TaxTMI 
TaxTMI 
2017 (9) TMI 1823
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.... of Kronos Solutions Inc. (Kronos Inc.) which in turn is a wholly owned subsidiary of Kronos Incorporated USA (Kronos US). Kronos India is a 100% Export Oriented Unit and is also an offshore development centre for Kronos US. As per the Transfer Pricing Study (TP Study), Kronos India is engaged in delivering an integrated suite of software development services that enables organization to reduce costs, increase productivity, improve employee satisfaction, and enhance the level of service they provide. Kronos India is also engaged in provision of back office support services which involves application support services, technical support and hosting services and application and technical support in relation to cloud services. In respect of application support services, the assessee's services include providing support services in respect of the applications already developed by the Associated Enterprises (AE). The services also include fixing of bugs. With respect to technical support services, the same include addressing the queries raised by the customer on AEs. The queries addressed by the assessee are in the nature of configuration issues, data corruption issues and bug issues. Wi....
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....Ji Jindal lntellicom Limited 13.70% Appellant Mean 29.53% 3.2 The TPO also did not include economic adjustments like working capital adjustment and risk adjustment while computing the arm's length margin in the back office support services segment of the assessee company. The TPO determined the arm's length margin in the back office support services segment of assessee company at 29.53% as against the assessee's margin of 16.02% and proposed an adjustment of Rs. 50,74,969/- . On the assesseee approaching the Hon'ble DRP, the Hon'ble DRP accepted the approach and the comparables considered by the TPO and directed the TPO to provide working capital adjustment and also to re-compute the margins of the assessee as well as the of the comparables by removing computational errors. The Hon'ble DRP while rejecting the aseeseee's claim for excluding comparables held that the functional profile of the assessee with reference to the back office support segment was akin to a Knowledge Processing Outsourcing (KPO) service whereas the assesse's contention was that it was not a KPO but only a back office service provider. However, the TPO did not provide the work....
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.... law, the Ld. AO/Ld. TPO/Ld. DRP erred in selecting the current year (i.e. financial year 2010-11) data for comparability despite the fact that at the time of preparation of transfer pricing documentation by the appellant, the complete data for financial year 2010-11 was not available within the public domain. 2. That the Ld. AO / Ld. TPO erred in not following the directions of the Ld. DRP that comparability adjustment (working capital adjustment) should be provided to appellant while determining the arm's length profit margin. 3. That the Ld. AO/Ld. TPO/Ld. DRP erred in law and facts of the case by not considering the foreign exchange gain/loss as operating in nature while computing the margins of the appellant company and comparable companies. 4. That the Ld. AO has erred in charging interest under section 234B and 234C of the Act amounting to INR 44,95,692/- and INR 5,792/- respectively. 5. That on the facts and in the circumstances of the case and in law, Ld. AO erred in initiating penalty proceedings under section 271(1 )(c) of the Act. The Appellant craves leave to add, amend, alter, delete, rescind, forgo or withdraw any of the a....
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....related to the services covered by the definition of a KPO and the TPO did not consider the assessee as a KPO but the Hon'ble DRP, without analysing the functional profile of the assessee and without providing any cogent reasoning, held the assessee's functions as akin to a KPO. It was reiterated that the functions of the assessee were more akin to ITeS services provider and not a KPO. 5.1 Coming to the comparables, the ld. AR advanced his arguments as under:- i) TCS E-Serve Limited It was submitted that TCS E-Serve earned revenue from financial information processing, voice based customer contract, business process management and analytics. It was also submitted that the erstwhile Citigroup Global Services was taken over by the TCS during financial year 2008-09 and post the takeover by Tata Consultancy Services Limited TCS E-Serve utilized the large customer base of TCS to achieve greater operational efficiencies. He drew our attention to the annual report of TCS E-Serve and submitted that this company was engaged in activities beyond normal business processing services and provided technical services in the nature of software testing, verification, validation....
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.... and reporting. It was submitted that as per the definition of KPO, the functions performed by Eclerx Services Limited fell within the meaning of a KPO for providing high end services which was way beyond the realm of services performed by the assessee company as the assessee's company only provided back office services which were more in the nature of ITeS services. Reliance was placed on a number of judgements wherein Eclerx Services Limited had been excluded as a comparable on the ground of being a KPO and catering to high end clients. It was also submitted that this comparable had a turnover 78 times more than that of the assessee and, therefore, the scale of operations were incomparable. It was also submitted that this company had a significant intangibles assets amounting to Rs. 2.94 crores as compared to the assessee's intangible assets of Rs. 23.10 lakh and the exclusion of Eclerx Services Limited was sought on this ground also. It was also submitted that this company bore the risks associated with the high end service provider whereas the assessee company was a back end service provider having a very low risk due to being a captive service provider. It was also submitted t....
