TaxTMI 
TaxTMI 
2021 (6) TMI 1136
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....t by [NR 1,33,09,249/- and adjusting the transfer price by INR 3,92,90,228/- of the Appellant's international transactions with its Associated Enterprises ("AEs") u/s 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned AO / learned TPO / Hon'ble DRP erred in rejecting the Transfer Pricing documentation maintained by the Appellant by invoking provisions of sub-section (3) of 92C of the Act without giving any cogent reason for the same. 3. The learned AO / learned TPO / Hon'ble DRP erred in rejecting comparability analysis undertaken in the Transfer Pricing documentation and in conducting a fresh comparability analysis by introducing various filters in determining the Arm's Length Price (ALP"). 4. The learned AO / learned TPO / Hon'ble DRP erred in not considering the previous two years financial data of the comparable companies while determining the ALP and had selected single year data of the comparable companies for the year ended March 31, 2012 without considering the fact that the current year data was not available in the public domain at the time of preparation of the Transfer Pricing Documentation. 5. The learne....
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....aliber Point Business Solutions Ltd. * First Source Solutions Ltd. 14. The learned AO/learned TPO/HonbIe DRP has erred in the computation of mark-up of E4E, Healthcare Services Pvt. Ltd. 15. The learned AU/learned TPO/Honble DRP has erred in making the following errors in the computation of working capital adjustment: a. by not considering the fact that the Appellant does not have any working capital risk, therefore, no negative working capital adjustment should be allowed. b. in considering the wrong SBI PLR while computing the working capital adjustment 16. The learned AO /learned TPO/Honble DRP failed to appreciate that working capital loan was taken by the Appellant to ensure adequate cash in the business and the interest on such loan has been included in the cost plus markup computation and appropriately charged to the service recipients. Hence, adverse working capital adjustment will lead to duplication of hardship to the Appellant. 17. The learned AO/learned TPO/Honble DRP erred in not allowing appropriate adjustment towards to the risk differential between the Appellant vis-ã-vis independent comparable co....
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....aking of further disallowance of Rs.3,46,454/- under section 14A read with Rule 8D (2)(iii) of the Act. 11. Aggrieved by the draft assessment order, assessee filed objections before the DRP. 12. The DRP while passing the resolution rejected contentions of assessee to exclude Infosys BPO Ltd., TCS e-serve Ltd. BNR Udyog Ltd. (SEG) (medical transcription), Excel info face Ltd. (SEG). However the DRP suo moto rejected Accentia technologies Ltd., Informed Technologies Ltd. and Jindal Intellicom Ltd. 13. On receipt of the DRP order, Ld.AO passed the final assessment order by computing Transfer Pricing addition in the hands of assessee at Rs.3,92,90,228/-. 14. Aggrieved by the order of Ld.AO, assessee is in appeal before us now. 15. At the outset the Ld.AR submitted that assessee wish to argue Ground No.12 and certain comparables in Ground No.13. He also submitted that Ground No.15, pertaining to negative working capital adjustment is also to be considered. Except for these grounds all other grounds were not pressed, as submitted by the Ld.AR. 16. Before we undertake the comparability analysis, it is sine qua non to understand the functions performed, assets owned and r....
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....td., it is submitted that, this company is engaged in painting business and the functions are different with that of the services rendered by assessee. 25. Ld.AR placed reliance on decision of coordinate bench of this Tribunal in case of is Indicom Global Services India Pvt.Ltd., in IT(TP)A No.185/B/2018, by order dated 28/09/2019, wherein these comparables are held to be not comparable in case of a captive service provider like that of assessee 26. On the contrary, Ld.CIT.DR placed reliance on orders passed by authorities below. 27. We have perused submissions advanced by both sides in light of records placed before us. 28. We have perused the submissions advanced by both sides and the decision relied by the Ld.AR in case of Indicom Global Services India Pvt.Ltd. (supra). We note that this comparable was also held to be a captive service provider providing services only to its AE is and it was under these circumstances that this Tribunal had considered the aforestated comparables as under: "1. Universal Print Systems Ltd (segmental) (BPO) Assessee sought to exclude this comparable for the reason that, it fails employee cost filter and has insufficient....
