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TMI Blog2024 (1) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... d.DR. However, the reason for it have excluded by the authorities below are not as per the principles of transfer pricing procedure. In the interest of justice, we remit this comparable to the Ld.AO/TPO to consider the FAR of assessee with that of this comparable and to consider the inclusion in accordance with law. Interglobe Technologies Pvt. Ltd. - AR submitted that this comparable was rejected by the Ld.TPO as it fails employee cost filter. On an objection being raised before the DRP, it was held that this company is not reflecting in the search matrix of the TPO - AR referred to the annual report and submitted that this company has an employee cost ratio of less than 25% and the objection of the TPO is therefore without any basis. In the interest of justice, we remand this comparable back to the Ld.AO/TPO to consider its inclusion in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee. Working capital adjustment denied - HELD THAT:- We are of the opinion that this issue is no longer resintegra as this issue is covered by the decision of Coordinate Bench of this Tribunal in case of Huawei Technologies India (P.) Ltd. v. Jt. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances of the case and in law, the AO / TPO have erred in arbitrarily rejecting the comparable company, namely, R Systems International Ltd. (seg) on the ground that the same was not found in search matrix without appreciating that the same is functionally comparable. The DRP further erred in upholding the same basis the filter of different financial year ending. 2.3 That on the facts and circumstances of the case and in law, the AO / TPO have erred, in arbitrarily rejecting comparable company namely, Interglobe Technologies Pvt. Ltd. on ground that it fails the employee cost filter, without appreciating that the said company is functionally comparable and passed all the filters applied by TPO. The DRP further erred in upholding the same. 3. That on the facts and circumstances of the case and in law, the company namely Datamatics Financial Services Ltd. is not comparable to the Appellant as it has different functional, asset and risk profile. 4. That on facts and circumstances of the case and in law, the AO / DRP / TPO have erred in arbitrarily rejecting the transfer pricing study of the Appellant and using arbitrary filters for benchmarking the international tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law, the company namely Datamatics Financial Services Ltd. is not comparable to the Appellant as it has different functional. asset and risk profile." 2.2 The Ld.AR submitted that the above comparable was left out to be considered in the original grounds of appeal though it was not contested before the DRP seeking exclusion. It is submitted that this does not estop assessee from raising this comparable before this Tribunal. The Ld.AR placed reliance on the decision of Special Bench in case of DCIT vs. Quark Systems Pvt. Ltd. reported in 42 DTR 414 and decision of Coordinate Bench of this Tribunal in case of Sterling Commerce Solutions India Pvt. Ltd. vs. DCIT in IT(TP)A No. 1410/Bang/2015. The Ld.AR also placed reliance on the decision of Hon'ble Supreme Court in case of Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688 and National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383. 2.3 The Ld.DR on the contrary opposed the admission of the additional ground as it has not been considered by the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 2.4 We note that the additional grounds are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .95 2.08 2 Jindal Intellicom Ltd. 8.66 2.78 11.07 7.41 3 Fuzen Software Pvt. Ltd 15.07 16.06 16.98 15.93 4 Microland Ltd.(seg) 18.72 14.02 19.30 17.53 5 Tech Mahindra Business Services Ltd. 18.51 19.09 29.92 22.37 6 Datamatics Business Solutions Ltd. 6.21 33.46 36.22 22.64 7 Infosys B P M Services Pvt. Ltd. 22.35 24.41 26.77 24.37 8 Vitae International Accounting Services Pvt Ltd 27.00 27.25 No data available 27.13 9 Manipal Digital Systems Pvt. Ltd. 30.16 22.65 29.89 27.41 10 CES Ltd. 31.21 34.18 27.93 31.45 11 Ultramarine & Pigment Ltd. (Seg.) 46.63 30.27 27.26 34.41 12 S P I Technologies India Pvt. Ltd. 37.61 40.70 32.18 36.95 13 Inteq B P O Services Pvt. Ltd. 36.64 48.47 32.81 39.51 35th Percentile 22.37 Median 24.37 65th Percentile 27.41 3.5 The Ld.TPO thus proposed an adjustment of Rs. 18,99,71,894/- for the ITeS segment. On receipt of the transfer pricing order, the Ld.AO passed the draft assessment order in conformity with the proposed adjustment u/s. 92CA. The Ld.AO further made disallowance u/s. 14A amounting to Rs. 18,24,975/-. Aggrieved by the order of the Ld.AO, assessee filed objections b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , language, mobile text, document imaging and print management solutions for businesses and consumers. NTS India is engaged in providing medical transcription services to Nuance Inc. Figure 14 below illustrates the Nuance Group's value chain: a) Marketing