TaxTMI 
TaxTMI 
2019 (6) TMI 49
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....otal income of the Appellant at INR 54,21,67,892/- as against the returned income of INR 49,56,97,610/- by making an upward adjustment of INR 4,64,70,282/- on account of transfer pricing matters. The above adjustment of INR 4,64,70,282/- comprises of the following: a. Adjustment of INR 3,36,00,559/- pertaining to the international transaction involving provision of IT enabled back office support services ("ITeS") to associated enterprise ("AE"); and b. Adjustment of INR 1,28,70,223/- pertaining to the international transaction involving purchase of fixed assets from AE. 3. That on facts of the case and in law, the learned DRP/TPO/AO have erred in rejecting the economic analysis undertaken by the Appellant by conducting a fresh economic analysis for the impugned international transactions involving (i) Provision of ITeS to AE and (ii) Purchase of fixed assets from AE. 4. That on facts of the case and in law, the learned DRP/TPO/AO have erred in rejecting certain comparables and adding certain companies to the final set of alleged comparables on an ad-hoc basis, thereby resorting to cherry picking of comparables for benchmarking the transaction inv....
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....lant for the impugned transactions. 9. That on facts of the case and in law, the learned DRP/TPO/AO have failed to make appropriate adjustments to account for difference in risk profile of the Appellant vis-a- vis the comparables for the transaction involving provision of ITeS, and in this process inter-alia neglected the Indian transfer pricing regulations, international guidelines on transfer pricing and judicial precedence in this regard. 10. That on facts of the case and in law, the learned DRP/ TPO/AO have erred in using single year data for financial year ("FY") 2011-12 of alleged comparable companies without considering the fact that the same was not available to the Appellant at the time of complying with the transfer pricing documentation requirements and disregarding the Appellant's claim for use of multiple year data for computing the arm's length price. 11. That on facts of the case and in law, the learned DRP/TPO/AO have erred in benchmarking the international transaction pertaining to purchase of fixed assets on standalone basis and rejecting the combined transaction approach adopted by the Assessee to benchmark the said impugned transac....
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.... It is also submitted that assessee provides R&D services and ITeS services from its unit, located in Noida Special Economic Zone (SEZ) and Software Technology Parks Unit located in Bangalore. Further assessee provides system support services to all Cadence group, across the world and derive income in the business of development and export of computer software and providing technical support and training services. Assessee has been therefore categorised as a captive service provider and risk mitigated entity which is compensated on a cost plus markup basis for the services rendered by assessee to its Associated Enterprises (AE) in the T.P.study. 2.2. Ld. AO accordingly referred the case to Transfer Pricing officer (TPO) for determining the arm's length price of international transactions undertaken by assessee for year under consideration. Upon receipt of such reference, Ld. TPO issued notice under section 92 CA(1) of the Act and directed assessee to provide economic analysis as prescribed under Rule 10 D of Rules. 2.3. Ld.TPO observed that assessee had entered into following international transaction with its AE: Sl. No. International Transactions Amount (In Rs.) ....
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.... in appeal before us now. 4.1. Ld.Counsel at the outset, submitted that only issue alleged by assessee is in respect of certain comparables being wrongly included by Ld.TPO in respect of ITES service provided by assessee to its AE. He submitted that in the event comparables sought to be excluded by assessee are considered, other grounds becomes academic in nature. 4.2. Ld.Counsel submitted that assessee has used TNMM as most appropriate method with OP/OC as PLI for computing arm's length price of transaction under dispute and as per TP study, assessee being the tested party, the margin was computed at 14.83%. He submitted that in the event, following comparables are excluded, assessee would be within the margin of +/-5%: Eclerx services Ltd TCS E-Serve Ltd Infosys BPO Ltd 4.3. Referring to order passed by this Tribunal in ITA No. 6315/del/2015 dated 02/04/2018 for assessment year 2011-12 in assessee's own case, Ld.Counsel submitted that this Tribunal has excluded the above referred comparables in assessee's own case. It has also been submitted that there is no factual difference in terms of FAR, of assessee for year under consideration vis-a-vis assessment year....
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.... Cadence India pertain to customer helpdesk, server maintenance, storage maintenance etc. Quality assurance Cadence India is required to ensure that services provided ore of a certain requisite quality and adhere to established international group standards. However, Cadence India does not face any penalty for a lapse in quality. Manpower planning Cadence India maintains a manpower pool to ensure provision of services to its AE. Based on directions if the AE and estimation of work received from the AE, Cadence India maintains the necessary manpower to execute work of providing IT back office support services. Cadence India is guided by its AE to estimate its resource requirements. The functional analysis for this transaction has been summarized below: Type of Functions Cadence India CDS Determining the scope of services Limited Yes Provision of services Yes Limited* Quality assurance Limited No Manpower planning Yes Yes Risk analysis Briefly summarised below are some of the key business risks, which would be applicable to Cadence India and CDS in relation to the IT b....
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.... the services provided by Cadence India do not meet the requisite standards, the same may require re-work. However, Cadence India is reimbursed for all costs including re-work costs along with the specified markup which mitigates Cadence India from any risk on account of re-work. Foreign exchange risk Exchange rate risk relates to the potential variability of profits that can arise because of changes in foreign exchange rates and arises whenever the transacting currency of an entity is different from its functional currency. Cadence India invoices CDS for its services in USD, which is different from its own functional currency. Therefore, Cadence India assumes the risk of foreign exchange fluctuations. However, the cost base for the purpose of mark-up includes any loss arising to Cadence India from foreign exchange translations and therefore ultimately the foreign exchange risk would be borne by CDS. Cadence India does not bear any risk on account of foreign exchange fluctuations. The risk analysis for this transaction has been summarized below: Type of Risks Cadence India CDS Business risk No Yes Credit and collecti....
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....nt view. We, therefore, direct the ld. AO/TPO to exclude this company from the list of comparables." 8.2. From order passed by Ld.TPO, this comparable has been considered at page 220 to be carrying out activities in financial sector like trade processing, reference Data, accounting and finance and expense management activities. It has also been recorded by Ld.TPO that professional service practice includes consulting, business analysis and solution testing. The activities provided by this comparable in manufacturing verticals are online operations and web analytics, CRM and business intelligence data management and reporting competent benchmarking and pricing quality and compliance business process consulting. 8.3. On analysis of aforestated functions performed by this comparable, we agree with the view expressed by this Tribunal for assessment year 2011-12 that this comparable is a best KPO company outsourcing substantial work to 3rd parties and that assessee is only providing back-office support services with its own human resource to the AEs. Further it has not been disputed that there is any change in the functionality of either companies from earlier years. Under such....
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....nounced its order on 5.11.2018 does not make any difference on the binding nature of this decision or its applicability to the facts of the present case. As a matter of law, had such decision been brought to the notice of the Tribunal in assessee's own case for the AY 2010-11, still it would have bound the Tribunal to follow the same. In the circumstances, we find no option but to follow the binding precedent of the jurisdictional High Court in the case of B.C. Management Services P. Ltd. (supra) and to hold that. Infosys BPO Limited and TCS E-Serve Limited are not good comparables to the assessee and both these companies deserve to be deleted from the list of comparables from bench marking the international transactions. 10.3. Under such circumstances we find no reason to differ from the binding precedent. It is also observed that this Tribunal while considering these comparables has followed the decision of Hon'ble Delhi High Court in case of B.C Management services Pvt. Ltd., in ITA No. 1064 and 1083/2017 wherein, these comparables were held to be not good comparables. Respectfully following the same, we also direct Ld.TPO to exclude these comparables from the fin....