TaxTMI 
TaxTMI 
2018 (3) TMI 1640
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....by the AO at Rs. 22.46,350/- as against declared income at Rs. 63,28,954/-. 3. That the reference made by the AO to the TPO suffers from jurisdictional error as the AO has not recorded any reasons in the draft assessment order/assessment order based on which he reached to the conclusion that it was 'necessary or expedient' to refer the matter to the TPO for computation of the arm's length price (ALP), as is required under Section 92CA(1) of the Act. 4. That the TPO/AO/CIT(A) have erred, in law and on facts and circumstances of the case, in making an adjustment of Rs. 6,59,17,396/- to the total income of the Appellant in respect of international transaction pertaining to provision of services to its Associated Enterprises ("AEs") and have erred by not accepting the economic analysis undertaken by the Appellant which is in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("Rules"). 5. That, on the facts and in circumstances of the case and in law, the AO/TPO/CIT(A) erred in not appreciating the Appellant's business model and functional and risk profile. 6. That, the TPO/ AO/CIT(A) have erred, in law and....
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....comparable companies to determine the ALP for the said transaction. The selection of such comparables is not in conformity with the principles as laid down Rule 1OB of the Rules . 14. That, the TPO/AO/DRP erred in not rejecting Accentia Technologies Ltd., Eclerx Ltd., Infosys BPO Ltd. and TCS e-serve Ltd., without appreciating that the said companies are not comparable to the Appellant. 15. That the TPO/AO/CIT(A) have erred in not appreciating that there are certain computational errors as the calculation of OP/OC of the Appellant is not in accordance with law. 16. That the TPO/AO/CIT(A) have erred in not appreciating that there are certain computational errors as the calculation of OP/OC of the comparable companies is not in accordance with law. 17. That the TPO/AO/CIT(A) erred in not granting the working capital adjustment to the Appellant. 18. That the CIT(A) erred in not appreciating that the functional profile of the Appellant and the TP Study stood accepted by the TPO/AO. 19. That, in view of the facts and circumstance of the case, the CIT(A) has erred on facts and in law in holding that the Appellant performs KPO services....
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....Ld. TPO accordingly issued notice to assessee and called for various details. 2.3. Ld.TPO observed that assessee was engaged in provision of IT Enabled Services (ITES) to its Associated Enterprises (AEs). It was observed that assessee was incorporated in India on 17/12/07 and was 100% export oriented unit set up under SEZ guidelines. It was observed that assessee carried out research driven by business information, market research and intellectual property research. Ld.TPO recorded that the client executives (based in Bermuda, US, Europe and Asia-Pacific) was operating from overseas, formed interface between client and assessee and the deliverable was typically in the form of research report that is forwarded directly to the client under the supervision and post a quality assurance by the AE's. It is also observed by Ld. TPO that the reports and research studies prepared by assessee are owned by the clients only and the operations of EVS SEZ India comprises of the following segments: * Marketing and After sales; * Strategic Policies; * Finance, Accounting and IT; * Human Resource Management. Assessee had categorised international transactio....
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....ble. Hence, can't be considered as a suitable comparable. 8. R Systems International Ltd. This company is having different financial year ending i.e. December. Hence, can't be considered as suitable comparable 2.7. Ld.TPO rejected all comparables except for Jindal Intellicom Pvt.Ltd., and came to different set of comparables, which are as under: Sl.No. Name of the Company OP/OC 1. Accentia Technologies Ltd. 29.18% 2. Aeropetal Technologies Ltd. (segment) 14.36% 3. e4e Healthcare Business Services P Ltd. 9.77% 4. Eclerx Services Ltd. 56.82% 5. ICRA Techno Analytics Ltd. (segment) 25.54% 6. Infosys BPO Ltd. 17.86% 7. Jindal Intellicom Ltd. 13.70% 8. TCS E-Serve Ltd. 69.31% Average 29.57% Ld.TPO thus made an adjustment of Rs. 6,59,17,396/- 3. Aggrieved by adjustment made, assessee preferred appeal before Ld. CIT (A). During the first appellate proceedings Ld. CIT (A) rejected the comparable, ICRA Techno Analytics Ltd., but accepted other comparables that was finally selected by Ld. TPO. 4. Aggrieved by the order of ....
