AI Drafter 
TaxTMI 
TaxTMI 
2019 (8) TMI 1664
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....on'ble CIT(A) has erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of sub-section (3) of 92C of the Act. 3. The learned AO/learned TPO/Hon'ble CIT(A) has erred in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters while determining the Arm's Length Price ("ALP"). 4. IT Enabled Services ("ITeS") Segment: 4.1 The learned AO/learned TPO/Hon'ble CIT(A) has erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 4.2 The learned AO/learned TPO/Hon'ble CIT(A) has erred in not applying the upper limit on turnover while selecting the comparable companies. 4.3 The learned AO/learned TPO/Hon'ble CIT(A) has erred in applying different financial year ending filter while selecting the comparable companies. 4.4 The learned AO/learned TPO/Hon'ble CIT(A) has erred in completely relying on the unaudited data requisitioned and consequently obtained by taking recourse to the provisions of Section 133(6) of the Act. 4.....
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....ct that the Appellant followed the same credit/interest policy on the balance receivable from the Non-AEs as well. 5.4 The learned CIT(A) has erred in imputing interest on the outstanding balances from the AEs for more than 30 days and in directing the learned AO/learned TPO to work out the adjustment on account of interest on such outstanding amounts. 5.5 The learned CIT(A) has erred in ignoring the fact that the credit period provided in relation to outstanding receivables as on 31 March 2012 to Non-AEs are greater than that of AEs. 5.6 Without prejudice to the argument of the Appellant in Ground No. 4.9 above, the learned AO/learned TPO/learned CIT(A) has erred in imputing the interest on receivable outstanding as 31 March 2012 when the learned TPO had already done the negative working capital adjustment to the companies proposed as comparable by adjusting the difference in the credit period between the Appellant and those comparables. 5.7 Without prejudice to the argument of the Appellant in Ground No. 4. 9, the learned AO/learned TPO/learned CIT(A) has erred in imputing the interest on receivable balances specifically arising out of provisio....
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....logies India Limited 14.00% 2. Jindal Intellicom Limited 13.27% 3. Accentia Technologies 24.99% 4. ICRA Online Ltd. 24.01% 5. Cameo Corporate Services Ltd. 10.06% 6. In House Productions 10.33% 7. Cosmic Global 11.27% 8. Wisec Global Ltd. 0.14% 9. Techprocess Solutions Ltd. 4.40% Arithmetic Mean 12.50% 2.2. Ld. TPO rejected analysis carried out by assessee and undertook fresh search by applying various filters and shortlisted following 10 comparables with an average margin of 28.11%: # Company Name 1. Accentia Technologies Ltd. 11.75% 2. Universal Print Systems Ltd. 52.46% 3. Informed Technologies Ltd. 6.08% 4. Infosys BPO Ltd. 36.30% 5. Jindal Intellicom Ltd. -0.05% 6. Microgenetic Systems Ltd. 19.61% 7. TCS E-Service Ltd. 63.69% 8. BNR Udyog Ltd. 41.58% 9. Excel Infoways Ltd. 29.79% 10. E4E Healthcare Services Pvt. Ltd. 19.85% AVERAGE 28.11% He thus proposed an adjustment of Rs. 2,74,17,877/- under ITeS. 2.3. Ld. TPO fu....
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....lines of AE. Assessee is also involved in identification of manpower requirement, recruitment of manpower. Assets employed It has been submitted that assessee do not own any non-routine intangibles and accordingly does not own trade secrets or undertake research and development activities on its account that would lead to development of non-routine intangibles. Intangible assets employed by assessee are furniture and fixtures vehicles, case of its equipments, computers and accessories and electrical fittings etc. Risks assumed Assessee provides services on a cost plus model and is not affected by factors such as non availability of markets of for rendering services, reliability of customers, fluctuations in demand etc. The primary risk market lies with the AE, as it is responsible for providing final services to end customer. Assessee is though responsible for quality of services to be delivered to its AE and has to meet specifications laid down by AE in the work order, however AE bears final responsibility of quality of services towards the client. Thus, it has been submitted that assessee do not even bear any service risk. Thus assessee has been characterised under....
