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2017 (7) TMI 1438
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....9;s Length Price. 2.1 The TP proceedings were taken up and statutory notices were issued against which the AR of the assessee was asked to explain the case and file submissions. 2.2 Profile of the Taxpayer: The group is into ITES such as comprehensive advertising solutions to the advertisers. The taxpayer is primarily engaged in providing web development, web maintenance and support services. The taxpayer is subsidiary of Northgate India which is having 51% stake in this company. The name of the company was subsequently changed to Green Fire Agri Commodities P. Ltd. on 20/04/2010 and subsequently to the present name. The company is engage in 'commodities trading' activity in India. 2.3 During the relevant PY, as per the 3CEB report/TP document, the international transactions of the assessee reflected as under: A.E. Nature of transaction Amount (Rs.) Globe7 Pte Ltd Provision of ITES 4,30,24,994 Northgate Investment Pte Ltd. Investment in WOS 24,42,37,077 Globe7 (UK) Ltd. Investment in WOS 41,35,200 Globe HK Ltd. Reversal of reimbursement paid for 2008-09 82,29,827 Axil Europe Ltd. Reversal of reimbursement paid for ....
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....he company OP/OC 1. Accentia Technologies Ltd. 29.29 2. Acropetal Technologies Ltd (Seg.) 15.57 3. Cosmic Global Ltd. 9.81 4. Crossdomain Solutions P. Ltd. 16.60 5. e4e Healthcare 69.78 6. eClerx Services Ltd. 9.24 7. Informed Technologies Ltd. 18.85 8. Infosys BPO 28.93 9. Jeevan Scientific Technologies Ltd. 13.54 10. Jindal Intellicome Ltd. 21.78 11. Mastiff Tech P Ltd. 76.28 12. Microgentic Systems Ltd. 25.04 13. TCS E-serve ltd. -0.22 Total 334.49 Arithmetic Mean 25.73 2.9. After comparing the average margins of the comparables to the financials of the assessee, the TPO computed the adjusted arm's length margin as under: Description Amount Arm's Length Margin 25.73% Less: WCA -9.63% Adjusted Arm's Length Margin 35.36% Operation Cost (OC) 3,97,31,246 Adjusted Arm's Length Margin (%) (AALM) 35.36% Arm's Length Price (100+AALM)*OC= 5,37,80,215 Price Received (OR) 4,47,55,654 Adjustment u/s 92CA 90,24,561 2.10. Accordingly, the TPO who p....
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....the loan was passed from SMIL to other subsidiaries. 4.2 The AO observed that the assessee is engaged in export of information technology enabled services. The borrowed funds were not utilized for the purpose of the export of ITES. The loan amount was simply passed on to Subsidiary companies and the assessee company was made to pay a huge amount of interest on the amounts borrowed and invested in these companies. Thus the burden of interest has been shifted from those companies to the assessee company. Thus it is evident that the unsecured loan borrowed from SMIL has not been utilized wholly and exclusively for the purpose of India Ltd. business of the assessee. Therefore, interest paid by the assessee to an extent of Rs. 96, 62, 706 on the unsecured loan received from SMIL has not been laid out or expended wholly and exclusively for the purpose of business of the assessee. 4.3 Further, the AO observed that the assessee company has availed unsecured loan from M/s. SMIL which is a 100% subsidiary company of Globe 7 Pvt. Ltd which is a 100% subsidiary company of M/s. Northgate Investments Pvt. Ltd, Singapore. M/s. Northgate Investments Pvt. Ltd., Singapore is a holding company ....
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....nsfer Pricing adjustment of Rs 90,24,561/-. 6. The Ld. DRP erred in disallowing interest of Rs 62,23,081/- on unsecured loan taken from M/S Social Media India Ltd its 100% subsidiary on the ground that the same was not incurred for the purpose of the assessee's business. 7. The Ld. DRP ought to have treated the interest paid as having been incurred wholly and exclusively for the purpose of its business." 6. Ground Nos. 1 & 7 are general in nature, need no adjudication. 7. With regard to ground No.2, ld. AR submitted that his argument is on comparable cases, which are as under: 7.1 Accentia Technologies Ltd.: 1. Ld. AR submitted that this company is a diversified KPO company, operating from multiple locations in India, USA, UK, and the Middle East. Accentia is engaged in the business of healthcare documentation (medical transcription, Healthcare receivables cycle management (HRCM) and software. Accentia adopted EMR suite which has opened up avenues for an integrated end-to end. He submitted that the turnover of Accentia for the FY 2010-11 is Rs. 107,22,96,564/-. In comparison to the same, the revenue arising for providing IT enables services b....
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....y Marketing Solutions [2013] 38 Taxmann.com 55 (Bang. Trib). 4. Market Tools, [2013] 40 Taxmann.com 390 (Hyd.Trib.) 7.3 Eclerx Services Ltd. 1. Ld. AR submitted that this company partners with financial services firms to increase control, execute ongoing functions with a significant reduction in cost and accelerate change initiatives by providing domain specific re-engineering expertise. It provides a broad suite of services that allow clients to operate on a day-to-day basis including trade processing, reference data, accounting and finance and expense management activities. The professional services practice includes consulting, business analysis and solution testing. He submitted that this company also competes with companies which are larger, better financed and better known, companies of the same size and strength as well as captives. eClerx holds intangible assets in the form of computer software. 2. He submitted that however, the assessee neither provides any expertise nor does it provide a host of services to it's clients. It's only client is Globe 7 Pte and it only provides back end support services by utilizing their IPRs. The company....
