Ocwen Financial Solutions Private Limited, Bangalore V. Assistant Commissioner Of Income Tax, Special Range-5, Bangalore

ITA 342/BANG/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0838 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 12-10-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 11-07-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Services rendered outside India; Question of law; Wholly owned subsidiary
• Section: 195; 143(2); 192; 72; 13; 92CA; 101

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “A”, BANGALORE Before Shri George George K, JM & Shri Laxmi Prasad Sahu, AM IT(TP)A No.342/Bang/2021 : Asst.Year 2016-2017 M/s.Ocwen Financial Solutions Private Limited Pritech Park, Survey No.51 to 64/4, Block No.12, Unit 2, 5B & 6A Floors, Bellandur Village, Sarjapur Marathahalli Ring Road Bengaluru – 560 103. PAN : AAACO3764E. v. The Assistant Commissioner of Income-tax Special Range – 5 Bangalore. (Appellant) (Respondent) Appellant by : Sri.Ankur Pai & Sri. K.R.Vasudevan, Advocates Respondent by : Sri.K.Sankar Ganesh, JCIT-DR Date of Hearing : 13.10.2022 Date of Pronouncement : 14.10.2022 O R D E R Per George George K, JM : This appeal at the instance of the assessee is directed against final assessment order dated 30.03.2021 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2016-2017. 2. The brief facts of the case are as follows: The assessee is a company engaged in providing IT enabled services to Ocwen Mortgage Servicing Inc. USVI. The assessee is a wholly owned subsidiary of Ocwen Asia Holdings Limited, Mauritius. For the assessment year 2016-2017, the return of income was filed on 29.11.2016 declaring total income of Rs.93,31,44,800. The case was selected for scrutiny IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 2 and notice u/s 143(2) of the I.T.Act dated 20.07.2017 was duly served on the assessee. During the course of assessment proceedings, it was noticed that the assessee had undertaken several international transactions with its Associate Enterprises (AEs). The A.O. referred the matter to the TPO to determine the Arm’s Length Price (ALP) of the international transactions undertaken by the assessee with its AEs. One of such transactions was provision for ITES. 3. The assessee during the relevant assessment year had received a sum of Rs.595,77,76,898 from its AEs in respect of ITES provided. The assessee in its TP study, had selected Transactional Net Margin Method (TNMM) as the most appropriate method and computed its margin at 15.82% on operating cost. As regards the selection of comparables, the assessee carried out search for uncontrolled comparables using Prowess and Capitaline Database. In the TP study of the assessee, 7 comparables were selected with 35 th and 65 th percentile range of the weighted average operating profit / total cost of the comparable companies of 4.40% to 11.81% and median of 10.95%. Since the profit margin of the assessee in the TP study was at 15.82% on operating cost was higher than the median, the profit margin earned by the assessee in the ITES segment was treated at arm’s length. The TPO rejected the TP study and conducted fresh analysis. The TPO, however, agreed with the assessee that TNMM was to be applied as the most appropriate method. The TPO thereafter applied the following filters:- IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 3 Sl. No. Filters used for ITES segment 1. Use of current year data 2. Companies having different FY ending (i.e. not 31.03.2016) or date of the company does not fall within 12 month period i.e., 01.04.2015 to 31.03.2016, where rejected. 3. Companies whose income was less than Rs.1 crore were excluded. 4. Companies whose ITES income was less than 75 per cent of the total operating revenue were excluded. 5. Companies who have more than 25 per cent related party transactions were excluded. 6. Companies who have export sales less than 75 percent of the sales were excluded. 7. Companies with employee cost less than 25 percent of turnover were excluded. 4. The TPO selected 7 new comparable companies in the ITES segment. The TPO did not include any of the comparables, which were selected in the TP study of the assessee. The TPO determined 35 th to 65 th percentile at 19.27% to 26.44% with the median of 20.44% based on the weighted average operating profit/ total cost of the 7 comparable companies in the ITES segment. The details of the final set of comparables selected by the TPO and the median of 20.44% are detailed below:- Sl. No. Company name Financial Year wise OP/OC (%) 2014-15 2013-14 2012-13 Average 1. Bhilwara Infotechnology Limited (Seg) 12.32% 7.95% 20.57% 13.39% 2. One Touch Solutions (India) Private Limited 12.23% 14.87% 18.29% 15.33% 3. Capgemini Solutions Limited 23.24% 15.16% 19.06% 19.27% 4. Tech Mahindra Business Services Ltd. 19.71% 29.53% 13.33% 20.44% 5. Infosys BPM Limited 25.34% 26.80% 27.43% 26.44% 6. SPI Technologies India 40.70% 32.18% 42.48% 37.77% IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 4 Pvt.Ltd. 7. Eclerx Services Ltd. 57.75% 44.39% 70.72% 56.44% 35 th Percentile 19.27% Median 20.44% 65 th Percentile 26.44% 5. The TP did not grant any adjustment towards working capital. The TPO recomputed the profit margin of the assessee at 16.88% against the margin of 15.82% determined by the assessee in its TP study, after considering the foreign exchange gains as operating in nature. The TPO thereafter computed the ALP and proposed the TP adjustment of Rs.18,42,02,360 in the ITES segment. The computation of ALP and TP adjustment proposed by the TPO reads as follows:- Particulars As per TP Officer Total operating revenue (Rs) 606,29,00,000 Total operating expenses (Rs) 518,69,00,000 Operating profit (Rs) 87,60,00,000 OP/OC (Percent) 16.88% Median (percent) 20.44% Arm’s length price 624,71,02,360 TP adjustment (Rs.) 18,42,02,360 6. The TPO thereafter passed order dated 30.10.2019 u/s 92CA of the I.T.Act determining the TP adjustment of Rs.18,42,02,360 in the ITES segment. The A.O. passed draft assessment order on 06.12.2019 incorporating TP adjustment of Rs.18,42,02,360 determined by the TPO in the order passed u/s 92CA of the I.T.Act. Further, the A.O. made a disallowance of Rs.18,44,297 in relation to stamp duty incurred towards merger. The A.O. accordingly proposed the IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 5 assessed income of the assessee at Rs.111,91,91,457 against the returned income of Rs.93,31,44,800. 7. Aggrieved by the draft assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP rejected the objections of the assessee challenging the application of certain filters by the TPO. The DRP also rejected the objections of the assessee seeking to apply turnover filter and also rejected the claim for grant of working capital and risk adjustment. The assessee had also sought exclusion of following three companies as comparables:- (i) Infosys BPO Limited, (ii) SPI Technologies India Pvt. Ltd., and (iii) Eclerx Services Limited. 8. The DRP, further rejected the assessee’s objection seeking inclusion of the following comparables:- (i) Allsec Technologies Limited (ii) Cosmic Global Limited (iii) Jindal Intellicom Limited (iv) BNR Udyog Limited (v) Informed Technologies Limited (vi) R Systems International Limited (vii) Ace BPO Services Limited. 9. The DRP however directed the TPO to verify the comparability of following comparables:- (i) Crystal Voxx Limited (ii) Microgenetic Systems Limited (iii) Microland Limited 10. The DRP accordingly disposed off the objections of the assessee. Pursuant to the DRP’s directions, the additions IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 6 proposed in the draft assessment order was confirmed. Accordingly, the assessed income of the assessee was determined at Rs.111,91,91,457 instead of Rs.93,31,44,800 declared in the return of income filed by the assessee. 11. Aggrieved by the impugned final assessment order dated 30.03.2021, the assessee has filed the present appeal before the Tribunal. The assessee has filed 16 grounds. However, during the course of hearing, the learned AR limited his argument to only grounds 13, 15 and part of ground 16. The contentions of the learned AR in this regard, ground-wise, are detailed below:- “Ground No.13 - Grant of working capital adjustment: The Appellant submits that it had made claim for grant of working capital adjustment before the TP Officer and the DRP but the same has not been granted. The Appellant relies on the following case laws for grant of working capital adjustment at actuals: Huawei Technologies India (P) Ltd. [2019) 101 taxmann.com 313 (Bang) Altimetrix India Pvt Ltd [IT(TP)A No.477/Bang/2021) Ground No.15 - Exclusion of comparables: The analysis of the Appellant with respect to Functions, Asset, Risk ("FAR") is provided in page 566-569 of the paper book. The Appellant seeks exclusion of companies on functional dissimilarity. As per Grounds of appeal No.15, the Appellant is pressing on the exclusion of the following companies, on grounds of functional dissimilarity, relying on the decision of this Hon'ble ITAT in the case of NTT Data Information Processing Services Pvt Ltd [IT(TPJA No. 297 /Bang/2021]. The Appellant also relies on the decision of this Hon'ble ITAT in the case of Global e- Business Operations Pvt Ltd [IT(TP)A No.212/Bang/2021]: Ground No.15(a) - Infosys BPO Ltd Ground No.15(b) - SPI Technologies India Pvt Ltd Ground No.15(c) - Eclerx Services Ltd IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 7 The Appellant submits that in similar circumstances, Infosys BPO Ltd has been excluded by this Hon'ble ITAT in Appellant's own case for immediately preceding AY i.e., AY 2015-16 in IT(TP)A No.2411/Bang/2019. The Appellant has filed a CHART with the relevant case law with appropriate references to the paragraphs containing the findings of the aforementioned exclusions sought Ground No.16 - Inclusion of comparables: The Appellant is seeking inclusion of the following companies as comparables: Ground No..16(e) - Informed Technologies Ltd Ground No..16(g) - Ace BPO Services Pvt Ltd Ground No.16(h) - Crystal Voxx Ltd The Appellant relies on the decision of this Hon'ble ITAT in the case of NTT Data Information Processing Services Pvt Ltd (supra) and the decision in Global e-Business Operations Pvt Ltd (supra) in support of its arguments for Inclusion of the companies as com parables. The Appellant submits that Crystal Vox x Ltd has been included by this Hon'ble ITAT in Appellant's own case for immediately preceding AY i.e., AY 2015-16 in IT(TP)A No.2411/Bang/2019. 