TaxTMI 
TaxTMI 
2016 (4) TMI 1338
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce, 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 method for its TP study for the impugned fina....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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 Capital Adjustment Working BV TPO Working BV assessee 1 Accentia Technologies Ltd 42*70 44*34 42....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rice 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 as noted above] in terms of directions from DRP and revised transfer pricing adjustment computed at Rs. 64,70,396/- was added in hands of the assessee qua its international transactions entered with AEs. 3. Aggrieved by the directions of the DRP and consequently with the final assessment order of the AO with regard to aforesaid ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 for its International transactions on an arm's length basis. The Ld.TPO has erred in ignoring this business and economic reality; (15) Erred by ignoring the fact, that, the appellant is an STPI unit & claimed tax holiday under Section 10B of the Act therefore there is no intent and no actual avoidance of tax in India; (16) Erred by erroneous levy of interest under section 234B of the Act; (17) Erred by initiation penalty proceeding under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee. 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 this entity is not justified as its turnover was more than Rs. 50 crores which is the filter applied by the taxpayers. It was further submitted that the entity is functionally different for comparison as it is engaged in mere trading i.e. purchase and sale of products and goods. It was further submitted that Coral Hubs Limited is engaged in e-publishing, document scanning, etc. activity thus the products are different. Further, it has outsourced most of its business wherea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....od 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 as the DRP is well reason and no interference is called for. 10. We have carefully considered the rival submissions. The assessee is engaged in the Software Consultancy Services and IT Enabled Services. The assessee selected internal TNNM as most appropriate method in its TP study report for the financial year 2007-08 relevant to assessment year 2008-09. The TPO rejected the internal TNMM and selected external TNMM for the determination of arm's length price. List of ext....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsideration 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 used as comparable in ITES segments of the assessee." 10.2 Similarly, we find that Hon'ble Delhi High Court in Ameriprise India (supra) observed that due to corporate action of merger, segmental figures are not available and due to availability of entity level figures alone, it ceases to be a good comparable. Likewise, Pune bench of ITAT in the case of BNY Mellon International Operations (India ) (P.) Ltd. (supra) relied upon by the Assessee has after consideration of other decisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td., 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 agency services by way of outsourcing the services to third party vendors and acting as an intermediary between the final customer and the vendor. The assessee furnished detailed submissions in this regard before the lower authorities, copies of which have been placed in the Paper Book at pages 420.8 to 420.31. By referring to the written submissions, it is also sought to be pointed out that the intermediary functions performed by the said concern can be compared to that of a distributor which takes titl....