AI Drafter 
TaxTMI 
TaxTMI 
2016 (12) TMI 1758
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....rned, the assessee earned revenue of Rs. 83.32 crore towards provision of ITES to its A.E. For bench marking its transactions, carried out with its A.E. assessee undertook a transfer pricing analysis by adopting transactional net margin method (TNMM) as the most appropriate method with operating profit to total cost (OP/TC) as the Profit Level Indicator (PLI). By conducting a search process in the data bases, 14 companies with weighted average of 9.59% on multiple year data was selected as comparables. As the margin shown by the assessee at 16.5% was higher than the margin of the selected comparables, the international transactions with A.E. was found to be at arm's length. The Transfer Pricing Officer, however, did not accept the transfer pricing analysis of the assessee. Pointing out defects/deficiencies Transfer Pricing Officer rejected the transfer pricing study and proceeded to select his own set of comparables. In the process, out of the 14 comparables selected by the assessee, the Transfer Pricing Officer rejected 10 comparables while retaining 4. Besides, Transfer Pricing Officer added 21 new comparables. Thus, the Transfer Pricing Officer selected, in total, 25 compara....
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....comparables, the RPT is 11.72% which is less than 25% RPT filter applied by the Transfer Pricing Officer. She submitted, as per the annual report of the comparable, it has total RPT of Rs. 155,378,842 and its revenue is Rs. 560,648,554, which works out to 27% on revenue/sales. She submitted, Transfer Pricing Officer has worked out this percentage at 25.26% and has applied related party filter of 25% on sales. She submitted, learned Commissioner (Appeals) has taken total RPT (expenditure plus income) and divided it to total income. Therefore, numerator and denominator are not consistent. She submitted, RPT calculation can be done either on the basis of RPT income divided by total income or RPT expenses divided by total expenditure or RPT income plus expenditure divided by total income plus expenses. She submitted, if the RPT is worked out applying the aforesaid principle, it will work out to 11.72% which is less than the 25% RPT filter applied by Transfer Pricing Officer. In support of her contention, she relied upon the following decisions:- (i) CIT v. P.T.C. Software India (P.) Ltd. [IT Appeal No. 732 of 2014, dated 26-9-2016]; (ii) PTC Software India (P.) Ltd. v....
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....urcing (KPO), hence, cannot be compared to low end BPO service provider. In support of such contention, learned Authorised Representative relied upon the following decisions:- (i) Rampgreen Solutions (P.) Ltd. v. CIT [2015] 377 ITR 533/234 Taxman 573/60 taxmann.com 355 (Delhi); (ii) ITO v. Knoah Solutions (P.) Ltd. IT Appeal No. 1407/Hyd./2013, order dated 25th April 2014; (iii) C3i Support Services (P.) Ltd. v. Asstt. CIT [2014] 151 ITD 348/46 taxmann.com 453 (Hyd.); and (iv) iQor India Services (P.) Ltd. v. ITO [2015] 57 taxmann.com 416/69 SOT 37 (Delhi - Trib.). 12. Learned Departmental Representative relied upon the observations of the Assessing Officer and the learned Commissioner (Appeals). 13. We have considered the submissions of the parties and perused the material available on record. From the material on record, it is evident that this company is engaged in activities which are totally different from the assessee. It is also relevant to note that comparability of this particular company with BPO service providers has come up for consideration in case of number of other assessees and consistent view of different benches of the Tri....
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....on of this company as a comparable, the learned Authorised Representative submitted, this company is engaged in the business of engineering service to high rise buildings in U.S. and Canada. She submitted, during the relevant previous year, it has acquired cross road detailing Inc. an engineering service KPO. She submitted, as against this, the assessee is providing services relating to insurance claim processing and call centre service which are routine ITES. Therefore, company should not be treated as a comparable. In support of such contention, assessee relied upon the following decisions:- (i) Rampgreen Solutions (P.) Ltd.'s case (supra); (ii) Knoah Solutions (P.) Ltd.'s case (supra) (iii) C3i Support Services (P.) Ltd.'s case (supra). 16. Learned Departmental Representative relied upon the order of the Assessing Officer and the learned Commissioner (Appeals). 17. We have considered the submissions of the parties and perused the material available on record. As could be seen from the material on record, this company is providing highly technical and speciliased engineering service which comes in the category of KPO. That being the ca....
