TaxTMI 
TaxTMI 
2022 (5) TMI 1423
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....er section 144C(5) of the Act dated 23rd March, 2021 amounting to Rs.2,21,23,649/-. 02. The assessee has raised the following grounds of appeal:- "The Appellant objects to the assessment order dated 21st April 2021 passed under section 143(3) r.w.s. 144C (13) & 144B of the Income-tax Act, by the Assessing Officer (AO) and raises the following grounds, which are mutually exclusive, independent of, and without prejudice to one another. 1. Transfer Pricing addition of INR 2,21,23,649/- on account of services rendered to the Associated Enterprise: 1.1. On the facts and in the circumstances of the case and in law, the DRP/ AO/ Transfer Pricing Officer (TPO') have erred in making an addition of INR 2,21,23,649/- to the value of international transactions in respect of the provision of services to its associated enterprise ('AE'). The Appellant humbly submits that no transfer pricing adjustment is warranted in its case. 1.2. On the facts and circumstances of the case, the DRP/AO/TPO have erred in law by considering the Transactional Net Margin Method (TNMM') as the most appropriate method for benchmarking the international transaction....
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....roneous computation of tax demand by the AO: The AO has erred in raising demand of INR 2,40,49,100/- in the Demand Computation sheet as against the correct tax demand of INR 1,22,72,391/-. The AO has erred in considering the transfer pricing adjustment of INR 2,21,23,649 twice which has resulted in the total income of the Appellant being computed at INR 85,63,870 as against correct total income at INR 2,64,40,219/-, consequently working out a higher tax demand. 3. Penalty proceedings: The AO has erred in law in initiating penalty proceedings under section 274 r.w.s. 271AA of the Income tax Act. The Appellant craves leave to add to, alter, amend, or withdraw all or any of the foregoing grounds of appeal at any time before or at the time of hearing of the appeal, to enable the Hon'ble Members to decide this appeal according to law." 03. The brief facts of the case shows that the assessee is a company engaged in the business process outsourcing . It has entered into an agreement of provision of call center and BPO services amounting to Rs.15,68,06,068/-, which was referred by the learned Assessing Officer to the learned Transfer Pricing Officer for de....
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....f any documentation or information, the learned Transfer Pricing Officer carried out the benchmarking by applying correct filters and identifying suitable comparables by adopting Transactional Net Margin Method and therefore, now other method cannot be used to replace it, just because the results are unfavorable to the assessee. It was further held that it is the onus of the assessee to establish the same. It was further held that there is no contemporaneous documentation and analysis for adopting the other method. The assessee quoted some man hour rates without undertaking detailed FAR analysis. The learned Dispute Resolution Panel further referred that agreement of the assessee with its Associated Enterprises is not a simple agreement but has various facts and assessee has not shown that comparable rate stated by it adopting other method have similar FAR profile. Hence, it was rejected. On the comparability aspect with respect to the comparable selected of Peddle point BPO services Pvt. Ltd the learned Transfer Pricing Officer was directed to verify certain aspect. 06. Based on the above direction, the learned Assessing Officer passed the final order on 21st April, 2021 making....
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....side third party quotation and the website rates clearly shows that impugned international transactions are at Arm's Length. He further stated that though assessee in its transfer pricing study report has mentioned the Transactional Net Margin Method as the most appropriate method , however, the assessee can at a later stage substantiate that the 'other method' is the most appropriate method. He submitted that assessee has already stated before the learned Dispute Resolution Panel to adopt 'other method' as the most appropriate method. He referred to the decision of co-ordinate Bench in case of Mattel Toys India Pvt. Ltd. (TS-159-ITAT-2013 (Mum)-TP) wherein though assessee adopted resale price method as most appropriate method earlier, but ITAT found that the method may be changed, if changed method produces better or more appropriate Arms Length Price. He further referred to the decision of co-ordinate Bench in case of Sudarshan Chemicals Industries Ltd. (TS-1078-ITAT-2016 (Pun) -TP), where it has been held that assessee is not precluded from changing most appropriate method as there is no bar under the Act or the Rules. He submitted that request of the assessee to change the most....
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....sessee has already selected the Transactional Net Margin Method as the most appropriate method and therefore, now assessee does not have any right to change the same. He referred to the transfer pricing study report submitted by the assessee and stated that assessee itself has selected the Transactional Net Margin Method as the most appropriate method. Assessee has eliminated all other methods and has urged that Transactional Net Margin Method is the most appropriate method. Now assessee cannot go on changing the most appropriate method when it does not have any defense against the Arms Length Price determined by the learned Transfer Pricing Officer. 011. The learned Departmental Representative on comparability analysis supported the orders of the lower authorities. 012. We have carefully considered the rival contentions and perused the orders of the lower authorities. We find that assessee is providing services to its enterprises in terms of agreement dated 1st April 2015. Assessee owns and operates call center having trained customer service associates. It provides the services to its Associated Enterprises on terms and conditions mentioned at Paragraph 2 of that agreement ....
