GE INDIA EXPORTS PRIVATE LIMITED,BANGALORE vs. DCIT, BANGALORE
What did the Tribunal hold?
The Tribunal held that freight expenses should not be reduced from export turnover and total turnover for Section 10B deduction. Regarding Section 14A, the Tribunal ruled that Rule 8D is prospective and not applicable for the assessment year in question, remanding the issue for re-computation. For transfer pricing, the Tribunal directed the exclusion of certain companies from the list of comparables.
What were the facts?
The assessee appealed against the order of the DRP regarding reduction in deduction under Sections 10A/10B and disallowance under Section 14A. The appeal also involved transfer pricing issues concerning the determination of Arm's Length Price (ALP) for international transactions.
What were the issues?
The key issues were the correct computation of deduction under Sections 10A/10B, the applicability of Rule 8D for Section 14A disallowance, and the comparability of certain companies in transfer pricing adjustments.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, BANGALORE BENCH, ‘C’, BANGALORE
PER LALIET KUMAR, JUDICIAL MEMBER
This appeal by the assessee is directed against the order passed by the Dy. Commissioner of Income-tax dated 6.9.2011 pursuant to the direction of DRP dated 16.8.2011 for the assessment year 2007-08. ITA No.987/B/11 2
The grounds of appeal raised by the assessee are as under:-
ITA No.987/B/11 3
Ground No.1 is general.
Ground No.2.1 to 2.4 is with regard to reduction in deduction
u/s 10A and 10B. The DRP at page No.48 of the order records as under:-
On the other hand, the learned DR relied on the order passed
by the authorities below.
ITA No.987/B/11 4
We have heard the parties and perused the record. This issue is covered by the decision of coordinate bench of the tribunal in the assessee’s own case in ITA No.185,186 and 187/Bang/2010 for the assessment year 2002-03, 2003-04 and 2004-05, wherein it was held that if freight expenses are not included in export turnover and total
turnover, then they cannot be reduced while computing the deduction u/s 10B of the Act. In our view this issue is no more res integra and it is covered by the decision of Hon’ble Juri ictional High Court in 349 ITR 98. Therefore, the grounds raised are required to be allowed
and accordingly we allow the grounds of the assessee on the similar lines as held by the coordinate bench in the assessee’s own case. Accordingly, ground Nos.2 to 2.4 of the assessee’s appeal is allowed.
Ground Nos.3 to 3.3 is with regard to disallowance u/s 14A of the Act, ground Nos.3.1 and 3.2 are as under:
Ground 3.1: That the Ld. AO/DRP erred in disallowing the expenditure of INR 9,70,000 under Section 14A read with Rule 8D of Income-tax Rules, 1962 (“Rules”) holding that expenditure is attributable to earning of exempt income (dividend)
Ground 3.2: That the Ld. AO/DRP erred in proposing to apply the provisions of Rule 8D of the Rules for the year under consideration.
The ld Authorized Representative on behalf of the assessee has submitted that during AY 2007-08, the assessee had earned dividend
ITA No.987/B/11 5
income of INR 1,95,74,334. The said dividend income has been earned on the investment of INR 38,80,00,000 made by the Appellant’s Hyderabad India Innovation Centre (“IIC”) division out of its own funds in the cumulative redeemable preference shares of GE India Industrial Private Limited. The Appellant had not incurred
any expenditure in earning such dividend income. The fact that the Company has not incurred any expenditure in relation to earning dividend income has also been disclosed in the tax audit report for the year under consideration. The Company at the time of assessment
proceedings has made a detailed submission in this regard wherein the Company has submitted to the learned AO that since no expenditure was incurred by the Company in earning the dividend income, no disallowance shall be made by the Company under Section 14A of the Act. The learned AO without recording any reasons of not being satisfied with the explanations offered by the Company and without
identifying any proximate cause of any expenditure incurred in connection of earning the exempt income, has arbitrarily applied Rule 8D(2)(iii) of the Rules and made a disallowance of INR 9,70,000/-
under Section 14A of the Act. The Appellant further submitted that Rule 8D of the Rules was inserted vide Notification No. S.O. 547(E) dated 24 March 2008. During the course of assessment proceedings,
the assessee contended before the learned AO/DRP that Rule 8D of ITA No.987/B/11 6
the Rules was applicable only prospectively i.e., from AY 2008-09 onwards and hence could not be applied to the case of the Company
for the year under consideration (i.e. AY 2007-08). The learned AO in the final assessment order has erroneously computed disallowance under Section 14A of the Act by applying Rule 8D(2)(iii) of the Rules
without appreciating the fact that the said Rule is not applicable for AY 2007-08. Accordingly, the Appellant humbly submits that it is a well settled position of law that application of Rule 8D of the Rules is prospective from AY 2008-09 onwards and it does not have retrospective application.
