TaxTMI 
TaxTMI 
2015 (10) TMI 2819
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....eration, the assessee's operations were classified under the following three business segments :- (i) Distribution of Software Licenses. (ii) Market Support Services. (iii) Global Support Services. The assessee also had third party local sales in the domestic business segment. 2.2 For Assessment Year 2010-11, the assessee filed its return of income on 29.3.2011 admitting total income of Rs. 1,14,70,596. The return was processed under Section 143(1) of the Act and the case was subsequently taken up for scrutiny. Reference under Section 92CA of the Act was made by the Assessing Officer to the Transfer Pricing Officer in respect of the international transactions reportedly entered into by the assessee. The TPO after examining the matter passed an order under Section 92CA of the Act dt.31.1.2014 proposing the following TP adjustment to the international transactions entered into by the assessee in the period under consideration :- S.No. Particulars Amount Rs. 1. Market Support Services 1,34,48,859 2. Global Support Services 54,56,263 Total Adjustment u/s.92CA 1,89,05,122 2.3 On receipt of the TPO's order under Section 92CA of the Act, the Assessing Offic....
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....5. The learned AO/ learned Panel has erred in law in using data, which was not contemporaneous and which was not available in the public domain at the time of preparing the TP documentation. 6. Transfer pricing adjustment in relation to provision of marketing and sales support services 6.1. The learned AO/ learned Panel erred in rejecting the comparability analysis undertaken by the Appellant in its TP documentation in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ("the Rules"). 6.2. The learned AO/ learned Panel erred in rejecting companies functionally similar to the Appellant while providing its directions on the comparability analysis undertaken by the learned Transfer pricing officer ('learned TPO'). 6.3. The learned AO/learned Panel erred in the computation of the arm's length operating mark-up on cost and accordingly erred in determining the arm's length price of the international transactions entered into by the Appellant with its AEs. 7. Transfer Pricing adjustment in relation to provision of global support services 7.1. That the learned AO/learned Panel erred in disregarding that the compensation model and peculiar economic ....
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....lution Panel." TRANSFER PRICING ISSUES. 4.1 Before proceeding to deal with the Grounds raised in the cross appeals (supra), the facts related to the T.P. issues are summarized hereunder :- For the period relevant to Assessment Year 2010-11, the assessee had reported the following international transactions :- S.No. International Transactions Amount Paid (Rs.) Amount Received (Rs.) 1. Purchase of Software Licenses for resale 3,97,49,959 2. Cost of Maintenance Services 2,82,82,466 3. Receipts for Global Services 1,26,95,558 4. Receipts for marketing and Sales Support Services 8,90,24,836 5. Reimbursement of Expenses Paid. 28,60,570 4.2 The financial results reported by the assessee, at the entity level, during the year under consideration are as under :- S.No. Particulars Amount (Rs.) 1. Operating Revenue (OR) 29,22,74,797 2. Operating Cost (OC) 28,88,32,520 3. Operating Profit (OP) 34,40,277 OP/OC 1.19% The assessee had also produced the segmental details for various business segments before the TPO. 4.3 The assessee conducted its T.P. Study for its international transactions by a....
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....41 1.38 4.03 34.24 25.51 Average 30.42 21.45 The TPO computed the ALP of this segment as under :- Operating Cost Rs. 1,39,18,740 Arm's Length Mean Margin 39.42 % Arm's Length Price (130.42% of Operating Cost) Rs. 1,81,52,821 Price Received Rs. 1,26,96,558 Shortfall being adjustment u/s.92CA Rs. 54.56,263 The Assessing Officer then completed the draft assessment order under Section 143(3) rws 144C(13) of the Act dt.28.2.2014 wherein the assessee's income was determined at Rs. 3,03,75,718; which included the T.P. Adjustment of Rs. 1,89,05,122 proposed by the TPO. 4.5 Aggrieved by the draft order of assessment for A.Y. 2010-11 dt.28.2.2014, the assessee filed its objections thereto before the DRP. The DRP issued its directions under Section 144C(5) of the Act vide order dt.28.11.2014 allowing the assessee partial relief by excluding the following companies selected by the TPO. 4.5.1 In the Market Support Services Segment, the DRP directed the exclusion of the following companies :- (i) Asian Business Exhibition & Conference Ltd. ('Asia Ltd.') (ii) HCCA Business Services Pvt. Ltd. ('HCCA Ltd.') (iii) Hindustan ....
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....before the TPO nor was any quantification of the claim made before any authority for examination which ought to have been done. 7.2 Per contra, the learned Authorised Representative for the assessee supported the decision of the DRP. It was submitted that a co-ordinate bench of this Tribunal in the case of Intellinet Technologies India (P) Ltd. V ITO in ITA No.1237/Bang/2010 in principle held that risk adjustment ought to be given to the net margin of the companies for bringing them on par with the assessee. It was also submitted that this decision has been followed in several subsequent decisions of this Tribunal. It is submitted that the quantification of risk adjustment has been furnished by the assessee at pages 451 to 453 of the paper book along with the submissions thereto from pages 227 to 450 for examination and allowance thereof. 7.3.1 We have heard the rival contentions and carefully perused and considered the material on record. We find that the DRP has directed that risk adjustment may be granted to the assessee by placing reliance, inter alia, on the decisions of the co-ordinate bench in the following cases wherein it was held in principle, that risk adjustment was t....
