TaxTMI 
TaxTMI 
2013 (6) TMI 374
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....earned AC, based on the directions of the DRP erred. 1. In making an upward adjustment of Rs. 23,621,580 in determining the arm's length price of the international transaction for provision of information technology enabled services by the Appellant, inter-alia on the following ground: a. Rejecting the functional analysis, search process adopted and documentation maintained by the Appellant for this transaction. b. Including additional companies which are not comparable to the Appellant, inter-alia due to functional incomparability, super normal profits and exceptional year of profit. c. Using contemporaneous data for calculating arm's length price of the international transaction entered by the Appellant. d. Rejecting the multiple year data and relying only on data for the year ended March 2008 for the comparable companies. e. Not granting the working capital a....
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....s computed at 7.5%. However, TPO was not satisfied with the TP study filed by the assessee and he conducted his own search and find out 23 comparables and the arithmetic mean of those comparables obtained and taken by TPO as under: S. No. Name of the Comparable PLI (OP/TC)% 1. Accentia Technologies Ltd. (Seg) 41.77 2. Acropetal Technologies (Seg) 33.44 3. Aditya Birla Minacs Worldwide Ltd. 2.20 4. Asit Mehta Financial Services Ltd. (Seg) 9.42 5. Coral Hubs Ltd. (Formerly Vishal Information Technologies Ltd.) 50.68 6. Cosmic Global Ltd. 23.30 7. Crossdomain Solutions Ltd. 26.90 8. Datamatics Financial Services Ltd.(Seg) 34.87 9. e4e Healthcare Solutions Ltd. 16.72 10. Eclerx Services Ltd. 65.88 11. Genesys International Corporation Ltd. 47.40 12. Infosys BPO Ltd. 20.01 13. I services India Pvt. Ltd. 9.58 14. Maple eSolutions Ltd. 20.43 15. Mold-Tek Technologies Ltd. 96.66 16. R Systems International (Seg) 4.30 17. Spanco Ltd. (Seg) 11.04 18. Triton Corp. Ltd 23.81 19. Wipro Ltd (Seg) 30.05 20. Crisil....
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.... that according to several decisions of 1TAT Coral Hubs Ltd (formerly Vishal Information Technology Ltd.) cannot be compared with the assessee who is carrying on of ITES as the said concern is not carrying out the said activity at its own and such activity is outsourced. To support such contention Ld. AR referred to the submissions made before TPO and DRP, wherein the assessee had objected the inclusion of Coral Hubs Ltd. as comparable and reference was made to Annexure-2 filed at page 191 of the paper book, wherein inclusion of Coral Hubs Ltd. was objected on the ground that employee cost of Coral Hubs Ltd. is only 4.39% of its operating cost and its substantial vendor payments, hire charges etc. of Rs. 21.82 cores being 87% of its total expenditure evidencing that the company has outsourced and has not provided the services by itself. Reference was also made to the accounts of the said company, copy of which is filed at pages 7 to 18 of the paper book and reference was made to page-13, where the revenue of Vishal Information Technology i.e. Coral Hubs Ltd. is to the tune of Rs. 38.07 crores and as against that vendor payments are to the tune of Rs. 25.65 crores and salaries to th....
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....sp; As computed by the TPO Correct margin Sales-IT Division 178,458 178,458 Add: Other operating income - 9,215 Operating Revenues 178,458 187,673 Expenses debited to P&L account 160,568 160,568 Less: Interest & finance charges 5,435 5,435 Less: Preliminary & deferred expenses written off 13 13 Less: Provision for derivative loss 64,377 - Add: Provision for Fringe benefit tax - 442 Operating Expenses 90,743 155,562 Operating Profit 87,715 32,111 Operating Margin on cost (Operating Profit) 96.66% 20.64% (iii) Third objection of Ld. AR was regarding Datamatics Financial Services Ltd. (Seg) which is the comparable listed at SI. No.8. It is the case of Ld. AR that instead of taking segment wise result, TPO has adopted consolidated result and after considering such consolidated result the margin has been computed at 34.87%. He submitted that according to the submissions made by the assessee before TPO as well as DRP a request was made to take segmental result. He carried us through the submissions made before TPO as well as DRP where....
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....y has outsourced its activity. He submitted that the decisions relied upon by Ld. AR relate to earlier years, therefore, for the year under consideration, unless verified from accounts, the contentions of the assessee should not be accepted. He referred to the decision in the case of Willis Processing Services (I) (P.) Ltd. (supra), wherein similar issue was considered by the Tribunal and matter was restored back to the file of AO/TPO for proper examination of the relevant facts. The relevant observation of the Tribunal from the said decision are as under: "61. Ground no. 2 is regarding comparable namely Vishal Information Technology Ltd., which has been deleted by the CIT(A). 61.1 The CIT(A) has excluded this comparable on the ground that this company outsourcing its business and the employees cost is less than 1% of the total cost. The CIT(A) has followed the decision of the Tribunal in the case of Maersk Global Services Centre India Ltd., wherein the Tribunal has observed that this company has outsourced a considerable portion of business and therefore, cannot be compared with an entity which is carried out the entire operation itself 62. Before us, the ld DR has produc....
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....the parties and their contentions have carefully been considered. Since the appeal was argued by Ld. AR only on limited issue of exclusion of Coral Hubs Ltd. as comparable and for the purpose of taking correct rate of profit in hands of Mold-tek Technologies Limited and Datamatics Financial Services Ltd. (Seg), we proceed to decide this appeal on these submissions as according to Ld. AR, if such exercise is done then profit margin of the assessee will fall within the safe harbour of +/- 5%. The calculation submitted by Ld. AR is as under: Name of the comparable company TPO Margin TPO Margin excluding Coral Hubs Ltd. Acropetal Technologies (Seg). 33.44 33.44 Firstsource Solutions Ltd. 15.25 15.25 R. Systems Limited 4.3 4.3 Titus Technologies Limited 39.05 39.05 Aditya birla Minacs 2.2 2.2 Coral Hub (Vishal Inf) 50.68 Infosys BPO 20.01 20.01 Maple E-Solutions Limited 20.43 20.43 Mold Tek 96.66 96.66 Triton Corp 23.81 23.81 Cosmic Global 23.3 23.3 Datamatics financial (BPO Div) 34.87 34.87 Eclerx 65.88 65.88 Accenua 41.77 41.77 Asit C Meht....