M/s. IQOR India Services (P) Ltd., New Delhi v. DCIT, New Delhi

CO 136/DEL/2013 | 2008-2009
Pronouncement Date: 27-04-2015 | Result: Partly Allowed

Appeal Details

RSA Number 13620123 RSA 2013
Assessee PAN AABCI2835F
Bench Delhi
Appeal Number CO 136/DEL/2013
Duration Of Justice 1 year(s) 8 month(s)
Appellant M/s. IQOR India Services (P) Ltd., New Delhi
Respondent DCIT, New Delhi
Appeal Type Cross Objection
Pronouncement Date 27-04-2015
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 27-04-2015
Date Of Final Hearing 25-03-2015
Next Hearing Date 25-03-2015
Assessment Year 2008-2009
Appeal Filed On 27-08-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I : NEW DELHI BEFORE: SHRI J.S. REDDY ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K. JUDICIAL MEMBER ITA NO.1581/DEL/2013 (ASSESSMENT YEAR : 2008-09) DCIT WARD 11(4) VS. IQOR INDIA SERVICES PVT. LTD . NEW DELHI. B-92 9 TH FLOOR HIMALAYA HOUSE 23 K.G. MARG NEW DELHI 110 001. (PAN : AABCI2835F) CO NO.136/DEL/2013 (IN ITA NO.1581/DEL/2012) (ASSESSMENT YEAR : 2008-09) IQOR INDIA SERVICES PVT. LTD. VS. DCIT CIRCLE 11 (1) B-92 9 TH FLOOR HIMALAYA HOUSE NEW DELHI. 23 K.G. MARG NEW DELHI 110 001. (PAN : AABCI2835F) (APPELLANT) (RESPONDENT) DATE OF HEARING : 25.03.2015 DATE OF PRONOUNCEMENT : 27.04.2015 APPELLANT BY : SHRI ARUN CHHABRA & MS. KANIKA MAK KAN CAS RESPONDENT BY : SH. JUDY JAMES STANDING COUNSEL DR O R D E R PER GEORGE GEORGE K. JM: THE APPEAL AT THE INSTANCE OF THE REVENUE AND THE CROSS OBJECTION AT THE INSTANCE OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT (A)-XX NEW DELHI DATED 05.02.2013. THE RELEVANT ASSESSMENT YE AR IS 2008-09. ITA NO.1581/DEL./2013 CO NO.136/DEL./2013 2 2. IN REVENUES APPEAL THE SOLITARY EFFECTIVE GROU ND RAISED READS AS UNDER :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.2 36 3 1 584/- MADE ON ACCOUNT OF ALP MADE BY THE TPO. HOWEVER IN THE COURSE OF HEARING THE LD. STANDING COUNSEL CONFINED HIS SUBMISSIONS TO THE EXCLUSION BY THE CIT (A) THE FOL LOWING COMPANIES FROM THE COMPARABLE LIST :- (I) VISHAL TECHNOLOGIES LTD. (II) MOLD TEK TECHNOLOGIES LTD. 3. IN THE ASSESSEES CROSS OBJECTION FOURTEEN GROU NDS HAVE BEEN TAKEN. HOWEVER IN THE COURSE OF HEARING THE LD. AR CONFI NED HIS SUBMISSIONS FOR EXCLUSION OF ECLERX TECHNOLOGIES LTD. FROM THE COMP ARABLE LIST OF COMPANIES. ITA NO.1581/DEL/2013 (REVENUES APPEAL) 4. BRIEF FACTS OF THE CASE ARE AS FOLLOWS. THE ASS ESSEE IS A SUBSIDIARY OF INTELLIRISK MANAGEMENT CORPORATION ('IRMC US') AND IS PRIMARILY ENGAGED IN THE PROVISION OF IT ENABLED SERVICE (ITES). THE A SSESSEE IS A 100% EXPORT ORIENTED UNIT REGISTERED UNDER THE SOFTWARE TECHNOL OGY PARK SCHEME OF DEPARTMENT OF ELECTRONICS GOVERNMENT OF INDIA. DUR ING THE RELEVANT PREVIOUS YEAR THE ASSESSEE PROVIDED BACK OFFICE SERVICES IN THE NATURE OF OUTBOUND CALL CENTER SERVICES AND SUPPORT SERVICES TO ITS ASSOCIA TED ENTERPRISES ('AES'). IN THE TRANSFER PRICING DOCUMENTATION