TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 1801
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.... to carry out jobs as per requirements of the clients. The assessee raised invoice on its AE for billing done by the consultants deputed by it. The AE in turn bills prime vendor i.e., the contractor who in turn bills the customer. It is prime vendor who gets the jobs from the customers and hires the sub-contractors' like the assessee's AE. The prime vendor does the ultimate billing to the customer. Majority of business is done through the prime vendor and it is the claim of the assessee that it is not engaged in any other activity during the year except Body shopping. For the impugned assessment year, the assessee filed its return of income on 30- 11-2006 declaring total income at nil after claiming exemption u/s 10B of the Act as an STPI unit. During scrutiny assessment proceedings, the Assessing Officer noticing that the assessee has earned revenue from international transactions exceeding Rs. 6.5 crores during the year made a reference to the TPO for determining the ALP. In the course of the proceedings before the TPO, on examining the TP document submitted along with return the TPO noticed that the assessee had selected two comparables by applying certain filters. In response ....
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....956/-. The assessee having shown the price of international transactions at Rs. 7,38,43,652/- the short fall of Rs. 1,19,44,304 was treated as the adjustment u/s 92CA of the Act. In terms with the adjustment made by the TPO, the Assessing Officer passed a draft assessment order making addition of transfer pricing adjustment in terms of the order passed by the TPO. The Assessing Officer also worked out the deduction u/s 10B by reducing the VISA processing charges and relocation charges from export turnover. Against the draft assessment order so passed, the assessee filed objection before the DRP. 3. The DRP however rejected all the objections raised by the assessee and confirmed the draft assessment order. In terms with the direction of the DRP, the Assessing Officer passed the impugned assessment order. Being aggrieved of the aforesaid assessment order, the assessee has preferred the present appeal by raising altogether 9 grounds. 4. Grounds 1 and 9 being general in nature are not required to be adjudicated upon. 5. In ground Nos. 2 and 3, the assessee has objected to selection of TNMM as the most appropriate method as against CPM adopted by the assessee. The learned AR while ar....
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....-2013) and in case of ACIT V/s. MSS India (32 SOT 132). 6. The learned Departmental Representative, on the other hand, submitted that since the assessee itself has altaernatively offered TNMM as a method for computing the ALP there should not any reason for grievance by the assessee. He further submitted that since billing is done on man-hour basis adoption of TNMM is more appropriate. 7. We have considered the submissions of the parties in the light of the materials on record. As can be seen from the facts and materials on record the assessee itself in TP study has offered TNMM as an alternative method. It further transpires from the TP order as well as the order of DRP that the assessee has not seriously objected to the adoption of TNMM as the most appropriate method though of course the assessee has raised a ground before the DRP on that issue. It would be relevant to note the observation made by the DRP in this regard. "Though, under the second ground of objection, the assessee states that the most appropriate method adopted by it, was Cost Plus Method(CPM), it appears from page No.12 and 13 of TPO's order that, in the assessee's TP study, the method opted for was TNMM (as ....
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.... We have considered the facts of the case and submissions made before us. The admitted facts in respect of Galaxy Commercial are that it is carrying on three lines of business and segment profitability is not available. Obviously, overall profitability of the company cannot be applied in the case of the assessee as it will amount to comparing incomparable cases. Further, the business reputation of Rastogi group, owning Maple E. Solutions and Triton Corporation, is under serious indictment. They are also carrying on the business of data processing services and ITES services apart form BPO services. In view of a question mark on the reputation of the owner, albeit for earlier years, it would be unsafe to take their results for comparison of the profitability of the assessee. ..... Accordingly, it is held that none of these cases can be taken to be comparable case." 11. The ITAT Hyderabad Bench in case of Capital IQ (India) Pvt. Ltd. ITANo.1961/Hyd/2011 following the aforesaid decision of Delhi Bench has also held that the aforesaid company cannot be treated as comparable. Respectfully following the view expressed by co-ordinate benches as aforesaid, we direct the Assessing Officer/T....
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.... to the aforesaid company having been selected as comparable by the TPO, the learned AR submitted that apart from the fact that the said company is functionally different as it is in the business of providing designing and printing solutions, the primary reason why this company should not be selected as comparable is it has outsourced a considerable part of its business to third party vendors. This is proved from the fact that only 2% of the revenue is spent towards employee cost and there is huge vendor payment. In support of such contention, the leaned AR relied on the decisions of Hyderabad ITAT in the following cases: i) Javata India Pvt. Ltd. V/s. DCIT 35 Taxman. Com 423) ii) Brigade Global services Pvt Ltd. V/s. ITO (33 taxman. Com 618) 16. The learned Departmental Representative, on the other hand, submitted that the TPO having considered all aspects of the matter and selected the aforesaid company as a comparable, it should not be excluded from the comparability analysis. 17. We have heard the contentions of the parties and perused the materials on record. On a perusal of the order passed by the co-ordinate bench in the case of Javata India Pvt. Ltd. V/s. DCIT (supra)....
