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2017 (6) TMI 1318
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....o 2. That on facts and circumstances of the case and in law, the Ld. AO/Ld. Transfer Pricing Officer ("TPO")/ Ld. Dispute Resolution Panel ("DRP") erred in making an addition of Rs. 54,014,130 to the returned income of the Appellant by re-computing, the arm's length price of the international transactions under section 92 of the Income Tax Act, 1961 ("Act"). 3. That on the facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. TPO for computation of the arm's length price, as is required under section 92CA(1) of the Act 4. That the Ld. AO/ Ld. TPO/ Ld. DRP erred on facts and in law in the assessment of the arm's length price of the Appellant's international transactions with associated enterprises by- 4.1 Rejecting on the basis of subjective grounds and presumptions, the comparability analysis conducted by the Appellant for determining the arm's length price in terms of section 92D of the Act r....
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....assignment as discussed above could also be periodic or project based. EVS SEZ India makes use of a variety of research tools including the Aveb, databases and publications apart from analytics and forecasting. The industries covered include financial services (banking and insurance), hi-tech (software, electronics, engineering, nono technology, networking, biomedical engineering), telecom equipment and operators, pharmaceuticals and biotech, chemicals, energy and consumer products. c) Market Research: This segment caters to primarily market research firms based overseas. It focuses on primary research in the nature of business to business surveys only where data is collected via telephonic surveys. The surveys are carried out on a case to case basis and as per the specific client requirements. The employees comprise mainly graduates, undergraduates, and MBAJs^JThe surveys carried out by the market research segment include surveys like analyzing the trends in IT and telecom spending, etc. These surveys are normally carried out on the basis of a questionnaire received from the client. Depending on the work load at times, some employees may be shifted to th....
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....te communications and deal with the direct customers, Associate Enterprises, etc. Finance and Accounting and IT: EVS SEZ India prepares its own financial statements. Hunan Resource Management: EVS SEZ India performs recruitment, soft skills training, performance evaluation and other related functions. The employee strength of EVS SEZ India was about 616 personnel including the corporate group as on March 31, 2010. 4.3 Assets Any business requires assets without which it cannot carry out its activities. The assets might be clearly recognisable i.e. tangible (plant and machinery, equipment, building etc) or they might be intangible assets (brand-name, trademarks, technical know-how, patents, etc). Following is the list of assets used by EVS SEZ India: Tangible Assets The tangible assets employed in EVS SEZ India are considered essential for running the business. They are described below: EVS SEZ India being an ITES service provider does not have a significant tangible asset base for carrying out its operations. EVS SEZ India does not own any land and carries out its operations on rented premises. Its tan....
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....msntm INR. Accordingly, EVS SEZ India is exposed to foreign currency risk for the AE services. The AEs do not bear this risk to any significant extent with respect to EVS SEZ India's operations. Entrepreneurial Risk There are two distinct sources of uncertainty in entrepreneurial ventures: 1) uncertainty regarding market demand, and 2) uncertainty regarding capability. The first type of uncertainty is characterised as "exogenous uncertainty" because it emerges as a state of nature. The second type of uncertainty is referred to as "endogenous" uncertainty because entrepreneurs realise that there is high risk of failure as it is tied to their capability. As EVS SEZ India is remunerated on an hourly basis by its AEs, it is exposed to this risk. The AEs are indirectly exposed to this risk for the Indian operations. Price Risk This risk arises due to the competitive pressures prevailing in the market, which lead to price undercutting thereby adversely impacting the profitability of the Company. EVS SEZ India is compensated for the services rendered by it to its AEs, on an hourly rate basis. As this compensation is s....
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....ected by the ld TPO and also excluded by the ld TPO. 6. The ld Authorised Representative submitted a detailed chart contesting various comparables as under:- S No Comparable Reasons of rejection (our contentions) Case laws relied upon by the appellant (Delhi ITAT and Delhi High Court) for same reasons and for same Assessment Year 1. Accentia Technologies Ltd.(pg. 1145-1184- Vol. 4- Annual Report) 1) Extraordinary events during AY 2010-11(acquisitions/ amalgamation) (pg. 1172)- hence fails TPO's own filter of peculiar economic circumstances 2) Functional dissimilarity - diversified business operations (pg. 1171- also Nta kindly refer TPO order pg. 27) 3) Different revenue recognition model (pg. 1171)- assessee's model at pg. 695 4) Significant intangible assets (pg. 1167)- assesse has no intangibles (pg. 692) 5) Abnormally high profit margins 1) 1.Delhi High Court- PCIT vs. Ameriprist India P. Ltd.- ITA No. 461/16- pg. 79A- 79 B CLC 2) United HealthGroup Information Services P. Ltd. (ITA No. 1038/D/15) (p 201-204 of CLC) 3) Equant Solutions India P. Ltd.(ITA No. 1202/D/2015)(pg.176-180 CLC) 4) Ameriprise India Pvt Ltd. (ITA No.....
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....ee salary under this head and also brand building and advertisement expense (about Rs. 78 crores- approx. 6.96 percent) (pg. 977, 978)- assesse has no "§och expenditure- In the TP Study at pg. 599 and 603, it is clearly mentioned that market risk lies with AE and hence assesse is not liable for marketing, sales promotion and business development. 4) Significantly large scale of operations (turnover is 22 times more than that of the assesse) 5) Exceptional year of operations (acquisitions) (pg. 950, 956)- hence fails TPO's own filter of peculiar economic circumstances 01. Delhi High Court- PCIT vs. Amen) India P. Ltd.- ITA No. 461/16- pg. 7 79B CLC 02. Equant Solutions India P. Ltd.(IT/1202/D/2015) (pg. 183-184 of CLC) 03. Techbooks International Pvt. Ltd. No. 240/Del/2015)(pg. 29-30 of CLC 04. Ameriprise India Pvt Ltd. (ITA No. 7014/Del/2014)(pg. 63 of CLC) 05. Sun Life India Service Centre P. L (ITA No. 750/2015) 6 TCS E-Serve lational '9- 1102- - Annual t) 01. Functional dissimilarity (pg. 1058) 02. No segmental data (pg. 1066) 03. Owns significant intangibles 04. Uses the 'TATA' brand- royalty is paid (pg. 1064) ....
