AI Drafter 
TaxTMI 
TaxTMI 
2022 (12) TMI 923
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....ertaining to the international transaction of provision of IT enabled services to the associated enterprise. 2. On the facts and in the circumstances of the case and in law, Ld. AO / DRP / TPO erred in disregarding the separate transfer pricing benchmarking for IT enabled services and business support services segments maintained by the Appellant and aggregating the said segments for benchmarking the international transaction of provision of IT enabled services. 3* On the facts and in the circumstances of the case and in law, Ld. AO / DRP / TPO erred in: a. rejecting the transfer pricing study which was maintained in good faith and with due diligence; b. rejecting the search process followed by the Appellant for each segment and carrying out fresh comparability analysis for determining the Arm's Length Price of the IT enabled services segment as the only segment; c. rejecting the use of multiple year data and applying only single year data for comparability analysis which were not available at the time of preparation of transfer pricing study; and d. rejecting/ modifying certain filters as applied by the Appellant in selecti....
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....e as appearing in Form 26AS, disregarding the fact that such income does not belong to the Appellant and no credit of taxes on such income was claimed by the Appellant. It is therefore prayed that the Ld. AO be directed to delete the aforesaid addition of Rs.10,10,372. 9. On the facts and in the circumstances of the case and in law, the Ld. AO erred in initiating the penalty proceedings under Section 271(1)(C) of the Act. It is prayed that the Ld. AO be directed to drop the penalty proceedings initiated u/s 271(1)(C) of the Act." 2. The brief facts of the case are that assessee company is engaged in the business of Service Sector, IT Enabled Services and BPO Providers, back office support services to its associated enterprise (`ITeS'). The assessee company filed its return of income for A.Y. 2014-15 on 25.11.2014 declaring total income of Rs.6,65,62,890/- and a book profit of Rs.15,40,31,493/-. The return of income was processed u/s 143(1) of the Act and the case was selected for scrutiny under CASS and required notices along with a questionnaire were issued to the assessee calling for information. The Asst. Commissioner of Income Tax, Circle - 17(....
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....stment considering entity level margins of the assessee company i.e. including assessee company's business support services segment also, which is separately benchmarked by the assessee company in its TP Study. 4. Against the draft assessment order dt.22.12.2017, assessee company filed objections before DRP, Bengaluru on 19.01.2018, who issued directions dt.05.09.2018. Later, the TPO, in compliance of DRP directions, passed order dt.25.10.2018 revising the transfer pricing adjustments. During the course of scrutiny proceedings u/s 143(3) r.w.s. 92CA(3) of the Act, an amount of Rs.10,10,327/- was treated as undisclosed income and added to the returned income. Though, assessee raised an objection for the same but failed to produce the necessary evidence before the DRP in this regard. The DRP has upheld the companies selected by the TPO in his final set of comparables and the same are listed below: Particulars 1. Microgenetics Systems Ltd 2. Infosys'BP0 Ltd 3. Microland Ltd. 4. Eclerx Services Ltd 5. BNR Udyog Ltd. 6. Crossdomain Solutions Private Limited 7. MPS Limited 5. Feeling aggrieved by the order passed by the Assessing Officer / DRP, the asses....
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....ces Limited is into ITeS services as held by the various Tribunals. More particularly, our attention was drawn to the decision of the Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd Vs. CIT (2015) 60 taxmann.com 355 and Hyundai Motor India Engineering Pvt. Ltd. Vs. ACIT (2009) 109 taxmann.com 429 (both relied upon by the assessee to emphasize with respect to ITeS (Information Technology enabled Services), as defined under Rule 10TA of the Safe Harbour Rule is to the following effect : "In this regard, reference is drawn from Rule 10TA of the Rules - Safe Harbor Rules for International Transaction - which define KPO service as: 'the following business process outsourcing services provided mainly with the assistance or use of information technology requiring application of knowledge and advanced analytical and technical skills, namely:- (i) Geographic information system; (ii) Human resources services; (iii) Engineering and design services; (iv) Animation or content development and management; (v) Business' analytics; (vi) Financial analytics; or (vii) Market research but does not incl....