12. The learned Departmental Representative supported the order of the AO / TPO. We shall adjudicate the above issues as under: Ground 13 (Grant of Working Capital Adjustment) 13. The above ground deals with working capital adjustment. The assessee has submitted that TPO did not allow any adjustment on working capital. Further, the DRP did not allow relief on this count. The assessee has placed reliance on the decision of the Bangalore Bench of the Tribunal in the case of M/s.Huawei Technologies India (P) IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 8 Ltd. v. JCIT reported in (2019) 101 taxmann.com 313 (Bangalore), wherein the Tribunal has held that working capital should be allowed as per actual. 14. The learned Departmental Representative has reiterated the contentions of the DRP. 15. We have heard rival submissions and perused the material on record. In the view of the ruling in the case of M/s.Huawei Technologies India (P) Ltd. v. JCIT (supra), the basis of rejection of the relief by the DRP is no longer valid. The relevant findings of the Tribunal in the case of M/s.Huawei Technologies India (P) Ltd. (supra) read as follows:- “15. In the present case the TPO allowed working capital adjustment accepting the calculation given by the Assessee. The CIT (A) in exercise of his powers of enhancement held that no adjustment should be made to the profit margins on account of working capital differences between the tested party and the comparable companies for the following reasons: (i) The daily working capital levels of the tested party and the comparables was the only reliable basis of determining adjustment to be made on account of working capital because that would be on the basis of working capital deployed throughout the year. (ii) Segmental working capital is not disclosed in the annual reports of companies engaged in different segments and therefore proper comparison cannot be made. (iii) Disclose in the balance sheet does not contain break up of trade and non-trade debtors and creditors and therefore working capital adjustment done without such break up would result in computation being skewed. (iv) Cost of capital would be different for different companies and therefore working capital adjustment made disregarding this different based on broad approximations, estimations and assumptions may not lead to reliable results. 16. The CIT (A) also placed reliance on a decision of Chennai ITAT in the IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 9 case of Mobis India Ltd. v. Dy. CIT [2013] 38 taxmann.com 231/[2014] 61 SOT 40. That decision was based on the factual aspect that the Assessee was not able to demonstrate how working capital adjustment was arrived at by the Assessee. Therefore nothing turns on the decision relied upon by the CIT (A) in the impugned order. In the matter of determination of Arm's Length Price, it cannot be said that the burden is on the Assessee or the Department to show what is the Arm's Length Price. The data available with the Assessee and the Department would be the starting point and depending on the facts and circumstances of a case further details can be called for. As far as the Assessee is concerned, the facts and figures with regard to his business has to be furnished. Regarding comparable companies, one has to fall back upon only on the information available in the public domain. If that information is insufficient, it is beyond the power of the Assessee to produce the correct information about the comparable companies. The Revenue has on the other hand powers to compel production of the required details from the comparable companies. If that power is not exercised to find out the truth then it is no defence to say that the Assessee has not furnished the required details and on that score deny adjustment on account of working capital differences. Regarding applying the daily balances of inventory, receivables and payables for computing working capital adjustment, the Delhi Bench of ITAT in the case of ITO v. E Value Serve.com [2016] 75 taxmann.com 195 (Delhi - Trib.). has held that insisting on daily balances of working capital requirements to compute working capital adjustment is not proper as it will be impossible to carry out such exercise and that working capital adjustment has to be based on the opening and closing working capital deployed. The Bench has also observed that that in Transfer Pricing Analysis there is always an element of estimation because it is not an exact science. One has to see that reasonable adjustment is being made so as to bring both comparable and test party on same footing. Therefore there is little merit in CIT (A)'s objection on working adjustment based on unavailable daily working capital requirements data. There is also no merit in the objection of the CIT (A) regarding absence of segmental details available of working capital requirements of comparable companies chosen and absence of details of trade and non-trade debtors of comparable companies as these details are beyond the power of the Assessee to obtain, unless these details are available in public domain. Regarding absence of cost of working capital funds, the OECD guidelines clearly advocates adopting rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party. Therefore this objection of the CIT (A) is also not sustainable. 17. In the light of the above discussion we are of the view that the CIT (A) was not justified in denying adjustment on account of working capital adjustment. Since, the CIT (A) has not found any error in the TPO's working of working capital adjustment, the working capital adjustment as worked out by the TPO has to be allowed. We may also add that the complete working capital adjustment working has been given by the Assessee and a copy of the same is at pages 173 & 192 of the Assessee's IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 10 paper book. No defect whatsoever has been pointed out in these working by the CIT (A). We may also further add that in terms of Rule 10B(1)(e) (iii) of the Rules, the net profit margin arising in comparable uncontrolled transactions should be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions which could materially affect the amount of net profit margin in the open market. It is not the case of the CIT (A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially affect the amount of net profit margin in the open market. If for reasons given by CIT (A) working capital adjustment cannot be allowed to the profit margins, then the comparable uncontrolled transactions chosen for the purpose of comparison will have to be treated as not comparable in terms of Rule 10B(3) of the Rules, which provides as follows: "(3) An uncontrolled transaction shall be comparable to an international transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged to paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 18. In such a scenario there would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore fail. Therefore in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore the working capital adjustment as claimed by the Assessee should be allowed. We hold and direct accordingly.” 16. We therefore, direct the AO/TPO to consider the workings in the light of the aforesaid ruling and allow appropriate adjustment in arriving at an arm’s length price. We hold and direct accordingly. Ground 14 17. In the above ground, the assessee is seeking exclusion of (i) Infosys BPO Limited, (ii) SPI Technologies Pvt. Ltd. and (iii) IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 11 Eclerx Services Limited. We find for identical assessment year, the Tribunal in the case of M/s.Global E-Business Operations Pvt. Ltd. in IT(TP)A No.212/Bang/2012 (order dated 27.09.2022), excluded the above three companies on account of functional dissimilarity with that of ITES segment. The relevant finding of the Tribunal, which has followed the earlier Tribunal order, reads as follows:- “10. As mentioned earlier, the limited submission of the assessee before the Tribunal as per ground 1.12 is seeking exclusion of three companies from the list of comparable companies, namely, (i) Infosys BPO Limited, (ii) SPI Technologies India Private Limited, and (iii) Eclerx Services Limited. We find in the case of assessee’s group company namely EIT Services India Pvt. Ltd. v. DCIT (supra), the above three companies were excluded from the list of comparables on account of functional dissimilarities. We find that profile of the assessee in the instant case and that of the assessee in case of EIT services India Pvt. Ltd. are identical. Moreover, the assessment year is the same. The relevant finding of the Tribunal in the case of EIT Services India Pvt. Ltd. v. DCIT (supra) reads as follows (For exclusion of (i) Infosys BPO Limited, (ii) SPI Technologies India Pvt. Ltd. and (iii) Eclerx Services Limited) :- “13. Further, the assessee wants exclusion of following comparables in IT enabled services. i. Infosys BPO Ltd. ii. SPI Technologies Pvt. Ltd. iii. Eclerx Services Ltd. i. Infosys BPO Ltd. 13.1 The Ld. A.R. submitted that that Infosys BPO offers business process outsourcing solutions to its global clients by leveraging process, domain and people management expertise. The nomenclature in the profit and loss account indicates that the income is earned from ‘Revenue from business process management services’ which suggests that the company is engaged in consultancy and management services unlike the Appellant which is involved only in providing ITES as a captive service provider entity. 