AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 1760
X X X X Extracts X X X X
X X X X Extracts X X X X
....vices (ITES) to its Associated Enterprise (AE). In terms of the provisions of Sec. 92A of the Act, the Assessee and its wholly owned holding company were Associated Enterprises ("AEs"). In terms of Sec. 92B(1) of the Act, the transaction of providing ITES was an "international transaction" i.e., a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec. 92(1) of the Act, any income arising from an international transaction shall be computed having regard to the arm's length price. 4. As far as the provision of ITES are concerned, the Assessee filed a Transfer Pricing St....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Ltd., and Jindal Intellicom Pvt. Ltd. The Pursuant to the directions of the DRP, the aggregate TP adjustment made by the TPO stood reduced to Rs. 3,96,04,921/-. In effect, the TP adjustment made by the TPO in respect of the ITES segment of the Assessee survived post the DRP's directions. 7. Before the Tribunal, the Assessee seeks exclusion of ICRA online Ltd., a comparable chosen by the TPO and retained by the DRP as a comparable company. The Assessee also seeks to include R Systems Ltd., and Informed Technologies India Ltd., which the Assessee had chosen as a comparable in its TP Study. We have heard the submissions of the learned counsel for the Assessee and the learned DR on the above issue. 8. As far as exclusion of the company ICRA Online Ltd. is concerned, this Tribunal in the case of M/s. Zyme solutions Pvt. Ltd. Vs. ACIT IT(TP) A. No. 85/Bang/2016 for AY 2011-12 order dated 28.4.2017 in paragraph-26 of its order was pleased to remand to TPO/AO for fresh consideration, the comparability of this company with the Assessee. Following the said decision, we set aside the order of the AO in this regard and remand to the TPO/AO for fresh consideration the comparability of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting for a period of 12 months accounting cycle. Since they were facing similar business cycles, market and economic conditions, it is not possible to say that because of different accounting period it had any impact on its financials and resulted into distortion of comparability. Since use of different accounting period have no effect on the comparability parameters as mentioned in Rule 10B(2) of the IT Rules 1962, therefore it would be inappropriate to reject R Systems International Ltd. which is functionally comparable company only on the reason that it has different accounting period. He relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Mercer Consulting (India) Pvt. Ltd. in ITA No. 101 of 2015 (O&M) dated 24.08.2016 wherein Hon'ble High Court held that "the Rule 10(B)(4) does not exclude from consideration the data of an entity merely because its financial year is different from the financial year of the assessee. What the Rule requires is that the data to be used in analyzing the financial results of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the int....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the same is to be excluded from the final set of comparables. Accordingly, we direct the Assessing Officer to exclude Jindal Intellicom Pvt. Ltd." 7. We have heard both the parties and perused the material on record. As rightly pointed out by the ld. AR, Rule 10(B)(4) does not exclude from consideration the data of an entity merely because its financial year is different from the financial year of the assessee. What the Rule requires is that the data to be used in analyzing the financial results of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. Thus so long as the data relating to the financial year is available, it matters not, if the financial year followed is different. In the case before us the data relating to the relevant financial year of R. Systems International Limited is available. We are, therefore, entirely in agreement with the decision relied by ld. AR that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then it ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons by the Assessee before the DRP against exclusion of this company by the TPO, the TPO should be reconsider his decision of excluding this company from the list of comparable companies and for this purpose, we remand this issue also for fresh consideration by the TPO. 14. In Gr. No. 11 the Assessee has contended that the TPO and the DRP erred in adding to the average arithmetic profit margin of the comparable companies chosen by the TPO, negative working capital adjustment. On the above ground, it is undisputed that the Hyderabad Bench of the ITAT in ITA. No. 206/Hyd/2014 for Assessment Year 2009-2010 in the case of Adaptec (India) P. Ltd. Vs. The ACIT, Circle 1(1), order dated 25.3.2015 held that no such addition can be made for the following reasons:- "Ground No. 8 pertains to the issue of negative working capital. As briefly stated above, after arriving at the arithmetic mean of all comparables at 22.03%, the A.O. worked out