TaxTMI 
TaxTMI 
TaxTMI 
2014 (11) TMI 690
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....ack office support services in the field of investment and insurance management primarily to its associated enterprises. The company provides services only to its associated enterprises. Flagstone India primarily performs the tactical managerial functions regarding day to day management business. Financial Results of taxpayer for the F.Y. 2007-08 : Description Amount Operating Revenue Rs.12,96,53,298 Operating Cost Rs.11,21,56,923 Operating Profit (PBIT) Rs. 1,74,96,375 Operating Profit to Cost Ratio 15.60% International Transactions (as mentioned in the 92 CE report): Provision of IT Enabled Services Rs.12,64,08,934 Payment of interest on convertible debentures Rs. 43,71,230 The matter was referred to the TPO on account of the international transactions with AE. The TPO suggested an adjustment of Rs. l,84,52,948 under section 92CA of the Income-tax Act, 1961. Assessee decided to file an appeal before the CT(A) and accordingly did not file any objections before the DRP. Thus the AO on expiry of prescribed time limit, has passed the Assessment Order on 17th February, 2012. The Assessing Officer vide his order has added the amount determined by the TPO....
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....3.3. After noting that assessee has objected to 9 comparables, the Ld. CIT(A) further noted that assessee mainly contested against inclusion of two comparables viz., Coral Hub and Moldtek Technologies. Accordingly, relying on the Coordinate Bench decisions and the directions of DRP in various cases, Ld. CIT(A) excluded Coral Hub as comparable along with Moldtek Technologies. Vide para-8 of the order, learned CIT(A) noted that if the above two comparables are excluded from the list of comparables for calculation of ALP, assessees ALP is well within the band of arithmetic mean arrived at by TPO and other grounds on T.P. adjustments become academic in nature and are not required to be adjudicated upon. Accordingly, Ld. CIT(A) directed to exclude two comparables out of 9 objected and issued directions accordingly. 3.4. In addition to the adjustments on T.P. Assessing Officer also excluded communication charges from export turnover while working out the deductions under section 10A. Considering the objections raised by assessee and principles governed by various decisions on the issue, Ld. CIT(A) directed the A.O. to exclude the communication charges from total turnover as well. 4. Re....
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....lea was made that if the same was excluded from the export turnover, the same was also to be excluded from the total turnover while computing deduction under section 10A. Following the decision of ITAT in the case of CIT vs. Mentor Graphics (I) P.Ltd in ITA no.696/Hyd/2009 dated 18.08.2009 and Special Bench decision in the case of ITO vs. Saksoft 313 ITR (AT) 353, Ld. CIT(A) gave direction to exclude communication charges from the total turnover as well. Since, this direction is in tune with the decision of Coordinate Bench including Chennai Special Bench decision of ITAT in the case of ITO vs. Sak Soft Limited 313 ITR (AT) 353 and also as approved by Hon'ble Bombay High Court in the case of CIT vs. Gemplus Jewellery Ltd., 330 ITR 175 there is no need to interfere with the direction of Ld. CIT(A) and accordingly, Revenue appeal is dismissed. 7. Now coming to assessee's appeal, it was submitted that Ld. CIT(A) has wrongly considered exclusion of only two comparables when assessee has objected to 9 comparables. Ld. AR pointed out that assessee has given written submissions that not only the above two comparables but also working capital adjustments as suggested by assessee would mak....
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....ation of ALP in the case of an assessee who was providing ITES business support services for the A.Y. 2007-08. The TPO had considered Accentia Technologies Ltd. as a comparable. The DRP however held that the said company cannot be compared as a comparable owing to extra ordinary events that took place during the previous year. The Tribunal upheld the order of the DRP observing as follows :- "I. Accentia Technologies Ltd. 10. It is the submission of the assessee that this company cannot be treated as a comparable because of uncomparable financial results arising out of amalgamation in the company. In this regard, the assessee has relied upon the order of the DRP for the assessment year 2008-09 in assessee's own case. It is seen that the DRP while considering similar objection placed by the assessee in the case of another company, viz. Mold Tek Technologies Ltd., in the proceedings relating to the assessment year 2008-09, has observed in the following manner- "17.5. In addition to the above, the Director's Report of the company for the FY 2007-08 revealed the merger and the demerger. A company known as Techmen Tools Pvt. Ltd. had amalgamated with Mold-tek Technologies Ltd.....
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.... the assessee and are of the view that the ratio laid down by the Hyderabad Bench of the ITAT is squarely applicable to the present case also. Similar View was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. It is clear that during the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a comparable. We therefore hold that this company cannot be considered as a comparable. II. ACROPETAL TECHNOLOGIES LTD. (Seg.) This company is listed at Sl.No.2 of the comparables chosen by the TPO. As far as this company is concerned, the objection of the assessee is that this company is not functionally comparable. The assessee is a BPO company that provides CAD/ CAE services.. As far as Acropetal Technologies Ltd. is concerned, this company does the business of export of software services. It is also seen from the segmental revenue of this company (Note 15 to the notes on accounts to Annual Report for 07-08) that it derives income from engineering design services and software development services. It is also pertinent to point out that before the TPO, the assessee raised an....
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....ure-26, that operating profit by operating cost arrived 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 determ....
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....eason that it was having extraordinary event and super normal profits. Similar view was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. V. GENESYS INTERNATIONAL CORPORATION LTD. This company is listed at Sl. No.11 in the list of comparable companies chosen by the TPO. As far as this company is concerned, the stand of the assessee has been that this company is functionally not comparable and that it has a different employee skill set and that this company performs R&D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote 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. Besides the above, this company also carries out R&D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. Simi....
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....ering the comparability with companies which are market leaders in their field, and having substantially high turnover, observed as follows- "5.2. Various arguments, as stated earlier, were taken before the DRP which inter-alia included rejection of comparable cases; application of arbitrary filter of wage to sales ratio; ignoring that the assessee is a limited risk company; inclusion of Infosys Technologies ltd.; and inclusion of Satyam Computers Services Ltd. in spite of the fact that its data is not reliable as publicly known. On the basis of these arguments, the DRP excluded the case of Satyam 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 dat....