EVALUESERVE.COM PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

surveys are normally carried out on the basis of a questionnaire received from the client. EVS India carries out research based assignments of the following nature: • Periodic Research: Periodic research projects are ongoing in nature. The projects include database content creation, management and updation of existing research. ■ Project Research: project research involves research from secondary sources. It also makes use of forecasting, modeling and financial analysis. Typically, it involves industry studies covering the market size, value chain analysis, growth rates and demand and supply projections, EVS India has conducted studies and prepared research reports for various sectors like the telecom sector, pharmaceutical sector, etc. The intellectual property rights for the reports are owned by the end customer. ■ Rapid research: Rapid research assignments typically have 24 hours as the turnaround time. These are mostly based on brief client requests received from the AEs. b) Financial Services (FS): EVS India has a team of employees exclusively dedicated to tracking stocks and mutual funds. Typically, an investment research and financial analytics assignment, as discussed above, could also be periodic or project based. EVS India makes use of a variety of research tools including web, databases and publications apart from analytics and forecasting. The industries covered include financial services (banking and insurance), hi-tech (software, electronics, engineering, nano-technology, networking, biomedical engineering), telecom equipment and operators, pharmaceuticals and biotech, chemicals, energy and consumer prodicts. c) Intellectual Property Research (IP): The intellectual property research includes research on patents, drafting of patent applications, prior art search etc. Essentially, EVS India offers the following kind of services to its AEs: d) Patent Assessment: This is concerned with evaluating whether a product can be patented or not. It involves finding out whether a patent exists for a similar product in the global market. e) Drafting of patent Applications: The AEs are responsible for end to end patent application filing through patent counsels in the relevant jurisdiction. EVS India prepares a draft and sends it either to the client or patent attorney associated with AEs, to be filed. Thereafter, lawyers, associated with the AE, vet the draft and file it. f) Intellectual Property Asset Management: EVS India offers Patent to product mapping, IP Research and analysis and Patent Consulting as part of Intellectual Property Research. It assists in maintain a relevant portfolio of patents, offers consulting in overlap and infringement, and helps in locating potential companies which would be interested in licensing a particular invention. Marketing and After Sales: EVS India does not undertake any marketing and sales efforts as it carries out offshore research activities on behalf of its, AE. The AE is responsible for the business development, marketing activities and quality assurance for every project undertaken by EVS India. The AEs, based on the market and economic scenario, prepares the general worldwide marketing strategy for the Group. EVS India secures contracts owing to the brand name and goodwill enjoyed by its AE. For provision of the aforementioned services, AEs remunerate EVS India on an hourly basis. Routine functions: These business support functions are the part of normal course of business and are indispensable in the economic environment. Strategic Policies: All long-term policies are developed and formulated by EVS India while having consensus with its AEs. The company’s management people take care of corporate communications, dealing with customer, associate companies, etc. Finance and Accounting and IT: EVS India prepares its own financial statements. EVS India formulates its budget on an annual basis.

Human Resource Management: EVS India performs recruitment, soft skills training, performance evaluation and other related functions, The employee strength of EVS India was about 1163 personnel including the corporate group as on march 31,2012. Assets Any business requires assets without which it cannot carry out its activities. The assets might be clearly recognizable i.e. tangible (plant & machinery, equipment, building etc) or they might be intangible assets (brand-name, trademarks, technical know-how, patents, etc.). The following is the list of assets used by EVS India: Tangible Assets The tangible assets employed in EVS India are considered essential for running the business. EVS India being an ITES service provider does not have a significant tangible asset base or carrying out its operations, EVS India does not own any land and carries out its operations, EVS India does not own any land and carries out its operations on rented premises. Its tangible asset base comprises of computers, office equipment and furniture and fittings and lease improvements. Intangible Assets EVS India, being in the research field, human capital forms its core resource. The employees of EVS India comprise undergraduates, graduates, engineers and MBAs. The business of the E-valueserve group does not result in the development of any form of intellectual property rights. The copyrights relating to the reports, if any are held by the client only. The marketing intangible is owned by the associated Enterprise. EVS India does not own any non-routine intangibles and does not own trade secrets or undertake research and development activities on its account that would lead to the development of non-routine intangibles. Risk Analysis

