COMPUCOM CSI SYSTEMS INDIA PRIVATE LIMITED,PUNE vs. INCOME TAX OFFICER, PUNE

PER R.S.SYAL, VP : This appeal by the assessee is directed against the final assessment order dated 31-01-2017 passed by the Assessing Officer (AO) u/s.143(3) r.w.s.144C(13) of the Income-tax Act, 1961 (hereinafter called ‘the Act’) in relation to the assessment year 2012-13.

2 ITA No.785/PUN/2017 CompuCom CSI Systems India Pvt. Ltd.,

CompuCom, USA. It is an I.T. outsourcing company that

specializes in the assessment, design, procurement, integration,

deployment and management of enterprise I.T. infrastructures. The

assessee was incorporated in April 2010 to provide I.T. enabled

remote infrastructure support services to the third party clients of

the ultimate parent company, CompuCom, US. The assessee filed

its return declaring total income at Nil. Certain international

transactions were reported in Form No.3CEB. The AO made a

reference to the Transfer Pricing Officer (TPO) for determining the

Arm’s Length price (ALP) of the international transactions. The

TPO found that the assessee was following the Transactional Net

Margin Method (TNMM). The assessee reported an international

transaction of `Provision of IT Enabled Remote Infrastructure

Support Services’ with transacted value of Rs.24,68,51,557/-. The

assessee chose four companies as comparable with a mean margin

at 8.22%. The assessee computed its own margin at 17.77% to

demonstrate that its international transaction was at the ALP. The

TPO rejected all the comparables chosen by the assessee and finally

selected four new companies as comparable with average Profit

Level Indicator (PLI) at 32.51%, on the basis of which he

recommended the transfer pricing addition of Rs.3.09 crore, that got

3 ITA No.785/PUN/2017 CompuCom CSI Systems India Pvt. Ltd.,

incorporated in the draft order. Giving effect to the direction given

by the Dispute Resolution Panel (DRP), the AO, in the final

assessment order, made transfer pricing addition of Rs.1,80,93,764/,

against which the assessee has come up in appeal before the

Tribunal.

relevant material on record. The assessee has not disputed any

aspect of the determination of the ALP by the TPO except for the

inclusion of Universal Print Systems Ltd. (segment) with PLI at

51.80%.

Universal Print Systems Ltd. (segment), it is essential to ascertain

the functional profile of the assessee. The TPO has noted the

international transaction as Provision of IT Enabled Remote

Infrastructure Support Services. We have gone through the TP

study report of the assessee, a copy of which is available at page 12

onwards of the paper book. Description of the business operations

of the assessee has been given therein along with the discussion

about the business operations at CompuCom group mentioning that

CompuCom, USA specializes in design, procurement, integration,

4 ITA No.785/PUN/2017 CompuCom CSI Systems India Pvt. Ltd.,

deployment and management of enterprise IT infrastructures.

Description of the assessee’s business operations has been given at

page 10 as providing `Remote IT infrastructure support services’,

`Remote trouble shooting’ and `Support using IT communication

channels’. The assessee provides only offshore support for the

contracts undertaken by CompuCom, USA. The assessee provides

such services using voice and electronic communication systems.

Users from the clients’ end communicate through e-mails, telephone

and chats.

operations of the assessee, it can be seen that the assessee is

providing infrastructure support I.T. services as a help desk. These

services are provided from the assessee’s own premises in India and

they cater to the foreign clients of CompuCom, USA. With the

above understanding of the functional profile of the assessee

company, we now proceed to examine whether Universal Print

Systems Ltd. is comparable?

stating that it was engaged in dissimilar business, dissimilar

employee cost and exceptional high margins. The TPO rejected the

5 ITA No.785/PUN/2017 CompuCom CSI Systems India Pvt. Ltd.,

assessee’s contention of high profit margin on page 12 of his order

by holding that once arithmetic mean of profit margins of the

comparables is taken, there remains no net to exclude companies

with super profit margins. The TPO, however, did not discuss the

other dissimilarities pointed out by the assessee. The DRP observed

that the TPO selected only the `Prepress BPO’ segment of this

company, which was comparable to the ITES activities of the

assessee. No relief was, therefore, allowed by the DRP on this

count. The assessee has come up in appeal before the Tribunal

urging for the exclusion of this company.

material on record. We have also gone through the Annual report of

this company, a copy of which has been provided at page 457

onwards of the paper book. The TPO has taken segmental margin

of this company, computed at 51.80%. Segment so taken is

‘Prepress-BPO export’. We have gone through the additional

information on the Profit and loss account, given at page 540 of the

paper book, which has a break up of ‘Prepress-BPO export

revenue’ of Rs.6,11,96,400/-. Our attention has not been drawn by

the ld. DR towards further details of ‘Prepress-BPO export’ services

in the Annual report of the company. As this company is engaged

6 ITA No.785/PUN/2017 CompuCom CSI Systems India Pvt. Ltd.,

in printing business, probably the ‘Prepress-BPO export’ services

may be of the nature of services as are utilized before the actual

printing is done. Another feature which emerges from the above

discussion is that the revenue of Rs.6.11 crore is not from

performance of some `Prepress activities’ but rendering of BPO

services in connection with Prepress activities. It is still further

relevant to note that the assessee is engaged in providing IT enabled

remote infrastructure support services through its help desk which require trained IT professionals vis-à-vis the services rendered by

the Universal Print Systems Ltd. under the Prepress BPO services.

This fact is highlighted on examining the percentage of employee

costs incurred by the assessee, which is at 59.51% as against only

18.56% of Universal Print Systems Ltd., as has also been noted in

para 9 of the DRP’s direction. This shows that the nature of activity

done by the assessee is quite different from that done by the

Universal Print Systems Ltd. We, therefore, order to exclude this

company from the list of comparables.

the AO/TPO for a fresh determination of the ALP of the

international transaction after excluding Universal Print Systems

7 ITA No.785/PUN/2017 CompuCom CSI Systems India Pvt. Ltd.,

Ltd. from the list of comparables. On other issues, the order of

AO/TPO, as amended by the DRP, shall remain final.

Order pronounced in the Open Court on 09th December, 2019.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 09th December, 2019 सतीश

आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-13, Pune 4. The Pr.CIT-V, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “C” / DR ‘C’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

ITA No.785/PUN/2017 CompuCom CSI Systems India Pvt. Ltd.,

Date 1. Draft dictated on 05-12-2019 Sr.PS 2. Draft placed before author 09-12-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

*