AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 1406
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....ternational transactions with it's AE. Therefore, in accordance with the provisions of section 92CA of the I.T. Act, the A.O. referred the determination of the arms length price of the international transactions to the TPO. The TPO passed an order under section 92CA(3) of the Act dated 31.10.2013 and in accordance to which, the A.O. passed the draft assessment order and the same was forwarded to the assessee for its objections, if any. 2.1. The assessee preferred its objections before the DRP and the DRP vide order dated 28.11.2014 granted partial relief to the assessee and in accordance with the DRP directions, the final assessment order was passed on 19.01.2015 against which both the Assessee as well as the Revenue are in appeal before us. In the assessee's appeal, the assessee has raised 8 grounds of appeal which are as under : 1. "The assessment order passed by the assessing officer is erroneous both in law and on the facts of the case. 2. The Ld. Assessing Officer ("A.O") Transfer Pricing Officer ("TPO") has erred in law and facts by not considering the disallowed expenditure of copyright infringement settlement expenses paid to the AE as non-operating and extra-ordinary ex....
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....d as a reason for exclusion without proving how the brand value impacted the profit margins and how the brand value makes the company functionally different. (iv) In the facts and on the circumstances of the case, whether the Hon'ble DRP was not justified in considering the predominant market presence of Infosys BPO and TCS e-Serve Ltd as a reason for exclusion without proving how the predominant market presence impacted the profit margins ignoring the fact that the alleged predominant market presence at best can earn more revenues and do not increase the profit margin and further as to how the market presence makes the company functionally different. (v) In the facts and on the circumstances of the case, the Hon'ble DRP was not justified in rejecting Accentia Technologies Ltd and eClerx Services Ltd on the mere assumption that acquisition has an impact without proving that it has really impacted the profit margin and how the company became functionally different. (vi) In the facts and on the circumstances of the case, the Hon'ble DRP was not justified in distinguishing the verticals within the ITES sector in the case of eClerx Services Ltd and Accentia Technologies ....
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.... 19.08.2013 was issued to the tax payer and the assessee filed its reply dated 17.10.2013. Thereafter, the TPO adopted the following 11 companies as comparables in his final list of comparables. S.No. Name of the Company 1. Accentia Tech. 2. Acropetal Technologies Ltd., (Seg.) 3. Axis I.T. & T Ltd., 4. Cosmic Global 5. Eclerx Services Ltd., 6. Infosys BPO Ltd., 7. TCS E-Serve International Ltd., 8. TCS E-Serve Ltd., 9. Jeevan Scientific Technology Ltd., (Seg.) 10. Microgenetic Systems Ltd., 11. Crossdomain Solutions P. Ltd., 6.3. Thereafter, after applying the average margin of the comparables to the operating margin of the tax payer, the A.O. determined the Arms Length Price ("ALP") for ITES services as under : "After applying the average margins of the comparables to the financials of the taxpayer, the result is as follows : Description Amount (in Rs) Arm's Length Price 27.90% Less : WCA -1.21% Adjusted Arm's Length Margin 29.11 Operating Cost (OC) 37,98,76,885 Adjusted Arm's Length Margin (%) (AALM) 29.11% Arm's Length Price = (100 + AALM) * OC 49,04,59,046 Price Received (OR) 43,02,13,582 Adjustment u/s.92CA 6,02,45,464 Thus th....
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....cted for exclusion of (1) Accentia Technologies Ltd., (2) (2) Eclrex Services Ltd., (3) Infosys BPO Ltd., (4) TCS e- Serve Limited. The DRP however, rejected assessee's objections against TCS e-Serve International Ltd., and also inclusion of (1) ICRA Online Ltd., and (2) Vishwa Vikas Services Ltd. Against the relief granted by the DRP, the Revenue is in appeal before us, while the assessee is in appeal against the relief denied by the DRP. 7. At the time of hearing, Ld. Counsel for the assessee, has filed detailed written submissions before us and the same is taken on record. While reiterating the submissions made by the assessee before the authorities below, Ld. Counsel for the assessee, submitted that the TCS e-Serve International Ltd., is not comparable to the assessee as it has high margin of 51.51% and that assessee has objected to the inclusion of this comparable before both the authorities below on the ground that this company is subsidiary of TCS conglomerate and accordingly is backed by brand and large scale client base. He has submitted that this company is the subsidiary of TCS e-Serve Limited and the common practice for such subsidiary is to bid for large contracts tak....
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....essee. He also challenged the exclusion of (1) Accentia Technologies Ltd., (2) Eclrex Services Ltd., (3) Infosys BPO Ltd., (4) TCS e-Serve Limited from the final list of comparables as directed by the DRP on the very same ground. Ld. D.R. relied upon the judgment of the Hon'ble Delhi High Court in the case of Cris Capital Investment in ITA.No.417 of 2014 dated 27th April, 2015 wherein the Hon'ble Delhi High Court has held that a mere circumstance of a company, otherwise conformed to the stipulations in Rule 10B(2) in all details, presenting a peculiar feature such as huge profit or huge turnover, ipso facto, does not lead to its exclusion and the TPO, first has to satisfy that such differences do not materially affect the price or cost. Secondly, an attempt to make reasonable adjustment to eliminate the material effect for such difference has to be made. Thus, according to him, the exclusion of these companies from the final list of comparables is not warranted and is not justified. 9. Having regard to the rival contentions and the material on record, we find that assessee has raised objections to all the above five companies which are under challenge before the TPO. As regards Ac....
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....of final comparables. Though TCS E-Serve International Ltd., has not been considered in any of the above decisions, we find that the rationale on which these companies have been excluded is also applicable to TCS E-Serve International Ltd., Applying the same ratio, we direct the TPO/A.O. to exclude TCS E-Serve International Ltd., also from the final list of comparables. Accordingly, Ground No.3 of the assessee is allowed and Ground Nos. 1 to 6 of the Revenue are rejected. 11. Ground No.2 raised by the assessee is against not considering the disallowed expenditure of copyright infringement settlement expenses paid to the A.E. as nonoperating and extraordinary expenditure while calculation of arms length margin. 11.1. Brief facts leading to this issue are that the assessee had paid an amount of Rs. 12,60,112 towards infringement of copyrights of M/s.Master File, a Canadian Corporation which is into the business of stock photo laboratory and licensing of major resource for a field. During the relevant F.Y., it is stated that an employee of the assessee had used certain photos owned by M/s. Master File Corporation, on the website of the assessee i.e., www.avineon.ind.co. and upon ana....
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....] (2) ITAT Delhi Tribunal order in the case of DCIT vs. Exxon Mobil Gas (India) P. Ltd., [TS-374-ITAT- 2014-(Del)-T.P.] (3) ITAT Hyderabad Tribunal in the case of Mylan Laboratories Ltd., vs. Addl. CIT [ (2014) 46 taxmann.com 76 (Hyderabad-Trib.) ]. 12. Ld. D.R. on the other hand, submitted that the assessee has raised this issue for the first time before the A.O. after the directions of the DRP and the A.O. being bound by the directions of the DRP has not considered this issue. He has submitted that fresh claim of the assessee before the A.O. after TPO order as well as the directions of the DRP cannot be entertained at this stage. 13. Having regard to the rival contentions and the material on record, we find that all the facts relating to the issue are not on record i.e., whether the infringement of the copyright is with regard to the international transactions and whether it forms part of operating expenditure or not. Therefore, it is to be factually verified by the TPO/AO. Unless it is found to be not relating to the normal business operations of the assessee company, it cannot be directed to be excluded from the operating expenditure of the assessee. Further, assessee's con....