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TMI Blog2022 (3) TMI 1567X X X X Extracts X X X X X X X X Extracts X X X X ..... party, then the same cannot be rejected merely on the ground that data for entire financial year is not available. It is held that if from the available data on record the results for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparable has different financial year ending. We, therefore, set aside the order of the Ld. CIT(A) and restore the issue to the file of A.O./TPO with a direction to extrapolate the result for the F.Y. 2009-10 from the available data and accordingly consider the same as comparable. A.O./ TPO should give due opportunity of being heard to the assessee while extrapolating the data for the F.Y. 2009-10. Incorrect computation of profit margin of the comparable in the case of Cosmic Global - We find from the various details furnished by the assessee that while the TPO considered the miscellaneous income as operating income while computing the profit margin of Cosmic Global, however, for the computation of profit margin of the assessee, the miscellaneous income was not considered as operating income. We, therefore, direct the A.O./TPO to consider the miscellaneous income of the assessee as o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the grounds raised by the Revenue challenging the exclusion of ICRA Techno Analytics Limited (Segmental) is dismissed. Infosys BPO Limited has high brand value and intangibles (goodwill) whereas the assessee has no such goodwill. Infosys BPO Limited derives benefits being part of Infosys group whereas the assessee does not belong to any reputed group. We further find Infosys BPO Limited has incurred substantial selling and marketing expenses. It has incurred significant expenditure on account of employee salary and advertising expenses, whereas the assessee has no such expenditure. It has also made certain acquisitions during the year, for which, this is an exceptional year for Infosys BPO Limited, whereas the assessee company has not made any acquisitions. Thus we uphold the order of the Ld. CIT(A) on this issue and the ground raised by the Revenue challenging the order of the Ld. CIT(A) in excluding the Infosys BPO Limited is dismissed. - R.K. PANDA, ACCOUNTANT MEMBER AND SHRI MS. ASTHA CHANDRA, JUDICIAL MEMBER For the Assessee : Shri Rohit Tiwari, Advocate For the Revenue : Shri Mrinal Kr. Das, Sr. DR ORDER PER R.K. PANDA, A.M. These are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42.52% 2 Igate Global Solutions Limited 24.54% 3. Fortune Infotech Limited 22.80% 4. Acropetal Technologies Limited (segmental) 44.46% 5. ICRA Techno Analytics Limited (segmental) 28.77% 6. Cosmic Global Ltd., 18.28% 7. Infosys BPO Limited 31.44% Average 30.40% 2.3. Based on the above mean margin of comparables, the TPO proposed adjustment of Rs.1,90,03,738/- by computing as under : Operational cost 148,801,902 Arm's Length Price at a Margin of 30.40 % 194,037,680 Price Received 175,033,942 105% of the Price Received 183,785,639 Proposed Adjustment u/s 92CA 19,003,738 2.4. The A.O. accordingly issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment to the appellant for working capital and capacity utilization adjustments in the margins of the appellant or comparables. 3. That the Ld. CIT(A) grossly erred on facts and in law by not appreciating the fact that in the relevant assessment year the appellant was entitled to a tax holiday on its profits from provision of IT-enabled services to the AEs and therefore did not have any untoward motive of deriving any tax advantage by manipulating the transfer prices of its international related party transactions. 4. That the Ld. CIT(A) grossly erred in law and on facts by confirming the action of the Ld TPO/AO of denying the benefit of (+/ -) 5 percent [as mentioned in the proviso to section 920(2) of the Act] to the appellant. 5. On the facts, in the circumstances of the case and in law, the Ld. AO erred in levying consequential interest under section 234B of the Act on the disallowance made in the assessment order. That the above grounds of appeal are mutually exclusive and without prejudice to each other. That the Appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal. Any con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... logies Limited (Segmental) was excluded as it fails employee cost filter i.e., Outsourcing of Significant work. 4.3.3. So far as the observation of the Ld. CIT(A) that assessee has not submitted the annual report of the abovementioned company is concerned, the Learned Counsel for the Assessee referring to Page-40 of the order of the Ld. CIT(A), drew the attention of the Bench to the submissions made before him wherein copy of the annual report was given and the Ld. CIT(A) has reproduced certain paragraphs such as Notes on Accounts etc., from the Annual Report. Therefore, to say that assessee has not submitted the annual report of the said company is factually incorrect. Even otherwise also, the same is available in public domain. 4.4. So far as Cosmic Global is concerned, the Learned Counsel for the Assessee referring to Pages 7 and 32 of the order of the TPO submitted that the TPO while calculating profit margin of the comparable has included the miscellaneous income as operating income. However, for the computation of profit margin of the assessee, the miscellaneous income was not considered as operating income. He, accordingly submitted that a suitable direction may be giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... htly excluded by the TPO and the Ld. CIT(A). 