IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: `I' : NEW DELHI
Before Sh. R. S. Syal, AM And Sh. A. T. Varkey, JM
ITA No. 5271/Del/2012 : Asstt. Year : 2007-08
Calibrated Healthcare Systems Vs ACIT (OSD), CIT-I,
India Pvt. Ltd., Space No. 309, New Delhi
Aggarwal Plaza, Plot No. 11,
Sector-10, Dwarka,
New Delhi-110075
(APPELLANT) (RESPONDENT)
PAN No. AACCC3110C
Assessee by : Sh. Pankaj Gupta, CA
Revenue by : Sh. Peeyush Jain, CIT DR
Dt. of Hearing : 03.12.2014 Dt. of Pronouncement: 04.12.2014
ORDER
Per R. S. Syal, AM:
This appeal by the assessee is directed against the order
passed by the CIT(A) on 13.08.2012 in relation to the assessment
year 2007-08.
2. Briefly stated the facts of the case are that the assessee is a
wholly owned subsidiary of Calibrated Healthcare Systems LLC,
USA and is engaged in providing I.T enabled services to its foreign
entity. Its activities primarily comprise of processing of insurance
ITA No.5271/Del/2012
Calibrated Healthcare Systems India Pvt. Ltd.
claims, data entry and other support services in the healthcare
sector. An international transactions of export of I.T enabled
services amounting to ` 2,42,55,000/- was reported. The assessee
chose ten companies as comparable to demonstrate that the
international transaction was at Arm's Length Prices (ALP). The
Transfer Pricing Officer (TPO) discarded the choice of comparables
made by the assessee with reasons. He chose twenty five fresh
comparable companies and applied Transactional Net Margin
Method (TNMM) to benchmark this international transaction. That
is how, he determined Arm 's Length Margin of the comparables at
26.11% of operating cost. Applying the same to the assessee's
international transaction, the transfer pricing adjustment of `
23,85,223/- was proposed. The ld. CIT(A) directed to exclude two
companies from the list of comparables thereby retaining twenty
three companies chosen by the TPO as comparable. The assessee
in the instant appeal is aggrieved only against the inclusion of
following six companies in the final list of comparables:
i) Infosys BPO Ltd.
ii) Wipro Ltd. (Seg.)
2
ITA No.5271/Del/2012
Calibrated Healthcare Systems India Pvt. Ltd.
iii) HCL Comnet Systems & Services Ltd. (Seg.)
iv) Eclerx Services Ltd.
v) Maple Esolutions Ltd.
vi) Triton Corp. Ltd.
3. We have heard the rival submissions and perused the
relevant material on record. It is observed that the short
controversy taken up before us is only regarding the inclusion of
six companies by the TPO, which the assessee urges for
exclusion. There is no objection to any other facet of the
computation of the ALP of this transaction. We will deal with these
six companies, one by one, to determine their comparability.
i) Infosys BPO Ltd.
4. The ld. AR contended that there is a vast difference not only
in the size but also the functional profile, assets employed and
risks undertaken by Infosys vis-a-vis the assessee. Per contra, the
ld. DR supported the inclusion of this company in the list of
comparables.
3
ITA No.5271/Del/2012
Calibrated Healthcare Systems India Pvt. Ltd.
5. We find that whereas the assessee is a captive unit providing
back office support services to its AE alone, which are basically in
the nature of processing of insurance claims and the data entry, it
can have no valid comparison with Infosys Ltd., as the latter is a
full-fledged risk taking entrepreneur with diversified business
including software product, consulting application, design
development, re-engineering and maintenance etc. Infosys Ltd.
has developed/owns proprietary products like Finacle, whereas
the assessee, being a captive unit, does not own any such
proprietary product. Unlike Infosys, the assessee does not have
any substantial intangible assets. Similarly, Infosys has spent a lot
on Research and development, whereas the assessee has not
undertaken any such activity in rendering services to its AE. Apart
from the above, there are several other factors which make
Infosys as incomparable with the assessee. The Hon'ble Delhi
High Court in CIT Vs Agnity India Technologies Pvt. Ltd. (2013)
219 Taxman 26 (Delhi) has directed the exclusion of Infosys
Technologies from the list of comparables of Agnity India, facts of
which company are more or less similar to that of the assessee as
both are captive units providing broadly similar services.
4
ITA No.5271/Del/2012
Calibrated Healthcare Systems India Pvt. Ltd.
Respectfully following the above judgment of the Hon'ble
jurisdictional High Court, we direct the exclusion of this company
from the list of comparables.
ii) Wipro Ltd. (Seg.)
6. After hearing both the sides, here again we find that the
facts and circumstances of this company nowhere match with the
assessee company. This company is also a giant entity in
comparison with the assessee company with marked differences
as regards risk profile, nature of services, ownership of IP rights,
expenditure on R & D etc. Drawing the strength from the
judgment of Agnity India Technologies Pvt. Ltd. (supra), we hold
this company to be incomparable with the assessee. The same is,
ergo, directed to be not treated as comparable.
iii) HCL Comnet Systems & Services Ltd. (Seg.)