Risks are those business factors that may expose a company to the possibility of loss or damage. In other words, risk is the probability that a particular adverse event may occur during a stated period of time, or may result from a particular challenge. The following section discusses the risk borne by Company vis-a-vis Group Companies. Customer Credit Risk When a company provides services to a customer in advance of customer payment, the company runs the risk that the customer will fail to make payment. This risk is known as customer credit risk. Foreign Exchange Risk Exchange rate risk relates to the potential variability of profits that can arise because of changes in foreign exchange rates. Such risks arise when doing business in any market that is affected by international trade and can arise even if a company does not conduct actual transactions in a foreign currency. EVS India is remunerated by its AEs for services provided to it in US dollars. However, in the case of third party domestic contracts, EVS India receives payment in INR. Accordingly, EVS India is exposed to foreign currency risk for AE services. The AEs do not bear this risk to any significant ext5ent with respect to EVS India’s operations. Entrepreneurial Risk There are two distinct sources of uncertainty in entrepreneurial ventures: I) uncertainty regarding market demand, and 2) uncertainty regarding capability. The first type of uncertainly is characterized as “exogenous uncertainty” because it emerges as a state of nature. The second type of uncertainty is referred to as “endogenous” uncertainty because entrepreneurs realize that there is high risk of failure as it is tied to their capability. As EVS India is remunerated on an hourly basis by its AEs it is exposed to this risk. This AEs are indirectly exposed to this risk for the Indian operations. Price Risk This risk arises due to the competitive pressures prevailing in the market, which lead to price undercutting thereby adversely impacting the profitability of the Company. EVS India is compensated for the services rendered by it by its AEs on an hourly rate basis. As this compensation is subject to market dynamics, the Company is exposed to price risk. As the AEs compete in the open market they are exposed to this risk. Manpower Risk Manpower is one of the most valuable resources employed by an organization for carrying out its day-to-day operations. The increasing competition in the market place combined with other uncontrolled variables result in exposure to manpower risk. EVS India has skilled workforce and is accordingly exposed to this risk. EVS Indian has skilled workforce and is accordingly exposed to this risk. The ITES industry is characterized by a high level of attrition. The AEs are indirectly exposed to this risk for the Indian operations.”

S. No. Company Long Name OP/OC 1. Accentia Technologies Ltd. 11.09% 2. Eclerx Services Ltd. 59.92% 3. Informed Technologies India Ltd. 20.66% 4. Jindal Intellicom Ltd. 1.42% 5. TCS E-serve Ltd. 64.09% 6. Excel Infoways Ltd.(Seg.) (IT/BPO) 40.77% 7. R Systems International Ltd. (Seg.) (BPO) 0.19% 8. Infosys BPO Ltd. 36.92% 9. Acropetal Technologies Ltd. (seg.) 17.79% 10. BNR Udyog Limited 48.60% 11. e4e Healthcare Business Services P. Ltd. 21.40% 12. Microgenetics Systems Ltd. 8.07% Average 27.58%

5. Out of aforesaid 12 comparables, it has been contended that by the assessee if 6 comparables were to be excluded on the ground that they are not comparable on FAR analysis to the assessee, then other comparables will become academic and infructuous. The six comparables challenged by the assessee for exclusion are: (i) E-clerx Services Ltd. (ii) Accentia Technologies Ltd. (iii) B N R Udyog Ltd. (iv) Excel Infoways Ltd. (v) Infosys BPO Ltd. (vi) TCS E-Serve Ltd.

