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2018 (9) TMI 1020
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....Panel ('DRP'), erred in making an addition of Rs. 4,75,65,420/- to the Appellant's total income based on the provisions of Chapter X of the Income-tax Act, ('the Act'). (2) On the facts and in the circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding / confirming the action of the TPO of disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing study report maintained as per section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules') and the various submissions made by the Appellant. (3) On the facts and in the circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding/confirming the action of the TPO of conducting a fresh benchmarking analysis using non contemporaneous data and substituting the Appellant's analysis with fresh benchmarking analysis on his own conjectures and surmises. Thus the Appellant prays that the fresh benchmarking analysis conducted by the learned TPO is liable to be quashed or alternatively ignored. (4) On the ....
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....aw, the learned TPO erred and the Hon'ble DRP further erred in upholding/conf irming the action of the TPO in not demonstrating that the motive of the Appellant was to shif t prof its outside of India by manipulating the prices charged in its international transactions which is a pre - requisite condition to make any adjustment under the provision of Chapter X of the Act. The Appellant prays that the adjustment in relation to transfer pricing matters made by the learned AO/ TPO and upheld by the Hon'ble DRP be deleted. The appellants pray that the AO be directed suitably in the matter. The appellants crave leave to add to, alter, amend, vary, omit or substitute the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised." 2. Briefly stated, the assessee company which is a 100% subsidiary of Deutsche Asia Pacific Holdings Pte Limited, Singapore is a captive entity engaged in providing data processing and back office support services including payment processing, data processing, documentation processing, investigation related services and trade central process....
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....aid comparables worked out at 12.23%. However, the TPO rejected 8 out of 11 comparables and after selecting 10 additional comparables made a final set of 13 comparables for benchmarking the international transactions of the assessee, as under: Sr. No. Company Name Sales (Rs. cr.) OP to Total Cost% 1. Ace Software Exports Ltd. 4.97 7.72 2. Allsec Technologies Ltd. 92.25 28.51 3. Apex knowledge Solutions Pvt. Ltd. 4.92 20.48 4. Asit C Mehta Financial Services ltd (Earlier Known as Nucleus Netsoft & GIS (India) Ltd) 5.68 34.52 5. Cosmic Global Ltd. (Seg.) 3.11 16.03 6. Datamatics Financial Services Ltd. (Seg.) 2.31 24.99 7. Flextronics Software Systems Ltd (Seg.) 21.41 14.54 8. Goldstone Infratech Ltd (Seg.) (Earlier Known as Goldstone Teleservices ltd) 5.03 29.01 9. Maple eSolutions Ltd. 7.43 32.66 10. R Systems International Ltd (Seg.) 9.17 15.11 11. Spanco Ltd. (Seg.) (Earlier known as Spanco Telesystems & Solutions Ltd.) 82.32 20.86 12. Transworks Information Services Ltd. 163.3 19.56 13. Vishal Information Techn....
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....he ld. Authorized Representative (for short 'A.R') submitted that the assessee is a 100% subsidiary of Deutsche Asia Pacific Holding Pte. Ltd, Singapore and was incorporated on 24th March, 2003. It was submitted by the ld. A.R that the assessee which is a captive entity is engaged in providing data processing and back office support services including payment processing, data processing, documentation processing, investigation related services and trade central processing services to its AEs. It was submitted by the ld. A.R that the authorities below had wrongly rejected the comparables selected by the assessee and had most arbitrarily selected certain companies as comparables, despite the fact that the same were found to be functionally not comparable. We shall cull out the facts pertaining to the said respective comparables, contentions of the authorized representatives to buttress their respective claims and our observations as regards the same, as under:- (I). APEX KNOWLEDGE SOLUTION PVT. LTD: 9. The ld. A.R submitted that the aforesaid company which is engaged in rendering software development activities and is thus functionally incomparable to the assessee had wrongly b....
