MINDCREST (INDIA) PVT. LTD., MUMBAI V. D.C.I.T. - 9(2), MUMBAI

ITA 7289/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8265 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 04-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 07-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAYAK
• Keywords: Related party transaction; Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K BE NCH, MUMBAI , !'# , $ % BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 7289/MUM/2012 ( & & & & / ASSESSMENT YEAR : 2008-09 MINDCREST (INDIA) PVT LTD., 106, PENINSULA CENTRE, DR. S.S. RAO ROAD, PAREL, MUMBAI-400 012 / VS. THE DCIT-9(2), AAYAKAR BHAVANK, MUMBAI-400 020 ' $ ./ ( ./ PAN/GIR NO. : AACCM 5872D ( ') / APPELLANT ) .. ( *+') / RESPONDENT ) ') , / APPELLANT BY: SHRI NITESH JOSHI *+') - , / RESPONDENT BY: SHRI K.C.P. PATNAYAK - ./$ / DATE OF HEARING :04.12.2014 01& - ./$ / DATE OF PRONOUNCEMENT :12.12.2014 2 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST T HE ASSESSMENT ORDER DT.31.10.2012 MADE U/S. 143(3) R.W. SEC. 144C (13) OF THE ACT PERTAINING TO A.Y.2008-09. 2. THE ASSESSEE IS AGGRIEVED BY THE TRANSFER PRICIN G ADJUSTMENT OF RS. 6,70,40,907 MADE ON ACCOUNT OF THE ARMS LENGTH PRICE. ITA NO. 7289/M/2012 2 3. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY COMPAN Y OF MINDCREST INC. PROVIDING OFFSHORE SUPPORT SERVICES TO ITS PA RENT COMPANY FOR THE USE OF CLIENTS OF THE PARENT COMPANY. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SUPPORTED ITS ASSOCIATED ENTERPRISES ( PARENT COMPANY) BY UPLOADING THE GENERIC JUDGEMENTS ON THE GIVEN WEBSI TE. 3.1. THE ASSESSEE ENTERED INTO SERVICES AGREEMENT W ITH ITS PARENT COMPANY VIDE AGREEMENT DT. 1.4.2006. IT WAS AGREED THAT IN CONSIDERATION OF THE SERVICES PROVIDED BY THE ASSESSEE TO ITS PAR ENT COMPANY, THE PARENT COMPANY SHALL PAY TO THE ASSESSEE AN AMOUNT EQUIVAL ENT TO THE OPERATING COST INCURRED BY THE ASSESSEE IN PROVIDING SUCH SER VICES INCLUDING RELATED COSTS AND EXPENSES OF ITS PERSONNEL, PARENT COMPAN Y SHALL IN ADDITION PAY 12.50% MARK UP ON THE OPERATING COSTS TILL AGREEMEN T IS IN FORCE. 3.2. MINDCREST INC (PARENT COMPANY) ENTERED INTO A SERVICES AGREEMENT ON 12.9.2006 WITH BLOOMBERG LP. IT WAS AGREED THAT MINDCREST SHALL BE RESPONSIBLE FOR RESEARCHING KEY WORDS AND PHRASES P ROVIDED BY BLOOMBERG USING CASES REGULATIONS, LEGISLATIVE, ADM INISTRATIVE MATERIALS. IT WAS FURTHER AGREED THAT MINDCREST INC. SHALL CR EATE A LIST OF EXTRACTED INFORMATION FROM THE SOURCES THAT BEST EXPLAIN AND DEFINE THE KEYWORDS AND PHRASES. SERVICE PROVIDER (MINDCREST INC) SHAL L EDIT AND REWRITE EXTRACTED TEXT SO THAT COPY IS CLEAR, CONCISE, WELL FORMED AND GRAMMATICALLY CORRECT. IT WAS ALSO AGREED THAT THER E WILL BE A TOTAL OF 20 ASSIGNED EMPLOYEE AND ALL SERVICES PROVIDED BY THE SERVICE