The learned DR relies upon the order passed by the AO more
particularly page 62 of the AO’s order whereby the AO invoked the provision of sec. 14A r.w.r 8D of the Act.
We have heard the rival contention and perused the record. The Bombay High in the case of Godrej and Boyce Mfg. Co. Ltd., Vs. DCIT [2010] 194 Taxman 203 has held that Rule 8D is prospective in nature and is not retrospective in nature and is only applicable from asst. year 2008-09 onwards. Therefore, in our view, Rule 8D cannot be invoked by the AO for calculating disallowance u/s 14A. In the ITA No.987/B/11 7
case of Godrej and Boyce Mfg. Co. Ltd., (Supra) at para 67 it is held as under:-
Even in the absence of sub-sections (2) and (3) of section 14A and of rule 8D, the Assessing Officer was not precluded from making apportionment. Such an apportionment would have to be made in order to give effect to the substantive provisions of sub-section (1) of section 14A which provide that no deduction would be allowed in respect of expenditure incurred in relation to income which does not form part of the total income under the Act. Consequently, de hors the provisions of sub-sections (2) and (3) of section 14A and rule 8D, the Assessing Officer was entitled to determine by the application of a reasonable method what quantum of the expenditure incurred by the assessee would have to be disallowed on the ground that it was incurred in relation to the earning of income which does not form part of the total income under the Act. Undoubtedly, in determining what would constitute a reasonable method for effecting the disallowance, the Assessing Officer would have to give due regard to all the facts and circumstances of the case. The change which is brought about by the insertion of sub-sections (2) and (3) into section 14A by the Finance Act of 2006 with effect from 1-4-2007 is that in a situation where the Assessing Officer is not satisfied with the correctness of the claim of the assessee in regard to the expenditure incurred by it in relation to the non-
ITA No.987/B/11 8
taxable income, the Assessing Officer would have to follow the method which is prescribed by the Rules. The Rules were notified to come into force on 24-3- 2008. It is a trite principle of law that the law which would apply to an assessment year is the law prevailing on the first day of April. Consequently, rule 8D which has been notified on 24-3-2008 would apply with effect from assessment year 2008-09. The rule, consequently cannot have application in respect of assessment year 2002-03 which is the year under consideration in this case.
Respectfully following the decision of Godrej and Boyce Mfg. Co. Ltd., (Supra), we set aside this issue to the file of the AO for computing reasonable expenditure incurred in relation to income
which does not form part of the total income
Ground No.4 is general in nature. Ground No.5 is not pressed.
Ground No.6 is with respect to TP issue.
1 The learned Assessing Officer (“AO”) obtained the approval of Commissioner of Income-tax, Bangalore and made a reference u/s 92CA(1) of the Act to the Additional Commissioner of Income Tax,
(Transfer Pricing) - I, (“TPO”) for determination of Arm’s Length
ITA No.987/B/11 9
Price (“ALP”) of the international transactions entered by the Appellant with its AEs.
2 A notice was issued by the learned TPO calling for certain details such as profit & loss account, balance sheet, statement of income filed with the return of income, transfer pricing documents maintained, agreements entered into between the Appellant and its associated enterprises for the AY 2007-08. In response, the Appellant furnished the required details. Subsequently, the learned TPO issued show-cause notice dated 31 May 2010 and in response to that assessee filed submissions before the TPO on 12th July 2010 and 8th September 2010. 31.3 The TPO passed an order dated 27 October 2010 under Section 92CA of the Act making an adjustment of INR 152,450,673 to the international transaction of ITES entered by the Appellant with the AEs.
