TaxTMI 
TaxTMI 
2018 (8) TMI 1895
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....penses paid: Rs. 38,40,543/- 2.1 The assessee used OP/TC for calculating the Profit Level Indicator (PLI ). The return of income was filed declaring an income of Rs. 3,60,247/-. Reference was made to the Ld. Transfer Pricing Officer (TPO) in view of the international transactions as aforesaid. The assessee had selected 23 comparables for the purpose of demonstrating that the international transactions were conducted at Arm's Length Price (ALP). The mean margin of the comparables was 12.45% whereas the assessee's margin was 23.98%. 2.2 During the course of transfer pricing proceedings, the Ld. TPO directed the assessee to submit updated margins using current data of comparables and, accordingly, the assessee submitted fresh search result which was based on 17 comparables with mean margin of 9.29% whereas the assessee's margin stood at 23.98% only. The Ld. TPO also required the assessee to furnish bifurcation between IT and ITeS services and the OP/TC in both the segments of the assessee was 23.98%. Subsequently, the Ld. TPO selected 11 comparables in the final set of comparables with average margin of 38.61% and, thereafter, after allowing working capital adjustment to the ass....
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....ability analysis based on application of certain erroneous, additional, revised filters in determining the ALP; 2.5 Including certain companies in the final set that are not comparable to the ITES segment of the Appellant in terms of functions performed, assets employed and risks assumed, and excluding certain companies on arbitrary/ frivolous/inconsistent grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; and 2.6 Including companies having abnormal margins/volatile margins in the final comparables' set without appreciating the fact that such abnormal/volatile margins are due to certain abnormal conditions like business restructuring, super normal growth in revenue/net profits etc. and on the other hand resorting to arbitrary rejection of low-profit/loss making companies based on erroneous and inconsistent reasons. 3 The Ld. AO erred on facts and in law in initiating penalty proceedings under Section 27i(i)(c) of the Act. The Appellant craves leave to alter, amend or withdraw all or any of the grounds herein or add any further grounds as may be considered necessary either b....
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....ue from medical transcription, billings and collections and income from coding but the segment wise results were not available in the annual report of the company. It was also submitted that during FY 2009-10, relevant to the year under consideration, Accentia amalgamated with one of its subsidiaries, namely, Asscent Inforserve Private Limited and, therefore, this extraordinary event impacted the overall profitability of this company as the financial results for this year were inclusive of the figures of the amalgamating subsidiary resulting in abnormally high OP/TC of 43.07%. The Ld. AR also placed reliance on a number of orders of the various benches of the ITAT wherein this company had been directed to be excluded. 2. Eclerx Services Limited: The Ld. AR submitted that the ITAT in assessee's own case for assessment year 2009-10 had excluded Eclerx Services Limited as a comparable by holding that this company operated as a KPO providing data analytics and data process solutions which could not be compared with information technology enabled services segment of the assessee. The Ld. AR reiterated that there is no change in the functional profile of the assessee vis-à-v....
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....was engaged in providing diversified services i.e. ITeS and certain other technical services involving software testing, verification and validation of software at the time of implementation, data centre management activities and, therefore, this company was not functionally comparable to the ITeS services being provided by the assessee. It was further submitted that the annual report of this company does not contain segment wise result in the case of ITeS and technical services and, therefore, in absence of segment wise results, TCS E-Serve cannot be accepted as a comparable. It was further submitted that this company has the brand value of the Tata Group which was evident from payment being made on account of Tata Brand Equity contribution to Tata Sons Limited and, therefore, it was enjoying the benefit of brand value of the Tata Group which was not so in the case of the assessee and, therefore, the same was not a good comparable. It was further submitted that this company owned intangibles in the form of software licenses which was again not so in the case of the assessee company. It was also submitted that this company had earned abnormally high OP/TC margin of 63.38% during th....
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....4.3 With respect to TCS E-Serve Ltd., it was submitted that the FAR profile of the company is essentially similar to that of the assessee. High profit margin is no basis for rejection. Hence, it is to be retained as comparable. 4.4 With regard to TCS E-Serve International Ltd., it was submitted that the FAR profile of the company is essentially similar to that of the assessee. High profit margin is no basis for rejection. Hence, it is to be retained as comparable. 4.5 With respect to Genesys International Corporation Limited, it was submitted that FAR profile of the company is essentially similar to that of the assessee. Hence, it is to be retained as comparable. 5. We have heard the rival submissions and have also perused the material on record. Our observations and findings with respect to each of the comparables being sought to be excluded from the final set of comparables are as under: (i) Accentia Technologies : We find that the ITAT, in assessee's own case for assessment year 2009-10 in ITA No. 1910/Del/2014, vide order dated 23.11.2017, had excluded Accentia as a comparable by holding that this company was functionally dissimilar to the assessee company and se....
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....ded by the assessee. It is also seen that the annual report of this company does not contain segment wise result in the case of ITeS and technical services and, therefore, in absence of segment wise results, TCS E-Serve cannot be accepted as a comparable. We also note that this company was directed to be excluded as a comparable by ITAT Delhi Bench in the case of BC Management Services Pvt. Ltd. in ITA 5829/Del/2015 vide order dated 25.05.2017. The relevant observations of the coordinate Bench in this case are as under: "18. We have heard the rival submissions, perused the relevant finding given in the impugned orders as well as the material available on record. One of the main points of distinction which is quite ostensible is that the 'TCS E-Serve' is a subsidiary of 'Tata Consultancy Services Limited', which is one of the leading and giant company in the world and has an inherent element of very high brand value associated with it. Such a high brand value definitely has an impact on the pricing policy, niche market, contractual terms, etc. and thereby affecting the profit margins. Annual report of this company reflects that huge payments have been made by TCS E-Serv....
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....vices India Pvt. Ltd. in ITA 1508/Del/2015 vide order dated 28.11.2017. The relevant observations of the coordinate Bench in this case are as under: "42. However, perusal of the background and principal activities of the 'TCS Intl.' and 'TCS' given in annual report, available at page 413, shows that the company's operation is broadly comprise of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving the processing, collections, customer care and payments in relation to the services offered by Citigroup to its corporate and retail clients. Technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities whereas for all the diversifying services no break up is given. So, in the absence of complete segmental data, TCS cannot be treated as ITES. Moreover abnormal growth in operating income of 174% and operating profit of 355% as is evident from page 389 of the annual report paper book vol.I makes it incomparable with the taxpayer which is a routine ITES provider having turnover of Rs. 76.91 crores. So, in the absence of inco....