finding with regard to the comparables disputed before us, we direct the TPO to compute the margin and benchmark the same to the assessee's PLI. Accordingly, the issue relating to transfer pricing adjustment on pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and cannot challenge the issue which is not borne out from the impugned order, because it neither can be entertained by way of additional ground or additional plea under the rules. This issue is thus treated as infructuous. 33. The next issue raised by the assessee relates to claim of deduction u/s 10A amounting to ₹ 58,93,05,999/- in respect of AEGSC (STP Unit). Before us Ld. Counsel submitted that this issue has been decided in favour of the assessee in assessee's own case by the Tribunal in the earlier years. On the other hand Ld. DR strongly relied upon the order of the AO. 34. From the perusal of the impugned order as well as the earlier order of the Tribunal, we find that in A.Y. 2003-04, the Tribunal has upheld the order of Ld. CIT(A) allowing the deduction u/s 10A . In A.Y. 2008-09, again in revenue's appeal this Tribunal following the earlier decision of the Tribunal held that assessee was entitled for deduction u/s 10A on the ground that it has established a new unit. Once already deduction u/s 10A on the same unit has been allowed in the earlier years by the Tribunal, therefore, no different view can be taken for the same unit on similar set of facts for denying ..... X X X X Extracts X X X X X X X X Extracts X X X X
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