Nuance Inc. is responsible for customer identification and also helps in entering into contract with the customers after the technical team reviews the requirements. The arrangement is such that the contracts are procured and entered into by Nuance Inc. and then the work is outsourced to NTS India. NTS India does not directly engage in marketing services / front ending with the clients. b) Contracting NTS India acts as a limited risk back office service provider for Nuance Inc. while Nuance Inc is a front ending entity. It enters into contracts with customers and manages the customer relationships for the contracts entered in the US/other markets. c) Activity scheduling and day-to-day activities The project management team interacts with the customers and understands the requirements in terms of deliverables and other technical specifications. The activity schedules are prepared by Nuance Inc.. based on the turnaround ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NTS India is engaged in rendering Medical transcription services to Nuance Inc. The customers of Nuance Inc. such as hospitals purchase licenses of the platforms/software ("Nuance software") which is owned by Nuance Inc. These platforms help customers in converting the voice dictation into text. The customers use a recording device to record the patient details, records, history, conversations, case studies and then it is transferred to their computer which is already equipped with the Nuance software which converts the voice into text. It is then accessed by the team of professionals in NTS India, who review the voice file and the converted text and arrive at meaningful information for analysis, reports and other medical uses. NTS India is engaged in rendering voice based transcription services. Even though different platforms are used for Medical transcription, the ultimate use and purpose of the platforms is to provide final report to the client. The functions involved in the medical transcription services are as described in Figure 15: Assets owned - tangible and intangible assets Every business requires assets (tangible or intangible) without which it cannot car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try. Nuance Inc. bears the market risk that may arise due to adverse market conditions due to either increased competition, adverse demand conditions within the market or the inability to develop existing and new markets. 2. Service/product liability risk Risks associated with product/service failures including non-performance to generally accepted or regulatory standards. This could result in product recalls and possible injuries to end-users. NTS India does not bear any service liability risk as the entire risk is borne by Nuance Inc. NTS India is responsible only to the extent of the medical transcription services in India in compliance with the specifications provided by Nuance Inc. Cost of rework, if any, is included in the cost invoiced to the AE including a markup, thereby mitigating this risk completely for NTS India The ultimate service liability risk lies with Nuance Inc. as it guarantees the overall contract performance. 3. Research & development ("R&D") risk Represents risk that R&D activities performed by an enterprise may not be successful. NTS India does not carry out any R&D and therefore does not bear any such risk. Nuance Inc. bears all the rese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se while billing to its AE including a mark-up. Nuance Inc. bears the capacity utilization risk as all the cost of NTS India forms a part of the total cost marked up for invoicing. 9. General business risk: This risk relates to certain general business risks such as ownership of property/plant and equipment, compliance with legal/contractual/statutory provisions, in their respective countries. NTS India bears certain general business risks such as ownership of property/ plant and equipment, compliance with legal/ contractual/ statutory provisions, etc. Nuance Inc. bears general business risks such as ownership of property/ plant and equipment. compliance with legal/ contractual/ statutory provisions, etc. Conclusion of the FAR analysis for NTS India's international transaction pertaining to medical transcription services with Nuance Inc. • NTS India performs all routine and normal functions undertaken by medical transcription service providers operating in India. • NTS India faces limited business risks with respect to transactions with Nuance Inc. • NTS India does not own any significant non-routine intangibles as the same are owned by Nuance Inc. