AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (9) TMI 103
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....at on the facts and in the circumstances of the case and in law, the order passed by the learned Assessing Officer (AO) is bad in law and void ab initio. 2. That on the facts and in the circumstances of the case and in law, the learned Assessing Officer/learned Transfer Pricing Officer ('TPO')/learned Dispute Resolution Panel ('DRP') erred in making an addition of Rs. 5,40,14,130 to the returned income of the appellant by recomputing the arm's length price of the international transactions under section 92 of the Income-tax Act, 1961 ('Act'). 3. That on the facts and in the circumstances of the case and in law, the reference made by the learned Assessing Officer suffers from jurisdictional error as the learned Assessing Officer has not recorded any reasons in the assessment order based on which he reached the conclusion that it was 'expedient and necessary' to refer the matter to the learned Transfer Pricing Officer for computation of the arm's length price, as is required under section 92CA(1) of the Act. 4. That the learned Assessing Officer/learned Transfer Pricing Officer/learned Dispute Resolution Panel erred o....
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....sector, pharmaceutical sectors, etc. The intellectual property rights for the reports are owned by the end customer. * Rapid research : Rapid research assignments typically have 24 hours as tie turnaround time. These are mostly based on brief client requests received from associated enterprises (b) Investment research and financial analytics : EVS SEZ India has a team of employees exclusively dedicated to tracking stocks and mutual funds. Typically, an investment research and financial analytics assignment as discussed above could also be periodic or project based. EVS SEZ India makes use of a variety of research tools including the Aveb, databases and publications apart from analytics and fore casting. The industries covered include financial services (banking and insurance), hi-tech (software, electronics, engineering, nono technology, networking, biomedical engineering), telecom equipment and operators, pharmaceuticals and biotech, chemicals, energy and consumer products. (c) Market research : This segment caters to primarily market research firms based overseas. It focuses on primary research in the nature of business to business surveys only....
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....o the brand name and goodwill enjoyed by its associated enterprises. For provision of the aforementioned services, associated enterprises remunerate EVS SEZ India on an hourly basis. Additionally, associated enterprises also reimburse EVS SEZ India at a cost plus 6 per cent. for expenses on telephone calls, translation charges, research reports purchased, web hosting and miscellaneous expenses. Routine functions : These business support functions are a part of the normal course of business and are indispensable in the economic environment. Strategic policies : All long-term policies are developed and formulated by EVS SEZ India in consensus with its associated enterprises. The company's management personnel handle the corporate communications and deal with the direct customers, associate enterprises, etc. Finance and accounting and IT : EVS SEZ India prepares its own financial statements. Hunan resource management : EVS SEZ India performs recruitment, soft skills training, performance evaluation and other related functions. The employee strength of EVS SEZ India was about 616 personnel including the corporate group as on Mar....
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....it gets remunerated on the basis of the service agreement. Accordingly, EVS SEZ India is not exposed to the customer credit risk. The associated enterprises cater to end customers and are responsible for recovery of payments. Accordingly, they are exposed to the customer credit risk. Foreign exchange risk Exchange rate risk relates to the potential variability of profits that can arise because of changes in foreign exchange rates. Such risks arise when doing business in any market that is affected by international trade and can arise even if a company does not conduct actual transactions in a foreign currency. EVS SEZ India is remunerated by its associated enterprises for services provided to it in US Dollars. However, in the case of third party domestic contracts, EVS SEZ India receives its payment in INR. Accordingly, EVS SEZ India is exposed to foreign currency risk for the associated enterprises services. The associated enterprises do not bear this risk to any significant extent with respect to EVS SEZ India's operations. Entrepreneurial risk There are two distinct sources of uncertainty in entrepreneurial ventu....
