Delhi High Court - Orders
Pr. Commissioner Of Income Tax -7 vs Transcend Mt Services Pvt. Ltd on 2 July, 2024
Author: Yashwant Varma
Bench: Yashwant Varma
$~ 3
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 611/2023
PR. COMMISSIONER OF INCOME TAX -7 ..... Appellant
Through: Mr. Puneet Rai, SSC with Mr.
Ashvini Kumar and Mr.
Rishabh Nangia, Advocates.
versus
TRANSCEND MT SERVICES PVT. LTD. ..... Respondent
Through: Mr. Vishal Kalra, Mr. S.S.
Tomar and Mr. Ankit Sahni,
Advocates.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE RAVINDER DUDEJA
ORDER
% 02.07.2024
1. The Revenue has instituted the instant appeal assailing the order of the Income Tax Appellate Tribunal ['Tribunal'] dated 19 November 2020 and has proposed the following questions of law for our consideration:-
"A. Whether on the facts and circumstances of this case, Hon'ble ITAT was justified in laying down stringent standards of comparability and attempting to identify exact replica of the taxpayer for comparability analysis, whereas the Indian law and the International jurisprudence recognize the reality that there cannot be an exact comparable in a given situation without any differences without appreciating that such stringency will defeat the purpose of flexibility provided in comparability analysis for determination of ALP?
B. Whether on the facts and circumstances of this case, Hon'ble ITAT was right in rejecting the company M/s Acropetal Technologies Ltd. as comparable company ignoring the fact that the TPO had ruled engineering and design services are under ITES services which is comparable to the functions of the assessee? C. Whether on the facts and circumstances of this case, Hon'ble This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/07/2024 at 20:40:48 ITAT was correct in rejecting M/s Eclex Services Ltd. as comparable company and propounding the concept of KPO vs BPO in comparability analysis, whereas in reality there is seamlessness in ITES functions and the comparability analysis is based upon functions, assets and risks?
D. Whether on the facts and in the circumstances of this case, the Hon'ble ITAT was correct in rejecting the comparable Infosys BPO Limited & TCS E Serve Limited on the ground that the comparable is a high turnover companies ignoring the fact that in service industry, turnover does not play any significant role as far as the margins are concerned, and when differences turnover is not mandated while applying the Transactional Net Margin method under Rules 10B( l )(e) read with Rule 10B(2) of the Income Tax Rules, 1962?
E. Whether on the facts and in the circumstances of this case, the Hon'ble ITAT is justified in excluding the above comparables when none of the pre-conditions specified in Rule 10(B)(2) of Income Tax Rules is satisfied?"
2. On hearing Mr. Rai, learned counsel for the appellant, we find that the principal issues arise in respect of the exclusion of Acropetal Technologies Ltd., Eclerx Services Ltd., Infosys BPO Ltd. and TCS E-Serve Ltd. from the list of comparables.
3. Insofar as Infosys BPO Ltd. and TCS E-Serve Ltd. is concerned, it could not be disputed before us that they were mega entities and could not have been included in the list of comparables bearing in mind the judgment rendered by the Court in CIT v. Agnity India Technologies Pvt. Ltd. (2013 SCC OnLine Del 2521).
4. That leaves us to consider the case of Acropetal Technologies Ltd. We find that the Dispute Resolution Panel ['DRP'] has excluded the same from the list since it was also engaged in software development. The Tribunal had upheld the exclusion of that comparable. We however note that it had taken a slightly divergent view insofar as Accentia Technologies Ltd. is concerned and which too was found to be engaged in software development.
5. Insofar as Eclerx Services Ltd. is concerned, the respondents This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/07/2024 at 20:40:48 would contend that it was essentially engaged in providing Knowledge Process Outsourcing ['KPO'] services and could not have been included as a comparable insofar as the assessee was concerned and which stood confined to providing BPO services. According to Mr. Rai, however, the aforesaid segmentation has not been examined or accorded consideration.