THE ASSESSEE WAS CH ARACTERIZED AS A LIMITED RISK IT ENABLED SERVICE PROVIDER WHILE RENDERING CALL CE NTER AND SUPPORT SERVICES. THE INTERNATIONAL TRANSACTION UNDERTAKEN BY ASSESSE E DURING THE YEAR WAS :- ITA NO.1581/DEL./2013 CO NO.136/DEL./2013 3 S.NO. DESCRIPTION OF EACH TRANSACTION AMOUNT 1 INFORMATION TECHNOLOGY ENABLED SERVICES 29 56 53 486 2 REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF AE 45 05 234 WITH REGARD TO REIMBURSEMENT OF EXPENSES THE SAME WAS ACCEPTED AT ARMS LENGTH. WITH REFERENCE TO ITES THE ASSESSEE USED T RANSACTIONAL NET MARGIN METHOD ('TNMM') AND SELECTED OPERATING PROFIT/TOTAL COST ('OP /TC') AS PROFIT LEVEL INDICATOR ('PLI'). THE MARGIN EARNED BY THE A SSESSEE DURING THE FINANCIAL YEAR (FY) 2007-2008 WAS 18.06% AS OPPOSED TO 16.11% BEING THE MEAN MARGIN EARNED BY COMPARABLES. SINCE THE MARGIN EARNED BY THE ASSESSEE WAS MORE THAN THAT OF THE COMPARABLES THE INTERNATIONAL TRANSACT ION WAS CONCLUDED TO BE AT ARM'S LENGTH. 5. DURING THE ASSESSMENT PROCEEDINGS THE TPO ACCEP TED THE METHOD I.E. TNMM AND THE PLI I.E. OP/ TC SELECTED BY THE ASSESS EE FOR COMPUTING THE ALP OF INTERNATIONAL TRANSACTION. THE TPO REJECTED FEW FILTERS APPLIED BY THE ASSESSEE AND APPLIED NEW FILTERS TO THE SEARCH PROCESS. OUT OF THE NINE COMPANIES SELECTED BY THE ASSESSEE THE TPO REJECTED SIX COMPANIES BAS ED ON THE FINANCIAL DATA FOR FY 2007-08 AND ON ACCOUNT OF VARIOUS REASONS INTROD UCED SEVENTEEN ADDITIONAL COMPARABLE COMPANIES. THE TPO FINALLY SELECTED TWEN TY COMPARABLES TO DETERMINE THE ALP. THE TPO RECALCULATED THE OP /TC MARGIN OF TWENTY COMPARABLES AS 27.50 PERCENT BASED ON THE DATA FOR FY 2007-08 AND AFTER GRANTING WORKING CAPITAL ADJUSTMENTS. ITA NO.1581/DEL./2013 CO NO.136/DEL./2013 4 6. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. BEFORE THE CIT (A) THE ASSESSEE AMONGST VARIOUS O THER ISSUES CHALLENGED THE SELECTION OF FOLLOWING COMPARABLES :- (I) ACCENTIA TECHNOLOGIES LTD. (II) INFOSYS BPO LIMITED (III) ECLERX SERVICES PRIVATE LIMITED (IV) DATAMATICS FINANCIAL SERVICES LTD. (V) TRITON CORP LTD. (VI) CORAL HUB LTD (FORMALLY KNOWN AS VISHAL TECHNOLOGIE S LTD.) (VII) MOLD-TEK TECHNOLOGIES LIMITED (VIII) HCL COMNET SYSTEMS AND SERVICES LIMITED (IX) WIPRO BPO (X) GENESYS INTERNATIONAL CORPORATION LTD. (XI) ACROPETAL TECHNOLOGIES LTD. (XII) NIIT SMARTSERVE LTD. OUT OF THE ABOVE THE CIT(A) ACCEPTED ASSESSEES CO NTENTION REGARDING MOLD-TEK TECHNOLOGIES LIMITED AND CORAL HUB LIMITED (FORMALL Y KNOWN AS VISHAL TECHNOLOGIES LIMITED) AND UPHELD THE SELECTION OF O THER COMPARABLES. 