13.2 Further, Infosys BPO Limited has been excluded in the case of Swiss Re Global Business Solutions India (P.) Ltd. [2022] 137 taxmann.com 417 (Bangalore - Trib.) AY 2016-2017 (He referred Page 162-163 of the Case Law Compilation, Para 11 - 21). Below is the relevant extract from the order for ready reference: IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 12 11. The ld. AR submitted that Infosys BPM Ltd. should be rejected as a comparable because it is functionally not comparable, has diversified activities and lack of segmental data, different business model, brand profits, various revenue models, presence of intangibles, outsourcing costs, marketing expenses and turnover. It offers business outsourcing solutions to several clients and span across multiple industry segments. The company's catering to a variety of industries does not change the nature of functions carried out as it is committed to provide best in class services to both horizontal and vertical focus areas. 12. The DRP was of the view that just because the company is providing cloud based services over various mainframe computers, the company would not be functionally different as claimed by the assessee and rejected this plea of the assessee. 13. Regarding the plea of the assessee that this company is into high end ITES service provider, and hence not comparable, the DRP held that under TNMM, there is no requirement that the comparables should render the same or identical services. It would be sufficient, if the services fall under the broad industry segment ITES. In this regard the DRP relied on the Bangalore Tribunal decision in the case of GE India Technology Centre (P.) Ltd. v. Dy. DIT [2013] 30 taxmann.com 249/141 ITD 245 and other decisions wherein it was observed that TNMM requires only broad comparability. 14. The contention of the assessee that Infosys BPO has various Revenue Models and its revenues are generated principally on time and material basis, transaction basis and fixed price contracts and therefore, it should not be compared with the assessee, the DRP observed that as the assessed failed to demonstrate as to how the different methods of billing would affect the Functional comparability or impact the profitability. Unless the same is demonstrated with credible evidence, it remains a theoretical argument without any backing with facts and figures and hence rejected it. 15. The assessee pointed out that this company has reported an amount of Rs. 136 crore as 'cost of Technical sub-contractors' which constitutes about 4.45% of total revenue of the company during the year. The DRP observed that the annual report mentions that these sub-contractors are used for operational activities. This is a common practice in almost all the companies to give a small portion of the work to some other sub- contractors for a variety of reasons. This may allow the company to focus on its core activities. Sometimes it may be to meet the mismatch in certain skill-sets that are required in various projects. These expenses are incurred in the routine course of business. This cannot be held to be a criteria to affect the functional comparability of a company and more so in the facts of this case, wherein the sub-contracting expenses are about 4.45% only. This objection was accordingly rejected. 16. Regarding the lack of segment data to reject it as a comparable, the DRP was of the view that when it has been held that all the services being done by this company falls in the category of ITeS, then the absence of segmental information remains a theoretical argument. 14. The assessee has also argued that this company has significant intangibles and brand and hence not functionally comparable. The DRP noted that the expenditure incurred towards brand was just Rs. 19 crore which is meagre considering its operating revenue of Rs. 3050 crores. Further, the assessee could not point to any information from the annual report to indicate brand has contributed to the revenue growth or profitability. Therefore, the presence of brand, as such, has not affected comparability. Further, there is no information in the annual report to indicate that the company has undertaken any major R&D initiatives & own intangibles. Therefore, the presence of intangible in the IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 13 form of goodwill, which is also insignificant, as the value is only Rs. 19 crore compared to the revenue from operations of Rs. 3050 crores do not have any impact on the profits of the company. Hence, these pleas were rejected by the DRP. 18. The assessee's contention that this comparable has incurred significant selling and marketing expense was also not accepted by the DRP, since from the perusal of the annual report, the DRP noted that the expenses on this count is only 4.56% of the total expenditure and which is not at all significant to affect the profitability of the comparable. 19. Thus, in view of the discussions held above, all the grounds raised by the assessee were rejected and the action of the AO/TPO was upheld by the DRP. 20. We have heard both the parties and perused the material on record. This comparable has been considered as not comparable in SwissRe Global Business Solutions India (P.) Ltd. v. Dy. CIT [2020] 116 taxmann.com 716 (Bang. - Trib.) wherein it was observed as under :— "We have perused submissions advanced by both sides in light of records placed before us. We note that this company is providing services in various areas of sourcing and procurement, customer services, finance and accounting legal process outsourcing, sales and fulfilment, analytics, business platforms, business transformation services, human resource outsourcing and technology solution optimisation. It is noted that this comparable also provides services in financial services and insurance, manufacturing, energy utilities communications and services and retail, consumer packaged foods, logistics and life services. Further in the annual report it has been mentioned that this comparable provides services that are different from routine back-office services. This noting itself makes this comparable not functionally similar with that of assessee. Accordingly we direct this comparable to be excluded from finalist." 21. In view of the above order of the Tribunal, we are inclined to hold that this company should be excluded from the list of comparables. 13.3 The company has also been excluded in the case of ADP (P.) Ltd. [2022] 135 taxmann.com 44 (Hyderabad - Trib.) AY 2016-2017 by the Hyderabad Tribunal. 13.4 In view of the above-mentioned reasons, Ld. A.R. requested to direct the TPO to exclude this comparable from the final list of ITeS Segment. 13.5 Ld. D.R. relied on the order of Ld. DRP. 13.6 We have heard the rival submissions and perused the materials available on record. This company has been considered as in the case of ADP Pvt. Ltd. cited (supra and held that this company cannot be included by observing as under:- “16.1 Infosys BPO Ltd.: The ld. AR submitted that this company may be excluded from the final set of comparables for the reason that this company has incurred outsourcing costs for FY 2013-14, FY 2014-15 and FY 2015-16 and the outsourcing cost incurred by this company reflects a different operating model and hence cannot be compared with the assessee company. Further, he submitted that while this company operates under IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 14 various revenue model as per the assignments i.e., proportional completion method on rendering services, whereas the assessee charges a mark-up on the cost incurred to provide the services. Further, he submitted that since the cost structure and revenue model of this company is different with that of the assessee, this company ought to be rejected as a comparable company. He relied on the decision of the co-ordinate bench in assessee's own case ADP (P.) Ltd. (supra) wherein the co-ordinate bench excluded this company as comparable. 16.2 The ld. DR, on the other hand, submitted that presence of outsourcing cost/subcontracting cost does not affect functional comparability. Further, it reduces the operating margin of the company, which is beneficial to the assessee. He, therefore, submitted that the TPO/DRP has rightly included this company as comparable. 16.3 We have considered the rival submissions and perused the material on record as well as the orders of TPO/DRP. We find that the co-ordinate bench in assessee's own case ADP (P.) Ltd. (supra) has excluded this company as comparable by observing as under: '38. Having regard to the rival contentions and the material on record, we find we find that the Co-ordinate Bench of this Tribunal in the assessee's own case not only for the A.Ys 2009-10 for the A.Y 2010-11 has also considered this issue at Paras 6 to 9 in ITA No. 221/Hyd/2015 which reads as under: "6. The TPO has selected many comparables and among them M/s. Infosys BPO Ltd., TCS E-serve Ltd., and Eclerx Services Ltd., were objected to on the reason of high turnover and functionally different. With reference to Infosys BPO, the objection was that the said company renders vide array of services and has high brand value and turnover is also very high. With reference to TCS E-serve Ltd., there was exceptional event as the company was taken over by Tata Consultancy Services in the year 2008-09 and heavy turnover is due to its takeover. Further, it was submitted that the company was functionally different as it has three different services and segmental information was not arrived. As far as E-clerx Services Ltd., it was submitted that this company caters to high end KPO services and cannot be compared to routine BPO services provided by assessee. The DRP vide para 3.10 has accepted the assessee's objections and accordingly, directed the TPO to exclude the above three companies. There are other directions of the DRP on TP adjustments on which neither party has raised grounds, except the Revenue on the above exclusion of three companies. 