TaxTMI 
TaxTMI 
2018 (4) TMI 1850
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....ing international transactions with its Associated Enterprises (AE): Sl. No. Type of transaction Amount (Rs) 1. Provision of IT enables services 33,67,60,077 2. Availing of Marketing services 36,82,862 3. Payment of equipment lease charges 3,39,540 4. Payment of technical support fees 24,02,270 5. Reimbursement Of expnenses 4,02,355 Total 34,35,87,104 The assessee-company sought to justify the consideration received for the international transactions entered with its AE to be at arm's length price [ALP]. The assessee-company had also submitted transfer pricing study report adopting the operating profit to total cost (OP/TC) as profit level indicator for the transfer pricing study. The assessee-company applied Transactional Net Margin Method [TNMM] which was considered to be the most appropriate method for purposes of bench marking the international transactions. The assessee-company's profit margin was computed at 17.31% and the assessee-company claimed that the same was comparable with other companies rendering IT enabled services. For the purpose of transfer pricing study, the assessee-company had chos....
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.... 22.80% 5 ICRA ONLINE LTD(SEG) 43.39% 6 INFORMED TECHNOLOGIES INDIA LTD 26.15% 7 INFOSYS BPO 31.23% 8 COSMIC GLOBAL LTD 14.97% 9 SUNDARAM BUSINESS SERVICES LTD -12.31% 10 JEEVAN SCIENTIFIC TECHNOLOGY LTD.(SEG.) 21.05% AVERAGE 26.86% The TPO computed average profit margin of the comparables finally selected at 26.86% and after giving working capital adjustment of 0.23%, the adjusted arithmetical mean PLI was determined at 26.63%. On the above said basis, the TPO computed the transfer pricing adjustment as follows: Arm's Length Mean Margin on cost 26.86% Less: Working Capital Adjustment As per Annex. C 0.23% Adjusted margin 26.63% Operating Cost 32,92,43,726 Arms Length price (ALP) 126.63% of Operating Cost 41,69,21,330 Price Received 33,67,60,077 Shortfall being adjustment u/s 92CA 8,01,61,253 5. The AO passed draft assessment order u/s 143(3) r.w.s 144C dated 11/03/2014 incorporating the above adjustments and restricting deduction u/s 10-A of the Act by reducing the miscellaneous income, foreign exchange, dividends etc., from business profit for the purpo....
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.... the Appellant for its international transaction of providing IT enabled services under Section 92C of the Act using 3 year weighted average data of comparables and determining the arm's length margin/ price using data only for financial year ('FY') 2009-10, which was not available to the Appellant at the time of complying with the transfer pricing documentation requirements; Search process adopted by the TPO 6. erred in conducting a fresh comparability analysis at the time of assessment i.e., undertaking search for comparables from Prowess and Capitaline Plus databases on 5 October 2013 which was post the specified date i.e. 30 September 2010; Accept / Reject criteria adopted by the TPO while selecting comparable companies 7. erred in applying certain accept / reject criteria/ filters, in an arbitrary, subjective, inconsistent and erroneous manner for the purpose of selection of comparable companies; 8. erred in applying a filter of rejecting companies which follow a financial year other than April to March; 9. erred in applying a filter of rejecting companies having turnover less than Rs. 1 crore; Rejection of compara....
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....ent to account for the difference between the risks assumed by the Assessee and the risks assumed by the comparable companies Benefit of +/- 5% 19. Benefit of +/-5% under proviso to Section 92C(2) of the Act be granted to the Appellant if the adjustment under transfer pricing falls within the range specified therein. Interest under Section 234B of the Act 20. erred in levy of interest of Rs. 7,98,744 under Section 234B of the Act as against Rs. 6,98,532; Initiation of penalty proceedings 21. erred in initiating penalty proceedings under Section 271(1)(c) of the Act Each of the above ground of appeal is without prejudice to and independent of one another. The Appellant craves leave to add, alter, amend or delete the above ground of appeal at or before the time of hearing of the appeal, so as to enable the Hon'ble Income tax Appellate Tribunal to decide this appeal according to law." 9. The assessee-company also raised the following additional grounds: "On the facts and circumstances of the case and in law, the Learned AO- Non-reduction of telecommunication expenses incurred in foreign curren....
