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PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by revenue under section 253 of Income-tax Act (‘Act’) is directed against the assessment order passed under section 143(3) read with section 144C(13) dated 30.11.2015 passed in pursuance of direction of ld. Dispute Resolution Panel-1, Mumbai (for short DRP)
Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. dated 16.10.2015 for Assessment Year 2011-12. The assessee filed its Cross Objection on the service of notice of appeal. The revenue has raised the following grounds of appeal:
“Whether on the facts of the case Hon’ble DRP-1 was correct in allowing the comparable taken by the assessee i.e. Microland Ltd despite TPO having established the functional dissimilarity.” 2. “Whether on the facts of the case Hon’ble DRP-1 was correct in allowing the comparable taken by the assessee i.e. e4e Healthcare Business Ervies Ltd despite TPO having established the functional dissimilarity.” 3. “Whether on the facts of the case Hon’ble DRP-1 was correct in rejecting the comparable taken by the assessee i.e. ICRA Techno Analytics Ltd despite TPO having established the functional similarity.” 4. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal
at any time before or at the time of hearing of appeal.
2. The assessee in its Cross Objection has raised the following grounds of appeal:
The below mentioned grounds are without prejudice to the relief granted by the Hon'ble Dispute Resolution Panel ('DRP') / Learned Assessing Officer C'AO') in relation to the transfer pricing adjustment made by the Transfer Pricing Officer ('TPO') on the international transaction of provision of IT enabled Services provided by the cross-objector / respondent to its associated enterprises.
1. On the facts and in the circumstances of the case and in law, the Hon'ble DRP / Ld. AO has erred in upholding the action of the TPO in including Accentia Technologies Limited as comparable company in relation to the international transaction of provision of IT enabled services provided by the cross-objector / respondent to its associated enterprises.
It is therefore prayed that Accentia Technologies Limited ought to be excluded from the final set of comparable companies since it is functionally not comparable to the cross-objector / respondent. 2 Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd.
On the facts and in the circumstances of the case and in law, the Hon'ble DRP / Ld. AO has erred in upholding the action of the TPO in including Acropetal Technologies Limited as comparable company in relation to the international transaction of provision of IT enabled services provided by the cross-objector / respondent to its associated enterprises. It is therefore prayed that Acropetal Technologies Limited ought to be excluded from the final set of comparable companies since it is functionally not comparable to the cross-objector / respondent. The Cross-objector / Respondent craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal
and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.
3. Brief facts of the case are that the assessee is 100% subsidiary of Hapag Lloyd AG. The assessee is in the business of providing IT enabled back office service relating to documentation processing to its associated enterprises (AE). The assessee filed its return of income on 29.11.2011 declaring total income at Rs. 1,43,41,449/-. The return was selected for scrutiny. The assessee with return of income furnished Audit report in Form No. 3CEB in respect of international transaction with its Associated Enterprises (AE). The Assessing Officer made a reference under section 92CA(1) to TPO vide reference dated 30.12.2013 for determination of Arm’s Length Price (ALP) reported in Form No. 3CEB.
The assessee had bench marked the transaction by selecting transaction net margin method (TNMM) and arrived at the ALP by using the following set of comparable.
Sr. Name of the Company TP Study OP/TC Single Year No. (Using 3 years update OP/TC 3 Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. average data) (FY 2010-11) AOK in House BPO Rejected by 1 4.29% TPO due to RPT Services Ltd. Filter of 25% 2 Cameo Corporate Services 9.65% 11.43% Ltd. 3 Sosmic Global Limited 30.20% 9.81% 4 Informed Technologies 24.18% 17.73% India Ltd. 5 Infosys BPO Ltd. 9.22% 10.96% 6 Jindal Intellicom Private 2.94% 1.69% Ltd. Professional Management 7 22.44% 9.65% Consultants Pvt. Ltd. 8 Sparsh BPO Services 3.34% 0.12% 9 e4e Healthcare Business 28.14% 9.39% Services Pvt. Ltd. 10 In House Production Ltd. 11.84% 10.50% 11 Microland Ltd. -9.82% 8.50% 12 Techprocess Solutions Ltd. 33.50% 4.80% 13 Dhanus Technologies Ltd. 52.21% Data not available 14 R. Systems International -24.19% 2.57% Ltd. 15 Average 14.16% 8.09% 16 Assessee’s Margin 14.92% 14.92%
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:
Sr. Name of the Company OP/TC No. 1 Jindal Intellicom Limited (TP Study 10.96% Comparable) 2 Acropetal Technologies Limited 32.92% 3 ICRA Techno Analytics 24.83% 4 Accentia Technologies Limited 28.89% Average 24.40%
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).
Aggrieved by the direction of DRP, the revenue has field the present appeal before us. On service of notice of appeal, the assessee has filed its cross objection before us.
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.)
Ltd. vs. DCIT [2018] 97 taxmann.com 498(Delhi-Trib.). 11. For ICRA Techno Analytics the ld. DR further submits that ICRA Techno Analytics should be included as a part of comparable on the basis of finding and the reasoning arrived by TPO. Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd.
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.