5.2. So far as R System International Ltd., is concerned, the Ld. D.R. submitted that this company has different financial year ending and, therefore, it was rightly excluded by the TPO and the Ld. CIT(A). 5.3. So far as Cosmic Global is concerned, the Ld. D.R. submitted that assessee has not raised any such ground in the grounds of appeal for inclusion of miscellaneous income as operating income in assessee s own case, therefore, the argument of the assessee should be rejected outrightly. 5.3.1. The Learned Counsel for the Assessee in his rejoinder submitted that once assessee has challenged determination of the ALP of the international transaction entered into by the assessee with overseas Associated Enterprises, the same takes care of everything and the Ld. D.R. cannot say that assessee has not raised any specific ground. Referring to Rule 27 of ITAT Rules, he submitted that the respondent though he may not have appealed, may support the order appealed against on any of the grounds decided against him. He accordingly submitted that the assessee cannot be precluded from making an argument which has been decided against him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under : Acropetal Technologies Ltd. 108. As could be found from the annual report of Acropetal Technologies Ltd, this company is into the engineering design service, information technology service, and healthcare and this company employees cost is less than 25% of the total cost and also that this company is engaged in significant R D activities and incurring significant advertisement, marketing and promotion expenses as a percentage of sale. 109. Assessee objected its inclusion in the comparables on the grounds of functional dissimilarity and the company being engaged in significant R D activities also. Ld. TPO observed that the assessee had not provided the data for carrying out working capital presumably since the adjustment is adverse in its case, but for carrying out the adjustment the average working capital is calculated and the same is allocated to IT segment in the ratio of the turnover. Ld. DRP in their order observed that this company needs to be excluded due to a different FAR. 110. Ld. DR placed reliance on the observations of the Ld. TPO and while inviting our attention to the order of the Ld. TPO submitted that the inclusion of this entity is justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluding Acropetal Technologies Limited (Segmental) from the list of comparable companies by observing as under : 8. In the grounds of appeal, the revenue has challenged the exclusion of only one of the 8 comparables excluded by the order of DRP. The companies exclusion by the DRP which is challenged by the revenue in grounds 1 to 10 is M/s. Acropetal Technologies Ltd. For excluding this company, the DRP gave the following reasons : Acropetal Technologies Limited Having considered the submissions, on perusal of the annual report, it is noticed by us that the assessing officer has considered the revenue from the engineering design segment. Hon'ble ITAT, Bangalore in IT(TP)/A/1678/Bang/2012 in the case of Global E Business Operations, directed to exclude the above company by observing that 'we have considered the submission of the learned counsel for the assessee, on perusal of note no. 15 of notes to accounts, which gives segmental revenue of this company, it is clear that the major source of the income for this company is from providing engineering design services and information technology services. The function performed by the engineering design services of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clear that the information technology services provided by the assessee cannot be compared with Engineering Design Services provided by Acropetal Technologies Ltd. Therefore, the conclusion that this company is not functionally comparable is found to be correct. We also find that this Tribunal in the case of Novo Nordisk (I) P. Ltd. in ITA 247/Bang/2016 has held that in the case of a company which was rendering similar ITeS as that of assessee it was held that Acropetal Technologies Ltd. cannot be considered as a comparable in ITeS segment. Following were the relevant observations of the Tribunal in this regard. 8.3.1. We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that a co-ordinate bench of this Tribunal in the case of Swiss Re Shared Services (India) Pvt. Ltd., for asst, year 2011-12 (Supra) has examined in detail the comparability of this company as a comparable to that of a service provider of ITES services to its AE's and at6 para 21 to 24 thereof held as under:- 21. Arguing exclusion of Acropetal Technologies Ltd, (seg), Ld. AR submitted that Acropetal Techno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offerings using its deep domain understanding of infrastructural healthcare, engineering design and enterprise solutions. In our opinion, the type of services that was being provided by Acropetal Technologies Ltd, was not at all comparable with the type of services that the assessee was providing. It is also mentioned in the annual report of the said company that it was providing high end services in the engineering design services. No doubt as mentioned by the Ld DR, it may not be feasible to have comparables which fit in the exact mould as that of an assessee in TP analysis. However, when one company is giving sophisticated set of services which involves higher level of skill sets, and the other is doing it on a lower level, we cannot say that the former should be considered as a comparable to the latter. Though for a different year, comparability of Acropetal Technologies Ltd, (seg) had come up More Hyderabad bench of the Tribunal in the case of Excellence Data Research P. Ltd (supra). Observations of the Tribunal as it appears at para 18.1 reads as under: 18.1. After considering the rival contentions, we agree with the objections raised by assessee. As seen from the Annual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany has been rejected by the TPO on the ground that the financial year of the company did not end in March. While the contention of the appellant is acceptable in principle, the appellant has not demonstrated how data from earlier or subsequent a financial year followed by the above mentioned company may be used to construct data in such a way that it covers the period April 2009 to March 2010 ie the year under reference. In view of the same, the contention of the appellant is rejected. 