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TMI Blog2024 (7) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... paid. Based on the above said data, the TPO shall adjudicate and decide whether the assessee is a ITeS / KPO / high end BPO or merely low end BPO after following due process of law and decide the Arms Length Price afresh after providing the opportunity of hearing to the assessee, in accordance with law. The assessee is directed to produce all the documents / submissions before the TPO to substantiate its case that the assessee is not KPO / ITeS. Appeal of the assessee is allowed for statistical purposes. - SHRI R.K. PANDA, VICE PRESIDENTAND SHRI LALIET KUMAR, JUDICIAL MEMBER For the Assessee : Shri H. Srinivasulu, Advocate. For the Revenue : Shri Jeevan Lal Lavidiya, CIT-DR. ORDER PER LALIET KUMAR, J.M. This appeal is filed by the assessee aggrieved by the assessment order passed by the Commissioner of Income Tax (National Faceless Appeal Centre), Delhi dt.29.03.2021 invoking proceedings under section 143(3) r.w.s. 144C(13) and 144C(13) r.w.s. 143(3A) and 143(3B) of the Income Tax Act, 1961 (in short, the Act ) for A.Y. 2016-17. 2. The grounds raised by the assessee reads as under : A. General 1. On the facts and circumstances of the case and in contrary to law, the Deputy Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k adjustment in accordance with the provisions of Rule 10B of the Rules to account for differences between the international transactions undertaken by the Appellant, being a captive unit, and those undertaken by the alleged comparables. 7. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO has erred and Hon'ble DRP further erred in upholding / confirming the action of Ld. TPO in accepting following companies though they are functionally not comparable, earning high margins due to extraordinary events, fails the Ld. TPO's own filters and having presence of brand: Microland Limited Crossdomain Solutions Private Limited Tech Mahindra Business Services Limited Infosys BPO Limited SPI Technologies India Private Limited Eclerx Services Limited MPS Limited 8. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO erred and Hon'ble DRP further erred in upholding / confirming the action of Ld. TPO in rejecting though they are functionally comparable and passes all the filters applied by the Ld. TPO: Cosmic Global Limited Sundaram Business Services Private Limited ACE BPO Services Private Limited Suprawin Technolo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case and in contrary to the law, the Hon'ble DRP has erred in not admitting the fresh claim raised by the Appellant with respect to the claim of education cess as a tax deductible expenditure under the normal provisions of the Act. 16. Without prejudice to Ground number 15, on the facts and in the circumstances of the case and in contrary to the law, the Hon'ble DRP has erred in not allowing education cess as a tax deductible expenditure under the normal provisions of the Act. D. Consequential 17. On the facts and in the circumstances of the case and in law, the Ld. AO erred in in levying interest and penalty and the said levy of interest and penalty being wholly unjustified, ought to be deleted. 3. The brief facts of the case are that assessee is a Private Limited Company, filed its return of income for A.Y.2016-17 on 28.11.2016 electronically u/s 139 of the Act declaring total income of Rs. 30,51,30,570/-. The said return was selected for scrutiny assessment through CASS and statutory notice u/s.143(2) of I.T.At, 1961 was issued on 17.07.2017 and duly served upon the assesses. Subsequently, notices u/s.142(1) along with detailed questionnaire were issued. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income of the assessee was assessed at Rs. 49,99,97,796/-. Thereafter, as the assessee furnished inaccurate particulars with regard to the international transactions carried out by it to the extent of Rs. 19,48,67,226/- Assessing Officer issued penalty proceedings u/s 271(1)(c) of the Act and accordingly issued penalty notice u/s 271(1)(c) of the Act. 4. Feeling aggrieved with final assessment order, assessee preferred appeal before us. 5. At the outset, ld.AR had submitted that the assessee has challenging the inclusion and exclusion of comparables and had also insisting for the other issues. 5.1. The ld. AR for the assessee as well as the Ld. DR for the Revenue have submitted that the assessee was treated as ITeS / KPO in the preceding years, however, for the A.Y. 2014-15, the Tribunal has deleted the E-Clerx on the premise that the functions performed by E-Clerx are not comparable with that of assessee. It was submitted by the ld. AR that the assessee is a BPO whereas the ld. DR had submitted that the assessee is ITeS/KPO. It was submitted by both the parties that whether the assessee is ITeS / KPO / high-end BPO or simply BPO is required to be decided by the TPO. Based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group company with respect to CAD modeling and makes a 3D CAD modeling data of vehicle components using CAD software tools. Assessee is a routing support service provider and it assumes less than normal risk associated with carrying out such business. The International transactions reported by assessee are as under : Sl. No. ASSOCIATED ENTERPRISES NATURE OF INTERNATIONAL TRANSACTIONS AMOUNT IN RS. 1 Hyundai Motor Company, Korea Engineering / Consulting Engineering Services / IT enabled Services (ITeS) 43,57,37,674 2 Kia Motor Corporation, Korea 20,52,60,386 3 Hyundai Auto Ever Corporation, Korea Purchase of computers 2,64,56,224 Purchase of Security equipment 64,667 Annual Licence fee for software 98,95,527 Purchase of computer software 23,07,715 Reimbursement of expenses 11,08,347 4 Hyundai Motor Company, Korea Reimbursement of expenses 2,72,10,590 9.6. We have considered the rival contentions and perused the details placed on record. There is justification in assessee's contentions as the above said company is involved in multifarious activities including products and IPR rights. Consequently, it cannot be considered as functionally similar to assessee-company which is catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld.AR that segmental information in respect of this company is not available. We find that the Ld. TPO had adopted this company as a comparable as the Ld. TPO is of the view that the services rendered by this comparable are in the nature of BPO or back office services and that nothing he is earned from sale of products. We have perused the annual reports of this company and have observed that Accentia owned a brand and goodwill on account of acquisition/amalgamation of a defendant in force. Further it is observed that this company is providing services in the field of medical transcription billing and collections income