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TMI Blog2019 (10) TMI 1439X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Willis Processing Services (India) Pvt. Ltd. [ 2015 (1) TMI 300 - ITAT MUMBAI] has upheld the order of the DRP rejecting Excel Infoways Ltd. as comparable company on the ground that the company has a super normal profit of 203.80% and low employee cost 10.02%. We, therefore, find merit in the submissions of the Id. counsel for the assessee that Excel Infoways Ltd. should be excluded from the list of comparable on account of super normal profit of the said company in the preceding year. Thus we direct the AO/TPO to exclude Excel Infoway Ltd. from the final set of comparable. Considering the fact that we have directed to exclude the Infosys BPO Ltd. and Excel Infoways Ltd., therefore, the AO/TPO is directed to recompute the ALP of IT support services with its AE as per direction/ observation hereinabove. Application u/s 154 - not granting set off of brought forward losses and unabsorbed depreciation against the income of current years - HELD THAT:- AO is directed to decide the application of assessee filed under section 154 in seeking the set off of brought forward business loss and unabsorbed depredation in accordance with law. X X X X Extracts X X X X X X X X Extracts X X X X ..... he Learned AO and the Learned TPO under the directions of the Hon'ble DRP erred in levying interest under Section 2348 and 234C of the Act. 9. On the facts and in circumstances of the case, the Learned AO and the Learned TPO under the directions of the Hon'ble DRP erred in proposing to initiate penalty under Section 271(1)(c) of the Act. The Appellant claims relief on the above grounds and thereby deleting the adjustments made by the Learned AO in the final assessment order. 1. Brief facts of the case are that the assessee-company is a subsidiary of MModol Inc engaged in the business of medical transcription services, Information Technology (IT) services and quality assurance, technology support back office co-ordination, training and consultation. The assesseecompany filed its return of income for Assessment Year 2012-13 on 28.11.2012 declaring total income at ₹ 55,11,390/-. Along with the return of income, the assessee furnished report under Form 3CEB. The assessee selected Transaction Net Margin Method (TNMM) as most appropriate method to bench mark provision of Information Technology & quality Assurance/ support services. The profit level indicator (PLI) sele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re business services 14.59 3 Jindal Intellicon Ltd. 6.08 4 Omega Healthcare mgmnt services Pvt ltd. 13.78 5 Persistent Systems and solution Ltd. 26.94 6 Infosys BPO Ltd. 33.92 7 Zylog Systems Limited 30.68 8 Excel Infoways Ltd. 49.38 Arithmetic Mean 23.27 Margin of assessee 15.02 5. On receipt of report of TPO, the Assessing Officer made upward adjustment/addition of ₹ 5,42,97,825/- in the draft assessment order passed under section 143(3) r.w.s. 144C(1) dated 23.03.2016. The assessee filed its objections before DRP. The DRP after considering the objection of assessee rejected one comparable company selected by TPO i.e. Zylog System Ltd. and upheld the order of DRP on other comparable. The average margin on the basis of final set of comparable was 22.22% and accordingly an addition of ₹ 4,73,88,068/- was made to the total income of assessee on the following set of comparable: Sr.No. Name of the Company Post DRP 1 Cadence design systems India Pvt. Ltd. 10.82 2 e4e healthcare business services 14.59 3 Jindal Intellicon Ltd. 6.08 4 Omega Healthcare mgmnt services Pvt ltd. 13.78 5 Persistent Systems and solution Ltd. 26.94 6 Infos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tre Pvt. Ltd. vs. ACIT [ITA No. 468/Del/2017] b. Cases wherein Bombay High Court held that companies having high turnover should be excluded. i. CIT vs. Pentair Water India (P.) Ltd. [2016] 381 ITR 216 (Bombay). ii. CIT vs. Principal Global Services (P.) Ltd. [2018] 95 taxmann.com 315 (Bombay). iii. Hapag-Lloyd Global Services (P.) Ltd. vs. DCIT [2017] 80 taxmann.com 56 (Mumbai-Trib.) and iv. Hinduja Global Solutions Ltd. vs. DCIT [2017] 78 taxmann.com 199 (Mumbai Trib.). 