TaxTMI 
TaxTMI 
2020 (2) TMI 972
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....s engaged in providing consultancy/ information technology enabled services (ITeS) to its foreign Associate Enterprises (AE). The assessee-company filed its return of income for Assessment Year 2010-11 on 29.03.2011 declaring total income at Rs. 7,87,57,222/-. Along with the return of income, the assessee furnished report under Form 3CEB, reporting international transaction with its AE. The assessee reported following international transaction in its Form 3CEB: Sr. No. Nature of Transaction Amount (Rs.) Method 1 Provision of support services. 35,51,49,879 TNMM 2 Reimbursement of Expenses 1,14,11,154 TNMM 3 Import of Fixed Asset 180,886 TNMM 3. For bench marking of provision of support services, the assessee selected Transaction Net Margin Method (TNMM) as most appropriate method. The profit level indicator (PLI) selected was operating profit/ total cost (OP/TC). The assessee has shown its margin at 14.86% for transaction of provision of support services. The assessee selected 9 company as comparable and computed the margin on the basis of single year average margin in the following manner: Sr.No. Name of the comparable Company Single Year margins ....
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.... Revenue as Per Comparables @ 29.55% 42,36,35,579 Value of international transaction (B) 35,51,49,879 105% of international transaction 37,29,07,373 95% of international transaction 33,73,92,385 8. The TPO noted that ALP falls outside the tolerance range of +/- 5% of transaction value, accordingly, amount of (Rs. 42,36,35,725/- minus Rs. 35,51,49,879/-) an adjustment of Rs. 6,84,85,849/- was proposed in the international transaction with regard to provisions of support services. The Assessing Officer on receipt of report of TPO, made upward adjustment/addition of Rs. Rs. 6,84,85,849/- in the draft assessment order passed under section 143(3) r.w.s. 144C(1) dated 17.02.2014. The copy of the draft assessment was served on the assessee. 9. The assessee filed its objections before DRP-IV, Mumbai. The DRP after considering the objection of assessee directed to include certain item excluded by TPO on the ground that such item of "other income" are operating in nature. However, in case there are similar item in any of these comparable finally considered, the TPO was directed to exclude such income from operating income of the comparable to maintain the consistency. On receipt....
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....nsideration and hence should be rejected. 1.3.2 The Learned TPO/AO/DRP has erred in including Acropetal Technologies Ltd. on the factually incorrect ground that it operates in two segments namely engineering design and ITES and the ITES segmental results were considered to be comparable to the assessee. However, it is evident from the Annual Report of the company that its segments are Engineering Design., IT (& not ITeS) and Health Care Services. Moreover, the TPO and DRP erred in not considering that Acropetal is engaged in development of software products and hence not comparable to the Appellant. 1.3.3 The learned TPO/AO/DRP erred in upholding the selection of Eclerx Services Ltd. ('Eclerx'), on the ground that Eclerx operates in the domain of ITES even though Eclerx is not functionally comparable and subcontracts/outsources its work, thereby operating in a different business model and hence is not comparable to the Appellant. 1.4 The learned AO I TPO under the directions of the Hon'ble DRP erred on facts and in law in incorrectly computing the margin of the Appellant by excluding income in the nature of operating income from margin computation. 1.5 The learned AO I ....
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....erred on facts and in law in granting short credit for tax deducted at source ('TDS') of Rs. 104,760 against Rs. 821,509 claimed by the Appellant in the return of income. The Appellant prays that the learned AO be directed to grant the credit of Rs. 25,336,000 for advance taxes and Rs. 821,509 for TDS as claimed by the Appellant in the return of income. Ground 4 - Consequential reliefs 4.1 The learned AO under the directions of the Hon 'ble DRP erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material in deciding the case. Further, they also failed to consider the contrary material and evidence adduced by the Appellant. Accordingly, the Appellant prays that the AO be directed to grant all consequential reliefs arising out of reliefs from this appeal. 4.2 The learned AO has erred in levying interest under Section 234B of the Act of Rs. 17,462,176. Accordingly, the Appellant prays that the AO be directed to grant consequential relief in computing interest under Section 234B of the Act in accordance with the law. 4.3 The learned AO has erred in levying interest under Section 234C of the Act of Rs. 806,573 on the asses....
