TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 1621
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1.2 That the Assessing Officer/ DRP erred on facts and in law in holding that the appellant was ineligible to claim deduction under section 10B of the Act on the ground that the appellant had received approval from the Director of Software Technology Park of India (STPI ) and not by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of Industrial (Development arid Regulation) Act, 1951. 1.3 That the Assessing Officer/ DRP erred on facts and in law in not appreciating that the approval granted to the appellant by STPI, was under delegated powers from the Inter Ministerial Standing Committee in terms of Notification No. 4 (RE-95/92-97) dated 30.04.1995, issued by the Director General (Foreign Trade), Ministry of Commerce and Inter - ministerial communication letter No. D.O. No. 4(1)/2006 IPHW dated March 23rd 2006, issued by the Secretary of Ministry of Communications & Technologies. Without Prejudice 1.4 That the Assessing Officer/ DRP erred on facts and in law in rejecting the claim of deduction under section 10B of the Act which has consistently been allowed since assessment year 2006-07. 1.5 The Assessing Off....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that during the year the company was amalgamated with Asscentlnfoserve Pvt. Ltd. and accordingly, the financial results of the company are influenced with the financial statement of another company. 2.6 That the DRP/TPO erred on facts and in law in considering TCS E- Serve Ltd. and TCS E-Serve International Ltd. as comparable to the appellant without appreciating that these companies are providing services to a single customer and therefore, does not satisfy the filter of related party transactions applied by the TPO. 2.7 That the DRP/TPO erred on facts and in law in considering TCS E- Serve Ltd. in the final set of comparable companies without appreciating that the financial results of the company cannot be considered on account of (i) provision for errors amounting to Rs. 4,28,54 thousands made in the accounts and (ii) change in the method of revenue recognition. 2.8 That the DRP/TPO erred on facts and in law in considering following companies in the final set allegedly holding them to be functionally comparable to the appellant for the purpose of benchmarking analysis: (i) Accentia Technologies Ltd. (ii) TCS E-Serve Ltd. (iii) E4e Healthcare (iv)lnfosys BPO ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ration, the assessee filed return of income on 30/09/2010 declaring income of Rs. 3,78,120/- after claiming a deduction of Rs. 2,79,46,551/- under section 10B of the Income-tax Act, 1961 (in short 'the Act'). The case was selected for a scrutiny and notice under section 143(2) of the Act was issued and complied with. During assessment proceeding, the Assessing Officer noticed following international transaction carried out by the assessee company: S. No. Type of international transaction Method selected Total value of transaction (Rs.) MAM PLI 1. Provision of re-search and analyst services TNMM OP/TC 183,835,355 2.1 For determining arm's-length price of the above international transaction, the Ld. AO referred the matter to the Ld. Transfer Pricing Officer (TPO). The Ld. TPO in his order under section 92CA(3) of the Act dated 27/01/2014 proposed adjustment of Rs. 1,91,52,594/-. The Assessing Officer was also of the view that the assessee was not entitled for deduction under section 10B of the Act. The alternative request of the assessee for allowing deduction under section 10A of the Act was also rejected by the Assessing Officer. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ground which rendered the escaped income as non-taxable and restored the matter to the file of the Assessing Officer to examine the allowability of deduction under section 10A of the Act. The relevant finding of the Tribunal (supra) is reproduced as under: "12. Now coming to the submission of the learned AR basing on the decision of the jurisdiction High Court in review petitions in Regency Creations Ltd. (supra) and Valiant Communications (supra), we find that the Regency Creations, the Hon'ble jurisdictional High Court held as follows: "We have carefully considered the records and submissions. It appears that the assessee had claimed the benefit of Section 10A. Therefore, AO must in fairness consider the documents on the basis of the claim and ascertain whether they are proper and after verifying them, pass appropriate order as to whether the benefit of Section 10A can be granted." Almost similar was the finding of the Hon'ble Jurisdictional High Court in the case Valiant Communications Ltd. (supra). 13. In the preceding paragraphs, while following the decisions of the Hon'ble High Court, we held that it is open to the assessee to put forth claim for non-taxability of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quality. The Ld. TPO made his own search of comparables and finally selected 9 comparables and also allowed working capital adjustment to the PLI of the comparables, list of which is reproduced as under: S.No. Company Name OP/OC Working Capital Adj. OP/OC i. Accentia Techologies Ltd. 43.07 42.20 ii. Cosmic Global Ltd. 18.28 22.29 iii. e4e Healthcare 31.03 33.55 iv. I-gate Global Ltd. 24.54 26.09 v. Infosys BPO Ltd. 31.46 32.17 vi. Jindal Intellicom Ltd. 13.62 16.95 vii. Omega Healthcare 15.31 16.74 viii. TCS E-Serve International Ltd. 53.80 57.43 ix. TCS E-serve Ltd. 63.38 67.27 Average 32.72 34.97 5.2 The Ld. TPO computed the transfer pricing adjustment as under: Particulars Amout INR Operating Cost 152,493,592 Arm's length margin (%) 34.97% Arm's length margin (Rs.) 53,327,009 Arm's length price 205,820,601 Price charged by the assessee 186,668,007 105% of Price charged in international transaction 196,001,407 Difference for which adjustment is proposed to be made 19,152,594 5.3 Before the Ld. DRP, the assessee challenged applying of various filters and re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see, now we are adjudicating grounds of appeal of the assessee seeking exclusion of following comparables: Infosys BPO Limited 6. The learned counsel of the assessee submitted that the company is a part of Infosys group, a giant in the field of IT services and as a result of being a part of the Infosys group, it enjoys the benefits such as brand Infosys, availability of skilled manpower and technical know-how etc. During the year, the company has won many prestigious accolades, which has strengthen the reputation and goodwill of the company worldwide. 