TaxTMI 
TaxTMI 
2016 (12) TMI 1645
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....to bench mark its international transactions and adopted operating profit/operating cost as profit level indicator. The assessee selected comparables to bench mark its international transactions on the basis of FAR analysis. The average unadjusted margin of the comparables in the international transactions related to ITeS was determined by the assessee at 14.95% as against 11.64% of its own. The Transfer Pricing Officer (TPO) determined arms length margin of the comparable at 32.12% and made adjustment of Rs. 2,62,00,000/-in respect of international transactions relating to ITeS. Aggrieved by the order of TPO dated 28.01.2014, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide directions dated 26.12.2014 partly accepted the objections raised by the assessee. On the basis of directions of the DRP, the Assessing Officer vide impugned order made upward adjustment of Rs. 2.41crores in the income returned by the assessee. 3. The assessee in appeal before the Tribunal as assailed the assessment order by raising following grounds: "1. Transfer Pricing Adjustment: 1.1 The learned DCIT pursuant to the directions of learned DRP erred in....
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....full-fledged risk bearing entities with the Appellant's captive operations. 8. Benefit of the variation/reduction of 5 percent from the arithmetic mean 8.1 The learned DCIT pursuant to the directions of learned DRP has erred in law and on the facts and in circumstances of the case in not granting the benefit of +/-5 percent as per proviso to section 92C (2) of the Act. 9. Non applicability of transfer pricing provisions to the Appellant enjoying tax holiday regime under Section 10A of the Act 9.1 The learned DCIT pursuant to the directions of learned DRP has erred in law and on the facts and in circumstances of the case in applying the transfer pricing provisions to the Appellant even though the Appellant is enjoying the tax holiday regime under section 10A of the Act. 10. Initiation of Penalty Proceedings 10.1 The learned DC IT erred on the facts and in law in initiating penalty proceedings under section 271 (1) (c) of the Act. 11. Each one of the above grounds of appeal is without prejudice to the other. 12. The Appellant reserves the right to amend, alter or add to the grounds of appeal." The assessee....
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....d operating margin of GENESYS in the financial year 2009-10 that is relevant to the assessment year 2010-11 is 112.31%. Thus, GENESYS has super normal profits in the corresponding assessment period. In order to further buttress his submissions the ld.AR placed reliance on the decision of Hyderabad Bench of the Tribunal in the case of HSBC Electronic Data Processing India (P) Limited vs. Deputy Commissioner of Income Tax (DCIT) reported 56 taxmann.com 78. In the said case, GENESYS was rejected as comparable due to functional disparity. GENESYS is providing geospatial services to its customers. This is highly specialized service with respect to relative position of things on the earth surface. These basically include 3D mapping, navigation maps, image processing, cadastral mapping etc., The services provided by GENESYS are quite different from the services rendered by the assessee and there cannot be any comparison between the two. 5.2 In respect of Accentia Technologies Limited (hereinafter referred to as 'ACCENTIA') the ld.AR submitted that certain extraordinary events have taken place during the year under consideration in case of ACCENTIA. These extraordinary events refer to: ....
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....ficer to work out the correct margins of the said company and thereafter, determine the average margins of comparables. The ld.AR prayed for similar directions to TPO for computing correct margins of ITES segment of Jeevan Scientific Technology Ltd. 5.5 In respect of inclusion of ICRA Online Ltd(segmental), in the list of comparables, the ld.AR submitted that the company is functionally different and is a super profit making company. In the year under consideration the export turnover of the company is Rs. 1,114.09 lakhs as against the total turnover of Rs. 1835.9 lakhs which is less than 75% of the total turnover. Therefore, the company fails to qualify export turnover filter of 75%. The DRP in assessment year 2009-10 had excluded the company from list of comparables on export turnover filter. The ld.AR prayed for maintaining consistency and remove ICRA Online Ltd (segmental) from the final set of comparables. 5.6 The ld.AR submitted that if the companies mentioned above are exclude from the final set of comparables, the other grounds raised in the appeal will become academic and he would not be pressing the remaining grounds. 6. On the other hand, Shri T.Vijaya Bhaskar R....
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....s Ltd. 6.86% 10 Coral Hub Ltd. 14.71% 11 Fortune Infotech Ltd. 21.80% Average: 30.53% 9. The assessee has assailed the inclusion of: 1. Genesys International Ltd; 2. Accentia Technologies Ltd. and 3. ICRA Online Ltd (segmental) The ld.AR of the assessee has further prayed for: -making necessary corrections in the operating margin of Fortune Infotech Ltd. -recomputing PLI of Jeevan Scientific Technology Ltd(segmental). The objections raised by the assessee in respect of above companies are dealt with in seriatim as under: 9.1 Genesys International Corporation Limited. The assessee has objected to inclusion of GENESYS in the final list of comparables on the ground of abnormal profits, as well as functional differences. It is pointed that in the period relevant to assessment year 2010-11 the said company has unadjusted operating margin of 112.31%. The assessee has given operating margin trend of the company over the three years. The same is tabulated herein below: Financial Year Unadjusted operating margin (OP/OC) 2007-08 46.82% 2008-09 57.91% 2009-10 112.31% ....
