TaxTMI 
TaxTMI 
2019 (2) TMI 1915
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....PO) services in the healthcare, insurance, banking and financial services verticals. These services have been characterized by the assessee as being in the nature of Information Technology Enabled Services (ITES). 2.2 For Assessment Year 2010-11, the year under consideration in these appeals, the assessee filed its return of income on 08.10.2010 declaring a loss of Rs. 30,09,405/- after claiming deduction of Rs. 2,31,68,912/- under section 10A of the Act. The return was processed u/s 143(1) of the Act and the case was taken up for scrutiny for this year. A reference under section 92CA of the Act was made by the Assessing Officer (AO) to the Transfer Pricing Officer (TPO) for determination of the arms length price (ALP) of the international transactions entered into by the assessee with its Associated Enterprises (AE). The TPO passed an order under section 92CA of the Act on 29.01.2014 proposing an adjustment of Rs. 3,69,85,888/- in respect of the international transactions entered into by the assessee in its ITES segment. After receipt of the TPO's order, the AO passed the draft order of assessment under section 143(3) rw.s. 144C of the Act vide order dated 11.03.2014; wherein the....
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.... assessee for calculating the cost of working capital built in the profit margin. 5. On the facts and in the circumstances of the case the Dispute Resolution Panel is not justified in directing the TPO to adjust the profit margin of the assessee for the entire amount of advances received from AE on the ground that there is time value for money. 6. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in directing the TPO/AO to exclude the comparable M/s Acropetal Technologies Ltd., by applying new filter i.e Employee Cost filter in ITES Segment, without appreciating the fact that the direction actually amounts to setting aside of the draft order, which is beyond the mandate given to DRP vide provisions by Section 144C(8). 7. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in directing the TPO/AO to exclude the comparable M/s ICRA Online Ltd & M/s Sundaram Business Services Ltd. by applying new filter i.e 75% Export filter in ITES segment, without appreciating the fact that the direction actually amounts to setting aside of the draft order, which is beyond the mandate given to DRP vide provisions by Section 14....
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.... TPO and the Honble DRP erred in rejecting the TP documentation maintained by the Appellant on invoking provisions of sub-section (3) of 92C of the Act contending that the information or data used in the computation of the arm's length price is not reliable or correct. 6. The learned AO, TPO and the Hon'ble DRP have erred in rejecting the need for use of multiple year data of the companies selected as comparable in determination of arm's length price. 7. The learned AO, TPO and the Hon'ble DRP have erred in rejecting the application of upper turnover filter for selection/ rejection of companies as comparable. 8. The learned AO, TPO and the Hon'ble DRP have erred in rejecting companies selected as comparable by the Appellant in the TP documentation and in selecting/ introducing companies which are not comparable to the Appellant by conducting a fresh economic analysis during the transfer pricing assessment proceedings.. 9. The learned AO, TPO and the Hon'ble DRP have erred in applying the filter of export earnings less than 75% of the total revenue to select/ reject companies as comparable. 10. The learned AO, TPO and the Hon'ble DRP have erred ....
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....o. 15 & Ground No. 16. Ground No. 10.1: Wrong Computation of net margin on cost of Jeevan Scientific Technology Limited ("Jeevan Scientific") The Appellant submits that the learned TPO/DRP has erred in wrongly computing the net margin on cost of Jeevan Scientific. Reason for filing Additional Ground of Appeal The Appellant humbly submits that though a ground for rejection of Jeevan Scientific has been taken in the Form - 36B, the Appellant is filing a without prejudice argument of wrong computation of margin of Jeevan Scientific by the Id. TPO/DRP. Accordingly, the Appellant humbly submits that without prejudice to the ground that the Jeevan Scientific should be rejected, the Id. TPO/DRP has wrongly computed the net margin on cost of Jeevan Scientific. Ground No. 11.1: Companies to be accepted The Appellant submits that the Ld. TPO has erred in not including R systems International Limited which is functionally comparable to the Appellant. Reason for filing Additional Ground of Appeal The Appellant during the preparation of Form 36B has taken a ground on wrongly applying the different financial year ending filter for rejecting comparable companies. However, in ord....
