TaxTMI 
TaxTMI 
TaxTMI 
2017 (6) TMI 1179
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....s "the AE‟] , ld AO referred it to the Ld. Transfer Pricing Officer[ hereinafter referred to as "The TPO‟] for determination of the Arm‟s Length Price [ hereinafter referred to as "ALP‟] of those transaction. The Ld. Transfer pricing officer passed order u/s 92CA (3) of the Act on 26/10/2010 proposing an upward adjustment of Rs. 559965116/-. Ld. AO framed draft assessment order u/s 143(3) of the act on 29/12/2010. 4. The assessee filed objection before the Ld. Dispute resolution panel [hereinafter referred to as the "DRP‟]. The Ld. Dispute Resolution Panel issued directions on 10/8/2011 and consequently the Ld. AO in its final assessment order passed on 31/10/2011 incorporated those directions. Ld. AO, against the returned income of Rs. 666599500/-, transfer pricing adjustment of Rs. 550927343/- and withdrawal of deduction u/s 10 A of the Act of Rs. 407112732/- was made and assessed the total income u/s 143 (3) of the act at Rs. 1624639580/-. 5. Against that order, Assessee preferred an appeal before the coordinate bench who vide order dated 24th of August 2012 set aside the issue of Transfer Pricing Adjustment back to the file of Ld. AO /TPO vide pa....
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....ent of INR 593,929,260/-. Part - Transfer pricing grounds of appeal 3. That on facts of the case and in law, the TPO/AO/DRP have erred in rejecting the economic analysis undertaken by the Appellant by conducting a fresh economic analysis for international transaction pertaining to export of data processing and back office support services ("impugned transaction"). 4. That on facts of the case and in law, the TPO7A07DRP have erred in conducting a fresh economic analysis by using arbitrary filters for identifying companies comparable to the Appellant. The arbitrary filters applied by the TPO and confirmed by the DRP7AO inter-alia include the following: * To reject companies having IT enabled services income less than INR 1 Crore; * To reject companies having different accounting year than that of the * Appellant (i.e. the data of company does not fall within 12 month period starting from 1 April 2006 to 31 March 2007); and * To reject companies having peculiar economic circumstances which are not in line with the industry trend and companies which showed diminishing revenue trend 5. That on facts of the case and in law, the TPO7AO7DRP have erred in using single year ....
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....Act to obtain information which was not available in public domain and relying on the same for comparability purposes. 14. That on facts of the case and in law, the TPO/AO/DRP have erred by not considering that the adjustment to the arm's length price, if any, should be limited to the lower end of the 5 percent range as the Appellant has the right to exercise this option under the second proviso to section 92C(2) of the Act. 15. That on facts of the case and in taw. the AO/DRP has erred in confirming that TPO/AO has discharged his statutory onus by establishing that the conditions specified in clause (a) to (d) of Section 92C(3) of the Act have been satisfied before disregarding the arm's length price determined by the Appellant and proceeding to determine the arm's length price. 16. That on the facts of the case and in law, the learned AO has erred in charging excess interest u/s 234C of the Act. 17. That on the facts of the case and in law, the learned AO has erred in charging interest u/s 234B of the Act while completely disregarding the provisions of the Act and the judicial precedence in this regard. 18. The learned AO has erred, in facts and in law, by i....
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....thout regard to the success or failure of the activities. Assessee does not own any intangibles. It was submitted that it is a routine data processing and back-office support company, which bears significantly lower than normal risk with respect to its activities. It has three units, which are performing those functions. The unit wise functioning is shown by the assessee as under :- 1. FCE units (New Delhi and Gurgaon) a) input AEIPL receives raw data / raw information (''raw data") in electronic form or in the form of paper based inputs (documents, vouchers, reports etc.). The raw data is received through mail/courier, fax and electronic transmission from clients' respective locations to AEIPL servers through data links. The raw data comprises unprocessed or semi-processed accounting, financial and commercial information relating to the businesses of American Express locations worldwide. The raw data is used as an input for the processing carried out by AEIPL. The various kinds of raw data received by AEIPL are as follows: * Card member Data pertaining to transactions done by American Express card. members. * American Express Company Data: Data pertai....