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.... of HSBC Electronic Data Process India Pvt. Ltd., vs. DCIT (supra) wherein GENESYS was excluded from the list of comparables on account of functional differences. The relevant extract of the findings of the Tribunal are re-produced here in under: "10. We have considered the submissions of the parties with reference to the materials on record as well as decisions of the coordinate benches placed before us by ld. AR. As could be seen, TPO has classified the assessee as ITE Service Provider. Further, comparability of aforesaid companies objected by assessee came up for consideration by the coordinate bench of this Tribunal in case of Capital IQ Information Systems (India) (P.) Ltd. (supra) for A Y 2009-10. The Tribunal after examining the functionality of these companies held them not to be comparable with ITE service provider. The relevant extract from the order of the Tribunal is reproduced hereunder for ready reference: '(2) Genesys International Ltd. 17. It was the contention that this company functions in two horizontals, and is having super profits. It was further submitted that this company is not only in software development but also in Geospatia....
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....chnology Enabled Services' (ITES), but most of them are quite distinguishable from others. In our considered opinion, the fifteen broad categories set out in this Circular cannot per se be claimed as similar to each other. A cursory look at these products/services transpires that some of them are functionally quite different from each other. Further the level of investment required for providing such services is also not consistent. In our considered opinion, the mere fact that two services are placed under this category do not become automatically comparable. If a case providing one category of services under ITES is claimed as comparable with another in the category of service under ITES as per this circular, then it must be shown ex facie that it is broadly similar. Adverting to the facts of the instant case, we find that the services rendered by Genesys fall under clause (vi) with the heading 'Geographical Information Systems Services', whereas those rendered by the assessee fall partly under clause (vii) with the heading 'Human Resources Services' and partly under clause (xi) with the heading 'Payroll'. On juxtaposition examination of these two sets....
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....and the Tribunal vide its orders dated 02.02.2015 and 29.04.2015 respectively had held that the said concern Accentia Technologies Ltd. was not comparable for those years due to extraordinary events. In respect of extraordinary events taken place during the year under consideration, the learned Authorized Representative for the assessee pointed out that there was acquisition of IQ group of companies in the United Kingdom and in this regard, out attention was drawn to the Directors Report of the said concern, copy of which is placed at page 467 of the Paper Book. Further, there was amalgamation of Asscent Infoserve Pvt. Ltd. with the company as per notings on page 472 of Paper Book. Hence, there was the case of amalgamation and acquisition, which constituted extraordinary events taken place for the year under consideration. The learned Authorized Representative for the assessee pointed out that for the year under consideration i.e. assessment year 2010-11, the Tribunal in various other cases have held that Accentia Technologies Ltd. was not comparable to entities engaged in ITES activities since even during the year under consideration, the said entity had extraordinary events. In t....
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....of the said concern was more than Rs. 50 crores for the year under consideration which did not meet with turnover filter applied by the assessee. On this point, it was pointed out that the assessee had selected sales/turnover filter of 150 crores i.e. any concerns having a turnover exceeding Rs. 50 crores were excluded. Thirdly, it was pointed out that the activities of the said concern were not comparable to the activities of the assessee. 14. The TPO has noted the aforesaid objections of the assessee in para 18.1 of his order and has rejected the same by merely noticing that 75% of the revenue/income of the said concern is from ITES and therefore it is to be considered as a comparable. Before us, the Ld. Representative for the assessee has reiterated the submissions put-forth before the TPO in order to justify exclusion of the said concern from the list of comparables. In particularly, it has been pointed out that for the very same assessment year, the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. vs. ITO, (2013) 38 taxmann.com 55 (Bang.) has excluded the said concern from the list of comparables in a similar situation follow....
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.... necessary corrections in the order in this regard. It is contended that the said rectification petition is still pending for final adjudication. The Assessing Officer is directed to dispose of the aforementioned application of assessee filed u/s 154 of the Act, expeditiously. The ground No.6 in the appeal is allowed for statistical purpose. 11. JEEVAN SCIENTIFIC TECHNOLOGY LIMITED.(formerly known as Jeevan Softech Ltd.) The assessee has prayed for excluding the said company from the list of comparables on the ground of faulty segmental classification of its services. It is pointed that the TPO while considering the margin of the company has only considered BPO operations. The TPO has not considered ERP segment revenue. The correct segmental results have to be considered for analysis-ITeS being the correct segment in the present case. We find that in the case of Aptara Technologies vs. ACIT (supra) the co-ordinate Bench has directed the Assessing Officer to work out the margins of relevant segment of Jeevan Softech Ltd and thereafter determine the average margins of the comparables. The relevant extract of the directions of the Tribunal are re-produced as under: 2....
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....ssee sought exclusion of ICRA Online Ltd from the list of comparables on ground of functional difference. The said plea of the assessee was declined by DRP. Exclusion of ICRA Online Ltd. on the basis of export turnover filter has not seen considered by the authorities below. We deem it appropriate to remit this issue back to the file of TPO/AO for reconsideration. The TPO/AO shall decide the issue afresh by considering relevant factors/documents, as well as the order of TPO/DRP in assessment year 2009-10. The TPO/AO shall decide this issue after affording opportunity of hearing to the assessee, in accordance with law. Accordingly, additional ground of appeal no.2 is allowed for statistical purpose. 13. Eclerx Services Ltd. The department in its appeal has raised single issue challenging exclusion of functionally comparable company on the basis of turnover. The ld.DR referred to exclusion of Eclerx Services Ltd by DRP from the final list of comparables by applying turnover filter. The assessee in its additional ground no.3 has assailed the findings of AO/DRP in not rejecting Eclerx Services Ltd. on account of functional difference. We find that the co-ordinate Bench of the ....