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TMI Blog2019 (8) TMI 1870X X X X Extracts X X X X X X X X Extracts X X X X ..... of patience are sent for expert opinion. Medical transcriptionist simply reproduces opinion expressed by Doctor, which is then communicated to the patients. It is observed from annual report placed that this company has segmental information of medical transcription and revenue earned under this segment is Rs.147.40 Lacs. It is also been observed that various other decisions by co-ordinate Benches of this tribunal has remanded this comparable back to Ld.TPO, for proper analysis and fresh consideration. Thus we set aside this comparable back to Ld.TPO for considering it afresh. Excel Infoways Ltd. (segmental) - 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 this stage, we clarify that, we are not inclined to express our opinion regarding functional similarities/dissimilarity of this company with that of present assessee before us and the same is kept open to be considered in an appropriate case. We therefore agree with contention raised by assessee regarding this compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort sales less than 75% of the sales e) Rejecting companies that have sales from ITES less than 75% of the total operating revenue. f) Not applying reasonable employee cost filters. g) Applying related party filter at 25% of sales. 7. The TPO and the AO ought to have restricted the upper limit of turnover at 10 times that of the assessee as held by the. Jurisdictional Tribunal in the case of ACIT vs. McAfee Software (India)(P.) Ltd., reported in 8. Without prejudice, the TPO and AO ought to have applied the turnover filter of Rs. 1 crore to Rs. 200 crores for selection of comparables as held by the Bombay High Court in the case of CIT vs. M/s. Pentair Water India Pvt. Ltd., reported in 381 ITR 216. 9. The TPO and the AO erred in selecting companies with super-profit margins namely TCS E-Serve Ltd., Universal Print Systems Ltd.(Seg), B N R Udyog Ltd. and thus the ALP margin computed is wrong and consequently the orders of TPO & AO need to be cancelled on the facts of the case. 10. a) The authorities below failed to appreciate that the company Universal Print Systems Ltd. is functionally dissimilar and thus erred in treating the same as comparable on the facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 234B and 234C was not provided to the appellant as regard to the rate, period and method of calculation of interest under the facts and circumstances of the case. 18. The appellant craves leave to 'add, alter, delete, and modify any of the grounds which are urged above. 19. For the above and such other grounds as may be urged at the time of hearing, the appellant prays your Honour to consider the facts and circumstances of the case and justice rendered. The additional grounds raised by assessee are as under: The appellant begs to submit the under mentioned additional grounds of appeal which were not urged specifically in the original grounds of appeal filed at the time of institution of appeal. These grounds do not involve any investigation of any facts otherwise on the record of the department and therefore, it is prayed that the additional pounds may kindly be admitted and disposed off on merits for the advancement of substantial cause of justice. Reliance is placed on the decision of the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. Vs. CIT reported in 229 ITR 383 and on the decision of Mysore High Court in the case of Gundathur Thimmappa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee renders IT enabled services to Inspinity and Software Development Services to SPI LLC. It was observed that assessee was providing backend customer care and administrative services to U.S.-based clients from healthcare and financial services sectors. Ld.TPO observed that assessee entered into following international transaction with its AE's: Particulars Amount Medical transcription service 3,45,71,603 Provision of Software Services 55,66,75,560 It was observed that assessee used TNMM as most appropriate method by using OP/OC as PLI and computed its margin under software development services at 15.84% and ITeS Services (BPO division) at 12.36%. Assessee used 11 comparables for software development services and 9 comparables in respect of IT enabled services. It has been submitted that only disputed segment by Ld.TPO, is IT enabled service segment. For IT enabled service segment assessee used following 9 comparables with an average margin of 15.27%: Sl.No. Name of the company Weighted average 1 Aditya Birla Minacs Worldwide Ltd. 2.81% 2 Caliber Point Business Solutions Ltd. 13.17% 3 Cosmic Global Ltd. 24.82% 4 Datamatics Financial Services Ltd. 0.45% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er broad head of medical transcription. It has been submitted therein that assessee serves various industries like medical, legal, business, education. Medical transcription services has been further streamlined into to further division called medical transcription and medical coding. Under these segments assessee provides outsourcing