TaxTMI 
TaxTMI 
2017 (7) TMI 1079
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....h included service income at Rs. 10,07,334/- and other income at Rs. 13,07,334/-. The AO referred the matter to the TPO for determination of the ALP u/s 92CA(3) in respect of the international transactions entered into by the assessee during the financial year 2009-10. In response to notice u/s 92CA(2) and 92D(3) of the Income Tax Act, the assessee filed various details from time to time. The TPO, during the assessment proceedings, noted that the assessee company has entered into the following international transaction with its AE's during the year : Sl. No. Nature of Transaction Name of the AE Method used by assessee Amount 1. Provision of Engineering, Design and Related Services Samsung Heavy Industries Ltd. Korea. TNMM 24,77,91,193/- 2. Reimbursement of expenses -do- CUP 4,79,449/- 3. He further noted that the operating profit margin i.e. OP/OC computed by the assessee are as under : Particulars Amount (in INR) Sales 248,701,193 Operating Income(A) 248,701,193 Expenditure Personnel & Sub-consultancy Costs 118,596,634 Other expenses 66,921,350 Depreciation 17,693,062 Less....
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....s which are to be accepted and other three companies selected by the assessee was rejected by the TPO. The TPO thereafter following the various filters adopted by the assessee included certain comparables and accordingly selected the final comparables, the details of which are as under : Sl. No. Company Name OP/OC 1. Akshay Software Technologies Ltd. -1.07% 2. Tata Elxsi Ltd. 20.29% 3. Accentia Technology Limited 42.52% 4. Fortune Infotech Limited 22.88% 5. Igate Global Solutions Limited 24.54% 6. Infosys BPO Ltd. 31.44% 7. TCS E-Serve International Ltd. 54.03% 8. TCSE-Serve Ltd. 63.42% 9. ICRA Techno Analystics Limited (Segment) 28.66% 10. Eclers Services Limited 55.84% ARITHMETIC MEAN 34.26% 6.1 The TPO accordingly proceded to compute the Arms Length Price. He took the arithmetic mean of the Profit Level indicators as the arms length margin. Based on this, the arms length price of IT Enabled services rendered by the taxpayer to its AE(s) was computed by him by taking PLI as OP/OC. The arithmetic mean of Operating Profit over the Operating Cos....
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....urther argued that companies with abnormal or super normal profits should be excluded as comparables. Regarding filter of companies with persistent losses, the assessee argued that this filter contradicts filter of single year data. 9. The assessee further submitted that high profit making companies should not be taken as comparables for benchmarking the services provided by a low risk captive unit (such as the Assessee) rendering engineering design and related services only to its AE and operating on a cost plus remuneration model. It was submitted that the high profit making companies ought to be excluded from the final set of comparable companies particularly for benchmarking cost plus captive units that cannot be expected to earn such high profit margins as earned by independent risk taking entrepreneurs. The assessee also submitted that there are statistical comparable errors in the various companies selected by the TPO. 10. So far as the various comparables adopted by the TPO are concerned the assessee gave the following reasons : 11. However, the DRP was not fully satisfied with the arguments advanced by the assessee and upheld the action of the TPO in selecting the....
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....lated services in compliance with section 92D of the Act read with Rule 10D of the Income- tax Rules, 1962 ('Rules') in the Transfer Pricing ('TP') documentation; 4.2 by disregarding multiple year/ prior years' data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2009-10) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP documentation; 4.3 by rejecting comparability analysis in the TP documentation/Fresh search and in conducting a fresh comparability analysis based on application of the following additional/ arbitrary filters in determining the ALP for engineering design and related services; * Rejection of companies whose data is not available for the current year (i.e. FY 2009-10); * Rejection of companies whose service income turnover is less than Rs. 5 Crore. * Rejection of companies whose export sales is less than 75% of total sales; * Rejection of companies that are effected by some peculiar economic circumstances; * Rejection of companies with employee cost is less than ....
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....e hearing of this appeal." 14. The Ld. Counsel for the assessee pressed only grounds of appeal no. 4.4, 4.5 and 4.7 and he did not argue the other grounds being ei ther general in nature or being consequential in nature. Therefore, grounds other than ground no. 4.4, 4.5 and 4.7 are being dismissed as not pressed. 15. So far as grounds of appeal no. 4.4 and 4.5 are concerned the ld. Counsel for the assessee has basical ly challenged the order of the AO/TPO in including certain non-comparable companies for the purpose of computing the ALP of the internat ional transaction of the assessee company. So far as Accentia Technologies Ltd. which has been included by the TPO/AO as a comparable is concerned he submit ted that Accentia Technology Ltd. is funct ionally different from that of the assessee company. The said company is engaged in non-comparable services such as medical transcript ion, bil ling and Collection and software development. For the above the Ld. Counsel for the assessee referred to page 42,70, 78 and 84 of the annual report of Accentia Technology Ltd., a copy of which is placed at paper book page no. 1 to 108 of the Annual Report Compendium. Referring to page 79 of....