PROVIDER TO BLOOMBERG WILL BE PROVIDED FROM THE SERVICE PROVIDE RS LOCATION IN INDIA FOR WHICH SERVICE PROVIDER SHALL BEAR ALL COSTS AND EXPENSES INCURRED BY IT PROVIDING SUCH SERVICES. ITA NO. 7289/M/2012 3 3.3. THE CONSIDERATION WAS AGREED AT THE RATE OF 12 US DOLLAR PER HOUR. THUS, DURING THE YEAR UNDER CONSIDERATION, THE ASSE SSEE WAS PRIMARILY ENGAGED IN LIMITED OPERATIONS OF CREATING DATA BASE OF CERTAIN GENERIC CASE LAWS ON BEHALF OF THE AE FOR THE CLIENT. THE ASSES SEE ALSO ASSISTED IN MAINTAINING AND UPDATING THE LEGAL CONTENT ON A REG ULAR BASIS. FOR THE PURPOSE OF RENDERING THESE SERVICES, THE ACTIVITIES PERFORMED BY THE ASSESSEE PRIMARILY INVOLVED GATHERING OF INFORMATIO N FROM CASE LAWS AND STANDARDIZE TEMPLATES AND POPULATING THE SAME IN VA RIOUS PROCESS AND SYSTEMS PROVIDED BY THE AE. THE INTERNATIONAL TRANSACTIONS ENTERED INTO BETWEEN THE ASSESSEE AND ITS AE DURING THE YEAR IS AS UNDER: I) PROVISION FOR SUPPORT SERVICES AMOUNTING TO RS. 20,40,96,686/-. FOR BENCH MARKING THE ABOVE MENTIONED INTERNATIONAL TRANSACTION, THE ASSESSEE ADOPTED COST PLUS METHOD TO BE THE MOS T APPROPRIATE METHOD. FOR THE PURPOSE OF APPLICATION OF COST PLU S METHOD OPERATING PROFIT TO COST RATIO WAS CONSIDERED AS TH E PROFIT LEVEL INDICATOR. THE ASSESSEE CHOSE THE FOLLOWING SET OF COMPARABLE S S. NO. COMPANY NAME FINANCE YEAR SALE OP/OC% 1. LINKSON INTERNATIONAL 20.08.03 47.57 1.48% 2. CAMEO CORPORATE SERVICE LTD. 20.08.03 17.08 8.06% 3. SHREEJAL INFO HUBS LTD. 20.08.03 1.57 8.22% 4. MAPLE ESOLUTIONS LTD. 20.08.03 33.65 22.33% 5. COSMIC GLOBAL LTD. 20.08.03 5.86% 23.91% 6. ISOFT TECDHNOLOGIES LTD. 20.08.03 1.89 35.66% ITA NO. 7289/M/2012 4 7. DATAMATICS FINANCIAL SERVICES LTD. 20.08.03 13.7 12.64% 8. ALISEC TECHNOLOGIES LTD. 20.08.03 99.02 12.25% 9. OPTIMUS GLOBAL SERVICES LTD 20.08.03 55.85 1.32% 10. ICRA ONLINE LTD. 20.08.03 10.75 8.46% AVERAGE PLI 10.98% MINDCREST INDIA 13.00% ACCORDINGLY, SINCE THE OPERATING MARGIN OVER COST RATIO OF THE ASSESSEE AT 13% IS HIGHER THAN THE AVERAGE OF THE C OMPARABLE COMPANIES AT 10.98%, THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE WAS CONSIDERED TO BE AT ARMS LENGTH. 3.4. ON RECEIVING A REFERENCE U/S. 92CA(1) OF THE A CT, THE TRANSFER PRICING OFFICER ISSUED A NOTICE ALONGWITH A QUESTIO NNAIRE TO THE ASSESSEE WHEREBY THE ASSESSEE WAS REQUIRED TO SUBMIT DETAILS /EXPLANATION TO SUPPORT THE ARMS LENGTH PRICE COMPUTED BY IT IN TH E AUDIT REPORT. THE ASSESSEE FILED A DETAILED EXPLANATION ALONGWITH NEC ESSARY DETAILS STATING THAT THE ASSESSEE HAS CHARGED A MARK- UP OF 12.56% OF COST AND HAS BENCH MARKED THE TRANSACTION USING TNMM METHOD WHERE THE AVERAGE PROFIT MARGIN OF THE COMPARABLE COMPANIES IS 10.98%. THE ASSESSEE CONCLUDED THAT ITS TRANSACTIONS WERE AT ARMS LENGTH. 