services to companies in U.S. healthcare systems with assistance from companies in-house information technology division. Under medical coding segment assessee assists U.S. Healthcare Medical Billing Companies and medical providers to obtain proper reimbursement due for their services. Assets employed: It has been submitted that assessee owns routine assets like computer equipment, network equipment, software and applications. It is also been submitted that assessee does not own any nonroutine valuable intangible assets. Risks assumed: It has been submitted that assessee acted merely as sub contractor of services and therefore it bears limited contract risk as compared to SPI LLC. Assessee however assumes substantial foreign currency fluctuation risk, as it deals with customers in various countries. As assessee works on an assured markup on all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext submission of the learned counsel for the Assessee was with regard to exclusion of 2 comparable companies from the list of 7 comparable companies that remain after the order of the DRP. The first comparable company sought to be excluded is Universal Print Systems Ltd. This company was chosen as a comparable company by the TPO. In reply to the proposal of the TPO to include this company as a comparable company, the Assessee vide its letter dated 22.12.2015 had pointed out its objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP TC of this company will be only 51.80%. The Assessee further pointed out (Page 764 of paper book) that the TPO had applied revenue filter of more than 75% being from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.6% of the total revenue from operations of this company as per its annual report. The .A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions that were made before the TPO/DRP. In particular it was submitted that the service revenue filter was applied by the TPO himself at the entity level and on such search this company was not regarded as engaged in providing ITES. At this stage the TPO ought to have dropped this company as a comparable company because this filter has to be applied at the entity level and not at the segmental level. The learned DR submitted that if the service revenue filter isapplied at the segmental level there can be no objection by the Assessee. She relied on the order of the DRP/TPQ. 50. The requirements of Rule 10B(1)(2) & (3) of the Rules in the matter of comparability of companies under TNMM needs to be seen. The same reads as follows: "10B. (1) For the purposes, of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely: -- (a) to (d). ****** (e) transactional-margin method, by which, (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions being compared or between the enterprises entering into such transactions are likely materially affect the price or cost charged or paid in, or the profit arising from such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 5.2.There appears to be no bar in the Rules referred to above to considering segmental data under TNMM because the comparison is of "net profit margin realized by the enterprise from an international transaction" with the "net profit realized from a comparable uncontrolled transaction". Therefore comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitled to apply the filters at segmental level. As we have already stated if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore the objection with regard to this company failing the employee cost filter and service reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its AE's. 10. Ld. CIT DR opposed the exclusion and placed reliance upon orders passed by authorities below. 11. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt Ltd., vs ACIT vide order dated 28/06/19 in ITA (TP) a No. 1661/Bang/2016, wherein this comparable has been excluded by observing as under: '5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case of Baxter India Pvt. Ltd. Vs. ACIT ITA No.6158/Del/2016 for AY 201213 in the case of a company rendering ITES such as the Assessee, vide order dated 24.8.2017 Paragraph 23 held that Infosys BPO is not comparable with a company rendering ITES for the following reasons:- "23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Officer/TPO/DRP is that Infosys BPO Ltd. is predominantly into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche areas, unlike the assessee. Further it was also submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses and therefore cannot be accepted to be compared with a captive service provider like assessee. 13. Ld.CIT DR on the contrary opposed its exclusion and placed reliance upon orders passed by authorities below. 