7. THE DEPARTMENT HAS CHALLENGED THE ORDER OF CIT ( A) VIDE ITA NO.1581/DEL/2013. THE ONLY POINT OF CONTENTION IN THE DEPARTMENTS APPEAL IS REJECTION BY CIT (A) OF THE FOLLOWING COMPANIES FRO M THE COMPARABLE LIST :- (I) CORAL HUB LTD (FORMALLY KNOWN AS VISHAL TECHNOLOGIE S LIMITED) (II) MOLDTEK TECHNOLOGIES LIMITED 8. HEARD RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD THE ABOVE TWO COMPANIES HAVE BEEN REJECTED AS COMPARABLE BY THE O RDER OF THE TRIBUNAL IN ITA NO.1581/DEL./2013 CO NO.136/DEL./2013 5 ASSESSEES OWN CASE FOR AY 2007-08 (ITA NO.6034/DEL /2012). THE REASONING OF THE TRIBUNAL IS THAT THE ABOVE TWO COMPANIES ARE FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEES COMPANY. IN THIS ASSESSMENT YEAR THE FACTS ARE IDENTICAL TO THAT OF THE FACTS IN ASSESSMENT YEAR 2007-08 AND T HEREFORE OUR REASONING IN ITA NO.6034/DEL/2012 FOR ASSESSMENT YEAR 2007-08 WLL HO LD GOOD FOR THIS ASSESSMENT YEAR. FOR READY REFERENCE OUR FINDING FOR ASSESSMENT YEAR 2007-08 IS REPRODUCED BELOW :- (II) VISHAL INFORMATION TECHNOLOGY LTD. VISHAL INFORMATION TECHNOLOGY LTD IS ENGAGED IN DIV ERSIFIED ACTIVITIES SUCH AS E-PUBLISHING THEREFORE IT IS F UNCTIONALLY DIFFERENT FROM ASSESSEE. FURTHER THE HONBLE TRIBU NAL IN THE CASE OF TECHBOOKS INTERNATIONAL PVT. LTD. VS. ACIT CIR-1 IN ITA NO.4990/DEL/2011 IN AY 2007-08 HAS ALSO REJECTED VI SHAL AS A COMPARABLE EVEN THOUGH THE ASSESSEE IN THAT CASE HA D INITIALLY INCLUDED THE SAME AS COMPARABLE COMPANY. THE TRIBUN AL HELD VISHAL WAS HAVING LOW EMPLOYEE COST OF 3% IN COMPAR ISON TO 60% OF ASSESSEE IN THAT CASE. IN THE RELEVANT YEAR ASS ESSEE WAGES/TOTAL COST RATIO STANDS AT 58.01%. AND THEREFORE NOT FUNC TIONALLY COMPARABLE WITH THE ASSESSEE COMPANY. MOREOVER VI SHAL IS VERY HIGH PROFIT MAKING COMPANY AND OPERATES ON OUTSOURC ING MODEL AND HENCE HAS DIFFERENT BUSINESS MODEL TO THAT OF ASSESSEE. FURTHER THE CIT(A) IN THE SUBSEQUENT YEAR I.E AY 2 008-09 ALSO REJECTED THE SAME FROM THE LIST OF COMPARABLE IN TH E ASSESSEE S OWN CASE. THEREFORE WE ACCEPT THE CONTENTION OF TH E LD. COUNSEL AND DIRECT FOR THE EXCLUSION OF THIS COMPANY FROM T HE FINAL LIST OF COMPARABLES. (III) MAPLE E SOLUTIONS LTD. AND TRITON CORPORATIO N LTD. THE PROMOTERS OF THE COMPANY WERE INVOLVED IN THE F RAUD FOR EARLIER YEARS HENCE THE FINANCIAL RESULTS OF THESE COMPANIES ARE DISTORTED AND ACCORDINGLY CANNOT BE RELIED UPON. TH E SAID VIEW HAS ALSO BEEN HELD IN VARIOUS JUDICIAL RULINGS NAME LY: M/S. CAPITAL IQ INFORMATION SYSTEMS (INDIA ) PVT. L TD. VS. DCIT (ITA NO.1961/HYD/2011) AY 2007-08 PARA 19 (PAGE 831-832 OF THE PAPERBOOK) ITA NO.1581/DEL./2013 CO NO.136/DEL./2013 6 ITO VS. CRM SERVICES INDIA (P) LTD.(ITA NO. 4068 (DEL)/2009) AY 2006-07 (PAGE 889-891 OF THE PAPERBOOK) M/S.STREAM INTERNATIONAL SERVICES PVT.LTD VS. ACIT AY 2007-08 (ITA NO. 8290/MUM/2011) (PAGE 1351-1352 OF THE PAPERBOOK) M/S. PENTAIR WATER INDIA PVT. LTD. VS. ACIT (ITA NO . 