TaxTMI 
TaxTMI 
2016 (8) TMI 1321
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....export turnover but not from the total turnover; Transfer Pricing Related General 2. The A O in pursuance of the directions of the Dispute Resolution Panel erred in law and on facts in making addition of Rs. 1,61,618/- to the total income made on account of adjustment in the Arm's Length Price of the International Transaction with the Associated Enterprise by disregarding the economic analysis undertaken by the Appellant and by substitution by the Transfer Pricing Officer of his own economics analysis even though the intention to shift the profit base out of India cannot be attributed to the Appellant being a beneficiary of sec. 10A of the Income-tax Act; 3. The AO in pursuance of the directions of the DRP erred in law and on facts by suing Single Year Data pertaining to FY 2005-06 and also by rejecting certain filters adopted by appellant such as rejection of comparables having turnover less than Rs.l crore, comparables having economic performance contrary to the industry behavior such as diminishing revenue trend and comparables having different accounting years; 4. The AO in pursuance of the directions of the DRP erred in law and on facts by accepting some com....
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....lower authorities for exclusion out of final set of comparables); iv. Vishal Information Technologies Ltd. even though the same should have been excluded as comparable on the ground of being functionally dissimilar with different business models having significant outsourcing activities wherein the Employee Cost incurred is in significant as compared to Operation Cost. (Additional Ground filed separately as this comparable was part of assessee 's own set of comparables); v. Goldstone Infratech Ltd. even though the same should have been excluded as comparable on the ground of being functionally dissimilar as per its own accord it is engaged in providing infrastructure on lease basis and provision of call center supports services besides having diminishing revenue in BPO segment; vi. Apex Knowledge Solutions Ltd. even though the same should have been excluded as comparable on the ground of being functionally dissimilar with different business models having significant activities in the business of e-publishing not in commensuration with that of the assessee. COMMON GROUND 10. The AG in pursuance of the directions of the DRP erred in levying intere....
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....over in the numerator and the denominator cannot be different. Therefore, though there is no definition of the term 'total turnover' in section 10A, there is nothing in the said section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the Legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes export turnover, the very same meaning given to the export turnover by the Legislature is to be adopted while understanding the meaning of the total . turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the L....
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....o grounds. Accordingly, these grounds are dismissed for want of any specific argument. 8. Ground No.7 is regarding directions of the DRP for adding reimbursement transaction to both operating revenue and operating cost for the purpose of TNMM analysis. 9. At the time of hearing, the learned AR of the assessee has stated that the assessee does not want to press this ground and the same may be dismissed. 10. The learned DR has raised no objection if this ground of appeal is dismissed being not pressed. 10.1 Accordingly ground No.7 of the assessee appeal is dismissed being not pressed. 11. Ground Nos.5, 6, 8 and 9 is regarding comparability of certain companies included by the TPO in the set of comparables and consequential transfer pricing adjustment. 12. The assessee is a company incorporated under the Companies Act, 1956 and is wholly owned subsidiary of Akamai Technologies Inn., USA. The assessee provides back office support services and related IT enabled services (ITES) to its AE, which includes voice based support services, voice/non-voice based technical support services, invoice processing, accounts receivables and collection processing. The assessee is remu....
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.... 28.62 3 Datamatics Financial Services Ltd. (Seg.) 2.31 24.99 0 24.99 4 Transworks Information Services Ltd. 163.3 19.56 0 19.56 5 Cosmic Global Ltd (Seg.) 3.11 16.03 0 16.03 6 Vishal Information Technologies Ltd. 25.64 48.03 0 48.03 7 Asit C Mehta Financial Services Ltd (Earlier known as Nucleus Netsoft & GIS (India) Ltd., 5.68 31.52 0 34.52 8 Goldstone Infratech Ltd. (Seg.) (Earlier known as Goldstone Teleservices Ltd) 5.03 29.01 0 29.01 9 Spanco Ltd (Scg.) (Earlier known as Spanco Telesystems & Solutions Ltd.,) 82.32 20.86 0 20.86 10 Ace Software Exports Ltd. 4.97 7.72 0 7.72 11 Apex Knowledge Solutions Pvt. Ltd., 4.92 20.48 0 20.48 12 R Systems International Ltd (Seg.) 9.17 15.11 0.01 15.24 13 Flextronics Software Systems Ltd., (Seg.) 21.41 14.54 0.07 14.91 Average 24.00 24.28 16. Thus, the TPO computed the average PLI at 24% and after granting working capital adjustment. The adjusted average margin was computed at 20.03%. In the fi....
