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American Express (I) P. Ltd., Metropolitan Saket, 7th floor, Office Block, District Centre, New Delhi. Vs. DCIT, Circle-2(2), New Delhi.
July, 18th 2019
             IN THE INCOME TAX APPELLATE TRIBUNAL
                   DELHI BENCH `I-2' NEW DELHI

          BEFORE SHRI O.P.KANT, ACCOUNTANT MEMBER
                             AND
          SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER

                       I.T.A.No. 1426/Del/2015
                      Assessment Year: 2010-11


American Express (I) P. Ltd.,                 vs    DCIT, Circle-2(2),
Metropolitan Saket, 7th floor,                      New Delhi.
Office Block, District Centre,
New Delhi.
PAN AAACA8163F

      (Appellant)                               (Respondent)

                    Appellant by:  Shri Nageshwar Rao, Advocate
                    Respondent by: Shri H.K. Choudhary, CIT DR

                                       Date of hearing: 03/7/2019
                                       Date of order : 17/7/2019

                                 ORDER

PER K. NARASIMHA CHARY, J.M.

      Challenging the addition of Rs.71,35,97,820/- on account of
transfer pricing adjustment and Rs.49,93,98,378/- u/s 10A of the
Income-tax Act, 1961 ("the Act")       in the order dated 22.1.2015
passed u/s 143(3) read with Section 144C of the Act pursuant to the
directions dated 17.1.2014 by the ld. Dispute Resolution Panel-I, New
Delhi (ld. DRP) the assessee, namely M/s American Express India
Private Limited filed this appeal in respect of Asstt. Year 2010-11.
                                  2

2.    Brief facts of the case are that the assessee was incorporated
in India in 1994 and is engaged in the business of providing travel
related services (Charge Cards, Credit Cards, Traveler's Cheques and
Travel Agency Services). During FY 2007-08, the international banking
business of American Express Group was sold off. American Express
group is involved in strategic decision making and evolving
standardized policies and procedures to run the business.           It
exercises management control and oversight. It also manages the
marketing and corporate governance initiatives and integrates it with
the overall business objectives. Assessee is compensated for services
rendered with a fee that is equivalent to operating expenses plus
20% of the mark up. During the Financial Year 2009-10, the value of
the international transaction i.e. export of data processing and back
office support undertaken by the assessee was Rs.714,56,74,755/-.

3.    For the AY 2010-11, the assessee filed the return of income on
1.10.2010 declaring an income of Rs.2,42,82,74,285/- and since the
international transaction undertaken by the assessee with the
Associate Enterprises was to the tune of more than Rs.15 crores, in
accordance with the provision of Section 92CA of the Act, the
international transaction of the assessee with the Associate
Enterprise was referred to the TPO for determination of arm's length
price. Ld. TPO by order dated 16.1.2014 suggested an adjustment of
Rs.114,75,06,127/- to the income of the assessee, being the
difference between the arm's length price and the price charged by
the assessee. Assessee filed objections before the ld. DRP. Ld. DRP
                                   3

by order dated 17.12.2014 gave certain directions, pursuant to which
ld. AO passed the assessment order making the transfer pricing
adjustment to the tune of Rs.71,35,97,820/- and also an addition of
Rs.49,93,98,378/- by withdrawing deduction u/s 10A of the Act.

4.    The assessee is, therefore, before us in this appeal challenging
the same and as could be understood from the contentions of the
assessee before us, the assessee is challenging the inclusion of five
comparables, namely, eClerx services Ltd., Infosys BPO Ltd., Accentia
Technologies Ltd., TCS e-serve Ltd. and TCS e-serve International Ltd..
Assessee is also challenging the exclusion of four comparables,
namely, R. Systems International Ltd. (Segmental); CG Vak Software
Exports ltd.; Informed Technologies Ltd.; Micro genetics Systems Ltd.
Besides this, the assessee also complained thatthe ld.TPO/AO
erroneously interchanged the operating profit/operating costs
margins of the companies, namely, eClerx services Ltd. and Omega
Healthcare Management Services P. Ltd. Further grievance of the
assessee is that the authorities below grossly erred by charging
interest on credit period granted by the company under normal trade
practices and also ld. AO not granting full credit of TDS to the
assessee as claimed by them in the return of income.

