TaxTMI 
TaxTMI 
2017 (3) TMI 1689
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.... passed by the Learned Assessing Officer ("AO") is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the reference made by the learned Assessing Officer suffers from jurisdictional error as the learned Assessing Officer did not record any reasons in the draft assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the learned Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ("Act"). 3. The on facts and circumstances of the case and in law, the learned Assessing Officer erred in making an addition of Rs. 1,34,72,719/- to the returned income of the appellant by re-computing the arm's length price of the international transactions under Section 92 of the Act. 4. The learned AO/Ld. TPO/Ld. DRP erred on facts and in law in the assessment of the arm's length price of the assessee's international transactions with associated enterprises in the following manner- 4.1 Using the power conferred under Section 133(6) of the Act for collecting information that was not available to the A....
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....efore or during the course of the proceedings in the interest of natural justice. 4. The facts in brief of the case are that the assessee company was incorporated in India on 4th March, 2004 as a wholly-owned subsidiary of CEB India, which is based in United State of America (USA). The assessee company was engaged in providing data collection, web services, information research and related support services to its associated enterprises (AE). The assessee filed its return of income on 29th September, 2008, declaring total income of Rs. 21,306/-. The case was selected for scrutiny and notice under Section 143(2) of the Incometax Act , 1961 (for short 'the Act') was issued and complied with. The Assessing Officer referred the matter to the Transfer Pricing Officer (for short "TPO") under Section 92CA(1) of the Act for determination of arm's length price in respect of international transaction entered into by the assessee during the financial year relevant to the assessment year in consideration. In the Transfer Pricing Report submitted to the TPO, the assessee reported international transaction of call centre services amounting to Rs. 17,93,85,154/- and operating profit to cost (OP....
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....International 48.15 12. HCL Comnet Systems & Services Ltd. (Seg.) 32.97 13. ICRA (Seg.) 11.11 14. Infosys BPO 20.03 15. I-Service India Private Limited 9.73 16. Spanco Limited (Seg.) 8.94 17. Acropetal Technologies Ltd. (Seg.) 35.30 18. Wipro BPO 30.23 19. R System International Limited (Seg.) 4.30 Average 25.61 4.1 Following the directions of the learned DRP, the Assessing Officer computed the revised average margin of 19 comparables at 25.61% and after allowing the working capital adjustments of 1.71%, the arm's length price margin was computed at 23.90%. Applying the said average margin over operating cost, the Assessing Officer computed the adjustment under Section 192CA of the Act, amounting to Rs. 1,34,72,790/- in the impugned order. Aggrieved with the adjustment so made, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 5. Before us, the learned Authorized Representative did not press grounds other than the ground no.4.3, wherein also he disputed the following 3 comparables only: A. Accentia Technologies Ltd. B. Coral Hub (earlier Vishal....
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....reasons: i. Referring to page 31 of the paper book, the learned Authorized Representative submitted that the business model of the company 'Coral Hub' is different from the business model of the assessee company. He submitted that the 'Coral Hub' subcontracts majority of its work to third party vendors ,which was evident from the profit and loss account of the company for relevant year. He submitted that the vendor payment is approximately 85.58% of the total cost incurred by the Coral Hub. A chart of such expenses was submitted by the learned Authorized Representative, which is reproduced as under: Assessment year Vendor Payments (INR) Vendor Payment/cost Employee cost (INR) Employee cost/Cost 2008-09 261,801,923 85.58% 11,140,357 4.40% 2009-10 398,376,162 81.83% 231,15,053 4.75% ii. The learned Authorized Representative further referred to page no. 29 of the paper book and submitted that as per Director's Report contained in the annual report, Coral Hub entered into a new vertical i.e. Digital Library & Print on Demand ("POD") in financial year 2007-08. He also referred to page no. 30 of the paper book and submitted tha....
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....llowing observations: (a) eClerx Services Ltd. provides data analytics and data process solutions to some of the largest brands in the world. (b) It is recognized as expert in chosen market - financial services and retail and manufacturing. (c) It is industry specialized company and helps in meeting complex client needs, date analytics specialization in two business verticals - financial services and retail and manufacturing. (d) It also provides tailored outsourcing process and management services including multitude of data aggregation, mining and maintenance services. (e) It has employed over 1500 domain specialists and provides complete business solutions with the help of process improvement, automation and dedicated workforce. In view of above, learned counsel submitted that M/s. Eclerx Services Ltd. is functionally different from the assessee company, thus, the same need to be excluded from the set of comparables. iii. The learned counsel submitted that Eclerx Services Ltd. incurred INR 14.6 crores on advertising and marketing during the year, which is 12.50% of sales, which created a brand for the company, whereas the ....
