Income Tax Appellate Tribunal - Delhi
H&S Software Development And Knowledge ... vs Acit, New Delhi on 18 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'I-2' : NEW DELHI)
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
and
SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No.6455/Del./2012
(ASSESSMENT YEAR : 2007-08)
H&S Software Development and vs. ACIT,
Knowledge Management Centre Pvt. Ltd. Circle 12 (1),
MVLi Park, Unit No.501 & 502, 5th Floor, New Delhi.
Near Red Cross Society, Sector 15, Part-II,
Gurgaon - 122 001 (Haryana).
(PAN : AAATH4075Q)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : S/Shri Manoneet Dalal, Gaurav Bhutani,
Arvinder Singh, Yishu Goel &
Veenu Agarwal, ARs
REVENUE BY : Shri Ramanjaneyulu, Senior DR
Date of Hearing : 08.12.2016
Date of Order : 18.01.2017
ORDER
PER KULDIP SINGH, JUDICIAL MEMBER :
The Appellant, H&S Software Development and Knowledge Management Centre Private Limited (hereinafter referred to as 'the assessee company') by filing the present appeal sought to set aside the impugned order dated 23.02.2011, passed by the AO under section 143(3)/144C of the Income-tax Act, 1961 (for short 'the 2 ITA No6455/Del./2012 Act') qua the assessment year 2007-08 in consonance with the orders passed by the ld. DRP/TPO on the grounds inter alia that :-
"1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. CIT(A) is bad in law and void ab-initio.
2. That on facts and circumstances of the case and in law, the jurisdictional error of the Ld. Assessing Officer ("AO") whereby he did not record any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA( 1) of the Act.
3. That on facts and circumstances of the case and in law, the Ld. CIT(A) erred in determining the arm's length price of the Appellant's international transaction at Rs.15,51,19,800 (as against Rs.13,85,96,691 determined by the Appellant) in the following manner:-
a. The Ld. CIT (A) erred in upholding rejection of the Appellant's TP documentation, comparable companies and analysis thereof.
b. The Ld. CIT (A) erred in permitting the use of unaudited data requisitioned by taking recourse to the provisions of Section 133(6) of the Act.
c. The Ld. CIT (A) erred in confirming companies, selected by Ld. TPO/ AO, which were not functionally comparable to the Appellant and in rejecting comparable companies selected by the Appellant.
d. The Ld. CIT (A) erred in confirming the incorrect computation margins of comparable companies selected by the Ld. TPO.
e. The Ld. CIT (A) erred in confirming the selection of current year (i.e. financial year 2006-07) data for comparability.
f. That the Ld. CIT (A) erred in not appreciating the factual errors identified by the Appellant in the order passed by the Ld. TPO.
3 ITA No6455/Del./2012 g. The Ld. CIT (A) erred in not appreciating the fact that there is no motive on the part of the Assessee to shift the profits to any other jurisdiction since it claims tax holiday benefits as per the Software Technology Park of India.
4. The Ld. AO and CIT (A) has erred in excluding the "Other Income" from profit eligible for deductions for the purpose of computing deduction under section 10A of the Act, when the same has already being excluded by the Appellant.
5. The Ld. CIT (A) erred in not examining the validity of initiation of penalty proceedings u/s 271(1) (c) of the Act."
2. Briefly stated the facts of this case are : H&S Software Development and Knowledge Management Centre Pvt. Ltd. (H&S KMC Ltd.) is a wholly owned subsidiary of Hendrick & Struggles Inc. USA (HSI) which is in turn a subsidiary of Hendrick & Struggles International Inc., USA (HSII) and is into providing Information Technology (IT) Enabled Back Office support services related to creation and maintenance of database of prospective employers and candidates who have submitted their resumes to HSII. This database is Search Palace and HSII's proprietary software tool used to perform all of HSII's services. HSI is the owner of intangibles associated with Search Palace and is also responsible for maintaining and developing this software tool and other related tools.
3. During the year under assessment, assessee company has declared an income of Rs.2,07,56,617/- under the head profit and 4 ITA No6455/Del./2012 gains of business or profession and income of Rs.3,534/- i.e. interest income under the head 'Income from other sources'. The assessee company has made claim for deduction u/s 10A of the Act amounting to Rs.2,07,56,617/- by filing Form No.56F along with the return of income.
