TaxTMI 
TaxTMI 
2018 (4) TMI 705
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....disposed of by this consolidated order for the sake of convenience. 3. First, we shall take up the appeal relating to assessment year 2008-09. The assessee has raised the following grounds of appeal:- All the grounds of appeals are independent and without prejudice to each other 1. The learned AO and DRP erred in law and on facts in disallowing depreciation of Rs. 2,26,62,278/-; on the payment made for acquiring "Right to Render BPO Services" to Cummins Inc., USA though considered as a depreciable asset by the appellant. 2. The learned AO and DRP erred in law and on facts in holding that the Right to Render BPO Services" is not an asset which diminishes in value over a period of time. 3. The learned AO and DRP erred in law and on facts in not allowing entire payment of Rs. 20,18,75,000 (5 Million USD) for acquisition of Right to Render BPO Services" as deductible expenditure u/s 37(1). 4. The learned AO, TPO and DRP erred in law and on facts in determining, u/s 92CA, the Arm's Length Price (ALP) of international transaction of Software Services by the appellant to its Associated Enterprise, at Rs. 36,60,61,947 instead of Rs. 30,37....
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....at it had entered into a tripartite agreement with Cummins Inc and KPIT Cummins Infosystems Ltd. for obtaining Right to Render Business process outsourcing services to Cummins group entities globally. This agreement was effective from 11.04.2007 and was for a period of 60 months. As per terms of agreement, the assessee company made payment of USD 5,00,000 i.e. Rs. 2067.32 lakhs on 27.09.2007 as consideration to secure the Right to Render such business process outsourcing services. As per the assessee, the payment met the recognition criteria of intangible assets under AS-26 of ICAI and hence, during the year the addition to the intangible assets of Rs. 2067.32 lakhs was made. The payment was amortized over the remaining period of agreement i.e. over a period of 54 months and therefore, the charge to the Profit and Loss Account during the instant assessment year was Rs. 229.71 lakhs. The Assessing Officer asked the assessee to prove how the said expenditure was intangible asset and how it attracted section 32(1)(ii) of the Act as it was neither know-how, patent, copyright, trademark, license, franchise nor any other business or commercial right or similar nature. In reply, the asses....
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....was not clear that from where the assessee had extracted the amount as the real amount was Rs. 229.71 lakhs. In view thereof, depreciation allowance of Rs. 2,26,62,278/- claimed by the assessee on intangible assets was disallowed and added back to the returned income. 6. The Dispute Resolution Panel (DRP) admitted that payment of sum against business rights was not disputed by the Assessing Officer. It was also not disputed that the said payment was for acquiring right to carry on business by the assessee since only after the said payment, the assessee was authorized to carry on BPO activity for Cummins and its associated entities. The DRP thus, held that payment was capital in nature as it was incurred before the said business activities commenced. The claim of depreciation under section 32(1)(ii) of the Act was thus, denied. The Assessing Officer thus, passed final assessment order and made an addition of Rs. 2,26,62,278/- 7. The assessee by way of grounds of appeal No.1 and 2 has raised the issue of claim of depreciation on the aforesaid payment made for acquiring right to render BPO services to Cummins in USA. Vide ground of appeal No.3, the assessee has raised alternate ....
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....nds of assessee and there is increase in total income of assessee, then the assessee is entitled to claim the deduction under section 10A of the Act on higher income so assessed in the hands of assessee. In this regard, he placed reliance on the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. (2010) 194 TAXMAN 192 (Bom). 9. The learned Departmental Representative for the Revenue referring to the order of Assessing Officer pointed out that he denied depreciation on intangible assets as no classification was available. He referred to page 14 of Paper Book-II in para 1.5 and pointed out that there was no clarity of what was the nature of asset. He also referred to AS-26 of ICAI and pointed out that intangible assets should be identifiable. 10. In rejoinder, the learned Authorized Representative for the assessee pointed out that the assessee itself had classified it as intangible asset as under the said commercial rights, business was given to the assessee. He further placed reliance on the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. (supra) and Mumbai Bench of Tribunal in Skyline Caterers (P)....
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....icer denying the claim of depreciation observed that at best what was paid was goodwill. After passing of the order of Assessing Officer and DRP, the Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd. (2012) 348 ITR 302 (SC) has held that goodwill was an intangible asset under section 32(1)(ii) of the Act covered with expression 'any other business or commercial rights of similar nature'. The Hon'ble Supreme Court also held the assessee entitled to claim the depreciation on such goodwill. 13. The learned Authorized Representative for the assessee has pointed out that in assessment year 2008-09, the decision of the Hon'ble Supreme Court was not available. However, the same was available in assessment year 2009-10 and it was relied upon by the assessee before the Assessing Officer and the DRP, but the plea of assessee was rejected. However, in assessment year 2010-11, similar plea was raised before the Assessing Officer and thereafter, before the DRP. Vide order dated 17.11.2014, the DRP held the assessee eligible to claim depreciation on the said consideration paid being intangible asset, covered by the ratio laid down by the Hon'ble Supreme Court in CIT Vs. S....