02/PNJ/2013) AND ACIT VS. M/S. PENTAIR WATER INDIA PVT. LTD. (ITA NO. 05 /PNJ/2013) AY 2006-07 PARA 4.3.1 ( I) (PAGE 893 OF THE PAPERBOOK) M/S. IVY COMPTECH PVT. LTD. VS. THE ACIT (ITA NO. 1558/HYD/2010) AY 2005-06 PARA 7(B) (PAGE 899 OF THE PAPERBOOK) M/S. MARKET TOOLS RESEARCH PVT. LTD. VS. DCIT ((ITA NO.1150/HYD/2011) AY 2005-06 PARA 16 (PAGE 902 OF THE PAPERBOOK) M/S. HSBC ELECTRONIC DATA PROCESSING INDIA LTD. VS. ACIT AY 2006-07 (ITA NO.1624/HYD/2010 & STAY APPLICATION NO.210/HYD/2012 THEREIN) PARA 12.1 (PAGE 906 OF THE PAPERBOOK) M/S.STREAM INTERNATIONAL SERVICES PVT.LTD VS. THE D IRECTOR OF INCOME TAX (ITA NO.8997/MUM/2010) AY 2006-07 PAR A 17 (PAGE 911 OF THE PAPERBOOK) IN VIEW OF THE ABOVE WE DIRECT FOR THE EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 9. FOR THE AFORESAID REASON WE HOLD THAT THE CIT ( A) IS JUSTIFIED IN EXCLUDING THE ABOVE MENTIONED COMPANIES FROM THE LIST OF THE COMPARABLES. IT IS ORDERED ACCORDINGLY. CO NO.136/DEL./2013 (ASSESSEES CO) 10. IN THE CROSS OBJECTION THE ONLY ISSUE THAT IS RAISED IS WHETHER COMPANY ECLERX TECHNOLOGIES LTD. IS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THE ITA NO.1581/DEL./2013 CO NO.136/DEL./2013 7 SAME COMPANY WAS EXCLUDED BY THE TRIBUNAL IN ASSESS EES OWN CASE FOR THE ASSESSMENT YEAR 2007-08. THEREFORE THE REASONING OF THE TRIBUNALS ORDER FOR ASSESSMENT YEAR 2007-08 WILL HOLD GOOD FOR THIS ASS ESSMENT YEAR ALSO SINCE THE FACTS ARE IDENTICAL WITH THE FACTS OF THE INSTANT C ASE. THE RELEVANT FINDING OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007-08 READS AS F OLLOWS :- (I) ECLERX SERVICES LTD. ECLERX IS ENGAGED IN PROVIDING DATA ANALYTICS SERVI CES WITH EXPERTISE IN FINANCIAL SERVICE AND RETAIL AND MANUF ACTURING. THE SERVICE PROVIDED BY THE COMPANY ARE HIGH END IN NAT URE INVOLVING SPECIAL KNOWLEDGE AND DOMAIN EXPERTISE AND THEREFOR E NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE COMPANY W HICH IS ENGAGED IN PROVIDING LOW END ITES ENABLED CALL CENT RE SERVICES TO ITS AE. THE FACT ECLERX SERVICES LTD. IS PROVIDING HIGH END SERVICES INVOLVING SPECIAL KNOWLEDGE AND DOMAIN EXP ERTISE IS EVIDENT FROM THE COMPANYS OWN REPLY TO THE NOTICE U/S 133(6) WHICH IS PLACED AT PAGES 976 TO 979 OF THE PAPER BO OK FILED BY THE ASSESSEE. THE HONBLE SPECIAL BENCH OF THE TRIBUNA L IN CASE OF MAERSK GLOBAL CENTRE (INDIA) PRIVATE LTD. VS. ACIT (ITA NO.7466/MUMBAI/ 2012) HAD EXCLUDED ECLERX SERVICES PVT. LTD. FROM THE LIST OF COMPARABLES FOR THE REASON THAT IT IS PROVIDING HIGH END SERVICES INVOLVING SPECIALISED KNOWLEDGE A ND DOMAIN EXPERTISE AND SAME CANNOT BE COMPARED WITH COMPANIE S WHICH ARE MAINLY ENGAGED IN PROVIDING LOW END SERVICES TO GROUP COMPANIES. THE RELEVANT FINDING OF THE HONBLE TRI BUNAL READ AS FOLLOWS :- IN SO FAR AS M/S ECLERX SERVICES LIMITED IS CONCER NED THE RELEVANT INFORMATION IS AVAILABLE IN THE FORM OF AN NUAL REPORT FOR FINANCIAL YEAR 2007-08 PLACED AT PAGE 16 6 TO 183 OF THE PAPER BOOK. A PERUSAL OF THE SAME SHOWS THAT THE SAID COMPANY PROVIDES DATA ANALYTICS AND DATA P ROCESS SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORL D AND IS RECOGNIZED AS EXPERTS IN CHOSEN MARKETS-FINANCIAL S ERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE P ROVIDING COMPLETE BUSINESS SOLUTIONS BY COMBINING PEOPLE PR OCESS IMPROVEMENT AND AUTOMATION. IT IS CLAIMED TO HAVE EMPLOYED OVER 1500 