TaxTMI 
TaxTMI 
2020 (11) TMI 651
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....TPO] passed u/s 92CA of the act on 7/1/2015 where the total adjustment was proposed at Rs. 21,113,342/- comprising of arm's-length price of the ITeS services of Rs. 21,053,389 and another adjustment on account of outstanding receivable of Rs. 59,953/- which was subject to the direction of the Dispute Resolution Panel - 1, New Delhi (the learned DRP) dated 9/9/2015 after which the ALP of provision of ITeS services of Rs. 141,969, 072/- was determined at Rs. 135,208,614/- which resulted into an adjustment of Rs. 1 95,10,939/- and interest on outstanding receivable was retained at Rs. 59,953/-. Thereby, assessee is aggrieved and has preferred this appeal. 2. The assessee has raised the following ground of appeal:- "1. That on facts and in the circumstances of the case and in law, the Learned Assessing Officer (AO) / Learned Transfer Pricing Officer (TPO) / Hon‟ble Dispute Resolution Panel (DRP) erred in making an addition to the returned income of the appellant by Rs. 1,95,70,892 by recomputing the arm‟s length price (ALP) of the international transactions under section 92 of the Income-tax Act, 1961 (the Act). 2. That on facts and in the circumstances....
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....law the AO/TPO erred in initiating the penalty proceedings u/s 271 (1) (c) of the Act mechanically and without recording any adequate satisfaction for such initiation." 3. Briefly stated the facts shows that assessee is a company engaged in the business of provision of IT enabled services which is resident, registered as an hundred percent export oriented unit Under the software technology Park scheme of the Ministry of information and technology, government of India. Assessee is also operating and managing the activities of BPO delivery centres, call centres and consumer services. It is a wholly-owned subsidiary of a German company and engaged in rendering back-office support services and back end information technology enabled support services. It renders services to both its associated enterprise and Non associated enterprise. 4. Assessee filed its return of income on 29/11/2011 declaring loss of Rs. 7,323,902/-. It has entered into 6 different type of international transactions with its associated enterprise in the form of a. provision of back-office support services of Rs. 132,304,149/-, b. procurement of IT support services of Rs. 6,156,378/-, ....
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....e objection of the assessee retained eight comparable companies (2 selected by the assessee and further 6 introduced by TPO) computed that average margin of OP/OC at 31.70% and accordingly proposed an adjustment of Rs. 21,053,389 with respect to the ITeS services provided to the associated enterprise. With respect to the outstanding receivable by the assessee he computed such interest receivable of Rs. 59,953/-. Thereby total adjustment was proposed of Rs. 21,113,342/-. 5. The assessee submitted its objections before the learned DRP which passed on its direction on 9/9/2015 and based on that the learned TPO passed an order on 5/10/2015 giving effect to the directions and computed the working capital adjusted margin of the comparable companies selecting following seven comparables at 30.40 percentage. Serial number name of the company unadjusted margin working capital adjusted margins 1 Accentia technologies Ltd 29.89% 27.29% 2 E4e healthcare business services private limited 9.14% 9.39% 3 Eclrex services Ltd 56.86% 56.35% 4 ICRA Techno analytics Ltd 24.83% 23.71% 5 Infosys BPO Ltd 17.73% 16.96% 6 Jinda....
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....e direction of the learned dispute resolution panel wherein it is stated that the above company is functionally similar. He referred that the transfer pricing officer has held that the assessee itself is a KPO. 9. We have carefully considered the contentions of the parties with respect to the above comparable. In the paper book at page number 25 - 103 assessee has submitted the audited financial statement of the above comparable company for the year ended on 31st of March 2011. The fact shows that the learned transfer pricing officer has looked at the standalone balance sheet of the comparable company. Therefore, we also look at only the standalone balance sheet of the above company which is placed at page number 36 - 53 of the annual Reports (corresponding page number of the paper book at 60 - 79) only. First contention is that there is an extraordinary event in the company wherein it has acquired 16% in a software development company. The assessee is referring to Note Schedule 10 (B) (1) of the financial statement where the company has invested in Company which is a software development having expertise in development of software related to EMR and SaaS. The above investmen....
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....fit earning capacity of comparable company. Further from the annual accounts produced before us it is not shown that comparable company owns any intellectual property rights or other brands other than goodwill. In view of this, we reject this argument of the assessee. No other arguments with respect to exclusion of the above company were raised before us. 10. With respect to the several judgments relied upon wherein this comparable is rejected on functionally being different and absence of any segmental data as well as occurring of any extraordinary events as discussed above did not happen in the case of this comparable for this year. In view of this, the decisions relied upon by the assessee does not help the case for exclusion of the above comparable. In view of this we confirm the order of the learned TPO/DRP in including the above comparable company for the comparability analysis of the profit margin of the assessee. 11. With respect to ICRA Techno analytics Ltd the learned AR has submitted that it is engaged in the provision of software development and consultancy, engineering services, Web development and hosting, web analytics and business process outsourcing. It is fu....
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....milarity is not correct it is further stated that the company operates in a single segment. Therefore, it is a valid comparable. 16. The assessee has submitted the copy of the annual report of the above comparable company which is placed at page number 199 - 3 27 of the paper book, standalone financial statement of the above company is available at page number 56 onwards of the annual report which is at page number 254 - 281 of the paper book. We have carefully perused the same. We have perused note number III Notes to Accounts (19) wherein the reference to quantitative details is mentioned (page number 79 of the annual report and 280 of the paper book) which says that the company is in the business of providing knowledge process outsourcing services. Though the learned transfer pricing officer has also tried to justify the inclusion of the above comparable stating that assessee is also a KPO , however, as per his order [ TP Order] at serial number 3.1 at page number 2 wherein he himself stated that the TP report has described the functions of the assessee and its associated enterprises and the functions of the assessee as submitted in the TP report are found to be in orde....
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....see that such a large comparable cannot be used to determine ALP of an international transaction of the assessee. Therefore respectfully following the criteria laid down by the honourable Bombay High Court, we direct the learned transfer pricing officer to exclude TCS E Serve Limited. 20. With respect to INFOSYS BPO LTD Assessee submitted that it is engaged in diverse and nicht area of business of providing business process management services, it has presence of high brand value and goodwill, it subsidiary of Infosys technology hence has an element of brand associated with it. Further the turnover of that comparable company is more than 27 times of the appellant's turnover as the turnover of comparable company is Rs. 1129 crores against the turnover of the assessee of 41.6 crores which is more than 27 times that of turnover of the appellant. 21. The learned DR referred to paragraph number 16.5 of the direction and also supported the order of the learned TPO at page number 29 and stated that all these arguments of the assessee have been considered and therefore it is a valid comparable. 22. We have carefully considered this argument of the learned parties and find that Inf....