5.    Contention of the assessee in respect of five comparables,
namely, eClerx services Ltd., Infosys BPO Ltd., Accentia Technologies
Ltd., TCS e-serve Ltd. and TCS e-serve International Ltd. is that these
companies are not at all good comparables to the assessee on several
ground including the functional dissimilarity, non availability of
                                      4

segmental data and diversified activities besides high end use brand
worth. Assessee also challenges the exclusion of four comparables,
namely, R. Systems International Ltd. (Segmental); CG Vak Software
Exports ltd.; Informed Technologies Ltd.; Micro genetics Systems Ltd.
on the ground that functionally all these companies are good
comparables to the assessee but for the year ending not matching in
case of R. Systems International Ltd. and turnover filter in respect of
the other three companies. It has, therefore, become necessary for
us to look into the functions performed and risks assumed as
incorporated by them in their TP Report to be found from page
nos.365 of the paper book:

     "Functions Performed
     4.02.2.1 Functions Performed by American Express Group
     American Express Group is engaged in the business of providing
     travel related services (charge cards, credit cards, traveler's cheques
     and travel agency services). During FY 2007-08, the international
     banking business of American Express Group was sold off. American
     Express Group is involved in strategic decision making and evolving
     standardized policies and procedures to run the business. It
     exercises management control and oversight. It also manages the
     marketing and corporate governance initiatives and integrates it
     with the overall business objectives.
     4.02.2.2 Functions Performed by AEIPL

     AEIPL is a captive contract IT enabled service provider catering to the
     needs of the Group.
     As per the contractual arrangement that AEIPL has with its AEs for
     the provision of such support, the resultant output is the property of
     American Express Group and at no point in time shall such
     ownership vest with AEIPL either wholly or partly. AEIPL does not
     obtain any copyrights, patents rights, trade secrets or trademarks on
     such output.
     AEIPL is remunerated on a cost-plus basis without regard to the
     success or failure of its activities. For this purpose, costs comprise all
                               5

of the direct and indirect costs, including salaries, travel expenses,
professional fees, rent, depreciation, financial charges, etc.
Therefore, AEIPL is insulated from all key business risks.
The functions performed by AEIPL are explained below:
a)      Input
AEIPL receives raw data / raw information ("raw data") in electronic
form or in the form of paper based inputs (documents, vouchers,
reports etc.). The raw data is received through mail/courier, fax and
electronic transmission from clients' respective locations to AEIPL
servers via data links. The raw data comprises unprocessed or semi-
processed accounting, financial and commercial information relating
to the businesses of American Express locations worldwide:
The various kinds of raw data received by AEIPL are as follows:
       Card.member Data: Data pertaining to transactions executed
       by American Express card members.
       American Express Company Data: Data pertaining to day-to-
       day transactions undertaken within American Express
       companies which need to be recorded and reported to the
       respective American Express companies ('customer country')
       in different reports and accounting formats. Various types of
       inputs received for processing and recording in electronic or
       physical form are as follows:
         Invoices;
         Vouchers;
         Vendor Purchase Orders; and
         Employees Travel Expense Vouchers

      Airlines / SES / Hotels Data: These pertain to transactions
      undertaken for American Express travel business and include
      data on:
         Sale of air tickets to customers and payments to airlines;
         `Payment to service establishments for purchases made
         through American Express cards; and
         Booking of hotels for customers and payments to hotels.
      Customers Bank Data: These include data on treasury and
      other transactions done by American Express card members.
b)     Processing of Inputs (Data management. Information
Analysis and Control)
                                                6

       The Company uses the raw data as input and carries out a series of
       processes (i.e., reorganization, analysis and transformation and
       conversion of raw data) as per requirements of its customers to
       generate customized output.
       c)       Output
       The Company's output includes the following items processed and
       prepared as per the customers' specifications:
               Ready to use business reports and computations;
               Financial statements such as balance sheets, profit and loss
               accounts, ledgers, trial balances, accounts payable analysis,
               accounts receivable analysis, and fixed assets registers;
               Payroll processing and reports;
               Account reconciliation reports;
               Payment instructions for payment to vendors;
               Card transaction process outputs;
               Travel business transaction reports; and
               Other MIS reports per customers' specific requirements.
       Further, AEIPL also provides call centre services to Group Companies,
       which involves answering incoming American Express card member
       calls for queries related to card member transactions.
       These queries include, inter alia, balance enquiry, product feature
       queries, change in personal information, etc.
       4.02.1 Risks Assumed
The risk profile of AEIPL as compared to American Express Group for the above
mentioned international transaction is tabulated below:

RISK CATEGORY & DESCRIPTION               EXPOSURE TO AEIPL               EXPOSURES TO AEs
Market Risk: Market risk arises for a     AEIPL does not have any         AEs render services to
business due to the uncertainty in the    exposure to this risk           end     customers      and
structure of the market, demand           because it is a captive         hence, all market risks
patterns and needs of customers,          support provider, assured       with respect to the
costs, pricing etc. Market risk           of a fixed mark up on its       support provided by
represents standard risk borne by any     operating costs.                AEIPL including customer
enterprise      in   market      driven                                   acceptance are borne by
transactions.                                                             American Express Group.
  Product/service liability risk: Risks   AEIPL is not exposed to         AEs face this risk as they
  associated with product/service         this risk since it deals with   render services to end
  failures including non-performance      AEs only who would not          customers.
  to generally accepted or regulatory     recover any damages from
  standards. This could result in         AEIPL even if services
  injury/harm to the end-users.           rendered by AEIPL were
                                          defective and caused
                                          losses to them.
                                                     7

Credit Risk: This is the risk arising         AEIPL is protected from          Since the data processing
from non-payment of dues by                   this     risk    as   the        and back office support is
customers.                                    remuneration for the             only      rendered       to
                                              support rendered by it           American Express Group
                                              entirely comes from Group        Companies, the risk of no
                                              Companies, and therefore         settlement     of    inter-
                                              the risk of non-payment is       company dues in respect
                                              remote.                          of this support is remote.


