Income Tax Appellate Tribunal - Delhi
M/S. Ge India Business Services Pvt. ... vs Dcit, New Delhi on 18 May, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'I-1', NEW DELHI
Before Sh. N. K. Saini, AM and Sh. Sudhanshu Srivastava, JM
ITA No. 1423/Del/2014 : Asstt. Year : 2009-10
GE India Business Services Pvt. Vs DCIT,
Ltd., 401, 402, 4th Floor, Aggarwal Circle-12(1),
Millennium Tower, E-1, 2, 3, Netaji New Delhi
Subhash Place, Wazirpur,
New Delhi-110034
(APPELLANT) (RESPONDENT)
PAN/GIR No. AAACI6748J
Assessee by : Sh. Sachit Jolly, Adv.
Revenue by : Sh. Sanjay I. Bara, CIT DR
Date of Hearing : 21.02.2018 Date of Pronouncement : 18.05.2018
ORDER
Per N. K. Saini, AM:
This is an appeal by the assessee against the order dated 09.01.2014 passed by the AO u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act).
2. Following grounds have been raised in this appeal:
"1. That on the facts and circumstances of the case, and in law; the Assessment Order passed in pursuance to the directions issued by the Learned Dispute Resolution Panel ('Ld. DRP : ) is a vitiated order as the Ld. DRP erred in confirming the addition made by the Ld. Assessing Officer ('AO') to the appellant's income.
2. The Ld. AO/TPO erred both on facts and in law in confirming the addition of Rs.3,78,55,211 by holding that the appellant's international related party 2 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
transactions pertaining to the provision information technology enabled and financial support services do not satisfy the arm's length principle as envisaged under the Income Tax Act, 1961 ('The Act') and in doing so the Ld. AO/TPO has grossly erred in:
2.1 disregarding the arm's length price ('ALP') and the methodical benchmarking process carried out by the appellant in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules');
and in particular modifying/ rejecting the filters applied by the appellant;
2.2 rejecting comparability analysis in the TP documentation and in conducting a fresh comparability analysis based on application of additional filters in an arbitrary manner while determining the arm's length price;
2.3 including companies in the comparability analysis which do not satisfy the test of comparability in terms of functions performed, assets employed and risks assumed;
2.4 resorting to arbitrary rejection of low profit/loss making companies based on erroneous and inconsistent reasons;
2.5 including companies having abnormal/volatile margins in the final comparables' set for benchmarking a low risk captive unit such as the appellant (disregarding judicial pronouncements on the issue), thus, demonstrating an intention to arrive at a pre- formulated opinion without complete and adequate application of mind, with the single-minded intention of making an addition to the returned income of the appellant;
3 ITA No. 1423/Del/2014GE India Business Services Pvt. Ltd.
2.6 Disregarding the directions of the Ld. DRP and not allowing the appropriate economic adjustment (i.e. working capital adjustment) on account of differential in level of working capital deployed by the assessee and comparables;
2.7 not allowing the other appropriate economic adjustments to the appellant on account of differential in risk assumed by the comparable companies selected by the Ld. TPO/AO vis-a-vis appellant and in doing so ignoring the differences in the functional profile of the appellant and the comparables, holding that the appellant bears the single customer risk;
2.8 Disregarding the directions of the Ld. DRP and committing a number of factual errors in the accept/reject of comparables and/or in the computation of the operating profit margins of the comparables/appellant;
2.9 using data as at the time of assessment proceedings, instead of using the latest data that was available as on the date of preparing the TP documentation for comparable companies while determining arm's length price; thereby ignoring the principle of 'impossibility of performance";
2.10 disregarding judicial pronouncements in India while undertaking the TP adjustment.
3. That the Ld. AO grossly erred on facts and in law in disallowing an amount of Rs. 63,207 on account of being 0.5 % of the average value of investment under section 14A of the Income tax Act, 1961 ("Act") read with Rule 8D of Income tax Rules, 1962 ("Rules"').
