TaxTMI 
TaxTMI 
2017 (4) TMI 358
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....oss of Rs. 3,68,28,299/-. The return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued, against which, the AR of the assessee furnished information/details called for. Thereafter, the AO completed the assessment u/s 143(3) r.w.s. 92CA r.w.s. 144C of the Act and determined the total income of the assessee at Rs. 22,31,19,883/- by making the following additions.: 1. Delayed payment of employees contribution to PF 2. Taxing of accrued income shown as unmatured advances in the balance sheet. 3. Arm's length Price determined by TPO u/s 92CA of the Act. 3. Aggrieved with the above order, the assessee preferred an appeal before the CIT(A) against the additions in respect of accrued income shown as unmatured advances and Arm's length price adjustment u/s 92CA of the Act. 4. As regards the issue of taxing of accrued income shown as unmatured advances in the balance sheet, the CIT(A) after considering the submissions of the assessee and relying on the decision of the coordinate bench of this Tribunal in assessee's own case for the Previous Year, deleted the addition made by the AO. 5....
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.... The assessee-company already debited huge direct or indirect expenses on these receipts and postponement of all these receipts results in distortion of true profits. 4. Whatever be the method followed, recognition of revenue has to be in consonance with the method of accounting so followed vis-à-vis the nature and character of the amount accrued or received and the year of such accrual or receipt [State Bank of Travancore 158 ITR 102 (SC)]. The Assessing Officer has the power to adopt the correct method of valuation of closing stock instead of wrong method adopted by the assessee for a long period. Method of stock valuation followed should not only be consistent but should also be correct. British Paints India Limited 188 ITR 44 (SC). Similar issue is involved in the assessee's own case and additions were made on this issue for the assessment years 2004-05 to 2006-07. Accordingly, the unmatured income of Rs. 51,02,38,034/- is treated as assessee's income. In this case, while completing the scrutiny assessment for the assessment year 2006-07, the unmatured income/advance shown of Rs. 30,11,23,732/- was taxed as income. In the assessment year 2007-08, the assess....
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....bunal in the case of Bharat Television Ltd. In ITA No.1797/Hyd/89 and of the Madras Bench in the case of Sakura Electronics (P) Ltd. allowed the claim of the assessee. The contention of the learned Departmental Representative was that since the assessee has accounted for only proportional receipt, credit for the entire TDS cannot be allowed. On the other hand, the learned counsel supported the order of the CIT(A). On due consideration of the matter, we uphold the order of the CIT(A). Whether a particular Accounting Standard has been notified or not is not material. What is to be seen is whether the assessee has followed a recognized method of accounting or not. If method followed by the assessee is such whereby correct income cannot be deduced, then only the assessing officer has the authority to adopt a reasonable basis to determine the total income. In the instant case,. It cannot be disputed that the assessee has followed a recognized method of accounting and hence, there is no question of adding any further amount to the total income. There being no infirmity in the order of the CIT(A), we uphold the same." Therefore, we do not find any infirmity in the order of the CI....
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....e of TP regulations, the assessee adopted the cost + 15% mark up as ALP in respect of BPO services. In respect of data cleaning services, as the transactions were one time and the margin worked out at 63.8% on the turnover and at Rs. 176.5% on cost, the assessee did not work out any comparables. 13.2 The assessee submitted that TPO has adopted mark up of 36.41% and subsequently, after considering the objections of assessee, TPO has reduced the mark up to 30.21%. Assessee further submitted that TPO has increased the operating cost of international transactions to Rs. 11,10,31,660/- as against the cost of Rs. 7,89,354,010/- as declared by the assessee . On the operating cost of Rs. 11,10,31,660/-, the TPO has adopted the ALP margin of 30.21% and determined the ALP at Rs. 14,45,74,324/-. Accordingly, determined the ALP adjustment of Rs. 4,59,33,797/-. 13.3 Assessee submitted that TPO has committed a mistake by increasing the cost incurred by the assessee in international transactions, TPO treated the entire cost of business of the assessee as one involved in international transactions, computed percentage of loss on overall basis and computed the cost by applying that percentage....
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....There are costs involved in maintaining office, electricity and host of other things connected to a particular activity. Each of these costs relating to international transaction has to be apportioned to that activity. It is incorrect to say that only employee salaries and deprecation on computers and head phones would be enough to account for all the costs relating to BPO services. The operating costs have not been determined correctly by the appellant. 3. The Transfer Pricing Officer pointed out that the appellant has wrongly picked 20 suitable companies only to justify its markup. The Transfer Pricing Officer has rightly pointed out that no filters have been applied by the appellant and that the results of companies so chosen are not really incredible. 4. The Transfer Pricing Officer has rightly stated that the appellant is mainly in IT enabled services. However, he has compared the results of the International Transactions of the appellant in part with some software developing companies. The appellant has not developed any software. 5. The appellant has pointed out that some of the facts mentioned by the Transfer Pricing Officer actually relate to some other companies ....
