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TMI Blog2019 (9) TMI 1677X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal raised by the Appellant are without prejudice to one another. 1. The Ld. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including Universal Print Systems Limited as a comparable whereas the same should have been excluded for the reason that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7) 2. The Ld. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including BNR Udyog Ltd. as a comparable whereas the same should have been excluded for the reason that it fails RPT filter of 25% and that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7 and additional ground 7). 3. The Ld. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred on facts and law while including Excel Infoways Ltd. (Segmental) as a comparable whereas the same should have been excluded for the reason that it is functionally dissimilar to the Appellant. (corresponding to original ground 4.7) 4. The Ld. AO in pursuance of the order of the Ld. TPO and the directions of the Ld. DRP erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Ld. TPO observed that assessee has entered into following international transaction: Sl.No. Particulars Amount (in Rs.) 1 Receipts for back office support services 295,656,798 2 Receipt for sourcing support services 20,224,139 3 Receipt for marketing support services 3,439,517 4 Purchase of traded goods 7,394,219 5 Reimbursement of communication expenses 5,593,104 6 Reimbursement of business promotion expenses 602,936 7 Payment for EDP/Software maintenance charges 6,605,232 8 Reimbursement of bank charges 2,318,210 2.3. It was observed that, assessee computed arm's length price of international transaction for back office support services rendered by assessee to its AE being IT enabled s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd doubtful debts, warranties etc., to be considered as operating expenses which was rejected by DRP. Upon receipt of DRP order, Ld. AO passed final assessment order making addition in the hands of assessee. 4.1. Aggrieved by order of Ld. AO, assessee is in appeal before us now. 4.2. Assessee has also filed additional ground as under: 7. The Ld. AO in pursuance of the order of Ld. TPO and the directions of that the Ld. DRP erred on facts and law while including BNR Udyog Ltd., as a comparable whereas the same should have been excluded for the reason that it is functionally dissimilar to the Appellant. He submitted that it was an inadvertent omission to include this comparable while filing original grounds of appeal. He also submitted that the comparable was alleged before DRP. Placing reliance upon decision of Hon'ble Supreme Court in case of National Thermal Power Company Ltd. reported in 229 ITR 383. Ld. AR submitted that, ground may be admitted as it arises out of the records. Ld. DR though objected to admission of the additional ground, however could not controvert submissions advanced by Ld. AR. It is observed that comparable alleged for exclusion by as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated print solution to its customers and does not provides routine ITEs services like that of assessee. It has been submitted that this company is not a captive service provider like that of assessee and has products sale as well as services sale, which is evident from page 1360 of paper book volume 1 (Index for Annual Reports). Ld. CIT DR placed reliance upon orders of authorities below and submitted that this comparable is functionally comparable with that of assessee. We have heard submissions advanced by both sides in light of record placed before us. On perusal of annual report of this company placed in paper book, we are of considered opinion that this comparable is basically into sale of products and services unlike a captive service provider such as assessee, who works on cost plus basis, providing services only to its AE's. It is also observed that this comparable is basically providing BPO services from its Prepress units. In written submission filed, assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt. Ltd., vs. ACIT reported in (2019) 101 taxman.com 292, wherein this comparable has been excluded by observing as under: 10.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y does not satisfy the definition of ITES as contained in Rule IOTA(e) of the Rules. Since use of information technology is absent .in the various services provided by this company, it cannot be regarded as ITES company. The Assessee also submitted that this company fails the employee cost filter. The employee cost filter requires that the employees cost incurred by the company must be more than 25% of its revenue. 48. The TPO at page-20 of his order has dealt with the above objections by observing as follows: (a) Pre-Press BPO unit provides back office support services. (b) This company has four major segments viz., Repro, Label Printing, Offset Printing and pre-press BPO. The employee cost of pre-press BPO was more than 25% of the revenue from pre-press BPO and therefore the employee cost filter is satisfied in the case of this company. (c) On the service revenue filter viz., the requirement that a comparable company must have revenue from rendering services of more than 75% of its total revenue, the TPO again held that the pre-press BPO segment's entire income is from services and therefore this objection is not to be accepted. 49. On objections by the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii): (v) the net profit margin thus established is then taken into account an arm's length price in relation to the international transaction. (2) For the purposes of sub-rule (1), the comparability of an (a) the specific characteristics of the property transferred or services provide: either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions (c) the specific characteristics of the property transferred or services provide: either transaction; (d) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions (e) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement the pre-press BPO segment. If such adjustment cannot be reasonably or accurately made then this company has to be excluded from the list of comparable companies. The TPO for this purpose can use his powers u/s. 133(6) of the Act to get required details from this company. As far as the argument that this company fails functional comparability, we find that none of the objections raised the Assessee in this regard about lack of information about allied services performed by the prepress BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO.' Respectfully following the decision, we remand this comparable to the file of the TPO/AO for fresh adjudication on the above lines. Respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary of Infosys has an element of brand value associated with it. This can be further confirmed by the presence of brand related expenses incurred by Infosys BPO Ltd. Further, Infosys BPO Ltd. has acquired Australian based company M/s. Portland Group Pty Ltd. during financial year 2011-12. They provide sourcing and category management services in Sydney, Australia. Therefore, this company also failed the TPO's own filter of rejecting companies with peculiar circumstances. In view of the above i.e. functionally not comparable, presence of brand and extraordinary event that has taken place during the year on account of acquisition of Australian based company, we are of the considered opinion that Infosys BPO Ltd. should not be included in the list of comparables. We accordingly direct the Assessing Officer/TPO to exclude Infosys BPO Ltd. from the list of comparables for the purpose of computing the average margin. 