TaxTMI 
TaxTMI 
2014 (8) TMI 106
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....rsuance of the directions issued by Dispute Resolution Panel- I (,DRP'), Mumbai under section 143(3) r.w.s.l44C(13) of the Income-tax Act, 1961 (hereinafter referred to as the Act) on the following grounds which are independent and without prejudice to each other. On the facts and circumstances of the case and in law, the AO/ Transfer Pricing Officer (TPO') based on directions of DRP: General 1 erred in making a transfer pricing adjustment of Rs. 29,08,51,336/-; 2 erred in adopting an approach based on unsubstantiated presumptions, surmises, conjectures and allegations for the purpose of making an adjustment to the international transactions, thereby violating the provisions of section 92 C(3) read with 92GA(3) of the Act; 3 erred in ignoring the fact that since the Appellant is availing tax holiday u/s 10A of the Act, there is no motive or reason to shift profits out of India, curbing which is the basic intention of introducing the transfer pricing provisions; Rejection of economic and comparability analysis 4 erred in not accepting the economic analysis undertaken by the 4 Appellant in accordance with the provisions of the Act, read with the Rules, co....
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....fulfilled all the quantitative filters adopted by the TPO: ♦ Aditya Birla Minacs Worldwide Ltd. ♦ R Systems International Ltd. ♦ Spanco Ltd. ♦ Accentia Technologies Ltd. 13 Without prejudice to the above, while treating the Appellant's business activity similar to KPO, erred in not selecting the following 7 comparables in the comparability study undertaken by the TPO even though they fulfilled all the quantitative filters adopted by the TPO: ♦ Infosys BPO Limited ♦ Asit C Mehta Financial Services Ltd ♦ E4e healthcare Business Services Pvt Ltd Adjustment on account of cost of new hires/trainees 14 While computing margin for the appellant's comparables, erred in not granting adjustment on account of cost of new hires/trainees who remained unproductive during the year being under training; Risk Adjustment 15 erred by not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparables." 2. At the time of hearing the ld. Authorized Representative of the assessee has submitted that subsequent to the directions of DRP dated 28.09.2012, the assessee....
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....al services Rs.5,198,550/- TNMM Administrative services Rs. 167,025 3. TWS SA Supply of engineering design and technical services Rs. 35,823,201/- TNMM Administrative services Rs. 774, 099/- 4. Technimont India Project Office Supply of engineering design and technical services Rs. 240,606,763/- TNMM 5. Tecnimont SpA Reimbursement of Cost allocation Rs. 15,275,686/- At cost 6 Tecnimont SpA Recovery of Expenses Rs.124,539,636/- At cost 5.2 The assessee filed its TP study report and shown the margin at 19.46% on operating income which has been benchmarked by the average PLI of comparables at 16.61% by applying TNMM as most appropriate method. Thus the assessee claimed that the price charged for its international transaction is higher than the arithmetical mean price and, therefore, the price charged by the assessee on its international transactions is at arm's length. The assessee has selected six comparables on the basis of search conducted in the public data bases, prowess and capital line plus. The TPO noted that the assessee has derived the net profit margin at 19.46% during the year und....
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.... of the assessee for risk adjustment on account of difference in the risk profile vis-a-vis comparable selected by TPO. Accordingly the TPO made an adjustment of Rs. 29,08,51,336/- on the basis of arm's length price determined at Rs. 1,69,56,75,115/- by taking the mean margin at 49.88% of the six comparables finally selected by the TPO. The Assessing Officer framed the draft assessment order against which the assessee filed objections before the DRP. The DRP vide its direction dated 28.09.2012 directed the Assessing Officer/TPO to exclude one company namely M/s Coral Hubs Ltd from the set of comparables selected by the TPO. Further the DRP vide order dated 10.03.2014 have passed the modified directions on the rectification petition of the assessee in respect of mistake in the calculation of margin of M/s Moldtek Technologies Ltd. The DRP has directed the Assessing Officer/TPO to recompute the margin of Mold Tech Technologies in a manner similar to that of assessee's in respect of forex exchange gains and losses including that of derivatives. 6. Before us, the ld. Authorized Representative of the assessee has submitted that the TPO has rejected the comparables selected by....
