CARE MANAGEMENT INTERNATIONAL PRIVATE LIMITED (MERGED WITH COTIVITI INDIA PRIVATE LIMITED),HYDERABAD vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(2), HYDERABAD

Facts of the case, in brief, are that the assessee company engaged in the provisions of ITES, e-filed its return of income for the A.Y 2013-14 on 22.11.2013 admitting a total income of Rs.1,94,13,860/- under the normal provisions and book profit of Rs.2,86,11,005/- under the provisions of section 115JB. The return was processed u/s 143(1) and subsequently the case was taken up for scrutiny under CASS. Statutory notices u/s 143(2) & 142(1) were issued to the assessee and the AR of the assessee appeared before the Assessing Officer from time to time and filed the requisite details.

At the outset, the learned AR submitted that the assessee is restricting the Transfer Pricing issues raised before the Tribunal in respect of four comparables i.e. exclusion of Infosys BPO and Capgemeni Business Services India Ltd and 2 inclusion of Informed Telecom India Ltd and Jindal Infotech (P) Ltd. Exclusion of Infosys BPO

Before us, the Ld.AR had submitted that this company is having income in foreign currency as per note 2.21 of the annual report to an extent of ₹ 13,56,23,69,842/- and the revenue from management services are to an extent of ₹ 18,31,33,77,884/-. Thus, this company failed to on the export turnover filter as applied by the TPO. As per the assessee, the export turnover filter on calculation would come to 74.06%. It was submitted by the Ld.AR that the above said fact was brought to the notice of the DRP and the DRP had issued the direction to the TPO to reject the company as comparable if the exporting filter is not found to be applicable in the facts of the case. Despite the direction of the DRP, the assessing officer had included the above said comparable. The assessee had filed the application under section 154 of the Income Tax Act, 1961. The same is still pending before the assessing officer and no effect has been given in the light of the direction of the DRP to exclude the comparable. Besides that the Ld. AR had also submitted that this company is not comparable with the assessee company, as its functional profile is different than that of the assessee. Besides that it was also the contention that the company is having high turnover which is not comparable with the assessee company and is also ITA 2117 of 2017 having strong brand value because of that also this company cannot be compared with the assessee company.

On the other hand, the learned DR heavily relied on the order of the lower authorities.

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned DRP and the Paper Book filed by the assessee. Admittedly, in the present case, the TPO has applied the export turnover filter of 75% as seen from the record. However, the assessee before us demonstrated that this company fails in the export turnover. In our view, it would be appropriate, if the TPO examine afresh and find out whether this comparable fulfills the export turnover filter or not. Needless to say that the above said exercise shall be carried out by the Assessing Officer / TPO after granting the opportunity of hearing to the assessee.

In the result, ground raised by the assessee for exclusion of Infosys BPO is allowed for statistical purposes.

The next comparable is Capgemeni Business Services Ltd. In this regard, our attention was drawn to the order passed by the DRP/TPO by the learned AR for the assessee. The basic argument of the learned AR is that this company is not comparable with the assessee as it fails on the RPT filter applied by the TPO. It is the submission of the learned AR that the related party transaction of the company with its AE exceeds 25% and was 82.32%. Therefore, this company cannot be treated as a good Page 4 of 12

The learned DR relied upon the orders passed by the lower authorities.

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned DRP and the Paper Book filed by the assessee in detail in the case of Capgemeni Business Services India Ltd. The Assessing Officer/TPO applied the RPT filter of 25%. Before the TPO no such objection was raised. However, this specific objection was raised by the assessee before the learned DRP, but for the reason best known to the DRP, it failed to adjudicate the ground raised by the assessee in so much so whereby it was submitted that comparable company fails on account of non fulfilment of RPT filter. As the case may be, since the facts has not been analysed by the DRP/TPO, it would not be possible for us to decide the issue of failure of RTP filter at the appellate stage. In the light of the above, we remand the issue back to the file of the Assessing Officer/TPO with a direction to examine the functional similarities / dissimilarity of Capgemeni Business Services India Ltd having regard to the application of RPT filters after affording opportunity of being heard to the assessee.

We now come to the inclusion of Informed Technology India (P) Ltd. In this regard, our attention was drawn to the order passed by the TPO wherein the learned TPO had rejected the inclusion of this comparable on the pretext that the financial information for the current year is not available at the time of finalization of the comparables. It was submitted by the learned AR that the assessee had submitted the financials before the TPO and our attention was drawn to page 190 of the Paper Book Vol.I. It was further submitted that feeling aggrieved by the order, the matter was agitated before the DRP and the DRP has also not considered the submissions of the assessee. The reason given by the DRP that this comparable Informed Technologies India Ltd deriving income from two verticals namely software development and ITES and the segmental financial is not available. It was submitted by the learned AR that the Informed Technologies India Ltd is deriving revenue only from the BPO ITES and therefore, it qualifies to be taken as a good comparable. He relied upon the decision of Hyundai India Motors (P) Ltd in this regard for the above said proposition.

Per contra, the learned DR relied upon the order passed by the lower authorities.

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned DRP and the Paper Book filed by the assessee in detail in the case of Informed Technologies India (P) Ltd. In our view, the grievance of non- Page 6 of 12

Next company comparable is Jindal Intellicom Ltd. In this regard the learned AR drew the attention of the Bench to page 215 of the Paper Book where the functions carried out by Jindal Intellicom Ltd has been mentioned to the following effect:

Thereafter, the learned AR drew the attention of the Bench to page 227 of the Paper Book where the notes on financials are placed wherein it is mentioned as under:

The learned AR also drew the attention of the Bench to page 241 of the Paper Book wherein the financials of the company are mentioned and the income and earnings in foreign currency has been restricted to income from call services. Thereafter, the learned AR drew our attention to page 287 of the Paper Book wherein the TPO rejected the inclusion of this comparable on the pretext that this company is having functional dissimilarities with that of the assessee. Lastly, he drew our attention to page 803 of the Paper Book wherein the learned DRP has held that the issue of inclusion of Jindal Intellicom Ltd and the finding of the DRP at page 803 (Vol.III).

It was the contention of the learned AR that this company is required to be included and he relied upon the decision of the Tribunal.

The learned DR on the other hand, relied upon the orders of the lower authorities.

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned DRP and the Paper Book filed by the assessee in detail in the case of Jindal Intellicom Ltd. Undoubtedly, the profile of the assessee is required to be examined in the context of the services rendered by the assessee as well as by Jindal Intellicom Ltd. The lower authorities on examination has come to the conclusion that this company is not comparable with that of the assessee as it is into software development and is deriving revenue from call centre. However, the above said aspect has not been examined by the lower Page 9 of 12

In the light of the above discussions, the TP ground raised by the assessee are decided. It is made it clear that the TPO shall include inclusion/exclusion after affording reasonable opportunity of being heard to the assessee and pass a speaking order considering the decisions of the Tribunal / Judicial High Courts in this regard.

The last ground raised

Per contra, the learned DR relied on the decisions of the lower authorities.

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned DRP and the Paper Book filed by the assessee in detail. The law is fairly settled with respect to the binding nature of the DRP u/s 144C(13)(10) whereby the TPO/Assessing Officer are directed to give effect to the issues and directions given by the DRP. Despite specific directions issued by the DRP, the TPO/Assessing Officer are not complying with the same in letter and spirit. Therefore, we reiterate and repeat the directions issued by the DRP and direct the TPO to give effect to the directions given by the DRP forthwith.

In the result, appeal filed by the assessee is allowed for statistical purposes.