3.5 AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND THE TP STUDY REPORT, THE TPO WAS OF THE FIRM BELIEF THAT THE ASS ESSEE IS ENGAGED IN LEGAL PROCESS OUTSOURCING WHICH IS A HIGH END SERVICE AKI N TO KPO. THE TPO APPLIED THE FOLLOWING FILTERS OR CRITERIA IN SEARCH ING FOR THE COMPARABLES. - COMPANIES WHOSE DATA IS NOT AVAILABLE FOR THE FY 20 07-08 WERE EXCLUDED AND THE DATE FOR THE FY 2007-08 HAS BEEN C ONSIDERED FOR THE PERIOD FROM 01.04.2007 TO 31-03-2008. ITA NO. 7289/M/2012 5 - COMPANIES WHOSE IT ENABLED SERVICE INCOME <10.00 C R AND >250 CRORES WERE EXCLUDED. - - COMPANIES WHOSE IT ENABLED SERVICE REVENUE IS LESS THAN 75% OF THE TOTAL OPERATING REVENUES WERE EXCLUDED. - COMPANIES WHO HAVE MORE THAN 25% RELATED PARTY TRANSACTIONS(SALES AS WELL AS EXPENDITURE COMBINED) OF THE OPERATING REVENUES WERE EXCLUDED. - COMPANIES WHO HAVE LESS THAN 75% OF THE REVENUES AS EXPORT SALES WERE EXCLUDED. - COMPANIES WHO HAVE DIMINISHING REVENUES/PERSISTENT LOSSES FOR THE PERIOD UNDER CONSIDERATION WERE EXCLUDED. - COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I .E. NOT MARCH 31,2008) OR DATA OF THE COMPANY DOES NOT FALL WITHI N 12 MONTH PERIOD I.E. 01-04-2007 TO 31-03-2008, WERE REJECTED . - COMPANIES THAT ARE FUNCTIONALLY DIFFERENT FROM THAT OF TAXPAYER OR WORKING IN PECULIAR ECONOMIC CIRCUMSTANCES, AFTER G IVING VALID REASONS, WERE EXCLUDED. - COMPANIES THAT ARE NOT MAINLY ENGAGED IN KPO SERVIC ES WERE EXCLUDED. 3.6. THE TPO REJECTED ALL THE COMPARABLES BUT ONE, CONSIDERED BY THE ASSESSEE FOR THE FOLLOWING REASONS: I) THE ASSESSEES COMPARABLES DO NOT STAND SCRUTINY OF FAR ANALYSIS MAINLY BECAUSE THEY ARE NOT INTO KNOWLEDGE PROCESS OUTSOURCING. II) THE ASSESSEE HAS SELECTED COMPANIES WITH PRE-DOMINA NT DOMESTIC OPERATIONS THOUGH THE ASSESSEE IS MAINLY E XPORT ORIENTED IT ENABLED SERVICE PROVIDER. ITA NO. 7289/M/2012 6 THE TPO WAS OF THE OPINION THAT THE INFORMATION OR DATA USED IN THE COMPUTATION OF ARMS LENGTH PRICE BY THE ASSESS EE IS NEITHER RELIABLE NOR CORRECT. THE TPO MADE ITS OWN SEARCH BY USING PROWESS DATA BASE AND AFTER CONSIDERING THE COMPANI ES SEARCH, FOLLOWING COMPARABLES WERE PROPOSED BY THE TPO. S.NO. NAME OF THE COMPARABLE FUNCTIONAL LINES 1. ACROPETAL TECHNOLOGIES (SEG.) THE ENGINEERING DESIGNING SERVICES SEGMENT OF THE COMPANY IS ENGAGED IN ENGINEERING DESIGN SERVICES. 2. CORAL HUB LTD. (FORMERLY VISHAL INFORMATION TECHNOLOGIES LTD. THE COMPANY IS MAINLY ENGAGED IN DATA PROCESSING SERVICES. 3. CROSSDOMAIN SOLUTIONS LTD. THE COMPANY IS MAINLY ENGAGED IN DATA PROCESSING, INSURANCE CLAIMS PROCESSING AND PAYROLL PROCESSING SERVICES. 