TaxTMI 
TaxTMI 
2018 (8) TMI 712
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....ng 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(3) 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 INR. 9, 914, 264/- 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 by: 3.1 Not accepting the quantitative tillers selected by the Appellant in its transfer pricing documentation/fresh search and by instead applying additional quantitative filters which lacked valid and sufficient reasoning; 3.2 Rejecting companies selected by the Appellant in its transfer pricing documentation/fresh search even when such ....
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....rendering back office support services to Torus group. During the year under consideration, the assessee e-filed its return of income on 15.10.2010 declaring an income of Rs. 1, 36, 30, 121/-. The case was selected for scrutiny. Since, the assessee had entered into international transactions with its associated enterprises (AEs). The AO referred the matter to the Transfer Pricing Officer (TPO) to determine the arm's length price of the international transactions u/s 92CA(3) of the Act. The TPO noticed that the assessee had entered into following international transactions: S. No. Type of international transaction Method selected Total value of transaction (Rs.) 1. Provision of ITES/BPO services TNMM OP/TC 9, 40, 46, 135 2. Reimbursement of expenses paid TNMM OP/TC 1, 29, 63, 118 6. The TPO also noticed that the arm's length price of the international transactions representing IT enabled services provided to the AEs was determined by the assessee by applying transactional net margin method (TNMM) and the operating profit to total cost ratio (OP/OC) was taken as the profit level indicator (PLI) in the TNMM analysis. He also....
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....2009-10. This filter is being applied because even after application of this filter, there are several comparable companies available in the domain. iii. Reject companies where turnover is less than Rs. 5 Crore: As discussed above. iv. Select companies where the ratio of service Income to total Income is at least 75%: As discussed above. v. Select companies where income from exports Is at least 75% of total Income: This filter is required to be applied since the taxpayer is primarily earning income from exports, as already discussed supra. Even in cases where an assessee is having income from domestic operations, the transfer pricing audit will only benchmark transactions with the AE, which are mainly export transactions. There are judicial pronouncements that support the case that exporters should not be compared with domestic companies. Hence, this filter is required to be applied with a threshold of 75%. vi. Reject companies where related party transactions exceed 25% of sales: There is no doubt that companies with significant related party transactions need to be excluded from the benchmarking process. On the issue of threshold of related par....
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....ble. 4. Nittany Outsourcing Services Pvt. Ltd. This is a suitable comparable. 5. Datamatics Financial Services Ltd. This company fails service income filter (55.23%). Hence, not a suitable comparable. 6. Omega Healthcare Management Services Pvt. Ltd. Complete financials of the company aren't available on the public domain. Hence, not a suitable comparable. 7. Jeevan Softech Ltd. This company is having sales below Rs. 5 crores. Hence, not a suitable comparable. 8. R System International Ltd. This company is having financial year ending other than March. Hence, not a suitable comparable. 9. Caliber Point Business Solutions Ltd. (Segmental) This company is having financial year ending other than March. Hence, not a suitable comparable. 10. Ultramarine & Pigments Ltd. This company is having significant RPT in respect of providing of IT Enables Services. Hence, not a suitable comparable. 11. First Object Technologies Ltd. Employee cost is less than 25% of total cost 12. Saraswat Infotech Fails export filter. 13. Crossdomain Solutions Pvt. Ltd. Currently data is not available ....
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....were also having the intangibles and also made payment for TATA brand equity, therefore, the aforesaid five comparables need to be excluded. It was also submitted that this Bench of the Tribunal has rejected the first four comparables while deciding the appeal in ITA No. 12.02/Del/2015 for the assessment year 2010-11 in the case of Equant Solutions India Pvt. Ltd. Vs DCIT vide order dated 21.01.2016 (copy of which is placed at page nos. 114 to 144 of the assessee's compilation). It was further submitted that the said order was followed in the case of Omnigloble Information Technologies Pvt. Ltd. Vs ACIT, Circle-6(1), New Delhi reported at (2016) 74 Taxmann.com 25 (Del.) (copy of which is placed at page nos. 167 to 179 of the assessee's paper book). It was further submitted that the comparables M/s e4e Healthcare Business Services Ltd. has been directed to be excluded by the ITAT Delhi Bench 'I-2', New Delhi in ITA No. 1478/Del/2015 for the assessment year 2010-11 in the case of Bechtel India Pvt. Ltd. Vs DCIT vide order dated 21.12.2015 (copy of which is placed at page nos. 74 to 94 of the assessee's compilation). It was further submitted that in the subsequent years i.e. assessmen....
