TaxTMI 
TaxTMI 
2017 (11) TMI 1591
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....9;Hon'ble DRP'), erred in not allowing the claim of benefit under section 10A of the Income-tax Act, 1961 ('the Act') of Rs. 58,57,059 to the Appellant's total income. 1.1 That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in denying and the Hon'ble DRP has erred in confirming the action of the Ld. AO on the disallowance of the Appellant's claim of deduction under section 10A of the Act amounting to Rs. 58,57,059. 1.2 That on the facts and circumstances of the case and in law, the Ld. AO has erred in holding and the Hon'ble DRP has further erred in confirming the action of the Ld. AO, that there is no export of software by the Branch in India to the Head Office. 1.3 That on the facts and circumstances of the case and in law, the Ld. AO has erred in holding and the Hon'ble DRP has further erred in confirming the action of Ld. AO, that the Appellant is not a separate taxable entity and' as a consequence a person cannot earn profit from itself. 1.4 That on the facts and circumstances of the case and in law, the Ld. AO and the Hon'ble DRP has failed to appreciate that if....
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.... Appellant having complete disregard to their functional comparability 2.3.3 By disregarding the multiple-year data approach and considering the data which was not available to the Appellant at the time of complying with the transfer pricing documentation requirements. 2.4 That on the facts and in the circumstances of the case and in law, the Ld. TPO has erred and the Hon'ble DRP has further erred in upholding / confirming the action of the Ld. TPO in not allowing appropriate adjustment(s) in accordance with the provisions of rule 10B of the Rules. 2.5 That on the facts and in the circumstance of the case and in law, the Ld. TPO has erred and the Hon'ble DRP has further erred in upholding / confirming the action of the Ld. TPO in not following the principle of consistency. 2.6 That on the facts and in the circumstance of the case and in law, the Ld. TPO has erred and the Hon'ble DRP has further erred in upholding / confirming the action of the Ld. TPO in making the adjustment without demonstrating that the Appellant had any motive to shift profits outside of India. 3. Interest under section 2340 and section 244A of the Act ....
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....3 Average 38.03 5. The taxpayer carried the matter before the ld. DRP by way of raising objections and the ld. DRP has directed to eliminate one comparable, namely, Coral Hub Limited from the final set of comparables having average mean of 36.17% as against taxpayer's net cost + margin (NCPM) of 15%. In compliance to the directions issued by the ld. DRP, AO made adjustment of Rs. 49,10,761/- on account of ALP of international transaction qua ITES. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUND NO.1 7. Ground No.1 is general in nature and does not require any adjudication. GROUND NO.2.1 8. Ground No.2.1 is not pressed, hence dismissed as not pressed. GROUNDS NO.2.2, 2.3, 2.4, 2.5 & 2.6 9. Undisputedly, Transactional Net Margin Method (TNMM) and Net Cost Plus Margin (NCPM) as Profit Level Indicator (PLI) as most appropriate method adopted by the taxpayer for b....
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....d customer support services to UTS US's Customer in Asia- Pacific region. Ld. DR further contended that the taxpayer's escalation centre is not merely a call centre, it is rather resolving the problems of the customers network and it is not a routine BPO. 13. However, the ld. DR has merely relied upon preamble of the Agreement so as to differentiate the functional profile of the taxpayer to treat it as high end service provider. But when we examine para 4.3.17 of Transfer Pricing document, available at page 99 of the paper book Vol.I, it is categorically mentioned that, "As and when customers of US encounter any difficulty with the operation of their UTS network, they contact with Escalation Centre for repair/maintenance/trouble shooting. In the Escalation Centre, UTS India Branch personnel open a trouble ticket, allocate engineers, and use simulation techniques (i.e. replicate the problems faced by the customers using the equipment at the Escalation Centre) to try and resolve the problem. UTS India Branch personnel then guide the customers step-by-step to resolve the problem on their (customers') network". 14. Furthermore para 4.3.18 of Transfer Pricing document goes to prov....
