2020 (5) TMI 512
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....nafter referred lo as learned Assessing Officer" or the "learned AO"), dated 30 August 2018 for the Assessment Year (A 2014-15, under section 143(3) read with section 144C(1) of the Income Tax Act, 1961 ("the Act") in pursuance of the directions issued by Dispute Resolution Panel (hereinafter referred to as the "Hon'ble '_I DRV). Bangalore dated 23 August 2018 under section 144C(5) of the Act inter-alia on the following grounds ácta are without prejudice to each other: That on the facts and circumstances of the case and in law: 1. Impugned order of Ld.AO pursuant to directions of Ld. DRP, erred in assessing the total income at INR 32.6034,282, as against returned income of INR 15,70,57,200; 2 Ld.AO DRP and TPO erred in making addition of INR 16,89,77,082 to total income of Appellant on pretext that price charged was lower than arm's length price determined for Information Technology Enabled Services ("ITeS") rendered by Appellant to its AE(s), 3 Impugned final assessment order passed by Ld.AO is invalid being not in conformity with section 144C (13) of the Act 4 L.d.AO DRP and TPO erred, in law and in facts, by not accepting economic analysis undertaken....
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....lly comparable to the Appellant: i. Allsec Technologies Limited ("Allsec') ii. Informed Technologies India Limited ("Informed Technologies") iii. Jindal Intellicom Private Limited ("Jindal Intellicom") iv. R Systems International Limited ("R Systems") v. Datamatics Financial Services Limited ("Datamatics") c) Ld.AO, DRP and TPO erred, by rejecting the following comparable companies that were a part of the search undertaken by Id. TPO even though such companies are functionally comparable to the Appellant. i. Harton Communications Limited ("Hartron") d) Ld.AO DRP and TPO erred, by rejecting ACE Software Exports Limited ("ACE Software") even though the company is functionally comparable to the Appellant, on ground that it was additionally proposed to be included by the Appellant during TP Assessment proceeding. Although some of the companies were chosen/ not chosen as comparables in the transfer pricing study, r :ase upon consideration of more details being available in public domain or subsequent decisions ay of such companies if found to be not comparable for any reasons, appellant craves leave to urge am sane at the time of hearing. 10. Without prejudice to....
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....bove, LdAO erred, in law and in facts, by computing the amount of interest of INR 3,40,37,289 incorrectly under section 234B of the Income Tax Act, 1961; 20 Ld.AO has erred, in law and in facts, in initiating penalty proceedings u/s 271(1)(c) of the Act. Appellant submits that each of above grounds is independent and without prejudice to one another. Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at y time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law." Brief facts of the case are as under: 2. Assessee is a company and filed its return of income for year under consideration on 28/11/15 declaring income of Rs. 18,12,97,820/-. The case was selected for scrutiny and notice under section 143(2) was issued to assessee. Notices under section 142 (1) was also issued to assessee in response to which representative of assessee appeared before Ld.AO and filed required details as called for. Ld.AO observed that assessee had international transaction with associated enterprises which exceeded Rs. 15 crore and accordingly this matter....
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.... be seen on a 6 Companies that do not have significant case to case (less than 25 percent) foreign exchange earnings Inappropriate filter. The TPO has applied more 7 Companies thathadsubstantial (in appropriate filter. excess of 25%) transactions with related parties This is an appropriate filter 8 Companies that have persistent operating losses This is an appropriate filter 9 Companies that have exceptional years of operations Inappropriate filter. The TPO has 10 Companies that are duplicated in the applied more databases with different names or merged to form another company This is an appropriate filter 6. In TP study, assessee used comparable is considering weighted average margin of data for 3 years. Assessee used data pertaining to financial years 2013-14 and 2012-13 to be included for calculating weighted average of price as per Rule 10CA. It has been submitted that, as per proviso to Rule 10B(5) at the time of assessment proceedings, current year data 'shall' be used if available. It has been submitted that current year Tata was not available at the time of preparation of transfer pricing documentation. Sl.No Particulars Margin 1. Allsec Technologies ....
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....od using LIBOR +300 basis points in respect of payments beyond the agreed credit period of 30 days that worked out to be 3.3758%. 13. Transfer Pricing adjustment proposed by Ld.TPO is as under: Aggrieved by proposed adjustment, assessee filed objections before DRP. 14. The DRP after considering various submissions advanced by assessee included Tech Mahindra Business Services Ltd., in final list of comparables and directed the Ld.AO/TPO to rectify factual errors in margin computation. 15. Ld.AO, upon receipt of DRP directions computed transfer pricing addition at Rs. 16,89,77,082/-. Aggrieved by order passed by Ld. AO, assessee is in appeal before us now. 16. Ld.AR submitted that Ground No.1-2,4 are general in nature and therefore do not require adjudication 17. Ld.AR submitted that various issues, and has challenged various comparables for in appropriate inclusion/exclusion in alledged grounds. It has been submitted by Ld.AR that assessee wish to press certain grounds as under: * Ground 5,6 (a), (d)and 7, 10 are against certain filters applied by Ld.TPO, for exclusion of certain comparables. * Ground.9 (a) (i)-(v), Ground 9 (c) for inclusion of comparable. * Ground.12 ....
