DCIT, CIRCLE-9(1), NEW DELHI vs. FIL RESEARCH (INDIA) P.LTD SUCCESSOR OF FIL INDIA BUSINESS SERVICES PVT. LTD., NEW DELHI

The present appeal has been filed by the Revenue against the order of the ld. CIT(A)-44, New Delhi dated 31.05.2018.

Following grounds have been raised by the Revenue:

In the instant case, the Transfer Pricing Officer (‘TPO’) has made an adjustment of INR 9,74,29,594/-. The Assessee in the year under consideration had provided Information Technology Enable Services (‘ITeS’) to its Associated Enterprises (‘AEs’) at a mark-up of 15% on the total cost. The assessee is engaged in FIL Research (India) P. ltd. back-office operations. In the capacity of a back-office contract service provider, its activities broadly include customer support services, business finance, controlling functions, accounts payables, accounts receivables, reporting and forecasting. Being in the back-office operations, the assessee is fairly shielded from various risks such as market risk, price risk, capacity utilization risk etc.

The TPO rejected the analysis carried out by the Assessee and computed a mark-up of 27.49% by selecting incomparable companies while determining the Arm’s Length Price under section 92CA(4) thereby making the addition of Rs. 9,74,29,594/-. Aggrieved by the action of the TPO, the Assessee filed an appeal before the Ld. CIT(A). The ld. CIT(A) excluded 5 companies considered to be comparable by the TPO thereby reducing the adjustment to ‘Nil’.

The final set of comparable companies as per the order of the Ld. CIT(A) is as under:

The Ld. CIT(A) held that the company is functionally dissimilar to the Assesssee as it provides KPO services arid owns intangibles. The issue was dealt by the Co-ordinate Bench of Tribunal while passing the order for A.Y. 2010-11 in in the case of the assessee. In the instant year also, the company is engaged in similar business services as it was conducting in the previous year as is evident from the following extract of the Annual Report for F.Y. 2011-12:

The Co-ordinate Bench of Tribunal in Evalueserve.com Pvt. Ltd in rejected Accentia Technologies as a valid comparable for the concerned assessment year i.e., A.Y. 2012-13 holding that, "9. We have heard the rival submissions and also perused the relevant finding given the impugned orders as well as the material referred before us. Accentia Technologies Ltd. is a company which is providing medical transcription services which encompasses process of prescribing or converting voice recorded reports as detected by FIL Research (India) P. ltd. physicians or other health care professionals who vet the actual transcription. Apart from that it is providing medical coding, billing and collection services. Medical coding is related to procedures of financial assessment which help insurance companies and Government companies. Medical billing is described as medical practice management which involves bill on insurance companies by hospitals for on behalf of the personnel for medical care expenses, which are majorly from US markets .

It was held that the instant company cannot be taken as a valid comparable in the following judgments:

Hence, we decline to interfere with the order of the Ld. CIT(A) in excluding Accentia Technologies.

The Ld. CIT(A) held that the said company is functionally dissimilar to the Assessee as it is engaged in the provision of software development and engineering designs and derives its revenue solely from these services. The comparable has earned super normal profits and has undergone extraordinary events in the current Assessment Year. The Hon’ble Delhi High Court in the case of Rampgreen Solutions Private Limited in had noted that a Knowledge Process Outsourcing unit cannot be compared with an assessee proving Business Process Outsourcing services. The Hon’ble High Court concluded that since Eclerx is a KPO it cannot be compared with the assessee and excluded the same from the final list of comparable companies.

Hence, we decline to interfere with the order of the ld. CIT(A) on this issue.

The Ld. CIT(A) held that the instant comparable is performing functions which is different from that of the Assessee, has a high brand value, is engaged in diversified services and own intangibles. The Co-ordinate Bench of ITAT in Assessee’s own case for A.Y. 2010-11 in excluded this company from the final set of comparable. Hence, we decline to interfere with the order of the ld. CIT(A) on this issue.

The Ld. CIT(A) held that unlike the assessee, the instant comparable is engaged in a wide array of services in the nature of finance and accounting, legal process outsourcing, sales etc. and is therefore, functionally dissimilar. It also possesses significant brand value and goodwill. It is submitted that during the current year, the company has undergone business restructuring/ acquisitions and has rendered significant large scale of operations. It was held that the instant company was excluded as a comparable in Assessee’s own case for AY 2010- 11 in ITA No. 6867/Del/2014. Hence, we decline to interfere with the order of the ld. CIT(A) on this issue.

The Ld. CIT(A) held that the instant company is functionally different as it is engaged in medical coding and transcription and is earning supernormal profits. Reliance was also placed on the decision of the Co-ordinate Bench of Tribunal

The Co-ordinate Bench of Tribunal in Evalueserve.com Pvt. Ltd. in rejected BNR Udyog Limited as a valid comparable for the concerned assessment year i.e., AY 2012-13 in the following manner:

Since, the decision of the ld. CIT(A) is based on the orders of the higher judicial authorities, we hereby affirm the order of the ld. CIT(A).