Manpower Risk: Any enterprise which           AEIPL is exposed to the costs    AEs reimburses AEIPL on
is greatly dependent, for its success,        associated      with     high    cost- plus basis and hence
upon quality personnel with superior          attrition rate in Indian call    would bear the excess cost
technical knowledge is faced with this        centre and back office           associated with this risk.
risk. Competitive market forces               industry. However, since         Therefore,     AEs    have
expose such an enterprise to the risk         AEIPL is remunerated on a        indirect exposure to this
of loosing its trained personnel.             cost-plus basis, this risk is    risk.
                                              mitigated to a significant
                                              extent.

Price Risk: This risk arises as a result of   AEIPL does not have any          The data processing and
price pressures in the market resulting       exposure to this risk as its    back office support is
in price undercutting, and thereby            compensation from AEs is        rendered       within     the
adversely impacting profitability.            pre-agreed and is on a cost-    American Express Group,
                                              plus basis.                     and the inter company
                                                                              prices     are       typically
                                                                              determined based on arm's
                                                                              length principle. Thus, price'
                                                                              risk    associated       with
                                                                              intercompany           prices
                                                                              charged in respect of such
                                                                              support would depend
                                                                              upon     the     nature     of
                                                                              arrangement/ agreement
                                                                              between Group Companies
                                                                              and would lie with . Group
Foreign Currency Risk: The risk arises        AEIPL does not bear this risk   AEs have an exposure to this
from any adverse revaluation of assets        since it incurs expenses in                 risk.
and liabilities due to fluctuation in         local currency and also
exchange      rates,     which     would      invoices its customers in
eventually have a negative impact on          local currency.
the profitability of the enterprise.


Capacity Utilization risk: This risk          AEIPL is not exposed to this     The AEs bear the excess
arises on account of underutilization         risk as it is remunerated by     cost      associated  with
of              manufacturing/service         Group Companies on a cost        unutilized capacity as it
facility/personnel.                           plus basis, irrespective of      compensates AEIPL on a
                                              whether the employees            full cost-plus basis.
                                              /systems are being fully
                                              utilized or not.
Re-work risk: This is the risk of AEIPL       AEIPL is not exposed to this     American Express Group
having to perform no billable re-work.        risk as it is remunerated by     would remunerate AEIPL
                                              Group Companies on a cost        for the rework costs also
                                              plus basis, and the costs        as they get included in the
                                              incurred by it, in performing    cost base.
                                              the re-work would also form
                                              part of the cost base.
                                                  8

Technology Risk: This risk arises if the   Loss of telecommunication         American Express Group
market in which the Company operates       links and connectivity is a       faces this risk as any
in is sensitive to introduction of new     key business risk faced by        technical snag would
products and technologies. Hence, in       AEIPL, and AEIPL is therefore     directly hamper support
that case, business units may face loss    required to ensure adequate       provided to the companies
of potential revenues due to               business continuity planning      in the American Express
inefficiencies arising from obsolete       and maintenance of the            Group / to customers of
infrastructure and tools as well as        same. With the telecom/IT         the American Express
obsolescence      of     manufacturing     industries     facing    rapid    Group.
processes.                                 technological advancements,
                                           to keep pace, AEIPL is also
                                           required to maintain state-
                                           of-art infrastructure and
                                           ensure that its employees'
                                           skills are correspondingly
                                           upgraded on a continuous
                                           basis.
                                           Since AEIPL is remunerated
                                           on a cost plus basis, this risk
                                           is mitigated to a great
                                           extent.
Cost variance risk: This risk arises on    AEIPL is not exposed to this      The AEs are exposed to
account of variations between actual       risk as it is remunerated by      this    risk    as    they
costs and budgeted costs.                  its AEs on an actual cost plus    compensate AEIPL on an
                                           mark up basis, irrespective       actual cost plus basis
                                           of the variance between the       irrespective of the extent
                                           actual and budgeted costs of      to which AElPL's actual
                                           AEIPL.                            costs vary from its
                                                                             budgeted costs.


4.02.4 Characterization
Based on the facts as presented in the above analysis of functions performed,
assets employed and risks assumed by AEIPL, AEIPL can be characterized as a
back officer support service provider operating in a limited risk environment.






