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Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’, BANGALORE
Before: SHRI N.V.VASUDEVAN & SHRI ABRAHAM P GEORGE
Assessee in this appeal is aggrieved against order dated 18-12-2014 of Assessing Officer, passed u/s 143(3) of the IT Act, 1961 (‘The Act’) read with section 144C of the Act, 1961. The assessee altogether has raised as many as 15 grounds of which grounds 1 to 12 are on TP matters.
2 IT(TP)A No.185(B)/15 Assessee also filed a petition for admitting the additional ground which again relates to TP issues.
The learned counsel for the assessee submitted that he was not pressing any of the grounds relating to TP issues except ground no. 8 &
11. Learned counsel also submitted that he was not pressing the additional ground either.
2.1 Based on the submissions on the learned AR, we dismiss ground nos. 1 to 13 of the assessee except ground no.8 & 11as also the additional grounds raised by the assessee.
Ground no.8 of the assessee is reproduced hereunder;
“ 8 The learned DRP erred in upholding the inclusion of certain functionally different companies as comparables based on unreasonable comparability criteria. Accentia Technologies Ltd.. Not comparable to appellant since (a) functionally different (b) extra-ordinary events during the year in the form of amalgamation (c) different method of revenue recognition (d) insufficient segmental information (e) abnormally high margins”
3.1 Learned counsel for the assessee submitted that assessee was providing a broad range of IT enabled service in the nature of transaction processing, call centre management, data management, mortgage processing, software technical support services. As per the learned AR these services were being rendered to associated enterprises (AE) in the 3 IT(TP)A No.185(B)/15 USA called ISGN. Again as per the learned AR, the TPO while analyzing the pricing of the international transactions of the assessee with its AE in relation to IT enabled services segment, had considered M/s Accentia Technologies Ltd., as a good comparable. Relying on paper book page-371 learned AR submitted that M/s Accentia Technologies Ltd., was functionally different and this was pointed out to the DRP. As per the learned AR the Annual Report of the said company in its management discussion and analysis clearly mentioned that they were into health care and related services. Reliance was placed on the decision of the Co- ordinate Bench in the case of M/s Novo Nordisk India Pvt.Ltd., Vs DCIT in IT(TP)A No.146(Bang)/2015 AY: 2010-11)dated 30-07-2015. As per learned AR the decision in the case of M/s Novo Nordisk India Pvt.Ltd., Vs DCIT (supra) was also for the very same assessment year and for the same segment viz., IT enabled services. According to him, the Co-ordinate Bench had held M/s Accentia Technologies not a good comparable for ITES segment..
Per contra, learned DR supported the orders of the authorities below.
We have perused the orders and hear the rival contentions. The issue of comparability of M/s Accentia Technologies Ltd., in the ITES segment had come up before this Tribunal in the case of M/s Novo Nordisk India Pvt.Ltd., Vs DCIT (Supra) This Tribunal had held as under;
4 IT(TP)A No.185(B)/15
“ As regards the selection of Acentia Technologies Ltd., as comparable, the learned counsel for the assessee has relied on the decisions of this Tribunal in the cases of Capital IQ Information Systems (Ind.) Pvt.LTd., Vs Addl/Dy CIT, Circle- 1(2), Hyderabad and vice versa (ITA No.124 and 170/Hyd/2014 dated 31.7.2014); Excellence Data Research Pvt.Ltd, Hyderabad Vs ITO Ward 2(1), Hyderabad (ITA No.159/Hyd/2014 dated 31.7.2014); and Hyndai Motors India Eng.Pvt.Ltd., Hyderabad Vs DCIT, Circle-2(2), Hyderabad (ITA No.255/Hyd/2014 dated 31.7.2014, wherein M/s Accentia Tech. Ltd., (Seg) was excluded by the Tribunal from the list of comparables on the ground that it was a case of mergers and acquisition and the company was also found to be functionally different. The relevant observations of the Tribunal as recorded in para-19.2 of the order passed in the case of Excellence Data Research Pvt.Ltd. Hyderabad(Supra) being relevant in this case, are reproduced below; “19.2 We have considered the rival contentions and noticed that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy. In earlier years on the reason of acquisition of some companies by that company may have impact on the profit. Considering the profit margins of the company and insufficient segmental data, we are of the opinion, that this company cannot be selected as a comparable. Moreover, this is also not a comparable in the case of M/s Mercer Consulting (Ind.) Pvt.Ltd (Supra), which indicates that the TPO therein has excluded it at outset. In view of this, we direct the AO/TPO to exclude this comparable, from the list of comparable selected”.
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As pointed out by the learned counsel for the assessee, there was acquisition of a company by M/s Accentia Echnologies Ltd., during the relevant year, and the said company therefore, cannot be considered as comparable due to this extraordinary event which occurred in the relevant year as rightly held by the Tribunal inter-alia in the case of Excellence Data Research Pvt. Ltd(Supra). Although, the learned DR has sought to contend that the acquisition of a company by M/s Accentia Tech.Ltd., took place at the fag end of the year under consideration, the learned counsel for the assessee has pointed out that the process of acquisition had started on 15-05-2008 itself, i.e in the earlier part of the year under consideration. We therefore, follow the decision of the co-ordinate bench of this Tribunal in the case of Excellence Data Research Services Pvt.Ltd (Supra) and direct the AO/TPO to exclude the Accentia Tech.Ltd., from the list of comparables”.
Since assessment year involved is very same, we are of the opinion that the assessee has to succeed on its contention. We direct the lower authorities to exclude Ms Accentia Tech.Ltd., from the list of comparables, while analyzing the pricing of the international transaction undertaken by the assessee in the ITES segment. Ground no.8 of the assessee is allowed.
