TaxTMI 
TaxTMI 
TaxTMI 
2023 (3) TMI 456
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....ing the benefit of -5% relief to the assessee, without appreciating the fact that no standard deduction of 5% to the assessee is envisaged under section 92C(2) of the Act". 3. The appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the AO be restored". 3. The grounds raised by the assessee in its appeal are reproduced as under: 1. The learned Commissioner of Income-tax (Appeals)-15, Mumbai ('CIT-A') erred on facts and in law in allowing only partial relief in relation to the transfer pricing adjustment made by Assessing Officer /Transfer pricing officer ('AO/TPO) despite the fact that the AO and the TPO have incorrectly disregarded the benchmarking analysis and the resultant comparable companies identified by the Appellant as part of its transfer pricing report (TP Report') maintained on a contemporaneous basis as per Section 92D of the Act read with Rule 10D of the Rules without assigning any cogent reasons thereof. 2. The learned CIT-A erred on facts and in law in upholding the order of the AO/TPO despite the fact that the AO/TPO erred in making transfer pricing adjustment by incorrectly invoking the provisions o....
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....not allow any adjustments as warranted under Rule 10B(1)(e)(iii) of the Rules to account for difference between international transactions and the alleged comparable uncontrolled transactions selected by the learned AO/TPO. The Appellant prays that the additions to the appellant's income made in relation to transfer pricing matters by the AO/ TPO and upheld by the Hon'ble CIT(A) be deleted. Levy of Interest under Section 234B and 234C of the Act 8. On the facts and in the circumstances of the case and in law, the learned AO erred in levying interest under section 234B and 234C of the Act. The Appellant prays that the AO be directed to delete the interest under the Act. 4. At the outset, we may like to mention that the then Assessing Officer of the case vide letter dated 08/02/2021 intimated to the Departmental Representative for withdrawal of the appeal in view of the tax effect involved being below the limit prescribed by the Central Board of Direct Taxes(CBDT) vide Circular No. 17 of 2019. The said intimation duly forwarded by the concerned Range Officer i.e. Additional Commissioner of Income-tax, is placed on record. The Ld. Departmental Representative also ag....
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....ence, summary of said international transactions is extracted as under: Sr. No. Nature of Transaction Amount (Rs.) Method used 1. Provision of support services to Associated Enterprises 9,44,70,575/- TNMM 2. Interest paid on Overdraft facilities 1,38,522/- CUP 3. Interest paid on unsecured loans 19,56,644/- CUP 4. Payment of Rent and Utility charges 33,40,152/- TNMM 5. Payment on account of secondee salaried and other costs 82,90,036/- TNMM 6. Payment in respect of car provided to employee 1,87,340/- TNMM 7. Payment in respect of human resource cost shared 7,18,141/- TNMM 8. Payment in respect of accommodation provided to the Employee & Depreciation of Furniture provided 24,31,141/- TNMM 11,15,33,344/- 7.2 The Ld. TPO further noted in para five of his order that the assessee in its transfer pricing study selected Transactional Net Margin Method (TNMM) as the most appropriate method for benchmarking international transactions. The Ld. TPO has noted the admission of the assessee that no independent comparable companies were identified in search of the "Prowess" and "capitaline....
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....assessee, the Ld. TPO made a final list of comparables and arithmetic mean of their PLI was worked out to 24%. The list of the comparables, objection of the assessee and remarks of the TPO, reproduced in para 5.6.2 of the Ld. TPO, is extracted as under: Sl. No. Company Name Objection Remark 1. Ace Software Exports Ltd. Accepted 2. Allsec Technologies Ltd. Accepted 3. Apex Knowledge Solutions Pvt. Ltd. It is into software development In response to notice u/s 133(6), the company categorically stated that they are into IT enabled services. It also qualifies all the filters applied the TPO. The same is considered as a comparable. 4. Asit C Mehta Financial Services Ltd. (Earlier known as Nucleus Netsoft & GIS (India) Ltd) Annual report uses word ITES and software development, therefore not acceptable It is mainly engaged in ITES, software may be a minor part, for this reason only the main segment is named as ITES by the company in its Annual Report. 5. Cosmic Global Ltd (Seg) It is functionally different with predominantly in transcription Notice u/s 133(6) was issued. ....