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....he business profile of the Onward Technology Ltd. has been referred in the Director's report at page 791 of the paper book. The Ld. Authorized Representative has submitted that the Onward Technology is in the Mechanical Engineering design services. Its clients include global Fortune 1000 manufacturing companies in the automotive, agricultural, heavy engineering, electrical equipments and Aerospace Industry. Thus the segment data used by the assessee having relation to the comparable business of the assessee. The ld. Authorized Representative then referred the business profile of TATA ELXSI LIMITED at page No. 755 of paper book and submitted that the said company is in the Prodcut Design Services, Innovation Design Engineering and Visual Computing Labs. The assessee has used segmental data of design engineering segment, therefore, the business of the design engineering segment providing integrated styling and mechanical design solution is similar to the assessee's business activity and, therefore it is a good comparable. The ld. Authorized Representative then referred the business profile of the Neil Soft Ltd. and submitted that the said company is also in the similar line o....
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.... record. We have given our deep thought on the issue of comparability of he companies selected by the assessee as well as by the TPO. The business profile of the assessee has been recorded by the TPO at page 22 of its order as under:- "It was submitted that assessee is primarily engaged in providing engineering design support services to its AE's. The AE's of the assessee are in the business of executing turnkey engineering, procurement and construction contracts (EPC) for customers. Since the AE's do not possess their own technology for building plants; they approach global players like Mitshibushi. KBR etc. for licensing the basic design and technology. The core EPC team of the AE closely work with the customer and the technology provider to convert the basic design into workable detailed design. In order to save on labour cost; portion of the low-end design and drawing work is outsourced by the AE to the assessee. The employees of the assessee are largely draftsmen and CAD/CAM operators who convert the instructions provided by the core team into drawings. These drawings are checked and verified by the....
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....ded to its AE the low-end back office support services like voice or data processing services as a whole or substantially the whole, the companies providing mainly high-end services by using their specialized knowledge and domain expertise cannot be considered as comparables." 11. Thus it is clear that the classification of Information Technology Enabled Services (ITES) into low-end BPO services and high-end KPO services for comparability analysis is not just and proper, and, therefore, the action of the TPO in rejecting the comparables by applying the criteria of BPO and KPO is not sustainable in view of the decision of Special Bench. We further note that the assessee has used the segmental data for determining the arm's length price and taken the mean profit of each comparable only from the segmental data/results. Though the TPO initially raised an objection of using multiple year data, however, we note that during the course of proceedings before the TPO, the assessee furnished the updated current year data, mean margin of the comparables based on the current year data. This fact has been recorded by the TPO at page 23 of the order. The relevant part of the TPO order is a....
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.... the details of the operating profit of all the eleven companies comprising the six comparables selected by the assessee and five of the TPO as under:- Margin of comparable companies as documented in the transfer pricing study of EDTICB plus the companies adopted by the learned TPO: Sr. No Name of the Company Operating profit/operating cost 1 Rolta India Limited (Seq) 49.06% 2 Infotech Enterprise Limited (Seq) 15.38% 3 Tata Elxsi Limited (Seq) 18.18% 4 Onward Technologies Limited (Seq) -1.63% 5 Neilsoft Ltd 5.55% 6 Geometric Limited (Seq) 5.30% 7 Acropetal Technologies (Seq) 35.30% 8 Crossdomain Solutions Ltd 26.96% 9 Eclerx Services Ltd 65.88% 10 Mold-tek Technologies Ltd 15.05% 11 Triton Corp Ltd 23.81% Arithmetic Mean 23.53% 13. The assessee also filed the computation which shows that the assessee's operating profit by using PLI as OP/OC from the international transaction is 24.17% which is more than the arithmetic mean/ALP based on the set of eleven comparables including the assessee's as well as the TPO's selected ....