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TMI Blog2017 (4) TMI 1541X X X X Extracts X X X X X X X X Extracts X X X X ..... AO for calculating disallowance u/s 14A. Thus we set aside this issue to the file of the AO for computing reasonable expenditure incurred in relation to income which does not form part of the total income. TP adjustment - Comparable selection - HELD THAT:- Exclusion of Mold-Tek and Eclerx Services as they are into KPO services and the assessee is providing specialized services and is not simply into BPO services provider as projected by the assessee. The work scope and the agreement of the assessee with its AE clearly provides that the assessee is providing high end technical services to its AE and for that purposes has engaged various technical staffs. Vishal Information Technologies Ltd. And Infosys BPO was into outsourcing, therefore, it cannot be comparable with that of the assessee. Moreover, the business model of the comparable company viz., Vishal Information Technologies Ltd. is different from the assessee as it is getting its work done through outsourcing. Similarly, Tribunal has excluded the Infosys BPO Ltd. from the list of comparables after examining the comparability and size of the Infosys BPO in the judgment refereed herein above. - IT(TP)A No. 987/Bang/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Innovation Centre ( IIC ) division out of its own funds in the cumulative redeemable preference shares of GE India Industrial Private Limited. The Appellant had not incurred any expenditure in earning such dividend income. The fact that the Company has not incurred any expenditure in relation to earning dividend income has also been disclosed in the tax audit report for the year under consideration. The Company at the time of assessment proceedings has made a detailed submission in this regard wherein the Company has submitted to the learned AO that since no expenditure was incurred by the Company in earning the dividend income, no disallowance shall be made by the Company under Section 14A of the Act. The learned AO without recording any reasons of not being satisfied with the explanations offered by the Company and without identifying any proximate cause of any expenditure incurred in connection of earning the exempt income, has arbitrarily applied Rule 8D(2)(iii) of the Rules and made a disallowance of INR 9,70,000/- under Section 14A of the Act. The Appellant further submitted that Rule 8D of the Rules was inserted vide Notification No. S.O. 547(E) dated 24 March 2008. Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to all the facts and circumstances of the case. The change which is brought about by the insertion of sub-sections (2) and (3) into section 14A by the Finance Act of 2006 with effect from 1-4-2007 is that in a situation where the Assessing Officer is not satisfied with the correctness of the claim of the assessee in regard to the expenditure incurred by it in relation to the non-taxable income, the Assessing Officer would have to follow the method which is prescribed by the Rules. The Rules were notified to come into force on 24-3- 2008. It is a trite principle of law that the law which would apply to an assessment year is the law prevailing on the first day of April. Consequently, rule 8D which has been notified on 24-3-2008 would apply with effect from assessment year 2008-09. The rule, consequently cannot have application in respect of assessment year 2002-03 which is the year under consideration in this case. 11. Respectfully following the decision of Godrej and Boyce Mfg. Co. Ltd., (Supra), we set aside this issue to the file of the AO for computing reasonable expenditure incurred in relation to income which does not form part of the total income 12. Ground No.4 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net margin as per TP order 1 Accentia Technologies Limited (seg) 30.61% 2 Bodhtree Consulting Limited (seg) 29.58% 3 Eclerx Services Limited 89.33% 4 HCL Comnet Systems services Limited (seg) 44.99% 5 Informed Technologies India Limited 35.56% 6 Mold Tek Technologies Limited(Seg) 113.49% 7 Vishal Information Techologies Limited 51.19% 8 Infosys BPO Limited 28.78% 9 Wipro Limited (seg) 29.70% 10 Accurate Data Converters 50.68% 11 Aditya Birla Mincas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned AO, the assessee filed objections before the Hon ble Dispute Resolution Panel ( DRP ) on 31 December 2010. The DRP vide direction dated 16 August 2011 has upheld the draft assessment order in entirety. Accordingly, the Learned AO has passed the final assessment order dated 6 September 2011 ( the Order ), in conformity with the directions given by DRP. 13.8 Accordingly, being aggrieved by the Order, the assessee is before us on the above stated TP grounds . 13.9 The Appellant has filed the following modified grounds of appeal to plead rejection of specific companies which are considered as comparable by the TPO and upheld by DRP. 8. The learned TPO / AO has failed to appreciate the fact that the following companies are not functionally comparable to the Appellant, therefore has erred in law and facts in considering them as comparable companies: a) Mold-Tek Technologies Limited; b) eClerx Services Limited; c) Vishal Information Technologies Limited; d) Infosys BPO Limited; e) Accentia Technologies Limited; f) Bodhtree Consulting Limited; e) Accurate Data Converters Private Limited; f) iServices India Private Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1629) M/s Ariba Technologies India Pvt. Ltd. Vs ITO, [IT(TP)A No.441/Bang/2012] dated 02 Feb 2016 (page 1589, 1590) Maersk Global Centres (India) (P) Ltd Vs. ACIT [ITA No.7466/Mum/2012] SB dated 07 Mar 2014; (page 1762 to 1765) 13.12 It was submitted that the profile of Mold-Tek was examined by the coordinate bench and after discussion it was found that the said company is not comparable with the company into ITEs segment. eClerx Services Limited ( eClerx ) 13.13 The assessee has submitted that this company is not comparable with the