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....e final list of comparables. 10. We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record in context of the aforesaid company viz. M/s Apex Knowledge Solution Pvt. Ltd. We have deliberated at length on the contentions advanced by the ld. A.R in the backdrop of the material available on record and find substantial force in the same. We find from a perusal of the 'Annual report' of the aforesaid company for Financial year 2005-06 that it was primarily engaged in rendering software development activities. The aforesaid fact that M/s Apex Knowledge Solution Pvt. Ltd. was into export of software and related technical services can safely or rather inescapably be gathered from a bare perusal of the directors report, Profit and loss account Schedule 13 forming part of accounts and the abstract of the companies general business profile to which our attention was drawn by the ld. A.R during the course of hearing of the appeal. We are further in agreement with the claim of the ld. A.R that now when the aforementioned concern viz. M/s Apex Knowledge Solution Pvt. Ltd. was identified by the TPO as a com....
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....n that no separate segment for ITeS was available, the ld. A.R drew our attention to the 'Segment data' of the aforementioned comparable at Page 614 of the 'APB'. In the backdrop of the aforesaid contention, it was averred by the ld. AR that as no separate segmental data for ITeS was available in respect of the aforesaid compaany which was engaged in software development activities as well as ITeS, thus the same could not have been selected as a comparable. Alternatively, It was further submitted by the ld. A.R that as during the year under consideration M/s Nucleus Net Soft & GIS (I) Ltd. had amalgamated with M/s Asit C. Mehta Financial Services Ltd., hence the same being a peculiar economic event which would had affected the business and the financials of the said company, thus on the said count also could not have been considered as a comparable in the year of amalgamation itself. The Ld. AR in order to buttress his aforesaid contention took us through the 'Notes to accounts' at Page 582 of the APB, which revealed that pursuant to sanctioning of the amalgamation by the Hon'ble High Court of Bombay on 22.02.2006 the amalgamation had taken place w.r.e.f. 01.04.2005. Per contra, th....
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.... sub-contractor. It was averred by the ld. A.R that the aforesaid expenditure incurred by the said company worked out to 52.45% of its total cost of Rs. 2,68,30,497/-. On the basis of the aforesaid facts, it was submitted by the ld. A.R that as the said company viz. M/s Cosmic Global Ltd., unlike the assessee, had outsourced its translation activities, hence its business model was different from that of the assessee. The ld. A.R in order to fortify his aforesaid contention further submitted that a perusal of the 'Notes' forming part of accounts for the year ended 31.03.2006 (Page 452 of APB) of the aforesaid company viz. M/s Cosmic Global Ltd revealed overseas payment of translation charges of Rs. 80,32,952/-, which thus evidenced the fact that the said concern had outsourced its translation work. The ld. A.R further submitted that the fact that the aforesaid company had outsourced a significant portion of its business to others was appreciated by the Tribunal while disposing off the appeal in the assesses own case for A.Y 2005-06. The ld. A.R drawing our attention to the order passed by the Tribunal in its own case viz. M/s DBOI Global Services Pvt. Ltd. Vs. ACIT (OSD) Circle-2(1)....
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....nal list of comparables. The AO/TPO are directed to exclude the aforementioned comparable viz. M/s Cosmic Global Ltd. from the final list of comparables. (IV). GOLDSTONE INFOTECH LTD. (Formerly known as: Goldstone Tele Services Ltd):- 15. The ld. A.R submitted that the TPO had rejected the comparables selected by the assessee by applying the export filter and had excluded the companies which had an export sale of less than 25%. The ld. A.R in order to fortify his aforesaid contention drew our attention to Page 4 of the order passed by the TPO wherein two comparable selected by the assessee viz. (i) M/s Ask Me Info Hubs Ltd.; and (ii) M/s CMC Ltd. were rejected by him for the reason that their respective export sales were less than 25% of the total sales. In the backdrop of the aforesaid facts, it was the contention of the ld. A.R that the revenue generated by the aforementioned company viz. M/s Goldstone Infratech Ltd. during the year under consideration from export of goods was only to the extent of Rs. 4,24,510/- as against its total revenue receipts of Rs. 30,89,44,530/-. It was thus submitted by the ld. A.R that the percentage of revenue from export of goods as against th....
