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Calibrated Healthcare Systems India Pvt. Ltd., Space No. 309, Aggarwal Plaza, Plot No. 11, Sector-10, Dwarka, New Delhi-110075 Vs. ACIT (OSD), CIT-I, New Delhi
December, 05th 2014
         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

 
 
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