TaxTMI 
TaxTMI 
2015 (11) TMI 1592
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....d in law. Transfer Pricing 2 The Honorable DRP and the learned AO have erred on facts and in law in confirming the action of the TPO making an adjustment amounting to Rs. 39,779,596 to the Arm's Length Price ("ALP") of the international transactions of the Appellant, and upholding the ALP of 27.41 percent as proposed by the TPO. In doing so, the Honorable DRP and learned AO have erred in upholding the following action of the TPO: 2.1 rejecting the Transfer Pricing (TP") documentation maintained and detailed benchmarking analysis conducted by the Appellant; 2.2 disregarding the multiple/prior year data considered by the appellant in determining the ALP and adopting the financial data for a single year (i.e. the Financial Year (FY) 2006-07) of the comparable companies despite the fact that the same was not available to the appellant at the time of preparing the TP documentation; 2.3 Rejecting certain comparable companies identified by the appellant in its TP study using unreasonable comparability criteria and contrary to facts as evidenced by the audited financial statements of the said companies. 2.4 conducting a fresh search....
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...., omit, substitute or amend the above grounds, at any time before or at the time of hearing of the appeal. Each of the above objections is independent and without prejudice to the other grounds preferred by the appellant." 3. Ground No.1 and 2.1 are general in nature and do not require any specific adjudication. 4. At the time of hearing, learned AR of the assessee has stated that the assessee does not press ground Nos.2.2, 2.3, 2.6 to 2.10 and the same may be dismissed as not pressed. The learned departmental representative has raised no objection if these grounds as prayed by the assessee are dismissed as not pressed. Accordingly, ground Nos.2.1, 2.3, 2.6 to 2.10 are dismissed being not pressed. 5. Ground No.2.4 and 2.5 regarding transfer pricing adjustment and comparability of the companies selected by the TPO. 6. The assessee is a wholly owned subsidiary of Flextronics International Asia Pacific Ltd., Mauritius and engaged in the manufacturing of printed circuit board assembly which has application in the telecom, industrial electronics and consumer product segments. The assessee also operates support services division for providing back-office services relating to ....
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....es Ltd. The TPO rejected two of the companies selected by the assessee as comparable and accepted 5 of the companies which are as under: Sl. No. Name of the company Operating Margin to Cost (FY 2006-07) 1 Allsec Technologies Ltd. 27.31% 2 Cosmic Global Ltd. 12.40% 3 R Systems Ltd. 20.18% 4 Spanco Telesystems & Solutions Ltd. (Now Spanco Ltd.) 25.81% 5 Transworks Information Services Ltd. (Now known as Aditya Birla Minacs Worldwide Ltd.) 11.98% Apart from accepting some of the companies selected by the assessee, the TPO has also carried out a search and added 22 more comparables. Thus, the final list of comparables considered by the TPO consisting of 27 companies is as under: Sl. No. Company Name Sales (Rs.cr.) GP to Total Cost% 1 Accetia Technologies Ltd (Seg.) 16.57 30.61% 2 Aditya Birla Mimics Worldwide Ltd (earlier Transworks Information Services Ltd) 1968.06 11.98% 3 Allsec Technologies Ltd 113.28 27.31% 4 Apex Knowledge Solutions Pvt. Ltd 6.64 % 12.83 5 Appollo Healthstreet Ltd 47.84 13.55% 6 Asit C.Mehta Financial Services L....
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....e as under: 8.1 eClerx Services Ltd: The learned AR of the assessee has submitted that this company is engaged in the high-end services and therefore, this company is basically a KPO and not a BPO. He has referred to Annual Report of this company at page 26 of the paper book -II and submitted that as it is clear from the Annual Report that this company is a knowledge process outsourcing (K. P. O) providing data analytics and data process solutions to global enterprise clients. This company supports core and complex activities for its clients using proprietary processes and a scalable offshore delivery model. This company has access to the capital market and therefore, this company is a public listed KPO company in India. The company is also engaged in consulting services and process outsourcing as well as in the activity of process reengineering and automation apart from middle office and back office support to capital market. Therefore, keeping in the diversified high-end services, this company cannot be considered as functionally comparable with the assessee. In support of his contention, he has relied upon the decision of the Special Bench of the Mumbai Tribunal in the cas....
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.... increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns. 83. For the reasons gi....
