TaxTMI 
TaxTMI 
2018 (3) TMI 1198
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....Ld. CIT (A) is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the jurisdictional error of the Ld. Assessing Officer ("AO") whereby he did not record any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Act. 3. That on facts and circumstances of the case and in law, the Ld. CIT(A) erred in making an adjustment to the arm's length price of the Appellant's international transaction in the following manner:- a. Ld. CIT (A) erred in upholding rejection of the Appellant's TP documentation, / comparable companies and analysis thereof. b. The Ld. CIT (A) erred in permitting the use of unaudited data requisitioned by taking recourse to the provisions of Section 133(6) of the Act. The said action is in complete violation of the fundamental principles of natural justice as (a) information which was not available with the Appellant has been used; and (b) the Appellant was not given any oppor....
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....ogy Enabled back office support services relating to creation and maintenance of database of prospective employers and candidates who have sent their resumes to HSII. The taxpayer is to peruse information content in the resumes in accordance with the preset criteria developed by HSII and including the same into its database. 5. During the year under assessment, the taxpayer entered into international transaction with its Associated Enterprises (AE) as reported in a report under section 92CE of the Income-tax Act, 1961 (for short 'the Act') as under :- S.No. Description of the transactions Amount (in Rs.) 1 Database support and research services 16,64,21,910 2 Interest on inter-company loan 7,45,950 3 Reimbursement of expenses (paid/payable) 92,13,585 4 Reimbursement of expenses (received / receivable) 33,77,669 6. The taxpayer in its TP study applied Transactional Net Margin Method (TNMM) as Most Appropriate Method (MAM) with Operating Profit / Operating Cost (OP/OC) as Profit Level Indicator (PLI) to benchmark its international transactions. The taxpayer selected 10 comparables with weighted average margin of 14.28% as against tax....
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.... preset criteria developed by HSII and including it into search palace to which HSII global operations have the access and it does not own any intangible, it cannot be treated as a high end BPO. 12. Undisputedly, TNMM with OP/OC as PLI applied by the taxpayer for benchmarking its international transactions has been accepted by the TPO. So, the TPO after rejecting 5 of the comparables chosen by the taxpayer out of 10 comparables for its TP study introduced 15 new comparables after applying various filters finally selected 20 comparables having average mean 29.16%, which are as under :- Sl. No. Company Name Revenues (Rs. cr.) OP/TC (%) 1 Accentia Technologies Ltd. 50.48 44.50 2 Acropetal Technologies Ltd (seg) 20.80 35.30 3 Aditya Birla Minacs Worldwide 183.07 -0.55 4 Asit C Mehta 4.28 9.42 5 Caliber Point Business Solution Ltd. (seg) 53.13 10.97 6 Coral Hub (Vishal lnfo) 38.08 51.84 7 Cosmic Global 5.86 24.30 8 Crossdornain Solution Pvt. Ltd. 26.60 26.96 9 Datamatics Financial (BPO Div) 6.19 34.87 10 e4c (earlier known Nitanny Outsourcing) 2....
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....2010-11 (available at pages 83 to 87 of the convenience paper book). 17. Perusal of TP order at page 286 of the paper book shows that the Revenue of Accentia from ITES is 80.87%, hence passed 75% revenue filter applied by the TPO. 18. Perusal of the schedule forming part of the profit & loss account, available at pages 118 and 119 of the paper book, which is part of the annual report shows that sufficient segmental data to work out profits from ITES is not available. Furthermore, Accentia fails employee cost filter as it has incurred 11.23% of its revenue on employee cost vis-à-vis 54.40% of the taxpayer as against the threshold limit of 25% of the revenue. Complete details have been given by the taxpayer in its TP study available at page 390 of the paper book-2. 19. Furthermore, during the year under assessment, the taxpayer undergone extra ordinary events leading to 75% increase in its revenue because of mergers and takeovers which have been highlighted in the annual report available at page 116 & 117 of the paper book, the snapshot of which is reproduced as under for ready perusal:- * Acquired Thunga Software Pvt ltd. an 8-year old Medical Transcription ....
