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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
आदेश / ORDER PER SUSHMA CHOWLA, JM:
The appeal filed by the assessee is against the order of DDIT (IT)-II, Pune, dated 28.01.2014 relating to assessment year 2010-11 passed under section 143(3) r.w.s. 144C(5) of the Income-tax Act, 1961 (in short ‘the Act’).
2 ITA No.640/PUN/2014 M/s. Schlumberger India Technology Centre Pvt. Ltd.
The assessee has raised the following grounds of appeal:- The following grounds of appeal are independent of and without prejudice to one another. 1 On the facts and in the circumstances of the case and in law, the Deputy Director Of Income-tax (International Taxation - II), Pune [hereinafter referred to as Ld. Assessing Officer ('Ld. AO')] has erred in proposing and the Dispute Resolution Panel ('the DRP') has erred in confirming the proposed addition to the Appellant's total income of Rs.1,90,45,982 based on the provisions of Chapter X of Income-tax Act, 1961 ("the Act"). 2 On the facts and circumstances of the case, and in law, the learned AO erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing study report maintained as per section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules') and thereby rejecting the transfer pricing documentation maintained by the Appellant. 3 On the facts and circumstances of the case, and in law, the learned AO erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of not providing any reasons to show that the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied before making an adjustment to the income of the Appellant. 4 On the facts and circumstances of the case, and in law, the learned AO erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of wrongly modifying the turnover filter applied by the appellant without appreciating the specific facts of the Appellant's case. 5 On the facts and circumstances of the case, and in law, the learned AO erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of rejecting comparable companies not appreciating that their functions, assets and risk profile was comparable to the Appellant. 6 On the facts and circumstances of the case, and in law, the learned AO erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of identifying new companies as comparable to the Appellant without appreciating the fact that the said companies were actually not comparable to the Appellant. 7 On the facts and circumstances of the case, and in law, the learned AO erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of accepting companies as comparable to the Appellant without applying the yardsticks consistently. 8. On the facts and circumstances of the case, and in law, the learned AO erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of considering the provision of bad and doubtful debts as non- operating expense while computing the Profit Level Indicator ('PLI') of a purported comparable namely E4E Healthcare Business Service Limited, thereby considering an erroneous margin for comparison. 9. On the facts and in the circumstances of the case, and in law, the learned AO erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of rejecting a comparable namely CG-VAK Software
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and Exports Limited in variance with the previous assessments without significant change in facts, thereby violating the principal of consistency. 10 On the facts and in the circumstances of the case, and in law, the Ld. AO has erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of computing the Profit Level Indicator ('PLI') of the appellant by not reducing foreign exchange gain arising on account of business operations from operating costs. 11 On the facts and in the circumstances of the case, and in law, the Ld. AO has erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of not allowing an adjustment for the difference between the level of risk borne by the comparables and the appellant as well as other factors as mandated by the provisions of Rule 10B(1)(e)(iii) of the Income-tax Rules, 1962. 12 On the facts and in the circumstances of the case, and in law, the Ld. AO has erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of considering non-contemporaneous single year data for the margin computation of the comparables which was not available at the time of conducting the TP study; and disregarding contemporaneous multiple year data which was considered by the appellant in accordance with the provisions of Rule 10B (4) of the Income-tax Rules, 1962 ('the Rules'). 13 On the facts and circumstances of the case, and in law, the learned AO erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of not allowing the appellant the benefit of 5% variation envisaged in the proviso to Section 92C(2) of the Act. 14 On the facts and circumstances of the case, and in law, the learned AO erred in and the Honourable DRP has further erred in confirming the action of the Ld. AO of initiating penalty proceeding under section 274 read with Section 271(1)(c) of the Act and levying interest under section 234A, 234B, 234C and 234D of the Act.
The assessee has also raised additional ground of appeal which reads as under:- 15 On the facts and in the circumstances of the case, and in law, the order of the Ld. AO in so far as the transfer pricing addition is concerned, is bad in law as he failed to comply with the Instruction number 3 of 2003 issued by the Central Board of Direct Taxes which mandates a reference by him to the Transfer Pricing Officer in cases where the value of “international transactions” exceeded Rs.5 crores and thus, transgressed his jurisdiction by undertaking the Transfer Pricing assessment himself.