6.6. A perusal of the above shows that the TPO rejected the inclusion of the above comparable on account of different financial year. However, the Hon ble Delhi High Court in the case of CIT vs., Mckinsey Knowledge Centre India Ltd. (supra), has held that if the comparable is functionally same as that of the tested party, then the same cannot be rejected merely on the ground that data for entire financial year is not available. It is held that if from the available data on record the results for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparable has different financial year ending. We, therefore, set aside the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Having heard both the sides on this issue, we find that the TPO has accepted the functional comparability of this company on segmental level. The Id. DR was also fair enough to candidly accept the functional similarity of the relevant segment of this company. In such circumstances, the question arises as to whether the relevant segment of this company can be excluded from the list of comparables merely on the ground that the revenue from this segment is only Rs.83 lacs? In our considered opinion, the quantum of turnover can be no reason for the exclusion of a company which is otherwise comparable. We find that Hon'ble jurisdictional High Court in the case of Chrys Capital Investment Advisors (India) P. Ltd. Vs. DCIT has held, vide its judgment dated 27.4.2015, that high turnover or high profit can be no reason to eliminate an otherwise comparable company. The same applies with full force in the converse manner as well to a low turnover/low profit company. We, therefore, hold that a company cannot be excluded from the list of comparables on the ground of its low turnover. In principle, we direct the inclusion of the relevant segment of this company in the list of comparables. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of ALP under TNM Method ? 4 That the appellant craves leave to add, amend, alter or forgo any ground/(s) of appeal either before or at the time of hearing of the appeal. 8.1. The Revenue in the grounds raised by it has basically challenged the order of the Ld. CIT(A) in directing the A.O. to exclude the following comparables : i. Accentia Technologies Limited ii. Fortune Infotech Limited iii. Igate Global Solutions Limited iv. Infosys BPO Limited 8.2. So far as Accentia Technologies Limited is concerned, we find the Ld. CIT(A) while directing the A.O. to exclude the above company from the final set of comparables has observed as under: (i) Accentia Technologies Limited : (a) The main contention of the appellant is that the company has a dis-similar functional profile; it develops software products; owns significant brands, IPR and goodwill; segmental information not available; strategic acquisitions and business restructuring during the year; abnormally high margins; rejected by DRP in AY 2011-12. (b) The Hon ble Delhi Tribunal in the case of Vertex Customers Services in ITA No.1508/Del/2015 for AY 2010-11 has held the above mentioned company to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the operations of the company. However, there is no denial of the fact of amalgamation taking place during the year. As a matter of fact, it is not clinched before us that the acquisitions have no or insignificant impact on normal operations of the business. So also, there is no denial of the fact that M/s. Accentia Technologies Ltd. owns significant intangible assets in form of goodwill etc., it also owns proprietary software products and though it is engaged in the medical transcription and development of software products but the segmental profitability is not available in the financial statements. These aspects were considered by the Hon'ble jurisdictional High Court and a coordinate Bench of this Tribunal in various cases in the context of M/s. Accentia Technologies Ltd. to hold that those are significant facts rendering M/s. Accentia Technologies Ltd. uncomparable with the companies like assessee. 52. Hon'ble Delhi High Court in the case of Evalueserve SEZ (Gurgaon) (P.) Ltd. (supra) (for AY 2010-11) upheld the exclusion of Accentia Technologies Ltd. on the basis that segmental accounts are not available. Finding with regard to exclusion of this company is that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will etc. amounting to Rs.21.94 crores and it also owns proprietary software products. Further, he has also pointed out to the fact that though it is engaged in the medical transcription and development of software products but the segmental profitability is not available in the financial statements. The aforesaid contentions of the Learned AR have not been controverted by the Revenue. We find that the Delhi Bench of Tribunal in the case of E-Valueserve SEZ (Gurgaon) P. Ltd. for AY 2011-12 had rejected it to be a comparable company to an ITES service for the reason that it is engaged in the business of medical transcription, medical coding and billing. The order of the Tribunal has also been upheld by the Hon'ble High Court. Similar view has also been taken by the Tribunal in other cases. We are therefore of the view that Accentia Technologies Ltd cannot be considered to be a comparable to Assessee. In view of these facts, we direct the AO to exclude it on account of functional dissimilarity. 