TaxTMI 
TaxTMI 
2021 (7) TMI 756
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.... is numbered as IT(TP)A No.651/Bang/2017. The appeal numbered as IT(TP)A No.627/Bang/2017 is directed against the final assessment order dated 31.1.2017 passed by the A.O. He submitted that the issues contested by the assessee in both the appeals are identical in nature. 3. In view of the above discussed facts, one of the appeals shall become infructuous. Since the demand has been enhanced in the order passed u/s 154 of the Act, we adjudicate the grounds urged therein and accordingly dismiss the appeal numbered as IT(TP)A No.627/Bang/2017 as infructuous. 4. The Ld. A.R. has furnished notes to arguments. According to the same, all the grounds urged by the assessee relate to the following issues:- a) Transfer Pricing adjustment under "Certification service segment". b) Transfer Pricing adjustment under "ITES segment". c) Addition on account of change in the method of revenue recognition d) Denial of TDS credit. e) Non-granting of depreciation on foreign exchange loss. 5. The assessee is an Indian company and is a subsidiary of M/s. Underwriters Laboratories Inc., U.S.A. The assessee herein provides product safety testing and certi....
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.... issue in AY 2009-10 to the file of AO/TPO with following observations:- "14 We have heard the rival submissions. The ld. counsel for the assessee submitted that the law with regard to treating foreign exchange loss/gain as part of operating profit/loss has been well settled in several decisions and in this regard relied on the decision of ITAT Bangalore Bench in the case of SAP Labs India (P) Ltd. (supra). He submitted that the TPO while computing Profit Level Indicator (PLI) of the assessee in the certification services segment, has included certain items of expenses, whereas the assessee has excluded those expenses as being extra-ordinary in nature and not having impact on the operating margin of the assessee. These objections, however, were not met by the DRP, despite submissions made by the assessee before the DRP. Thirdly, it was submitted that as far as Bangalore Benches of the Tribunal are concerned, the threshold limit for application of RPT filter for excluding comparable companies, should be 15% of the total revenue being with related parties and in this regard placed reliance on the decision rendered in 24/7 Customer Pvt. Ltd. (ITA No.227/Bang/2010), Sony India....
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....n rendered by the ITAT Bangalore Bench in the case of SAP Labs (supra) and Auto Desk India Pvt. Ltd. Vs. DCIT IT(TP)A.No.540 & 541/Bang/2013. (2) The TPO should restrict the addition only in respect of international transactions with the AE. However, the submission made by the ld. DR with regard to a part of the certification services having been subcontracted to the AE and receipt of sub-contracting charges from the AE to the extent the same will have impact on the consideration received from the AE for rendering the certification services should also be examined by the TPO. (3) Errors, if any, in the computation of margins of comparables should be looked into by the TPO in the set aside proceedings. (4) Threshold limit for applying RPT filter should be 15% or 25% of sales depending upon the availability of comparable companies after all exclusions as held by the Tribunal in the case of Auto Desk India Pvt. Ltd. Vs. DCIT [2018] 96 taxmann.com 263 (Bang.Trib.) [para 24 to 25]. 17 The above directions will be sufficient to take care of the grievances projected by the assessee in ground Nos. 5 & 6 and additional grounds No.6 (d), 26 & 27. The TPO w....
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....n the case of Kennametal Shared Services P Ltd (supra) has followed the decision rendered by Bangalore bench of Tribunal in the case of Mobility Infotech India Pvt Ltd (IT(TP)A No.2055/Bang/2016 dated 08-08-2018). For the sake of convenience, we extract below the decision rendered by the coordinate bench in the case of Mobility Infotech India P Ltd (supra) in respect of above said five comparable companies:- 6. Universal Print Systems Ltd., (seg: BPO) 6.1 The ld AR for the assessee submitted that this company should be rejected as a comparable for the following reasons. (i) Fails the employees cost Filter IT(TP)A No.2055/B/16 According to the ld AR, this company fails the employee filter of Rs. 25% applied at the entity level. The employee cost filter of the assessee works out to 18.56% (viz. employee cost of Rs. 5,27,11,884/- / by total operating revenue of Rs. 28,40,79,094/-). It is submitted that since details relating to employee cost allowable to specific segments is not available, the same is taken at entity level. (ii) Functionally different The ld AR submits that as per page 69 of its Annual report, this company is engaged in pre....
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.... of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be IT(TP)A No.2055/B/16 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 (Page764 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 pointed out that in the Pre-press BPO segment this company was providing integrated print solutions to its customers, which includes scanning, design/layout, trapping, hand-outlined clipping path and image masking and magazine and catalogue publishing. The Assessee submitted that the aforesaid services are not in the nature of ITES. The Assessee pointed out that as per the safe harbor rules introduced by the CBDT ITES has been defined as business process outsourcing services provided mainly with the assistance or use of information technology. It was also submitted that this company does not satisfy the definition....
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....he DRP/TPO. 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 net margin method, by which,-- (i)the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii)the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii)the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, ....
