TaxTMI 
TaxTMI 
2015 (3) TMI 839
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....d entered into international transaction with an associate enterprise, the Assessing Officer called for the necessary information/ details for application of transfer pricing provisions. The assessee conducted its transfer pricing study in which transactional net margin method was used for benchmarking the international transaction. The assessee in the transfer pricing study identified 39 comparables out of which 9 companies were selected as per details given below : Sl. No. Name of the company Operating cost PBIT % of PBIT 1 Allsec Technologies Ltd. 88.60 24.79 27.98% 2 Ask Me Info Hub. Ltd. 2.98 0.01 0.34% 3 Godrej Upstream Ltd. 17.97 0.46 2.56% 4 NIIT Smartserve Ltd. 53.85 2.21 4.10% 5 Nipuna Services Ltd. 172.57 0.59 0.34% 6 Optimus Global Services Ltd. 33.07 (1.42) -4.29% 7 Transwork Information Services Ltd. 176.03 21.12 12.00% 8 Sparsh BPO Services Ltd. 81.70 5.76 7.05% 9 HTMT Global Solution Ltd. 253.16 12.32 4.87% Arithmetic mean 6.10% 3. The assessee submitted that the price c....
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....Technologies and Transwork Information Ltd., were already selected by the assessee in its comparables. The assessee also submitted that Spanco was comparable to the case of the assessee. In respect of the other companies, it was submitted that quite a few of them were in the field of computer software and other companies which were in information technology enabled services/BPO segment were doing high end job, and therefore, these companies were not functionally comparable. The assessee referred to the comparative billing rates as per NASSCOM report 2003-04 as per which the billing rates in respect of high end services such as content development and knowledge process outsourcing (KPO), which were very high. In relation to Maple E Solution Ltd., it was submitted that business operations of this company were controlled by Triton and, therefore, it was submitted that this company should be excluded on the ground of related party transactions. The assessee also requested for working capital adjustments and submitted that after making such adjustments, the margin in the case of the assessee would be 8.86 per cent. after including Spanco Ltd. which was comparable to the assessee. It was....
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.... .5.07% 16 Exclerx Services Ltd. 90.43% 17 Flextronics Software Systems Ltd. (Seg) 14.54% 18 Genesys International Corporation Ltd. 13.35% 19 HCL Comnet Systems & Services Ltd. 44.99% 20 Informed Technologies India Ltd. 35.56% 21 I Services India P. Ltd. 50.27% 22 Mold Tek Technlogies Ltd. 113.49% 23 R Systems International Ltd. (Seg). 20.18% 24 Spanco Ltd. (Seg.) 25.81% 25 Vishal Information Technologies Ltd. 51.19% 26 Bodhtree Consulting Ltd. (Seg). 29.58% 27 ICRA Techno Analytics Ltd. (Seg) 12.24% 28 Infosys BPO Ltd. 28.78% 29 Maple E Solutions Ltd. 34.05% 30 Triton Corp. Ltd. 34.93% 31 Wipro Ltd. (Seg). 29.70% Arithmetic mean 25.25% 5. The Transfer Pricing Officer accordingly made adjustment on account of transfer pricing at Rs. 50,22,36,923 on the basis of mean margin at 25.25 per cent. The Assessing Officer, thus, in the assessment order passed made an addition of Rs. 50,22,36,923 to the total income. 6. The assessee disputed the decision of the Assessing Officer making adjustment on account of tran....
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....uch losses could not be considered as incurred during normal course of business. The Commissioner of Income-tax (Appeals) also observed that for making comparison only the data for past two years could be considered as per rule and not the data of subsequent year, and therefore, profit made by the Optimus Global Services Ltd. in the assessment year 2008-09 was not relevant. The Commissioner of Income-tax (Appeals) accordingly upheld the order of the Assessing Officer excluding the said comparable. 8. The assessee also raised objection to the four comparables selected by the Transfer Pricing Officer on the ground that these were cases of exceptionally high profit margins as per details given below, reproduced from page 10 of the Commissioner of Income-tax (Appeals). Sl. No. Name of the company Operating profit (%) 1. Eclerx Services Ltd. 90.34% 2. I Services India P. Ltd. 50.27% 3. Moldtek Technologies Ltd. 113.49% 4. Vishal Information Technologies Ltd. 51.19% 8.1. The assessee requested that the above exceptionally high profit cases should be excluded. The assessee placed reliance on several decisions of the Tribunal in ....