Ground no.11 of the assessee reads as under;
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“ 11. The ld.DRP erred in rejecting certain comparables considered by the TPO, which were not contended by the assessee, without providing an opportunity of being heard. Microland Ltd., Erroneously rejected based on operating revenue filter and perceived unavailability of export turnover details, which are factually, incorrect, since the TPO failed to consider the information pertaining to segmental results and the foreign exchange earnings provided in the annual report of the said company, while computing the margin and applying the said filters”.
Learned AR submitted that M/s Microland Ltd., was a comparable selected by the TPO. Assessee had never raised any objection to this comparable. However, as per the learned DR, the DRP suo-motto directed exclusion of this company from the list of comparables. As per the learned AR, the reason cited by the DRP was that its revenue from IT Enabled services were only 23% of its total revenue. Further, as per the learned AR the DRP erroneously held that there was no information with regard to the export earning of the said company. Submission of the learned AR was that both these observations were wrong. Relying on paper book at page no.410, learned AR submitted that segmental results of the company dividing the segments into infrastructure management and IT enabled services were readily available in public domain as a part of the schedule to the audited accounts of the relevant previous year. As per the learned AR, once segmental results were available the question of 7 IT(TP)A No.185(B)/15 proportion of segmental revenue to the total revenue was no more relevant.
As for export earnings, the learned AR submitted that the said company had export earnings of 1060587000/- This was reflected in the notes to the account forming part of the audited accounts of the said company which was also available in public domain. Thus, according to him, both reasons cited by DRP for excluding Micro land Ltd from the list of comparables were incorrect. Reliance was placed on the decision of the co-ordinate Bench in the case of 24x7 Customer.com Pvt. Ltd Vs DCIT (M.P.No.37(B)/2013 dated 03-05-2013).
Per contra, learned DR strongly supported the directions of the DRP.
We have perused the orders and heard the rival contentions. The observation of the DRP with regard to M/s Microland Ltd., is reproduced hereunder;
“ Having heard the contention of the assessee on the comparables selected by the TPO, during the hearing, the comparability of the companies selected as comparables by the TPO and not objected by the assessee was examined to arrive at a correct conclusion. It is noticed from the perusal of the Annual Report of Microland Ltd., (One of the comparables of the TPO) that out of the total revenue of Rs.134.15 Crores, the revenue from ITES is only 31.37 Crores which works out to 23% of the total revenue. Hence, the company is not predominantly engaged in the ITES and 8 IT(TP)A No.185(B)/15 therefore, cannot be retained as comparable. Further, there is no information available in regard to export earning and therefore, it cannot be ascertained as to whether it passes the filter of 75% export turnover and therefore, in our opinion, this company cannot be retained as comparable. The AO is accordingly directed to exclude the above company from the comparables”.
9.1 What we find is that in the published account of M/s Microland Ltd., segmentation between ITES and infrastructure management were rightly available. This is reproduced as Annexure to this order.
9.2 This Tribunal in the case of 24x7 Customer.com Pvt.
Ltd.,(Supra) in MP No.37(B)/2013 had held as under;
“ 3.2.2. We have carefully considered the submissions of the learned Authorized Representative as laid out at para-3.2.1. of this order, but are unable to accept the contentions made therein. A clear finding has been rendered in para-17.8 of our order dated 09-11-2012 that this company has clearly demarcated call entre segment (viz. ITES) in the Annual Report/Financial statements of the company. Once well demarcated segmental results are available in the audited financial statements, there is no reason to reject it is comparable merely because the ITES segment constitute only 16% of the revenue, as only segmental results of ITES sector is taken. The observation made in the case of Apollo Health Street Ltd., would therefore, not hold good here. While remanding this matter
9 IT(TP)A No.185(B)/15 of comparability of Apollo Health Street Ltd., the TPO was required to verify the claim on the issue of Related Party Transactions (RPT) and was also directed to look into the matter from the angle of functional comparability. That observation by us cannot be construed as having laid down any legal proposition. Having not raised the specific issue of low volume of ITES segment as a ground for rejection of this company as a comparable in the substantive appeal, the assesssee cannot now raise this issue through a miscellaneous petition. The issue raised being beyond the scope of an M.P. as evident from the provisions of section 254(2) of the Income-tax Act, 1916 (‘The Act’) addressing the same in these proceeding would amount to a revision of our order dated 9.11.2012, which is not permissible. In this view of the matter, we dismiss this ground raised by the petitioner. Ultramarine Pigments Ltd., therefore, continues to be a comparable company as held in our order dated 9.11.2.012 in ITA No.227/Bang/2010”.
9.3 Thus, when the demarcated segmental results are available in the audited financial statements, there is no reason to apply revenue ratios. In so far as export earnings are concerned, audited accounts of M/s Microland Ltd, at its schedule-16(9) placed at paper book page no.405, clearly states that it had earned foreign currency of Rs.1060587000/-. We are therefore, of the opinion, that both the reasons cited by the DRP for excluding M/s Microland Ltd., was incorrect. We therefore, set aside the directions of the DRP in this regard and direct the 10 IT(TP)A No.185(B)/15 TPO to consider M/s MIcroland Ltd., as a good comparable for the purpose of analyzing the pricing of the international transaction undertaken by the assessee. Ground no.11 of the assessee stands allowed.
Ground no.13 raised of the assessee is that credit in respect of Tax Deducted at Source (TDS) mentioned in the return of income was not allowed. We direct the AO/TPO to verify the claim of the assessee with regard to the tax deducted at source and allow credit if found correct.
Ground no.13 is allowed for statistical purposes.
Ground no.14 & 15 are consequential in nature needing no specific adjudication.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on the 30th September, 2015.