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.... objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP/TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP/TC of this company will be only 51.80%. The As.sessee further pointed out (Page 764 of paper book) that the TPO had applied revenue filter of more than 75% being from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.63% of the total revenue from operations of this company as per its annual report. The Assessee also pointed out that in the Pre-press BPO segment this company was providing integrated print solutions to its customers, which includes scanning, design/layout, trapping, hand-outlined clipping path and image masking and magazine and catalogue publishing. The Assessee submitted that the aforesaid services are not in the nature of ITES. The Assessee pointed out that as per the safe harbour rules introduced by the CBDT ITES has been defined as business process ....
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.... DR submitted that if the service revenue filter is applied at the segmental level there can be no objection by the Assessee. She relied on the order of the DRP/TPQ. 51. The requirements of Rule 1OE(1)(2) & (3) of the Rules in the matter of comparability of companies under TNMM needs to be seen. The same reads as follows: "1OB. (1) For the purposes, of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:- (a)to (d) (e) transactional-margin method, by which, (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profi....
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....nder TNMM because the comparison is of "net profit margin realized by the enterprise from an international transaction" with the "net profit realized from a comparable uncontrolled transaction". Therefore comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitled to apply the filters at segmental level. As we have already stated if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore the objection with regard to this company failing the employee cost filter and service revenue filter in our view was rightly rejected by the TPO and DRP. It is however seen that this company has four segments viz., Repro. Label Printing, Offset Printing and Pre-press BPO. Whether the label printing and offset printing segments supplement the functions performed in the Pre- press BPO segment has to be seen. We therefore set aside the order of the DRP in this regard and remand for fresh consideration by the TPO the comparability of this....
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....uded by observing as under: '5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case of Baxter India Put. Ltd. Vs. ACIT ITA No.6158/Del/2016 for AY 2012-13 in the case of a company rendering ITES such as the Assessee, vide order dated 24.8.2017 Paragraph 23 held that Infosys BPO is not comparable with a company rendering ITES for the following reasons:- "23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Office r/TPO/DRP is that Infosys BPO Ltd. is predominantly into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche areas, unlike the assessee. Further it was also submitted that the Infosys BPQ Ltd. comprises brand value which will tend to influence its business operation and the pricing policy thereby directly impacting the margins earned by the Infosys BPO Ltd.. We find the submissions of the id. counsel for the assessee before TPO/DRP that in order to maintain the brand image of Infosys BPQ Ltd. in the market, the company incurs substantial selling and marketi....
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....ced before us. Assessee placed reliance upon following decisions in support of its argument for exclusion of this comparable: * Zyme Solutions Put Ltd. vs ACIT (supra) * Baxter India Put. Ltd vs ACIT reported in (2017) 85 Taxmann.com 285 (Delhi-Trib) * PCIT vs BC Management Services Pvt. Ltd. reported in TS-948- HC-0 2017 (Del)-TP It is observed that this comparable has been excluded by this Tribunal. The assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Put Ltd., vs ACIT reported in (2019) 101 taxman.com 292, by observing as under: "11.3 We have heard rival submissions and perused material on record. The issue of comparability of this company was considered by the co-ordinate bench of Tribunal in the case of XLHealth Corpn. India (P) Ltd. (supra). The relevant findings of the Tribunal are as under: "...We have heard the rival submissions and perused the material on record. From the perusal of the Annual Report of this entity placed at page Nos. 583 to 678 of paper book, at page No. 604 it is stated as under. '2. COMPANY OVERVIEW Your Company, along with its subsidiary companies ....
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....otech India (P) Ltd vs DCIT reported in (2018) 97 taxman.com 2 in support. 33. We have perused submissions advanced by both sides in the light of the records placed before us. 34. Assessee is challenging functional dissimilarity of this company with that of assessee as it is into medical transcription. We have our reservation to consider medical transcription services to be one of KPO services. In our considered opinion medical transcription services is basically back-office services provided by graduates who are trained for short period of 6 months to one year. These are short crash courses undertaken by graduates who are trained to understand and speak English. There is no value addition in the services rendered by people in medical transcription. To our understanding, basically these people who carry out medical transcription services are irained to understand language spoken by doctors, outside India to whom medical reports of patience are sent for expert opinion. Medical transcriptionist simply reproduces opinion expressed by Doctor, which is then communicated to the patients. 35. It is observed from annual report placed at page 223 of paper book (Index to Annual Repo....