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....ork of services such as high end services like content development, finance and account, HR etc, which required specialised skills. It was also pointed out that several companies selected by the Transfer Pricing Officer were engaged in content development and knowledge process outsourcing and other high end segments and, therefore, these companies were functionally not comparable. The assessee placed reliance on some decisions of the Tribunal in support of the plea that these companies were not comparable. 9.2. The Commissioner of Income-tax (Appeals) after considering the submissions of the assessee observed that the assessee had itself mentioned that several companies selected by the Transfer Pricing Officer were in information technology enabled services/BPO segment and therefore these were functionally comparable. The Commissioner of Income-tax (Appeals) also observed that the assessee had submitted functional details of the companies on the basis of the details available on the website which was not correct as details only from audited accounts should be taken. After considering the details as per audited accounts, the Commissioner of Income-tax (Appeals) observed that in m....
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....me as above. 5. Triton Corp. Ltd. The annual report of the company shows that the company was engaged in trading of information technology enabled services peripherals and had incurred 14.07 per cent., of total expenses on account of purchases and disclosed inventory of stores in the financials. The company has single segment, i.e., IT and information technology enabled services. There is no separate information technology enabled services segment, and, therefore, not comparable. 6. Maple E Solutions Ltd. This company was acquired by Triton Corp Ltd. with effect from January 1, 2007. Therefore non-comparable on the same ground on which Triton Corp Ltd. was excluded. Thus this company was also to be excluded from the comparables. 11. The assessee also pointed out errors in the margin of comparables computed by the Transfer Pricing Officer. It was pointed out that based on data available in the public domain, margins were found to be different than those computed by the Transfer Pricing Officer on the basis of information obtained under section 133(6) in case of four companies, i.e., Flextronics Software (Seg), HCL Comnet (Seg), Moldtek Technologies Ltd....
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.... Tribunal had only set aside the issue and not allowed the claim to the assessee. The Commissioner of Income-tax (Appeals) also observed that no comparables were perfect without any difference or variation and to account for such difference standard deviation of +/- 5 per cent., has been provided in the Act while computing the arm's length price. The Commissioner of Income-tax (Appeals), therefore, rejected the claim of the adjustment made by the assessee. 13. The assessee also claimed the benefit of +/- 5 per cent. deviation to the on sale price as provided in the proviso to section 92C(2). The assessee referred to several decisions of the Tribunal in support of the claim. The Commissioner of Income-tax (Appeals) however observed that the second proviso to section 92C(2) was amended by the Finance Act, 2009 to provide that the standard deviation can be allowed only if the arm's length price was within the 5 per cent. of the transfer price. It was further clarified by the Finance Act, 2012 that the said amendment would apply to all assessments and reassessments pending before the Assessing Officer as on October 1, 2009. Since in this case, the proceedings were pending be....
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....comparables selected by the Transfer Pricing Officer which had been upheld by the Commissioner of Income-tax (Appeals), exclusion of one comparable selected by the assessee and the rejection of other claims of the assessee on various issues, whereas the Revenue is aggrieved by the decision of the Commissioner of Income-tax (Appeals) excluding the six comparables selected by the Transfer Pricing Officer. 16. We first deal with the various disputes raised by the assessee in the appeal. The first dispute is regarding the selection of comparables and the decision of the Commissioner of Income-tax (Appeals) to uphold the selection of 15 comparables selected by the Transfer Pricing Officer and exclusion of one of the comparables selected by the assessee, i.e., Optimus Global Services Ltd. The learned authorised representative submitted that the 15 comparables selected by the Transfer Pricing Officer and upheld by the Commissioner of Income-tax (Appeals) were operating in different segments of information technology enabled services and were not providing services similar to that of the assessee, which was running a voice based call centre. The comparables selected by the Transfer Pric....