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....10] 38 SOT 307 and submitted that even if the assessee has taken a particular company as comparable in the TP study, the assessee is entitled to point out before this Tribunal that the said enterprise has wrongly been taken as comparable. 21. On the other hand, the learned Departmental Representative has submitted that when the assessee selected these companies as comparables in the TP study, the assessee cannot be permitted to raise the objections against the comparability of those companies. He has further submitted that if the objections raised by the assessee is accepted then it will reverse the entire process of determination of ALP conducted by the TPO. He has further contended that neither the assessee nor the TPO has applied any employee cost filter therefore at this stage, the assessee cannot be allowed to raise such an objection which requires investigation of new facts in respect of the companies selected by the TPO as well as by the assessee. 22. We have considered the rival submissions as well as the relevant material on record. As regards the objections raised by the assessee against the companies namely Vishal Information Technologies Ltd., and Nucleus Netsoft ....
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....ofit and has a huge turnover, besides differences in assets and other characteristics referred to by Shri Aggarwal. The Tribunal is a fact-finding body and, therefore, has to take into account all the relevant material and determine the question as per the statutory regulations. " "38 Accordingly, on facts and circumstances of the case, we hold that taxpayer is not estopped from pointing out that Datamatics has wrongly been taken as comparable. While admitting additional ground of appeal raised by the assessee to require us to consider whether or not Datamatics should be included in the comparable, we make no comments on merit except observing that assessee from record has shown its prima facie case. Further claim may be examined by the AO. This course we adopt as objection to the inclusion of Datamatics as comparable has been raised now and not before Revenue authorities. Therefore, we deem it fit and proper to remit the matter to the file of the AO for consideration of claim of the taxpayer and make a de novo adjudication of the ALP after providing reasonable opportunity of being heard to the assessee. We order accordingly.' 23. Thus in view of the matter that the funct....
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.... of the Income-tax Act, 1961" showed one major transaction with Datamatics Limited towards 'Reimbursement of expenses' at Rs. 99.14 lakh. The learned AR contended that the transactions of Datamatics Financial Services Limited with other AEs amounted to Rs. 14.31 lakh making total of transactions with the AEs at Rs. 1.13 crore. It was submitted that the percentage of transaction with related parties is much more than 25%, being, the filter adopted by the TPO himself and hence the same should be excluded. 12. In the opposition, the learned Departmental Representative contended that the major transaction of Rs. 99.14 lakh of Datamatics Financial Services Limited with Datamatics Limited was towards 'Reimbursement of expenses'. Since the reimbursement of expenses does not include any profit element, the Id. DR urged that the same be excluded. He stated that once this transaction is excluded, the other transaction of Rs. 14.31 lakh are less than 25% of the total transaction with related parties. 13. We do not find any force in the contention advanced by the learned Departmental Representative for the exclusion of transactions with Datamatics Limited towards 'Rei....
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....direct the TPO to exclude this company from the list of comparables adopted." 28. As it is clear that the coordinate bench has taken the view that for the purpose of considering the related party transactions, the definition of international transactions within the meaning of sec. 92B are to be considered. By following the earlier decision of the co-ordinate bench, we direct the AO/TPO to exclude this company from the set of comparable. Maple e-Solutions Ltd.:- 29. The learned AR of the assessee has submitted that the comparability of this company has been examined by this tribunal in the case of Goldman Sachs Services (P.) Ltd. (supra) and therefore, this company cannot be considered as comparable. In support of his contention, he has relied upon the decision of co-ordinate bench in the case of NETTAJ India Ltd. v. Dy. CIT in IT Appeal No. l480 of 2010 as well as Haliba Technology India (P.) Ltd. v. ITO in IT Appeal No. 1179 of 2010 and submitted that consistent view has been taken by this tribunal in respect of this company. 30. On the other hand, the learned DR has submitted that the comparability of this company has been examined by this tribunal in the assessee'....