4 The international transaction of the Appellant with its AE during the captioned AY is as under:
ITA No.987/B/11
S.NO Nature of International Transaction Amount in INR
Provision of customer support service (ITES) 158,08,98,347
Provision of software services 275,63,51,266
Provision of personnel sourcing services 25,289,189
Purchase of fixed assets 7,072,770
Recovery of expenses 1,241,646
Purchase of components 135,527
Export of finished goods 3,483,883
Reimbursement of expenses 137,879,045
The TPO selected the following companies as comparable: 13.5
---- space left blank intentionally ----
ITA No.987/B/11
Sl. No. Company name Net margin as per TP order
1 Accentia Technologies Limited (seg) 30.61% 2 Bodhtree Consulting Limited (seg) 29.58% 3 Eclerx Services Limited 89.33% 4 HCL Comnet Systems & services Limited (seg) 44.99% 5 Informed Technologies India Limited 35.56% 6 Mold Tek Technologies Limited(Seg) 113.49% 7 Vishal Information Techologies Limited 51.19% 8 Infosys BPO Limited 28.78% 9 Wipro Limited (seg) 29.70% 10 Accurate Data Converters 50.68% Aditya Birla Mincas Worldwide Limited 11 (Formerly known as Transworks Information 11.98% Services Ltd.) 12 Allsec Technologies Limited 27.31% 13 Apex Knowledge Solutions Pvt Limited 12.83% 14 Apollo Healthstreet Limited -13.55% 15 Asit C Mehta Financial services Limited 24.21% 16 Caliber Point Business Solutions Limited 21.26% 17 Cosmic Global Limited 12.40% 18 Datamatics Financial Services Limited (seg) 5.07% 19 Flextronics Software systems Limited (seg) 8.62% 20 Gensys International corporation Limited 13.35% 21 ICRA Techno Analytics Limited (seg) 12.24% 22 iServices India Private Limited 49.47% 23 Maple Esolutions Limited 34.05% 24 R Systems International Limited (Seg) 20.18% 25 Spanco Limited (Seg) 25.81% 26 Triton Corp Limited 34.93% 27 Nittany Outsourcing Services pvt Limited 11.50% Average 30.21% Working capital adjustment 3.10% Adjusted operating margin 27.10%
ITA No.987/B/11 12
Based on the above approach, the learned TPO made an 13.6
adjustment of INR 15,24,50,673 in respect of the ITES segment.
Being aggrieved by above mentioned adjustments made in the 13.7
draft assessment order by the learned AO, the assessee filed
objections before the Hon’ble Dispute Resolution Panel (“DRP”) on 31 December 2010. The DRP vide direction dated 16 August 2011
has upheld the draft assessment order in entirety. Accordingly, the Learned AO has passed the final assessment order dated 6 September
2011 (“the Order”), in conformity with the directions given by DRP.
Accordingly, being aggrieved by the Order, the assessee is 13.8
before us on the above stated TP grounds .
The Appellant has filed the following modified grounds of 13.9
appeal to plead rejection of specific companies which are considered
as comparable by the TPO and upheld by DRP.
“8. The learned TPO / AO has failed to appreciate the fact that the following companies are not functionally comparable to the Appellant, therefore has erred in law and facts in considering them as comparable companies:
a) Mold-Tek Technologies Limited; b) eClerx Services Limited; c) Vishal Information Technologies Limited; d) Infosys BPO Limited;
ITA No.987/B/11
e) Accentia Technologies Limited; f) Bodhtree Consulting Limited; e) Accurate Data Converters Private Limited; f) iServices India Private Limited
Without prejudice to the transfer pricing documentation maintained by the Appellant, the learned TPO / AO has failed to appreciate the fact that Wipro Limited is not functionally comparable to the Appellant, therefore has erred in law and facts in considering it as a comparable company.”
However during the course of argument the appellant has 13.10
restricted his argument in respect of companies mentioned at S.Nos.
6, 7, 8 and 9 of the Chart. Hence, we shall only be examining the comparability of these 4 companies only.
Mold Tek Technologies Limited (“Mold-Tek”)
The assessee has submitted that this company is not comparable 13.11
with the assessee as the profile of the company is different. In the written submissions filed with the assessee it is mentioned as under:
2 In the case of Mold-Tek, the learned TPO has considered, the Engineering services in the nature of producing design drawings, detailed structural engineering drawings using 3D and 2D software specializing in civil, structural and mechanical engineering services, as comparable to the ITES segment of the Appellant. Mold-Tek has a strong team of highly skilled resources. Mold-Tek helps its clients to cut down design and development costs of civil, structural, mechanical and plant design and delivered technologically superior outputs. The company also has in-house software development team, quality control training and troubleshooting facilities.
