TaxTMI 
TaxTMI 
2014 (12) TMI 1276
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.... of the services provided by the assessee to its parent company, the parent company shall pay to the assessee an amount equivalent to the operating cost incurred by the assessee in providing such services including related costs and expenses of its personnel, parent company shall in addition pay 12.50% mark up on the Operating costs till agreement is in force. 3.2. Mindcrest Inc (Parent company) entered into a services agreement on 12.9.2006 with Bloomberg LP. It was agreed that Mindcrest shall be responsible for researching key words and phrases provided by Bloomberg using cases regulations, legislative, administrative materials. It was further agreed that Mindcrest Inc. shall create a list of extracted information from the sources that best explain and define the keywords and phrases. Service provider (Mindcrest Inc) shall edit and rewrite extracted text so that copy is clear, concise, well formed and grammatically correct. It was also agreed that there will be a total of 20 Assigned Employee and all services provided by the Service Provider to Bloomberg will be provided from the Service provider's location in India for which Service Provider shall bear all costs and expenses ....
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....tion to support the arm's length price computed by it in the audit report. The assessee filed a detailed explanation alongwith necessary details stating that the assessee has charged a mark- up of 12.56% of cost and has bench marked the transaction using TNMM method where the average profit margin of the comparable companies is 10.98%. The assessee concluded that its transactions were at arm's length. 3.5 After considering the facts and the submissions and the TP study report, the TPO was of the firm belief that the assessee is engaged in legal process outsourcing which is a high end service akin to KPO. The TPO applied the following filters or criteria in searching for the comparables. - Companies whose data is not available for the FY 2007-08 were excluded and the date for the FY 2007-08 has been considered for the period from 01.04.2007 to 31-03-2008. - Companies whose IT enabled service income <10.00 cr and >250 crores were excluded. - Companies whose IT enabled service revenue is less than 75% of the total operating revenues were excluded. - Companies who have more than 25% related party transactions(sales as well as expenditure combined)....
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....The DRP considered the scope of work of the assessee vis-à-vis parent company. The assessee strongly contended that the search undertaken by the TPO is not contemporaneous as per the TP regulations. Further, it was brought to the notice of the DRP that the agreement between the AE and Bloomberg is for rendition of services from India and for which fee agreed was 12 US Dollar per hour. It was claimed that the consideration itself show that it was providing low- end services. 3.8. After considering the facts and the submissions and the objections raised by the assessee, the DRP directed to exclude Coral Hubs Ltd. from the list of comparables used by the TPO and issued directions accordingly. 4. Aggrieved by this, the assessee is before us. 5. The Ld. Counsel for the assessee vehemently submitted that the Revenue authorities have grossly misunderstood the nature of the services provided by the assessee to its AE. The Ld. Counsel stated that the assessee is providing low-end services to its AE and therefore the comparables selected by the assessee are in the line of the nature of services provided by the assessee. It is the say of the Ld. Counsel that it is incorrect to....
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....fact that during the year under consideration, there was only one client i.e. Bloomberg. 7.1. Let us now consider the company's used as comparables by the TPO to see whether they can be accepted or not: 1. M/s. Acropetal Technologies (Seg.) A perusal of the Annual report of this company shows that it is engaged in the development of Computer Software. The company has also shown inventories as work-in-progress in its balance sheet and there is also increase/decrease in inventories in its profit and loss account and under the head employees related onsite development charges, there are onsite development expenses amounting to Rs. 31.45 crores. Considering these facts, it can be safely concluded that this company has totally different business model. It is also seen that this company does not pass the test of 75% export turnover which is used as a filter by the TPO himself. This company was also rejected by the Tribunal in ITA No. 7016/M/2012 wherein the Tribunal has held that the ratio of onsite to total employee related expenses of this company comes to 86.2%k, thus failing the onsite filter. The Tribunal, Bangalore Bench in ITA No. 1316/Bang/2010 in the case of....
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....s company has acquired UK based Igentic Travel Solutions Ltd. on July 27th 2007 which is considered as an abnormal feature for the purpose accepting any company as comparable. The Tribunal, Special Bench, Mumbai in the case of Maersk Global Centres (India) Pvt. Ltd. Vs ACIT in ITA No. 7466/M/12 has observed that this company is mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with companies which are mainly engaged in providing low-end services to the group concerns. The Tribunal, Bangalore Bench in ITA No. 1316/Bang/2010 in the case of Symphony Marketing Solutions India Pvt. Ltd. has observed that this company has acquired a UK based company which has significantly contributed to the increase in the customer and revenue base of the company and finally held that this company cannot be regarded as a comparable for the reason that it was functionally different. Considering the abnormal features which exist during the year under consideration in this company, in the light of the fact and the decisions discussed hereinabove, we direct for the exclusion of this company from the list o....