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions advanced by both sides in the light of records placed before us. 5.3 From the FAR analysis carried out by assessee, it is noted that assessee is a routine service provider of carrying out medical transcription services on behalf of its AE without any significant intangibles owned by it. Further the transfer pricing study also characterised assessee to be a limited risk back office service provider in the process of rendering such services. The characterisation of the assessee has not been disputed by the authorities below and that the same has been upheld by Coordinate Bench of this Tribunal in assessee's own case for A.Y. 2016-17 in IT(TP)A No. 721/Bang/2021 vide order dated 16.02.2023. On perusal of the decision relied by the Ld.AR, we note that the above comparables have been excluded in case of Exxonmobil Services and Technology Pvt. Ltd. vs. DCIT (supra) by observing as under: "(I) Datamatics Business Solutins Ltd. 6. The ld. A.R. submitted that Datamatics fails the export filter applied by the learned TPO, lacks segmental data and therefore, should be rejected. • Fails export earnings filter proposed to be applied by the learned TPO for the two prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the TPO considering the company was upheld by the ld. DRP. 7.3 The ld. DR submitted that s regards lack of segmental information, the comparable company derives the whole revenue from sale of services and hence, there is no need of segmental reporting as per AS 17. 7.4 She submitted that the assessee contended before the ld. DRP that this comparable has incurred significant selling, marketing expenses. From the perusal of the annual report, the ld. DRP noted that the expenses on this count is only 4.57% of the total sales and which is not at all significant to affect the profitability of the comparable. Further, during the previous year 2015-16 the assessee has incurred more selling and marketing expenses amounting Rs. 326.33 lakhs as against total sales of Rs. 6314.04 lakhs whereas the company has incurred Rs. 299.46 lakhs during the previous year 2016-17 as against total sales of Rs. 6544.60 lakhs. Thus, that though expenses are less this year the revenue has slightly gone up. This shows that there is no correlation between the expenses and the revenue. The assessee has failed to establish that such differences have material effect on the margin of the above company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee was accepted by the revenue in A.Y. 2005 - 06 and A.Y. 2006-07. The same was also upheld by the ITAT for assessment year 2007 - 08. For the current assessment year, the Transfer Pricing Officer characterized the assessee's functions as knowledge process outsourcing KPO. Thereafter, the Transfer Pricing officer made general comments on the selection systems adopted by the assessee. He proceeded to reject the same. He did not specify as to which of the comparables is being rejected for which specific reasons thereof. Thereafter, the transfer pricing officer mentioned his own criteria and proceeded to select comparables and accordingly made the transfer pricing adjustment. 11. Upon the assessee's appeal, the ld. CIT(A) has accepted that the characterization by the transfer pricing officer of the assessee's functions as knowledge process outsourcing was not correct. Thereafter, the ld. CIT(A) contradicted himself by stating that the functions of the assessee are in alignment with the knowledge process outsourcing comparable dealt with by the transfer pricing officer. In this regard, the learned CIT appeals relied upon the ITAT decision in the case of Maersk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent; and therefore, benchmarking international transactions on basis of comparison of PLI of high-end KPO service providers with PLI of Voice Call Centers, would be unreliable. Further, Mumbai Tribunal in Wills Processing Services (India) Ltd. vs. ACIT (supra) on considering similar contentions excluded this comparable. 38. The Id. AR submitted as we recorded earlier that Coral Hubs Ltd. was outsourcing its significant part of its operation as evident from its low employee cost and have substantial different business model compared to assessee and prayed for exclusion. The ld. DR has supported the inclusion. The TPO while making benchmarking taking his view that this comparable company is in the business of IT enabled services to overseas markets and included in the list of comparable. The Id. CIT(A) confirmed the action of TPO holding that the TPO conducting benchmarking after calling information under section 133(6) and is benchmarking analysis are correct. We have noted that, though the Id. AR has relied upon a number of decisions of Tribunal/coordinate bench. We have noted that in a recent decision of Tribunal in Wills Processing Services (I) Pvt. Ltd. (supra) on comparabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Technologies Ltd • Crossdomain Solutions • Datamatics Financial Services." 7.1 Accordingly, we direct the AO to exclude this company M/s. Datamatics Business Solutions Ltd. from the list of comparables as this company is a KPO company and not comparable to assessee company." 