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.... Thus, the assessee was providing the information technology enabled services or back office operation (BPO). He referred to the Central Board of Direct Taxes notification S.O. 890 (E) September 26, 2000 ([2000] 245 ITR (St.) 102 ) issued in connection with sections 10A and 10B in which information technology enabled product or services were defined to mean : (i) Back office operation ; (ii) Call centres ; (iii) Content development or animation ; (iv) Data processing ; (v) Engineering and design ; (vi) Geographic information system services ; (vii) Human resource services ; (viii) Insurance claim processing ; (ix) Legal database ; (x) Medical transcription ; (xi) Payroll ; (xii) Remote maintenance ; (xiii) Revenue accounting ; (xiv) Support centres ; and (xv) Website services. 17.1. The learned Commissioner of Income-tax (Departmental representative) argued that the services provided by the comparables selected by the Transfer Pricing Officer fell in the category of information technology enabled services. It was pointed out that in a particular category of service no distinction can be made between high-end and low-end services....
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.... 9. HTMT Global Solutions HTMT provides consultancy and development services covering business domain knowledge, technology and process in the domains of automotive, insurance, IT, customer services banking, finance and telecom 17.3. The learned Commissioner of Income-tax-Departmental representative further submitted that high profit margin or low profit margin could not be the basis for exclusion of a particular comparable, if the comparable is functionally comparable to that of the assessee. He therefore, objected to the argument of learned authorised representative to exclude the four comparables having very high profit margin starting from 50.27 per cent. to 101.77 per cent. He placed reliance on the latest decision of the Tribunal in the case of Willis Processing Services (I) P. Ltd. v. Deputy CIT in I.T.A. No.4547/Mum/2012 for the assessment year 2007-08. The learned Commissioner of Income-tax (Departmental representative) also supported the decision of the Commissioner of Income-tax (Appeals) to exclude the persistent loss making comparable, i.e., Optimus Global Services Ltd. He referred to the decision of the Hyderabad Bench of the Tribunal in the case of....
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....iption is information technology enabled services as per notification No. 890 dated September 26, 2000. In Willis Processing Services India P. Ltd. in paragraph 79 this company was excluded by the Income-tax Appellate Tribunal for the reason that there are related party transactions of 81 per cent. in this company 4. Asit C Mehta (Nucleus Netsoft) Information techno-logy enabled services/Portfolio Management Services and Investment The annual report of the company shows that the income is from information technology enabled services Content development is information technology enabled services as per notification No. 890 dated September 26, 2000. 5. Caliber Point Business Solutions Ltd. Computer software-business process management Annual report of the company shows that segmental accounts are available and BPO segment's results can be used for the purpose of comparison. 6. Cosmic Global Ltd. Translation charges-Medical transcription and consultancy services and accounts BPO The annual report of the company shows that the company is deriving income from medical transcription, translation charges and BPO Medical transcription is information....
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....on under section 133(6) of the Act for the assessment years 2008-09 and 2009-10 the company is engaged in providing remote data services and GIS. The information collected by the Transfer Pricing Officer for subsequent year cannot be used for the current financial year since the functional profile of the company might change. GIS activities is an information technology enabled services activity as per notification No. 890 dated September 26, 2000. (ii) High profit margin company Rely on discussion in paragraph 95 of Willis Processing Services India P. Ltd. in which it was decided that a company cannot be excluded on the basis of high or low margin. 13. Mold Tek Technologies Ltd. Information techno-logy enabled services/BPO-KPO division The annual report shows that the company has segmental accounts which can be used for the purpose of comparison. In the case of Willis Processing Services India P. Ltd it is held on page 92 (paragraph 100) that KPO is a term given to the branch of BPO. High profit margin Rely on discussion in paragraph 95 of Willis Processing Services India P. Ltd in which it was decided that a compan....