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....CS from time to time. In addition, FCITES shall comply with and follow the FCS Code of Business Principles (the "Code") as set forth by FCS from time to time. Any amendments to the Code shall be provided in writing to FCITES whereupon such amendments shall become of equal effect on FCITES as of the date of the receipt of such notice. FCITES shall make all best efforts to comply with such amendments as soon as practicable and in any event no later than fifteen (15) days from the date of receipt of the notice described in the preceding sentence. j) Quality Assurance FCS shall have the right to verify the quality of the Services rendered by FCITES in accordance with the audit rights described in Section 2.10 of this Agreement. k) Headcount - The minimum number of CSA's required is 75. FCS shall provide reasonable notice to increase the number of CSA FCS can have the number of CSA rendering Third Party Services, reduced by providing four (4) weeks prior notice, provided that the reduction in CSA may not exceed more than 15 CSA in any thirty (30) day period. The 15 CSA limitation does not apply to nonperforming CSA Notwithstanding the foregoing, if FCS loses a mate....
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....ng to the contrary, the payments set forth in Sections 22 23 2.4 and 2.5 are the only payments to which FCITES is entitled. All payments shall be made in United States Dollars. The rates in Sections 2 2. 23 and 24 (the "Rates") are based on an exchange rate of sixty two (62) Indian Rupees per one (1) United States Dollar If there is a material change to the exchange rate, then the Parties shall use their best efforts to renegotiate the Rates. 2.7 Every Month, FCITES shall submit to FCS an invoice detailing the Productive Hours FCS shall remit payment to FCITES within Sixty (60) days of its receipt of an invoice. Notwithstanding anything in this Agreement to the contrary, FCS shall have the right to offset any payments due to FCITES under this Agreement against amounts due to FCS from FCITES under any other agreement. 2.8 If a customer requires FCITES and FCS to sign an agreement (a "Tri Party Agreement") in order to render Services to said customer, then the Parties shall use their best efforts to negotiate a separate agreement with respect thereto. 29. (a) In the event any performance of the Services will be, or contemplated to be undertaken whether dire....
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.... (d) If the Audit Report indicates that the performance of FCITES is not materially unsatisfactory but could nonetheless be improved in specific ways, the Parties shall mutually agree to and implement such recommendations as soon as commercially feasible without costs to FCS (e) If the Audit Report indicates that the performance of FCITES is materially unsatisfactory in any respect the Parties shall, within ten (10) days of receipt of the Audit Report by FCITES, mutually agree to a plan to improve FCITES's performance to the level deemed acceptable to such audit and implement such plan within the agreed time frames without costs to FCS. Notwithstanding the above, if during the course of such audit, FCS identifies a breach by FCITES under this Agreement, FCS may at its option terminate this Agreement pursuant to Article 8 and pursue such remedies available under this Agreement or at law or at equity. Any dispute related to an Audit shall be resolved in accordance with the provisions of Section 9.7 (f) If the Audit Report indicates that FCITES is failing to materially comply with the terms and conditions of this Agreement, FCITES shall reimburse FCS for all the ....
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....rgin Method, the sixth method i.e. 'other method' should be used for benchmarking and determination of Arm's Length Price of the above-mentioned international transaction. we find that the claim of the assessee is supported by reasonable evidence for advocating the applicability of 'other method' as the most appropriate method. We also note that adoption of Transactional Net Margin Method as most appropriate method by the assessee was without any basis and any comparability study. The learned Transfer Pricing Officer also accepted the same without testing adoption of the most appropriate method. After accepting the same, as the most appropriate method the learned Transfer Pricing Officer proceeded to comparability study by selection of comparables. Therefore, at the first occasion, before the learned DRP, assessee requested for change of proper most appropriate method for determination of Arm's Length Price. There is no malafide attributed to assessee either by the learned Dispute Resolution Panel or by the learned Departmental Representative in such change. Off course, assessee is contesting adjustment made by the ld AO / TPO , which assessee in all fairness is entitled to. Rule 1....
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....earlier. Further, whether the quotation can be accepted as benchmarking evidence under Rule 10BA is also supported by the decision of Hon'ble Delhi High court in 66 taxmann.com 53 In Toll Global Forwarding Limited (supra) as well as co-ordinate Bench in Gulf Energy Maritime Services Pvt. Ltd. In view of this, we hold that assessee can adopt 'other method' prescribed under Rule 10AB of the Income Tax Rules as the most appropriate method for benchmarking services income received by the assessee from its associated enterprises. 014. We also find that assessee has submitted additional evidence in the form of comparables quotations from third party service provider in support of r rates charged by the assessee. We find that these evidences are at page no. 463 to 475 of the Paper Book. At page no. 463 of the Paper Book is the rate quoted by Enser Communication Pvt. Ltd to the Associated Enterprises on 6th January 2020, of $ 10 per login hour. Similarly, at page no. 475 Rhombus on 14th September 2012 has quoted man hour rate of $ 8.5. Further at page no. 475 Synergies outsourcing Pvt. Ltd. vide quotation dated 28th January 2020 has also given the rate of $ 10 per man-hour. As these....