SITEL OPERATING CORPORATION INDIA LTD NOW MERGED WITH SITEL INDIA P. LTD,MUMBAI vs. DCIT WD 11(2)(1), MUMBAI

ORDER

PER N.K. PRADHAN, AM

are general in nature. Also it is submitted by them that the 3rd, 4th, 5th grounds of appeal are not pressed. The Ld. counsels further submit that the 8th, 9th, 10th, 11th, 12th, 16th, 18th and 19th ground of appeal will be academic in nature in view of specific directions in 13th, 14th, 15th and 17th ground of appeal. Therefore, we turn to the 13th, 14th, 15th and 17th ground of appeal.

3. The 13th ground of appeal The AO erred in considering Accentia Technologies Ltd. as comparable to the assessee for benchmarking its international transaction of provision of IT enabled services, disregarding the fact that the company is functionally different from the assessee i.e. it is engaged in provision of software services and operates under peculiar circumstances. 3.1 The Transfer Pricing Officer (TPO) has included Accentia Technologies Ltd. (‘Accentia’) in the final set of comparable on the ground that the company is a BPO and is into healthcare receivable management. The Ld. counsels of the assessee submit that Accentia is engaged in software development and Knowledge Process Outsourcing (‘KPO’) services in the nature of healthcare revenue cycle management and legal process outsourcing services. However, no separate segmental information is available for the software development and healthcare services provided by the company. Thus it is stated that in the absence of separate segmental information, Accentia has to be rejected as a comparable. The Ld. counsels submit that in the following orders of the Tribunal, Accentia is rejected as a comparable: (i) M/s Sitel Operating Corporation India Pvt. Ltd. (since amalgamated with Sitel India Pvt. Ltd.) v. ITO (ITA No. 598/Bang/2015 & dated 25 April 2018 (ii) ACIT v. Maersk Global Services Centre (I) (P.) Ltd. (ITA No. 944/Mum/2016) dated 29 July 2016 [AY 2011-12] (Mum ITAT) (iii) Omniglobe Information Technologies (India) (P.) Ltd. v. ITO (ITA/1003/Delhi/2016) dated 06 November 2017 [AY 2011-12] (iv) Avineon India (P.) Ltd. v. DCIT (ITA No. ITA No. 238 and 257/Hyd/2016) dated 07 July 2017 [AY 2011-12], (v) Hyundai Motor India Engineering Pvt. Ltd. v. ITO (ITA No. 128 & 216/Hyd/2016) dated 21 December 2016 [AY 2011-12], (vi) e4e Business Solutions India Pvt. Ltd. v. DCIT (ITA No. 1397/Bang/2016) dated 13 January 2017 [AY 2011-12], (vii) M/s Tesco Hindustan Service Centre Pvt. Ltd. v. DCIT(IT(TP)A No. 191/Bang/2015) dated 25 January 2017 [AY 2010-11] Further, it is stated that in the following High Court decisions, Accentia is rejected as a comparable to an ITeS Service Provider : (i) PCIT v. Aptara Technology (P.) Ltd. (IT Appeal No. 1209 of 2015) dated 26 March 2018 [AY 2008-09] (Bom HC), (ii) PCIT v. BNY Mellon International Operating (India) (P.) Ltd. (IT Appeal No. 1226 of 2015) dated 23 April 2018 [AY 2009-10] (Bom HC), (iii) PCIT v. PTC Software (I) (P.) Ltd. (IT Appeal No. 598 of 2016) dated 16 April 2018 [AY 2009-10] (Bom HC) 3.2 On the other hand, the Ld. DR submits that the TPO/AO has rightly included Accentia. in the final set of comparables. 3.3 We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In this context, we would be referring to the relevant pages of the Paper Book (P/B), which was also filed before the TPO. The annual report of Accentia clearly indicates that it is engaged in the provision of software services. As per the CEO’s letter to shareholders on page 6 of the annual report, it is engaged in providing software development services and is using SaaS delivery model. Further, from page 31 of the annual report, it can be seen that the company is also engaged in sale of software products, for which no segmental breakup is available. As per the ‘Management Discussion Analysis’ on page 25 of the annual report, the company is engaged in software development as it has SaaS model, which is further explained on pages 28 and 30 of the annual report. Further, the company has also developed software solutions such as ‘Instakare’ and ‘Insta PMS’ which helps healthcare providers with a holistic and comprehensive solutions that fulfils all the medical and administrative support needs. In the absence of segmental financial information for software development product sales (which would form part of income earned from medical transcription) the company cannot be considered as a comparable.

