TaxTMI 
TaxTMI 
2017 (12) TMI 992
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....he Hon'ble Dispute Resolution Panel - II (hereinafter referred to as 'the Hon'ble DRP') under section 143(3) read with section 144C of the Act, is a vitiated order having been passed in violation of principles of natural justice and is otherwise arbitrary and is thus bad in law and void abinitio. 2. Based on the facts and circumstances of the case, the learned AO has erred in completing the assessment on the non-existing amalgamating entity instead of the amalgamated / successor company. Hence, the assessment order passed under section 143(3) read with section 144C of the Act is void ab-initio and the same is liable to be quashed. 3. That the directions passed by the Hon'ble DRP are bad in law to the extent the same are prejudicial to the Appellant. 4. That the learned AOI learned Transfer Pricing Officer ("TPO") has erred on facts and in law in making the transfer pricing adjustment of INR 124,940,966 in respect of the international transactions relating to the provision of IT enabled services to the associated enterprises ("AEs")undertaken by the Appellant for the period under consideration. 4.1. The learned AOI learned TPO has grossly erred on fac....
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....learned TPO has erred, in law and on facts and in law, by rejecting certain comparable companies identified by the Appellant on account of showing diminishing revenues trend. 4.10. That the learned TPO erred, on facts and in law, in rejecting certain companies selected as comparable by applying employee cost filter of 25 percent of the total cost. 4.11 That the learned TPO erred in selecting Accentia Technologies Limited, Infosys BPO Limited, TCS EServe Limited, TCS E-Serve International Limited, Fortune Infotech Limited, e4e Healthcare Limited and iGate Global Limited as com parables without appreciating that these comparables did not satisfy the functional, assets and risks ("FAR") analysis test vis-avis the Appellant in relation to the international transaction pertaining to provision of IT enabled services. 4.12. That the learned TPO erred in selecting a few companies as comparables without appreciating that these companies have displayed exceptional profit during the relevant financial year (i.e. FY 2009-10) under consideration which was on account of exceptional circumstances and did not portray the correct operational profitability in the industry. 4.13. That, th....
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....The taxpayer is providing services to the Vertex Group Companies under various sub-contractual arrangements and can be characterized as a BPO and ITES provider to its Associated Enterprises (AE) and a less complex entity as it performs functions and assumes risks that are less extensive as compared to the AE. The taxpayer is selected as a tested party for the economic analysis. The taxpayer entered into international transactions during the year under assessment as under :- S. No. Nature of international transaction Amount (in INR) Method Selected PLI Vertex India's OP/OC Comparables PLI (OP/TC) 1 Provision of IT Enabled Services 55,80,30,040 TNMM Operating Profit / Cost (OP/TC) 18.94% 14.27% 2 Receipt of Call centre support services 23,906,114 TNMM 3 Reimbursement of expenses 13,78,681 Comparable Uncontrolled Price Method 3. The taxpayer in order to benchmark its international transactions adopted Transactional Net Margin Method (TNMM) as Most Appropriate Method (MAM) based on Operating Profit / Total Cost (OP/TC) as the Profit Level Indicator (PLI) selected 15 comparables with an average margin of 14.27% using multiye....
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....ice (ALP) of international transaction qua provision for ITES as under :- Operating Cost (A) 52,84,94,432 OP/TC 37.90% Margin (B) 20,03,04,580 Arm's Length Price (A+B)=C 72,87,99,012 Price Charged by the assessee (D) 59,79,94,514 Difference (C-D) 13,39,13,147 Adjustment proposed 13,08,04,498 The arm's length price of the international transaction related to provision of IT Enabled services is determined at Rs. 72,87,99,012 as against Rs. 59,79,94,514 determined by the assessee. The assessing officer shall enhance the income of the assessee by Rs. 13,08,04,498." 10. Undisputedly, there is no change in the business model of the taxpayer from the earlier year as is evident from page 2 of the TPO order during the year under assessment. Now, the only dispute before the Bench is qua benchmarking the international transactions relating to provision of ITES to the tune of Rs. 72,87,99,012/- as against Rs. 59,79,94,514/- determined by the taxpayer on account of TP adjustment. 11. TNMM used by the taxpayer as most appropriate method has been accepted by the TPO. Before ld. DRP, the taxpayer raised specific ground that the taxpayer has also provided comparable ....
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....also made investment in the foreign entities by purchasing 13% stake in Trans Service Inc. making total investment of 23% during the relevant year. Accentia has invested US$ 1.5 million for 260 equity shares of Trans Service Inc.. 16. The ld. AR for the taxpayer also sought exclusion of Accentia on account of functional dissimilarity as Accentia is into providing the entire gamut of services under Healthcare Receivables Cycle management viz., Medical Transcription, Medical Coding and Billing and Receivables Management services, to different clients; in some cases separately and in some cases, all the three different services are offered to the same client. The delivery of these services is using third party software in most cases and in some cases, using proprietary software. 17. Ld. AR for the taxpayer also pointed out that the Accentia has significant goodwill and intangible sufficient to impact profitability vis-à-vis the taxpayer which is a risk insulated contract service provider. 18. Perusal of annual report, available at page 88 of the paper book vol.I, which is schedule and forms part of the balance sheet, shows huge intangible brands and goodwill approximately of....