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....ncurred by the company is towards data entry charges and vendor payment which works out to almost 65% of the total expenditure. It is further seen, the salary cost of the company works out to 3.47% of the total cost which signifies that the company is itself not engaged in providing ITE services but gets it done through others. In other words, it out-sources the work to third party vendors. Therefore, this company cannot be a comparable to the assessee on the basis of function performed and assets employed. Considering the aforesaid aspects, the Tribunal, Hyderabad Bench, in Capital IQ Information Systems India (P.) Ltd. (supra) has held that this company cannot be considered as comparable as it out sources its activities. The aforesaid view of the Tribunal has been approved by the Hon'ble Delhi High Court in Rampgreen Solutions (P.) Ltd. (supra). For better appreciation, we consider it appropriate to reproduce the observations of the Hon'ble High Court in this regard. "38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal's expenditure on employment cost during the r....
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....erent benches of the Tribunal have held that these companies cannot be considered as comparable to a captive service provider. The same view has also been expressed by the Hon'ble Jurisdictional High Court in CIT v. Pentair Water India (P.) Ltd. [2016] 381 ITR 216/69 taxmann.com 180 (Bom.). Keeping in view the aforesaid facts, we agree with the learned Commissioner (Appeals) that these two companies cannot be treated as comparable to the assessee. 27. At the time of hearing, learned Authorised Representative has submitted before us a chart showing computation of margin after exclusion of the following companies:- (i) Bodhtree Consulting Ltd. (ii) eClerx Services Ltd. (iii) Infosys BPO Ltd. (iv) Mapel-e Solutions Ltd. (v) Molteck Technologies Ltd. (vi) Triton Corp. Ltd. (vii) Vishal Information Technologies Ltd. (viii) Wipro Ltd. 28. As per the said chart, after exclusion of the aforesaid companies, the weighted average margin of the rest of the comparables works out to 20.89%. Since we have excluded E-clerx Services Ltd., Moldteck Technologies Ltd. and Vishal Technologies Ltd. and rest of the five com....
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....e have considered the submissions of the parties and perused the material available on record. As could be seen, the Transfer Pricing Officer relying upon the note of the valuer stating that various software with an estimated book value of 2,27,71,892=60 peso (converted to Indian rupee Rs. 2.05 crore) were excluded from valuation, treated it as the value of EDP software purchased by the assessee. The learned Commissioner (Appeals) has also confirmed the view of the Assessing Officer primarily on the reasoning that assessee has not given any details as to why such figures in respect of valuation of EDP software was mentioned in the valuation report. According to the learned Commissioner (Appeals), the note given by the valuer is an indicator of the fair value of such EDP software. Though, it is a fact that the valuer in its note has stated that various software with estimated book value of peso 2,27,71,892=60 were excluded from the valuation, however, in our view, it will not be safe to presume that the amount so mentioned represents the purchase value of EDP software alone. The assessee on its part must bring on record material to show the exact value of EDP software in the books o....
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....med under section 10A in respect of Unit-II and Unit-III is not allowable. The Assessing Officer extensively relying upon the observations of the Assessing Officer in assessment year 2005-06 ultimately held that assessee's claim of deduction under section 10A is not allowable as the Unit-II and III are not new Units. 38. The learned Commissioner (Appeals) also upheld the view of the Assessing Officer by relying upon the that Unit-II and Unit-III cannot be considered as new Units, but are expansion of the earlier Units. 39. Learned Authorised Representative submitted, the Tribunal while deciding assessee's appeal arising out of set aside proceedings for assessment year 2005-06 after considering favourable remand report of the Assessing Officer has allowed assessee's claim of deduction under section 10A in respect of Unit-II and Unit-III. She further submitted, the same view was again expressed by the Tribunal in assessee's own case for assessment year 2010-11. Copy of the orders were also placed on record. 40. Learned Departmental Representative without disputing the fact that the Tribunal has decided the issue in favour of the assessee, relied upon the obse....