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Income Tax Appellate Tribunal, DELHI BENCH ‘I-2’ : NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
(APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Manoneet Dalal, Advocate Shri Jibin Babu, Advocate REVENUE BY : Shri Sanjay Kumar Yadav, Senior DR Date of Hearing : 07.06.2018 Date of Order : 08.06.2018
O R D E R PER KULDIP SINGH, JUDICIAL MEMBER :
The aforesaid appeal filed by the Revenue and cross objections filed by the assessee are being disposed of by way of consolidated order to avoid repetition of discussion.
The Appellant, M/s. BA Call Centre India Pvt. Ltd. (hereinafter referred to as ‘the taxpayer’) by filing the present appeal sought to set aside the impugned order dated 24.11.2014, passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short ‘the Act’) qua the assessment year 2009-10 on the grounds inter alia that :-
“1. The Ld. DRP has erred in law and on facts in directing the TPO to exclude the Infosys BPO Ltd. as comparable without appreciating that the assessee itself was convinced on the inclusion of the same as comparable and in ignoring that the assessee itself had included the same in the TP study submitted for A.Y 2011-12.
2. The Ld DRP has erred in law and on facts in ignoring TCS E-serve Limited and TCS E-serve International Ltd. as comparables without appreciating that these companies were also engaged in the similar business as Infosys..”
The Objector, M/s. BA Call Centre India Pvt. Ltd., by filing the present cross objections challenged the assessment order dated 24.11.2014 passed by the Assessing Officer qua the assessment year 2010-11 on the grounds inter alia that :-
“1. The Ld. AO/ Ld. TPO/ Hon'ble DRP erred in law and facts by rejecting certain functionally comparable companies selected/proposed by the Assessee/Respondent based on the application of certain arbitrary quantitative filters. 2. The Ld. AO/ Ld. TPO/ Hon'ble DRP erred in law and facts by rejecting certain functionally comparable companies selected by the Assessee/Respondent alleging functional dissimilarity. 3. The Hon'ble DRP erred in law and facts by not adjudicating on the ground raised by the Assessee with regard to inclusion of certain comparable companies.
4. The Ld. AO/ Ld. TPO/ Hon'ble DRP erred in law and facts by introducing/retaining certain functionally incomparable companies for arm's length price determination.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : The taxpayer carries out its tele- marketing activity of making/receiving calls for BA UK’s domestic customers in India and international customers outside India. BA, JK has incorporated a wholly owned subsidiary in India, namely, BA Call Centre India Pvt. Ltd., the taxpayer. The taxpayer renders services in the nature of customer care services which entail provision of assistance and information regarding flight details, such as, flight destinations, flight schedules, seat availability, inter- connecting flight information and answering specific customer queries. Such activities would primarily undertake through the medium of telephones. During the year assessment, the taxpayer entered into international transactions with its AE as under :-
S.No. International Transaction Amount (In Rs.) 1 Provision of Call Centre Services 137,881,198 2 Cost Allocation by AE 23,019,188 3 Cross charge of expenses 3,332,762
The taxpayer by applying Transactional Net Margin Method (TNMM) with Operating Profit/Total Cost (OP/TC) as Profit Level Indicator (PLI) has chosen 8 comparables with average margin of 11.79% by using multiple year data as against assessee’s own margin of 17.75% and found its international transactions at arm’s length. However, TPO by applying various filters in his TP analysis chosen 10 comparables with average of 29.86% as against assessee’s margin of 17.75% and proposed TP adjustment to the tune of Rs.1,19,58,830/-.
The taxpayer carried the matter before the ld. DRP vide raising objections who has granted part relief to the taxpayer by directing the TPO to exclude Infosys BPO Limited, TCS E-serve Limited and TCS E-serve International Ltd. from the final set of comparables for benchmarking the international transactions.
Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal. The taxpayer also filed cross objections.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
TPO, after rejecting all the comparables chosen by the taxpayer for its TP analysis, proposed filters inter alia that companies whose data is not available for the FY 2009-10 are excluded; companies whose ITES income <Rs.5 cr. are excluded; companies whose revenue from Services are less than 75% of the total operating revenues are excluded; companies having more than 25% related party transactions (sales as well as expenditure combined) of the sales are excluded; companies who have export sales less than 75% of the sales from ITES are excluded; companies who have persistent losses for the last three years up to and including FY 2009-10 are excluded; companies having different financial year ending (i.e. not March 31, 2010) or data of the company does not fall within 12 month period i.e. 01-04-2009 to 31-03-2010, are rejected; companies that are functionally different from the taxpayer are excluded and companies that are having peculiar economic circumstances are excluded.
On the basis of aforesaid comparables, ld. TPO chosen 10 comparables which are as under :-
S.No. Company Name OP/OC 1 Accentia Tech 42.52% 2 Cosmic Global 18.28% 3 e4e Healthcare 31.03% 4 Fortune Infotech Limited 22.80% 5 igate Global Solutions Limited 24.54% 6 Infosys BPO Ltd. 31.44% 7 T C S E-Serve International Ltd. 54.03% 8 T C S E-Serve ltd. 63.42% 9 Jindal Intellicom Limited 13.62% 10 Microland Limited (ITES segment) -3.11% AVERAGE 29.86%
The ld. TPO on the basis of average margin of comparables at 29.86% as against the taxpayer’s margin of 17.75% proposed TP adjustment as under :-
Operational Cost 117,535,094 Arm’s Length Price at a Margin of 29.86% 152,631,073 Price Received 140,672,243 105% of the Price Received 147,705,855 Proposed Adjustment u/s 92CA 11,958,830
The ld. DR for the Revenue challenging the impugned order passed by the ld. DRP sought inclusion of three comparables, viz., Infosys BPO Limited, TCS E-serve Limited and TCS E-serve International Ltd. to benchmark the international transactions on the ground that the DRP has erred in excluding the Infosys BPO Limited and also erred in excluding the inclusion of TCS E-serve Limited and TCS E-serve International Ltd. which are functionally similar to the taxpayer. We would discuss the comparability of the companies sought to be included by the Revenue one by one as under.
INFOSYS BPO LIMITED (INFOSYS BPO)
Infosys BPO is taxpayer’s own comparable and has been accepted by the TPO. TPO has retained this comparable on the ground that it is functionally similar and that Infosys BPO profitability is consistent over the years. The ld. DR also contended that the taxpayer is also using same kind of platform and relied upon the order of the TPO.
However, ld. DRP has ordered to exclude Infosys BPO on ground of functional dis-similarity being engaged in array of services which are quite intricate vis-à-vis the call centre services offered by the taxpayer. Operative part of the findings returned by ld. DRP directing the exclusion of Infosys BPO from the final set of comparables is reproduced as under :-
“In view of the above information from the Annual report and the website of the company this Panel holds the view that the company is engaged in providing various services and platforms like Source-to-Pay, Business Order Management Business Platform (IOMPlus), Newspaper-in-a-Bom (NiaB), Integrated Data Lifecycle Management (IDLM) etc. which can’t be held comparable to the simple call centre and telecommunication services provided by the taxpayer. Therefore the TPO is directed to exclude the company from the list of comparables.”
When we examine the TP order it goes to prove that the findings returned by ld. DRP are entirely data base extracted from annual report of Infosys BPO which goes to prove that Infosys BPO is into wide range of functions which cannot be a valid comparable to the taxpayer which is a routine call centre and telecommunication service provider. Moreover, when Infosys BPO is into wide range of services being a big brand and its segmental report is not available, the same cannot be taken as a valid comparable.
Coordinate Bench of the Tribunal in case of Ameriprise India Pvt. Ltd. vs. DCIT, Circle 1 (1), New Delhi in order dated 19.01.2016 has ordered exclusion of Infosys BPO on ground of extra ordinary financial events as a comparable by returning following findings :-
“10.2 After considering the rival submissions and perusing the relevant material on record, we find from the Annual report of this company, that there was acquisition by this company of McCamish Systems LLC. Acquisition of McCamish Systems LLC during the year, being an extraordinary financial event, renders it incomparable. Following the reasons taken note of above, we order for the elimination of this company from the final set of comparables.”