ITA No.987/B/11
3 In this regard, the extract of segmental information from the annual report of Mold-Tek provided below (Refer page 749 of the paperbook):
4 The Hon’ble Members would appreciate the fact that the Engineering services being in the nature of KPO, is not comparable to the Appellant’s activities. The Appellant reproduces the following extracts from the response of the company u/s133(6) evidencing these facts:
5 In support of the above contentions, the Appellant relied upon the following judicial pronouncements: • Societe Generale Global Solution Centre Pvt. Ltd.[IT(TP)A No.1188/Bang/2011] dated 22 Apr 2016 (page 1514, 1516) • Goldman Sachs Services Private Limited [IT(TP)A No. 1163/Bang/2014] dated 06 May 2016 (page 1671 to 1678) • M/s. Pole to Win India Pvt. Ltd.(formerly e4e Tech Support dated 08 June 2016 (page 1629) • M/s Ariba Technologies India Pvt. Ltd. Vs ITO, [IT(TP)A No.441/Bang/2012] dated 02 Feb 2016 (page 1589, 1590) • Maersk Global Centres (India) (P) Ltd Vs. ACIT [ITA No.7466/Mum/2012] SB dated 07 Mar 2014; (page 1762 to 1765)
ITA No.987/B/11
12 It was submitted that the profile of Mold-Tek was examined by the coordinate bench and after discussion it was found that the said
company is not comparable with the company into ITEs segment.
eClerx Services Limited (“eClerx”)
13 The assessee has submitted that this company is not comparable with the assessee company as the profile of the company is different. In the written submissions filed by the assessee it is mentioned as under:
6 Based on the review of the Annual Report of eClerx, the Assessee would like to submit that this company is engaged in providing data process and analytics services which are in the nature of KPO. For the relevant FY, eClerx has employed over 1500 domain specialists working for its clients. eClerx offers industry specialized services for meeting complex client needs, data analytics KPO services in two business verticals - financial services and retail and manufacturing. eClerx offers solutions that do not just reduce cost, but also help their clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. eClerx provides tailored process outsourcing and management services along with data aggregation, mining and maintenance services.
7 The relevant extract from the Annual Report of the company for FY 2007-08 is provided below;
7 Page 6 of the Annual report (Refer Page 818 of the Paperbook):
ITA No.987/B/11
2 Page 4 of the Annual report (Refer Page 816 of the paperbook):
3 In support of the above contentions, the Appellant relied upon the following judicial pronouncements:
• Societe Generale Global Solution Centre Pvt. Ltd.[IT(TP)A No.1188/Bang/2011] dated 22 Apr 2016 (page 1514 to 1516) • M/s. Pole to Win India Pvt. Ltd.(formerly e4e Tech Support dated 08 June 2016 (page 1626, 1627) • M/s Ariba Technologies India Pvt. Ltd. Vs ITO, [IT(TP)A No.441/Bang/2012] dated 02 Feb 2016 (page 1578 to 1580) • Maersk Global Centres (India) (P) Ltd Vs. ACIT [ITA No.7466/Mum/2012] SB dated 07 Mar 2014 (page 1762 to 1765) •
ITA No.987/B/11 17
14 On the other hand, the ld DR has submitted that Mold-Tek and Eclerx Services can not said to un-comparable with the assessee
company merely on the ground that that decision were rendered in the some other matter. It was submitted that TP study is based on the FAR analysis and, therefore, each company and comparable has its own
unique features and is, therefore, required to be compared.