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....ling business relations and managing customer relationships. It has been submitted by Ld.AR that this comparable fails employee cost filter. 37. Ld.CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech India (P) Ltd vs DCIT reported in (2018) 97 taxman.com 2 in support. 9. We have perused submissions advanced by both sides in light of records placed before us. Annual report of this company is placed at page 273 of paper book (Index for Annual Reports). In the Significant Accounting Policies reported at page 308 of paper book, it is observed that these companies operating businesses are organized and managed separately, according to nature of business and services provided with each segment, representing different strategic business unit. Note 15 at page 312 to refers to revenues from operations under the head information technology/BPO related services separately. It is observed that the function performed by this company as reported at page 285 reveals that it is engaged in business of providing customer care services ....
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.... exclusion of this company on the basis of extraordinary events that occurred during the relevant previous year which had impact on the profit margin of this company and therefore rendering this company from being chosen as a comparable company. The Delhi ITAT in the case of BT e-Serve (India) Ltd. Vs. ITO ITA No.6690/Del/2016 for AY 2012-13 order dated 19.6.2018 considered the comparability of this company and came to the conclusion in paragraph 5.4 of its order that there was abnormal volatility of revenue of this company from 2009-10 to 2014-15 and therefore this company should not be regarded as comparable company. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid company from the list of comparable companies chosen by the TPO. 38. It is observed from order passed by Ld.TPO at page 10 that assessee objected this company that employee cost filter being more than 25% has not been examined by Ld.TPO. It is observed that in decision of coordinate bench of Delhi Tribunal in case of Baxter India Pvt.Ltd vs ACIT reported in (2017) 85 Taxmann.com 285 this comparable failing employee cost filter has been analyzed as under: Further, from the ....
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....logies Ltd., the Ld.AR submitted that, the Healthcare segment considered by DRP is acceptable to assessee however the margins needs to be corrected accordingly. He submitted that the margin needs to be revisited by the Ld. AO/TPO in respect of this comparable. Accordingly we direct the Ld.AO/TPO to correct the margins in respect of Acropetal Technologies Ltd. Accordingly this ground raised by assessee stands allowed as indicated hereinabove. Ground No. 13 43. The assessee seeks inclusion of Accentia Technologies Ltd., Informed Technologies Ltd., Jindal Intellicom Ltd. Remaining comparables sought for inclusion has been submitted to be not pressed by assessee. Accordingly we do not consider those comparables, for which Ld.AR has not argued. 44. The Ld.AR submitted that, Accentia Technologies Ltd., Informed Technologies Ltd., and Jindal Intellicon Ltd., were acceptable to assessee as well as revenue, however the DRP excluded it suo moto. The Ld.CIT.DR placed reliance on orders of the DRP in support of its exclusion for non-availability of segmental information is. We have perused submissions advanced by both sides in light of records placed before us. 45. W....
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....alore Technologies (P.) Ltd. [IT Appeal No. 1628 of 2014, dated 31-3-2016], where it has been held that negative working capital adjustment shall not be made. 50. We have considered the rival submissions. We find that in the case of Lam Research India (P.) Ltd. (supra) and Software AG Bangalore Technologies (P.) Ltd. (supra) passed by this Tribunal, it has been held that negative working capital adjustment shall not be made in case of a captive service provider as there is no risk and it is compensated on a total cost plus basis. We therefore direct Ld.TPO to compute the ALP in accordance with the directions contained in this order after affording assessee opportunity of being heard. Accordingly this ground raised by assessee stands allowed for statistical purposes. In the result appeal filed by assessee stands partly allowed. Order pronounced in open court on 24th June, 2021. ============= Document 1 International Transactions Methodology Adopted Amount (INR) Provision of Engineering TNMM 1,018,980,961 Consulting Services Provision of Back Office Support TNMM 162,648,516 Services Availing of Engineering Consulting TNMM ....