AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 989
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....echnology enabled Services ('ITeS') rendered by the tax payer u/s 92CA of the Income- tax Act, 1961. 2. The learned AO/learned TPO/Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of subsection (3) of 92C of the Act. 3. The learned AO/learned TPO/Hon'ble DRP erred in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters in determining the ALP. 4. The learned AO/learned TPO/Hon'ble DRP erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 5. The learned AO/learned TPO/Hon'ble DRP erred in applying different financial year ending filter while selecting the comparable companies, thereby not considering the fact that the relevant data for the concerned financial year could be deduced from the corresponding financials. 6. The learned AO/learned TPO/Hon'ble DRP erred in applying export earning filter of 75% instead of 25% of the total sales, leading to a narrower comparable set. 7. The learned AO/learn....
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....further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided." 2. Assessee has also filed an application for admission of additional grounds were in following issues are raised: "Based on the facts and circumstances of the case, M/s. Replicon Software India Pvt. Ltd., respectfully submits the following additional grounds of appeal for admission before Your Honours: Transfer pricing grounds 16.The Learned AO/TPO/Hon'ble DRP has erred in not appreciating the fact that negative working capital adjustment should not be allowed. The said ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above ground of appeal, at any time before or at,' the time of hearing, of the appeal, so as to enable the Honorable Income Tax Appellate Tribunal to decide this appeal according to law. The Appellant does not have a Managing Director and hence thes....
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....eference under section 92CA, the Ld.TPO called on the assessee to file the economic details of the international transaction in Form 3CD. The Ld.TPO found that, the assessee had following international transaction recorded in the TP study report : International Transactions Value (INR) Provision of software development services and ITES 15,74,10,533/- 12. The segmental details of the assessee in respect of the international transactions are as under: Particulars Amount (INR) Operating Income 15,74,10,533/- Operating Expenditure 14,02,11,728/- Operating Profit 1,71,98,805/- OP/OC 12.27% 13. The Ld.TPO noted that, the assessee computed its margin at 12.27% by using TNMM as most appropriate method and OP/OC as PLI. It selected 10 comparables with an average margin at 6.24% S.I Company OP/OC 1 CAT Technologies Limited -10.16% 2 CG-Vak Software & Exports Limited -13.50% 3 Encore Software Limited -6.50% 4 Onward Technologies Ltd 16.71% 5 ICRA Techno Analytics Ltd 17.21% 6 Prism infomatics Ltd 13.97% 7 Oracle (Ofss) BPO Services Ltd 10.79% 8 Sundaram Business Servi....
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....,214/- being the proposed adjustment. 18. Upon receipt of proposed adjustment the Ld.AO passed draft assessment order on 15/03/2016 under section 144C (1) of the Act. 19. Against the draft assessment order, the assessee raised objections before the DRP. Before the DRP, assessee objected certain comparables for its exclusion which were rejected. The DRP further suo moto excluded Accentia Technologies Ltd. and Informed Technologies India Ltd., which was acceptable to assessee as well as the Ld.TPO. As regards the computation of negative working capital adjustment, the DRP directed the Ld.TPO to verify the calculations of working capital adjustment and to rectify the mistakes. 20. Assessee before DRP had also raised the issue of not considering the income as per revised return while passing the draft assessment order which was accepted by DRP and the Ld. AO was directed to make necessary rectification and adopt correct figures of the returned income. 21. Upon receipt of DRP directions, the Ld.AO computed addition in the hands of assessee at Rs. 2,32,56,458/-. Agreed by the additions made by the Ld.AO, the assessee is in appeal before us now. 22. At the outset, Ld.Cou....
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....e software development and application testing, sale service of the products to existing customers, customer support, customization of the product to customer need Invoicing. Collections, Product Maintenance Renewals, monitoring customer server sup certain process of company's payroll and accounting activities. Software development includes application development, software design, software des designing software, software application development, enterprise application development platform development." Assets Owned: 32. As per TP documentation, the assessee owns tangible assets like computers office space etc which is necessary for running its business and rendering services. Risk assumed: 33. It has been submitted in the Transfer Pricing documentation that the assessee does not undertake any market risk as the parent company abroad is exposed to global market fluctuation. It has been submitted that assessee shares the risk of marketing to a minimal extent as utilisation of capacity is dependent on procuring of business the parent company. Insofar as the financial risk is concerned assessee is compensated at cost plus margin in advance by the AE and the f....
