TaxTMI 
TaxTMI 
2019 (7) TMI 1663
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....ing business of American Express Group was sold off. American Express group is involved in strategic decision making and evolving standardized policies and procedures to run the business. It exercises management control and oversight. It also manages the marketing and corporate governance initiatives and integrates it with the overall business objectives. Assessee is compensated for services rendered with a fee that is equivalent to operating expenses plus 20% of the mark up. During the Financial Year 2009-10, the value of the international transaction i.e. export of data processing and back office support undertaken by the assessee was Rs. 714,56,74,755/-. 3. For the AY 2010-11, the assessee filed the return of income on 1.10.2010 declaring an income of Rs. 2,42,82,74,285/- and since the international transaction undertaken by the assessee with the Associate Enterprises was to the tune of more than Rs. 15 crores, in accordance with the provision of Section 92CA of the Act, the international transaction of the assessee with the Associate Enterprise was referred to the TPO for determination of arm's length price. Ld. TPO by order dated 16.1.2014 suggested an adjustment of Rs. 114....
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.... look into the functions performed and risks assumed as incorporated by them in their TP Report to be found from page nos.365 of the paper book: "Functions Performed 4.02.2.1 Functions Performed by American Express Group American Express Group is engaged in the business of providing travel related services (charge cards, credit cards, traveler's cheques and travel agency services). During FY 2007-08, the international banking business of American Express Group was sold off. American Express Group is involved in strategic decision making and evolving standardized policies and procedures to run the business. It exercises management control and oversight. It also manages the marketing and corporate governance initiatives and integrates it with the overall business objectives. 4.02.2.2 Functions Performed by AEIPL AEIPL is a captive contract IT enabled service provider catering to the needs of the Group. As per the contractual arrangement that AEIPL has with its AEs for the provision of such support, the resultant output is the property of American Express Group and at no point in time shall such ownership vest with AEIPL either....
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....ysis and transformation and conversion of raw data) as per requirements of its customers to generate customized output. c) Output The Company's output includes the following items processed and prepared as per the customers' specifications: Ready to use business reports and computations; Financial statements such as balance sheets, profit and loss accounts, ledgers, trial balances, accounts payable analysis, accounts receivable analysis, and fixed assets registers; Payroll processing and reports; Account reconciliation reports; Payment instructions for payment to vendors; Card transaction process outputs; Travel business transaction reports; and Other MIS reports per customers' specific requirements. Further, AEIPL also provides call centre services to Group Companies, which involves answering incoming American Express card member calls for queries related to card member transactions. These queries include, inter alia, balance enquiry, product feature queries, change in personal information, etc. 4.02.1 Risks Assumed The risk profile of AEIPL as compared....
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....profitability AEIPL does not have any exposure to this risk as its compensation from AEs is pre-agreed and is on a cost-plus basis. The data processing and back office support is rendered within the American Express Group, and the inter company prices are typically determined based on arm's length principle. Thus, price' risk associated with intercompany prices charged in respect of such support would depend upon the nature of arrangement/ agreement between Group Companies and would lie with . Group Foreign Currency Risk: The risk arises from any adverse revaluation of assets and liabilities due to fluctuation in exchange rates, which would eventually have a negative impact on the profitability of the enterprise. AEIPL does not bear this risk since it incurs expenses in local currency and also invoices its customers in local currency. AEs have an exposure to this risk. Capacity Utilizationrisk: This risk arises on account of underutilization of manufacturing/service facility/personnel. AEIPL is not exposed to this risk as it is remunerated by Group Companies on a cost plus basis, irrespective of whether the employees /systems are being fully utilized or....
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.... now proceed to deal with the comparability of different entities included and excluded by the ld. TPO not to the liking of the assessee. As could be seen from the record, the bone of contention in this matter relates to the service of export of data processing and back office support undertaken by the assessee to the tune of Rs. 714,56,74,755/-. 7. For benchmarking this service characterized by the assessee as a back office support service operating in a limited risk environment i.e. ITeS segment, the assessee adopted TNMM method as the most appropriate method with PLI as Operating Profit/Operating Cost with a PLI arrived at 17.98%. 8. Assessee initially selected ten comparables by rejecting six in the matrix. Out of 10 comparables selected by the assessee, ld. TPO rejected six including R. Systems International Ltd. (Segmental); CG Vak Software Exports ltd.; Informed Technologies Ltd.; Micro genetics Systems Ltd. So also ld. TPO selected six comparables which were rejected by the assessee, namely, eClerx services Ltd., Infosys BPO Ltd., Accentia Technologies Ltd., TCS e-serve Ltd. and TCS e-serve International Ltd. Therefore, it is clear now that the assessee is disputing t....
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.... a Coordinate Bench of this Tribunal dealt with this issue in detail and reached a conclusion that definitely the services rendered by the assessee falling in the category of Business Process Outsourcing, but not Knowledge Process Outsourcing. When the facts permeating all through the years are same, we do not find any reason to take a different view. We, therefore, hold that the services rendered by the assessee are only back office operations falling in the category of ITES and not KPO. 13. Now coming to the first comparable eClerx Services Ltd., learned AR submitted that on the ground of functional dissimilarity in the assessee's own case for AY 2007-08 and 2009-10, a coordinate bench of this Tribunal rejected this company as a comparable in ITA No.295/Del/2012 and ITA No.1973/Del/2014 respectively. He further submitted that learned DRP rejected this comparable in assessee's own case for AY 2011-12 vide order dated 13.11.2015. 14. We have gone through the orders of the authorities below and also the orders cited by the assessee. Assessee challenging the inclusion of this company on the ground of functional dissimilarity, abnormal fluctuations in revenue and profits besides....