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....fact that Eclerx Services Limited and assessee are rendering services with the help of trained workforce and are also into sales and marketing services providing sales at the space usage and also providing various other specialized services. 13. For the purpose of ascertaining the comparability of a company as per rule 10B, it is to be seen whether company is performing similar functions as that of the assessee or not. From the services rendered (service agreement and business agreement part of Paper Book of the assessee and services mentioned hereinabove by Eclerx Services Limited, it is clear that both are falling in the same category. Hence, in our view, both are comparable. With respect to the objection of the assessee that there was inorganic growth and profit, during the year, in our view, this objection of ld.DR is devoid of any merit and is not sustainable for the simple reason that the Eclerx Services Limited has acquired the shareholding in Agilyst w.e.f. 05.04.2012, which had not taken place during the year and hence relevant and further assessee has failed to demonstrate how the acquisition of the Agilyst from 05.04.2012 had affected the profitability of the assessee....
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....ned Counsel for the assessee submitted that it is rendering KPO services, such as, data management and analytics solutions and has earned super normal profit during the year under assessment i.e. 70.26%. He also relied upon the assessee's own case for the A.Y 2011-12 wherein the Tribunal had held it to be a KPO and not comparable to the assessee. 55. The learned DR however, submitted that the assessee is also doing high end BPO services which are akin to KPO services and therefore, the said company should be retained as a comparable. 56. Having regard to the rival contentions and the material on record, we find that this company has been held to be a KPO service provider whereas the assessee has been categorised as a BPO by the TPO & DRP. Having held so, the said company cannot be treated as a comparable to the assessee. Further, in the assessee's own case for the earlier A.Y (to which both of us are signatories), we have held that this company cannot be a ITA Nos 161 and 2307 of 2018 Infor India P Ltd Hyderabad comparable to the assessee. Since there is no change in the activities of the said company, we do not find any reason to take any other view and t....
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....d out that the Tribunal in the case of Hyundai Motor India Engineering Pvt. Ltd (supra) for A.Y. 2011-12 and 2012-13 had upheld the inclusion of Eclerx Services Limited as a comparable. In our view, the profile of the assessee in the said case, as analyzed by the Tribunal for that year, does not match its functions. However, in the present case, the profile of the assessee matches with the profile of Eclerx Services Limited. Therefore, we have no hesitation to conclude that the Eclerx Services Limited is functionally comparable with that of the assessee. In this regard, assessee has relied upon the decision in the case of Rampgreen Solutions Pvt. Ltd (supra) and the decision of the Hon'ble Bombay High Court in the case of PCIT Vs. BNY Mellon International Operations (India) Pvt. Ltd. (2018) taxmann.com 363. In our respectful understanding, all these case laws are not applicable to the facts of the present case, as all the decisions in the said cases pertain to A.Ys. 2008-09 and 2009-10 only. As mentioned hereinabove, the Tribunal in the case of Hyundai Motor India Engineering Pvt. Ltd (supra) had categorically mentioned in para 32 that Eclerx Services Limited is a good comparable w....
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....ocable expenses - -- -- -- 6001 3973 Segmental operative income. 10483 5363 498 242 4980 1633 18. Per contra, the ld.DR has submitted that from Annual Report of the Microland, it is seen that the assessee has categorized the infrastructural management and IT enabled services under IT enabled services, therefore, merely providing classification for the purpose of business understanding, it was not wise to exclude this company merely on that basis. Hence, both the lower authorities had rightly retained it. 19. We have heard the rival contentions of both the parties and perused the material available on record. From the perusal of Page 841 of the paper book (financials of the Microland) under the head Revenue Recognition, it is clearly mentioned that this company only derives its revenue from Information Technology Services. Microland has divided its Information Technology Services into two parts namely, infrastructural management and IT enabled services. However, the fact remains that both were treated as Information Technology Services and it is further clear from para 2.6 reproduced hereunder : "2.6 Revenue recognition ....
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....design services etc., then it will be termed as KPO/ITeS. If we closely examine the services rendered by Microland, then it is clear that this company is providing only the IT enabled services in the infrastructural management services (geographical information and financial analytics), which in our view, falls within the IT enabled services. Therefore, the services rendered by Microland are similar to that of assessee which is also into the processing of various information as clear from the scope of customer support services and business support agreement. Therefore, both the assessee as well as Microland falls under same category. Hence, we find no error in the conclusion drawn by the lower authorities. Accordingly, the contention of the assessee to exclude the Microland is rejected. However, we may point out that there is a distinction between a company having verticals of ITeS and a company having various verticals including one as ITeS vertical. Admittedly, assessee is also having two ITeS verticals /segments namely, business support services and IT enabled services. Though, both have been clubbed together by the TPO / DRP under one head "ITeS" being inherently of same nature....
