TaxTMI 
TaxTMI 
2017 (8) TMI 1576
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....ices (ITES) and conducted the comparability analysis for the two segments separately. The comparability analysis was carried out by applying TNMM as the most appropriate method (MAM) with operating profit to total cost as the profit level indicator ('PLI'). 2.2 For asst. year 2012-13, the assessee filed its return of income on 29/11/012 declaring total income of Rs. 5,68,48,980/-. The case was taken up for scrutiny and the Assessing Officer ('AO') made a reference to Transfer Pricing Officer ('TPO') u/s 92CA(1) of the Act for determination of the arms length price ('ALP') of the international transactions entered by the assessee with its AE's in the year under consideration. After examination thereof, the TPO passed an order u/s 92CA of the Act dated 25/1/2016 proposing TP adjustments amounting to Rs. 55,34,467/- in view of the following:- (i) Adjustment in respect of ITES segment - Rs. 11,33,176/- (ii) Adjustment towards interest received - Rs. 46,01,291/- After receipt of the TPO's order u/s 92CA of the Act dated 25/1/2016, the AO passed the. draft order of assessment u/s 143(3) r.w.s 144C of the Act dated 11/3/2016 determining the total income....
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....d. TPO erred in rejection of comparable companies selected by the Appellant j in respect of the accounting support services segment. The Hon, DRP erred in confirming the order of the ld, TPO in this regard. 7. The Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO which had selected certain comparable companies that were functionally different from the Appellant. 8. The Hon'ble DRP erred in directing the Learned TPO to exclude a comparable which had not been disputed either by the Appellant or the Ld. TPO. 4. Ground Nos. 1 & 9 4.1 At the outset, the ld AR for the assessee submitted that these grounds were general in nature. Being general in nature, no specific adjudication is called for thereon. 5. Grounds Nos.: 5 & 6 5.1 At the Bar, the ld AR for the assessee submitted that these two grounds (Supra) were not being pressed by the assessee in this appeal. Since the grounds 5 and 6 are not pressed, they are rendered infructuous and are dismissed as not pressed. 6. Ground No. 10 6.1 The ld AR submitted that this ground No: 10 (Supra) relating to assessee's claim for being allowed MAT credit, has been rendered infruc....
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.... average PLI of the final set of comparables was computed at 28.11% and an upward adjustment of Rs. 11,33,716/- was proposed by the TPO in the ITES segment. 7.2.4 The assessee filed its objections in this regard before the DRP and the DRP issued its directions u/s 144C(5) of the Act dated 13/12/2016, wherein it directed exclusion of three companies from the list of comparables, one of which is Jindal Intellicom Ltd. 7.2.5 Before us, the ld AR of the assessee submitted that the assessee seeks exclusion of the following three companies:- (i) Infosys BPO Ltd., (ii) TCS e-serve Ltd., (iii) BNR Udyog Ltd. The ld AR also submitted that the assessee seeks inclusion of the following company:- (i) Jindal Intellicom Ltd., The ld RA has put forth oral and written submissions, and cited certain judicial pronoucements, which have all been carefully perused and duly considered. EXCLUSION OF COMPARABLES SOUGHT FOR BY ASSESSEE 8. Infosys BPO Ltd., 8.1 This company was originally selected as a comparable by the assessee in its TP study. The TPO also selected this company as a comparable in the comparability analysis ca....
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....s decision relied upon is of no use to the assessee. However, we find that this company has been excluded by various benches of ITAT over the years on substantive issues. In the case of M/s e4e Business Solutions India (P.) Ltd. (supra) for asst. year 2011-12, relied upon by the assessee, a co-ordinate bench of this tribunal has excluded this company from the list of comparables for companies engaged in ITES services as it is functionally different, being a market leader, enjoying tremendous brand value and good will, with huge economies of scale and wide geographical disposal of customers. The relevant portion of the order of the co-ordinate bench (Supra) at para 9 thereof is extracted hereunder:- "09. We have considered the rival submissions and gone through relevant materials The relevant portion of the order from the assesse's case in IT (TP)A no. 1845/Bang/2015 & IT(TP)A.1777/Bang/2013 dt 10.11.2015 for ay 2009-10 is extracted as under : Accentia Technologies Ltd : ................................................................... ................................................................... (iii) As regards the functional di....
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....essees performing ITES / BPO back end support services whereas, Acropetal Technologies Ltd.: segmental revenues show that its major source of income is from providing engineering design services and information technology services which are knowledge process outsourcing services (KPO) and not BPO / ITES low end BPO services, like those performed by the assessees in the case on hand. At paras 12 and 13 of its order, the co-ordinate bench has held as under "12. This company is listed at SI No, 2 of the comparables chosen by the TPO. As for as this company is concerned, the objection of the assessee is that this company is not functionally comparable. The assessee' is a BPO company that provides market analytics and data management services. To provide market analytics solutions, the assessee gives strategies that impact on client revenue including data based marketing strategies for customer acquisition, devising customer retention strategies and excluding loss mitigation strategies through cutting edge forecasting fools. The data management services provided by the assessee include routine business data reporting and management, website management, market/rig data analysis ....