6.       Keeping in view these functions performed and reasons assumed,
we shall now proceed to deal with the comparability of different
entities included and excluded by the ld. TPO not to the liking of the
assessee. As could be seen from the record, the bone of contention in
this matter relates to the service of export of data processing and back
office support undertaken by the assessee to the tune of
Rs.714,56,74,755/-.
7.       For benchmarking this service characterized by the assessee as a
back office support service operating in a limited risk environment i.e.
ITeS segment, the assessee adopted TNMM method as the most
                                     9

appropriate method with PLI as Operating Profit/Operating Cost with a
PLI arrived at 17.98%.

8.    Assessee initially selected ten comparables by rejecting six in the
matrix.   Out of 10 comparables selected by the assessee, ld. TPO
rejected six including R. Systems International Ltd. (Segmental); CG Vak
Software Exports ltd.; Informed Technologies Ltd.; Micro genetics
Systems Ltd. So also ld. TPO selected six comparables which were
rejected by the assessee, namely, eClerx services Ltd., Infosys BPO Ltd.,
Accentia Technologies Ltd., TCS e-serve Ltd. and TCS e-serve
International Ltd.   Therefore, it is clear now that the assessee is
disputing the inclusion of eClerx services Ltd., Infosys BPO Ltd., Accentia
Technologies Ltd., TCS e-serve Ltd. and TCS e-serve International Ltd.,
which according to the assessee, rendered high end technical services
falling under the category of KPO.

9.    Revenue disputes that by looking at the functional profile of
the assessee, it is clear that the assessee is not providing the low end
IT Services but, on the other hand, the business being carried on by
the Associated Enterprises, which are receiving services from the
assessee are very high end businesses. He further submitted that by
looking into what is input for the service and what are output
generated by the assessee and the services provided by the assessee
including the data analysis to detect high risk account activity and
also support initiatives such as product redesign consolidation
migration organizational restructuring and project management
                                  10

support to implementation.According to him services provided by the
assessee cannot be characterized as low end ITeS.

10.   Per contra, it is the submission of the ld. AR that all the
services rendered by the assessee are only in the nature of low end
services and as a matter of fact this question had arisen for the
consideration of the Tribunal in assessee's own case for the Asstt.
Year 2007-08 and by order dated 7.6.2017, the Tribunal dealt with
this issue at length and reached a conclusion that the assessee
provides back office operation, revenueaccounting, call centre
services, support center and ITES services and is definitely different
from the Knowledge process outsourcing services. Merely for the
reason that AEGSEC services at Gurgaon unit provides certain data
risk analysis services to detect high risk account activity does not
make the services provided as high end service Provider.

11.   He further submitted that ld. TPO has not questioned the FAR
analysis provided by the assessee and accepted the same to be ITeS
Service Provider and not a KPO.

12.   On this aspect, we have gone through the functional profile of
the assessee as contained in the TP study report for this year with the
functional profile of the assessee as incorporated in the order dated
7.6.2017 for the AY 2007-08 in ITA No.1865/Del/2015. We do not
find any change in the functions performed, reasons assumed or the
assets deployed by the assessee in these years. Vide Para Nos. 21 to
29, a Coordinate Bench of this Tribunal dealt with this issue in detail
                                   11

and reached a conclusion that definitely the services rendered by the
assessee falling in the category of Business Process Outsourcing, but
not Knowledge Process Outsourcing. When the facts permeating all
through the years are same, we do not find any reason to take a
different view. We, therefore, hold that the services rendered by the
assessee are only back office operations falling in the category of ITES
and not KPO.

13.   Now coming to the first comparable eClerx Services Ltd.,
learned AR submitted that on the ground of functional dissimilarity in
the assessee's own case for AY 2007-08 and 2009-10, a coordinate
bench of this Tribunal rejected this company as a comparable in ITA
No.295/Del/2012 and ITA No.1973/Del/2014 respectively. He further
submitted that learned DRP rejected this comparable in assessee's
own case for AY 2011-12 vide order dated 13.11.2015.

14.   We have gone through the orders of the authorities below and
also the orders cited by the assessee. Assessee challenging the
inclusion of this company on the ground of functional dissimilarity,
abnormal fluctuations in revenue and profits besides unreliability of
the data. Learned TPO rejected the same.

15.   Learned DRP held that several services provided by the
assessee are also of similar nature as could be observed from the
profile of this eClerx Services Ltd. and the extracts of the agreement
produced in preceding paras.       In DRP's opinion, all the services
provided by the taxpayer as well as eClerx are not high end in nature
                                    12

but a low end and high end comparable is used in the case of the
assessee.

