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2018 (5) TMI 232
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....icing analysis of the Appellant Co; (iv) selecting inappropriate comparables from the list of rejected companies as given by the Appellant Co. in its transfer pricing study; (v) not considering that for the purpose of determining arm's length price for international transactions, Cos. as selected by TPO performing high-end functions were not comparable with the Appellant Co. providing low-end transcription and data processing services; (vi) not considering the facts/submissions/objections made before them that except for Cosmic Global Ltd., rest of the comparables selected by TPO ought to have been rejected on various grounds including functional dissimilarity, significantly high/large turnover, significantly high supernormal profits, non availability of segmental information etc; (vii) not making proper adjustment for transactional level differences between the Appellant and the comparable companies; (viii) inappropriately computing the operating margins of comparables of the Appellant and denying the mistakes/errors apparent from the record as duly pointed out while working out the operating margins of comparables; (ix) no....
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.... International transaction Amount (in Rs.) 1. Provision of IT enabled services 5, 23, 06, 598 2.3. It was submitted by Ld.Counsel that this was the first year in which reference was made to Ld.TPO and there has been no order of either TPO or DRP in any of the earlier assessment years. 2.4. The only issue that is disputed before us raised by assessee is in respect of selection of comparables by Ld. TPO as well as exclusion of certain comparables that have been proposed by assessee. 2.5. Before discussing comparables objected for its inclusion by assessee as well as those comparables which have been submitted by assessee to be included, it is sine qua non to deal with FAR analysis of assessee before us. 3. FAR Analysis of Assessee The Transfer Pricing report of assessee for the year under consideration has been placed at page 24-49 of paper book volume I. It is observed that at page 51- 72 are copies of agreement entered into by assessee for its Delhi unit and Vadodara unit with its associated enterprise. The services rendered by assessee under both these agreements to the associated enterprise are as under: (i ) Details of services to be provided....
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....rtaken/performed by KSPIPL: * During F.Y. 2009 - 10, KSPIPL provided the following services to KSPL only: - Transcription Services (including legal, medical, medico legal, surveyours etc.) Data Processing Services * For providing such services, KSPIPL relies upon the instructions, authorizations, approvals or other information provided to it by or on behalf of KSPL. * The staff as engaged by KSPIPL is trained with the help and guidance of KSPL. Such staff members are primarily typists/data entry operators, who are assigned the task of converting digital voice files as received into written documents during the course of providing transcription and data entry services, which requires basic skills and it is therefore a low margin business. It may be clarified here that translation work is not carried out by KSPIPL, which requires higher skill levels and may command higher margins. (iii) Assets: It is observed that assets owned by assessee are only such assets to enable it to render services to its AE like computer equipments, furniture, fixtures and fittings and office equipments. All intellectual property created by asse....
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....en arrived at a set of 3 companies with an average margin of 6% viz-a-viz assessee's margin worked out at 9.84%. Based on the analysis, assessee submitted that the international transactions were at arm's length. 6. Ld. TPO rejected 2 companies selected by assessee on following reasoning and agreed for Cosmic Global Ltd. to be a suitable comparable: Sl. No. Name of the comparable Remarks 1. Cigniti Technologies Ltd. This company is into software development, and fails export sales filter. Hence rejected. 2. Cosmic Global Limited This is a suitable comparable. 3. Infotech BPO Private Ltd. This company fails export filter (0.0%). Hence not a suitable comparable. Ld.TPO thereafter conducted search on arrived at comparables having average margin of 24.63% as under: Sl. No. Company Name OP/OC 1. E4e Healthcare Pvt.Ltd. 31.03% 2. Jindall Intellicom 13.62% 3. ICRA TechnoAnalytics Ltd. (Seg.) 28.77% 4. Cosmic Global Ltd. 18.28% 5. Infosys BPO 31.46% AVERAGE 24.63% 7. During Transfer Pricing proceedings, assessee objected for inclusion of Cosmic Global Ltd. as comparable since ....
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....med by these comparables vis-a-vis that of assessee. (a ) E4 Healthcare Business Services Pvt. Ltd Ld. Counsel objects for inclusion of this company, as it is engaged in providing outsourcing services for healthcare industries in US. It is submitted by the Ld.Counsel that revenues earned by this comparable are from multiple business activities for which segmental results are not available. Ld.Counsel submitted that assessee is only providing back-office support of transcribing the medical prescriptions dictated on telephonic conversation by doctors located outside India and therefore is rendering a low-end service whereas the comparable under consideration renders health services like providing ambulance and doctors services on call etc., He submitted that this company cannot be considered as a fit comparable for purposes of determining arm's length price for assessee's transaction with its AE. On the contrary Ld. CIT DR submitted that transcription activity cannot be simply equated to a back-office service, as it requires streaming to be provided to its employees for rendering specialised services. We have perused the submissions advanced by both the sides in the light....
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....laced reference to the Schedule 7 of accounts of this company which is at page 194 of paper book volume-1. It has been submitted that revenues from the operations of this company are from 2 segments being medical transcription and consultancy services amounting to Rs. 5,87,162/- and translation charges amounting to Rs. 5,45,41,023/-. He submitted that this company is providing both services of medical transcription as well as translation of the medical report from experts, for which revenue has been segregated. Ld. CIT DR is of the opinion that revenues earned by assessee from medical transcription and consultancy services segment are comparable with that of the services rendered by assessee to its AE. We have perused the submissions advanced by both the sides in the light of the records placed before us. From the financials of this company it is observed that it has separate segmental information in respect of income earned under 2 different heads. For that reason we agree with the arguments advanced by Ld. CIT DR in respect of the comparison that could be drawn between assessee and revenue generated by this company under the head medical transcription and consultancy servic....
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....submitted by Ld.Counsel that if such funds were directly kept in rupee account, there would be no further gain or loss on account of foreign exchange fluctuation. The fluctuation as submitted by Ld.Counsel was as a result of assessee keeping a portion of receipts of exports in EEFC account and that is the reason why the said loss was treated as loss under the head 'income from other sources'. Ld.Counsel further submitted that gain of Rs. 8,55,729/-on account of foreign exchange fluctuation till the date of realisation of export proceeds in rupee account of the assessee was treated as part of business income. It was thus submitted by Ld.Counsel that the loss amounting to Rs. 4,44,536/- was not a business loss and hence ought to be adjusted against interest income of Rs. 1,43,641/-as declared under the head 'income from other sources'. Ld.Counsel placed reliance upon following decisions for considering foreign exchange gain as a part of operating income while computing operating margin. * Decision of Hon'ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt.Ltd reported in (2009) 312 ITR 254; * Decision of Hon'ble Delhi High Court in the case of Princ....