4. ECLERX SERVICES LTD. THE COMPANY IS MAINLY ENGAG ED IN DATA ANALYTICS, BUNDLING OPTIMIZATION, CONTENT OPERATION, SALES AND MARKETING SUPPORT, PRODUCT DATA MANAGEMENT, REVENUE MANAGEMENT AND DATA ANALYTICS ARE SOME OF THE OFFERINGS TO RETAIL AND MANUFACTURING CLIENTS. TO ITS FINANCIAL SERVICES CLIENTS, IT OFFERS REAL-TIME CAPITAL MARKETS, MIDDLE AND BACK OFFICE SUPPORT, PORTFOLIO RISK MANAGEMENT SERVICES AND VARIOUS CRITICAL DATA MANAGEMENT SERVICES 3.7. THE ASSESSEE RAISED OBJECTIONS BEFORE THE DRP. THE DRP CONSIDERED THE SCOPE OF WORK OF THE ASSESSEE VIS-- VIS PARENT COMPANY. THE ASSESSEE STRONGLY CONTENDED THAT THE SEARCH UND ERTAKEN BY THE TPO IS NOT CONTEMPORANEOUS AS PER THE TP REGULATIONS. FUR THER, IT WAS BROUGHT TO THE NOTICE OF THE DRP THAT THE AGREEMENT BETWEEN THE AE AND ITA NO. 7289/M/2012 7 BLOOMBERG IS FOR RENDITION OF SERVICES FROM INDIA A ND FOR WHICH FEE AGREED WAS 12 US DOLLAR PER HOUR. IT WAS CLAIMED T HAT THE CONSIDERATION ITSELF SHOW THAT IT WAS PROVIDING LOW- END SERVICES . 3.8. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S AND THE OBJECTIONS RAISED BY THE ASSESSEE, THE DRP DIRECTED TO EXCLUDE CORAL HUBS LTD. FROM THE LIST OF COMPARABLES USED BY THE TPO AND ISSUED DIRECTIONS ACCORDINGLY. 4. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBM ITTED THAT THE REVENUE AUTHORITIES HAVE GROSSLY MISUNDERSTOOD THE NATURE OF THE SERVICES PROVIDED BY THE ASSESSEE TO ITS AE. THE LD. COUNSE L STATED THAT THE ASSESSEE IS PROVIDING LOW-END SERVICES TO ITS AE AN D THEREFORE THE COMPARABLES SELECTED BY THE ASSESSEE ARE IN THE LIN E OF THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE. IT IS THE SAY O F THE LD. COUNSEL THAT IT IS INCORRECT TO HOLD THAT THE ASSESSEE IS PROVIDING HIGH END SERVICES AKIN TO KPO. IN SUPPORT, THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE AGREEMENT BETWEEN THE MINDCREST INC (AE) AND BLOOMB ERG AND POINTED OUT THAT THE CONSIDERATION FOR THE SERVICES IS US D OLLAR 12 PER HOUR ONLY WHICH ITSELF SUGGEST THAT IT IS A CASE OF LOW-END S ERVICES. THE LD. COUNSEL FURTHER EXPLAINED WHY THE COMPARABLES USED BY THE T PO SHOULD NOT BE ACCEPTED. IT IS THE SAY OF THE LD. COUNSEL THAT IN THE SUBSEQUENT YEARS I.E. A.Y. 2009-10 AND 2010-11 THE TPO HIMSELF HAS TAKEN CERTAIN COMPARABLES, THE AVERAGE OF WHICH COMES TO 23.75% I N A.Y. 2009-10 AND 18.69% IN A.Y. 2010-11. THE LD. COUNSEL CONCLUDED B Y SAYING THAT WHEN THE TPO HIMSELF HAS ACCEPTED THE ALP BY USING THE MARGIN AT 23.75% AND 18.69%, THE SAME SHOULD BE ADOPTED IN TH E YEAR UNDER CONSIDERATION. ITA NO. 7289/M/2012 8 6. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED TH E DIRECTIONS OF THE DRP. IT IS THE SAY OF THE LD. DR THAT THE ASSE SSEE IS DEFINITELY PROVIDING HIGH END SERVICES BECAUSE LEGAL RESEARCH SERVICES COULD NOT BE CONSIDERED AS LOW-END SERVICES. REFERRING TO THE S COPE OF WORK UNDERTAKEN BY THE ASSESSEE WITH ITS AE, THE DR SUBM ITTED THAT THE ASSESSEE HAS NOT CLARIFIED WHICH OF THE SERVICES IT HAS RENDERED. IT IS THE CLAIM OF THE DR THAT THE COMPARABLES USED BY THE AS SESSEE ARE ALSO NOT IN LINE WITH THE SERVICES PROVIDED BY THE ASSESSEE AND THEREFORE THE COMPARABLES OF THE ASSESSEE HAVE RIGHTLY BEEN REJEC TED BY THE REVENUE AUTHORITIES. 