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....rmation/ account maintenance, and provides back office support in relation to resolving card member matter related to billing. This units also conducts certain data analysis to detect high risk account activity, and also supports initiates such as product redesign, consolidation/ migrations, organizational restructuring and project management support to implement recommendations. 14. The Ld. Transfer pricing officer out of the 16 comparables selected by the assessee accepted 10 comparables, introduced 16 comparables and thereby determined PLI of those comparables using OP/TC at 30.51%. Further, working capital adjustment of 3.62-percentage and risk adjustment at 5.88% was computed but risk adjustment was rejected and only working capital adjustment was granted. Therefore, Average arithmetic mean profit level indicator was computed at 26.83% and adjustment was computed at Rs. 559965116/-. Before the Ld. dispute resolution panel, assessee objected to 14 comparables and Ld. DRP held that Ld. Transfer Pricing Officer has correctly included those comparable. On appeal before the coordinate bench the matter was set aside to the file of the Ld. transfer pricing officer to grant an oppor....
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....ed . In the end it was also mentioned that all the grounds of appeal are being pressed and this synopsis is only for ease of reference during hearing and is not a substitute to the grounds of appeal and other paper books submitted on record. 19. We have carefully perused the above-cited decisions. We are of the view that for deciding a comparability the only guideline is Rule 10B (2) of the Income tax Rules 1962 and it cannot be said that a comparable can be decided on the basis of judicial precedent unless that precedent lay down some guiding factors to interpret rule 10B (2). Merely because a company is held not to be comparable with another company, it cannot be said that it becomes incomparable with the whole world. Such an approach is not only fallacious but also against the provisions of the Income Tax Rules 1962. Each Comparable needs to be tested on its own strength and weakness for comparability study. On this basis, we proceed to test the challenge of the assessee to various comparables. 20. Before us, the Ld. authorized representative submitted that it is contesting 11 comparables included in the order of the Ld. Transfer pricing officer. For the sake of simplicity the....
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.... further referred to page No. 1010 of the paper book to show that the output provided by the New Delhi FCE units are ready to use business reports and competitions, which is a very high-end service. He therefore stated that it is necessary to look into what is the input for the services and what is the output that assessee generates. He further referred to the services provided by AEG SC unit, which carries out certain data analysis to detect high-risk account activity and also support initiatives such as product redesign consolidation migration organizational restructuring and project management support to implementation. He therefore submitted that the services being provided by the assessee is not low end ITES . He further referred to page No. 12 of the order of the Ld. dispute resolution panel wherein the human resources employed by the assessee were analyzed and submitted that despite information asked from the assessee such information of persons employed by the assessee were not provided. In view of this, he submitted that the functions performed by the company are not low end but high end. He further referred to the details of 15 persons given at page No. 13 of the order of....
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....ck office support in nature - cursory reference to page 1009 and 1010 would establish this. The slightly different and erroneous conclusion reached by DRP which was relied upon and unduly over emphasised by Ld. DR at the time of hearing resulted from ignoring to consider all the information provided and available on record . As pointed out during the course of hearing by Appellant's Authorised representative, incorrect and selective reliance on portions of information by DRP. During proceedings before Ld. DRP Appellant was required to provide certain details of employees. .Information required was submitted as is evidenced from pages 446, 447 and 448 in the course of hearings before DRP. Reference to DRP order would show that DRP choose to refer to details at page 448 only and conveniently avoided any reference to discussion on the complete details provided. This approach led to conclusion by DRP that nature of services provided by the Appellant had UPO and KPO characteristics. As clarified in the rejoinder by Appellants Authorised Representative and rightly not denied by Ld. DR, the arguments and submissions of ld. DR were also on similar lines as ld. DRP and follow the same....