6.1 Before the TPO the assessee has objected for the inclusion of this comparable on the grounds that; firstly, it is functionally not comparable because this company is into software development and design services; secondly, this company had extraordinary events resulting into abnormal margins; thirdly, unreliable data of this company in public domain; and lastly, this company has been rejected in various judicial ruling as a comparable with ITeS companies. Ld. TPO has rejected all the contention of the assessee on the ground that annual report of said company makes it clear that it is engaged in data processing activities which are categorized as ITeS and there is nothing to show that increase in revenues due to amalgamation and acquisition has led to any abnormal increase in the margins earned by this entity in the year under consideration. The comparative PLI was given as under: - Particulars Mar-09 Mar-10 Mar-11 March- 12 Sales (Cr) 197.09 257.02 341.91 472.46 OP/OC 57.16% 55.84% 56.82% 61.22% 6.2. Before us, Ld. Counsel for the assessee had submitted that Eclerx is engaged in data analytics, financial services and data processing solutions and the same company has been rejected by Hon’ble Delhi High Court in the case of Ramgreen Solutions, reported in 377 ITR 533. Apart from that, Ld. Counsel submitted that this company has two segments viz., financial services; and sales and marketing services segment. Under the financial services segment, Eclerx provides services such as consulting, business analysis and solution testing. It provides a broad suite of services that allow its clients to operate on a day to day basis, including trade processing, reference data, accounting and finance, and expense management activities. Under sales and Marketing services, Eclerx provides online operations, web analytics, social media moderation and analytics, data reporting, CRM platform support, business intelligence, competitor benchmarking and pricing, business process consulting. These services are very different from the services rendered by the Assessee. Regarding extraordinary events, Ld. Counsel submitted that Eclerx has acquired the entire shareholding of Agilyst Inc. which is providing operations and data analysis support to the telecommunication companies. The acquisition added delivery capability of the company and added additional 1000 people into the company. Lastly, she submitted that the same very comparable has been rejected by the Tribunal in assessee’s own case for A.Y. 2008-09 and also in the case of sister concern, E-valueserve.com Pvt. Ltd. SEZ whose functional profile is identical to the assessee. Tribunal has held that Eclerx not comparable. She also pointed out that the said Tribunal order in the case of E-valueserve.com Pvt. Ltd. SEZ passed in & ITA No. 5147/Del/ 2017, have been upheld by the Hon’ble Delhi High Court in the appeal filed by the department vide judgment and order dated 26.02.2018 in ITA no. 241/2018 and 948/2018. Thus, this comparable should be excluded.

6.3 On the other hand, Ld. CIT-DR submitted that assessee is also KPO and TPO has dealt assessee’s similar objection in detailed manner and under TNMM broad comparability has to be seen. This company was also engaged in data processing activities and therefore, it is akin to ITeS. Further the effect of extraordinary event does not have much impact in the PLI because the margin of this company has always between 56% to 61 %. Thus, he strongly relied upon order of the TPO and DRP.