7. HAVING HEARD THE RIVAL SUBMISSIONS, WE HAVE CARE FULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVANT DO CUMENTARY EVIDENCES BROUGHT ON RECORD BEFORE US. THE MAIN DISPUTE IS W HETHER THE SERVICES PROVIDED BY THE ASSESSEE ARE HIGH END SERVICES OR W HETHER THEY ARE LOW END SERVICES. IF THE SCOPE OF THE WORK OF THE ASSE SSEE VIS--VIS ITS AE IS CONSIDERED, THEN DEFINITELY IT APPEARS THAT THE ASS ESSEE IS PROVIDING HIGH- END SERVICES. BUT THE FACT OF THE MATTER IS THAT WE HAVE TO CONSIDER ONLY THOSE SERVICES WHICH WERE ACTUALLY PROVIDED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION TO ITS AE. THE AE ENTERED INTO AN AGREEMENT WITH BLOOMBERG. THE SCOPE OF THE SERVICES HAVE ALR EADY BEEN MENTIONED BY US ELSEWHERE. THE CONSIDERATION IS PEGGED AT 12 US DOLLAR PER HOUR. IT CANNOT BE DENIED THAT LOOKING INTO THE CONSIDERA TION, THE NATURE OF SERVICES APPEAR TO BE LOW-END SERVICES. IT IS ALSO AN UNDISPUTED FACT THAT DURING THE YEAR UNDER CONSIDERATION, THERE WAS ONLY ONE CLIENT I.E. BLOOMBERG. ITA NO. 7289/M/2012 9 7.1. LET US NOW CONSIDER THE COMPANYS USED AS COMP ARABLES BY THE TPO TO SEE WHETHER THEY CAN BE ACCEPTED OR NOT: 1. M/S. ACROPETAL TECHNOLOGIES (SEG.) A PERUSAL OF THE ANNUAL REPORT OF THIS COMPANY SHOW S THAT IT IS ENGAGED IN THE DEVELOPMENT OF COMPUTER SOFTWARE. T HE COMPANY HAS ALSO SHOWN INVENTORIES AS WORK-IN-PROGR ESS IN ITS BALANCE SHEET AND THERE IS ALSO INCREASE/DECREASE I N INVENTORIES IN ITS PROFIT AND LOSS ACCOUNT AND UNDER THE HEAD E MPLOYEES RELATED ONSITE DEVELOPMENT CHARGES, THERE ARE ONSIT E DEVELOPMENT EXPENSES AMOUNTING TO RS. 31.45 CRORES. CONSIDERING THESE FACTS, IT CAN BE SAFELY CONCLUDED THAT THIS COMPANY HAS TOTALLY DIFFERENT BUSINESS MODEL. IT I S ALSO SEEN THAT THIS COMPANY DOES NOT PASS THE TEST OF 75% EX PORT TURNOVER WHICH IS USED AS A FILTER BY THE TPO HIMSELF. THIS COMPANY WAS ALSO REJECTED BY THE TRIBUNAL IN ITA NO. 7016/M/201 2 WHEREIN THE TRIBUNAL HAS HELD THAT THE RATIO OF ONSITE TO T OTAL EMPLOYEE RELATED EXPENSES OF THIS COMPANY COMES TO 86.2%K, T HUS FAILING THE ONSITE FILTER. THE TRIBUNAL, BANGALORE BENCH IN ITA NO. 1316/BANG/2010 IN THE CASE OF SYMPHONY MARKETING SO LUTIONS INDIA PVT. LTD. HAS OBSERVED THAT THE FUNCTIONS PER FORMED BY THE ENGINEERING DESIGN SERVICES SEGMENT OF THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE TO THE ITES/BPO FUNCTIO NS PERFORMED BY THE ASSESSEE. CONSIDERING ALL THESE F ACTS IN TOTALITY, WE DIRECT FOR THE EXCLUSION OF THIS COMPA NY FROM THE FINAL LIST OF COMPARABLES. 