16.   As could be found from the discussion in relation to eClerx
Services Ltd in ITA No.295/Del/2012 for AY 2007-08 and in ITA
No.1973/Del/2014 for AY 2009-10, it is clear that under similar
circumstances, this Tribunal found that eClerx Services Ltd. is
functionally different from the assessee. Further, ld. DRP in their
order dated 13.11.2015 for AY 2011-12 observed in respect of eClerx
as follows:

      Regarding eClerx
      This is functionally different-from taxpayer for the ITeS segment.
      eClerx with a margin 55.97% operates in the business data analytics
      and process solutions service (Annual Report 2010-11 page 69) space
      catering to a global client base comprising the world's 8 top banks, 12
      top Global retailers, 4 top software companies, 7 top high tech OEMs
      and 9 top travel and leisure companies ( Sample Client Snapshot on
      website).Its income from operations consists of revenue from data
      analytics services and knowledge process outsourcing (Annual Report
      2010-11 page 79) solutions/services which comprise of both time per
      unit price and fixed fee based service contracts. It also has incurred a
      substantial sum (34.31% of the total cost of the company Annual
      Report) on outsourcing of ITeS services to third party vendors. eClerx
      acquired Igentica Travel Solutions in July 2007 Limited providing it
      with 28 large customers primarily in Europe into a new vertical as part
      of its strategy for inorganic growth through "bolt on" acquisitions
      increasing the customer base and revenues of the companies. The
      Company thus clearly bears significant entrepreneurial business risks
      such as market, price, service liability, credit, foreign exchange
      fluctuation, technology obsolescence and owns intangibles
      constituting 11.65% (Annual report 2010-11) of its total fixed assets
      which enable it to earn a higher margin. ThuseClerx is not only
      functionally different, but has a different asset and risk profile, has
      developed value added services as a KPO. In this segment, the
      Taxpayer is essentially providing back-office support services to parent
                              13

while EClerx does not report segments. eClerx is one of, "India's first
KPOs to be appraised for and rated at maturity level 3 of people
Capability Maturity Model (PCMM)"(Annual report 2010-11 page 31).
One of the key issues when analysing transfer prices is to refine the
comparability analysis after matching the functional profile carefully.
Further margins are earned as a result of functions performed, assets
utilized and risks borne (FAR) wherein there lie considerable
differences particularly in the outsourcing model it employs as laid
down in jurisdictional HC decision in Rampgreen Solutions (P) Ltd V CIT
ITA 102/2015, order dated 10 08-2015 which has clearly stated that
where the controlled transactions are clearly in the nature of lower-
end ITeS for rendering data processing not involving domain
knowledge, inclusion of any KPO service provider as a comparable
would not be warranted and the transfer pricing study must take that
into account at the threshold holding as under,

"42 ..... The DRP held that TNMM allows flexibility and tolerance in
selection of comparables, as functional dissimilarities are subsumed at
net margin levels, as compared to Resale Price Method or Comparable
Uncontrolled Price Method and, therefore, the functional
dissimilarities pointed out by the Assesses did not warrant rejection of
eClerx and Vishal as comparables;

43. In our view, the aforesaid approach would not be apposite. Insofar
as identifying comparable transactions/entities is concerned, the same
would not differ irrespective of the transfer pricing method adopted. In
other words, the comparable transactions/entities must be selected on
the basis of similarity with the controlled transaction/entity.
Comparability of controlled and uncontrolled transactions has to be
judged, inter alia, with reference to comparability factors as indicated
under rule 108(2) of the Income Tax Rules, 1962. Comparability
analysis by TNMM method may be less sensitive to certain
dissimilarities between the tested party and the comparables,
However that cannot be the consideration for diluting the standards of
selecting comparable transactions/entities. A higher product and
functional similarity would strengthen the efficacy of the method in
ascertaining a reliable ALP. Therefore, as for as possible, the
comparables must be selected keeping in view the comparability
factors as specified. Wide deviations in PLI must trigger further
investigations/analysis.

44. Consideration for a transaction would reflect the functions
                                    14

      performed, the significant activities undertaken, the assets or
      resources used/consumed, the risks assumed, Thus, comparison of
      activities undertaken/functions performed is important for
      determining the comparability between controlled and uncontrolled
      transactions/entity. It would not be apposite to ignore functional
      dissimilarity only for the reason that its impact may be reduced on
      account of using arithmetical mean of the PLI The DRP had noted that
      eClerx was functionally dissimilar, but ignored the same relying on an
      assumption that the functional dissimilarity would be subsumed in the
      profit margin, As noted, the content of services provided by the
      Assessee and the entities in question were not similar, In addition ,
      there were also functional dissimilarities between the Assessee and
      the two entities in question. In our view, these comparability factors
      could not be ignored by the Tribunal. While using TNMM, the search
      for comparables may be broadened by including comparables offering
      services/products which are not entirely similar to the controlled
      transaction/entity However this can be done only if (a) the functions
      performed by the tested party and the selected comparable entity are
      similar including the assets used and the risks assumed; and (h) the
      difference in services/products offered has no material bearing on the
      profitability Thus on the basis of functional differences from taxpayer
      and it cannot serve as a valid comparable for the ITeS segment in the
      case of taxpayer.
      TPO is thus directed to exclude eClerx from the list of comparables