7.1 In so far as Eclerx is concerned, first of all, from the perusal of the annual report, we find that under the head ‘financial services’ it is providing broad suite of services such as consulting, business analysis and solution testing. The services rendered under sales and marketing services as highlighted by the Ld. Counsel comprise of online operations, web analytics, data reporting, CRM platform support,, business process consulting, etc., which shows that it is providing high end KPO services in financial sector and also undertaking significant sales and marketing services and strategies. The functions carried out by Eclerx have been found to be incomparable with the assessee’s function by the Tribunal in assessee’s own case for the assessment year 2008- 09. Not only that, in the case of sister concern of the assessee Evalueserve SEZ Gurgaon having exactly similar functions, Eclerx has been rejected. We find that, Hon’ble Delhi High Court in the case of Rampgreen Solutions (supra) qua Eclerx has observed as under :- “37. Applying the aforesaid principles to the facts of the present case, it is once again clear that both Vishal and eClerx could not be taken as comparables for determining the ALP. Vishal and eClerx, both are into KPO Services. In Maersk Global Centers (India) (P.) Ltd. (supra), the Special Bench of the Tribunal had noted that eClerx is engaged in data analytics, data processing services. pricing analytics, bundling optimization, content operation, sales and marketing support, product data management, revenue management. In addition. eClerx also offered financial services such as real-time capital markets, middle and back- office support, portfolio risk management services and various critical data management services. Clearly, the aforesaid services are not comparable with the services rendered by the Assessee. 7.2 Following the same principle, the Tribunal in assessee’s own case in A.Y. 2008-09 had made following observations: - “44.13 Eclerx Services Ltd.: The Ld. AR submitted that this comparable is functionally dissimilar. It is engaged in data analysis and financial services and this position for this comparable has been accepted by the Hon’ble Delhi High Court in Rampgreen Solutions for A.Y. 2008-09. Eclerx Services Ltd. is engaged in providing data analysis and data process solutions. Pricing analytics, bundling optimization, content operations, sales and marketing support, product data management, revenue management are some of its functions. This company provides tailored process outsourcing and management services in addition to multitude of the data aggregation and mining and maintenance services. There is extraordinary events during A.Y. 2008-09 that of acquisition. Eclerx Services Ltd. has been acquired UK based Igentica Travel Solutions Ltd. which gave it a new customer base. The Ld. AR relied upon the decision of the Hon ’ble Delhi High Court in case of PCIT vs. Amerirprise India Pvt. Ltd. (ITA No. 461/2016). 44.14 The Ld. DR relied upon the order of the TPO/AO and the directions of the DRP. 44.15 We have heard both the parties and perused all the relevant material available on record. Eclerx Services Ltd. is engaged in providing data analysis and data process solutions. Pricing analytics, bundling optimization, content operations, sales and marketing support, product data management, revenue management are some of its functions. It is engaged in data analytics and financial services and this position for this comparable has been accepted by the Hon’ble Delhi High Court in Rampgreen Solutions for A.Y. 2008-09. There is extraordinary events during A.Y. 2008-09 that of acquisition. Therefore, it will be appropriate to exclude this comparable. Therefore, we direct the TPO/AP to exclude this comparable from the final list of the comparables.”

7.3 Further in the case of Evalueserve SEZ this comparable has been excluded after observing as under :- “12. The next comparable by the assessee is that eClarx Services submitting that it is a Knowledge process outsourcing (KPO) unit and therefore cannot be compared with the ITES service provider like assessee. The assessee has relied on the decision of Hon'ble Delhi High Court of Ramgreen Solutions Pvt. Ltd Vs. CIT.

13. The Id DR submitted that the assessee is also a knowledge process outsourcing unit as it employs 616 personnel. He referred to page No. 6 of the order of the Id Transfer Pricing Officer for this. He submitted that assessee’s case falls into all three horizontal segments of ITES industries such as call centre and technical support, payment supply chain and analytics. He therefore, stated that eClarx is the right comparable.

business units- Capital markets and sales and marketing support. Across both these units, the company supports and improves processes that are core of its customers day to day business operations. The company continues to focus on engagements where it can tap the largest percentage of client spend by leveraging its domain expertise and by bringing together consulting, project management and solution based service delivery. In the capital markets division, the company today provides end-to-end financial transaction support services such as trade booking, trade confirmation, asset servicing cash settlements, client servicing risk management and reference data integrity across all asset classes, and its services span both sell side (the large banks) and buy side ( the funds and assets managers) Furthermore, the company provides strategic and process consulting services helping clients devise solutions to improve efficiency, reduce risk and meet regulatory and market demands. Similarly, in the sales and marketing support division, the company today supports clients in all elements of product and services marketing and sales with a focus on online support to include content development and management, search engine management, web operations, pricing and customer analytics, product database management and catalog audits. The company is also pursuing a strategy of creating a portfolio of platform attached services, by creating a suite of services that are complementary to industry standard it platforms. A glance at the functional profile of this company divulges that it is basically a Knowledge Process Outsourcing (KPO) company providing data analytics and data process solutions to global clients. This company provides end to end support through trade life cycle including trade confirmations and settlements etc. It also provides sales and marketing support services to leading global manufacturing, retail, travel and leisure companies through its pricing and profitability services. Further this company has also developed it tool and process automation. From the above discussed nature of business carried on by e- Clerx Services Ltd., it is patent that the same being a KPO company, is quite different from the assessee, providing only IT enabled services to its AE, which fall in the realm of BPO services. Apart from that, it is further observed that this company has significant intangibles which it uses in rendering KPO services, against which the assessee does not have any intangibles. The Hon'ble jurisdictional High Court in Rampgreen Solutions (P.) Ltd. v. CIT [2015] 234 Taxman 573/60 taxmann.com 355 (Delhi), has held that e-Clerx Services Ltd., being engaged in KPO, cannot be treated as comparable of an assessee engaged in rendering BPO services. In view of the direct judgment of the Hon 'ble jurisdictional High Court on the point, we direct to eliminate e- Clerx from the list of comparables. As such, e-Clerx Services Ltd. cannot be considered as comparable.”