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....iled functions performed by AEIPL is placed on record at the page 1009 of the paper book vol 2 of 2 The same is reproduced below for your Honour's kind reference * Functions performed by AEIPL AEIPL is essentially a data processing and back office support company engaged in manufacture and export of data management, information analysis and control, and providing tele-servicing and providing tele-servicing and transaction processing support. AEIPL caters to the American Express Group. As per the contractual-arrangement that AEIPL has with Group Companies for the provision of such support, the resultant output of the above mentioned data processing and back office support, will be the property of American Express Group and at no point in time shall such ownership vest with AEIPL either wholly or partly. AEIPL does not obtain any copyrights, patents rights, trade secrets or trademarks on such output. As per the arrangement, Group Companies compensate AEIPL on a cost-plus basis without regard to the success or failure of the activities. For this purpose, costs comprise all of the direct and indirect costs, including salaries, travel expenses, professional fees, rent, depre....
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....ses (i.e., reorganization, analysis and transformation and conversion of raw data) as per the processing requirements of its customers to generate customized output. c) Output The Company's output, which is exported to its customers including American Express locations, includes the following items processed and prepared as per the customers' specifications: * Ready to use business reports and computations; * Financial statements such as balance sheets, profit and loss accounts, ledgers, * trial balances, accounts payable analysis, accounts receivable analysis, and fixed assets * registers; * Bank account control reports and bank transaction processing;  . Payroll processing and reports; * ccount reconciliation reports; * Payment instructions for payment to vendors; * Card transaction process outputs; * Travel business transaction reports; and * Other MIS reports per customers' specific requirements Thus, AEIPL is engaged in provision of data processing and hack office support services to its group entities, which does not involve provision of services requiring high-end research and analytics. These services are supportive in nature ....
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....d conversion of raw data) as per the processing requirements of its customers to generate customized output. f) Output The Company's output, which is exported to its customers including American Express locations, includes the following items processed and prepared as per the customers' specifications: * Ready to use business reports and computations; * Financial statements such as balance sheets, profit and loss accounts, ledgers, trial balances, accounts payable analysis, accounts receivable analysis, and fixed assets registers; * Bank account control reports and bank transaction processing;  Payroll processing and reports; * Account reconciliation reports; * Payment instructions for payment to vendors; * Card transaction process outputs; * Travel business transaction reports; and * Other MIS reports per customers' specific requirements The out of context and selective reading of some of the above services like monitoring of credit period, travel related support service to AKs travel related business products etc., as attempted at oral hearing of appeals is nothing but a feeble attempt to somehow justify reaching a different conclusion on t....
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....s of the functions of the assessee it is noted that it provides back office operations, revenue accounting, call center services, support center is naturally and ITES services and is definitely different from the Knowledge process outsourcing services. Further merely for the reason that AEGSEC services at Gurgaon unit provides certain data risk analysis services to detect high risk account activity does not make the services provided as high end services Provider. 29. Furthermore the ld TPO has not questioned the FAR analysis provided by the assessee and has accepted it to be and ITES service provider and not an KPO. The assessee in its TP study report has classified it as BPO which is not disputed by ld TPO. The difference is also explained in rule 10 TA (e) and (g) of the Income tax Rules 1962. 30. Now we come to the issue of the exclusion or inclusion of the comparable for the comparability analysis in determination of the arm‟s length price of the international transaction. 31. The First comparable contested by the assessee is Vishal information technologies Ltd submitting that it has a different business model as it gives 65.36% of its work to the outside vendor and i....
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.... company submitted before us at page No. 376 of the paper book where the data entry charges and vendor payments have been specified at Rs. 131207282/- out of total cost of Rs. 202835405/-which is approximately 64.68% of the total cost. This itself shows that this company is getting things done through outside vendor and is not carrying on work by employing its own human resources where as In case of the assessee, It carries on its business through its own employees for whom during the year it has incurred cost of Rs. 2783055185 out of the total cost of Rs. 4713578439/- which is almost 59% of the total cost. We have also carefully perused the order of the coordinate bench in a assessee‟s own case for assessment year 2006 - 07 wherein at 8.2 the coordinate bench has directed for exclusion of this comparable holding that the outsourcing model has its impact on the overall profitability of the company and therefore the business model of the comparable company is different than the assessee and hence it is required to be excluded. In view of this we do not find any reason to deviate from the order of the coordinate bench in assessee‟s own case for earlier years. Further, Hon....