In appellant’s own case for AY 2010-11 (ITA (TP)A No. 598/Bang/2015) the ITAT ‘A’ Bench, Bangalore vide order dated 25.04.2018 at para 13.4 held as under: “13.4 We heard rival submissions and perused the material on record. The issue of comparability of this company was considered by the co-ordinate bench of Tribunal in the case of M/s.Tesco Hindustan Service Centre Pvt. Ltd. in IT(TP)A No.191/Bang/2015 dated 25/01/2017 wherein it has been held: “13. As regards Accentia Technologies Ltd. and ICRA Online Ltd. this Tribunal in the assessee's own case for the Assessment Year 2008- 09 has excluded these two companies from the set of comparables in para 5 as under : “5. Thereafter he submitted that the following companies should be excluded on the basis of functional dissimilarity and in support of his contention, he placed reliance on the Tribunal order rendered in the case of M/s. Flextronics Tech. (India) Pvt. Ltd. Vs. DCIT in IT(TP)A No.1559(B)/2012 dated 23.10.2015, copy available on page Nos.17 to 38 of compilation of case laws submitted before the Tribunal. a) Accential Tech. Ltd. (Seg.) b) Acropetal Tech. Ltd. (Seg.) c) Coral Hubs Ltd. d) Crossdomain Solutions Ltd. e) Eclerx Services Ltd. f) Genesys International Corpn. Ltd. g) Mold Tek Technologies Ltd.” We further note that the functional comparability has been examined in detail by the co-ordinate bench of this Tribunal in the case of Equant Solutions India Pvt. Ltd. Vs. DCIT in IT(TP)A No.1202/Del/2015 as well as in the case of ITO Vs. Interwoven Software Services (India) Pvt. Ltd. in ITA No.461/Bang/2015. Further in the case of Acropetal Technologies Ltd. (Seg.), the co-ordinate bench of this Tribunal in the case of Kodiak Networks (India) Pvt. Ltd. Vs. DCIT in IT(TP)A No.1540/Bang/2012 has considered the functional comparability and found that this company is not comparable with a captive service provider. Accordingly we direct the Assessing Officer/TPO to exclude these companies from set of comparables.” Respectfully following the decision of the co-ordinate bench of Tribunal, we direct the AO/TPO to delete Accentia Technologies Ltd. from the list of comparables.” 3.4 Facts being identical, we follow the above order of the Tribunal in assessee’s own case for the immediate preceding assessment year and direct the TPO/AO to delete Accentia Technologies Ltd. from the final list of comparables. Thus the 13th ground of appeal is allowed.

4. The 14th ground of appeal The AO erred in considering Acropetal Technologies Ltd. (Seg). as comparable to the assessee for benchmarking its international transaction of provision of IT enabled services, disregarding the fact that the company is functionally different from the assessee i.e. it is engaged into Knowledge Process Outsourcing Services. 4.1 The TPO/AO included Acropetal Technologies Ltd. (Seg) (in short ‘Acropetal’) in the final set of comparables on the ground that the company is engaged in providing similar activity (IT Enabled Services ) and as per Notification No. 11521 issued by CBDT, there is no distinction between BPO and KPO. 4.2 The Ld. counsels of the assessee submit that Acropetal is engaged in providing KPO services. Explaining that TPO has considered ‘Engineering Design Services’ segment of Acropetal as comparable to the assessee, it is argued that the above segment of the company is in the nature of KPO and is functionally not comparable to the ITeS services performed by the appellant. In this regard, the Ld. counsels rely on the following orders of the Tribunal : (i) M/s Sitel Operating Corporation India Pvt. Ltd. (since amalgamated with Sitel India Pvt. Ltd.) v. ITO (ITA No. 598/Bang/2015 & dated 25 April 2018 [AY 2010-11) (ii) Goldman Sachs (India) Securities (P.) Ltd. v. ACIT (IT Appeal (TP) Nos 902 & 927 (Mum) of 2016) dated 11 January 2017 [AY 2011-12) (Mum ITAT) (iii) DCIT v. M/s Infor(India) Pvt. Ltd. (ITA No. 113/Hyd/2016) dated 7 July 2017 [AY 2011-12] (iv) e4e Business Solutions India Pvt. Ltd. v. DCIT (ITA No. 1397/Bang/2016) dated 13 January 2017 [AY 2011-12], (v) M/s Tesco Hindustan Service Centre Pvt. Ltd. v. DCIT(IT(TP)A No. 191/Bang/2015) dated 25 January 2017 [AY 2010-11]. 4.3 On the other hand, the Ld. DR supports the order passed by the TPO/AO on the ground that Acropetal is engaged in providing similar activity (IT Enabled Services). 4.4 We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. As per page 8 of the annual report, Acropetal includes services such as design engineering, architectural, structural services. These services are in the nature of a KPO services as defined in Safe Harbour Rules.