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.... as this company, chosen by the TPO as comparable, is concerned, the learned Authorised Representative for the assessee submitted that this company, being a wholly owned subsidiary of Infosys Technologies Ltd. would enjoy a premium in the market, due to brand value and goodwill of the parent company, whereas the assessee is a low end provider of BPO / ITES support services. It is submitted that Infosys BPO Ltd. incurred huge selling and marketing expenses and is not only a market leader but also has huge, breadth in terms of economies of scale with diversity and worldwide geographical dispersion of customers. It is submitted that in view of these factors, Infosys BPO Ltd. is functionally dissimilar and different from the assessee in the case on hand. In support of its proposition for excluding this company from the list of comparables, the learned Authorised Representative placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) for Assessment Year 2008-09 wherein this company was excluded from the set of comparables. 6.7.2 Per contra, the learned Departmental Representative supported the ....
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....utions India Pvt. Ltd. (supra) for Assessment Year 2008-09, we are of the view that in the case on hand also, where the assessee is only providing low end ITES / BPO support services, this company i.e. Infosys BPO Ltd, is to be excluded from the fist of comparables to the assessee in the case on hand, We hold and direct the TPO accordingly. Thus, the assessee has made out a case in its favour from the above decisions, Following them, the TPO is directed to exclude Accentia Technologies Ltd, Acropetal Technologies Ltd & Infosys BPO Ltd from the list comparables and the assessee's corresponding appeal grounds are Allowed." 8.4.2 In our view, as the facts of the case for the year under consideration, as brought out from the relevant portions of the Annual Report of this company are similar for this year also, we respectfully following the aforesaid decision of the co-ordinate bench in the case of e4e Business Solutions India (P.) Ltd., (Supra) hold that his company i.e Infosys BPO Ltd., is functionally dissimilar from the assessee in the case on hand and direct the AO/TPO to exclude this company from the final set of comparables. We hold and direct accordingly. 9. TCS E....
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.... paras 4.0) and 40.2 thereof is extracted hereunder:- "TCS E-serve Ltd. 40.1 On perusal of the page 77 of the paper book, which is part of the annual report of the company, we find that the company was engaged in providing technical services as compared to the services of the assessee which are characterized as ITES services. The company is also having huge sales turnover as compared to the assessee. The company is also part of TATA group, which has impacted its profitability. In the circumstances, the company is functionally dissimilar to the assessee and cannot be compared with the assessee. The said company has also been excluded by the Tribunal as a comparable to ITES companies in the case of Goldman Sachs (India) Securities Private limited (supra). The relevant part of the decision is extracted as under: '4.2.b In the case of Capitia India Pvt. Ltd. (supra) the Tribunal had held that TCS was not a valid comparable for IT-e services in following manner (i) M/s TCS e-Serve:- From the perusal of its Annual reports, it is seen that, this company is engaged in the business of providing ITES services and BPO services primarily to 'Citi Group' enti....
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.... of Schedule 'O' - Notes to Accounts of the Standalone 'financial of the Company, ITA.(TP)/927/M/16(11-12)Goldman Sachs (India)Securities Pvt Ltd. it is dear that the Company is engaged in "transaction processing" - and "technical services" activities. No separate segmental details are available. On a careful reading of the decision of coordinate Bench in Techbook International (P.) Ltd. (supra) it is clear that Schedule 'O' - Notes to Accounts in respect to carried out by Company and relevant segmental details were never brought to the attention of the Bench. We find that in the absence of availability of any such segregation of the total revenue of this company, it is not possible to separately consider its profitability from rendering of "Transaction, processing services". Thus the entity level figures render this company as unfit for comparison. Following the above reasons also taken note in the case of TCS e-Service international Limited, we order for the elimination of this company from the final set of comparables. Subsequently in the case of Equant Solutions India Pvt Ltd also this company has been held to be un-comparable on the following reasoning: "We h....
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....r years for excluding this company from the list of comparables. Therefore, in our view an examination is necessary in order to ascertain as to whether the conditions on the basis of which this company was excluded as a comparable in earlier years still prevail and are applicable to the assessment year under consideration. In this view of the matter, we deem it fit to remand the matter back to the file of the TPO for fresh consideration in the light of our observations above. Needless to add that the assessee shall be afforded adequate opportunity of being heard and to file details/submissions in this regard which shall be considered while deciding the issue de-novo. It is accordingly ordered. 10. BNR Udyog Ltd. (Seg) (Medical Transcription) 10.1 This company was selected and included in the final set of comparables by the TPO overruling the objections that this company i.e BNR Udyog Ltd, was functionally not comparable to the assessee and failed both the service revenue filter and RPT filter which is in excess of 45%. The DRP also rejected the assessee's contentions that this company be excluded from the list of comparables. Before us, the ld AR for the assessee reiterated t....
