TaxTMI 
TaxTMI 
2017 (12) TMI 924
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....h the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short 'the Act') qua the assessment year 2006-07 on the grounds inter alia that :- "On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('DRP'), the Transfer Pricing Officer ("TPO") and consequently the Assessing Officer ('AO') have erred: . Transfer Pricing Adjustments 1 In making an adjustment of INR 17,403,385 to the value of the international transaction of provision of medical transcription services. 1.1 In determining the above adjustment have, in particular erred in: 1.1.1 Using financial information of the comparable companies relating to the financial year ('FY') 2005-06 although such information was not available when the assessee maintained documentation as per the requirement of the act; 1.1.2 Rejecting certain functionally comparable companies, on grounds such as: a. Persistent loss making companies; and b. Highly unpredictable profitability 1.1.3 Retaining certain super profit making companies as functionally comparable companies; 1.1.4 Retaining Vish....
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....edical transcription services. 1.1 In determining the above adjustment have, in particular erred in: 1.1.1 Using financial information of the comparable companies relating to the financial year ('FY') 2005-06 although such information was not available when the assessee maintained documentation as per the requirement of the act; 1.1.2 Rejecting certain functionally comparable companies, on grounds such as: a. Persistent loss making companies; and b. Highly unpredictable profitability 1.1.3 Retaining certain super profit making companies as functionally comparable companies; 1.1.4 Retaining Vishal Information Technologies Limited as a functionally comparable company; 1.1.5 Rejecting B T Technet for non-availability of financial information for FY 2005-06 although the annual report of the same was made available during the proceedings before the Hon'ble DRP; 1.1.6 Retaining comparable companies with significant related party transactions; 1.1.7 Not granting comparability adjustments on account of difference in working capital requirement, risk assumed by the appellant vis a vis the comparable companies and in ignoring the quantification of ab....
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....a. The taxpayer - HBTS is into IT Enabled Back Office Medical Transcription services as part of its business operation, providing medical transcription services exclusively to HCR Information Corporation USA, the ultimate holding company of The taxpayer - HBTS. 6. During the year under assessment, assessee entered into international transactions with its Associated Enterprises as under:- S.No. Nature of transaction Method used by Assessee Value of transaction Method PLI Receipt Paid 1 Medical Transcription TNMM OP/TC 14,94,04,081 - 7. The taxpayer - HBTS in order to benchmark its international transaction in its TP study selected Transactional Net Margin Method (TNMM) as Most Appropriate Method (MAM) as its Profit Level Indicator (PLI) (Operating Profit / Total Cost) at 10%. The taxpayer - HBTS chosen 20 comparables for benchmarking the Arm's Length Price (ALP) having average PLI of comparable at 10% and found its international transactions at arm's length. 8. The taxpayer - HBTS in its TP study after selecting 20 comparables used weighted average margin of three years to arrive at the conclusion that the international transaction arrived at by the ....
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....4.67 xii. Transworks Information Services Ltd. 163.3007 136.6095 26.6912 19.54 xiii. Tricom India Ltd. 23.70 14.80 8.90 60.14 11. Ld. TPO on the basis of his own analysis calculated the PLI for 13 comparables at 22.11% as against PLI of assessee at 10% and proceeded to compute the ALP as under :- Average PLI (OP/TC) of the comparables = 22.11% Total cost of medical transcription services = 13,58,21,892/- Arm's length revenue of the transaction = 13,58,21,892/- *122.11% = 16,58,52,112/- Book value of revenue = 14,94,04,081/- Difference of arm's length revenue & = 1,64,48,031/- Percentage of adjustment to arm's = 9.92% Proviso to Sec. 92C (2) is not attracted as percentage of adjustment to arm's length revenue is more than 5%. The international transactions to bring it at arm's length price. The other minor transactions are held to be at arm's length price." 12. The taxpayer carried the matter by way of raising objections before the ld. DRP, which have been disposed off. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeals. 13. We have heard the ld. Authorized Repr....
