TaxTMI 
TaxTMI 
2017 (5) TMI 1805
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.... 10,49,16,556/- under Chapter X of the Income Tax Act, 1961 ('the Act'); 2. On the facts and in the circumstances of the case and in law, the learned. TPO and the learned AO under the directions of the Hon'ble DRP erred in conducting a fresh benchmarking analysis, using non-contemporaneous data and applying inappropriate filters in selecting comparable companies; 3. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP erred in rejecting companies which undertake functions, employ assets and bear risks similar to the Appellant, which were selected by the Appellant in its Transfer Pricing documentation; 4. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP erred in selecting companies as comparable for the purpose of determining the arm's length price without considering the fact that their functions undertaken, assets employed and risks borne were not comparable to that of the Appellant; 5. On the facts and in the circumstances of the case and in law, the learned TPO and the learn....
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....ly stated, the facts of the case are that the assessee is a wholly owned subsidiary of M/s Lionbridge Mauritius Limited and is engaged in the business of design, development and export of the Computer software and providing Information technologies enabled services. The assessee company had e-filed its return of income for the year under consideration on 29.11.2011, declaring total income of Rs. 60,16,051/- and 'Book profit' of Rs. 11,04,22,963/- u/s 115JB of the 'Act', which was treated as its deemed total income. The case of the assessee was taken up for scrutiny proceedings u/s 143(2). That during the course of the assessment proceedings the A.O considering the nature of International transactions entered into by the assessee company with its Associate Enterprises (AE's), therein made a reference to the Transfer Pricing Officer (TPO) for determining of the Arm's Length Price (ALP) of such international transactions of the assessee with its AE's. BEFORE THE TPO : 3. The TPO during the course of the proceedings before him therein observed that the assessee which had a unique integrated model for service delivery which enabled it to offer a range of low end ITeS services and ....
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.... Acropetal Technologies Ltd (Seg) 23.95% TPO 7. Infosys Ltd. 43.53% TPO 8. Kals Information Systems Limited. 12.31% TPO 9. Persistent Systems & Solutions Ltd. 22.12% TPO 10. Accentia Technologies Limited. 29.18% TPO 11. Sankhya Infotech Ltd. 26.20% TPO 12. ICRA Technoanlaytics Ltd. 25.24% TPO 13. TCS E-Serve Ltd. 69.31% T PO 14. Wipro Technologies Ltd. 54.42% TPO 15. Larsen and Toubro Infotech Limited. 12.43% TPO 16. Zylog Systems Limited 28.72% TPO Arithmetic Mean 25.62% The TPO thus observing that that the OP/TC of the assessee at 13.60% was less than the OP/TC of 25.62% earned by the comparable companies, therein held that the OP/TC of the IT/ITeS services rendered by the assessee was outside the 5% range available under the regulations, and thus the international transactions of the assessee with its AE's were not at arms length price. The TPO in the backdrop of the aforesaid facts carried out an adjustment of Rs. 10,82,06,652/- , as under:- Particulars Lionbridge Technologies Pvt. Ltd. Arms length P & L (as per fin....
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....he aforesaid issues therein carried out an upward adjustment of Rs. 10,82,06,652/- u/s 92CA(3), and further restricting the assesses claim of deduction u/s 10A to an amount of Rs. 11,84,60,314/-, therein proposed to assess the income of the assessee company at Rs. 13,02,22,185/-under the normal provisions, and determined the 'Book profit' u/s 115JB at Rs. 11,04,22,963/-. BEFORE DRP : 7. The assessee being aggrieved with the 'draft order' passed by the A.O filed objections before the Dispute Resolution Panel (DRP) on 10.04.2015. The assessee assailed the upward adjustment of Rs. 10,82,06,652/- proposed by the TPO u/s 92CA(3), as well as the recasting of the claim of the assessee towards deduction u/s 10A of the 'Act'. The assessee challenged the upward adjustment of Rs. 10,82,06,652/- proposed by the TPO, on multiple grounds, viz. rejection of the TP documentation of the assessee on the ground that contemporaneous data was not used for F.Y. 2010-11; AO/TPO had erred in disregarding the multiple year analysis undertaken by the assessee in accordance with Rule 10B(4) for computing the margins of the comparable companies; the AO/TPO had erred in recomputing the ALP of the assesse....