Briefly, in the facts of the case, the assessee for the year under consideration had furnished return of income on 14.10.2010 declaring total income of Rs.68,49,123/-. The assessee was engaged in providing technical support services i.e. engineering back office services to various overseas group companies.
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The assessee was wholly owned subsidiary of Schlumberger Oilfield Holding Ltd., British Virgin Island. The assessee belonged to Schlumberger Group, which was leading oilfield services provider for oil and gas companies around the world. The Indian Branch had commenced its operations on 01.12.2007. The Assessing Officer noted that during the year under consideration, as per the Profit and Loss Account, income from support services was to the tune of Rs.9,71,79,160/- and other income of Rs.37,24,307/-. The net profit before tax and prior period items was Rs.50,66,212/-. The Assessing Officer in the draft assessment order passed under section 144C(1) r.w.s. 143(3) of the Act had vide para 4 taken note of transfer pricing document furnished by the assessee and noted various international transactions undertaken by the assessee with its associated enterprises. The tabulated details of the same are placed under para 4 at page 2 of the draft assessment order. The total services rendered during the year were Rs.9.71 crores. The Assessing Officer issued show cause notice under section 92C(3) of the Act vide letter dated 11.02.2013, which is reproduced under para 5 at pages 3 to 10 of the assessment order. The Assessing Officer noted that PLI of assessee on OP/OC was 5.30%. The Assessing Officer selected another set of comparables which are enlisted at pages 8 and 9 of the draft assessment order and the mean margins of said comparables worked out to 26.35%. The Assessing Officer in the assessment proceedings thus, show caused the assessee as to why the adjustment should not be made on account of difference between the margins shown by the assessee and average margins of comparables selected by the Assessing Officer. The assessee objected to the proposal made by the Assessing Officer. However, after discussing margins of various concerns and the additional companies which were identified by the Assessing Officer, final set of comparables was selected by the Assessing Officer, which is tabulated under para 15 at page 28 of the draft assessment order. The mean margin of comparables worked out to
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26.35% and the PLI after working capital adjustment was 23.87%. Accordingly, the Assessing Officer made an adjustment of Rs.1,90,45,982/- in respect of international transactions with its associated enterprises. The Assessing Officer passed the draft assessment order proposing total income of assessee accordingly, on 28.03.2013. The Assessing Officer proposed to complete the assessment under section 143(3) of the Act.
Thereafter, the assessee filed objections before the Dispute Resolution Panel (DRP), which makes reference to the Transfer Pricing Authority and its powers and goes on to hold that where the Transfer Pricing Officer has been able to substantiate in terms of section 92C(3) of the Act that the determination of arm's length price by the eligible assessee was not appropriate, the TPO was entitled to re-determine the arm's length price afresh through due process of law. The finding of DRP at page 16 of the order is that In the instant case, Transfer Pricing Officer has done the same and therefore no interference is called for on this count. The DRP then, refers to various objections raised by the assessee, however, dismissed the same. In the final directions, it is held as under:- “In view of the detailed discussions above the Dispute Resolution Panel decides that there are no valid reasons to interfere with the Draft of the Proposed Order of Assessment under consideration of the Transfer Pricing Officer or the Assessing Officer. The Assessing Officer shall finalise the Assessment Order accordingly.”
The Assessing Officer thereafter, passes the order under section 143(3) r.w.s. 144C(5) of the Act, dated 28.01.2014. The Assessing Officer computes the arm's length price of international transactions of assessee by making an upward adjustment of Rs.1,90,45,982/-.
The assessee is in appeal against the order of Assessing Officer.
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The assessee has raised an additional ground of appeal before us against order passed by the Assessing Officer making aforesaid transfer pricing adjustment. The grievance of assessee in this regard is that in cases where the value of international transactions exceeded Rs.5 crores, Instruction No.3 of 2003 issued by the CBDT mandates reference by the Assessing Officer to the Transfer Pricing Officer. However, the Assessing Officer in the present case had transgressed his jurisdiction by undertaking transfer pricing adjustment himself. The learned Authorized Representative for the assessee pointed out that the additional ground of appeal be admitted since it goes to the root of challenging the jurisdiction of Assessing Officer. It was also pointed out that the issue by way of additional ground of appeal was purely a question of law and does not require any further enquiries into the facts.