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....om 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 filter and service revenue filter in our view was rightly rejected by the TPO and DRP. It is however seen that this company has four segments viz., Repro, Label Printing, Offset Printing and Pre press BPO. Whether the label printing and offset printing segments supplement the functions performed in the Pre-press BPO segment has to be seen. We therefore set aside the order of the DRP in this regard and remand for fresh consideration by the TPO the comparability of this company. In terms of Rule 10B(3) of the rules the profit margins of Pre-Press ....
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....ultiple lines of business and renders high end services in the nature of KPO services. It is also submitted that Infosys BPO Ltd., has huge intangible amounts and high brand value. As per the FAR analysis, Infosys BPO Ltd., bears full fledged risk, whereas the assessee operates at minimal risk. It is submitted that on the basis of the above facts, Infosys BPO Ltd., is functionally different and not comparable to the assessee and therefore should be rejected as a comparable. (ii) Extraordinary event during the year The AR submitted that during the year, Infosys BPO Ltd., acquired the Portland Group PTY Ltd., which is an extraordinary event and could affect its comparability. In support of assessee's claim for rejection/exclusion of M/s Infosys BPO Ltd., from the list of comparables, the ld AR placed reliance on, inter alia, the decision of the co-ordinate bench in the case of (i) CGI Information Systems & Management Consultation Pvt. Ltd., in ITA No.183/Bang/2017 dated 11/4/2018 for asst. year 2012-13. 7.2 Per contra, the ld DR for revenue supported the orders of the authorities below in including this company in the final set of comparables. ....
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.... and carefully considered the material on record; including the judicial pronouncements cited. From the details on record, it is seen that the contentions of the assessee that the company u/s BNR Udyog Ltd., is functionally different and fails the RPT filter at the entity level. We find from the record that the bench marking of 'BNR' has been done only at the medical transcription segment and issue of RPT has not been urged before the AO/DRP. From a perusal of the decision of the co-ordinate bench of this Tribunal in the case of Indegene Pvt. Ltd., in IT(TP)A No.591/Bang/2017 for asst. year 2012-13, we find that the issue of comparability of 'BNR' has been remanded to the file for the TPO for fresh consideration in tune with its observations at para 10.3.2 thereof, the relevant portion of which are extracted hereunder:- "Since in the year under consideration, there are 3 segments, how much of the RPT expenses pertain to each of the segments requires examination and we find that this aspect has not been analyzed by either the TPO or the assessee. While it is clear from the TPO's order that if the benchmarking is done only for the medical transcr....
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....ii) XL Health Corporation India P Ltd in IT(TP)A No.2311/Bang/2016. 9.2 The ld DR for revenue placed reliance on the orders of the authorities below. The ld DR submitted that, in all fairness in the facts and circumstances of the case, the matter ought to be remanded to the file of the TPO for fresh coordination, as was held in the decision of the co-ordinate bench in the case of Indegene Pvt. Ltd., in IT(TP)A No: 591/Bang/2013 dated 2/8/2017 for AY 2012-13. 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, we also notice 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 of ITAT-Bangalore in the case of Indegene Pvt Ltd for A.Y. 2012-13 (....
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....xcel Infoways Ltd., on grounds of failing the employee filter cost filter of 25% at the entity level in the absence of details of such transactions at the segmental level and also for the reason that there were abnormally high profit margins over the years. In the case of CGI Information Systems & Management Consultants Pvt. Ltd., for 2012-13 (supra), cited by the assessee, this company was rejected as a comparable on the grounds of consistent diminishing revenue and it was also engaged in the business of software testing, verification and validation of software at the time of implementation and data centre management activities. In the case of XL Health Corporation India P Ltd., also for A.Y. 2012- 13(Supra), relied on by the ld DR, this company was retained as a comparable since the coordinate Bench observed that the assessee in that case had not led or filed any evidence to support its contention that this company 'Excel' had failed the employee cost filter. These two decisions (supra), in our view, would not apply to the fact situation prevailing in the case on hand. 10.3.2 In the case on hand, from a careful perusal of the factual material before us, we find t....
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.... reason that in the financial results, the Auditors have mentioned that this company was predominantly a Business Process Outsourcing (BPO) company and therefore this company cannot be said to be an ITES company. The learned counsel for the Assessee brought to our notice that in the very same note, the auditors have also mentioned that the only reportable segment was BPO. Therefore this company was a BPO company and the results of the BPO which is the only segment ought to have weighed in the mind of the TPO to include this company as a comparable company. 25. We have considered the submission of the learned counsel for the Assessee and are of the view that the plea raised by the Assessee is correct and the TPO ought to have regarded this company as comparable IT(TP)A No. 195/Bang/2016 & 459/Bang/2017 company because the only reportable segment of this company was BPO. We direct the TPO to include this company as a comparable company." Following above said decisions of co-ordinate bench, we direct inclusion of M/s Crystal Voxx Ltd as a comparable company. 15. The next issue relates to the addition made rejecting the claim of change in method of revenue recognition. T....