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....tion of the T.P. Study conducted by the assessee. Ground No.4 is in respect of the application of multiple year data and Ground No.5 is in respect of the use of contemporaneous data. 11.2 During the course of hearing, the learned Authorised Representative for the assessee did not press or urge these grounds before us and therefore they are rendered infructuous and are accordingly dismissed. 12. Ground No.6 (6.1 to 6.3) : Marketing and Support Services Agreement. 12.1 The assessee has raised 3 sub-grounds in Ground No.6. Ground No.6.1 is general in nature and therefore no adjudication is called for thereon. 13.0 Ground No.6.2 is on inclusion of comparables sought by the assessee. 13.1 IDL (India) Ltd. 13.1.1 It was submitted that this company was selected as a comparable company by the assessee in its T.P. Study. It was pointed out that in the T.P. order, while analyzing the comparability of the five comparables chosen by the assessee, the TPO has recorded this company is functionally comparable to the assessee and acceptable but, however, in the final set of comparables selected by the TPO, this company was not included and no reason has been given by the TPO for its exclu....
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....ter dt.24.1.2014, addressed to the TPO, had not made any submissions regarding inclusion of this company as an additional comparable as claimed by the learned Authorised Representative and therefore it appears that the TPO had no occasion to consider this company as a comparable. 13.2.3 The DRP, however, has considered the submissions for the inclusion of this company in the set of comparables and found them to be not acceptable. It was found that the Business and Computer Systems Division is involved in a variety of operations like marketing of equipment relating to banking, postal offices, etc and after sales services including software support. The after sales services referred to in this division is an insignificant component of the revenue of the company and therefore it is not appropriate to compare the division of this company with the Market Support Services performed by the assessee. We find that the DRP has given detailed reasoning for rejection of this company as a comparable company to the assessee in the case on hand. Before us, the assessee had failed to adduce any material evidence to controvert the findings of the DRP. In this factual matrix, we find no infirmity, ....
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.... TP Study. Further, another reason for the TPO to reject the assessee's TP Study was the fact that the assessee adopted multiple year data. The use of current year's data is mandated by the relevant I.T. Rules, 1962 and by not adhering to this, the assessee's TP Study was rendered unreliable. Before us the assessee reiterated the submissions made earlier and has not adduced any material evidence to controvert the findings of the TPO and the detailed reasoning of the DRP while rejecting the assessee's contentions. There are a catena of judicial pronouncements supporting the use of current year's data alone for the purpose of comparability. In this view of the matter, as discussed above, we hold that the TPO was correct in rejecting the assessee's TP Study / documentation in the facts and circumstances of the case and conducting her own search process for selection of comparables. Assessee's contentions for Exclusion of Comparables from TPO's list of comparables. (Global Support Services Segment) 15. The TPO has selected a set of 5 companies as comparable to the assessee in the Global Support Services Segment (supra), out of which the DRP has excluded three of....
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....ns. In this factual matrix as discussed above, we are of the view that it would be appropriate to remand the issue back to the file of the Assessing Officer / TPO to examine the comparability of this company with the assessee, in the light of our observations above and if this company is found comparable, to adopt the margins as per the segmental details. It is ordered accordingly. 17. Maruti Insurance Agency Logistics Ltd. 17.1 The TPO selected this company as a comparable to the assessee as she was of the view that this company operates as an insurance agent and is seen to be providing various consultancy services despite the objections of the assessee. The assessee filed its objections to the inclusion of this company as a comparable before the DRP on the grounds that this company is not functionally comparable. The DRP, however, held that the objections of the assessee as not tenable since the insurance agency services, at the heart of its operations, involve consultancy and upheld the decision of the TPO in including this company as comparable to the assessee. 17.2 Before us, the assessee reiterated the contentions that this company is not functionally comparable. It was s....
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.... and perused and carefully considered the material on record. Evidently these two companies have not been selected as part of or as a result of any search process and therefore could be a case of "cherry picking" by the assessee. However, it is also a fact on record that the assessee had included the Global Support Services Segment in the Distribution Segment and therefore had not conducted an independent bench marking for this segment. Therefore, if the Global Support Services Segment is considered as a separate segment, as has been done by the TPO, the assessee should have the right to conduct its search process and select its set of comparables; which of course will be subjected to the examination and scrutiny of the TPO. In this view of the matter, we deem it appropriate to remand the issue back to the file of the Assessing Officer / TPO to examine the comparability of these two companies with the assessee, in the light of our observations (supra). The assessee shall also be afforded adequate opportunity of being heard and to file details and submissions in this regard, which shall be considered by the TPO, before deciding the issue of comparability of these companies to the as....
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....(i) Bearing Point Business Consulting Pvt. Ltd. in ITA No.1124/Bang/2011 and (ii) Intellinet Technologies India Pvt. Ltd. in ITA No.1237/Bang/2007. We also find that the DRP has directed the TPO to examine the assessee's claim and decide the percentage of risk adjustment to be allowed to the assessee in the case on hand. While the DRP did mention that 1% risk adjustment was allowed in the case of Helio Soft Pvt. Ltd. (2013) 32 Taxman.Com 101 (ITAT, Hyd.), it is not correct to infer that the DRP has allowed the assessee risk adjustment at 1%. 20.3.2 While it is true that the DRP in its order has observed that the assessee has neither made a claim for risk adjustment in its own T.P.Study or before the TPO in audit proceedings, it is observed that this claim was put forth before the DRP, though bereft of any detailed quantification of the adjustment claimed on account of risk differential. However, before us, as submitted by the learned Authorised Representative of the assessee has submitted its documentation in respect of risk adjustment at pages 227 to 450 of the Paper Book and quantification of its claim at pages 451 to 453 thereof. Since these details and quantification of t....