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....was consultancy and advisory. In that case neither the assessee nor the Transfer Pricing Officer had gone into the horizontal or vertical functional line within the information technology enabled services. It was under these circumstances that the Tribunal held that comparable could not be rejected as it was operating in a different line but in the same sector. The learned authorised representative also referred to the decision of the Tribunal in the case of ITO v. CRM Services India P. Ltd. [2011] 48 SOT 41 (Delhi) (URO) in which it was held that comparables which are non voice based BPO should not be compared with voice based BPO. It was pointed out that the said decision of the Tribunal had not been brought to the notice of the Tribunal in the case of Actis Advisers P. Ltd. In regard to reliance placed by the learned Commissioner of Income-tax (Departmental representative) on the decision of Tribunal in the case of Willis Processing Services (I) P. Ltd. v. Deputy CIT [2014] 30 ITR (Trib) 39 (Mum), it was submitted that loss or extreme profit case should be further examined for such extreme results and they can be excluded if these are on account of difference in characteristics ....
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.... showed that there was something extraordinary in this year resulting into high profit and therefore it should be excluded. Reliance was placed on the decision of the Tribunal in the case of Actis Advisers. 19.2. In regard to exclusion of comparables on account of extraordinary events like merger, demerger, amalgamation, it was submitted that the Tribunal in case of Capital IQ Information Systems (India) P. Ltd v. Deputy CIT (International Taxation) [2013] 25 ITR (Trib) 185 (Hyd) clearly held that in such cases comparable has to be excluded. The Tribunal in the case of Willis Processing Services (I) P. Ltd. v. Deputy CIT [2014] 30 ITR (Trib) 39 (Mum) had taken the same view but held that in case, because of the merger/demerger, the company become functionally different then it should be excluded. It was pointed out that in addition to functional difference, factors like synergies of operation, change of management, operational efficiencies, etc., are also to be considered. It was pointed out that this aspect had not been examined and, therefore, it was requested that the case of Accentia Technologies and Mold Tek Technologies should be set aside to the Assessing Officer for exam....
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....ernational transaction entered into by the assessee. Therefore, the arithmetic mean of the margins of the comparables is required to be compared with that of the assessee for the purpose of making transfer pricing adjustment. The selection of comparables is important, which must be operating in the same field in order to insure that accurate adjustment as provided under the law is made. The assessee is providing information technology enabled services as call-centre about which there is no dispute. The assessee conducted the search for companies engaged in information technology enabled services which is clear from the note submitted by the assessee before the Transfer Pricing Officer on transfer pricing study in paragraph 3.3.1 at page 193 of the paper book. In paragraph 6 of the note at page 181 of the paper book, the assessee has mentioned that it belongs to information technology enabled services/BPO industry. The learned Departmental representative has also placed on record the NASSCOM member directory, in the relevant portion of which the assessee has been described as an information technology enabled services/BPO company. It is thus clear that the assessee is providing info....
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....ternational transaction if none of the differences between the transactions compared or the enterprises entering into such transactions are likely to materially affect the price charged, costs incurred or profits earned and even if there are material differences, the uncontrolled transaction can still be considered as comparable if reasonably accurate adjustments could be made by eliminating the material effects of such differences. 20.3. In this case as we have pointed out earlier that difference in various segments, i.e., low end to high end in information technology enabled services is mainly on account of differences in the skill/qualification and pay structure of employees and, therefore, the main point to be considered is whether such differences between employees is going to materially affect the margin of the comparables. The learned authorised representative for the assessee has placed before us the NASSCOM report showing billing rates in different segments of the information technology enabled services sector to point out that there is wide variation between low end and high end segments. However only on the basis of billing rates no conclusion could be drawn that marg....