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....ts of the case, as Infor India Pvt. Ltd. was a BPO service provider, whereas the assessee before us is a high-end IT-Enabled service provider. 24. We have heard the rival submissions and perused the material on record. If we go through page 23 of the TPO order where, TPO referred to the Annual Report of Crossdomain, then it can safely be inferred that financials of Cross domain were available in public domain, however, despite the objection of the ld.AR about insufficient / non-availability of financial information of this company, neither the TPO nor the ld.DR had proved to the contrary. Contrary to the submission of Ld.AR that no financials are available in public domain, the assessee has mentioned that OP/OC of this company was 20.07%. With the statement of the assessee, it can be presumed that there exists the financial information of this company in the public domain, however, both Ld.AR and Ld.DR had failed to bring the same to our notice. In this regard, we may point out that all the companies, as per Companies Act and Income Tax are bound to maintain and file their, respective financials including balance sheets, annual reports etc., delineating functions performed by it....
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....ssdomain were different to the functions performed by it. In fact, under the TNMM method, a broad comparison / estimation is required to be undertaken by the authorities below. Merely based on some dissimilarities, comparable company i.e., Crossdomain can not be excluded from the list of comparables. As mentioned hereinabove, the assessee as well as Crossdomain are high-end IT enabled services provider. However as the financials of the Crossdomain for the assessment year were not been examined by the lower authorities, therefore, we deem it appropriate to remand the issue of exclusion / inclusion of this company to the file of TPO for passing appropriate order after supplying the copy of financials to the assessee in accordance with the law, including examining the officials of this company if deemed necessary. Accordingly, this ground is allowed for statistical purposes. IV. MPS LIMITED. 26. In this regard, the ld.AR for the assessee has submitted that this company is required to be excluded from the list of comparables as the company provides end-to-end print and digital publishing solutions to its partners across the entire value chain from content production, enhanceme....
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.... provided by company in case of books. These are the services expected of service provider. It primarily consists of software used for provision of software solutions. Every company uses software including the operating system, office tools, development tools, testing tools, etc., for their routine operations. It is not any unique intangible like trade secret or process or brand name whose benefits are exclusively available to MPS Ltd which will benefit its business to such a level that its scale of operations and profit margin become uncomparable. Hence, this argument of the assessee is not accepted. Another objection of the taxpayer is that the company operates in single segment of outsourced publishing solutions and which is different from the assessee's business operation of providing IT Enabled services. As long as both companies operate in ITES segment it should not matter how many types of ITES services are provided by each company. Further, the taxpayer argued that MPS Ltd witnessed extra ordinary increase in profits compared to last year. There was 65% increase in profit compared to last year. It appears factually incorrect. Verifica....
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....t a trusted partner to the biggest publishers in the world. The Director's report under the heading "Management Discussion and Analysis" reflect that MPS Ltd., has developed end to end cloud based publishing platform, MPS Digicore, which addresses the need for an integrated work flow that publishers have started to ask for. As such, MPS Ltd., has a first mover advantage in exploiting the market and establishing it as a premier technology solutions provider for publishers. The same market forces have also created immense opportunities for MPS Digitrack, the production targeting system developed by MPS Ltd., and MPS Digicamp, automated composition. Similar other solutions are being developed at MPS Ltd., as research and development (R&D) continues based on the market requirement. The assessee stated before the ld. TPO that MPS Ltd., is functionally not comparable by stating various functions performed by MPS Ltd., as under:- a) As per the Corporate information disclosed in the financial statements for the year ending 31/03/2013, MPS Ltd., the company is engaged in the business of providing publishing solutions viz., typesetting and data digitization services for overseas pub....
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....rious functions performed by MPS Ltd., we find that the said comparable is predominantly in the business of digital publishing which cannot be treated at par with ITeS which is the case of the assessee in ITeS segment. In this regard, we find that the reliance placed by the ld. AR on the Co-ordinate Bench decision of Bangalore Tribunal in the case of M/s. Google (India) Pvt. Ltd., vs. DCIT in ITA No.1368/Bang/2010 for A.Y.2006-07 dated 19/10/2012 is well founded wherein it was held as under:- ― 16. As far as (4) Apex Knowledge Solutions Pvt. Ltd., is concerned, we find that the assessee had taken objections before the TPO that it is functionally different, as it is provides services such as E-publishing knowledge based services etc. But TPO has rejected the objection on the ground the assessee has not considered the verticals or functional lines during the search process conducted by it and, therefore, it is not proper to make any objection on this basis now. We are not able to agree with the finding of the TPO as confirmed by the DRP on this issue. Merely because, the assessee itself has not considered the said filter while making its TP study; it cannot be said tha....