4. However, pursuant to the order passed by the Transfer Pricing Officer (TPO), AO made an addition on account of Arms Length Price (ALP) to the tune of Rs.2,08,34,850/- qua international transactions with Associated Enterprises (AEs) during Financial Year 2006-07.
5. Assessee company by using Transactional Net Margin Method (TNMM) as the most appropriate method with Operating Profit / Operating Cost (OP/OC) as the Profit Level Indicator (PLI) by selecting 11 comparables with three years weighted average margin at 6.88% vis-à-vis assessee's margin at 12.20% and found its international transaction at arm's length.
6. TPO accepted the TNMM with OP/OC as PLI as applied by the assessee company, but rejected seven comparable companies selected by the assessee company and identified 21 companies by making independent search on the basis of functions, assets and risks of the assessee company and finally chosen 25 comparable companies. TPO also used current year data as against three years 5 ITA No6455/Del./2012 data used by the assessee company. As per TPO study, arithmetic mean of PLI came to 29.05% and thereby made adjustment of Rs.2,08,34,850/- to make the international transactions of the assessee company at arms length.
7. Assessee company carried the matter before the ld. CIT (A) who has upheld the order passed by TPO except excluding Mold- Tek Technologies Limited as a comparable, out of which margin of the margin companies came down to 25.40% and thereby determined the ALP of assessee company's international transaction at Rs.15,51,19,800. Feeling aggrieved, assessee company has come up before the Tribunal by way of filing the present appeal.
8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
9. Ground No.1 is general in nature hence needs no specific finding.
10. Ground No.2 is determined against the assessee company having not been pressed during the course of arguments.
6 ITA No6455/Del./2012
11. Grounds No.3b, 3d & 3e are not pressed by the assessee company during the course of arguments, hence determined against the assessee company.
GROUNDS NO.3a, 3c & 3f
12. Undisputedly, the TPO has accepted the Transactional Net Margin Method (TNMM) as most appropriate method with OP/OC as PLI used by the assessee company for benchmarking its international transactions. However, TPO rejected seven comparables out of 11 selected by the assessee company and introduced 21 comparables by using current year data to compute the margin of the comparables. Working capital adjustment was also made to the comparables and computed the adjusted arithmetic mean of PLI of the comparables at 29.05%. The TPO has made ALP adjustment with regard to ITES services only but accepted all other international transactions of the assessee company.
13. Assessee confines its arguments for exclusion of 10 companies out of additional 21 companies chosen by the TPO for benchmarking the international transactions which are as under :-
(i) Accentia Technologies Ltd. (Segmental)
(ii) Bodhtree Consulting Ltd. (Segmental)
(iii)Eclerx Services Ltd.
(iv) HCL Comnet Systems & Services Ltd.
(Segmental)
(v) Informed Technologies India Ltd.
(vi) Infosys BPO Ltd.
7 ITA No6455/Del./2012
(vii) Maple E solutions Ltd.
(viii) Triton Corp Ltd.
(ix) Vishal Information Technologies Ltd. (now known as Corul Hub Ltd.)
(x) Wipro BPO Ltd. (Segmental)
14. We would like to discuss the aforesaid companies to work out their suitability for comparability with the assessee company for benchmarking the international transaction one by one as under:-
ACCENTIA TECHNOLOGIES LTD. (ACCENTIA)
15. This comparable company has been chosen by the TPO on the basis of data available in the capital line database as well as on the basis of data made available by the company in response to the notice issued u/s 133 (6) of the Act. Before the TPO, assessee raised objection for inclusion of this company as comparable on the ground that this company has only one segment of health care receivables management and chosen the same as a comparable.
16. Assessee company sought to exclude this company as comparables due to extra ordinary events in the form of amalgamation during the FY 2006-07 and relied upon decision rendered by ITAT, Delhi Bench in COWI India P. Ltd. (ITA No.5709/Del/2011) (available at pages 699 to 715 of the Paper Book-III) and ITAT, Hyderabad Bench in case of Capital IQ 8 ITA No6455/Del./2012 Information System India Pvt. Ltd. (ITA No.1961/Hyd/2011) (available at pages 812 to 839 of the paper book).
