TaxTMI 
TaxTMI 
2016 (12) TMI 1583
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....ransactions: Sr. No. Description of International transaction Amount (Rs) Most appropriate method 1. Provision of software services 6,98,000 TNMM 2. Provision for ITES 13,99,000 TNMM 3. Reimbursement of expenses 1,37,100 TNMM 4. Assessee maintained the relevant Transfer Pricing [TP] documentation as required u/s 92D of the Income Tax Act [Act] r/w Rule 10D of the Income-tax Rules, 1962. In the TP documentation maintained by assessee-company, Transactional Net Margin Method [TNMM] was selected as the most appropriate method for determining the Arm's Length Price [ALP] for all the international transactions. Assessee-company selected the markup on operating cost (i.e. OP/OC) as the appropriate Profit Level Indicator [PLI] in applying the TNMM. As a part of the TP documentation, assessee-company undertook benchmarking analysis to justify the arm's length nature of all the international transactions. 5. Assessee-company applied various quantitative and qualitative filters to arrive at a set of 8 comparable companies with the arithmetic mean of comparable companies at 18.62% as against 23.61% margin of the Company. Since, assesseecompany's margin wa....
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....s International Ltd. (Seg) 20.18 23 Spanco Ltd. (Seg) 25.81 24 Triton Corp Ltd. 34.93 25 Wipro Ltd. (Seg) 29.70 Average Margin 30.67 9. Subsequently, on account of merger of the Company with another company the files got transferred from the AO at Mumbai to the jurisdictional AO of the assessee at Hyderabad i.e. Deputy Commissioner of Income Tax, Circle 1(3), Hyderabad (hereinafter referred to as 'AO'). 10. During the course of assessment proceedings, AO asked the assessee-company to provide various information/ documents which were regularly provided by assessee to the AO. Subsequently, AO completed assessment for the relevant assessment year and passed draft assessment order u/s 143(3) r/w section 144C(1) of Act on 16 December 2010, wherein he recomputed the amount of deduction claimed by assesseecompany u/s 10A of the Act and added TP adjustment as proposed by the TPO. 11. Assessee subsequently filed a letter dated 04 January 2011 before AO requesting him to pass the final assessment order as assessee wished to file an appeal before the CIT(A) instead of filing an appeal before the Dispute Resolution Panel [DRP]. In view of the above letter....
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....valid as the AO has erred in carrying on the assessment proceedings in the name of the assessee which was a non-existing entity on the date of passing of such orders. The reasons for raising the additional ground are stated as under: * BACI (formerly known as CFC) was incorporated on 10 February 2004 with its registered office at Mumbai. The Company was engaged in the business of providing information technology ('IT') and IT enabled services CITES') to its associated enterprises. * The Company got merged with the Appellant with effect from 01 April 2008 vide the Hon'ble Andhra Pradesh High Court order dated 14 December 2009 and the Hon'ble Bombay High Court order dated 18 December 2009. Post receipt of merger orders, the Appellant filed letter with the jurisdictional income tax officer of the Company as well as the jurisdictional income tax officer of the Appellant on 09 April 2010 and 13 April 2010 respectively (enclosed along with appeal documents), intimating about the merger of the Company with the Appellant and thereby requesting for transfer of files of the Company from Mumbai income tax jurisdiction to Hyderabad income tax jurisdiction. Please find en....
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....4: On the facts and in the circumstances of the case and in law, TPO erred in computing the operating margin/operating cost (i.e. PLI) of five comparable companies out of the twenty five comparable companies considered by TPO and the Ld. CIT(A) further erred in upholding/confirming the action of TPO". It was submitted that in the case of the following comparable companies, the margin computed by TPO suffers from arithmetical and other errors. I. Accentia Technologies Limited ('Accentia'): Accentia operates in three segments and TPO has considered 'Medical Transcription' services segment for the purpose of margin computation. TPO did not reduce the proportional depreciation from the segmental revenue, while arriving at the operating profits of the Accentia, thereby enhancing the net cost plus margin of Accentia to 38.26% instead of 30.61% (before working capital adjustment). This is contradictory to TPO's own approach wherein, he has considered depreciation for the purpose of computing operating cost and thereby arriving at net cost plus margins. II. Flextronics Software Systems Limited ('Flextronics'): TPO at the time of computing the margin of Flex....