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....only 4.5 per cent. which is one-sixth of the highest margin. Compared to this, the average margin of the comparables of the Transfer Pricing Officer is within two times the highest margin in the case of the assessee. Thus, if the comparables with one-sixth of the highest margin are acceptable to the assessee then, there is no reason for the assessee to be aggrieved with the comparables of the Transfer Pricing Officer where average margin is within twice the highest margin case selected by the assessee. The objection of the assessee will be valid only if there is material to show that high margin in case of high end services is because of nature of activities. But as it has been pointed out earlier, no such material had been produced. Therefore, we reject the argument advanced based on low end/high end services in the information technology enabled services activities. 21. With broad proposition laid down above we may now proceed to deal with the comparables individually to find out if they are suitable for comparison : 21.1. Accentia Technologies Ltd. This comparable has been objected to by the assessee on the ground of functional differences. It has been pointed out that ....
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....t). The assessee has objected the selection of this comparable on the ground that it is engaged in portfolio management services also, in addi tion of information technology enabled services. The learned Departmental representative has placed on record the annual report of the company which shows that the assessee is in the field of content development which is an information technology enabled services. It is also to be noted that almost the entire revenue, i.e., Rs. 6.09 crores is from information tech nology enabled services and only a sum of Rs. 23.26 lakhs is from portfolio management service which is insignificant and in our view will not have much impact on the margins. Content development is a high end service but as held earlier on this ground alone it cannot be excluded. As there is no material to show that in case of high end services in information technology enabled services industry margins are higher than those in the low segment. 21.5. Caliber Point Business Solutions Ltd. The assessee has argued that company is not comparable as it is engaged in business process management and other activities. The learned Departmental representative has placed on record t....
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....1. In the said order, the Tribunal held that super normal profit cases should be excluded as not comparable. However as pointed by the learned Departmental representative the same comparable was considered in the latest decision of the Tribunal in the case of Willis Processing Services (I) P. Ltd. v. Deputy CIT (supra) in which the Tribunal after considering the decision in the case of Capital IQ Information Systems (India) P. Ltd v. Deputy CIT (International Taxation) (supra) held that the comparable could not be excluded only on the ground of high profit margin. The Tribunal observed that inclusion or exclusion of a comparable could not be decided on the basis of factors other than the factors specified in rule 10B which does not include the margin or loss. Similarly, as held earlier high end or low end segment of information technology enabled services could also not be a ground for exclusion or inclusion of a comparable. It has also been argued that the company had high goodwill with customers which is an asset which gave better margins. No doubt goodwill is an asset which can bring more customers and can increase turnover but as we have discussed in the subsequent part of this....
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....ion technology enabled services segment i.e. KPO. The learned Departmental representative, however, placed on record the annual report of the company to point out that revenue is derived from BPO activities and there is no reference to KPO activities in the annual accounts. We also find from perusal of accounts that BPO is only reportable segment and the entire revenue is from BPO activities. We have also held earlier that a comparable could not be excluded only on the ground of high end /low end activities. Therefore, we uphold the selection of this company as a comparable. 21.12. I Services India P. Ltd. The assessee has objected to the inclusion of this company on the ground that it has a BPO unit providing back office operation. It has also been submitted that as per the information provided under section 133(6) for the assessment years 2008-09 and 2009-10, the company is also engaged in the business of providing remote data entry services and GIS. The learned Departmental representative has pointed out that the subsequent year report could not be considered for the purpose of comparability as the activity could change in the subsequent year. Moreover, GIS is an informati....
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....rofit during the year of KPO division registered an increase of 260 per cent. compared to the 204 per cent. rise in the turnover. We find that the margins have slightly improved this year and there is nothing extraordinary about it. We have already examined both aspects, i.e., offer of high-end information technology enabled services and super normal profit and have held that on these grounds alone, a company could not be held as not comparable. We also find that this company had also been considered by the Tribunal in the case of Willis Processing Services (I) P. Ltd. v. Deputy CIT [2014] 30 ITR (Trib) 39 (Mum) in which all the aspects were considered and the Tribunal held that the IT division of the company was in the nature of KPO which was operating in the information technology enabled services segment and has therefore to be considered as comparable to the case of the assessee. The Tribunal also rejected the ground of super normal profit for excluding the comparable. It was also noted that this company had been found to be a good comparable by the Tribunal in the case of Actis Advisers P Ltd. The Tribunal also noted the argument advanced on the ground of merger during the yea....