4. That the Ld. AO grossly erred on facts and in law in making an addition under section 14A of the Act without recording satisfaction in accordance with sub section 4 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
(2) of section 14A of the Act, that expenditure has been incurred by the appellant for earning exempt income.
5. That the Ld. AO grossly erred on facts in making an addition under section 14A of the Act even where o wn funds have been used by the appellant for making investments.
6. That the Ld. AO erred on facts and in law in levying and computing interest under section 234B of the Act.
7. That the Ld. AO erred on facts and in la w in initiating the penalty proceedings against the Appellant under section 271(1)(c) of the Act.
The above grounds are without prejudice to each other.
The appellant craves leave to alter, amend or withdraw all or any of the grounds herein or add any further grounds as may be considered necessary either before or during the hearing."
3. Ground No. 1 is general in nature and ground no. 7 is raised pre-maturely, so these grounds do not require any comment on our part.
4. Vide ground nos. 2 to 2.10, the grievance of the assessee relates to the confirmation of addition of Rs.3,78,55,211/- made b y the AO on account of arm's length price.
5. Facts of the case related to this issue in brief are that the assessee was engaged in business of manufacturing of portable generating sets, I.C. Engines, Water Pumping sets and manufacture and processing of pressure Die-Casting parts. The assessee filed the return of inco me on 29.09.2009 declaring an inco me of 5 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
Rs.13,98,57,008/-. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had undertaken international transactions with its Associated Enterprises (AEs) and the value of those transactions was more than Rs.15 crores. He, therefore, referred the matter to the Transfer Pricing Officer (TPO) for determination of Arm's Length Price (ALP). The assessee used TNMM as the most appropriate method and OP/OC as Profit Level Indicator (PLI). The assessee had choosen 11 companies as comparables with average margin of 4.44% by using the multiple year data while assessee's own margin was worked out at 19.14%. Based on the analysis, the assessee concluded that its international transactions were at arm's length. The assessee eliminated the companies having financials for periods prior to financial year March 31, 2006 and those who were having manufacturing and trading sales ratio of more than 25%. The assessee also rejected companies with related part y transactions more than 20% and also the companies with research & development expenses to sales greater than 3%.
6. The TPO observed that so me of the filters used by the assessee were inappropriate. He proposed to use the current year data alone i.e. data pertaining to the F.Y. 2008-09 by observing that in view of proviso to Rule 10B(4) of the Income Tax Rules, 1962 and in the absence of any cogent, relevant and reliable evidence to prove that the data for preceding two years revealed facts which could have an influence on the determination of the ALP. The TPO was of the view that the use of the data pertaining 6 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
to the two earlier years was not justified, he accepted only two comparables selected by the assessee, namely, M/s Aditya Birla Minacs Worldwide Ltd. and M/s Microgenetic Syste ms Ltd. The TPO also selected four new comparables and worked out the average of OP/OC at 30.16% as under:
Sl. No. Comparable OP/OC
1. AcroPetal Tech (Segment) 21.37 %
2. Aditya Birla Minacs 1.71 %
Worldwide Ltd.
3. Coral Hub 36.93 %
4. Cosmic Global 50.70 %
5. eClerx Services 47.00 %
6. Microgenetic Systems ltd. 23.25 %
Average 30.16 %
7. The TPO proposed an adjustment of Rs.4,43,31,359/- as under:
Operational Cost 228,033,381 Arm's Length Price at a Margin of 296,808,249 30.16 % Price Received 252,476,890 Proposed Adjustment u/s 92CA 44,331,359
8. The assessee sub mitted before the TPO that it could not get the financial data of the comparable companies for the F.Y. 2008- 09 and considered the latest available data for the purpose o f benchmarking analysis, however, it did not use the financial data o f the co mpanies for the financial year ended March 31, 2006 and prior years as per limitations imposed by the statutory provisions. The assessee also objected on the applicability of less than Rs. 1 crore filter and sub mitted that turnover criteria should not be applicable in case of an entity which operates on a cost plus pricing 7 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
model. It was stated that the TPO had applied this filter to eliminate companies with export turnover less than 75%.
