TaxTMI 
TaxTMI 
2014 (9) TMI 43
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....r the Software Technology Parks of India (STPI)l Scheme. For the purpose of providing services, the assessee has entered into a service agreement with its AE under which the assessee was remunerated at cost Plus Mark up of 13%. For the assessment year under dispute the assessee filed its return of income declaring total income of Rs. 42,211 under the normal provisions, after claiming deduction under S.10A of the Act. However, the assessee declared book profit of Rs. 1,67,22,938 under S.115JB of the Act and paid tax. The return filed by the assessee was initially processed under S.143(1) of the Act. Subsequently, assessee's case was selected for scrutiny assessment. 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 reported earning of revenue from international transactions with its AE as under:- i) Provision of IT enabled back office supply services Rs.21,83,83,108 ii)....
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....e working capital adjustment of (-)0.73% determined the ALP at Rs. 26,06,79,856/- against the price shown by the assessee for the international transaction at Rs. 21,83,83,108/- thereby determining the shortfall of Rs. 4,22,79,956 as the TP adjustment u/s 92CA of the Act. In pursuance to the order passed by the TPO proposing the aforesaid TP adjustment, the Assessing Officer passed a draft assessment order on 01.12.2011 proposing to add the TP adjustment of Rs. 4,22,79,956/- to the returned income. In the draft assessment order, the Assessing Officer also reduced the communication charges of Rs. 80,15,215/- from the export turnover for the purpose of computing deduction u/s 10A of the Act. The assessee objected to the draft assessment order before the DRP. The DRP rejected the assessee's contention with regard to almost all the issues excepting assessee's objection with regard to two comparables selected by TPO i.e. M/s. Coral Hub and M/s. Mold Tek, which were directed to be excluded from the list of comparables. In pursuance to the aforesaid direction of the DRP, final assessment order was passed by the Assessing Officer reducing the addition on account of difference in ALP to Rs.....
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....rected and unedited data from its TP report has been considered, which cannot be said to be authentic. The learned Authorised Representative for the assessee submitted that in assessee's own case of preceding assessment year, i.e. 2007-08, the Tribunal, after considering the submissions of the assessee and after following the decision of the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems Ltd. (ITA No.1961/Hyd/2011 for assessment year 2007-08), dated 23.11.2012, has directed for exclusion of the aforesaid three companies from the list of comparables. 6.2 The learned Departmental Representative on the other hand, supporting the order of the DRP and TPO submitted that the TPO has considered the aforesaid companies as comparables citing valid reasons, which were also upheld by the DRP. He therefore, submitted that there is no valid reason to exclude the aforesaid companies from the list of comparables only because of their high turnover, when they are functionally similar to the assessee. 6.3 We heard the submissions of the parties and perused the material on record. It is not disputed that these three companies are having huge turnover, as compared....
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....resaid company is functionally different from the assessee as the Annual Report of the aforesaid company for the relevant year reveals that it is not a BPO or an IT Off-shoring company. Hence, assessee cannot be compared with such company. It is also mentioned in the Annual report that it is in the field of knowledge process outsourcing(KPO). It was therefore, contended that the said company being functionally different, cannot be considered as comparable. That apart, it was submitted that the aforesaid company cannot be considered as a comparable, as it has shown exceptionally high margin at 66.50%. Learned Authorised Representative for the assessee further submitted that for the assessment year 2007-08 in assessee's own case, the Tribunal has directed the exclusion of the aforesaid company from the list of comparable. 7.2 The learned Departmental Representative, on the other hand, supporting the order of the DRP and TPO submitted that the TPO has considered the aforesaid company as comparable citing valid reasons, which were also upheld by the DRP. It was submitted that the issue of KPO company being functionally different from the ITES companies has been considered by the Inc....
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....cessary for successful geo-spatial data implementation. These services are provided to various local and federal government agencies, large utility companies and private sector. It was further submitted that Genesys is also engaged in rendering geo-engineering services which are in the nature of civil engineering and land development services. These services include land development, conceptual/sub-division plan, platting and design, topographic plan, road-way design, soil erosion, and sedimentation control plan, site grading design, storm and sanitary sewer design, site and survey plan, site utility plan, storm water management plan, wet land plan, google earth overlay plan. It was submitted that under its IT Division, the company renders services for the application development, maintenance and support services and testing services, in the above field. He further submitted that apart from the aforesaid activities, the said company is also engaged in R&D Activities in the area of image intelligence and recognition, mobile mapping as well as "LIDAR". It was submitted that considering the wide range of activities in various fields rendered by this company, the assessee cannot be com....
