VERTICURL MARKETING PRIVATE LIMITED,COIMBATORE vs. THE DRP -2, BENGALURU

आयकर अपीलीय अिधकरण “डी”�ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, CHENNAI

माननीय ,ी महावीरिसंह, उपा23 एवं माननीय ,ी मनोज कुमार अ8वाल ,लेखा सद; के सम3। BEFORE HON’BLE SHRI MAHAVIR SINGH, VP AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपीलसं./IT(TP)A No.25/Chny/2021 (िनधा<रणवष< / Assessment Year: 2016-17) M/s.Verticurl Marketing Private Limited DCIT Tower B, 1st floor, India Land Tech Park बनाम Corporate Circle-2, Chil SEZ Area Keeranatham, Coimbatore. / Vs. Sarvampatti, Coimbatore-641 035. �थायीलेखासं./जीआइआरसं./PAN/GIR No.AADCV-2270-K (अपीलाथ�/Appellant) : ( !थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Ms. Arati Vissanji (Advocate) – Ld.AR !थ�कीओरसे/Respondent by : Shri A. Sasikumar (CIT) – Ld.DR सुनवाईकीतारीख/Date of Hearing : 20-07-2023 घोषणाकीतारीख/Date of Pronouncement : 27-07-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year(AY) 2016-17 arises out of final assessment order passed by Ld. Assessing Officer, National e-assessment Centre, Delhi [AO] u/s.143(3) r.w.s 144C(13) r.w.s 143(3A) & 143(3B) of the Act on 31-03-2021 pursuant to the directions of Ld. Dispute Resolution Panel-2, Bengaluru u/s 144C(5) dated 26-02-2021. Since the assessee carried out certain international transactions with its Associated Enterprises (AEs), the same were

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referred to Ld.Transfer Pricing Officer, Circle-3(2), Chennai (TPO) for determination of Arm’s Length Price (ALP). The Ld.TPO passed an order u/s. 92CA(3) on 31-10-2019 proposing certain transfer pricing adjustment for Rs.71.96 Lacs which were incorporated in the draft assessment order dated 11-11-2019. The assessee preferred objections against the same before Ld. DRP which got rejected. Aggrieved, the assessee is further appeal before us. 2. The Ld. AR, Ms. Aarti Vissanji, at the outset, drew attention to ground nos.2 & 3 and pleaded for exclusion of one comparable entity viz. M/s Datamatics Business Solutions Ltd. (formerly known as Datamatics Financial Services Ltd.). The Ld. AR drew attention to assessee’s FAR analysis and referred to annual reports etc. of that entity to support exclusion of the same. The Ld. CIT-DR also advanced arguments. Having heard rival submissions and after perusal of case records, the appeal is disposed-off as under. Proceedings before lower authorities 3.1 The assessee being resident corporate assessee is wholly owned subsidiary of M/s Verticurl Singapore. The assessee operates as an exclusive offshore development Centre for its holding company. The assessee renders services to its Singapore AE which are in turn incorporated in the services rendered by Verticurl Singapore to its customers. The assessee received remuneration of Rs.17.49 Crores for various services from its AE which are listed in para-4 of Ld.TPO’s order. The assessee benchmarked the same using Transactional Net Margin Method (TNMM) as well as other methods. In its transfer pricing study, the assessee selected four comparable entities and since the assessee’s

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margin was more, no Transfer Pricing (TP) adjustment was proposed by the assessee. 3.2 The Ld. TPO rejected comparable matrix and carried out fresh benchmarking analysis. In the final analysis, he selected four comparable entities having margin of 18.69% which pitied against assessee’s margin of 14% resulted in to TP adjustment of Rs.71.96 Lacs. One of the entities selected by Ld. TPO is M/s Datamatics Business Solutions Ltd. having high margin of 33.98%. The assessee objected to this entity on the ground that this entity was engaged in ITeS and BPM services and no segment data was available in BPM services. The assessee was engaged purely in BPO services. However, the same were rejected by Ld. TPO. The Ld. DRP rejected assessee’s submissions on functional dissimilarity and upheld the action of Ld. TPO. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. Upon perusal of 4.2 of Ld. DRP order, we find that the services rendered by assessee has wrongly been tabulated since the functions listed therein are performed by Singapore AE and not by the assessee. The respective functions being performed by the assessee as well as Singapore AE are amply clear from assessee’s TP study as under: - Functional Analysis Description of functions performed Verticurl India Verticurl Singapore √ Identifying the customer √ Requirement gathering √ Negotiation of contractual terms √ Decision relating to fees for services √ Resource allocation √ Preparation of roadmap √ Liaison with headquarter √ Execution of projects

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√ Supervision and quality review of services √ Validation and Approval of services delivered to final customer √ Raising intercompany invoices √ Invoicing and collection from final customers √ Provides technical support to final customers after project delivery √ √ Recruiting and Training Personnel √ Performs Market Research

It could be seen that the assessee is providing low-end basic BPO services and do not take any substantial risk. Hence, it could not be considered as an entity engaged in ITeS services. 5. Upon perusal of financials of M/s Datamatics Business Solutions Ltd. as placed on record, we find that this entity is engaged in providing database solutions, demand generation, business research, registrar services, finance and accounting, payroll solutions and Contact center services. Thus, it could only be termed as an entity engaged in ITeS sector. The segmental results are not available for this entity. Therefore, this entity in our opinion, could not be taken as comparable entity. We direct Ld. TPO to exclude the same and re-compute TP adjustment, if any. 6. The Ld. AR has submitted that if this entity is excluded, the margins of the assessee would be much more and therefore, other grounds urged in the appeal would not require any specific adjudication. Considering the same, the other grounds have been rendered academic in nature and therefore, not dealt with by us.

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Sd/- Sd/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा23 /VICE PRESIDENT लेखासद; / ACCOUNTANT MEMBER चे2ईChennai; िदनांकDated : 27-07-2023 DS आदेशकीPितिलिपअ8ेिषत/Copy of the Order forwarded to : 1.अपीलाथ�/Appellant 2.��यथ�/Respondent 3.आयकरआयु�त/CIT 4.�वभागीय��त�न�ध/DR 5.गाड�फाईल/GF