AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (6) TMI 722
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....adjustment is wholly without any basis and is not supported by any material and is liable to be deleted. 2. For that further and in any event, the sum of Rs. 2,92,51,866/- received and a sum of Rs. 2,47,63,804 spent for and on account of reimbursement of expense actually incurred for and on behalf of the Associated Enterprise (AE) which had no relationship with the appellant' business with the said AE could not be taken into consideration for the transfer pricing adjustment. 3. For that further and in any event, the order of assessment and the order of the Dispute Resolution Panel ('DRP') erroneously and wrongfully rejected and/or ignored the contention of the appellant in making the transfer pricing adjustment a to - ignoring the dome tic ale while taking into consideration the entire expenditure; ignoring low profit making companies; considering non-comparable companies having altogether different function, assets & risk profile, involved in fraud and money laundering, restructuring and having fluctuating margin; not considering multiple year data; not allowing appropriate adjustments relating to marketing expenditure and difference in turnover; ignoring the fact ....
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....st (OP / TC), where Operating profit = Total Operating Income (-) Total Operating Expenses. The Operating Income did not include Interest Income & Dividend Income. The Operating Expense did not include Interest Payments and the other Financial Charges. 5.1. For the above determination of the Arm's Length price, the assessee used two databases: Prowess and Capita line. Using the two databases, 22 comparable companies and their financial results were selected by the assessee to compute ALP of transaction relating to BPO services. The data used as seen below in Table 1 were for three Financial Years i.e. FY, 2004-05 and 2006-0. The mean of the PLI for all companies for the three FYs was computed at 12.51%. The results as furnished by the assessee are reproduced below in Table 1. SI No. Name of Company 200405 2005- 06 2006- 07 Weighted Average 1 Allsec Technologies Ltd. 25-97 29.06 27.93 27.89 2 Ask Me Info Hubs Ltd. -13.98 4.67 0 -1.75 3 B 2 K Corp. Pvt. Ltd. -12 -25.03 NA -18.89 4 B N R Udyog Ltd. 16.33 24.14 36.91 25.85 5 CMC Limited 1.31 2.17 31.92 17.49 6 Cosmic Global Ltd 18.75 16.85 NA 17.56 7 Datamatics Technologies Ltd. 14.13 7.09....
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....rices in relation to the transactions being compared. In the absence of any submission please explain why data only for FY 2006-07 be not considered for comparison of PLIs. The new mean will be 22.09 and will require an adjustment of 10.48%. Please explain as to why this adjustment be not done. 7. The assessee replied on 21.9.2010 that with regard to 5% variation, the benefit of the variation / reduction of absolute 5% from the arithmetic mean should be given while determining ALP and not 5% of the arithmetic mean. With regard to the second objection for usage of multiple year data, the assessee submitted that there was lack of sufficient data for the FY 2006-07 at the time of performing the search in data base. Since Rule 10C(2)(c ) states that 'the availability, coverage and reliability of data necessary for application of the method' had to be considered in selecting the MAM, the assessee argued that since complete data for FY 2006-07 was not available, the data for FY 2004-05 and 2005-06 and partial data for FY 2006-07 was used by it. The assessee also stated that Rule 10D(4) states that the information and documents specified under sub-rules (1) and (2), should, as far as pos....
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....e was at Rs. 34,70,28,935/-. The above calculation is just to verify whether the method of calculation would have any bearing on the ALP determination. On the basis of the above calculation, it is seen that the difference between the two APs arrived have a difference. b) Regarding the second issue of use of multiple year data, the contentions of assessee are not accepted for following reasons: (i) The assessee submitted that there was lack of sufficient data for FY 200607 at the time of performing the search in the data base. What is the lack of data is a very general term. Analysis has to be done on basis of what is available. What is not available cannot determine the due procedure prescribed by Act and Rules. The Act and Rules are the deciding factors. If law lays down the procedure that data should be of same FY in which international transaction has taken place, the same principle has to be applied on the data available. The data which is not available is of no consequence. In fact if the circumstances so compel that data for earlier years have an important bearing, the proviso for same has been provided in the Rules. But it has to be demonstrated by the assessee that the d....
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....in separate set of circumstances which is mentioned under Rule 10B. Non availability of data not the basis of deviating from prescribed procedures in Act and Rules. (v) Assessee had submitted that use of multiple year data ensured that the outcome for relevant year would not be not unduly influenced by abnormal factors as one year data may be distorted by differences in economic or market conditions, features and operation of enterprise. But as stated earlier, the onus of how this statement was applicable in present case was on the assessee. The assessee did not discharge that onus. It did not bring out how one year data was distorted by the differences in economic or market conditions, features and operation of enterprise. (vi) It was stated by the assessee that participants in industry may be uniformly affected by business and product cycle and therefore difference between dealings may reflect differences in circumstances and not the differences in arm's length dealing. But there is a provision for adjustment for any differences in the controlled transaction and uncontrolled transaction under Rule 10B. If assessee felt that there was a difference other than arm's length, suitab....
