TaxTMI 
TaxTMI 
2021 (2) TMI 877
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....nd in law, the learned AO erred and the Hon'ble DRP further erred in confirming the action of the learned TPO in not stating any reasons to show that either of the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied before making an adjustment to the income of the Appellant. 3. On the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble DRP further erred in upholding/confirming the action of the learned TPO of disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing study report maintained as per section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("the Rules") and the various submissions made by the Appellant. 4. On the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble DRP further erred in upholding/confirming the action of the learned TPO of conducting a fresh benchmarking analysis using non-contemporaneous data and substituting the Appellant's analysis with fresh benchmarking analysis on his own conjectures and surmises. T....
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....orking capital and risk adjustment in accordance with Rule 10B(1)(e)(iii) of the Rules, to account for difference in the net profit margins realised by the Appellant vis- a-vis alleged comparable uncontrolled transactions selected by the learned TPO. 12. On the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble DRP further erred in upholding I confirming the action of the TPO in denying the benefit of 5 percent from the arithmetic mean as provided in proviso to Section 92C(2) of the Act, while computing the adjustment to the total income of the Appellant 13. The AO erred in not granting credit for the tax deducted at source of INR 467,629, without assigning any reasons thereto. The Appellant prays that the AO be directed to grant credit for the balance tax deducted at source of INR 467,629." 2. Briefly stated, the assessee company which is a subsidiary of Deutsche Knowledge Services Pte. Ltd., Singapore and engaged in the business of Global Processing Centre for undertaking back office processing/support services mainly to support the various business lines of its overseas group entities, had e-filed its return of in....
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....hich its total income was enhanced after computation of its income under the aforesaid statutory provision. In the backdrop of his aforesaid deliberations the A.O restricted the assessee's entitlement towards deduction under Sec. 10A to an amount of Rs. 18,15,92,931/-. Accordingly, the A.O worked out the net taxable income of the assessee at Rs. 12,86,52,782/-under the normal provisions. Further, the 'book profit' of the assessee was determined under Sec. 115JB at Rs. 13,48,51,798/-. 5. The assessee being aggrieved with the order passed by the A.O under Sec. 144C(13) r.w.s143(3), dated 31-10-2012 has carried the matter in appeal before us. The ld. Authorized Representative (for short 'A.R') for the assessee Shri Jehangir D. Mistri, Senior Advocate, at the very outset of the hearing of the appeal took us through the facts of the case. It was submitted by the ld. A.R that pursuant to the directions given by the DRP, vide its order passed under Sec.144C(5), dated 27-9-2012, the TPO vide his order passed u/s 92CA(4), dated 25-10-2012 had reworked out the ALP adjustment of the International transaction of the assessee at Rs. 12,15,93,156/-. Pursuant thereto, the A....
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....was realised by 11 comparable Indian companies based on figures of three years i.e F.Y. 2005-06, F.Y. 2006-07 and F.Y. 2007-08 (to the extent available), as under: Sl. No. Company name Weighted average NCP (in %) 1. Allsec Technolgoies Limited 6.22 2. CMC Limited 19.64 3. C.S Software Enterprises Limited 24.04 4. Cosmic Global Limited 17.66 5. CRISIL Limited 22.98 6. Datamatics Technologies Limited 5.36 7. ICRA Management Consulting Services Limited 10.90 8. ICRA Online Limited 16.35 9. IDC (India) limited 14.66 10. Mphasis BFL Limited 12.46 11. R Systems International Limited 10.47 Arithmetical Mean (%) 14.61 However, in order to establish the comparability between the margins earned by the aforesaid comparable companies an economic adjustment was carried out by the assessee in the TP study report to the returns of the comparable companies, pursuant whereto the margins submitted by the assessee to justify the ALP of the international transactions was as under: Sl. No. Company Name 2006 2007 2008 Average In % In% ....