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...., has developed value added services as a KPO. In this segment, the Taxpayer is essentially providing back-office support services to parent while EClerx does not report segments. eClerx is one of, "India's first KPOs to be appraised for and rated at maturity level 3 of people Capability Maturity Model (PCMM)"(Annual report 2010-11 page 31). One of the key issues when analysing transfer prices is to refine the comparability analysis after matching the functional profile carefully. Further margins are earned as a result of functions performed, assets utilized and risks borne (FAR) wherein there lie considerable differences particularly in the outsourcing model it employs as laid down in jurisdictional HC decision in Rampgreen Solutions (P) Ltd V CIT ITA 102/2015, order dated 10 08-2015 which has clearly stated that where the controlled transactions are clearly in the nature of lowerend ITeS for rendering data processing not involving domain knowledge, inclusion of any KPO service provider as a comparable would not be warranted and the transfer pricing study must take that into account at the threshold holding as under, "42 ..... The DRP held that TNMM allows flexibility....
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....ibunal. While using TNMM, the search for comparables may be broadened by including comparables offering services/products which are not entirely similar to the controlled transaction/entity However this can be done only if (a) the functions performed by the tested party and the selected comparable entity are similar including the assets used and the risks assumed; and (h) the difference in services/products offered has no material bearing on the profitability Thus on the basis of functional differences from taxpayer and it cannot serve as a valid comparable for the ITeS segment in the case of taxpayer. TPO is thus directed to exclude eClerx from the list of comparables 17. We have gone through the annual report of this company incorporated from page 649 of the Paper Book and found that this company is into multifarious activities and it is a knowledge process outsourcing company providing data analytics, data management and process improvement solutions to global enterprise clients. Further, eClerx supports its clients through two business units - Capital Markets and Sales and Marketing Support. The Revenue recognition policy of this company says that revenue from data ....
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....sourcing, retail etc with the significant large scale of operations to the tune of Rs. 1,126.63 crores. He further submitted that during this financial year there took place the acquisition of McCamish Systems LLC besides this Infosys BPO limited commanding huge brand value. 21. In respect of M/s Accentia Technologies Ltd he submitted that this company is also into diversified services which includes HRCM (using SaaS model), also into KPO and LPO. With reference to the annual report of this company, Ld. AR submitted that this entity owns significant intangible assets at 57% and undertaken extraordinary activities (amalgamation) during the year. Ld. AR submitted that the extension technologies Ltd also falls in the category of KPO providing high end services and, therefore, functionally also it is a dissimilar to the assessee. 22. Ld. AR further submitted that both M/s TCS E-Serve Limited and M/s TCS E-Serve International Ltd are not good comparables to the assessee because of the exceptional year of operation pursuant to the acquisition by Tata group. Besides this, these two companies are providing different services including the transaction processing, voice based services ....
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....ngaged in providing IT services primarily to Citi group entities globally and it also provides technical services involving software testing, verification and validation of software at the time of implementation and data management activities which cannot be characterized as back office support services. It was further observed that there is no segmental bifurcation between the transaction processing and technical services. 27. Apart from this, though the Revenue preferred appeal to the Hon'ble High Court against the findings of the Tribunal in respect of M/s AccentiaTechnologies, M/s iGate global consultants Ltd and M/s Infosys BPO Ltd. in the case of Ameriprise India P. Ltd. (supra), Revenue did not seem to have preferred any appeal against the findings of the Tribunal in respect of M/s TCS E-Serve limited. In the circumstances, we find strength in the argument of the Ld. AR that in view of the judgment of the Hon'ble Apex Court in the case of Berger Paints India Ltd. Vs. CIT [2004] 266 ITR 99 (SC) wherein the Hon'ble Apex Court held that if the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, th....
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.... order and also the facts involved in this matter. The rejection of this comparable is not on the ground of functional dissimilarity, but only because of a different accounting period. Facts being similar, we are of the considered opinion that it is a fit case to direct the ld. AO to consider the quarterly results and work out the proportionate profit margin for this purpose, we remand the matter to the file of the ld. TPO/AO for compliance of our direction. 32. In respect of CG Vak Software, observations of the ld. TPO for rejecting this company is that under ITeS segment, sale was only just Rs. 82.78 lakhs and on that ground this company was rejected. Assessee contended that inappropriateness of the turnover filter has not been considered by the ld. TPO. Ld. DRP on a perusal of the financials found that CG Vak Software is mainly involved into software development and earns major portion of its revenue from the same and the revenue from ITeS/BPO is only 15% i.e. Rs. 83 lakhs and, therefore, it fails the turnover filter. 33. Assessee assails the application of turnover filter so long as functional dissimilarity is not attributable to this company and submitted that a similar ....
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....trade practices was unjustly charged,having heard both the counsel, we are of the considered opinion that if working capital adjustment is granted, then no separate adjustment or interest receivables is required.We are fortified in our decision by the decision of the Hon'ble Delhi High Court in ITA No.765/2016 in the case of Kusum Healthcare P. Ltd. 38. In Ground No.16, the grievance of the assessee is that ld. TPO/AO has erroneously interchanged operating profit/operating cost margin of the companies, namely, eClerx Services Ltd. and Omega Healthcare Management Services P. Ltd. and it requires rectification. Since it is not a part of adjudication but only a mistake that had crept in the order, we are of the opinion that the same could be rectified by the ld. TPO/AO. We, therefore, direct the same. 39. Ground No.20 is in respect of the claim for deduction under 10A of the Act in respect of AEGSC(STP) Unit set up by the assessee during the financial year 2002-03 on the ground that the STP unit was set up after splitting up its existing business of FCE(EOU) Unit. On this aspect, it is submitted that in respect of Asstt. Year 2009-10, the Tribunal considered this aspect at lengt....