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....ons, based in Florida, USA; * Consolidated the operations of GSR Systems, a software Company specializing in HRCM, based in Florida, USA; * Completed the acquisition of Oak Technologies Inc., USA and has rapidly increased its customer base from New Jersey and neighbouring areas. High growth potential since we are now offering medical coding and billing services as well; * Consolidated the operations of Denmed Inc., the acquired Medical Transcription Company based in Salem, Oregon, USA, serving the Portland area; * Streamlined the production operations at the new facility at the Technopark campus, Trivandrum, including the billing operations; * Started initial work for setting up of an IT Park at SEZ, Visakhapatnam, where the Company owns land. 18. Furthermore, at page 32 of the annual report, performance of Oak Technologies Inc. is highlighted as under :- "During the current year the Company completed the acquisition of 96% of M/s Oak Technologies Inc., a Healthcare Back Office Processing Company engaged in Medical billing, Coding and Transcription activities and having a global work force of over thousand employees in India,....
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....certain other comparables; the assessee's grievance with respect to the inclusion of the three comparables was accepted in the appeal by the impugned order. The comparables so excluded were M/s Accentia Technologies, iGate Global Consultants Ltd and Infosys BPO. The exclusion was on the ground that in respect of each comparable, certain extraordinary events had occurred during the previous periods which distorted the profitability thereby increasing the margin." 21. Even functional business model of Accentia vis-à-vis the taxpayer is dissimilar as the Accentia is one of the very few companies that have expertise in all the areas of Transcription, Coding, Billing and Collections. It has over a decade of experience in this field, and is the only company in this segment listed in the Bombay Stock Exchange. It has Offshore Development Centers (ODCs) in different cities of the country and has over 3000 trained professionals working round the clock, all 365 days of the years. Furthermore, Accentia is a giant company having 3000 trained professionals as against 12 employees working with the taxpayer. 22. So, in view of what has been discussed above, we hereby direct to exclude A....
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.... to 2 preceding and 2 succeeding years we are of the considered opinion that Cosmic Global Ltd. cannot be considered as a comparable and has to be excluded from the list of comparables. 51. Even otherwise also, we find merit in the submission of the Ld. Counsel for the assessee that Cosmic Global Ltd. and the assessee are in opposite sides of the value chain. From the details furnished by the assessee, we find the employee cost of Cosmic Global Ltd. is Rs. 1,57,11,463/- on a turnover of Rs. 7,37,02,584/- and thus the employee cost to turnover ratio comes to 21.32%. In the case of the assessee as against the total employee cost of Rs. 5,86,15,132/- the turnover is Rs. 11,02,81,913/- and the ratio of employee cost to turnover comes to 53.15%. Further, Cosmic Global Ltd. has paid translation charges of Rs. 3,00,25,306/- to third parties which is to the tune of 40.74% of its turnover which indicates outsourcing of work. Therefore, we find merit in the submission of the Ld. Counsel for the assessee that functionally Cosmic Global Ltd. is incomparable to the assessee. The various decisions relied on by the Ld. Counsel for the assessee to the proposition that companies with low e....
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....Global Ltd. from the list of comparables. Ground of appeal No.2 is accordingly allowed." 28. So, in view of what has been discussed above, we are of the considered view that Cosmic is not a suitable comparable for benchmarking the international transactions of the taxpayer qua ITES. CROSSDOMAIN LIMITED (CROSSDOMAIN) 29. The taxpayer sought to exclude Crossdomain on two grounds : (i) that it is functionally dissimilar; and (ii) that its complete financials are not available and relied upon the decision rendered by Hon'ble High Court as well as coordinate Bench of the Tribunal cited as Rampgreen Solutions Pvt. Ltd. (supra), Vertex Customer Services vs. DCIT ITA No.572/Del/2014, Market Tools vs. DCIT - (2013) 40 taxmann.com 390 and OKS Span Tech vs. ITO ITA No.481/Del/2014. 30. However, ld. TPO accepted this company as ITES company of the ld. DRP without deciding the merits of the objections raised by the taxpayer rejected the objections raised by the taxpayer and accepted the logic of the TPO and consequently proceeded to retain this company as comparable. 31. Crossdomain come up for scrutiny for its comparability with Vertex Customer Services India Pvt. Ltd. (supra), ....
