Appeal details
Counselvise Citation
[2019] 118 COUNSELVISE.COM (IT) 6064 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 10 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-01-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
K
Assessment Year
2011-2012
Appeal Filed On
01-03-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K , MUMBAI BEFORE SHRIC.N.PRASAD, JM AND SHRI M.BALAGANESH , A M IT (TP) A NO. 1047 /MUM/201 6 : ASST.YEAR 2011 - 2012 M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PRIVATE LIMITED 602, 6 TH FLOOR, IT BUILDING - 3 NESCO IT PARK, NESCO COMPLEX WESTERN EXPRESS HIGHWAY GOREGAON (EAST), MUMBAI - 400 063. PAN : AAACI7431A. VS. THE ASST.COMMISSIONER OF INCOME - TAX CIRCLE 12(2)(2) MUMBAI. (APPELLANT) (RESPONDENT) IT(TP)A NO.815 /MUM/201 6 : ASST.YEAR 2011 - 2012 THE ASST.COMMISSIONER OF INCOME - TAX CIRCLE 12(2)(2) MUMBAI. VS. M/S.INTEGREON MANAGED SOLUTIONS (INDIA) PRIVATE LIMITED 602, 6 TH FLOOR, IT BUILDING - 3 NESCO IT PARK, NESCO COMPLEX WESTERN EXPRESS HIGHWAY GOREGAON (EAST), MUMBAI - 400 063. (APPELLANT) (RESPONDENT) REVENUE BY :SHRIANAND MOHAN [CIT - DR] ASSESSEE BY : S/ SHRI PERCY J.PARDIWALA, NIRAJSHETH&MS.URVI MEHTA DATE OF HEARING : 03 .01.2019 DATE OF PRONOUNCEMENT : 23. 01.2019. O R D E R PER M.BALAGANESH ( A M) : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE DIRECTED AGAINST THE ORDER PASSED BY THE DISPUTE RESOLUTION PANEL - I MUMBAI (DRP) U/S 144C(5) OF THE INCOME - TAX ACT, 1961 (IN SHORT `THE ACT) DATED 15.10.2015 FOR THE ASSESSMENT YEAR 2011 - 2012. IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 2 2. WE FIND THAT THE ASSESSEE IN ITS GROUNDS OF APPEAL HAD DISPUTED THE ADJUSTMENT MADE TO ARMS LENGTH PRICE BY THE LD.TPO, WHICH HAD BEEN UPHELD BY THE LD.DRP. THE ASSESSEE DISPUTED THE SELECTION OF VARIOUS COMPARABLES BY THE LD.TPO WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS. THE REVENUE IS ALSO IN APPEAL BEFORE US WITH REGARD TO THE DIRECTION OF THE LD.DRP TO INCLUDE R S YSTEMS INTERNATIONAL AS ONE OF THE COMPARABLES WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION. THE LD.AR BEFORE US STATED THAT O NE COMPARABLE IN THE NAME OF ECLERX SERVICES LIMITED WOULD BE ARGUED FIRST AND SOUGHT FOR THE EXCLUSION OF THE SAME FROM THE FINAL LIST OF COMPARABLES. HE ARGUED THAT IF THE BENCH IS SATISFIED WITH REGARD TO THE EXCLUSION OF THIS COMPARABLE ALONE, THEN ASS ESSEES MARGIN WOULD BE AT ALP AND ACCORDINGLY ADJUDICATION OF OTHER GROUNDS WOULD BECOME ACADEMIC IN NATURE. THE LD.AR ALSO PRAYED THAT NO FINDING NEED TO BE GIVEN IN RESPECT OF OTHER COMPARABLES IN SUCH SCENARIO BY THIS TRIBUNAL AND THE ADJUDICATION OF T HE SAME MAY KINDLY BE LEFT OPEN BY THE TRIBUNAL. 