15 We have heard the rival contentions of the parties and perused the record. The assessee has entered into various agreements between the GE India exports Private Ltd., and its associated Enterprises. The scope of the service agreement for IT related services is given at page 420 of the paper book to the following effect:
The Addendum A mentioned in scope of the said agreement provides as under:-
ITA No.987/B/11
We have gone through the profile of the assessee wherein it is stated that the assessee is providing specialized services and is not simply into BPO services provider as projected by the assessee. The work scope and the agreement of the assessee with its AE clearly
provides that the assessee is providing high end technical services to its AE and for that purposes has engaged various technical staffs in the form of IT Team Leader, Program Manager, Project Manager,
ITA No.987/B/11 20
Enterprise Architect/Application Architect/Design Architect, Business Analyst/Project Leader, Product Developer/Senior Product Developer,
Product Quality Engineer/Senior Product Quality Engineer, Technical Author/Senior Technical Author, Team Lead (Development), Team Lead (QA) and various functions of these persons are provided in detail in the agreements. The kind of services each persons are rendering to the organization shows the scope and profile of the Assessee . In our view, the assessee is providing highly skilled services which is technical in nature with inputs engineering and architect applications, therefore, in our view, the assessee cannot be said to be merely BPO and, therefore, the TPO and DRP were right in treating the Mold-Tek and Eclerx Services Ltd. as functionally
comparable with that of the assessee’s profile.
The judgment relied upon by the ld AR for the assessee was rendered in the case of Societe Generale Global Solution in ITA No.1188 of 2011 dated 22/4/2016 was rendered in the facts of said case and in the said judgment the exclusion of Mold-Tek and Eclerx
Services was considered on the basis of the assumption that the assessee before this Tribunal was not into KPO services and whereas Mold-Tek and Eclerx Services are into KPO services and the Tribunal
relied upon the judgment of Hon’ble Delhi High Court in the matter of Rampgreen Solutions Ltd., has held that the KPO company cannot be ITA No.987/B/11 21
compared with BPO, hence Mold-Tek and Eclerx Services are not required to be treated as comparable and, therefore, is required to be excluded.
The reliance of the assessee in the matter of Ariba Technologies
India Pvt. Ltd., in ITA No.441/Bang/2012 is also not correct. In parent company, whereas Mold-tech is engaged in producing design,
drawing and structural engineering drawings of 2D and 3D software
cannot be compared with the assessee. In the matter of Maersk
Global Solution (Supra) it is mentioned in paragraph 81 as under:-
In so far as the case of Mold-Tek Technologies Ltd. is concerned, it is observed from the annual report of the said company for the financial year 2007-08 placed at page 139 to 151 of the paper book that the said company was pioneer in structural engineering KPO services and its entire business comprised of providing only structural engineering services to various clients. Further information of Mold-Tek Technologies Ltd. available on their Website is furnished in the form of printout at page 158 to 165 of the paper book and a perusal of the same shows that it is a leading provider of engineering and design services with specialization in civil, structural and ITA No.987/B/11 22
mechanical engineering services. It is stated to have a strong team of skilled resources with world class resources and skill sets. It is also stated to have consistently helped the clients to cut down design and development costs of civil, structural, mechanical and plant design by 30-40% and delivered technologically superior outputs to match and exceed expectations. It is claimed to have in-house software development team, quality control training and trouble shooting facilities. M/s Mold-Tek is also rendering web design and development services with experience in turning them into an effective graphic design representation and creating dynamic and graphic rich web applications from IT specs, design prints etc. Keeping in view this information available in the annual report of Mold-Tek as well on its website, we are of the view that the said company is mainly involved in providing high-end services to its clients involving higher special knowledge and domain expertise in the field and the same cannot be taken as comparable to the assessee company which is mainly involved in providing low-end services. It may be pertinent to note here that the financial year 2007-08 was a unique year for Mold-Tek Technologies Ltd. as the scheme of arrangement involving amalgamation between Tekmen Tool Pvt. Ltd. and Mold-Tek Technologies Ltd. and de-merger between Mold-Tek Technologies Ltd. simultaneously was sanctioned by the Hon'ble AP High Court by 15th July, 2008 with the appointed date for amalgamation and de-merger being 1st October, 2007 and 1st April, 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company, provision for derivative loss of Rs. 6.43 crores made by Mold- Tek technologies Ltd. was excluded by the A.O. treating the same as non-operating expenses whereas in the case of Rushabh Diamonds (supra), it was held by the Division Bench of this Tribunal that the gain or loss arising from the forward contract entered into for the purpose of foreign currency exposure on the export and import has to be taken into consideration while computing the operating profit.
In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in ITA No.987/B/11 23
providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns.
For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pvt. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP.