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....ITA No.240/Del/2015 dated 6 July 2015)[AY 2010-11] x ii. CIT vs Nortel Networks India Pvt Ltd (ITA 115/2015 dated 24 February 2015)(Delhi HC) and iii. CIT v Mckinsey Knowledge Centre India Pvt Ltd in ITA 217/2014 dated 27 March 2015 (Del.HC) 11.3 On the other hand, the ld.CIT(DR) placed reliance on the orders of the lower authorities. 11.4 We heard rival submissions and perused the material on record. It is evident that when the company is functionally similar, the company cannot be rejected on the ground that the company's turnover is less than Rs. 1 crore especially when the companies with high turnover have not been rejected. To the same effect is the Hon'ble Delhi High Court decision in the case of CIT v Mckinsey Knowledge Centre India Pvt Ltd (ITA 217/2014 dated 27 March 2015 (Delhi HC). However, from perusal of the orders of the lower authorities, it is not clear whether the company passes through the filters applied by the TPO. Therefore, we deem it fit to remit this issue back to the file of the TPO with a direction to examine whether this company had passed through other filters applied by the TPO. 12. R Systems International Ltd. 12.1 This co....
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....eriod of the company. In absence of this segmental information, inclusion of this company is not possible. Further, no such plea was made before TPO. Hence, the ground of appeal filed in this regard is rejected. 13. Accentia Technologies Ltd. 13.1 This company was selected by the TPO and objected by the assessee-company before the TPO on the ground that it is functionally different as it is engaged in healthcare revenue cycle management services, legal process outsourcing services, provision of software and no segmental information was available. The Hon'ble DRP also confirmed the inclusion. 13.2 Being aggrieved, the assessee-company is before us in the present appeal urging that the Accentia Technologies Ltd., is functionally different as: (i) It is engaged in healthcare revenue cycle management services, legal process outsourcing services, provision of software as a services and in the absence of separate segmental information, the company has to be rejected as a comparable. Our attention was drawn to page 3 of the annual report wherein it is mentioned that it is engaged in "multi location diversified Knowledge Process Outsourcing Company, operating from mul....
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...., the co-ordinate bench of this Tribunal in the case of Kodiak Networks (India) Pvt. Ltd. Vs. DCIT in IT(TP)A No.1540/Bang/2012 has considered the functional comparability and found that this company is not comparable with a captive service provider. Accordingly we direct the Assessing Officer/TPO to exclude these companies from set of comparables." Respectfully following the decision of the co-ordinate bench of Tribunal, we direct the AO/TPO to delete Accentia Technologies Ltd. from the list of comparables. 14. Acropetal Technologies Ltd.(Seg) 14.1 This company was selected by the TPO and objected by the assessee-company before the TPO on the ground that it is functionally different. The Hon'ble DRP also confirmed the inclusion. 14.2 Being aggrieved, the assessee-company is before us in the present appeal urging that Acropetal Technologies Ltd.(Seg) is functionally different and drawn our attention to page 5 of the Annual Report wherein it is mentioned that the company has recorded an impressive growth even in the days of slowdown in the software industry. Our attention was also drawn to page 8 of the annual report wherein under the head 'foreign exchange ear....
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....l comparability and found that this company is not comparable with a captive service provider. Accordingly we direct the Assessing Officer/TPO to exclude these companies from set of comparables." Respectfully following the decision of the co-ordinate bench of Tribunal, we direct the AO/TPO to delete Acropetal Technologies Ltd.(Seg) from the list of comparables. 15. E-clerx Services Limited 15.1 This company was selected by the TPO and objected by the assessee-company before the TPO on the ground that it is functionally different. The Hon'ble DRP also confirmed the inclusion. 15.2 Being aggrieved, the assessee-company is before us in the present appeal urging that E-clerx Services Ltd., is functionally different as it provides high end data analytics and customized process solutions and is a leading Indian provider of KPO services. Our attention was drawn to "balance sheet abstract and company 's general business profile" on page 70 of the annual report, wherein it is stated that the principal business of the company is "Knowledge Process Outsourcing" .It was submitted that as per the website of the company, the services rendered by the company are in the areas....
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.... audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns. 83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pvt.Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of compar....
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....112 due to high turnover. 16.3 We heard rival submissions and perused the material on record. The issue of comparability of this company was considered by the co-ordinate bench of Tribunal in the case of M/s.Tesco Hindustan Service Centre Pvt. Ltd. in IT(TP)A No.191/Bang/2015 dated 25/01/2017 wherein it has been held: "15.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys BPO Ltd. is not functionally comparable since it has the benefit of market value as well as brand value. This company enjoys the benefits of scale and market leadership. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly. Since we have directed the A.O/TP....