TaxTMI 
TaxTMI 
TaxTMI 
2014 (3) TMI 680
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....accordingly, these grounds are also dismissed as not pressed. Ground No.5 is with reference to interest under section 234B, which is consequential in nature. Ground No. 2.8 is application of 92C(2) proviso of plus or minus 5% to the arms length range and Ground No. 2.9 is an argument that assessee, having benefit under section 10A does not have any motive to charge less from the AE and there is no tax avoidance by the assessee. Ground No. 2.8 is statutory provision whereas ground No.2.9 is an argument which does not require any adjudication. The remaining grounds are mainly on (a) Filters adopted by the TPO (Grounds 2.1.2, 2.3); (b) Comparables selected/not selected by TPO (2.6); and (c) Risk adjustments (2.5). Therefore, the main issue is to be considered in this appeal are, with reference to various filters selected by the TPO, comparables and risk adjustments. 3. Briefly stated, assessee Hyundai Motor India Engineering P. Ltd (in short "HMIEPL") is a company incorporated in November, 2006 as a subsidiary of Hyundai Motor India Limited (in short "HMIL"). The assessee HMIEPL and HMIL formed part of Hyundai Motor Company, Korea. The assessee is engaged in the business of provi....
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....ding 25%. This issue was objected to by the assessee whereas, DRP discussed this issue and rejected as under : "The assessee objects to the adoption of 25% RPT filter for selection of comparables. It would not be a practical approach to consider only companies with NIL related party transactions because almost all the companies have related party transactions to some extent. Nil % criteria would result in selection of very small number of companies which may not give sufficient base for comparison. Therefore, 25% is a proper threshold limit for related party transactions. For these reasons the threshold limit of 25% for RPT looks reasonable. Hence, the objection of the assessee is rejected." 4.3 After considering the rival contentions, we agree with the observations of the DRP, as threshold limit of 25% for RPT looks reasonable. We affirm the DRP opinion on this. 4.4. The next objection is with reference to export sales filter. Even though assessee has not applied any filter in its T.P. study, the TPO excluded companies having less than 25% revenue as export sales. This was objected to by the assessee before the DRP but there is no decision on this issue. Considering the compara....
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.... vs. DCIT, Hyderabad reported at 35 Taxman.com 423 dated 07.06.2013. 7. The learned D.R. on the other hand, relied on the order of the TPO and directions of the DRP wherein the DRP has given reasons as to why the objections of the assessee to the comparables proposed by the TPO should not be accepted. 7.2 Assessee has no objection for accepting the companies at sl.nos. (3) Aditya Birla Minacs, (4) Asit C Mehta, (5) Caliber Point Business Solutions Ltd., (9) e4e (13) ICRA Online Ltd. (seg.) (15) I-Services India P. Ltd. (16) R Systems International Ltd. (seg.) (17) Spanco Ltd. We will deal with the objections with rest of comparables while we take-up each of these for consideration. I. ACCENTIA TECHNOLOGIES LTD. (Seg.) This was considered as a comparable by the TPO and listed at Sl.No.1 of the comparable companies chosen by the TPO. The ld. Counsel for the assessee drew our attention to the fact that there are extra ordinary events that occurred during the previous year in this company. Our attention was drawn to the annual report of this company for the A.Y. 2007- 08 wherein the fact that this company had acquired Thunga Software Pvt. Ltd., GSR Physicians Billing Services Inc.,....
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....s named as Moldtek Plastics Ltd. The KPO business remained with the company. A perusal of the Annual report revealed that to give effect to the merger and demerger, the financial statements were revised and restated after six months form the end of the financial year 31.3. 2008. The assessee filed Form No.21 under the Companies Act with the Registrar of Companies on 26th August, 2008. Thus the effective date of the scheme of merger and demerger was 26th August, 2008. The Annual Report supported the argument of the assessee that there were merger and demerger in the financial year and it was an exceptional year of performance as financial statements were revised by this company much after the closure of the previous year. The Panel agrees with the contention of the assessee that it is an exceptional year having significant impact on the profitability arising out of merger and demerger." 11. On careful consideration of the matter, we also agree with the aforesaid view of the DRP that extra-ordinary event like merger and de-merger will have an effect on the profitability of the company in the financial year in which such event takes place. It is the contention of the assessee that in....
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....rvice and Information Technology Services. The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee. The performance of Engineering Design Services is regarded as providing high end services among the BPO which requires high skill whereas the services performed by the Assessee are routine low end ITES functions. We therefore hold that this company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcing [KPO] would do and not a Business Process Outsourcing [BPO]. As can be seen above, even though the said company was excluded on the differentiation of high end services being provided by this company, as noticed assessee also provide high end services in CAD / CAE designing areas. These are High end services as considered by the Bangalore bench. Therefore we are of the opinion that functions of assessee are similar to the above Company. The objections of assessee are rejected. III. CROSSDOMAIN SOLUTIONS LTD. : This company was considered as a comparable and listed at Sl.No.7 of the c....
