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TMI Blog2018 (4) TMI 1850X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that it follows different accounting year - Hon ble Delhi High Court has held in Mckinsey Knowledge Centre India Pvt Ltd. [ 2015 (3) TMI 1226 - DELHI HIGH COURT] that the company cannot be rejected simply because it follows different accounting year and results of adjusted period can be adopted - in the present case, the assessee-company had not discharged the onus of filing the results for adjusted period of the company. In absence of this segmental information, inclusion of this company is not possible. Further, no such plea was made before TPO. Hence, the ground of appeal filed in this regard is rejected. Accentia Technologies Ltd. rejected as functionly dissimilar with that of assessee Accentia Technologies Ltd.not comparable with that of assessee as relying on M/S. TESCO HINDUSTAN SERVICE CENTRE PVT. LTD., [ 2017 (1) TMI 1673 - ITAT BANGALORE] E-clerx Services Ltd., is functionally different as it provides high end data analytics and customized process solutions and is a leading Indian provider of KPO services Infosys BPO Ltd.is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Availing of Marketing services 36,82,862 3. Payment of equipment lease charges 3,39,540 4. Payment of technical support fees 24,02,270 5. Reimbursement Of expnenses 4,02,355 Total 34,35,87,104 The assessee-company sought to justify the consideration received for the international transactions entered with its AE to be at arm s length price [ALP]. The assessee-company had also submitted transfer pricing study report adopting the operating profit to total cost (OP/TC) as profit level indicator for the transfer pricing study. The assessee-company applied Transactional Net Margin Method [TNMM] which was considered to be the most appropriate method for purposes of bench marking the international transactions. The assessee-company s profit margin was computed at 17.31% and the assessee-company claimed that the same was comparable with other companies rendering IT enabled services. For the purpose of transfer pricing study, the assessee- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TD (SEG.) 22.27% 3 E-CLERX SERVICES LTD 55.97% 4 FORTUNE INFOTECH LTD 22.80% 5 ICRA ONLINE LTD(SEG) 43.39% 6 INFORMED TECHNOLOGIES INDIA LTD 26.15% 7 INFOSYS BPO 31.23% 8 COSMIC GLOBAL LTD 14.97% 9 SUNDARAM BUSINESS SERVICES LTD -12.31% 10 JEEVAN SCIENTIFIC TECHNOLOGY LTD.(SEG.) 21.05% AVERAGE 26.86% The TPO computed average profit margin of the comparables finally selected at 26.86% and after giving working capital adjustment of 0.23%, the adjusted arithmetical mean PLI was determined at 26.63%. On the above said basis, the TPO computed the transfer pricing adjustment as follows: Arm's Length Mean Margin on cost 26.86% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th its associated enterprises ( AE ) were not at arm s length; Reference made to the Transfer Pricing Officer 3. erred in referring the Appellant s case to the Learned Transfer Pricing Officer ( TPO ) under Section 92CA(1) of the Act, without satisfying the conditions specified therein; Adjustment in respect of IT enabled services transaction 4. erred in determining the arm s length operating margin in the case of the Assessee to be 26.86% on operating costs for the IT enabled services rendered by the Assessee. Rejection of economic analysis undertaken by the Appellant and using single year data 5. erred in rejecting the benchmarking analysis undertaken by the Appellant for its international transaction of providing IT enabled services under Section 92C of the Act using 3 year weighted average data of comparables and determining the arm s length margin/ price using data only for financial year ( FY ) 2009-10, which was not available to the Appellant at the time of complying with the transfer pricing documentation requirements; Search process adopted by the TPO 6. erred in conducting a fresh comparability analysis at the time of assessment i.e., undertaking s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services and also earns super normal profits; 16. erred in considering Infosys BPO Limited as comparable to the Appellant for benchmarking the international transaction of provision of IT enabled services, disregarding the fact that it is functionally different from the Appellant and has earned super normal profits; Working Capital and Risk adjustment 17. erred in wrongly computing the working capital adjustment without providing any basis, thereby disregarding the working submitted by the Appellant; 18. erred in not allowing the Assessee the benefit of the risk adjustment to account for the difference between the risks assumed by the Assessee and the risks assumed by the comparable companies Benefit of +/- 5% 19. Benefit of +/-5% under proviso to Section 92C(2) of the Act be granted to the Appellant if the adjustment under transfer pricing falls within the range specified therein. Interest under Section 234B of the Act 20. erred in levy of interest of ₹ 7,98,744 under Section 234B of the Act as against ₹ 6,98,532; Initiation of penalty proceedings 21. erred in initiating penalty proceedings under Section 271(1)(c) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the assessee is challenging exclusion of this company on the ground that low turnover cannot be criteria for rejection of this company and in any event the TPO has not applied turnover filter, therefore, this cannot be a ground for exclusion. It is further argued that this company is functionally similar, though it is into both software services as well as BPO. Segmental information is available and reliance in this regard was placed on the following decisions: i. Techbooks International Pvt Ltd in ITA No.240/Del/2015 dated 6 July 2015)[AY 2010-11] x ii. CIT vs Nortel Networks India Pvt Ltd (ITA 115/2015 dated 24 February 2015)(Delhi HC) and iii. CIT v Mckinsey Knowledge Centre India Pvt Ltd in ITA 217/2014 dated 27 March 2015 (Del.HC) 11.3 On the other hand, the ld.CIT(DR) placed reliance on the orders of the lower authorities. 