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.... the total value of arm's length price should be determined at Nil since the assessee had charged maximum and if it charges more than that, then losses of associated enterprises would go up. In this regard, reliance was placed on the ratio laid down by the Delhi Bench of Tribunal in Interra Infotech (India) (P.) Ltd. Vs. ITO (2016) 66 taxmann.com 3 (Delhi - Trib.). The connected issue which was raised was the selection of comparable. The learned Authorized Representative for the assessee in this regard pointed out that the assessee was aggrieved by selection of concerns Coral Hub Ltd. and Crossdomain Solutions Ltd., since they were not functionally comparable. In respect of Coral Hub Ltd., the learned Authorized Representative for the assessee pointed out that it was engaged in e-publishing, whereas the assessee was providing ITES support services to its associated enterprises. In this regard, he placed reliance on the ratio laid down by the Pune Bench of Tribunal in BNY Mellon International Operations (India) (P.) Ltd. Vs. ACIT (2014) 52 taxmann.com 306 (Pune - Trib.) and Cummins Turbo Technologies Ltd. Vs. DCIT (IT) (2015) 53 taxmann.com 492 (Pune - Trib.). In respect of Cros....
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....ee. Our attention was also drawn to the activities of assessee in para 3 of order of TPO and it was pointed out that they were mixed. In respect of Coral Hub Ltd., the learned Departmental Representative for the Revenue pointed out that it was engaged in e-publishing and was functionally comparable to the assessee. Similarly, Mapple eSolutions Ltd. was both in IT and ITES segment and was comparable to the assessee. In respect of Genesys International Corporation Ltd. and Crossdomain Solutions Ltd., the learned Departmental Representative for the Revenue pointed out that the activities were similar to the assessee. In respect of concern showing losses, the case of Revenue was that whether they are persistent loss making or not, was not verified by the TPO. 21. The learned Authorized Representative for the assessee in rejoinder pointed out that Triton Corporation was fraudulent company and the financials of said concern could not be picked up for comparison. 22. We have heard the rival contentions and perused the record. The assessee was offering skills and rule based services i.e. transaction processing, finance & accounting, HR processing, etc; technology based services e.g. ....
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....al Hubs Ltd. (Earlier known as Vishal Information Technologies Ltd.) 51.79 7 Crossdomain Solutions Ltd. 27.59 8 e4e Healthcare Solutions Ltd. (Formerly known as Nittany Outsourcing Services Pvt. Ltd.) 19.38 9 Maple eSolutions Ltd. 20.67 10 Genesys International Corporation Ltd. 48.12 Total 242.82 Arithmetic Mean 24.28 23. The mean margin of said concerns worked out to 24.28% as compared to re-working of margins of assessee at 15.51% and worked out the adjustment of Rs. 4,11,11,716/-. The Assessing Officer in the draft assessment order proposed the said adjustment to the arm's length price of international transactions. The assessee filed objections to the DRP. The DRP directed that the action of TPO / Assessing Officer was appropriate except to consider segmental accounts of Maple eSolutions Ltd. and Triton Corporation Ltd. The TPO thus, modified the margins of Maple eSolutions Ltd. and Triton Corporation Ltd. after the directions of DRP and the TP adjustment was re-calculated at Rs. 6,23,37,926/- as against earlier adjustment of Rs. 4,11,11,716/-. An opportunity of hearing was granted to the assess....
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.... we find that in the present appeal, the Assessing Officer / TPO have applied segmental data after the directions of DRP and hence, this point is decided against the assessee. However, we direct the exclusion of Triton Corporation Ltd. and Maple eSolutions Ltd. on the ground that the said concerns are fraud companies / under indictment, as the case may be. 25. Next, we take up the plea of assessee in respect of Coral Hubs Ltd. The said concern has been held to be engaged in e-publishing business and hence functionally not comparable to a concern providing ITES services. The said ratio has been laid down by the Pune Bench of Tribunal in the case of Cummins Turbo Technologies Ltd. Vs. DCIT (IT) (supra) relating to assessment years 2007-08 and 2008-09 and also in BNY Mellon International Operations (India) (P.) Ltd. Vs. ACIT (supra) in assessment year 2008-09. Following the same parity of reasoning, we hold that the concern which is engaged in e-publishing is not comparable to the present assessee before us, which is engaged in providing ITES services to its associated enterprises. Hence, the same is to be excluded from final set of comparables. 26. The next concern which the as....
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.... the following Tabulation which brings out the difference between e-learning activities carried out by the assessee and the KPO activities carried out by the said concern :- E-learning KPO The assessee provides low-end IT enabled services in the form of e-learning solutions. KPO is a form of outsourcing, in which knowledge-related and information-related work is carried out by the service providers. E-learning solutions services provided by the assessee are not very complex in nature and thus do not require highly skilled professionals to perform the functions. Unlike the outsourcing of manufacturing or routine software services, this typically involves high-value work carried out by the highly skilled staff. E-learning solution provides cannot earn high margins of profits since they primarily derive their revenue from performing functions that are not exclusively provided by them and have close substitutes in the market. Most firms providing Knowledge processing possess exclusive information, knowledge and experience which cannot be found in most of their competitors. Thus, they tend to command higher margins of profits. Low-end IT enabled service provid....
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....vs. DCIT (supra), in assessment year 2009-10 had excluded the said concern as comparable by observing as under :- "12. Another plea raised by the assessee is for exclusion of Crossdomain Solutions Ltd. from the final set of comparables. In this regard, assessee canvassed before the TPO that the said concern was functionally not comparable to the activity of IT enabled services being carried out by the assessee. It was pointed out by the assessee before the TPO that the said concern was involved in various activities which involved outsourcing, human resources, insurance, healthcare/accounting and consulting, business excellence, market research/analysis and IT services. It was pointed out that the above functions being performed by the said concern were not comparable to the activity of an IT enabled service provider undertaken by the assessee. It was also canvassed that there was no segmental profitability available from the Annual financial statement of the assessee and the said concern was not a comparable concern on the entity level. The TPO has rejected the plea of the assessee on similar grounds as taken by him for rejecting the assessee‟s plea for exclusion of....
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.... concern was engaged in providing geographical information services comprising Photogrammertry, Remote Sensing, Cartography, Data conversion and related computer based services. As noted by the Pune Bench of Tribunal in Vistcon Engineering Center (India) (P.) Ltd. Vs. ACIT (supra), since the concern is engaged in activities which are not functionally comparable to the assessee, the same cannot be included in the final set of comparables. We direct the Assessing Officer / TPO to exclude Genesys International Corporation Ltd. from final set of comparables. 29. Now, coming to the next set of comparables which have been rejected by the TPO on the ground that they are loss making concerns. The plea of assessee before us is that since the said concerns were not persistent loss making, hence the same cannot be excluded. 30. The learned Departmental Representative for the Revenue in this regard pointed out that the said aspect i.e. whether the said concerns were persistent loss making or not, had not been verified by the TPO. In case the concerns were persistent loss making, then the same are to be excluded from final set of comparables. However, if the concerns are not persistent lo....
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....sfer Pricing related Issue 2.1 The learned AO / TPO/ DRP erred in law and on facts in determining the Arm's Length Price (ALP) of international transaction u/s 92CA of BPO Services by the appellant to its Associated Enterprise, at Rs. 49,03,45,096 instead of Rs. 45,77,02,481; thereby making an addition of Rs. 3,26,42,615. The learned AO, TPO and DRP ought to have appreciated that such high pitched addition is totally illogical considering the fact that the AE company has only retained Rs. 3.12 Crores from the end customers invoicing on gross basis. 2.2 The learned AO / TPO/ DRP erred in law and on facts in determining the Arm's Length Price (ALP) of international transaction u/s 92CA, of BPO services by adopting a mark-up of 23.45% over costs instead of the appellant's earned mark up of 16.16% on cost on entity level. 2.3 The learned AO / TPO/ DRP erred in law and on facts in determining the Arm's Length Price (ALP) of international transaction of BPO services by adopting a mark-up of 23.45% over costs at the entity level instead of international transactions with AEs which required to be benchmarked. 2.4 The learned AO / TPO / DR....
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....cern was engaged in e-publishing. Referring to the directions of DRP in para 2.2.4.5 at page 12 of the order, it was pointed out that the DRP had accepted Crossdomain Solutions Ltd. to be engaged in providing high end KPO services and had directed its exclusion but the said concern was retained by the TPO and hence, both the assessee and the Revenue are in appeal. The learned Authorized Representative for the assessee also pointed out that the Revenue is in appeal for exclusion of Crossdomain Solutions Ltd. and inclusion of Sparash BPO Ltd. 37. We have heard the rival contentions and perused the record. The issue arising in the present appeal is against transfer pricing adjustment made in the hands of assessee, wherein the TPO on analysis of functional comparability of various concerns had drawn up final set of comparables, which read as under:- Sr. No. Name of Comparable OPTC 1 Aditya Birla Minacs Worldwide Ltd. -2.75% 2 Informed Technologies India Ltd. 32.98% 3 Omega Healthcare Management Services Pvt. Ltd. 15.43% 4 Cosmic Global Ltd. 40.61% 5 ICRA Online Ltd. 16.92% 6 Coral Hubs Ltd. 34.06% 7 Crossdomain Sol....