AI Drafter 
TaxTMI 
TaxTMI 
2016 (4) TMI 1478
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.... 2.1 Rejecting the ALP as determined by the appellant under the TP documentation maintained by it as per section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 ("Rules"} as well as a new search carried by it during the proceedings before the Ld. TPO, without appreciating that none of the conditions given under section 92C (3) have been satisfied. The authorities have also erred in carrying out a fresh search by rejecting/modifying the filters applied by the appellant; 2.2 Rejecting the comparable companies set adopted by the Appellant and conducting a fresh benchmarking study on the basis of additional quantitative filters selected by him which lacked valid and sufficient reasoning. 2.3 Accepting companies which were not functionally comparable to the Assessee. Similarly, the Ld. AO/TPO erred by rejecting companies which were comparable to the Assessee. 2.4 Including high/abnormal growth companies, depicting abnormal economic circumstances, in the comparable set adopted by him; 2.5 Considering the international transactions to be at 70% of the total transaction and thus, limiting the amount of transfer pricing addition to th....
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....d abroad. As per the functional analysis documented in the Transfer Pricing documentation, the Appellant can be is characterized as a service provider, which assumes less than normal risks associated with carrying out such business. The Appellant benchmarked its international transactions by applying TNMM as the most appropriate method with OP/TC as the Profit Level Indicator ("PLI"). 4. The assessee filed its return of income on 29.10.2007 showing taxable income of Rs.NIL. reference u/s 92 CA (1) of the Act was made to the ld. TPO to determine Arm's length pricing u/s 92 CA (3) of the Act in respect of following international transactions: - Nature of international transaction Most appropriate method applied as per TP Doc PLIas perTP Doc Value of International Transactions (INR) Provision of Mapping services TNMM OP/TC 120,168,998 Payment for consultancy TNMM OP/TC 494,287 Reimbursement of expenses by AE TNMM OP/TC 1,879,388 Reimbursement of expenses to AE TNMM OP/TC 1,562,914 5. As per the TP Study report the P....
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....on Rule 10B (2) of the Income Tax Rules 1962 which is as under: - "(2) For the purposes of sub-rule (1), the comparability of an international transaction ^55c[or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail." ....
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....ervices is significantly high to consider an entity level margin. Assessee further submitted that it has the fluctuating profitability in respective years. Therefore, it was submitted that this company should be excluded. Ld. DR relied on the orders of lower authorities. b. We have carefully considered the rival contentions. We have seen that the TPO has considered this company as comparable though the company is also engaged in medical transcription services, medical coding services and therefore according to us the company is functionally different. The comparable company has come into existence as a result of an amalgamation and therefore the extra ordinary events have taken place. However, it was mentioned by TPO that taxpayer did not adduce any evidence that this event had any influence on the margin or on pricing of the company therefore same was rejected. It has been held in Capital IQ information system India Pvt. Ltd. In ITA No.1961/Hyd/2012 that companies with extra ordinary circumstances such as merger and demerger impacting the financial results could not be treated as comparables. The coordinate bench has also held that such events with have an effect on the p....
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....vertical. In view of this we reject the argument of the assessee for the exclusion of this comparable. iv. Bodhtree Consulting Limited This comparable is selected by TPO and held that the company to ITES segment. However, Assessee objected submitting that the primary business of company is software development services hence, it cannot be compared with the assessee. Against this the TPO has held that it has considered only the data cleansing services and e-paper activities and has only considered the ITES segment. Before DRP assessee contended that it is earing extra ordinary profit, functionally different and has RPT of 38.54%. Ld. DRP rejected the contention of the assessee holding that ld. TPO has taken into consideration only the ITES segment of the comparable. Before us it was submitted that the comparable has the unreliable books of account and therefore same should be rejected. It was also submitted that it is functionally different. We have carefully considered that it is undisputed that the comparable company is also engaged in software development services. However, the ld. TPO has obtained information u/s 133(6) of the Income Tax Act and after that he h....
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....i High Court in case of Rampgreen Services Pvt. Ltd. In ITA No.102/2015 has held that KPO segment cannot be compared with ITES segment. Therefore, respectfully following the decision of the Hon'ble High Court we direct to exclude this comparable. vi. Informed Technologies India Ltd. Ld. TPO has included this comparable as it was also the comparable considered in its TP report in accept/ reject matrix. However, assessee rejected this company as it was under persistent losses. TPO has included this as it passed all the filters. Before TPO it was submitted that it has an RPT of 15.72% and it has abnormal growth patterns hence it should be excluded. The ld. TPO rejected both the contentions of the assessee as the comparable was functionally similar and same was not challenged by the assessee. Before us it was submitted that the company has an abnormal growth and also low employee cost to sales ratio of 17.79% and therefore it should be excluded. Before DRP also the same argument was taken which were rejected by the ld. DRP. Abnormal growth of the company cannot be a ground for rejection of a comparable if it is found to be functionally similar. Hence, we reject the co....
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....ssessee could not demonstrate as to in what manner the extra ordinary event has impacted the comparability. Ld. DRP also rejected the contention of the assessee. Before us the same argument was repeated. We have carefully considered the rival contentions it is undisputed fact that this company has been acquired by Triton Corp Ltd. Which has also been taken as comparable by the ld. TPO as there is an extra ordinary event this company is directed to be excluded as comparable. x. Triton Corp Limited This comparable was selected by TPO and has dealt with at Para No.12.23 of the order of the ld. TPO. Assessee did not object the inclusion of this comparable before ld. TPO as well as before DRP. Hence, In view of this respectfully following the decision of honourable special bench in Deputy Commissioner of Income-tax V Quark Systems (P.) Ltd. 2010] 38 SOT 307 (CHD.) (SB) We remit this comparable back to the file of the Ld. TPO for exclusion or retention of this comparable as plea for its exclusion has been raised before us for the first time. xi. Mold-Tek Technologies Limited Ld. TPO has selected this comparable. Before ld. TPO assessee objected that th....