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.... 44.34% 52.50% 43.06% 48.70% Average Sales 95.96 821.87 Average OP/OC -37.98 47.15% 8.2 Further, on perusal of the page 27 of the paper book, it is evident that the comparable company was having revenue from software development and implementation and thus, the company cannot be compared with the assessee company at entity level. The assessee company is claimed to be engaged only in the ITES segment. 8.3 Further we find that , in the case of Symphony Marketing solutions India (P) Ltd. Vs. Income Tax Officer (supra), the Accnetia Technologies Ltd has been excluded as one of the comparable to ITES companies by the Tribunal as under: "(1) Accentia Technologies Ltd. (Seg.) 10. This was considered as a comparable by the TPO and listed at Sl.No.1 of the comparable companies chosen by the TPO. The ld. counsel for the assessee drew our attention to the fact that there are extra ordinary events that occurred during the previous year in this company. Our attention was draw to the annual report of this company for the A.Y. 2007- 08 wherein the fact that this company had acquired Thunga Software Pvt. Ltd., GSR Physicians Billing Services Inc., GSR Syste....
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....sulting company was named as Moldtek Plastics Ltd. The KPO business remained with the company. A perusal of the Annual report revealed that to give effect to the merger and demerger, the financial statements were revised and restated after six months form the end of the financial year 31.3. 2008. The assessee filed Form No.21 under the Companies Act with the Registrar of Companies on 26th August, 2008. Thus the effective date of the scheme of merger and demerger was 26th August, 2008. The Annual Report supported the argument of the assessee that there were merger and demerger in the financial year and it was an exceptional year of performance as financial statements were revised by this company much after the closure of the previous year. The Panel agrees with the contention of the assessee that it is an exceptional year having significant impact on the profitability arising out of merger and demerger." 11. On careful consideration of the matter, we also agree with the aforesaid view of the DRP that extra-ordinary event like merger and demerger will have an effect on the profitability of the company in the financial year in which such event takes place. It is the contentio....
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.... the Tribunal had to deal with a case of determination of ALP in the case of an assessee who was providing ITES business support services for the A.Y. 2007-08. The TPO had considered Accentia Technologies Ltd. as a comparable. The DRP however held that the said company cannot be compared as a comparable owing to extra ordinary events that took place during the previous year. The Tribunal upheld the order of the DRP observing as follows:- "I. Accentia Technologies Ltd. 10. It is the submission of the assessee that this company cannot be treated as a comparable because of uncomparable financial results arising out of amalgamation in the company. In this regard, the assessee has relied upon the order of the DRP for the assessment year 2008-09 in assessee's own case. It is seen that the DRP while considering similar objection placed by the assessee in the case of another company, viz. Mold Tek Technologies Ltd., in the proceedings relating to the assessment year 2008-09, has observed in the following manner- "17.5. In addition to the above, the Director's Report of the company for the FY 2007-08 revealed the merger and the demerger. A company known as Tec....
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....e has to be excluded." 11. We have considered the submissions of the Id. counsel for the assessee and are of the view that the ratio laid down by the Hyderabad Bench of the ITAT is squarely applicable to the present case also. It is clear that during the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a ITA No.l316/Bang/2012 comparable. We therefore hold that this company cannot be considered as a comparable.' 9.1 Similarly, we find the Hyderabad Bench of the Tribunal in the case of Hyundai Motors India Engineering (P.) Ltd. (supra) following the decision of the Bangalore Bench of the Tribunal has held Accentia Technologies Ltd. warrants exclusion as a comparable due to the happening of certain extraordinary events in this company during the impugned assessment year. The relevant observation of Tribunal from pages 7 to 9 of the order read as under: "I Accentia Technologies Ltd. (Seg.) This was considered as a comparable by the TPO and listed at Sl. No. 1 of the comparable companies chosen by the TPO. The Id. Counsel for the assessee drew our attention to the fact that there are extra....