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....the data was not available at the time of furnishing return of income for relevant year. 20.5. As we analyse transfer pricing assessment proceedings, it is noted that at the time of assessment, data for relevant assessment year was available, which was used by Ld.TPO, as against average of multiple year data used by assessee transfer pricing document. This in our view is in accordance with the rules specified. We, therefore, do not find any infirmity in analysis carried out by Ld.TPO by using relevant year data. Accordingly this ground raised by assessee stands dismissed. 21. Ground 6(d) 21.1. Ld.AR submitted that authorities below applied lower limit of turnover filter of Rs. 1 crore and ignored applying an upper turnover filter. It was submitted that, consistently revenue always took stand that turnover is not a relevant filter in software industry. It has been contended by revenue that in software industry size has no influence on the margins earned by a comparable company. What matters is a human capital. It was under these circumstances that Ld.TPO applied only lower limit of turnover filter for excluding companies having turnover less than Rs. 1 crore. 21.2. We have per....
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....ase. Say for example, in the TP analysis of a company having 20 Crores receipts, a company with 2 Crores to 200 Crores can be stated to be within the range i.e., factor of ten as upper and lower limits. In certain cases, the ITAT also accepted turnover filter of 1 Crore to 200 Crores. But the range cannot be fixed, as the facts may vary from case to case. Simply a comparable can not be excluded on upper turnover limit when infact in number of cases Assessees do not raise any objection on inclusion of companies with very small turnover. The 200 Crores upper limit also cannot be considered in a case whose turnover is, say 300 Crores. Therefore, instead of a fixed 1cr - 200 Crore range, what one has to consider is the turnover /receipts of Assessee and range of upper limit at ten times and lower limit also ten times..i.e.,one tenth. Thus, for example the range for a 300 Crores company can be from 30 Crores (1/10th) to 3000 Crores (Ten times). Even this has some limitations." 21.6. Thus, we are of the view that for as assessee before us has turnover of Rs. 98.25 crores so, turnover filter of Rs. 9 crores on lower side to Rs. 980 crores on upper side, should be considered provided the ....
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....o design specifications given by associated enterprises. II. Risk assumed: Assessee in providing services to its associated enterprises and assume zero risk in respect of services rendered to its associated enterprise. III. Assets employed: Assessee owns routine assets like office equipments computer systems and peripherals furniture fittings motor vehicles etc key intangible assets are owned by the associated enterprises. IV. Characterisation: Based on the above FAR analysis, assessee has been characterised to be operating under the risk mitigated environment and does not carry significant entrepreneurial activities, nor does it bears significant risk, associated with such activities. It is also noted that assessee is remunerated on cost to cost basis for services rendered to associated enterprises. A. Seeking exclusion of: a) Infosys BPO Ltd. Ld.AR submitted that this company was selected as comparable by Ld.TPO, though was objected by assessee before authorities below. It has been submitted that this comparable has been selected by Ld.TPO only for the reason that this company is into sub contracting. It has been submitted that this comparable has ownership of huge intan....
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....ng infrastructure management service segment and IT enabled service segment. Both DRP as well as Ld.TPO considered revenue generated by this comparable at entity level, instead of considering segmental revenue under ITES service segment. We therefore set aside this comparable back to Ld.AO/TPO with a direction to consider this comparable having regards to the segmental revenue generated under ITES segment in accordance with law. Needless to say that proper opportunity of being heard to be provided to assessee. Accordingly this comparable is set aside to Ld.AO/TPO. c) Eclerx Services Ltd This comparable was selected by Ld.TPO by observing that it is functionally similar with that of assessee. Ld.AR submitted that this company provides digital marketing services to largest Fortune/FT/Internet retailer 500 scale companies augmenting bandwidth to drive greater quality control to that digital operations, data management and analytical. It has also been submitted that there is no segmental details available and this company reveals operating income only under only one segment, which is data analytics and process outsourcing services. It has been submitted by Ld.AR that, services rende....
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.... of this comparable in accordance with law. Needless to say that assessee shall be granted proper opportunity of being heard in accordance with law. Accordingly this comparable is set aside to Ld.AO/TPO for edification. e) MPS Ltd. It was submitted that, assessee provided this additional comparable to Ld.TPO during Transfer Pricing assessment proceedings. Ld.AR submitted that initially Ld.TPO rejected this comparable on the ground that it fails service income to sales being less than 75% filter. Subsequently Ld.TPO in the notice held this comparable to be functionally similar to assessee and passing all filters. Ld.AR submitted that this comparable did not appear in the search process undertaken by Ld.TPO. It has now been submitted by Ld.AR that this company holds huge inventory is part of its business and only has one business segment of providing publishing solutions i.e; typesetting and data digitization. Ld.AR placed reliance on screenshots in respect of this company placed in paper book providing brief facts and submissions at page 71. On the contrary, Ld. CIT DR submitted that assessee has raised various issues of exceptionally year of operations and acquisitions by this ....
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....aside to Ld.AO/TPO. Ground No. 12: It has been submitted that working capital adjustment was denied while computing the margin on the ground that assessee has not been able to demonstrate the differences that had impacted the profit. Various decisions of coordinate bench of this tribunal has time and again directed authorities below to provide working capital adjustment in actuals which is in accordance with rule 10 B (1) (e) of the rules. 22.2. We therefore direct Ld.AO/TPO to recompute working capital adjustment in actuals to the selected comparables to make them comparable with assessee. Accordingly, this ground raised by assessee stands allowed for statistical purposes. 23. Ground No.14-17 alleged by assessee against adjustment of notional interest on outstanding receivables. From TP study, it is observed that payments to assessee are not contingent upon payment received by AEs from their respective customers. Further Ld.AR submitted that working capital adjustment undertaken by assessee includes the adjustment regarding the receivables and thus receivables arising out of such transaction have already been accounted for. Alternatively, he submitted that working capital s....
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....n" shall include- ...... (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;....' . 23.5. Ld.CIT.DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non-payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at length and eventually interest on trade receivables has been held to be an int....