The co-ordinate Bench in the matter of Tesco Hindustan
Service Centre Pvt. Ltd., in ITA No.1285/Bang/2011 dated
2016 has examined the above comparables Eclerx and Mold-Tek in paragraph 39-40 and 57 and has held that on account of abnormal profits on these two companies and on account of the Mold-Tek failing0 employee cost filter, these 2
ITA No.987/B/11 24
comparables cannot be comparable with comparable. The coordinate bench held as under 39. Having carefully examined the orders of lower authorities in the light of Tribunal's finding in the case of Stream International Services (P) Ltd. (supra), we find that the profile of this company was examined by the Tribunal in this case and following the order of the Special Bench of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. (supra), the Tribunal held this company to be non-comparable. For the sake of reference, we extract the relevant portion of the order of the Tribunal:— "(xi) Eclerx Services Ltd. & Mold-Tek Technologies Ltd.:- For both these companies, the ld. Counsel for the assessee stated that these companies are functionally different, therefore, cannot be considered as comparables. We find that the Mumbai Special Bench of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd. in ITA No. 7466/Mum/2012 has rejected eClerx Services Limited because solutions offered by this company included data analytics, operations, management, audits and reconciliation, metrics management and reporting services. The Special Bench opined that if these functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Limited and Mold-Tek Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparable for the purpose of determining ALP of the transactions of the assessee company with its AEs. Facts being identical, respectfully following the observations of the Special Bench (supra), we direct that these two entities be excluded from the list of final comparables."
Since the Tribunal has examined this issue under similar set of facts, we find no reason to take a contrary view. Accordingly following the order of the Tribunal in the case of Stream International Services (P) Ltd. (supra), we hold that this company is not a good comparable and direct the AO/TPO to exclude it from the list of comparables. ...........................................................
Mold-Tek Technologies Ltd. : In this regard, the ld. counsel for the assessee has contended that this company's function is dissimilar, therefore it should be excluded from the list of comparables. The ld. counsel further contended that in this case the employee cost is 7.6% of sales, therefore this company can also be excluded by applying employee cost filter as the ITA No.987/B/11 25
benchmark fixed by the TPO is at 25%. Moreover, it has abnormal growth of 204% in sales over the previous year. Therefore, for these reasons, the company should be excluded from the list of comparables. He also placed reliance upon the order of the Tribunal in the case of Stream International Services (P) Ltd. (supra) in which the Tribunal following the order of the Mumbai Special Bench in the case of Maersk Global Centres (India) (P.) Ltd. (supra), directed the exclusion of this company. The relevant observations of the Tribunal have already been recorded in the foregoing paragraphs while dealing with the comparable Eclerx Services Ltd. Therefore, we find no justification to reproduce the same again. We, therefore, following the order of the Tribunal, direct the AO/TPO to exclude this comparable from the list of final comparables.
19 In view thereof respectfully following the judgment of co-ordinate bench in the matter of Tesco Hindustan Service
Centre Pvt. Ltd., (Supra), we hold that these 2 companies are not a good comparable and we direct the AO/TPO to exclude it from the list of comparables.
.
Vishal Information Technologies Ltd. And Infosys BPO,
The assessee has submitted that these companies are not comparable with the assessee as the profile of the company is different. In the written submissions filed by the assessee, it is mentioned as under 6.1. 9. Vishal has a different business model as compared to the business model of the Appellant. Vishal sub-contracts majority
ITA No.987/B/11
of its ITES works to third party vendors. As per the annual report of the company for FY 2006-07, the company had incurred employee cost of INR 70,27,631 which is 2.3% of the revenue earned by the company during the year. Further, about 43% of the revenue is expended towards payment to vendors.
10. It is evident from the above that Vishal has adopted a very different business model by outsourcing the services to third party vendors. Accordingly, Vishal is providing agency services by acting as an intermediary between the final customer and the vendor. These intermediary services
11. In support of the above contentions, the Appellant would like to highlight the following judicial pronouncements:
• M/s. Pole to Win India Pvt. Ltd.(formerly e4e Tech Support (page 1631, 1632) • M/s Ariba Technologies India Pvt. Ltd. Vs ITO, [IT(TP)A No.441/Bang/2012] (page 1591 to 1595) • M/s. Capital IQ Information systems (India ) Pvt. Ltd. (ITA No.1961/Hyd/2011) (page 1800 to 1802) 6.1. 12. The Appellant submits that Infosys is an established player in the BPO industry. It should be rejected on account of the fact that it is a market leader and also on the difference in risks assumed. The company has tremendous brand value attached to it which has a significant impact on its pricing in the market and consequently on the margins earned. Also, the company has incurred huge selling and marketing cost and this has been increasing on a year on year basis.