2. CROSSDOMAIN SOLUTIONS LTD. A PERUSAL OF THE DIRECTORS REPORT OF THE COMPANY S HOW THAT THIS COMPANY HAS BEEN ACKNOWLEDGED AS NICHE SERVICE PRO VIDER AND ITA NO. 7289/M/2012 10 HAS STARTED BUILDING ON BRAND EXDION TO TARGET THE INSURANCE INDUSTRY IN UNITED STATES. FURTHER, UNDER THE HEAD FIXED ASSETS SCHEDULE, IT CAN BE SEEN THAT THIS COMPANY HAS SHOW N SOFTWARE AS INTANGIBLE ASSETS. ON THESE FACTS ITSELF, THIS C OMPANY CANNOT BE CONSIDERED AS COMPARABLE. THIS COMPANY WAS ALSO REJECTED AS A COMPARABLE BY THE TRIBUNAL BANGALORE BENCH IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA ) WHEREIN THE TRIBUNAL HAS OBSERVED THAT THE BUSINESS PROFIL E OF THIS COMPANY IS RE-ENGINEERED PAYROLL SERVICES WHICH RAN GES FROM HIGH-END KPO SERVICES DEVELOPMENT OF PRODUCT SUITE S AND ROUTINE LOW AND ITES SERVICE. THIS DECISION OF THE TRIBUNAL WAS FOLLOWED BY THE HYDERABAD BENCH IN THE CASE OF HYUNDAI MOTORS INDIA ENGINEERING PVT. LTD. IN ITA NO. 1850/ HYD/2012 AND ALSO BY MUMBAI BENCH IN THE CASE OF M/S. WILLI S PROCESSING SERVICES (INDIA) PVT. LTD. IN ITA NO. 21 52/M/2014. CONSIDERING ALL THESE FACTS IN TOTALITY, WE DIRECT FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARAB LE. 3. M/S. ECLERX SERVICES LTD. A PERUSAL OF THE BUSINESS VIEW OF THIS COMPANY SHO WS THAT THIS COMPANY IS A LEADING INDIAN PROVIDER OF KNOWLEDGE P ROCESS OUTSOURCING USING A MIX OF CUSTOM DESIGNED PROCESSE S AND DELIVERY TEAMS. THIS COMPANY IS PROVIDING SERVICES TO THE BANKING, FINANCE, MANUFACTURING, RETAIL, TRAVEL AND HOSPITALITY VERTICALS. THIS COMPANY HAS DEDICATED KNOWLEDGE MA NAGEMENT TEAM WHICH IS RESPONSIBLE FOR OVERSEEING TRAINING A ND PROCESS DOCUMENTATION SYSTEMS, STRUCTURES AND POLICIES. TH E CHAIRMAN IN HIS MESSAGE TO THE SHAREHOLDERS HAS OBSERVED THA T THIS ITA NO. 7289/M/2012 11 COMPANY IS A VERY DIFFERENT COMPANY WITH INDUSTRIES SPECIALIZED SERVICES FOR MEETING COMPLEX CLIENT NEEDS. THE CHA IRMAN ADMITTED THAT SOMETIMES THIS COMPANY IS COMPARED TO A BPO OR A IT OFFSHORING COMPANY WHICH INFACT THIS COMPANY IS NOT. WE FURTHER FIND THAT THIS COMPANY HAS ACQUIRED UK BASE D IGENTIC TRAVEL SOLUTIONS LTD. ON JULY 27 TH 2007 WHICH IS CONSIDERED AS AN ABNORMAL FEATURE FOR THE PURPOSE ACCEPTING ANY C OMPANY AS COMPARABLE. THE TRIBUNAL, SPECIAL BENCH, MUMBAI IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. VS ACIT IN ITA NO. 7466/M/12 HAS OBSDERVED THAT THIS COMPANY IS MAINLY ENGAGED IN PROVIDING HIGH-END SERVICES INVOLVING SPECIALIZE D KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANN OT BE COMPARED WITH COMPANIES WHICH ARE MAINLY ENGAGED IN PROVIDING LOW-END SERVICES TO THE GROUP CONCERNS. THE TRIBUNAL, BANGALORE BENCH IN ITA NO. 1316/BANG/ 2010 IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. HAS OBSERVED THAT THIS COMPANY HAS ACQUIRED A UK BASED COMPANY WHICH HAS SIGNIFICANTLY CONTRIBUTED TO THE INCREASE IN THE CUSTOMER AND REVENUE BASE OF THE COMPANY AND FINALL Y HELD THAT THIS COMPANY CANNOT BE REGARDED AS A COMPARABLE FOR THE REASON THAT IT WAS FUNCTIONALLY DIFFERENT. CONSIDERING TH E ABNORMAL FEATURES WHICH EXIST DURING THE YEAR UNDER CONSIDER ATION IN THIS COMPANY, IN THE LIGHT OF THE FACT AND THE DECISIONS DISCUSSED HEREINABOVE, WE DIRECT FOR THE EXCLUSION OF THIS CO MPANY FROM THE LIST OF COMPARABLES. 