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....- u/s 92CA(3) carried out by the TPO, as well as upheld the denial of +/-5% adjustment by observing that the said contention of the assessee was not tenable after the amendment and as such had rightly been rejected by the TPO. 8. That as regards the recasting of the assesses claim towards deduction u/s 10A of the 'Act', the DRP dealt with the contentions raised by the assessee as under:- (i). That as regards the assailing of the exclusion of the foreign currency expenses incurred by the assessee from the 'Export turnover' , without carrying out a similar exclusion from the 'Total turnover', it was observed by the DRP that the said issue was discussed by his predecessor in the case of the assessee for A.Y. 2008-09, 2009-10 and 2010-11 and the A.O was directed to decide the same as per the directions given by the ITAT in the case of the assessee for A.Y. 200405. The DRP referring to the directions given to the AO in the case of the assessee for A.Y. 2008-09 therein relied on the order of the Hon'ble High Court of Bombay in the case of : M/s Gem Plus Jewellery Ltd. (ITA No. 2426 of 2009), wherein the Hon'ble High Court had observed that in case of exclusion of some items f....
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....ng by the directions of the DRP, followed the judgment of the Hon'ble High Court of Bombay in the case of Gem Plus Jewellery (supra) therein held that the 'Foreign Exchange Gain' of Rs. 24,51,796/- was entitled for claim of deduction u/s 10A of the 'Act'. The A.O thus giving effect to the directions of the DRP, recasted the claim of the assessee towards deduction u/s 10A at Rs. 13,03,30,713/-. The A.O after deliberating on the aforesaid issues, therein assessed the income of the assessee at Rs. 11,75,13,487/- as per the normal provisions, while for computed the 'Book Profit' u/s 115JB at Rs. 11,04,22,963/- and computed the tax liability on the same at Rs. 1,98,76,133/-. That as the tax liability of the assessee under the normal provisions was more than that as per Sec. 115JB, therefore the A.O computed the tax liability of the assessee in accordance with the normal provisions of the 'Act'. 11. The assessee being aggrieved with the addition of Rs. 10,49,16,556/- (supra) made by the A.O in pursuance to the directions of the DRP as regards the ALP of the international transactions carried out with its AE's, had thus carried the matter in appeal before us. That the assessee though h....
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....ntion to the bifurcated details of the nature of the services which were rendered by the aforesaid comparable, which included (i) Financial Information Processing (data processing); (ii). Customer contact (voice based); (iii). Business process management and (iv).Analytics. That in the backdrop of the aforesaid functional profile of the aforesaid company, viz. TCS E-serve Limited, it was submitted by the Ld. A.R that unlike the aforesaid company, the assessee was not into call centre services, analytics or interaction with customers, and as such was clearly functionally different as against the aforesaid comparable. The Ld. A.R in support of her aforesaid contention relied on the order passed by the ITAT Delhi Bench "I" in the case of : Orange Business Services India Solutions (P) Ltd. Vs. DCIT, Circle-3, Gujarat.(2016) 71 taxmann.com 206 (Delh-Trib). The Ld. A.R further relying on the order of the ITAT Delhi Bench "I" in the case of : Ameriprise India (P) Ltd. Vs. DCIT, Circle 1(1), New Delhi (2016) 66 taxmann. Com 246 (Delhi-Trib) therein submitted that as observed by the Tribunal in the said case, in the absence of availability of any segregation of the total revenue of the afor....
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....ness Services India Solutions (P) Ltd. Vs. DCIT, Circle-3, Gujarat.(2016) 71 taxmann.com 206 (Delh-Trib), wherein the Tribunal taking cognizance of the functional profile of the aforesaid company, viz. TCS E-serve Limited(supra), as well as the fact that use of TATA brand had definitely benefited it, had therein while disposing of the appeal of the assessee for A.Y. 2011-12 had directed the exclusion of the aforesaid company, viz. TCS E-serve Limited(supra) from the final list of comparables, by observing as under:- "4.7 Ld. A.R submitted that the Tribunal in assesses own case for the Assessment Year 2010-11 (supra) rejected the inclusion of this company as comparable on the ground that this comparable provides high end technology services such as software testing, verification and validation of the software. The coordinate bench of this Tribunal has rejected this comparable by holding as under:- "We have also considered the rival contention for exclusion of TCS e-service Ltd. It is mainly involved in transaction processing and technology services. It carries on business of providing technology service such as software testing, verification and validation. It is a....