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....bled services company. The learned Commissioner of Income-tax (Departmental representative) pointed out that digitizing the books was an information technology enabled service and so was the print on demand, which was the reason for classifying the company as an information technology enabled services company in the annual report. We agree that being an information technology enabled services company, it is comparable to the case of the assessee. However, as we have held earlier, supernormal profit or high margin is not a valid ground for exclusion of a comparable. As regards the high number of seats it will mean more employees and more turnover, but as we have discussed in subsequent part of this order at paragraph (24.3.3), there is no linear relationship between margin and turnover and that the concept of economy of scale is not relevant to the service companies. Following the reasoning given therein, we reject the arguments advanced. The learned authorised representative for the assessee, has also sought exclusion of the company on the ground of substantial outsourcing of work. We find that this argument has already been considered by the Tribunal in the case of Willis Processi....
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....s year after year. The Tribunal in the case of Goldman Sach (I) Securities P. Ltd. have also held that in the case a company had persistent losses for a period of three year it has to be excluded. In the present case the company has been incurring losses for the last three years. The argument of the learned authorised representative that in the subsequent year the assessee-company had a profit could not be accepted as for the purpose of comparability only the results of current year or up to the past two years could be considered and not the results of the subsequent year. The learned Commissioner of Income-tax (Departmental representative) has also brought to our notice the decision of the Tribunal in the case of Firmenich Aromatics (I) P. Ltd. in I.T.A. No. 2056/Mum/06 in which it has been held that age and formation of the company could not be the criteria for the purpose of making comparative analysis. Therefore, considering the various decisions of the Tribunal (supra) and the facts of the case, we are convinced that this company which has persistent losses for the last three years has to be excluded. The order of the Commissioner of Income-tax (Appeals) is, therefore, upheld ....
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....on after considering the fresh material and after hearing the assessee. 24.1. ICRA Techno Analytics Ltd. (Seg.) The assessee has objected to the inclusion of this comparable on the ground that the company was into software business and is also engaged in high end information technology enabled services segment. The Commissioner of Income-tax (Appeals) has accepted the argument of the assessee and excluded this comparable. The annual report of the company has been placed on record before us by the learned Commissioner of Income-tax (Departmental representative) which shows that the company is dealing in computer software, software development, consultancy and training. We also find that this company had been considered by the Tribunal in the case of Willis Processing Services (I) P. Ltd. v. Deputy CIT [2014] 30 ITR (Trib) 39 (Mum) in which the Tribunal noted that the company had 23.86 per cent. related party transactions. The Tribunal in the said case held that any company having related party transactions more than 15 per cent. has to be excluded as comparable. Therefore, following the decision of the Tribunal in the case of Willis Processing Services India P. Ltd., the exclu....
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..... 7861/M/ 2011 [2013] 27 ITR (Trib) 74 (Mumbai) and not accepted. 24.3.2. We have carefully considered the various aspects of the issue and the rival arguments advanced by both parties. We have already held that high end services in information technology enabled services sector could not be the basis for exclusion of comparables. Similarly, we have also not found the arguments based on high margin convincing for the reason given earlier. The argument of the learned authorised representative based on brand value and high marketing/selling expenses had been examined in detail by the Tribunal in the case of Actis Advisers P. Ltd. The Tribunal noted that high marketing expenses did create marketing intangibles such as brand. But it was not necessary that it always resulted into high margin. The Tribunal in that case noted the finding of the Transfer Pricing Officer that 95 per cent. of the revenue of Infosys came from repeat business which showed that marketing intangibles did not help Infosys to get any better business. The Tribunal also accepted the finding of the Transfer Pricing Officer that marketing intangibles may be helpful in getting better business but the same may not be....