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....not be the sole basis of rejection of a comparable, (pg. 145-158 ofCLC) Even otherwise, the following cases have held for the same comparable, that different financial year ending cannot be the sole basis of excluding a comparable, which otherwise passes all the filters and is functionally comparable- 5) Macquarie Global Services Private Limited- ITA No. 6803/DEL/2013 6) Ameriprise India Pvt. Ltd. vs. ACIT- ITA No. 2010/Del/2014 Mercer Consulting India P. Ltd. ITA 966/Del- 2. Omega Healthcare Ltd (pg 1269-1284) Vol 4 Annual Report the TPO/DRP rejected the comparable only on the ground that the annual report is not available in the public domain. However, this is not true. 1) Bechtel India Pvt. Ltd. (ITA No. 1478/Del/2015) (pg. 96-97 of CLC) 7. The ld Departmental Representative vehemently objected the argument of the assessee for exclusion of various comparable which we will dealt with at the moment of its adjudication. He vehemently relied upon the decision of the Hon'ble Delhi High Court in case of Chrscapital Investment Advisor (India) Pvt. Ltd. Vs. DCIT 2015-TII-13-HC-DEL-TP and Rampgreen Solutions Pvt Ltd. Vs. CIT 2015-TII-33-HC-Del-TP. ....
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....coding is related to procedure of financial assessment. Medical billing is maintenance of financial accounts on insurance company etc for the purposes of recovery of sums by Doctors. Therefore, medical transcription is a service which requires employment of medical professional also. However, the medical coding the billing may not require higher technical skill. In annual report the company has mentioned that it has only one segment and therefore it does not have segmental results pertaining to medical transcription vis-à-vis coding and billing activity. According to us the medical transcription itself cannot be said to be comparable with the functions performed by the assessee. However, the medical coding and billing activities are similar to the functions performed by the assessee. But , in absence of the segmental accounts with respect to medical coding and billing activities this comparable cannot be included. Hence, TPO is directed to exclude it. 12. The next comparable by the assessee is that eClarx Services submitting that it is a knowledge process outsourcing (KPO) unit and therefore cannot be compared with the ITES service provider like assessee. The assessee has....
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....lance at the functional profile of this company divulges that it is basically a Knowledge Process Outsourcing (KPO) company providing data analytics and data process solutions to global clients. This company provides end to end support through trade life cycle including trade confirmations and settlements etc. It also provides sales and marketing support services to leading global manufacturing, retail, travel and leisure companies through its pricing and profitability services. Further this company has also developed it tool and process automation. From the above discussed nature of business carried on by e- Clerx Services Ltd., it is patent that the same being a KPO company, is quite different from the assessee, providing only IT enabled services to its AE, which fall in the realm of BPO services. Apart from that, it is further observed that this company has significant intangibles which it uses in rendering KPO services, against which the assessee does not have any intangibles. The Hon'ble jurisdictional High Court in Rampgreen Solutions (P.) Ltd. v. CIT [2015] 234 Taxman 573/60 taxmann.com 355 (Delhi), has held that e-Clerx Services Ltd., being engaged in KPO, cannot be tre....
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....arable as well as it does not have complete segmental information with respect to the sales and service segments. In the result we direct the Transfer Pricing Officer to exclude the above comparable. 19. The assessee has challenged the inclusion of Infosys BPO Ltd. the main reason seeking its exclusion was high brand value, intangibles, benefit of Infosys branch and large scale operation. 20. The ld DR objected to this and relied upon the order of the ld Transfer Pricing Officer submitting that all these arguments of the assessee has been considered by the ld TPO. 21. We have carefully considered the rival contentions and also verified the annual accounts of Infosys BPO Ltd from page No. 943 to 1026, undoubtedly the Infosys BPO is driving leverage from the client of Infosys Technologies Ltd for cross selling the BPO services of this company. The assets of the comparable company shows that it has a goodwill of approximately Rs. 19 crores. The income stream of comparable was Rs. 1126.63 crores whereas, the assessee's income stream was Rs. 50.90 crores. Hon'ble Delhi High Court in case of Pr. CIT Vs. Actis Global Services Ltd in TS-417-H.C--2017(DEL)(TP) has held that eve....
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.... was Rs. 42 crores. Therefore, following the same reasoning given by us for exclusion of TCS eserve International Ltd we also direct the ld TPO to exclude this comparable. 28. The next comparable contested by the assessee is e4e Healthcare Ltd contesting that it is engaged in software development services and owns its own intangibles. The ld Departmental Representative contested relying upon the order of the ld TPO and DRP and submitted that this comparable is assessee's own comparable. 29. We have carefully considered the rival contentions and perused the annual report of the company placed at Page No. 1185 to 1082. However, before analyzing the balance sheet it is very important to note that above comparable was selected by the assessee and hence it was accepted by the TPO as FAR analysis is similar to the assessee. The assessee has selected this comparable based on the functional profile and applying its own filter. This comparable was also not contested before the ld DRP. Before us no reasons were given that why the assessee is now withdrawing the above comparable which was selected by the assessee itself. It is very unfortunate that despite preparing its transfer pricing....