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....for the current AY 2007-08. 16.8 Goldstone Infratech Ltd (Seg.) (Earlier known as Goldstone Teleservices Ltd) This company is not considered as a comparable by the TPO for the current AY 2007-08 as the turnover of the ITES segment is below Rs. 1 crore for the FY 2006-07. 16.9 Spanco Ltd (Seg.) (Earlier known as Spanco Telesystems & Solutions Ltd.) This company is considered as a comparable by the TPO even for the current AY 2007-08. 16.10 Ace Software Exports Ltd This company is not considered as a comparable by the TPO for the current AY 2007-08 as the company has declining revenues for the last three year upto and including the FY 2006-07. 16.11 Apex Knowledge Solutions Pvt Ltd This company is considered as a comparable by the TPO even for the current AY 2007-08. 16.12 R Systems International Ltd (Seg.) This company is considered as a comparable by the TPO even for the current AY 2007-08. 16.13 Flextronics Software Systems Ltd (Seg.) This company is considered as a comparable by the TPO even for the current AY 2007-08. A plain reading of the above in this case reveals that the Transfer Pricing Officer has written certain things which are fac....
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.... of the comparable companies, selected does business relating to epaper processing, offshore projects, epaper solutions. Only one portion of its activities relate to data cleansing services for which anyway the appellant has shown much higher margins. Otherwise, its services do not relate to the services of the appellant. 11. As yet another example, Apex Knowledge Solutions Pvt. Ltd. is into GIS and engineering services and not into services offered by the appellant 5.3 From the above discussions, I find that whereas it is correct to say that the appellant has not taken all expenses Into account and has artificially shown 15% markup on selected cost. On the other hand, the Transfer Pricing Officer has applied incorrect filters and has compared the appellant's results with those of primarily incomparable companies. Therefore, I find that the calculation with respect to actual operating costs calculated by the TPO at Rs. 11,10,31,660/- are correctly calculated because such costs with respect to IT enabled services for exports are not very different from those of the appellant. These costs have also not taken into account any working capital adjustments as the appellant h....
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....t to the assessee. Considering the above factual errors, we remit the issue back to the file of the TPO for de-novo consideration. We direct the TPO to re-do the assessment after giving proper opportunity to the assessee in this regard. Accordingly, the grounds raised by the assessee are allowed for statistical purposes. 18. In the result, appeal of the revenue is dismissed and appeal of the assessee is allowed for statistical purposes as far as AY 2007-08 is concerned. ITA No. 49/H/13 for AY 2008-09 by the revenue and ITA No. 69/H/13 for AY 2008-09 by the assessee. 19. As regards ground Nos. 2&3 raised by the revenue regarding accrued income shown as unmatured advances amounting to Rs. 16,96,48,620/-, similar issue has been decided by us in AY 2007-08 in revenue's appeal. As the issue is materially identical to that of AY 2007-08, we uphold the order of the CIT(A) in deleting the said addition and accordingly, dismiss the grounds raised by the revenue. 20. As regards the ground Nos. 1 to 3( a to j) raised by the assessee regarding the addition of Rs. 7,25,22,986/- in respect of international transactions, in the previous year relevant to the assessment year, the assess....
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....sessee regarding the addition of Rs. 2,51,21,597/- as interest u/s 234B, it is observed that charging interest u/s 234B is consequential in nature, therefore, interest u/s 234B may be computed on the final taxable income arrived at by the AO. 27. In the result, appeal of the revenue is dismissed and appeal of the assessee is allowed for statistical purposes in AY 2008-09 is concerned. ITA No. 1333/H/14 for AY 2009-10 by the revenue and ITA No. 872/H/14 for AY 2009-10 by the assessee. 28. As regards ground Nos. 1&2 raised by the revenue regarding accrued income shown as unmatured advances amounting to Rs. 60,26,51,868/-, similar issue has been decided by us in AY 2007-08 in revenue's appeal. As the issue is materially identical to that of AY 2007-08, we uphold the order of the CIT(A) in deleting the said addition and dismiss the grounds raised by the revenue. 29. As regards the ground Nos. 1 to 3 ( a to g) pertaining to transfer pricing adjustment of Rs. 85,79,248/- u/s 92CA of the Act, by the assessee, it is observed that as per 3CEB report, the international transactions reflected are as under: AE Nature of transaction Amount (Rs.) Monster Worldwide Inc., ....