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....arned Assessing Officer referred the international transaction to the learned Transfer Pricing Officer who vide order under section 92CA(3) dated January 9, 2014 determine the arm's length price of the international transaction and proposed an adjustment of Rs. 5,40,14,130. While passing the order the learned Transfer Pricing Officer out of the 10 comparables of the assessee accepted only 2 comparables and on its own search included further 10 comparables accepting the profit level indicator of the operating profit/operating cost of the assessee determined the average margin of the comparables at 33.14 per cent. Subsequently, the above adjustment was incorporated in the draft assessment order dated March 12, 2014 against which the objections were filed before the learned Transfer Pricing Officer who issued direction on June 24, 2014 and consequent to those direction the adjustment proposed by the learned Transfer Pricing Officer were upheld. Based on the direction assessment order under section 143(3) read with section 144C of the Act was passed on November 14, 2014 which is in challenge before us in the appeal. Though in the appeal the assessee has raised almost 8 grounds, how....
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....segmental details 3 Igate global solutions Ltd. (pages 838-42)-volume 3-(Annual report) (1) Exceptional year of operations (amalgamation) (page 888k hence fails TPO's own filter of peculiar economic circumstances (1) Delhi High Court-Pr. CIT v. Ameriprise India P. Ltd.-I. T. A. No. 461/16-pages 79A-79B CLC (2) Functionally different and insufficient segmental information (IT and ITES services) (pages 888, 893, 904, 910) (2) United Health Group Information Services P. Ltd. (I. T. A. No. 1038/Del/15) (pages 204-205 of CLC) (3) High turnover (Rs. 932.18 crores) (page 879) (assessee's turnover is about 50 crores-turnover is about 18 times more than that of the assessee) (3) Techbooks International Pvt. Ltd. (I. T. A. No. 240/Del/2015 for the assessment year 2010-11 (pages 28-29 of CLC) (4) Ameriprise India Pvt. Ltd. (I. T. A. No. 7014/Del/2014) (pages 62-63 of CLC) (5) Sun Life India Service Centre P. Ltd. (I. T. A. No. 750 of 2015) 4. ICRA Techno Analysis Ltd. (pages 1209-1234-volume-4-Annual Report) (1) Functionally dissimilar-it is enga....
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....TATA group and benefits thereof (page 1035) (5) Techbooks International Pvt. Ltd. (I. T. A. No. 240/Del/2015 for the assessment year 2010-11 (pages 19-24 of CLC (6) Primary client is Citigroup (page 1018) (6) Sun Life India Service Centre P. Ltd. (I. T. A. No. 750/2015) (7) First full-year as step down subsidary of TCS-which has led to substantial growth-Total income is 3 times higher as compared to last year (from 54 crores to 150 crores). Operating income higher by 173% as compared to last year from loss of 24 crores to profit of 44 crores this year due to improved operational performance and increased utilisation of infrastructure capacities (page 1034) 7. TCS E-Serv 1103-1144- volume 4 (Annual report) (1) Functional dissimilarity (page 1122) (1) United Health Group Information Services P. Ltd. (I. T. A. No. 1038/Del/15) (pages 208-210 of CLC) (2) No segmental details are available (page 1134) (2) Equant solutions India Pvt. Ltd. (I. T. A. No. 1202/Del/2015 (pages 184-187 of CLC) (3) Owns significant intangibles (3) Ameriprise India Pvt. Ltd. (I. T. A. No....
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....ourt in the case of Chryscapital Investment Advisors (India) P. Ltd. v. Deputy CIT [2015] 376 ITR 183 (Delhi); [2015]-TII-13-HC-DEL-TP and Rampgreen Solutions Pvt Ltd. v. CIT [2015] 377 ITR 533 (Delhi); [2015]-TII-33-HC-Del-TP. 8. Now we deal with each of the comparables. Various judicial precedents are cited by the learned authorised representative before us seeking exclusion of the comparables. However we would be strictly going by the functional profile of the assessee, assets employed for performing those functions and risks assumed on that count as extracted by us and which is not disputed by the learned Transfer Pricing Officer/Assessing Officer/Dispute Resolution Panel. If the judicial precedents are having a similar functional profile in whose case the issues is decided then of course it deserves consideration. 9. Accentia Technologies is selected by the learned Transfer Pricing Officer but is challenged now by the assessee submitting that it has an extraordinary event during the year, functionally discomparable as it is engaged in medical transcription, has significant intangibles and abnormally high profit margin. For this proposition the learned authorised represen....