55. In the case of Cognizant Technology Services (P.) Ltd. (supra), Hyderabad Bench of the Tribunal directed to exclude the companies having extra-ordinary event like mergers/acquisitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Index for performing specialized services in medical transcription. (c) In view of the above, Fortune Infotech Limited is not comparable to the appellant which is a low end BPO company. In accordance with the principle of consistency and respectfully following the order of Hon ble ITAT in the case of Vertex Customers Services (supra) the AO/TPO is directed to exclude Fortune Infotech Limited from the final set of comparables. 8.7. We do not find any infirmity in the order of the Ld. CIT(A) on this issue. From the various details furnished by the Learned Counsel for the Assessee in the paper book, we find the above company has different revenue recognition model and functionally dissimilar since it has diversified business operations. Since the Ld. CIT(A) while excluding this company from the list of comparables has relied on the decision of Coordinate Bench of the Tribunal in the case of M/s. Vertex customer Services India Private Limited, Gurgaon vs., DCIT, Circle-28(1), New Delhi vide ITA.No.1508/Del./2015 order dated 28.11.2017, therefore, in absence of any distinguishable features brought before us by the Ld. D.R, we do not find any infirmity in the order of the Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the final set of comparables. We, therefore, uphold the order of the Ld. CIT(A) on this issue. The ground raised by the assessee on this issue is accordingly dismissed. 8.10. So far as ICRA Techno Analytics Limited (Segmental) is concerned, we find the Ld. CIT(A) directed the A.O./TPO to exclude this company from the list of comparables by observing as under : (vi) ICRA Techno Analytics Limited (segmental): (a) The main contention of the appellant is that the company had dissimilar functional profile; segmental information was not available; rejected by DRP in AY 2011-12. (b) The Hon ble Delhi Tribunal in the case of Evalueserve SEZ (Gurgaon) Private Limited in ITA.No. 1467/Del/2017 for AY 2010-11 has held the above mentioned company as incomparable on the ground that the company was engaged a number of diversified activities like business intelligence and analytics space, software development and consultancy, engineering services, web development and hosting services. It was also noted that the two income segments of services and sales did not have complete segmental information as fixed assets and services were used inter-changeably. (c) In view of the above, ICRA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Infosys BPO Limited is concerned, we find the Ld. CIT(A) while directing the A.O./TPO to exclude this company from the list of final set of comparables has observed as under : (iv) Infosys BPO Limited: (a) The main contention of the appellant is that the company had dis-similar functional profile and that the company had a high turnover. (b) The Hon ble Delhi Tribunal in the case of Evalueserve SEZ (Gurgaon) Private Limited in ITA.No. 1467/Del/2017 for AY 2010-11 has held the above mentioned company to be incomparable on the ground that the company owned goodwill; had income stream of Rs. 1126.63 crores; derived leverage from the clients of Infosys Technologies Limited for cross selling the BPO services. (c) In view of the above, Infosys BPO Limited is not comparable to the appellant which is a low end BPO company. In accordance with the principle of consistency and respectfully following the order of Hon ble ITAT in the case of Evalueserve SEZ (Gurgaon) Private Limited (supra) the TPO is directed to exclude Infosys BPO Limited from the final set of comparables. 8.15. We do not find any infirmity in the order of the Ld. CIT(A) on this issue. From the var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hyundai Motors India Engineering. (P.) Ltd. v. ITO [2014] 44 taxmann.com 34/[2015] 152 ITD 112 directed the exclusion of Infosys BPO Ltd. from the final set of comparables by holding that, ....'presence of a brand commands premium price and the customers would be willing to pay, for the services/produced of the company. Infosys BPO is a established player who is not a only a market lead but also a company employing sheet breath in terms of economies of scale and diversity and geographical dispersion of customers. The presence of the aforesaid factories will take this company out of the list of comparables. We therefore accept the contention of the assessee that this company cannot be regarded as a comparable. Similar view was also taken in case of Symphony Marketing Solution India (Pvt.) Ltd. (supra) by the Banglorc Bench Therefore, we direct the Assessing Officer/TPO to exclude the same. 5.4. Accordingly, in view of the judicial precedents cited above we direct the AO/Ld. TPO to exclude BPO Infosys Ltd from the final set of comparables. 8.17. Similar view has been taken in various other decisions relied on by the Learned Counsel for the Assessee which are as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X
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