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....on with any associated enterprise 7.5 The Ld. TPO rejected the contention of the assessee for providing working capital adjustment as well as risk adjustment in absence of any quantifiable data provided by the assessee. 7.6 The Ld. TPO vide his order dated 21/10/2009 computed the adjustment of Rs.1,06,65,264/-as under: 5.8 Determination of Arms Length Price: Total Cost incurred by assessee on providing Office Services (In absence of separate accounts (proportionate cost being taken) (Rs.9,64,87,892/-/107507875*94470575) Rs.8,47,86,967/- Mark Up as per comparables 10,51,35,839/- Transaction Price Rs.9,44,70,575/- Adjustment Rs.1,06,65,264/- 8. The Ld. Assessing Officer issued draft assessment order to the assessee proposing the addition for transfer pricing adjustment of Rs.1,06,65,264/-, against which the assessee did not chose to object before the Ld. Dispute Resolution Panel (DRP), and therefore after expiry of period prescribed for objecting before the Ld DRP i.e. one month, the Assessing Officer passed final assessment order on 26/02/2010 making transfer pricing addition of Rs.1,06,65, 264/-. 9. Against the order of t....
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....roviding appropriately skilled professionals to the Contracting Entity so as to enable the Contracting Entity to carry out its auditing activity. There are various departments within HSBC, which conduct internal audits relating to inter alia Retail, Credit, General, Investment Bank, Insurance, Treasury, Securities, Private Banking, Management Office and IT systems/projects. HPSI has to recruit professionals possessing the requisite academic qualifications and appropriate skill-sets. HPSI believes that a large portion of the global needs for audit personnel can be sourced from India, as staffing cost in India are lower and due to the availability of trained and educated human resource pool. The current organization structure of HPSI is as follows: The employees recruited by HPSI are thoroughly screened in India and subsequently experts from London/ Hong Kong are invited to interview them on technical aspects. The training of the recruited personnel is conducted by the Contracting Entity in London / Hong Kong as the case maybe. The professionals assigned by HPSI are required to follow the operational procedures and service levels as required by the Contracting Entity. The pr....
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.... to those offered to independent third parties. The Bank has seconded certain employees to HPSI. These employees remain on the payroll of the Bank and are accordingly paid salaries by the Bank. Such payroll cost is cross-charged by the Bank to HPSI on a pure cost basis. HPSI has been allocated office space by the Bank. The Bank recovers share of rent cost/security deposit from HPSI. 4.2 Risks Assumed 4.2.1 Contract risk The professionals deputed by HPSI work under the control and guidance of the Contracting Entity and therefore HPSI does not undertake any contract risk in respect of the timing/quality of work undertaken by the professionals. 4.2.2 Market risk HPSI does not undertake any market risk since it is a captive provider of professionals to the HSBC Group and does not service any external party. Further HPSI is assured a cost plus mark-up and accordingly does not face any uncertainty as regards revenues. 4.2.3 Currency risk HPSI calculates the billing amounts in local currency but prepares the invoices in US Dollars or the local currency of the Contracting Entity. Any surplus/shortfall in the payment of the invoice upon conversion to INR is adjust....
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....ervices") rendered by HPSI to HDPG is noted in the attached Schedule 1. 2.3 Both parties will follow the operational procedures and service levels as agreed between the parties from time to time. 2.4 The Services will be provided in accordance with the guidelines provided by the HSBC Group Audit Standards Manual in force at that time. Schedule 1 The Services The range of professional audit services rendered by HPSI to HDPG will include all, or part, of the following: 1. Creation of audit planning memoranda in accordance with the schedule of work. 2. Reviews of auditable entities covering the following issues: * the adequacy of the system of internal controls of the operation and the susceptibility of the environment to frauds or failures in internal controls; * the effectiveness of workflow procedures to ensure the most efficient use of resources; the degree of compliance with internal, regulatory and statutory policies, procedures and requirements; * the degree of reliability and integrity of financial reporting: the adequacy and effectiveness of the security and integrity of the IT systems; * the management and control of the IT functions/department....
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....As far as Vishal Information Technologies Limited is concerned, there is no difficulty whatsoever for the Tribunal has come to a clear finding of fact that it outsourced about 44.81% of its business. For instance, it was observed that Vishal Information Technologies Limited has a low employee cost of 1.25% of operating revenue. The Tribunal also observed that the TPO had himself referred to the NASSCOM survey that the average wages and salaries to sales ratio of IT/ITES industry in India was 46.1%. The assessee's wages to sales is 53% which is not comparable to Vishal Information Technologies Limited whose wages to sales is 1.25%. This is a finding of fact and there is nothing to indicate that the same is erroneous much less perverse. The exclusion of Vishal Information Technologies Limited is, therefore, justified." 18. We find that in the above decision percentage of outsourced business of the comparable company has been reported as 44.81% whereas before us the assessee has pointed out the ratio of outsourcing expenses to the total expenses as 65.98%. Therefore, it is essential to verify the exact quantum of outsourcing expenses in the case of the comparable company. Accord....