17. Coordinate Bench of ITAT, Delhi as well as Hyderabad in the cases of COWI India P. Ltd. and Capital IQ Information System India Pvt. Ltd. (supra) respectively ordered to exclude this company as a valid comparable due to extra ordinary circumstances, such as, merger and demerger which has certainly effected the financial results as the amalgamation took place in FY 2006-07 relevant to AY 2007-08.
18. More so, we are inclined to order the exclusion of this company for the reason that the annual report of this company is not available for FY 2006-07 and in these circumstances, it is not feasible to rely upon the material made available to the TPO in response to the notice u/s 133 (6) of the Act. Furthermore, there is a wide gap between employee cost of the assessee vis-à-vis the comparable company i.e. 13.98% of sales in case of ACCENTIA and 48.93% respectively.
19. Application of filter of employee cost to sales has been considered by the coordinate Bench of ITAT, Bangalore in case of M/s. e4e Business Solutions India Pvt. Ltd. (ITA No.819/Bang/2011) (available at pages 716 to 740 of the Paper Book-III), so the employee cost filter is a time tested filter for the 9 ITA No6455/Del./2012 purpose of selecting the comparables. So, we are of the considered view that ACCENTIA is not a valid comparable for benchmarking international transaction in assessee's case. BODHTREE CONSULTING LTD. (BODHTREE)
20. This is again TPO's own comparable, who has obtained information u/s 133(6) of the Act showing the revenue from e- paper solutions to the tune of Rs.44.20 lakhs and data cleansing to the tune of Rs.2.95 crores on total operating revenue of Rs.10.53 crores i.e. 32% of the revenue. TPO also used the reply filed by the company that data cleansing activity are in the form of IT Enabled Services (ITES) which has submitted segmental details regarding ITES and chosen it as a comparable. CIT (A) also upheld the choice of the TPO as a valid comparable.
21. Assessee sought exclusion of Bodhtree on ground of functional dissimilarity, peculiar economic circumstances and that it does not qualify filter of 75% of the service revenue and relied upon Motorola Solutions India Private Limited (ITA No.5637/Del/2011). The ld. AR also contended that information received u/s 133(6) of the Act cannot be used for comparability rather relied upon annual report, available at page 685 of the paper book.
10 ITA No6455/Del./2012
22. In the information supplied by the Bodhtree u/s 133 (6), it undertakes that data cleansing activities are in the form of ITES whereas in the annual report, available at page 685 of the paper book, it is categorically mentioned that Bodhtree have only one segment i.e. software development. Being a software solution company, it is engaged in providing open end to end web solution, software consultancy, design and development of solutions, using the latest technology. So, there is an inherent contradiction in the information supplied by Bodhtree u/s 133(6) vis-à-vis its annual report. In these circumstances, information available in the annual report has over-weighted the information received u/s 133 (6), which leads to the functional dis-similarity between the assessee company and Bodhtree sufficient to order its exclusion. Identical issue as to giving precedence to the annual report as against information obtained u/s 133(6) of the Act was discussed by the ITAT, Delhi Bench in Motorola Solutions India Private Limited (supra) and was decided in favour of the assessee company that annual report is to be relied upon as against information u/s 133 (6) of the Act. So, in these circumstances, we hereby order to exclude Bodhtree from the list of comparables.
11 ITA No6455/Del./2012 ECLERX SERVICES LTD. (ECLERX)
23. TPO used this company as a comparable on the basis of information obtained u/s 133 (6) and annual report for FY 2006-07. Assessee raised objection for the inclusion of this company in the list of final comparables on ground of functional dis-similarity and relied upon order passed by ITAT, Delhi Bench in the case of Copal Research India Pvt. Ltd. (ITA No.1713/Del.2014) (available at pages 741 to 757 of the Paper Book-III). Assessee also raised objection that this company is a Knowledge Processing Outsourcing (KPO) company rather than routine service provider.
24. Comparability of ECLERX has been examined by the coordinate Bench in case of Copal Research India Pvt. Ltd. (supra) which is also engaged into ITES services similar to that of the assessee.
