TaxTMI 
TaxTMI 
2016 (4) TMI 1360
X X X X Extracts X X X X
X X X X Extracts X X X X
....n providing services relating to transfer documentation, passport and visa processing facilitation and related services to tour operators, travel agencies and corporate, etc. As stated, assessee serves diplomatic missions and immigration authorities by managing all the administrative and non-decision making tasks relating to visa application. For carrying out these functions, assessee has set-up a number of branches across India. Further, during the year, assessee entered into international transaction with two overseas Associate Enterprise viz. V.F. Worldwide Holdings Ltd., Mauritius, V.F. Services (Mauritius) Pte. Ltd., Nepal, in rendering certain business support services towards existing / setting-up new visa application centre in various countries. During the assessment proceedings, the Assessing Officer noticing that assessee has entered into international transactions with its A.Es made a reference to the Transfer Pricing Officer for determining the arm's length price of international transactions. In course of proceedings before him, the Transfer Pricing Officer called for various details / documents and after perusing the same, he found that as per the report in Form 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... It was submitted, in consideration of the services rendered, assessee was compensated with cost plus mark-up of 15%. The Transfer Pricing Officer found that the assessee classifying itself as business support service provider has selected six companies as comparable with weighted average of three years which worked out to 9.96%. As the margin shown by the assessee at 15.02% is much higher than the margin of the comparables, assessee had treated the price charged to be at arm's length. The Transfer Pricing Officer did not accept the computation of arm's length price by the assessee firstly for the reason that weighted average of three years is not appropriate. Further, he observed the assessee in the assessment year 2008-09, had considered itself as an ITES provider and considered comparable companies engaged in the ITES. He observed, though, the facts and circumstances in the impugned assessment year, had not changed compared to assessment year 2008-09, however, the assessee did not classify itself as ITES provider and accordingly considered comparables which are not engaged in providing ITES/BPO services. The Transfer Pricing Officer, after analysing the nature of servic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hnologies Ltd. 801440931 538121837 263319094 48.93 2. Coral Hubs Ltd. 617394267 450880104 166514163 26.93 3. Cosmic Global Ltd. 77639593 52415463 2522413 48.12 4. Infosys BPO Ltd. 10834585473 8702361441 213222432 24.50 39.62 8. The average arithmetic mean of the selected comparables was worked out at 39.62%. By applying the aforesaid arithmetic mean to the operating cost, the arm's length price of the transaction was determined at Rs. 34,16,48,106, as against the operating revenue shown by the assessee of Rs. 28,14,62,089. The resultant shortfall was treated as transfer pricing adjustment to the price charged in respect of the international transaction with A.E. On the basis of adjustment made by the Transfer Pricing Officer, the Assessing Officer completed the draft assessment. The assessee objected to the draft assessment order before the DRP. 9. The DRP, while upholding the order of the Transfer Pricing Officer classifying the assessee as ITES provider, however, granted partial relief to the assessee in respect of comparables selected by the Transfer P....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "assessee has not enclosed TP Study Report for F.Y. 2007-08 i.e., relevant to A.Y. 2008-09. The Assessing Officer has given a clear finding that there is no change in the nature of activities of the assessee in the year under consideration (i.e., A.Y. 2009-10) vis-à-vis the activities in A.Y. 2008-09. The TPO has discussed the issue in para 6 of the TP order for the current year. Reference may please be made to the discussion at pages 2 to 4 of the TP order. On page 3 of the TP order, it has been clearly stated that assessee in the assessment year 2008-09 considered itself as providing IT enabled Services as also it considered comparables engaged in ITES. The TPO further notes eventhough the facts and circumstances have not changed from the previous year the assessee did not consider itself as rendering ITES BPO services for F.Y. 2008-09 (i.e., A.Y. 2009-10). The TPO further notes that it considered entirely different comparables. The TPO also show caused the assessee on this aspect. 3.6.2 The TPO in the current year has passed the order on 16/01/2013. The TP Study for the year under consideration was conducted before the due date of filing of the return. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... purposes. It may be noted that the table contains data for the multiple years - 2007, 2008, 2009 respectively. It would be seen that the data in respect of these comparables was available in the database for earlier year as well. It is therefore submitted that the contention of the assessee that data for this segment within the ITES was not available earlier cannot be accepted. It has not been demonstrated that the data of 2007 and 2008 which is available in respect of these comparables was not there in the year 2008 when assessee company had conducted the search for the comparables. It would be evident that even 2007 data is available in the year 2009. Therefore the contention of the assessee does not deserve to be accepted. I (c) There is one more aspect to this issue. The assessee could have conducted a separate search for A.Y. 2008-09 immediately after the conduct of the search for A.Y. 2009-10. As submitted earlier, data for F.Y. 2006-07 and 2007-08 in respect of the comparables was available. The assessee did not bring this fact to the notice of the TPO and continued with the proceedings for A.Y. 2008-09 as such. The TPO has clearly given a finding that there is no ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvices provider is not acceptable. In view of the aforesaid, we decline to interfere with the orders of the Departmental Authorities on this issue. 13. Now, coming to the issue of comparables selected under ITES segment, it is observed, in the course of proceedings before him, the Transfer Pricing Officer, after rejecting the transfer pricing study of the assessee has selected four companies as comparables which are Accentia Technologies Ltd., Coral Hubs Ltd., Cosmic Global Ltd. and Infosys BPO Ltd. 14. After hearing the objections of the assessee, the DRP, while rejecting Accentia Technologies Ltd. as a comparable, upheld selection of Coral Hub Ltd., Cosmic Global Ltd. and Infosys BPO Ltd. as comparable. 