9. The TPO after considering the submissions of the assessee referred to the revised OECD guidelines, 2010 regarding econo mic circumstances for comparability and rejected the objections raised by the assessee by observing as under:
"The domestic companies cannot be treated as comparable to the taxpayer who is wholly or mainly export oriented because:
a) conditions prevailing in the export and domestic market in which the respective parties to the transactions operate are different .
b) geographical locations(domestic and export) are different
c) size of the markets(domestic and export) to which the companies cater to are different
d) cost of labour and capital in the markets(domestic and export) are different
e) overall economic development and level of competition is different(domestic and export)
f) Government incentives in the form of tax exemptions are available only for exporters.
g) Domestic software service market mainly follows a hybrid model in which the supply of hard ware also forms part of software services, h) In an export oriented business, the quality control requirements are generally much higher than that in a domestic business. In export business, there is a zero tolerance for defects.
As the pricing for services differs in the domestic market vis-a-vis with the export market, the level of competition, the size of the market, cost advantage differ in the domestic market vis-a-vis with the exports and the incentives differ for exporters vis-a-vis with the 8 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
domestic players, a predominantly domestic company in the service sector cannot be compared with the taxpayer who is mainly a IT Enabled Service provider.
It may be mentioned that the operating market is one of the influencing factor in determining the profitability but not the sole factor. Secondly, the margin is not the determining factor in applying this filter. As there are major differences in pricing, markets etc. these differences would influence the prices in the domestic market. Pricing is determined by the market forces and it is the equilibrium point where the willingness to pay and capability to deliver the services. In the case of export market, the pricing is determined by what the company located in US or other similarly developed countries are willing to pay. This would be determined by the cost arbitrage between India and the US or other similarly developed countries. In the case of domestic market, as the cost arbitrage is not available, the willingness to pay for services is decided by the domestic market. Thus these two prices would be different. The price a person willing to pay from India and the price a person willing to pay from US or other developed countries for same or near similar service will be different.
The main reason for applying this filter is that geographical markets of the other party in the transactions i.e. customer is different in the case of domestic market which is India and export market of the taxpayer and also pricing mechanism is influenced by such factors for which reasonable adjustments cannot be made to account for the differences in geographical markets, and other prevailing market conditions like level of competition etc."
10. The reliance was placed on the following case laws:
Ø M/s Chiron Behring Vaccines Pvt. Ltd. (2011-TII-30- ITAT-Mum-TP) 9 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
Ø M/s CRM Services India (P) Ltd. (2011-TII-86-ITAT- Del-TP) Ø M/s Deloitte Consulting India Pvt. Ltd. in ITA No. 1082/Hyd/2010 Ø M/s Indo American Jewellery Ltd. (2010-TII-24-ITAT- Mum-TP) Ø M/s Ranbaxy India 299 ITR (AT) 175 (Del.)
11. The TPO finally determined the arm's length price at Rs.22,80,33,381/- as against Rs.25,24,76,890/- determined by the assessee and directed the AO to enhance the income by Rs.3,78,55,211/- giving the calculation as under:
Sl. No. Comparable OP/OC
1. AcroPetal Tech (Segment) 21.30 %
2. Aditya Birla Minacs 0.50 %
Worldwide Ltd.