from coding etc for which complete segmental information are not available. In our considered opinion this company is functionally dissimilar to that of the assessee. Accordingly we direct the Ld. TPO to exclude this company from the list of comparables . Accordingly, respectfully following the above, we direct the AO/TPO to exclude the above company from the list of comparables. ii) Eclerx Services Limited; 9.7. It was submitted that this company is a Knowledge Process Outsourcing Company and as per the annual report of the company, it is engaged in the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of DRP. Even though the company was excluded in earlier year, we are of the opinion that each year is to be considered separately on the basis of the facts and in TP matters the facts will vary from year to year. Accordingly, we are of the opinion that this company cannot be excluded. To that extent, the ground raised by assessee is rejected. iii) Crossdomain Solutions Private Limited: 9.10. With reference to this company, it was submitted that the company is functionally dissimilar as it has a diversified Knowledge Process Outsourcing Company providing services in insurance, health care, HR and accounting domains. Company also offers business excellence market research and data analytics and IT services. It was also submitted that the company is engaged in software development activities. It was also submitted that in assessee's own case in AY. 2008-09, this company was rejected by the ITAT due to the fact that it has diversified activity and further, segmental information was not available. It was also contended that the margin calculated by the TPO is incorrect and furnished a revised computation. The issue was whether the bad debts were non-operating expenses and TPO has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business units of financial services and sale and marketing support. He submitted that there was an extraordinary events as a subsidiary company of Eclerx Services Ltd. was wound-up. It has super normal profits during the year and cannot be compared to the assessee company. He submitted that it has diverse activities no segmental details are available and it has high turnover of Rs. 472 crores. Further, he brought to our notice that, by referring to annual reports of this company vide page 395 of paper book, this company has acquired Agilyst Inc, USA. The extraction of the submission is reproduced below: This year also saw us acquire Agilyst Inc, a US company providing operations and data analysis support to some of the largest cable and telecommunication companies in the world. We are very excited about this acquisition as it provides us access to new customers and services and reduces our reliance on our existing large customers. The Agilyst business model is also very similar to ours and so we see many business synergies, including opportunities for cross-selling services across our combined customer base. The acquisition also adds delivery capability in Chandigarh - now our thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that this company cannot be excluded. To that extent, the ground raised by assessee is rejected. Following the decision of the coordinate bench as above, we exclude this company as comparable. 9. Similarly, we are reproducing the relevant portion i.e., Paras 9 and 10 at page 883 and Para 32 at page 894 of the paper book in assessee s own case for A.Y. 2014-15 in ITA No.2303/Hyd/2018 which reads as under : 9. The ld Counsel for the assessee Shri H Srinivasulu submitted that the assessee is the 100% captive service provider to its AEs in R D support services of automobile parts. He submitted that the basic designs come from the AE while the assessee uses data base of AE located outside India and also the instructions of work which come from AE to render the services of CAD CAE. He submitted that the assessee uses CAD and CAE software to render the support services and send it back to AE and there is no patenting of intellectual property in India. Therefore, according to him, the assessee is providing only ITeS services (BPO). He further led us to the AE agreement, wherein it is seen that no software development services are provided nor were any research services provided by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services. He submitted that the assessee has not rendered the project support services, software development services and research services which are mentioned at page 969 of the Paper Book. He also drew our attention to page 540 of the Paper Book, wherein in its TP study, the assessee has stated that it is primarily involved in advance R D support services focused on project design engineering and quality enhancement and provides all back end operations like computer aided design and computer aided engineering. He also drew our attention to the profile of the company at page 544 of the Paper Book. As regards the functions performed by the assessee company to its AE, he submitted that the assessee is rendering only recruitment of technical manpower, rendering and delivering of CAD/CAE engineering services and professional and quality review of services. He also submitted that the assessee is taking risk of only foreign exchange, manpower and local and statutory risk. Therefore, all the risks and major functions are borne by the AE. He submitted that both the TPO as well as the DRP have considered the assessee as an ITeS company only and therefore, it cannot now be held to be a KPO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, but is also rendering KPO services and therefore, it cannot be compared to the assessee. In the decisions of the ITAT where it has been held to be a comparable to the assessee, we find that ITAT has held that the services provided by the assessee company and E-Clerx Ltd are similar and that the extra-ordinary event of winding up of the subsidiary company has not been proved to have any bearing on the assessee s profits and that super normal profit may not be a basis for exclusion of this company. However, we find that the Coordinate Benches of the Tribunal nor the Revenue Officers have not brought out functions which are similar to both the companies. The decision of the ITAT for year AY 2011-12 was followed in the AY 2012-13. Therefore, we are of the opinion that these decisions cannot exactly be binding on this Tribunal for the relevant AY, where the AO/TPO have considered the assessee as an ITeS service provider and not as a KPO. Further, as pointed out by the ld Counsel for the assessee, The TPO has himself has not taken E- Clerx Ltd as a comparable for the AY 2013-14. Therefore, we direct the TPO/AO to exclude this company from the final list of comparables to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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