TaxTMI 
TaxTMI 
2018 (8) TMI 658
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....ll within +_3% range, the transactions were concluded to be at Arm's Length. 3. Observing that the search process as well as the choice of filters adopted by the assessee are not in conformity with the Transfer Pricing regulations, the TPO rejected the assessee's T.P study and conducted fresh analysis aggregating all the transactions under TNMM. Out of the 7 companies adopted by the assessee as comparables, the TPO accepted only one company i.e. e4e Healthcare Business Services Private Ltd as a comparable to the assessee. Thereafter, he proposed six other companies as comparables. The assessee raised its objections to all the comparables proposed by the TPO. However, the TPO rejected the assessee's objections and finally adopted the following companies as comparables and arrived at the mean margin of 22.30%. i) Acropetal Technologies Ltd (Seg.) ii) Microgenetics Ltd iii) Infosys BPO Ltd iv) Microland Ltd v) Capgemini Business Services (India) Ltd vi) e4e Healthcare Business Services Pvt. Ltd vii) Hartron Communications Ltd (Seg.) 4. Thereafter, he computed the ALP as under: Description Amount (in Rs.) Arm....
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....t on the facts and circumstances of the case and in law, the TPO/AO/ DRP erred in confirming acceptance of following companies as comparables as selected by the TPO: a) Capgemini Business services (India) Limited; b) Infosys BPO Limited and c) Hartron Communications Limited (Seg). 4. That on the facts and circumstances of the case, the TPO/AO/ DRP erred in accepting companies disregarding the comparability factors such as brand, giant size, scale of operations, having diversified operations, extra-ordinary events etc. 5. That on the facts and circumstances of the case and in law, the TPO/AO/DRP erred in accepting Hartron Communications Limited without appreciating that the auditor has qualified its report on account of noncompliance with Accounting Standard-15 regarding provision for retirement expenses, for which impact on profits is not ascertainable. Error in computation of margin of comparable companies 6. That on the facts and the circumstances of the case and in law, the TPO/AO/DRP erred in confirming the TPO's stand of treating the provision for bad and doubtful debts as non-operating expenses for the purpose....
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....circumstances of the case and in law, the TPO/AO/DRP erred in not applying upper limit for sales turnover filter. Rejection of use of multiple year data 16. That on facts and circumstances of the case and in law, the TPO/AO/DRP erred in rejecting the use of multiple year data and using data for FY 2012-13 only. Adjustment for risk differences 17. That on the facts and circumstances of the case and in law, the AO/DRP erred in disregarding the risk profile of the Appellant vis-a-vis comparable companies selected by the TPO and not allowing risk adjustment as per the provisions of Rule 10B(1)(e) of the Rules. Arm's length range of 3% 18. That the AO/TPO be directed to re-work the profit margins of the Appellant vis-a-vis the resultant comparable companies and to allow the benefit of +/-3% range as provided in proviso to Section 92C(2) of the Act. 19. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal". 6. At the time of hearing, the learned Counsel for the assessee submitted t....
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....d by not rejecting Infosys as comparable, as exclusion of Infosys as comparable is upheld by Jurisdictional ITAT in assessee own case (ITAT No.255/Hyd/2014 &ITA.No.1850/Hyd/2012) for AY 2009-10 and AY 2008-09. It is submitted that the company should be excluded due to the following reasons :- Functional dissimilarity - Niche Areas That Infosys SPO is backed by Infosys Technologies Limited which supports Infosys SPO to offer an integrated IT-BPO delivery model designed for 'one stop shop' solution model which helps managing the entire outsourcing operational chain of IT and process management services. Infosys BPO's Business Service Centre performs the back office functions for dispersed business units and locations. A pictorial presentation of back office functions is displayed below: Presence of brand That while considering Infosys BPO as a comparable company, due consideration should be given to the fact that Infosys spa possesses brand value which will tend to influence the pricing policy and thereby directly impacting the margins earned by Infosys spa. As seen from an extract of the Schedule 200200 (Selling and marketing expenses)....
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....lue and brand building exercise, having huge asset base, can be considered to arrive at the conclusion that Infosys BPO is functionally not similar to that of assessee. Infosys BPO stands on its own as an exclusive BPO of the Infosys Technologies and in earlier years, generally Infosys BPO is excluded in many of the cases. Considering these aspects, we are of the opinion that even though the profits of the Infosys BPO Ltd. is reasonable and no super profits are earned, because of its big brand value this company has to be excluded on the grounds of functional dissimilarity on FAR Analysis. Therefore, we direct the Assessing Officer/TPO to exclude this company." The Hon'ble ITAT has taken similar view in A.Y. 2008- 09 also. Having considered the submission, even though we are in agreement of the exclusion of the above company, due to turnover, however, respectfully following the decision of the Hon'ble ITAT on functional differences, including the influence of the brand value on the margins, we direct the A.O. to exclude the above company from the comparables". 18.5. In view of the detailed reasons given by the DRP in excluding the company, not only on the ....
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....s. 9. As regards Hartron Communications Ltd is concerned, the learned Counsel for the assessee submitted that this company is also functionally dissimilar as it provides multiple services like BPO, LPO, Back Office Software Development, Technical Solutions, Medical Building, etc., and that the segmental information is not available. It was also brought to our notice that the Auditor has clarified about the non-compliance regarding provisions for retirement benefits and impairment of the assets. Further, he submitted that the assessee has taken the objection about this company before the DRP, but the DRP has not discussed the same and has simply confirmed the order of the TPO. 10. Having regard to the rival contentions and the material on record, we find that before the TPO, the assessee had only taken an objection that the said company is functionally dissimilar. Before the DRP also, the assessee had also stated that in addition to the BPO, LPO and ITeS services, this company is also engaged in providing Intellectual Property Services in the nature of patent search, patent protection, and obtaining the trade-mark services, IP Management and further in software development ser....
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....tions with related parties are also reported. Therefore, we are of the opinion that this company needs to be considered as a comparable. The AO is directed to verify the information filed by the assessee and if it satisfies the RPT filter, then the same should be considered as a comparable. 15. As regards Caliber Point Business Solutions Ltd (Seg.) is concerned, the learned Counsel for the assessee reiterated the submissions made before the authorities below. However, on going through the material and the Annual Report of the company, we do not find it to be a comparable to the assessee. Therefore, the exclusion of the company from the list of comparable is confirmed. 16. As regards Informed Technologies Ltd is concerned, the TPO had rejected the same on the ground that it is functionally not comparable while the DRP stated that it fails income from ITeS more than 75% to total operating revenue filter. The learned Counsel for the assessee submitted that the said company is engaged in ITeS services as per the Annual Report and was accepted as a comparable in the assessee's own case for the A.Ys 2011-12 and 2012-13. With regard to the DRP's finding that it fails income from ITe....