3. Coral Hub 36.93 %
4. Cosmic Global 48.20 %
5. eClerx Services 47.00 %
6. Microgenetic Systems ltd. 9.98 %
Average 27.32 %
The arm's length price of the international transaction related to the provision of IT enabled services is recalculated as below:
Operational Cost 228,033,381 Arm's Length Price at a Margin of 290,332,101 27.32 % Price Received 252,476,890 Proposed Adjustment u/s 92CA 37,855,211
12. Thereafter, the AO passed the draft assessment order against which the assessee raised objection before the ld. DRP and stated that M/s R. Systems India Ltd. may be included since it is functionally similar and M/s Spanco Ltd. (BPO Seg) also to be 10 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
included since the consolidated financials of this company were available. The ld. DRP did not accept the contention of the assessee for including the above two comparables. The assessee also objected the inclusion of co mparables namely, M/s Cosmic Globa l Ltd. on the basis of high growth/volatility, M/s Eclerx Services Ltd. being functionally different having abnormal high margin/growth/volatility co mparison of turnover, M/s Coral Hub Ltd. having high growth and M/s Acropetal Technologies Ltd. being functionally different. However, the ld. DRP did not find merit in the sub mission of the assessee for exclusion of the aforesaid four comparables. Since, the ld. DRP rejected the objections of the assessee. The AO made an addition of Rs.3,78,55,211/- being difference between the arm's length price.
13. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that M/s Coral Hub Ltd. M/s Eclerx Services Ltd., M/s Cos mic Global Ltd. require to be excluded from the list o f the co mparables having abnormal high growth and functionally different. It was contended that the various benches of the ITAT also directed to exclude M/s Coral Hub Ltd. having high growt h from the list of the co mparables. The reliance was placed on the following case laws:
Ø Mercer Consulting (India) (P.) Ltd. Vs DCIT (2014) 150 ITD 1 (Del.) Ø M/s Maersk Global Service Centres (India) Pvt. Ltd. Vs DCIT in ITA No. 2594/Mum/2014, order dated 16.01.2015 Ø PTC Software (India) Pvt. Ltd. Vs DCIT in ITA No. 336/PN/2014, order dated 31.10.2014 11 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
14. In his rival submissions, the ld. CIT DR referred to page nos. 65 & 66 of the TPO and reiterated the observations made therein. It was further submitted that co mparables were rightly selected being functionally similar and that the income was earned only fro m IT enabled services in which the assessee was engaged.
15. We have considered the sub missions of both the parties and perused the material available on the record. It is noticed that the ITAT Delhi Bench 'I', New Delhi in the case of M/s Mercer Consulting (India) (P.) Ltd. Vs DCIT, Circle-2, Gurgaon (supra) directed to exclude the Coral Hub Ltd. and the relevant findings are given in paras 12.1 to 12.3 which read as under:
"12.1. This case was earlier included by the assessee in the list of comparables in the transfer pricing study by considering multiple-year data. However, when the TPO required the assessee to furnish data of comparables for the current year alone, the assessee requested for the exclusion of this case from the list of comparables. The ld. DR opposed this contention by urging that the assessee cannot be allowed to resile from its original stand.
12.2. We are disinclined to sustain the legal objection taken by the ld. DR that the assessee should be prohibited from taking a stand contrary to the one which was taken at the stage of the TP study or during the course of proceedings before the authorities below. It goes without saying that the object of assessment is to determine the income in respect of which the assessee is rightly chargeable to tax. As the income not originally offered for taxation, if otherwise chargeable, is required to be included in the total income, in the same breath, any income wrongly included in the total income, which 12 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
is not otherwise chargeable, should be excluded. There can be no estoppel against the provisions of the Act. Extending this proposition further to the context of the transfer pricing, if the assessee fails to report an otherwise comparable case, then the TPO is obliged to include it in the list of comparables, and in the same manner, if the assessee wrongly reported an incomparable case as comparable in its TP study and then later on claims that it should be excluded then, there should be nothing to forbid the assessee from claiming so, provided the TPO is satisfied that the case so originally reported as comparable is, in fact, not comparable. The Special Bench of the Tribunal in DCIT vs. Quark Systems Pvt. Ltd. (2010) 132 TTJ (Chd) (SB) 1 has also held that a case which was included by the assessee and also by the TPO in the list of comparables at the time of computing ALP, can be excluded by the Tribunal if the assessee proves that the same was wrongly included.
