AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 30
X X X X Extracts X X X X
X X X X Extracts X X X X
....riate acceptance of certain companies as comparable companies to the Appellant for AY 2012-13 Erred by concluding that certain companies are comparable to the ITeS rendered by the Appellant and hence, should be considered while computing the operating margins of comparable companies for arriving at arm's length price in relation to international transaction pertaining to ITeS. 3. Inappropriate rejection of certain companies as non-comparable to the appellant for AY 2012-13. Erred by concluding that Accentia Technologies Limited and Informed Technologies Limited are not comparable to the ITeS Tendered by the Appellant and hence, should not be considered while computing the operating margins of comparable companies for arriving at the arm's length price in relation to international transaction pertaining to provision of ITeS to its AEs. 4. Incorrect computation of working capital adjusted operating margins of companies for AY 2012-13 Erred in incorrectly computing the working capital adjusted operating margin of comparable for AY 2012-13 and thereby arriving at incorrect arm's length price and consequently incorrect transfer pricing adjustment to the intern....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... without considering the fact that adjustment to returned income is just on account of difference of opinion and consequently resulted in an adjustment to income. 12. Erred in levying interest under section 234B and section 234C of the Act Erred in levying interest under section 234B, and 234C of the Act, without considering the fact that the adjustment to returned income is due to difference of opinion. 3. The facts of the case are that the assessee is a company incorporated in India and is engaged in providing business support services and IT-enabled services to its associate enterprises (AEs). The case was referred to the Transfer Pricing Officer (TPO) by the Assessing Officer for determining the arm's length price (ALP) in relation to the international transactions entered into by the assessee with its AEs during the financial year 2011-12. The assessee is one of the associate concerns of the UAE Exchange Centre LLC Abu Dhabi. The assessee carried out international transactions with its AEs to the tune of Rs. 11,45,24,493/-. The assessee categorized the services rendered to its AEs into business support services and IT-enabled Services. The assessee has selected Cost P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as made TP adjustment at Rs. 1,77,48,707/-. Consequently, the draft assessment order was passed. 4.2 Aggrieved by the draft order, the assessee filed objections before the DRP. The DRP vide its direction dated 01/09/2016 enhanced the TP adjustment to Rs. 2,32,01,127/-. 5. Aggrieved by the action of the Assessing Officer, TPO and the DRP, the assessee is in appeal before us. The first ground is too general and does not require adjudication. In the second ground, the main grievance is with regard to the following comparables: i) Universal Print Systems Limited ii) Infosys BPO Limited iii) TCS E-Serve Limited 6. Regarding Universal Print Systems Limited, the Ld. AR submitted that this comparable does not satisfy one of the comparables compared by the TPO and hence it should be excluded from the list of comparables while determining the ALP of IT enabled services rendered by the assessee to its AEs. While conducting fresh search, the TPO applied employee cost filter of 25% i.e. companies having employee cost to sales less than 25% were rejected as comparable. It was further stated that the DRP also upheld the application of this comparable by the TPO. In this regard, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom the list of comparables. With this observation, we remit this issue to the file of the Assessing Officer for his fresh consideration in accordance with law after affording reasonable opportunity of hearing to the assessee. Hence this ground of appeal is allowed for statistical purposes. 6.2 Regarding Infosys BPO Limited, the Ld. AR submitted that this comparable is not comparable to the business operations of the assessee on account of the following: (a) Infosys BPO has significantly high turnover. It was submitted that the turnover of Infosys BPO is INR 1,312 Crores which is significantly higher than the turnover of the assessee for FY 2011-12 from ITeS i.e. INR 11.47 crores. The Ld. AR submitted that such giant company and scale of operations of Infosys BPO cannot be compared with the small and captive business of the assessee. (b) Infosys BPO has significant brand value and selling and marketing expenses. It was submitted that during FY 2011-12, Infosys BPO had incurred brand building and advertisement expenses amounting to INR 5.53 crores as against the assessee who had not carried out any brand building and advertisement activity since it was a captive service pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction of Infosys BPO The Ld. AR relied on the following key judicial precedents of Hon'ble High Courts and Hon'ble Tribunals wherein Infosys BPQ has been rejected as comparable to the IT enabled service providers on account of being a giant company, scale of operations, brand value associated with the company, highend nature of services and exceptional year of operations on account of acquisition of a company: 1) CIT Vs Pentair Water India Pvt. Ltd. (ITA 18/2015 dated 16/09/2015) -(Bombay High Court) 2) CIT vs. New River Software Services Private Limited (ITA No. 924/2016 dated 22/08/2017) (Delhi High Court). 3) Capital IQ Information Systems (India) Pvt. Ltd Vs DCIT (ITA No.l961/Hyd/2011 dated 23/11/2012)) - ITAT, Hyderabad Benches 4) Swiss Re Global Business Solutions India Private Limited Vs DCIT (IT(TP)A No. 2315/Bang/2016 dated 13/04/2017) - ITAT. Bangalore The Ld. AR submitted that in view of the above analysis, the AO/TPO be directed to exclude Infosys BPO from set of comparable companies. 6.2.1 The Ld. DR submitted that the assessee was engaged in remittance, money transfer, foreign exchange, bill payment etc. It was subm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... relationship management, etc and also access to a broader customer base to sell its high end services. According to the Ld. , the company is also paying significant brand equity contribution expenses of FNR 3.67 crores to TATA Sons Ltd and TCS Ltd for using the brand name 'TATA' and leveraging the same to secure business orders. Further, it was submitted that TCS, being a part of Tata Consulting Services Limited, has an element of brand value associated with it and the presence of brand commands premium price and the customers would be willing to pay any price for the services offered by such companies. According to the Ld. AR TCS is an established player and a leading company in the field of IT enabled services and TCS is enjoying dominating presence in market in term of economies of scale and diversity and geographical dispersion of customers. Hence it was submitted that TCS cannot be considered as comparable to the asst who is a captive service provider engaged in providing IT enabled services only to its AEs. (c) TCS is engaged in rendering high-end services: The Ld. AR submitted that TCS is engaged in rendering core business processing services, analytics/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ejection of M/s. Accentia Technologies as comparable. The only argument is with regard to the rejection of M/s. Informed Technologies India Ltd. as comparable. 7.1 The Ld. AR submitted that based on the fresh search conducted, the TPO included Informed Technologies India Ltd. as a comparable company to the IT enabled services rendered to AEs. The DRP rejected the assessee-company as a comparable on account of 'other revenue' being 46% of the total revenue. Even after giving due regard to the assessee's submissions, the Ld. AR submitted that the DRP proceeded to reject Informed Technologies India Limited on account of remarks by the Auditor: "Terms and conditions at which loan is granted by Informed to other company is prejudicial to the interest of the company as Informed has granted the loan interest free Informed does not have internal audit system in place". In this regard, the Ld. AR submitted that interest free loan granted by the company cannot be considered as prejudicial to the interest of the company since the same could be due to business and commercial expediency. It was submitted that without prejudice to the same, it is pertinent to note that even thou....