FAURECIA INDIA PVT.LTD,(FORMERLY KNOWN AS FAURECIA INTERIOR SYSTEMS INDIA PVT.LTD),,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -9,, PUNE

This appeal by the assessee filed against the final assessment order dated 15-10-2018 passed by the Assessing Officer (AO) u/s. 143(3) r.w.s. 144C(13) of the Act for assessment year 2014-15.

The assessee raised grounds A, B and C. The ld. AR, Shri Ajit Jain submits that the assessee is not interested to prosecute grounds A 1, B 3, 4, 6, 7, 8 and C 9 and requested to treat the same as not pressed. Accordingly, the said grounds raised by the assessee are dismissed as not pressed.

Ground Nos. B 2 and B 5 raised by the assessee challenging the action of AO/TPO for selecting companies as comparables without considering their functions undertaken and picking the high margin companies by applying arbitrary filters.

The brief facts of the case are that the assessee is a company engaged in the business of design, development and manufacturing of automotive parts. The assessee undertaken international transactions with its AE amongst which the relevant transaction of provision of Engineering Design Support Services to an extent of Rs.89,79,35,491/- and applied TNMM. The assessee submitted the revised PLI of design engineering segment at OP/OC of 3.47%. The assessee in its TP report selected 8 companies by following TNMM which are as under : Sr. Company Name Weighted FY 2013-14 No. OP/OC % OP/TC % 1 Acropetal Technologies Ltd. 10.83 -5.86 2 Hepatica Technologies Ltd. 8.15 NA 3 Hinode Technologies Pvt. Ltd. -3.60 NA 4 I-Design Engineering Solutions Ltd. 13.83 NA 5 Neilsoft Ltd. 10.98 16.41 6 Onward Technologies Ltd. 14.93 15.69 7 Tata Elxsi Ltd. 3.84 4.82 8 Cades Digitech Pvt. Ltd. 2.47 NA Arithmetic Mean 7.68% 7.77%

The TPO examined the comparability of companies selected by the assessee and found Hepatica Technologies Ltd., Hinode Technologies Pvt. Ltd., I-Design Engineering Solutions Ltd., Onward Technologies Ltd. and Cades Digitech Pvt. Ltd. as not comparables and rejected the said companies. The TPO also conducted transfer pricing analysis and found following companies as comparables which are as under :

The assessee was show caused why the above companies cannot be considered as comparables in design engineering segment. The assessee objected to the inclusion of Eclerx Services Ltd. and submitted the said company is engaged in providing data analytics and data process solutions and contended the said company is not functionally comparable to the assessee. The assessee also placed reliance on judicial precedents in respect of picking up a company having high profit making. According to the TPO the said company qualifies the filter of selecting the companies whose turnover is 10 times lower or 10 times higher than the turnover of the assessee. Rule 10TA(g) defines data analytics and design engineering service as KPO. The TPO also relied on the Web page of the Eclerx Services Ltd. and held it is engaged in the business of the KPO and rejected the objection of the assessee for exclusion of Eclerx Services Ltd., consequently by placing reliance on the directions of DRP rendered in A.Y. 2013-14 held Eclerx Services Ltd. is functionally comparable to the assessee.

Before the DRP, the assessee reiterated the Eclerx Services Ltd. is not functionally comparable and it is engaged in providing data analytics and data process solutions. The DRP by examining the Annual Report of the said company and observed that it operates under a single primary segment, i.e. data analytics and process outsourcing services. The said company is a Knowledge Process Outsourcing (KPO) services provider engaged in providing specialized services in data analytics and process outsourcing. The companies engaged in business/financial analytics have been grouped along with Engineering Design Services (EDS) providers and placed under the common head “Knowledge Process Outsourcing” as per Safe Harbour Rules. The DRP further observed the activities carried out by the assessee are Engineering Design Services, which fall under the head “KPO Services” in accordance with the Safe Harbour Rules and the data analytics and process outsourcing services of said company also fall under the scope of “KPO Services” similar to the assessee’s Engineering Design Services which require application of knowledge and advanced analytical and technical skills which are provided with the use of information technology. The DRP considering the Safe Harbour Rules and the order of Special Bench of Bangalore ITAT in the case of Aztec Software & Technologies Ltd. reported in 107 ITD 141 and confirmed the view taken by the TPO for inclusion of Eclerx Services Ltd. in the comparables.