3 . IN THE AFORESAID BACKGROUND, WE WOULD LIKE TO ADDRESS THE ISSUE AS TO WHETHER THE COMPARABLE ECLERX SERVICES LIMITED COULD BE EXCLUDED FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTION OF THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4 . THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF INTEGREON MANAGED SOLUTIONS INC. USA (HEREINAFTER REFERRED TO AS `IMS US), WAS INCORPORATED AS A PRIVATE LIMITED COMPANY ON 6 TH SEPTEMBER, 2000. THE ASSESSEE IS ENGAGED IN PROVIDING LOW END BACK OFFICE SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES (HEREAFTER REFERRED TO AS AES) I.E. IMS US AND INTEGREON MANAGED SOLUTIONS LIMITED, UK (`IMS UK). THE ASSESSEE PRIMARILY PROVIDES DOC UMENT, CONTENT IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 3 AND GRAPHIC SERVICES, KNOWLEDGE SERVICES, BUSINESS ADMINISTRATIVE SERVICES AND LEGAL ADVISORY SERVICES TO ITS AE. 5 . THE INTERNATIONAL TRANSACTION CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION IS AS UNDER: - INTERNATIONAL TRANSACTIONS NAME OF ASSOCIATED ENTERPRISE AMOUNT (IN INR) PROVISION OF ITES SERVICES INTEGREON MANAGED SOLUTIONS INC. 56,31,80,291 INTEGREON MANAGED SOLUTIONS LTD., UK 4,98,30,637 REIMBURSEMENT OF EXPENSES INTEGREON MANAGED SOLUTIONS LTD., UK 27,574 INTEGREON DISCOVERY SOLUTIONS (DC) INC. 20,63,026 GRAIL RESEARCH, LLC 6,19,349 INTEGREON MANAGED SOLUTIONS (NORTH DAKOTA) INC. 5,99,979 RECOVERY OF EXPENSES INTEGREONINC, BVI 45,000 INTEGREON DISCOVERY SOLUTIONS (DC) INC. 6,97,819 6 . THE SEGMENTAL NET COST METHOD (NCM) OF THE AFORESAID TRANSACTIONS ARE TABULATED BELOW: - PARTICULARS / AMOUNT IN RS. INFORMATION TECHNOLOGY SUPPORT SERVICES. OPERATING REVENUES 61,68,50,976 OPERATING COST 53,40,78,040 OPERATING PROFIT 8,27,72,936 OP/TC 15.50% 7 . THE LD.TPO OBSERVED IN HIS ORDER THAT BASED ON THE ACTIVITIES OF THE ASSESSEE - COMPANY, IT WAS TREATED AS KPO IN ASSESSMENT YEARS 2008 - 2009, IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 4 2009 - 2010 AND 2010 - 2011 INSTEAD OF BPO. THE ASSESSEE STRONGLY OBJECTED TO THIS PLEA THAT IT WAS PROVIDING ONLY ITES SERVICES AND CANNOT BE CONSTRUED AS KPO AND ACCORDINGLY COMPARABLES CHOSEN BY THE LD.TPO FROM THE KPO INDUSTRY COULD NOT BE MADE APPL ICABLE TO THE ASSESSEE - COMPANY FOR BENCHMARKING THE INTERNATIONAL TRANSACTION. THE LD.TPO, HOWEVER, REJ ECTED THIS CONTENTION AND ORDERED TO BE IN CONSONANCE WITH THE STAND TAKEN BY THE PREDECESSOR IN EARLIER YEARS IN ASSESSEES OWN CASE, THE COMPARABLES FROM KPO INDUSTRY WERE SELECTED BY THE LD.TPO AND BENCHMARKING OF INTERNATIONAL TRANSACTION WERE DONE AND ACCORDINGLY ADJUSTMENT TO ALP WAS MADE BY THE LD.TPO. 8 . WE FIND THAT THE LD.DR VEHEMENTLY ARGUED THAT THE PRELIMINARY ISSUE AS TO WHETHER THE ASSESSEE IS A BPO OR A KPO HAD TO BE DECIDED FIRST, WHICH WOULD HAVE A BEARING ON THE DETERMINATION OF ALP OF INTERNATIONAL TRANSACTION OF THE ASSESSEE - COMPANY. 9 . THE LD.AR, ON THE OTHER HAND, STATED THAT WITHOUT PREJUDICE TO THE MAIN ARGUMENT THAT THE ASSESSEE IS ONLY A BPO AND NOT A KPO, STATED THAT EVEN IF THE COMPARABLES INCLUDED BY THE LD. TPO IS TO BE CONSIDERED AS CORRECT, EVEN THEN EXCEPT ECLERX SERVICES LIMITED , THE ASSESSEE WOULD BE THROUGH FOR THE YEAR UNDER CONSIDERATION WITH ITS MARGIN. IN OTHER WORDS, THE LD.AR ARGUED THAT EVEN ASSUMING THAT THE COMPARABLES CHOSEN BY THE LD.TPO FROM THE KPO INDU STRY IS TO BE CONSIDERED EXCEPT ECLERX SERVICES LIMITED, THEN THE