TaxTMI 
TaxTMI 
2016 (4) TMI 1338
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....cing of functions such as accounting, finance, legal production, staffing, communication marketing, distribution or sales. The assessee is also into developing software for market research, financial analytical services, specific knowledge/business process payroll, recruitment, employee training and development, retirement plan administration customer call centers, technical support centers, billing claims processing inbound and outbound logistics, warehousing and inventory, management, document processing and digitizing, auditing and medical/entertainment transcription. 2.1 During the year under consideration, the assessee company has undertaken certain international transactions with its overseas affiliates i.e. associate enterprise (AE) in the field of 'Software Consultancy Services & IT enabled services' amounting to Rs. 7,84,92,342/-. As per the Indian transfer pricing regulations, the income arising from international transactions is required to be computed having regard to the arm's length price (ALP). As reported in the accountants' report in Form No.3CEB, the Assessee selected Transactional Net Margin Method (TNMM) as a most appropriate transfer pricing ....
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....parables) for the purpose of determination of ALP. As required by TPO, the Assessee assisted the TPO and undertook a search process on a database for external independent comparables. To test the arm length character of controlled transactions, the Assessee identified 9 external companies considered as comparable to the transactions undertaken by the Assessee co.. which are tabulated as under: Sr. No. Company PLI (OP/OC) 1 CCE Software Pvt. Ltd. 4.76% 2 e4e Healthcare Business Services Pvt. Ltd. 19.38% 3 Idhsoft Ltd. 17.97% 4 Manthan Software Services Pvt. Ltd. -13.84% 5 Mphasis Finsource Ltd. 11.87% 6 Omega Healthcare Management Services Pvt. Ltd. -0.73% 7 Proteans Software Solutions Pvt. Ltd. 18.58% 8 Savi Infoservices India Pvt. Ltd. 5.86% 9 Technoforte Software Pvt. Ltd. 10.34% Arithmetic Mean 8.24% 2.4 The TPO after elaborate discussion in its order arrived at final set of 9 independent entities as comparables and deduced average PLI from these external entities tabulated as under: Sr. No. Name of the company Operating Margin% (OP/OC) Margin After Working Ca....
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.... of the directions of the DRP, the Assessing Officer passed a final assessment order under section 143(3) r.w.s. 144C(13) of the Act dated 08.11.2012 making transfer pricing adjustment to the tune of Rs. 64,70,396/- having regard to arm's length price of international transaction of assessee with its AEs. 2.7 The final set of comparables as per the final assessment order is tabulated as under :- Sr. No. Name of the Company PLI Margin after working capital A djustment 1. Accentia Technologies Ltd. 42.47 2. Coral Hubs Ltd. (Earlier known as Vishal Information Technologies Ltd.) 37.37 3. Cross Domain Solutions Ltd., 22.26 4. E4e-health Solutions Ltd. (Formerly known as Nittany Outsourcing Services Pvt. Ltd. 16.33 5. Idhsoft Ltd., 17.10 6. ICRA Online 3.25 7. Linkson IntI. 1.18 8. Maple e-solutions Ltd., 15.94 9. Cepha Imaging Pvt. Lid., 4.35 10. CG- VAK Software & Exports Ltd. 5.15 11. Proteans Software Solutions Pvt. Ltd. 14.35% Arithmetic mean 16.34% 2.8 The arithmetic mean was computed by the AO at 14.35% [correct mean 16.34% as per assessee working ....
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....ies/segments which differ in functions undertaken and/or assets employed and/or risk assumed as compared to the appellants Associated Enterprise segment. Also, erred by not considering case laws/decisions which have upheld the non-inclusion of concerned comparables; (9) Erred in adding new comparable companies/segments where the concerned companies/segment fail to meet quantitative criteria applied by the Ld. TPO and/or the appellant. (10) Erred in unjustly rejecting the comparable companies selected by the appellant; (11) Erred by considering incorrect OP/TC of comparable companies; (12) Erred in not providing/allowing any adjustments assumed towards differences in risks and assets employed by the appellant vis-a-vis comparable companies/segments; (13) Erred in not applying the Proviso to Section 92C(2) of the Act and has failed to grant the relief for the downward adjustment of 5 percent from the arithmetic mean, which is permitted to and which has also been opted for by the Appellant; (14) Erred by ignoring the fact, that, associated enterprise has incurred a loss during the year and has yet been compensating the appellant fo....
