TaxTMI 
TaxTMI 
2016 (7) TMI 1297
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.... 2. The Hon'ble DRP, the Ld. AO and the Learned Transfer Pricing Officer- 1(1)(1) (hereinafter referred to as 'Ld. TPO') erred both on the facts and in law, in confirming the addition to the extent of Rs. 23,348,693 to the income of the Appellant by holding that its international transaction pertaining to provision of information technology enabled services does not satisfy the arm's length principle prescribed under the Income-tax Act, 1961 ('the Act'). 3. On facts and in law, the Hon'ble DRP, Ld. AO and Ld. TPO erred in disregarding the Assessee's use of multiple year/ prior years' data in contravention of the provision of section 92C of the Act read with Rule 10B and Rule 10D(4) of the Income-tax Rules, 1962 ('the Rules'). 4. On facts and in law, the Hon'ble DRP, Ld. AO and Ld. TPO erred in disregarding the doctrine of impossibility of performance in contravening section 92D of the Act read with Rule 10D(4) of the Rules, which mandate the use of contemporaneous data for the determination of arm's length price ('ALP') of international transactions. 5. On facts and in law, the Hon'ble DRP erred in confirming the action of the Ld. AO and the Ld. TPO of....
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....iating penalty proceedings under section 271(1)(c) of the Act. 13. On facts and in law the Ld. AO made computational errors in calculating the tax demand alongwith interest under section 234B of the Act." 2. The assessee filed its return of income on 29.11.2011 showing an income of Rs. 23,19,782/- which was subsequently revised on 27.04.2012 to Rs. 24,72,931/-. During the course of assessment proceedings, the Assessing Officer found that the assessee has entered into international transactions with its Associate Enterprise (AE) for provision of back office support services/IT enabled services (ITES) amounting to Rs. 17,02,10,918/- and reimbursement of expenses of Rs. 1,28,706/- and therefore, reference u/s. 92CA of the Act was made by the ld. Assessing Officer for determination of Arm's Length Price (ALP) for the international transactions undertaken by the assessee. The ld. TPO passed an order u/s. 92CA(3) vide order dated 07.01.2015 proposing an adjustment on account of ITES of Rs. 2,72,34,266/- and on account of receivables of Rs. 18,61,066/- totaling to Rs. 2,90,95,332/-. Based on this, the ld. Assessing Officer passed a draft assessment order on 02.02.2015 wherein ....
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....1,44,45,184/- and proposed an adjustment of Rs. 2,72,34,266/-. Further, as stated by the assessee, the terms of payment is 60 days, the ld. TPO further computed the interest on outstanding period exceeding 60 days and applying the interest rate of 10.84%, made an adjustment on account of receivables of Rs. 18,61,066/-, making total adjustment of Rs. 2,90,95,332/-. On objection before the DRP, 8 comparables remained where the arithmetic mean of PLI taking OP/TC of 25.51% and final adjustment of Rs. 2,33,48,693/-. Further, the assessee filed rectification application before the ld. DRP on 20.10.2015 which is pending for adjudication. 5. Ground No. 1 of appeal is general in nature and no specific arguments were advanced on that. Therefore, the same is dismissed. Similarly, before us, grounds Nos. 1 to 5 are stated to be covered and general and, therefore, they are not adjudicated separately but are considered as redundant and hence, dismissed. 6. Ground No. 6 of appeal is specifically raised against rejection of comparable of Techprocess Solutions Ltd., where the ld. TPO rejected this company on the ground of non-availability of financial data and annual report. The assessee has....
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....e ld. DR relied on the orders of the ld. DRP and the ld. TPO. He further submitted that when the data of different financial year are available than accounting year of the appellant company, it may not be considered as comparable. 10. We have carefully considered the rival contentions. Before us, the ld. AR has submitted that before the ld. DRP, it has provided the comparable financial data of the same financial year in case of this comparable as compared to the appellant company based on the information available in the public domain, then same should have been considered. These data are available at page 220 of the appeal set filed before us. On perusal of that statement, it is apparent that R. Systems International Ltd. is flowing January to December as financial year and based on that the assessee has derived three months data of January to March, 2011 and thereafter worked out comparable data for financial year from April to March, 2011. In our view, the arguments of the assessee merit consideration. Our view is further supported by the decision of coordinate Bench in the case of Mercer consulting (India) Pvt. Ltd. vs. DCIT (supra) for the assessment year 2009-10 wherein on....