ASSESSEES MARGIN WOULD BE AT ARM S LENGTH. FOR THIS PU RPOSE , WE FIND THAT THE LD.AR ARGUED THAT ECLERX SERVICES LIMITED IS ENGAGED IN OUTSOURCING ACTIVITY PREDOMINANTLY , WHEREAS THE ASSESS EE IS HAVING ITS OWN INFRASTRUCTURE FOR THE PURPOSE OF EXECUTION OF THE TRANSACTIONS AND ACCORDINGLY PLEADED THAT IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 5 THE SAID COMPARABLE SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES CHOSEN BY THE LD.TPO. IN THIS REGARD, WE FIND FROM PAGE 498 OF THE PAPER B OOK VOLUME I, PART - 2, WHICH IS THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE LD.TPO DATED 09.01.2015 IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE LD.TPO, WHEREIN THE ASSESSEE HAD SPECIFICALLY STATED THE FOLLOWING: - ECLERX PROVIDES A BROAD SUITE OF SERVICES THAT ALLOW CLIENTS TO OPERATE ON A DAY TO DAY BASIS INCLUDING TRADE PROCESSING, REFERE NCE DATA, ACCOUNTING AND FINANCE, AND EXPENSE MANAGEMENT ACTIVITIES. THE PROFESSIONAL SERVICE PRACTICE INCLUDES CONSULTING, BUSINESS ANALYTICS AND SOLUTION TEST ING. THE KEY SALES AND MARKETING FUNCTIONS ECLERX SUPPORTS INCLUDE WEB CONTENT MANAGEMENT & MERCHANDISING EXECUTION, WEB ANALYTICS, SOCIAL MEDIA MODERATION AND ANALYTICS, SEARCH ENGINE ANALYTICS AND SUPPORT, CRM PLATFORM SUPPORT, LEAD GENERATION, CUSTOMER DATA MANAGEMENT, SUPPLY CHAIN AND CHANNEL ANALYTICS, PRICE & CATALOGUE COMPETITIVE INTELLIGENCE AND BROADER DATA COLLECTION, CLEANSING, ENRICHING AND REPORTING. THE RELEVANT SNAPSHOT OF THE ANNUAL REPORT IS PROVIDED BELOW FOR YOUR GOOD - SELFS REFERENCE: A. INCOME INCOME FROM OPERATIONS THE COMPANYS INCOME FROM OPERATIONS CONSIST OF REVENUE FROM DATA ANALYTICS SERVICES AND PROCESS SOLUTIONS WHICH COMPRISES OF BOTH TIME / UNIT PRICE AND FIXED FEE BASED SERVICE CONTRACTS. INCOME FROM OPERATIONS INCR EASED TO RS.3,421.03 MILLION IN THE YEAR UNDER REVIEW FROM RS.2,570.21 MILLION IN THE PREVIOUS YEAR REGISTERING A GROWTH OF 33%. OTHER INCOME: (SOURCE PAGE 34 OF THE ANNUAL REPORT 2010 - 2011) IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 6 RANKED NUMBER 1 FINANCIAL SERVICES KPO AND FEATURED IN THE BLACK BOOK OF OUTSOURCING TOP 50 OUTSOURCERS. BROWN & WILSON (PART OF THE DATAMONITOR GROUP) CONDUCTS ANNUAL OUTSOURCING INDUSTRY CUSTOMER SATISFACTION BENCHMARKING SURVEY. THE RESULTS ARE PUBLISHED IN THE ANNUAL BLACK BOOK OF OUTSOURCING THAT SERVES AS A KEY INDEPENDENT BENCHMARK FOR FIRM EVALUATING OUTSOURCING SERV I CES. THE RESEARCH IS RECOGNIZED AS THE MOST EXTENSIVE AND REPRESENTATIVE PERCEPTION STUDY OF OUTSOURCING VENDORS, VALIDATED BY OVER 24,000 RESPONDENTS FROM SERVICE USERS AROUND THE GLOBE. OVER 700 FUNCTIONS AND 40 SECTORS ARE INVESTIGATED T O DETERMINE BEST FIT VEND ORS WITH MULTIPLE INDUSTRY SPECIFICATIONS. KNOWN AS THE LEADING PROVIDER OF INDEPENDENT AND UNBASED RANKING OF VENDORS, BLACK BOOK IS REGARDED AS KEY REFERENCE POINT FOR OUTSOURCED SE RVICES. (SOURCE PAGE 20 OF THE ANNUAL REPORT 2010 - 2011) YOUR GOODSELF WOULD APPRECIATE THAT THE DATA ANALYTICS SERVICES PERFORMED BY ECLERX IS DIFFERENT FROM THE ITES