14. We have perused submissions advanced by both sides in light of records placed before us. Assessee placed reliance upon following decisions in support of its argument for exclusion of this comparable: • Zyme Solutions Pvt Ltd. vs ACIT (supra) • Baxter India Pvt. Ltd vs ACIT reported in (2017) 85 Taxmann.com 285 (Delhi-Trib) • PCIT vs BC Management Services Pvt. Ltd. reported in TS948-HC-2017 (Del)-TP It is observed that this comparable has been excluded by this Tribunal. Assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt Ltd., vs ACIT reported in (2019) 101 taxman.com 292, by observing as under: "11.3 We have heard rival submissions and perused material on record. The issue of comparability of this company was considered by the co-ordinate bench of Tribunal in the case of XLHealth Corpn. India (P.) Ltd. (supra). The relevant findings of the Tribunal are as under: '. . . . We have heard the rival sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar with that of assessee. 16. Ld. CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech India (P) Ltd vs DCIT reported in (2018) 97 taxman.com 2 in support. 17. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee is challenging functional dissimilarity of this company with that of assessee as it is into medical transcription. We have our reservation to consider medical transcription services to be one of KPO services. In our considered opinion medical transcription services is basically back-office services provided by graduates who are trained for short period of 6 months to one year. These are short crash courses undertaken by graduates who are trained to understand and speak English. There is no value addition in the services rendered by people in medical transcription. To our understanding, basically these people who carry out medical transcription services are trained to understand language spoken by doctors, outside India to whom medical reports of patience are s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside this comparable back to Ld.TPO 18. Excel Infoways Ltd. (segmental) This comparable elected by ld.TPO is alleged to be functionally not comparable with assessee, as it is handling business relations and managing customer relationships. It has been submitted by Ld.AR that this comparable fails employee cost filter. 19. Ld.CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech India (P) Ltd vs DCIT reported in (2018) 97 taxman.com 2 in support. 20. We have perused submissions advanced by both sides in light of records placed before us. Annual report of this company is placed at page 984 of paper book Volume II. In the Significant Accounting Policies reported at page 1018 of paper book, it is observed that companies operating businesses are organized and managed separately, according to nature of business and services provided with each segment, representing different strategic business unit. Note 15 at page 1023 to refers to revenues from operations under the head information technology/BPO related services separatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t filter and the presence of extraordinary events on warranty exclusion of this company." 4. We have heard the rival submissions on the exclusion of this company on the basis of extraordinary events that occurred during the relevant previous year which had impact on the profit margin of this company and therefore rendering this company from being chosen as a comparable company. The Delhi ITAT in the case of BT e-Serve (India) Ltd. Vs. ITO ITA No.6690/Del/2016 for AY 2012-13 order dated 19.6.2018 considered the comparability of this company and came to the conclusion in paragraph 5.4 of its order that there was abnormal volatility of revenue of this company from 2009-10 to 2014-15 and therefore this company should not be regarded as comparable company. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid company from the list of comparable companies chosen by the TPO. 5. It is observed from order passed by Ld.TPO at page 10 that assessee objected this company that employee cost filter being more than 25% has not been examined by Ld.TPO. It is observed that in decision of coordinate bench of Delhi Tribunal in case of Baxter India private limited vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs applied by Ld.TPO. It has been submitted that this comparable was included by Ld.TPO which was acceptable to assessee. However DRP directed to exclude the same, as there was no segmental detail available.
22. Ld.CIT DR however placed reliance upon order of DRP and supported its exclusion due to non-availability of segmental information.
23. We have perused submissions advanced by both sides in the light of records placed before us. It is observed that this comparable has been not disputed for functional dissimilarity by DRP. However the observation that segmental informations are not available needs to be verified. We are therefore of considered opinion that, this comparable needs to be set-aside to Ld.TPO for verification afresh. Needless to say that assessee shall be granted proper opportunity as per law to represent its case.
We thus set aside this comparable back to Ld.TPO. Accordingly, these grounds raised stands allowed as indicated above. Ground No.17 I in respect of interest u/s 234B & 234C of the Act, which is premature at this stage.
In the result, appeal filed by assessee stands allowed as indicated above.
Order pronounced in the open court on 07-08-2019 X X X X Extracts X X X X X X X X Extracts X X X X
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