TaxTMI 
TaxTMI 
2014 (12) TMI 1064
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....ides business process outsourcing services, transaction processing exclusively to its group companies. The company is registered under the Software Technology Parks of India as a 100% EOU. From the TP study documents filed by the assessee, the TPO noted that the assessee has entered into the following international transactions with its Associated Enterprises : Sr.No. Nature of Transaction Amount (Rs.) Method used 1 Provision of BPO Services 54,28,45,900 TNMM 2 Purchase of fixed assets 1,00,34,697 CUP 3 Recovery of expenses incurred by the company on behalf of the AE 1,02,19,774 -- 4 Reimbursement of expenses incurred by the AE on behalf of the company 3,77,30,209 -- 2.1 The TPO noted that the ALP of the international transactions representing ITES/BPO provided to the AEs has been determined by applying TNMM method stating the same to be the most appropriate method under the facts and circumstances of the case. He noted that the assessee has taken operating profit and operating cost ratio as the PLI in TNMM analysis. The assessee was remunerated at cost plus mark up of 15% on the entire cost incurred for rende....
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....d.,) 19.38 6 Maple eSolutions Ltd., 20.67 7 Triton Corp. Ltd., (selected by the assessee) 25.26 Arithmetic Mean 31.94 Accordingly, the TPO proposed an adjustment of Rs. 7.38 crores. 2.3 The assessee challenged the matter before the DRP who directed the TPO to include 2 companies, i.e. Caliber point business solutions Ltd. and R systems International Ltd as comparables. Similarly, the DRP also directed the AO to include income in nature of "other income" and also to exclude foreign exchange loss/gain. The DRP also directed the AO to carry out working capital adjustment. Similarly, the DRP directed the AO to carry out the required rectification in making incorrect computation of margin on cost of comparable companies for A.Y. 2007-08. 2.4 Based on the direction of the DRP, the AO took revised set of comparables after rectification of margin and after including the 2 companies, i.e. Caliber point business solutions Ltd. and R Systems International Ltd. and determined the Arithmetic Mean at 28.43%, the details of which are as under : Sr.No. Company Name OP/OC (%) 1 Accentia Technologies Ltd., 44.34 2 Coral Hub....
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....ections of the Hon'ble DRP has erred in law and on the facts and in circumstances of the case in rejecting Transworks Information Services Limited as a comparable company. 5. Erroneous calculation of operating margin of companies selected by the learned TPO The learned ACIT pursuant to the directions of the Hon'ble DRP has erred on the facts and in circumstances of the case in computing the operating margin of two companies (namely Crossdomain Solutions Ltd. and Maple eSolutions Ltd.) selected by the learned TPO while arriving at a transfer pricing adjustment. 6. Erroneous selection of ITES companies unlike BPO companies as comparable to the Appellant which is into BPO services The learned ACIT pursuant to the directions of Hon'ble DRP has erred in law and on the facts and in circumstances of the case in selection of ITES companies unlike the Appellant which is into BPO segment. 7. Erroneous selection of outliers companies as comparable to the Appellant The learned ACIT pursuant to the directions of Hon'ble DRP has erred in law and on the facts and in circumstances of the case in selection of outliers companies e.g. Accentia Technologies Ltd. and C....
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....ed/apportioned unallocated cost of Rs. 3,96,39,162/- for which the margin of the comparable has gone up to 18.55% as compared to the correct working of 8.70%. Since the unallocated cost of Rs. 3,96,39,162/- has neither been reduced nor apportioned he submitted that the issue may be restored to the file of the Assessing Officer with a direction to pass appropriate orders by apportioning the unallocated cost. 6. The Ld. Departmental Representative has no objection for the same. We accordingly restore grounds of appeal No.2 to the file of the Assessing Officer with the direction to apportion the unallocated cost of Rs. 3,96,39,162/- and determine the working of margin of comparable as per law after giving due opportunity of being heard to the assessee. Ground of appeal No.2 is accordingly allowed for statistical purposes. 7. So far as grounds of appeal No. 3 is concerned, the Ld. Counsel for the assessee submitted that Accentia Technologies Ltd. and Coral Hubs Ltd. have different functionality. While Accentia Technologies Ltd. offers SAAS software in the HRC area (Health Care Receivable Cycle Management), and Coral Hubs Ltd. is engaged in the business of data conversion, e-publi....
