TaxTMI 
TaxTMI 
2018 (7) TMI 1549
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....d law; 2. The Hon'ble DRP erred both on facts and in law in partially confirming the transfer pricing adjustment to the income of the Appellant by holding that its international transactions under the information technology enables services (ITES) and marketing support services ('MSS') segment do not satisfy the arm's length principle envisaged under the Act. In doing so, the Hon'ble DRP has grossly erred in agreeing with the Learned Transfer Pricing Officer's ('Ld TPO s) action of : Common Transfer Pricing Objections - All segments 2.1. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 2.2. ignoring the fact that the Appellant is entitled to tax holiday under section 10A of the Act on its profits and therefore would not have any untoward motive of deriving a tax advantage by manipulating transfer prices of its international transactions; 2.3. rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant under section 92D of the Act and Rule 10D of the Rules and disregarding the ALP as determined by the Appellant in the TP documentation and conductin....
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....issue), 2.12. including certain companies that are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 2.13. resorting to arbitrary rejection of low-profit/ loss making companies based on erroneous and inconsistent reasons; 2.14. excluding certain companies on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed Transfer Pricing Objections - Marketing Support Services Segment 2.15. rejecting without reason, the quantitative and qualitative screens/filters applied and set of comparables arrived at by the Appellant following a detailed and robust search methodology carried out in the TP Report, and proceeding to carry out fresh search by applying certain arbitrarily selected filters and arriving at his own comparables set instead in Marketing Support Services segment; 2.16. including certain companies that are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 2.17. excluding certain companies on arbitrary/ frivolous grounds even though....
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....ce Segment/Provision of Sales Support Services. 3. We accordingly dismiss these grounds, with the liberty to raise the issue in any subsequent Assessment Years. 4. He further submitted that provision of distribution activity has not been disputed by assessee. Provision of IT enabled services In TP study Ld.TPO observed that assessee had characterised itself as provider of IT enabled services. TNMM was selected as the most appropriate method. From the search conducted by assessee set of 9 comparables having an average profit margin of 8.34% on cost was selected. Assessee computed its margin at 17.98% by using OP/TC as PLI. Thus assessee treated its transaction at arm's length as the margin was within +/-5% range. 4.1. Ld.TPO unsatisfied with comparables selected by assessee, conducted fresh search, and final set of comparables determined by Ld.TPO consisted of 20 comparables with average margin of 29.16%. He thus computed arm's length price of international transaction under ITES segment to be Rs. 3,37,98,222/-and proposed adjustment of Rs. 44,18,622/-. 4.2. Aggrieved by the adjustment made by Ld.TPO, assessee preferred objections before DRP. DRP upheld the order p....
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....k-up revenue model. It also does not assume any product/service liability risk and credit risk as it does not have any interface with ultimate customers but provides services only to its associated enterprises. Assessee receives payments for such services immediately on raising of invoice. Based on the above analysis of functions, assets owned and risk assumed by assessee in the TP study it has been characterised as a simple back-office contract service provider that assumes less than normal risk associated with carrying out of such business. 6.2. On the basis of the above we shall not undertake the compatibility of assessee with that of the disputed comparables. 6.3. Ld.Counsel submitted that in the present case assessee disputes the following to be included in the final list of comparables: * Accentia * Coral Hub (Vishal Information Tech. Ltd.) * Eclerx * Genesis International * HCL Comnet services Ltd (segment) * Infosys BPO * Accropetal Technologies Ltd (i) Accentia Ld.Counsel submitted that this comparable has been selected by Ld. TPO. He submitted that during the year under consideration Geo-Soft Te....
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....as been submitted that Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt Ltd., (supra) categorised this comparable to be a KPO service provider. Further Ld.Counsel submitted that this entity outsources its ITES services to thirdparty vendor thereby increasing operating expenses. Ld. DR placed reliance upon the orders of authorities below. We have perused the submissions advanced by both the sides in the light of the records placed before us. It is observed that Hon'ble Delhi High Court in the case of Rampgreen Solutions Private Limited (supra) has considered this to be a KPO service provider. In the facts of present assessee before us, services are rendered to group concerns, strictly on the basis of contract and requirement of its AE. And therefore this company cannot be comparable with the functions performed by present assessee before us. Accordingly we direct this company to be excluded from the list of comparables. (iii) Eclerx services Ltd This comparable was included by Ld.TPO. It has been submitted by Ld.Counsel that Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd., vs. CIT reported in (2015) 377 ITR 533 has held that KPO se....
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....ly engaged in providing low end services to group companies. The relevant finding of the Hon'ble Tribunal read as follows :- "In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007- 08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providi....
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....ly it specifies itself to be providing services including data conversion, data migration, data maintenance, application development, Photogrammetry and outsourcing services. He placed reliance upon the decision of the Delhi Tribunal in case of Macquaireb Global Services Pvt.Ltd., vs. DCIT reported in (2015) 55 Taxmann.com 259. On the contrary Ld.CIT DR submits that the functions performed by these companies falls under the category of ITeS services and hence is a fit comparable. We have perused the submissions advanced by both the sides in the light of records placed before us. From the TP study report placed at page 1-118 of Annual Report Compilation Volume 2, it is observed that this company provides services in the field of Cadastral Mapping, Navigation Maps, 3-D Mapping, Photogrammetry/remote sensing services, power, etc. In our view these services are highly skilled and knowledge-based services which cannot be compared with a back-office support service as that of assessee. It is observed that Ld. TPO disagreeing with the taxpayer regarding horizontals or functional lines considered it to be comparable by placing reliance upon CBDT circular no. 890 (E) dated 26/09/20....
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....ng the same we direct this company to be excluded from the list of comparables. (v) HCL Comnet Systems and Services Ltd. (Seg.) Ld.TPO included this company. It has been submitted by Ld. Counsel that ld.TPO obtained certain data relating to Financial Year 2007-08 under section 133(6) of the Act from this company. Ld.Counsel objected to the inclusion of this comparable because it had a different financial year ending. Ld.Counsel also submitted that segmental data for Financial Year 2007-08 in respect of this company has not been provided to assessee and that the segmental information covered in the annual report of the company was in relation to year ended 30/06/2008. Ld. Counsel further submitted that during the year 2007-08 this company has achieved supernormal growth of about 57.16% in the turnover and 40.74% in profit before tax in relation to ITES segment. On the contrary Ld.CIT DR submitted that segmental information available in audited report of this company placed at page 338- 397 of Annual Report Compendium, classifies it to be an ITeS company. He placed reliance upon schedules to accounts, wherein revenue recognition has been categorised to be from IT enabled ser....
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....ecycle Management solution, etc. It was submitted that Infosys BPO is a giant and a top BPO services provider. It has turnover of 649 cr and total asset base of approx. 450 cr (Gross Fixed assets Rs. 116 cr). Ld.CIT DR placed reliance upon the order of authorities below. We have perused the submissions advanced by both the sides in the light of the records placed before us. From TP study placed at page 119-193 of the paper book, it is observed that this company has huge turnovers, owns IPR and brand value on products and provides services to vast clientele. Under such circumstances this company cannot be accepted to be a fit comparable in case of assessee who is a captive service provider providing services only to its group concerns. Accordingly we direct this company to be excluded from the list of comparables. (vii) Acropetal Technologies Ltd (engineering design services segment) This company has been selected by Ld.TPO. Ld.Counsel submitted that it is functionally different with that of assessee as it renders engineering design services and software development services. Ld.Counsel placed reliance upon the decision of the Delhi Tribunal in case of Daksh Business Pro....