2021 (1) TMI 1291

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.... ("AEs"). Consequently the transaction of rendering of ITeS by the Assessee to it's AE has to be regarded as an international transaction and the price received by the Assessee has to pass the Arm's Length test as laid down in Sec.92 of the Act. 3. Details of International Transactions in dispute : Particulars  Amount in Rs. Provision of ITeS 1 8,24,94,476/- Net margin on cost earned by the Assessee as computed by the TPO in the TP Order: Operating Income Rs. 18,24,94,476/- Operating Cost Rs.16,05,39,322/- Operating Profit (Op. Income -Op. Cost) Rs.2,19,55,154/- Operating/Net margin (OP/OC) 13.68% There is no dispute that the Transaction Net Margin Method (TNMM) was the most appropriate method (MAM) for determination of Arm's Length Price (ALP) and the Profit Level Indicator (PLI) chosen for the comparison of Assessee's profit margin with that of the comparable companies was Operating Profit on Operating Cost (OP/OC). In its Transfer Pricing (TP) study, the Assessee had chosen 6 Comparable companies and the average arithmetic mean profit margin of those companies was comparable with that of the assessee. The Assessee claimed that th....

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....are Business Services Pvt. Ltd. 7. The relief given by the DRP was incorporated in the final order of Assessment by the AO. Aggrieved by the final order of assessment, to the extent of relief allowed by the DRP, the revenue has preferred appeal before the Tribunal. The grounds of appeal in the Revenue's appeal are as follows: 1. In the facts and circumstances of the case, DRP has erred in seeking exact comparability while searching for comparable companies of the assessee under TNMM method whereas requirement of law and international jurisprudence require seeking similar comparable companies. 2. The order of the tribunal in rejecting comparable cases by insistence on strict comparability under TNMM defeats the very purpose of the law relating to determination of ALP under income tax act. 3. The DRP has erred while seeking the exact comparability in fact and in law in imposing condition beyond law whereas the requirement of law is to acknowledge only those differences that are likely to materially affect the margin. 4. DRP has erred in fact and law in disregarding the position of law that there could be differences between the enterprises c....

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....ing design services which cannot be compared to the low end BPO services rendered by Acropetal Technologies Ltd., and therefore this company was not comparable to the Assessee and the DRP's findings on exclusion of Acropetal is therefore upheld. 11. As far as exclusion of the comparable company Jeevan Scientific Technologies Ltd. ("Jeevan") is concerned, we find that this company was excluded by the DRP for the reasons that (a) the ERP segment of the company is not comparable to the assessee, (b) the BPO segment of the company, although is comparable to the assessee functionally, fails the filter of service income being greater than 75% of total revenue, and (c) the company suffers from huge fluctuations which indicate that certain peculiar circumstances influencing the profit margin of the company exist, for which appropriate adjustments cannot be made to balance the effect. The Revenue is in appeal before this Tribunal only insofar as (b) above is concerned, which is the rejection of the company on failure to satisfy the service income filter, and therefore, the other grounds on which the DRP excluded the company have attained finality. We further find that the total reven....

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.... this company as a comparable company is right and does not call for any interference. 13. As far as inclusion of Cosmic Global Ltd. in the final list of comparables is concerned, we find that this comparable company was selected by the Assessee in its TP Study and by the TPO and thus included by him in the list of comparables. In the proceedings before the DRP, the Assessee did not object to its inclusion in the list of comparables. Therefore this company is directed to be included in the list of comparable companies. For the very same reason the comparable company e4e Healtchcare Business Services Pvt.Ltd., is also directed to be included in the list of comparable companies. 14. As far as exclusion of Infosys BPO Ltd., and Mindtree Ltd., is concerned, we find that the DRP was of the view that Infosys BPO Ltd., was a giant in the field and had huge brand value and diversified activities and therefore excluded it from the list of comparable companies. Similarly Mindtree Ltd., was excluded for the reason that this company was not functionally same as ITeS company and there were extraordinary events that took place during the relevant previous year which had effect on its margi....