9. For exclusion of Excel Infoways Ltd., the ld. AR of the assessee submits that it provides IT/BPO services wherein it receives fees from clients for handling the clients customer, managing their work flow process in accordance to their requirement as per agreement and upto their satisfaction and infra activities. Such services cannot be compared with assessee, which is in low end IT/BPO services. The Directors of this comprabloe considered closing of its IT/BPO segment and diversify its business in new area of construction, development of property and real estate. The IT/BPO services of this comparable are employee oriented activity and therefore involved high employee cost. As per annual report of Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal set of comparable. However, on further objection before DRP one of the comparable i.e. Zylog System Ltd., added by TPO was excluded. Before us, the ld. AR of the assessee disputed only the inclusion of 2 additional comparable i.e. Infosys BPO Ltd. and Excel Infoways Ltd. only. 12. Before TPO, the assessee objected to the inclusion of Infosys BPO Ltd. The TPO concluded that this comparable while adding Infosys BPO Ltd. concluded that this company is engaged in similar service to those rendered by assessee. The use of brand name neither signifies any brand value nor does it have any impact on its functionality. Acquisition of company by way of investment does not have any impact on the functionality or its profitability. The DRP confirmed the inclusion of this comparable holding that Infosys BPO Ltd. is a BPO, falls under the definition of ITeS provider as per Safe Harbour Rules. TNMM requires establishing comparability at broad function level. Turnover of this comparable falls under filter fixed in this company is 25 times and cannot be rejected. On the objection of brand value, DRP concluded that unless the assessee demonstrate how brand or intangibles have impacted profitabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. vs. ACIT (supra) while considering the turnover filter and extraordinary event for acquisition of foreign entity excluded Infosys BPO Ltd. by holding as under: "3.6.3 Infosys BPO Ltd. It has been submitted that the operating income of this entity is more than 138 times than that of the assessee and therefore, it could not be termed as good comparable in terms of the decision of Hon'ble Bombay High Court in CIT V/s Pentair Water India (P.) Ltd. [2016 69 taxmann.com 180] as followed by Mumbai Tribunal in Integreon Managed Solutions India Pvt. Ltd. Vs ACIT [2019 101 Taxmann.com 289]. Further reliance has been placed on the decision of Delhi Tribunal in Baxter India Pvt. Ltd. V/s ACIT [2017 85 Taxmann.com 285]. It has further been submitted that there was on extraordinary event in this entity since it acquired an Australian based Company namely M/s Portland Group Pty. Ltd. as noted by Bangalore Tribunal in Mobily Infotech India Pvt. Ltd. Vs DCIT [2018 97 Taxmann.com 2]. Applying the ratio of decision of Hon'ble Bombay High Court in CIT V/s Pentair Water India (P.) Ltd. [supra], in similar manner, we direct for exclusion of this entity. This is further fortified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid factual and legal discussion, this comparable i.e. Infosys BPO Ltd. due to high turnover and extraordinary event of acquisition as well as brand value, is not comparable with the assessee, who is providing medical transcription services, information technology quality assurance in the nature of back office support services to its AE. Therefore, we direct the Assessing Officer/TPO to exclude this comparable. 16. So far as exclusion/inclusion of Excel Infoways Ltd. is concerned, the TPO included this comparable by taking view that assessee ignored the fact that he has adopted IT segment of this comparable. The assessee has computed the employee percentage without excluding the purchase of stock-in-trade, which is for its infra segment and not IT segment. The assessee has not demonstrated how difference in asset profile of the assessee and the comparable impact on comparability. The DRP rejected the objection of assessee by taking view that this company is comparable with assessee as it is engaged in the business of BPO and/or and ITeS provider and development of infrastructure facility. On the employee cost filter, the DRP concluded that out of total salary cost of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices) by assessee to its associated enterprise and for benchmarking of ALP of the international transactions to the said concern ie. Excel Infoways Ltd. which has been finally selected by the DRP, is to be excluded since it is showing fluctuating margins. It is further observed that the operating margin of the company had shown drastic fluctuations ranging from 247.74% in F.Y. 2008-09 to 2% in FY 2014-15. The assessee has pointed out the margins shown by the said concern were as under: Financial Year OP/TC margin 2008-09 247.74% 2009-10 267.31% 2010-11 238 .71%. 