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....o been expressed in the case of Brigade Global services Pvt Ltd. V/s. ITO (supra). In aforesaid view of the matter, we direct the TPO to verify whether similar situation exists in the impugned assessment year also. If the employee cost of the aforesaid comparable is also in similar low range, then it has to be assumed that the said company has outsourced its business activities to third party vendor, hence cannot be treated as comparable to the assessee. Asit C Mehta Financial Services Limited 18. The learned AR sought the exclusion of the aforesaid company by contending that the company is functionally dissimilar as it is into the business of providing financial services with significant presence in portfolio management services, investment activities, project management services including financial BPO services. It was further submitted that the employee cost of the company is also very low compared to its revenue. Hence this company also cannot be treated as comparable. Ins support of such contention, tame learned AR relied upon the decision of ITAT, Hyderabad Bench in the case of Javata India Pvt. Ltd. V/s. DCIT (supra). 19. The learned Departmental Representative, on the o....
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....unctionally dissimilar to it carries some force. It is not known whether segmental details with regard to ITES of the aforesaid company are available in public domain or not. As it appears the DRP has not properly considered the assessee's objection with regard to the aforesaid company. In aforesaid view of the matter, we remit the issue back to the file of the Assessing Officer/TPO who shall consider the issue as to whether the aforesaid company can at all be treated as comparable to the assessee after taking into account the objections of the assessee and all other materials available on record. Spanco Limited 25. Objecting to the aforesaid company, the learned AR submitted that the company cannot be treated as comparable to the assessee as it is a leading telecom and technology infrastructure company with presence in telecom systems integration. It provides telecom and technology infrastructure services to multi national company, public sector units and defense sector. In this context, the learned AR referred to the business profile of the company at page-22 of the written submissions. He therefore submitted that the company cannot be treated as comparable to the assessee which....
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....ACIT (32 taxman, com 216) excluded the aforesaid company from the list of comparables. In view of the aforesaid order of the ITAT, Mumbai Bench (supra), we direct Assessing Officer/ TPO to examine whether the aforesaid company has a different financial year ending. If it is found to be so then the aforesaid company cannot be treated as a comparable. Flextronics Software Systems Limited 31. The learned AR objecting to the aforesaid company being treated as comparable, submitted that the company is in the business of both software solutions and product development. The company's product portfolio includes communication product with cutting age technology in the areas of voice over package, 3G/UMTC, IP multimedia subsistence , switching, routing, security, handsets and billing and OSS. It also provides technology services including IT management consulting and internet integrated services. Hence, the assessee's activity being purely body shopping, this company cannot be treated as a comparable. 32. The learned Departmental Representative, on the other hand supported the orders of the authorities below. 33. We have considered the submissions of the parties and perused the material....
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....tention of the assessee that the aforesaid company was during its start-up period, hence is expected to make loss. However for that reason, it cannot be treated as a persistent loss making company. On a perusal of the order passed by the TPO, it is to be noted that the TPO also accepts the fact that the aforesaid company is a start-up company and it has started its business only two years back. Therefore, to treat it as a persistent loss making company, its financial results for the subsequent years has to be looked into. This fact has not been considered either by the TPO or by the DRP. In this view of the matter, we remit this issue to the file of the Assessing Officer /TPO for deciding afresh after affording a reasonable opportunity of being heard to the assessee. 37. In ground No.6, the assessee has raised the issue that there is no requirement for transfer pricing adjustment as the assessee is claiming exemption u/s 10B of the Act, hence there would be no motivation for shifting the profit. 38. We have heard rival submissions and perused the materials on record. We have also examined the decision in case of Cotton Naturals (I) (P) Ltd. V/s. DCIT (32 Taxmann.com.219) relied u....
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....ment years covered by sec. 10A benefit. Once the benefit is exhausted, the assessee would be liable for taxation in which case, the German tax rate may be more attractive. If the pricing for the exempted years is accepted without analysis there is every chance that the assessing authority might be estopped, on the doctrine of consistency, from examining the pricing for the subsequent non-exempted years. This is quite uncalled for." In view of the aforesaid judicial pronouncements, the contention raised by the assessee is not acceptable. Accordingly, the ground raised by the assessee in its Cross Objection is dismissed. " Respectfully following aforesaid decision of the ITAT, Hyderabad Bench, which is binding on us, we reject the contentions of the assessee and dismiss the ground. 39. The next issue as raised in ground No.7 relates to calculation of ALP on the total turnover of Rs. 7,38,43,652 which includes non AE turnover of Rs. 1,03,26,763/-. 40. Having heard the submissions of the parties, we are of the view that transfer pricing provision apply to the determination of ALP in respect of controlled transactions between related parties. Therefore, un-controlled transactions wit....