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....he AO ought not to have taken the companies which are into both Product Development as well as software development service Provider as comparables unless the segmental details are available. He accordingly submitted that Accentia Technology Ltd. should be excluded from the list of comparables. 18. So far as the E-CLERX SERVICES LTD. taken by the AO/ TPO as a comparable is concerned, he submitted that the said company is functionally dissimilar as i t takes a wide range of activities under the gamut of financial services and sales and marketing supporting services and KPO services. For the above proposition, he referred to pages no. 114, 115, 167 to 180 of the Annual Report Compendium. Referring to pages 166 and 159 of the Annual Report Compendium, he submitted that the company is outsourcing substantial amount of work as expenses under the head "contract for services" shows an amount of Rs. 368.28 mi l lion, which works out to 20.33% of the total cost. Further, segmental details are not available. 19. Referring to the decision of the Hon'ble Delhi High Court in the case of rampgreen Solutions Pvt. Ltd. (supra), he submit ted that the above company was excluded due to functio....
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....D. as a comparable is concerned, the ld. Counsel for the assessee submit ted that the said company is also functionally noncomparable since i t is involved in giving technical services which are in the nature of software development services along with BPO Services. Referring to page no. 385 of the Annual Report Compendium, the ld. Counsel for the assessee drew the attention of the bench to the huge amount paid by TCSE- Serve International Ltd. as Tata Brand equity. Further the turnover of the said company is 149.29 crore whereas the turnover of the assessee is only Rs. 24 crores. Referring to the decision which were relied upon while arguing for exclusion of TCS e-serve Ltd. , he submitted that the case laws are equally applicable to the present comparable on account of high turnover and being functional ly different . 24. So far as ground of appeal no. 4.7 is concerned the ld. Counsel for the assessee submit ted that the TPO/DRP have not al lowed working capital adjustment al though such working capital adjustment was allowed in subsequent year i.e. assessment year 2011-12. Referring to various decisions, he submitted that working capital adjustment is being allowed by various....
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.... restricted his argument to four comparables and therefore, we are dealing with those four comparables only. 28. So far as Accent ia Technology which has been included by the TPO as a comparable is concerned, we find the assessee by relying on various decisions has proved that the said company is functionally different , that extraordinary events have taken place during the year, that there was no segmental information available and the fixed assets constitute about 57% towards brands, IPR and goodwill which is quite significant. 29. We find this issue had come up before the Delhi bench of the Tribunal in the case of Bechtel India Private Limited (supra). The Tribunal at page no. 16 of the order, while directing the AO to exclude the company as comparable, has observed as under : "This company has been included by the ld. TPO as a comparable. Functionally, Accentia Technologies Ltd. , is into development of software products for healthcare. It is submitted by the ld. AR that Accentia Technologies Ltd. is also engaged into diversified activities such as Knowledge Process outsourcing (KPO), Legal process outsourcing(LPO), Data process Outsourcing (DTO), high end ....
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....amalgamation of a company during the relevant year, and the said company therefore, cannot be considered as comparable due to this extraordinary event which occurred in the relevant year as rightly held by the Tribunal inter alia in the case of EXCELLENCE DATA RESEARCH P. LTD. (SUPRA). We, therefore, follow the decision of the coordinate bench of this Tribunal in the case of EXCELLENC Data Research SERVICES PVT.LTD.(SUPRA) and direct the AO/TPO to exclude the Accentia Technologies Limited from the list of comparables on this ground. Further, this company also provides KPO services, LPO and DPO besides offering software services. Therefore as this enrolled in knowledge processing outsourcing it is functionally dissimilar to the assessee. Further, it does not contain segment wise functional results and in absence of such segmental information, it cannot be used for comparing the PLI of the assessee. It is also noted that it is also having significant amount of brands, intellectual property rights and goodwill as compared to the assessee. Therefore, in view of the above reasons this company is required to be excluded. Further relying on the decision of Jurisdictional high court in cas....
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....y is into diversified knowledge process outsourcing activities. It is seen therefrom that the said company is involved in Healthcare documentation as well as receivables, management services including installation and maintenance of all software, hardware and band width infrastructure required for the same, deployment of man power and service delivery in all these areas. It is also seen that it is engaged in legal process outsourcing. From Schedule-IV showing the fixed assets of the assessee, it is also seen that the said company owns goodwill/brand/IPRs (Intellectual Property Rights). From the notes to the accounts, it is also seen that a subsidiary of the company Asscent Infoserve Pvt. Ltd., has been amalgamated with the company consequent to which, assets and liabilities of the erstwhile company were transferred and vested in the company w.e.f. 1st April, 2008 and the scheme has been given effect to in the accounts of the year. Therefore, it is clear that there is an extraordinary event in the case of Accentia Technologies Ltd., during the relevant financial year particularly since the approval for amalgamation has been given by the HonTde High Court of Mumbai vide orders dated ....
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....accordingly partly allowed for statistical purposes. (Order Pronounced in the Open Court on 13/07/2017) ============= Document 1 S. Company Name Assessee's arguments for rejection of N ° Accentia Technologies Limited companies proposed by the TPO Functionally Dissimilar: Engaged in KPO services and a product development company DRP's View TPO has given elaborate reasons in para 6.1 of his order. Perusal of annual report shows that FAR of this company is essentially similar to that of the segmental assessee co. Hence, it is retained as comparable. Significant amount of Brands, IPR and Goodwill (Approx 57% of Net Fixed Assets) Non-availability information of TPO has given elaborate Functionally Dissimilar: Design and reasons in para 6.2 of his Fortune Infotech Limited 2 Development of Applications Development of technology iGate Global Solutions Limited 3 4 5 Infosys BPO Limited TCS E- Serve International Limited Functionally Dissimilar and Comparison of turnover-37 times size of the Assessee Non availability of segmental inform....