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....and a company which is providing the services with the help of developing and designing its own products as that of assessee. 31. In case a company is into developing of product, then it will be reflected in its inventory / Balance - Sheet etc. But in this case, the inventory / Balance - Sheet of the company shows that there are no tangible / intangible products available with the assessee which shows that assessee has developed some products for the purposes of sale / marketing. As MPS Ltd is developing product or platform for effectively rendering its services, then it cannot be said to be a product-based company. MPS Digi Track and MPS Digi Comp are nothing but working tools of MPS Ltd., which are essential for rendering its services. In the light of the above, if we examine the functions performed by the assessee then it is clear that the assessee is using various software products for marketing, designing, advertising, loading and uploading content, communication, and platforms for interactions with the user, advertiser etc. which are very similar to that of MPS Ltd. We are of the opinion that under the TNMM, the broad similarity is required to be ascertained while includin....
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....ises in Energy and Utilities, Communications and services and Retail, Consumer Packaged Goods and Logistics, Life Sciences and healthcare. The company's website shows that the company provides integrated IT and business process management solutions across industries and service lines. Ld.AR further submitted that this company has also incurred brand building, selling and marketing expenses and has substantial value in intangible assets which contribute to generating business. As this company is functionally different to that of assessee, it must be excluded from the list of comparables. In support of his contentions, ld.AR relied upon the following decisions : 1) Infor India Pvt. Ltd. Vs. DCIT (2019) 109 taxmann.com. 2) Hyundai Motor India Engineering Pvt. Ltd. Vs. ACIT (2009) 109 taxmann.com 429. 3) CIT Vs. Principal Global Servicdes Pvt. Ltd. (2018) 95 taxmann.com 315 (Bom High Court) (AY 2009-10) 4) CIT Vs. Visual Graphics Computing Services India Pvt. Ltd. TCA No.44 of 2018 (Mad High Court) (AY 2012-13) 5) Agilent Technologies Pvt. Ltd. Vs. ACIT (ITA No.6047/Del/2012) 6) NTT Data Global Delivery Services Ltd. Vs. ITO (ITA No....
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....y virtue of the same reason, the taxpayer also has access to proprietary products and IPs developed by its own group. Hence, objection of the taxpayer is not acceptable. In view of the above, the contentions of the taxpayer are rejected and this company is retained as comparable." 37. We have heard the rival submissions and perused the material available on record. We have perused the orders of the lower authorities. TPO had rejected the submissions of assessee for exclusion of this company from the list of comparables contending that this company engaged in different verticals across the industry does not change the nature of functions carried on by it and the functions of this company are classified as ITeS only as that of assessee. This company is also earning revenues from business process management services by offering services to its global clients like assessee company. TPO further contended that using the cloud as a platform will not make this company functionally dissimilar to assessee company as it is very common in ITeS industry. DRP also rejected assessee's contentions and held that comparables cannot be distinguished based on the cloud-based services a....
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....s are mentioned in 26AS and find out whether the said credits pertain to assessee company or not. 41. On the other hand, the ld.DR submitted that he has no objection to remand the matter for verification to the Assessing Officer. 42. We have heard the rival submissions and perused the material available on record. The disagreement between the Assessing Officer and the assessee with respect to the income received by the assessee or vis-à-vis the amount shown in 26AS can only be resolved by making necessary enquiries from the persons who had deducted the TDS amount. The details of the persons i.e., Names, PAN numbers and addresses, are all available in form 26AS. Therefore, we deem it appropriate to restore the issue to the file of the Assessing Officer with the direction to verify once again the claim of the assessee by using powers conferred under the Act and find out whether the said income pertains to assessee company or not from the said persons who had allegedly deducted the tax as reflected in 26AS. Needless to say, the AO shall decide the issue as per fact and law after giving one opportunity of being heard to the assessee. We hold and direct accordingly. Thus, t....