4. M/S. MOLD TEX TECHNOLOGIES LTD. ITA NO. 7289/M/2012 12 A PERUSAL OF THIS COMPANYS ANNUAL REPORT SHOWS TH AT THE RELATED PARTY TRANSACTIONS ARE AT 25.71% WHICH BRE ACHES OF RPT AT 25%. WE FURTHER FIND THAT THIS COMPANY HAS ENTE RED INTO A SCHEME OF ARRANGEMENT INVOLVING AMALGAMATION BETWEE N TECK- MEN TOOLS PVT. LTD. DEMERGER BETWEEN THIS COMPANY A ND MOLDTEK PLASTICS LTD. THE BUSINESS AND THE ASSETS AND LIABILITIES OF TECK-MEN TOOLS STAND TRANSFERRED TO AND VESTED IN THIS COMPANY. THIS MAKES IT AN ABNORMAL FEATURE FOR THE CONSIDERATION OF THIS COMPANY AS A COMPARABLE COMPA NY. THE TRIBUNAL SPECIAL BENCH IN THE CASE OF MAERSK G LOBAL CENTRES (INDIA) PVT. LTD. (SUPRA) HAS ALSO REJECTED THIS COMPANY AS A COMPARABLE BECAUSE OF THE ABNORMAL FEATURES M ENTIONED HEREINABOVE. CONSIDERING THESE FACTS, IT IS DIRECT ED TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 5. M/S. DATAMATICS FINANCIAL SERVICES LTD. THIS COMPANY WAS CONSIDERED AS A COMPARABLE BY THE ASSESSEE AND ACCORDINGLY THE DRP CONSIDERED THE SAME. HOWEV ER, WE FIND THAT THIS COMPANY FAILS THE 75% PLUS EXPORT TU RNOVER FILTER LAID DOWN BY THE TPO HIMSELF. THEREFORE, THIS COMP ANY IS ALSO DIRECTED TO BE EXCLUDED FROM THE FINAL LIST OF COMP ARABLES. 8. HAVING SAID ALL THAT AND AFTER REJECTING THE COM PARABLES USED BY THE TPO/DRP, WE FIND THAT THE ONLY COMPARABLE SURVIVING IS THAT OF M/S. ALLSEC TECHNOLOGY LTD. WITH OP/OC - 12.25%. HERE W E WOULD LIKE TO MENTION THAT LOOKING TO THE NATURE OF THE SERVICES PROVIDED BY THE ASSESSEE, NO DIRECT COMPARABLES ARE AVAILABLE. IN SUCH A SITUATION, IN OUR CONSIDERED VIEW, THE UNDISPUTED COMPARABLES ADOPTED BY THE TPO AND ITA NO. 7289/M/2012 13 ACCEPTED BY THE ASSESSEE IN SUBSEQUENT YEARS SHOULD ALSO BE CONSIDERED DURING THE UNDER CONSIDERATION INCLUDING M/S. ALLSE C TECHNOLOGY LTD. ONLY FOR THE LIMITED PURPOSE OF DETERMINING ALP FOR THE YEAR UNDER CONSIDERATION, 8.1. WE ACCORDINGLY DIRECT THE TPO TO DETERMINE THE ARMS LENGTH PRICE ADOPTING THE COMPARABLES USED BY HIM IN THE SUBSEQU ENT ASSESSMENT YEARS FOR THE DETERMINATION OF THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE. ACCORDIN GLY, WE SET ASIDE THE MATTER TO THE FILE OF THE AO/TPO WITH THE ABOVE DIR ECTION. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DECEMBER, 2014 SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER $ / ACCOUNTANT MEMBER MUMBAI; 3 DATED : 12 TH DECEMBER, 2012 . . ./ RJ , SR. PS