SERVICES PROVIDED BY THE ASSESSEE. THE DATA ANALYTICS SERVICES BEING PROVIDED BY EC LERX IS MORE VALUE ADDING AND HIGH END IN NATURE THAN THE INFORMATION TECHNOLOGY ENABLED SERVICES BEING PERFORMED BY THE ASSESSEE ALTOGETHER. THE FOLLOWING SCREENSHOT FROM THE ANNUAL REPORT OF ECLERX FURTHER REITERATES THE SERVICES OFFERED BY THE COMPANY. CORE2CLIENTS FINANCIAL SERVICES FIRMS ARE BEING ASKED TO PERFORM MORE WITH LESS DUE TO AN INCREASINGLY STRINGENT OPERATING ENVIRONMENT AND A FOCUS ON MINIMIZING COSTS. WHILE OPTIMIZING CURRENT INFRASTRUCTURE FIRMS ARE ALSO INVESTING CONSIDE RABLY IN STRATEGIC CHANGE PROGRAMMES T O MEET REGULATORY REQUIREMENTS, STREAMLINE OPERATIONS AND PROVIDE BETTER CLIENT SERVICE ECLERX ENABLES FINANCIAL INSTITUTIONS TO BALANCE THESE PRIORITIES BY PARTNERING WITH THEM TO INCREASE CONTROL, EXECUTE ONGOING FUNCTIONS WITH A SIGNIFICANT REDUCTION IN COST AND ACCELERATE CHANGE INITIATIVES BY PROVIDING DOMAIN SPECIFIC REENGINEERING EXPERTIZE. WE PROVIDE A BROAD SUIT OF SERVICES THAT ALLOW OUR CLIENTS TO OPERATE ON A DAY TO DAY BASIS INCLUDING TRADE PROCESSING RE FERENCE DATA ACCOUNTING IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 7 AND FINANCE AND EXPENSE MANAGEMENT ACTIVITIES. OUR PROFESSIONAL SERVICE PRACTICE INCLUDE CONSULTING BUSINESS ANALYSIS AND SOLUTION TESTING. OUR KEY DIFFERENTIATORS AS A LEADING OFFSHORE PROVIDER OF END TO END SERVICES TO THE SALE S AND MARKETING UNIVERSE ECLERX HAS DEEP KNOWLEDGE AND PROCESS EXPERTIZE THAT ENABLE IT TO SERVE AND ADOPT TO THE FAST GROWING AND EVOLVING DIGITAL MARKET PLACE. WE DEPLOY SKILLED RESOURCES TOGETHER WITH PROCESS REDESIGN AND AUTOM A TION TO PROVIDE BEST INCL ASS SERVICE DELIVERY TO INDUSTRY LEADING FIRMS. OUR SALES AND MARKETING CLIENTS VIEW US AS TRUSTED AND EXPERT PARTNERS AND COME TO US FOR OUR BUSINESS SOLUTIONS AND OUR ABILITY TO PROVIDE COST EFFECTIVE SCALING TO THEIR OPERATIONS. (SOURCE PAGE 6 AND 8 OF THE ANNUAL REPORT 2010 - 11) BASED ON THE ABOVE ANALYSIS, IT CAN BE SAID THAT THE FUNCTIONS PERFORMED, ASSETS USED AND RISKS UNDERTAKEN BETWEEN ECLERX AND THE ASSESSEE IS SIGNIFICANTLY DIFFERENT AND NOT AT ALL COMPARABLE. 10 . IT WAS ALSO OBJECTED BEFORE THE LD.TPO THAT THE STAND ALONE TURNOVER OF ECLERX SERVICES LIMITED INCLUDES TURNOVER OF THE SUBSIDIARY COMPANIES, WHICH IS EVIDENT FROM THE FINANCIALS OF THE SAID COMPARABLES. SINCE THE STAND ALONE FINANCIALS OF ECLERX SERVICES LIMITED ARE NOT PRESENTED FAIRLY, IT WAS PLEADED THAT THE DATA CANNOT BE RELIABLE. HENCE, THE SAID COMPARABLE SHOULD BE REJECTED BASED ON UNRELIABLE DATA. 11 . IT WAS SPECIFICALLY PLEADED THAT THE BUSINESS MODEL OF THE SAID COMPARABLE IS TOTALLY DIFFEREN T WITH THAT OF THE ASSESSEE. THE ASSESSEE SUBMITTED IN THIS REGARD AS UNDER: - THE ASSESSEE SUBMITS THAT THE LEARNED TPO HAD ERRED IN SELECTING ECLERX SERVICES LIMITED WHICH HAD OUTSOURCED 20.05% (437.15/2179.78) OF ITS BUSINESS TO THIRD PARTIES. IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 8 FURTHER , RELIANCE IS PLACED ON THE SPECIAL BENCH IN CASE OF MAERSK GLOBAL CENTRES (INDIA) PRIVATE LIMITED HAS HELD THAT THE BUSINESS ACTIVITIES AND FUNCTIONS PERFORMED BY ECLERX ARE NOT COMPARABLE TO LOW END SERVICE PROVIDERS. THE RELEVANT EXTRACTS OF THE DECISIO N OF SPECIAL BENCH IS AS BELOW: 82. 