The learned Authorized Representative for the assessee further made reference to the CBDT’s Instruction, copy of which is placed at pages 2 to 4 of the Paper Book. He further relied on the ratio laid down by the Hon’ble High Court of Delhi in Sony India Pvt. Ltd. Vs. CBDT (2006) 288 ITR 52 (Del), wherein the constitutional validity of Instruction No.3 dated 20.05.2003 was challenged. He further placed emphasis on the ratio laid down by the Mumbai Bench of Tribunal in the case of M/s. SG Asia Holdings India Pvt. Ltd. Vs. ACIT in ITA No.2399/Mum/2009, relating to assessment year 2005-06, order dated 22.04.2015, wherein it was held that where the Assessing Officer breaches the mandatory instruction issued by the CBDT, his order was bad in law to the extent of breach. The learned Authorized Representative for the assessee fairly admitted that no such issue was raised before the DRP. He referred to the draft assessment order and the final assessment order and pointed out that total international transactions on account of engineering and back office and web based services was to the tune
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of Rs.9.71 crores. He further referred to the exclusion of comparables finally selected by the Assessing Officer i.e. Jindal Intellicom Pvt. Ltd., Coral Hub Ltd., Cosmic Global Ltd. and Accentia Technologies Ltd. He further stressed that the concern CG-VAK Software & Exports Ltd. is to be added to the final set of comparables. He referred to the order of Assessing Officer relating to assessment year 2009-10, wherein the said company was held to be functionally comparable and since there was no change in functional comparability and the said concern being not persistent loss making concern, then the margins of said concern be adopted to benchmark the international transactions of the assessee. The next concern which the assessee wants to exclude from the final set of comparables was E4e Healthcare Business Service, which was not functionally comparable. He placed reliance on the ratio laid down by the Pune Bench of Tribunal and other Tribunals in different decisions in respect of exclusion / inclusion of above said concerns. He pointed out that the other grounds of appeal raised by the assessee would become academic in case of re-adjustment of comparable concerns in the final set of comparables.
The learned Departmental Representative for the Revenue relying on the order of Assessing Officer/DRP pointed out that in case the plea of assessee with regard to additional ground of appeal is accepted, then the matter should go back to the file of Assessing Officer for making aforesaid reference. He further pointed out that in any case, show cause notice was issued to the assessee and the proceedings for making an upward adjustment were fully complied with by the assessee and no objections were filed before the Assessing Officer or DRP. Under such circumstances, there was no merit in the stand of assessee by way of additional ground of appeal.
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The assessee has filed the copy of draft assessment order relating to assessment year 2009-10. It may be pointed out herein itself that the assessee had relied on the decision of Pune Bench of Tribunal in ITA No.86/PN/2013, relating to assessment year 2009-10, order dated 30.10.2015, copy of which is filed in the Paper Book at pages 31 to 61, wherein the issue of TP adjustment has been decided on merits.
