TaxTMI 
TaxTMI 
2016 (3) TMI 1431
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....gly erred in excluding M/s Wipro BPO Solutions Ltd. as a comparable. 4) The ld. CIT(A) erred in holding that the assessee is eligible for a standard deduction of 5% from the Arm's Length Price (ALP) under the proviso to Section 92C(2) of the IT Act, 1961. 5) For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 6) The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above." 3. The assessee raised the following grounds of appeal: "The grounds stated here under are independent of, and without prejudice to one another: 1. Assessment and reference to Transfer Pricing Officer (`TP0') are bad in law a) The assessment order passed by the ACIT under section 143(3) of the Income-tax Act, 1961 ('the Act') and the order passed by the Commissioner of Income-tax (Appeals)-IV, ('the CIT(A)') under section 250 of the Act, are bad on facts and in law, and is in violation of principles of natural justice. b) The CIT(A) erred in law in not appreciati....
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....agrave;-vis comparables selected in the Transfer Pricing Order. d) The AO/TPO erred on facts in rejecting most of the comparable companies arrived at in the Transfer Pricing Study. 4. Erroneous data used by the AO/TPO a) The AO/TPO has erred in law and the CIT(A) further erred in confirming the use of data, which was not contemporaneous and which was not available in the public domain at the time of conducting the transfer pricing study by the Appellant. b) The AO/TPO erred in law and the CIT(A) further erred in not applying multiple-year data while computing the margin of alleged comparable companies. 5. Non-allowance of appropriate adjustments to the comparable companies, by the A0/TPO a) The AGTPO erred in law and on facts in not allowing appropriate adjustments under Rule 10B to account for, inter alia, differences in (a) accounting practices, (b) marketing expenditure, (c) research and development expenditure and (d) risk profile between the Appellant and the comparable companies. b) The AO/TPO erred in law and on facts in not allowing appropriate adjustment for the specific non-operating costs incurred by the Appellant (during FY 2004-05. 6 Interest le....
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....ces Rs. 3,06,54,204/- iv) Telemarketing Rs. 84,66,812/- v) Software Development Rs. 73,11,315/- vi) Reimbursement of expenses Rs. 16,60,433/- 4.3 The assessee-company sought to justify consideration received for the international transactions entered with its AE to be at arm's length price [ALP]. The assessee-company had also submitted transfer pricing study report adopting the operating profit on cost (OP/TC) as a profit level indicator for the transfer pricing study. The assessee-company applied Transactional Net Margin Method [TNMM] which was considered to be the most appropriate method for purposes of bench marking the international transactions. The assesseecompany's profit margin was computed at 8.82% and the assessee-company claimed that the same was comparable with other companies rendering the IT Enabled Services (ITES). For the purpose of transfer pricing study, the company had chosen 9 comparable entities and arithmetic average of operating profit margins of said comparables was computed at 7.46%. According to the assessee-company, its PLI was within the acceptable range as indicated under second proviso to sec.92C. The assessee-company had chosen the ....
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....BPO Solution Ltd. 18.59 15.51% 7 Ace Software Exports Ltd. 14.5 11.75% 8 Nucleus Netsoft & GIS Ltd. 40.06 37.02% 9 Maple E-solutions Ltd. 28.75 24.11% Average 24.68 20.57% 5.2 The TPO computed average profit margin of the comparables finally selected at 24.68%. The TPO had allowed the adjustment on account of working capital to the extent of 4.11%. On the above said basis, the TPO computed the transfer pricing adjustment as follows: Arms length mean margin 24.68% Less: working capital adjustment 4.11% Adjusted mean margin after working capital adjustment 20.57% Operating cost Rs. 5,17,19,424/- Arms' length price - 120.57% of operating cost Rs. 5,17,19,424/- Total operating revenue ... Rs. 3,91,21,016/- Shortfall being adjustment u/s 92CA ... Rs. 1,25,98,408/- The AO passed an order u/s 143(3) dated 28/11/2008 incorporating the above adjustment u/s 92CA. 6. Being aggrieved, an appeal was preferred before the ld.CIT(A)-IV, Bangalore. It was contended before the ld.CIT(A), inter alia, that the very reference made by the AO to TPO is invalid in law as the AO had not recorded any opinion that any of the conditions mentioned in se....