Coordinate Bench of the Tribunal in Equant Solutions India Pvt. Ltd. in order dated 21.01.2016 has ordered exclusion of Infosys BPO for comparability with Equant Solutions India Pvt. Ltd. on ground of its huge brand value and functional dis-similarity by returning following findings :-
“c. We have considered the rival contention regarding exclusion of Infosys BPO Ltd. It is engaged in high and integrated services and therefore it is functionally dissimilar. The Infosys brand is indisputably is a huge brand and definitely, result of that brand goes to this comparable. Therefore, the brand of Infosys definitely results in opening higher profits to this company. In view of the following decisions, the same is required to be excluded and hence it is ordered accordingly.”
In view of what has been discussed above, we are of the considered view that Infosys BPO cannot be a valid comparable vis-à-vis taxpayer as it is offering wide range of services viz. platforms like Source-to-Pay, Business Order Management Business Platform (IOMPlus), Newspaper-in-a-Bom (NiaB), Integrated Data Lifecycle Management (IDLM) etc.. So, ld. DRP has rightly ordered exclusion of Infosys BPO from the final set of comparables.
TCS E-SERVE LIMITED And TCS E-SERVE INTERNATIONAL LTD.
TPO despite objections raised by the taxpayer that TCS E- serve Limited and TCS E-serve International Ltd. are functionally dis-similar; having exceptional year of operation; insufficient segmental information; and dis-similarity in scale of operation retained them as a comparable on the ground that they are also into the nature of IT Enabled Services as per CBDT guidelines and having no exceptional year of performance due to the company taken over by the TCS Limited and high turnover does not have any correlation to high profits.
However, ld. DRP after scanning the profile of TCS E-serve Limited and TCS E-serve International Ltd. from the annual report arrived at the conclusion that TCS E-serve Limited and TCS E- serve International Ltd. are engaged in the business of providing Information Technology Enabled Services, Business Process Outsourcing Services primarily to Citi Group entities globally.
When we examine annual report of TCS E-serve Limited, available at page 111, TCS E-serve Limited and TCS E-serve International Ltd. are having entire transactions with its related party ‘Citi Group’.
Perusal of the Notes forming part of the financial statement, available at page 117 of the annual report, these are considered as a single segment whereas both the companies are involved in high end including transaction processing, technical services involving software testing, verification and validation of software and also into low end services. So, in the given circumstances, both TCS E- serve Limited and TCS E-serve International Ltd. being into providing high end technical services are not valid comparables vis-à-vis the taxpayer which is a routine call centre and is providing telecommunication services.
Comparability of TCS E-serve Limited and TCS E-serve International Ltd. has been examined by the coordinate Bench of the Tribunal in Ameriprise India Pvt. Ltd. (supra) which was into providing IT Enabled back office services and ordered to exclude the same on the ground that both the companies are engaged into transaction processing and technical services activities and no segmental detail is available.
Coordinate Bench of the Tribunal in Equant Solutions India Pvt. Ltd. (supra) also examined the comparability of TCS E-serve Limited and TCS E-serve International Ltd. on the ground that both the companies are engaged in BPO services and high end technology services viz. software testing, verification and validation of software, having intangibles, having big Tata brand directly benefiting these comparables and ordered to exclude the same as comparable vis-à-vis Equant Solutions India Pvt. Ltd. which was engaged in providing ITES, network management and other back office support services.
In view of what has been discussed above, we are of the considered view that TCS E-serve Limited and TCS E-serve International Ltd. being engaged in providing high end technology services viz. software testing, verification and validation of software, having huge intangible and using Tata brand cannot be a valid comparable vis-à-vis the taxpayer which is providing routine call centre services to its group company. So, ld. DRP has rightly ordered to exclude TCS E-serve Limited and TCS E-serve International Ltd. from the final set of comparables. Moreover, ld. DRP in the subsequent year i.e. 2011-12 has also ordered to exclude TCS E-service Ltd. from the final set of comparables for benchmarking the international transaction. Copy of order placed on record by the taxpayer.
Resultantly, the appeal filed by the Revenue is hereby dismissed. 25. Ld. AR for the taxpayer has not preferred to press his cross objection bearing CO No.37/Del/2018, hence cross objections are dismissed. Order pronounced in open court on this 8th day of June, 2018.