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 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 INCRE ASE SALES AND REDUCE RISK BY ENHANCING EFFICIENCIES AND BY PROVIDING VALUABLE INSIGHTS THAT EMPOWER BETTER DECISIONS. MIS ECLERX SERVICES PVT. LTD. IS ALSO CLAIMED TO HAVE A SCALABLE DELIVERY MODEL AND SOLUTIONS OFFERED THAT INCLUDE DATA ANALYTICS, OPERATI ONS 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 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. KEEPIN G IN VIEW THE NATURE OF SERVICES RENDERED BY MIS 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 FI ELD AND THE SAME CANNOT BE COMPARED WITH THE ASSESSEE COMPANY WHICH IS MAINLY ENGAGED IN PROVIDING LOW - END SERVICES TO THE GROUP CONCERNS. IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 9 83. FOR THE REASONSGIVEN 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 MIS ECLERX SERVICES PVT. LTD. AND MOLD - TEC TECHNOLOGIES LTD., IT IS DIFFICULT TO FIN D 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 F ROM THE L IST OF 10 COMPARABLES FINALLY TAKEN BY THE AOITPO AS PER THE DIRECTION OF THE DRP.' FURTHER, RELIANCE IS PLACED ON THE FOLLOWING JUDICIAL PRECEDENTS WHEREIN THE SAID COMPANY WAS REJECTED: - CAPITAL IQ INFORMATI ON SYSTEMS INDIA PVT. LTD. V. DC LT [ 2013] 32 TAXMAN.COM 21 (HYD. TRIBUNAL) - AVINEON INDIA PRIVATE LIMITED VS DCIT (ITA NO. 1989/HYDI2011) - ZAVATA INDIA PRIVATE LIMITED ( 2007 - 08) [ITA NO. 1 781/HYD/201 1] - MIS SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. [PRESENTLY MERGED WITH GENPACT INDIA ], (ITA NO. 1316/BANG/2012) - MARKET TOOLS RESEARCH (P.) LTD. [2013] (ITA NO. 2066/HYD/201 1 ) 12. THE ASSESSEE ALSO STATED THAT THE SAID COMPARABLE HAD EXTRA ORDINARY EVENTS DURING THE YEAR UNDER CONSIDERATION IN VIEW OF THE FACT THAT ECLERX SERVICES LIMITED HAS WOUND UP ITS SUBSIDIARY IGENTICA TRAVEL SOLUTIONS LIMITED , D URING THE YEAR WHICH WOULD ALSO AFFECT THE OPERATIONS OF THE COMPANY AND THEREBY MAKING SAID COMPANY UNSUITABLE FOR COMPARISON. 13. IT WAS ALSO PLEADED BEFORE THE LD.TPO THAT THE STRU CTURE OF WORK FORCE OF THE SAID COMPARABLE IS TOTALLY DIFFERENT. IN THIS REGARD , THE ASSESSEE SUBMITTED BEFORE THE LD TPO AS UNDER: - THE ASSESSEE MOST HUMBLY SUBMIT S THAT OUT OF THE TOTAL WORKFORCE, 16% OF THE EMPLOYEES ARE PROFESSIONALS AND POST GRADUATES DRAWING IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 10 AN ANNUAL SALARY OF 8 - 9 LACS PER ANNUM, WHICH COMPRISES OF APPROXIMATELY 35% OF THE TOTAL SALARY COST OF THE ASSESSEE. ON THE CONTRARY, THE COMPARABLE ALLEGED BY YOUR GOODSELF INCURS 84% OF THE TOTAL SALARY COST TO EMPLOYEES ENGAGED IN PERFORMING KPO ACTIVITIES, WHICH CLEARLY DEMONSTRATES THE FACT THAT ECLERX IS A COMPANY ENGAGED IN KPO ACTIVITIES AND CANNOT BE COMPARED TO THAT OF THE ASSESSEE. A COMPARISON OF THE EMPLOYEE COST IS PROVIDED HEREIN BELOW: NAME