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....ssee is not taken segmental data instead services. As the extent of revenue from software services has not been excluded in calculating the margin this is not a good comparable. Hence, rejected. 4. Crisil Ld. Te company is engaged in providing credit rating and research services. Functionally, different, not engaged in ITES area hence not a good comparable, rejected. 5. Cosmic Global Ltd. The company is into IT enabled services and qualifies all the filter applied by the TPO. Thus the same is considered as a comparable. 6. Datamatics Technologies Ltd. The company is providing different kinds of business solutions like billing and payment solutions, e-retail solutions, publishing solutions, research and analysis, service automation, document processing and web enablement. The business profile does not match with assessee company, functionally different. Hence, rejected. 7. ICRA Management Consulting Services Ltd The company is engaged in mainly in advisory services. Functionally different, not a good comparable, hence rejected. 8. IDC India Ltd. The company is engaged in research and information services, functionally different not a good....
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..... HCL Comnet Systems & Services ltd. (Seg.) 3886156998 292411403 0 962042968 32.90% 14. Infosys BPO Ltd. 8275563629 689552607 5 138003755 4 20.01% 15. Iservices India Pvt. Ltd. 133954773 122242652 11712121 9.58% 16. Jindal Intellicom Pvt. Ltd. 199036101 217904764 -18868663 -8.66% 17. Maple eSolution Ltd. 337938987 280611090 57327897 20.43% 18. Mold Tek Technologies LTd. 178458000 90743000 87715000 96.66% 19. R Systems International (Seg.) 213305585 204518285 8787300 4.30% 20. Spanco Ltd. (Seg.) 416992585 375547040 41445545 11.04% 21. Triton Corp Ltd. 1460342806 117950042 7 280842379 23.81% 22. Wipro Ltd. (Seg.) 1157200000 0 889800000 0 267400000 0 30.05% Average 27.53% In reply, the assessee objected to the adoption of the aforesaid companies as comparable for the purpose of benchmarking of its international transactions, which however were met out by the TPO as per his observations recorded at Para 8....
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....or the year under consideration. In order to drive home his aforesaid claim, it was submitted by the ld. A.R that the aforesaid company had acquired Crossroads Detailing Inc., an engineering services KPO, in April, 2007, and as a result thereof had witnessed an abnormally high growth of 56% in its IT. division. Apart from that, it was submitted by the ld. A.R that the aforesaid company had during the year earned an abnormal profit of 95.71%. It was further submitted by him that the aforesaid company had during the year under consideration witnessed a scheme of arrangement involving amalgamation between Tekmen Tool Pvt. Ltd. and the said company AND a merger between the said company and Mold Tek Plastics Ltd., which was sanctioned by the Hon'ble High Court of Andhra Pradesh vide its order dated 25-7-2008. It was thus the claim of the ld. A.R that as the aforesaid company had witnessed extraordinary events during the year under consideration, it thus, could not have been selected as a comparable for benchmarking the International transactions of the assessee. Further, it was averred by the ld. A.R that the aforesaid company viz. Mold-Tek Technologies Ltd. was also functionally in....
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....t and Knowledge Management Centre Pvt. ltd. Vs. DCIT, Circle 10(1), new Delhi [ITA No. 436/Del/2013, dated 20.03.2018], had after inter alia considering the abnormal growth of 56% of the aforesaid comparable i.e Mold-Tek Technologies Ltd. directed exclusion of the same as a comparable forthe purpose of benchmarking the International transactions of the assessee before them. Further, the 'annual report' of the aforementioned company i.e Mold-Tek Technologies Ltd reveals that a scheme of arrangement involving Tekmen Tools Pvt. Ltd., i.e the transferor company and Mold-Tek Technologies Ltd, the transferee company (the aforementioned company) AND the demerger between Mold-Tek Technologies Ltd, i.e the demerged company (the aforesaid company) and Mold-Tek Plastics Ltd, resulting company was sanctioned by the Hon'ble High Court of Andhra Pradesh, vide its order dated 2th July, 2008. The appointed data for amalgamation and the demerger were 1st October, 2006 and 1st April, 2007, respectively, and the effective date of the scheme was 26th August, 2008. In our considered view, pursuant to the aforesaid restructuring of the aforementioned company i.e Mold-Tek Technologies Ltd., t....