We have heard the rival contentions and perused the record. The assessee is wholly owned subsidiary of Schlumberger Oilfield Holding Ltd., British Virgin Island, which is engaged in providing technical support services i.e. engineering back office services to various group companies outside India. As per the transfer pricing document furnished for the year under consideration, the assessee had entered into international transactions with its associated enterprises totaling Rs.9,71,79,160/-. The additional revenue recognized as prior period items totaled to Rs.70,97,513/-, hence the total transactions undertaken by the assessee for the year under consideration were Rs.10,42,76,673/-. The first jurisdictional issue raised by way of additional ground of appeal is challenging the jurisdiction of the Assessing Officer in making transfer pricing adjustment, wherein the said adjustment was made by the Assessing Officer without any reference to the TPO. The additional ground of appeal raised by the assessee is purely legal and does not involve any investigation of facts, hence the same is admitted for adjudication. The case of assessee before us is that as per Instruction No.3 of 2003 issued by CBDT on 20.05.2003, the Assessing Officer was to make reference to the TPO in cases where the value of international transactions exceeded Rs.5 crores. However, in the present case, since the Assessing Officer had not made any such reference to the TPO, the assessee alleges that the Assessing Officer had transgressed his jurisdiction by making transfer pricing adjustment himself. In this regard, the
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assessee had further argued that the constitutional validity of the said Instruction was upheld by the Hon’ble High Court of Delhi in Sony India Pvt. Ltd. Vs. CBDT (supra). We agree with the proposition raised by the assessee to the effect that once an Instruction has been issued by the CBDT, then the same is to be applied by the Officers of Income Tax Department. There is no ambiguity in the same. However, the question which has to be seen is as to which Instructions were prevailing at the time of taking up Income-tax proceedings. The year under appeal before us is assessment year 2010-11, wherein the return was due to be filed by October / November, 2010. The assessee has referred to the Instruction No.3 of 2003, which is dated 20.05.2003. The said Instruction provides that reference to Transfer Pricing Officer is to be made by the Assessing Officer, wherein the aggregate value of international transactions exceeds Rs.5 crores, such reference is to be made under section 92CA(1) of the Act. The said Instruction itself provided threshold limit of Rs.5 crores will be reviewed depending upon the workload of the TPO. It further goes on to say that selection of cases for scrutiny and reference to the TPO on the above basis in respect of pending returns filed for assessment year 2002-03 should be completed by 30.06.2003. Thereafter, the said Instruction talked about the role of TPO and the procedure to be followed for assessment by the Assessing Officer after receipt of TPO’s report.
The Hon’ble High Court of Delhi in Sony India Pvt. Ltd. Vs. CBDT (supra) has upheld the constitutional validity of the said Instruction. However, the said Instruction has been superseded by Action Plan for financial year 2006-07 and thereafter, threshold limit has increased to Rs.15 crores. In other words, where international transactions were less than Rs.15 crores, there is no requirement for making any reference to the TPO and where the Assessing Officer is of the view that arm's length price of international transactions undertaken by the assessee is
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to be determined, then such exercise can be carried out by the Assessing Officer himself.
An interesting feature in this regard is the draft assessment order filed by the assessee relating to assessment year 2009-10. The copy of the said draft assessment order was filed during the course of hearing. The perusal of the draft assessment order during dictation of the present order reflects that in the preceding year, the assessee had shown income from support services at Rs.10,52,92,835/- and other income of Rs.49,89,078/-. Vide para 5 of the order dated 30.12.2011, the Assessing Officer holds that international transactions were below Rs.15 crores, therefore, case was not referred to the TPO. However, the Assessing Officer examined the transfer pricing angle itself and proposed an adjustment to the arm's length price. The assessee filed an appeal against the said transfer pricing adjustment before the Tribunal relating to assessment year 2009-10 in ITA No.86/PN/2013, vide order dated 30.10.2015, copy of which is placed at pages 31 to 61 of Paper Book. We find that the assessee has failed to raise any such issue of Assessing Officer having transgressed its jurisdiction in computing arm's length price of international transactions and making an upward adjustment. Again, it is reiterated that total receipts from support services during preceding year were to the tune of Rs.10.52 crores as against Rs.10.42 crores declared by the assessee during the year under appeal. The Assessing Officer had determined arm's length price of the said international transactions vide order passed under section 143(3) r.w.s. 144C(5) of the Act without making reference to the TPO.
In view of the revised limits prescribed under the Action Plan for financial year 2006-07, which is drawn by CBDT itself and in view of the approach of Assessing Officer in assessment year 2009-10, we find no merit in the plea of
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assessee in this regard. The Assessing Officer under the revised Instruction of CBDT had exercised his jurisdiction in computing arm's length price of international transactions and we find no merit in the stand of assessee in this regard. No doubt, as per Instruction No.3 of 2003, dated 20.05.2003, the limit for making reference to the TPO was where aggregate value of international transactions exceeded Rs.5 crores. In view of revised Action Plan, the action of Assessing Officer in the present case, where the value of international transactions was to the tune of Rs.10.42 crores, in not making any reference to the TPO is correct and no fault can be found with the exercise of jurisdiction by the Assessing Officer, under the said facts and circumstances. It may also be put on record that revised Instructions were later issued dated 16.10.2015 being Instruction No.15 of 2015. Thus, the additional ground of appeal raised by the assessee is dismissed.