12.3. Reverting to the facts of the extant case, we find that the position as obtaining in the present case is rather simple inasmuch as the assessee, having originally included this case in the list of comparables, made a categorical claim before the TPO for excluding it because of non-comparability. As no reason has been given by the TPO for accepting or rejecting the assessee's request, it would be worthwhile to take up the reasons now given by the assessee for consideration and decision. The ld. AR has pointed out that Vishal Information Technologies Ltd., now known as Coral Hub Ltd., outsources significant portion of its work from outside vendors. We find from the material on record suggests that outsourcing charges constitute 90 % of the total operating cost in this case. On a specific query, the ld. DR admitted that our assessee is engaged in the business of doing activities at its own without any outsourcing. This crucial factor, having a greater bearing on the profitability, makes it distinguishable from the assessee. The Mumbai Bench of the Tribunal in 13 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
the case of Hapag Lloyd Global Services (supra) has held that Vishal Information Technologies Ltd. cannot be considered as comparable because of the overwhelming outsourcing activity carried out by it. This view was taken by relying on another order passed by the Mumbai Bench of the Tribunal in ACIT vs. Maersk Global Service Centre (India) Pvt. Ltd. (ITA No.3774/M/2011). In the later case also, the Tribunal held that the case of Vishal Information Technologies Ltd. or Coral Hub Ltd. was not includible in the list of comparables because of major outsourcing. Since the facts of the instant case are on all fours with these two cases, we are of the considered opinion that this case is required to be excluded from the list of comparables. We order accordingly."
16. Similarly, the ITAT Pune Bench 'A', Pune directed to exclude M/s Vishal Information Technologies Ltd. (now M/s Coral Hub Ltd.) and M/s Eclerx Services Ltd. and M/s Cosmic Global Ltd. vide order dated 31.10.2014 in ITA No. 336/PN/2014 for the assessment year 2009-10 by observing as under:
"45. We have heard the rival contentions and perused the record. In The TP study carried out by the TPO in the ITES segments, fresh search criteria were applied by the TPO and list of comparables which were not selected by the assessee were picked up in the TP study and the margins of the said comparables were applied to determine the arm's length price of the transactions of the assessee in ITES segments. The assessee was aggrieved by the selection of the said comparables and the plea of the assessee was that in case said comparables were not included in the TP study, the margins shown by the assessee would be at arm's length. The first comparable referred to by the learned Authorized Representative for the assessee was M/s. Vishal Information Technologies Ltd. The said company was providing IT enabled services and was also engaged in other diversified activities. Further, it has outsourced 14 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
its services to third party vendor and acted as intermediary between the final customer and the vendor. The assessee on the other hand was engaged in the running of a call centre and was providing technical support to its AEs. We find that the Tribunal in assessee's own case relating to assessment year 2006-07 in ITA No.1346/PN/2010 and in assessment year 2007-08 in ITA No.1605/PN/2011 had excluded the said comparables observing as under:
"30. The next point raised by the assessee is against the inclusion of Vishal Information Technologies Ltd., appearing at Item (10) in the Tabulation in para 25 as a comparable case. The TPO has discussed the issue in para 6.9.6. of the order. As per the TPO, the said concern is functionally comparable to the IT-Enabled services segment of the assessee and for that reason, the said concern has been included as a comparable for the purposes of comparability analysis. In this connection, the plea set up by the assessee is that the said concern is engaged in not only IT-Enabled services, but also in providing quality products and in the creation of animated films and books. It has also been ascertained by referring to the Annual Report of the said concern that it is engaged in providing agency services by way of outsourcing the services to third party vendors and acting as an intermediary between the final customer and the vendor. The assessee furnished detailed submissions in this regard before the lower authorities, copies of which have been placed in the Paper Book at pages 420.8 to 420.31. By referring to the written submissions, it is also sought to be pointed out that the intermediary functions performed by the said concern can be compared to that of a distributor which takes title to service/product for resale to the customers. The aforesaid assertion is sought to be substantiated by the details of payments made by the said concern for data entry and vendor payments, personnel costs and sales. It is, therefore, contended that the said concern is functionally 15 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
dissimilar to that of the IT-Enabled services segment of the assessee. It has also been argued that the said concern has earned supernormal profits as high as 59.19 % and therefore, the same is not includible in the list of comparables so as to avoid skewing of the comparability analysis. On the other hand, the stand of the Revenue as brought out by the TPO in para 6.9.6. of the order is to the effect that the said concern being categorized as an IT-Enabled services concern, the same is liable to be included.