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....on of the learned counsel for the Assessee was with regard to exclusion of 2 comparable companies from the list of 7 comparable companies that remain after the order of the DRP. The first comparable company sought to be excluded is Universal Print Systems Ltd. This company was chosen as a comparable company by the TPO. In reply to the proposal of the TPO to include this company as a comparable company, the Assessee vide its letter dated 22.12.2015 had pointed out its objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP/TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP/TC of this company will be only 51.80%. The Assessee further pointed out (Page 764 of paper book) that the TPO had applied revenue filter of more than 75% being from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.63% of the total revenue from operations of this company as per its annual report. The Assessee also....
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....sel for the Assessee reiterated submissions that were made before the TPO/DRP. In particular it was submitted that the service revenue filter was applied by the TPO himself at the entity level and on such search this company was not regarded as engaged in providing ITES. At this stage the TPO ought to have dropped this company as a comparable company because this filter has to be applied at the entity level and not at the segmental level. The learned DR submitted that if the service revenue filter is applied at the segmental level there can be no objection by the Assessee. She relied on the order of the DRP/TPQ. 51. The requirements of Rule 10B(1)(2) & (3) of the Rules in the matter of comparability of companies under TNMM needs to be seen. The same reads as follows: "10B. (1) For the purposes, of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:-- (a) to (d) (e) transactional-margin method, by which, (i) the net profit margin realised by the enterprise from an inter....
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....fferences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 52. There appears to be no bar in the Rules referred to above to considering segmental data under TNMM because the comparison is of "net profit margin realized by the enterprise from an international transaction" with the "net profit realized from a comparable uncontrolled transaction". Therefore comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitled to apply the filters at segmental level. As we have already stated if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore the objection with regard to this company failing the employee cost....
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....essee, who provide captive service to its AE's. Ld. CIT DR opposed the exclusion and placed reliance upon orders passed by authorities below. 6. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt. Ltd., vs. ACIT vide order dated 28/06/19 in ITA (TP) a No. 1661/Bang/2016, wherein this comparable has been excluded by observing as under: '5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case of Baxter India Pvt. Ltd. Vs. ACIT ITA No. 6158/Del/2016 for A.Y. 2012-13 in the case of a company rendering ITES such as the Assessee, vide order dated 24.8.2017 Paragraph 23 held that Infosys BPO is not comparable with a company rendering ITES for the following reasons:- "23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Officer/TPO/DRP is that Infosys BPO Ltd. is predominantly into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche a....
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....at this company owns huge brand of TATA group and has also incurred brand related expenses and therefore cannot be accepted to be compared with a captive service provider like assessee. Ld. CIT DR on the contrary opposed its exclusion and placed reliance upon orders passed by authorities below. 7. We have perused submissions advanced by both sides in light of records placed before us. Assessee placed reliance upon following decisions in support of its argument for exclusion of this comparable: • Zyme Solutions Pvt. Ltd. vs. ACIT (supra) • Baxter India Pvt. Ltd. vs. ACIT reported in (2017) 85 Taxmann.com 285 (Delhi-Trib) • PCIT vs. BC Management Services Pvt. Ltd. reported in TS-948-HC-2017 (Del)-TP It is observed that this comparable has been excluded by this Tribunal. Assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt. Ltd., vs. ACIT reported in (2019) 101 taxman.com 292, by observing as under: "11.3 We have heard rival submissions and perused material on record. The issue of comparability of this company was considered by the co-ordinate bench of Tribunal in the case of XL Health Cor....