17.   We have gone through the annual report of this company
incorporated from page 649 of the Paper Book and found that this
company is into multifarious activities and it is a knowledge process
outsourcing company providing data analytics, data management
and process improvement solutions to global enterprise clients.
Further, eClerx supports its clients through two business units ­
Capital Markets and Sales and Marketing Support. The Revenue
recognition policy of this company says that revenue from data
analytics services and process solution comprises from both
time/unit price and fixed fee based service contracts. Revenue from
                                 15

time/unit price based contracts is recognized on completion of the
related services and is billed in accordance with the contractual
terms specified in the respective customer contracts. Revenue from
fixed fee based service is recognized on achievement of performance
milestones specified in the customer contracts. Unbilled revenue
represents costs incurred and revenues recognized on contracts to be
billed in subsequent periods as per the terms of the contract.
Interest income is recognized using the time proportion method
based on rates implicit in the transaction. The operating expenses of
this company include the employee costs, general and administration
expenses and selling and marketing expenses, which is different from
the assessee. Further the employee cost increased to Rs.1077.81
millionin the year under review from 748.84 million in the previous
year primarily due to increase in the head count by about 45% which
includes senior level employees hired in India, US, UK and Singapore
operations which learned AR submits that an abnormal one.

18.   In view of all these factors, we are of the considered opinion
that eClerx is not a good comparable at all to the assessee. Apart
from that no segmental information is also available. The reasoning
given by the ld. DRP in respect of AY 2011-12 equally applies to the
facts obtaining in this year also. We, therefore, find eClerx not a
good comparable and have to be deleted from the list of
comparables for benchmarking international transaction.

19.   Now turning to M/s Infosys BPO limited, M/s Accentia
technologies limited, M/s TCS E-Serve limited and M/s TCS E-Serve
                                   16

international Ltd are concerned, it is the argument of the Ld. AR that
these four entities are not good comparables not only because of
their diversified activities but also because of the extraordinary
events that took place during the relevant previous year i.e. Financial
Year 2009-10.

20.   He further submitted that M/s Infosys BPO Ltd is into a wide
array of services, customer service outsourcing, finance and
accounting, knowledge services, human resources outsourcing, legal
process outsourcing, sales and fulfillment, sourcing and procurement
outsourcing, banking and capital outsourcing, media outsourcing,
energy outsourcing, retail etc with the significant large scale of
operations to the tune of Rs.1,126.63 crores. He further submitted
that during this financial year there took place the acquisition of
McCamish Systems LLC besides this Infosys BPO limited commanding
huge brand value.