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.... given effect to above financial statements. b. The amalgamation has been accounted for under the "Pooling of Interest Method" as prescribed in Accounting Standard (AS14) issued by the Institute of Chartered Accountants of India. Accordingly the assets, liabilities and reserves of the erstwhile 'Nucleus Nelsoft And GIS (India) Ltd' as at April 1, 2005 have been taken over at their respective book values. c. The assets of Rs.39.541.385, liabilities of Rs.6,449,847, capital reserves Rs.16,287,405 and revenue reserve of Rs. 1,686,933 of NNGIL were taken over by the Company on amalgamation. In terms of the Scheme, no shares of the Company were issued or allotted in respect of the holding of the Company in NNGIL and in consideration of the amalgamation of NNGIL with Company. The company's investment in NNGIL of Rs.2,699,723 comprising of 269,900 of Equity Share of Rs. 10/- each were transferred to a trust for the benefit of the Company. d. 15,11,720 equity shares of Rs. 10 each fully paid the Company (New Equity shares) have been allotted the shareholders' erstwhile NNGIS including Trust the ratio 1 new equity share for every one share of Rs. 10 each held in NNG....
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.... We find that the Ld. TPO has gathered financial and functional details of the company by way of using his authority under section 133(6) of the Act. Since the said information has not been provided to the assessee, we feel it appropriate to restore this issue back to the file of the Ld. AO/TPO with the direction to provide all the information gathered under section 133(6) about the company to the assessee and decide the issue of exclusion/inclusion of the company after providing adequate opportunity of being heard to the assessee. 4. Datamatics financial services Ltd (segmental); 24. The Ld. counsel of the assessee submitted that the company fails the filter of Related Party Transactions (RPT) more than 25% of the total Revenue. In support of the contention the Ld. counsel relied on the decision of the Tribunal Mumbai Bench in the case of Stream international services Private Limited Vs ADIT reported in (2013) 31 taxmann.com 227 for assessment year 2006-07, wherein the company has been rejected on the ground of related party transactions(RPT) more than 25%. But no annual report or financial statement of the company has been filed by the assessee to support of its contention of ....
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....entioned at Rs.5,02,71,015/-. In the BPO division no such bifurcations of domestic and export turnover has been reported. Since the Ld. TPO has considered only BPO division for comparison with the assessee, the contention of the Ld. counsel of the assessee of complying up export filter is not relevant. The said objection of the Ld. counsel of the assessee is accordingly rejected. As the assessee in its transfer pricing study has considered ITes/BPO activity as functionally similar to the assessee, the comparable company is held to be functionally similar and therefore contentions of the Ld. counsel to exclude this company are accordingly rejected. 6. Spanco Telesystems and Sloutions Limited (segmental): 30. The Ld. counsel of the assessee submitted that company need to be excluded from the set of the comparables because it acquired another company i.e. Intelenet BPO services Private Limited in year 2005, which has distorted its comparability and rendered the company as unfit for comparison. The Ld. counsel also referred that company fails the export filter of minimum export revenue as 25% of the total revenue. He referred to the decision of Mumbai Bench of Tribunal in the ....
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.... ITES in a Notification by the CBDT does not imply that the same have to be understood as functionally identical/similar. In-fact, the dissimilarity in the functions performed by assessee and Maple eSolutions Ltd. is quite evident and the same has also not been disputed by the lower authorities. On this aspect, we are of the opinion that the said concern is liable to be excluded from the list of comparables. Apart therefrom, the decision of our Co-ordinate Benches of Delhi and Hyderabad in CRM Services India (P.) Ltd. (supra) and Capital IQ Information Systems (India) (P) Ltd. (supra) respectively also support assessee's plea that the said concern is liable to be excluded from the final set of comparables because of unreliability of the financial data of the said concern. Therefore, on both the above counts, we set-aside the order of the CIT(A) on this aspect and direct the Assessing Officer to exclude Maple eSolutions Ltd. from the final list of comparables. Thus, on this point also assessee succeeds." 35. Respectfully, following the Hon'ble Bombay High Court (supra), we direct the Ld. AO/TPO to exclude the company out of the set of the comparables on the ground of unreliabi....