TaxTMI 
TaxTMI 
2022 (5) TMI 1535
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....ed by the Appellant under section 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting the Transfer Pricing ("TP") document maintained by the Appellant by invoking provisions of sub-section (3) of section 92C of the Act. 3. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting comparability analysis undertaken in the TP documentation and in conducting a fresh comparability analysis by adopting various filters for the purpose of determining the Arm's Length Price (`ALP') of the international transaction. 4. The learned AO/learned TPO/Hon'ble DRP erred in applying the core service income filter of 75% to sales instead of 50%, leading to a narrower set of comparable companies. 5. The learned AO/learned TPO/Hon'ble DRP erred in applying export earning filter of 75% of the total sales instead of 25%, leading to a narrower set of comparable companies. 6. The learned AO/leamed TPO/Hon'ble DRP erred in not rejecting companies reporting abnormal profits. 7. The learned AO/ learned TPO/ Hon'ble DRP erred in selecting the companies only if the dat....
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....2013-14 and FY 2012-13 while computing the weighted average OP/OC, as the company fails export turnover filter applied by the learned TPO, for the said years. 16. The learned AO/ learned TPO/ Hon'ble DRP has erred in not allowing appropriate adjustments towards working capital differential existing between the Appellant vis-a-vis independent comparable companies. 17. The learned AO/ learned TPO/ Hon'ble DRP erred in not allowing appropriate adjustment towards the risk difference between the Appellant vis-à-vis the comparable companies. II. Corporate Tax 18. Levy of interest under section 234B of the Act a. The Learned AO has erred in levying interest under section 234B of the Act which is consequential to the addition made in the assessment order. b. The Learned AO has also erred in computation of such interest under section 234B of the Act The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of heari....
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....advertising functions • Price negotiations and customer liasoining • Assets employed • Risk Analysis 2.4 Ld.TPO observed that, the assessee entered into following international transaction: International Transactions as per 3CEB Particulars Received/Receivables Method IT enabled services 5333570492 TNMM Reimbursement of Expenses 111110286 Other Method Trade Receivables 545546697 TNMM Other receivables 101458765 Other Method Total 6091686240 2.5 The Ld.TPO noted that, the assessee used OP/OC as PLI to compute its margin at 16.08%. The assessee used 10 broadly comparables independent companies between 4.7% to 17.49% with a median of 8.9%. Since the margin of the assessee falls within the range, the assessee concluded the transaction at arms length. The comparables selected by assessee are as under: Sl. No. Company Name Database FY 2014-15 FY 2013-14 FY 2012-13 Weighted Average 1 Allsec Technologies Ltd. Prowess -4.37% 6.54% -5.69% -1.39% 2 Informed Technologies India Ltd. Prowess -5.25% 7.11% 4.29% 1.66% 3....
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.... Pvt.Ltd & Excel Infoways Ltd., the DRP also directed inclusion of Cosmic Global Ltd. as prayed for by the assessee. 4. On receipt of the DRP directions, the Ld.AO passed final assessment order by making addition to the international transaction for ITeS segment at Rs.14,57,03,780/-. 5. Aggrieved by the order passed by the Ld.AO, the assessee has filed an appeal before this Tribunal. 6. At the outset, the Ld.AR submitted that, Ground No.1-12 are general in nature, and therefore need not be adjudicated. He submitted that, in Ground No. 13, the assessee wish to seek exclusion of only 2 comparables being: 1. Infosys BPO Ltd 2. Cross domain solutions Private Limited 7. The Ld.AR submitted that, in respect of Ground No.14 assessee seeks inclusion of only 2 comparable is being: 1. Crystal Voxx Ltd 2. Hartorn Communications Ltd 8. The Ld.AR submitted that in Ground No.15 assessee is seeking correction in the margin computed in respect of Cosmic Global Ltd by the Ld.TPO. 9. And in Ground No.16, the assessee is seeking appropriate working capital adjustment, to iron out the differences, existing between the assessee and the comparable co....
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....flow, procedures and service standards established by OMS. Marketing and advertising functions ITeS offered by Ocwen India are for captive use of OMS in the performance of its home loan servicing and allied functions. Since, ITeS rendered by Ocwen India are not offered to third party customers, Ocwen India is not required to undertake any advertising or marketing strategy in respect of such services. OMS undertakes the entire gamut of marketing and advertising functions. Price negotiations and customer liaisoning OMS is responsible for negotiating prices with the ultimate customers. OMS liaises with customers and understand their requirements. Based on the specific customer requirements, OMS provides guidance to Ocwen India and Ocwen India would provide such services separately. Ocwen India does not play any role in price negotiations and customer liaising. Assets employed Tangible assets Ocwen India uses the following tangible assets for carrying out its business: • Leasehold improvement; • Computer hardware; and • Office and other equipment Intangible Assets Ocw....
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.... Ocwen India invoices OMS all its operating costs incurred in the provision of ITeS along with a mark-up. Ocwen India is insulated from foreign exchange risk as it is compensated for any foreign exchange loss that may arise. Risk of Attrition of Manpower Workforce is one of the most valuable resources employed by an organisation to carry out its day-to-day operations. Increasing competition in the market place along with other uncontrolled variables results in exposure to risks through attrition. The primary risk as far as identification of resources, recruitment, training and assignment to suitable jobs lies with Ocwen India. However, any recruitment related costs are considered as operating costs and form part of the cost base that is compensated on cost plus method. Therefore, OMS also relatively bears the risk of attrition of manpower. Idle Capacity Risk This risk relates to non utilization or under-utilization of the resources of a Company. Ocwen India may maintain some employees who could be on the bench at any point of time during the year. However, costs associated with the idle capacity are charged to OMS as part....
