TaxTMI 
TaxTMI 
2018 (8) TMI 1890
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....e filed its return of income on 27/11/2012 declaring total income of Rs. 7,96,90,377/-. The return was processed u/s 143(1) of the Act and the case was subsequently taken up for scrutiny. The Assessing Officer made a reference to the Transfer Pricing Officer ('TPO') u/s 92CA of the Act for determination of the arms length price ('ALP') of the international transactions entered into by the assessee during the year under consideration. In the course of these proceedings, the TPO rejected the assessee's TP analysis in respect of its ITES segment, performed a fresh T.P analysis and proposed TP adjustment of Rs. 1,27,18,746/- in the order passed u/s 92CA of the Act on 29/1/2016. The AO passed the draft order of assessment u/s 143(3) r.w.s 144C of the Act on 29/2/2016; wherein the assessee's income was determined at Rs. 9,24,09,123/- by incorporation therein of the TP adjustment of Rs. 1,27,18,746/-. 2.3 Aggrieved by the draft order of assessment dated 29/2/2016 for asst. year 2012-13, the assessee filed its objections thereto before the DRP. The DRP issued its directions u/s 144C(5) of the Act vide order dated 2/9/2016, directing for exclusion of certain compa....
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....egment. 2. The Learned Assessing Officer and the Learned TPO are not justified in neither giving an opportunity to the Appellant while determining adjustment giving effect to the directions of Honourable DRP nor furnishing a copy of such determination to the Appellant. 3. The Honourable DRP erred in rejecting certain companies selected by the appellant on the basis of parameters laid down in Rule 1OB(2) of Income Tax Rules, 1962 which passed all the quantitative and qualitative filters applied by the Learned TPO in a fresh search undertaken by him. In doing so, the honourable panel rejected the following comparable companies: • Accentia Technologies Limited • Jindal Intellicom Limited 4. The Honourable DRP erred in upholding the action the Learned TPO in failing to apply the turnover filter (i.e. upper limit) without appreciating the fact that turnover of the assessee was merely INR 16.46 crores. In doing so, the Honourable DRP Panel selected the following companies: Sr. No. Name of the Companies Selected by Learned AO Operating Revenue of the Companies Selected Turnover Multiples 1. Infosys BP....
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.... comparable companies. 9. The Honourable DRP and the Learned TPO erred in restricting the working capital risk adjustment to - 0.31%. 10. The Honourable DRP and the Learned TPO erred in treating provision for bad and doubtful debts and loans and advance as non-operating expenses while computing the PLI for comparable companies 11. Without prejudice to the above, the Honourable DRP erred in not appreciating that while determining arm's length price under TNMM the Appellant is eligible for the benefit of second proviso to section 92C (2) of the IT Act. F. The action of the Learned Assessing Officer in denying the MAT credit under section 115JAA of the IT Act. G. The Honourable DRP erred in upholding the levy of interest under section 234B of the IT Act when the conditions for levying such interest did not exist in the present case. H. The assessee may be allowed to add, amend, alter or raise additional grounds of appeal. I. The assessee prays for justice." TRANSFER PRICING (GROUND D - 1 to 11) 4.1 In the year under consideration, the assessee has entered into the following international transactions with its ass....
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.... Ltd., 19.61 7. TCS E-Serve Ltd., 63.69% 8. BNR Udyog Ltd. (Seg) (Medical Transcription) 50.61% 9. Excel Infoways Ltd. (Seg)(IT/BVPO) 29.79 10. e4e Healthcare Services Ltd., 19.85% Average PLI 28.11% 5.2.1 The TPO then proposed/computed a TP adjustment in the ITES segment of Rs. 1,27,18,746/- as under:- Arm's length mean margin on cost 28.11% Less: Working capital adjustment -0.31% Adjusted Mean Margin 28.42% Operating Cost (A) Rs. 13,81,04,678 ALP - 128.42% of operating cost (B) Rs. 17,73,54,103 Total operating Revenue (C) Rs. 16,46,35,352 Shortfall being adjustment u/s 92CA (B-C) Rs. 1,27,18,746 5.4 Aggrieved by the draft order of assessment dated 29/2/2016 for asst. year 2012-13, wherein the proposed TP adjustment of Rs. 1,27,18,746/- was incorporated, the assessee filed its objections thereto before the DRP. The DRP in direction issued u/s 144C(5) of the Act on 2/9/2016 rejected/directed exclusion of two comparables selected by both the assessee in its TP study and the TPO for the ITES segment. The DRP also directed that foreign exchange gain/loss be treated as operating i....
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.... of CGI Information Systems & Management Consultants (P.) Ltd. v. Asstt. CIT [2018] 94 taxmann.com 97 (Bang. - Trib.) at paras 47 to 52 thereof has remanded back the issue of comparability analysis at the segmental level to the file of the TPO for examination and verification of the assessee's claim. It is prayed that the same be followed in this case also. 6.3.1 We have heard the rival contentions and perused and carefully considered the factual material on record; including the judicial pronouncements cited. In the facts and circumstances of the case, as narrated above, we are of the considered view that on similar facts, as in the case on hand a co-ordinate bench of this Tribunal in the case of CGI Information Systems & Management Consultants (P.) Ltd., (supra), has remanded the issue of comparability analysis at the segmental level to the file of the TPO for examination and verification, by holding as under at paras 47 to 52 as thereof:- '47. The next submission of the learned counsel for the Assessee was with regard to exclusion of 2 comparable companies from the list of 7 comparable companies that remain after the order of the DRP. The first comparable com....