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....s not a captive service provider like that of assessee and has products sale as well as services sale, which is evident from page 335 of paper book (Index for Annual Reports). 4.1 Ld.CIT DR placed reliance upon orders of authorities below and submitted that this comparable is functionally comparable with that of assessee. 5. We have heard submissions advanced by both sides in light of record placed before us. On perusal of annual report of this company placed in paper book, we are of considered opinion that this comparable is basically into sale of products and services unlike a captive service provider such as assessee, who works on cost plus basis, providing services only to its AE's. It is also observed that this comparable is basically providing BPO services from its Prepress units. In written submission filed, assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions (P.) Ltd. v. Asstt. CIT [2019] 101 taxmann.com 292 (Bang. - Trib.), wherein this comparable has been excluded by observing as under: 10.4 We heard rival submissions and perused the material on record. The issue of comparability of Universal Print Systems Ltd. ....
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....echnology is absent .in the various services provided by this company, it cannot be regarded as ITES company. The Assessee also submitted that this company fails the employee cost filter. The employee cost filter requires that the employees cost incurred by the company must be more than 25% of its revenue. 48. The TPO at page-20 of his order has dealt with the above objections by observing as follows: (a) Pre-Press BPO unit provides back office support services (b) This company has four major segments viz., Repro, Label Printing, Offset Printing and pre-press BPO. The employee cost of pre-press BPO was more than 25% of the revenue from pre-press BPO and therefore the employee cost filter is satisfied in the case of this company (c ) On the service revenue filter viz., the requirement that a comparable company must have revenue from rendering services of more than 75% of its total revenue, the TPO again held that the pre-press BPO segment's entire income is from services and therefore this objection is not to be accepted is from services and therefore this objection is not to be accepted 49. On objections by the Assessee before the DR....
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....al transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (2) For the purposes of sub-rule (1), the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c ) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to....
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....mparable companies. The TPO for this purpose can use his powers u/s. 133(6) of the Act to get required details from this company. As far as the argument that this company fails functional comparability, we find that none of the objections raised by the Assessee in this regard about lack of information about allied services performed by the pre-press BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO.' Respectfully following the decision, we remand this comparable to the file of the TPO/AO for fresh adjudication on the above lines. Respectfully following aforesaid decision, we remand this comparable to file of Ld.AO/TPO, for fresh adjudication, on th....
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....penses incurred by Infosys BPO Ltd. Further, Infosys BPO Ltd. has acquired Australian based company M/s Portland Group Pty Ltd. during financial year 2011-12. They provide sourcing and category management services in Sydney, Australia. Therefore, this company also failed the TPO's own filter of rejecting companies with peculiar circumstances. In view of the above i.e. functionally not comparable, presence of brand and extraordinary event that has taken place during the year on account of acquisition of Australian based company, we are of the considered opinion that Infosys BPO Ltd. should not be included in the list of comparables. We accordingly direct the Assessing Officer/TPO to exclude Infosys BPO Ltd. from the list of comparables for the purpose of computing the average margin." It was also brought to our notice that the Hon'ble Delhi High Court in ITA No.260/2018 in the appeal filed by the Revenue against the aforesaid order dismissed the appeal at the admission stage observing that rationale given by the ITAT for exclusion was correct. In view of the aforesaid decision, we direct exclusion of Infosys BPO from the list of comparable companies chosen by the TP....