8.1 In view of the above, we direct the AO/TPO to exclude this company Datamatics Business Solutions Ltd. from the list of comparables. (II) Infosys BPM Services Pvt. Ltd.: 9. The ld. A.R. submitted that Infosys BPO Limited should be rejected as a comparable company as this company is functionally different and therefore ought to be rejected. Further, Infosys BPO had presence of intangibles, brand value, subcontracting expenses as compared to the Assessee who did not possess the same. • Functionally dissimilar - business process management • Ownership of intangible assets & IPs • Brand Value/ Marketing expenses • Consultancy expenses in the nature of Sub-contracting charges 10. The ld. D.R. submitted that the ld. DRP in his report observed that on perusal of the annual report, this company offers business process outsourcing solutions to its global clients ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferences exist, then reasonably accurate adjustments can be made to eliminate their effect. It is important to note that the type and attributes of the comparables available in a given situation typically determine the most appropriate transfer pricing method. In general, closely comparable products/services are required if the comparable uncontrolled price ('CUP') method is used for arms' length pricing; the resale price, cost-plus methods generally require a lesser degree of products or services comparability and may be appropriate if functional comparables are available. The TNMM requires only broad functional and product/services comparability. In many instances, it will be possible to use 'imperfect' comparables, e.g., comparables from another industry sector, possibly adjusted to eliminate or reduce the differences between them and the controlled transaction.' 10.2 Reliance was also placed in the case of PinoBisazza Glass Pvt. Ltd. Vs. ACIT C-5,Ahmedabad 2005-06 & 2007-08, ITA No.1690 ^& 1622/Ahd/2010 & 3201/Ahd/2011 wherein acceptance of broad comparables was upheld. The relevant extract has been reproduced below: "12 - Although the selection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as under: 12.1.20 We have heard the rival submissions and perused the materials available on record. We have considered the arguments of both parties. In the assessment year 2016-17, in the assessee's own case in IT(TP)A No.212/Bang/2021 dated 27.9.2022, the Tribunal has considered this company as not comparable wherein held as under: "10. As mentioned earlier, the limited submission of the assessee before the Tribunal as per ground 1.12 is seeking exclusion of three companies from the list of comparable companies, namely, (i) Infosys BPO Limited, (ii) SPI Technologies India Private Limited, and (iii) Eclerx Services Limited. We find in the case of assessee's group company namely EIT Services India Pvt. Ltd. v. DCIT (supra), the above three companies were excluded from the list of comparables on account of functional dissimilarities. We find that profile of the assessee in the instant case and that of the assessee in case of EIT services India Pvt. Ltd. are identical. Moreover, the assessment year is the same. The relevant finding of the Tribunal in the case of EIT Services India Pvt. Ltd. v. DCIT (supra) reads as follows (For exclusion of (i) Infosys BPO Limited, (ii) SPI T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tre (P.) Ltd. v. Dy. 13. DIT [2013] 30 taxmann.com 249/141 ITD 245 and other decisions wherein it was observed that TNMM requires only broad comparability. 14. The contention of the assessee that Infosys BPO has various Revenue Models and its revenues are generated principally on time and material basis, transaction basis and fixed price contracts and therefore, it should not be compared with the assessee, the DRP observed that as the assessed failed to demonstrate as to how the different methods of billing would affect the Functional comparability or impact the profitability. Unless the same is demonstrated with credible evidence, it remains a theoretical argument without any backing with facts and figures and hence rejected it. 15. The assessee pointed out that this company has reported an amount of Rs. 136 crore as 'cost of Technical sub-contractors' which constitutes about 4.45% of total revenue of the company during the year. The DRP observed that the annual report mentions that these subcontractors are used for operational activities. This is a common practice in almost all the companies to give a small portion of the work to some other subcontractors for a vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 taxmann.com 716 (Bang. - Trib.) wherein it was observed as under :-- "We have perused submissions advanced by both sides in light of records placed before us. We note that this company is providing services in various areas of sourcing and procurement, customer services, finance and accounting legal process outsourcing, sales and fulfilment, analytics, business platforms, business transformation services, human resource outsourcing and technology solution optimisation. It is noted that this comparable also provides services in financial services and insurance, manufacturing, energy utilities communications and services and retail, consumer packaged foods, logistics and life services. Further in the annual report it has been mentioned that this comparable provides services that are different from routine back-office services. This noting itself makes this comparable not functionally similar with that of assessee. Accordingly we direct this comparable to be excluded from finalist." 