Now, we shall take up the case of transfer pricing adjustment on merits. The assessee had applied TNMM method as the most appropriate method by taking PLI as OP/OC and the same has also been applied by the Assessing Officer both in the draft assessment order and in the final assessment order passed, after rejection of objections filed before the DRP. The point of dispute is the margin of comparables to be applied in the case, wherein the said comparables which were selected by the assessee had not found favour with the Assessing Officer because of various factors and fresh list of comparables was drawn by the Assessing Officer. The assessee has also not raised any issue about rejection of comparables except CG- VAK Software and Export Ltd., where the assessee has raised the issue in favour of its inclusion in the final set of comparables. However, the assessee is aggrieved by inclusion of certain comparables, which as per the assessee should be excluded from final list of comparables. The Assessing Officer has drawn the final set of comparables, which read as under:-
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Sr. Name of the comparable company PLI % PLI % Remarks No. (OP/OC) (OP/OC) after working capital adjustment 1 Cosmic Global Ltd. 16.59% 17.73% as per assessee’s working 2 Informed Technologies India Ltd. 24.96% 24.33% as per assessee’s working 3 Microgenetics Systems Ltd. 6.49% 6.80% as per assessee’s working 4 Jindal Intellicom Pvt. Ltd. 18.79% 18.60% as per assessee’s working 5 Coral Hubs Ltd. (Vishal Information 41.66% 41.66% the assessee may Technologies Ltd.) provide working 6 Accentia Technologies Ltd. 43.62% 43.62% capital adjustment 7 E4E Healthcare Business Service Ltd. 32.37% 32.37% AVERAGE 26.35% 26.44%
First, we take up the issue of inclusion of CG-VAK Software and Exports Ltd.
The learned Authorized Representative for the assessee in this regard points out
that the said concern was included as functionally comparable in the preceding
year i.e. assessment year 2009-10 and since there is no change in functional
comparability, the margins of said concern should have been added in the final set
of comparables. He further pointed out that PLI of said concern in the preceding
year was 3.84% and the PLI after considering working capital adjustment was (-)
0.44%. The case of assessee before us is that the said concern is not persistent
loss making concern and hence, its margin should be included. The accepted
principle for benchmarking international transactions is to select the companies
which are functionally comparable to the assessee and benchmark the international
transactions undertaken by the assessee by comparing the margins shown by the
assessee with the margins of selected external comparables. The concern CG-
VAK Software and Exports Ltd. was held to be functionally comparable to the
assessee by the Assessing Officer in assessment year 2009-10 as is available from
the final set of comparables drawn by the Assessing Officer in the preceding year.
There is no change in the functionality of said concern, hence the said concern
passes the first threshold limit of being functionally comparable. The second aspect which had weighed with the Assessing Officer in rejecting the said concern
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is losses shown by the said concern. The margin shown by the said concern in the preceding year was 3.84% and during the year is 0.29% i.e. it has shown positive margin and had not shown any losses. However, while allowing economic adjustment by way of working capital adjustment, the margins of said concern became negative but the said adjustment which has been allowed, does not determine the profitability of the said concern in the open market. Accordingly, we find no merit in the approach of Assessing Officer in this regard and hold that CG- VAK Software and Exports Ltd., is not persistent loss maker.
The Pune Bench of Tribunal in Honeywell Turbo Technologies (India) Pvt. Ltd. Vs. DCIT in ITA No.2584/PUN/2012, relating to assessment year 2008-09, order dated 10.02.2017 had held that a company which was losing continuously for three years only could be held to be persistent loss making company.
Another point on which the Assessing Officer had rejected CG-VAK Software and Exports Ltd. was that it was rejected in assessment year 2008-09. However, we find no merit in the order of Assessing Officer in this regard, where the Assessing Officer himself had selected CG-VAK Software and Exports Ltd. functionally comparable in assessment year 2009-10 i.e. immediately preceding year.