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....average was calculated on the basis of current year's data. Pursuant to the direction issued by ld. DRP, the TPO passed fresh TP order dated 25.04.2013 by computing the correct margin of the comparables as under :- Average PLI (OP/TC) of the comparables = 21.84% Total cost of medical transcription services = 13,58,21,892/- Arm's length revenue of the transaction = 13,58,21,892/- *121.84% = 16,54,85,393/- Book value of revenue = 14,94,04,081/- Difference of arm's length revenue & = 1,60,81,312/- 18. Ld. DR relied upon the order of the TPO. 19. Now, in order to cut short the controversy at hand, the ld. AR for the assessee sought to exclude three comparables viz. Vishal Information Technologies Ltd., Nucleus Netsoft & GIS India Ltd. and Tricom India Ltd. in both the appeals being ITA Nos.4048/Del/2013 & 4501/Del/2013 qua AY 2006-07. We would examine the suitability of all the aforesaid comparables vis-à-vis assessee company for benchmarking the international transaction one by one. VISHAL INFORMATION TECHNOLOGIES LTD. (VISHAL) 20. The taxpayer sought exclusion of Vishal in both the appeals on the grounds inter alia t....
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....leave and licence fee at 36.63% and relied upon the decisions of Ameriprise India (P.) Ltd. vs. DCIT - (2015) 67 SOT 136 (Delhi - Trib.), American Express (India) (P.) Ltd. vs. DCIT - (2016) 177 TTJ 33 (Delhi - Trib.) and HSBC Electronic Data Processing India Ltd. vs. ACIT in ITA No.1624/Hyd./2010 for AY 2006-07. 26. The taxpayer has brought on record the annual report of Nucleus, available at page 391, which shows that in accordance with the scheme of amalgamation as detailed in Director's report of assets and liabilities of the erstwhile Nucleus have been transferred to and vested in the company w.e.f. 01.04.2005. Consequently, result for the year ending 31.03.2006 includes the result of erstwhile NNGIS and are not comparable with those of the previous year ending 31.03.2005. 27. Furthermore Nucleus outsources most of its work/services to other vendors / service providers. Coordinate Bench of the Tribunal examined the comparability in Ameriprise India (P) Ltd. and American Express (India)(P.) Ltd. (supra), available at page 52 of the case laws paper book, wherein Nucleus has been ordered to be excluded as a comparable vis-à-vis Ameriprise India (P) Ltd. which is also a c....
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....the software in order to provide better services to its clientele. Your Company also develops software products to process the data required for providing BPO services to its customers. Your Company takes efforts to adapt latest technology and techniques, which helps it to be in competition." 31. Coordinate Bench of the Tribunal in ITO vs. Business Process Outsourcing India (P.) Ltd. - (2014) 61 SOT 83 (Bangalore - Trib.) examined the comparability of Tricom vis-avis the assessee company ordered to exclude the same on ground of the fact that Tricom develops its own software whereas the assessee has no such software product intangibles. So, keeping in view the RPT of 61.86% and the fact that Tricom develops its own software product and own its own intangibles, it cannot be a suitable comparables vis-à-vis the taxpayer. So, we order to exclude the same. So, in view of the matter, grounds no.1, 1.1.3, 1.1.4, 1.1.6, 1.1.10 and 1.1.11 are determined in favour of the taxpayer GROUNDS NO.1.1.7 & 1.1.8 IN ITA NO.4048/DEL/2013 & ITA NO.4501/DEL/2013 32. The ld. AR for the taxpayer contended that while comparing the margin earned by the comparable company vis-à-vis the....
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..../2009. Prior to this amendment as per proviso to section 92C(2) the assessee was eligible for 5 per cent of adjustments. Since the amendment has been made effective from 1/10/2009 it is held that the assessee will be eligible for 5 per cent of adjustment while computing arms length price. The assessing officer is directed accordingly." 37. When the issue as to the allowability to the taxpayer for 5% of adjustment has already been decided in favour of the taxpayer in first round of litigation and the matter was remanded on specific issues, the ld. DRP was under legal obligation to provide the benefit of proviso to section 92C(2) of the Act to the taxpayer. For ready reference, operative part of order passed by the coordinate Bench of the Tribunal in assessee's own case in ITA No.5176/Del/2010 in first round of litigation in AY 2006-07 is reproduced for ready perusal as under :- "6. We have heard both the parties and gone through the material available on record. From the order of the ld. DRP we find that the assessee has raised objections on various points on which the ld. DRP has not passed speaking order. The objections raised by the assessee have been summarily rejected. 5 pe....