2011-12 41.48% 2012-13 75.70% 2013-14 30% 2014-15 2% 19. We find that the Tribunal in assessee's own case in assessment years 2011-12 & 2012-13 vide para 16 & 17 of the order of Tribunal has excluded Excel infoways Ltd., because of its fluctuating margins shown by the said concern. The Tribunal held that the said concern i.e. Excel Infoways Limited which is in the process of closing down its ITES segment and also because of the factum of fluctuating margins, could not be selected as functionally comparable to the assessee. Following the same parity of the reasons, we hold that the said concern i.e. Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14-15 are as under:- ………………….. …………………. 25. From the above, it is clear that above company does not pass the diminishing revenue filter as adopted by the TPO himself since its revenue has decreased consistently from financial years 2009-10 to IT(TP)A No. 2299/Mum/2017 2011-12 ie. including the year under consideration. Further, the above company has super normal profits. We further find the submissions of the assessee that Excel Infoways Ltd. has super normal profits during the current year has not been controverted by the Revenue. We find the Mumbai Bench of the Tribunal the case of DCIT vs. Willis Processing Services (India) Pvt. Ltd. vide ITA No.2152/Mum/2014 has upheld the order of the DRP rejecting Excel Infoways Ltd. as comparable company on the ground that the company has a super normal profit of 203.80% and low employee cost 10.02%. We, therefore, find merit in the submissions of the Id. counsel for the assessee that Excel Infoways Ltd. should be excluded from the list of comparable on account of super normal profit of the said company in the preceding year. 25.1 Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is difference in the functions performed between the assessee company and M/s Excel Infoways Ltd. In view of the above, we agree with the contentions of the assessee that M/s Excel Infoways Ltd cannot be considered as a comparable company in the hands of the assessee." 18. The co-ordinate bench of Delhi Tribunal in BT e-Services (India) (P.) Ltd. vs. ITO (supra) while considering this comparable with the assesseecompany who is providing IT, ITeS, back office support and other related services to its group entity excluded this comparable holding as under: 5.3 Excel Infoways Limited With respect to this company, it has been submitted that this company was also functionally dissimilar as it was engaged in IT enabled BPO services and development of infrastructure facility. It has also been submitted that this company fails the employee cost filter as well as the diminishing revenue filter. We find that Excel Infoways Ltd was directed to be excluded by ITAT Delhi Bench in the case of Baxter India Pvt. Ltd vs. ACIT in ITA ITA 6690/Del/2016 Assessment year 2012-13 6158/Del/2016 which also provided captive IT Enabled Services to its AE. The year under consideration before the ITAT in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the list of comparable on account of super normal profit of the said company in the preceding year." 5.4.1 Respectfully following the order of the co-ordinate Bench, on identical facts, we direct the AO/TPO to exclude Excel Infoways Ltd from the final set of comparables." 19. In view of the aforesaid discussion and following the decisions of coordinate bench on similar set of fact, we direct the AO/TPO to exclude Excel Infoway Ltd. from the final set of comparable. Considering the fact that we have directed to exclude the Infosys BPO Ltd. and Excel Infoways Ltd., therefore, the AO/TPO is directed to recompute the ALP of IT support services with its AE as per direction/ observation hereinabove. In the result, Ground Nos.1 to 6 are allowed. 20. Ground No.7 relates to not granting set off of brought forward losses and unabsorbed depreciation against the income of current years. The ld. AR of the assessee submits that the assessee has filed an application under section 154 before the Assessing Officer, however, the assessee Assessing Officer has not disposed off the application. The ld. AR of the assessee prayed for appropriate direction be given to the Assessing Officer to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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