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.... adjudication. 13. Now, turning to the merits of various grounds of appeal. The ld. AR of the assessee submits that in case from final set of comparable, the comparable no. 5, 7, 8 & 9 i.e. Infosys BPO, Accentia Technologies, Acropetal Technologies and E-Clerx Services Ltd. are excluded and Datamatics Financial Services Ltd. are included, the assessee's margin would be within permissible range. The ld. AR further submits that E-Clerx and Accentia Technologies was excluded in the assessee's own case for A.Y. 2009-10 in ITA No. 1465/Mum/2014 dated 31.08.2018 on the test of functionality. Further, Acropetal Technology and Infosys BPO are also not functionally comparable with the assessee. 14. For exclusion of Infosys BPO, the ld. AR of the assessee submits that the retention of Infosys BPO as a comparable which was inadvertently included as a comparable by the assessee itself in its Transfer Pricing Study. There is no estoppel in the law to exclude the comparable, if the same is not comparable with the assessee on functional comparability. It is submitted that Infosys BPO is a giant company with different risk profile and nature of services, has brand value and owns IPs unlike the ....
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....Ltd. (ITA No. 682 of 2016 dated 28.09.2016) held that in case of TNMM, reliable segmental details of all three elements, i.e. cost, sales and assets employed are required. Mere allowability of segmental sale is not sufficient. 16. The For inclusion of Datamatics Financial Services Limited., the ld. AR of the assessee submits that the TPO has rejected Datamatics on the ground that it is a "persistent loss making" company. The ld. AR of the assessee submit that it is a well settled law that a company cannot be considered as a persistent loss making company if it has incurred a loss in one or two financial years consecutively. This filter was also applied by the assessee while eliminating companies to arrive at a set of comparable in the TP study. It was submitted that Datamatics has enjoyed net profits (Profits before Tax) in FY 2007-08 to FY 2010-11. Moreover, if NCP Margins of Datamatics is considered, it can be observed that the NCP margin loss is only in the present years. In support of his submission, the ld. AR submits that Hon'ble Bombay High Court in Goldman Sachs (India) Securities Pvt. Ltd. vs. CIT in ITA No. 2222/2013, wherein it was held that a company which had losses i....
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....assessee disputes the following selection of comparables in this case: a) Coral Hubs Ltd. also known as Vishal Information Technologies Ltd. b) Eclerx Services Ltd. c) Accentia Technologies Ltd. d) Cosmic Global Ltd. 8. ................. ................. Accordingly, we proceed to adjudicate the issue as under: a) ................ b) Eclerx Services Ltd.: In respect of this comparable, the assessee has submitted that this is engaged in data analytic KPO service specializing in the field of financial services and retail and manufacturing. The assessee has submitted that as Eclerx is a KPO whereas the assessee has been classified as an IT Enabled service provider by the TPO, Eclerx cannot be taken as a comparable case. The assesses in this regard explained that while under BPO services, the main activities involve data entry, data processing and other routine services, in the case of KPO the services are more research oriented involving higher skill set levels. Though even under KPO services there may be some amount of BPO activity, KPO services are essentially characterized by performance of research, domain based analysis and domain based expertise. In a KPO se....
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....ling optimization, content operation, sales and marketing support, product data management, revenue management. For this, the ld. Counsel of the assessee has referred to extracts from the annual report. On the other hand, it has been submitted that the assessee is merely engaged in rendering of support services to its foreign AE. Hence, it has been claimed that Eclerx Services Ltd. is engaged into the various services which are functionally dissimilar to the assessee. It has been further submitted that no segmental financial data is available and, hence, in the absence of said data, it cannot be said to be comparable to the assessee. In this regard, the ld. Counsel of the assessee submitted that without prejudice to the submission of the assessee that it is not involved in high and services and that it is not a KPO, it is submitted that two companies cannot be held to be comparable to each other merely because both the companies are engaged into KPO services. Per contra, the ld. DR relied on the orders of the authorities below. Upon careful consideration, we find that the ITAT has considered this issue in the case of M/s. Fractal Analytics Private Limited (supra), wherein the tr....
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.... KPOs two entities are not comparable if they were catering to different types of business. 15. From this it is amply clear that the said diverse activities are not comparable with the service of providing analytical solution rendered by the assessee. Moreover though some functions are similar, there are lot of other functions by M/s.EcIerx Services which are not done by the assessee. Hence, absence of segmental data make comparability not feasible. In these circumstances and in the facts and circumstances discussed above considering the precedents as above, we are of the considered opinion that Eclerx Services is not comparable in this case to that of the assessee because of diverse nature of its functions. A large number of them are dissimilar to that of the assessee and the fact that proper segmental data are not available. Hence, holding that Eclerx Services cannot be taken as a comparable in this regard, we remit the issue to the TPO to make the computation afresh after excluding Eclerx Services as a comparable, and making further-computation as per law. In view of the above precedent, we allow the grievance of the assessee and hold that this comparable is functionally dif....
