AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 981
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....of the Arm's Length Price (ALP) of the transaction. 4. The TPO observed that the assessee (HDPI in short) was set up in India as wholly owned subsidiary of HSBC Holdings BV Netherlands to meet the back office processing needs of the HSBC group. He classified the services rendered by HDPI (assessee) to the HSBC group entities under the following 4 heads; (a) call center; (b) data processing; (c) data entry; and (d) professional services. He observed that the HSBC group entities are rendering the banking and financial services and have migrated some of the back office and call center activities to the assessee. After perusing the financial results of the taxpayer company for the financial year 2013-14, the TPO observed that OP/OC (%) of the assessee is 20.76%. As regards the international transactions entered into by the assessee, the AO observed that the assessee has earned a margin of 20.09% as against the margins of comparables taken by the assessee at 13.75% and has considered the transactions to be at ALP. Further, the TPO also observed that the assessee had trade receivables and short-term loans and advances from its AE which were not reported in Form No.3CED ....
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....jection of TP documents. 2. Rejection of the transfer pricing documentation maintained by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules 1961 (Rules) and undertaking a fresh economic analysis during the course of assessment proceedings and thereby making an adjustment of INR 305,33,05,656 to the international transactions. Rejection of use of multiple year data in applying TNMM 3. Rejecting the use of multiple year data of the comparable companies for determining the arm's length margin under Transactional Net Margin Method (TNMM). 4. Use of additional filters Inter-alia use of the following additional/modified filters in undertaking the comparative analysis and rejecting the comparable companies having: a) Diminishing revenue/persistent loss filter; and b) Different financial year end; 5. Information obtained u/s 133(6) Selective use of information/documents obtained by exercising powers u/s 133(6) of the Act, which are not available in public domain Selection of uncomparable companies 6. Not undertaking an objective comparative analysis and inter-al....
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....e facts and circumstances surrounding the receivables and re-characterizing the outstanding receivables as unsecured loans advanced to AEs. 12. Without prejudice to the above, not undertaking an objective economic analysis to determine the arm's length price of the outstanding receivables by a) Not appreciating that the receivables due from overseas AE's are in foreign currency and hence interest, if any, is to be benchmarked with the rates prevalent in the international market for foreign currency loans; b) Determining the arm's length credit period as 35 days and imputing interest on credit period provided for the invoices raised relating to provision of services c) Calculating interest on all the invoices outstanding as on 31st March, 2014 on an aggregate basis. Not following the directions of Hon'ble DRP 13. Not following the directions of Hon'ble DRP to compute interest on invoice by invoice basis relating to invoices raised on AEs for the services rendered. B. Corporate tax matters ESOP and ESPPO expense 14. Disallowance of expenditure on Employee Stock Option Scheme and Employee Stock Pu....
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....e assessee during the above period as well as A.Y 2014-15 are all the same as documented as under the APA. It is submitted that the agreed operating margin on operating cost for the provision of " I.T. enabled services" transaction and the other international transactions treated as closely linked, is 18% whereas the operating margin earned by the assessee during the A.Y 2013-14 is 20.76% which is of higher than the margin determined by the APA authorities. It is submitted that during the APA proceedings, it was considered and accepted by the authorities that the same TP methodology is consistently applied by the assessee throughout the APA period; that the FAR analysis remained materially the same during the APA period; and that the salary of employees working in the area of analytics would not be more than 20% of the total salary of the employees in any year. It is thus submitted that the APA has considered that the assessee followed a uniform method throughout the period for accepting the margin at 18% on costs. Since the A.Y before us is 2014-15, only one year prior to the APA period and the assessee has followed the same method, he sought application of the same margin to the ....
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....vices India (P) Ltd in ITA No.397/Del/2017 dated 30.06.2017 iv) Special Bench of the Mumbai Tribunal in the case of Maersk Global Centers (India) Pvt. Ltd (ITA No.7466/Mum/2012, dated 7- 3-2014). v) C3i Support Services P Ltd (ITA No.503/Hyd/2017 dated 25th July, 2018.) vi) Cognizant Services Technologies Pvt Ltd in ITA No.495/Hyd/2015 dated 29.01.2016 14. Another distinction pointed out by the learned Counsel for the assessee is that E Clerx Ltd has outsourced substantial portion of its operations to its subsidiaries i.e. E Clerx Services Ltd and E Clerx (P) Ltd for services amounting to Rs. 111.104 crores which is about 58% of the other expenses and 27% of the total operating cost. It is submitted that the outsourcing cost of the assessee is "nil" and therefore, the company like E Clerx, whose operations primarily comprises of outsourcing its business, cannot be compared to the assessee's business which is operating as 100% captive service provider. In support of this contention, the learned Counsel for the assessee placed reliance upon the following decisions: a) Hon'ble Bombay High Court in the case of Aptara Technology Ltd (ITA No.120....
