TaxTMI 
TaxTMI 
2016 (9) TMI 1392
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 1,42,06,264. 2. That the assessing officer / TPO erred on facts and in law in making an addition of Rs. 3,69,72,323 allegedly on account of difference in the arm's length price of the 'international transactions' of BPO / ITES Services rendered to the associated enterprise on the basis of the order passed under section 92CA(3) of the Act by the TPO. 3. That on facts and circumstances of the case and in law, the DRP/TPO erred in not holding that since the associated enterprise ("the AE") has incurred a loss, in relation to ITES services rendered by the appellant to the AE, which, in turn, were rendered by the AE to ultimate third party customer(s), no Transfer Pricing adjustment was warranted. 4. That on facts and circumstances of the case and in law, the DRP/TPO erred in not holding that the Transfer Pricing adjustment, at best, could not exceed the total profit earned by the group, as the same would result in taxation of notional income. 5. That the DRP/TPO erred on facts and in law in not appreciating that the appellant is engaged in the business of rendering low end data processing services resulting in low combined profitabilit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....comparability. 14. That the assessing officer erred on facts and in law in levying interest under Section 234B and Section 234D of the Act. 15. That the assessing officer erred on facts and in law in initiating penalty proceedings under Section 271(1)(c) of the Act. The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal before or at the time of hearing." 3. Ground Nos. 1 & 2 are general in nature, Ground No. 15 is prematurely raised, so these grounds do not require any comment on our part. Ground Nos. 6 to 9, 12 & 13 were not pressed so these are dismissed as not pressed. As regards to Ground Nos. 3, 4, & 5, the ld. Counsel for the assessee stated that these are academic in nature, therefore, do not require any comments on our part. 4. Vide Ground Nos. 10 & 11, the grievance of the assessee relates to the consideration of foreign exchange/loss as non-operating nature and working out a profit margin of the comparable M/s Allsec Technologies Ltd. at -2% as against actual Operating Profit to Operating Cost (OP/OC) ratio at -15.78% submitted by the assessee and consideration of Crossdomain Solutions Pvt. Ltd. as com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctions before the ld. DRP who vide order dated 31.10.2013, directed the TPO to exclude Accentia Technologies Ltd., Coral Hub Ltd. and Cosmic Global Ltd. from the final set of comparable companies and to include Allsec Technologies in the final set of comparables. However, the TPO while giving effect to the directions of the DRP, failed to include Allsec Technologies Ltd. in the final set of comparable and by considering the another 4 comparables, he worked out an average operating profit to operating cost ratio at 21.11% as per following details: S. No. Name of the company OP/OC (%) 1. Aditya Birla Minacs Worldwide Ltd. 11.95 2. Crossdomain Solutions Pvt. Ltd. 25.63 3. Igate Global 22.58 4. Infosys BPO Ltd. 24.28 Arithmetic Mean 21.11 7. Accordingly, the TPO worked out an adjustment of Rs. 3,69,72,323/-. Thereafter, the AO passed the assessment order dated 03.12.2013 by making the addition of Rs. 3,69,72,323/- and assessed the income at Rs. 5,11,78,590/-. 8. Now the assessee is in appeal and moved an application under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963 for admitting ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions of both the parties and carefully gone through the material available on the record. In the present case, it appears that the TPO while working out the OP/OC ratio excluded those comparables in respect of which financial datas were not available which now have been provided by the assessee and an application under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963 has been moved. Since, the informations now provided by the assessee are available at public domain and are very much relevant to decide the present controversy. Therefore, the additional evidence now furnished by the assessee are admitted. However, since these documents were not available to the TPO/AO, therefore, this issue is set aside to the file of the TPO/AO to be decided afresh after taking into consideration the addition evidences now furnished by the assessee. In the present case, the assessee claimed that the Crossdomain Solutions Pvt. Ltd. is a KPO while the assessee is BPO. Therefore, this comparable considered by the TPO should be excluded while working out the average operating profit to operating cost ratio of the comparables, this fact also needs verification at the level of the TPO/AO and if th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the fact that the Profit & Loss account of the company for the financial year 2009-10 is not available in public domain. 2.5 That the DRP/TPO erred on facts and in law in considering TCS E-Serve Ltd. and TCS E-Serve International Ltd. as comparable to the appellant without appreciating that these companies are providing services to a single customer and therefore, does not satisfy the filter of related party transactions applied by the TPO. 2.6 That the DRP/TPO erred on facts and in law in considering TCS E-Serve Ltd. in the final set of comparable companies without appreciating that the financial results of the company cannot be considered on account of (i) provision for errors amounting to Rs. 4,28,54 thousands made in the accounts and (ii) change in the method of revenue recognition. 2.7 That while undertaking benchmarking analysis of the transaction undertaken by the appellant, a captive service provider, the DRP/TPO erred on facts and in law in applying inconsistent approach in rejecting loss making companies and considering following companies earning super normal profit, in the final set of comparable companies: Name of the company OP/TC (....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on our part. Ground Nos. 2.1 to 2.3 and 2.10 to 2.13 were not pressed so these are dismissed as not pressed. 15. Vide Ground No. 2.4, the grievance of the assessee relates to the inclusion of the Omega Healthcare Ltd. as comparable while working out the average margin of the comparable. 16. The facts related to this issue in brief are that the assessee for the purpose of benchmarking the international transaction of provisions of BPO/Data Processing services, considered 13 comparable companies in the Transfer Pricing Documentation and worked out weighted average operating profit margin (OP/OC) at 7.98%. During the course of assessment proceedings, the assessee submitted the updated margins of the comparable companies and excluded 2 comparables, namely, Eclerx Services Ltd. and TCS E-Serve International Ltd., the average operating profit margin was worked out at 4.52%. Since operating profit margin of the assessee was at 8%, therefore, the international transaction of provisions of BPO services was claimed to be entered at arm's length price. The TPO, however, worked out the average operating profit to cost ratio at 24.78% by taking into consideration the following comparable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of the TPO was approved. Thereafter, the AO passed the assessment order by making the transfer pricing adjustment of Rs. 4,20,27,470/-. 21. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the TPO/AO wrongly included M/s Omega Healthcare as comparable when complete financial data was not available and that the ld. DRP did not consider the objection raised by the assessee in right perspective. It was stated that when the complete financial datas were not available, the company M/s Omega Healthcare could not have been included in the list of the comparables. 22. In his rival submissions the ld. DR supported the order of the authorities below. 23. We have considered the submissions of both the parties and carefully gone through the material available on the record. In our opinion, the inclusion of M/s Omega Healthcare Ltd. as comparable was not justified when the profit and loss account of the said company for the financial year 2009-10 was not available in public domain and since the order of the DRP is a non-speaking order relating to this comparable because it has only been mentioned in the order of the DRP that this company passed the enti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....brand. Therefore this aspect also makes this comparable as inappropriate and therefore we order to exclude this comparable. 24. TCS E Serve Limited a. TPO included this comparable, which has a margin of 63.42%. The ld. DRP has also held that the far profile of the company is similar. Before us, ld. AR submitted that the company is dissimilar functionally. In addition to BPO services, it is also engaged in technical services such as software testing, verification and validation. It has also developed software such as transport management software. It does not have segmental reporting too. It was further submitted that the company owns substantial intangible assets in form of software licenses and it makes a payment for Tata Brand and therefore it gets the benefit use brand value of Tata. b. Ld. DR relied on the orders of lower authorities and submitted that all the above reasons for selection of this comparable has been considered by the TPO. c. We have also considered the rival contention for exclusion of TCS e-service Ltd. It is mainly involved in transaction processing and technology services. It carries on business of providing technology serv....