21.   In respect of M/s Accentia Technologies Ltd he submitted that
this company is also into diversified services which includes HRCM
(using SaaS model), also into KPO and LPO. With reference to the
annual report of this company, Ld. AR submitted that this entity owns
significant intangible assets at 57% and undertaken extraordinary
activities (amalgamation) during the year. Ld. AR submitted that the
extension technologies Ltd also falls in the category of KPO providing
high end services and, therefore, functionally also it is a dissimilar to
the assessee.
17 22. Ld. AR further submitted that both M/s TCS E-Serve Limited and M/s TCS E-Serve International Ltd are not good comparables to the assessee because of the exceptional year of operation pursuant to the acquisition by Tata group. Besides this, these two companies are providing different services including the transaction processing, voice based services and technical services. He also submitted that no segmental information is available in respect of these twocompanies. He brought to our notice the findings of a coordinate Bench of this Tribunal in the case of Ameriprise India Private Limited ITA No. 7014/Del/2014 for the Assessment Year 2010-11 (financial year 2009-10). 23. We have gone through the record. In M/s Ameriprise India Private Limited (supra), a coordinate Bench of this Tribunal recorded the fact that the notes to accounts of M/s Accentia Technologies Limited indicate about the amalgamation of AsscentInfoserve Private limited with it as approved by the shareholders in the court convened meeting held on 25.4.2009 and, subsequently, sanctioned by the Hon'ble High Court on 21.08.2009. 24. In this order it is further held that the annual report of the Infosys BPO shows that there was acquisition of McCamish Systems LLC, which rendered such company incomparable because of the extraordinary financial event. It could further be seen from this order that financial year 2009-10 is the exceptional year of operation in respect of M/s TCS e-serves Ltd as it is the first full year of operations after its takeover by TCS. It was found that this company is engaged 18 in transaction processing and technical services activities in respect of which no separate segmental details are available. Further Schedule `O' -notes to account of TCS e-serves Ltd, no information in respect of activities carried out by the company or segmental details were available. The same is the case with TCS E-Serve international Ltd. 25. Findings of the coordinate Bench of this Tribunal in the case of Ameriprise India P. Ltd. were upheld by the Hon'ble jurisdictional High Court in the case of Ld. PCIT vs. Ameriprise India Private Limited in ITA 461/2016 by order dated 19.10.2016, wherein the Hon'ble High Court observed that the exclusion of M/s Accentia Technologies and Infosys BPO on the ground that in respect of each comparable, certain extraordinary events had occurred during the previous periods which distorted the profitability thereby increasing the margin, cannot be characterized as unreasonable. 26. In the case of M/s Agilent technologies (international) private limited vs. ITO, ITA Nos.1620/Del/2015 and batch for the Assessment Years 2010-11 to 2012-13, a coordinate Bench of this Tribunal found that M/s TCS E-Serve is engaged in providing IT services primarily to Citi group entities globally and it also provides technical services involving software testing, verification and validation of software at the time of implementation and data management activities which cannot be characterized as back office support services. It was further observed that there is no segmental bifurcation between the transaction processing and technical services. 19 27. Apart from this, though the Revenue preferred appeal to the Hon'ble High Court against the findings of the Tribunal in respect of M/s AccentiaTechnologies, M/s iGate global consultants Ltd and M/s Infosys BPO Ltd. in the case of Ameriprise India P. Ltd. (supra), Revenue did not seem to have preferred any appeal against the findings of the Tribunal in respect of M/s TCS E-Serve limited. In the circumstances, we find strength in the argument of the Ld. AR that in view of the judgment of the Hon'ble Apex Court in the case of Berger Paints India Ltd. Vs. CIT [2004] 266 ITR 99 (SC) wherein the Hon'ble Apex Court held that if the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the revenue to challenge its correctness in the case of other assessee, without just cause, it is not open for the Revenue to challenge the contention of the assessee that Tata E-Serve limited is not a good comparable. 28. For the reasons discussed in the preceding paragraphs, we are of the considered opinion that because of the extraordinary events that took place in the period under consideration, Infosys BPO limited, Accentia technologies limited, TCS E-Serve limited and TCS E- Serve international Ltd are not good comparables and are liable to be excluded from the list of comparables to benchmark the international transaction. 29. Now coming to the entities which were found to be comparable, as stated above, among the six comparables rejected by the ld. TPO, assessee is challenging such rejection in respect of R. 20 Systems, CG Vak Software, Informed Technologies ltd. and Micro Genentic Systems Ltd. Firstly, in respect of M/s R. Systems, ld. TPO rejected the same on the ground that this company is having financial year ending other than March and, therefore, not a suitable comparable. Ld. DRP also felt that the applicability of different financial year ending filter is applicable and, therefore, this company cannot be a good comparable. 30. Contention of the assessee has been that this company files return of income and such parties prepare the accounts as required under the Income-tax Act and, therefore, it is within competency of the ld. AO to seek requisite information by invoking the powers u/s 133(6) of the Act, so long as the company is functionally comparable with the assessee. It is further submitted that M/s R. System's comparability was considered at length and accepted on the very same ground by a coordinate bench of this Tribunal in ITA No.1973/Del/2014 for Asstt. Year 2009-10 and the Tribunal recorded that inasmuch as this company has not been rejected on the ground of functionality, if the quarterly results are available in the public domain wherein the figures for the relevant quarter are also available, there cannot be any difficulty to work out the proportionate margin. While placing reliance on the decision of this Tribunal in the case of Cadence Design Systems India Ltd., the Tribunal directed the TPO to consider the quarterly results and work out the proportionate margin results. 