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....s: Ground Nos. 5 & 6 pertain to the issue of Comparability of certain companies. Ground No. 5: On the facts and in the circumstances of the case and in law, TPO erred and the Ld. CIT(A) further erred in upholding/ confirming the action of TPO in selecting high profit margin companies and high turnover companies as comparable to the Company. Ground No. 6: On the facts and in the circumstances of the case and in law, TPO erred and the Ld. CIT(A) further erred in upholding/ confirming the action of TPO in selecting the comparable companies which are functionally different and companies whose financials are not reliable. 22.1. It was submitted that TPO erred in selecting the following companies as comparables which are functionally not comparable to the assessee-company, having high profit margin etc. It was the contention that the following comparable companies should be rejected / excluded from the final list of comparables selected by TPO for the reasons stated: i. Mold Tek Technologies Limited ('Mold Tek'); ii. Vishal Information Technologies Limited ('Vishal'); iii. eClerx Services Limited ('eClerx'); iv. Maple Esolutions Limited ('Maple'....
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.... taxmann.com 453 (2014) (Hyd ITAT)] ; * BA Continuum India Private Limited [ITA No. 1154/Hyd/2011 (Hyd ITAT)] iii. Eclerx Services Limited ('Eclerx'): Functionally different: Eclerx should be rejected as comparable as it is engaged in providing high end services in the nature of KPO activities like Data Analytics, and customized process solutions. These include data analytics, operations management, audits and reconciliation, metrics management and reporting services. TPO did not agree to the contention of assessee and rejected the submissions. Ld. CTT(A) relied on TPO's order and rejected the contentions of assessee. Assessee placed reliance on the following Judicial precedents for rejection of Eclerx as a comparable company: * Maersk Global Centres (India) Private Limited Vs. ACIT, Mumbai [I.T.A. No.7466/Mum/2012/AY 2007-08] ; * United Health Group Information Services Pvt. Ltd. [ITA No.6312/Del/2012/AY 2007-08] ; * Calibrated Healthcare Systems India Pvt. Ltd. [ITA No. 527l/Del/201 2/AY 2007-08] ; * Hyundai Motors India Engineering P. Ltd. [ITA No.1 850/Hyd/20 12/A Y 2007-08] iv. Maple Esolutions Limited ('Maple'): Unreliable financials: It was the ....
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.... following the same we reject the DR's objections and direct the TPO to exclude this company from the list of comparables. 23.2. With reference to Vishal Information Technologies Ltd., also this company is functionally different and was held not comparable in the following cases: i. Capital IQ Information Systems (India) Pvt. Ltd. Vs. DCIT [32 taxmann.com 21 (2013) (Hyd ITAT)]; ii. Avineon India (P) Ltd., Vs. DCIT [41 taxmann.com 334 (2014) (Hyd ITAT)] iii. C3i Support Services (P) Ltd., Vs. ACIT [46 taxmann.com 453 (2014) (Hyd ITAT)] iv. BA Continuum India Private Limited Vs. ACIT [ITA No. 1154/Hyd/2011 (Hyd ITAT)] Since this company is already held to be not comparable in similar cases, we direct the TPO to exclude the above company. 23.3. eClerx Services Limited: This company is also objected to as it is involved in KPO business. This company is already excluded in the Co-ordinate Bench decision cited above in the submissions. Respectfully following, we direct the TPO to exclude this company. 23.4. Maple Esolutions Ltd: This company also has unreliable financials as directors of Maple Esolutions Ltd., are found to be involved in fraud. Under Company Law, once director is....