TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 321
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....portion of the data entry which was outsourced to the subsidiary and other independent units and cannot be included in the operating income and expenditure of the assessee." 3.1 The facts of the case are that the assessee is a wholly owned subsidiary of Lason System Inc. USA which is in turn held by Lason Inc., Michigan USA. The assessee is engaged in rendering data conversion services to its ultimate parent company Lason Inc., Michigan USA in the area of forms processing, E-publishing and support systems and software services. The assessee company had eITA filed its return of income declaring 'Nil' income on 29.09.2009. The return of income was processed u/s.143(1) of the Act on 22.11.2011 and a refund of Rs. 1,29,88,760/- was issued. The case was selected for scrutiny and notice u/s.143(2) was issued to the assessee on 20.08.2010. Subsequently, the case was assigned by CIT,Chennai-1 to the Additional CIT, Company Range-II Chennai for completion of assessment vide order dated 27.04.2012. A notice u/s.143(2) r.w.s.129 of the Act was issued on 12.06.2012. Notice u/s.142(1) dated 12.06.2012 along with questionnaire calling for details on various points, was also issued. The case was....
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....hat outsourced work by the assessee to it's subsidiary and other independent units cannot be considered a pass through cost. It is the decision of the assessee as to how the work orders received from the A.Es are executed. A part of the work has not been outsourced to subsidiary and other independent units by the Assessee on the directions of the A.Es. It is the discretion of the Assessee as to how the work is carried out. The Assessee has raised the bills upon AEs and received the payments from it's A.Es. For the work got done by the Assessee from its subsidiary and other independent units the bills have been raised by these entities on the Assessee and the Assessee has made the payment to them on its own account and not on behalf of the A.Es. Therefore, the payments to the subsidiary and other independent units by the Assessee cannot be categorized as pass through cost as it is not a payment from A.Es to the subsidiary of the Assessee and Assessee acting merely as a conduit. Hence, it is not a pass through cost and therefore TPO rightly included on debit as well as credit side in the financials of the Assessee to determine its profit margin. This Panel therefore upheld the action....
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....te concern. For performing the functions for and on behalf of AEs, the assessee is remunerated by its AEs on the basis of a fixed commission/charges based on expenses or cost incurred by the assessee for release of a particular advertisement. It is also to be noted that advertising space (be it media, print or outdoor), has been let out by third party vendors in the name of ultimate customers and beneficiary of advertisement. We have gone through the invoices and purchase orders from third party vendors and find that they contain customers' name, and all the terms of advertisement are finalized after taking the approval from the customers. The assessee simply acts as an intermediary between the ultimate customer and the third party vendor in order to facilitate placement of the advertisement. The payment made by the assessee to vendors is recovered from the respective customers or AEs. In the event customer fails to pay any such amount to the advertisement agency, the bad debt risk is borne by the third party vendor and not by the advertising agency i.e. the assessee. It is, thus, clear that the assessee has not assumed any risk on account of non-payment by its customers or AEs....
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....ers would have incurred directly had they been independent. In such a case, it may well be appropriate to pass on these costs to the group recipients without a mark-up, and to apply a mark-up only to the costs incurred by the intermediary in performing its agency function." However, we find that it is an admitted fact that the assessee itself included the pass through cost in its Profit and Loss Account. It is not the case of assessee that it is charged only mark up receivable from A.E in its P&L A/c. It is also admitted fact that assessee raised bills upon its A.E as payment from its A.E and received the payments from its A.Es. It is also brought on record that for the work got done by the assessee from its subsidiary and other independent units, the bills have been raised by these entities on the assessee and the assessee has made the payments to them on its own accounts and not on behalf of the A.Es. Thus, the payments to the subsidiary and other independent units by the assessee cannot be treated as pass through cost as it is not the payment from A.E to subsidiary of the assessee. Being so, the AO is justified in considering the pass through cost also for arriving at the oper....
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....h service providers cannot be considered to be functionally similar. Their business environment would he entirely different, the demand and supply for the services would he different, the assets and capital employed would differ, the competence required to operate the two services would be different. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous. 32. It has been pointed out that whilst the Tribunal in Willis Processing Services (India,) Pvt. Ltd. v. DCIT (supra) held that no distinction could be made between KPO and BPO service providers, however, a contrary view had been taken by several benches of the Tribunal in other cases. In Capital IQ Information System India (F,) Ltd. v. Dy. CIT, (IT) [2013] 32 taxmann.com 21 and Lloyds TSB Global Services Pvt. Ltd. v. DCIT, (ITA No. 5928/Mum/2012 dated 2lth November 2012), the Hyderabad and Mumbai Bench of the Tribunal respectively accepted the view that a BPO service provider could not be compared with a KPO se....