6. We take note of the following findings which came to be rendered by the Tribunal in Transcend MT Services Pvt. Ltd. v. Income Tax Officer (ITA No. 6093/Del/2012):-
"10.2 Having gone through the orders of the authorities below, we find that on the applicability/rejection of the above named 13 comparables the objections raised before us as summarized hereinabove in the tabular format supported with cited decisions thereunder requires fresh consideration of the ld. TPO for just and fair assessment. As in the case of Ramp Green Solutions (P) Ltd. Vs. CIT (supra) it has been held that Vishal Information Technologies Ltd. and E-clerx Services Pvt. Ltd. cannot be taken as comparables for determining the ALP as both are in KPO Services. In the case of Maersk Global Centre India Pvt. Ltd. Vs. ACIT (supra) the Special Bench of the Tribunal has noted that E- clerx is engaged in data analysis, date processing services, pricing analysis, building optimization, contend operation, sales and marketing support, product data management, Revenue management and in addition, E-clerix also offered financial services such as real time Capital Market, Middle and back office support, portfolio risk management services and various critical data management services and various critical data services. Clearly, the aforesaid services are not comparables with the services rendered by the assessee. Further, the functions undertaken are also not comparable with the assessee. In the case of Calibrated Healthcares System India P. Ltd. Vs. ACIT (supra) about the comparable Wipro Ltd. it has been held that this company is a giant entity in comparison with the assessee company with marked differences as regard risk profile, nature of services, ownership of IP rights, expenditure on R & D etc. and, hence, comparable with the assessee. We have similar observations, when we compare the assessee before us with Wipro Ltd. In the same decision, the coordinate bench of the Tribunal has also given its findings on the comparison of Infosis BP Land with this observation that there is a vast difference not only in the size, but also the functional profile, assets employed and risks undertaken This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/07/2024 at 20:40:49 by Infosis vis-a-vis the assessee, hence, it is not comparable. Similar observations are applicable in the case of present assessee as well. Again in the case of ICC India P. Ltd. Vs. DCIT (supra) observations on the comparability of Wipro, Infosis BP Ltd., HCL Comnet Systems & Services Ltd., Accentia, Maplc Solutions, Triton Corporation Ltd. have been made. In the case of Avion India P. Ltd. Vs. DCIT (supra) observations regarding applicability of the comparable Accentia Technologies Ltd., Nucleus Netsoft and Gis (India) Ltd. (now known as Asit C. Mehta Financial Services Ltd.), Maple E Solutions have been made. In the case of Ciena India P. Ltd. Vs. DCIT (supra) observations on the applicability of the comparable Bodhtree Consulting Ltd., have been made. Again in the case of Capital IQ Information Systems (P) Ltd., vs. DCIT (supra) observations on the applicability of the comparables Triton Corporation Ltd., has been made. There are other decisions also cited above by the ld. AR, wherein observations on the applicability of different comparables have been made and since those comparable have also been applied in the case of the present assessee, those observations are required to be examined with the facts of the case of the present assessee to arrive at a just and fair conclusion. We, while setting aside the orders of the authorities below, on the issues raised in ground Nos. 7 to 11 remand the matter to the file of the ld. TPO to decide the applicability of the disputed comparables, after affording opportunity of being heard to the assessee while taking into consideration the decisions cited above as well as the objections raised by the assessee. The ground Nos. 7 to 11 are accordingly allowed, for statistical purposes."
7. We consequently admit the instant appeal on the following questions of law:-
A. Whether on the facts and circumstances of this case, the Tribunal was correct in rejecting the company M/s Acropetal Technologies Ltd. as comparable company, ignoring the fact that the Transfer Pricing Officer ['TPO'] had ruled engineering and design services are under Information Technologies Enabled Services ['ITES'] services which is comparable to the functions of the assessee?
8. It was pointed out by Mr. Kalra that the judgment rendered by Tribunal in Transcend MT Services and the views expressed therein have also not been assailed by the appellant.
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/07/2024 at 20:40:49
9. List on 30.09.2024.
YASHWANT VARMA, J.
RAVINDER DUDEJA, J.
JULY 2, 2024/vp This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 08/07/2024 at 20:40:49