2017 (9) TMI 1800 - AT - Income Tax

Tribunal adjusts comparables, dismisses Revenue's appeal, and directs recalculations

Deputy Commissioner of Income-tax, Circle- 1 (1), Pune Versus BNY Mellon International Operations (India) (P.) Ltd.

The Tribunal partially allowed the assessee's appeal by excluding certain companies from the list of comparables and adjusting the margins of another ... TP Adjustment - comparable selection - HELD THAT:- Infosys BPO Ltd. - because of brand value and high turnover associated with Infosys BPO Ltd. and the extraordinary financial events during the year, Infosys BPO Ltd. is to be excluded from final list of comparables. Accordingly, we hold so and direct the Assessing Officer/TPO to exclude Infosys BPO Ltd. Accentia Technologies Ltd. on the ground of extraordinary events during the year under consideration M/S. APTARA TECHNOLOGIES PVT. LTD. (FORMERLY KNOWN AS MAXIMIZE LEARNING PVT. LTD.) VERSUS THE ASST. COMMISSIONER OF INCOME TAX AND VICE-VERSA [2016 (5) TMI 1404 - ITAT PUNE] we hold that Accentia Technologies Ltd. cannot be compared as comparable because of extraordinary events of acquisition and amalgamation during the year. Accordingly, we direct the Assessing Officer/TPO to exclude Accential Technologies Ltd. from final list of comparables. Jeevan Scientific Technology Ltd., which was earlier known as Jeevan Softech Ltd. - we direct the Assessing Officer/TPO to work out correct margins of said concern Jeevan Softech Ltd. and then determine average margins of comparables and apply the same. E-clerx Services Ltd. being KPO company and not comparable from the final list of comparables. Assessee in the written note has furnished PLI after working capital adjustment of said concerns at 19.22% and has pointed out that no adjustment is to be made on account of arm's length price of international transactions, in view of proviso to section 92C(2) of the Act, under which range of +/- 5% of operating revenue be applied. So, we direct the Assessing Officer to verify the computation in this regard and delete the addition in the hands of assessee. Erroneous calculation of capital adjustment - HELD THAT:- DRP had directed to compute working capital adjustment in the hands of comparables. However, the Assessing Officer has not effectively complied with the said directions. Accordingly, we direct the Assessing Officer to re-compute the margins after working capital adjustment. The grounds of appeal Nos. 1 to 5 raised by the assessee are thus, allowed. Deduction for contribution to Provident Fund - addition u/s 43B - HELD THAT:- Where the assessee during the course of assessment proceedings had made a claim before the Assessing Officer for allowing the benefit of deduction under section 43B. The assessee has made payment of PF dues during the year under consideration and consequently, the assessee is entitled to claim the said amount as deduction in the instant assessment year itself. Accordingly, we hold so and direct the Assessing Officer to allow the deduction Issues Involved:1. Transfer Pricing Adjustments2. Selection and Rejection of Comparable Companies3. Calculation of Operating Margins4. Working Capital Adjustment5. Application of Foreign Exchange Earnings Filter6. Turnover Filter7. Selection of ITES and KPO Companies8. Selection of Outliers9. Risk Adjustment10. Transfer Pricing Adjustment and +/- 5% Benefit11. Disallowance of Contribution to Provident Fund12. Credit of Minimum Alternate Tax13. Penalty Proceedings14. Levying of InterestDetailed Analysis:1. Transfer Pricing Adjustments:The assessee and Revenue both appealed against the adjustments made by the DCIT under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, for the assessment year 2010-11. The assessee contested the adjustment amounting to INR 9,99,38,623/- for international transactions with its associated enterprises (AE) related to export of transaction processing services.2. Selection and Rejection of Comparable Companies:The assessee contested the inclusion of Infosys BPO Ltd., Accentia Technologies Ltd., and Jeevan Softech Ltd. as comparables, citing reasons such as high turnover, brand value, and extraordinary events like acquisitions. The Revenue objected to the exclusion of E-clerx Services Ltd. by the DRP, which was considered a KPO and not comparable to the assessee's BPO services.3. Calculation of Operating Margins:The assessee argued that the operating margins of certain comparable companies were not correctly computed as per the DRP's binding directions. Specifically, the PLI of Jeevan Softech Ltd. was incorrectly computed by not considering ERP segment revenue.4. Working Capital Adjustment:The assessee raised the issue of erroneous calculation of working capital adjustment, claiming that the DCIT did not comply with the DRP's directions in computing the same.5. Application of Foreign Exchange Earnings Filter:The assessee argued against the application of an enhanced foreign exchange earnings filter of 75%, which led to the rejection of Allsec Technologies Ltd. while accepting Jeevan Softech Ltd. with a lower ratio.6. Turnover Filter:The assessee contended that the DCIT erred by not applying an upper turnover filter while selecting comparable companies.7. Selection of ITES and KPO Companies:The assessee argued against the selection of ITES and KPO companies as comparables, which were not similar to the assessee's transactional processing BPO services.8. Selection of Outliers:The assessee objected to the selection of outlier companies like Infosys BPO Ltd., Accentia Technologies Ltd., and Jeevan Softech Ltd. as comparables.9. Risk Adjustment:The assessee claimed that the DCIT did not grant risk adjustment, which was necessary for a fair comparison.10. Transfer Pricing Adjustment and +/- 5% Benefit:The assessee argued that the transfer pricing adjustment was made without giving the benefit of +/- 5% as per proviso to section 92C(2) of the Act.11. Disallowance of Contribution to Provident Fund:The assessee contested the disallowance of a deduction for contribution to provident fund amounting to Rs. 3,668,560 paid during the year. The Tribunal directed the Assessing Officer to allow the deduction under section 43B of the Act.12. Credit of Minimum Alternate Tax:The assessee's ground of not granting credit of Minimum Alternate Tax to the tune of Rs. 8,176,909 was not pressed and hence dismissed.13. Penalty Proceedings:The Tribunal found the initiation of penalty proceedings under section 271(1)(c) of the Act premature and dismissed this ground.14. Levying of Interest:The Tribunal noted that the levy of interest under sections 234B and 234C of the Act was consequential and dismissed this ground.Conclusion:The Tribunal allowed the assessee's appeal partly by directing the exclusion of Infosys BPO Ltd., Accentia Technologies Ltd., and E-clerx Services Ltd. from the list of comparables and reworking the margins of Jeevan Softech Ltd. The Revenue's appeal was dismissed. The Tribunal also directed the Assessing Officer to recompute the working capital adjustment and allow the deduction for the provident fund contribution.