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TMI Blog2021 (1) TMI 1291X X X X Extracts X X X X X X X X Extracts X X X X ..... No.48/Bang/2016 is an appeal by the assessee. Both these appeals are directed against the final order of assessment dated 18-12-2016 passed by the ITO, Ward -2(1)(3), Bangalore u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (Act) relating to assessment year 2011-12. 2. The Assessee is a wholly owned subsidiary of Softitler Net, Inc. USA. The Assessee is engaged in providing information technology enabled services ("ITES") to its holding company and therefore has to be regarded as an Associated Enterprises ("AEs"). Consequently the transaction of rendering of ITeS by the Assessee to it's AE has to be regarded as an international transaction and the price received by the Assessee has to pass the Arm's Length test as laid down in Sec.92 of the Act. 3. Details of International Transactions in dispute : Particulars Amount in Rs. Provision of ITeS 1 8,24,94,476/- Net margin on cost earned by the Assessee as computed by the TPO in the TP Order: Operating Income Rs. 18,24,94,476/- Operating Cost Rs.16,05,39,322/- Operating Profit (Op. Income -Op. Cost) Rs.2,19,55,154/- Operating/Net margin (OP/OC) 13.68% There is no dispute that the Transaction N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Assessee that following companies were not functionally comparable to the Assessee and directed their exclusion: a. Acropetal Technologies, b. Jeevan Scientific Technology Ltd. c. Mindtree Ltd. (seg.) d. iGate Global Solutions Ltd. e. Cosmic Global Ltd. f. Infosys BPO Ltd. g. e4e Health Care Business Services Pvt. Ltd. 7. The relief given by the DRP was incorporated in the final order of Assessment by the AO. Aggrieved by the final order of assessment, to the extent of relief allowed by the DRP, the revenue has preferred appeal before the Tribunal. The grounds of appeal in the Revenue's appeal are as follows: 1. In the facts and circumstances of the case, DRP has erred in seeking exact comparability while searching for comparable companies of the assessee under TNMM method whereas requirement of law and international jurisprudence require seeking similar comparable companies. 2. The order of the tribunal in rejecting comparable cases by insistence on strict comparability under TNMM defeats the very purpose of the law relating to determination of ALP under income tax act. 3. The DRP has erred while seeking the exact comparability in fact a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ("KPO"), which is not comparable to the Assessee's ITES. In the decision rendered in the case of Swiss Reshared services (I) Pvt.Ltd. (supra) vide paragraph 23 & 24 of the order, the Tribunal held that Acropetal Technologies Ltd., was rendering high end services in the engineering design services which cannot be compared to the low end BPO services rendered by Acropetal Technologies Ltd., and therefore this company was not comparable to the Assessee and the DRP's findings on exclusion of Acropetal is therefore upheld. 11. As far as exclusion of the comparable company Jeevan Scientific Technologies Ltd. ("Jeevan") is concerned, we find that this company was excluded by the DRP for the reasons that (a) the ERP segment of the company is not comparable to the assessee, (b) the BPO segment of the company, although is comparable to the assessee functionally, fails the filter of service income being greater than 75% of total revenue, and (c) the company suffers from huge fluctuations which indicate that certain peculiar circumstances influencing the profit margin of the company exist, for which appropriate adjustments cannot be made to balance the effect. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to it failing the TPO's own filter of having peculiar economic circumstances. In addition, the company owns significant intangibles in its name, which is evident from the balance sheet of the company for the Financial Year 2010-11. We are of the view that the above reasons given by the DRP for excluding this company as a comparable company is right and does not call for any interference. 13. As far as inclusion of Cosmic Global Ltd. in the final list of comparables is concerned, we find that this comparable company was selected by the Assessee in its TP Study and by the TPO and thus included by him in the list of comparables. In the proceedings before the DRP, the Assessee did not object to its inclusion in the list of comparables. Therefore this company is directed to be included in the list of comparable companies. For the very same reason the comparable company e4e Healtchcare Business Services Pvt.Ltd., is also directed to be included in the list of comparable companies. 14. As far as exclusion of Infosys BPO Ltd., and Mindtree Ltd., is concerned, we find that the DRP was of the view that Infosys BPO Ltd., was a giant in the field and had huge brand value and diversified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble companies. 18. As far as the company ICRA Online Ltd., is concerned, the DRP excluded this company for the reason that the details regarding its diverse functions are reported under one segment without segmental details regarding the same being made available. Therefore, the comparability of the company cannot be determined. In any event, this company is functionally dissimilar for the reason that the outsourced services segment of the company is engaged in the provision of high end consultancy services which cannot be compared to the assessee who is into provision of low end IT enabled services which are routine in nature. Further, the company fails the TPO's own filter of export turnover in excess of 75% of total sales as the export turnover of the company amount to only 61.88% of its sales. Therefore, the company cannot be held as a comparable to the assessee and the same is directed to be excluded from the list of comparable companies. 19. No other grounds were pressed for adjudication in Assessee's appeal. 20. The TPO is directed to compute ALP in the SWD services segment, as per the directions contained in this order and after affording opportunity of being heard t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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