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TMI Blog2015 (4) TMI 1359X X X X Extracts X X X X X X X X Extracts X X X X ..... al, course of business are to be included for determining the operating revenue while computing the margins. By the same analogy, those expenses which are not part of normal business activities should get excluded for determining the operating revenue while computing the margin. As donation is not in the nature of the normal business activity of the assessee, we hold and direct that donation requires to be excluded from operating revenue, while computing the margin. Comparable selection - Accentia Technologies Ltd. be excluded from the list of comparables in view of the occurrence of extra-ordinary event of the amalgamation which would impact financial results in the period under consideration thereby rendering it not comparable to the assessee in the case on hand. eClerx Services Ltd. is to be excluded from the final list of comparables since it is engaged in providing high end services involving specialized knowledge and domain expertise rendering it functionally different from an IT enabled service company, as in the assessee in the case on hand. Cosmic Global Ltd. was excluded because the only comparable segment, i.e. Accounts BPO segment has low volume of sales as compared to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receipt of the TPO's order under Section 92CA of the Act, the Assessing Officer passed a draft assessment order on 31.1.2013 proposing the following adjustments to the returned income of Rs. 94,82,385 :- (i) Transfer Pricing Adjustment: Rs. 1,04,14,489. (ii) Disallowance of excess claim u/s. 10A of the Act: Rs. 10,55,534 The total income was accordingly determined at Rs. 2,09,52,408. 2,3 Aggrieved by the draft assessment order for Assessment Year 2009-10 dt. 31.1.2013, the assessee filed its objections thereto before the DRP. The DRP issued its directions thereon vide order under Section 144C(5) of the Act dt. 30.10.2013. In pursuance of the DRP's directions, the Assessing Officer passed the final order of assessment under Section 143(3) rws 144Cof the Act, vide order dt. 29.11.2013, wherein the income of the assessee was determined at RS. 2,72,20,530; incorporating the T.P. Adjustment of Rs. 1,77,38,145 as directed by the DRP. 3. Aggrieved by the final order of assessment for Assessment Year 2009-10 passed under Section 143(3) rws 144C of the Act vide order dt. 29.11.2013, the assessee has preferred this appeal before the Tribunal, raising the following grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit Level Indicator CPLI'). Based on its comparability analysis, the assessee chose 8 companies as comparable to the assessee, with the average profit margin of 4.34%. As the profit margin of the assessee computed at 18.94% was higher than that of the comparable companies, it was concluded by the assessee that its international transactions in IT enabled services were at arms length. 4.2 The TPO, however, on examination of the assessee's T.P. Study, rejected the comparability analysis of the assessee, conducted his own search process and selected the following set of 8 comparables with the average margin at 25.04%, the details of which are as under; ITES FINAL SET OF COMPARABLES SI,No. Name of the Company Margin % 1. Infosys BPO Ltd. 24.41 2. ADitya Birla Minacs Worldwide Ltd. 23.86 3. Microland Ltd. (both segments) 1.53 4. Allsec Technologies Ltd. - 16.63 5. Accentia Technologies Ltd. 46.40 6. Informed Technologies India Ltd. 22.61 7. Cosmic Global Ltd. 40.61 8. Eclerx Services Ltd. 57.50 Average PLI 25.04 After granting working capital adjustment of (-) 1.55 %,the adjusted margin was worked out at 26.59%. Accordingly, the TPO computed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT, Hyderabad Bench in the case of Parexel International Ltd. Vs: ACIT in ITA No. 144/Hyd/2014 dt. 30.9.2014. The issues listed above will now be examined in seriatum. 5. Foreign Exchange Gain as a part of Operating Revenue. 5.1 In respect of the issue raised at (i) in para 4.4 (supra), it is the contention of the assessee that the TPO erred in not treating the foreign exchange fluctuation as part of the operating profits and adding the same to the income from IT enabled services. It was submitted by the learned Authorised Representative that in 'the case of Mindteck (India) Ltd.(Supra) a co-ordinate bench of this Tribunal has held that foreign exchange gain/loss, is operating in nature and placed reliance on the said decision in support of its claim. 5.2 Per contra, the learned Departmental Representative supported the orders of the TOI on this issue. 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited and placed reliance on by the learned Authorised Representative for the assessee. We find that the co-ordinate bench in the case of Mindteck (India) Ltd. (supra) has held that foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requires to be excluded from operating revenue, while computing the margin. Comparables sought to be excluded by the assessee. 7.· Accentia Technologies Ltd. 7.1 The assessee submits that this company needs to be excluded from the set of comparable companies as it is functionally different from the assessee and in this context, the learned Authorised Representative relied on the decision of the co-ordinate bench of this Tribunal in the case of Mindteck (India) Ltd. (supra). 7.2 Per contra, the learned Departmental Representative supported the order of the TPO in including this company in the list of comparable companies. 7.2 Per contra, the learned Departmental Representative supported the order of thi TPO in including this company in the list of comparable companies. 7.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement cited and pieced reliance upon by the assessee. We find that a co-ordinate bench of this Tribunal in the case of Mindteck (India) Ltd. for A.Y. 2009-10 (supra) has decided that this company is to be excluded from the set of comparables: holding as under at paras 32 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he KPO business remained with the company. A perusal of the Annual report revealed that to give effect to the merger and demerger, the financial statements were revised and restated after six months form the end of the financial year 31.3. 