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....e year as can be seen from pages 16, 47 and 58 of its Annual Report; whereas the assessee does not possess any intangible asset. III Brand Value 'Infosys' has brand value; having incurred Rs. 5 Crores for its brand building and advertisement, as can be seen from pages 24, 29, 47, 58 and 64 of its Annual Report; whereas the assessee does not have any brand. IV Sub - contracting Infosys operates on a different business model as it has incurred Rs.157 Crores towards cost of technical subcontractors. 7.2.2 In support of the assessee's contentions, the learned AR submitted and took us through the relevant pages of the Annual Report of 'Infosys'. It was submitted that for the reasons given above, it has been consistently held by various benches of the Tribunal over the years that this company cannot be considered as a comparable to companies leading ITES. In this regard, the learned AR placed reliance on the following decisions:- (i) CGI Information Systems and Management Consultants (P) Ltd., Vs. ACIT in IT(TP)A Nos.586 and 183/Bang/2017 dated 11.04.2018 for Assessment Years 2010-11 and 2012-13. (ii) Mobi....
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.... year would apply to the year under consideration as well. In this factual view of the matter, we hold that Infosys BPO Ltd., stands on a totally different footing from a company engaged in rendering routine back office ITES; being both functionally different and having brand value and therefore is to be excluded from the final set of comparables. We hold and direct accordingly." Respectfully following the above, we direct the Ld.AO/TPO to exclude this comparable from the finalist. 12. Cross domain solutions Pvt. Ltd. 12.1 We note that in the preceding assessment year, the assessee had not pressed this comparable for exclusion, as has been observed by coordinate bench of this Tribunal in IT(TP)A No. 3068/Bang/2018 by order dated 17.07.2019 at page 21 of the Index to case law paper book. However, it is submitted before us that, this comparable is functionally not similar to a captive service provider as has been observed by coordinate bench of this Tribunal in Swiss Re Global Business Solutions Pvt.Ltd., reported on (2020) 116 taxman.com 716. 12.2 Accordingly, we remand this comparable back to the Ld.AR AO/TPO as has been submitted in the chart filed before this Tribunal....
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....te 6, the income in foreign currency is shown as Rs.3,23,08,386/-. In the Director's Report, at page 480 of the paper book, the foreign exchange earnings is given as Rs.3,23,08,386/-. In the factual matrix of the matter, as laid out above, we are of the considered opinion that the reason ascribed by the TPO and DRP for exclusion of this company, 'Crystal' is factually incorrect. Taking into consideration that the company 'Crystal' is otherwise comparable to the assessee in the case on hand as it is operating as a BPO company which is a provider of ITES, we direct that this company, Crystal Voxx Ltd., be included as a comparable company in the final set of comparables in the case on hand. The AO / TPO are accordingly directed." 13.2 Respectfully following the above we direct the Ld.AO/TPO to include this comparable in the finalist. 14. Hartorn Communications Ltd.: 14.1 For inclusion of this comparable, the assessee placed reliance on the decision of coordinate bench of this Tribunal in case of Swiss Re Global Business Solutions India Pvt.Ltd (supra). It is submitted that in similar circumstances this Tribunal remanded this comparable by observing as unde....
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..... 16.2 Before us, the Ld.AR placed reliance on the decision of the coordinate bench of this Tribunal in case of Huawei Technologies India Pvt.Ltd vs JCIT reported in (2019) 101 taxman.com 313. This Tribunal in case of Huawei Technologies India Pvt.Ltd vs JCIT(supra) observed and hailed as under: 10. The next grievance projected by the Assessee in its appeal is with regard to the action of the CIT(A) in not allowing any adjustment towards working capital differences. On this issue we have heard the rival submissions. The relevant provisions of the Act in so far as comparability of international transaction with a transaction of similar nature entered into between unrelated parties, provides as follows: Determination of arm's length price under section 92C . 10B . (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic 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 net margin method, by which, (i) the net profit margi....
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....omic development and level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction [or a specified domestic transaction] if (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 11. A reading of Rule 10B(1)(e)(iii) .of the Rules read with Sec.92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, Which could materially affect the amount of net profit margin in the open market. 12. Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the "TPG") contain exte....
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....rly need to either borrow to fund the purchase, or reduce the amount of cash surplus which it is able to invest. Note that the interest rate July 2010 Page 6 might be affected by the funding structure (e.g. where the purchase of inventory is partly funded by equity) or by the risk associated with holding specific types of inventory) 16. Making a working capital adjustment is an attempt to adjust for the differences in time value of money between the tested party and potential comparables, with an assumption that the difference should be reflected in profits. The underlying reasoning is that: • A company will need funding to cover the time gap between the time it invests money (i.e. pays money to supplier) and the time it collects the investment (i.e. collects money from customers) • This time gap is calculated as: the period needed to sell inventories to customers + (plus) the period needed to collect money from customers - (less) the period granted to pay debts to suppliers." 14. Examples of how to work out adjustment on account of working capital adjustment is also given in the said guidelines. The guideline also expresses the difficult....
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.... impugned order. In the matter of determination of Arm's Length Price, it cannot be said that the burden is on the Assessee or the Department to show what is the Arm's Length Price. The data available with the Assessee and the Department would be the starting point and depending on the facts and circumstances of a case further details can be called for. As far as the Assessee is concerned, the facts and figures with regard to his business has to be furnished. Regarding comparable companies, one has to fall back upon only on the information available in the public domain. If that information is insufficient, it is beyond the power of the Assessee to produce the correct information about the comparable companies. The Revenue has on the other hand powers to compel production of the required details from the comparable companies. If that power is not exercised to find out the truth then it is no defence to say that the Assessee has not furnished the required details and on that score deny adjustment on account of working capital differences. Regarding applying the daily balances of inventory, receivables and payables for computing working capital adjustment, the Delhi Bench of ....