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....e following additional ground of appeal in continuation to the existing ground of appeal and be read as Ground No. 8.1. Ground No. 8.1: Accentia Technologies Limited ("Accentia") ought to be rejected from the list of comparable set proposed by the Learned Transfer Pricing Officer ("Ld. TPO") The Appellant submits that the Learned Assessing Officer ("Ld. AO")/Learned TPO ("Ld. TPO")/Learned Dispute Resolution Panel ("Ld. DRP") has erred in not rejecting Accentia as it is a functionally dissimilar company. Reason for filing Additional Ground of Appeal The Appellant during the preparation of Form 36B has taken a ground that during the transfer pricing assessment proceedings, the Ld. AO, Ld. TPO and Ld. DRP have erred in selecting/introducing certain companies which are not comparable to the Appellant by conducting a fresh economic analysis. However, in order to bring clarity on the existing ground no. 8 and based on recent jurisdictional tribunal ruling, we are elaborating the name of Accentia Technologies Limited which is sought for exclusion from the comparable set proposed by the Ld. TPO. Further, the Appellant would also like to highlight before the Hon'ble Tribunal ....
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....e draft order of assessment dated 11.03.2014. The assessee filed its objections thereto before the DRP which issued its directions under section 144C(5) of the Act on 11.12.2014, granting the assessee partial relief. Pursuant thereto, the AO passed the impugned final order of assessment dated 20.01.2015 determining the total income of the assessee at Rs. 1,20,65,687/- which included TP adjustment of Rs. 1,48,92,739/-. 5.1 Aggrieved by the final order of assessment dated 20.01.2015 for Assessment Year 2010-11, both Revenue and the assessee has filed cross appeals before the Tribunal. The assessee has also preferred Cross Objections (CO) vis-à-vis the said assessment order/Revenue's appeal. 5.2 Before us, the assessee had filed paper book and also filed a chart containing the comparables and short arguments on each one of them. The assessee has also filed a compendium of case laws, which have been considered while discussing the individual comparable companies. The learned AR of the assessee submitted that the DRP has granted partial relief to the assessee by excluding 5 of the 10 comparable companies selected by the TPO against which Revenue is in appeal. It was submitted t....
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....this company. 6.2 In view of the above submissions; those put forth in the assessee's letters dated 27.04.2017 and 18.09.2017, and also considering that all the additional grounds raised relate to the inclusion/exclusion of comparable companies and in view of the decision of the Hon'ble Punjab and Haryana High Court in the case of Quark Systems India Pvt. Ltd., in ITA No.594 of 2010, the additional grounds raised are admitted for consideration / adjudication, when the individual companies will be discussed in the subsequent paragraphs of this order. Revenue's Appeal in IT(TP)A No.404/Bang/2015 7. Ground Nos. 1, 10 and 11 are general in nature and since they do not call for adjudication, are dismissed as infructuous. 8. Ground Nos. 2 & 3 - Deduction u/s 10A of the Act 8.1 These grounds are raised on the issue of exclusion of expenditure from both the export turnover and total turnover for the purposes of computation of deduction u/s 10A of the Act. 8.2 In its return of income, while claiming deduction u/s10A of the Act, the assessee had reduced the expenses towards telecommunication both from its export turnover as well as total turnover. The AO, did not accept the assessee'....
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.... i.e., (-)1.40%, without making any restriction as contended by Revenue in the grounds of appeal, ground Nos. 4 and 5 raised on this issue are infructuous as they require no adjudication and are accordingly dismissed as infructuous. 10. Ground No.6 - Exclusion of M/s. Acropetal Technologies Ltd., (Acropetal) 10.1 In this ground (supra), Revenue contends that this company, 'Acropetal' has been excluded by DRP from the set of comparables by applying a new filter, namely, employee cost filter, which amounts to setting aside the draft order of assessment on this score, which is beyond the mandate given to the DRP by the provisions of section 144C(8) of the Act. 10.2 This company was selected by the TPO as a comparable company on the grounds that it is functionally similar to the assessee, despite the assessee's objection to the contrary. The assessee filed objections before the DRP for exclusion of this company on the ground that 'Acropetal' is not functionally similar as it is in the business of rendering Engineering Design Services, as against BPO services rendered by the assessee. The DRP did not adjudicate on the grounds of functional dissimilarity, but directed exclusion of 'A....