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....of international transactions in the ITES segment. 8.2.1 We have considered the rival submissions as well as the relevant material on record. At the outset, we note that HCL Comnet System & Services Ltd.(seg.) is following its accounting year from 1st July to 30th June. For the year under consideration, the financial accounts are prepared for the year ended on 30th June, 2007. Therefore, it is clear that for the financial year under consideration, only partial data are available from 1st July 2006 to 31st March 2007. At the outset, we note that an identical issue has been considered by this Tribunal in a series of decisions as relied upon by the assessee and referred (supra). In the case of Sandstone Capital Advisors Pvt. Ltd. vs. ACIT (supra), the Tribunal vide its order dated 6/2/2013 held in para.10 to 10.3 as under: "10. We have considered the rival submissions and relevant material on record. The TPO has rejected this comparable because the financial data for the Financial Year 2007-08 were not available in the public domain and hence, if was held that this company is not a suitable comparable. There is no dispute that the data furnished by the assessee are r....
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....nce the case of CMC Limited financial year ending vis-a-vis that of the assessee, have been excluded. No contrary precedent was brought to our notice by the learned AR. In fact, the argument advanced by this regard was not seriously challenged by the id. AR. following the precedent, we hold that this case should from the list of comparables." Accordingly, by following series of decisions of the Tribunal on the point, we hold that this company cannot be treated as a good comparable for the purpose of determining the ALP. Hence, the AO/TPO is directed to exclude this company from the list of comparable for the purpose of determination of ALP. 8.3 Infosys TechnologiesLtd. The learned AR of the assessee has referred to the Annual Report of this company at page 57 of the paper book and submitted that though this company was initially selected by the assessee, however, the assessee has raised objections against this company even before the TPO and further before the DRP. Therefore, this company is functionally different and has to be excluded from the list of comparables. The learned AR of the assessee has pointed out that this company is having more than 17000 employees in comp....
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....rom April 1. 2008 ("effective date"). The approval of the High Court was received on April 6, 2009 and filed with the respective Registrar of Companies of Karnataka and Tamilnadu on April 6, 2009 and March 10, 2009 respectively. Accordingly on the scheme becoming effective, the financial statement of PAN Financial has been merged with the company. It is clear that there was extraordinary event of amalgamation during the year under consideration. Therefore, in view of the extraordinary development of amalgamation of another company, this company cannot be considered as a good comparable for the assessment year under consideration. Apart from this, we further note that as per the segment reporting in para.16.2.21 of Annual Report this company is providing business process management services as under: Segment reporting The company's operations primarily relate to providing business process management services to organizations that outsource their business processes. Accordingly. revenues represented along industry classes comprise the primary basis of segmental information set out in these financial statements. Secondary segmental reporting is performed on the basis of the ....
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....f cases as relied upon by the assessee, has held that this company cannot be taken as a good comparable because of the reason that the directors of the company were involved in fraud activity and therefore, financial statements of this company cannot be relied upon. In the case of First Advantage Offshore Services Pvt. Ltd., (supra) the Tribunal has held inpara.41 as under: "41. As far as the companies Mapel ESolution Ltd and Triton Corp Ltd., the learned counsel for the assessee submitted that these two companies are to be excluded from the list of comparables, as for the relevant assessment year, they were allegedly involved in financial fraud and results of these two companies cannot be relied upon. For this purpose, the learned counsel for the assessee placed reliance upon the decision of Hyderabad Bench of the Tribunal in the case of Capital IQ Information (cited supra). On going through the said order, we find that the Hyderabad Bench of the Tribunal has considered the decision of the Tribunal at Delhi in the case of ITO Vs. CRM Services India Pvt. Ltd., in ITA No.4068 of Del 2009 dated 30.06.2011 wherein it was held that the financial results of these two companies ....
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....pecial Bench of Mumbai (Supra). The learned AR has pointed out that this Co. is declaring only one segment operating revenue therefore, this cannot be compared with the assessee. 8.5.2 On the other hand, learned DR has relied upon the orders of the authorities below and submitted that this Co. is in the field of ITES and therefore, functionally comparable with the assessee. 8.5.3 We have considered the rival submissions as well as the material on record. At the outset, we note that functional analysis of the Co. has been examined by the Special Bench in case of M/s Maersk Global India Pvt.Ltd(Supra) in para-81 & 83 as under: "81. Insofar as the case of M/s Mold Tek Technologies Ltd is concerned, it is observed from the annual report of the said company for the FY: 2007-08 placed at pp.139 to 151 of the paper book that he said company was pioneer in structural engineering KPO services and its entire business comprised of providing only structural engineering services to various clients. Further, information of M/s Mold Tek Technologies Ltd available on their website is furnished in the form of printout at pp.158 to 165 of the paper book and a perusal of the same shown....