7. Referring to the order of the TPO, it was the contention of Ld.DR that DRP was not correct in excluding them on the basis of the turnover, whereas Ld. Counsel submitted that DRP has followed the decisions of the Co-ordinate Benches in excluding the above three comparables. 8. We have considered the rival submissions and perused the order of the DRP and Co-ordinate Benches. As far as M/s. TCS E-Serve Ltd., is concerned, the Co- ordinate Bench of ITAT in the case of M/s Hyundai Motors India Engineering P. ltd in ITA Nos. 1743/Hyd/2014 (AY.2010-11) & ITA No. 1917/Hyd/2014 (AY.2010-11) dt. 13-11-2015, has decided the issue as under: ITA No 2233 of 2018 ADP Private Ltd Hyderabad "TCS e-SERVE LIMITED 11.2.1. As regards TCS e-Serve Limited is concerned, we find that it possesses brand value as is evident from the Schedule-N (Operation and Other expenses) to the P & L A/c of the annual report for the financial year 2009-10 of Rs. 46,065 IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 15 thousands and also that it possesses intangibles in the form of software licenses which have not been taken note of by the authorities below while adopting its margin. It is also the case of the assessee that this company has a turnover of Rs. 1405.10 crores which is 25 times of the turnover of the assessee and hence, is not comparable to the assessee. The Ld. Counsel for the assessee had also placed reliance upon the TPO's order in the case of M/s. IGS Imaging Services India Ltd., to hold that there are exceptional circumstances during the relevant financial year due to which this company is not comparable to the assessee. The Ld. Counsel for the assessee also submitted that the segmental details of this company are not available and hence, has to be excluded on this count also. 11.2.2 We find that the assessee's contentions about the presence of 'brand value' and owning of 'intangibles' is supported by the evidence on record. However, as regards the extraordinary event or exceptional circumstance there is no material placed before us by the Ld. Counsel for the assessee. Therefore, merely because the TPO in another case has held that there is an extraordinary event for which this company has to be excluded from the list of comparables, it cannot be excluded. Such claim has to be supported by evidence on record. As regards the functional dissimilarity and huge turnover and brand value is concerned, we find that this Tribunal in assessee's own case for A.Y.2009-10 while considering the comparability of the assessee with Infosys BPO Ltd., has taken note of the possession of the brand value and intangibles which influenced the financial results of this company. The Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd., [2013] 219 Taxman 26 (Del.), held that huge turnover companies like Infosys and Wipro cannot be considered as comparable to smaller companies like assessee therein. In the case before the Hon'ble High Court (supra), the turnover of the assessee was about Rs. 15.79 crores as against the turnover of Rs. 1016 crores of the Infosys. Considering these facts, the Hon'ble High Court had directed for exclusion of Infosys BPO because of its brand value and also on the grounds of functional dissimilarity and huge turnover. Though, the company before us is TCS e-Service Ltd., and not Infosys BPO, we find that the turnover of the assessee company for this assessment year is around Rs. 50 crores as against the turnover of TCS EServe Limited of Rs. 1405.10 crores. Therefore, following the turnover filter as well as taking note of the fact that it owns and possesses brand value and intangibles as compared to the assessee which does not own such assets, we direct that this company be excluded from the list of final comparables. Accordingly, assessee's grounds of appeal No. 6 is partly allowed. 8.1 Respectfully following the above decision of the Coordinate Bench, we confirm the order of DRP excluding the above company from the list of comparables.' We observe from the financial statements of this company, that this company is functionally dissimilar and use robotics automation and diversified activities. Therefore, following the decision of the co-ordinate bench, we direct the AO/TPO to exclude this company as comparable for determining ALP. 13.7 In view of the above order of the coordinate bench of Hyderabad, we direct the AO/TPO to exclude this company viz. Infosys BPO Ltd. from the list of comparables from the final list of ITeS segment. ii. SPI Technologies Pvt. Ltd. IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 16 14. The Ld. A.R. submitted that the company is into diversified business activities. The Company is engaged in data processing and related services, primarily in the typesetting business, including transformation of unedited manuscripts into final print-ready files, supply of structured data for electronic publishing and providing end-to- end project management services. 14.1 SPI Technologies India Private Limited has been excluded in the case of Entercoms Solutions Private Limited [TS-548-ITAT-2021(PUN)-TP] Page 10 of the order – AY 2015-2016. Below is the relevant extract from the order for ready reference: “10. We, place reliance on the afore-stated judicial precedents where there is an emerging consistent view in this regard that if an extraordinary event has taken place by way of amalgamation that company cannot be considered as a comparable one and following the same parity of reasoning, we direct the Assessing Officer/TPO to exclude SPI Technologies India Pvt. Ltd. from the final set of comparables while computing international transactions in respect of the Assessee in ITes segment.” 14.2 In view of the above-mentioned reasons, Ld. A.R. requested to direct the TPO to exclude this comparable from the final list of ITeS Segment. 14.3 Ld. D.R. relied on the order of Ld. DRP. 14.4 We have heard the rival submissions and perused the materials available on record. This company has been considered as not a comparable in the case of Entercoms Solutions Pvt. Ltd. in assessment year 2015-16 in ITA No.1826/Pune/2019 dated 25.10.2021 wherein held as under:- 8. We find the Hon’ble Jurisdictional High Court in the case of Pr. Commissioner of Income Tax Vs. PTC Software (I) (P) Ltd. (2019) 101 taxmann.com 117 (Bombay) has held that in case the assessee rendering ITES services to AE, a company in whose case extraordinary event of amalgamation took place during relevant year, could not be accepted as comparable and was decided in favour of the assessee. Similarly in the case of Pr. Commissioner of Income Tax Vs. J.P Morgan India (P) Ltd. (2019) 102 taxmann.com 335 (Bombay) , the Hon’ble Jurisdictional High Court on the same issue has held as follows: “(iv) Mr. Percy Pardiwalla, learned senior counsel appearing on behalf of the respondent invited our attention to the final decision of this Court in Pr. CIT v. Aptara Technology (P.) Ltd. [2018] 92 taxmann.com 240 and Pr. CIT v. PTC Software (I) (P.) Ltd. [2019] 101 taxmann.com 117 (Bom.). In both the above decisions this Court has taken a view that merger/amalgamation is an extra ordinary event and would have an impact /effect on the financial results of the company. Thus, in both the aforesaid decisions, this Court upheld the view of the Tribunal that where merger/amalgamation have taken place and it is not a normal event then such a company would cease to be comparable. This of course is subject to the Revenue being able to show that amalgamation/merger did not have any effect of the profitability of the company. This has not been shown by the Revenue either to the Tribunal or before us. Therefore, this issue stands covered by the decision of this Court in Aptara Technology (P.) Ltd.'s case (supra) and PTC Software (I) (P.) Ltd.'s case (supra) in favour of the respondent. This more IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 17 particularly in view of the absence of the Revenue even attempting to show that the merger and amalgamation that took place in the case of comparable M/s. Keynote Corporate Securities Limited was such that it would not have any impact on its profitability. It is true that in case of PTC Software (I) (P.) Ltd. case (supra) this question has been admitted, however, the admission was on the facts and circumstances of that case. In any case the issue now stands concluded by final orders of this Court in case of Aptara Technology (P.) Ltd. (supra) and PTC Software (I) (P.) Ltd.'s case (supra) and it is being followed. (v) In view of the above, as the proposed question is covered by the decision of this Court, no substantial question of law arises. Thus, not entertained.” 