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....igh Court of Andhra Pradesh had approved the merger and de-merger on 25th July, 2008. Subsequently, the ITA No.l316/Bang/2012 accounts of Moldtek Technologies for FY 2007-08 were revised. On a perusal of the annual report it is noticed that Teckmen Tools Pvt. Ltd. and the Plastic Division of the company were demerged and the resulting company was named as Moldtek Plastics Ltd. The KPO business remained with the company. A perusal of the Annual report revealed that to give effect to the merger and demerger, the financial statements were revised and restated after six months form the end of the financial year 31.3. 2008. The assessee filed Form No.21 under the Companies Act with the Registrar of Companies on 26th August, 2008. Thus the effective date of the scheme of merger and demerger was 26th August, 2008. The Annual Report supported the argument of the assessee that there were merger and demerger in the financial year and it was an exceptional year of performance as financial statements were revised by this company much after the closure of the previous year. The Panel agrees with the contention of the assessee that it is an exceptional year having significant impact on the profi....
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....ources its services to vendors and does not perform all Services at own. As against, the assessee company is not having any inventory/stock and performs services at own. 8.7 The company has different business model as it subcontracts majority of its work to third party vendors. From the perusal of the cost items in the profit and Loss Account of the Coral Hub for assessment year 2007-08, we find "Data Entry charges & vendor payments' as part of the operating cost in schedule 14 and the said vendor payments approximate 85.58% of the total cost incurred by Coral Hub. As against assessee has carried out its functions with own employees. Thus, the assessee company is functionally different from the Coral Hub. 8.8 In the case of Symphony Marketing Solutions India (P) Ltd. (supra), the Tribunal has directed to reject Coral Hub as comparables to ITES Companies. The relevant para of the decision (supra) is reproduced as under: "15. Following the decision of the Tribunal referred to above, we hold that Coral Hubs Ltd. cannot be considered as a comparable. It may also be relevant to point out that the TPO in his order has observed that this company is retained as a comparable on the....
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....ws- ITA No.1316/Bang/2012 "18.4. In view of this major difference in functionality and the business model, this Panel is of the view that 'Coral Hub' is not a suitable comparable to the taxpayer and hence needs to be dropped form the final list of comparables." In case of Maersk Global service Centre India (P.) Ltd. (supra), the ITAT Mumbai Bench has also directed for exclusion of the aforesaid company, by observing in the following manner- "Insofar as the cases of tulsyan Technologies Limited and Vishal Information Technologies Limited are concerned, it is noticed from their annual accounts that these companies outsourced a considerable portion of their business. As the assessee carried out entire operations by itself, in our considered opinion, these two cases were rightly excluded." In view of the observations made by the DRP as well as the decision of the ITAT Mumbai in the case of Maersk Global Service Centre, (supra), we accept that this company cannot be taken as a comparable." 16. It is also further noticed that the employee cost/operating sales of this company is a mere 3%, whereas the threshold limit for acceptance as a compa....
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....es Ltd. The comparability of this company in the case of an ITES company by name 24 x 7 Customer.com Pvt. Ltd. was considered by ITA No.l316/Bang/2012 the Tribunal in ITA No.227/Bang/2010 and by order dated 09.11.2012 the Tribunal held that this company is not functionally comparable with ITES for the following reason:- "17.3 Vishal Information Technologies Ltd. (VIT) - In the case of this comparable, we find that the Mumbai Tribunal in the case of Mearsk Global Services (I) Pvt Ltd in ITA No.3774/Mum/2011 by order dt.9.11.2011 has held that since Vishal Information Technologies Ltd is outsourcing most of its work it has to be excluded from the list whereas the assessee in the cited case was carrying out the work by itself. In the instant case of the assessee also the assessee was carrying out its work by itself whereas in the case of VITL, it is outsourcing most of its work. We are therefore of the considered opinion that the decision of the ITAT, Mumbai in the cited case on the issue of excluding VITL as a comparable squarely applies. This decision was followed by the decision of the co-ordinate bench of this Tribunal in the case of Netlinx India (P) Ltd in ITA No.454/Ba....
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.... submitted before us, has also directed for the exclusion of the aforesaid company since it has outsourced a considerable portion of its business.] 17. After considering the submissions of the learned Authorised Representative for the assessee, we find that the DRP, in the proceedings for the assessment year 2008-09 in assessee's own case, after taking note of the composition of the vendor payments of Coral Hub for the last three years, and the fact that it has also commenced a new line of business of Printing on Demand(POD), wherein it prints upon clients request, concluded as follows- "18.4 In view of this major difference in functionality and the business model, this Panel is of the view that 'Coral Hub' is not a suitable comparable to the taxpayer and hence needs to be dropped from the final list of comparables." In case of Maersk Global service Centre India (P.) Ltd. {supra), the ITAT Mumbai Bench has also directed for exclusion of the aforesaid company, by observing in the following manner- "Insofar as the cases of tulsyan Technologies Limited and Vishal Information Technologies Limited are concerned, it is noticed from their an....