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.... company has stated that during the year company‟s IT unit has started the engineering services to high rise buildings for clients in US and Canada. During the year this company also acquired the business of Cross Detailing inc. and engineering service company KPO located at Indiana, USA. The function of this company are based on engineering services which needs qualified engineers only and same is not comparable with the functions of assessee looking at the human resources employed by the assessee. Mostly its human resources asset demonstrates functions of the company. Further hon Delhi High court has held in case of Rampgreen Solutions Limited V CIT ( Supra) that Knowledge process outsourcing unit cannot be compared with Business process outsourcing unit on the logic that both employ different kind of human resources. Even otherwise its segmental revenue is not available qua the engineering services KPO and any other ITEs services. Therefore we direct the ld TPO to exclude this comparable. 37. The next comparable is Accentia Technologies Ltd which is objected to by the assessee. The above company is selected by the ld Transfer Pricing Officer and further 133(6) notices wer....
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....the assessee is E-clerx Services ltd. and the assessee is stated that this company provides high end KPO and therefore it is not comparable with the assessee who is ITES service provider. The assessee relied upon the decision of Hon'ble Delhi High Court in case of Rampgreen Solutions Ltd 60 Taxmann.com 355 (Del). 42. The ld DR vehemently objected that it is one of the most ideal comparable as both are doing the same work. He further referred that data analysis is the main function of this comparable which is also done by the assessee. Hence, he pressed for retaining the same. 43. We have carefully considered the rival contentions. The Hon'ble Delhi High Court in 377 ITR 533 in Rampgreen solutions Pvt. Ltd Vs. CIT, has specifically held that this comparable company is engaged in KPO services. Further, the special bench in case of Mersk Global Centre India Pvt. Ltd Vs. ACIT 147 ITD 83 has also held that the comparable is KPO and excluded this company. Therefore, respectfully following the decision of the Hon'ble Delhi High Court we direct exclusion of this comparable. 44. The next comparables objected are Mapple Solutions Ltd and Triton Corp Ltd wherein AR has stated t....
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....a process services and BPO services. Objection has been raised that the directors of the company were involved in a fraud. This company is a wholly owned subsidiary of Haryana Fibres Ltd., whose promoters were involved in fraud as per newspaper report and the CBI report. The TPO mentioned that according to CBI bulletin of December, 2008, it was reported that the Rastogi family cheated Government of India to the tune of Rs. 54.00 crore in late 1980s and mid 1990s. Rastogi brothers had floated 14 firms for the purpose of export of bicycle parts to Russia and Hong Kong. They were arrested by the FBI and U.K. authorities and sentenced to imprisonment for more than 9 years. However, the report nowhere contains the name of this company. According to the data available at Prowess Data Base, it is engaged in the business of call centre activities; it had set up 100% EOU and it holds registration under section 10B. In regard to the second mentioned company, it was submitted that it is engaged in two activities i.e., telecom sector and BPO sector. It is also a company of Rastogi group and, therefore, other objections are the same as in the case of first mentioned company. The TPO mentioned t....
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.... take their result for comparability. The assessee has placed before us the balance sheet for the year ended on 31.03.2007 which has been audited by the auditor certifying that annual accounts of the company are "true and fair‟. The Director responsibility statement in the Director‟s report also shows that the accounts of the company are prepared according to the applicable accounting standards approved by the ministry of corporate affairs and they are true and fair. On perusal of the profit and loss account also we did not find any impact of fraud on the financial statements including the significant accounting policy and notes on account. None has been pointed out by the ld counsel. In fact it has not been disagreed by the ld AR that this company is functionally not comparable. It is further required to be noted that both these comparables are selected by the tax payer in its TP study report considering them functionally comparable. This fact is evident from para No. 12 of the order of the ld Transfer Pricing Officer. Firstly in both the companies there is no fraud either against or by the company. Secondly there is no impact of any fraud committed before two decades ....