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....actually performed by the assessee company for its AE are compared with the functional profile of M/s eClerx Services(P)Ltd and Mold-Tek Technologies Ltd. it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the directions of the DRP. 8.5.4 The Special Bench has examined the functional comparability of this Co. with that of ITES low end service providing assessee and found that this Co. is rendering web designing and development of services with expertise in turning them in to effective graphics, design representative and creating dynamics and graphic rich web application from IT speces, design, prints etc. Further, this Co. was already found to be involved in providing structural engineering services coupled with extraordinary event of amalgamation and demerger. Following the decision of this Special Bench in case of M/s Maersk Global India Pvt. Ltd. (Supra),Mumbai Benches the Tribunal in the....
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....e other hand, learned Departmental Representative has relied upon the order of the authorities below. 8.6.1 We have considered the rival submissions as well as relevant material on record. We note that the comparability of this company has been examined by the Tribunal in the case of First Advantage Offshore Services Pvt. Ltd. (supra) which has already been reproduced in the foregoing paragraphs. This company has merged with Mold-Tek Technologies Ltd. during the year under consideration. In view of the findings in respect of Mold-Tek Technologies Ltd., we are of the opinion that this company cannot be considered as a good comparable company. 8.7 Vishal Information Technologies Ltd.(Coral Hub Ltd.) The learned AR of the assessee has submitted that this company does not qualify the employees filter of 25% adopted by the TPO. He has pointed out that this company has outsourced its activities and therefore, being a different business model to a routine ITES provider, cannot be considered as a good comparable. In support of his contention, he has relied upon the following decisions: i. Rampgreen Solutions Pvt. Ltd.(TS-387-HC-2015-TP) ii. First Advantage Offshore ....
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....see submitted that this company is an industry leader and also owns tangibles. He has further submitted that this company is engaged in product development and services. However, the segmental information is not available. He has pointed out that there is a amalgamation during the year. He has relied upon the decision of co-ordinate bench of this Tribunal in case of 3DPLM Software Solutions Ltd (Supra). On the other hand, learned DR relied upon the orders of the authorities below and submitted that this company was found to be functionally similar to the ITES service provided by the assessee. 8.8.1 We have considered the rival submissions and relevant material on record. At the outset, we note that an identical issue of comparability of this company has been examined by this Tribunal in the case of GXS India Technology Centre Pvt.Ltd in IT(TP)A No.1444(Bang) 2012 dated 31/07/2015 wherein it has been held in paras.17.2 and 17.3 as under: "17.2 We have considered the rival submissions and relevant material on record. We note that in case of 3DPLM Software Solutions Ltd, (Supra), this Tribunal has considered the functional comparability of this company in para-12.4.1 an....
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....lusion of the above comes to around 17.85% which is within tolerance range of +/-5%. We direct the TPO to consider the claim of the assessee of granting the benefit of tolerance range +/-5% as raised in ground No.3 of the concise grounds. 10. Ground Nos.4 to 6 is regarding setting off of domestic loss against income from export business for the purpose of deduction u/s 10A. 10.1 The learned AR of the assessee has relied upon the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Yokogawa India Ltd. & others (341 ITR 385) as well as the decision in the case of CIT vs. M/s.Auringene Discovery Technologies Ltd. in ITA No.549/2013 dated 05/09/2014 and submitted that the Hon'ble High Court has reiterated the view taken in the case of Yokogawa India Ltd.(supra). He has also relied upon the decision of this Tribunal dated 30/4/2014 in the case of CIT vs. M/s.Biocon Ltd. in ITA Nos.248, 368 to 371 & 1206/2010. 10.2 On the other hand, learned Departmental Representative has relied upon the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Himatsinghika Seide Ltd. (156 Taxman 151) and submitted that that the decision of the jurisd....
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....me of the assessee. The Parliament despite being conversant with the implications of this chapter, has consciously chosen to retain s. 10A in Chapter III. 17. If s. 10A is to be given effect to as a deduction from the total income as defined in s. 2(45), it would mean that s. 10A is to be considered after Chapter VI-A deductions have been exhausted. The deductions under Chapter VI-A are to be given from out of the gross total income. The term "gross total income" is defined in s. 80B(5) to mean the total income computed in accordance with the provisions of this Act, before making any deduction under this chapter. As per the definition of gross total income, the other provisions of the Act will have to be first given effect to. There is no reason why reference to the provisions of the Act should not include s. 10A. In other words, the gross total income would be arrived at after considering s. 10A deduction also. Therefore, it would be inappropriate to conclude that s. 10A deduction is to be given effect to after Chapter VI-A deductions are exhausted. 18. It is after the deduction under Chapter VI-A that the total income of an assessee is arrived at. Chapter VI-A d....