21 31. We have gone through the order and also the facts involved in this matter. The rejection of this comparable is not on the ground of functional dissimilarity, but only because of a different accounting period. Facts being similar, we are of the considered opinion that it is a fit case to direct the ld. AO to consider the quarterly results and work out the proportionate profit margin for this purpose, we remand the matter to the file of the ld. TPO/AO for compliance of our direction. 32. In respect of CG Vak Software, observations of the ld. TPO for rejecting this company is that under ITeS segment, sale was only just Rs.82.78 lakhs and on that ground this company was rejected. Assessee contended that inappropriateness of the turnover filter has not been considered by the ld. TPO. Ld. DRP on a perusal of the financials found that CG Vak Software is mainly involved into software development and earns major portion of its revenue from the same and the revenue from ITeS/BPO is only 15% i.e. Rs.83 lakhs and, therefore, it fails the turnover filter. 33. Assessee assails the application of turnover filter so long as functional dissimilarity is not attributable to this company and submitted that a similar contention of the revenue was considered by the Tribunal in assessee's own case for the AY 2009-10 wherein the Tribunal by placing reliance on Chrys Capital Investment Advisors (I) P. Ltd. vs ACIT, ITA No.6504/Del/2013 reached a conclusion that if the company is functionally comparable, the same cannot be 22 rejected on the basis of turnover and therefore, directed ld. TPO to include CG Vak Software as a comparable company. 34. We have gone through the financials of this CG Vak Software. At page No.21 of the Annual report of this company, the income from software development product and services is separately mentioned and was also at page 26, the segment revenue and segment results are also provided. In these circumstances, we are of the considered opinion that in the absence of any finding that this company is functionally dissimilar, ld. TPO should have considered these figures to identify whether CG Vak Software is a suitable comparable with the assessee. We, therefore, direct ld. TPO to consider this entity for benchmarking the international transaction. 35. The other two companies are M/s Informed Technologies Ltd. and M/s Micro genetics Systems Ltd. Ld. TPO rejected the same on the ground that both the Companies sales are below Rs. 5 Crores.In tune with our findings in respect of M/s CG Vak Software, while placing reliance on the decision of the jurisdictional High Court in the case of Chris Capital (supra), we hold that so long as a company is functionally similar to the assessee merely because it does not match with the turnover, it cannot be rejected. We, therefore, direct ld. TPO to include Informed Technologies Ltd. in the list of comparables. Further, we consider the fact that in assessee's own case for the Assessment Years 2004-05, 2005-06 and 2006-07, the Tribunal considered this aspect and rejected the turnover filter. 23 36. We, therefore, in the light of a view taken by the Tribunal in assessee's own case for AYs 2004-05 to 2006-07 and also in the light of the decision of the Hon'ble jurisdictional High Court in the case Chris Capital (supra) accept the contention of the assessee and direct ld. TPO to consider these two companies as good comparables with the assessee to benchmark the international transactions. 37. Now coming to Ground No.14, this is to the effect that the interest of credit period granted by the company under normal trade practices was unjustly charged,having heard both the counsel, we are of the considered opinion that if working capital adjustment is granted, then no separate adjustment or interest receivables is required.We are fortified in our decision by the decision of the Hon'ble Delhi High Court in ITA No.765/2016 in the case of Kusum Healthcare P. Ltd. 38. In Ground No.16, the grievance of the assessee is that ld. TPO/AO has erroneously interchanged operating profit/operating cost margin of the companies, namely, eClerx Services Ltd. and Omega Healthcare Management Services P. Ltd. and it requires rectification. Since it is not a part of adjudication but only a mistake that had crept in the order, we are of the opinion that the same could be rectified by the ld. TPO/AO. We, therefore, direct the same. 39. Ground No.20 is in respect of the claim for deduction under 10A of the Act in respect of AEGSC(STP) Unit set up by the assessee during the financial year 2002-03 on the ground that the STP unit was 24 set up after splitting up its existing business of FCE(EOU) Unit. On this aspect, it is submitted that in respect of Asstt. Year 2009-10, the Tribunal considered this aspect at length and directed the AO to allow deduction u/s 10A of the Act. 40. Paragraph Nos. 33 & 34 of the order dated 3.8.2018 in ITA No.1973/Del/2014 for Asstt. Year 2009-10 are to the effect that,- "33. The next issue raised by the assessee relates to claim of deduction u/s 10A amounting to Rs.58,93,05,999/- in respect of AEGSC (STP) Unit. Before us ld. Counsel submitted that this issue has been decided in favour of the assessee in assessee's own case by the Tribunal in the earlier years. On the other hand, ld. DR strongly relied upon the order of the AO. 34. From the perusal of the impugned order as well as the earlier order of the Tribunal, we find that in AY 2003-04, the Tribunal has upheld the order of ld. CIT(A) allowing the deduction u/s 10A. In AY 2008-09, again in revenue's appeal this Tribunal following the earlier decision of the Tribunal held that assessee was entitled for deduction u/s 10A on the ground that it has established a new unit. Once already deduction u/s 10A on the same unit has been allowed in the earlier years by the Tribunal, therefore, no different view can be taken for the same unit on similar set of facts for denying the deduction in AY 2009-10. Accordingly, we direct the AO to allow deduction u/s 10A in respect of the said unit." 41. In view of the above, while respectfully following the same, we direct the learned AO to allow the deduction u/s 10A of the Act for the Asstt. Year 2010-11 to the tune of Rs.49,93,98,378/- in respect of AEGSC(STP) Unit set up by the assessee during the Financial Year 2002-03. 25 42. Lastly, turning to Ground No.21 which relates to the grant of full credit to the assessee as claimed in the return, we are of the opinion that the ends of justice would be met by directing the ld. AO to verify the credit of TDS and allow the same to the assessee. 43. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 17th July, 2019. Sd/- sd/- (O.P. KANT) (K. NARASIMHA CHARY) ACCOUNTANT MEMEBR JUDICIAL MEMBER Dated 17th July, 2019 VJ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT By order Assistant Registrar Draft dictated 10.7.2019 Draft placed before author 15.7.2019 Approved Draft comes to the Sr.PS/PS Order signed and pronounced on File sent to the Bench Clerk Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order. Date of uploading on the website
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