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....reject the argument advanced for exclusion of Infosys BPO Ltd. and accordingly hold that this has to be accepted as a good comparable. 24.4. Wipro Ltd. (Seg.) The case of Wipro Ltd. which has been excluded by the Commis sioner of Income-tax (Appeals) is identical to the case of Infosys BPO Ltd. with only difference that turnover in case of Wipro Ltd. is Rs. 939.78 crores whereas in case of Infosys BPO Ltd. the turnover is Rs. 649.57 crores. The argument advanced by the assessee for exclusion of this comparable is the same as advanced in the case of Infosys BPO Ltd. Therefore, for the same reasons given in case of Infosys BPO Ltd. we reject the argument advanced and uphold the inclusion of this comparable by the Assessing Officer/the Transfer Pricing Officer. 24.5.Maple E Solutions This company is in the call centre business. A copy of the annual report placed on record by the learned Commissioner of Income-tax (Departmental representative) shows that call centre revenue is Rs. 12.21 crores and sale of software is only Rs. 9,000 which is negligible. Therefore, almost whole of the revenue is from call centre. The Commissioner of Income-tax (Appeals) has excluded this comp....
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....rder of the Commissioner of Income-tax (Appeals) excluding this comparable and therefore the order is set aside and this company is included as a comparable. 24.6. Triton Corp. Ltd. This company which had been selected by the Transfer Pricing Officer as comparable has been excluded by the Commissioner of Income-tax (Appeals) on the ground that the assessee was engaged in high end service of information technology enabled services segment, i.e., KPO. The Commissioner of Income-tax (Appeals) has also observed that the company was trading in IT peripherals and there were no segmental results available. Amalgamation/restructuring has also been cited as a reason for excluding the comparable. The learned Commissioner of Income-tax (Departmental representative) has placed on record the annual report of the company for the relevant year which shows call centre revenue of Rs. 47.50 crores and revenue from support services at Rs. 5.54 lakhs. The income from trading in IT peripherals is Rs. 5.80 crores. It is therefore, clear that the company is predominantly in the call centre business. The revenue from trading in IT peripherals is small at about 11 per cent. which in our view will not....
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....nrelated party as per the method prescribed and the adjustment has to be made on the basis of the arm's length price. The Revenue is not further required to prove that there is tax avoidance. This view is also supported by the decision of the Tribunal in the case of 24/7 Customer.Com.Pvt. Ltd. v. Deputy CIT in I.T.A. No.227/Mum/2010 [2013] 21 ITR (Trib) 514 (Bang) and the decision of the Special Bench of the Tribunal in Aztec Software and Technology Services Ltd. v. Asst. CIT [2007] 294 ITR (AT) 32 (Bang). We therefore see no merit in the arguments advanced by the learned authorised representative and accordingly confirm the order of the Commissioner of Income-tax (Appeals) on this point. 26. The assessee has also raised dispute regarding method of margin computation for the purpose of comparability. The assessee had computed the margin on operating cost which has also been followed by the Assessing Officer/the Transfer Pricing Officer. The assessee has, however pointed out that under the provision of rule 10B(1)(e)(i) the margin could be computed in relation to cost incurred, or sales affected, or asset employed. It has therefore been argued that the assessee has the option....
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....e is in the service sector which is not capital asset intensive. No doubt in every sector there is some use of equipments and other assets but the same cannot be said to be as capital intensive as in case of manufacturing concerns. Moreover, in case of service companies, main asset is employees which is not reflected in the balance-sheet and, therefore, ROCA/ROA in our view will not be an appropriate method for the purpose of computation of margin. We accordingly, do not see any infirmity in the order of the Commissioner of Income-tax (Appeals) rejecting ROCA/ROA as profit level indicator. The order of the Commissioner of Income-tax (Appeals) is accordingly held on this point. 27. Working capital adjustment and adjustment on account of other costs The assessee has requested for adjustment on account of working capital. It has been submitted that the assessee was receiving money in advance whereas in other cases receivable may be pending for a long-time which affect the sale price as well as the margin. It has therefore, been requested that working capital adjustment may be allowed. The learned Commissioner of Income-tax (Departmental representative) on the other hand submitte....