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....acteristics. This factor cannot be undermined by using a broad classification of ITeS which takes within its fold various types of services with completely different content and value. Thus, where the tested party is not a KPO service provider, an entity rendering KPO services cannot be considered as a comparable for the purposes of Transfer Pricing analysis. The perception that a BPO service provider may have the ability to move up the value chain by offering KPO services cannot he a ground for assessing the transactions relating to services rendered by the BPO service provider by benchmarking it with the transactions of KPO services providers. The object is to ascertain the ALP of the service rendered and not of a service (higher in value chain) that may possibly be rendered subsequently. 35. As pointed out by the Special Bench of the Tribunal in Maersk Global centers 'India) Pvt. Ltd. (supra), there may be cases where an entity may be rendering a mix of services some of which may be functionally comparable to a KPO while other services may not. In such cases a classification of BPO and KPO may not be feasible. Clearly, no straitjacket formula can be applied. In cases where the....
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.... Maersk Global Centers (India) Pvt. Ltd. (supra), the Special Bench of the Tribunal had noted the same and had, thus, excluded eClerx as a comparable. It is further observed that the comparability of eClerx had also been examined by the Hyderabad Bench of the Tribunal in M/s Capital Iq Information Systems (India) (P.) Ltd. v. Additional Commissioner of Incometax (supra), wherein, the Tribunal directed the exclusion of eClerx as a comparable for the reason that it was engaged in providing KPO Services and further that it had also returned supernormal profits. 4.1.2 On the other hand, ld.D.R made his submission that neither receipts nor expenditure have influenced the financials of Cosmic Global Ltd. ld.D.R further pointed out that the difference between the assessee and Cosmos Global Ltd do not vitiate the comparability and hence no interference is called for.. 4.1.3 We have heard both the parties and perused the material on record. M/s.Cosmic Global Ltd. is mainly engaged in ITES and it qualified as a comparable to assessee's case. As observed by DRP, neither receipts nor expenditure have influenced the financials of Cosmic Global Ltd., to show that it is not comparable. Since t....
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....nt year 2009-10 also, the company has acquired M/s.Oak Technologies Inc. ld.A.R submitted that similar to other comparables the skill-set required by the assessee company. 4.3.2 On the other hand, ld.D.R relied on the order of DRP. 4.3.3 We have heard both the parties and perused the material on record. As seen from the records, M/s.Accentia Technologies Ltd., acquired various companies from year by year. More so, in the assessment year under consideration i.e. 2009-10, the assessee has acquired M/s.Oak Technologies Inc. Being so, as held by Co-ordinate Bench of Hyderabad in the cases of ZAVATA INDIA P. LTD. Vs. DCIT reported in [2013] 25 ITR (Trib) 504 (ITAT[Hyd]) and also by Capital IQ Information Systems (India) Pvt. Ltd., Vs. DCIT(Int. Taxation) reported in 25 ITR (Trib) 185 (ITAT[Hyd]) that there is an extraordinary event like merger/de-merger which will affect profitability of the company in the financial year when such events took place and it cannot be comparable with assessee. Accordingly, this ground of assessee is allowed and M/s.Accentia Technologies Ltd., is to be excluded from comparables. 4.5 Regarding M/s.Micro Genetics Services Ltd., the ld.A.R submitted that M/....
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....rofit or high turnover or loss making companies cannot be considered as comparable. Further, it was held that whenever there is an extraordinary event like merger/demerger or emergency, such companies cannot be considered as comparable. In view of this, we are not fully in agreement with findings of the lower authorities on this issue. Accordingly, we are holding that M/s.Allsec Technologies Ltd., cannot be considered as comparable. Hence, the ground of the assessee is rejected. 5.1 The next ground is with regard to not making suitable adjustments to account for differences in the risk profile of the assessee and its comparables. 5.2 According to ld.A.R, the TPO erred in ignoring the difference in risk profiles of the assessee and its comparable companies and in not providing any risk adjustment in this regard. He placed reliance in the case of M/s.HELLOSOFT INDIA (P.) LTD. Vs. DCIT reported in [2014] 148 ITD 669 (ITAT[Hyd]). 5.3 On the other hand, ld.D.R submitted that its comparable companies and in not providing any risk adjustment in this regard allow the same. Ld.D.R submitted that in so far as risk adjustment is concerned, it cannot be allowed. Unless it is established tha....