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TMI Blog2023 (10) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover of the four comparables sought for exclusion by assessee in the present case exceeds Rs. 200 crores whereas the assessee s turnover under ITeS segment is only Rs. 78.66 crores. Respectfully following the above, Infosys BPM Services Pvt. Ltd., Motif India Infotech Pvt. Ltd., Eclerx Services Ltd. and MPS Ltd. stands excluded. Domex E Data (P.) Ltd. has been treated to be a KPO whereas the assessee before us is a contract service provider with limited risks. Manipal Digital Systems (P.) Ltd.- As no segmental details available in respect of this comparable, in order to understand the earnings of the company from ITeS segment, it cannot be considered to be a comparable with that of assessee. Respectfully following the view expressed by Hon ble Delhi High Court in case of Rampgreen Solutions (P.) Ltd [ 2015 (8) TMI 931 - DELHI HIGH COURT] we direct the Manipal Digital Systems (P.) Ltd. to be excluded from the final list. Vitae International Accounting Services (P.) Ltd is carrying on business of data processing, handling back office functions and rendering ITeS to their clients abroad using computer software. The present assessee before us is also the contract service pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transactions w.r.t Information Technology enabled Services ('ITeS') provided by the Appellant to Associated Enterprises. 3. On the facts and in the circumstances of the case and in law, the Assessment Unit/ learned TPO/NaFAC erred in not conforming with the directions of the learned Panel in entirety and making an adjustment dehors the direction, to the transfer price of the Appellant. 4. On the facts and circumstances of the case and in law, the learned Panel erred in upholding the action of the TPO/NaFAC of rejecting the Transfer Pricing (`TP') documentation maintained by the Appellant, in good faith, as required under section 92D of the Income-tax Act, 1961 ('the Act') read with rule 10D of the Income-tax Rules, 1962 ('the Rules'). 5. On the facts and in the circumstances of the case and in law, and for the purpose of determining the arm's length price for the international transactions of the Appellant, TPO erred in conducting a fresh comparability analysis for the Appellant after arbitrarily applying certain additional filters and rejecting certain other filters applied by the Appellant in the TP Study and conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unit /TPO/NaFAC in including Domex E Data Pvt Ltd in the final list of comparables which ought to be excluded. 14. On the facts and circumstances of the case and in law, the learned Panel erred in upholding the action of the Assessment unit /TPO/NaFAC in including Vitae International Accounting Services Pvt Ltd in the final list of comparables which ought to be excluded. 15. On the facts and circumstances of the case and in law, the learned Panel erred in upholding the action of the Assessment unit/TPO/NaFAC in including Inteq B P 0 Services Pvt Ltd in the final list of comparables which ought to be excluded. 16. On the facts and circumstances of the case and in law, the learned Panel erred in upholding the action of the Assessment unit /TPO/NaFAC in including Motif India Infotech Pvt Ltd in the final list of comparables which ought to be excluded. 17. On the facts and circumstances of the case and in law, the learned Panel erred in upholding the action of the Assessment unit /TPO/NaFAC in including Eclerx Services Ltd in the final list of comparables which ought to be excluded. 18. On the facts and circumstances of the case and in law, the learned Pan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting in nature while calculating the margin of the Appellant w.r.t. ITeS segment resulting into erroneous mark up of 4.81% instead of 9.02%. 27. On the facts and in the circumstances of the case and in law, the Assessment unit erred in directing levy of interest under section 234B 234C of the Act. 28. On the facts and in the circumstances of the case and in law, the Assessment unit /NaFAC has erred in initiating penalty proceedings under section 271(1)(c) of the Act for concealment of income and for furnishing inaccurate particulars of such income. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal. 2. Brief facts of the case are as under: The Company is engaged in the business of providing software development and Information Technology ( IT') enabled services to its ultimate holding company SAP SE, intermediate holding company Ariba Inc and its group entities. It e-filed its return of income pertaining to A.Y. 2018-19 on 29/11/2018 declaring total income at Rs. 71.64.65.210/-. Subsequently. the case was selected f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.31% under SWD segment and 10.29% under ITeS segment. The Ld.TPO further noted that, the assessee had used TNMM as the most appropriate method and OP/OC as the PLI for bench marking the transactions. The Ld.TPO noted that, the assessee had chosen following 13 comparables with a median of 8.19% under SWD segment and thus held the transaction under SWD segment to be at arms length. Sl. No. Name of the Company Weighted Average PLI 1 Rheal Software Ltd. -4.26% 2 Maveric Systems Ltd. 0.19% 3 Isummation Technologies Pvt. Ltd. 3.44% 4 Yudiz Solutions Pvt. Ltd. 4.18% 5 Sagarsoft (India) Ltd. 5.89% 6 Sasken Technologies Ltd. 6.52% 7 CG-VAK Software Exports Ltd. 8.19% 8 E-Zest Solutions Ltd. 9.29% 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Pvt. Ltd. 