2019 (8) TMI 986 - AT - Income Tax

Tribunal allows cross objections, upholds exclusion of comparables, and emphasizes accurate transfer pricing assessments

The Tribunal allowed the assessee's cross objections filed with a delay of 277 days, condoning the delay and admitting them for adjudication on merit. It ... Condonation of delay - delay of 277 days - assessee submitted, though the DRP has held that the assessee comes within the purview of Knowledge Process Outsourcing (KPO) Company and since due to the relief granted by the DRP on other issues, assessee’s margin came within the acceptable range of the margin of the comparables requiring no further adjustment, assessee was advised not to file any appeal or cross objection initially but subsequently, on professional advice, assessee filed the present cross objections - HELD THAT:- Delay in filing the present cross objections is due to reasonable cause. Accordingly, we condone the delay and admit the cross objections for adjudication on merit. TP Adjustment - comparable selection - HELD THAT:- Coral Hubs Ltd. - as seen from the materials available on record that the personnel cost as a ratio of the total cost works out to 4.40% as against assessee’s personnel cost of 36.37% - unlike the assessee, this company is not providing services itself, but has employed third party vendors to do the work. Thus, the business model of the company is totally different from the assessee. Considering the aforesaid aspect, the Tribunal in Cummins Turbo Technologies Ltd. [2018 (3) TMI 1588 - BOMBAY HIGH COURT] has excluded this company as a comparable. The aforesaid decision of the Tribunal was approved by the Hon'ble Jurisdictional High Court in the decision cited supra. Since the aforesaid decisions are for the very same assessment year, respectfully following them, we hold that the Coral Hubs Ltd. was rightly rejected as a comparable. e–Clerx Services Ltd - it is seen that during the year under consideration, it has acquired a U.K. based company which has not only provided a large existing customer base in Europe, but by virtue of such acquisition, the company has been provided a platform in the European market to expand its business. Thus, the aforesaid acquisition during the year certainly has impacted the profitability of the company which is evident from the super normal profit earned by it during the year. Considering the aforesaid factual aspect, the Tribunal in Goldman Sachs Pvt. Ltd. [2015 (4) TMI 911 - ITAT MUMBAI] and Hyundai Motors India Engineering Pvt. Ltd. [2014 (3) TMI 680 - ITAT HYDERABAD] has excluded this company as a comparable - we uphold the decision of learned DRP in excluding e–Clerx Services Ltd. as a comparable. Mold Tech Technologies Ltd. - During the year under consideration, there was not only an amalgamation of Techman Tools Pvt. Ltd. but there was a demerger with Mold Tech Plastics Ltd. Thus, due to amalgamation and demerger, there is a definite impact on the profitability of the company, which is reflected in the super normal profit earned by it. Looking at the aforesaid factual position, the Tribunal in Goldman Sachs Services Pvt. Ltd. [2015 (4) TMI 911 - ITAT MUMBAI] and Transcent M.T. Services Pvt. Ltd. [2016 (4) TMI 356 - ITAT DELHI] has excluded this company as a comparable. As these decisions of the Tribunal are for the very same assessment year and there being no material difference in fact, respectfully following the aforesaid decisions of the Tribunal, we uphold the decision of learned DRP in excluding the Mold Tech Technologies Ltd. as a comparable. Grounds raised are dismissed. Revenue’s appeal is dismissed. Issues Involved:1. Cross objections filed by the assessee with a delay of 277 days seeking condonation of delay.2. Revenue's appeal against the decision of the DRP in excluding three comparables for the assessment years 2008-09 and 2010-11.3. Classification of the assessee as a KPO service provider.4. Exclusion of specific companies as comparables by the DRP.5. Restoration of issues raised in appeals and cross objections to the file of the DRP for fresh adjudication.Issue 1: Condonation of Delay in Filing Cross Objections:The assessee filed cross objections with a delay of 277 days, seeking condonation of delay. The delay was attributed to professional advice after the DRP granted relief on other issues, leading to a reconsideration of challenging the decision of being categorized as a KPO service provider. The Tribunal, after considering rival submissions, condoned the delay, admitting the cross objections for adjudication on merit.Issue 2: Revenue's Appeal Against Exclusion of Comparables:The Revenue challenged the DRP's decision to exclude three comparables for the assessment years 2008-09 and 2010-11. The Transfer Pricing Officer treated the assessee as a high-end ITES provider, leading to an upward adjustment in the arm's length price. However, the DRP excluded specific companies as comparables, impacting the final assessment. The Tribunal upheld the decision of the DRP in excluding these companies based on factual differences and abnormal profit trends, as supported by relevant case laws and decisions.Issue 3: Classification of the Assessee as a KPO Service Provider:The DRP classified the assessee as a KPO service provider, leading to objections and subsequent exclusion of certain comparables by the DRP. The assessee contended that post-exclusion, its margin aligned with the remaining comparables, necessitating no further adjustments. The Tribunal dismissed the cross objection as infructuous due to the upheld exclusion of comparables, leaving the classification issue open for future assessment years.Issue 4: Exclusion of Specific Companies as Comparables:The DRP excluded Coral Hubs Ltd., e-Clerx Services Ltd., and Mold Tech Technologies Ltd. as comparables based on factual differences impacting profitability. The assessee argued against their inclusion, citing business model disparities and abnormal profit trends post-acquisition or amalgamation. The Tribunal upheld the DRP's decision, supported by case laws demonstrating similar exclusions in comparable cases.Issue 5: Restoration of Issues to DRP for Fresh Adjudication:Both parties agreed to restore issues raised in the appeals and cross objections to the DRP for fresh adjudication, considering factual inaccuracies and pending rectifications. The Tribunal allowed the appeals and cross objections for statistical purposes, directing the DRP to provide a comprehensive finding on all objections raised by the assessee.In conclusion, the Tribunal dismissed the Revenue's appeal in one case and allowed it in another for statistical purposes, while dismissing one cross objection and allowing another for the same purpose, emphasizing the need for accurate adjudication and factual considerations in transfer pricing assessments.