DOMAIN SPECIALISTS WORKING FOR T HE CLIENTS. IT IS CLAIMED THAT ECLERX IS A DIFFERENT C OMPANY WITH INDUSTRY SPECIALIZED SERVICES FOR MEETING COMP LEX CLIENT NEEDS DATA ANALYTICS KPO SERVICE PROVIDER ITA NO.1581/DEL./2013 CO NO.136/DEL./2013 8 SPECIALIZING IN TWO BUSINESS VERTICALS FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE E NGAGED IN PROVIDING SOLUTIONS THAT DO NOT JUST REDUCE COST BUT HELP THE CLIENTS INCREASE SALES AND REDUCE RISK BY ENHAN CING EFFICIENCIES AND BY PROVIDING VALUABLE INSIGHTS THA T 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 OPER ATIONS MANAGEMENT AUDITS AND RECONCILIATION METRICS MANAGEMENT AND REPORTING SERVICES. IT ALSO PROVIDES TAILORED PROCESS OUTSOURCING AND MANAGEMENT SERVICE S ALONG WITH A MULTITUDE OF DATA AGGREGATION MINING AND MAINTENANCE SERVICES. IT IS CLAIMED THAT THE COMPAN Y HAS A TEAM DEDICATED TO DEVELOPING AUTOMATION TOOLS TO SU PPORT SERVICE DELIVERY. THESE SOFTWARE AUTOMATION TOOLS I NCREASE PRODUCTIVITY ALLOWING CUSTOMERS TO BENEFIT FROM FU RTHER COST SAVING AND OUTPUT GAINS WITH BETTER CONTROL OV ER QUALITY. KEEPING IN VIEW THE NATURE OF SERVICES REN DERED BY M/S ECLERX SERVICES PVT. LTD. AND ITS FUNCTIONAL PR OFILE WE ARE OF THE VIEW THAT THIS COMPANY IS ALSO MAINLY EN GAGED 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 THA T IF THE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPAN Y FOR ITS AES ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES PVT. LTD. AND MOLD-TEK TECHNOLOGIES LTD. IT IS DIFFICULT TO FIND OUT ANY RELATIVELY EQUAL DE GREE OF COMPARABILITY AND THE SAID ENTITIES CANNOT BE TAKEN AS COMPARABLES FOR THE PURPOSE OF DETERMINING ALP OF T HE TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. WE THEREFORE DIRECT THAT THESE TWO ENTITIES BE EXCLUD ED FROM THE LIST OF 10 COMPARABLES FINALLY TAKEN BY THE AO/ TPO AS PER THE DIRECTION OF THE DRP. THE ABOVE RULING OF HONBLE SPECIAL BENCH IS EQUALL Y APPLICABLE TO THE FACTS OF THIS CASE AS IT IS EVIDENT FROM TH E FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY THAT IT IS A LOW END SERVIC ES PROVIDER NAMELY ENGAGED IN PROVIDING CALL CENTRE SERVERS TO ITS AE. FOR THE AFORESAID REASONS WE DIRECT THE TPO TO EXCLUDE ECLERX SERVICES LTD. FROM THE FINAL LIST OF COMPARABLES. ITA NO.1581/DEL./2013 CO NO.136/DEL./2013 9 11. IN VIEW OF THE RULING OF THE TRIBUNAL IN ASSESS EES OWN CASE FOR ASSESSMENT YEAR 2007-08 WE DIRECT THE TPO TO EXCLU DE ECLERX TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES AND TO COMPUTE TH E MARGIN AND CALCULATE THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF THE ASSESSEE. IT IS ORDERED ACCORDINGLY. 12. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 27 TH DAY OF APRIL 2015. SD/- SD/- (J.S. REDDY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 27 TH DAY OF APRIL 2015 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-X NEW DELHI 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.