9. That even the Pune Bench of the Tribunal in the case of Brintons Carpets Asia (P) Ltd. Vs. Deputy Commissioner of Income Tax, ITA No.1312 & 1349/PN/2015 dated 29th March, 2019 observed that the assessee before the Tribunal had first claimed that Accentia Technologies Ltd. cannot be selected in the final list of comparables as during the year under consideration, there was an extraordinary event of amalgamation. Thereafter, the Tribunal has analyzed how and what extraordinary event took place in that case and in such scenario, the company cannot be considered as comparable one and the relevant extracts in this regard are as follows: “13. ......................The learned Authorized Representative for the assessee has pointed out that though the CIT (A) says that there is no such amalgamation but his finding is totally incorrect. In this regard, reliance was placed on the ratio laid down by Pune Bench of Tribunal in Dover India (P.) Ltd. v. Dy. CIT [2017] 88 taxmann.com 115 (Pune - Trib.), wherein for assessment year 2010-11 itself, the said concern Accentia Technologies Ltd. was excluded being high end KPO service provider. Further, the Tribunal in BNY Mellon International Operations (India) (P.) Ltd. (supra) have noted the extraordinary event of acquisition and also amalgamation of another concern and held that the said concern could not be selected as comparable. The relevant findings of Tribunal are in paras 12 and 13, which read as under:— '12. The next concern against which the assessee has raised objections is Accentia Technologies Ltd. on the ground of extraordinary events during the year under consideration. The said concern had acquired IQ group of companies in the United Kingdom and there was amalgamation of Asscent Infoserve Pvt. Ltd. with the said concern and because of these extraordinary events, the margins of said companies should not be included in the final set of comparables. The Pune Bench of Tribunal in Aptara Technologies Pvt. Ltd. v. ACIT (2016) 72 taxmann.com 352 (Pune - Trib) and Cummins Turbo Technologies Ltd. v. DCIT (2017) 79 taxmann.com 260 (Pune - Trib) has held that the said concern cannot be accepted as comparable. The Tribunal in Aptara Technologies Pvt. Ltd. v. ACIT (supra) held as under:— "14. We find that the Tribunal in assessee's own case in assessment year 2008-09 in ITA No.2235/PN/2012, order dated 02.02.2015 had held that the said concern could not be considered as comparable because of certain extraordinary events. The said ratio was also applied in assessee's own case while benchmarking the international transaction of assessee with its associate enterprises in assessment year 2009-10 in ITA No.267/PN/2014, order dated 29.04.2015. The Tribunal vide order dated 02.02.2015 had held that the concern Accentia Technologies Ltd. could not be included in the final set of comparables holding as under:— IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 18 "13. Next, assessee had contended that Accentia Technologies Ltd. has been wrongly included by the TPO as a comparable concern. As per the assessee, the said concern was engaged in functionally different activities. It was pointed out that the said concern is engaged in providing medical transaction, billing and coding services, application development & customization (segmental data not available). Moreover, it was contended that the sales/turnover of the said concern was more than Rs. 50 crores for the year under consideration which did not meet with turnover filter applied by the assessee. On this point, it was pointed out that the assessee had selected sales/turnover filter of 1-50 crores i.e. any concerns having a turnover exceeding Rs. 50 crores were excluded. Thirdly, it was pointed out that the activities of the said concern were not comparable to the activities of the assessee. 11. The TPO has noted the aforesaid objections of the assessee in para 18.1 of his order and has rejected the same by merely noticing that 75% of the revenue/income of the said concern is from ITES and therefore it is to be considered as a comparable. Before us, the Ld. Representative for the assessee has reiterated the submissions put-forth before the TPO in order to justify exclusion of the said concern from the list of comparables. In particularly, it has been pointed out that for the very same assessment year, the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. v. ITO, (2013) 38 taxmann.com 55 (Bang.) has excluded the said concern from the list of comparables in a similar situation following the decision of the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited v. DCIT, (2013) 32 taxmann.com 21 (Hyd.). 15. We have considered the submissions of the Ld. Representative for the assessee and also the stand of the Revenue as emerging from the order of the TPO. In our view, the ratio laid down by the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited (supra) and by the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) is squarely applicable to the present case also. The aforesaid Benches of the Tribunal found that during the year under consideration there were extraordinary events that took place in the said concern which warranted exclusion of this company as a comparable. We therefore hold that the said concern cannot be considered as a comparable." 15. Further, similar proposition has been laid down by different Benches of Tribunal while deciding the appeals relating to assessment year 2010-11 and it has been held that because of extraordinary events during the year, the concern Accentia Technologies Ltd. was not comparable to the entities engaged in ITES. Following the same parity of reasoning, we hold that Accentia Technologies Ltd. is to be excluded from the final set of comparables." 13. Following the same parity of reasoning as in Aptara Technologies Pvt. Ltd. v. ACIT (supra) and Cummins Turbo Technologies Ltd. v. DCIT (supra), we hold that Accentia Technologies Ltd. cannot be compared as comparable because of extraordinary events of acquisition and amalgamation during the year. Accordingly, we direct the Assessing Officer/TPO to exclude Accentia Technologies Ltd. from final list of comparables.” 10. We, place reliance on the afore-stated judicial precedents where there is an emerging consistent view in this regard that if an extraordinary event has taken place by way of amalgamation that company cannot be considered as a comparable one and IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 19 following the same parity of reasoning, we direct the Assessing Officer/TPO to exclude SPI Technologies India Pvt. Ltd. from the final set of comparables while computing international transactions in respect of the assessee in ITes segment.” 14.5 In view of the above order, we direct the AO/TPO to exclude SPI Technologies Pvt. Ltd. from the list of comparables selected for ITeS segment. iv. Eclerx Services Ltd. 15. Ld. A.R. submitted that the company offers solutions in the nature of Knowledge Process Outsourcing (KPO) Services. The Appellant submits that the nature of the high end KPO services demanding presence of different skillsets performed by the Company cannot be compared to the low end ITES functions performed by the Appellant. 15.1 Further, Eclerx Services Limited has been excluded in the case of Swiss Re Global Business Solutions India (P.) Ltd. [2022] 137 taxmann.com 417 (Bangalore - Trib.) AY 2016-2017 (Refer Page 163 of the Case Law Compilation, Para 22-30). Below is the relevant extract from the order for ready reference: 22. Regarding exclusion of Eclerx Services Ltd., the assessee argued that this company is a KPO company and hence, it is not a good comparable. The DRP observed that there is a thin line of difference between BPO and KPO services. KPO is termed as an upward shift of the BPO industry in the value. chain. Thus, BPO trying to upgrade itself as KPO is likely to render both BPO as well as KPO services in the process of evolution and therefore, such an entity cannot be considered strictly as either BPO or KPO. In view of the above, ITeS service's cannot be further classified as BPO and KPO services for the purpose of comparability analysis. Under the TNMM, functional similarity is more relevant than product similarity. The DRP noted that the functional profile of this company was similar to the assessee. 23. Regarding the amalgamation of wholly owned subsidiary Agilyst Consulting Pvt. Limited has taken place with effect from 1-4-2015, the DR observed that the assessee has not demonstrated any increase in profits due to this amalgamation. Therefore, this amalgamation has no impact on comparability. Accordingly, the plea was rejected. 24. With regard to acquisition resulting in inorganic growth, the DRP noted that the company has acquired entire shareholding of CLX Europe SPA, Italy, as on 22nd April 2015 and this acquisition was made by the company's overseas subsidiary e- Clerx Investments (UK) Ltd. Therefore, there is no merit of the objection, as the stand alone financials of this company are considered for comparability. 25. The assessee also raised the objection that there is increase in revenue, but according to the DRP, it has failed to bring on record any evidence to suggest that this abnormal inorganic growth has impacted the profit margin of the company. It is observed that the profit margin of this company has been consistently at the same level during the last few years. The ALP margin is determined with reference the average profit margin of a comparable for three years and also taking into account the defined median value of the PLIs of the comparable. These will even out such differences. The DRP was of the opinion that it will not be proper to reject a comparable only on account of inorganic growth of top line, which otherwise is functionally comparable. IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 20 26. The DRP further observed that it was consistently held that high profit margin as such cannot be reason for exclusion when it is otherwise functionally comparable. Accordingly, there is no need to reject a functionally comparable company on account of having super profits. 27. The Assessee submitted that Eclerx suffers business concentration risk unlike the Assessee, who operates as a risk-free entity. The DRP observed that as far as the limited risk in the case of captive service providers is concerned, if this argument is accepted then it cannot be compared to any company as most of the companies will be independent companies. Rather it should be compared to independent companies only as the price received for the services by them will be determined by market forces, which is not the case of the assessee. The assessee itself can be characterized as a contract service provider, which means that it operates on a cost plus model. Therefore, this argument was also rejected. 