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....ia Pvt. Ltd. wherein it was held that the assessee is not pinned down to his statement in the first round of his transfer pricing proceedings. It was submitted that the Infosys BPO Ltd. was engaged in high end integrated services by assisting its clients in improving their competitive positioning by managing their business processes in addition to providing increased value. It was further submitted that this company had a turnover 260 times more than that of the assessee company. Reliance was placed on the judgment of Hon'ble Delhi High Court in the case of Actis Global Services Pvt. Ltd. (supra) wherein this company was rejected on ground of high turnover. Reliance was also placed on the case of Agnity India Technologies vs ITO in ITA 1204/Del/2011 wherein the ITAT Delhi Bench had rejected this comparable on the ground of high turnover. Ld. AR also submitted that Infosys BPO was associated with the brand "Infosys" which was one of the most prominent brands in the Indian IT industry. Infosys BPO being a subsidiary of Infosys had an element of brand value associated with it and it incurred significant amount of brand promotion and advertising expenses which led to the creation o....
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....6.3 The ld. CIT DR read out extensively from the order of the TPO and the Hon'ble DRP and vehemently argued that no alteration should be made in the final set of comparables. ITA 6386/Del/2016 - Assessment Year 2012-13: 7. For this year, the return of income was filed declaring income of Rs. 73202670/-. On a reference being made to the TPO, the TPO disregarded the approach followed by the assessee in the TP Study and with reference to back office support service rejected six out of eleven comparables selected by the assessee and included four new comparables in the final set. The final set of comparables, as adopted by the TPO, was as under:- S. No. Company Name OP/ TC (%) Margins as considered in TP order Comparable considered by . TPO / Appellant 1 Accentia Technologies Limited 11.95% Ld. TPO 2 Informed Technologies India Limited 7.62% Appellant 3 E4e Healthcare Business Services Private Limited 19.85% Appellant 4 Eclerx Services Limited 58.40% Ld. TPO 5 Infosys BPO Limited 36.75% Appellant 6 T C S E-serve Limited 63.69% Ld. TPO 7 Acropetal Technolog....
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....soning; 1.2. Characterizing the functional profile of the Appellant in the impugned segment as a knowledge process outsourcing company providing significant technical functions and thereby ignoring the actual functional profile of the back office segment; 1.3. Accepting companies which were functionally not comparable to the Appellant's back office segment; 1.4. Accepting high turnover companies as comparables and thereby ignoring the impact of economies of scale; 1.5. Rejecting companies whose accounting year does not end with March 31, 2012 on the basis that the transactions taking place in a different period cannot be compared; 1.5.1 Without prejudice to the above, the Ld. AO/ Ld. DRP/ Ld. TPO erred in rejecting the comparable 'R Systems International Limited' whose data for the financial year ("FY") 2011-12 can be deduced from it's published / audited annual accounts thereby satisfying the said filter. 1.6. Denying the benefit of economic adjustment on account of difference in risk profile in arriving at the arm's length margin; and 1.7. Selecting the current year (i.e. FY 2011-12) data for comparability despite the....
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....aterial available on record. As far as the appeal for assessment year 2011-12 is concerned, the assessee has challenged the inclusion of certain comparables. Our adjudication on the comparables is as under:- i) TCS E-serve Limited It is evident that while the assessee company provides back office support service, TCS E-serve Limited provides transaction processing as well as technical services. It is seen that TCS Eserve Limited provides a broad spectrum of services which include processing, collection, customer care and payments in relation to the services offered by the Citi Group to its corporate and retail clients. Technical services involving software testing, verification and validation of the software at the time of implementation and data centre management activities. This is evident from a reading from the notes to accounts contained in the annual report of TCS E-serve Limited. Thus, there is strength in the contention of the assessee that TCS E-serve Limited is engaged in activities which are beyond providing back office support service and thus this company is functionally dissimilar. We also find that the Hon'ble Delhi High Court in the case of Act....
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....TAT Chandigarh Special Bench in the case of Quark Systems Pvt. Ltd. reported in 2010-TIOL-31-ITAT-CHD-SB for the proposition that the tax payer should be given an opportunity to rectify a bona fide mistake in its transfer pricing analysis during an assessment if it is based on facts on record. Placing reliance on the ratio of the decision of the Special Bench of the ITAT in Quark Systems Pvt. Ltd. (supra) we deem it fit to examine the assessee's claim for exclusion of BPO Infosys from the final set of comparables. The Ld. AR has argued that this company was engaged in providing high-end integrated services by assisting its clients in improving their competitive positioning by managing their business processes in addition to providing increased value and, hence, was functionally dissimilar to the back end office support services being provided by the assessee. It is seen that Infosys BPO Ltd. has been rejected as a comparable by ITAT Delhi Bench in New River Software Services Pvt. Ltd. reported in ITA No. 451/Del/2013 on the ground of huge turnover, economies of scale and brand value. It is also seen that the Hon'ble High Court of Delhi had rejected this company as a comparable ....