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....rgo in the aforesaid clauses in respect of depreciation and business loss relating to the asst. yr. 2001-02 onwards. The amendment indicates the legislative intention of providing the benefit of carry forward of depreciation and business loss relating to any year of the tax holiday period to be set off against income of any year post tax holiday. This is supported by Circular No. 7 of 2003 [(2003) 184 CTR (St) 33] wherein the board has stated that the purpose of amendment is to entitle an assessee to the benefit of carry forward of depreciation and loss suffered during the tax holiday period. The circular dt. 5th Sept., 2003 reads as under : "20. Providing for carry forward of business losses and unabsorbed depreciation to units in Special Economic Zones and 100 per cent export oriented units. 20.1 Under the existing provisions of ss. 10A and 10B, the undertakings operating in a Special Economic Zone (under s. 10A) and 100 per cent export oriented units (under s. 10B) are not permitted to carry forward their business losses and unabsorbed depreciation. 20.2 With a view to rationalize the existing tax incentives in respect of such units sub-s. (6) in ss. 1....
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....t, RHI Unit and IFP Unit. The assessee had claimed deduction u/s. 10B of the Act in respect of the aforesaid units totaling Rs. 157,22,33,066 which is the sum total of deduction u/s. 10B for the four units as follows:- (1) CMZ Unit : 6,87,70,229 (2) SAP Unit : 76,60,29,880 (3) RHI Unit : 52,42,56,278 (4) IFP Unit : 21,31,76,679 Total 157,22,33,066 The assessee had non-10B units as well. In those non- 10B units, there was a loss of Rs. 105,92,19,172. In the return of income filed by the assessee, the assessee sought to carry forward the loss of non-10B units for set off against the profits of non-10B units in the subsequent assessment years. The AO firstly noticed that there was income from other sources to the extent of Rs. 4,71,15,896 and such had to be set off against the loss of the non-10B units. Accordingly, the AO held that the loss of the non-10B units that had to be considered for carry forward would be Rs. 101,21,03,280. Thereafter, the AO was of the view that income of the 10B units had to be set off against the loss of the non-10B units and if it is so set off, there will be no loss that needs to be carried ....
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....e Assessee was in appeal before the Tribunal. 25. This Tribunal dealt with the issue in the following words : 63. We have given a careful consideration to the rival submissions. The issue as to whether the provisions of Sec.10B of the Act are deduction provisions or exemption provisions will assume great importance. The reason is that if the provisions are considered as exemption provisions then they will not enter the computation of total income and therefore the loss of the eligible unit cannot be set off against the profits of the non-eligible unit. This issue has already been settled by the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd. (supra). The Hon'ble Karnataka High Court in the case of Yokogawa (supra) had to deal with two substantial question of law. The first substantial question of law was on the right of set off of loss of noneligible unit against the profit of the eligible unit on which deduction u/s.10B was to be allowed. The Hon'ble Court in para 10 to 20 of its judgment dealt with the issue. The Hon'ble Court noticed that Sec.10-A(1) of the Act (which is in pari materia with Sec.10-B of the Act) read as follows: "10B. S....
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....ard from earlier years have to be set off against the profits before computing exempt profits. The assessee in that case set up a 100% EOU in AY 1988-89. For want of profits it did not claim benefits u/s 10B in AYs 1988-89 to 1990-91. From AY 1992-93 it claimed the said benefits for a connective period of 5 years. In AY 1994- 95, the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of AY 1988-89. It claimed that as s. 10B conferred "exemption" for the profits of the EOU, the said brought forward depreciation could not be set-off from the profits of the EOU but was available to be set-off against income from other sources. It was also claimed that the profits had to be computed on a "commercial" basis. The AO accepted the claim though the CIT revised his order u/s 263 and directed that the exemption be computed after set-off. On appeal by the assessee, the Tribunal reversed the order of the CIT. On appeal by the department, the High Court in CIT Vs. Himatasingike Seide Ltd. 286 ITR 255 (Kar) reversed the order of the Tribunal and held that the brought forward depreciation had to be adjusted against the profits of the EOU before c....