11.4 We heard rival submissions and perused the material on record. It is evident that when the company is functionally similar, the company cannot be rejected on the ground that the company s turnover is less than ₹ 1 crore especially when the companies with high turnover have not been rejected. To the same effect is the Hon ble De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther hand, ld.CIT(DR) supported the orders of the lower authorities. 12.5 We heard rival submissions and perused the material on record. Now, the Hon ble Delhi High Court has held in Mckinsey Knowledge Centre India Pvt Ltd. (supra) that the company cannot be rejected simply because it follows different accounting year and results of adjusted period can be adopted. However, in the present case, the assessee-company had not discharged the onus of filing the results for adjusted period of the company. In absence of this segmental information, inclusion of this company is not possible. Further, no such plea was made before TPO. Hence, the ground of appeal filed in this regard is rejected. 13. Accentia Technologies Ltd. 13.1 This company was selected by the TPO and objected by the assessee-company before the TPO on the ground that it is functionally different as it is engaged in healthcare revenue cycle management services, legal process outsourcing services, provision of software and no segmental information was available. The Hon'ble DRP also confirmed the inclusion. 13.2 Being aggrieved, the assessee-company is before us in the present appeal urging that the Accentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mold Tek Technologies Ltd. We further note that the functional comparability has been examined in detailed by the co-ordinate bench of this Tribunal in the case of Equant Solutions India Pvt. Ltd. Vs. DCIT in IT(TP)A No.1202/Del/2015 as well as in the case of ITO Vs. Interwoven Software Services (India) Pvt. Ltd. in ITA No.461/Bang/2015. Further in the case of Acropetal Technologies Ltd. (Seg.), the co-ordinate bench of this Tribunal in the case of Kodiak Networks (India) Pvt. Ltd. Vs. DCIT in IT(TP)A No.1540/Bang/2012 has considered the functional comparability and found that this company is not comparable with a captive service provider. Accordingly we direct the Assessing Officer/TPO to exclude these companies from set of comparables. Respectfully following the decision of the co-ordinate bench of Tribunal, we direct the AO/TPO to delete Accentia Technologies Ltd. from the list of comparables. 14. Acropetal Technologies Ltd.(Seg) 14.1 This company was selected by the TPO and objected by the assessee-company before the TPO on the ground that it is functionally different. The Hon'ble DRP also confirmed the inclusion. 14.2 Being aggrieved, the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.1202/Del/2015 as well as in the case of ITO Vs. Interwoven Software Services (India) Pvt. Ltd. in ITA No.461/Bang/2015. Further in the case of Acropetal Technologies Ltd. (Seg.), the co-ordinate bench of this Tribunal in the case of Kodiak Networks (India) Pvt. Ltd. Vs. DCIT in IT(TP)A No.1540/Bang/2012 has considered the functional comparability and found that this company is not comparable with a captive service provider. Accordingly we direct the Assessing Officer/TPO to exclude these companies from set of comparables. Respectfully following the decision of the co-ordinate bench of Tribunal, we direct the AO/TPO to delete Acropetal Technologies Ltd.(Seg) from the list of comparables. 15. E-clerx Services Limited 15.1 This company was selected by the TPO and objected by the assessee-company before the TPO on the ground that it is functionally different. The Hon'ble DRP also confirmed the inclusion. 15.2 Being aggrieved, the assessee-company is before us in the present appeal urging that E-clerx Services Ltd., is functionally different as it provides high end data analytics and customized process solutions and is a leading Indian provider of KPO services. Our at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. Additionally, it assumes all risks, leading to higher profit whereas SOCIL is a low risk service provider. (iv) Infosys has a turnover of ₹ 1,126.63 crores as against SOCIL s turnover of ₹ 95.19 crores (v) Further, Infosys has been rejected by the DRP in AY 201112 due to high turnover. 16.3 We heard rival submissions and perused the material on record. The issue of comparability of this company was considered by the co-ordinate bench of Tribunal in the case of M/s.Tesco Hindustan Service Centre Pvt. Ltd. in IT(TP)A No.191/Bang/2015 dated 25/01/2017 wherein it has been held: 15.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys BPO Ltd. is not functionally comparable since it has the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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