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....ssessment Year. Therefore, not comparable. (iii) In fact, this Court in GIT v/s. Aptara Technology Ltd., (Income Tax Appeal No. 1209 of 2015) has upheld the view of the Tribunal in not accepting the Accentia Technologies Ltd., as comparable, inter alia, on account of fact that extra ordinary event such as merger/ amalgamation would affect the profitability of M/s. Accentia Technologies Ltd., Thus, making it incomparable. (iv) Further, in that case, as in this case, the Tribunal has also recorded a finding of fact that the / activities of M/s. Accentia Technologies Ltd., and the Respondent are different. Thus, not comparable. The above finding of fact is not shown to be perverse. (v) In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. In view of the above decision of the Hon'ble High Court, we allow the grievance of the assessee and hold that this comparable is not valid in the present comparability analysis." 20. Considering the decision of Tribunal in assessee's own case for A.Y. 2009- 10, wherein the Tribunal excluded the eClerx and Accentia from final set of comparable for determining the ALP of sim....
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....d and excluded this comparable. Considering the consistent view of Hon'ble Delhi High Court, Hon'ble Bombay High Court and co-ordinate bench of Tribunal, we are of the view that Infosys BPO is a market leader and a giant company with a different risk profile and nature of service, has brand value and hence not comparable to the assessee due to huge difference in the size and scale of the company. Therefore, we direct the AO to exclude Infosys BPO from final set of comparable as the same is not comparable with assessee, which is proving captive services. 22. Now turning to the comparability of Acropetal Technology Ltd. we have seen that the ld. TPO while considering the functional comparability has considered all of its three segments including the IT Segment. The ld. AR vehemently submitted that the segments of this comparable are provided at page 24 of this comparable company are the segments for AY 2009-10. And that ld. TPO has wrongly mentioned the IT segment of Acropetal as ITeS segment which is factually incorrect. It was also argued that there are three segments of this comparables; namely, (i) Engineering Design Service, (ii) Information Technology Services ('IT Segment') a....
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....Court in Goldman Sachs (India) Securities Pvt. Ltd. vs. CIT (supra), wherein it was held that a company which had losses in two consecutive years were held not to be a persistent loss making company and was accepted as a comparable. The TPO rejected Datamatics by taking view that it is a loss making company. Though, the assessee brought the facts on record that in FY 2007-08 this company earned profit of R. 3.77 Crore before tax. The ld. DRP affirmed the action of AO by taking view that the segmental information of this comparable for ITeS is not available and has not been considered by the assessee. And the revenue earned by this comparable includes processing, printing as well as export of ITeS thus financial compared by the assessee are not comparable. 25. We have seen that Datamatics was accepted by TPO as a comparable in A.Y. 2009-10. The Hon'ble Bombay High Court in Goldman Sachs (India) Securities Pvt Ltd Vs CIT (supra) held that only persistent loss making unit cannot be said as comparable. Thus, considering the fact that this company was accepted as comparable by TPO himself in AY 2009-10, thus, we direct the AO/TPO to include this comparable in final set of comparable. ....
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....considering additional companies for determining the arm's length price of the international transactions, without taking into consideration the differences in the functions performed, assets employed and risks undertaken between the Appellant and the companies considered by the TPO as comparable and without finding any material deficiencies in the benchmarking analysis undertaken by the Appellant. The ld. TPO/AO/DRP have erred in erroneously selecting comparable company and adding certain companies to the final set of comparable companies on the following basis. 31.3.1 The learned TPO/AO/DRP erred in upholding the selection of Eclerx Services Ltd. ('Eclerx'), on the ground that Eclerx operates in the domain of ITES even though Eclerx is not functionally comparable and subcontracts/outsources its work, thereby operating in a different business model and hence is not comparable to the Appellant. 31.3.2 The learned TPO/AO/DRP has erred in including Accentia Technologies Ltd ('Accentia') on the ground that Accentia is engaged in ITES, even though Accentia is not functionally comparable of the Appellant and has undergone extraordinary event during the year under consideration....
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.... proceedings be dropped in the matter. Ground 3 - Short credit for taxes deducted at source 3.1 The learned AO erred on facts and in law in granting short credit for taxes deducted at source ('TDS') of Rs. 857,776 as against Rs. 1,145,750 claimed by the Appellant in the return of income. The Appellant prays that the learned AO be directed to grant further credit of Rs. 287,974 for TDS as claimed by the Appellant in the return of income. Ground 4 - Consequential reliefs 4.1 The learned AO under the directions of the Hon'ble DRP erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material in deciding the case. Further, they also failed to consider the contrary material and evidence adduced by the Appellant. Accordingly, the Appellant prays that the AO be directed to grant all consequential reliefs arising out of reliefs from this appeal. 4.2 The learned AO has erred in levying interest under Section 2348 of the Act of Rs. 8,475,488. Accordingly, the Appellant prays that the AO be directed to grant consequential relief in computing interest under Section 234B of the Act in accordance with the law. 4.3 The learned AO ....