7.4 The said judgment has also been confirmed by the Hon’ble High Court in the following manner: - “1. The Revenue challenges an order of the Income Tax Appellate Tribunal (ITAT) which accepted the assessee’s contentions so far as comparison with six entities in the determination of Arm’s Length Price (ALP) and Transfer Pricing adjustment under Section 93CA of the Income Tax Act, 1961 [hereafter “the 1961 Act’’], was concerned.

3. The Transfer Pricing Officer (TPO), while carrying out the ALP determination procedure took into account the profitability and margins often comparable entities. The assessee was aggrieved by the inclusion of six of them and approached the Disputes Resolution Panel (DRP). Its contentions were rejected and the draft assessment order was finalized by the Assessing Officer (AO).

4. The assessee, therefore, appealed to the IT AT which accepted the assessee’s plea and directed the exclusion of the said six comparables for various reasons. That is the subject matter of Revenue’s appeal.

14. In view of the above findings, this Court is of the opinion that no substantial question of law arises. The appeals are dismissed.’’ 6. The ITAT noted that M/s. Accentia Technologies Ltd. was mainly performing medical transcription services. It was of the opinion that its service was similar to the one that the assessee was engaged in. However, it also noted that there was no segmented data and, on that account, directed the exclusion of that entity from the list of comparables. Likewise, in the case of M/s. ICRA Techno Analysis Ltd., it was found that the said entity was engaged in business intelligence and analytics supplies, software development, consultancy services, engineering services, web development and hosting services. Besides functional dissimilarity, the ITAT also noted that there was no segmented data to compare its activity with the assessee. Likewise, in the M/s. eClerx Services, the ITAT noted that its activity was functionally dissimilar because it performed KPO function whereas the assessee was classifiable as BPO.

7. All the reasons given by the ITAT, in the opinion of the Court, are justified and supported by the judgment in B.C. Management (supra). In the case of M/s. eClarx Services, the findings of fact with respect to dissimilarity binds the Revenue.”

7.5 When on similar facts and circumstances, Eclerx has been found to be incomparable with the assessee, which finding has been affirmed by Hon’ble Delhi High Court and there is no change in the material facts and circumstances in this year, then we do not find any reason to deviate from such finding. Accordingly, respectfully following the same, we direct the TPO/ AO to exclude Eclerx from comparability list.

8. This comparable chosen by the TPO was objected by the assessee before the TPO on the ground that, firstly, it is functionally not similar; secondly, presence of IPRs, thirdly, extraordinary event of acquisition of a software development company during the financial year 2011-12; and lastly, there are no segmental details. This company is into medical transcription, medical billing, medical coding, claims processing and software development implementation services. Ld. TPO held that since the comparables chosen by him are providing ITeS services similar to the assessee and under TNMM brought comparability has to be seen, therefore it is a fit comparable. He observed that, this company is into health care receivable cycle management, which is pre-dominantly under ITES. The entire functions of medical transcription, coding billing and collection is one complete segment and all these various specific segments are closely related to each other. As far as developing of proprietary software products, TPO observe that there is no reference of any revenue from the software products in the annual report. Thus, he held that same is a good comparable.