28. Thus, the DRP upheld the rejection of this company as a comparable. 29. We have heard both the parties on the issue. This company has also been considered as not comparable in assessee's own case for A.Y. 2014-15 in IT(TP)A No. 3181/Bang/2018 dated 21-5-2020 wherein it was observed as under :— "It is noted that this company is involved in high-end KPO services whereas assessee is providing IT enabled services by rendering remote data processing in the field of reinsurance. In our opinion functions performed by this company is not similar to that of assessee even though assessee before us also carries out certain services on contract basis. Ld. AR has placed reliance upon decision of Hon'ble Delhi High Court in case of Rampgreen Solutions (P.) Ltd. v. CIT [2015] 60 taxmann.com 355/234 Taxman 573/377 ITR 533 Hon'ble Court had held that once a company falls into the category of high-end KPO, it cannot be functionally comparable with a BPO service provider like that of assessee. Applying this reissue in the present case, we direct Ld.AO to eliminate this comparable from final list." 30. In view of the above order of the Tribunal, we are inclined to direct that Eclerx Services Ltd. be excluded from the list of comparables. 15.2 The company has also been excluded in the case of ADP (P.) Ltd. [2022] 135 taxmann.com 44 (Hyderabad - Trib.) AY 2016-2017 by the Hyderabad Tribunal. 15.3 In view of the above-mentioned reasons, the Ld. A.R. requested to direct the TPO to exclude this comparable from the final list of ITeS Segment. 15.4. Ld. D.R. relied on the order of Ld. DRP 15.5 We have heard the rival submissions and perused the materials available on record. This company is not considered as comparable in the case of ADP Pvt. Ltd. cited (supra) in assessment year 2016-17, wherein they excluded the comparable ground No.7 of that order vide para 17 to 17.4 wherein held as under:- IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 21 “17. Eclerx Services Ltd.: The ld. AR of the assessee submitted that this company may be excluded as comparable from the final set of comparables as this company is engaged in providing KPO services, different to low end BPO services provided by the assessee. He submitted that Safe Harbor Rules recognizes ITeS activities under tow distinct categories i.e., BPO and KPO and activities of this company falls under KPO services. He submitted that the services provided by this company of following: (a) Contract Risk Review, (b) Margin Exposure Management, (c) Online Operations and web analytics, (d) CRM and business intelligence, (e) Content creation, (f) business process consulting. 17.1 He further submitted that as per NIC code provided in the annual report, this company has been classified as KPO and has been awarded as leading KPO's in India, basis award and accolades received. He submitted that this company has undertaken the following extraordinary transactions thereby impacting the operating margins: (a) Acquisition of CLX Europe (b) Amalgamation of Agilest consulting (P.) ltd. 17.2 He relied on the decision of the co-ordinate bench in assessee's own case ADP (P.) Ltd. (supra) wherein the co-ordinate bench excluded this company as comparable. 17.3 The ld. DR, on the other hand submitted that this company is engaged in rendering ITeS, therefore, functionally comparable to assessee. He submitted that amalgamation has no impact on the profits of the company. He, therefore, submitted that TPO/DRP has rightly included this company as comparable to assessee company. 17.4 We have considered the rival submissions and perused the material on record as well as the orders of TPO/DRP. We find that the co-ordinate bench in assessee's own case for AY 2014-15 cited supra has excluded this company as comparable by observing as under: 38. Having regard to the rival contentions and the material on record, we find we find that the Co-ordinate Bench of this Tribunal in the assessee's own case not only for the A.Ys 2009-10 for the A.Y 2010-11 has also considered this issue at Paras 6 to 9 in ITA No. 221/Hyd/2015 which reads as under: "6. The TPO has selected many comparables and among them M/s. Infosys BPO Ltd., TCS e-serve Ltd., and Eclerx Services Ltd., were objected to on the reason of high turnover and functionally different. With reference to Infosys BPO, the objection was that the said company renders vide array of services and has high brand value and turnover is also very high. With reference to TCS E-serve Ltd., there was exceptional event as the company was taken over by Tata Consultancy Services in the year 2008-09 and heavy turnover is due to its takeover. Further, it was submitted that the company was functionally different as it has three different services and segmental information was not arrived. As far as E-clerx Services Ltd., it was submitted that this company caters to high end KPO services and cannot be compared to routine BPO services provided by assessee. The DRP vide para 3.10 has accepted the assessee's objections and accordingly, directed the TPO to exclude the above three companies. There are other directions of the DRP on TP adjustments on which neither party has raised grounds, except the Revenue on the above exclusion of three companies. IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 22 7. Referring to the order of the TPO, it was the contention of Ld.DR that DRP was not correct in excluding them on the basis of the turnover, whereas Ld. Counsel submitted that DRP has followed the decisions of the Co-ordinate Benches in excluding the above three comparables. 8. We have considered the rival submissions and perused the order of the DRP and Co-ordinate Benches. As far as M/s. TCS e-Serve Ltd., is concerned, the Co- ordinate Bench of ITAT in the case of M/s Hyundai Motors India Engineering P. ltd in ITA Nos. 1743/Hyd/2014 (AY.2010-11) & ITA No. 1917/Hyd/2014 (AY.2010-11) dt. 13-11-2015, has decided the issue as under: ITA No 2233 of 2018 ADP Private Ltd Hyderabad "TCS eSERVE LIMITED 11.2.1. As regards TCS e-Serve Limited is concerned, we find that it possesses brand value as is evident from the Schedule-N (Operation and Other expenses) to the P & L A/c of the annual report for the financial year 2009-10 of Rs. 46,065 thousands and also that it possesses intangibles in the form of software licenses which have not been taken note of by the authorities below while adopting its margin. It is also the case of the assessee that this company has a turnover of Rs. 1405.10 crores which is 25 times of the turnover of the assessee and hence, is not comparable to the assessee. The Ld. Counsel for the assessee had also placed reliance upon the TPO's order in the case of M/s. IGS Imaging Services India Ltd., to hold that there are exceptional circumstances during the relevant financial year due to which this company is not comparable to the assessee. The Ld. Counsel for the assessee also submitted that the segmental details of this company are not available and hence, has to be excluded on this count also. 11.2.2 We find that the assessee's contentions about the presence of 'brand value' and owning of 'intangibles' is supported by the evidence on record. However, as regards the extraordinary event or exceptional circumstance there is no material placed before us by the Ld. Counsel for the assessee. Therefore, merely because the TPO in another case has held that there is an extraordinary event for which this company has to be excluded from the list of comparables, it cannot be excluded. Such claim has to be supported by evidence on record. As regards the functional dissimilarity and huge turnover and brand value is concerned, we find that this Tribunal in assessee's own case for A.Y.2009-10 while considering the comparability of the assessee with Infosys BPO Ltd., has taken note of the possession of the brand value and intangibles which influenced the financial results of this company. The Hon'ble Delhi High Court in the case of CIT vs. Agnity India Technologies P. Ltd., (2013) 219 Taxman 26 (Del.), held that huge turnover companies like Infosys and Wipro cannot be considered as comparable to smaller companies like assessee therein. In the case before the Hon'ble High Court (supra), the turnover of the assessee was about Rs. 15.79 crores as against the turnover of Rs. 1016 crores of the Infosys. Considering these facts, the Hon'ble High Court had directed for exclusion of Infosys BPO because of its brand value and also on the grounds of functional dissimilarity and huge turnover. Though, the company before us is TCS E-Service Ltd., and not Infosys BPO, we find that the turnover of the assessee company for this assessment year is around Rs. 50 crores as against the turnover of TCS e-Serve Limited of Rs. 1405.10 crores. Therefore, following the turnover filter as well as taking note of the fact that it owns and possesses brand value and intangibles as compared to the assessee which does not own such assets, we direct that this company be excluded from IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 23 the list of final comparables. Accordingly, assessee's grounds of appeal No. 6 is partly allowed. 8.1 Respectfully following the above decision of the Co-ordinate Bench, we confirm the order of DRP excluding the above company from the list of comparables. We observe from the financial statements that this company is functionally dissimilar and engaged in KPO and BPO services and amalgamation of Agilest Consulting Pvt. Ltd., vide page No. 23 of paper book volume -1 para 8 and acquisition of CLX Europe which impacts on the profits of the company. From the financial statements of the Chairman's message placed at page No. 18 of paper book volume - 1, it has been categorically stated that after acquisition of CLX Europe, the revenue has grown by 30%, which clearly shows that it impacts on the profitability of the company. These are extraordinary events. Therefore, If an extraordinary event has taken place by way of amalgamation in a company, that company cannot be considered as a comparable as held by the co-ordinate bench of ITAT, Pune, in the case of Entercoms Solutions (P.) Ltd. (supra). Accordingly, we direct the AO/TPO to exclude this company as comparable from the list of comparables.” 