TaxTMI 
TaxTMI 
2014 (2) TMI 312
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....For the assessment year under dispute the assessee filed its return of income showing loss of Rs.46,39,840/-. The return filed by the assessee was initially processed under S.143(1) of the Act. Subsequently, during the scrutiny assessment proceeding, the Assessing Officer noticing that the assessee earned revenue from international transactions entered into with its AE, made a reference to the Additional. CIT(Transfer Pricing), Hyderabad for determining the Arm's Length Price(ALP) of the international transactions. For the year under consideration, the assessee entered into following international transactions with it's AE :- IT Enabled Back Office Services- Rs.5,03,55,198.00 Purchase of Fixed Assets- Rs. 96,18,525.00 Reimbursement of expense- Rs. 2,26,678.00 Interest free short term credit loan 3. The TPO had no dispute towards purchase of fixed assets, reimbursement of expenses and interest free short term credit loan. However, in so far as price charged towards provision of ITES is concerned the TPO noticed from the TP documentation submitted by the assessee that the assessee has chosen most Transactional Net Margin Method (TNMM) as the most appropriate method an....
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....,733/- u/s 40(a)(ia) of the Act. As can be seen from the impugned assessment order, in course of assessment proceedings, the Assessing Officer required the assessee to explain why the assessee has not deducted tax at source on communication and circuit charges as they are in the nature of fees for technical services. The assessee submitted that the payment cannot be termed as fees for technical services as they are in the nature of royalty and as such the provisions contained u/s 194J is not applicable. The Assessing Officer however did not accept the contention of the assessee and by relying upon a decision in case of Hutchison Telecom East Ltd. V/s. CIT (16 SOT 404) held that the payment towards communication and circuit charges are akin to fee for technical services, hence liable for TDS u/s 194J. Since assessee has not deducted tax at source on such payment, he disallowed the expenditure claimed u/s 40(a)(ia) of the Act and added it to the income of the assessee. The CIT(A) also confirmed the addition by holding that in view of the decision of Hon'ble Supreme Court in case of CIT V/s. Bharati Cellular Ltd. (330 ITR 239) wherein the Supreme Court remanded the matter to the Asses....
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....gy or techniques in the future without depending upon the provider. Hence, we confirm the order of the CIT(A) that tax is not deductible on payment Data circuit rentals and dismiss the departmental appeal on this issue. 15. The next issue raised by the Department is Payment of band width charges: The Assessing Officer held that payments made to various companies towards bandwidth charges are liable for TDS u/s 194J. He brushed aside the assessee's plea that the payments were made or providing facilities and not any services. In appeal, the CIT(A) accepted the contention of the assessee and held that the payments are in the nature of rent paid for space ITA Nos.1699 to 1701/H/2008 ITA Nos.1706 to 1708/H/2008 M/s Ushodaya Enterprises Pvt. Ltd., Hyderabad allotted in the transponder and the same will not come under the purview of section 194J. The CIT(A) followed the decision of the Hon'ble Madras High Court in the case of Skycell communications Ltd. Vs. DCIT 251 ITR 53 MAD. The CIT(A) also relied on the decision of the Bangalore Bench of the Tribunal in the case of Software Technology Parks of India Vs. ITO 3 SOT Bang. The CIT (A) held that section 194J will not be applicable to th....
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....the comparables objected by the assessee. 12. Vishal Information Technologies Ltd.: Objecting to the aforesaid company having been selected as comparable by the TPO, the learned AR submitted that apart from the fact that the said company is functionally different as it is in the business of providing designing and printing solutions, the primary reason why this company should not be selected as comparable is it has outsourced a considerable part of its business to third party vendors which is evident from huge vendor payment made by the company. This is proved from the fact that its wage to total cost is only 1% as against 30 40% range of the industry. In support of such contention, the leaned AR relied on the decisions of Hyderabad ITAT in case of Capital IQ Information Systems India Pvt. Ltd. (ITA No.1961/Hyd/2011). 13. The learned Departmental Representative, on the other hand, submitted that the TPO having considered all aspects of the matter and selected the aforesaid company as a comparable, it should not be excluded from the comparability analysis. 14. We have heard the contentions of the parties and perused the materials on record. On a perusal of the order passed by the....
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....of total cost is only 1%. This fact has not been controverted by the TPO. Such low employee cost presupposes that the company is outsourcing a major portion of its work to others. Therefore, following our decision in case of Capital IQ Information Systems Pvt. Ltd.(supra), we direct AO/TPO to exclude the aforesaid company as a comparable. 15. Maple E Solutions Ltd. : The learned AR objected to the aforesaid company being treated as comparable as it provides design service on line and outline media ranging from interface to logo design. The service include website evaluation, intranet/extranet, email list management content management, security etc. Hence, the company is functionally dissimilar to the assessee. He further submitted that the said company cannot also be treated as comparable as the directors of the said company were found to be involved in fraud, hence financial results of the company cannot be trusted as reliable. He submitted that extraordinary high profit shown by the company may be due to these reasons. The ld.AR submitted that ITAT ,Hyderabad bench in its own case in ITA No.2066/h/2011 dt.31.01.2013 for the asst. Year2007 08 has held this company as not comparab....
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....ompany cannot be selected as a comparable on account of its low employee cost. In view of such order of the co ordinate Bench, we direct the AO/TPO to examine this aspect and if there is substantial difference between the assessee and the aforesaid company with regard to employee cost, then this company cannot be treated as a comparable. 19. WIPRO BPO Solutions Ltd. : We have heard the contentions of the parties and perused the materials on record in the context of assessee's objection with regard to aforesaid company. The ground on which the assessee has sought exclusion of the aforesaid company is it operates under controlled conditions, incomparable scale of operations, diversified activities. Ld. AR submitted that WIPRO brand commands a premium in the pricing of its products and services due to goodwill, reputation and brand value. Therefore, it cannot be compared to a risk mitigated captive service provider like the assessee. He further submitted that WIPRO BPO cannot be a comparable considering its turnover also. In support of such contention the learned AR relied upon the following decisions: Capital IQ Information Systems India Pvt. Ltd. (ITA No. 1961/Hyd/2011). Market To....
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....ompanies suitable adjustment for the different has to be made or the profit before depreciation may be considered." 24. Respectfully following the aforesaid decision of coordinate bench in assessee's own case we direct the AO/TPO to examine this aspect by either making suitable adjustment for the difference in depreciation or may consider profit before depreciation while computing the margin. This issue is remitted to the file of the Assessing Officer /TPO for fresh consideration after giving due opportunity of being heard to the assessee. 25. Ground No. 6 reads as under: "The learned CIT(A) erred in considering the pre-operative expenses of Rs.44.00,457/- as a component of the operating costs for the determination of arm's length remuneration." 26. The sole grievance of the assessee is that the TPO should not have considered pre-operative expenses of Rs.44,00,457 as operating cost while computing the ALP of the international transaction. As can be seen from the facts on record in the order passed u/s 92CA of the Act, the TPO had adopted the operating cost at Rs.4,87,43,702/-. Subsequently, however he passed an order u/s 154 of the Act by adopting the operating cost at Rs.4,89,....