The ld. AR, Shri Ajit Jain submitted that the Eclerx Services Ltd. is functionally not comparable as the said company is engaged in providing data analytics and data process solutions. The company’s income from operations consist of revenue from data analytics services and process solutions which comprises of both time/unit price and fixed fee based service contracts. Further, he contended that the said company provides financial services, sales and marketing services and cable and telecommunication services which are completely different from the engineering design support services rendered by the assessee which is at page Nos. 162 and 163 of the paper book. Further, there is no revenue derived from rendering of engineering design support services as that of the assessee but only one segment reported data analytics and process outsourcing services in the segmental financials. The nature of functions undertaken by the Eclerx Services Ltd. and the assessee are very different and no where the Eclerx Services Ltd. considered as comparable. Further, he argued that the Eclerx Services Ltd. has a different revenue model as it outsources most of its services unlike the assessee. Further, he referred to Chairman’s Message at page No. 168 of the paper book and Management Discussion and Analysis at page No. 185 of the paper book. He argued that the Eclerx Services Ltd. entirely different functions that of assessee as it has entered into banking and financial services, sales and marketing services and cable and telecommunication services which clearly shows the dissimilarity with the functions of assessee. Further, he submits that the assessee provides Computer Aided Design, Computer Aided Engineering services for interior systems components for the automotive industry and Product Process Validation which clearly itself shows different from the functions carried out by the Eclerx Services Ltd.

The ld. AR submits that this Tribunal in assessee’s own case in earlier year for A.Y. 2011-12 held the Eclerx Services Ltd. is not comparable by placing reliance on the order of this Tribunal in the case of MACOM Technology Solutions (India) Limited Vs. DCIT in for A.Y. 2012-13, order dated 09-05-2019. He further submits that the facts and circumstances and the issue involved in the earlier year in A.Y. 2011-12 are exactly similar to the issue raised in this year under consideration and prayed to exclude the Eclerx Services Ltd. from the list of comparables.

When confronted in respect of the facts and circumstances of the case be that of earlier year i.e. A.Y. 2011-12, the ld. DR, Smt. Amrita Misra fairly conceded that the facts and circumstances of the concerning the issue raised in the year under consideration is identical and similar, but, however relied on the order of AO/TPO.

Heard both parties and perused the material available on record. The main contention of ld. AR is that Eclerx Services Ltd. is functionally not comparable to the functions of assessee. We find that at page No. 185 of the paper book where Management Discussion and Analysis overview and business overview is reflected. We note that the Eclerx Services Ltd. in F.Y. 2013-14 relevant to the A.Y. 2014-15 continue to make progress to create a more diversified and resilient revenue base. We note that the said company is engaged in banking and financial services business, digital marketing business and cable and telecom business. The functions and services provided in the said three divisions are at page No. 162 of the paper book which clearly shows different from the functions of assessee. All the contentions raised by the ld. AR before us in the year under consideration were dealt by this Tribunal in earlier year concerning A.Y. 2011-12. There is no dispute regarding exclusion of Eclerx Services Ltd. by this Tribunal in assessee’s own case in A.Y. 2011-12 which is at page No. 1 of the legal compilation and no order placed on record reversing the findings of this Tribunal. This Tribunal in order to arrive at a conclusion for exclusion of Eclerx Services Ltd. placed reliance on the order of this Tribunal in the case of MACOM Technology Solutions (India) Limited (supra) wherein it was reproduced the said order in para No.