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....onal Technologies Ltd. (Now Coral Hubs Ltd.,) as not comparable since it is engaged in e-publishing business. The relevant observation of the Tribunal from at pages 9 and 10 of the order read as under : "Vishal Informatics 12.1 The TPO included this company in the list of comparables by noticing that it was engaged in providing BPO services. The assessee failed to convince him and the DRP that it was incomparable. 12.2 Having heard the rival submissions and perused the relevant material on record, we find from the Annual report of this company that it is mainly engaged in e-publishing business. It has more than 10,000 classic books to its credit which are also converted into large font titles for visually challenged. Apart from e-publishing, this company is also engaged in Documents scanning & Indexing. It can be seen from the financial results of this company that both the segments viz., epublishing and Documents scanning etc. have been combined and there are no separate financial results in respect of Documents scanning work, which may be comparable with the assessee to some extent. As the assessee is not engaged in any e-publishing business and the fin....
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....services provided by Eclarx Services Ltd. 8.13 In the case of Symphony Marketing Solution India (P.) Ltd. (supra), the Tribunal has directed to reject Eclarx Services Ltd. as comparables to ITes Companies. The relevant paras are reproduced as under: "(5) Eclerx Services Ltd. 20. This company is listed at Sl.No.11 in the list of comparable companies chosen by the TPO. It is the stand of the assessee that this company offers solutions that include data analytics, operations management, audits and reconciliation and therefore has to be classified as high end KPO. In support of the stand of the assessee, extracts from the annual report of this company have been pointed out. It has further been submitted that extra ordinary events and peculiar circumstances prevail in the case of the assessee in as much as this company acquired a UK based company which has significantly contributed to the increase in the customer and revenue base of the company. This Tribunal in the case of Capital IQ Information Systems India Pvt. Ltd. (supra) had an occasion to deal with comparability of this company in the case of an ITES company such as the Assessee and the Tribunal held as follows:- ....
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....d any reasons in the draft assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ("Act"). 3. That on facts and circumstances of the case and in law, the Ld. AO/Ld. TPO/Ld. Dispute Resolution Panel ("DRP") erred in making an addition of Rs. 23,814,797/- to the returned income of the Appellant by re-computing the arm's length price of the international transactions under section 92 of the Act. Thus, in passing the order, the Ld. AO/Ld. TPO/Ld. DRP erred in: 3.1 Rejecting the comparable companies set adopted by the Appellant in its transfer pricing documentation on the basis of additional/modified quantitative filters which lacked valid and sufficient reasoning; 3.2 Accepting companies which were functionally not comparable to the Appellant in terms of Functions, Assets and Risk profile. 3.3 Including companies with high/supernormal margins in the comparable set adopted 3.4 Not providing the benefit of economic adjustment on account of difference in working ca....
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....arned Authorized Representative argued only ground no. 3.2 and ground no. 3.4 of the appeal. 14. In ground no. 3.2, learned Authorized Representative disputed the comparability of the following two comparables: (A) Coral Hub (previously known as Vishal information technologies Ltd: 14.1 The learned Authorized Representative submitted to reject the company due to the following reasons: i. The Ld. AR referred to page no. 42 of the paper book and submitted that as per the financial report of the 'Coral Hub', the company has capitalized expenses of Rs. 4.66 crores pertaining to conversation of books into POD. He further submitted that the business model of the company is also different as it subcontracts majority of its work to third party vendors. The said vendor payments approximate 90.57% of the total cost incurred by the Coral Hub and the Coral Hub does not adopt the normal and routine business model for an otherwise pure play ITes company. The learned counsel further submitted that the Coral Hub outsources its services to vendor and does not perform services at its own. The ld. counsel referred to page 43 of the paper book and submitted that Coral Hub has huge inventor....
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....of Mercer consulting (India) private limited (supra) directed to reject the company as comparable to ITES companies. The relevant finding of the Tribunal is reproduced as under: "Coral Hub Ltd. 12.1 This case was earlier included by the assessee in the list of comparables in the transfer pricing study by considering multiple-year data. However, when the TPO required the assessee to furnish data of comparables for the current year alone, the assessee requested for the exclusion of this case from the list of comparables. The Id. DR opposed this contention by urging that the assessee cannot be allowed to resile from its original stand. 12.2 We are disinclined to sustain the legal objection taken by the Id. 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....