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....yee is less than 2% of the total cost, therefore, this company is out sourcing its business activity for which the out sourcing cost is 88.64% of the total cost. In support of his contention he has relied upon the decision of the co-ordinate bench in the case of Goldman Sachs Services (P.) Ltd. (supra). 34. On the other hand learned DR has submitted that when the TPO has not applied any filer as employee cost than this objection cannot be considered as relevant factor for exclusion of this company in the list of comparable. II. Asit C Mehta Financial Services Ltd., 35. The learned AR of the assessee submitted that this company functionally is not comparable with the assessee as it has outsourcing a significant portion of its business as the employee cost of this company is 31.372% of the total cost and outsourcing cost 24.75% of the total costs. Therefore as further contended that there was extra ordinary event of amalgamation with Nucleus Securities Ltd., reported in annual report of this company w.e.f 1/4/2005 which is relevant to the asst. year under consideration. He has relied upon the decision of the co-ordinate bench of this tribunal in the case of Goldman Sachs Ser....
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....h of this tribunal in case of Goldman Sachs Services (P.) Ltd. (supra) in para 13.4.1 to 14.3.2 as under:- '13.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncement relied on by the assessee. We find that the co-ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra) after considering the comparability of the above five companies to companies rendering ITES to its AEs as in the assessee in the case on hand, has excluded them from the list of comparables holding a under at paras 24 and 25 of its order:- "24. We have considered the rival submissions. As far as comparable companies chosen by the TPO at S. No. 1, 3, 6, 7 & 8 viz., Maple ESolution Ltd., Datamatics Financial Services Ltd., Vishal Information Technological Services Ltd., Asit C. Mehta Financial Services Ltd., and Gold Stone Infratech Ltd., in the list of comparable companies chosen by the TPO, we find that the Hyderabad Bench of the ITAT in the case of HSBC Electronic Data Processing India Ltd. v. ACIT, ITA No. 1624/Hyd/2010 by order dated 28.6.2013 considered comparability of these companies in ....
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....s a comparable and has to be excluded. 9.1 The learned Departmental Representative, however relied on the orders of the TPO. 9.2 After considering the rival contentions, we find considerable force in the contentions advanced by the learned counsel. There is no dispute with reference to the fact that most of the cost incurred by the company taken as comparable is outsourcing cost, as can be seen from the Annual report placed in the paper-book and ITAT, Mumbai in the case of Maersk Global Service Centre (supra) has analysed and rejected this company as comparable, due to the reason that it has outsourced a considerable portion of its business and it is functionally different. This factor was also approved by the DRP in assessee's own case in the later year, as can be seen from the copy of the order placed on record, for assessment year 2008-09. In view of this, we direct the Assessing Officer to exclude this company from the list of comparables. Goldstone Infratech Ltd 10. The assessee's objection for inclusion of this comparable is on the basis of the filter on foreign exchange earnings, diminishing revenue filter and functionality, being run on lease basis. It w....
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....T exceeds 25% of the sales and therefore, to be excluded. The assessee relied on the decision of the coordinate Bench of the Tribunal (Mumbai Bench) in the case of Stream International Services (supra), wherein, wherein with reference to this comparable company, it was held as under: "11. The first is M/s. Datamatics Financial Services Limited. It can be observed that the TPO applied filter of "Companies with less than 25% related party transactions ". The learned Counsel for the assessee took us through the Annual accounts of Datamatics Financial Services Limited, and submitted that the gross income of this company for the year ending on 31.03.2006 was at Rs. 2.31 crore as against total expenses of Rs. 1.84 crore. Referring to pages 319 and 320 of the paper book, our attention was drawn towards Annexure-2 to demonstrate that the "Transactions with the Associated Parties within the meaning of sections 92A and 92B of the Income-tax Act, 1961" showed one major transaction with Datamatics Limited towards 'Reimbursement of expenses' at Rs. 99.14 lakh. The learned AR contended that the transactions of Datamatics Financial Services Limited with other AEs amounted to Rs. ....