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....liminary hypothesis based on the surveys. Assessee has extensive primary research capabilities, including the ability to conduct research in multiple languages. 4.5. Thus in the TP report assessee has characterised itself to be providing ITES-BPO services there and it provides researchbased specialized reports and services to its clients in Europe and North America. It undertakes projects spanning multiple dimensions including project scope, schedule, language, format of deliverables etc. Assessee makes use of a right of research tools including the Web databases and publications apart from analytics and forecasting. The industry covered include financial services (banking and insurance), high-tech, software, electronics, engineering, nanotechnology, networking, biomedical engineering), telecom equipment and operators, pharmaceutical and biotech chemicals, energy and consumer products. 4.6. In terms of assets it does not own any non-routine intangibles and does not own trade secrets or undertake research and development activities on its account that would lead to the development of non-routine tangibles. 4.7. In terms of risk assessee has been characterised as a hig....
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.... CLC) 7)Sun Life India Service Centre P. Ltd. (ITA No. 750/2015) (pg. 2. Eclerx services td.(pg. 734-37- Vol. 3-Annual Report) 1) Functionally dissimi lar (pg. 739, 740, 757, 758)- it is a KPO 2) Unreliable data- the standalone financials include the turnover of the subsidiar ies also (pg. 784, 808, 827) ' 3) Significant intangible assets.-(computer software- pg. 787) 4) Insufficient Segmental detai ls 1) Ameriprise India Pvt Ltd. (ITA No. 7014/Del/2014)(pg. 69-70 of CLC) 2) Rampgreen Solutions vs. CIT (ITA No. 102/2015)-377 ITR 533 (Del) 3 Igate global solutions td.(pg. 838-42- Vol. 3-mnual veport) 1. Exceptional year of operations (amalgamation) (pg. 888k hence fails TPO's own filter of peculiar economic circumstances 1) Delhi High Court- PCIT vs. Ameriprise India P. Ltd.- ITA No. 461/16- pg. 79A- 79B CLC 2) Functionally different and Insufficient segmental information (IT and ITES services) (pg. 888 and 893, 904, 910) 2) United HealthGroup Informat ion Services P. Ltd. (ITA No. 1038/D/15) (pg. 204-205 Of CLC) 3) High turnover (Rs. 932.18 crores) (pg. 879) (assessee's turnover is about 50 croresturnover is about....
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....owth-Total income is 3 times higher as compared to last year from 54 crores to 150 crores). Operating Income higher by 173% as compared to last year. From loss of 24 rores to profit of 44 crores this year, due to improved operational performance and increased utilization of infrastructure capacities, (pg. 1034) 1) United Health Group Information Services P. Ltd. (ITA No. 1038/D/15)(pg. 208-210 of CLC) 2) Equant Solutions India P. Ltd.(ITA No. 1202/D/2015) (pg. 184-187 of CLC) 3) Ameriprise India Pvt Ltd. (ITA No. 7014/Del/2014) (pg. 63-66 of CLC) 4) Bechtel India Pvt. Ltd. (ITA No. 1478/Del/2015) (pg. 95 of CLC) 5) Techbooks International Pvt. Ltd. (ITA No. 240/Del/2015 for AY 2010- 11) (pg. 19-24 of CLC) 6) Sun Life India Service Centre P. Ltd. (ITA No. 750/2015) 7. TCS E-Serve 1103-1144- Vol -4 Annual Report 01. Functional dissimilarity (pg. 1122) 02. No segmental details are available (pg. 1134) 03. Owns significant intangibles 04. Uses the TATA brand royalty is paid (pg 1131) 05. High turnover-27 times more than that of the assessee 1. United Health Group Information Services P. Ltd. (ITA No. 1038/D/15) (pg. 2....
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.... ITAT was cognizant of and took note of the circumstances that these entities had a high brand value and, therefore, were able to command greater profits; besides, they operated on economic upscale. This approach cannot be faulted having regard to the decision of this Court in Pr. Commissioner of Income Tax v. B. C. Management Services Pvt. Ltd. 2018 (89) Taxman.com 68 (Del), which reads as follows: "13. The exclusion of second comparable ICRA Techno Analytics Ltd. was on the basis that it had engaged itself in processing and providing software development and consultancy and engineering services/web development services. The reasons for execution were functional dissimilarities and that segmental data were unavailable. Again the findings of the ITAT are reasonable and based on record. The third comparable that the AO/TPO excluded is TCS Esserve. The ITAT observed that though there is a close functional similarity between that entity and the assessee, however, there is a close connection between TCS E-serve and TATA Consultancy Service Ltd. which was high brand value; that distinguished it and marked it out for exclusion. The ITAT recorded that the brand value associated w....