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....ic design representation and creating dynamic and graphic rich web application from IT specs, design prints etc. In the backdrop of its aforesaid observations, it was observed by the Tribunal that as per the information available in the 'annual report' of the aforementioned company i.e Mold Tek Technologies Ltd, as well as from the details available on its website, it could safely be concluded that the company was involved in providing high-end services to its clients involving higher special knowledge and domain expertise in the field and, thus, the same could not be taken as a comparable to the assessee before them which was mainly involved in providing low-end services. On the basis of our aforesaid observations, we are of a strong conviction that in the backdrop of the high-end services provided by the aforementioned company i.e Mold-Tek Technologies Ltd, it could safely be held to be functionally dissimilar to the assessee company, which was providing business support services (ITeS) to its group entities across the world. Accordingly, we find ourselves to be in agreement with the claim of the ld. A.R, that in the backdrop of the functional dissimilarity also the afore....
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....ustomers primarily in Europe which had strengthened its presence in the said geographic region. Also, the acquisition of Igentica Travel Solutions Ltd. had given the company an entry platform in a new vertical - travel and hospitality besides consolidating its position in the retail and manufacturing space. As the aforesaid company pursuant to the acquisition of Igentica Travel Solutions Ltd. on July, 2007 had witnessed an abnormal profit of 65.88% during the year under consideration, therefore, in our considered view it could not have been selected as a comparable for benchmarking the International transactions of the assessee for the year under consideration. 11.2 Further, a perusal of the financial results of the aforesaid company, Page 12 of APB, therein reveals that it had outsourced services to third party vendors which therein constituted 20.39% of its total expenses. The aspect that when a company had outsourced its ITeS services, it cannot be said that its business results would be comparable to any other ITeS service provider rendering services entirely on its own, had been so held by a coordinate bench of the Tribunal in the case of Google India Pvt.Ltd.Vs. DCIT [ITA ....
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....r control over quality. In the backdrop of the aforesaid functional profile of the abovementioned company i.e Eclerx Services Ltd, the Tribunal was of the view that as the said company was mainly engaged in providing high-end services involving specialised knowledge and domain expertise in the field, thus, it could not be compared that the assessee before them which was mainly into providing of low-end services to its group concerns. In the backdrop of the functional profile of the aforementioned company i.e Eclerx Services Ltd., we find that beyond any scope of doubt it is functionally dissimilar to the assessee before us, which is engaged in providing of business support services (ITeS) to its group entities across the world. Accordingly, due to the functional dissimilarity of the aforesaid company i.e Eclerx Services Ltd, the same could not have been included in the final list of comparables for benchmarking the assessee's International transactions. 11.4 On the basis of our aforesaid observations, we herein direct the A.O to exclude the aforementioned company i.e Eclerx Services Ltd. from the final list of comparables for the purpose of benchmarking the international tra....
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.... the aforesaid units into the aforementioned company i.e Accentia Technologies Ltd., being an extraordinary event during the year under consideration i.e A.Y. 2008-09, had had resulted in the enormous growth of the company and impacted its profitability, therefore, it could not have been selected as a comparable for benchmarking the international transactions of the assessee for the year under consideration. 12.3 Further, we find, that as per the 'annual report' of the aforementioned company, i.e Accentia Technologies Limited, it had developed and owned unique intangibles/intellectual property/process i.e copyrighted products namely Iridium Medical Transcription Automation System (iMTAS); Iridium Real Time School (iRTS); Iridium Accounts Management System (iAMS); Iridium Inventory Management System (iIMS); Iridium Payroll Management System (iPMS); Iridium Business Transcription System (iBTS); and Iridium Hosptial Management System (iHMS). In our considered view, the owning of the aforesaid intangible property by the aforementioned company therein renders it incomparable to the assessee before us. 12.4 Insofar, the employee cost of the aforesaid company i.e Accentia Te....