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....ought exclusion of Acropetal on ground of functional dissimilarity and also relied upon the case of Symphony Marketing Solutions India Pvt. Ltd. in IT(TP) A.No.1316/Bang/2912 for AY 2008-09 (available at pages 33 to 58 of the convenience paper book). 22. Undisputedly, Acropetal has two segments : one, ITES and another, engineering design services and TPO has taken engineering design service segment as a comparable to the taxpayer. 23. The ld. AR for the taxpayer drew our attention to Safe Harbour Rules notified by Department of Revenue, Central Board of Direct Taxes, relevant page 18 of the paper book, wherein engineering and design services have been considered as Knowledge Process Outsourcing. For facility of reference, relevant part of Safe Harbour Rules is reproduced as under :- "(g) knowledge process outsourcing services" means the following business process outsourcing services provided mainly with the assistance or use of information technology requiring application of knowledge and advanced analytical and technical skills, namely:- (i) geographic information system; (ii) human resources services; (iii) engineering and design service....
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....keting Solutions Pvt. Ltd. (supra). 27. Perusal of the information brought on record by the taxpayer from the website of the Cross Domain, available at pages 156 to 163 of the paper book, shows that Cross Domain is into combining extensive industry knowledge and advanced technical expertise to enable enterprises to realize significant return on investment; that Cross Domain has more than a decade of expertise in software development and delivery in payroll, HR and process automation/BPM domain; that Cross Domain solutions have enabled clients to reduce turnaround time, improve productivity and save on costs year after year and is offering solutions in software development & maintenance, software testing, infrastructure setup & management, consulting, architecture configuration & installation.. So, aforesaid profile of the Cross Domain shows that it is a KPO and also developing product suites for payroll processing services and as such is not a valid comparable vis-à-vis taxpayer which is a low end BPO. 24. So, when it is not in dispute that the taxpayer is a low end BPO, the Cross Domain being a high end KPO and into developing of product suites, it cannot be a suitabl....
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....of Safe Harbour Rules is reproduced as under :- "(g) knowledge process outsourcing services" means the following business process outsourcing services provided mainly with the assistance or use of information technology requiring application of knowledge and advanced analytical and technical skills, namely:- (i) geographic information system; (ii) human resources services; (iii) engineering and design services; (iv) animation or content development and management; (v) business analytics; (vi) financial analytics; or (vii) market research." 29. Furthermore, Eclerx also proved to have undergone extra ordinary event due to acquisition, extract of the relevant information of the annual report, available at page 121 of the paper book, proves that Eclerx has acquired UK based Igentica Travel Solutions Limited on July 27, 2007, which has provided Eclerx with a set of 28 large customers primarily in Europe, thus strengthening the company's presence in that geography. Acquisition also given an entry platform into new vertical viz. travel and hospitality besides consulting the company's position in retail and manufact....
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....CIT in ITA No.5637/Del/2011 for AY 2007-08. 33. When we peruse TP order, relevant pages 297 to 299 of the paper book, the taxpayer raised objection that HCL has failed related party transaction filter as well as it has having different financial year ending and the data obtained u/s 133 (6) is unreliable. However, the TPO has not disposed of all these objections. When apparently HCL has financial year from July 1 to June 30, it fails the filter not to adopt company having different financial year applied by the TPO himself. Furthermore, TPO has applied RPT filter. The taxpayer has given complete details of related party transactions carried out by the taxpayer at page 417 of the paper book which is 27.12% as against TPO's own filter of less than 25%. 34. Comparability of HCL for benchmarking the international transaction was examined in taxpayer's own case for AY 2007-08 (supra) and it was held to be an invalid comparable by returning following findings :- "29. Identical issue has come up before the coordinate Bench in Motorola Solutions India Private Limited (supra) wherein it is held that by applying the threshold limit of 15% of RPT transaction sufficient comparab....