6.1 The Ld. counsel also submitted that during the year under consideration the company acquired MaCanish systems LLC, which provides premium business process outsourcing services to the insurance, retirement and financial service industries and revenue of the company has increased from Rs. 1081.53 crores in preceding financial year to Rs. 1126.63 crores in current financial year. In support of contention of excluding the company from the set of comparables, the Ld. counsel relied on following judicial pronouncement: (i) Delhi bench Tribunal in the case of Ameriprise India (P) Ltd Vs. DCIT (ITA No. 7014/Del/2014) (ii) Hyderaba....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... relied upon the Judgment of the Delhi High Court reported in (2013) 36 taxmann.com 289(Delhi) in the case of Commissioner of Income-tax vs. Agnity India Technologies (P.) Ltd. Learned Counsel has also brought to our notice the Order of the Income Tax Appellate Tribunal whilst examining similar circumstances for the assessment year 2005-06. He has taken us through the findings therein to point out that the conclusions arrived at are based on a comparison that the condition in any uncontrolled transaction between an independent enterprises for the purpose of such comparison, economically relevant characteristics must be sufficiently comparable if two parties are to be placed in a similar situation. Learned Counsel as such submitted that it is not open for the appellant to now contend a different criteria to ascertain the comparability. In fact the Tribunal whilst passing the impugned Order has considered the said principles whilst coming to the conclusion that the said three Companies cannot be treated to be comparable to the Respondent-Assessee Company. The turnover is obviously a relevant factor to consider the comparability." 6.4 In the instant case also the turnover of the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....other hand, opposed the exclusion of the company and submitted that the Ld. counsel has not demonstrated, how the amalgamation has impacted profitability of the company. The Ld. CIT DR referred to para 13.4 of the order of the Ld. TPO, wherein he has compared the margin of the company in preceding years as compared to the year under consideration. He submitted that margin of the company in financial year 2009-10 is 43.07% as compared to margin of the company in financial year 2008-09 and 2007-08 as 52.50% and 44.34% respectively. Thus, according to the Ld. CIT(DR) there is no impact of amalgamation on the profitability of the company and, therefore, it cannot be a ground for exclusion on the basis of extraordinary event of amalgamation. The Ld. CIT(DR) also opposed the argument of the learned counsel of functional dissimilarity. According to him, the services in the nature of medical transcription, medical coding, billing etc have been classified by the CBDT as in the nature of BPO or ITes. The Ld. CIT(DR) submitted that in medical transcription, billing, coding etc. also data is processed and, thus, the company is functional similar to the data analysis functions of the assessee. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., respectfully following the above decisions of the Tribunal, we direct the Ld. TPO/AO to exclude the company from the set of comparables. TCS E-serve International (I) Ltd. 8. Before us the Ld. counsel submitted that operation of this company broadly comprises of transaction processing and technical service. The Ld. counsel submitted that as per notes to the account forming part of financial statements of the company, the technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities. According to him, the activity of software testing, verification and validation falls under the functions of software development. There is no bifurcation available in respect of revenue of the company from transaction processing and technical services and therefore in absence of any segmental data, the company cannot be compared at entity level. 8.1 He further submitted that the company exploits the brand TATA and therefore enjoys the goodwill and recognition associated with the said brand leading to higher volume of business and/or premium pricing. 8.2 The learned counsel relied on the decision of the Tri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the activities involving the processing, collection, customer care and payments in relation to services offered by Citigroup to its corporate and retail clients. The technical services have been reported as involving software testing, verification and validation of software at the time of implementation and data centre management activities. The contention of the learned counsel is that the activities of technical services are software development services. We do not agree with the above contention of the Ld. counsel due to the reason that in the notes to the account, the company has been characterised as information technology enabled services. Further, in our opinion, the technical services of software testing, verification and validation of the software have been carried out at the time of implementation of the software and no independent activity of software development has been carried out by the assessee. The Ld. counsel has not pointed out any expenditure, which has incurred towards software development. In view of the aforesaid facts and circumstances, the company is primarily engaged in IT enabled services only and functionally similar to the assessee. Further, the content....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unds of the assessee related to exclusion of the companies from the set of the comparables, have been allowed partly for statistical purposes. 12. The Ld. counsel of the assessee further submitted that following four companies have been rejected incorrectly without considering submission of the assessee: "1. Fortune Infotech Ltd:- The company has been rejected on diminishing revenue. 2. Datamatics financial services omitted:- The company has been rejected by the Ld. TPO on the ground of failure of export sales filter, whereas according to the assessee, company is earning export sales to total sales at 80%. 3. Optimus global services Ltd:- The company has been rejected by the Ld. TPO due to negative net worth, whereas according to the assessee, the company is having positive net worth of Rs. 23,99,14,602/-. 4. Sparsh BPO services Ltd:- The company has been rejected by the Ld. TPO due to negative net worth of the company, whereas according to the assessee the company is having positive net worth of Rs. 18,75,87,253/-." 12.1 The Ld. DR objected for including these companies in the set of comparables and relied on the order of the Ld. TPO. 12.2 We have heard the rival submis....