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....ems Inc. and Denmed Inc. is mentioned. Our attention was also drawn to the decision of the Hyderabad ITAT Bench in the case of Capital IQ Information Systems India ITA No.1316/Bang/2012 Pvt. Ltd. v. DCIT [ 2013] 32 Taxman.com 21 (Hyd. Trib). In the aforesaid decision, the Hyderabad Bench of the Tribunal had to deal with a case of determination 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 ....
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....ase of the aforesaid company, there is amalgamation in December, 2006, which has impacted the financial result. This fact has to be verified by the TPO. If it is found upon such verification that the amalgamation in fact has taken place, then the aforesaid comparable has to be excluded." 11. We have considered the submissions of the ld. counsel for 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. 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 ITA No.1316/Bang/2012 comparable. We therefore hold that this company cannot be considered as a comparable." 9.1 Similarly, we find the Hyderabad Bench of the Tribunal in the case of Hyundai Motors India Engineering Pvt. Ltd. (Supra) following the decision of the Bangalore Bench of the Tribunal has held that Accentia Technologies Ltd. warrants exclusion as a comparable due to the happening of certain extraordinary events in this company during the impugned assessment year. The relevant observation of the Tribunal from pages 7 to 9 of the orde....
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....r and the de- merger needed the approval of the Hon'ble High Court of Andhra Pradesh and also the approval of the shareholders. The shareholders of the company gave approval for the merger and the demerger on 25.01.2008 and the Hon'ble High Court of Andhra Pradesh had approved the merger and de-merger on 25th July, 2008. Subsequently, the ITA No.1316/Bang/2012 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 excepti....
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....earlier known as Vishal Information Technologies Ltd. The comparability of this company in the case of an ITES company by name 24 x 7 Customer.com Pvt. Ltd. was considered by ITA No.1316/Bang/2012 the Tribunal in ITA No.227/Bang/2010 and by order dated 09.11.2012 the Tribunal held that this company is not functionally comparable with ITES for the following reason:- "17.3 Vishal Information Technologies Ltd. (VIT) - In the case of this comparable, we find that the Mumbai Tribunal in the case of Mearsk Global Services (I) Pvt Ltd in ITA No.3774/Mum/2011 by order dt.9.11.2011 has held that since Vishal Information Technologies Ltd is outsourcing most of its work it has to be excluded from the list whereas the assessee in the cited case was carrying out the work by itself. In the instant case of the assessee also the assessee was carrying out its work by itself whereas in the case of VITL, it is outsourcing most of its work. We are therefore of the considered opinion that the decision of the ITAT, Mumbai in the cited case on the issue of excluding VITL as a comparable squarely applies. This decision was followed by the decision of the coordinate bench of this Tribunal in the case of....
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.....), a copy of which is submitted before us, has also directed for the exclusion of the aforesaid company since it has outsourced a considerable portion of its business. 17. After considering the submissions of the learned Authorised Representative for the assessee, we find that the DRP, in the proceedings for the assessment year 2008-09 in assessee's own case, after taking note of the composition of the vendor payments of Coral Hub for the last three years, and the fact 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 from the final list of comparables." In case of 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 of tulsyan Technologies Limited and Vishal Information Technologies Limited are concerned, it is noticed from their annual ....
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....l Hubs Ltd.,) as not comparable since it is engaged in e-publishing business. The relevant observation of the Tribunal from at pages 9 and 10 of the order read as under : "Vishal Informatics 12.1. The TPO included this company in the list of comparables by noticing that it was engaged in providing BPO services. The assessee failed to convince him and the DRP that it was incomparable. 12.2. Having heard the rival submissions and perused the relevant material on record, we find from the Annual report of this company that it is mainly engaged in e-publishing business. It has more than 10,000 classic books to its credit which are also converted into large font titles for visually challenged. Apart from e-publishing, this company is also engaged in Documents scanning & Indexing. It can be seen from the financial results of this company that both the segments viz., e-publishing and Documents scanning etc. have been combined and there are no separate financial results in respect of Documents scanning work, which may be comparable with the assessee to some extent. As the assessee is not engaged in any epublishing business and the financials given by this company are on consolidate....