8.1 Before us the Ld. Counsel for the assessee submitted that from the perusal of the P & L Account it can be seen that revenue’s from operations are from different sources i.e. medical transcription, billing and coding and EMR and SAAS. However, the annual report states that it has only one segment. Thus, there is no segmental detail for various streams of revenue. She further submitted that this company is into medical transcription, coding and medical billing services and also software development services and also has developed its own products such as, IMTAS, IRTS, IAMS, IPMS. Apart from that, she submitted that there were extraordinary events in A.Y. 2012-13 in the form of amalgamation and acquisition, therefore, due to such extraordinary event this comparable cannot be included in this year. She further pointed out that in the assessment year 2008-09, the Tribunal in assessee’s own case following the principle laid down by the Hon’ble Delhi High Court in the case of CIT vs. Ameriprise India (P) Ltd. in has upheld the exclusion of the said comparable. Apart from that, the Tribunal in case of sister concern, i.e., Evalueserve.com SEZ which has a similar function profile has directed to exclude the said comparable; and this judgment of the Tribunal has been upheld by the Hon’ble Delhi High Court also.

8.2 On the other hand, Ld. CIT-DR strongly relied upon the order of authorities below and submitted that the activities carried out by Accentia Technologies Ltd. is nothing but ITeS services and all the three functions are inter related and therefore, no separate segment is required to be seen. Under the TNMM, if a comparable company is carrying out similar functions which are in the category of ITeS, then same cannot be excluded on such minute functional difference. He submitted that assessee is also rendering KPO services through professionals and therefore, Accentia technologies Ltd. which is into health care and KPO therefore, it is a good comparable.

report the company has mentioned that it has only one segment and therefore it does not have segmental results pertaining to medical transcription vis-a-vis coding and billing activity. According to us the medical transcription itself cannot be said to be comparable with the functions performed by the assessee. However, the medical coding and billing activities are similar to the functions performed by the assessee. But, in absence of the segmental accounts with respect to medical coding and billing activites this comparable cannot be included. Hence, TPO is directed to exclude it.”

9.2 This decision of the Tribunal has also been upheld by the Hon’ble High Court. Since functional profile and other comparability factors of the assessee as well as comparable company Accentia Technologies Ltd. remains the same, therefore, we do not find any reason deviate from earlier year orders of the Tribunal as well as the judgment of Hon’ble Delhi High Court. Accordingly, Accentia Technologies Ltd. is directed to be excluded.

10.1 On the other hand, Ld. CIT-DR submitted that this company has two streams of revenue and has segmental results, one, business support and other medical transcription. Medical transcription is different from medical coding and therefore, it cannot be at par with Accentia Technologies. TPO has only taken segmental result of medical transcription segment which is nothing but ITeS.

12.1 Before us, the Ld. Counsel submitted that the employee cost to net sales as reported in annual report was as under :- Employee Cost Net Sales (Amount Employee cost/Net (Amount in 000) in Sales 000) INR 20,215 INR 154,921 13.05% The information and the manner it has been clubbed by the TPO cannot be held to be reliable, because this company revenue from infra activity segment is 49% and it is not possible that no employee was hired in infra activity segment. Due to this discrepancy, this Tribunal in the case of Baxter Indian vs. ACIT has directed to exclude the said company. Further, this company is also involved in development of infrastructure facility for which there is no segmental details. Apart from that, she pointed out that there is huge diminishing revenue and profit margin, which according to TPO’s own filter could not have been included. The details of revenues and profit margin right from the F.Y 2009-10 to 2014-15 was given in the following manner :-

Particulars Financial Year 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 (INR’000) (INR’000) (INR’000) (INR’000) (INR’000) (INR’000) Revenue 204,161.34 203,526.39 79,096.95 76,098.54 52,792.12 22,994.38 Operating 43,986.99 50,751.24 55,991.57 47,539.99 41,355.78 22,895.57 Cost Operating 160,174.35 152,775.14 23,105.38 28,558.55 11,436.34 98.81 Profit OP/OC 364.14% 301.03% 41.27% 60.07% 22.65% 0.43% (%)

