TaxTMI 
TaxTMI 
2017 (10) TMI 1145
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....r ('TPO') erred on facts and in law in making an addition of Rs. 86,430,318/- to the provision of non-binding investment advisory services transaction of the Appellant based on the provisions of Chapter X of the Income-tax Act, 1961 ('the Act'). 2. The learned AO 7 TPO erred on facts and in law in not complying with the directions of the Hon'ble Dispute Resolution Panel ('DRP'). 3. The learned AO/TPO under the directions of the Hon'ble DRP, erred on the facts and in law indisregarding the various submissions made by the Appellant rejecting the benchmarking analysis and most of the comparable companies selected by the Appellant without appreciating the fact that such selection was based on contemporaneous data and the transfer pricing study report prepared and maintained as per Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules'). 4. The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law by arbitrarily classifying the appellant's services as Knowledge Process Outsourcing ('KPO') services, without taking into consideration the differences i....
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.... pricing matters made by the learned AO/ TPO and upheld by the Hon'ble DRP in respect of the international transaction of provision of support services be deleted. Ground 2 - Disallowance of Provision for Legal and Professional fees of Rs. 10,00,000 1. The Ld. AO has erred on facts and in law in disallowing the provision for legal and professional fees of Rs. 10,00,000 incurred by the Appellant for the purposes of taking office premises on leave and licence basis in subject assessment year. 2. The Ld. AO erred on facts and in law in holding that such expenditure is capital in nature and not allowable under section 37(1) of the Act despite of the clear observation of the Hon'ble DRP in its directions that such expenditure cannot be termed as capital in nature because it represents legal fees payable in relation to acquiring premises on lease. 3. The Ld. AO erred on facts and in law in holding that the expenses were not incurred before the end of the relevant previous year and were of provision in nature despite the observation of the Hon'ble DRP in its directions that the expenses were actually been incurred by the Appellant, the amoun....
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....omparable with financial year 2007-08 (i.e. year under consideration). 5. Without prejudice to above, the Ld. AO has failed to appreciate that the Appellant is operating at cost plus 15 percent model. The Ld. AO has accepted the revenue returned by the Appellant in its financial statements. Since, the Ld. AO has disallowed the travel and conveyance expenses to the tune of Rs. 1,50,00,000 and the Ld. AO ought to have reduced the revenue of Appellant by cost plus fifteen percent i.e. Rs. 1,72,50,000. The Appellant prays that the disallowance in relation to travel and conveyance expenses made by the Ld. AO and upheld by the Hon'ble DRP be deleted. Ground 4 - Initiation of Penalty Proceedings under section 271(1)(c) 1. The Ld. AO erred on facts and in law in initiating penalty proceedings under section 271(1) (c) of the Act for furnishing inaccurate particulars of income on proposed disallowance for provision for legal and professional expenses and travel and conveyance expenses.. The above grounds of objections are all independent and without prejudice to one another. The Appellant craves leave to add to, alter, amend or withdr....
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....here export sales were less than 75% of operating revenues were excluded. f. Companies showing diminishing revenues or persistent losses were excluded. g. Companies that were functionally different or working in peculiar economic circumstances were excluded. h. Companies that are not mainly engaged in KPO services were excluded. The following 6 companies were selected by him, after applying the above filters and utilizing information gathered u/s 133(6). Sr. No. Name of the comparable NCP 1 Acropetal Technologies (Seg) 35.30 2 Coral Hubs Ltd. (Formerly Vishal Information Technologies Ltd.) 50.68 3 Crossdomain Solutions Ltd 26.96 4 Eclerx Services Ltd. 65.88 5 Mold Tek Technologies Ltd. 96.66 6 Triton Corp Ltd. 23.81 Arithmetic Mean 49.88 After considering the objections of the assessee, the TPO applied the average NCP margin of 49.88% on the total operating cost of the assessee and determined the adjustment of Rs. 8,64,30,318/-. 3.2 Upon assessee's objections, DRP considered the submissions. The DRP inter alia gave the following directions:- "With regard to the s....
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....by itself is not a relevant factor as held above. 6.7 With regard to Triton Corporation Ltd. it is stated that the company fails the export filter of 75% used by the TPO himself. The AO is directed to verify the accounts of the company and delete the company from the list of comparables if the assessee's contention is found to be correct. 6.8 We have also examined the assessee's submissions regarding the companies selected by it as comparables. Although the TPO has given valid reasons for rejecting the same as comparables, we find that the TPO has not completely disagreed with the functional comparability in the case of IDC (India) ltd. In fact, the TPO has observed that the company is a global provider of market intelligence advisory services for the IT, Telecom and Consumer Technology Markets. It appears from the Annual Report that the company is a market research company primarily dealing in research services and products. Considering this profile we are of the view that (DC (India) Ltd, should be included as a comparable. 6.9 Thus, the AO is directed to exclude Coral Hubs Ltd. and include IDC (India) Ltd. in the list of the comparables chosen ....