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....s comparable, the learned Authorised Representative for the assessee submitted that the aforesaid company cannot be treated as a comparable since the annual report of the aforesaid company clearly reveals the fact that exceptional event like merger/demerger has taken place during the financial year 2007-08, relating to the assessment year in dispute. It was submitted that during the financial year, the said company has an amalgamation of its unit as well as has acquired a company. It was submitted that the financial statement of the said company also shows a remarkable growth of the revenue to the tune of 78% and profitability by 110% after the acquisitions/amalgamations, which has increased the mark up of the company from 32% to 42.11% during the year under dispute. It was further submitted that apart from the fact that exceptional events have taken place, the aforesaid company is functionally different and cannot be compared with the assessee. It was submitted that the annual report of the said company of the financial year 2007-08 clearly shows that it is engaged in the development of software product. In support of his contentions, the learned Authorised Representative for the ....
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....July, 2008. Subsequently, the accounts of Moldtek Technologies for FY 2007-08 were revised. On a perusal of the annual report it is noticed that Teckmen Tools Pvt. Ltd. and the Plastic Division of the company were demerged and the resulting company was 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 ....
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.... and pays to them translation charges for their services. It was submitted that the financial statement of the company shows that it has made payment of Rs. 2,86,29,348 to vendors which forms 48% of the total revenue of the company. In this context, the learned Authorised Representative for the assessee has submitted a chart before us to show that the personnel cost as a percentage of sale in case of Cosmic Global Ltd. is only 14% as against 54.75% in the case of the assessee. It was submitted that the aforesaid figure clearly demonstrates the fact that the said company was subcontracting the ITE Services to third party vendors. In support of such contention, the learned Authorised Representative for the assessee relied on the following decisions- (a) Capital IQ Information Systems P. Ltd. (supra) (b) ACIT V/s. Maersk Global Service Centre India (P)Ltd.(ITA No.3774/Mum/2011) (c) Symphony Marketing Solutions India P. Ltd. V/s. ITO (supra) 10.2 The learned Departmental Representative, on the other hand, contesting the contentions of the assessee, submitted that in the TP study the assessee itself has selected the aforesaid company as a comparable and the TPO also accordin....
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....in US, Europe and Indian markets. In this context, the learned Authorised Representative for the assessee, referred to the relevant extracts from the website of the said company, and it was further submitted that besides the KPO services, the said company was also engaged in providing niche services. He further submitted that the said company has brand presence in the market unlike the assessee which does not own any intangible and does not also take any of the entrepreneurial risk taken by the said company. He therefore, submitted that the aforesaid company being functionally different, cannot be taken as a comparable for determining ALP. In support of these contentions, he placed reliance on the decision of the Income-tax Appellate Tribunal Bangalore Bench in the case of Symphony Marketing Services P. Ltd. (supra). 11.2 The learned Departmental Representative, on the other hand, submitted that the company is in data processing and insurance claim processing services, which are classified under ITES/BPO services. Therefore, the company has been correctly selected as a comparable. 11.3 We have heard the submissions of the parties and perused the material on record with regard....
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.... Solutions Ltd. (supra). 13.2 The learned Departmental Representative on the contrary, submitted that the aforesaid company has two segments, viz. software development services and IT enabled services. Since the TPO has selected the IT enabled service segment as comparable, there is no justification for excluding the aforesaid company. 13.3 We have heard the submissions of the parties and perused the materials on record. As can be seen from the material on record, the TPO has admitted that the aforesaid company has two segments, and only the IT Enabled Services Segment, relating to engineering design services was considered by the TPO for comparability analysis. However, the Income-tax Appellate Tribunal Bangalore Bench in the case or Symphony Marketing Solutions India P. Ltd. (supra) has held that the functions performed by the Engineering Design services segment of the company cannot be considered as a comparable to the ITES/BPO functions. The relevant portion from the decision of the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India P. Ltd. (supra), is extracted below for ready reference- "13. We have considered the submissions of the lea....