31. We have carefully considered the rival submissions on this aspect. At the outset, we may refer to page 810 of the Paper book, wherein the Notes to Accounts for the year ended 31.3.2007 of the said concern have been placed. As per the available information, the said concern has related party transactions as reported by the concern at para 7 of the said Notes at 86.92 %, which breaches the RPT filter. Furthermore, the functional profile of the said concern brought out by the assessee also reveals differentiation in the activity profile. The TPO, in our view, has not appreciated the qualitative difference in the functions performed by the said concern as sought out to be brought out by the assessee. Considering the aforesaid, we therefore, find that the assessee was justified in ascertaining that the said concern be excluded from the list of comparables for the reasons canvassed. Thus, on this aspect assessee succeeds."
46. The Tribunal in the assessee's own case had held that the said concern was found to be operating in different functional environment and the same was excluded for the purpose of comparability analysis. Following the ratio laid down by the Tribunal in assessee's own case in assessment years 2006-07 and 2007-08 (supra), we uphold the plea of the assessee in excluding the margins of the said concern M/s. Vishal Technologies Ltd.
...........................
16 ITA No. 1423/Del/2014GE India Business Services Pvt. Ltd.
48. The next objection of the assessee was that with regard to inclusion of Eclerx Services Ltd. which admittedly was engaged in providing KPO services i.e. Knowledge Process Outsourcing, whereas the assessee was engaged in BPO services. The Special Bench of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd. (supra) vide order dated 21.08.2014 had excluded the said company as a comparable while determining the margins under ITES segments. The Special Bench of the Tribunal vide paras 82 and 83 at pages 73 and 74 of the order, had observed as under:-
"keeping in view the nature of services rendered by M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns."
49. Following the same parity of reasoning, we direct the TPO to exclude M/s. Eclerx Services Ltd. as comparable.
50. The next company as per the assessee which should not be taken as comparable is Cosmic Global Ltd. Admittedly, the assessee had not objected to its inclusion either before the TPO or DRP. However, the assessee challenged the exclusion of the said company as comparable before the Tribunal.
51. We find that the Special Bench of Chandigarh Tribunal in the case of Quark Systems Pvt. Ltd. (supra ) had held that even if the assessee had not challenged the inclusion of the comparable before the authorities below, the same could be challenged before the Tribunal for the first time. Accordingly, we hold that the assessee at this point can raise the said issue. Now, the second part of the objection was that the company had outsourced its vendor and was making high vendor payments as 17 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
compared to the sales and hence was not comparable. While adjudicating the exclusion of M/s. Vishal Information Technologies Ltd., we have in para s hereinabove already considered this aspect of the companies outsourcing to vendors and held M/s. Vishal Information Technologies Ltd. to be not functionally comparable. Following the same parity of reasoning, we hold that M/s. Cosmic Global Ltd. is not functionally comparable."