25. When we examine the functional profile of the assessee company which is into providing Information Technology (IT) Enables Back Office Support Services related to creation and maintenance of data base of prospective employers and candidates who sent their resumes to Hendrick & Struggles International Inc. (HSII), the assessee provides services to HSII only having minimal risks whereas as per the information supplied by ECLERX u/s 133 (6), it is into data analytical services; operation management 12 ITA No6455/Del./2012 services; accounts reconciliation services which are aimed at reducing process errors and operational risks and that it is KPO rather than routine service provider as is evident from the annual report.
26. Comparability of ECLERX has been examined by the coordinate Bench with Copal Research India Pvt. Ltd. (supra), a similarly situated company, by making following observations :-
"11. We have considered the submissions of both the parties and have perused the record of the case. We find that in the case of Maersk Global Centres (India) Pvt. Ltd., which company was, inter alia, engaged in the business as shared service centre and rendering transaction processing, data entry, reconciliation of statements, audit of shipping documents and other similar support services; and also rendering I.T. services such as process support, process optimization and technical support services, the Tribunal in para 82 of its order observed as under:
"In so far as M/s eClerx Services Limited is concerned, the relevant formation 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 automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing 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 13 ITA No6455/Del./2012 management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving 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."
11.1. We find that the assessee also cannot be said to have relatable degree of comparability because primarily assessee was engaged in providing primary data for various field of activities but not complete business solutions. Therefore, this company could not be treated as comparable for the purpose of determining ALP of the transactions between the assessee company with its AEs. We, accordingly, direct that this company be excluded from the list of comparables finally taken by the AO/ TPO as per the direction of the DRP."
27. So, keeping in view the functional dis-similarity of assessee company with ECLERX, which is a knowledge process outsourcing company engaged in providing consulting services, process outsourcing, process re-engineering and automation services, we do not find ECLERX as a valid comparable for benchmarking the international transaction qua ITES services undertaken by the assessee.
HCL COMNET SYSTEMS & SERVICES LTD. (HCL)
28. TPO used this company as a comparable on the basis of information u/s 133 (6) pertaining to ITES segment and considered the same as a valid comparable. However, assessee opposed this 14 ITA No6455/Del./2012 company as a comparable on ground of Related Party Transaction (RPT) filter as well as high turnover of the company which is Rs.260.19 crores which 18.78 times as that of the assessee. Ld. AR for the assessee to exclude this company as a comparable relied upon Motorola Solutions India Private Limited (supra). Assessee raised the issue of RPT filter before ld. CIT (A) as per submission made, available at pages 336 to 420 of the paper book, that during the year under assessment HCL has 18.,72% of RPT to sales as against filter of 15% taken by the assessee in its TP study. CIT (A) affirmed the findings returned by the TPO in adopting applicability of 25% RPT transaction filter.
29. Identical issue has come up before the coordinate Bench in Motorola Solutions India Private Limited (supra) wherein it is held that by applying the threshold limit of 15% of RPT transaction sufficient comparables are available then there is no reason to further extend the limit to 25%. In the instant case, undisputedly, 25 comparables have been chosen by the assessee having RPT filter of 15%, out of which the TPO can get sufficient number of comparables for benchmarking international transactions. So far as ground of high turnover as raised by the assessee for exclusion of this comparable is concerned, the same has not been pressed during the course of argument.
15 ITA No6455/Del./2012
30. Moreover, information supplied by HCL u/s 133(6) is inconsistent with the annual report as to adopting a different financial year beginning from July 1 to June 30 which does not pass the TPO's filter of comparable companies having different financial years. So, we direct to exclude HCL from the list of comparables.
INFORMED TECHNOLOGIES INDIA LTD. (INFORMED)
31. TPO chosen this company as comparable on the ground that it qualifies all the filters. However, assessee opposed the exclusion of this company as comparable on the grounds that it fails employee cost filter as percentage of employees cost of Informed Technologies for FY 2006-07 is 21.77% as against assessee's cost/sales ratio of 48.93%. The ld. DR opposed the contention on the ground that this company does not qualify the assessee's own filters as the assessee has not used data of FY 2006-07.
