ACIT 14(2)(1), MUMBAI vs. HAPAG LLOYD GLOBAL SERVICES P.LTD, THANE

Based on the functional analysis, the assessee was characterized as IT enabled services (ITeS) provider, assuming limited risk normally associated with carrying out such business. The assessee earned a mark- up of 14.92% on cost. Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd.

During the TP proceeding, the TPO applied additional filters for selection of comparable companies and rejected 13 comparable companies and accepted only one company from assessee’s set of comparable i.e. Jindal Intellicom Pvt. Ltd. The TPO further introduced 4 new comparable namely Acropetal Technologies Ltd., Eclerx Services Pvt. Ltd., Accentia Technology Ltd. and ICRA Techno Analytics Ltd. The TPO arrived at the following set of comparable:

On the basis of above set of comparable, the TPO determined ALP at 24.40% and suggested adjustment of Rs. 5.53 Crore to the assessee transfer price vide its order dated 19.01.2015 passed under section 92CA(3). On the basis of adjustment suggested by TPO, the Assessing Officer passed the draft assessment order dated 09.03.2015 under section 143(3) read with section 144C(3).

The assessee filed its objection before the DRP raising various grounds of appeal on comparability as well as against inclusion of comparable companies namely Acropetal Technologies Ltd., Accentia Technology Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. Ltd. and ICRA Techno Analytics Ltd. The assessee also made submission for inclusion of Micro Land Ltd. and e4e Healthcare Business Services Ltd. The DRP after considering the objections of assessee and the submission made before them, partly agreed with the submission of assessee and directed to exclude ICRA Techno Analytic and to include Microland Ltd. and e4e Healthcare Business Services Ltd. in final set of comparable. The assessee also raised the contention that the TPO computed Arm’s Length operating profit (OP) of assessee at Rs. 5,53,86,509/- and has not reduced the OP shown by the assessee in the financial of Rs. 3,38,70,976/- and without allowing the credit for OP already shown, the TP adjustment has been determines at Rs.5,53,86,509/- whereas the correct adjustment would be Rs. 2,15,15,553/-. The TPO/AO directed to reduce the OP already shown by the assessee. Therefore, as per the direction of DRP, the ALP was 11.85% which is lower than the assessee’s margin of 14.92%. Therefore, the TP Adjustment suggested by TPO was deleted in the final assessment order dated 30.11.2015 passed under section 143(3) r.w.s. 144C(13).

On perusal of record of the case, we have noted that registry has raised objection that the appeal is barred by 34 days. The defect memo was 6 Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. issued to the revenue/Assessing Officer. The final assessment order under section 143(3) r.w.s. 144C (13) was passed on 30.11.2015 and the present appeal was filed before the Tribunal on 28.01.2016. Thus, the appeal is filed within prescribed period of filing appeal before the Tribunal.

We have heard the submission of ld. Departmental Representative (DR) for the Revenue and ld. Authorized Representative (AR) of the assessee and perused the material available on record. The ld. DR for the revenue submits that Microland Ltd. is not a good comparable and submits that the said company should be exclude on account of persistent loss making company. This company based on functional differences, the ld DR for the revenue relied upon the decision of Mumbai Tribunal in Microsoft India (R&D) (P.) Ltd. [2018] 97 taxmann.com 360 (Del Trib.).

For exclusion of e4e Healthcare Services ld. DR submits that the company is engaged in software development and is liable to be excluded in absence of P&L A/c. In support of his submission, the ld. DR relied upon the decision of Delhi Tribunal in OKS Span Tech (P.)

On the other hand, the ld. AR of the assessee supported the order of DRP. The ld. AR further submits that Microland Ltd. is IT infrastructure enabled service provider. It is engaged in rendering software services comprising networking and infrastructure management services and ITeS. The functions undertaking by Microland under it’s IT’s segment are similar vis-à-vis ITeS provided by assessee to its AE and should be considered as a good comparable. The ld. AR further submits that TPO rejected this company based on functional differences, the DRP reversed in its direction after considering the relevant fact. The revenue has raised grounds of appeal for exclusion of this company on the ground of functional dissimilarity and not on the ground of persistent loss making.

For ICRA Techno Analytics Ltd., the ld. AR submits that the said company is engaged in the software development and consultancy, engineering services, web development and hosting and subsequently diversified itself into business analytics and business process outsourcing. No segmental information is available bifurcating its activities into software development and business process. The DRP has rightly held that activities is conducted by this company cannot be considered as ITeS and further in absence of segmental information this company is liable to be rejected from final set of comparable. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Delhi High Court in PCIT vs. B.C. Management [403 ITR 45] (Delhi), wherein in the same A.Y. i.e. A.Y. 2011-12, ICRA Techno Analytics has been held to be incomparable to the company engaged in ITeS services. 9 ITA No. 2243 Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd.