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....ince how much of the RPT pertain to the medical transcription segment has not been determined by either the TPO or the assessee, we deem it appropriate and proper to remand the matter of comparability of this company M/s BNR Udyog Ltd., to the file of the TPO for determination of the issue afresh in line with our observation above. Needless to add, the assessee shall be afforded adequate opportunity of being heard in the matter and to file submissions/details in this regard which shall be duly considered by the TPO before deciding the issue. We hold and direct accordingly. INCLUSION OF COMPARABLE SOUGHT FOR BY ASSESSEE 11. Jindal Intellicom Ltd. 11.1 This company was selected and included by the TPO in the final set of comparables. The assessee neither objected to the inclusion of this company in the list of comparables before the TPO nor filed any objection to its inclusion before the DRP. It appears, however, that the DRP suo moto excluded this company from the set of comparables. The assessee is in appeal before us against the exclusion of this company from the list of comparables. 11.2 According to the ld AR of the assessee, this company is an international call cen....
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....Briefly stated, the facts of the matter on this issue, as emerge from the record, are that during the year under consideration, the assessee had received interest of Rs. 98,46,288/- from its AE's on loans advanced to group entities in USA and Singapore during the Financial Year 2005-06 for their capital investment and business development. Similarly, the assessee had advanced loans to its group entity in Australia during the financial year 2006-07. The assessee charged interest @ 10% per assessee on these loans and accordingly had received interest of Rs. 98,46,288/- in the year under consideration. On examination, thereof, he TPO did not accept the rate of interest on these loans @ 10% , and held that the opportunity cost of deploying the said loan money in the local market for comparable periods is to be applied for the bench marking analysis. In that view of the matter, the TPO analyzed the Bond rates and applied the Bond rate applicable for 'BB' rates bonds as the appropriate rate for the assessee and determined the applicable rate @ 14.47%. Therefore, instead of the 10% rate applied by the assessee, the TPO held 14.47% to be the applicable rate of interest applicable to the lo....
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....ered view, the contention of the assessee that the said transactions of advancing loans to AE's is at arms length even without charging of interest on the loans is not acceptable. We find that the reliance placed by the assessee on the decision of the ITAT, Mumbai Bench, in the case of Evonik Degussa India (P.) Ltd. (Supra) is misplaced as that decision has been rendered in the context of interest imputed on debt receivables and not on loans. Further, since the assessee itself has charged interest @ 10% p.a on the said loans advanced to its AE's, the argument put forth that an interest is to be charged there on is a hypothetical contention and has no relevance. 12.5.3 We also find that the distinction sought to be made by the DRP from the decision of the co-ordinate bench of this Tribunal in the assessee's own case for asst. year 2008-09 (Supra) is not correct. The DRP had stated that the finance cost incurred by the assessee was not before the Tribunal and hence issued directions that the bank overdraft interest rate/charge may be adopted. However, we find from a perusal of the said order of the co-ordinate bench of this Tribunal in the assessee's case for asst. year 2008-09 (S....
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....e contention of the Assessee in this regard finds support from the following rulings of the Tribunal VVF Ltd. v. DCIT (supra), M/S. Siva Industries & Holdings Ltd. v. ACIT (Supra), DCIT v. Tech Mahindra Ltd. (supra) and M/S. Four Soft Ltd. v. DCIT (supra). The Mumbai Tribunal in the ease of Tech Mahindra (supra) held that the arm's length price in case of interest on extended credit period granted to an Associated Enterprise shall be determined on the basis of USD LIBOR and not on any other currency denominated loan rate. The Mumbai Bench of the Income-tax Appellate Tribunal (the Tribunal) in case of Tech Mahindra Limited (the taxpayer) for Assessment Year (AY) 2004-05, held that the arm's length price in case of interest on extended credit period allowed to an Associated Enterprise (AE) based in USA shall be determined on the basis of USD London Inter Bank Offer Rate (LIBOR) instead of applying the rate of interest pertaining to EURO denominated loan charged to AE based in Germany since the AE was based in USA. The facts of the case were that the Assessee in that case was a joint venture between Mahindra & Mahindra Limited (Indian Company) and British Telecommunications (UK Compan....
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....dustries & Holdings Ltd. (supra), wherein the Tribunal held as follows: "We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0% optional convertible preferential shares. Thus it is noticed that the funds raised by the assessee company for giving the loan to India Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subsidiary company, is out of the funds of the assessee company it is not borrowed funds. The assessee has given the loan to the Associated Enterprises in US dollars. The assessee is also receiving interest from the Associated Enterprises in Indian rupees. Once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction, if this is so, then the domestic prime lending rate would have no applicability end the international rate fixed being LIBOR would come into play, in the circumstances, we are of the view that it LIBOR rate ....