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....It is submitted that this company is into medical transcription, coding, business support services and e-governance projects and therefore functionally not similar with that of assessee. Ld. CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech India (P) Ltd. vs. DCIT reported in (2018) 97 taxman.com 2 in support. 8. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee is challenging functional dissimilarity of this company with that of assessee as it is into medical transcription. We have our reservation to consider medical transcription services to be one of KPO services. In our considered opinion medical transcription services is basically back-office services provided by graduates who are trained for short period of 6 months to one year. These are short crash courses undertaken by graduates who are trained to understand and speak English. There is no value addition in the services rendered by people in medical transcription. To our understanding, basically thes....
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....espectfully following the same, we set aside this comparable back to Ld. TPO for considering it afresh. Needless to say that proper opportunity shall be granted to assessee as per law. Accordingly we set aside this comparable back to Ld. TPO 6. Excel Infoways Ltd. (segmental) This comparable selected by Ld. TPO is alleged to be functionally not comparable with assessee, as it is handling business relations and managing customer relationships. It has been submitted by Ld. AR that this comparable fails employee cost filter. Ld. CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech India (P) Ltd. vs. DCIT reported in (2018) 97 taxman.com 2 in support. 9. We have perused submissions advanced by both sides in light of records placed before us. Annual report of this company is placed at page 273 of paper book (Index for Annual Reports). In the Significant Accounting Policies reported at page 308 of paper book, it is observed that these companies operating businesses are organized and managed separately, according to ....
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....t cannot be reviewed in the misc. application. However there has been omission to adjudicated exclusion of this company on account of extraordinary events. We therefore recall the order of the Tribunal to the limited extent of examining of the employee cost filter and the presence of extraordinary events on warranty exclusion of this company." 3. We have heard the rival submissions on the exclusion of this company on the basis of extraordinary events that occurred during the relevant previous year which had impact on the profit margin of this company and therefore rendering this company from being chosen as a comparable company. The Delhi ITAT in the case of BT e-Serve (India) Ltd. Vs. ITO ITA No. 6690/Del/2016 for A.Y. 2012-13 order dated 19.6.2018 considered the comparability of this company and came to the conclusion in paragraph 5.4 of its order that there was abnormal volatility of revenue of this company from 2009-10 to 2014-15 and therefore this company should not be regarded as comparable company. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid company from the list of comparable companies chosen by the TPO. It is observed fro....
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....Ld. TPO to exclude this comparable from the final list. Comparable sought for inclusion: 7. Informed Technologies India Ltd. It has been submitted by Ld. AR that this company is functionally comparable with that of assessee and submits that it passes through all filters applied by Ld. TPO. It has been submitted that this comparable was included by Ld. TPO which was acceptable to assessee. However DRP directed to exclude the same, as there was no segmental detail available. Ld. CIT DR however placed reliance upon order of DRP and supported its exclusion due to non-availability of segmental information. 10. We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that this comparable has been not disputed for functional dissimilarity by DRP. However, observation that segmental information are not available needs to be verified. We are therefore of considered opinion that, this comparable needs to be set-aside to Ld. TPO for verification afresh. Needless to say that assessee shall be granted proper opportunity as per law to represent its case. Accordingly we set aside this comparable back to Ld. TPO Accordi....
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....ly determined its ALP. In support of his contentions, he read out relevant parts of DRP's direction, in which Panel relying upon decision of Delhi Tribunal order in Ameriprise India Pvt. Ltd. vs. ACIT (2015-TII-347-ITAT-DEL-TP) held that interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 has inserted Explanation to Section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that: (i) the expression "international transaction" shall include-- ...... (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;....'. 12. Ld. CIT DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that an....
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....as been correctly determined. We have perused the submissions advanced by both the sides in the light of the records placed before us. This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT in ITA No. 1548 and 1549 (Kol.) of 2009, dated 15-7-2016, held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92B of the Act. We also perused decision relied upon by Ld. Counsel. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld. Counsel. Alternatively, it has been argued that working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and lones and advances to international transaction would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions Pvt. Ltd. vs. DCIT in ITA No. 6570/Del/2016 vide its order dated 15.2.2018 has observed that: "There may be a delay in collection of monies for supplies made, even beyo....