TaxTMI 
TaxTMI 
2014 (8) TMI 871
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.... the STPI unit. In course of scrutiny assessment proceedings, the Assessing Officer noticing that the assessee has entered into international transaction with its AE made a reference to the Addl. CIT (Transfer Pricing), Hyderabad (hereinafter called the TPO) for determining the Arms Length Price (ALP). The revenue earned by the assessee from the International transaction of providing back office support services to its AE during the assessment year was Rs. 12.57 crores. 3. In course of the proceeding before the TPO, the assessee submitted a TP study conducted by an independent external consultant after undertaking a detailed analysis for determining the functions performed, risks assumed and asset utilised by the assessee and its AE in respect of the international transactions between them. As per the functional analysis, the assessee was categorised as a risk mitigated contract service provider and selected as a tested party. Transaction Net Margin Method (TNMM) was adopted as most appropriate method in the TP study to determine the ALP. Search was conducted in the data bases to select comparable companies by selecting the operating margin i.e. operating profit/operating cost a....
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.... 28.40% 5. Wipro Ltd (Seg.) 939.78 29.93% 6. HCL Comnet Systems & Services Ltd., (Seg.) 260.18 43.85% 7. Eclerx Services Ltd., 86.12 85.99% 8. Asit C. Mehta Financial Services Ltd., 6.09 22.54% 9. Informed Technologies Healthstreet India Ltd., 4.08 34.60% 10. Appollo Ltd., 47.84 -21.20% 11. Datamatics Financial Services Ltd., (Seg.) 2.92 -0.75% 12. Flextronics Software Systems Ltd., (Seg.) 12.93 5.81% 13. Genesys International Corporation Ltd., 19.17 8.30% 14. Nittany Outsourcing 23.23 10.28% 15. Aditya Birla Minacs Worldwide Ltd., 197.06 10.78% 16. Cosmic Global Ltd., 4.28 11.11% 17. ICRA Techno Analytics Ltd., (Seg.) 7.23 11.18% 18. Apex Knowledge Solutions P. Ltd., 6.64 12.80% 19. R Systems International Ltd., (Seg.) 17.34 18.08% 20. Spanco Ltd., (Seg.) 35.00 19.40% 21. Caliber Point Business Solutions Ltd., 39.30 19.97% 22. Allsec Technologies Ltd., 113.28 25.47% 23. Bodhtree Consulting Ltd., (Seg.) 2.94 29.36% 24. Accurate Data Converter 4.33....
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....ntend to make it clear that this issue has been crystallized by the decision of the Special Bench in Aztec Software & Technology Services Ltd., (supra) wherein it was held as follows : "20. At one stage of hearing, learned counsel for assessee has also submitted before us that income of the assessee is exempt under s. 10A of the Act and, therefore, the overpricing or underpricing of an international transaction would not affect the computation of income. This argument is without force in view of the specific provisions contained in the first proviso to sub-s. (4) of s. 92C wherein it has been clearly stated that no deduction under s. 10A/10AA or s. 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this section. 21. It is abundantly clear that legislature while introducing the enactment did comprehend a situation requiring investigation and addition on account of computation of ALP in cases of the assessee entitled to benefit under s. 10A/10AA or s. 10B of the ....
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.... also did not raise any objection before DRP. As seen from other cases relied on by assessee for exclusion of certain comparables, these two companies were not objected and are accepted as comparables. Only principles of natural justice were violated while including them. Therefore TPO/AO is directed to give an opportunity to assessee take their objections and consider whether the above two companies can be included as comparables. 12.2 Accentia Technologies Limited The assessee is objecting to the aforesaid company being treated as comparable since the aforesaid company is functionally different from the assessee as more than 64% of the operating cost of the company is towards overseas business expenses. Further the company has substantial marketing expenses which was almost 29% of its sales as compared to almost nil of the assessee. It is also submitted that due to multiple acquisitions by the company during the year under dispute, it was an exceptional year impacting the profitability of the company. In this connection assessee relied on the decision of Income-tax Appellate Tribunal, Hyderabad Bench in case of Capital IQ Information Systems India Pvt. Ltd. (ITA No. 1961/Hy....
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....d 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 all 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." 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 case of the aforesaid company, there is amalgamation in December, 2006, which has impacted the financial result. This fact has to be verified by the TPQ. If it is found upon such verification that the amalgamation in fact has taken place, then th....
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.... that it has also commenced a new line of business of Printing on Demand (POD), wherein it prints upon clients request, concluded as follows - 18.4. In view of this major difference in functionality and the business model, this Panel is of the view that 'Coral Hub' is not a suitable comparable to the taxpayer and hence needs to be dropped form the final list of comparables." In case of Asstt. CIT v. Maersk Global service Centre (India) (P.) Ltd. (Supra) the ITAT Mumbai Bench has also directed for exclusion of the aforesaid company, by observing in the following manner - "Insofar as the cases (Tulsyan Technologies Limited and Vishal Information Technologies Limited are concerned, it is noticed from their annual accounts that these companies outsourced a considerable portion of their business. As the assessee carried out entire operations by itself, in our considered opinion, these two cases were rightly excluded." In view of the observations made by the DRP as well as the decisions of the ITAT, we accept that this company cannot be taken as a comparable. 12.5 Eclerx Services Limited Assessee submitted t....
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....nies showing supernormal profit cannot be treated as comparable. The relevant observations of the Tribunal in that case are extracted hereunder for convenience- 32. We have heard the arguments of both the sides and also perused the relevant material on record It is observed that although a detail submission was made on behalf of the assessee before the learned CIT(A) on the basis of FAR analysis to show that the selection of Ms. Vimta Labs as comparable is not Justified, the learned CIT(A) has not accepted the stand of the assessee on the issue without giving any cogent or convincing reasons. In its recent decision rendered in the case of Adobe Systems India Pvt. Ltd., (ITA.NO.5043/Del/2000 dtd 21.01.2011) + (2011-TII-13-ITAT-DEL-TP), Delhi Bench of ITAT has held that exclusion of comparables showing supernormal profits as compared to other comparable is fully justified. We, therefore set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the A.O. with a direction to decide the same afresh after taking into consideration the submissions made by the assessee before the learned CIT(A) and keeping in view the Delhi Bench of ITAT in the ca....
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....tyam Computers Services Ltd., thereby reducing the arm's length margin to 25.6%. 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, ....
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.... sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Assessee is a routine ITES provider who does not require such highly skilled employees. Besides the above, this company also carries out R & D services and own intangibles. Therefore said facts, in our view, will take this company out of the list of comparables. In this regard, we may refer to the decision of the ITAT Bangalore Bench in the case of First Advantage Offshore Services (P.) Ltd. v. Dy. CIT [2012] 53 SOT 89, wherein it was observed as under:- "39. Having heard both the parties and having considered their rival contentions, we find that the assessee had raised elaborate objections to each of the comparables in group 3 before the TPO. The TPO has also reproduced the said objection in his order para 6.5.1. of page 178 of his order. He has rejected the contention of the assessee by holding that every function within BPO sector can be from low end to high end and the activities of the assessee such as accountin....