TaxTMI 
TaxTMI 
2018 (9) TMI 2006
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....idual 2% was held by two resident Indians. The assessee provides Business Process Outsourcing ( in short BPO) Services including adjudication of financial service authority claims, medical claims and travel and expense claims, e-recruitment services, financial accounting services (i.e accounts payable administration, reconciliation of collections of credit card and otherwise etc) , tax processing services, mortgaging services and routine back office services which could be like indexing and enrollment for client. The assessee company bills Acclaris Inc. (Associated Enterprise - AE of the assessee) on a man month rate for the number of employees employed as on the last day of the month. On the other hand, the AE undertakes the entire marketing and business development activity to generate business, negotiates and enters into contracts with customers, bears the costs of the entire project transition phase, renders the requisite training to its employees or employees of assesee in relation to the project and performs the function of seeing the complete project through. The assessee for the Asst Year 2008-09 filed its return of income declaring total income of Rs. 56,828/- after claimi....
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....er providing back-office services exclusively to Acclaris Inc, which assumes less than normal risks associated with carrying out such business." 4. The assessee for the services rendered to its AE adopted Transactional Net Margin Method (TNMM in short) as the Most Appropriate Method (MAM in short). The Profit Level Indicator (PLI in short) adopted by the assessee was Operating Profit / Total Cost [ OP / TC ] and accordingly the PLI of the assessee was arrived at 16.38%. The PLI of the comparable companies chosen by the assessee was 12.68% and accordingly the assessee considered the pricing done by it as the ALP and did not make adjustment in its TP study and in the return of income. 5. The case was referred to Learned Transfer Pricing Officer ( in short ld TPO) u/s 92CA of the Act. The ld TPO observed that the assessee had used the Prowess database developed by Centre for Monitoring Indian Economy Private Limited (CMIE) and Capitaline Plus based on which, the assessee company arrived at 10 comparable companies. The ld TPO observed that the assessee had used multiple year data for three financial years. In view of this, the assessee was asked to show cause as to why adoption of m....
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....onal profile of the company, it was not possible for the assessee to conclude that the said comparable is into providing ITes/BPO services and that the same can be included in the comprarable set for the assessee............." 10. The ld TPO in his order rejected the adoption of multi year data done by the assessee and further observed that the comparable Indusind Information Technology Ltd company details are available on the database and hence non-availability of annual report and website cannot be a ground for rejection of the said comparable. Accordingly, the ld TPO by applying the data for the relevant financial year i.e FY 2007-08 and by including the comparable Indusind Information Technology Ltd arrived at the PLI of comparables as under:- 11. The ld TPO determined the ALP of services rendered by the assessee to its AE as under:- Operating Expenses of the tested party being the assessee - Rs. 12,34,21,430/- "The Arm's Length Price would be 123,421,430/- x [1+0.2745] = Rs. 157,300,358/-. Applying the Variation of +-5%, the allowable range of ALP, which can be chosen by assessee, would be from Rs. 149,435,340 to Rs. 165,165,376/-. Hence, the adjustment required t....
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....tered into by the assessee. The software development company has a completely different functional profile as compared to a company engaged in BPO Services. The risk undertaken and the assets employed by a software development company cannot be compared to a BPO company. 6.5. A similar issue arose for consideration before the ITAT Chennai Bench in the case of S.R.A.Systems Ltd. vs ACIT (2014) 147 ITD 353 wherein the Tribunal has held as under :- "7. We considered this issue in detail. It is the case of the assessee before the lower authorities that the turnover of the assessee for the past five years averaged to Rs. 25 crores and therefore its turnover base for the purpose of arriving at comparables should be taken in the range of Rs. 15 to 25 crores after eliminating related party transactions. On the above basis, the assessee stagted that the PLI came to 2.53% as against the PLI reported by the assessee at 3.33%. Even when the turnover criterion is adopted at Rs. 50 crores, the PLI came to 3.18%, which is much higher than the PLI criterion of 2.53%. It was the contention of the assessee that the business model of the assessee is based more on turnkey projects, where cost ov....
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....of back office support services. Based on data available, the weighted average Arithmetical Mean of NCP margins earned by the comparable independent companies performing similar functions, was determined at 7.62%. As the assessee earned NCP of 7.90% from its international transactions, it was concluded that such transactions with AEs were at ALP. The Assessing Officer made reference to TPO for computation of ALP in respect of international transactions. The TPO, vide his order dated 31.10.2008, computed the adjustments to the ALP amounting to Rs. 10,49,07,225. In such computation the TPO noted in para 4 of his order that "No companies were identified as comparables". He selected twelve companies as comparable with the assessee's international transactions, depicting the NCPs as under:- Table B Sr. No. Comparable companies OP/T% 1. Allsec Technologies Limited 30.49 2. Tulsyan Technologies Ltd. (Cosmic Global) 19.08 3. Saffron Global 24.89 4. WIPRO BPO Solutions Ltd. 27.60 5. Vishal Information Technologies Ltd. 45.65 6. Ace Software Exports Ltd. 15.46 7. Nucleus Netsoft & GIS India Ltd. 40.60 8. Asian Cerc Information Technology Ltd. ....
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....ench of the tribunal in the case of ACIT v.Mearsk Global Service Centres (India) Private Limited [(2011) 133 ITD 543 (Mum)] to bring home the point that the case of Cepha Imaging Private Limited should be excluded as the same has been held by the tribunal in that case as incomparable." "4.4. Adverting to the facts of the instant case we find that the assessee in Mearsk Global Service Centres (India)Private Limited (supra) was a service provider rendering back office support service to its Associated Enterprises (AEs). In para 29 of this order, it has been recorded by the tribunal that the activities undertaken by the assessee were essentially ITES, such as, data entry, transcription and data of shipping documents such as bill of leading etc. The instant assessee before us is also in the same line of business providing similar services as were rendered in the case of Mearsk Global Service Centres (India)Private Limited (supra). Further the A.Y. in both the cases is also similar, that is, 2005-2006. In that case also, the TPO introduced Cepha Imaging Private Limited as comparable. However, the Tribunal vide para 48 of its order observed that this company is "engaged in providing s....