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....t employee costs (15% of total operating costs) against 63% in the case of the assessee suggests that the aforesaid entity has outsourced its work and has not provided services by itself. Further, the revenue and profitability of the entity was affected by extra ordinary events like mergers and acquisitions. It was also submitted that turnover of assessee being meager Rs. 7.85 crore, the company failed the turnover filter in the range of Rs. 1-50 crores applied by the assessee. Reliance were placed upon the decisions of the ITAT in the case of (i) BNY Mellon International Operations (India) (P.) Ltd. v. Asstt. CIT [2014] 52 taxmann.com 306 (Pune), PTC Software (India) (P.) Ltd. v. Dy. CIT [2015] 67 SOT 138/[2014] 52 taxmann.com 351 (Pune - Trib.) , and (iii) Ameriprise India (P.) Ltd. v ACIT 44 CCH 504 (Delhi). With reference to aforesaid decisions, it was submitted that co-ordinate benches of the ITAT have taken a consistent view that 'Accentia Technologies Limited' cannot be taken as a good comparable in the similar circumstances. 7. As regards exclusion of 'Coral Hubs Limited' the Ld. Authorized Representative for the assessee submitted that the inclusion of t....
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.... his submission in the course of proceedings before the TPO, there is no justification for inclusion of Mapple in the list of comparables for the purpose of determination of arm's length price. The Ld. Authorized Representative for the assessee relied upon the decision of Mumbai Bench of the Tribunal in the case of BP India Services (P.) Ltd. v. Asstt. CIT [2015] 55 taxmann.com 150 (Mum. - Trib.) to submit that the Maple e-solutions Ltd. was rejected from the list of good comparable on the ground that the employee costs in Maple e-solutions Ltd. works out to 15.62% as against 48.85% in the case of the assessee. He next relied upon the decision of the Hyderabad Bench of the Tribunal in the case of Cognizant Technology Services (P.) Ltd. v. Asstt. CIT [2015] 47 taxmann.com 209/[2014] 151 ITD 191 relevant to assessment year 2008-09 wherein also Maple was not considered as good comparable on similar circumstances. 9. The Ld. Departmental Representative on behalf of the Revenue submitted that the Assessing Officer has arrived at the final set of comparables after considering the elaborate order of the TPO and the DRP in this regard. He submitted that the order of the TPO as well ....
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....ervation of Pune ITAT in the case of PTC Software (India) (P.) Ltd. (supra) for the exclusion of 'Accentia Technologies Limited' is extracted hereunder :- "47. The next objection of the learned Authorized Representative for the assessee was with regard to the inclusion of M/s. Accentia Technologies Ltd. which admittedly was engaged in developing its own software products and was rendering medical transcription services. Further, the said company during the year under consideration had made certain acquisitions which in turn affected the margins of the year of the acquisition. We find that Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Pvt. Ltd. (supra) had rejected Accentia Technologies Ltd. for having extra-ordinary circumstances i.e. amalgamation. Following the parity of reasoning as adopted by the Hyderabad Bench of the Tribunal, we hold that the said company had different functional profile as compared to the assessee, which in turn explained the abnormally high profit margins earned by the said company as compared to the assessee. Accordingly, we accept the plea of the assessee and hold that the said company is not to be ....
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....ermediary between the final customer and the vendor. The assessee on the other hand was engaged in the running of a call centre and was providing technical support to its AEs. We find that the Tribunal in assessee's own case relating to assessment year 2006-07 in ITA No.1346/PN/2010 and in assessment year 2007-08 in ITA No.1605/PN/2011 had excluded the said comparables observing as under: "30. The next point raised by the assessee is against the inclusion of Vishal Information Technologies Ltd., appearing at Item (10) in the Tabulation in para 25 as a comparable case. The TPO has discussed the issue in para 6.9.6. of the order. As per the TPO, the said concern is functionally comparable to the IT-Enabled services segment of the assessee and for that reason, the said concern has been included as a comparable for the purposes of comparability analysis. In this connection, the plea set up by the assessee is that the said concern is engaged in not only IT-Enabled services, but also in providing quality products and in the creation of animated films and books. It has also been ascertained by referring to the Annual Report of the said concern that it is engaged in providing ....
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.... and the same was excluded for the purpose of comparability analysis. Following the ratio laid down by the Tribunal in assessee's own case in assessment years 2006-07 and 2007-08 (supra), we uphold the plea of the assessee in excluding the margins of the said concern M/s. Vishal Technologies Ltd.' 10.4 Similar view has been taken in the case laws relied upon the Assessee as noted above. In the light of the judicial precedents available for this entity, we direct exclusion of 'Coral Hubs' for comparison of gross profit margin/PLI. 10.5 As regards inclusion of 'Mapple' agitated by Assessee, We notice that while the business model of the Assessee is highly employee intensive, the entity namely Maple operates on a very low employee base and mainly outsources its needs. For similar reasonings, Co-ordinate bench of tribunal in the case of BP India Services (P.) Ltd. (supra) has concluded that Mapple cannot be treated as good comparable in the circumstances. The relevant observation of Mumbai ITAT in the case of BP India Services (P.) Ltd. (supra) for the exclusion of 'Maple e-solutions Ltd.' is extracted hereunder :- "23. Ld. AR has also con....