9911796707
TMI Blog2023 (3) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : Shri. Sumer Singh Meena, CIT(DR)(ITAT), Bengaluru ORDER Per N. V. Vasudevan, Vice President: This appeal by the assessee is directed against the order dated 27.02.2022 of National Faceless Assessment Centre (NFAC), Delhi, (hereinafter referred to as the Assessing Officer, AO in short) passed u/s.143(3) read with Section 144C(13) of the Income Tax Act, 1961 (Act) in relation to Assessment Year 2017-18. 2. The assessee in engaged in the business of provision of Information Technology enabled Services (ITeS), to its wholly owned holding company. In terms of the provisions of Sec.92-A of the Act, the assessee and its wholly owned holding company were Associated Enterprises ( AEs ). In terms of Sec.92B(1) of the Act, the transaction of providing ITeS by the Assessee to it s AE was an international transaction i.e., a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl. No. Name of comparable company Weighted average unadjusted margin 1 Sundaram Business Services Limited 2.08% 2 Jindal Intellicom Limited 7.41% 3 Fuzen Software Pvt. Ltd. 15.93% 4 Microland Limited 17.53% 5 Tech Mahindra Business Services Limited 22.37% 6 Datamatics Business Solutions 22.64% 7 Infosys BPM Services Pvt Ltd 24.37% 8 Vitae International Accounting Services Pvt. Ltd. 27.13% 9 Manipal Digital Systems Pvt. Ltd. 27.41% 10 CES Limited 31.45% 11 Ultramarine Pigment Limited (Segmental) 34.41% 12 S P I Technologies India Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover are as follows: Comparable Turnover in crores Tech Mahindra Business Services Limited 707.60 Microland Limited 530.55 Infosys BPM Limited 2,940 S P I Technologies India Private Limited 391.54 8. The learned Counsel for the assessee also brought to the notice that the AO in choosing comparable companies applied that a lower turnover of Rs.1 Crore and below has a filter for choosing the comparable companies. It was submitted by the same logic the TPO ought to have excluded companies having high turnover. Learned DR submitted that high turnover cannot be the basis to exclude comparable companies, if they are functionally found to be comparable. 9. We have carefully considered the rival submissions. On the issue of application of turnover filter, we have heard the rival submissions. The parties relied on several decisions rendered on the above issue by the various decisions of the ITAT Bangalore Benches in favour of the assessee and in favour of the Revenue, respectively. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun Bradstreet Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs.1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study. 42. The Assessee s turnover was around Rs.110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies having turnover of more than Rs.200 crores as not comparable with the Assessee was justified. As rightly pointed out by the learned counsel for the Assessee, there are two views expressed by two Hon ble High Courts of Bombay and Delhi and both are non-jurisdictional High Courts. The view expressed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.331/PUN/2021, order dated 29.07.2022 and another decision of ITAT, Pune Bench in the case of Credence Resource Management Pvt. Ltd. Vs. ACIT ITA No.133/PUN/2021), order dated 18.06.2021. Both the aforesaid decisions relate to Assessment Year 2016-17 and were rendered in the case of an ITeS company such as the assessee in the present appeal. On the comparability of CES Ltd., the ITAT Pune in the case of Transperfect Solutions India Pvt. Ltd., (supra), the Tribunal held as follows: (2) CES limited : 8.1 This comparable was also chosen by the TPO. The assessee s objection that this company was engaged in rendering KPO services as well was not approved by the TPO, who went with its inclusion. 8.2 The Annual report of this company shows that it is engaged in both the IT and IT enabled services. As the company has segmental accounts, the TPO has considered only IT enabled services segment for the purposes of comparability. However, what is important to note in the instant context is that the assessee is rendering only translation services etc., which fall within the overall domain of the BPO services. As against this, CES Limited is engaged in providing both BPO and KPO service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. That further in the website of the company, it is engaged in the diversified set of activities which involves graphic solutions, packaging brand management, digital publishing and digital content solutions. Therefore, the assessee submits that this company should be rejected from the final set of comparables companies. 9. The TPO was of the opinion that in this company i.e. Manipal Digital Systems Private Limited, 90% of the revenue is earned from ITes which is similar to that of the assessee company. The TPO further observed that most of the information provided by the assessee was from website and it cannot be said reliable source of information as any company while projecting itself in public domain tries to shows its diverse functioning and range of products so as to create a brand image of itself. With these observations, the contention of the assessee was rejected and the company was taken as comparable company. 10. That before the Ld. DRP, objections have been raised by the assessee which are at running Page No.34 of the appeal memo and therein, apart fromreiterating the submissions made before the TPO, the assessee has stated that as per the online a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endering highly technical services by qualified technical personnel involving advanced skills and knowledge, such as engineering, design and support. While, on the other end of the spectrum ITes would also include voice based call centers that render routine customer support for their clients. The relevant portion of the judgment is extracted as follows for the sake of completeness: .Clearly, characteristics of the service rendered would be dissimilar. Further, both service providers cannot be considered to be functionally similar. Their business environment would be entirely different, the demand and supply for the services would be different, the assets and capital employed would differ, the competence required to operate the two services would be different. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous. 32. It has been pointed out that whilst the Tribunal in Willis Processing Services (India) Pvt. Ltd. v. DCIT (supra) held that no disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e providers, inasmuch as the responsibilities undertaken, the activities performed, the quality of resources employed would be materially different. In the circumstances, we are unable to agree that broadly ITeS sector can be used for selecting comparables without making a conscious selection as to the quality and nature of the content of services. Rule 10B(2)(a) of the Income Tax Rules, 1962 mandates that the comparability of controlled and uncontrolled transactions be judged with reference to service/product characteristics. This factor cannot be undermined by using a broad classification of ITeS which takes within its fold various types of services with completely different content and value. Thus, where the tested party is not a KPO service provider, an entity rendering KPO services cannot be considered as a comparable for the purposes of Transfer Pricing analysis. The perception that a BPO service provider may have the ability to move up the value chain by offering KPO services cannot be a ground for assessing the transactions relating to services rendered by the BPO service provider by benchmarking it with the transactions of KPO services providers. The object is to ascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Pune Bench of the Tribunal in the case of M/s. Tasty Bite Eatables Limited Vs. ACIT, ITA No.1823/PUN/2018 for the assessment year 2014-15 dated 03.06.2021 wherein it was held that since the comparable chosen by the assessee, the onus is upon it to prove the functional comparability of this company. Extending the same logic, the Ld. Counsel submitted that it was also for the TPO to explain the reasons for inclusion of this company i.e. Manipal Digital Systems Private Limited since it was chosen as comparable by him. 14. We are of the considered view on going through the order of the TPO, findings of the Ld. DRP and the various judicial pronouncements placed on record, first of all the Revenue has selected Manipal Digital Systems Private Limited as comparable to that of the assessee company based on the earningof the company from ITes. However, there is no segmental specification provided neither by the TPO nor by the Ld. DRP for the reason of such inclusion of this company in the final set of comparable companies with that of the assessee company. In the decision of the Hon‟ble Delhi High Court (supra.), it is very much clear in the wide spectrum of ITes ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
