TaxTMI 
TaxTMI 
2016 (2) TMI 1162
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..... Ltd. (hereinafter referred to as 'the assessee') by filing the present appeal sought to set aside the impugned order dated 18.12.2012 passed by Ld. Ld. CIT(A) XX, New Delhi qua the Assessment Year 2008-09 on the grounds inter alia that: "1. That on facts and in law, the learned Commissioner of Income tax Appeals XX ("CITA) and the learned Addl Commissioner of Income tax, Transfer Pricing Officer - 11(3) and the learned Deputy Commissioner of Income tax, Circle 16, New Delhi ("AO") have erred in using single year data of companies without considering the fact that the same was not available to the Respondent at the time of complying with the transfer pricing documentation requirements and disregarding the Respondent's claim for use of multiple year data for computing the arm's length price. 2. That on facts and in law, the TPO/AO has cherry picked comparables and gave no cognizance to business profile of the Respondent and various comparability criteria before either. accepting or rejecting companies as comparable companies. 3. That on facts and in law, the TPO/AO have failed to make appropriate adjustments to account for varying risk profiles of the Respondent vis....
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....out by adopted weighted average for the current year and the immediately preceding two years and thereafter, the arithmetic mean of weight average has been taken for computation of ALP. PLI and comparable has been arrived at by considering the data for the Assessment Years 2005-06, 2006-07 and 2007-08. 10. TPO after examining 15 comparables selected by the assessee as well as submissions made before him, found comparables in 8 companies out of 15 comparables taken by the assessee and finally selected 15 comparables tabulated at page 16 of his order by highlighting their OP/TC percentage. For ready reference, 15 finally selected comparables are tabulated as under: S. No. Name of the company OP/TC % 1 Aditya Bila Minacs Worldwide Ltd. 0.55 2 BNR Udyog Ltd. (Seg) 39.22 3 Caliber Point Business Solutions Ltd., 10.97 4 Cosmic Global Ltd. 24.3 5 Crossdomain Solutions Pvt. Ltd., 26.96 6 Datamatix Financial Ltd. (BPO division) 34.87 7 Eclerx Services Ltd. 66.25 8 Genesys International Corporation Ltd. 51.91 9 ICRA Ltd. (seg) 11.22 10 I Service India Pvt. Ltd. 10.92 11 Maple E Solutions Ltd. 20.73 12 Mold Tek Technologies Ltd. 106.82 13 R Systems In....
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....sessee, available on the record, which has been incorporated in the TPO order. A perusal of the master service agreement dated 01.10.2003 valid for the year under assessment available at pages 263 to 276 of the Paper Book shows that assessee company is engaged in providing electronic publishing services for any media format, including web, online database, e-books or even wireless devices. TBES specializes in provision of technical servsics such as data conversion, web page construction, data entry / keyboarding New Delhi software development. TBES will provide such services to the Company, where and when requested. Under the agreement, the assessee has undertaken its stand and included services described in exhibit which statement of work embodying the terms and relationship between the assessee and Tech Enterprises Inc. Para 2 of the Exhibit A clarifies that the assessee is responsible for providing services described in para 3 which reads as under: "The nature of work that Techbooks International Pvt. Ltd. performs is electronic publishing and pre press services including print ready files to printers and electronic deliverables for on-line publishing, in addition to serving t....
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.... which includes Rs. 1.33 crores in the segment of medical transcription. TPO further stated that as per AS-18 at page 33 of the Annual Report explaining the related party's transactions during the year under consideration. There were purchases, sales and services with enterprises having common management personnel at Rs. 14.97 crores and as such this is not a related party transaction. On the other hand, Ld. CIT(A) by giving general observations, without going into any evidence, relied upon by the TPO, held that in view of abnormal RPT, this company cannot be taken as a comparable company. We are of the considered view that when the assessee has raised objection to the inclusion of this company as comparable company on the ground that it's RPT is 75%, which was required to be decided by examining the RPT percentage, which is undisputedly not available on record. CIT(A) has erred in excluding the same without examining the data. TPO as well as CIT(A) were empowered to call the data by exercising powers u/s 133(6) of the Act, which they have not exercised to decide the RPT of comparable company alleged to be @75% by the assessee on the basis of RPT percentage only. CIT(A) has failed....
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.... Service is not available, it is beyond comprehension, as to how the TPO has chosen this company as comparable company. At the same time, CIT(A) has also summarily excluded this comparable as per contention of the assessee without examining if this company is a BPO division. So, we are of the considered view that the matter is required to be restored to the TPO to verify if the figures relied upon by him are of BPO division. If the comparable company is not ascertained as BPO division then it is to be excluded and in case figures relied upon by TPO are of BPO division then it is to be included as a comparable company. In case, the figures are of entity level, it is to be excluded. C. Genesys International Corporation Ltd: This comparable is also chosen by TPO by taking OP/TC @51.91%. TPO has chosen this company as comparable on the basis of annual report by stating that the functions of this company is comparable to the assessee and it passes all the filters. Even otherwise, this comparable company is having OP/TC @ 51.91% and falling in the category of super profit making company. TPO rejected this argument of assessee by applying the logic that super normal profit making compa....