32. Ld. AR for the assessee contended that this filter has otherwise been accepted by the ld. CIT (A) while rejecting Mold- Tek from the list of comparable companies chosen by the TPO and further contended that ITAT rejected this company as a comparable on the basis of employee cost/sales filter in case of e4e Business Solutions India Pvt. Ltd. - ITA No.819/Bang/2011, available at page 223 of case law compilation. Undisputedly, assessee as well 16 ITA No6455/Del./2012 as e4e Business Solutions India Pvt. Ltd. (supra_ companies are into back office support services. The coordinate Bench in the case of e4e Business Solutions India Pvt. Ltd. (supra) held that in ITES sector companies having less than 25% of sales as employee cost should not be chosen as comparable for benchmarking international transaction. So, keeping in view the fact that this filter has applied by ld. CIT (A) while dealing with Mold-Tek and the fact that the coordinate Bench has held that companies have less than 25% of the sales as employee cost should not be chosen for comparability for determination of ALP by following order passed by coordinate Bench, we hereby order to exclude this company from the final list of comparables.
INFOSYS BPO LTD. (INFOSYS BPO)
33. TPO has chosen this company as a comparable by rejecting the objection raised by the assessee that this company has abnormal turnover on the ground that unlike software segment, turnover will not affect the functionalities of companies operating in ITES segment. However, ld. AR for the assessee sought exclusion of this company on the grounds inter alia that INFOSYS BPO possesses brand value sufficient to influence the pricing policy and impacting the margin earned by the INFOSYS BPO and that it is a large and diversified service provider whereas assessee 17 ITA No6455/Del./2012 is a captive service provider providing back office support services and relied upon order rendered by ITAT, Delhi Bench in case of Calbirated Healthcare Systems India Pvt. Ltd. (ITA No.5271/Del/2012)(available at pages 853 to 862 of Paper Book- III).
34. In the Calibrated Healthcare Systems India Pvt. Ltd. (supra), coordinated Bench examined the comparability of INFOSYS BPO with Calibrated Healthcare Systems India Pvt. Ltd. which is also engaged in providing ITES services to its foreign entity as in the case of assessee and by following the judgment rendered by Hon'ble Delhi High Court in CIT vs. Agnity India Technologies Pvt. Ltd. - (2013) 219 Taxman 26 (Delhi), directed the exclusion of INFOSYS BPO from the list of comparables on the ground that assessee does not have any substantial intangible assets; INFOSYS BPO has large and substantial research development centre whereas the assessee is not undertaking such activity. Moreover, the assessee is a minimal risk taking company whereas INFOSYS BPO is a full-fledged risk taking company having diversifying business. In other words, INFOSYS BPO is a giant company and cannot be a valid comparable with the assessee company. So, we hereby order to exclude this company from this list of comparables.
18 ITA No6455/Del./2012 MAPLE SOLUTIONS LIMITED & TRITON CORP LTD.
35. Though the assessee has initially sought to exclude both these companies as comparables on ground of extra ordinary events i.e. Maple has become 100% subsidiary of Triton and both the companies belong to Rastogi Group of companies and the directors of both the companies were found to have engaged in financial irregularities but, during the course of argument, the ld. AR for the assessee has not pressed for their exclusion. Ld. DR also opposed exclusion of these comparable on the ground that charges of financial irregularities against the Directors of both the companies were leveled about 30 years back and have no impact on the profitability of the companies. So, these companies are left in the final list of comparables made by the TPO for bench-marking the international transactions being not pressed by the assessee for exclusion.
VISHAL INFORMATION TECHNOLOGIES LTD. (VISHAL)
36. TPO has taken this company as comparable after obtaining information u/s 133(6) of the Act. Assessee sought exclusion of this company on the ground that this company is functionally different being in the business of outsourcing services. Assessee also raised this objection before the TPO/CIT (A) that VISHAL spent only 2.3% of the revenue during FY 2006-07 towards 19 ITA No6455/Del./2012 employee's expenditure and about 43% of the revenue is expended towards payment to the vendors. Ld. AR for the assessee further contended that the functions performed, assets employed and risk assumed by VISHAL is not comparable with the assessee company and relied upon the case of Hon'ble Delhi High Court in Rampgreen Solutions Pvt. Ltd. (ITA 102/205) (available at page 760 to 811 of the Paper Book-III).
37. In the case of Rampgreen Solutions Pvt. Ltd. (supra), the issue came up for determination before the Hon'ble jurisdictional High Court that, "as to whether voice call services and KPO services were essentially ITES and the entities rendering the aforesaid services can be compared as comparables for benchmarking international transactions by using TNMM?"