Further, Acropetal operates various services such as architectural, structural, electrical engineering etc. which are functionally different from the ITeS rendered by the appellant. Regarding the reliance placed by the TPO and DRP on Notification No. 11521 issued by CBDT, we find that it is in relation to the type of information technology enabled products or services which will be eligible for deduction u/s 10A(b)(i)(2), section 10B(b)(i)(2) and section 80HHE(b). The purpose of the said Circular is entirely different viz. to state the type of services which are eligible for deduction. We find that the Safe Harbour Rules issued by CBDT clearly demarcates between BPO and KPO services and has also provided separate Safe Harbour Margin for these type of services. 4.4.1 In appellant’s own case for AY 2010-11 (ITA (TP)A No. 598/Bang/2015) the ITAT ‘A’ Bench, Bangalore vide order dated 25.04.2018 at para 14.4 held as under: “14.4 We heard rival submissions and perused the material on record. The issue of comparability of this company was considered by the co-ordinate bench of Tribunal in the case of M/s.Tesco Hindustan Service Centre Pvt. Ltd. in IT(TP)A No.191/Bang/2015 dated 25/01/2017 wherein it has been held: “13. As regards Accentia Technologies Ltd. and ICRA Online Ltd. this Tribunal in the assessee's own case for the Assessment Year 2008- 09 has excluded these two companies from the set of comparables in para 5 as under : “5. Thereafter he submitted that the following companies should be excluded on the basis of functional dissimilarity and in support of his contention, he placed reliance on the Tribunal order rendered in the case of M/s. Flextronics Tech. (India) Pvt. Ltd. Vs. DCIT in IT(TP)A No.1559(B)/2012 dated 23.10.2015, copy available on page Nos.17 to 38 of compilation of case laws submitted before the Tribunal. a) Accential Tech. Ltd. (Seg.) b) Acropetal Tech. Ltd. (Seg.) c) Coral Hubs Ltd. d) Crossdomain Solutions Ltd. e) Eclerx Services Ltd. f) Genesys International Corpn. Ltd. g) Mold Tek Technologies Ltd.” We further note that the functional comparability has been examined in detail by the co-ordinate bench of this Tribunal in the case of Equant Solutions India Pvt. Ltd. Vs. DCIT in IT(TP)A No.1202/Del/2015 as well as in the case of ITO Vs. Interwoven Software Services (India) Pvt. Ltd. in ITA No.461/Bang/2015. Further in the case of Acropetal Technologies Ltd. (Seg.), the co-ordinate bench of this Tribunal in the case of Kodiak Networks (India) Pvt. Ltd. Vs. DCIT in IT(TP)A No.1540/Bang/2012 has considered the functional comparability and found that this company is not comparable with a captive service provider. Accordingly we direct the Assessing Officer/TPO to exclude these companies from set of comparables.” Respectfully following the decision of the co-ordinate bench of Tribunal, we direct the AO/TPO to delete Acropetal Technologies Ltd.(Seg) from the list of comparables.”

4.4.2 Facts being identical, we follow the above order of the Tribunal in assessee’s own case for the immediate preceding assessment year and direct the TPO/AO to delete Acropetal Technologies Ltd.(Seg) from the list of final comparables. Thus the 14th ground of appeal is allowed. The 15th ground of appeal