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....logy Services Ltd. comprised of software related support services, primarily information technology software solutions/maintenance and technology infrastructure support services, therein being of the view that its activities were similar to that of the assessee, and further going through the financials of the said company for the year under consideration observed that it had earned export income which is 94% of its service income, as under:- Company Name Sales Service Income Services % Export Export % RPT% Wipro Technology Services Ltd 3,468,696,06 2 3,468,696,062 100% 3,249,223,497 94% 2% The A.O thus in the backdrop of his aforesaid observations selected the company, viz. M/s Wipro Technology Services Ltd. as a comparable. The assessee objected to the inclusion of the aforesaid company, viz. M/s Wipro Technology Services Ltd. as a comparable, for the reason that the same was functionally different as in comparison to the assessee, however the contentions of the assessee did not find favor with the TPO. 17. That during the course of hearing of the appeal it was averred by the Ld. A.R that the aforesaid company, viz M/s Wipro Technolo....
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....sessee which is engaged in Information technology services only. (ii). Non-availability of segmental accounts: We find from a perusal of the 'Annual report' (Page 128 of 'APB') that no segmental information is available as regards the IT software solutions/maintenance and technology infrastructure support services provided by the aforesaid company, viz M/s Wipro Technology Services Ltd. We find that the aforesaid company, viz M/s Wipro Technology Services Ltd., as stands gathered from its 'Annual report' was engaged during the year under consideration in providing software related support services, primarily information technology software solutions/maintenance and technology support services to Citigroup entities, which is considered as one segment, and therefore no reportable segments are available. (iii). Significant related party transactions: We find that a coordinate bench of the Tribunal in the case of Saxo India (P) Ltd. Vs. ACIT (2016) 176 TTJ 540 (Del-Trib) while disposing of the appeal of the assessee before it for A.Y. 2011-12, had therein excluded the aforesaid company, viz. Wipro Technology Services Ltd. as a comparable on the ground that the latter ....
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....he orders of the coordinate benches of the Tribunal in the following cases:- (i). Orange Business Service India solutions (P) Ltd. Vs. DCIT (2016) 71 Taxmann.com 206 (Del). (ii). Saxo India (P) Ltd. Vs. ACIT (2016) 176 TTJ 540 (Del-Trib), and thus direct the AO/TPO to exclude the aforesaid company, viz. Wipro Technology Services Ltd. from the final list of comparables. 20. We thus in the backdrop of our aforesaid observations therein direct the AO/TPO to exclude the aforesaid companies, viz TCS Eserve Limited(supra) and M/s Wipro Technology Services Ltd.(supra) from the final list of comparables. We find that the exclusion of the aforesaid two companies from the final list of comparables, as submitted by the Ld. A.R on the basis of a chart filed before us, marked as 'Permutation of Margin of Comparable Companies', therein brings the ALP of the assessee from 25.28% to 18.68%, and as such within the range of +/-5% adjustment, as a result whereof no TP adjustment would be called for in the hands of the assessee. The Grounds of appeal No. 1 to 4 are thus allowed in terms of our aforesaid observations. That as in the backdrop of the contentions raised by the Ld. A.R....
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....s incurred by the assessee from the 'Export turnover', without carrying out a similar exclusion from the 'Total turnover' of the assessee, had therein observed that the said issue was discussed by the DRP in the case of the assessee for A.Y. 2008-09, 2009-10 and 2010-11, and the A.O was directed to decide the issue as per the directions given by the ITAT in the case of the assessee for A.Y. 2004-05. We find that DRP referring to the directions given to the AO in the case of the assessee for A.Y. 2008-09, had therein relied on the order of the Hon'ble High Court of Bombay in the case of :CIT Vs. Gem Plus Jewellery India Ltd. (2011) 330 ITR 0175 (Bom), being of the view that in case some items are excluded from the 'export turnover', then the same should also be excluded from the 'total turnover' while deciding the assesses claim of deduction under Sec. 10A, had therein held as under:- "The submission which has been urged on behalf of the Revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the Revenue, however, misses the point that....
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.... the footing that the same as per the A.O were not derived from the export activities of the assessee, and therefore were not eligible for computation of deduction u/s 10A. 26. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material produced before us. We have given a thoughtful consideration to the issue under consideration and find that the DRP while dislodging the observations of the A.O, had therein observed that the issue had been decided by the ITAT in the case of the assessee for A.Y. 2008-09, wherein the A.O was directed to allow the claim of the assessee towards deduction u/s 10A as regards the profit of the assessee as modified by the disallowance made on account of foreign exchange loss in view of the judgment of the Hon'ble High Court of Bombay in the case of : Gem Plus Jewellery (supra), wherein the Hon'ble High Court had observed as under:- "For the purposes of the appeal it has not been disputed on behalf of the Revenue that the foreign exchange was realized by the assessee within the period stipulated in law. The assessee realized a larger amount because of a foreign exchange fluctua....