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....al reports placed in paper book at page 1-454 in respect of all the comparables argued before us for exclusion it is observed that there is no difference or exception to the functions performed by these comparables for assessment year 2010-11. 8.2. It is observed that this Tribunal in assessee's own case for assessment year 2010-11 vide paragraph nos. 9-14 and 16-29 excluded these comparable by analysing these comparables and its functions as under: "9. Accentia Technologies is selected by the ld TPO but is challenged now by the assessee submitting that it has an extra ordinary event during the year, functionally dis-comparable as it is engaged in medical transcription, has significant intangibles and abnormally high profit margin. For this proposition the ld AR relied upon several judicial precedents. The ld DRP rejected all the above contention of the assessee with respect to this comparable at page No. 23 to 26 of its order. 10. The ld DR reiterated the same facts as stated by lower authorities. 11. We have carefully considered the rival contentions as well as perused the annual accounts of the comparables. At page No. 1172, we have perused schedule....
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....;ble Delhi High Court of Ramgreen Solutions Pvt. Ltd Vs. CIT. 13. The ld DR submitted that the assessee is also a knowledge process outsourcing unit as it employs 616 personnel. He referred to page No. 6 of the order of the ld Transfer Pricing Officer for this. He submitted that assessee's case falls into all three horizontal segments of ITES industries such as call centre and technical support, payment supply chain and analytics. He therefore, stated that eClarx is the right comparable 14. We have carefully considered the rival contentions and perused the annual report of the comparable for AY 2010-11 at page No. 734 to 83.7 of the paper book. The functions of the company are described at page No. 23 of its annual report under management discussion and analysis. It provides that eClerx supports its clients through its two business units- Capital markets and sales and marketing support. Across both these units, the company supports and improves processes that are core of its customers day to day business operations. The company continues to focus on engagements where it can tap the largest percentage of client spend by leveraging its domain expertise and by bringi....
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.... an assessee engaged in rendering BPO services. In view of the direct judgment of the Hon'ble jurisdictional High Court on the point, we direct to eliminate e-Clerx from the list of comparables. As such, e-Clerx Services Ltd. cannot be considered as comparable. 16. The next comparable contested by the ld AR is ICRA Techno Analytics Ltd stating that this company is functionally not comparable as it is engaged in business intelligence and analytics. 17. The ld DR contested the argument of the assessee and submitted that the assessee is engaged in such high end services. 18. We have carefully considered the rival contentions. This company as per its annual accounts placed at Page NO. 1210 shows that it is engaged in the business intelligence and analytics space. It is also engaged in software development and consultancy, engineering services, web development and hosting services. It is also noted that it has two income segments of services and sales and it does not have the complete segmental information with respect to both the segments of services and sales as fixed assets and services are used inter-changeability. In view of this we find that this com....
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....ench in case of ITA No. 2536/Pn/2012 dated 11.02.2015 has discussed the profile as to what amounts to verification and validation in context of software. It was held that ostensibly verification and validation are broadly speaking a parcel of the process of software development. This company also contributes to Tata Brand Equity from this year and according to Schedule M of the financial statement during the year it has contributed Rs. 37 crores towards the brand. In view of this the functional profile of the assessee as well as the assets employ are not comparable. In view of this ld Transfer Pricing Officer is directed to exclude it. 25. The next comparable is TCS eServe Ltd. The assessee has contested it on the similar line as TCS Eserve International Ltd. 26. The ld DR relied on the order of the ld Transfer Pricing Officer and ld DRP. 27. We have carefully considered the rival contentions and also perused the annual report of the company for year ended 31.03.2010. The company is mainly engaged in IT enabled services and business process outsourcing. It is also providing technical services which involve software testing, verification and validation. It....
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....TP documentation. In view of this, we reject the argument of the assessee for exclusion of this comparable. 8.3. Respectfully following the same and following the observations of Hon'ble High Court in assessee's own case for assessment year 2010-11 (supra) we direct Ld. TPO to exclude these comparables from the final list of comparables. 8.4. Now coming to the comparables that have been argued by Ld. Counsel for exclusion, it is observed that the Tribunal for assessment year 2010-11 vide paras 30-32 set aside these comparables by observing as under: "30. The next comparable is R Systems Pvt. Ltd which was included by the assessee but excluded by the ld TPO for the reason that it follows different financial year compared to the assessee. It is apparent that R Systems Ltd is having the January to December as an accounting period. Therefore, the ld Transfer Pricing Officer did not consider the same. It is held in several decisions that if the assessee can demonstrate with publicly available authentic information for the remaining period and exclusionary period and further produces the tabulated data for the similar accounting year as followed by the assessee then if the....