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....bunal in Asstt. CLT v. Maersk Global Service Center (India) (P.) Ltd. f20111 133 ITD 543/16 taxmann.com 47. In the later case also, the Tribunal held that the case of Vishal Information Technologies Ltd. or Coral Hub Ltd. was not includible in the list of comparables because of major outsourcing. Since the facts of the instant case are on all fours with these two cases, we are of the considered opinion that this case is required to be excluded from the list of comparables. We order accordingly." 16.2 In view of the discussion above and respectfully following the decision of the Tribunal in the case of Mercer Consulting (India) Private Limited (supra), the company is directed to be excluded from the set of comparables for the year under consideration. (B) Eclerx Services Ltd. 16.3 The functions performed by the company during the year are almost identical to the functions performed in the immediately preceding year, wherein we have held the company as functionally dissimilar to the assessee. It is evident from the page 50 of the paper book that the company is expert in the markets of financial services, retail and manufacturing. The company has employed 1500 specialist and ....
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....) Private Limited (supra), we hold that said company is functionally dissimilar to the assessee company and direct the AO/TPO to exclude the above company from the set of comparables. 17. In ground No. 3.4, the assessee has challenged disallowance of working capital adjustment. 18. The Ld. AR supporting the ground invited our attention that in the immediately preceding year, the assessee has been allowed working capital adjustment by the ld. TPO as well as by the Ld. DRP. The Ld. Authorized Representative submitted that by allowing customers/creditors to defer payments for a certain period, any company foregoes the right to receive its revenue immediately and earn additional income by reinvesting these revenues over the deferral period. He further submitted that all companies have their own limit for deferring such payments and the limits determine that working capital cycles and such cycles would have direct impact on the revenue and cost of any entity. He further submitted that for due economic analysis, it becomes important to make an adjustment for different working capital positions so as to eliminate the impact of such factors from an arm's length comparison. In support....
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....t of real type of profits and they are notional ones, which goes against the spirit of TNMM. All these objections of the revenue are not based only settled propositions. The provisions of 10B(1)(e) provides for the manner of adjustments vide its sub clauses (i) to (iv), which were already analysed in the preceding paragraphs of this order. Briefly, (i) NPM realized from target transaction is computed in relation to cost incurred or sales effected or assets employed or to be employed or any other relevant base; (ii) NPM realized from a comparable uncontrolled transactions is computed having the same base; (iii) the NPM mentioned at (ii) is adjusted taking into account the differences, if any, which could materially affect the NPM in the open market. Thus, the scope of adjustments is defined, which is discussed by us in the preceding paragraphs. The sub clause (iii) specifies that the adjustments are to be made on account of differences, if any. Therefore, in this regard, the litmus test to be applied is if the 'difference, if any, is capable of affecting the NPM in open market? If any factor is capable of such affect, yes, TPO is under statutory obligation to consider and examine an....
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....unds No. 3.2 and 3.4 were not pressed before us and thus same are dismissed as infructuous. 23. In the result, appeal of assessee is partly allowed. ITA No. 963/Del/2015 for AY 2010-11 24. Now we take up appeal having ITA No. 963/Del/2015 for AY 2010. The grounds raised in the appeal are as under: "1. That on the facts and in the circumstances of the case, the order passed by the Ld. Assessing Officer ("AO") is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the draft assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ("Act"). 3. That on facts and circumstances of the case and in law, the Ld. AO/Ld. TPO/Ld. Dispute Resolution Panel ("DRP") erred in making an addition of Rs. 4,20,24,399/- to the returned income of the Appellant by re-computing the arm's length price of the international transactions un....
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....n are identical to the facts in ITA No. 6328/Del/2012 except amount of international transaction and margin of OP/OC. For the year under consideration, the assessee has shown international transaction of provision of ITES services amounting to Rs. 38,86,71,106/- having OP/OC margins of 16.33%. In its transfer pricing study the assessee computed average margin of comparables at 13.60% and stated that the international transaction carried out by the assessee was at arm's length price. Whereas, post DRP directions the TPO/AO computed average margin of 28.89%, which resulted into adjustment of Rs. 4,25,05,514/- to the international transaction. 26. At the time of hearing before us, the Ld. Authorized Representative preferred to argue only ground No. 3.3 and ground No. 3.4 of the appeal. In support of ground No. 3.3, the Ld. counsel of the assessee challenged the comparability of following three comparables: A. Accentia technologies Ltd B. TCS E-serve limited C. TCS E-serve international Ltd. 27. The arguments of the Ld. counsel in respect of the above three comparables are summarized as under: (A) Accentia technologies Ltd. 27.1 The learned Authorized Representativ....