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.... Company is an integral part of the Tata Consultancy Services' (TCS) strategy to build on its 'Full Services Offerings' that offer global customers an integrated portfolio of services ranging from IT services to BPO services. The Company provides its services from various processing facilities, backed t) a robust and scalable infrastructure network tailored to meet clients' needs. A detailed Business Continuity Plan has also been put in place to ensure the services are provided to the customers without any disruptions." Thus, this company is also stated to be a Knowledge Process Outsourcing and therefore for reasons stated by us while dealing with this issue of comparability of the company Infosys BPO Ltd. shall equally hold good and therefore we direct the AO/TPO to exclude this company from : list of comparables.' Since the appellant company is into low end BPO, it cannot be compared with KPO service provider. 11.4 Respectfully following the decision of the co-ordinate bench of Tribunal, we direct for exclusion this company from the list of comparable". It has been observed that this company is into high-end KPO ser....
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....ame from Indegene (P.) Ltd. v. Asstt. CIT [2017] 85 taxmann.com 60 (Bang. - Trib.), wherein it has been held as under: "9.3.1. We have heard the rival contentions and perused and carefully considered the material on record including the judicial pronouncements cited. From the details on record we observe that while the assessee has contended that the services rendered by this company M/s 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, w also notice that that 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, we find that on similar facts, the co-ordinate Bench o ITAT 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 above and following the decision of the co-ordinate Bench in the case of Indegene (P.) Ltd. (supra) which is also rendered on similar facts, we deem it appropriate to remand the matter of th....
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....d last company that is sought to be excluded from the list of comparable companies is Exclusion of Excel Info Ltd. The Tribunal had retained this company as a comparable company in its original order. The assessee sought exclusion of this company on the ground that this company was functionally different from the assessee company and the employee cost to the revenue was less than the threshold limit of 25% and that there were peculiar economic circumstances which impacted the profit margin of this company thereby rendering this company as not comparable company. The Tribunal while adjudicating of exclusion of this company in paragraph 14.3 of its order held that on application of employee cost filter that the Assessee has failed to show as to how the findings of the TPO and DRP are not correct. 2. The assessee has pointed out certain facts with regard to employee cost and diminishing revenue of this company which takes it out of the comparability and these aspects have not been considered by the Tribunal in its order. On the above objections in the MA, the Tribunal held as follows:- "8. We have examined the contents in the misc. petition and we find that there has....
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....re. find merit in the argument of the Id. counsel for the assessee that the information provided as per section 133(6) by Excel Infoways Ltd. is unreliable and should not be used to compute employ ee cost for ITES segment. The Delhi Bench of the Tribunal in the case of Motorola Solutions India (P.) Ltd. v. Assts. CIT [2014] 48 taxmann.com 2484 [2015] 152 ITD 158 (Delhi) has held that a company should be rejected as comparable in case there is contradiction in the facts or data sourced from annual report and as per the information gathered u/s. 133(6). In view of above discussion, we hold that Excel Infoways Ltd. cannot be considered as comparable and should be excluded from the list of comparables. We hold and direct accordingly". From the above observation by coordinate bench, objection raised by Ld.CIT DR stands clarified, as this company for year under consideration made a statement under 133 (6) regarding allocating entire employee cost to IT-BPO segment, with no allocation to other segment, which amounts to almost 49% of its total revenue during the year under consideration. At this stage, we clarify that, we are not inclined to express our opinion regarding functiona....
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....sessee seeks inclusion of Accentia Technologies Ltd., and Informed Technologies Ltd. which were rejected by the DRP suo moto. 49. From the order passed by the Ld.TPO, we note that, these comparables were included in the final list as accepted by the Ld.TPO to be satisfying all the relevant filters applied by the Ld.TPO. The DRP rejected these comparables suo moto for the reason that, M/s Accentia Technologies were functionally different and the data of M/s.Informed Technologies India Ltd., was not reliable in view of the fact that segmental data was not available. 50. From the transfer pricing order, we note that, the Ld.TPO has not raised any objection regarding the functional profile of these comparables. However since the DRP raised certain objections which needs to be verified, the same is remanded to the Ld.TPO for due verification. 51. We are therefore of the opinion that the comparables needs to be verified by the Ld.TPO afresh. Needless to say that assessee shall furnish all relevant details in respect of these comparables available with it in support of its inclusion. The Ld.TPO shall verify these details/documents filed by assssee and consider these comparables f....