21. In view of the above order of the Tribunal, we are inclined to hold that this company should be excluded from the list of comparables. 13.3 The company has also been excluded in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads as under: "6. The TPO has selected many comparables and among them M/s. Infosys BPO Ltd., TCS E-serve Ltd., and Eclerx Services Ltd., were objected to on the reason of high turnover and functionally different. With reference to Infosys BPO, the objection was that the said company renders vide array of services and has high brand value and turnover is also very high. With reference to TCS E-serve Ltd., there was exceptional event as the company was taken over by Tata Consultancy Services in the year 2008-09 and heavy turnover is due to its takeover. Further, it was submitted that the company was functionally different as it has three different services and segmental information was not arrived. As far as E-clerx Services Ltd., it was submitted that this company caters to high end KPO services and cannot be compared to routine BPO services provided by assessee. The DRP vide para 3.10 has accepted the assessee's objections and accordingly, directed the TPO to exclude the above three companies. There are other directions of the DRP on TP adjustments on which neither party has raised grounds, except the Revenue on the above exclusion of three companies. 7. Referring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this Tribunal in assessee's own case for A.Y.2009-10 while considering the comparability of the assessee with Infosys BPO Ltd., has taken note of the possession of the brand value and intangibles which influenced the financial results of this company. The Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd., [2013] 219 Taxman 26 (Del.), held that huge turnover companies like Infosys and Wipro cannot be considered as comparable to smaller companies like assessee therein. In the case before the Hon'ble High Court (supra), the turnover of the assessee was about Rs. 15.79 crores as against the turnover of Rs. 1016 crores of the Infosys. Considering these facts, the Hon'ble High Court had directed for exclusion of Infosys BPO because of its brand value and also on the grounds of functional dissimilarity and huge turnover. Though, the company before us is TCS e- Service Ltd., and not Infosys BPO, we find that the turnover of the assessee company for this assessment year is around Rs. 50 crores as against the turnover of TCS EServe Limited of Rs. 1405.10 crores. Therefore, following the turnover filter as well as taking note of the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparables. (III) Manipal Digital Systems Pvt. Ltd. 12. The ld. A.R. submitted that Manipal Digital Systems Private Limited should be rejected as a comparable company as it is functionally dissimilar and ought to be rejected. Further, the Company did not disclose segmental details with respect to its back office support services activity and also incurred advertisement/ promotional expenditure. • Functionally not comparable • No segmental details are available • Advertising and sales promotion expenses 12.1 The ld. D.R. submitted that the ld. DRP in his report observed that it is crystal clear from the annual report that the principal business activity of the company is given as IT enabled services which contributes 100% turnover of the company. On perusal of the breakup of the revenue given at page 41 of the annual report, the revenue earned from IT enabled services is Rs. 23.63 crores out of total revenue of 24.34 crores which comes to around 97.08%. The other activities like pre-media work, e-distribution contributes around Rs. 0.70 crores which is a minor revenue. The assessee, based on the website information, argued that the company is into diversifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - segment reporting is not applicable and hence, the objection on lack of segmental information is not valid and not acceptable. 12.4 The ld. DRP further observed that the assessee also contended that this comparable has incurred significant selling, marketing expense. From the perusal of the annual report, he observed that the expenses on this count is only 14.95% of the total sales and which is not at all significant to affect the profitability of the comparable. Accordingly, this plea was rejected and in view of the above, the pleas of assessee were rejected and selection of this company was upheld by the ld. DRP. 13. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that this has been considered in the case of Global E:Business Operations Pvt. Ltd. by this Tribunal for the AY 2017-18 in IT(TP)A No.174/Bang/2022 dated 16.11.2022, wherein held as under: "12.1.8 We have heard the rival submissions and perused the materials available on record. As per the annual report of the company, it is also in end-to-end content services across the value chain. From the website and annual report, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said reliable source of information as any company while projecting itself in public domain tries to shows its diverse functioning and range of products so as to create a brand image of itself. With these observations, the contention of the assessee was rejected and the company was taken as comparable company. 