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....oviding information research and related support services to its AE Risk Operate as full-fledged risk taking entrepreneur Operate at minimal risk Brand Enjoys the brand value of its Holding Company, TATA Group. TCS is paying Tata Sons Limited, the ultimate holding company, a contribution for using its brand name, TATA. [Refer page 68 of Cnv. Paperbook] Nil Payment of Royalty The company has paid INR 42,097 thousands to TATA Sons Limited as Tata Brand Loyalty. [Refer page 68 of Cnv. Paperbook] Nil Other Economies of scale Not applicable to the Appellant (ii) The company was having sales turnover of Rs. 1, 359.41 crores for the year under consideration as against the assessee's turnover of Rs. 40 crores for the said year, which is almost 34 times the turnover of the assessee (page 69 of the paper book referred) (iii) The company is a part of an eminent Tata group and received support from it in terms of its large-scale operation and clientele. During the year the TCS paid INR 42,097 thousands to Tata Sons Ltd towards Tata brand equity contribution (iv) That in following decisions of the Tribunal, the company has been excluded as comparable....
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....e company. (vi) that in following decisions of the Tribunal, the company has been excluded as comparable to ITES companies: (a) Ameriprise India Pvt. Ltd., ITA No. 7014/Del/2014, for AY 2010-11 (TCS E service Ltd. is engaged in BPO and high end technical services and no segmental information available). (b) Equant Solutions India Pvt. Ltd. (Involved in software testing and high end technical services, it also owns huge intangible and use of TATA Brand), ITA No. 1202/Del/2015, AY 2010-11. 28. The Ld. CIT(DR), on the other hand, relied on the finding of the lower authorities. 29. We have heard the rival submissions and perused the relevant material on record. The comparability of the above companies is decided as under: (A) Accentia Technology Ltd. 29.1 The learned counsel has highlighted the extra ordinary events of merger and amalgamation of various companies with the company taken place during the year. The event of merger and acquisition of various company with assessee has impacted the profitability of the company during the year and in the circumstances, following our decision in ITA No. 6328/Del/2012 for assessment year 2008- 09, we are of the ....
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.... Notes to Accounts of this company, indicate about the amalgamation of Asscent Infoserve Pvt. Ltd. with it as approved by the shareholders in the court convened meeting held on 25.4.2009 and, subsequently, sanctioned by the Hon'ble High Court on 21.8.2009. The Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. Vs. DCIT (2013) 154 TTJ (Mum) 176, has held that a company cannot be considered as comparable because of exceptional financial results due to mergers/demergers. Similar view has been bolstered by the Delhi Bench of the Tribunal in several cases including Ciena India Pvt. Ltd. Vs. DCIT (ITA No.3324/Del/2013) vide its order dated 23.4.2015 and Techbook International P. Ltd. vs DCIT (ITA No. 240/Del/2015) vide its order dated 06.07.2015. In view of the fact that there was merger of Asscent Infoserve Pvt. Ltd. with Accentia Technologies Ltd. by way of amalgamation during the year itself, we hold that this company cannot be considered as comparable due to this extra-ordinary financial event. Accordingly, the same is directed to be excluded from the final list of comparables." 29.2 In the case of Equant Solutions India Private Limited (supra) the company has been exclud....
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....ave been considered by TPO while selecting the comparables. c. We have considered the rival contention. During the year this comparable has been gone into substantial business restructuring resulting into extraordinary circumstances during the FY 2009-10 subsidiary of Ascentia got amalgamated with this company and the figures of the business results for the year ending 31st March 2010. In this case also excluded the figures of amalgamated company and due to which the comparable has high OP by TC margin. The relevant observations of the Tribunal as recorded in para 19.2 of the order passed in the case of Excellence Data Research Pvt. Ltd., Hyderabad v. ITO Ward 2(1), Hyderabad (ITA No. 159/Hyd/2014 dated 31.7.2014); being relevant in this case, are reproduced below- "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, ITA No. 1202/Del./2015 Equant Solutions India Pvt. Ltd. V DCIT A.Y. 2010-11 this company was excluded. As ....