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....tion of the same as a comparable by the TPO in disregard of the export filter which was applied by him while rejecting the comparables selected by the assessee company would not be permissible. We thus, being of the considered view that as the export turnover of the aforementioned company viz. M/s Goldstone Infratech Ltd. is found to be substantially less than 25% of its total sales, therefore, the same as per the export filter applied by the TPO for analysing the functional comparability of the comparables selected by the assessee could not have been taken as a comparable for benchmarking the international transactions of the assessee with its AE's. On the basis of our aforesaid observations we direct the AO/TPO to exclude M/s Goldstone Infratech Ltd. from the final list of comparables. (V). MAPLE eSOLUTIONS LTD: 17. The ld. A.R adverting to the functional comparability of the aforementioned company submitted, that it was during the under consideration engaged in sale of software and call centre services for which no separate segmental data was available. The ld. A.R further submitted that as the aforementioned company was functionally incomparable, hence on the said count i....
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....th its AE's. 18. We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record in context of the issue pertaining to selection of the aforementioned company viz. M/s Maple eSolutions Ltd. as a comparable by the TPO. We find from a perusal of the order passed by the TPO under Sec. 92CA(3) in the case of the assessee for A.Y 2008-09 that the aforementioned company viz. M/s Maple eSolutions Ltd. was rejected as a comparable by him interalia for the reason that no separate segmental data in respect of ITeS sector were available. Still further, the CIT(A) while disposing of the appeal of the assessee for A.Y 2007-08, taking cognizance of the fact that there was no change of facts during the year as in comparison to A.Y 2008-09, had thus directed that the said company be excluded from the final set of comparables. We have further perused the order passed by the Tribunal while disposing off the appeal in the assesses own case for A.Y 2005-06 viz. M/s DBOI Global Services Pvt. Ltd. Vs. ACIT (ITA No. 812/Mum/2012, dated 24.08.2016). We find that the Tribunal in its aforesaid order while adjudicating on t....
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....rom the final list of comparables. Per contra, the ld. D.R relied on the orders passed by the A.O/TPO and submitted that no infirmity did emerge from selection of the aforementioned company which after necessary deliberations was found to be functionally comparable with the assessee. 20. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record in context of selection of the aforementioned company viz. M/s Datamatics Financial Services Limited as a comparable by the TPO for benchmarking the international transactions of the assessee with its AE's. We find that the Tribunal in its order passed in the case of the M/s Stream International Services ltd. Vs. ADIT (International Taxation)-7(2), Mumbai [ITA No. 8997/Mum/2010, dated 11.01.2017] for A.Y 2006-07, had observed that as the RPT of the aforementioned company viz. Datamatics Financial Services Limited was found to be more than 25%, hence the same was directed to be excluded from the final list of comparables. We find that the TPO in the case before us while carrying out comparability analysis of the comparables which were selected by the ....
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....further submitted that the Tribunal in the assesses own case for A.Y 2005-06 viz. M/s DBOI Global Services Pvt. Ltd. Vs. ACIT (OSD), Circle-2(1), Mumbai (ITA No. 812/Mum/2012, dated 24.08.2016) had observed that a perusal of the annual report of the aforesaid company M/s CS Software Enterprises Limited revealed that it was into ITeS/BPO service. However, being of the view that the functional profile of the company along with assets employed and risk undertaken was required to be examined in detail for coming to a conclusion as to whether the said company was comparable to the assessee, the Tribunal had restored the issue relating to comparability of the aforementioned company to the file of the AO/TPO for deciding the said issue afresh after affording due opportunity of being heard to the assessee. In the backdrop of the aforesaid facts, it was the contention of the ld. A.R that it was incorrect on the part of the TPO to have stated that the aforesaid company viz. M/s CS Software Enterprises Ltd. was not functionally comparable to the assessee. Per contra, the ld. D.R drawing our attention to the directors report of the aforementioned company at Page 702 of APB, submitted that the ....
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.... not comparable to the assessee. It was submitted by the ld. A.R that the said company was rejected as a comparable on two grounds viz. (i) that the aforesaid company was into Registrar & Transfer Agent Activities, which were obviously not the activities performed by the assessee; and (ii) that as the activities rendered by the aforesaid company pertained to the domestic segment only, hence the same could not be compared to the services which were provided by the assessee to its overseas customers. It was the contention of the ld. A.R that as the Registrar & Transfer Agent Activities performed by the aforesaid company viz. MCS Ltd. were akin to the back office functions performed by the assessee, hence it could safely be concluded that it was functionally comparable to the assessee. Per contra, the ld. D.R relied on the orders of the A.O/TPO. It was submitted by the ld. D.R that as the Registrar & Transfer Agent Activities performed by the aforesaid company viz. MCS Ltd. were functionally different in comparison to the back office functions provided by the assessee, hence, no feasible comparison could have been made by selecting it as a comparable. Further, it was the contention of....