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....ion of services as 'KPO' in nature by relying on Special Bench ruling in case of Maersk Global Centres (India) Pvt Ltd (161 TTJ 13 7) which had been disagreed by the decision of Hon 'ble Delhi High Court in Rampgreen Solutions Pvt Ltd (60 Taxmann.com 255) have been negated by the High Court in review petition and order to that effect is recalled for fresh hearing and hence, the reliance placed by the learned DR on the same is misplaced. 3. In view of the above, the Appellant, once again reiterates that as submitted during the course of the hearing and our submissions dated 30 April 2019, the Analytics work carried out by the Appellant is characterised as low end BPO services provider engaged 'Back office operation' as per terms of Advance Pricing Agreement (' AP A') entered into with Central Board of Direct taxes ('CBDT') dated 29 August 2016 and hence, Companies engaged in 'KPO' services like Eclerx Services Ltd be excluded from list of comparable in view of decision relied on by the Appellant". 17. Having regard to the rival contentions and the material on record, we find that during the APA proceedings, the assessee as well....
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....) financial analytics; or (vii) market research" Thus, it can be seen that the assessee is not performing any of these services and for this reason also, the assessee cannot be considered as a KPO Services provider. As regards the reliance of the learned DR on the decision of the Hon'ble Delhi High Court in the case of McKinsey, as rightly pointed out by the learned Counsel for the assessee, the decision of the Hon'ble Delhi High Court in the case of McKinsey Knowledge Centre India (P) Ltd is no longer applicable as the said order has been recalled by the Hon'ble High Court for reconsideration. 19. Now coming to the comparability of E Clerx Services Ltd to the assessee, we have to first verify whether the services rendered by McKinsy can be considered as BPO services or KPO services as claimed by the assessee. The learned Counsel for the assessee has referred to page 380 of the Paper Book filed by the assessee, which is the Annual Report of E Clerx Services Ltd for the financial year 2013-14 wherein E Clerx has described itself as India's first publicly listed KPO Company. At page 391 of the Paper Book, the details of other expenses are mentioned, wherein....
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....cates the above. Rule 10TA(g) of the said Rules defines KPO Services as under:- '(g) "knowledge process outsourcing services" means the following business process outsourcing services provided mainly with the assistance or use of information technology requiring application of knowledge and advanced analytical and technical skills, namely:- (i) geographic information system; (ii) human resources services; (iii) engineering and design services; (iv) animation or content development and management; (v) business analytics; (vi) financial analytics; or (vii) market research, but does not include any research and development services whether or not in the nature of contract research and development services;' 25. Whilst Voice Call Center represents the lower-end of ITeS, KPO represents services involving a higher level of skills and knowledge. India has vast human resources and a large number of highly -skilled technical professionals. The expression "KPO" indicates the involvement of domain knowledge in providing ITeS. Typically, KPO includes involvement of advance skills; the services pro....
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....he Special Bench of the Tribunal had noted that eClerx is engaged in data analytics, data processing services, pricing analytics, bundling optimization, content operation, sales and marketing support, product data management, revenue management. In addition, eClerx also offered financial services such as real-time capital markets, middle and backoffice support, portfolio risk management services and various critical data management services. Clearly, the aforesaid services are not comparable with the services rendered by the Assessee. Further, the functions undertaken (i.e. the activities performed) are also not comparable with the Assessee. In our view, the Tribunal erred in holding that the functions performed by the Assessee were broadly similar to that of eClerx or Vishal. The operating margin of eClerx, thus, could not be included to arrive at an ALP of controlled transactions, which were materially different in its content and value. In Maersk Global Centers(India) (P.) Ltd. (supra), the Special Bench of the Tribunal had noted the same and had, thus, excluded eClerx as a comparable. It is further observed that the comparability of eClerx had also been examined by the Hyderaba....
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....he assessee to determine the ALP, but the TPO has not followed the directions of DRP and have retained Hartron Communications at the entity level in the final assessment order. We find that the DRP directions are binding on the AO and therefore, we direct the AO to follow and implement the directions of the DRP on this issue. Thus, the assessee's ground of appeal No.6 is partly allowed and Ground No.7 is allowed. 23. As regards assessee's prayer for inclusion of ACE BPO Services and APE Technologies (P) Ltd, in the final list of comparables, the learned Counsel for the the assessee has tried to demonstrate that the AO and the DRP have held that these two companies fails the RPT filter and POL filter whereas actually these findings are factually incorrect. He referred to the relevant documents to demonstrate that these two companies did not fail the filters adopted by the TPO and are comparable to the assessee. 24. The learned DR was also heard and on consideration of the relevant material, we deem it fit and proper to remand this issue to the file of the AO/TPO to reconsider the same and only if it is found that these companies do not fail the relevant filters adopted by the ....
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....erein 35 days period is fixed for realization of the consideration. Therefore, according to him, 35 days credit period only should be allowed and interest on receivables should be computed accordingly. 28. Having regard to the rival contentions and the material on record, we find that "interest on receivables" is an international transaction during the relevant financial year. The decisions relied upon by the learned Counsel for the assessee are in relation to the A.Ys prior to the amendment to section 92B of the Act and therefore, are not applicable ipso facto to the case of the assessee. Further, when the credit period is clearly mentioned in the Agreement between the parties, then the same only should be allowed and interest on trade receivables after such credit period should be computed. Therefore, the computation of interest on trade receivables is remitted to the file of the AO with these directions. Ground of appeal No.11 is accordingly treated as allowed for statistical purposes. 29. As regards ground 14 against disallowance of expenses on ESOP and ESPP, the learned Counsel for the assessee placed reliance upon the decision of the Special Bench of the Tribunal at ....