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.... Allowing the above 5 % variation benefit to assessee, the upward adjustment required to be made to the transaction would be Rs. 1,36,12,409.60 (36,06,41,344.60 - 34,70,28,935). The revenue of the assessee for FY 2006-07 would be Rs. 36,06,41,344.60 instead of Rs. 34,70,28,935/-. 10. The assessee preferred objections before the Hon'ble DRP which agreed to the view of the ld. TPO that only contemporaneous data for FY 2006-07 should be adopted by the assessee for the comparables instead of multiple year data chosen by the assessee. Before the ld. DRP, the assessee submitted the audited financials of the 13 comparables which data was not available before the ld. TPO and hence not considered thereon. The arithmetic mean was accordingly arrived at 18.94%. The assessee pleaded for exclusion of certain comparables on the ground that they have varied and fluctuating margins over the years. The assessee also requested the ld. DRP to include one comparable 'Ask Me Info Hubs Ltd (presently known as Shreejal Info Hubs Ltd) and after exclusion of the 9 comparables and inclusion of one comparable, the arithmetic mean was arrived at 13.99% as against the assessee's PLI of 11.61%. Hence it ....
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....52% Considered by the TPO 18 Wipro Limited 29.32% Considered by the TPO Arithmetical Mean 23.62% 10.2. The assessee also sought for appropriate adjustments to be made to the margins of the comparables as required as per Rule 10B(1)(e)(iii) of the Rules on account of differences in the sales and marketing efforts undertaken by the comparable companies. The ld. DRP held that as the tax payer as well as the ld. TPO had considered TNMM as the MAM, these sort of expenses are netted out at net margin level. The ld. DRP observed that the assessee had also not given any details as to what extent the profitability of the comparables is affected on account of these expenses based on the data pertaining to FY 2006-07 and hence in the absence of such evidence, the claim of the assessee was rejected. 10.3. The ld. DRP finally determined the ALP as under:- Arithmetic mean PLI : 23.62% on Cost Operating Cost Rs.31,09,36,579/-* Arms Length Mean Margin 23.62% of the Operating Cost Arms Length Price (ALP) @ 123.62% of operating cost Rs.38,43,79,798/- *As per the order of the TPO Price Received vis-à-vis the Arm's Length Price: The price char....
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....nsaction in respect of BPO Services provided by the assessee in the sum of Rs. 31,21,86,866/- and ignored the recovery of expenses (another international transaction) which was on cost to cost basis and was stated to be included in the total cost of the assessee at Rs. 31,09,36,578/-. We find that the assessee had duly reported this fact before the ld. TPO that the recovery of expenses was on cost to cost basis without any profit element thereon and it did not involve any rendering of service and the ld. TPO had accepted the same in the proceedings before him. With regard to the amount received towards call manager phones amounting to Rs. 76,686/-, the same would be very insignificant compared to the volume of transactions and would not in any way affect the PLI of the assessee. We find that the ld. DRP had observed that the TP study was only for BPO services and accordingly considered the international transactions at Rs. 31,21,86,866/-. Having done so, the ld. DRP ought to have reduced the recovery of expenses (on cost to cost basis) amounting to Rs. 2,92,51,866/- and recovery towards call manager phone amounting to Rs. 76,686/-from the total cost of Rs. 31,09,36,578/- in the int....
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....quated / compared with companies rendering ITES and hence the same is to be excluded as comparables as they are functionally different. Hence respectfully following the said decision, we hold that the aforesaid 2 comparables having functional dissimilarities should be excluded for arriving at the arithmetic mean. (iii) Companies having irregular business operations Maple Esolutions Ltd Triton Corp Ltd We find that the ld. TPO did not differentiate between voice-based and non-voice based BPO units and both are not comparable. We find that the co-ordinate bench decision of Kolkata Tribunal in the case of Acclaris Business Solutions Pvt Ltd reported in 59 taxmann.com 332 (KolTrib) for Assessment Year 2007-08 ; Hyderabad Tribunal in the case of Capital IQ Information Systems (India) Pvt Ltd reported in 32 taxmann.com 21 (HydTrib) for Assessment Year 2007-08 and Delhi Tribunal in the case of CRM Services India (P) Ltd reported in 14 taxmann.com 96 (Del Trib) had held that Maple Esolutions Ltd could not be selected as comparable for the purpose of benchmarking while applying TNMM method as they are engaged in different businesses altogether. Moreover, it was also observed that the s....
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....view point of the ld. TPO is contrary to the factual position stated before him about this company which is as under:- Financial Year Sales Operating Margins 2003-04 Rs. 99,17,965 1.34% 2004-05 Rs. 2,39,63,134 (-) 13.92% 2005-06 Rs. 4,70,65,140 5.05% 2006-07 Rs. 2,97,76,679 0.67% It was observed by the tribunal that from the aforesaid table, it becomes evident that there is no negative phase of this company either in terms of turnover or operating profit margin. It was held as under:- "8.3. ........................ We are unable to find any negative phase of economic cycle of this company which is, in fact, in sync with the increase and decrease of the assessee's turnover and profitability in the earlier two years vis-à-vis the year under consideration as has been noticed by the ld. CIT(A) on page 8 of the impugned order. Under these circumstances, we are of the opinion that the view taken by the ld.CIT(A) in ordering the inclusion of this company cannot be interfered with. We, therefore, uphold the same and dismiss the ground taken by the Revenue." Respectfully following the said decisions, we hold that the aforesaid comparable should be included for....