13. Further, Infosys is functionally dis-similar to the Appellant as Infosys provides end to end solutions in technical consultancy, design, development, re-engineering, maintenance, system integration and implementation.
14. The relevant extracts from the annual report of Infosys for FY 2006-07 are provided below:
ITA No.987/B/11 27
Page 6 (Refer Page 913 of the paper book):
15. In support of the above contentions, the Appellant would like to highlight the following judicial pronouncements:
• Societe Generale Global Solution Centre Pvt. Ltd.[IT(TP)A No.1188/Bang/2011] dated 22 Apr 2016 (page 1516, 1517) • M/s. Pole to Win India Pvt. Ltd. (formerly e4e Tech Support (page 1627) • M/s Ariba Technologies India Pvt. Ltd. Vs ITO, [IT(TP)A No.441/Bang/2012] (page 1583 to 1588) 6.1. 16. In light of the above, the Assessee submits that Infosys BPO should not be considered as comparable
The ld DR relied upon the order passed by the authorities 21. below.
We have gone through the order passed by the coordinate bench
in the matter of Pole to Win India Pvt. Ltd., and other judgment. In our view, the comparability of these companies have been examined
by this Tribunal and it was found that Vishal Information
Technologies Ltd., was into outsourcing, therefore, it cannot be comparable with that of the assessee. Moreover, the business model
of the comparable company viz., Vishal Information Technologies
Ltd. is different from the assessee as it is getting its work done
through outsourcing. Similarly, Tribunal has excluded the Infosys
ITA No.987/B/11 28
BPO Ltd. from the list of comparables after examining the comparability and size of the Infosys BPO in the judgment refereed
herein above. Therefore, respectfully following the decision of the coordinate Bench cited herein above, we direct the AO/TPO to exclude these two companies i.e. Vishal Information Technologies Ltd. And Infosys BPO from the list of comparables.
In the result, the appeal of the assessee is party allowed.
Order pronounced in the open court on 24th April , 2017. (A.K GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore Dated : 28/4/2017 Vms Copy to :1. The Assessee 2. The Revenue 3.The CIT concerned. 4.The CIT(A) concerned. 5.DR 6.GF By order Asst.
More judgments on Section 10A
- Ahaguru Education Technology Private… vs Deputy Commissioner of Income Tax…ITA 1993/CHNY/2026[2023-24]Status: Disposed23 Sept 2026AY 2023-24
- M/S. Aradhyaa Infra & Holdings Pvt. Ltd… vs ITO, Corp. Ward-1(1), ChennaiITA 1793/CHNY/2026[2020-21]Status: Disposed3 Sept 2026AY 2020-21
- Tech Mahindra Ltd, Mumbai vs DCIT Cir 2(3), MumbaiITA 7487/MUM/2012[2008-09]Status: Disposed24 Aug 2026AY 2008-09
- D.C.I.T. Circle 3(3), Mumbai vs Rbs Business Services P. Ltd., MumbaiITA 4467/MUM/2012[2007-08]Status: Disposed14 Aug 2026AY 2007-08
- Rbs Business Services P.Ltd, Mumbai vs DCIT Cir 3(3), MumbaiITA 4306/MUM/2012[2007-08]Status: Disposed14 Aug 2026AY 2007-08
Recent GST High Court judgments
Search GST case law →- Kniit Net Industries Private Limited, Khurda vs. Superintendent Of CGST And Central Excise, Bhubaneswar Ii CircleOrissa · 14 Oct 2026
- M/S Maa Swarnapai Chemicals (Opc) Private Limited, Cuttack vs. Sales Tax Officer, Cuttack IOrissa · 14 Oct 2026
- M/S. Middlex, Puri vs. Commnr. Of State Tax, Banijyakar Bhawan, CuttackOrissa · 14 Oct 2026
- M/S Maa Sunadei Indane Gramin Vitrak, Nayagarh vs. Commissioner Of CT And GST, Cuttack, OdishaOrissa · 14 Oct 2026
- Sunanda Raul vs. The Commissioner Of Commercial Taxes And Goods Nad Services Tax, OdishaOrissa · 14 Oct 2026
