TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 49
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 involving provision of ITeS. 5. The learned TPO/AO has erred both on facts and in law and has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pellant 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 transaction wherein the Assessee considered the Transactional Net Margin Method ('TNMM') as the most appropriate method. 12. That on facts of the case and in law, the learned DRP/TPO/AO have erred in determining the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erive 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.) 1. Provision of software R&D Services 2,219,623,967 2. Provision of software R&D Services 540,854,522 3. Provision of Pre-sale marketing support Services 145,404,538 4. Provision of post-sale technical support Services 295,714,258 5. Purchase of fixed assets 21,450,372 6....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee 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 2011-12. 4.4. Ld.CIT DR on the contrary, placed reliance upon orders passed by authorities below. 5. We have perused submissions advanced by both sides in light of records placed before us. Before we undertake comparability analysis, it is sine qua non to understand functions performed by assessee, assets owned and risk assumed for year under consideration. DRP has reproduced FAR of assessee for year under conside....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce 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 back office support services transaction. Business risk/market risk Business risk arises when a firm is subject to adverse sales conditions due to either increased competition in the marketplace, adverse demand conditions within the market, or the inability to develop markets or position products to service targeted customers. Cadence India bears no business risk as it renders IT back office support services only to CDS and is assured of a specified return on its costs. CDS is exposed to open market conditions that directly impact its business and thus it bears market risk. Credit a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r, 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 collection risk No Yes Service liability risk No Yes Utilisation risk No Yes Re-work risk No Yes Type of Risks Cadence India CDS Foreign exchange risk No Yes 6. We shall now take up comparability analysis of alleged comparables with that of assessee. EClerx Services Ltd: 7. Ld.Counsel submitted that this comparable is sought to be excluded for year under consideration for the reason that, they are operating in entirely different domain, and not a good comparable. He submitted that, for assessment year 2010-11 DRP itself excluded this comparable from final list, and there is no difference in functions performed by this comparable for assessment year 2010-11, with that of year under consideration. He submitted that considering the afores....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 circumstances we direct Ld. TPO to exclude this comparable from the finalist. Infosys BPO Ltd and TCS E-Serve Ltd: 9. Assessee has submitted that these comparables are functionally dissimilar with that of assessee as Infosys BPO Ltd is providing high end integrated services for business platforms, customer services outsourcing, finance and accounting, human resource outsourcing, legal process outsourcing, sales and fulfillment sourcing and procurement outsourcing etc., And TCS E-Serve is engaged in business process service to banking and financial services industry whereas assessee is a captive service provider who provides exclusive services to its AEs only on cost plus basis. Ld.Counsel submitted that these comparables has also been excluded by this Tribunal in assessee's own case for assessment year 2011-1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 final list. 11. Accordingly Grounds 2 (a) raised by assessee stands allowed and Grounds 3, 4, 5, 7, 8, 9, 10 and 12 becomes academic in nature as per the submissions made by Ld.Counsel. 12. Ground No. 2 (B), 11 is in respect of benchmarking the international transaction pertaining to purchase of fixed assets at 'nil'. 12.1. Ld.Counsel submitted that the fixed assets has been purchased based upon the customs regulation and the price of the assets are as per the price determined by the customs authorities. He submitted that difference in hands of assessee as per book value of assets in books of AE and purchase price of assets as submitted by assessee. He submitted that the genuineness of transaction has not been questioned by the authorities below. Placing reliance upon customs valuation report and invoices raised by AE, assessee submitted tha....