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....said company viz. M/s MCS Limited from the final list of comparables. (III) TATA SHARE REGISTRY LTD: 26. The ld. A.R submitted that the aforesaid company viz. M/s Tata Share Registry Limited which was providing services of record management, payroll and Registrar and Transfer Agent which are akin to the back office functions performed by the assessee, being functionally comparable was rightly selected as a comparable for benchmarking the international transactions of the assessee with its AEs. It was submitted by the ld. A.R that the TPO failing to appreciate that the activities performed by the aforementioned company were similar to the activities of the assessee company which was engaged in data processing, documentation processing, document checking, data entry, tracers and submissions, had thus wrongly rejected the said company as a comparable. It was the contention of the ld. A.R that the activities as that of a transfer agent involves maintenance of records and account balances of investors, cancel and issue certificates, process investor mailings and deal with any associated problems i.e. lost or stolen certificates etc., as would be assigned to such agent by a trust c....
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....erseas customers, it can safely be concluded that the business model and the field of operation of the assessee and the aforementioned company are found to be substantially different. We thus, finding no infirmity in rejection of the aforesaid company as functionally incomparable as against the assessee, thus uphold his order to the said extent. (IV) ASK ME INFO HUBS LTD:- 28. The ld. A.R adverting to the aforesaid company viz. M/s Ask Me Info Hubs Ltd. which was selected by the assessee as a comparable for benchmarking its international transactions with its AEs, but was rejected by the TPO, submitted that the said company being functionally comparable to the assessee was thus rightly selected as a comparable. It was submitted by the ld. A.R that the aforesaid company had incurred most of its expenses on account of call centre data expenses and business centre charges. In order to fortify his aforesaid contention the ld. A.R drew our attention to the 'Schedule 8' forming part of the Profit and loss account for 31.03.2006 of the aforesaid company (Page 626 of APB). It was further submitted by the ld. A.R that the business description disclosed by the aforesaid company clearly....
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....ome Tax Act Rules, 1962 was done. The ld. A.R submitted that the TPO had allowed such working capital adjustment in the assesses own case for A.Y 2005-06, A.Y 2007-08, A.Y 2008-09, A.Y 2009-10, A.Y 2012-13 and A.Y 2013-14. In order to fortify his aforesaid claim, the ld. A.R took us through the relevant extract of the order of the TPO for A.Y 2008-09 (Page 1376 of APB) which revealed that the TPO after observing that there was significant difference in level of working capital deployed by the assessee and the comparable companies for operating their business, had thus accepted the submission of the assessee and accordingly adjusted operating margin of cost reduction by 1.60%. The ld. A.R taking support of the aforesaid facts submitted, that on similar lines keeping in view the difference in level of working capital deployed by the assessee and comparable companies, working capital adjustment may be carried out. Per contra, the ld. D.R objected to the seeking of working capital adjustment by the assessee. 31. We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record in context of the issue as....
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....he risk adjustment to the net margin of the comparables for bringing them at par with the assessee company. The ld. A.R further relied on the orders of the ITAT Hyderabad in the case of DCIT Vs. M/s Hello Soft India Pvt. Ltd.(ITA No. 645/Hyd/2009) and M/s DE Saw India Software Pvt. Ltd. Vs. ACIT (ITA No. 2071/Hyd/2011). It was submitted by the ld. A.R that the assessee in its appeal before the Tribunal for A.Y 2005-06 had relied on the aforementioned orders of the coordinate bench of the Tribunal, taking cognizance of which the Tribunal had restored the matter to the file of the TPO for deciding the same afresh, keeping in view the aforesaid decisions of the coordinate benches. Per contra, the ld. D.R objected to the contention of the assessee that in the backdrop of the nature of risk involved in the case of the assessee as against that of the comparables necessary risk adjustment be given to the net margin of the comparables for bringing them at par with that of the assessee company. 34. We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record. We find that the Tribunal while disposing of....