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....loss arising out of foreign exchange transactions are purely in the nature of operating revenue. The ld.CIT(A) rejected the claim of the assessee-company for adjustment on account of differences in accounting policies, marketing expenditure and risk adjustment. The ld.CIT(A) also rejected the claim for adjustment of extra-ordinary expenses incurred should be excluded from operating cost. 7. Being aggrieved by this order, both the assesseecompany as well as the revenue are in appeal before us. 8. We shall now take up the assessee-company's appeal viz., IT(TP)A No.22/Bang/2012. In the grounds of appeal, the assessee-company challenges the directions of the ld.CIT(A) to include Vishal Information Technologies Ltd., and Saffron Global Ltd., in the list of comparables. The ld. AR of the assessee-company submitted that Vishal Information Technologies Ltd., cannot be considered as a comparable for the reasons of functional dissimilarity, it outsourced the major portion of the work and therefore, there is a difference in business model. He also submitted that the company did not pass through the filters adopted by the TPO as there is abnormal profit of 45.65% and low employee cost. In su....
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....pital IQ Information Systems (India) P.Ltd. vs. DCIT (25 ITR (Trib) 185)(Hyd) and Bangalore bench of Tribunal in the case of ITO vs. Netlinx India Pvt. Ltd. (TS-722-ITAT-2012(Bang). This comparable has been considered by the Hon'ble Delhi High Court in the case of Rampgreen Solutions P. Ltd. Vs. CIT (377 ITR 533) wherein the Hon'ble High Court, after considering the decisions of the Tribunal cited supra, held that this company cannot be considered as a comparable with ITeS company as it is engaged in the Knowledge Process Outsourcing Service. It was further held that the business model of this company was different and therefore cannot be considered as a comparable with ITeS company. The relevant paragraphs viz. 37 & 38 are reproduced hereunder: "37. Applying the aforesaid principles to the facts of the present case, it is once again clear that both Vishal and eClerx could not be taken as comparables for determining the arm's length price. Vishal and eClerx, both are into knowledge process outsourcing services. In Maersk Global Centers (India) Pvt. Ltd. (supra), the Special Bench of the Tribunal had noted that eClerx is engaged in data analytics, data processing services, pri....
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.....3 Respectfully following the decision of the Hon'ble High Court and co-ordinate benches of Tribunal, we hold that Vishal Information Technologies cannot be considered as a comparable with the assessee-company. Hence, we direct the AO/TPO to exclude this company from the list of comparables for the purpose of bench marking the international transactions with its AE. 9. Saffron Global Ltd.: This comparable company was chosen by the TPO. The assessee-company objected for inclusion of this company in the list of comparables on the ground that the financial data for the financial year 2004-05 was not available at the time of TP study. The ld.CIT(A) held that this company can be considered as comparable in view of the functional similarity and rejected the contention of the assessee-company that it cannot be considered as a comparable as data was not available at the time of TP study. The learned AR for assessee-company submitted that there was abnormal increase of 93% in turnover indicating peculiar economic circumstances. He drawn our attention to annual report wherein it is mentioned that internal controls of the company needs to be improved, as there was a proposal of merger with T....
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....mandate of s. 92F(ii) is that ALP shall be computed considering price applied or proposed to be applied in transactions between non- AE's. 12.2 When selection of external comparables, one needs to ensure that such external comparables are uncontrolled. The companies having controlled transactions therefore needs to be eliminated. Then the issue that crops up is what should be the related party transaction ratio for excluding as comparable. This issue had come up before the Tribunal in numerous cases. The Delhi Coordinate Bench in the case of M/s Sony India Pvt. Ltd. Vs. DCIT [2008] 114 ITD 448 (Del), held that the companies having relating party transactions of not exceeding 15% can be taken as a comparable. This ratio was followed by the Coordinate Benches of the Tribunal in the following decisions: i. Customer.Com Pvt. Ltd. Vs. DCIT, [2012] 28 taxmann.com 258 (Bang.): [2013] 140 ITD 344 (Bang.) : [2013] 21 ITR (Trib.) 514 (Bang.) ii. ITO Vs. CRM Services India (P.) Ltd. [2011] 14 taxmann.com 96 (Del): [2011] 48 SOT 41 (Del) (URO). iii. CSR India (P) Ltd. Vs. ITO [2013] 31 taxmann.com 265 (Bang.) iv. Logica Pvt. Ltd. Vs. ACIT, IT(TP)A No. 1129/Bang/2011: TS-131-ITAT-20....