TaxTMI 
TaxTMI 
2018 (5) TMI 239
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....s, reference to the Transfer Pricing Officer [TPO] for determination of Arm's Length Price [ALP] was made. The TPO vide his order u/s. 92CA(3), dt. 30-09-2014 had selected the following comparables: i. Accentia Technologies Ltd., ii. Acropetal Technologies Limited (Seg) iii. Cosmic Global Ltd., iv. Crossdomain Solutions P Ltd., v. e4e Healthcare vi. eClerx Servies Ltd., vii. Informed Technologies Ltd., viii. Infosys BPO ix. Jeevan Scientific Technologies Ltd., x. Jindal Intellicome Ltd., xi. Mastiff Tech P Ltd., xii. Microgenetic Systems Ltd., xiii. TCS E-serve Ltd., 3. The arithmetic mean of the above 13 comparables was arrived at 26.51%, the TPO determined the adjustment u/s. 92CA at Rs. 4,65,43,363/-. The AO in compliance to the order of TPO, issued the draft order vide order dt. 30-09-2014. Assessee preferred objections before the Dispute Resolution Panel [DRP]. The DRP vide order dt. 28-10-2015 has rejected the following 11 comparables and directed the AO to re-workout the ALP. i. Accentia Technologies Ltd., ii. Acropetal Technologies Limited (Seg) iii. eClerx Servies Ltd., iv. Crossdomain Solutions P Ltd., v. Infosys BPO L....
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....8. We have heard Ld. Counsel and Ld.DR in detail and perused the Paper Books on record. 9. At the outset, it was fairly admitted that the levy of interest on outstanding receivables is considered by the Coordinate Bench in assessee's own case. Accordingly, the issue is to be held in favour of assessee and against the Revenue. The Coordinate Bench has considered the issue for AY. 2010-11 as under: "18. As regards Ground Nos. 14 to 17, we find that the assessee has not charged interest on outstanding receivables from its AEs as well as non AEs. The TPO considered the receivables as well as international transactions and made an adjustment of Rs. 24,54,328 on account of amount realized with delay during the year and on account of outstanding as on 31.03.2010. It is the case of the assessee that the receivables have become international transactions only by virtue of the amendment made vide Finance Act 2012 and hence making an adjustment for the year 2010-11 is not warranted. Further he also stated that the average database and the cost of the comparable companies is 94 as against the 83 days in the case of the assessee. Therefore, this adjustment is not warranted in the case of the....
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....isions nor gave any interest free period. Not only that even though Assessee realized the amounts in later year, i.e., after 3J-03-2010, interest was charged for whole of the period. As can be seen from the table in page 45 of the TP order, TPO charged interest for the supposed delay not only during the year but also for the period beyond the assessment year concerned. Thus, he made a proposal to make adjustment of Rs. 1,26,40,592/- as an adjustment u/s. 92CA and total income was enhanced accordingly. Before the DRP, Assessee objected to the same and submitted that: * The outstanding receivables relate to the provision of services and not in the nature of any advance/loans. These are closely linked to the provision of services and hence have to be aggregated for the purpose of economic analysis . * The company has been fully funded by its AE since its inception for all its working capital requirements and receivables are running accounts. Any fund requirement being made good by the AEs. 17.1. It is also submitted that company does not bear working capital risk. It relied on the same objections as relied before TPO. DRP however, vide its para 17, rejected Assessee's con....
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....n from the facts in both the cases, we are of the opinion that the above decision will equally apply to Assessee's case. Assessee has outstanding service charges receivables and as seen from the order of TPO, the outstanding is only from 31-07-2009. There seems to be no such delay in earlier months. Assessee has no interest liability at all so notional interest cannot be brought to tax under the provisions of TP. As rightly pointed out by the Ld. Counsel, the outstanding receivables on account of services cannot be equated with capital financing as provided for in the Explanation by the amendment by Finance Act, 2012 retrospectively. Even otherwise, as rightly held by the Logix Micro Systems Ltd v. A CIT [42 SOT 525] (supra), TPO should have allowed some interest free period for receiving the outstanding service charges. While acknowledging the order of the ITAT, TPO did not even bother to exclude the reasonable period and levied interest not only from the date of invoice to the date of realization during the year but also for the period beyond 31-03-2010 in later year. We were informed that no such addition was made in the later year on Assessee '.I' receivables. We ar....
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....ld that the companies having extra-ordinary events during the year, hence, cannot be accepted as a comparable company. The relevant findings of the Jurisdictional Tribunal given at para 19.2 of the order is produced below for your goodself's reference: "19.2 We have considered the rival contentions and noticed that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy. In earlier years on the reason of acquisition of various companies, being an extraordinary event which had an impact on the profit, this company was excluded. As submitted by the learned counsel, this year also, the acquisition of some companies by that company may have impact on the profit. Considering the profit margins of the company and insufficient segmental data. we are of the opinion that this company cannot be selected as a comparable. Moreover, this is also not a comparable in the case of M/s. Mercer Consulting (India) P. Ltd. (supra), which indicates that the TPO therein has excluded it at the outset. In view of this, we direct the Assessing Officer/TPO to exclude this comparable, from the list of comparables selected.." Having considere....