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....nage their business process and providing value added services to them. Further, the Infosys also carrying huge brand value and therefore this comparable should not be taken. b. Ld DR Relied on the orders of lower authorities and stated that all the reasons have been considered by the TPO and DRP for inclusion of this comparable. c. We have considered the rival contention regarding exclusion of Infosys BPO Ltd. It is engaged in high and integrated services and therefore it is functionally dissimilar. The Infosys brand is indisputably is a huge brand and definitely, result of that brand goes to this comparable. Therefore, the brand of Infosys definitely results in opening higher profits to this company. In view of the following decisions, the same is required to be excluded and hence it is ordered accordingly. 23. TCS E Serve International Ltd, a. This comparable was taken by TPO where the margin is 54.02%. The TPO has taken this comparable considered this a company in IPS industry and considered it as a singled segment. The TPO was also of the view that there are no exceptional circumstances, which is related in the increase in the profit. Before....
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.... 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 been 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 service such as software testing, verification and validation. It is also developed a software such as transport management software therefore functionally this company is dissimilar to the assessee company. It also owns huge intangible and use of 'Tata' Brand, which has definitely benefited this comparable, it is directed to be excluded." 13. Since, the facts in assessee's case are similar to the facts involved in the case of Omniglobe Information Technologies Pvt. Ltd. Vs ACIT (supra). So, respectfully following the said order dated 07.09.2016, we direct the AO to exclude the aforesaid comparable while working out the arm's length price. 14. As regards to M/s Accentia Technologies Ltd. and M/s e4e Healthcare ....
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....n the facts and in the circumstances of the case, the DRPII erred in directing to reduce the addition of Rs. 1, 52, 88, 220/- on account of proposed addition of arm's length price of the international transaction with its associated enterprises." 2. "On the facts and in the circumstances of the case, the DRP-II erred in directing TPO to exclude 5 mentioned below companies from the final set of comparables : i) Acropetal Technologies Ltd. ii) e-Clerx Services Ltd. iii) ICRA Techno Analytics Ltd. iv) Infosys BPO Ltd. v) TCS E-Serve Ltd." 3. "The appellant craves, leave for reserving the right to amend, modify, alter, add or forego any ground (s) of appeal at any time before or during the hearing of appeal." 18. From the aforesaid grounds, it is noticed that the grievance of the department relates to the direction of the ld. DRP to exclude the five comparables. Out of those five comparables, M/s Infosys BPO Ltd. and TCS E-Serve Ltd. were also directed to be excluded while deciding the assessee's appeal for the assessment year 2010-11 in ITA No. 1974/Del/2015. Therefore, our finding given therein shall apply mutatis ....
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....ck end support whereas the comparable is in to KPO business and engaged into development and sale of products. Hence these are to be excluded. Accentia Technologies Ltd. was accepted in last DRP order. In order to maintain consistency, this comparable shall be retained. II. Infosys BPO Ltd. & TCS E-Serve Ltd.: These are mega Companies and require to be excluded as discussed in earlier paras." 22. Now the department is in appeal. The ld. Sr. DR strongly supported the order of the TPO/AO while the ld. Counsel for the assessee submitted that the ld. DRP was fully justified in directing the AO to exclude the comparables on account of functional dissimilarity. It was further submitted that M/s Eclerx Services Ltd. and M/s ICRA Techno Analytics Ltd., TCS E-Serve Ltd. were directed to be excluded by the Hon'ble Delhi High court in the case of Pr. CIT Vs B. C. Management Services (P.) Ltd. (2018) 403 ITR 45 (copy of which is placed at page nos. 23 to 34 of the assessee's paper book). It was further submitted that M/s Acropetal Technologies Ltd. is also functionally different and directed to be excluded by the ITAT Delhi Bench 'I-2', New Delhi in the case of Cadence Des....
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....asonable. The rationale for exclusion is therefore upheld. The assessee was aggrieved by the inclusion of Accentia a Software Development Company. The Revenue is aggrieved by the exclusion of Accentia from the TP analysis. The DRP had directed its deletion. We observe that the ITAT has noticed the unavailability of the segmental data so far as these comparables are concerned. Furthermore, the functionality of this entity was concerned, it is different from that of the assessee; Accentia was engaged in KPO services in the healthcare sector." 24. We, therefore, by respectfully following the aforesaid referred to order, are of the view that the ld. DRP was fully justified in directing to exclude Eclerx Services Ltd. and ICRA Techno Analytics Ltd. also from the list of the comparables. 25. As regards to the exclusion of M/s Acropetal Technologies Ltd. is concerned, it is noticed that the ITAT Bench 'I-2', New Delhi in the case of Cadence Design Systems (I) (P.) Ltd. Vs ACIT, Circle-5(2), New Delhi (supra) held as under: "25. Assessee objected this company to be in the list of comparables mainly on the ground that this company employees cost is less than 25% of the total ....