The Pune Bench of Tribunal in Brintons Carpets Asia Pvt. Ltd. Vs. DCIT in ITA No.1296/PN/2010, relating to assessment year 2006-07, order dated 15.06.2011 held that ‘Rule of Consistency’ is to be honoured by the Revenue in case there is no change in the facts of two years. The assessee has further pointed out that CG-VAK Software & Exports Ltd. was not selected in assessment year 2008-09 as it had failed upper turnover filter of Rs.5 crores. However, in
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assessment year 2010-11, the Assessing Officer had not applied the said filter and hence, the said concern be included. Accordingly, we hold that CG-VAK Software & Exports Ltd. is to be included in the final list of comparables.
Now, coming to the concern Jindal Intellicom Pvt. Ltd. The case of assessee before us is that the said concern has different financial year than the one of assessee. The Assessing Officer had applied the current year data as contemporaneous data to be used for benchmarking the arm's length price of international transactions of assessee. The assessee had prepared its financial statements for the financial year starting from 1st April, 2009 to 31st March, 2010. The case of assessee before us is that Jindal Intellicom Pvt. Ltd. has prepared its financial statements for period of 15 months and the same is not to be selected in the final set of comparables.
We find that the Pune Bench of Tribunal in the case of BMC Software India Pvt. Ltd. Vs. DCIT in ITA No.1425/PN/2010, relating to assessment year 2006-07, order dated 16.03.2016 had rejected the concern having 15 months financials.
The Hon’ble Bombay High Court in the case of CIT Vs. PTC Software (I) Pvt. Ltd. in Income Tax Appeal No.732 of 2014 had also held that the comparable data should pertain to the same financial year. Accordingly, we hold that the margins of concern having different accounting period cannot be selected for benchmarking international transactions and the same is to be excluded from the final set of comparables. Accordingly, we direct the Assessing Officer to exclude Jindal Intellicom Pvt. Ltd.
The next concern referred by the assessee is Coral Hub Ltd. The first aspect for exclusion of the said concern is its different accounting period, wherein
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Coral Hub Ltd. had prepared the financial statement from 1st April, 2009 to 30th June, 2010. The Assessing Officer had rejected the plea of assessee on the ground that no such filter for rejecting company was applied by the assessee in its TP study report. We find no merit in the said stand of the Assessing Officer especially in view of the ratio laid down by the jurisdictional High Court in the case of CIT Vs. PTC Software (I) Pvt. Ltd. (supra). As in the case of Jindal Intellicom Pvt. Ltd., Coral Hub Ltd. having different financial year, is to be excluded from the final list of comparables. Another aspect for non-inclusion of Coral Hub Ltd. as pointed out by the assessee was that it was following outsourcing model. In this regard, reliance was placed on the ratio laid down by the Hon’ble High Court of Delhi in Rampgreen Solutions (P.) Ltd. Vs. CIT (2015) 60 taxmann.com 355 (Del), wherein it was held as under:- “38….. Plainly, a business model where services are rendered by employing own employees and using one’s own infrastructure would have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the outsourcing of services by Vishal would have no bearing on the profitability of the said entity.”
The Hon’ble High Court had also held as under:- “38.….. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal’s expenditure on employment cost during the relevant period was a small fraction of the proportionate cost incurred by the assessee, apparently, for the reason that most of its work was outsourced to other vendors/service providers.”
The concern Coral Hub Ltd., which was earlier known as Vishal, is thus not to be included in the final list of comparables, in view of the ratio laid down by the Hon’ble High Court of Delhi in Rampgreen Solutions (P.) Ltd. Vs. CIT (supra).
The next concern is Cosmic Global Ltd. The said concern has been considered to be not comparable on the ground of its outsourcing model. The Pune
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Bench of Tribunal in Aptara Technologies (P.) Ltd. Vs. ACIT (2016) 72 taxmann.com 352 (Pune-Trib) had rejected Cosmic Global Ltd., stating as under:-
“19….. In view of the findings of Tribunal in the case of assessee and another IT enabled service provider and the ratio laid down by Hon’ble Delhi High Court, we hold that where Cosmic Global Ltd. was operating in different business model than the assessee in the year under consideration also, the same needs to be excluded from the final set of comparables. Accordingly, we hold so.”
Accordingly, we hold that Cosmic Global Ltd. is to be excluded from the final list of comparables.