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....h has neither been applied by the assessee nor by the TPO while determining the ALP. As such the DRP has applied these filters suo moto. When new filters are applied, it is necessary to examine whether such an application of a new filter has any impact on the other companies about their inclusion or exclusion. It is also seen that the DRP has not rendered a finding on the functional comparability of 'Acropetal' even though a specific ground has been raised and the judicial decisions in this regard have been brought to the notice of the DRP. In view of the above, we deem it appropriate to remand the issue of comparability of Acropetal Technologies Ltd., back to the file of the TPO with a direction that the two filters i.e., on-site filter and employee cost filter, applied by the DRP suo moto, may be applied to the other comparable companies as well and functional capacity be decided in the light of the judicial pronouncement cited by the assessee (supra). 11. Ground No. 7 - Exclusion of 1) ICRA Online Ltd., and 2) Sundaram Business Services Ltd., 11.1 In this ground (supra), Revenue assails the order of the DRP in excluding the above two companies, 'ICRA' and 'Sundaram' from the ....
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....' was not selected as a comparable by TPO's in other cases cannot be a valid ground for exclusion in this case also, unless the reasons for such exclusion in other cases are known. In view of the above, we deem it appropriate to remand the issue of comparability of this company i.e., ICRA Online Ltd., to the file of the TPO with the direction that the filter applied suo moto by the DRP in the case of 'ICRA' be applied to the entire set of comparable companies. 11.4 Sundaram Business Services Ltd., ('Sundaram') was selected as a comparable company by the TPO. The assessee had accepted the same and not objected to its inclusion before the DRP. The DRP had, suo moto, excluded this company 'Sundaram' from the set of comparables on the ground that it fails the 75% export earning filter. 11.4.1 Before us, the learned DR assailed the action of the DRP in suo moto introducing a new filter, which amounts to setting aside the draft order of assessment and is not tenable. It was submitted that changing a filter amounts to changing the entire comparability analysis, which is not within the scope of the powers of the DRP. 11.4.2 The learned AR of the assessee also objected to the decision of....
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...., we deem it appropriate to remand the issue of comparablity of this company, Sundaram Business Services Ltd., back to the file of the TPO with a direction that the 75% export earning filter, applied, suo moto, by the DRP, be applied on the entire set of comparable companies. 12. Ground No.8 - Exclusion of Infosys BPO Ltd., (Infosys) 12.1 In this ground (supra), Revenue assails the order of the DRP in excluding this company 'Infosys' from the set of comparables. The TPO had selected this company, 'Infosys', as a comparable despite the assessee's objections to its inclusion as a comparable, on the ground that this company is, inter alia, functionally not comparable to the assessee. The DRP has directed exclusion of this company from the set of comparables on the ground that it has tremendous brand value attached to it which has a significant impact on its pricing and consequently on the margins earned. In support of its decision, the DRP, inter alia, relied on the view taken by the Co-ordinate Bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd., (ITA No.1316/Bang/2012). 12.2 Before us, the learned DR for Revenue assailed the decision of the DRP, co....
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.... 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." 12.4.2 In view of the above, we find no reason to interfere with the order of the DRP and consequently the DRP's direction to exclude this company, 'Infosys' is upheld. Since this company, 'Infosys' is excluded on grounds of functional dissimilarity, the application of new filters by the DRP will have no bearing on its exclusion or inclusion as it would continue to remain excluded on grounds of functional comparability. Therefore, we find there is no need to remand the comparability of this company to the file of the TPO, as sought for by the learned DR. Consequently, ground No. 8 of Revenue's appeal is dismissed. 13. Ground No. 9 - Exclusion of Eclerx Services Ltd., 13.1 This company, 'Eclerx', was selected by the TPO as a comparable to the assessee despite the assessee's objection that this company is functionally dissimilar and hence not comparable to the assessee. The DRP has directed exclusion of this company from the set of comparables on the ground that 'Eclerx' is functionally dissimila....
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.... Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. v. Asstt. C/T12014] 43 taxmann.com 100/147 ITD 83 (Mum.) (SB) in paras 82 and 83 as under: "82. In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies ....