12.2 On the other hand, Ld. CIT-DR relied order of the TPO, and submitted that from the perusal of the annual report it can be seen that this company has shown sale of infra activities under the head other sales; and it has declared purchase of stock in trade and when there is purchase and sale of stock, then there is no requirement of any employee cost to be allocated and further, information received u/s 133(6) cannot be doubted. Further the concept of diminishing revenue cannot be a factor for exclusion.

14. Regarding this comparable, TPO has rejected all the contention of the assessee that this company has high brand value and intangibles and it is a giant company in terms risk profile and nature of services and held that, since it is also into providing ITeS same should be included.

1) Delhi High Court-PCIT vs. Oracle (OFSS) BPO Services P. Ltd. 2) Delhi High Court-PCIT vs. New River Software Services P. Ltd. (ITA No. 924/2016) order dated 22.08.2017- 3) Delhi High Court-CIT vs. Agnity India Technologies P. Ltd. (2013) 219 taxman 26 (Del) 4) Delhi High Court-CIT vs. Agnity Indian Technologies P. Ltd. (ITA No. 447/2018) 5) Delhi High Courtin PCIT vs. Evalueserve SEZ (Gurgaon) P. Ltd. ITA No. 241/2018 order dated 26.02.2018 6) Delhi High Courtn in PCIT vs. Evalueserve SEZ (Gurgaon) P. Ltd. ITA No. 948/2018 order dated 29.08.2018.

15.1 From the perusal of the annual report of the said company it is seen that it is amongst the top ten BPO of the country and has around 18,383 employees with huge advertisement expenditure and marketing of Rs. 8.73 crores as compared to the assessee which has 1163 employees and undertakes no such expense; and the turnover of Infosys is more than Rs.1312 crores as compared to assessee’s turnover which is at Rs. 144 crores. Further, in assessee’s own case as well as in the case of sister concern, this Tribunal has excluded Infosys BPO based on these comparability factors. Looking to the scale of operations and presence of high valuable assets both tangible and intangible, this company has consistently been held to be incomparable with captive service provider companies. Accordingly, we direct the exclusion of this comparable. vi) TCS E-Serve Ltd.

16. The TPO has included this comparable holding that it carries out the function of ITES and high turnover and brand value is not relevant factor and brand expenses is only Rs. 3.67 crores.

17. After hearing both the parties and perusal of material placed on record, we find that TCS E-serve Ltd. like Infosys BPO is a giant company which has high brand value and intangibles and in terms of risk profile, skill, nature of service, revenue etc. this comparable has been rejected in various judicial rulings. The turnover of TCS is more than Rs. 1578 crore and this company is having huge assets and is under taking high risk which have direct impact on turnover and in profitability. If a company is having huge asset base, brand value, goodwill and presence in global market with significant R & D, then it cannot be compared with a company which is purely captive service provider in ITeS/BPO, having low risk and insignificant assets. Even the deployment of human resources shows that TCS has 14,785 employees whereas the assessee has 1163 employees. This factor itself shows that in the terms of human resources, there is huge difference in the assets deployed. Now there is latest judgment of Hon’ble Delhi High Court dated 24th July, 2019 in the case of M/s. Avaya India Pvt. Ltd. vs. ACIT in which had considered the comparability of TCS E-serve Ltd. and TCS serve International Ltd. with the company providing ITeS services. The relevant substantial question of law admitted by the Hon’ble High Court reads as under :- “Whether the ITAT was justified in upholding the order of the TPO and the DRP in not excluding M/s. TCS E-Serve Limited; M/s. TCS E-Serve International Limited from the list of comparables for the purposes of determining the arms- length price of the international transactions involving the Assessee? 17.1 Hon’ble High Court has dealt this issue in detail after observing as under:- “Analysis and reasons 15. The above submissions have been considered. In a large number of decisions this Court has emphasized, that for there to be reliable benchmark studies for determining ALP not only the comparables have to be functionally similar but should have similar business environment and risks as the tested party. A detailed exposition of the legal position with specific reference to Rule 10 B (2) of the Income Tax Rules, 1962 is found in this Court�s decision in Chryscapital Investment Advisors (India) Pvt. Ltd. v. DCIT 376 ITR 183 (Del) as under: "30. The reasoning adopted in various judgments noticed above, shows that functional analysis seeks to identify and compare the economically significant activities and responsibilities undertaken, assets used and risks assumed by the parties to the transaction. Quantitative and qualitative filters/criteria have been used in different cases to include or exclude comparables. The intuitive logic for excluding big companies from the list of comparables while undertaking the FAR analysis of a smaller company is attractive, given that such big companies provide services to diverse clientele, perform multifarious functions, often assume risks and employ intangible assets which are specially designed, unlike in the case of smaller companies. The bigger companies have an established reputation in the segment, are well known and employ economies of scale to a telling end. On the other hand, these obvious - and apparent features should not blind the TPO from the obligation to carry out the transfer pricing exercise within the strict mandate of Section 92 C and Rules 10-A to 10-E.