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....d down in sub-rule (4) of Rule 10B. The ld. AR invited our attention towards the Annual accounts of R. Systems available at page 144 of the assessee's paper book. It can be seen from the audited accounts of R. Systems that the data for year ending 31.12.08 has been given under one column and the data for quarter ending 31.3.09 and 31.3.08 (both audited) has been given in the other two columns. This shows that if we take up the yearly data ending 31.12.08 and exclude the results of quarter ending 31.3.08 and include the results of quarter ending 31.3.09, what we get is the data for the financial year ending 31.3.09, being the same financial year in which the instant international transactions were entered into by the assessee. 11.6. The ld. DR relied on an order passed by the Mumbai Bench of the Tribunal in ACIT vs. Hapag Lloyd Global Services Ltd. 2013- TII-68-ITAT-MUMTP (authored by one of us, namely, the AM) in which it has been held that a company with a different financial year ending cannot be compared and is likely to be excluded. There is not and cannot be any dispute over this proposition that an otherwise comparable company having a different financial year cannot....
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....lysis. The assessee has contested the following comparables included by the ld. TPO. (i). eClerx Services Private Limited: (ii). Infosys BPO Limited; (iii). TCS E-Serve Limited (i). eClerx Services Private Limited: 13. The ld. TPO included this company in the final set of comparables. The assessee objected to the inclusion of this company before the TPO stating that this company is functionally not comparable due to outsourcing of substantial amount of work to outsiders, presence of substantial intangible assets, absence of segmental data and abnormal profits. The ld. TPO rejected all these arguments stating that the company operates under single segment and outsourcing of the work cannot be a criterion for rejection of the comparable. He further stated that the intangible asset is the normal usage by every IT and ITES company. Therefore, he included it as comparable. The ld. DRP also rejected the objection of the assessee on this count vide para No. 3.6.1 of its order. 14. The learned AR of the assessee submitted before us that this comparable has been considered in appellant's own case for assessment year 2010-11 by the coordinate bench and following the decisio....
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....ng data analytics, data management and process improvement solutions to global enterprise clients, eClerx supports its clients through two business units - Financial Services and Sales and Marketing Support. x x x x x x x x x In the Capital Markets division, the Company today provides end-toend financial transaction support services such as trade booking, trade confirmation, asset servicing, cash settlements, client servicing, risk management and reference data integrity across all asset classes, and its services span both "sell-side" (the large banks) and "buy-side" (the funds and asset managers). Furthermore, the Company provides strategic and process consulting services, helping clients devise solutions to improve efficiency, reduce risk and meet regulatory and market demands. Similarly in the Sales and Marketing Support division, the Company today supports clients in all elements of product and services marketing and sales-with a focus on online support to include content development and management, search engine management, web operations, pricing and customer analytics, product database management and catalog audits. The Company is also pursuing a s....
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....Clerx Services Private Limited being functionally different as per its business profile which remains uncontroverted by the Revenue, requires to be excluded. (ii). Infosys BPO Limited: 17. This comparable is selected by the learned TPO after rejecting the contentions of the assessee regarding functional non-comparability, incomparable scale, brand profits, presence of intangibles, extra ordinary events etc. The learned TPO held that this company operates primarily into business process Management Services and taxpayer has not shown how brand and ownership of intangibles is leading to high profit margin. The ld. DRP also rejected the objection of the assessee. 18. The learned AR of the assessee submitted before us that this comparable has been considered in appellant's own case for assessment year 2010-11 by the coordinate bench and following the decision of Hon'ble Delhi High Court in the case of Rampgreen Solutions, has held that it is functionally incomparable with the assessee. He further stated that there is no change in the data analysis of the assessee as compared to the previous year and therefore, this issue is covered so far as exclusion of this comparable in favo....
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....at the payment of higher margins. 40. In Merker equitable service centre India Pvt. Ltd. 133 ITD 543, it was held that Infosys BPO cannot be considered as a comparable to a captive service provider, like assessee. 41. Ld. DR has submitted that Actis is also a brand and, therefore, adjustment should be made for the difference. We are unable to accept this contention particularly because the department has not brought on record any brand value of Actis on record. Moreover, the wide difference in turnover makes it clear that there is wide difference in the brand value of the two companies and, therefore, without quantification of the same, effect on turnover cannot be ascertained. We further find that the Infosys BPO has not been taken as comparable in detailed list annexed to synopsis filed by assessee including the following cases: - " - Zavata India Pvt. Ltd. Vs. DCIT (ItA no. 1781/Hyd/2011) - Capital IQW Information Systems (India) Pvt. Ltd. Vs. DCIT (Int. Taxation) (ITA no. 1961/Hyd/2011) 26 ITA 30/Del/2015 - Triniti Advanced Software Labs (P) Ltd. (2011-TII-92-ItAT-Hyd-TP). Agnity India Technologies Vs. ITO ITA 1204/201....
