TaxTMI 
TaxTMI 
2015 (10) TMI 2819
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....Enterprises ('AEs'). For the year under consideration, 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 ....
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.... the application of multiple-year data while computing the mark up on operating mark up on cost of the comparable companies. 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....
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....to be computed and has given a nominal value of 1% towards risk adjustment. 3. These and any other grounds that may be urged at the time of hearing, the Hon'ble ITAT is pleaded to quash the directions of Dispute Resolution 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) 29,2....
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....lowing companies as the final set of comparables :- Sl.No. Company Name Sales OP OC OP/OC OP/Sales % 1. Best Mulyankan Consultants Ltd. 1.42 0.14 1.28 10.94 9.86 2. G K Consultants Ltd. 1.25 0.14 1.11 12.61 11.20 3. HDO Technologies Ltd. 16.76 3.26 13.50 24.15 19.45 4. Maruti Insurance Agency Logistics Ltd. 25.01 10.31 14.70 70.14 41.22 5. Goldyne Peoplepower Ltd. 5.41 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 draf....
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....round No.1. 7. Ground No.2 : Risk Adjustment. 7.1 In this Ground, Revenue contends that risk adjustment is not required in this case as the assessee face risks like political risk, foreign exchange risk and also market risks. It was also contended that the DRP was wrong in directing that risk adjustment may be granted @ 1% without indicating the method by which the same is to be computed. The learned Departmental Representative submitted that this claim for risk adjustment cannot be allowed since no such claim was made in the assessee's T.P. Study or 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 s....
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....ich shall be considered by the TPO before he takes a decision in the matter. It is ordered accordingly. Consequently, Ground No.2 raised by Revenue is dismissed. 8. Ground No.3 is general in nature and therefore no adjudication is called for thereon. 9. In the result, Revenue's appeal for Assessment Year 2010-11 is dismissed. Assessee's appeal in IT(TP)A No.26/Bang/2015. 10. The Grounds at S.Nos.1 & 2 are general in nature and not being urged before us are rendered infructuous and accordingly dismissed. 11. Grounds 3 to 5 11.1 Ground No.3 is related to the rejection 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 c....
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....e TPO and as such should be included as a comparable company. 13.2.2 We have heard both the learned Authorised Representative for the assessee and the learned Departmental Representative for Revenue and perused and carefully considered the material on record. We find that this company was not a comparable selected by the assessee in its T.P. Study, but has been suggested as a comparable by the assessee during T.P. proceedings before the TPO. Evidently, this company has not been selected out of a search process and as such could be a case of 'cherry picking'. It is also seen that the assessee, in its letter 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, p....
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.... Section 92CA of the Act. The assessee in its TP Study had worked out matters at the entry level, including the Global Support Services Segment also under the distribution segment. The TPO in his order has recorded detailed reasons for considering the Global Support Services as a separate segment. Further, for the subsequent years, admittedly, the assessee itself has classified Global Support Services as a separate segment. In support of Market Support Services also, the assessee had analysed the transactions by selecting companies engaged in trading activities and for this reason also the TPO had rejected the assessee's 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 pronou....
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....share trading is substantial when compared to its other activities, including professional services. It is also seen that the company operates in several segments and segmental details have been furnished in the Annual Report. 16.3.2 From the TPO's order, it is not clear as to whether the TPO has examined this aspect of the company operating in several segments out of which professional services is only a small portion. It is also not clear as to whether the TPO has adopted the segmental details or the entity level details. In fact, the DRP has directed that it is to be ascertained whether segmental margins were adopted or entity level margins. 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 operat....
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....also be considered for inclusion in the list of comparables to the assessee :- (i) ICRA Management Consulting Services Ltd. ('ICRA') (ii) Pagaria Energy Ltd. It was submitted that the assessee has proposed these two companies for being considered as comparables before the DRP and that the DRP had not specifically adjudicated on these two comparables. It was the contention of the assessee that ICRA was involved in the business of software consultancy services and is functionally similar to the assessee. It was also contended that Pagaria Energy Ltd. is also involved in the provision of software and consultancy services. 18.2 We have heard both parties 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....
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....e TPO nor was only quantification of the claim made before any authority for examination which ought to have been done. 20.3.1 We have heard the rival contentions in the matter and perused and carefully considered the material on record; including the judicial pronouncements referred to by the DRP. 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 to be allowed to the assessee, if after examination it is found that the facts of the case being audited warrants such an adjustment. (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 allowe....