We have considered the rival submissions of the parties and have gone through the orders of the authorities below. First we shall take up the disputed comparable in appeal of revenue. The revenue is seeking exclusion of Microland Limited and e4e Healthcare Business Services Pvt. Ltd. For exclusion of Microland Limited, the ld. DR for the revenue has relied upon the decision of Delhi Tribunal in Microsoft India (R&D)

For inclusion of ICRA Techno Analytics Ltd. (supra. The DRP held that ICRA Techno Analytics Ltd. is into diversified business process outsourcing and cannot be cumulatively called ITeS and functionally not comparable. The Hon’ble Delhi High Court for same A.Y. i.e. A.Y. 2011-12 in PCIT vs. BC Management (supra) held that the said company is engaged in processing and providing software development and consultancy and engineering services, web development services.

For exclusion of Acropetal Technology Ltd., the ld. AR submits that this company is not functionary comparable. This company is in software development, web development and rendering services in the field of engineering design services and product development activities in manufacturing retail and education sector. This company is also engaged in research and development activities and carries out significant onsite operations and has onsite development expenses of Rs. 558 Crore which 13 ITA No. 2243 Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. amounts for 34.09% of total employee’s expenses and 46.99% of total expenses.

On the other hand, the ld. DR for revenue in reply to the submission of ld. AR for assessee on the grounds of Cross Objections submits for exclusion of Acropetal Technology Ltd. and made reliance on the order of TPO. In support of his submission, the ld. DR also relied upon the decision of ACIT vs. Maersk Global Services Centre [94 taxmann.com 418].

In rejoinder, the ld. AR submits that in the case of Maersk Global Services Centre (supra) decision has not considered the argument of Acropetal being engaged in R&D activities.

We have considered the submission of both the parties and perused the order of authorities below. The assessee is seeking exclusion of Accentia Technologies Ltd. and Acropetal Technologies. The DRP while including Accentia Technologies Ltd. concluded that this company is into healthcare BPO including medical transcription and also product being software development and marketed independently. The products are for doctors and patients. The company is operating in two segment namely IT and ITeS and that the assessee has ignored the fact that these services are in the nature of IT enabled services broadly similar to the international services rendered by assessee. The ld. AR of the assessee mainly relied upon the decision of jurisdictional High Court in PCIT vs. 14 ITA No. 2243 Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. Aptara Technology Pvt. Ltd. (supra) wherein it was held that Accentia Technologies Ltd. is incomparable to ITeS provider. Similarly, the Hon’ble Delhi High Court in PCIT vs. B.C. Management Services (supra) also held that Accentia Technologies Ltd. is incomparable to ITeS. Further in assessee’s own case for A.Y. 2010-11 in ITA No. 7539/M/2014 was excluded from the set of comparable. Therefore, in view of the above discussion, we direct the AO/TPO to exclude this comparable.

The assessee also raised ground for exclusion of Acropetal Technologies from the final set of comparable. We have noted that the DRP upheld the inclusion of Acropetal Technologies, despite observing that this company is into three segment viz engineering design, ITS and Healthcare BPO and overruled the objection of the assessee for exclusion of this comparable. The ld. DR for the revenue making his submissions and objected for exclusion of this comparable by making reliance on the decision of Mumbai Tribunal in ACIT vs. Maersk Global Services Centre(I) (P.) Ltd. We may also refer that the ld. AR had submitted that in the Maersk Global Services Centre (I) (P.) Ltd (supra) the argument that this comparable is engaged in R&D Activities and having huge onsite expenses was not considered. We have noted that the co-ordinate bench in Maersk Global Services Centre (I) (P.) Ltd (supra) observed that this company is into different field being engaged in the business of 15 Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. development of computer software, product offering integrated enterprises solutions and is offering Cost Effective Solution and created niche presence in BFSI, Health and Energy and is primarily and engineering design service company. The onsite development expenses of this comparable is Rs. 55.77 Crore which accounts for 342.09% of total employee cost as per page 396 to 441 of Paper Book. Considering the above factual matrix and utmost regard the decision of co-ordinate bench in Maersk Global Services Centre (I) (P.) Ltd. is not applicable on the facts of the present case. Therefore, in our view that this comparable is also not comparable with the assessee-company. Thus, we direct the AO/TPO to exclude the Acropetal Technologies Ltd. from the set of comparable.

In the result, grounds of Cross Objection raised by revenue are allowed.

In the result, appeal of the revenue is dismissed and cross objection filed by assessee are allowed.