15.6 In view of the above order of the Tribunal, we direct the AO/TPO to exclude this company viz. Eclerx Services Ltd. from the list of comparables.” 11. In view of the above order of the Tribunal, which is a group company of the assessee, and having same profile of the assessee, we direct the TPO to exclude (i) Infosys BPO Limited, (ii) SPI Technologies India Private Limited, and (iii) Eclerx Services Limited from the list of comparables and re-compute the ALP of the international transaction.” 18. Since the profile of the assessee in the instant case and the assessee in the case of M/s.Global E-Business Operations Pvt. Ltd. are the same and the assessment year also being 2016-2017, following the above order of the Tribunal, we direct the TPO to exclude (i) Infosys BPO Limited, (ii) SPI Technologies Pvt. Ltd., and (iii) Eclerx Services Limited from the list of comparables and re-compute the ALP of the international transaction. Ground 16 IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 24 19. In ground 16, the assessee is seeking inclusion of three companies, namely, (i) Informed Technologies Limited, (ii) Ace BPO Services Pvt. Ltd. and (iii) Crystal Voxx Limited. We find in the case of M/s.Global E-Business Operations Pvt. Ltd. (supra), the issue of inclusion of the above three companies was restored to the files of the AO / TPO for de novo consideration. The relevant finding of the Tribunal in the case of M/s.Global E-Business Operations Pvt. Ltd., reads as follow:- “12. Insofar as Informed Technologies India Limited and Crystal Voxx Limited are concerned, we find that the Tribunal in assessee’s group case in the case of EIT Services Private Limited v. DCIT (supra), had restored the matter to the TPO to examine whether the above two companies can be considered as comparable company. The relevant finding of the Tribunal in this regard reads as follows:- “16. Assessee wants inclusion of Informed Technologies India Ltd.Ld. A.R. submitted that the Ld. TPO has alleged that the business of the company is not purely in ITES service and that the company is engaged in the diversified business (page 16 of TP order). However, upon perusal of the Annual report of Informed, it is seen that the Company is into business process outsourcing services, content development and data management techniques and caters to the securities and financial research industry. These services would classify under the nature of ITeS and therefore it is submitted that Informed is engaged in providing ITeS and is comparable to the Assessee. (He referred page 2062 of the paper book). Also, the comparable qualifies all the quantitative filters applied by the learned TPO. 16.1 Further, Informed Technology has been included in the case of Ocwen Financial Solutions (P.) Ltd. [2019] 108 taxmann.com 306 (Bangalore - Trib.) AY 2014-2015 (He referred Page 178-179 of the Case Law Compilation, Para 10). The company has the same functional profile in AY 2014-15 and AY 2016-17. The Ld. A.R. therefore requested to include this company. 16.2 The relevant extract from the Tribunal’s order is reproduced below for ready reference: “10. Informed Technologies Ltd., ('Informed') 10.1 This company 'Informed' was selected by the assessee as a comparable company in its TP study. The TPO in his order rejected this company stating that since 'Informed' is being primarily engaged in the business of Business Process IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 25 Outsourcing, it fails the service income filter. On the objections filed by the assessee, the DRP concurred with the finding of the TPO by observing that the Annual Report shows that the sale of services is Rs. 2,58,53,362/- as against the total revenue of Rs. 3,81,86,665/- which comes to only 67.7% and therefore fails the service income filter applied by the TPO. 10.2 Before us, the learned AR for the assessee contended that this company 'Informed' is functionally comparable to the assessee as it is an ITES provider and qualifies the service income filter of 75% applied by the TPO. It was submitted that the entire service income of 'Informed' at Rs. 2,58,53,362/- is from rendering of ITES only and the TPO/DRP have wrongly considered "other income" of Rs. 1,22,85,303/- as "Service Income". In support of this contention, the learned AR drew the attention of the Bench to the relevant portion of the Annual Report of 'Informed' (placed at pages 391 to 443 of Paper Book). In this regard, reliance was placed on the decision of the Co-ordinate Bench of this Tribunal in the case of CGI Information Systems & Management Consultants (supra) wherein this company 'Informed' was held to be comparable to companies rendering ITES. It was prayed that, in the light of the above, this company 'Informed Technologies Ltd.,' be included in the final set of comparables in the case on hand. 10.3 Per contra, the learned DR for Revenue supported the orders of the authorities below. 10.4.1 We have considered the rival submissions and carefully perused the material on record. On a perusal of the Annual Report of this company 'Informed', it is seen that at page 12 thereof it is stated that this company is engaged in and operating as an ITES provider. A perusal of the TPO's order also indicates that the TPO has not disputed that this company is functionally comparable to the assessee in the case on hand; which is rendering back office ITES. From a perusal of the profit and loss account at page 30 of the Annual Report of 'Informed' it is seen that the total revenue is shown as Rs. 3,81,38,665/-and 'other income' of Rs. 1,22,85,303/-. As can be seen from Schedule 19 on page 40 of the Annual Report, the 'other income' comprises of non-operating income, interest, dividend, sale of current investments and miscellaneous income and evidently these incomes cannot be considered as operating income. The percentage of 67.7% worked out by the TPO is after considering these "other income" as service income; which is factually incorrect. It is evident from a perusal of the profit and loss account of 'Informed' that the service income is Rs. 2,58,53,362/- which is entirely the revenue from operations and therefore in our considered view, the service income filter of 75% of service income to be from ITES as applied by the TPO, is satisfied in this case. In view of this factual finding rendered in the matter, we hold that this company 'Informed Technologies Ltd.,' satisfies the service income filter and is therefore to be included in the final set of comparables. We hold and direct the AO/TPO accordingly. 16.3 In view of the above-mentioned reasons, Ld. A.R. requested to direct the TPO to include this comparable to the final list of ITeS Segment. 16.4. Ld. D.R. relied on the order of Ld. DRP. 16.5 We have heard the rival submissions and perused the materials available on record. The contention of Ld. A.R. is that this has been considered in the case of Ocwen Financial Solutions Pvt. Ltd. (2019) 108 Taxmann.com 36 (Bang- Trib.) for the AY 2014-15, wherein it was held as under:- IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 26 “10. Informed Technologies Ltd., ('Informed') 10.1 This company 'Informed' was selected by the assessee as a comparable company in its TP study. The TPO in his order rejected this company stating that since 'Informed' is being primarily engaged in the business of Business Process Outsourcing, it fails the service income filter. On the objections filed by the assessee, the DRP concurred with the finding of the TPO by observing that the Annual Report shows that the sale of services is Rs. 2,58,53,362/- as against the total revenue of Rs. 3,81,86,665/- which comes to only 67.7% and therefore fails the service income filter applied by the TPO. 10.2 Before us, the learned AR for the assessee contended that this company 'Informed' is functionally comparable to the assessee as it is an ITES provider and qualifies the service income filter of 75% applied by the TPO. It was submitted that the entire service income of 'Informed' at Rs. 2,58,53,362/- is from rendering of ITES only and the TPO/DRP have wrongly considered "other income" of Rs. 1,22,85,303/- as "Service Income". In support of this contention, the learned AR drew the attention of the Bench to the relevant portion of the Annual Report of 'Informed' (placed at pages 391 to 443 of Paper Book). In this regard, reliance was placed on the decision of the Co-ordinate Bench of this Tribunal in the case of CGI Information Systems & Management Consultants (supra) wherein this company 'Informed' was held to be comparable to companies rendering ITES. It was prayed that, in the light of the above, this company 'Informed Technologies Ltd.,' be included in the final set of comparables in the case on hand. 10.3 Per contra, the learned DR for Revenue supported the orders of the authorities below. 