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....nil service income during the year. However the annual report of the comparable shows that the functions of this company are comparable to the assessee. The company passes all the filters. It can be used as a comparable." However, the assessee challenged the inclusion of this company on the grounds inter alia that this company does not qualify 75% service income filter and is performing non comparable services like trading in I T peripherals and I T software and distribution of wireless communication. Ld. CIT(A) by relying upon the order passed by ITAT in the case of CRM Services India Pvt. Ltd. Vs ITO (I.T.A.No. 4796/Del/2010), rejected this comparable for the following reasons: "Further, the business reputation of Rastogi group, owning Maple E Solutions and Triton Corporation, is under serious indictment. They are also carrying on the businesses of data processing services and ITES services apart from BPO services. In view of a question mark on the reputation of the owner, albeit for earlier years, it would be unsafe to take their results for comparison of the profitability of the assessee." We are of the view that this company has been rightly excluded as comparable compan....
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....n from the ratio of employee cost to sales of the appellant's case cannot be simply brushed aside. In the case of Mold-Tek Technologies Ltd it is 7.6%. By implication, either Mold-Tek Technologies Ltd. has employed larger capital against the man power to get the kind of productivity to generate profit of 106.82% or the employees are so extraordinary that they have accepted the lower wages and still work so hard for the company to generate that kind of profitability. In either situation, the company becomes not comparable to the appellant. Even on functionality ground Mold-Tek Technologies Ltd. is not comparable because as compared to the appellant this comparable is mainly dealing in engineering design and detailing services, website design services, software testing, in-house software development etc. - Therefore, I hold that this company should be excluded from the list of comparables." When undisputedly, the comparable company has two segments one ITES and another Plastic Divisions and ITES division is having 100% exemption and the company has only to pay tax on the profits of its plastic division and thus earning profits @ 106.82% for the financial year 2007- 08 it fal....
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....e arts 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 10-B. 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 company of Rastogi group and, therefore, other objections are the same as in the case of first mentioned company. The TPO mentioned that the from ITES activities which are comparable." So, we are of the considered view that this comparable company being a fraud company cannot be taken as comparable and as such, findings returned by Ld. CIT(A) are hereby affirmed. 19. The assessee, by filling the cross objections, sought exclusion of eClerx Services Ltd. and sought inclusion of Cosmic Global Ltd. from the final list of comparables. Now, in order to decide the cross objections filed by the assessee, we are to examine as to whether eClerx Services Ltd. is liable to be....
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....ncluded by the assessee under a bona fide mistake in the list of proposed comparable. On this issue, we respectfully follow the view taken by the ITAT Delhi in the case of Mercer Consulting (India) Pvt. Ltd. Vs. DCIT (Supra) wherein similar contention of the Revenue has been dismissed in Para 12.2, which reads as under:- "12.2. We are disinclined to sustain the legal objection taken by the ld. DR that the assessee should be prohibited from taking a stand contrary to the one which was taken at the stage of the TP study or during the course of proceedings before the authorities below. It goes without saying that the object of assessment is to determine the income in respect of which the assessee is rightly chargeable to tax. As the income not originally offered for taxation, if otherwise chargeable, is required to be included in the total income, in the same breath, any income wrongly included in the total income, which is not otherwise chargeable, should be excluded. There can be no estoppel against the provisions of the Act. Extending this proposition further to the context of the transfer pricing, if the assessee fails to report an otherwise comparable case, then the TPO is obl....
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....in a company makes such company as unfit for comparison and the same cannot be considered as suitable comparable because of the exceptional final result due to merger and demerger. Findings returned by the Tribunal in para 15 of the order in case entitled Xchanging Technology Services India Pvt. Ltd. (supra) are further reproduced as under: "14. On careful consideration of above, at the very outset, we respectfully take cognizance of the decision of the ITAT 'I' Bench New Delhi dated 28.08.2014 in the case of United Health Group Information Services Pvt. Ltd. Vs. ACIT (supra), wherein following the view taken by the Tribunal in the case of Toluna India Pvt. Ltd. Vs. ACIT in ITA No. 5645/De1/2013 dated 26.08.2014 it was held that the mergers/demergers in a company make such order is unfit for comprising and the same cannot be considered as suitable comparable because of exceptional final result due to merger/demerger. The relevant operative part of the Tribunal (Supra) for the same A Y 2008-09 reads as under:- "eClerx Services Ltd. 10.1. This company was included by the TPO in his list of comparables. The assessee objected to its inclusion by pointing out some functi....
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....of the data aggregation, and mining and maintenance services from vigilant reading of annual report available at Page 659 to 738 of the assessee paper book Volume-II, it can be easily seen that it is not closed to the assessee ITES segmental services transaction which are impressed by the manual process ITES services. We are also not in agreement with the conclusion of the DRP that no comparable can be excluded on the ground of abnormal margin if its functionally comparable to the tested party because mergers/demergers brings exceptional financial result which make a such order as unfit for comparison. In view of our foregoing discussion, we reach to a logical conclusion that the eClerx Services Ltd. is not a suitable comparable to the assessee company for A Y 2008-09 due to high pitched financial result and the same deserve to be deleted from the final set of comparables. We ordered accordingly." So, in view of what has been discussed above and following the order passed by the coordinate Bench of ITAT, the eClerx Services Ltd. cannot be taken a comparable on the ground of issue of amalgamation and on ground of earning super normal profit @ 66.25% as discussed by the Tribunal in....