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....ation, remote configuration, and implementation of quality customer networking solutions. Therefore this comparable is ordered for its exclusion accordingly." 29.3 In view of our discussion above and respectfully following the decision of the Tribunal in the case of Ameriprise India private limited (supra) and Equant solutions India private limited (supra), we hold that in absence of segmental information, the company cannot be compared functionally with assessee company and accordingly, we direct the AO/TPO to exclude the company from the set of comparables. TCS E-serve Ltd. 30.1 The company was engaged in providing high-end transaction processing, technical services involving software testing, verification and validation at the time of implementation, data centre management activities, which is evident from page 67 of the paper book. This fact makes the company functionally different from the assessee company which has been characterized as ITES company. Further, the brand value of being part of TATA group is certainly having impact on the profitability of the company. In the circumstances company cannot be compared with the assessee. Further we also note that Tribunal i....
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....nceded by Ld. AR that this company has been considered as Comparable by the Delhi Bench of Tribunal in Techbook International P. Ltd. (supra), by observing as follows : "The company's overview has been discussed on page 467 of the paper book, which divulges that this company : "is in the business of providing business process management services in the banking and financial services (BFSI), vertical ( i.e. industry vertical) to help its customers achieve their business objectives by providing innovative best-in-class services." We find that this company is also providing ITES. Unlike TCS e- Serve International Ltd., this company is not providing any technical services involving software testing, verification and validation of software etc. Since the functional profile of this company on a broader basis is no different from that of the assessee, both being involved in rendering ITES, we are not inclined to treat this company as incomparable. The ld. AR argued that the nature of the ITES provided by this company is different from that of the assessee and hence the same be excluded. We are disinclined to sustain this objection. Matching of the exact functional similarity ....
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....e testing and high-end technical services, owned huge intangibles and use of Tata Brand. The relevant part of the decision is extracted as under: "24. TCS E Serve Limited a. TPO included this comparable, which has a margin of 63.42%. The ld DRP has also held that the far profile of the company is similar. Before us, ld. AR submitted that the company is dissimilar functionally. In addition to BPO services, it is also engaged in technical services such as software testing, verification and validation. It has also developed software such as transport management software. It does not have segmental reporting too. It was further submitted that the company owns substantial intangible assets in form of software licenses and it makes a payment for Tata Brand and therefore it gets the benefit use brand value of Tata. b. Ld. DR relied on the orders of lower authorities and submitted that all the above reasons for selection of this comparable has bene considered by the TPO. c. We have also considered the rival contention for exclusion of TCS e-service Ltd. It is mainly involved in transaction processing and technology services. It carries on business of providing technology servic....
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....rvices/BPO services primarily to Citigroup entities globally. The operations of this company : 'broadly comprise of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving processing, collections, customer care and payments in relation to the services offered by Citigroup to its corporate and retail clients. Technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities.' It is manifest that this company is engaged in rendering BPO services to the banking and financial services industry (BFSI) and Travel, Tourism and Hospitality (TTH). It is providing services to BFSI and TTH and such services include `Transaction processing' and `Technical services'. In other words, the remuneration of this company from the above referred two segments includes compensation for rendering `Technical services' and `Transaction processing'. Insofar as the `Transaction processing' services are concerned, these are ITES, which are broadly similar to those rendered by the assessee, though not specifically similar. However, ....
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....rvices." 11.4 We find that the assessee is a company providing non-development software services, in the nature of conversion of data from hard copy or files into electronic format. The assessee is not providing any software development services to its AE. On the other hand, this company is also providing `Technical services' to its AE involving software testing, verification and validation of software, which are akin to software maintenance services falling, within the overall category of software development services. The TPO has taken entity level figures of TCS E-Serve International Ltd. for comparison. We note that, there is no bifurcation available in respect of the revenues of this company from Transaction processing (which are in the nature of ITES, the same as provided by the assessee) and Technical services (which are in the nature of software development, absent in the assessee's case). In the absence of the availability of any such segregation of the total revenue of this company, it is not possible to separately consider its profitability from rendering of `Transaction processing services'. As such, the entity level figures render this company as unfit f....
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....ect also makes this comparable is ITA No. 1202/Del./2015 Equant Solutions India Pvt. Ltd. V DCIT A.Y. 2010-11 inappropriate and therefore we order to exclude this comparable." 31.3 In view of our discussion above and respectfully following the decision of the Tribunal in the case of Ameriprise India Private Limited (supra) and Equant Solutions India Private limited (supra), we hold that the company TCS E-Serve International Ltd. cannot be compared with assessee company and accordingly, we direct the AO/TPO for exclusion of the above company from the set of the comparable for computing average margin of the comparables. Thus ground No. 3.3 is allowed. 32. In ground No. 3.4, the assessee has challenged disallowance of the working capital adjustment. This issue of allowing working capital adjustment has already been decided by us in preceding paras in ITA No. 1088/Del/2014 for assessment year 2009-10. There is no substantial change in the functions of the company as compared to assessment year 2009-10, accordingly, following our finding in ITA No. 1088/Del/2014, we direct that AO/TPO to allow the working capital adjustment to the assessee in the year under consideration. Thus, g....