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....Consulting (India) P. Ltd. (supra), which indicates that the TPO therein has excluded it at the outset. In view of this, we direct the Assessing Officer/TPO to exclude this comparable, from the list of comparables selected." As pointed out by the learned counsel for the assessee, there was 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 Excellence 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 as....
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.... it a comparable. Comparability of Cosmic has been examined by the coordinate Bench of the Tribunal in Cognizant Technology Services P. Ltd. vs. DCIT in ITA No.459/Hyd./2015 dated 29.01.2016, which is also into the business of ITES to its AE like the taxpayer and found to be incomparable by following decision of the coordinate Bench of the Tribunal rendered in ACIT vs. Hyundai Motors India Engineering P. Ltd. in ITA Nos.1743 & 1917/Hyd/2014 dated 13.11.2015. In Cognizant Technology Services P. Ltd. (supra), Cosmic has been excluded on the ground of outsourcing of its main activity out of which employee cost is less than 21.30% and most of the cost is with regard to the outsourcing charges for translation charges. So, following the decision rendered by the coordinate Bench and keeping in view the fact that Cosmic has different business model, we order to exclude Cosmic from the final set of comparables. FORTUNE INFOTECH LIMITED (FORTUNE) 24. The taxpayer sought to exclude Fortune from the list of comparable for benchmarking the international transactions for two reasons : one, it is functionally different; two, due to peculiar economic circumstances. Ld. AR also relied upon Equan....
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....mpacted the profitability. 31. The ld. DR for the Revenue by relying upon the order of TPO contended that it is a case of acquisition and not amalgamation and is not going to impact PLI. But the ld. AR for the taxpayer controverted this argument of the ld. DR by relying upon the annual report of IGATE, available at page 192 of the paper book vol.I, wherein factum of amalgamation has been categorically explained having been carried out as per order dated 24.02.2010 passed by Hon'ble High Court of Karnataka. The ld. AR for the taxpayer also relied upon the cases of the coordinate Bench of the Tribunal in Ameriprise India Pvt. Ltd. vs. DCIT in ITA No.7014/Del/2014 order dated19.01.2016 and United Health Group Information Services (P.) Ltd. vs. DCIT order dated 26.08.2016. 32. Perusal of the annual report of IGATE, available at pages 192 and 197 of the paper book vol.I, shows that IGATE is engaged into providing IT and ITES whereas no segmental information is available in its annual report. So, this sole reason makes Fortune incomparable with taxpayer which is a routine ITES provider. 33. Moreover, IGATE has undergone restructuring by way of amalgamation as has been discussed in pre....
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....Eserve Ltd. (for short 'TCS Intl.' and 'TCS') on the ground of peculiar economic circumstances filter, abnormal growth, non-comparable services and insufficient segmental data. Ld. AR contended that TCS has been ordered to be excluded in Ameriprise India Pvt. Ltd. (supra) which has been affirmed by the Hon'ble High Court. 41. However, on the other hand, ld. DR for the Revenue contended that since main function of 'TCS Intl.' and 'TCS' is ITES and verification of validation is done at the last stage and brand is not impacting the PLI, it is a valid comparable. 42. However, perusal of the background and principal activities of the 'TCS Intl.' and 'TCS' given in annual report, available at page 413, shows that the company's operation is broadly comprise of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving the processing, collections, customer care and payments in relation to the services offered by Citigroup to its corporate and retail clients. Technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities whereas for all t....
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....riton Corporation Ltd. was excluded by the TPO on ground of serious indictment being part of the Rastogi Group but Tribunal ordered to retain both the comparables by emphasizing the fact that balance sheet of the company is duly audited by the auditor as per standard approved by the Ministry of Corporate Affairs. 47. However, we are of the considered view that we cannot compare scam which took place in Satyam BPO with Mapple Solutions Ltd. and Triton Corp Ltd. because of its magnitude and because of the fact that numerous companies are available to be taken as comparable in TNMM. Moreover the scam which took place in Satyam BPO in 2008 was also detected despite the fact that all balance sheets were audited qua the preceding years and when the creditability of a company due to such a big scam is at stake, we are of the considered view that this Satyam BPO cannot be taken as a valid comparable for inclusion as contended by the taxpayer. So we confirm the findings returned by the ld. TPO/DRP. R. SYSTEMS INTERNATIONAL LIMTIED (BPO SEGEMENT (R. SYSTEMS) 48. Ld. DRP rejected this company on the ground that the same was not taken before TPO and it is having a different financial year ....