OF THE COMPANY PERCENTAGE OF EMPLOYEES WITH QUALIFICATION OF POST GRADUATES AND ABOVE. PERCENTAGE OF SALARY COSTS TO THE TOTAL SALARY COSTS OF THE FIRM. AVERAGE SALARY OF THE EMPLOYEE. ECLERX SERVICES LIMITED 20% 84% 28 LACS IMSIPL 16% 35% 3 - 9 LACS ON PERUSAL OF THE ABOVE, IT IS QUITE EVIDE NT THAT THERE IS A DIFFERENCE BETWEEN THE WORK FORCE STRUCTURE OF ECLERX AND THAT OF THE ASSESSEE AND THEREFORE COULD NOT BE COMPARED. CONSIDERING THE ABOVE EVIDENCES, THE ASSESSEE WISHES TO SUBMIT THAT ECLERX CANNOT BE CONSIDERED AS A COMPARABLE COMPANY. 1 4 . WE FIND THAT THESE OBJECTIONS WERE ALSO RAISED BY THE ASSESSEE BEFORE THE LD.DRP. THE REVENUE HAD NOT MET ANY OF THESE OBJECTIONS IN ITS ORDER S . THE LEARNED AR PLACED RELIANCE ON VARIOUS JUDGMENTS OF THE CO - ORDINATE BENCH AND THE HONBLE JURISDICTIONAL HIGH COURT ON THE GROUND THAT THE COMPANY WHICH IS PREDOMINANTLY ENGAGED IN OUTSOURCING ACTIVITIES COULD NOT BE CONSIDERED AS A PROPER COMPARABLE WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION . 1 5 . THE LEARNED DR, ON THE CONTRARY, ARGUED THAT AFTER GIVING A FINDING THAT WHETHER THE ASSESSEE IS KPO OR BPO, THEN THE CASE LAWS RELIED UPON BY THE LD.AR COULD BE LOOKED INTO BY THIS TRIBUNAL. IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 11 1 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND IN THE FACTS OF THE INSTANT CASE AND IN THE LIGHT OF THE ARGUMENTS ADVANCED BY BOTH THE SIDES, WE FEEL THERE IS NO NEED TO ADDRESS THE PRELIMINARY ISSUE AS TO WHETHER THE ASSESSEE IS A BPO OR KPO. WE FIND THAT THE LD.AR WAS VERY FAIR IN STATING THAT ONCE THE COMPARABLE ECLEX IS EXCLUDED FROM THE LIST OF COM PARABLES CHOSEN BY THE LD.TPO, THEN ITS MARGIN WOULD BE THROUGH, WARRANTING NO ADJUSTMENT TO ALP IN RESPECT OF INTERNATIONAL TRANSACTION CARRIED OUT BY IT. HENCE, WE PROCEED TO ADDRESS THAT PARTICULAR COMPARABLE ALONE IN THIS ORDER. WE FIND THAT THE LD.AR PLACED RELIANCE ON THE FOLLOWING DECISIONS TO SUPPORT HIS CONTENTIONS: - (I) DELHI TRIBUNAL DECISION IN THE CASE OF BC MANAGEMENT SERVICES (P) LTD. V. DCIT [(2017) 83 TAXMANN.COM 346 (DELHI - TRIB.) FOR ASSESSMENT YEARS 2011 - 2012 AND 2012 - 2013 DATED 25.05. 2017. (II) HONBLE DELHI HIGH COURT DECISION IN THE CASE OF PR.CIT V. B.C.MANAGEMENT SERVICES (P.) LTD. REPORTED IN [(2018) 89 TAXMANN.COM 68 (DELHI)] DATED 28.11.2017. (III) DELHI TRIBUNAL DECISION IN THE CASE OF AGILENT TECHNOLOGIES ( INTERNATIONAL ) PRIVATE LIMITED V. ITO FOR ASSESSMENT YEAR S 2010 - 2011 TO 2012 - 2013 DATED 12.02.2018. (IV) HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF PR.CIT V. APTARA TECHNOLOGY (P.) LTD. REPORTED IN [(2018) 92 TAXMANN.COM 240 (BOMBAY) DATED 26.03.2018. (V ) HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR.CIT V. PTC SOFTWARE (I) PVT. LTD. INCOME TAX APPEAL NO.598 OF 2016 DATED 16.04.2018 . (V I ) HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF PR.CIT V. DNY MELLON INTERNATIONAL OPERATIONS (INDIA) (P.) LTD.REPORTED IN [(2018) 93 TAXMANN.COM 363 (BOMBAY) DATED 23.04.2018. IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 12 1 7 . WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR.CIT V. APTARA TECHNOLOGY (P.) LTD. REPORTED IN [(2018) THE QUESTION RAISED BEFORE THE HONBLE HIGH COURT W AS AS UNDER: - WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE TRIBUNAL IS CORRECT IN EXCLUDING ACCENTIA TECHNOLOGIES LTD. AND CORAL HUBS LTD. AS COMPARABLE, IGNORING THE SAID COMPANIES ARE ENGAGED IN THE BUSINESS OF PROVIDING IT ENABLED SERVICES? 