10. That before the Ld. DRP, objections have been raised by the assessee which are at running Page No.34 of the appeal memo and therein, apart from reiterating the submissions made before the TPO, the assessee has stated that as per the online advertising laws and guidelines provided by the Advertising Standard Council of India, advertisements are based on principle of truthfulness and honesty of representation and there cannot be any misleading advertisement. That further, since the audited financial statements do not provide detailed description of operations/products in which the company deals, the website can be referred to for the analysis of functions performed by the company. The Ld. DRP vide Para (c) of Page No.67 to 70 of its order and as per reasoning therein, had upheld the findings of the TPO and included Manipal Digital Systems Private Limited in the final set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent, the assets and capital employed would differ, the competence required to operate the two services would be different. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous. 32. It has been pointed out that whilst the Tribunal in Willis Processing Services (India) Pvt. Ltd. v. DCIT (supra) held that no distinction could be made between KPO and BPO service providers, however, a contrary view had been taken by several benches of the Tribunal in other cases. In Capital IQ Information System India (P.) Ltd. v. Dy. CIT, (IT) [2013] 32 taxmann.com 21 and Lloyds TSB Global Services Pvt. Ltd. v. DCIT, (ITA No. 5928/Mum/2012 dated 21th November 2012), the Hyderabad and Mumbai Bench of the Tribunal respectively accepted the view that a BPO service provider could not be compared with a KPO service provider. 33. The Special Bench of the Tribunal in Maersk Global Centers (India) Pvt. Ltd. (supra) struck a different cord. The Special Bench of the Tribunal held that ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pletely different content and value. Thus, where the tested party is not a KPO service provider, an entity rendering KPO services cannot be considered as a comparable for the purposes of Transfer Pricing analysis. The perception that a BPO service provider may have the ability to move up the value chain by offering KPO services cannot be a ground for assessing the transactions relating to services rendered by the BPO service provider by benchmarking it with the transactions of KPO services providers. The object is to ascertain the ALP of the service rendered and not of a service (higher in value chain) that may possibly be rendered subsequently. 35. As pointed out by the Special Bench of the Tribunal in Maersk Global Centers (India) Pvt. Ltd. (supra), there may be cases where an entity may be rendering a mix of services some of which may be functionally comparable to a KPO while other services may not. In such cases a classification of BPO and KPO may not be feasible. Clearly, no straitjacket formula can be applied. In cases where the categorization of services rendered cannot be defined with certainty, it would be apposite to employ the broad functionality test and then exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced on record, first of all the Revenue has selected Manipal Digital Systems Private Limited as comparable to that of the assessee company based on the earning of the company from ITes. However, there is no segmental specification provided neither by the TPO nor by the Ld. DRP for the reason of such inclusion of this company in the final set of comparable companies with that of the assessee company. In the decision of the Hon'ble Delhi High Court (supra.), it is very much clear in the wide spectrum of ITes if two companies are to be comparable one has to look into the characteristic of service or business provided under ITes by them. This exercise was not done by the Department in this case. We also opine that as per Indian Council for Advertising, the online advertising has to be published on true and honest disclosure basis and therefore, when proper documentation of activities are not physically available, in such scenario, referring the website for information is correct option and the information therein cannot be doubted. These are all multi-national companies and certain amount of honesty has to be attributed to them since all are functioning as per relevant rules and laws. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to certain information said to be available in the company's website. At the outset, he observed that the information put in website cannot be given complete credence, as they are mere forward looking information and statements with the motive of advertisement and other promotional gains. Further, the information in website are dynamic and cannot be related to a particular period. There is no way to verify whether the said information has any relevance for the year under scrutiny or it totally related to subsequent current year developments. There is no way to verify the correctness of this information and the relevant period to which they may pertain to. Therefore, the information in the annual report which is based on audited financial statements and management reports is more reliable and authentic, for qualitative analysis of comparability. Therefore, the pleas raised based on information said to be available in the website are liable to be rejected is in limine. In view of the above, factual information, the contention of the assessee that the comparable company is functionally different is not correct. Therefore, the selection of the comparable by the TPO on the fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Functionally dissimilar - KPO services No segmental details are available Existence of extraordinary event Presence of intangibles 17.1 The ld. D.R. submitted that the ld. DRP in his directions observed that the assessee has relied on the website extract of this company for functional differences. The discussion on the comparability should be based on the Annual Report of the company for the relevant financial year. Having said that, the functionality of the company is analysed with reference to the annual report for F.Y. 2016-17. In page 1 and 2 of the annual report-that "Data base services including data processing & tabulation services, on-line information and data retrieval services, Electronic Data Interchange (EDI) service, web search portal content services, Code and protocol conversion services etc". All these activities are in the nature of ITES. On page 100 of the annual report while giving the additional information it is mentioned that the total revenue of Rs. 391.54 crores is derived from information technology services. In the same page while giving the description of accounting policy for recognition of revenue it is stated that "revenue from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the differences between the transactions compared or the enterprises entering into such transactions are likely to materially affect the price charged, cost incurred or profit earned and even if there are material differences, the uncontrolled transaction can still be considered as comparable if reasonably accurate adjustments could be made by eliminating the material affects of such differences. 17.2 In this case as the ld. DRP pointed out earlier that difference in various segments i.e. low end to high end in ITES services is mainly on account of differences in the skill/qualification and pay structure of employees and, therefore, the main point to be considered is whether such differences between employees is going to materially affect the margin of the comparables. On the basis of billing rates / skills no conclusion could be drawn that margins in different segments of ITES services is also different. This is because if the billing rate is high in the high end services, the cost of the employees who are highly qualified/skilled also goes up steeply and, therefore, the margins are not much affected. In fact, no evidence has been produced before us to show that margins in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etting, composition and copyediting to educational and professional publication houses across the globe." Therefore, the amalgamated company is also in the similar line of business and the same will not have any demonstrable effect on the financials of the company. The assessee has simply pointed to increase in revenue but has failed to bring on record any evidence to suggest that the merger has impacted the profit margin of the company. This is further evidenced in the current year information given in the annual report at page 69 that the said amalgamation happened in previous years and there is no indication of reporting of any impact on the financials due to the amalgamation. Further, as per page 23 of the annual report there is no amounts involved on the structure of the share capital as a result of the amalgamation. 17.7 The ld. DRP further observed that the assessee has also argued that this company has significant intangibles and cannot be compared to the assessee which is a routine ITES service provider which does not holding non-routine intangibles and is not involved in development of intangibles. The company's annual report on page 20 gives the details of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above view taken by this Tribunal, in case of Exxonmobil Services and Technology Pvt. Ltd. vs. DCIT (supra), we direct the Ld.AO/TPO to exclude Infosys BPM Ltd., SPI Technologies India Pvt. Ltd., Manipal Digital Systems Pvt. Ltd., CES Ltd. and Datamatics Financial Services Ltd. 5.5 Inteq BPO Services Pvt. Ltd.: The Ld.AR has submitted that this comparable has been excluded by Coordinate Bench of this Tribunal in case of Mindteck (India) Ltd. vs. DCIT in IT(TP)A No. 211/Bang/2022 for A.Y. 2017- 18 vide order dated 30.11.2022. He submitted that the assessee in Mindteck (India) Ltd. vs. DCIT (supra) has been considered to be a captive service provider. The Ld.AR submitted that the website information of this comparable reveals that it is into medical transcription however there is no segmental details available in respect of the same. He placed reliance on the annual report of this company placed in the paper book at page 377 of the paper book wherein this company has been identified to be carrying out a business process outsourcing that includes computer programming, consultancy and related services. 