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2018 (5) TMI 239
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....sesseecompany had international transactions, 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.,....
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....ference to negative working capital adjustment proposed by the TPO. This issue is contested by assessee even though there is no addition made under the provisions of Transfer Pricing. 7. The last ground for adjudication in assessee's appeal is with reference to short credit of TDS. 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....
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....further relied on the decision of Logix Micro Systems Ltd v. ACIT [42 SOT 525] (Bang) wherein ITAT held that a reasonable period should be provided as interest free period and no interest should be calculated for such period. However, while calculating the interest of 12%, TPO neither considered the above decisions 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 inceptio....
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....arging of real income. Thus on the facts and circumstances of the case, we are of the opinion that addition on account of notional interest relating to alleged delayed payment in collection of receivables from the AEs is uncalled for on the facts of the present case. Even though DRP tried to distinguish the above decision on facts, as seen 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....
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....ology, animation and design, etc. are the usual activities that are outsourced to KPOs. Reliance on Jurisdictional ITATs decision in Assessee's own case for AY 2009-10 (supra): The Assessee placed reliance on the Jurisdictional Tribunals decision in its own case for AY 2009-10 wherein it has held that Accentia is functionally different from assessee and also held 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....
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.... hence, should be rejected. The Learned TPO rejected the above grounds raised by the Assessee and retained Acropetal in the final set of comparables selected in the TP order based on the following: * Engineering design services forms part of ITES. * ITES> 75% filter is applied on companies having more than one segment and not on companies whose only one segment has been considered. Having considered the submissions, it is 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....
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....his company can be considered as KPO and we are of the opinion that this company is not comparable to assessee's services. We therefore, direct the Assessing Officer/TPO to exclude this company." Further, the assessee would like to submit to the Hon'ble panel that the company is excluded as comparable to the assessee by Hon'ble Dispute Resolution Panel in assessee's own case for AY 2010-11. The relevant extract of the order of the Hon'ble DRP is produced below for your ready reference: Decision :- The Panel directs 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....
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....nnual report and most of the revenue of this company is from service only. The company is in the pay roll service activity. Therefore, we are of the opinion that the company's functions similar to the activities of the assessee company, which is in the ITeS field. In view of this, we are not inclined to exclude this company on the basis of functional disabilities." In our view. there is no change in the functional profile of the above company during the year and therefore, is comparable with the function of the assessee. Accordingly, we do not find any infirmity in selection 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 ....
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....oviding information technology - enabled services/business processing outsourcing service, primary to the Citi group companies introduced globally, the transaction processing include the broad spectrum of activities involving the processing, collections, customer care and payments in relation to the services offered by Citi group to its corporate and retail clients. As per the annual report, the company also provide technical services involving software testing, verification and validation of software at the time of implementation and data centre management activities, which makes the company functionally incomparable with the routine ITeS services rendered 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 forwar....
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....plainly, a business model where services are rendered by own employees and using one's own infrastructure would have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the outsourcing services by ...... would have no bearing on the profitability of the said entity: And also, from the decision of the Hon'ble A.P & Telegana High Court in the case of BA Continuum India Private Limited (ITTA 440 of 2014), Further on the same rationale, the company was directed to be excluded by the Hon'ble Hyderabad ITAT in the case of MIs Excellence Data Research Pvt Ltd in ITA No.159/Hyd/2014. Respectfully following 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....
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....rgin working from assessee before the DRP, after giving due opportunity to assessee. Microgenetic Systems Ltd: 10.1.iv. This comparable is excluded by the DRP on the reason that it was incurring expenditure in the outsourcing of medical transcription activity. In case of M/s. Avineon India P Ltd., Vs. Dy.CIT in ITA No. 238/Hyd/2016, dt. 07-07-2017, the Co-ordinate Bench has held as under: "11. Having regard to the rival contentions and the material on record, and after going through the P&L AI c of the comparable Microgenetics Systems Ltd and particularly Schedule-F thereof placed in Paper Book filed by the assessee relating to production expenses, we find that during the relevant previous year the assessee has incurred 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....