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.... employee cost filter is satisfied in the case of this company. (c) On the service revenue filter viz., the requirement that a comparable company must have revenue from rendering services of more than 75% of its total revenue, the TPO again held that the pre-press BPO segment's entire income is from services and therefore this objection is not to be accepted. 49. On objections by the Assessee before the DRP, the DRP confirmed the action of the TPO. One of the objection before the DRP was that this company did not figure in the list of companies engaged in ITES. On this objection the DRP held that though this company did not figure in the list of companies in ITES in the main search of capital line and prowess database but on a segmental search these two companies satisfied the requirement of being considered as companies engaged in providing ITES. 50. Aggrieved by the directions of the DRP, the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee reiterated submissions that were made before the TPO/DRP. In particular it was submitted that the service revenue filter was applied by the TPO himself at the entity level and on su....
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....teristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction if- "(i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arisi....
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....ith regarded to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s.133(6) of the Act. The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO.' 6.3.2 Respectfully following the decision of the co-ordinate bench in the case of CGI Information Systems & Management Consultants (P.) Ltd., (supra) also for asst. year 2012-13, to which one of us is party, we remand the issue of the comparability of this company; Universal Print Systems Ltd., back to the file of the TPO for examination and verification of issues raised by the assessee of functional comparability and employees cost filter of 25% at segmental level, which the AO may gather information u/s. 133(6) of the Act. Needless to add the assessee shall be afforded adequate opportunity of being heard and to file details/submissions required, which shall be duly considered by TPO before deciding the issue. 7. Infosys BPO Ltd., 7.1 The ld. AR for the assessee submitted that this company, Infosys, BPO Ltd., should be rejected/excluded from the list of comparables for the following reasons:....
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....at BNR Udyog Ltd., (Seg - Medical Transcription) ('BNR') should be rejected and excluded from the final set of comparables for the following reasons:- (i) Functionally Different According to the ld AR for the assessee, this company 'BNR' is functionally different as it is engaged in multiple business lines, i.e IT & ITES, e-governance and construction activities. (ii) Fails the RPT filter of 25% on entity basis as segmental transaction details of medical transcription are not available. (iii) Incorrect Margin Computation Without prejudice, the ld. AR submits that as per segmental information the medical transcription segment has earned revenues of Rs. 147.40 lakhs whereas in Notes 2-19, sub-schedule to the profit and loss account, revenue from medical transcription services is shown at Rs. 138.55 lakhs The margins therefore need to be corrected. 8.2 The ld. DR for Revenue supported the orders of the authorities below and submitted that in similar fact situation and on similar contentions by the assessee, a co-ordinate bench of this tribunal in the case of Indegene (P.) Ltd. v. Asstt. CIT [2017] 85 taxmann.com 60 had re....
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....R Udyog Ltd., to the file of the TPO for determination afresh in line with the observations above. Needless to add, the assessee shall be afforded adequate opportunity of being heard in the matter and to file details/submissions in this regard, which shall be duly considered by the TPO before deciding the issue. The TPO is accordingly directed. 9. TCS E-serve Ltd., ('TCS') 9.1 Before us, the ld. AR for the assessee submitted that this company TCS E-Serve Ltd. ('TCS') should be rejected and excluded from the final list of comparables for the following reasons:- (1) Functionally different The assessee contends that this company deals with various verticals of business, i.e., it renders BPO services to customers in the Banking, Financial services and Insurance domain, and also provides high end KPO services and therefore it is functionally different from the assessee in the case on hand. It is also contended that TCS bears full fledged risk, whereas the assessee bears only minimum risk. In support of the contention that this company is functionally different and therefore ought to be rejected as a comparable, the assessee, inter alia, placed rel....
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....e it fails the employee cost filter of 25% since its Employee Cost/Operating revenue is approx 13.05%. (iii) Peculiar Economic Circumstances It is submitted that as per the Annual Report of this company, 'Excel', it has peculiar economic conditions impacting the earnings of the year under consideration and consequent abnormal volatility in profits. In support of the assessee's contentions for exclusion of this company from the list of comparables, the ld AR placed reliance, inter alia, on the decisions of co-ordinate Bench of the tribunal in the case of CGI Information Systems & Management Consultants (P.) Ltd., (supra) and of ITAT Delhi in the case of Baxter India (P.) Ltd. (supra). 10.2 Per contra, the ld. DR for Revenue supported the orders of the authorities below. Reliance was placed on the decision of the co-ordinate bench in the case of XL Health Corpn. India (P.) Ltd., (supra). 10.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited. The assessee seeks exclusion of this company M/s. Excel Infoways Ltd., on grounds of failing the employee filter cost ....
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....PO's order. According to the assessee, no objections were raised against their inclusion in the final set of comparables before the DRP, but however the DRP suo moto rejected and excluded these two companies from the list of comparables. 11.2 We have heard both the parties in the matter and perused and carefully considered the material on record. The basic facts not in dispute are that the above two companies, 'Accentia' and 'Jindal' were selected as comparables both by the assessee in its TP study and the TPO as per his order u/s. 92CA of the Act. We find that, as contended, the DRP has suo moto rejected these two companies as comparable without the assessee having raised any objections to their inclusion in the final set of comparables. We have carefully perused paras 3.20 and 3.21 of the DRP's order and find that the DRP has not adduced any proper reasoning as to why these companies should be excluded from the list of comparables, in spite of the fact that no objections to their inclusion has been raised by the assessee. In these circumstances, we deem it appropriate to set aside the DRP's order excluding these two companies from the list of compar....