TaxTMI 
TaxTMI 
2016 (6) TMI 1253
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....le DRP's directions. This makes order of the Ld. Assessing officer null and void. 1.3 That on the facts and circumstances of the case and law on the point, the Ld. T.P.O/ Hon'ble DRP has erred in selecting the companies as comparable company, which are functionally not comparable to Appellant Company using Transactional Net Margin Method & without understanding the business activity of the Appellant company. 1.4 That on the facts and circumstances of the case and law on the point, the Ld. T.P.O/ Hon'ble DRP has erred in considering foreign exchange gain as non operating item while calculating Operating Margin of Appellant Company. 1.5 That on the facts and circumstances of the case and law on the point, the Ld. T.P.O/ Hon'ble DRP has erred in applying turnover filter as "rejection of companies whose turnover is less than Rs. 5 Crores" instead of "rejection of companies whose turnover is less than Rs. 1 Crore". 1.6 That on the facts and circumstances of the case and law on the point, the Ld. T.P.O/ Hon'ble DRP has erred in selecting "Accentia Technologies Ltd." as comparable company which is engaged in different business and having high turnover. As h....
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....erred in ignoring the fact that recording of satisfaction by the Ld. Assessing Officer for rejecting appellant's claim of expenditure in relation to exempt income should have been with regard to the accounts of the appellant as required by Section 14A(2) of the Income Tax Act,1961. Therefore recording of satisfaction by Ld. Assessing Officer by simply stating that percentage method cannot be a method for disallowance is against the law and facts of the case and hence disputed. 2. 4 That on the facts and circumstances of the case and law on the point, the Ld. Assessing Officer has erred in calculating the disallowance at Rs. 3,51,102/- by applying the provisions of Rule 8D of the Income Tax Rules, 1962 incorrectly. 2. 5 That on the facts and circumstances of the case and law on the point, the Ld. Assessing Officer has erred in ignoring the fact that alternative ground of appellant has been accepted by the Hon'ble DRP. Ld. Assessing Officer has not accepted the alternative plea of the appellant and has calculated the disallowance as per Rule 8D by including the unquoted investments for calculation of average value of investments on the plea that unquoted investments wer....
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.... the assessee are as under: S.No. Name of comparable Operating Profit Margin 1. Aditya Birla mean Minacs Worldwide Ltd. 2.55% 2. Allsec Technologies Ltd. 8.81% 3. Cosmic Global Ltd. 43.13% 4. Microgenetics Systems Ltd. 1.28% 5. Infosys BPO Ltd. 15.53% 6. Suntech Webservices (P) Ltd 2.54% Average OP/OC 8.52% 2.4 After making certain exclusions from the list of comparables given by the assessee and including some new cases, the Ld.TPO shortlisted 7 companies with the profit margins as under:* S.No. Name of comparable Operating Profit Margin 1. Accentia Tech. 46.30% 2. Cosmic global 48.12% 3. Crossdomain 25.63% 4. Infosys BPO 31.33% 5. Eclerx Services Ltd. 47.00% 6. Aditya Birla Minace worldwide Ltd 13.91% 7. Coral hub 36.93% Average 2.5 This led to the proposed transfer pricing adjustment, amounting to Rs. 6,93,66,342/-. Thereafter the assessee carried the matter before the dispute resolution panel (DRP)-2, New Delhi. The DRP under section 144C (5) of the IT act, 19....
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.... founded in 1985 and its pioneering tradition in outsourcing combined with its skilled manpower and cutting-edge technology helps deliver outsourcing solution in a cost-effective and timely manner. This group provides a wide range of innovative outsourced solutions to suit the needs of every enterprise. OKS Span Tech Pvt. Ltd. (assessee company) was established on 10/03/1995 as a limited company, which was converted into a private Ltd. company on 21/12/2000. OKS is primarily engaged in data processing, which is rendered to overseas affiliated and unrelated entities based on the specific requirements of the customers. Further from the financial year 2007-08 onwards, the company has also engaged in the call centre services for its AE's. The services provided by assessee is characterised as BPO services in the TP study, presented at pages 713 to 762. It is categorically been submitted that, the assessee does not undertake any significant research and development on its operation. The main functions performed by the assessee are: 1. Corporate strategy determination 2. Marketing and sales function 3. Finance accounting Treasury and legal function &nbs....
