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TMI Blog2021 (8) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... on which the company was rejected in assessment year 2006-07 are no different in the impugned assessment year. In view of the aforesaid, we exclude this company from the list of comparables. Vishal Information Technologies Ltd be excluded for the reason that instead of performing the work itself, it outsources the work to third party vendors. Wipro Limited (Seg) be excluded on the ground that it has exceptionally high turnover compared to assessee s turnover. eClerx Services Ltd incurred a major part of its expenses towards outsourcing of services, whereas, the assessee is a routine BPO service provider without outsourcing any of its activities. Thus, in our view, this company cannot be comparable to the assessee. Moldtek Technologies Ltd be excluded as this company is providing structural engineering and design services of construction of building. Further, the company has undertaken expansion vigorously. Thus, there is extraordinary growth which could have resulted in abnormal profit margin of 113.49%. Further, the employee cost of the company as a percentage of the total cost works out to meager 8.41% as compared to assessee s employee cost of 48.27%. Thus, these fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - Dated:- 11-8-2021 - SHRI PRAMOD KUMAR (VICE PRESIDENT) AND SHRI SAKTIJIT DEY (JUDICIAL MEMBER) Assessee by : Shri Sunil Deshpande / Shri Sushil Kumar Mishra (DCIT) Revenue by : Shri Jehangir D Mistry / Ms Riddhi Bhatt ORDER Per : Saktijit Dey (JM) : Captioned cross appeals arise out of order dated 27-01-2012 of learned Commissioner of Income Tax (Appeals)-15, Mumbai for the assessment year 2007-08. ITA 2254/Mum/2012 (Assessee s appeal) 2. In grounds 1 to 10 assessee has challenged the addition made on account of transfer pricing adjustment. Though, the assessee has raised various issues concerning the transfer pricing adjustment; however, the dispute before us is mainly with regard to selection/rejection of certain comparables. 3. Shri J. D. Mistry, learned senior counsel appearing for the assessee submitted, if some of the comparables selected by the TPO are excluded, in any case, which are not comparables to the assessee, as held in assessee s own case in other assessment years and even in case of various other assesses, the profit margin shown by the assessee would be within the acceptable range of the average profit margin of the rest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd materials on record, learned Commissioner (Appeals) granted partial relief to the assessee. Still aggrieved, the assessee has filed the present appeal. 5. Opening his argument, learned senior counsel for the assessee submitted, out of the twenty seven comparables finally selected by the TPO, if eleven comparables are excluded, assessee s margin would be within the acceptable range of the arithmetic mean of the rest of the comparables. Proceeding further, he drew our attention to the tabular chart and submitted that Asit C Mehta, Infosys BPO Ltd, Apex Knowledge Solutions Pvt Ltd and Vishal Information Technologies Ltd are not at all comparable to the assessee due to functional dissimilarity and other factors. He submitted, these comparables have been rejected in assessee s own case in earlier as well as subsequent years either by the Tribunal or by the Dispute Resolution Panel (DRP) or even by the TPO himself. Thus, he submitted, these comparables have to be excluded. As regards eClerx Services Ltd, Mold-tek Technologies Ltd, Informed Technologies India Ltd are concerned, they are not comparable to a ITES/BPO service provider, as held in case of various other assessees involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Mum/2012 19. Willis Processing Services (I) P Ltd (TS-49-ITAT-2013(Mum)-TP 6. Strongly relying upon the observations of the TPO and learned Commissioner (Appeals), learned departmental representative submitted, the assessee has cherry-picked the comparables and in the process, has left out many companies which are otherwise comparable to the assessee. He submitted, the TPO has undertaken a thorough analysis and has finally selected comparables to determine the ALP. He submitted, both the TPO and learned Commissioner (Appeals) have provided valid reasons for retaining the comparables challenged by the assessee. Therefore, there is no need to interfere with the decision of learned Commissioner (Appeals). 