AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2015 (10) TMI 2653
X X X X Extracts X X X X
X X X X Extracts X X X X
.... total cost of the taxpayer is arrived at 8.30% on cost. As the profit margin earned by the taxpayer is more than the arithmetical mean margin, the price charged by the taxpayer was treated as at arm's length. 4. The TPO selected the final set of comparables as follows:- Sl. No. Name of the company OP/TC % 1 Accentia Technologies Ltd. (Seg) 41.77 2 Acropetal Technologies Ltd. (Seg) 35.30 3 Aditya Birla Minacs Worldwide Ltd. (Earlier known as Transworks Information Services Ltd.) - 4.00 4 Asit C Mehta Financial Services Ltd. (Seg.) 9.42 5 Caliber Point Business Solutions Ltd. 10.97 6 Coral Hubs Ltd. (Earlier known as Vishal Information Technologies Ltd.) 50.68 7 Cosmic Global Ltd. 23.30 8 Crossdomain Solutions Ltd. 27.03 9 Datamatics Financial Services Ltd. (Seg.) 29.11 10 e4e Healthcare Solutions Ltd. (formerly known as Nittany Outsourcing Services Pvt. Ltd.) 18.54 11 Eclerx Services Ltd. 58.80 12 Genesys International Corporation Ltd. 47.40 13 Infosys BPO Ltd. 19.66 14 IServices India Pvt. Ltd. 10.77 15 Jindal Intellicom Pvt, Ltd. -10.2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ground No.3.6 reads as follows:- "3. The Honourable DRP and the learned AO have erred in law and on facts in confirming the action of the Transfer Pricing Officer ("TPO") in making an adjustment amounting to Rs. 83,877,257 to the total income of the Appellant, and upholding the Arm's Length Price ("ALP") margin of 22.47 percent as determined by the TPO as against the ALP of 7.56 percent as determined by the appellant. In doing so, the Honourable DRP and learned AO have erred in upholding the following action of the TPO: 3.6 finalizing the transfer pricing order by applying certain filters for selection of comparable companies and in the process selecting comparable companies which fail the test of comparability as per the TP regulations;" 12. The ld. counsel for the assessee, Shri Ajay Jain, submitted a chart and stated that Accentia Technologies Ltd. is uncomparable as its financial results are arising out of amalgamation. He relied on the decision of the coordinate Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. v. ITO, IT(TP)A No.1316/Bang/2012, order dated 14.08.2013 (AY 2007-08), wherein it has been held as follows:- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Andhra Pradesh and also the approval of the shareholders. The shareholders of the company gave approval for the merger and the de-merger on 25.01.2008 and the Hon'ble High Court of Andhra Pradesh had approved the merger and de-merger on 25th July, 2008. Subsequently, the accounts of Moldtek Technologies for FY 2007-08 were revised. On a perusal of the annual report it is noticed that Teckmen Tools Pvt. Ltd. and the Plastic Division of the company were demerged and the resulting company was named as Moldtek Plastics Ltd. The KPO business remained with the company. A perusal of the Annual report revealed that to give effect to the merger and demerger, the financial statements were revised and restated after six months form the end of the financial year 31.3. 2008. The assessee filed Form No.21 under the Companies Act with the Registrar of Companies on 26th August, 2008. Thus the effective date of the scheme of merger and demerger was 26th August, 2008. The Annual Report supported the argument of the assessee that there were merger and demerger in the financial year and it was an exceptional year of performance as financial statements were revised by this company much after the cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Ltd. is concerned, this company does the business of export of software services. It is also seen from the segmental revenue of this company (Note 15 to the notes on accounts to Annual Report for 07-08) that it derives income from engineering design services and software development services. It is also pertinent to point out that before the TPO, the assessee raised an objection that this company performs different functions and mainly engaged in the area of software development services and engineering design services. The TPO in his order has observed that the services rendered by this company fall in the definition of ITES. 13. We have considered the submissions of the learned counsel for the Assessee. On a perusal of the Note No.15 of notes to accounts which gives segmental revenue of this company, it is clear that the major source of income for this company is from providing Engineering Design Service and Information Technology Services. The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee. The performance of Engineering Design Services is regarded as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se of Mearsk Global Services (I) Pvt Ltd, direct the Assessing Officer / TPO to exclude Vishal Information Technologies Ltd. from the list of comparables." 15. Following the decision of the Tribunal referred to above, we hold that Coral Hubs Ltd. cannot be considered as a comparable. It may also be relevant to point out that the TPO in his order has observed that this company is retained as a comparable on the basis of detailed discussion in the TP order for the A.Y. 2007-08. In fact in A.Y. 2007-08, there was no determination of ALP and therefore there was no occasion for any order being passed by the TPO. It is also seen that this company entered into an area of business known as New Vertical Digital Library & Print on Demand in F.Y. 2007-08. In the case of Capital IQ Information Systems India Pvt. Ltd. (supra), the ITAT Hyderabad Bench in the case of ITES company considered the comparable of this company as an ITES company and held as follows:- "IV. Coral Hub Limited (Earlier known as Vishal Information Technologies Ltd.): 16. The assessee has objected for this company being taken as comparable mainly on the ground that the activities of the company is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xcluded." In view of the observations made by the DRP as well as the decision of the ITAT Mumbai in the case of Maersk Global Service Centre, (supra), we accept that this company cannot be taken as a comparable." 