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....: "Northgate India is engaged in providing back office support services to Globe7 Pte on an exclusive basis, based on terms stipulated in the inter-company services agreement executed between Northgage India and Globe7 Pte. The support activities of the taxpayer include rendering of services through the website which includes the tracking the conversions, IP fraud control (both manual and automate), data base maintenance such as the account management, delivery of the mails, maintenance of the customer specific data, determination of the eligibility of the uses for the purpose of time calculation, freebies, if any, and include maintenance and upgradation of the websites belonging to Globe7 Pte Ltd. Its back office support services include maintaining the networks, computers, communication links and ensuring configuration of the systems. The taxpayer also takes part in corporate strategy determination, finance, accounting, treasury and legal functions and Human Resource Management functions. Quality Assurance, Data Extraction and analysis, software maintenance and support function and IT support services are the functions performed by Northgate India." By consid....
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...., Vs. CIT in ITA No. 102/2015 (supra), and also on the fact that this company is excluded in earlier years not only by the ITAT but also by the DRP in later year and in this year itself by the Co-ordinate Bench at Delhi as stated above, we are of the opinion that this company is functionally different and has to be excluded from the list of comparables. 10.2 As regards Cross Domain Solutions Ltd., the coordinate bench has held as under: "14.2. We have keenly perused the annual report placed on record and business profile of the company. It is also considered in earlier year in the case of Hyundai Motors Engineering (ITA No. 1850/Hyd/2012). The relevant para of the order is as under: "III. CROSSDOMAIN SOLUTIONS LTD. : This company was considered as a comparable and listed at Sl.No.7 of the comparables chosen by the TPO. It is the stand of the assessee that this company is not functionally comparable. It is seen that the business profile of this company is re-engineered payroll service. This company is also engaged in the development of information systems. The review and business functions of Cross Domain is as follows:- "With a decade of exper....
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....Y 2009*10 in assessee's own case, as the functional profile of the assessee company and the above company remain the same, we direct the AO to exclude the above company from comparables". 16.1. We do not see any reason to differ from the findings of DRP as it is providing high end KPO services and is functionally different. The order of exclusion is therefore, upheld." 10.4 Following the observations of the coordinate bench, we direct the AO/TPO to exclude the aforesaid companies as comparables and rework the PLI accordingly. This ground of the assessee is allowed. 11. With regard to ground No. 3, ld. AR submitted that DRP excluded comparables, Viz., (a) Informed Technologies Ltd (b) Microgenetics Ltd (c) Cosmic Global Ltd. As according to him, the DRP should have considered all the three companies as comparables since these companies were selected by the TPO in his fresh search process and out of these companies, two companies were originally selected by the assessee in its TP study. He further submitted that all the three companies are functionally comparable to that of assessee company. 12. Ld. DR submitted that DRP has excluded these three companies as the....
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....e. In our considered view, DRP has excluded all the above three companies as non-comparables with the proper justification that these companies cannot be considered as comparables to that of the assessee. Accordingly, we sustain the finding of the DRP for exclusion of above three companies. 14. With regard to ground No. 4 that profit margin of the assessee is at arm's length as the same falls within tolerance band of 5% of arm's length margin of 21.46% of the comparable companies, it is observed that when the TPO arrives the ALP, if it falls within the range of +/- 5%, he has to give advantage to the assessee. Therefore, we direct the TPO/AO to extend this benefit to the assessee as per TP guidelines. 15. Ground No. 5 is consequential in nature to ground No. 3. 15. Ground No. 6 is regarding disallowance of interest of Rs. 62,23,081/- on unsecured loan taken from M/s Social Media India Ltd., its 100% subsidiary and extending to its step down foreign subsidiary. 16. Ld. AR submitted that during the AY 2010-11, the assessee has availed an unsecured loan from Social Media India Ltd., a step down subsidiary to the tune of Rs. 11,20,23,500/- and invested the entire lo....
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.... income to the assessee, notional interest cannot be disallowed on the reason that assessee should have used its non interest bearing funds for the purpose of business instead of using borrowed funds. The AO cannot sit in the arm chair of businessman and decide what the assessee has to do to maximize its profit. In our opinion, the judgment relied upon by the learned AR of the assessee in the case of SA Builders Ltd. (supra) and also coordinate bench decision in the case of SSPDL Ltd. v. Dy. CIT [2013] 59 SOT 68 (URO)/33 taxmann.com 447 (Hyd.) also support the case of the assessee. Accordingly, this ground is allowed." 16.4 Relying on the ratios laid down in the aforesaid cases, ld. AR submitted that the amount invested into subsidiaries was wholly and exclusively for the purpose of business and consequently the interest paid was incurred wholly and exclusively for the purpose of the business. Accordingly, he prayed the Hon'ble Bench to allow the interest amount claimed. 17. The ld. DR submitted that the assessee is heavily relying on the case of SA Builders whereas that case will not be applicable to the case of assessee. He submitted that the assessee has taken loa....