5.5.1 The Ld.AR submitted that based on the above, this comparable has been exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany vis-a-vis IT enabled services is not correct. Information Technology Enabled Service (ITES) is defined as outsourcing of processes that can be empowered with information technology and covers diverse areas like finance,. HR, administration, health care, telecommunication, manufacturing etc. Armed with technology and manpower, these services are provided from e-enabled locations. This radically reduces costs and improves service standards. Some of the services offered include Medical Transcription, Document Processing, Data Entry and Processing, Data Warehousing, IT Help Desk Services, Application Development, Enterprise Resource Planning and Telecommunication Services. ITeS is a type of Outsource services which involves IT in various fields like Insurance, Finance & Banking, and so forth. These soft skills are mainly utilized in KPO (Knowledge Process Outsourcing) and BFO (Business Process Outsourcing) and LPO (Legal Process Outsourcing), rear office job and phone centres. Therefore, the functional profile of the comparable company is very much in the domain of ITES only. Therefore, the contention of the assessee that the functional profile of the company is dissimilar is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeking inclusion of the other. The Ld.DR prayed that such cherry picking of the comparables should not be entertained. We have perused the submissions advanced by both sides in the light of records placed before us. 6.1.3 Admittedly, we agree with the argument advanced by the Ld.DR. However, the reason for it have excluded by the authorities below are not as per the principles of transfer pricing procedure. In the interest of justice, we remit this comparable to the Ld.AO/TPO to consider the FAR of assessee with that of this comparable and to consider the inclusion in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee. 6.2 Interglobe Technologies Pvt. Ltd.: The Ld.AR submitted that this comparable was rejected by the Ld.TPO as it fails employee cost filter. On an objection being raised before the DRP, it was held that this company is not reflecting in the search matrix of the TPO. The Ld.AR referred to the annual report placed at page 649 of the paper book and submitted that this company has an employee cost ratio of less than 25% and the objection of the Ld.TPO is therefore without any basis. He prayed for this comparable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as not comparable in terms of Rule 10B(3) of the Rules, which provides as follows:- "(3) an uncontrolled transaction shall be comparable to an international transaction if - (i) None of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged to 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." 18. In such a scenario there would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore fail. Therefore, in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore the working capital adjustment as claimed by the assessee should be allowed. We hold and direct accordingly. 19. In the result, the appeal of the assessee is allowed." 8.2 In view of the above order of the Tribunal, we inclined to remit the issue to the file of AO/TPO to determine the correct working cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and cash and bank balances. He also brought to our notice note 23 which are the details of the other expenses. 9.3 The Ld.DR in respect of the observations made by the DRP, could not controvert the arguments advanced by the Ld.AR. We have perused the annual reports vis-a-vis the observations of the DRP. 9.4 On perusal of the document, it is categorically clear that the following para has been extracted from facts of some other assessee and does not pertain to present assessee before us. 9.5 On examination of the balance sheet of the assessee for the F.Y. 2015-16 it is seen that the assessee has both noncurrent investments and current investments as per Notes 12 and 16 forming part of financial statements. As per Note 23 under the head other income the assessee has disclosed dividend income of Rs. 93,93,564 deriving from both current and noncurrent investments that include mutual funds and shares under current investments ant investments in equity shares of subsidiaries, joint ventures and associated companies. The assessee has nut provided any details with regard to dividend income from shares as well as from mutual funds. 9.6 The above observations are therefore being expunche ..... 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