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....hat it has secured loan from its AE with an arrangement of interest rate of 200 basis points over the quarterly LIBOR rate. However, during the year no interest has been paid/payable by the assessee. 29.3 As per the audited statement of accounts, the financials of the assessee are as under: Description Amount (Rs.) Operating revenue 1,40,63,73,614 Operating Cost 1,19,67,96,659 Operating Profit 20,95,76,955 OP/OR (%) 14.90 OP/OC (%) 17.51 29.4 On going through the TP document, the TP observed that the method of the search process suffers from defects which resulted in selection of inappropriate comparables and rejection of companies that are appropriate comparables. A detailed show cause notice was issued to the assessee and its response was solicited. The assessee has filed its reply on 01/11/2012 and 05/12/2012. 29.5 After considering the submissions of the assessee, the TPO has arrived the arm's length margin at 24.67% and the arm's length price on provisions of ITES was determined at Rs. 11,34,49,059/- and a sum of Rs. 85,79,248/- was treated as adjustment u/s 92C(3) of the Act, by which the income was enhanced. 30. When ....
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....resaid cases. For the sake of clarity, we extract the findings of the coordinate bench in the case of M/s Capital IQ Information Systems (India) Pvt. Ltd., (supra) as under: "15. We have considered the contentions of the parties and examined the documents and paper-books placed on record. Correctness of inclusion/exclusion of the above companies is decided hereunder case by case. (1) Infosys B P O Ltd. : 16. It was the contention of assessee that this BPO is a giant in its area and has brand value of Infosys Technologies limited. Assessee's main contention was that it is not functionally similar and its turnover is much more when compared to that of assessee. It was also contended that the Infosys BPO has done brand building exercise by incurring large amounts of brand building and advertisement expenditure and undertaking brand campaigning outside India. Further, it also has huge asset base and therefore, this company is not functionally comparable to assessee. Assessee relied on the decision of the Hon'ble Delhi High Court in the case of CIT V/s. Agnity India Technologies Pvt. Ltd. (2013) 219 Taxman 26 (Del), wherein it was held that huge turnover companies like Infosys ....
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....ng to the relative position of things on the earth's surface. These basically include 3D mapping, Navigation maps, Image processing, Cadastral mapping, etc. If we take into account the nature of services provided by the assessee, being financial and retirement security, health, productivity of employees and employment relationships and then try to compare them with those rendered by Genesys, it is manifested that both are totally incomparable. 14.3. The TPO on page 48 of his order has examined CBDT Circular SO 890 (E) dated 26.9.2000 which provides a detailed list of products or services that can be covered under the ITES for the purposes of Section 10A and 10B of the Act. In this Circular, Information Technology Enabled Products/Services have been divided into fifteen categories, starting with Bank Office operations, Call centres etc. and ending with Website services. From the very description of such services, it is palpable that even though these fall under the overall ITES category, but some of them are quite different from each other. To cite, service at Sl.No. (vi) of this Circular is 'Geographic Information System services and at Sl. No. (vii) is 'Human Resources Services....
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....ore has to be classified as high end KPO. In support of the stand of the assessee, extracts from the annual report of this company have been pointed out. Therefore, the functions of the above company are dissimilar to assessee, which is a captive service provider. On the principles laid down by the Hon'ble Special Bench of the ITAT (Mumbai) in the case of Maersk Global Centres (India) Pvt. Ltd. V/s. ACIT (ITA No.7466/Mum/2012 for assessment year 2008-09 dated 7.3.2014) and the principles laid down by the coordinate bench of the Tribunal(Delhi) in the case of M/s. Mercer Consulting (India) Pvt. Ltd., (supra), assessee submits that this company cannot be selected as a comparable. 18.1 The Learned Departmental Representative, however, submitted that having accepted Aditya Birla Minacs Worldwide Ltd., as a comparable company, this company should also be included, as otherwise, both the companies should be excluded. 18.2 We have considered the issue and examined the Annual Report and the objections of assessee. As seen from the Annual Report, the above company is involved in diverse nature of services and there was no segmental data for diversified service port folio. Moreover thi....
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....his segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO. Thus it is held that this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment. 13.3. However, we find this case to incomparable on the alternative argument advanced by the ld. AR to the effect that total revenue of the Accounts BPO segment of Cosmic Global Limited is very low at Rs. 27.76 lacs. We have discussed this aspect above in the context of CG-VAK's case and held that a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at Rs. 86.10 lacs. As the segmental revenue of BPO segment of Cosmic Global Limited at Rs.27.76 lac is still on much lower side, the reasons given above would fully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded from the list of comparables." In view of the detailed analysis of the coordinate Bench of the Tribunal in the above referred case, in this case also we accept the cont....