Hon'ble High Court held that VISHAL is an entity engaged in Knowledge Process Outsourcing services (KPO services) where the service providers have to employ advanced level of skills and knowledge whereas voice call services are lower end of ITES and employment of IT based delivery systems, the characteristics of services, the functional aspects, the business environment, risks and the quality of human resources employed would be materially different in lower end ITES and higher end ITES i.e. KPO. Hon'ble High Court further held that where the controlled 20 ITA No6455/Del./2012 transactions are clearly in the nature of low end ITES as in the case of assessee being a captive provider engaged in back office work, for rendering data processing not involving domain knowledge, inclusion of KPO service provider as comparable would not be warranted and the transfer pricing study would be impacted at the threshold. Hon'ble High Court ordered to exclude the VISHAL as a comparable for ALP determination of Rampgreen Solutions Pvt. Ltd. (supra) engaged in ITES business by making following observations :-
"38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal's expenditure on employment cost during the relevant period was a small fraction of the proportionate cost incurred by the Assessee, apparently, for 'the reason that most of its work was outsourced to other vendors/service providers. The DRP and the Tribunal erred in brushing aside this vital difference by observing that outsourcing was common in ITeS industry and the same would not have a bearing on profitability. Plainly, a business model where services are rendered by employing own employees and using one's own infrastructure would have a' different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the outsourcing of services by Vishal would have no bearing on the profitability of the said entity. "
38. So, following decision rendered by Hon'ble High Court in Rampgreen Solutions Pvt. Ltd., we order to exclude VISHALL from the final list of comparables.
21 ITA No6455/Del./2012 WIPRO LTD. (WIPRO)
39. This is TPO's comparable in which segmental details has been obtained u/s 133(6) of the Act. However, assessee has sought its exclusion on grounds of significantly higher turnover, abnormal margins, presence of intellectual property, diversified business, brand value and turnover and relied upon Calibrated Health Systems Ltd. (supra), available at pages 853 to 862 of the paper book.
40. Coordinate Bench of ITAT, Delhi examined the comparability of WIPRO with Calibrated Health Systems Ltd., engaged in providing ITES services to its foreign entity as in the case of assessee and ordered its exclusion on the ground that this is a giant entity with marked differences as regards risk profile, nature of services, ownership of IP rights, expenditure on R&D, etc. So, following the decision rendered by coordinate bench as well as the fact that the assessee company is a captive service provider taking minimum risk having no intangibles cannot be compared with WIPRO which is having diversified business, ownership of significant intangibles and huge expenditure on R&D etc. So, we hereby order to exclude this company from the final list of comparables.
22 ITA No6455/Del./2012
COMPANY SOUGHT TO BE INCLUDED BY THE
ASSESSEE COMPANY
B2K CORP LTD. (B2K)
41. This is assessee's own comparable rejected by the TPO on the sole ground that data for the current year is not available. However, assessee contended that financials of the company was made available to the ld. TPO vide submission dated 01.10.2010, available at page 506 of the paper book, margin of the company was also provided to CIT (A), available at page 420 of the paper book and annual accounts of the company were finalized on 14th May, 2007, available at pages 604 to 627 of the paper book.
42. The ld. DR vehemently repelled the argument addressed by ld. AR that no such financials of the company were made available to the TPO and handwritten dated 01.10.2010 is written on the submission and had the data been available with the TPO, he would have considered the same. However, para 1 of TPO's order, available at page 248 of the paper book, goes to prove that the TPO himself admitted to have received the submission of the assessee dated 01.102.010. So, without entering into such technicalities addressed by the ld. Representatives of the parties to the appeal, we are of the considered view that when B2K is also into ITES services and current year data is available, the TPO is required to 23 ITA No6455/Del./2012 examine its comparability with the assessee on merits for the purpose of determination of ALP.
GROUND NO.4
43. Ground no.4 is not pressed, hence the same is dismissed as not pressed.
GROUND NO.5
44. Ground No.5 is premature, hence needs no adjudication.
45. In view of what has been discussed above, the present appeal is partly allowed.
Order pronounced in open court on this 18th day of January, 2017.
Sd/- sd/-
(S.V. MEHROTRA) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 18th day of January, 2017
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT (A)
5.CIT(ITAT), New Delhi. AR, ITAT
NEW DELHI.