assessee company as the profile of the company is different. In the written submissions filed by the assessee it is mentioned as under: 6.1.6 Based on the review of the Annual Report of eClerx, the Assessee would like to submit that this company is engaged in providing data process and analytics services which are in the nature of KPO. For the relevant FY, eClerx has employed over 1500 domain specialists working for its clients. eClerx offers industry specialized services for meeting complex client needs, data analytics KPO services in two business verticals - financial services and retail and manufacturing. eClerx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o its AE and for that purposes has engaged various technical staffs in the form of IT Team Leader, Program Manager, Project Manager, Enterprise Architect/Application Architect/Design Architect, Business Analyst/Project Leader, Product Developer/Senior Product Developer, Product Quality Engineer/Senior Product Quality Engineer, Technical Author/Senior Technical Author, Team Lead (Development), Team Lead (QA) and various functions of these persons are provided in detail in the agreements. The kind of services each persons are rendering to the organization shows the scope and profile of the Assessee . In our view, the assessee is providing highly skilled services which is technical in nature with inputs engineering and architect applications, therefore, in our view, the assessee cannot be said to be merely BPO and, therefore, the TPO and DRP were right in treating the Mold-Tek and Eclerx Services Ltd. as functionally comparable with that of the assessee s profile. 16. The judgment relied upon by the ld AR for the assessee was rendered in the case of Societe Generale Global Solution in ITA No.1188 of 2011 dated 22/4/2016 was rendered in the facts of said case and in the said judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and exceed expectations. It is claimed to have in-house software development team, quality control training and trouble shooting facilities. M/s Mold-Tek is also rendering web design and development services with experience in turning them into an effective graphic design representation and creating dynamic and graphic rich web applications from IT specs, design prints etc. Keeping in view this information available in the annual report of Mold-Tek as well on its website, we are of the view that the said company is mainly involved in providing high-end services to its clients involving higher special knowledge and domain expertise in the field and the same cannot be taken as comparable to the assessee company which is mainly involved in providing low-end services. It may be pertinent to note here that the financial year 2007-08 was a unique year for Mold-Tek Technologies Ltd. as the scheme of arrangement involving amalgamation between Tekmen Tool Pvt. Ltd. and Mold-Tek Technologies Ltd. and de-merger between Mold-Tek Technologies Ltd. simultaneously was sanctioned by the Hon'ble AP High Court by 15th July, 2008 with the appointed date for amalgamation and de-merger being 1st Oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices 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 concerns. 83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pvt. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP. 18. The co-ordinate Bench in the matter of Tesco Hindustan Service Centre Pvt. Ltd., in ITA No.1285/Bang/2011 dated 9.12.2016 has examined the above comparables Eclerx and Mold-Tek in paragraph 39-40 and 57 and has h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has contended that this company's function is dissimilar, therefore it should be excluded from the list of comparables. The ld. counsel further contended that in this case the employee cost is 7.6% of sales, therefore this company can also be excluded by applying employee cost filter as the benchmark fixed by the TPO is at 25%. Moreover, it has abnormal growth of 204% in sales over the previous year. Therefore, for these reasons, the company should be excluded from the list of comparables. He also placed reliance upon the order of the Tribunal in the case of Stream International Services (P) Ltd. (supra) in which the Tribunal following the order of the Mumbai Special Bench in the case of Maersk Global Centres (India) (P.) Ltd. (supra), directed the exclusion of this company. The relevant observations of the Tribunal have already been recorded in the foregoing paragraphs while dealing with the comparable Eclerx Services Ltd. Therefore, we find no justification to reproduce the same again. We, therefore, following the order of the Tribunal, direct the AO/TPO to exclude this comparable from the list of final comparables. 19 In view thereof respectfully following the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and implementation. 6.1.14. The relevant extracts from the annual report of Infosys for FY 2006-07 are provided below: Page 6 (Refer Page 913 of the paper book): 6.1.15. In support of the above contentions, the Appellant would like to highlight the following judicial pronouncements: Societe Generale Global Solution Centre Pvt. Ltd.[IT(TP)A No.1188/Bang/2011] dated 22 Apr 2016 (page 1516, 1517) M/s. Pole to Win India Pvt. Ltd. (formerly e4e Tech Support (India) Pvt. Ltd.) Vs DCIT [I.T.(TP) A. No.1053/Bang/2011] (page 1627) M/s Ariba Technologies India Pvt. Ltd. Vs ITO, [IT(TP)A No.441/Bang/2012] (page 1583 to 1588) 6.1.16. In light of the above, the Assessee submits that Infosys BPO should not be considered as comparable 21. The ld DR relied upon the order passed by the authorities below. 22. We have gone through the order passed by the coordinate bench in the matter of Pole to Win India Pvt. Ltd., and other judgment. In our view, the comparability of these companies have been examined by this Tribunal and it was found that Vishal Information Technologies Ltd., was into outsourcing, therefore, it cannot be comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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