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....y to the clear intention and the language of the relevant provisions. A pure reimbursement of expenses by one AE to another AE is very much a 'transaction' as per section 92F(v) and consequently is equally an international transaction as per section 92B requiring consideration as per section 92 of the Act. Be that as it may, the learned Departmental Representative could not demonstrate the fact that such reimbursement of expenses was without any markup. As the so called comparable case of Datamatics Financial Services Limited was included by the TPO in the final list of comparables, in our considered opinion, the same is liable to be excluded as it involves related party transactions at much higher level, as against the filter adopted by the TPO himself being companies with less than 25% related party transactions. We order accordingly." In view of the above, since this company fails in this filter adopted by the TPO, we direct the TPO to exclude this company from the list of comparables adopted Maple e-Solutions Ltd. 12. The objection of the assessee with reference to this company is with regard to the financials of the company, on the ground of unreliability of data....
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....ges is also to the extent of Rs. 1.04 crores, which indicates that the assessee is outsourcing the work. Accordingly, it cannot be selected as a comparable. Due to amalgamation during the year, the assessee's business model has changed and because of employee cost filter also, this comparable has to be excluded. 13.1 After considering the rival submissions, we are of the opinion that this company cannot be selected as a comparable not only on the reason of failing employee cost filter, but also due to amalgamation during the year, which has changed the business model of the company. 14. In view of the foregoing discussion, we agree with the assessee's objection that the above five comparables should be excluded. 25. The facts and circumstances and the Assessment year for which the aforesaid companies were not considered as comparable are identical to the case decided by the Hyderabad Bench of ITAT and that of the case of the Assessee. Respectfully following the decision of the Hyderabad Bench of ITAT, we direct the TPO to exclude the aforesaid companies from the list of comparable while arriving at the arithmetic mean of comparable. The relevant grounds of appeal o....
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....nsidered the submission of the learned counsel for the Assessee. We find that in the case of Google India Pvt. Ltd. (supra), this tribunal in the case of TP adjustment in IT enabled services segment of an Assessee for AY 06-07 considered the comparability of the company Ms. Apex Knowledge Solution Pvt. Ltd. in the IT Enabled Services segment. The tribunal in para-16 of its order held that the said company is not functional comparable as it provides services such as E-publishing knowledge based services etc. In view of the above, we direct the TPO to exclude the aforesaid company also from the final list of comparable companies for the purpose of determining the ALP." 14.3.2 Following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra), for Assessment Year 2006-07, we hold and direct that this company, namely, Apex Knowledge Solutions Pvt. Ltd. be excluded from the list of comparables for the ITES segment of the assessee in the case on hand.' 42. As regards, the employee cost as well as outsourcing cost in case of Asit C Mehta Financial Services there is no dispute that this company is outsourcing part ....
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....4 companies from the list of comparables. 45. The next grievance of the assessee is that the TPO has not considered foreign exchange gain as part of the operating profit. 46. We have heard learned AR as well as learned DR. and considered relevant material on record. The learned AR has relied upon the decision of the co-ordinate bench of this tribunal in the case of SAP Labs India (P.) Ltd. v. Asstt. CIT [2011] 44 SOT 156 (Bang.). 47. On the other hand learned DR has relied upon the orders of the authorities below. 48. Having considered the rival submissions, we are of the considered view that the foreign exchange gain or loss arising from the export turnover realization would be part of the operating profit of the assessee as well as the comparable company. Therefore, foreign exchange fluctuation income arising from the sales realization cannot be excluded from the operating profit for the purpose of determining arms length price. However rule of parity has to be maintained by considering the gain or loss on account of foreign exchange fluctuation in the cases of comparable also. This view has been supported by the decision of the co-ordinate bench of the tribunal in th....