2008. The assessee filed Form No. 21 under the Companies Act with the Registrar of Companies on 26th August, 2008. Thus the effective date of the scheme of merger and demerger was 26th August, 2008. The Annual Report supported the argument of the assessee that there were merger and demerger in the financial year and it was an exceptional year of performance as financial statements were revised by this company much after the closure of the previous year. The Panel agrees with the contention of the assessee that it is an exceptional year having significant impact on the profitability arising out of merger and demerger. " 11. On careful consideration of the matter, we also agree with the aforesaid view of the DRP that extra-ordinary event like merger and de-merger will have an effect on the profitability of the company in the financial year tn. which such event takes place. It is the contention of the assessee that in case of the aforesaid co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8. eClerx Services Ltd. 8.1 The assessee contends that this company .needs to be excluded from the list of comparable companies as it is functionally different from the assessee and in this context, the learned Authorised Representative cited and relied on the decision of the co-ordinate bench of this Tribunal in the case of Mindteck (India) Ltd. (supra) for A.Y. 2009-10. 8.2 Per contra, the learned Departmental Representative supported the order of the TPO in including this company in the final set of comparables. 8.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement cited and placed reliance upon by the assessee. We find that a co-ordinate bench of this Tribunal in the case of Mindteck (India) Ltd. (supra) for AY. 2009-10 had decided that this company i.e. e-Clerx Services Ltd. is to be excluded from the set of comparables as it was functionally different from an IT enabled service company; and at para 36 thereof it has held as under :- 36. E-clerx Services Ltd., : The comparability of this company in ITES segment was considered by the Special bench decision of the ITAT in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nouncements cited and placed reliance upon.. It is settled principle that a company cannot be excluded as a comparable merely because it has made abnormal profits. In fact, in the decision rendered by the co-ordinate bench in the case of Mindteck (India) Ltd. for Assessment Year 2009-10 (supra), cited and relied on by the assessee for exclusion of certain other comparable companies, the prayer for exclusion of this company namely; Cosmic Global Ltd., as a comparable was rejected by the co-ordinate bench as the assessee was not able to furnish any evidence to substantiate the claim of abnormal profits. 9.3.2 We find, however, on a perusal of the decision of the ITAT, Hyderabad Bench cited by the assessee, namely, Parexel International (India) Pvt. Ltd. (supra) that this company i.e. Cosmic Global Ltd. has been excluded from the list of comparables. The assessment year involved is also Assessment Year 2009-10; as is the year under consideration in the case on hand. The relevant portion of the decision of the ITA T, Hyderabad Bench in the case of Parexel International (India) Pvt. Ltd. (supra) at paras 14 & 15 thereof are extracted here under:- Cosmic Global Ltd. 14. As regards t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Limited is very low at Rs. 27.76 lacs. We have discussed this aspect above in the context of CGVAK's case and held that a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at Rs. 86.10 lacs. As the segmental revenue of BPO segment of Cosmic Global Limited at Rs. 27.76 lac is still on much lower side, the reasons given above would fully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded from the list of comparables. " 15. As pointed out by the learned counsel for the assessee from the relevant details placed at page No.3 91 of his paper-book, substantial work was outsourced by Mis. Cosmic Global Limited in the relevant year, which is evident from the fact that the outsourcing cost was 57% of the total Operating Cost of the said company. Keeping in view this position clearly evident from the relevant details furnished on record, which is not disputed even by the Learned Departmental Representative, we respectfully follow the decision of the coordinate Bench of the Tribunal in the case of Mercer Consulting India P. Ltd. (supra) and Excellence Data Research P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee either before the authorities below or before us in the present appeal. In this view of the matter, we deem it appropriate to remand this issue to the file of the TPO to consider the comparability of this company afresh in the light of the judicial pronouncements cited I referred to and the principles and observations laid out therein. 10. Ground Nos. 1 to 3 raised by the assessee in this appeal in respect of T.P. issues stand disposed off as indicated above. 11. In Ground No. 4, the assessee challenges the action of the Assessing Officer in initiating penalty proceedings under Section 271(1)(c) of the Act in its case for Assessment Year 2009-10. Since no penalty under Section 271(1)(c) of the Act has been imposed on the assessee in the impugned order, no cause of grievance arises to the assessee that would require our adjudication. In this view of the matter, this ground at S.No. 4 is not maintainable and is accordingly dismissed as infructuous. 12. The assessee had also preferred a stay petition in S.P. No. 249/Bang/2014 requesting for stay on recovery of outstanding demand for Assessment Year 2009-10. Since the assessee's appeal for Assessment Year 2009-10 is now di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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