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.... the TPO has taken an order from the file of an IT enabled service provider tax payer and has cut and paste the same in the Transfer Pricing order for the assessee. The learned Counsel of the assessee submitted that in his order the TPO has mentioned that he has gone through the comparables selected by the assessee and has found that none of the comparables were engaged in investment advisory as a captive service provider. The learned Counsel submitted that despite this finding, in later part of his order, the TPO has mentioned that there are many captive IT enabled service provider who were in exactly similar business as the tax payer. Learned Counsel submitted that this observation of the TPO is quite contradictory to his earlier observation. He further submitted that assessee is not engaged in IT enabled services or K.P.O. He submitted that assessee is engaged in providing specialized investment advisory to its AE and is being compensated on cost plus basis. Hence, it cannot be treated as engaged in IT enabled service or engaged as K.P.O. Learned Counsel submitted that TPO in his order has applied the following filters of criteria for searching comparables:- Companies w....
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....ization, content operations, sales and marketing support, product data management, revenue management and data analytics are some of the offerings to Retail and Manufacturing clients. To its Financial Services clients, it offers real-time capital markets, middle and back office support, portfolio risk management services and various critical data management services. 5 Mold-Tek Technologies Ltd. The company is mainly engaged in Engineering design services. 6 Triton Corp Ltd. The company is mainly engaged in knowledge process outsourcing and legal process outsourcing services. 3.7 Learned Counsel submitted that the above comparables selection was totally incorrect. Referring to the above, learned Counsel submitted that those comparables were liable to be rejected because of functional difference in the business models, and some of the data was not available in public domain and some of them had abnormal high profits. Learned Counsel of the assessee submitted that the DRP has accepted the assessee contention and directed to exclude Coral Hubs Ltd. and include IOC India Ltd. in the comparables and has further directed that Triton Corp Ltd. m....
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....d. 3.10 Learned Counsel further submitted that following two comparables should be included in the list of comparables as they were found comparable in case of tax payers engaged in investment advisory services. The case laws in which they were so found has also mentioned hereunder:- (i) ICRA Management Consultancy Pvt. Ltd. Temasek Holdings Advisors (I) Pvt. Ltd. 160 TTJ 556 Temasek Holdings Advisors (I) Pvt. Ltd. ITA No.968/Mum/2014 Temasek Holdings Advisors (I) Pvt. Ltd.ITA No.776/Mum/2015 TPG Capital India Pvt. Ltd. ITA NO.880/Mum/2013 TPG Capital India Pvt. Ltd. ITAT Mumbai (2017) 79 taxmann.com 101 Warburg Pincus India Pvt. Ltd. ITAT Mumbai (2017) 78 taxmann.com 273 Blackstone Advisors India P.Ltd. ITA No.1581/Mum/2014 AGM India Advisors (P.) Ltd. (Mumbai ITAT) (2016) 70 taxmann.com 219 General Atlantic Pvt. Ltd. ITA No.1019/Mum/2014 Warburg Pincus India Pvt. Ltd. (Mumbai ITAT) ITA No.1612/ Mum/2015 Goldman Sachs India Securities Private Limited (Mumbai ITAT) ITA No.927/Mum/2016 (ii) Informed Technologies India Limited. Temasek Holdings Advisors (I) Pvt. Ltd....
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....wance of provision for legal and professional fees. 4.1 On this issue it was noted by the Assessing Officer that assessee has debited an amount of Rs. 10,00,000 on account of provision for legal and professional fees. The Assessing Officer found that the said sum is payabvle to M/s.Amarchand Mangaldas & Suresh A. Shroff & Co. for the advisory / professional services in relation to the following:- (i) Review of documents of title of Licensors in subject office premises; (ii) Conducting searches in Land Register; (iii) Reviewing letter of intent issued by Licensor; (iv) Attending meeting and teleconferencing on behalf of assessee with external parties; and (v) Advising on various Indian Laws with regard to acquisition of office on leave and license basis. 4.2 The Assessing Officer was of the opinion that the professional fees has been paid for acquiring the premises on lease which will give the assessee enduring benefits extending beyond the year under consideration. Therefore, the Assessing Officer held the same to be capital expenditure, not allowable u/s 37(1) of the Act. 4.3 Upon assessee's objection, the DRP held that the amo....
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....s below on this issue and decide the issue in favour of the assessee. 5. Ground No.3 : Disallowance of Travelling and Conveyance Expenses: 5.1 This issue relates to disallowance of travelling and conveyance expenses of Rs. 2,42,94,545. The AO has stated that the assessee was required to furnish details of these expenses, including the details of the employees, the purpose of travelling etc. However, the assessee only submitted a copy of the ledger account without any supporting evidence. It was stated that employees of the assessee company are required to visit various places at the request of the AE. The AO held that the company had only 9 employees and it was under an obligation to file complete details of the travelling expenses. Since the same were not filed the AO disallowed the entire expenditure of Rs. 2.43 crores. 5.2 Before the DRP, the assessee has reiterated its submission that its employees were required to visit various countries to participate in conferences or events, or to carry out meaningful analysis of various companies. It is also stated that the assessee is compensated by Its AE at a 15% mark up on the cost incurred and even these expenses have been co....