TaxTMI 
TaxTMI 
2018 (10) TMI 1697
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....sessee is a subsidiary of Flextronics International Asia Pacific Ltd., Mauritius. The assessee provided back office services relating to finance and human resource functions, including accounts payable to assessee, remote server access, maintenance and management services, payroll processing, credit analysis, ledger maintenance, etc. for its affiliates worldwide. The price received by the assessee for providing such services was a sum of Rs. 12,32,60,290. Since the transaction of rendering ITeS to its AE was an international transaction, the arm's length price (ALP) of the said transaction had to be determined in view of the provisions of section 92 of the Act. 4. The assessee in support of its claim that price received was at arm's length filed a TP analysis adopting TNMM as the most appropriate method of computing the ALP. The Profit Level Indicator (PLI) chosen for the purpose of comparison was OP to OC and the same was worked out by the assessee as follows:- Description Shared Services Total revenue 1,231,702,919 Total expenses 1,108,442,629 Net Profit 123,260,290 Net operating profit margin on cost (%) 11.12% 5. The assessee chose a set of 1....
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.... 7. Aggrieved by the order of TPO whose suggestion was incorporated in the draft assessment order by the AO, the assessee filed objections before the DRP. The DRP excluded 8 out of 10 comparables chosen by the TPO. The 2 companies that remained after exclusion of 8 out of 10 comparables chosen by the TPO were ICRA Online Ltd. and Jindal Telecom. The profit margin of these companies when compared with that of the assessee after providing for working capital adjustment was at arm's length and has been so recognised by the order of the TPO giving effect to the order of DRP. This order dated 22.01.2016 is at page 434 & 435 of the assessee's PB-I. 8. In the grounds of appeal, the revenue has challenged the exclusion of only one of the 8 comparables excluded by the order of DRP. The companies exclusion by the DRP which is challenged by the revenue in grounds 1 to 10 is M/s. Acropetal Technologies Ltd. For excluding this company, the DRP gave the following reasons: "Acropetal Technologies Limited Having considered the submissions, on perusal of the annual report, it is noticed by us that the assessing officer has considered the revenue from the engineering design segm....
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.... functions performed by the Engineering Design Services of this company are as follows:- "Architectural, Structural, Electrical, Plumbing, Steel Detailing, External Utilities, Design Engineering." 11. The functions performed by the assessee, as we have already seen is back office services relating to finance and human resource functions, including accounts payable to assessee, remote server access, maintenance and management services, payroll processing, credit analysis, ledger maintenance, etc. for its affiliates worldwide. It is thus clear that the information technology services provided by the assessee cannot be compared with Engineering Design Services provided by Acropetal Technologies Ltd. Therefore, the conclusion that this company is not functionally comparable is found to be correct. We also find that this Tribunal in the case of Novo Nordisk (I) P. Ltd. in ITA 247/Bang/2016 has held that in the case of a company which was rendering similar ITeS as that of assessee it was held that Acropetal Technologies Ltd. cannot be considered as a comparable in ITeS segment. Following were the relevant observations of the Tribunal in this regard. "8.3.1 We have he....
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....s. Acropetal was having at least three segments, namely, engineering design services, IT service and health care. TPO had taken engineering design service as a good comparable with that of the services done by the assessee. Engineering Design Services that were being rendered by Acropetal Technologies Lid, appears at page 8 of its annual report. It comprised of architectural, structural, electrical, plumbing, steel detailing, and utilities designing. Its revenue model appears at page 9 of its annual report. It is mentioned that the said company was providing comprehensive offerings using its deep domain understanding of infrastructural healthcare, engineering design and enterprise solutions. In our opinion, the type of services that was being provided by Acropetal Technologies Ltd, was not at all comparable with the type of services that the assessee was providing. It is also mentioned in the annual report of the said company that it was providing high end services in the engineering design services. No doubt as mentioned by the Ld DR, it may not be feasible to have comparables which fit in the exact mould as that of an assessee in TP analysis. However, when one company is giving s....
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....ourt in the case of CIT Vs M/s Yokogawa India Ltd., 341 ITR 385. Whether on the facts and circumstances of the case the DRP was right in holding that the deduction u/s 10B was to be deducted from the income of the eligible unit i.e. before computing the gross total income." 14. As far as the aforesaid ground is concerned, the question is with regard to setting off of profits of 10A units against losses incurred by non- 10A units of the assessee. It was the plea of the assessee that as per the decision of the Hon'ble Karnataka High Court in the case of CIT v. Yokogawa India Ltd., 341 ITR 385 (Kar), income from STPI unit has to be excluded at source itself before arriving at gross total income and therefore the losses of non-STPI unit cannot be set off against income of STPI unit while computing relief u/s. 10A of the Act. This was not accepted by the AO but was accepted by the DRP. Aggrieved, the revenue has raised ground No.12 before the Tribunal. 15. At the time of hearing, it was brought to our notice that this issue is no longer res integra and has been settled by the Hon'ble Supreme Court in the case of Yokogawa India Ltd., 391 ITR 274 by its order dated 16.12.2016 and in....