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....in medical transcription services and qualifies all the filters applied by the TPO, which falls within the overall ambit of ITES and more than 95% of its revenue is derived from ITES activities. 5.3.2 The ld.AR contended that this company deserves to be excluded for 2 reasons 1st it being engaged in software products and 2nd as some acquisitions has taken place which has increased the asset value of this comparable company. He further contended that this comparable company has got a very high goodwill in the market. 5.3.3 On the contrary the Ld. DR submitted that functionally this comparable as well as assessee are similar. He placed as reliance upon the decision of Hon'ble Delhi High Court in the case of Chrys Capital Investments Advisers India Ltd vs. DCIT, I.T.A.No. 417/2014 pronounced on 27.04.2015. 5.3.4 We have perused the annual report of this company, a copy of which is available at page 781 to 946. 5.3.5 We find that this company, apart from being engaged in the business of ITES, is also dealing with software products. As the segmental figures of this company are not available, the Ld. TPO has taken it at entity level. As regards the objection of the Ld.AR rega....
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....lly comparable. The ld.AR submitted that the main revenue generation of this comparable is from medical transcription and consultancy services. Thus the ld.AR contended that this comparable is a high ended KPO. 5.4.2 On the contrary the ld. DR submitted that assessee had included this company is a comparable which was not objected by the Ld.TPO. 5.4.3 We have perused the annual report of this company a copy of which is available at pages 1936A to 1938. From the annual accounts of this comparable, it can be seen that its total revenue from operations amounts to Rs. 7.37 crore, which has been derived from medical transcription and Rs. 9.90 lakhs derived from consultancy services, translation charges amounting to Rs. 6.99 crores and accounts BPO amounting to Rs. 27.76 Lacs. It is apparent that this company outsourced its activities and the outsourcing expenses constitute 57% of the total expenses. The entire outsourcing is confined to translation charges paid at Rs. 3 crore, constitutes a large chunk of this company's income, for which the services were mainly outsourced this company cannot be selected as a comparable on an entity level. The decision of coordinate bench of this ....
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....is company was providing IT enabled services. 5.6.2 We have perused the annual report of this company, a copy of which is available at page 1121 to 1178. It is found that this company is a subsidiary of Infosys technologies Ltd and as on today this company in India is among the top 10 BPO companies according to the National Association of software and service companies ranking. This company has earned a net profit of Rs. 273.81 crore during the year with approximately 17,934 employees. It is found that this company is partnering with one aim for imparting executive education program to build business competencies and provide comprehensive insights to management functions. 5.6.3 It is further observed that the turnover of this company is more than 5 crores. As held by this Tribunal in the case of CIT vs. Agnity India Technologies Private Ltd., in ITA no. 124/Del/2011, which has been confirmed by the Hon'ble Delhi High Court wide order dated 10/07/2013, the Hon'ble High Court has upheld the finding of this Tribunal that companies having high turnover cannot be considered as a comparable. 5.6.4 Respectfully following the ratio laid down by Hon'ble High Court, we direc....
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....olutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality, Keeping in view the nature of services rendered by M/s. eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns." 5.7.4 Respectfully following the above decision of this Tribunal, we direct the Ld. TPO to exclude this company from the list of comparables. 5.8 Allsec Technologies Ltd. 5.8.1 The assessee is seeking to include this company as a....
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....ed by Ld. A.R. As this company is into activity of medical transcription, cannot be considered to be a low-end BPO as the activity involves a process of knowledge. In our view applying the functional tests as a primary requirement for consideration of a company as a comparable, this company cannot be considered to be carrying out activity which is carried on by low skilled or undergraduates. We thus direct the Ld. TPO to exclude this company from the final list of comparables. 5.10 M/s.Suntec Web Services Pvt. Ltd. 5.10.1 The assessee is seeking to include this company in the list of comparables as this company has a turnover of less than Rs. 5 crores but more than one crore and it qualifies the turnover filter applied by the ld. TPO. On the contrary, the ld. DR submitted that it is functionally not similar to assessee. The ld. DR has submitted that the issue relating to exclusion /f inclusion of this company can be sent back to the learned TPO for verification. 5.10.2 We have perused the financial accounts of this comparable placed at page 1197 to1196 of the paper book. It is observed that the services from which income is generated of this company has not been clearly sp....