1 8 . THE HON BLE HIGH COURT IN THE CONTEXT OF EXCLUSION OF ONE OF THE COMPARABLES, M/S.CORAL HUBS LTD. HAD OBSERVED AS UNDER: - (A) THE IMPUGNED ORDER OF THE TRIBUNAL HAS EXCLUDED M/S. CORAL HUB LTD. FROM THE LIST OF COMPARABLE AFTER RENDERING A FINDING OF FACT THAT ACTIVITIES UNDERTAKEN BY CORAL HUB LTD. ARE NOT COMPARABLE TO THAT ENGAGED BY THE RESPONDENT - ASSESSEE. IT WAS FOUND AS A FACT BY THE TRIBUNAL THAT M/S. CORAL HUB LTD. IS ENGAGED IN ITES PARTICULARLY SELLING AND PURCHASING O F PRODUCTS AND GOODS WHEREAS THE RESPONDENT - ASSESSEE IS ENGAGED IN E - LEARNING AND CONTENT DEVELOPMENT ACTIVITY. BESIDES, THE TRIBUNAL HAS RECORDED FINDING OF FACT THAT BUSINESS MODEL ADOPTED BY M/S . CORAL HUB LTD. WAS DIFFERENT IN - AS - MUCH AS IT OUTSOURCES ITS WORK TO SUB - VENDORS AS AGAINST THE RESPONDENT - ASSESSEE CARRYING OUT ITS ACTIVITIES IN - HOUSE . (UNDERLINING PROVIDED BY US ) (B) THE GRIEVANCE OF THE REVENUE IS THAT BOTH THE CORAL HUB LTD. AS WELL AS THE RESPONDENT - ASSESSEE ARE IN THE FIELD OF INFORMATION TECHNOLOGY ENABLED SERVICES. THEREFORE, BY VIRTUE OF ABOVE FACT, THEY BECOME COMPARABLE. (C) IT IS OBVIOUS THAT MERELY BECAUSE THE TESTED PARTY AND THE COMPARABLE PROVIDE ITES, THEY DO NOT BECOME COMPARABLE. THE CONTENT OF THE SERVICES RENDER ED BY VIRTUE OF IT IS TO BE EXAMINED BEFORE HOLDING IT TO BE COMPARABLE. BESIDES, THE TWO ARE NOT COMPARABLE AS THE BUSINESS MODEL IN BOTH ARE DIFFERENT I.E. OUTSOURCING IN ONE AND IN - HOUSE IN THE OTHER. WE FURTHER NOTE THAT IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 13 THE IMPUGNED ORDER OF THE TRIBU NAL PLACES RELIANCE UPON THE DECISION OF THE TRIBUNAL DATED 30.10.2013 OF ITS CO - ORDINATE BENCH IN THE CASE OF PTC SOFTWARE INDIA (P.) LTD. WHICH ALSO EXCLUDED M/S. CORAL HUB LTD. (FORMERLY KNOWN AS 'VISHAL INFORMATION TECHNOLOGIES LTD.') . MR. SURESH KUMAR THE LEARNED COUNSEL FOR THE REVENUE VERY FAIRLY STATES THAT BEING AGGRIEVED BY THE ABOVE ORDER AN APPEAL WAS FILED TO THIS COURT BEING INCOME TAX APPEAL NO.732 OF 2014 (CIT V. PTC SOFTWARE). THIS APPEAL WAS DISMISSED UPHOLDING THE FINDING OF THE FACT OF T HE TRIBUNAL THAT M/S. CORAL HUB (FORMERLY KNOWN AS 'VISHAL INFORMATION TECHNOLOGIES LTD.') WAS A COMPANY NOT ONLY ENGAGED IN IT ENABLED SERVICES BUT ALSO IN PROVIDING AGENCY SERVICES BY WAY OF OUTSOURCING TO THIRD PARTY VENDORS. IN THIS CASE ALSO, THE IMPU GNED ORDER OF THE TRIBUNAL HAS COME TO A FINDING OF THE FACT THAT THE SERVICES RENDERED BY THE RESPONDENT TO ITS AE IS DIFFERENT FROM THE ACTIVITIES/SERVICES PROVIDED BY M/S. CORAL HUB LTD. THEREFORE, THEY WOULD NOT BE COMPARABLE ONLY ON THE GROUND THAT BO TH OF THEM BROADLY FALL UNDER THE CATEGORY ITES PROVIDERS. (UNDERLINING PROVIDED BY US ) (D) THE FINDING REACHED BY THE TRIBUNAL IS ONE OF FINDING OF FACT WHICH IS NOT SHOWN TO BE PERVERSE. THUS, THERE IS NO REASON TO INTERFERE WITH THE FINDING OF FACT RE CORDED BY THE TRIBUNAL. III . CONCLUSION: IN THE ABOVE VIEW, THE QUESTION AS PROPOSED DOES NOT GIVE RISE TO SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. 