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....end to end payroll solutions to clients with headcount ranging from 5 to 65,000." "Cross domain's IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation and continuously increase efficiency and turn-around-time for business critical processes." Source: http://www.cross-domain.com As can be seen from the above, the business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider. 25. We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this company as a comparable; this company should be excluded from the list of comparables, accepting the plea of the Assessee. We hold accordingly." 23. Further Honourable Delhi high court has also held in Rampgreen solutions Pvt Ltd V CIT in 60 taxmann.com 355 as under :- "25. Whilst Voice Call Center represents the lower-end of ITeS, KPO repr....
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....v. ACIT(supra) a Special Bench of the Tribunal had referred to a report prepared by National Skill Development Corporation (NSDC) on Human Resource and Skill Requirements in IT and ITES Sector (2022) and noted that the KPO sector has been described as "a value play". The said report also indicates that KPO services are likely to span activities such as "patent advisory, high-end research and analytics, online market research and legal advisory". 26. A Knowledge Process is understood as a high value added process chain wherein the processes are dependent on advanced skills, domain knowledge and the experience of the persons carrying on such processes." 33. From the profile of the company available in public domain brought on record by the taxpayer at pages 59 & 60 of the paper book goes to prove that Crossdomain is one of the leading KPO (Knowledge Process Outsourcing) providers, rendering a wide range of value based quality services in the area of Payroll & HR, Finance and Accounting, Administration and Tax Processes, Insurance process for leading companies in US, Europe and Indian market. Furthermore it is categorically mentioned that Crossdomain is an Insurance KPO an....
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.... a. The assessee further objected to inclusion of Infosys BPO Ltd as comparable which has a margin at 31.44%. Before the TPO assessee submitted that, this is the company, which has very high turnover and has huge brand value. Submission of the assessee that higher profits is because of highly established brand in the market place. TPO rejected the contention of the assessee holding that the assessee has failed to establish how the brand has influenced increased profitability of the comparable. The ld DRP also rejected the contention of the assessee. Before us, the assessee submitted that comparable is engaged in high-end integrated services in improving the competitive position of their clients and manage their business process and providing value added services to them. Further, the Infosys also carrying huge brand value and therefore this comparable should not be taken. b. Ld DR Relied on the orders of lower authorities and stated that all the reasons have been considered by the TPO and DRP for inclusion of this comparable. c. We have considered the rival contention regarding exclusion of Infosys BPO Ltd. It is engaged in high and integrated services and th....
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....t of Infosys BPO Limited has made in P-Financial Holding Services B.V. has been off-set with the proceeds that Infosys BPO Limited needs to pay to P-Financial Holding Services B.V. for the transfer of shares it has made to Infosys BPO Limited. a. Transfer of Shares from P-Financial Services Holding B.V. to Infosys BPO Limited Infosys BPO Limited entered into Share Purchase Agreements with P-Financial Services Holding B.V. by means of which the entire shares P-financial Services Holding B.V. holds in the three subsidiaries (i.e) Infosys BPO (Poland) Sp.Z.o.o., Infosys BPO (Thailand) Limited and PAN Financial Shared Services India Private Limited were transferred to Infosys BPO Limited on December 31, 2008. As a result of the said transfer, the said three subsidiaries which were hitherto step-down subsidiaries of Infosys BPO Limited became the direct subsidiaries of Infosys BPO Limited. b. Liquidation of P-Financial Services Holding B.V. P-Financial Services Holding BV, a limited liability company incorporated under the Dutch laws and 100% wholly owned subsidiary of Infosys BPO Limited was liquidated in accordance with Dutch Laws with effect from c....