9911796707
TMI Blog2022 (4) TMI 1505X X X X Extracts X X X X X X X X Extracts X X X X ..... c Global Ltd. company be excluded from the list of comparable companies as this company is functionally different from that of the assessee and outsources major part of its work and that this company had an exceptional performance, high turnover, abnormal profits in the relevant assessment year. Hence, this company should not be considered as comparable to that of the assessee. Coral Hub Limited company is not comparable as unlike the assessee this company is outsourcing its services to third parties thereby resulting in low employee cost as compared to that of the assessee. Also this company should not be included on account of significant intangibles owned by this company. X X X X Extracts X X X X X X X X Extracts X X X X ..... O's remarks is reproduced below :- Sl. No. Name of Companies TPO's remarks 1. Aditya Birla Minacs Worldwide Ltd. This is an acceptable comparable 2. Cosmic Global Ltd. This is an acceptable comparable 3. Datamatics Software Solutions Ltd. Functionally different, persistent loss 4. Microgenetic Systems Ltd. This is an acceptable comparable 5. NSDL (ITES Seg.) Fails export filter 6. Spanco Ltd. (BPO seg.) This is not functionally comparable 7. In House Production Ltd.(Healthcare division segment) Fails export filter 4.3 Thereafter, the Ld. TPO proceeded to conduct a fresh search and arrived at the set of 16 comparable companies with average operating profit margin of 58.55%. After considering certain exclusions and inclusions based on various details furnished by the assessee, the Ld. TPO in Para 11 of his order concluded the final set of comparables comprising of 7 companies with their respective profit margins as under :- Sl. No. Comparables OP/OC 1. Accentia Technologies Ltd. 52.52% 2. Aditya Birla Minacs Worldwide Ltd. 11.95% 3. Cosmic Global Ltd. 50.70% 4. Crossdomain Solution Pvt. Ltd. 25.63% 5. Coral Hub 37.03% 6. Jeevan Softech 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of comparables because, under this method, Net Margins are compared and some amount of functional dissimilarity can be tolerated at the net margin level, i.e., to a certain extent, functional dissimilarities are subsumed and taken care of at the net margin level. Therefore, it is an appropriate comparable. 6.2 The Ld. AR submitted that there were certain extraordinary events that took place in this company in the form of mergers and acquisitions in the relevant financial year and hence this company should not be considered as a comparable company. He further placed reliance on the submissions made by the assessee before the Ld. CIT(A) which are recorded by him in para 6.1.1.1 of his order and pleaded for exclusion of this company on the ground of functional dissimilarity and high turnover of this company as compared to that of the assessee. He submitted that the case of the assessee is squarely covered by several decisions of the jurisdictional Delhi ITAT and Hon'ble Delhi High Court for AY 2009-10 itself wherein this company has been held to be a non-comparable company. 6.3 We have heard the Ld. Representative of the parties and perused the material on record as well as the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed to exclude this company as a comparable after recording cogent reasons backed with precedents. We, therefore do not find any reason to interfere with the findings of the Ld. CIT(A) and uphold his view. (ii) Coral Hub Limited 7.1 The Ld. DR strongly relied upon the order of the Ld. TPO and drew our attention to the Ld. TPO's comments for rejecting the objection raised by the assessee against inclusion of this company in the list of comparables. The objections of the assessee and the TPO's remarks as recorded in para 8 page 25-26 of the TPO's order is reproduced below :- Sl. No. Name of the Company Objections of the assessee Remarks of this office 4. Coral Hubs Ltd. (Also known as Vishal Information Technologies Ltd.) The assessee's arguments for rejection relate to different business model, low employee cost, functionality difference etc. From the annual report it is gathered that the company is actually outsourcing some of its services. The payment to vendors is very much part of the expenses. Recently, ITAT, Hyderabad in the case of Deolitte Consultant Pvt. Ltd. has upheld the inclusion of this company. In that case also exactly similar plea was taken by the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and the Annual Report of the Company for FY 2008-09. It is observed that Coral Hub is engaged in outsourcing of business operations. It is also noted that the Appellant does not outsource any part of its operations to any third-party whatsoever. This viewpoint has also been upheld in several rulings for AY 2009-10, including Delhi ITAT and Hon'ble High Court rulings in the cases of Sun Lift India, Macquarie Global and Xchanging Technology. Thus, the Appellant's claim in respect of this company is allowed and the AO/TPO is directed to exclude this company from the list of comparable companies." 7.4 It is apparently evident from the above that the Ld. CIT(A) directed for exclusion of this company after recording cogent reason backed with precedents. We, therefore, do not find any infirmity in the finding of the Ld. CIT(A). As rightly pointed out by the Ld. AR, the case of the assessee also finds support by the judgment of the Jurisdictional High Court in Rampgreen Solutions (P.) Ltd. (supra) wherein the Hon'ble Court held as under :- "38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee made before the Ld. CIT(A) for excluding this company as comparable and the findings of the Ld. CIT(A) in respect thereof. 8.3 We have heard the Ld. Representative of the parties and perused the material on record as well as the orders of the Ld. TPO/AO/CIT(A). The very first contention of the Ld. AR is that even if the assessee did not take up the issue of considering this company as comparable during the transfer pricing proceedings, the assessee cannot be prohibited from adopting a different stand later before the appellate authorities. We agree with the contention of the Ld. AR in view of the decision of the Special Bench of the Tribunal in the case of Quark Systems (P.) Ltd. (supra) wherein the Hon'ble Bench held the company which was included by the assessee and also by the Ld. TPO in the list of comparables at the time of computing arm's length price can be excluded by the Tribunal, if the assessee proves that the same was wrongly included. 8.4 From the perusal of the Ld CIT(A)'s order, we notice that before the Ld. CIT(A) the assessee has submitted that this company is functionally different from that of the assessee and outsources major part of its work and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction is not at arm's length; 2. erred in not appreciating that the Respondent is an information technology enabled services provider engaged in provision of Business Process Outsourcing, whereas Accentia Technologies Limited is engaged in provision of software services and Knowledge Process Outsourcing and is accordingly functionally different from the Respondent; 3. erred in not appreciating that events such as mergers and acquisition have an impact on the profitability of Accentia Technologies Limited and in view of such events hence render the same non-comparable; 4. erred in objecting to the exclusion of Accentia Technologies Limited from the set of companies considered to be comparable to the Respondent, basis various decisions of the Hon'ble Income tax Appellate Tribunal ('ITAT'), by the Hon'ble Commissioner of Income Tax Appeals - 38 ('CITA'); 5. erred in appreciating that Coral Hub Limited outsources its business operations is accordingly functionally different from the Respondent; 6. erred in objecting to the exclusion of Coral Hub Limited from the set of companies considered to be comparable to the Respondent, basis various decisions of the Hon'ble ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