5. The AO erred in considering ICRA Online Ltd. (Seg) as comparable to the assessee for benchmarking its international transaction of provision of IT enabled services, disregarding the fact that the company is functionally different from the assessee i.e. it is engaged into knowledge Process Outsourcing Services. The 17th ground of appeal The AO erred in computing the operating margin of ICRA Online Limited (Seg) as 33.54% on operating costs as against the correct margin of 22.32%. 5.1 The TPO included ICRA Online Ltd. (Seg) (in short ‘ICRA’)on the ground that it is engaged in data processing and data mining and accordingly it is providing similar services (ITeS). The DRP upholds the order of the TPO, which is followed by the AO. 5.2 The Ld. counsels of the assessee submit that as per the annual report, the company has following three business segments: (i) Information Services, (ii) Software Services and (iii) Outsource Services It is further stated that the TPO has considered the operations of the ‘Outsourced Services’ segment as comparable to the operations of the appellant. The Ld. counsels argue that the annual report of the company does not provide any description as to the nature of the services contained in the segment. However, a reference may be drawn to the annual report of ICRA Ltd., the holding company of ICRA from where it can be seen that the outsourced segment of the company relates to KPO and online software services. The Ld. counsels further submit that the ITAT in appellant’s own case for AY 2010-11 has followed the Tribunal discussion in the case of Tesco Hindustan Service Centre Pvt. Ltd. v. DCIT (ITA No. 191/Bang/2015) to reject the company functionally not comparable to the appellant i.e. companies not engaged in providing ITeS (BPO Services). In this regard, reliance is placed by them on the following orders of the Tribunal : (i) M/s Sitel Operating Corporation India Pvt. Ltd. (since amalgamated with Sitel India Pvt. Ltd.) v. ITO (ITA No. 598/Bang/2015 & dated 25 April 2018 [AY 2010-11] (ii) M/s Tesco Hindustan Service Centre Pvt. Ltd. v. DCIT(IT(TP)A No. 191/Bang/2015) dated 25 January 2017 [AY 2010-11] (iii) Outsource Partners International v. DCIT (IT(TP)A No. 337/Bang/2015) [AY 2010-11]. 5.3 On the other hand, the Ld. DR submits that ICRA is engaged in data processing and data mining and accordingly it is engaged in providing similar services (ITeS). Thus it is stated that the inclusion of the above company by the TPO/AO in the list of final comparables be confirmed.

5.4 We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. The TPO has considered the operations of the ‘Outsourced Services’ segment of ICRA as comparable to the operations of the appellant. However, we find that the annual report of the company does not provide any description as to the nature of the services contained in this segment. As per page 532 of the P/B, a reference may be made to the annual report of ICRA Ltd., the holding company of ICRA from where it can be seen that the outsourced segment of the company relates to KPO and online software services. Also page 8 of the annual report of ICRA Ltd. delineates the business of ICRA stating that the company is engaged in providing KPO and online software services. As per the description at page 532 of the P/B, the knowledge process outsourcing division provides financial and analytical services and support to clients in the area of data extraction, aggregation, electronic conversion of financial statements, validation and analysis, accounting and finance, research and analytics. Thus the appellant in the instant case performs routine ITeS comprising of contact/call centre services and hence is a routine BPO service provider and cannot be compared to a company providing KPO services such as ICRA. Also we find that the TPO has wrongly computed the margin of the company as 33.54% instead of the correct margin 22.32%, because the TPO has excluded foreign exchange income and other receipts (allocated basis revenue in each segment), whereas, the same is to be added for information service, outsource service and software service to arrive at the correct margin. In assessee’s own case for AY 2010-11, the ITAT ‘A’ Bench Bangalore has followed the Tribunal discussion in the case of Tesco Hindustan Service Centre Pvt. Ltd. (supra) to reject the companies functionally not comparable to the appellant i.e. companies not engaged in providing ITeS (BPO) service. In the case of Tesco Hindustan Service Centre Pvt. Ltd. (supra), ICRA has been held to be non-comparable to an ITeS service provider. Accordingly, following the decision of Tesco Hindustan Service Centre Pvt. Ltd. (supra) and the observations in the Tribunal decision in appellant’s own case for AY 2010-11, we reject ICRA Online as a comparable. Thus the 15th & 17th grounds of appeal are allowed.

6. As the 13th, 14th, 15th and 17th ground of appeal are allowed in favour of the appellant, the 8th to 12th, 16th, 18th and 19th ground of appeal become academic in nature. The 20th ground of appeal stating “benefit of +/- 5% under proviso to section 92C(2) of the Act be granted to the assessee, if the adjustment under transfer pricing falls within the range specified therein” becomes consequential in nature. The 21st ground of appeal regarding levy of interest u/s 234B, similarly becomes consequential in nature. The 22nd ground of appeal regarding initiation of penalty u/s 271(1)(c) is premature.