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....activities are similar to the functions performed by the assessee. But, in the absence of the segmental accounts with respect to medical coding and billing activities this comparable cannot be included. Hence, the Transfer Pricing Officer is directed to exclude it. 12. The next comparable by the assessee is that eClarx Services submitting that it is a knowledge process outsourcing (KPO) unit and therefore cannot be compared with the information technology enabled services provider like the assessee. The assessee has relied on the decision of the hon'ble Delhi High Court of Rampgreen Solutions Pvt Ltd. v. CIT [2015] 377 ITR 533 (Delhi) 13. The learned Departmental representative submitted that the assessee is also a knowledge process outsourcing unit as it employs 616 personnel. He referred to page No. 6 of the order of the learned Transfer Pricing Officer for this. He submitted that the assessee's case falls into all three horizontal segments of information technology enabled services industries such as call centre and technical support, payment supply chain and analytics. He therefore, stated that eClarx is the right comparable. 14. We have carefully considered th....
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.... automation. From the above discussed nature of business carried on by e- Clerx Services Ltd., it is patent that the same being a KPO company, is quite different from the assessee, providing only information technology enabled services to its associated enterprises, which fall in the realm of BPO services. Apart from that, it is further observed that this company has significant intangibles which it uses in rendering KPO services, against which the assessee does not have any intangibles. The hon'ble jurisdictional High Court in Rampgreen Solutions P. Ltd. v. CIT [2015] 377 ITR 533 (Delhi); [2015] 234 Taxman 573; 60 taxmann.com 355 (Delhi), has held that e-Clerx Services Ltd., being engaged in KPO, cannot be treated as comparable of an assessee engaged in rendering BPO services. In view of the direct judgment of the hon'ble jurisdictional High Court on the point, we direct to eliminate e- Clerx from the list of comparables. As such, e-Clerx Services Ltd. cannot be considered as comparable. 15. The next comparable challenged by the assessee is Igate Global Solutions Ltd. for which the annual accounts are available at pages 838 to 942 of the paper book. The assessee has cla....
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....king its exclusion was high brand value intangibles, benefit of Infosys branch and larger scale operation. 20. The learned Departmental representative objected to this and relied upon the order of the learned Transfer Pricing Officer submitting that all these arguments of the assessee has been considered by the learned Transfer Pricing Officer. 21. We have carefully considered the rival contentions and also verified the annual accounts of Infosys BPO Ltd. from page Nos. 943 to 1026, undoubtedly the Infosys BPO is driving leverage from the client of Infosys Technologies Ltd. for cross selling the BPO services of this company. The assets of the comparable company shows that it has a goodwill of approximately Rs. 19 crores. The income stream of comparable was Rs. 1126.63 crores whereas, the assessee's income stream was Rs. 50.90 crores. The hon'ble Delhi High Court in case of Principal CIT v. Actis Global Services Ltd. TS- 417-H.C~2017(DEL)(TP) has held that even the size and scale of operation can make the comparable inapposite. In the present case the size of this comparable with the size of the assessee is more than 20 times. Therefore, in view of this respectfully fo....
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.... contribution was Rs. 42 crores. Therefore, following the same reasoning given by us for exclusion of TCSeserve International Ltd. we also direct the learned Transfer Pricing Officer to exclude this comparable. 28. The next comparable contested by the assessee is e4e Healthcare Ltd. contesting that it is engaged in software development services and owns its own intangibles. The learned Departmental representative contested relying upon the order of the learned Transfer Pricing Officer and Dispute Resolution Panel and submitted that this comparable is the assessee's own comparable. 29. We have carefully considered the rival contentions and perused the annual report of the company placed at page Nos. 1185 to 1082. However, before analysing the balance-sheet it is very important to note that the above comparable was selected by the assessee and hence it was accepted by the Transfer Pricing Officer as FAR analysis is similar to the assessee. The assessee has selected this comparable based on the functional profile and applying its own filter. This comparable was also not contested before the learned Dispute Resolution Panel. Before us no reasons were given that why the assess....