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....e complete data for financial year 2010-11 was not available within the public domain. 8. The Ld. AO/Ld. TPO erroneously computed the margins of comparable companies selected by him. 9. The Ld. TPO, without prejudice, erred on facts and circumstances of the case by considering "reimbursement of expenses received" as operating in nature and consequently routed the same through Profit & Loss account while computing the Operating Income and Operating Cost of the Assessee for arriving at the PLI. 10. The Ld. AO/ TPO/DRP erred in fact and in law by considering the arm's length value of fixed assets imported by the Assessee from its AEs during FY 2010-11 as NIL, thereby making an adjustment of INR 69,550. 11. The Ld. AO/ Ld. TPO has erred in not appreciating the fact that the Appellant is a company incorporated under the provisions of the Companies Act, 1956 and enjoying the tax holiday benefits conferred under the tax holiday benefits as per the Software Technology Park of India (herein after referred to as "STPI") Scheme. Thus, there is no motive on the part of the Appellant to shift the profits to any other jurisdiction. 12. That on the facts and circumstances of the ca....
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....he list of comparables by the Tribunal in the case of Goldman Sachs (India) Securities Private Limited Vs. ACIT in ITA(TP) No. 927/Mum/2016. (B) Eclerx Services Ltd ( "Eclerx") 37.2 The learned AR submitted that the company is functionally dissimilar to the assessee company due to following reasons: (i) the company is engaged in providing data analytics and data process solutions to some of the largest brand in the word.( Page 73 of the paper book referred) (ii) the company is exporting in chosen market-trade processing support, reference data maintenance and margin and exposure management (page 74 of the paper book referred) (iii) it is an industry specialist company and helps in meeting complex clients need, that analytics specialisation into two business verticals-financial services and retail and manufacturing (page 75 of the paper book referred) (iv) it has a scalable delivery model and services offered including trade processing, reference data, accounting and finance and expense management activities 38. The Ld. CIT(DR), on the other hand, relied on the finding of the lower authorities. 39. We have heard the rival submissions and perused the relevant ....
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....an Rs. 3337.4 crores as on 1st April, 2010 and additions during the year were more than Rs. 756.24 crores. Thus, this company having huge intangibles assets cannot be compared with the assessee who has no significant intangibles. That apart, it has been pointed out by the Ld. Counsel that, this company has been emerged with TCS in the year 2009 which has led to shooting up of its profit margin to 13% to 68%-70%. This factor itself points out that its high profit margin were due to its huge brand value, which cannot be held to be comparable with captive service provider like Assessee Company. So far as the decision of ITAT Delhi Bench in the case of 'Techbooks International Pvt. Ltd' is concerned as pointed out by the Ld. Counsel, we find that this decision of the Tribunal has been distinguished and explained by the subsequent three decisions of the Delhi Bench of the ITAT, wherein, the Tribunal has categorically held that, in absence of any segmental details and segregation of the total revenue this comparable company cannot held to be comparable. The relevant observation of the Tribunal in the case of Ameriprise India Pvt. Ltd (supra) reads as under:- 12.5 We have....
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....d that the company cannot be compared with assessee and accordingly, we direct the AO/TPO to exclude the company from the set of the comparables for the year under consideration. Eclerx Services Ltd. 40.3 On perusal of the page 73 to 75 of the paper book, which are part of the annual report of the company, and the submission of learned Authorized Representative, We find that services provided by the company are completely different from the research related services rendered by the assessee to its AE and thus it cannot be treated as functionally similar to the assessee. Further we find that the Tribunal in the case of Goldman Sachs (India) securities private limited (supra) has excluded the above company for comparable to ITES companies. The relevant para of the decision is extracted as under: "4.2.a. We would like to deal with the inclusion/exclusion of the comparables by the DRP. We find that the Tribunal had excluded AT and ECL from the list of the valid comaparables, while deciding the appeal filed by the assessee for the earlier year(supra).We are reproducing the relevant paragraphs of the order and same read as under: "56.We have considered the submissions o....