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....y events and peculiar circumstances prevail in the case of the assessee in as much as this company acquired a UK based company which has significantly contributed to the increase in the customer and revenue base of the company. This Tribunal in the case of Capital IQ Information Systems India Pvt. Ltd. (supra) had an occasion to deal with comparability of this company in the case of an ITES company such as the Assessee and the Tribunal held as follows:- "14. The assessee has objected for this company being taken as comparable mainly on the ground that it was having a supernormal profit of 89%, and as such it cannot be taken as a comparable in view of the decision of the Mumbai Bench of the tribunal in the case M/s. Teva India Ltd. (supra). That apart, relying upon the annual report of the company, the learned Authorised Representative for the assessee has contended that that the concerned company is engaged in providing Knowledge Process Outsourcing(KPO) Services. 15. On considering the objections of the assessee in relation to this company, we accept the contention of the assessee that this company cannot be taken as a comparable both for the reasons that it was having supernorm....
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....This is also clear from the presence of brand related expenses incurred by this company. Presence of a brand commands premium price and the customers would be willing to pay, for the services/products of the company. Infosys BPO is an established player who is not only a market leader but also a company employing sheer breadth in terms of economies of scale and diversity and geographical dispersion of customers. The presence of the aforesaid factors will take this company out of the list of comaparables. We therefore accept the contention of the assessee that this company cannot be regarded as a comparable. Similar view was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. Therefore, we direct the AO/TPO to exclude the same. VII. HCL Comnet Systems & Services Limited: VIII. Wipro Limited The assessee has objected for these two companies being taken as comparables mainly on the ground that these companies are industrial giants considering their turnover compared to that of the assessee, whose turnover is only Rs.15 crores. It is the contention of the assessee that these companies are industrial giants in the area of software devel....
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.... It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the later is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk. Having considered these points, we are of the view that the case of the aforesaid Infosys and the assessee are not comparable at all as seen from the financial data etc. of the two companies mentioned earlier in the order. Therefore, we are of the view that this case is required to be excluded." Similar view has also been expressed by the Hyderabad Bench of the Tribunal in the case of Trinity Advanced Labs P. Ltd. (supra). In the case of M/s. Genesys Integrating India P. Ltd. (supra), the Bangalore Bench of the Tribunal has observed in the following manner- "9. Having heard both the parties and having considered the rival contentions and also the juridical precedents on the issue, we find that the TPO himself has rejected the companies which are making losses as comparables. This shows that there is a limit for the lower end for ident....
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.... at by the TPO was 24.30% whereas, after inclusion of interest and bank charges that comes to 23.30%. This revised working was furnished as part of the objections with a request for taking the revised margin against this comparable. However, subsequently, vide letter dated 30.07.2012 assessee objected to the comparable on the reason that it fails employee cost filter. The employee cost shown was at Rs.1.17 crores which is 19.96% of the operating revenue of Rs.5.87 crores. It was submitted by the learned Counsel that employees cost filter determined by the TPO was between 45% to 60% whereas, this company has only 19.96% as employee cost. Accordingly, this company is not a comparable company as it may be outsourcing the work. The learned D.R. however, submitted that assessee has accepted the same in the TPO proceedings. Therefore, should not be excluded now. While there was no objection for assessee objecting to the comparable even at a later stage when it comes to know of new facts, what we noticed is that the assessee's objections before the DRP dated 30.07.2012 have not been addressed by the DRP. It is for the TPO to determine whether this company falls within the filters as....
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.... from export of ITES services and therefore, it does not fail the filters provided, if only segmental profits are taken. Since A.O. has taken only segmental profits and has not taken entire entity as such, we are of the opinion that objection raised by the assessee, that it fails the revenue filter does not hold good. Therefore, we do not see any reason to exclude this company from the comparables selected. 8. COMPARABLES REJECTED BY TPO: A. JINDAL INTELLICOM PVT. LTD. : The assessee also wants inclusion of Jindal Intellicom Pvt. Ltd. Originally, the TPO vide his office letter dated 17.08.2011 proposed Jindal Intellicom Pvt. Ltd. as one of the comparable companies out of 23 companies selected by him (at Item No.17). However, out of this 23 companies, 3 companies were dropped by the TPO, one such being the above i.e., Jindal Intellicom Pvt. Ltd. As per para 14.1 at page 26 of the TPO order, it was stated that it was failed RPT filter. RPT are at Rs.6,39,73,545/- out of operating revenues of Rs.19,57,63,431/-. However, the assessee vide letter dated 08.09.2011 has objected to the company on the functionality. Assessee has objected 17 comparables on the basis of functionality, out ....
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....erefore, satisfied the filter adopted by the A.O. Further, its contention was that it is in the similar business like Datamatics Financial (BPO) Div. (as discussed above) and since Datamatics Financial (BPO) Div. is selected as comparable company, this company also should be selected. Assessee also relied on the Coordinate Bench decision of Mumbai Tribunal in the case of DHL Express (India) P. Ltd. ITA.No.7360/Mum/2010 wherein the non-operating income such as interest income, rent receipts, dividends etc., were excluded while considering the operational income, as these items have nothing to do with the main operations of the assessee. It was the contention of the assessee that if these non-operating incomes are excluded the assessee falls within the filters adopted by the TPO and TPO not selected this case wrongly. The DRP, however, has not discussed this issue at all. As we have pointed out, there is no discussion by the TPO in the order as it is not in list the comparables selected by the TPO, because of application of filters, may be the filter is wrongly applied by including non-operational income as part of operational income. Since, these aspects could not be verified by us,....