negative working capital adjustment of 3.22% thereby, making arms length price at 25.25%. Even though, DRP refused to interfere with the objections of the assessee in its order, we were informed that DRP has directed the TPO/A.O. not to make any n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be made." In view of the above, the Panel directs that negative working capital adjustment to the arithmetic mean margin of the comparables shall not be made." 15. In view of the above, we are of the opinion that assessee's case being similar, there is no need for making any negative working capital adjustment when assessee does not carry any working capital risk. In fact, TPO should have done necessary working capital adjustment to the profits of the selected comparables so as to make them comparable to the assessee. In view of this, we direct the TPO not to make negative working capital adjustment. 16. It is undisputed that the Assessee is also a captive service provider such as the Assessee in the case decided by the ITAT Hyderabad Bench and therefore making a negative working capital adjustment without appreciating the fact that the company does not bear any working capital risks, was not correct. Following the aforesaid decision, we allow Gr. No. 11 raised by the Assessee. All other grounds relating to Transfer Pricing were not pressed. The grounds with regard to Charging of interest u/s. 234A and 234 B of the Act has been challenged on the ground of improper co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1% of Operating Cost 51,87,29,876 Price received 45,56,86,624 Shortfall being adjustment u/s. 92CA 6,30,43,252 5% of price received 2,27,84,331 Since the shortfall is exceeding 5% of the international transaction, adjustment is made The above shortfall of Rs. 6,30,43,252/- is treated as transfer pricing adjustment u/s. 92CA in respect of IT enabled Services segment of the taxpayer's international transactions." 20. Aggrieved by the aforesaid addition of Rs. 6,30,43,252 to the total income of the Assessee, the Assessee filed objections before the Disputes Resolution Panel (DRP) u/s. 144C of the Act. The DRP excluded 3 out of the 10 comparable companies chosen by the TPO. As a result, only 7 companies remained for consideration pursuant to the order of the DRP. 21. In this appeal, the Assessee seeks exclusion of Infosys BPO Ltd., BNR Udyog Ltd., TCS e-serve Ltd., from the final list of comparable companies chosen by the TPO. On exclusion of the aforesaid three comparable companies, the learned counsel for the Assessee brought to our notice a decision of the ITAT Bangalore, rendered in the case of Mobily Infotech Ltd....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dyog Ltd., to the file of the TPO for determination of the issue afresh in line with observation above. Following the above decision of the co-ordinate bench in the case of Indegene (P.) Ltd. (supra) and considering the factual matrix involved, that how much RPT pertains to the medical transcription has not been determined by either the TPO or the assessee, it was felt appropriate and proper to remand the issue of comparability of this company, BNR Udyog Ltd. to the file of the TPO for determination afresh. [Para 8.3.2] TCS E-Serve Ltd. While the assessee has contended that the services rendered by this company, TCS E-serve Ltd. are high end KPO services, it has not brought out as to which of these are the services that would come under Technical services. On the other hand, the TPO has held all the services rendered by the assessee to be BPO services with any proper analysis. In this factual matrix of the case, the co-ordinate bench of Tribunal-Bangalore in the case of Indegene (P.) Ltd. (supra) has remanded the matter of comparability of this company to the file of the TPO for fresh consideration. In view of the factual matrix of the case on hand, as laid out abov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TAT Bangalore, rendered in the case of Mobily Infotech Ltd. [2018] 97 taxmann.com 2 (Bangalore - Trib.) wherein this Tribunal in the case of an Assessee rendering ITES such as the Assessee ruled on the comparability of the aforesaid company as follows:- "11. (i) Accentia Technologies Ltd., ('Accentia') (ii) Jindal Intellicom Ltd., ('Jindal') 11.1 Both these companies 'Accentia' and 'Jindal' were selected by the assessee in its TP study. In proceedings u/s. 92CA of the Act, the TPO also accepted and selected both these companies as being functionally comparable to the assessee as can be seen at pgs 17 and 18 of the TPO's order. According to the assessee, no objections were raised against their inclusion in the final set of comparables before the DRP, but however the DRP suo moto rejected and excluded these two companies from the list of comparables. 11.2 We have heard both the parties in the matter and perused and carefully considered the material on record. The basic facts not in dispute are that the above two companies, 'Accentia' and 'Jindal' were selected as comparables both by the assessee in it....