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....the banking and financial service industries. Therefore, it is apparent that the assessee is engaged in BPO services. The coordinate Bench in the case of Equant Solutions India Pvt. Ltd. vs. DCIT in ITA No. 1202/Del./2015 for A.Y. 2010-11 has held that it has used intangibles and use of data brand. Vide para No. 24 of that order, it was held to be excluded compared to low risk ITES company like appellant. Further, the decision of the coordinate Bench in the case of Ameriprise India Pvt. Ltd. has considered in ITA No. 7014/Del./2014 at para No. 12 has excluded this company as under : 12. TCS e-Serve Ltd. 12.1 The assessee objected to its inclusion by contending that this is exceptional year of operation for this company as it is the first full year of operations after its takeover by TCS. It was also contended that this company is functionally dissimilar and the segmental information are insufficient. The TPO repelled the assessee's objections and included it in the final set of comparables. 12.2. We have heard the rival submissions and perused the relevant material on record. A copy of the Annual report of this company is available on page 398 of the pape....
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....a broader basis is no different from that of the assessee, both being involved in rendering ITES, we are not inclined to treat this company as incomparable. The ld. AR argued that the nature of the ITES provided by this company is different from that of the assessee and hence the same be excluded. We are disinclined to sustain this objection. Matching of the exact functional similarity is dispensed with under the TNMM, which is not so under the Comparable uncontrolled price method. The TNMM approves comparability on the basis of broader overall similarity. When we consider the nature of services provided by this company, being the ITES, which is similar to that of those rendered by the assessee, again the ITES, we cannot order its exclusion simply for the reason that the verticals of ITES are somewhat different. If one goes to make a comparison in the way suggested by the ld. AR under the TNMM, then it will be very difficult, if not impossible, to find out a ditto comparable. A company which satisfies the broader parameters of comparability in the overall same segment, cannot be excluded due to somewhat different nature of such overall activity. An examination of the comparables ch....
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....d. DR did not have any objection if this factual aspect may be verified by the Assessing Officer and then if found correct, may be rectified. In view of this, we set aside ground No. 9 to the file of the Assessing Officer to consider the margin computation provided by the assessee. The reasons for difference are also stated in column No. 4 of the below mentioned chart : S.No. Name of the company Correct OP/TC as per Assessee (%) OP/TC as per TPO (%) Reasons for difference (Treatment by Ld. TPO) 1 Jindal Intellicom Ltd. 10.96 13.70 Miscellaneous balances written back, bad debts recovered, provision no longer required written back, provision for doubtful debts treated as non-operating 2 e4e Healthcare Business Services Private Ltd. 9.69 9.77 Provision no longer required written back and bank charges treated as nonoperating 3 ICRA Techno Analytics Ltd. (Transaction Services - Processing Services) 24.83 25.24 Entity results considered instead of segment results 4 Infosys BPO Ltd. 17.73 17.86 Other income (nature unknown) treated as operating 5 Mastiff Tech Pvt Ltd. 5-77 24.34 Provision for doubtfu....
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....that this issue is covered in favour of the assessee by the decision of coordinate Bench in assessee's own case in ITA No.30/Del./2015 for A.Y. 2010-11. 32. We have carefully considered the contention of the assessee and we agree with its arguments. The coordinate Bench in the assessee's own case in para No. 59 has held as under : "59. We have considered the submissions of both the panics and have perused the record of the case. As far as Id. counsel's plea based on the directions of DRP for AY 2009-10 is concerned, we find that in the said assessment year the assessee had objected to the TPO not allowing working capital adjustment-and since this adjustment was directed to be allowed by Id, DRP, therefore, a separate addition on this ground was not required. However, in the present assessment year, ld. TPO had denied the working capital adjustment and the same has not been assailed before us. Under such circumstances, the matter needs to be restored back to the Id. TPO to verify the assessee's contention regarding all the invoices outstanding being for less than six months and, if, the same is found to be correct, then no addition is called for in view of the IT....