36. This Court holds that in the facts of the present case, the assessee was incorrect, both in its reliance placed upon

previous years� data as well as the manner of such reliance. First, the assessee�s justification for relying on such data is the volatility in the comparables� profit margins and the consequent inability to transact at a consistent ALP. However, this is not warranted herein. Whilst there may be a wide fluctuation in the profit margins of comparables from year-to- year, this by itself does not justify the need to take into account previous years� profit margins. The transfer pricing mechanism provided in the Act and the Rules prescribes that while determining the ALP, the arithmetic mean of all comparables is to be adopted. This is to offset the consequence of any extreme margins that comparables may have and arrive at a balanced price. Similarly, the wide fluctuations in profit margins of the same entity on a year-to-year basis would be offset by taking the arithmetic mean of all comparables for the assessment year in question. In any case, in the event that the volatility is on account of a materially different aspect incapable of being accounted for, the analysis under would Rule 10B (3) would exclude such an entity from being considered as a comparable. Secondly, as regards the manner of using previous years� data, the assessee has taken the arithmetic mean of the comparables� profit margins for the assessment year in question and two previous years. This Court disagrees. The proviso to Rule 10B(4), read with the sub- rule, itself indicates that the purpose for which previous years data may be considered is - analysing the comparability of an uncontrolled transaction with an international transaction. It does not prescribe that once an uncontrolled transaction has been held to be a „comparable�, in order to obviate an apparent volatility in the data, the arithmetic mean of three years (the assessment year in question and two previous years) may be taken. That would amount to assigning equal weight to the data for each of the three years, which is against the mandate of Rule 10B(4). The use of the word "shall" in Rule 10B(4) and, noticeably, "may" in the proviso, implies that the relevant assessment year�s data is of primary consideration, as opposed to previous years� data.

The ITAT recorded that the brand value associated with TCS Consultancy reflected impacted TCS E-serve profitability in a very positive manner. This inference too in the opinion of Court, cannot be termed as unreasonable. The rationale for exclusion is therefore upheld."

Limited v. DCIT (2017) 88 Taxmann.Com 286 (Del- Tri), Stryker Global Technology Centre Private Limited v. DCIT (2017) 87 Taxmann.com 43 (Del-Tri), Samsung Heavy Industries Private Limited v. DCIT (2017) 84 Taxmann.com 154 (Del-Tri) and Equant Solutions India Private Limited v. DCIT (2016) 66 Taxmann.com 192 (Delhi-Tribunal).

"48. The Tribunal of course is expected to act fairly, reasonably and rationally and should scrupulously avoid perversity in their Orders. It should reflect due application of mind when they assign reasons for returning the particular findings.