10.4.1 We have considered the rival submissions and carefully perused the material on record. On a perusal of the Annual Report of this company 'Informed', it is seen that at page 12 thereof it is stated that this company is engaged in and operating as an ITES provider. A perusal of the TPO's order also indicates that the TPO has not disputed that this company is functionally comparable to the assessee in the case on hand; which is rendering back office ITES. From a perusal of the profit and loss account at page 30 of the Annual Report of 'Informed' it is seen that the total revenue is shown as Rs. 3,81,38,665/-and 'other income' of Rs. 1,22,85,303/-. As can be seen from Schedule 19 on page 40 of the Annual Report, the 'other income' comprises of non-operating income, interest, dividend, sale of current investments and miscellaneous income and evidently these incomes cannot be considered as operating income. The percentage of 67.7% worked out by the TPO is after considering these "other income" as service income; which is factually incorrect. It is evident from a perusal of the profit and loss account of 'Informed' that the service income is Rs. 2,58,53,362/- which is entirely the revenue from operations and therefore in our considered view, the service income filter of 75% of service income to be from ITES as applied by the TPO, is satisfied in this case. In view of this factual finding rendered in the matter, we hold that this company 'Informed Technologies Ltd.,' satisfies the service income filter and is therefore to be included in the final set of comparables. We hold and direct the AO/TPO accordingly. 16.6 In view of this, we remit this issue to the file of AO/TPO to examine this issue in the light of above findings of the Tribunal cited (supra) to decide afresh, after giving an opportunity of hearing to assessee. IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 27 Crystal Voxx Ltd.:- 17. Assessee wants for inclusion of Cystal Voxx Ltd. in the list of comparables. 17.1 In this regard, Ld. A.R. submitted that the learned TPO has rejected Crystal Voxx by stating that data is not available in the public database. The Ld. A.R. highlighted that the annual reports are available in the public database. The Appellant submits that Crystal Voxx is engaged in the business of providing medical billing, coding, transcription, software and other enabled services. These said services would fall under the category of ITeS and therefore, the Appellant submits that Crystal Voxx is comparable to the functional profile of the Appellant. 17.2 Further, the Appellant submits that Crystal Voxx is functionally comparable and qualifies all the quantitative filters applied by the learned TPO and the Appellant. 17.3 The comparable has been accepted by the Ld. DRP in AY 2017-18 in Appellant's own case (He referred Page 72 of the Case Law Compilation). 17.4 Further, Crystal Voxx has been included in the case of Ocwen Financial Solutions (P.) Ltd. [2019] 108 taxmann.com 306 (Bangalore - Trib.) AY 2014-2015 (He referred Page 178-179 of the Case Law Compilation, Para 11). The relevant extract is reproduced below for ready reference: “11. Crystal Voxx Ltd., ('Crystal') 11.1 This company, 'Crystal' was proposed by the assessee before TPO as an additional comparable to be included in the final set of comparables. The TPO, however, rejected the assessee's proposal on the ground that this company had not reported any earnings from export of services and therefore it is not possible to determine as to whether 'Crystal' has exports/foreign earnings more than 75% of total sales/turnover. The DRP concurred with the finding of the TPO; observing that while it is stated that "income from foreign currency" is Rs. 3,23,08,386/-, it is not clear whether this relates to export of services as this information is not available and therefore this company 'Crystal' is rejected. 11.2 Before us, it was contended that this company 'Crystal' is functionally comparable to the assessee in the case on hand as it is operating as a BPO Company which is a ITES provider. According to the learned AR, it is very evident from a perusal of the Annual Report of this company 'Crystal' that the income in foreign currency amounting to Rs. 3,23,08,386/- is out of export of services. In support of this contention, the learned AR took us through the relevant pages of the Annual Report of this company, 'Crystal', which is placed at pages 474 to 497 of the paper book. 11.3 Per contra, the learned DR for Revenue supported the orders of the authorities below in not including this company, Crystal Voxx Ltd., in the final set of comparables. 11.4 We have considered the rival contentions/submissions and perused the material on record. We have carefully perused the Annual Report of this company, 'Crystal'. At Note 3 of the Notes forming part of the accounts, at page 491 of the paper book, it is stated that the operations of the company predominantly relate to a single segment, namely IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 28 "BPO Activity". At note 6, the income in foreign currency is shown as Rs. 3,23,08,386/-. In the Director's Report, at page 480 of the paper book, the foreign exchange earnings is given as Rs. 3,23,08,386/-. In the factual matrix of the matter, as laid out above, we are of the considered opinion that the reason ascribed by the TPO and DRP for exclusion of this company, 'Crystal' is factually incorrect. Taking into consideration that the company 'Crystal' is otherwise comparable to the assessee in the case on hand as it is operating as a BPO company which is a provider of ITES, we direct that this company, Crystal Voxx Ltd., be included as a comparable company in the final set of comparables in the case on hand. The AO/TPO are accordingly directed.” 17.5 In view of the above-mentioned reasons, we humbly request the Hon’ble Tribunal to direct the TPO to include this comparable to the final list of ITeS Segment. 17.6 Ld. D.R. relied on the order of Ld. DRP. 17.7 We have heard the rival submissions and perused the materials available on record. This company has been considered as not comparable in the case of Ocwen Pvt. Ltd. vide para 11 of that order, which is extracted as follows:- “11. Crystal Voxx Ltd., ('Crystal') 11.1 This company, 'Crystal' was proposed by the assessee before TPO as an additional comparable to be included in the final set of comparables. The TPO, however, rejected the assessee's proposal on the ground that this company had not reported any earnings from export of services and therefore it is not possible to determine as to whether 'Crystal' has exports/foreign earnings more than 75% of total sales/turnover. The DRP concurred with the finding of the TPO; observing that while it is stated that "income from foreign currency" is Rs. 3,23,08,386/-, it is not clear whether this relates to export of services as this information is not available and therefore this company 'Crystal' is rejected. 11.2 Before us, it was contended that this company 'Crystal' is functionally comparable to the assessee in the case on hand as it is operating as a BPO Company which is a ITES provider. According to the learned AR, it is very evident from a perusal of the Annual Report of this company 'Crystal' that the income in foreign currency amounting to Rs. 3,23,08,386/- is out of export of services. In support of this contention, the learned AR took us through the relevant pages of the Annual Report of this company, 'Crystal', which is placed at pages 474 to 497 of the paper book. 11.3 Per contra, the learned DR for Revenue supported the orders of the authorities below in not including this company, Crystal Voxx Ltd., in the final set of comparables. 11.4 We have considered the rival contentions/submissions and perused the material on record. We have carefully perused the Annual Report of this company, 'Crystal'. At Note 3 of the Notes forming part of the accounts, at page 491 of the paper book, it is stated that the operations of the company predominantly relate to a single segment, namely "BPO Activity". At note 6, the income in foreign currency is shown as Rs. 3,23,08,386/-. In the Director's Report, at page 480 of the paper book, the foreign exchange earnings is given as Rs. 3,23,08,386/-. In the factual matrix of the matter, as laid out above, we are of the considered opinion that the reason ascribed by the TPO and DRP for exclusion of this company, 'Crystal' is factually incorrect. Taking into consideration that the company 'Crystal' is otherwise comparable to the assessee in the case on hand as it is operating as IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 29 a BPO company which is a provider of ITES, we direct that this company, Crystal Voxx Ltd., be included as a comparable company in the final set of comparables in the case on hand. The AO/TPO are accordingly directed.” 17.8 Accordingly, in view of the above order, we remit this issue to the file of AO/TPO to examine it in the light of above findings of the Tribunal.” 13. In the light of the above order of the Tribunal, we direct the AO / TPO to examine afresh whether the above two companies, namely, Informed Technologies India Limited and Crystal Voxx Limited can be included as comparable companies. 14. Insofar as Ace BPO Services Private Limited is concerned, the learned AR had placed on record the TPO’s order passed u/s 92CA of the I.T.Act (order dated 26.10.2018) for assessment year 2015-2016, wherein the TPO accepted the above company as a comparable company, since according to the TPO, for the said assessment year the company has passed all the TPO’s filter and the FAR analysis are similar. 15. In view of the order of the TPO for assessment year 2015-2016, we restore the comparability of Ace BPO Services Private Limited to the files of the TPO. The TPO shall consider the issue afresh in accordance with law. It is ordered accordingly.” 20. In view of the above order of the Tribunal, we restore the issue raised in ground 16(e), 16(g) and 16(h) to the AO / TPO. The AO / TPO shall consider the issue afresh in accordance with law. It is ordered accordingly. 21. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on this 14 th day of October, 2022. Sd/- (Laxmi Prasad Sahu) Sd/- (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 14 th October, 2022. Devadas G* IT(TP)A No.342/Bang/2021. M/s.Ocwen Financial Solutions Pvt.Ltd. 30 Copy to : 1. The Appellant. 2. The Respondent. 3. The DRP-2, Bengaluru. 4. The Pr.CIT-3, Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore