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TMI Blog2019 (2) TMI 1976X X X X Extracts X X X X X X X X Extracts X X X X ..... lly different when the companies satisfy all the qualitative and quantitative filters adopted by the TPO. 3. The Ld. CIT (A) erred in fact and in law in not acknowledging that determination of ALP by carrying out comparability analysis of the comparable companies is an art and not exact science as no two companies are exactly the same? 4. Whether the Ld. CIT(A) is correct in fact and law in disregarding the position of law that there could be differences between the enterprises compared under the TNMM method that are not likely to materially affect the price or cost charged or the profits accruing to such enterprises? 5. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the Ld. CIT (A) be reversed and that of the Assessing Officer be restored. 6. The appellant craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of appeal." 3. The ld. AR of assessee submitted that the C.O. filed by the assessee is not pressed and accordingly, the C.O. filed by the assessee is dismissed as not pressed. 4. Regarding the appeal of the revenue, the ld. DR of revenue supporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by the TPO and included in the set of comparables. At the time of hearing, learned AR of the assessee has submitted that the assessee will confine its arguments only with respect to the 4 comparables viz.: (1) Accentia Technologies (2) Comic Global Ltd. (3) Eclerx Services Ltd., and (4) Infosys BPO Ltd. The comparability of each of these companies are dealt with one by one as under: 11.1 Accentia Technologies Ltd. The learned AR of the assessee has submitted that though the TPO has recorded the business profile of the assessee, however, the international transactions of the assessee are carried out only in respect of service of contact centre outsourcing to its AE as per the service agreement. The learned AR of the assessee has referred to Annual report of Accentia Technologies Ltd., and submitted that this company has acquired M/s. Oak Technologies Inc, USA during the year under consideration and therefore, there is an extraordinary event of acquisition of another company. He has thus submitted that in view of the extraordinary event of acquisition, this company cannot be considered as a good comparable of the assessee. Apart from this objection, learned AR of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration. It appears that Accentia Technologies Ltd., has purchased up to 96% of the share holding of M/s. Oak Technologies. If it is only a transaction of purchase of shares of the said company then it may be a case of purchase of ongoing business and may not be a case of merging the same with the business of Accentia Technologies Ltd. In the absence of the relevant fact that the business of the said company has been merged with Accentia Technologies Ltd., it may be a case of acquiring the shares and M/s. Oak Technologies still remains an independent entity and business activity. Therefore, in the absence of complete relevant facts, it cannot be held that the so-called acquisition of M/s. Oak Technologies can be considered as an extraordinary event having impact on the revenue as well as business activity of Accentia Technologies Ltd. Accordingly, this argument of the learned AR of the assessee is rejected for want of complete facts. (iii) As regards the functional dissimilarity, we note that Accentia Technologies Ltd. is engaged in diversified activity of medical transcription, medical coding, billing, receivable management. Thus it is clear that the said company is engaged in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data process solutions to its global clients. The service provided by Eclerx Services Ltd., is in various areas including capital market and therefore, the services are in the nature of consultancy and end to end support through trade centre including trade confirmation, settlement, transaction, maintenance and analytic and reporting. Thus it is apparent from the nature of the activity of this company that it is not providing a simple service of data processing but it is engaged in the activity of providing high-end services involving decision making analysis which requires thought process and evaluation of various facts and factors. Functional comparability of this company with that of simple BPO's service providing company has been examined by the Special Bench in the case of Maersk Global Centres (India) (P.) Ltd. (supra) in paras. 82 & 83 as under: 82. In so far as M/s. eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the direction of the DRP. Thus it is clear that the Special Bench found that this company is not comparable with BPO company which are engaged only in low end services of data processing. Accordingly, we direct the AO/TPO to exclude Eclerx Services Ltd. from the list of comparables for the purposes of determining ALP. 11.3 Infosys BPO Ltd. The learned AR of the assessee has referred to the Annual Report of this company at page 57 of the paper book and submitted that though this company was initially selected by the assessee, however, the assessee has raised objections against this company even before the TPO and further before the DRP. Therefore, this company, if found functionally different, has to be excluded from the list of comparables. The learned AR of the assessee has pointed out that this company is having more than 17000 employees in comparison to only 6 employees of the assessee. Therefore, even on the parameter of the scale and strength of employees, this company cannot be considered as functionally comparable with that of the assessee. Further, he has referred to the Annual Report of the company and submitted that during the year under consideration, there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company." It is clear that there was extraordinary event of amalgamation during the year under consideration. Therefore, in view of the extraordinary development of amalgamation of another company, this company cannot be considered as a good comparable for the assessment year under consideration. Apart from this, we further note that as per the segment reporting in para. 16.2.21 this company is providing business process management services as under: "Segment reporting The company's operations primarily relate to providing business process management services to organizations that outsource their business processes. Accordingly. revenues represented along industry classes comprise the primary basis of segmental information set out in these financial statements. Secondary segmental reporting is performed on the basis of the geographical location of customers. The accounting principles consistently used in the preparation of the financial statements are also consistently applied to record income in individual segments. These are set out in the note on significant accounting policies." Thus it is clear that the revenue earned by this company is from the activity inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this company is in the business of providing service of medical transcription and consultancy services, translations services and accounts BPO. The segmental revenue from the operations are given in schedule 8 to the Profit & Loss account which reveals that major revenue of Rs. 6,99,35,756/- out of total revenue of Rs. 7.37 crores has been earned by this company from the activity of translation services. We further note that the company has debited an expenditure of more than Rs. 3 crore on account of translations charges paid. Thus it is clear that this company is outsourcing its services of translation work which is the main activity of this company yielding major revenue earned during the year. Thus it is manifest from the record that this company is in the entirely different nature of activity and cannot be compared with the activity of providing contact centre of the assessee to its AE. In the case of Lam Research (India) (P.) Ltd. (supra) the co-ordinate bench of this Tribunal had occasion to examine the comparability of this company in para. 34 as under: "34. With respect to Cosmic Global Ltd., Hyderabad bench of ITAT in the case of Capital IQ Information Systems (Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO. Thus it is held that this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment. 13.3 However, we find this case to incomparable on the alternative argument advanced by the Ld. AR to the effect that total revenue of the Accounts BPO segment of Cosmic Global Limited is very low at Rs. 27.76 lacs. We have discussed this aspect above in the context of CG-VAK's case and held that a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at Rs. 86.10 lacs. As the segmental revenue of BPO segment of Cosmic Global Limited at Rs. 27.76 lac is still on much lower side, the reasons given above would fully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded from the list of comparables. In view of the detailed analysis of the coordinate Bench of the Tribunal in the above referred case, in this case also we accept the contentions of assessee and direct the Assessing Officer/TPO to exclude this c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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