15. Learned Authorised Representative submitted, Coral Hub Ltd., cannot be treated as comparable as major part of its activities is out sourced to third parties. Learned Authorised Representative referring Profit & Loss account of Coral Hub Ltd. (earlier known as "Vishal Information Technologies Ltd.") for 31st March 2009, a copy of which is at Page-69 of supplementary paper book, submitted, the personnel cost shown by the company is about 3% as against 75% of the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2008-09. It is observed, the Transfer Pricing Officer in compliance to the directions of the Tribunal in assessment year 2008-09 examined this aspect and having found that the said company has outsourced its activities to third parties accepted assessee's claim that it cannot be treated as comparable. In the impugned assessment year also, it is the contention of the assessee that substantial part of its work has been out sourced by Vishal Technologies Ltd. to third parties. That being the case, we direct the Assessing Officer / Transfer Pricing Officer to examine this aspect and if assessee's claim is found to be correct, this company should not be treated as comparable. 18. As far as the Cosmic Global Ltd. is concerned, the learned Authorised Representative submitted, this company is functionally different from assessee as it is engaged in translation business and medical transcription which are different from the business activities of the assessee. Learned Authorised Representative submitted, the Tribunal in assessee's own case while examining this issue has restored the matter back to the file of the Assessing Officer / Transfer Pricing Officer to examine the functional com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ocess management. He submitted, the company has not only substantial sales and marketing and selling expenses such as brand building and advertisement but it has substantial goodwill. In this context, he referred to the annual report of Infosys BPO Ltd. He submitted, during the relevant previous year, Infosys BPO Ltd., has undergone restructuring which might have impacted its profitability. He, therefore, submitted that for various factors such as economies of scale, brand value, goodwill, diversified activities, Infosys BPO Ltd. cannot be treated as a comparable. 23. Learned Departmental Representative strongly opposing the contention of the assessee submitted, on the basis of turnover alone, Infosys BPO Ltd. cannot be excluded as a comparable. He submitted, neither the assessee nor the Transfer Pricing Officer has applied high turnover filter while selecting comparables. He submitted, while assessee applied low turnover filter of Rs. 1 crore, the Transfer Pricing Officer has applied low turnover filter of Rs. 5 crore. He submitted, the very fact that assessee has applied Rs. 1 crore turnover filter when it has a turnover of Rs. 121 crore suggest that high turnover has no impac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of high turnover. As rightly pointed out by the learned Departmental Representative, in case of CIT v/s Pentair, the turnover of the assessee was much lower than the turnover of Infosys BPO Ltd., which is not the case in the appeal before us. Therefore, in our view, Infosys BPO Ltd., cannot be rejected as a comparable on the basis of high turnover alone. However, as far as other contention of the learned Authorised Representative relating to brand value, goodwill, economies of scale, etc., are factors which cannot be ignored while selecting Infosys BPO Ltd. as comparable as they have a crucial bearing on profitability. As these aspects have not been considered either by the TPO on DRP, we are inclined to restore the issue relating to selection of Infosys BPO Ltd., as a comparable to the file of the Assessing Officer / Transfer Pricing Officer for deciding afresh after considering the submissions of the assessee and all other relevant facts. 25. Before parting, it needs to be mentioned, out of the three companies objected before us by assessee, we have directed the Assessing Officer / Transfer Pricing Officer to exclude Cosmic Global. In case, the other two companies are also n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with U.K. authorities for providing visa processing services. He alleged, the rate negotiated by the A.E. for that purpose was not brought to the notice of the Departmental Authorities. He further observed that the rate cannot be decided on the basis of old contracts which have already expired and a new contract has been entered into with A.E. on fresh terms and conditions, under which assessee is required to provide biometric recording services. The Assessing Officer observed, while providing similar Visa processing service to its A.E. in Nepal, the assessee has received Rs. 675 per application. Applying that as a CUP, the Assessing Officer observed, on an estimate during the relevant previous year, assessee would have processed Rs. 3,99,893, passports for which it claimed to have received Rs. 19,99,46,428 at Rs. 500 per application whereas, applying the rate of Rs. 675 per application, he determined the arm's length price at Rs. 26,99,27,775. The resultant shortfall of Rs. 6,99,81,347, was treated as the transfer pricing adjustment. 29. The assessee objected to the aforesaid transfer pricing adjustment before the DRP. In the course of proceedings before the DRP, assessee a....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Learned Departmental Representative, though, agreed that the price charged to overseas A.E. at Nepal cannot be considered as good CUP but he nevertheless also objected to assessee's contention that price charged U.K. / U.S.A. visa authorities should be considered as a valid CUP. He submitted, not only the agreements with U.K. / U.S.A. visa authorities were not supplied to the Departmental Authorities in course of proceedings for the impugned assessment year but also in assessment year 2008-09, when the Transfer Pricing Officer was examining the issue pursuant to the direction of the Tribunal. Learned Departmental Representative submitted, as per the information available on record, the rates are to be reviewed once biometric recording is introduced which was not included in terms and conditions of the first agreement. He submitted, while applying CUP, high degree of comparability is required. Similarity of terms and conditions of service or products is essentially required. As the assessee has not made any adjustment in respect of additional functions performed and in the absence of relevant agreement valid CUP is not available. He, therefore, submitted the issue can be restored ....