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....s noticed by us that the company was directed to be excluded from the comparable due to functional differences by the Hon'ble ITAT, in assessee's own case for A.Y. 2009-10, as the functional profile of the company and assessee remains the same I we direct the A.O. to exclude the above company from the comparables. 3.11 Ground of Objection:11: Eclerx Services Limited should be rejected It was submitted that the Learned TPO also failed to appreciate the following: * Company has abnormal growth pattern and has super normal profits and hence ought to be rejected. * Eclerx fails the filter of companies having peculiar economic circumstances applied by the Learned TPO * Eclerx showing unreliable information in it standalone financial statements. * Exclusion of Eclerx as comparable is upheld by jurisdictional ITAT in assessee own case (lTAT No.159/Hyd/2014). * The standalone financials of Eclerx are unreliable. The Assessee submitted that "it is a routine BPO service provider. On the other hand, KPO is a highly specialised and knowledge based. Business Process Outsourcing or BPO is outsourcing of some of the business functions to a third party in order to s....
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....rects that the TPO should exclude M/s. Infosys BPO Ltd, TCS E-Services ltd. from the list of comparables due to high turnover in these companies. These two companies cannot be compared with assessee-company. Similarly, M/s. e-Clerx Services Ltd also directed to be deleted as the said company has been regarded as KPO by ITAT. Accentia Technologies Ltd. is also directed to the excluded if on verification found extraordinary event of amalgamation during the year which has an impact on the profits of the company. In view of the above, these 4 companies are directed to be excluded from the computation of ALP, subject to verification of facts as directed above. Based on the above, the Assessee submits that Eclerx be rejected as a comparable. Having considered the submissions, we are of the view that the company needs to be excluded by functional differences and other extra ordinary facts. Respectfully following the orders of the Hon'ble ITATs decision in Assessee's own case for AY 2009-10 (ITA No.159/Hyd/2014), we direct the AO to exclude this company from the comparables. This view also finds support from the decision of the Hon'ble Hyderabad Tribunal in the case of M/....
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....of the above company as comparable. 3.13 Ground of Objection: 13: Infosys BPO limited should be rejected Assessee relied on orders of the jurisdictional ITAT in Assessee's own case (ITAT No.159/Hyd/2014) for AY 2009-10. Having considered the submissions, it is noticed by us that the Hon'ble ITAT, Bangalore in the case of Symphony Marketing Solutions India Pvt Ltd (presently merged with Genpact India) [(IT(TP)A No. 1316/Bang/2012, TS-234ITAT-2013(Bang)_TP, ITAT Bangalore) and the Hon'ble Hyderabad ITAT in the case of International Speciality Products (I) Pvt Ltd in ITA No.218/HydI2014 for A.Y. 2009-10, has excluded the company by observing that 'we are of the view that it cannot at all be considered as comparable to the assessee not only because of its size but also due to its brand value, diversified activities and other functional disabilities. Different branches of this Tribunal are consistent in their view that the company cannot be treated as a comparable to a captive service provider like the assessee. Similar view was taken by Hon'ble Hyderabad ITAT in assessee's Own case in ITA No.159/HYd/2014, respectfully following the above decisions, we d....
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....endered by the assessee accordingly, we direct the assessing officer to exclude the above company from comparables. Request for retention of comparables selected by the assessee 3.16 Ground of Objection:16: e4e Healthcare Business Services Private Umited should be accepted with correct margin Having considered the submissions, on perusal of annual report, it is noticed that the company is engaged in the forward contracts on that account, the amount outstanding as on 31.03.2011 is USD 11.85 million, such forward contracts have influence on the margin of the assessee company, it is also noticed that there is no consistent approach in regard to accounting of the bad debts which is evident that in the financial year 2009-10, the provision for bad and doubtful debts is created to the extent of Rs. 3,30,69,141/- as against which there is no provision during the year. Further, as against the bad debts written off of Rs. 29,87,000/- in the preceding year, during the year the bad debt written off are to the extent of Rs. 1,62,09,146/-, in such inconsistency of accounting, in our view, instead of re-computing margin, it is appropriate to exclude the above company from the comparable....
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....the rationale of the above decisions, we direct the Assessing Officer to exclude the above company from comparables. Microgenetic Systems Ltd On close examination of the back ground and the perusal of annual report, it is noticed by us that out of the total expenses of Rs. 1,07,91,015/- debited in P&L a/c, the expenses to the extent of Rs. 24,98,323/- have been incurred as medical transcription charges, which indicates that the expenses to the extent of Rs. 23% have been incurred in outsourcing of the medical transcription activity. Therefore, in our view, it will not be appropriate to retain the above company as comparable; we accordingly direct the A.O. to exclude the above company from comparables". 10.1. Even though there is no addition proposed in the assessment order consequent to the order of DRP, assessee is contesting the exclusion of 4 comparable companies. These are considered as under: Cosmic Global Ltd., : 10.1.i. As can be seen from the order of DRP, DRP has excluded for valid reasons that too following the Co-ordinate Bench decision in the earlier year. Since we do not find any reason to differ from the findings of the DRP, we uphold the order and reject t....
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.... Rs. 22,03,823 towards medical transcription charges. Though, it is not 23% of the expenses incurred by the assessee as observed by the DRP, the payments were for outsourcing of the activity and hence is involved in a different functional model as compared to the assessee. In view of the same, we do not find any reason to interfere with the direction of the DRP. Thus, assessee's ground of appeal No.5 is rejected". Respectfully following the same, we do not find any reason to interfere with the order of the DRP. Hence its exclusion is confirmed. 11. Coming to the Revenue appeal, the Revenue is contesting ten comparables to be included. Some of them are considered above. The balance of comparables on the basis of grounds raised by Revenue are as under: These comparables are excluded by giving valid reasons by the DRP. We do not find any reason to interfere with the well reasoned order of the DRP. It is also noticed that DRP followed earlier year's orders in assessee's own case while excluding some of the comparables. The Co-ordinate Bench in the case of Dy. CIT Vs. M/s. Avineon India P Ltd., in ITA No. 257/Hyd/2016, dt. 07-07- 2017 has also confirmed exclusion of eClerx Servi....