The next concern is Accentia Technologies Ltd., which has been included by the Assessing Officer in the final list of comparables and the assessee wants the same to be excluded being not functionally comparable. The first objection is that the said concern was not functionally comparable and the second objection was extraordinary financial event during the year.
Similar issue arose before the Pune Bench of Tribunal in Aptara Technologies (P.) Ltd. Vs. ACIT (supra), wherein while deciding the appeal for assessment year 2010-11, it was directed to be excluded observing as under:- “15….. Further, similar proposition has been laid down by different Benches of Tribunal while deciding the appeals relating to assessment year 2010-11 and it has been held that because of extraordinary events during the year, the concern Accentia Technologies Ltd. was not comparable to the entities engaged in ITES. Following the same parity of reasoning, we hold that Accentia Technologies Ltd. is to be excluded from the final set of comparables.”
The said concern was also directed to be excluded for the extraordinary event of merger of some other equity with the assessee by the Hon’ble High Court of Delhi in the case of PCIT Vs. Xchanging Technology Services India P Ltd. in ITA No.813/2015. Further, the said concern is not functionally comparable to the assessee as it is engaged in transcription, hoarding and billing as well as software and hardware integration capabilities to larger hospitals. Such was the declaration
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by Accentia Technologies Ltd. in its Annual Report, copy of which is placed at page 19 of Paper Book. The assessee is only engaged in providing technical support services to its associated enterprises and hence, the concern Accentia Technologies Ltd. is not functionally comparable to the assessee. Accordingly, we direct the Assessing Officer to exclude the said concern from the final set of comparables.
The next and last concern which the assessee wants exclusion is E4e Healthcare Business Services Pvt. Ltd. on the ground that the same is not functionally comparable being engaged in providing healthcare outsourcing services. We find that the Tribunal in HOV Services Ltd. Vs. JCIT (2016) 73 taxmann.com 311 (Pune-Trib) had rejected E4e Healthcare Business Services Pvt. Ltd. holding as under:- “25. Since the above company is engaged in business of providing healthcare outsourcing services for the healthcare industries, the same in our opinion cannot be compared with the assessee which is engaged in providing ITES enabled services. Therefore, we find merit in the submission of the Ld. Counsel for the assessee that the above company should be excluded from the list of comparables. Ground of appeal No.1 raised by the assessee is accordingly allowed..”
The Tribunal had decided the issue in assessment year 2009-10. However, the assessee pointed out that the functions of said concern were same in assessment year 2010-11 also. Accordingly, we hold that the said concern E4e Healthcare Business Services Pvt. Ltd. is not functionally comparable to the assessee being engaged in providing healthcare outsourcing services. The Assessing Officer thus, is directed to exclude the same from final set of comparables.
The assessee has pointed out that in case Cosmic Global Ltd., Coral Hub Ltd., Accentia Technologies Ltd., E4e Healthcare Business Services Pvt. Ltd. and
18 ITA No.640/PUN/2014 M/s. Schlumberger India Technology Centre Pvt. Ltd.
Jindal Intellicom Pvt. Ltd. are excluded and the margins of CG-VAK Software & Exports Ltd. are applied, then the PLI declared by the assessee falls within +/-5% mean PLI of the comparables. The Assessing Officer accordingly, is directed to determine the arm's length price of international transactions of assessee and make suitable adjustment, if any.
The learned Authorized Representative for the assessee pointed out that in case the above grounds of appeal are decided, then the other issues become academic in nature; hence, the same on account of economic adjustments are not adjudicated.
In the result, appeal of the assessee is partly allowed.
Order pronounced on this 10th day of January, 2018.
Sd/- Sd/- (ANIL CHATURVEDI) (SUSHMA CHOWLA) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 10th January, 2018. GCVSR आदेश की प्रयतलऱपप अग्रेपषत/Copy of the order is forwarded to : 1. The Appellant; 2. The Respondent; The DRP, Pune; 3. 4. The DIT (TP/IT), Pune; 5. The DR ‘A’, ITAT, Pune; Guard file. 6. आदेशािुसार/ BY ORDER, सत्यापऩत प्रतत //True Copy// वररष्ठ तनजी सचिव / Sr. Private Secretary आयकर अऩीऱीय अचधकरण, ऩुणे / ITAT, Pune