TaxTMI 
TaxTMI 
2019 (11) TMI 1739
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....9;) thereby making an addition of INR 446,145,228/-. 2. While doing so, the Ld. CIT(A), Ld. Deputy Commissioner of Income Tax, Circle - 6(2), ('AO') and Ld. Deputy Commissioner of Income Tax, Transfer Pricing Officer - 1(2)(2) ('Ld. TPO') has grossly erred in: 2.1 rejecting the Transfer Pricing ('TP') Documentation which was maintained in good faith with due diligence and thus disregarding the conditions set out in Section 92C(3) of the Income-tax Act, 1961 ('the Act'); 2.2 rejecting the comparables selected by the Appellant on arbitrary/ frivolous/inconsistent grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 2.3 retaining comparables with dissimilar functions, assets and risks namely, Excel Infoways Limited (Seg.), Infosys BPO Limited, TCS E-Serve Limited; 2.4 accepting the segmental results of Excel Infoways Limited obtained under section 133(6) of the Act which is inconsistent with the Annual Report; 2.5 disregarding judicial pronouncements in India in undertaking the TP adjustment. 3. The Ld. AO/CIT(A) erred i....
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....analysis made by the taxpayer, however, accepted TNMM with OP/OC as PLI as MAM applied by the taxpayer, applied various filters and proposed an adjustment of Rs.53,86,94,824/- qua provision of ITES. 5. The taxpayer carried the matter before the ld. CIT (A) by way of an appeal who has partly allowed the same. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 7. Undisputedly, ld. TPO has accepted the TNMM with OP/TC as PLI as the Most Appropriate Method (MAM) applied by the taxpayer. Ld. TPO as well as ld. CIT (A) have also accepted the profile of the taxpayer. After giving appeal effect, ld. TPO computed the average of comparables at 21.79% as against 14.06% of the taxpayer. Final set of comparables with computation of margin after giving appeal effect of the order passed by the ld. CIT (A) is as under :- S.No. Company Name OP/OC (As per TPO order) OP/OC (As per CIT (A) directions) 1 ....
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....o be excluded. 14. When we examine page 40 of the Annual Report Compendium (ARC), revenue from ITES is merely 51.06%, thus fails service revenue filter from export/ITES of 75%. Computation of revenue of Excel from ITES is as under :- Particulars Amount (in Rs.) IT/BPO related services (sale of services) 7,99,55,260 Less : Service Tax 8,58,310 Income from sales of ITES (A) 7,90,96,950 Total Revenue from Operations (B) 15,49,21,030 % revenue from ITES (A/B) 51.06% 15. Furthermore, when we examine pages 31 & 41 of the ARC, Excel's ratio of employee cost to sales is merely 13.05% as against filter of 25% applied by the ld. TPO. The taxpayer has given computation of employee cost to sales which matches with annual report, available at pages 31 & 41 of the ARC, is as under :- Particulars Amount (in Rs.) Salaries, wages & other expenses 1,96,38,010 Contribution to PF & Other Funds 1,85,720 Staff welfare expenses 3,91,570 Total Employee Benefits Expense (A) 2,02,15,300 Total Revenue from Operations (B) 154,921,030 Employee cost / Revenue (A/B) 13.05% 16. Ld. AR for the taxpayer also sought exclusion of E....
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....and support services for both data and voice processes in the name of KPO services, whereas the taxpayer is rendering routine call center services to its group companies. 21. When we examine profit & loss account of TCS E-serve, available at page 128 of the paper book, it has shown revenue from operation of Rs.1578.44 crores with no segmentation of revenue between ITES, IT and consultancy services. Furthermore, perusal of pages 84 & 85 of the ARC, TCS E-serve is bearing significant risks, such as, micro economic risk, regulatory risk, financial risk, etc., whereas the taxpayer is a low risk captive provider to its group companies remunerated at cost plus basis. 22. Hon'ble Delhi High Court in the case of Avaya India Ltd. (supra), available at pages 32 to 52 of the case laws compendium, relevant pages 50 & 51, excluded TCS E-serve vis-à-vis routine ITES provider on the ground inter alia that size and scale of TCS E-serve operation makes it unsuitable comparable; that when Rule 10B(2) is applied i.e. the FAR analysis, namely, functions performed, assets owned and risks assumed is deployed then brand and high economic upscale would fall within the domain of "assets" and t....