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.... in the order of the DRP and the direction of the DRP to exclude 'Eclerx Services Ltd.,' from the set of comparables is upheld, since this company 'Eclerx' is excluded on grounds of functional dissimilarity, the application of new filters by the DRP will have no bearing on its exclusion or inclusion as it would continue to remain excluded on grounds of functional comparability. Therefore, there is no need to remand the matter to the TPO, as sought for by the learned DR. Consequently ground No.9 of Revenue's appeal is dismissed. 14. In the result, Revenue's appeal for Assessment Year 2010-11 is partly allowed for statistical purposes. Assessee's appeal in IT(TP)A No.553/Bang/2015 for Assessment Year 2010-11 15. Ground Nos. 1 to 7 and 12 to 14 (supra) in assessee's appeal are general or conceptual or academic in nature and not pressed by the assessee before us, rendering them infructuous. Consequently, these ground Nos. 1 to 7 and 12 to 14 are dismissed as not pressed. 16. Ground No.8 and Additional Ground No. 8.1 - Accentia Technologies Ltd., 16.1 In these grounds / additional grounds (supra), the assessee assails the orders of the TPO and DRP in not excluding this company, '....
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....Coral Hubs Ltd. (d) Crossdomain Solutions Ltd. (e) Eclerx Services Ltd. (/) Genesys International Corpn. Ltd, (g) Mold Tek Technologies Ltd," We further note that the functional comparability has been examined in detailed by the co-ordinate bench of this Tribunal in the case of Equant Solutions India (P.) Ltd. v. Dy. CIT j2016] 157 ITD 292/66 taxmann.com 2 (Delhi - Trib.) as well as in the case of ITO v. Interwoven Software Services (India) (P.) Ltd. [2016] 74 taxmann.com 103 (Bang. - Trib.). Further in the case of Acropetal Technologies Ltd. (Seg.), the co-ordinate bench of this Tribunal in the case of Kodiak Networks (India) Pvt. Ltd. v. Dy. CIT [IT(TP)A No.1540 (Bang) of 2012] has considered the functional comparability and found that this company is not comparable with a captive service provid r. Accordingly we direct the Assessing Officer/TPO to exclude these companies from set of comparables." 16.4.2 Respectfully following the above decisions of the Coordinate Bench in the case of Tesco Hindustan Service Centre Pvt. Ltd., (supra), we hold and direct that Accentia Technologies Ltd., be excluded from the list of comparable companies on grounds of functional dissimil....
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.... companies as well and then the inclusion/exclusion of this company as a comparable be decided. 19. Ground No.11 Exclusion of companies with different financial year ending R Systems International Ltd., Additional Ground No.11.1 19.1 In these grounds/additional ground (supra), the assessee has assailed the exclusion of companies from the list of comparables which have different financial year ending; and specifically exclusion of M/s. R Systems International Ltd. The TPO has applied the filter of different financial year to, inter alia, exclude R. Systems International Ltd. It was submitted by the learned AR of the assessee that the Hon'ble Punjab and Haryana High Court in the case of CIT Vs. Mercer Consulting Pvt. Ltd., in its order in ITA No.101 of 2015 dated 24.08.2016 has held that a company need not be excluded merely because of different financial year ending and this decision has been specifically rendered in respect of this company, R. Systems International Ltd. 19.2.1 We have considered the rival submissions / contentions and carefully perused the material on record; including the judicial pronouncements cited. We find that the Hon'ble Punjab and Haryana High Court in....
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.... accordance with law. 22. Ground No. 16 - Short Credit for TDS 22.1 In this ground, the assessee contends that the AO has erred in giving it credit for TDS of Rs. 45,81,414/- instead of Rs. 52,24,877/- claimed. The AO directed to examine and verity the assessee's claim in respect of grant of short credit for TDS in accordance with law. 23. Ground No. 17 - Charging of interest u/s 234D of the Act 23.1 In this ground (supra), the assessee denies himself liable to be charged interest u/s 234D of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon'ble Apex Court in the case of Anjum H. Ghaswala (252 ITR 1) (SC) and I, therefore, uphold the action of the AO in charging the assessee the aforesaid interest u/s 234D of the Act. The AO is, however, directed to recompute the interest chargeable u/s 234D of the Act, if any, while giving effect of this order. 24. In all matters/grounds in these cross appeals for AY 2010-11 where the matters/issues have been restored/remanded to the files of either of the TPO/AO/DRP, these authorities are directed to afford the assessee adequate opportuni....