27.30% 18 CES Ltd. 31.12% 19 Ultramarine Pigments Ltd. 39.36% 20 Access Healthcare Services Pvt. Ltd. 41.01% 35 th Percentile 7.03% Median 10.31% 65 th Percentile 13.37% 2.3.4 The Ld.TPO thereafter carried out its own search process and selected a set of 20 comparables with a median of 23.60% for SWD segment, the details of which are as under: Sl. No. Company Name F. Year wise OP/OC (%) Wt. Average 2015-16 2016-17 2017-18 1 Infomile Technologies Ltd. 9.86 11.06 8.64 9.69 2 Harbinger Systems Pvt. Ltd. 12.69 12.80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2 36.58 19 Infosys Ltd. 38.29 38.79 35.27 37.38 20 Cybage Software Pvt. Ltd. 62.04 61.40 47.78 56.81 35 th Percentile 20.19 Median 23.60 65 th percentile 26.83 2.3.5 For ITeS segment, the Ld.TPO selected a set of 17 comparables with a median of 26.34%, the details of which are as under: Sl. No. Company Name F. Year wise OP/OC (%) 2017-18 2016-17 2015-16 Wt. Avg 1 Jindal Intellicom Ltd. -5.35 8.66 2.78 7.41 2 Microland Ltd. 9.83 5.85 10.17 8.58 3 Datamatics Business Solutions Ltd. 3.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.3.6 The Ld.TPO thus computed the shortfall under both the segments as the proposed adjustment as under: Sl.No. Description Adjustment u/s 92CA (in Rs.) 1 SWD Segment 289,520,610 2 ITeS segment 161,641,459 Total adjustment u/s 92CA 45,11,62,068 3. On receipt of the transfer pricing order u/s. 92CA, the Ld.AO passed the draft assessment order u/s. 144C by proposing an addition in the hands of the assessee incorporating the transfer pricing adjustment at Rs. 45,11,62,068/-. Against the draft assessment order, the assessee filed objections before the DRP. 4. The DRP excluded certain comparables sought by assessee under SWD and ITeS segment and also included certain comparables thereby the proposed adjustment in respect of SWD segment became Nil and under ITeS segment, the adjustment was restricted to Rs. 12,73,38,540/-. 4.1 The Ld.AO passed the impugned order by making addition in the hands of the assessee amounting to Rs. 12,73,38,540/-. Aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions of Hon ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional grounds raised by the assessee. Accordingly, we admit the additional grounds raised by the assessee. Accordingly, the additional grounds filed by assessee stands admitted. 6. The Ld.AR submitted that Additional Ground no. 29 raised by assessee goes to the root cause of the case and therefore needs to be adjudicated first. 6.1 In this ground the Ld.AR submitted that the final assessment order dated 16.08.2022 passed by the Ld.AO is barred by limitation as it is passed beyond the maximum time prescribed u/s. 144C(13) of the act. He submitted that the DRP order is dated 23.06.2022 and the impugned order is passed on 16.08.2022 and therefore there is a delay. 6.2 On the contrary, the Ld.DR has filed report dated 24.03.2023 at the time of hearing stating as under: 6.2.1 The Ld.DR thus submitted that the DRP directions were received by the revenue on 04.07.2022 and therefore the impugned order dated 16.08.2022 is passed within the period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground no. 30 are in respect of application of turnover filter by adopting the upper turnover filter of Rs. 200 crores. He submitted that the comparables alleged in ground no. 16-18 also needs to be considered by applying the turnover filter of 1 to 200 crores. The Ld.AR thus submitted that the assessee seeks exclusion of following comparables in the above grounds on failure of turnover filter: S. No. Name of the comparable Turnover (in crores) 1. Infosys BPM Services Pvt. Ltd. 3,071 2. Motif India Infotech Pvt. Ltd. 207.08 3. Eclerx Services Ltd. 1150.69 4. MPS Ltd. 220.90 9.1 He placed reliance on following decisions in support of his submissions. a) Decision of Coordinate Bench of this Tribunal in case of Altair Engineering India Pvt. Ltd. vs. ACIT in IT(TP)A No. 1025/Bang/2022 for A.Y. 2018-19 by order dated 09.01.2023. b) Decision of Coordinate Bench of this Tribunal in case of Cenduit (India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., Motif India Infotech Pvt. Ltd., Eclerx Services Ltd. and MPS Ltd. stands excluded. 10. Ground nos. 12-14 raised by assessee is against inclusion of following comparables. a) Manipal Digital Systems (P.) Ltd. b) Domex E Data (P.) Ltd. c) Vitae International Accounting Services (P.) Ltd. 10.1 It is the submission of the Ld.AR that these comparables are to be excluded as they are functionally not similar with that of assessee. He has placed reliance on the following decisions where these comparables have been excluded on functional dissimilarities. a) Decision of Hon ble Pune Tribunal in case of Rage Frameworks India (P.) Ltd. vs. ACIT in ITA No. 674/Pun/2022 for A.Y. 2018-19 b) Decision of Hon ble Pune Tribunal in case of Credence Resource Management (P.) Ltd. vs. ACIT in ITA No. 133/Pun/2021 for A.Y. 2016-17 c) Decision of Coordinate Bench of this Tribunal in case of Altair Engineering India Pvt. Ltd. vs. ACIT in IT(TP)A No. 1025/Bang/2022 for A.Y. 2018-19 by order dated 09.01.2023. d) Decision of Hon ble Delhi High Court in case of Rampgreen Solutions (P.) Ltd. vs. CIT reported in (2015) 60 taxmann.com 355 (Delhi) 10.2 On the contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken the view that companies rendering KPO services cannot be regarded as a comparable company with an ITeS company. Transperfect Solutions India Pvt. Ltd vs ACIT [[TS-497- ITAT-2022(PUN)-TP]] AY 2016-17 Schlumberger India Technology Centre (P.) Ltd. Vs DCIT [TS-473-ITAT- 2022(PUN)-TP] AY 2016-17 Credence Resource Management (P.) Ltd vs ACIT [2022] 138 taxmann.com 543 (Pune - Trib.), for AY 2016-17 35. In the light of the aforesaid decisions, we are of the view that Domex E Data Pvt. Ltd., should be excluded from the list of comparable companies. 