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....fferent extracts from AR is extracted below:- * As per Page-5 of Annual Report- "We are progressing well towards our goal to be an innovation and IP-led geospatial solutions provider touching a/l core areas of the economy." Further, as per Page-6 of AR:- "your company is the exclusive Reseller for Navteq data for the Enterprise space in India Navteq is the world leader in navigable maps and sheet data" Further, as per Page-14 of AR - "Genesys is today one of India's fastest growing geospatial services and content providers The Company caters to the needs of consumer mapping, navigation, internet portals as well as infrastructure players Including state and local governments." Further, as per Page-16 of AR :- "Our capabilities 1. GIS Consulting, 2. 3D Mapping, 3. Navigation maps, 4. LiDAR. 5. Photogrammetry Remote Sensing services, 6. Utility Services, 7. Image Processing, 8. Surveying, 9. Business Geographies & Logistics, 10. Cadastral Mapping, 11 City Scape, 12 Telecommunications From the above, it is observed that the functionality of this company is significantly different from....
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....s BPO is a market leader in ITES vis-à-vis the taxpayer which is a captive service provider taking minimal risk as against Infosys BPO which is a full-fledged risk bearing company having diversifying business. So, we order to exclude Infosys BPO from the final list of comparables. VISHAL INFORMATION TECHNOLOGIES LIMITED (VISHAL) 42. TPO retained Vishal as a comparable on the basis of information u/s 133 (6) of the Act despite the objections raised by the taxpayer; that it is functionally different; that erroneous margins have been calculated by the TPO and relied upon the decision of taxpayer's own case for AY 2007-08 (supra), Symphony Marketing Solutions India Pvt. Ltd. (supra) and Rampgreen Solutions Pvt. Ltd. in ITA No.102/2015 for AY 2008- 09 (relevant paras 14 to 17, available at pages 42 to 46 of the convenience paper book) 43. Now, the taxpayer has sought exclusion of Vishal on grounds inter alia that it is functionally different and that it fails employee cost filter applied by the TPO. Perusal of page 138 of the annual report shows that Vishal has incurred expenditure on data entry charges and vendors payment as part of operating cost which is about 85.5....
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....ion of the companies viz. Wipro Infrastructure Engineering Limited, Wipro Healthcare IT Limited, Quantech Global Services Limited (subsidiary companies) with Wipro Limited, approved during the FY 2007-08 by the Hon'ble High Court of Karnataka and the Hon'ble High Court of Andhra Pradesh. 47. Wipro was ordered to be excluded by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 (supra) and in Symphony Marketing Solutions India Pvt. Ltd. (supra) on the ground that it has a significant brand value having high turnover and a market leader in its field whereas the taxpayer is a tiny company and having diversified business and huge expenditure on R&D. So, in view of what has been discussed above and following the decisions rendered by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 (supra) and in Symphony Marketing Solutions India Pvt. Ltd. (supra), we do not find Wipro as a suitable comparable, hence ordered to be excluded. GROUND NO.4 48. Ground No.4 qua initiation of penalty proceedings u/s 271(1)(c) of the Act being consequential in nature needs no specific findings. REVENUE'S APPEAL (ITA NO.496/DEL/2013) GROUNDS NO.1 ....
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....be and oils, paints, pet projects, consumer products etc.; and (ii) IT Division specialized in providing structural design and detailing services which could be categorized as structural engineering services. CIT (A) has also excluded this company as comparable on ground of abnormal growth which is 204% in FY 2006-07 with a CAGR of 113% for 3 years. 12. Assessee relied upon the decisions rendered by ITAT, Hyderabad Bench in the case of Capital IQ Information Systems (India) Private Ltd. (ITA No.1961/Hyd/2011) (available at pages 812 to 839 of the Paper Book-III, wherein comparability of Mold-Tek Technologies Ltd. has been examined with Capital IQ Information Systems (India) Private Ltd. (supra) and ITES company almost on identical ITES company. Coordinate Bench in Capital IQ Information Systems (India) Private Ltd. (supra) while taking into consideration the factum of merger from 01.10.2006 impacting results of the company and also that the activity of the company is functionally different, it being engaged in providing high end engineering consulting services and structural engineering consulting services which are in the nature of KPO services and that ....