16. It is also further noticed that the employee cost/operating sales of this company is a mere 3%, whereas the threshold limit for acceptance as a comparable on the basis of employee cost to sales should be at least 25%. This Tribunal in the case of First Advantage Offshore Services Ltd. v. CIT, IT(TP)A No.1086/Bang/2011, order dated 30.4.2013, has taken the following view:- "36. Having heard both the parties and having considered their rival contentions and the material on record, we find that this issue had arisen in the assessee's own case for the assessment year 2006-07. This Tribunal has held that employee cost filter is to be the same even for ITES segment also. The learned DR's argument that the employee cost filter is applicable only to software development segment and not to ITES segment is not acceptable. Though it is without any dispute that the software development would require skilled employees and, therefore, the employee cost wou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esses are highly scalable and provide end to end payroll solutions to clients with headcount ranging from 5 to 65,000." "Crossdomain's IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation and continuously increase efficiency and turn-around-time for business critical processes." Source: http://www.cross-domain.com As can be seen from the above, the business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider. 19. We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this company as a comparable, this company should be excluded from the list of comparables, accepting the plea of the Assessee. We hold accordingly." 16. As far as Eclerx Services Ltd. is concerned, the ld. counsel for the assessee submitted that it had super normal profit and is functionally not comparable with th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... company relying on the decision of the coordinate Bench decision of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra), where in was held at paras 22 to 23 of its order as under:- "(6) Genesys International Corporation Ltd. 22. This company is listed at Sl. No.12 in the list of comparable companies chosen by the TPO. As far as this company is concerned, the stand of the assessee has been that this company is functionally not comparable and that it has a different employee skill set and that this company performs R&D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. The assessee is a routine ITES provider who does not require such highly skilled employees. Besides the above, this company also c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion gathering. Thus it can be seen that even though both BPO and KPO are offering information Technology based services, the skill and expertise and may be even the tools required are different which may result in different economic results of both the segments. Thus, in such circumstances, we are of the opinion that they cannot be compared with each other and have to be excluded from the list of comparables." 23. It is thus clear from the aforesaid decision of the Tribunal that among the ITES companies there is a hierarchy in terms of skill required to provide services. It ranges from providing routine services where no skills and required and providing services where highly professionalized skills are required. Depending on the skills required to perform ITES the comparability has to be done. In view of the above, we are of the view that this company cannot be regarded as a comparable and deserves to be excluded from the list of comparables." 18. As regards Infosys BPO Ltd., the ld. counsel for the assessee submitted that it had a different scale of operations on account of brand value of the parent company and relied on the decision of the coordinate Bench decision o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he F.Y. 2007-08, the company primarily operates in two business segments: Plastic division: The plastic division is engaged in the manufacture of tube & oils, paints, pet products, consumer products, etc. The company demerged the said segment effective 1 April, 2007 and transferred the business unit to the Company Plastics Lt. The extract from the annual report confirms the fact that the Company had restructured its operations resulting in demerging the plastic segment business. Information Technology (IT) division: The IT division (also referred to as the KPO division by the company) of the company specializes in providing structural design and detailing services which can be categorized as structural engineering services. The structural engineering services provided by the IT division of the company cannot be classified as falling with the scope and ambit of ITES services. On the contrary, the said services would fall under the category of engineering services. Excerpts from the Annual Report of the company Page 10 of the Annual Report for the FY 2007-08 contains the following observation regarding the KPO division of the Company: 'The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ltd.), Iservices Ltd., Jindal Intellicom Pvt. Ltd., R. Systems International Ltd. (Seg), Spanco Ltd. (Seg), Allsec Technologies Ltd. [assessee's comparables], Asit C. Mehta Financial Services Ltd. (Seg.) and Caliber Point Business Solutions Ltd. [TPO's comparables], the ld. counsel did not agitate the issue. 23. We have heard both the parties on the issue of comparables and we are of the opinion that in the present case if there is exclusion of the comparables made by the TPO following the decision of coordinate Bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra), the assessee will be within +/- 5% range and hence the DRP/AO have erred in making TP adjustment of Rs. 83,877,257. Ground No.3.6 raised by the assessee is therefore allowed. 24. The next issue is with regard to corporate tax and the grounds No.5 & 6 raised by the assessee are as follows:- "5. The Honourable DRP has erred in law and on facts in upholding the AO's action of setting-off the losses incurred by the domestic unit against the income earned by the unit eligible for relief under section 10A of the Act. The Honourable DRP has erred in law by not relying on the ....