7. After considering the rival submissions and perusing the
relevant material on record, we find that the TPO included the
relevant segment of this company in the list of comparables. The
5
ITA No.5271/Del/2012
Calibrated Healthcare Systems India Pvt. Ltd.
ld. AR was fair enough to accept that there is no difference in the
functional profile of this company with the assessee company. He,
however, sought the exclusion of this company on the basis of
high turnover. We do not approve the view canvassed by the ld.
AR in this regard. When a company is functionally similar to that
of the assessee company, the same cannot be excluded merely
because of its turnover at a higher or lower level. Here it is
important to mention that sec. 92C(1) of the Income-tax Act, 1961
provides for the computation of Arm's Length Prices by one of the
methods prescribed therein. First proviso to sec. 92C(2) clearly
provides that when more than one price are determined by the
most appropriate method, then the Arm's Length Prices shall be
taken to be the arithmetic mean of such prices. It does not talk of
excluding the companies with high or low turnover or high or low
profit rate. Recently the Delhi Tribunal in Nokia India Pvt. Ltd. Vs
DCIT (ITA No. 242/D/2010 etc.), vide its order dated 31.10.2014,
has held that a potentially comparable case cannot be excluded
for the reason of high or low turnover or high or low profit margin.
In reaching this conclusion, the Delhi bench also considered a
Special Bench order passed in the case of Maersk Global Centres
6
ITA No.5271/Del/2012
Calibrated Healthcare Systems India Pvt. Ltd.
(India) (P.) Ltd. Vs ACIT (2014) 147 ITD 83 (Bom.) (SB). In view of
the fact that the assessee has admitted the functional
comparability of the relevant segment of this company and the
only difference pointed out is about its higher turnover, we are
satisfied that this case cannot be excluded from the list of
comparable. The impugned order is upheld on this score.
iv) Eclerx Service Ltd.
8. We have heard the rival submissions and perused the
relevant material on record. The Annual Report of this company
for the Financial year 2006-07 does not throw any light on the
nature of business carried on by it. However, the Annual Report
for the Financial year 2007-08, a copy of which is available on the
paper book, divulges the nature of business carried on by it. It is
seen that this company is a Knowledge Process Outsourcing (KPO)
company providing data analytics and data processing solution to
its clients. It is a recognized expert in Financial services and Retail
and Manufacture. It provides consulting services and also process
outsourcing. The above details have been pointed out by the ld.
AR from the Annual accounts of this company for the Financial
7
ITA No.5271/Del/2012
Calibrated Healthcare Systems India Pvt. Ltd.
year 2007-08. Nothing has been brought on record by the ld. DR
to show that the functions performed by this company in the
relevant year were any different. When we consider the nature of
assessee's business, which is primarily that of processing
insurance claim and data entry, it becomes vivid that Eclerx
Service Ltd. cannot be considered as functionally comparable with
the assessee company. The same is therefore, directed to be
excluded from the list of comparables.
v) & vi) Maple Esolutions Ltd. and Triton Corp. Ltd.
9. We have heard both the sides and perused the relevant
material on record. Both these companies are inter-related
entities. During the year under consideration, there was
acquisition of 100% shares of Maple Esolutions Ltd. by Triton
Corp. Ltd. and thus, Maple Esolutions Ltd. became a wholly owned
subsidiary of Triton Corp. Ltd. w.e.f 01.01.2007. It can be seen
that this merger/acquisition has taken place during the year
under consideration, thereby shattering their comparability.
8
ITA No.5271/Del/2012
Calibrated Healthcare Systems India Pvt. Ltd.
10. The ld. AR also pointed out that both these companies are
owned by Rastogi Group and the reputation of the Directors of
these companies was having question-mark in earlier years. In
support of the contention for the exclusion of these companies,
the ld. AR relied on an order passed by Delhi Bench of the
Tribunal in the case of ITO Vs CRM Services India (P) Ltd. (ITA No.
4068/D/2009), copy placed on pages 141 onwards of the paper
book, in which Maple Esolutions Ltd. and Triton Corp. Ltd. were
directed to be excluded by the Tribunal on this score. The ld. DR,
on the other hand, opposed this contention.
11. We find that there is a direct order by the Delhi Benches of
the Tribunal in which these two companies have been excluded
because of financial irregularities committed by their directors. In
the absence of any contrary order brought on record by the ld. DR
permitting the inclusion of companies under cloud, in the list of
comparables, respectfully following the precedent we direct the
exclusion of these two companies from the list of comparables.
9
ITA No.5271/Del/2012
Calibrated Healthcare Systems India Pvt. Ltd.
12. The impugned order is therefore, set aside and the matter is
sent back to AO/TPO for a fresh determination of ALP of the
international transaction in conformity with our above directions.
13. In the result, the appeal is partly allowed for statistical
purposes.
Order pronounced in the open Court on 04/12/2014.
Sd/- Sd/-
(A.T. Varkey) (R. S. Syal)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 04/12/2014
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
Date Initial
1. Draft dictated on 03.12.2014 PS
2. Draft placed before author 03.12.2014 PS
3. Draft proposed & placed before the JM/AM
second member
4. Draft discussed/approved by Second JM/AM
Member.
5. Approved Draft comes to the Sr.PS/PS PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk PS
8. Date on which file goes to the AR
9. Date on which file goes to the Head
Clerk.
10. Date of dispatch of Order.
*
10
|