7. We have considered rival submissions in the light of decisions relied upon and perused materials on record. Asit C Mehta 7.1 The contention of the assessee for excluding this company is, the company is having more than one segment. Whereas, separate segmental data is not available in the public domain. Further, he submitted, the employee cost of the company works out to 22.78% of the total cost as compared to assessee s employee cost of 48.27%. Further, the tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be excluded primarily on the reasoning that the company has very low employee cost since it mostly outsources its activities to third party vendors. We have found that in assessee s own case in assessment year 2005-06 this company was rejected for the reason that it outsources its activities. We have also noticed, the DRP has excluded this company in assessee s own case for the very same reason in assessment years 2006-07 2008-09. In fact, in various other decisions cited before us, this company has been excluded for the reason that instead of performing the work itself, it outsources the work to third party vendors. The facts in the impugned assessment year are more or less identical. In view of the aforesaid, we exclude this company from the list of comparables. Wipro Limited (Seg) 7.6 The assessee has sought exclusion of Wipro Limited (Seg) on the ground that it has exceptionally high turnover compared to assessee s turnover. On perusal of facts on record, we find, as against the turnover of the assessee at 114.12 crores, the turnover of Wipro Limited (Seg) for the year under consideration is ₹ 13,684 crores, almost 120 times of assessee s turnover. Notably, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) 4. iQor India Services Private Ltd vs ITO, Ward 11(4) (supra) 5. Avaya India (P) Ltd (supra) 6. Capital IQ Information Systems Pvt Ltd vs Dy.CIT (Int.Taxation), Hyderabad (supra) 7. Avincon India Pvt Ltd vs Dy.CIT-1(1),Hyderabad (supra) 8. Zavata India Private Limited vs The DCIT, Cir.3(3), Hyderabad (supra) 9. Cognizant Technology Services Pvt Ltd vs ACIT Circle-1(2), Hyderabad (supra) Moldtek Technologies Ltd 7.9 The assessee has sought exclusion of this company because of functional dissimilarity, abnormal profit margin and low employee cost. On perusal of facts and materials on record, we find that this company is providing structural engineering and design services of construction of building. Further, the company has undertaken expansion vigorously. Thus, there is extraordinary growth which could have resulted in abnormal profit margin of 113.49%. Further, the employee cost of the company as a percentage of the total cost works out to meager 8.41% as compared to assessee s employee cost of 48.27%. Thus, these factors, in our view, do not make the company comparable to the assessee. In this regard, we find support from the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir related party transaction (RPT) is substantially high compared to assessee. On perusal of facts on record, we find the aforesaid submission of learned senior counsel acceptable. In fact, both the companies have been rejected due to substantially high RPT by different benches of the Tribunal in following cases:- (1) Stream International Services Pvt Ltd vs The ADIT (International Taxation)-7(2), Mumbai (supra) (2) Willis Processing Service India Pvt Ltd (supra) (3) Avaya India (P) Ltd (supra) (4) Pole to Win India Pvt Ltd vs Dy.CIT, Cir.11(3), Bangalore (supra) 7.13 Further, we find, HCL Comnet Systems India Ltd (Seg) has been rejected by different benches of the Tribunal in case of other assesses for the reason of having a different financial year ending, different business model and super normal profit. Thus, keeping in view various decisions of the Tribunal cited before us, we exclude these two companies from the list of comparables. I Services India Pvt Ltd 7.14 Assessee sought removal of this company due to functional dissimilarity, super normal profit and non availability of contemporaneous data in public domain. On a perusal of facts on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s appeal) 12. Grounds raised by the revenue are as under:- 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the benefit of -5% relief to the assessee, without appreciating the fact that no standard education of 5% to the assessee is envisaged under Section 92C(2) of the Act. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the amended proviso to Section 92(2) is not applicable to the AY 2007-08 as the amendment is made effective from 01-10-2009 even though it is a clarificatory amendment as evidenced by Memorandum to the Finance Bill (2) of 2009. 13. In view of our decision in grounds 1 to 10 in assessee s appeal, being ITA No.2254/Mum/2012 decided in the earlier part of the order, these grounds have become infructuous. 14. Suffice to say, as per settled legal principle, the benefit of (+)/(-) 5% under section 92C(2) cannot be allowed as standard deduction. With the aforesaid observations, these grounds are dismissed. 15. In the result, assessee s appeal is partly allowed; and revenue s appeal is dismissed. Order pronounced on 11/08/2021. - - TaxTMI - TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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