19 . WE FIND THAT THE LD.DR ALSO PLACED CERTAIN CO - ORDINATE BENCH DECISIONS OF THE TRIBUNAL FOR ASSESSMENT YEARS 2007 - 2008 AND 2008 - 2009. WE HOLD THAT THE ISSUE IS NOW SETTLED BY THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), WHEREIN THE OUTSOURCING ACTIVITY IN ONE COMPANY WHICH IS DONE PREDOMINANTLY CANNOT BE TREATED AS A COMPARABLE WITH THE COMPANY WHICH IS ENGAGED IN CARRYING OUT ITS ACTIVITY IN - HOUSE. THESE FACTS WERE DULY BROUGHT AS A SPECIFIC OBJECTION BY THE ASSESSEE BEFORE THE LD.TPO AS WELL AS LD.DRP AS DETAILED ELSEWHERE HEREINABOVE IN THIS ORDER BY WAY OF WRITTEN IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 14 SUBMISSIONS. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE HAD MADE THIS OBJECTION FOR THE FIRST TIME BEFORE THIS TRIBUNAL. WE ALSO FIND THAT THE OBJECTIONS MADE BY THE ASSESSEE WITH REGARD TO THIS COMPARABLE NAMELY ECLEX SOLUTIONS LIMITED HAD NOT BEEN DISPUTED BY THE LD.TPO OR BY THE LD.DRP BY POINTING OUT CERTAIN FACTUAL DIFFERENCES IN THE OBJECTIONS OF THE ASSESSEE, MORE PARTICULARLY, WITH REGARD TO THE PREDOMINANT ACTIVITY CARRIED ON BY THE SAID COMPARABLE. 2 0 . IN VIEW OF THE AFORESAID FACTUAL OBSERVATION S AND RESPECTFULLY FOLLOWING THE JUDICIAL PRONOUNCEMENTS RELIED UPON HEREINABOVE , WE HOLD THAT ECLE R X SOLUTIONS LIMITED SHOULD NOT BE TREATED AS A COMPARABLE AS IT IS FUNCTIONALLY DIFFERENT AND WE DIRECT THE LD.TPO TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS FOR DETERMINATION OF ARMS LENGTH PRICE, FOR THIS ASSESSMENT YEAR. 2 1 . WE WOULD LIKE TO MAKE IT CLEAR THAT THE GROUNDS RAISED BY T HE ASSESSEE WITH REGARD TO OTHER COMPARABLES ARE LEFT OPEN AND NO OPINION IS GIVEN BY US IN THIS ORDER. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 2 2 . THE GROUND RAISED BY THE REVENUE IN ITS APPEAL IS ALSO WITH REGARD TO THE DIRECTION O F THE LD.DR P TO ACCEPT ONE OF THE COMPARABLES CHOSEN BY THE ASSESSEE, I.E., R SYSTEM INTERNATIONAL. IN VIEW OF OUR SPECIFIC OB SERVATION MADE WITH REGARD TO ECLE R X SOLUTIONS LIMITED, WE REFRAIN TO GIVE OUR OPINION ON THE ACTION OF THE LD.DRP WITH REGARD TO R SYSTEM INTERNATIONAL, AS IT WOULD BECOME ACADEMIC. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. IT (TP) A NO. 1047 & 815 /MUM/201 6 . M/S. INTEGREON MANAGED SOLUTIONS (INDIA) PVT.LTD . 15 2 3 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS DAY OF 23 RD JANUARY, 2019 . SD/ - SD/ - ( C.N.PRASAD ) ( M.BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 23 RD JANUARY, 2019 . DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT , MUMBAI. 4. / DRP - 1 , MUMBAI. 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE.