17. On the identical issue, the Co-ordinate Bench of the ITAT Mumbai Bench 'K', Mumbai in the case of M/s Maersk Global Service Centres (India) Pvt. Ltd. Vs DCIT, Circle-6(3), Mumbai (supra) directed to exclude M/s Coral Hub Ltd., M/s Eclerx Services Ltd. and held as under:
"10. First of all, we shall discuss Vishal Information Technologies Ltd. now known as Coral Hubs Ltd. Thi s company has been subject matter of dispute in assessee's case, whether to be included as comparable or not, since earlier years. In A.Y. 2005-06, the Tribunal has excluded the said comparable on the ground that this company has outs sourced its considerable portion of its ITES business, whereas the assessee is carrying out entire operation by itself. Similarly in A. Y. 2006-07 also the Tribunal has excluded the said comparable on similar ground. In A.Y. 2008-09, DRP itself has directed the AO not to include Coral Hubs as a comparable company, which fact has been noted by the Special Bench in assessee's own case in para 13 of the order. Thus, consistent with the view taken in the earlier years and there being no change in facts and circumstances in this year, we accept the assessee's contention that the Coral Hubs Ltd. (Vishal Information Technologies Ltd.) has to 18 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
be excluded from the list of final comparables. Accordingly, Coral Hubs Ltd is directed to be excluded.
11. Regarding to M/s. Eclerx Services Ltd., it has been submitted by the Ld. Counsel that Hon'ble Special Bench in A.Y. 2008-09 has directed the TPO to exclude this company from the list of final comparables. The relevant discussion and finding regarding M/s. Eclerx Services Ltd. by the Hon'ble Special Bench is as under:-
"In so far as M/s. Eclerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automations. It is claimed to have employed over 1500 domain specialists working for the clients. It s claimed that Eclerx is a different company with industry specialized services for meeting in two business verticals financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s. eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated t development automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving 19 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
and output gains with better control over quality. Keeping in view the nature of services rendered by M/s. eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low end services to the group concerns."
83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s. eClerx Services Pvt. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP."
18. So, respectfully following the aforesaid referred to order of the Co-ordinate Benches, we direct the AP/TPO to exclude M/s Coral Hub Ltd., Cos mic Global and eClerx Services from the list o f the co mparable while determining the OP/OC for the purposes o f arm's length price.
19. As regards to Ground No. 2.8 relating to co mputation of operating profit margins of the co mparables.
20. The ld. Counsel for the assessee referred to page no. 158 o f the appeal folder and submitted that the TPO considered a non- operating expenses as operating while working out the operating 20 ITA No. 1423/Del/2014 GE India Business Services Pvt. Ltd.
cost base of the assessee without providing any co mment on the operating margin co mputed by the assessee and accordingly computed an inappropriate cost base. It was also stated that the objection was raised before the ld. DRP also but no findings were given on this issue by the ld. DRP.
21. In his rival submissions, the ld. CIT DR although supported the orders of the authorities below but could not controvert the aforesaid contention of the ld. Counsel for the assessee.
22. After considering the sub missions of both the parties and material on record, we dee m it appropriate to remand this issue back to the file of the AO/TPO to be adjudicated after considering the sub missions and the relevant material furnished by the assessee.
23. Vide ground nos. 3 to 5, the grievance of the assessee relates to the disallowance u/s 14A of the Act r.w. Rule 8D of the Inco me Tax Rules, 1962.
24. The ld. Counsel for the assessee as regards to this issue stated that no invest ment was made by the assessee for the year under consideration and this vital fact was not considered by the TPO/AO while making the disallowance u/s 14A of the Act. The reliance was placed on the judgment of the Hon'ble Supre me Court in the case of Godrej & Boyce Manufacturing Co. Ltd. Vs DCIT & Anr. (2017) 394 ITR 449.
21 ITA No. 1423/Del/2014GE India Business Services Pvt. Ltd.
25. In his rival sub missions, the ld. CIT DR submitted that the submissions of the ld. Counsel for the assessee that there was no invest ment made during the year under consideration by the assessee need verification by the AO/TPO.
26. After considering the sub missions of both the parties, we are of the view that this issue also requires verification/adjudication at the level of the TPO/AO. Accordingly, this issue is also restored back to the file of the AO/TPO to be adjudicated in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
27. In the result, the appeal of the assessee is partly allowed for statistical purposes.
(Order Pronounced in the Court on 18/05/2018) Sd/- Sd/-
(Sudhanshu Srivastava) (N. K. Saini)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 18/05/2018
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5.DR: ITAT
ASSISTANT REGISTRAR