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....the data cleansing services and software development services as a single segment and therefore, segmental information are not available about software sales and software services. In view of absence of segmental information we are of the opinion that a software developer cannot be functionally comparable with a pure captive service provider. In view of this, we direct exclusion of Bodhtree Consulting Ltd from the comparability analysis. 51. The next comparable objected to by the assessee is Informed Technologies India Ltd submitting that it is functionally not comparable as it analyzed data on financial fundamental, corporate governance, director of executive compensation and capital market. It is further stated that it charges business development fee of 20% of the total cost and therefore its revenue model is also dismissed. we further relied on the decision of the coordinate bench in case of Cummins Turbo Technologies Vs. DCIT 53 Taxmann.com 492 (Pune) wherein, para No. 29 the above comparable were excluded. 52. The ld DR vehemently submitted that the comparable is functionally comparable and therefore, it cannot be excluded. 53. We have carefully considered the rival conten....
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....aken into consideration to find out whether the high profit margin represents the normal business trend. The FAR analysis in such case may be reviewed to ensure that the potential comparable earning high profit satisfies the comparability conditions. If it is found on such investigation that the high margin profit making company does not satisfy the comparability analysis and or the high profit margin earned by it does not reflect the normal business condition, we are of the view that the high profit margin making entity should not be included in the list of comparable for the purpose of determining the arm's length price of an international transaction. Otherwise, the entity satisfying the comparability analysis with its high profit margin reflecting normal business condition should not be rejected solely on the basis of such abnormal high profit margin." In terms of the aforesaid discussion of the Special Bench, it is quite clear that the concerns earning abnormal high profit margins cannot be excluded from the list of comparables unless appropriate investigations are made. It would be necessary to ascertain as to whether the high profit margins reflect a normal business ph....
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....onsideration of multiple year data of the comparable whereas the transfer pricing analysis is required to be done based on the singular financial year data i.e. financial year data of the comparables relevant to the year in which the international transactions have been entered into. In our considered opinion, the aforesaid plea of the Revenue is untenable having regard to the issue in question. No doubt, sub-rule (4) of rule 10B of the Income Tax Rules, 1962 (in short "the Rules") prescribe that the data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. So however, the aforesaid rule is not absolute inasmuch as proviso thereof permits use of the data relating to other years, subject to the condition that it reveals "facts which could have an influence" on the determination of transfer prices in relation to the tested transaction. We are only pointing out the aforesaid to say that the proposition being canvassed by the Revenue that data of the financial year in which the international transaction has been entered int....
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....vices. In view of this it is apparent that this company is functionally comparable with the assessee. Merely because the company uses one or two words while describing its functions cannot make it un-comparable. However, DRP vide its direction dated 17.12.2014 at page No. 9/29 while discussing the above comparable noted that annual report of the company is given to the assessee for financial year ending on 31.03.2009, instead of 2007, hence, the ld TPO was directed to provide annual report of March 2007. However, the ld TPO vide order dated 14.01.2015 giving effect to the order of the ld DRP has not provided this information and before us to the annual report of the above company was also for June FY ending and not for March ending. A comparable cannot be included in the comparability analysis for comparing the PLI of the assessee without having concise and precise publicly information about the comparable for same financial period. In the present case the comparable is following June as its accounting year, therefore, without having publicly available information about the comparable for the comparative accounting year of the assessee it cannot be selected as comparable. In view o....
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....aphies. We have a dedicated team of professionals who identify businesses which meet our strategic requirements and are cultural fit to Wipro. The following businesses have joined the Wipro family during the year 1. US based Quantcch Global Services LLC and the lndia based Quantcch Global Services Ltd. for a cash consideration, which includes upfront payment of approximately USD 3 milion. 2. CMango - Transactions consummated in April 2006 - US based CMango Inc and India based CMango Inc and India Private Limited for cash consideration which includes upfront payment of USD 20 mn. 3. urope based Retail Solutions Provider, Enabler. The consideration included upfront cash payment of approximately Euros 41 million. 4. Finland based Sarawarc Ov, for a cash consideration of approximately Euro 25 million. 5. Middle East and SAARC operations of 3D Networks and Planet PSG for a cash consideration of approximately USD 23 million. 6. In our Consumer Care and Lighting business we acquired North -West Switches business from North- West Switchgear Ltd., a company in the business of switches, sockets, MCBs etc. for an upfront cash consideration of Rs. 1,022 million. 7. In our Infrast....