Heard both the parties and perused the material available on record. We note that the assessee is seeking rejection of Eclerx Services Limited. We note that the TPO in its order at pages 631 to 635 and the DRP at pages 45 to 49 of the paper book has included Eclerx Services Limited on the basis of that the assessee is a KPO as it is engaged into engineering design services and Eclerx Services Limited is also a KPO. The main contention of ld. AR is that Eclerx Services Limited is functionally not comparable to the assessee. We note that the Eclerx Services Limited is engaged in providing data analytics and processed outsourcing services which is evident from the Director's Report and Management Discussion and Analysis sections of the Annual report at page 822 of the paper book.

We note that the Eclerx renders services to its clients with two market- focused units Financial Services (including trade processing support, reference data maintenance, contract risk review, marine and exposure management, expense management, accounting and finance and consulting service) and Sales and Marketing Support. Including Online Operations & Web Analytic, CRM & Business Intelligence, Data Management & Reporting, Competitor Benchmarking & Pricing, Quality & Compliance and business process consulting at pages 794 and 796 of the paper book. In the case of assessee is engaged in providing engineering design services i.e. CAD/CAE Modelling for group entities engaged in Auto- ancillary operation at page 661 of the paper book and it is clear that Eclerx is functionally dissimilar to the assessee and in our opinion, the Eclerx shall be excluded from comparable list.

Further, the ld. AR submitted that the Segmental data is not available and that Eclerx is evidently not comparable to the assessee and operates in altogether different business catering to a distinct industry, even if some part of the its functions were to be considered comparable to the assessee, it is noteworthy that Eclerx operates under single primary segment (i.e. Data Analytics and process outsourcing services) and did not report any segmental data and argued that Eclerx cannot be considered as a comparable to the assessee.

We find this Tribunal in the case of MACOM Technology Solutions (India) Private Limited Vs. DCIT in for A.Y. 2012-13 vide order dated 09-05-2019 rejected Eclerx from comparable set based on functional dissimilarity. We find the present case is squarely similar to MACOM Technology Solutions (India) Private Limited (supra), wherein the assessee was engaged in similar design engineering services. For ready reference the relevant portion at para 16 is reproduced here-in-below: “16. We heard both the sides on this issue and perused the orders of the revenue authorities and the Paper Book filed before us. We also considered the judgemental laws placed before us. On hearing both the sides, we find the core issue for adjudication is that if company becomes a good comparable merely because the same is engaged in KPO activity like the assessee. We find, now it is decided at the level of the Hon’ble Delhi High Court that the similarity of functions/characteristic of services rendered by the assessee/comparables for identifying the good comparables assessee’s importance. It is an undisputed fact, in the present case, that the DRP/TPO/Assessing Officer are categorically explained that with the similarity in grouping of KPO companies, the assessee’s company is good enough for identifying a good comparable. This view is not approved by the various decisions cited by the ld. Counsel for the assessee before the Tribunal. We have already extracted the relevant portion from the judgements of the Hon’ble High Court as well as the orders of the Pune Bench of the Tribunal that for identifying a good comparable, one has to go into the characteristic of the functions rendered by the comparables. The assessee is undisputedly engaged in the business of designing and development of chip, integrated circuits and storage components and allied services for its holding company AMCC, USA, whereas (i) Eclerx Services Limited is engaged in “data analytic” and (ii) Genesys International Corporation Limited is engaged in “geographical information system services”. These functions are entirely different from that of the business of designing and development of chip, integrated circuits and storage components etc.”

In the light of above, the Eclerx Services Limited is not comparable and the Assessing Officer/TPO is directed to exclude for the purpose of benchmarking of the international transactions. Accordingly, the order of Assessing Officer is set aside and ground No. 4 raised by the assessee is allowed.”

As discussed above as conceded by the ld. AR and ld. DR regarding the facts and circumstances involving the exclusion of Eclerx Services Ltd. as not comparable are similar in the year under consideration and therefore, we deem it proper to follow the same. Accordingly, it is held the Eclerx Services Ltd. shall be excluded from the set of comparables and the AO/TPO is directed to determine the arm’s length price for the purpose of benchmarking of international transactions in design engineering services segment. Thus, the final assessment order in this regard is set aside and the ground Nos. B 2 and B 5 raised by the assessee are allowed.

In the result, the appeal of assessee is allowed.