10.4 From the above observation, we note that Domex E Data (P.) Ltd. has been treated to be a KPO whereas the assessee before us is a contract service provider with limited risks . 10.5 In respect of Manipal Digital Systems (P.) Ltd., we note that Hon ble Pune Tribunal in case of Rage Frameworks India (P.) Ltd. vs. ACIT (supra) has observed that there is no segmental specification available in the accounts of the annual report. We note that in the annual report of this comparable placed at page 1505, this comparable is providing multiple other services such as premedia services, web development services, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functionally different from the assessee which is involved in provision of ITes services. As per the annual report of the company, the activity undertaken by the company is in the nature of pre-press activities which is not comparable to the 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. 10.7 Hon ble Pune Tribunal has also referred to the decision of Hon ble Delhi High Court in case of Rampgreen Solutions (P.) Ltd. vs. CIT in ITA No. 102/2015 by order dated 10.08.2015, a copy of which has been placed in the paper book case law compilation at page 1-22. We note that Hon ble Delhi High Court in para 31 has observed that the Tribunal had held that once a service falls under the category of ITes then there is no sub classification of segment. Thus, according to the Tribunal, no differentiation could be made between the entities rendering ITes. 10.8 Hon'ble Delhi High Court rejecting such view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y thin. The Tribunal was of the view that there could be a significant overlap in their activities and it may be difficult to classify services strictly as falling under the category of either a BPO or a KPO. The Tribunal also observed that one of the key success factors of the BPO Industry is its ability to move up the value chain through KPO service offering. For the aforesaid reasons, the Special Bench of the Tribunal held that ITeS Services could not be bifurcated as BPO and KPO Services for the purpose of comparability analysis in the first instance. The Tribunal proceeded to hold that a relatively equal degree of comparability can be achieved by selecting potential comparables on a broad functional analysis at ITeS level and that the comparables so selected could be put to further test by comparing specific functions performed in the international transactions with uncontrolled transactions to attain relatively equal degree of comparability. 34. We have reservations as to the Tribunal's aforesaid view in Maersk Global Centers (India) Pvt. Ltd. (supra). As indicated above, the expression 'BPO' and 'KPO' are, plainly, understood in the sense that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have a bearing on the profitability of those entities. However, where the controlled transactions are clearly in the nature of lower- end ITeS such as Call Centers etc. for rendering data processing not involving domain knowledge, inclusion of any KPO service provider as a comparable would not be warranted and the transfer pricing study must take that into account at the threshold. 36. As pointed out earlier, the transfer pricing analysis must serve the broad object of benchmarking an international transaction for determining an ALP. The methodology necessitates that the comparables must be similar in material aspects. The comparability must be judged on factors such as product/service characteristics, functions undertaken, assets used, risks assumed. This is essential to ensure the efficacy of the exercise. There is sufficient flexibility available within the statutory framework to ensure a fair ALP. 10.10 We are thus of the considered opinion that as there is no segmental details available in respect of this comparable, in order to understand the earnings of the company from ITeS segment, it cannot be considered to be a comparable with that of assessee. Respectfull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the DRP. 13. Ground nos. 20-23 The Ld.AR submits that assessee do not wish to press these grounds. Accordingly, these grounds are dismissed as not pressed. 14. Ground no. 24 The assessee seeks inclusion of I Services India (P.) Ltd. The Ld.AR submitted that this comparable was excluded by the Ld.TPO as it was not reflected in the search matrix of the TPO. The Ld.AR submitted that this comparable needs to be included. 14.1 On the contrary, the Ld.DR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 14.2 We are of the opinion that merely because the comparable does not appear in the search process by the Ld.TPO, it cannot be excluded if assessee is able to file the annual reports which are verifiable. 14.3 We rely on the decision of Coordinate Bench of this Tribunal in case of Prism Networks vs. ACIT reported in (2022) 141 taxmann.com 163. 14.4 We rely on the following observation in case of Prism Networks vs. ACIT (supra) in support of this contention. 18. We heard the rival submissions. It is clear from the order of the DRP that the DRP has not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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