TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 126
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....he course of arguments, the learned counsel confined his arguments to the selection of comparables on various filters and the arguments are accordingly submitted. Even though the assessee has raised the ground for inclusion of comparables in its Transfer Pricing Study which were rejected by the TPO, in the course of arguments the grounds No.2.3.5 which seeks inclusion of comparables selected in its Transfer Pricing Study was not pressed. Therefore, the main arguments relate to exclusion of seven comparables included by the TPO in his transfer pricing order. 3. In addition to the issue of Transfer Pricing adjustment, ground No.3 pertains to exclusion of internet expenses from the export turnover while computing the deduction under S.10A and ground No.4 pertains to setting off of brought forward business losses. 4. We have heard the learned Authorised Representative and the learned Departmental Representative in detail, perused the paper-books placed on record along with the summary of the charts prepared about statements of various comparables. In the course of arguments, the learned counsel relied on various decisions of the coordinate benches for exclusion of certain comparables....
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.... S.92CA(3) by the Dy. Commissioner of Income-tax (Transfer Pricing) II, Hyderabad(TPO). Assessee has reported Operating Revenue of Rs. 42,06,39,815 and an Operating Cost of Rs. 37,42,14,507, resulting in operating profit of Rs. 4,64,25,308. The OP/OC was arrived at 12.41%. The entire turnover of assessee is receipts from its AE as ITES provider. 7. Assessee in its Transfer Pricing Study selected TNMM as the most appropriate method and the search for uncontrolled comparables was done using Prowess and Capitaline Plus Database. Assessee after applying certain filters, short listed around eleven comparables, for arriving at ALP under the segment ITES, and Arithmetic Mean PLI was computed at 12.55% as against the PLI of the assessee working out to 15.21%. Therefore, assessee submitted that its international transactions are at Arm's Length Price. 8. Even though there is no dispute with reference to the method adopted, the TPO rejected the documentation maintained by assessee on the reasons that multiple year data was used; has not applied export filters properly; and also selected some of the companies which are not functionally similar. After analyzing the reasons, the TPO undertook....
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.... the TPO. Sl. No. Company Name 1. Infosys B P O Ltd. 2. Genesys International Ltd. 3. Eclerx Services Ltd. 4. Cosmic Global Ltd. 5. Acropetal Technologies Ltd. (Seg.) 6. Accentia Technologies Limited 7. Crossdomain solutions P. Ltd It was submitted that if these comparables were considered, other issues relating to Transfer pricing adjustment become academic in nature. 13. We have considered the contentions of the parties and examined the documents and paper-books placed on record. Correctness of inclusion of the above companies is decided hereunder case by case. (1) Infosys B P O Ltd. : 14. It was the contention of assessee that this BPO is a giant in its area and has brand value of Infosys Technologies limited. Assessee's main contention was that it is not functionally similar and its turnover is much more when compared to that of assessee. It was also contended that the Infosys BPO has done brand building exercise by incurring large amounts of brand building and advertisement expenditure and undertaking brand campaigning outside India. Further, it also has huge asset base and therefore, this company is not functionally comparable to assessee. Assessee relied o....
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.... that they are providing full range of geospatial services to its customers. In simple terms, geospatial services means the services relating to the relative position of things on the earth's surface. These basically include 3D mapping, Navigation maps, Image processing, Cadastral mapping, etc. If we take into account the nature of services provided by the assessee, being financial and retirement security, health, productivity of employees and employment relationships and then try to compare them with those rendered by Genesys, it is manifested that both are totally incomparable. 14.3. The TPO on page 48 of his order has examined CBDT Circular SO 890 (E) dated 26.9.2000 which provides a detailed list of products or services that can be covered under the ITES for the purposes of Section 10A and 10B of the Act. In this Circular, Information Technology Enabled Products/Services have been divided into fifteen categories, starting with Bank Office operations, Call centres etc. and ending with Website services. From the very description of such services, it is palpable that even though these fall under the overall ITES category, but some of them are quite different from each other. To c....
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....ssessee that this company offers solutions that include data analytics, operations management, audits and reconciliation and therefore has to be classified as high end KPO. In support of the stand of the assessee, extracts from the annual report of this company have been pointed out. Therefore, the functions of the above company are dissimilar to assessee, which is a captive service provider. On the principles laid down by the Hon'ble Special Bench of the ITAT (Mumbai) in the case of Maersk Global Centres (India) Pvt. Ltd. V/s. ACIT (ITA No.7466/Mum/2012 for assessment year 2008-09 dated 7.3.2014) and the principles laid down by the coordinate bench of the Tribunal(Delhi) in the case of M/s. Mercer Consulting (India) Pvt. Ltd., (supra), assessee submits that this company cannot be selected as a comparable. 16.1 The Learned Departmental Representative, however, submitted that having accepted Aditya Birla Minacs Worldwide Ltd., as a comparable company, this company should also be included, as otherwise, both the companies should be excluded. 16.2 We have considered the issue and examined the Annual Report and the objections of assessee. As seen from the Annual Report, the above com....
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....rges paid at Rs. 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of Rs. 6.99 crore. If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO. Thus it is held that this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment. 13.3. However, we find this case to incomparable on the alternative argument advanced by the ld. AR to the effect that total revenue of the Accounts BPO segment of Cosmic Global Limited is very low at Rs. 27.76 lacs. We have discussed this aspect above in the context of CGVAK's case and held that a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at Rs. 86.10 lacs. As the segmental revenue of BPO segment of Cosmic Global Limited at Rs. 27.76 lac is still on much lower side, the reasons given above would fully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded from the list of comparables.....
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....epresentative however, objected to the pleas of assessee stating that the extraordinary events occurred in earlier year and therefore, the same cannot be considered as having any impact in the year under consideration. 19.2 We have considered the rival contentions and noticed that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy. In earlier years on the reason of acquisition of various companies, being an extraordinary event which had an impact on the profit, this company was excluded. As submitted by the learned counsel, this year also, the acquisition of some companies by that company may have impact on the profit. Considering the profit margins of the company and insufficient segmental data, we are of the opinion that this company cannot be selected as a comparable. Moreover, this is also not a comparable in the case of M/s. Mercer Consulting (India) P. Ltd. (supra), which indicates that the TPO therein has excluded it at the outset. In view of this, we direct the Assessing Officer/TPO to exclude this comparable, from the list of comparables selected. (7) Crossdomain solutions P.Ltd: 20. Assessee's main objecti....
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....lowing deduction of 1% towards risk profile uniformly cannot be adopted as a norm. Further, this aspect requires to be re-examine by the TPO. Therefore, after excluding the above companies, if any adjustment is required to be made, Assessing Officer is directed to consider the risk profile and allow necessary deduction, based on the facts of each comparable case. The Assessing Officer/TPO should also allow the working Capital Adjustment already provided in the computation by the TPO. This ground is decided accordingly. 22. Ground No.3 pertains to exclusion of internet expenses from export turnover. The Assessing Officer, while computing deduction under S.10A of the Act reduced internet expenses of Rs. 7,26,221 from export turnover. In doing so, the Assessing Officer relied on the definition of the term 'export turnover' in clause (iv) of Explanation 2 to S.10A of the Act. It was submitted that these communication expenses comprise of expenses incurred towards telephone expenses, and internet, and these are spent in India and do not come within the purview of the said Explanation. In the alternative, it was submitted that the same should also be excluded from the total turnover as ....