The submission of ld. DR that Micro Land Ltd. being a persistent loss maker is not supported by any fact or figure of past margins of Micro Land Ltd. The ld. AR submits that Micro Land Ltd. is functionally similar to the assessee and should be retained as final set of comparable.
For e4e Healthcare Business Services Ltd. the ld AR for the assessee submits that this company is engaged in providing healthcare outsourcing services which is clearly in the nature of ITeS services as held by DRP and is good comparable to the assessee. For reliance placed by ld. DR for the revenue for exclusion of this comparable on the basis of decision of OKS Span Teck (supra), the ld. AR submits that the said decision was rendered for A.Y. 2010-11 whereas the year under 8 Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. consideration is A.Y. 2011-12. The facts discussed in the decision pertain to A.Y. 2010-11 and for A.Y. 2011-12 the same fact pattern does not exist. The ld. AR submits that P&L A/c for A.Y. 2011-12 of e4e Healthcare Business Services is available and is filed on record vide page no. 456 of the Paper Book. The annual report of the said company clearly states that it engaged in providing healthcare outsourcing services which is comparable to ITeS Provider. The ld. AR submits that this company was rightly included by DRP in final set of comparable.
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)
P. Ltd.(supra) wherein the said comparable was excluded on account of persistent loss. The co-ordinate bench also observed that ‘had there been comparison between company’s software development services segment and assessee’s software development segment the question of persistent losses would have paled into insignificance’. The DRP directed to include this comparable on the observation that this company is into ITeS Services and therefore, no reason to reject it as comparable and directed to accept it at segmental level. We find force in the submission of assessee that The revenue has challenged this comparable on the ground of functional dissimilarity and not on the ground that this company is persistent loss making company. This company is comparable as rendering software services comprising networking and infrastructure management services and ITeS. The functions of this comparable under ITeS are similar as of assessee. Even the co-ordinate bench in Microsoft India (R&D) P. Ltd. (supra) held that in case comparison between company’s software development services segment 10 Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. and assessee’s software development segment the question of persistent losses would have paled into insignificance. Therefore, we are of the view that this comparable should be retained in the list of comparable.
Thus, the revenue failed to convince us for the exclusion of this comparable. 15. For exclusion of e4e Healthcare Business Services Ltd., the ld. DR for the revenue has strongly relied on the decision of OKS Span Tech (P.)
Ltd. (supra) on the ground that in absence of P&L A/c and is engaged in software development. On the other hand, we have noted that the ld. AR of the assessee vehemently submitted that the decision in OKS Span Tech (P.) Ltd. was rendered for A.Y. 2010-11 whereas the year under consideration is 2011-12. The accounts of P&L A/c of e4e Healthcare Business Services Ltd. is filed by assessee as per page 455 of Paper Book and at page no. 457 of Paper Book in Schedule-1 of significant accounting policy, the company is primarily engaged in providing healthcare outsourcing services for Healthcare Industries in United State of America (USA). The P& L A/c for A.Y. 2011-12 is available on page 456 of Paper Book. Therefore, in our utmost regard to the decision of co- ordinate bench in OKS Span (supra) which is based on the fact that in absence of P&L A/c of the company is not comparable and engaged in software development. However, the P&L A/c for A.Y. 2011-12 is available as referred above and the companies is providing healthcare 11 Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. outsourcing services which is comparable to ITeS provider. Thus, the revenue also failed for exclusion of this comparable.
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.
Therefore, the revenue also failed for inclusion of this comparable to assessee-company. In view of the above discussion, the ground no.1 to 3 raised by revenue is dismissed. 17. In the result, appeal of the revenue is dismissed.
Cross Objection No. 27/Mum/2016 by assessee 18. In support of grounds of Cross Objections, the ld. AR of the assessee submits that Accentia Technologies Ltd. and Acropetal Technologies Ltd. were included by TPO and upheld by DRP. The ld. AR submits that both the company is liable to excluded from the final set of comparable.
For Accentia Technology Ltd., the ld. AR submits that this company is Knowledge Process Outsource (KPO) and Product Company which provide high end software services and software as a service (SaaS) to its customer. This company is mainly engaged in rendering high end and 12 Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. healthcare management services such as medical transcription, billing and coding. It also undertakes software development and implementation. The annual report of this company shows that it provides product such InstaKare, EMR Software, InstaWeb and InstaEmr. Segmental information of this company is not available. This company owned significant amount of Intellectual Property Right (IPR), Brands and Goodwill in its Balance-sheet for F.Y. 2010-11. This company owned goodwill of Rs. 21.94 Crore. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Bombay High Court in PCIT vs. Aptara Technology Pvt. Ltd. (ITA No. 1209 of 2015) and Hon’ble Delhi High Court in PCIT vs. B.C.
Management Services Pvt. Ltd. [89 taxmann.com 68] (HC Delhi), Mumbai Tribunal in assessee’s own case for A.Y. 201-11 in and Capita India Pvt. Ltd. vs. ACIT in ITA No. 356/Mum/2016.
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.
Order pronounced in the open court on 15/03/2019.
Sd/- Sd/- R.C. SHARMA PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 15.03.2019 SK Mum 2015-M/s Hapad Lloyd Global Services Pvt. Ltd. Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “K” Bench, ITAT, Mumbai 6. Guard File