2. It was also brought to our notice that the Hon'ble Delhi High Court in ITA No. 260/2018 in the appeal filed by the Revenue against the aforesaid order dismissed the appeal at the admission stage observing that rationale given by the ITAT for exclusion was cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analytics insights (KPO) and support services for both data and voice processes. Your Company is an integral part of the Tata Consultancy Services' (TCS) strategy to build on its 'Full Services Offerings' that offer global customers an integrated portfolio of services ranging from IT services to BPO services. The Company provides its services from various processing facilities, backed to a robust and scalable infrastructure network tailored to meet clients' needs. A detailed Business Continuity Plan has also been put in place to ensure the services are provided to the customers without any disruptions. Thus, this company is also stated to be a Knowledge Process Outsourcing and therefore for I'- reasons stated by us while dealing with this issue of comparability of the company Infosys BPO Ltd. shall equally hold good and therefore we direct the AO/TPO to exclude this company from list of comparables Since the appellant company is into low end BPO, it cannot be compared with KPO service provider. 11.4 Respectfully following the decision of the co-ordinate bench of Tribunal, we direct for exclusion this company from the list of comparable . It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support for same from Indegene (P) Ltd. vs. ACIT reported in (2017) 85 Taxmann.com 60, wherein it has been held as under: 9.3.1. We have heard the rival contentions and perused and carefully considered the material on record including the judicial pronouncements cited. From the details on record we observe that while the assessee has contended that the services rendered by this company M/s. TCS E-serve Ltd. are high end KPO services, it has not brought out as to which of these are the services that would come under technical services. On the other hand, we also notice that that the TPO has held all the services rendered by the assessee to be BPO services with any proper analysis. In this factual matrix of the case, we find that on similar facts, the coordinate Bench of ITAT Bangalore in the case of Indegene (P) Ltd., (supra) has remanded the matter of comparability of this company to the file of the TPO for fresh consideration. In view of the factual matrix of the case on hand, as laid out above and following the decision of the co-ordinate Bench in the case of Indegene (P) Ltd. (Supra) which is also rendered on similar facts, we deem it appropriate to remand the matter of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng/2016, this comparable is excluded by observing as under: The third and last company that is sought to be excluded from the list of comparable companies is Exclusion of Excel Info Ltd. The Tribunal had retained this company as a comparable company in its original order. The assessee sought exclusion of this company on the ground that this company was functionally different from the assessee company and the employee cost to the revenue was less than the threshold limit of 25% and that there were peculiar economic circumstances which impacted the profit margin of this company thereby rendering this company as not comparable company. The Tribunal while adjudicating of exclusion of this company in paragraph 14.3 of its order held that on application of employee cost filter that the Assessee has failed to show as to how the findings of the TPO and DRP are not correct. 2. The assessee has pointed out certain facts with regard to employee cost and diminishing revenue of this company which takes it out of the comparability and these aspects have not been considered by the Tribunal in its order. On the above objections in the MA, the Tribunal held as follows:- 8. We have examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghly impractical that no employee has been hired by Excel for Infra Activity segment. We therefore, find merit in the argument of the Ld. counsel for the assessee that the information provided as per section 133(6) by Excel Infoways Ltd. is unreliable and should not be used to compute employee cost for ITES segment. The Delhi Bench of the Tribunal in the case of Motorola Solutions India (P.) Ltd. v. Assts. CIT [2014] 48 taxmann.com 248 : [2015] 152 ITD 158 (Delhi) has held that a company should be rejected as comparable in case there is contradiction in the facts or data sourced from annual report and as per the information gathered u/s. 133(6). In view of above discussion, we hold that Excel Infoways Ltd. cannot be considered as comparable and should be excluded from the list of comparables. We hold and direct accordingly . From the above observation by coordinate bench, objection raised by Ld. CIT DR stands clarified, as this company for year under consideration made a statement under 133 (6) regarding allocating entire employee cost to IT-BPO segment, with no allocation to other segment, which amounts to almost 49% of its total revenue during the year under consideration. At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning ALP, distorted results will arise, there will be change in numerator without corresponding changes in the denominator i.e., bad debts etc., would be taken into account without taking into account the turnover of the earlier years. Further our view is also supported by the fact that ALP is to be determined with reference to the international transaction entered for the year under consideration. However the details of the various heads namely bad debts doubtful debts etc., are not available which are restricted to the year under consideration, as consolidated figures are available on record. In view of the above, ground No. 8 is remanded back to the file of the TPO/AO for granting bad debts, doubtful debts et cetera as permissible expenses, if the same appertaining to be under consideration. 6.3. We are also therefore respectfully following the same direct Ld. AO to compute the provisions claimed in case of comparables by considering those which pertains to the year under consideration. Accordingly this ground raised by assessee stands allowed for statistical purposes. In the result, appeal filed by assessee stands partly allowed as indicated hereinabove. Order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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