TaxTMI 
TaxTMI 
2022 (8) TMI 1379
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....rative support and back-office services provided by the Appellant to its associated enterprises. 2. In making an upward adjustment of INR 29,289,858 pertaining to administrative support and back-office services provided by the Appellant to its associated enterprises, the learned AO, inter alia, erred on following grounds: In rejecting the transfer pricing documentation maintained by the Appellant, which is not in conformity with the provisions of section 92C(3) of the Act; in rejecting the certain companies selected by the Appellant in the TP documentation by applying certain inappropriate filters; in identifying additional comparable companies, whose functions are not similar to that of the Appellant, in determining the ALP of the impugned international transaction; and In rejecting the use of contemporaneous and multiple year data available for computing the ALP as on the date of filing of return of income and relying only on single year data (i.e. for the year ended 31March 2010) for the purpose of determining the ALP." 3. Brief facts, as noted by the DRP are that, the assessee company Jardine Lloyd Thompson India Pvt. Ltd. (hereinafter ref....
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....ns put forth by the assessee, the TPO finally identified seven (7) comparables. Taking OP/OC as the arm's length PLI, the TPO determined the arm's length value of the services at Rs. 34,11,63,393/- as opposed to Rs. 30,00,25,077/- in his order passed u/s 92CA(3) dated 27.01.2014, resulting in TP adjustment of Rs.4,11,38,316/-. Incorporating the recommended TP adjustment, the draft assessment order was passed by the AO on 27.03.2014 in which further disallowances/additions were made. The assessee filed objections against the proposed variations to the total income of the assessee before the Ld DRP. The objections raised by the assessee with regard to the inclusion/exclusion of comparables which were included/excluded by TPO were dismissed by the Ld DRP. Aggrieved, the assessee is now in appeal before us. 5. At the time of hearing, the Ld. AR appearing on behalf of the assessee objected to the action of the TPO/DRP against the rejection of two concerns i.e. M/s. CG-Vak Software and Exports and M/s. R. Systems International which identified as suitable comparables by the assessee in the transfer pricing study report. According to the assessee, the TPO/DRP had erred in holding that ....
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....s and perused the material placed on record. We have also gone through the decisions cited before us. On the question of exclusion of M/s. CG-Vak Software and Exports and M/s. R. Systems International as comparables, it is noted that similar issue had come up for consideration before this Tribunal in American Express (I) (P) Ltd. Vs. DCIT (supra). In the decided case also, that assessee (American Express) was rendering back office support services to its group entities which was functionally characterized as ITES segment and TNMM was taken as the MAM with OP/OC as the suitable PLI. In the decided case also, the TPO rejected M/s. CG-Vak Software and Exports and M/s. R. Systems International as comparables on the same line of reasoning as adopted by the TPO/DRP in the present case before us. On appeal this Tribunal however did not agree with the lower authorities and held that the BPO segments of M/s. CG-Vak Software and Exports and M/s. R. Systems International was functionally comparable. The turnover filter of 15% applied by the TPO in the decided case was also rejected by this Tribunal. The relevant findings are as follows: "29. Now coming to the entities which were foun....
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....ppropriateness of the turnover filter has not been considered by the ld. TPO. Ld. DRP on a perusal of the financials found that CG Vak Software is mainly involved into software development and earns major portion of its revenue from the same and the revenue from ITeS/BPO is only 15% i.e. Rs.83 lakhs and, therefore, it fails the turnover filter. 33. Assessee assails the application of turnover filter so long as functional dissimilarity is not attributable to this company and submitted that a similar contention of the revenue was considered by the Tribunal in assessee's own case for the AY 2009-10 wherein the Tribunal by placing reliance on Chrys Capital Investment Advisors (I) P. Ltd. vs ACIT, ITA No.6504/Del/2013 reached a conclusion that if the company is functionally comparable, the same cannot be rejected on the basis of turnover and therefore, directed ld. TPO to include CG Vak Software as a comparable company. 34. We have gone through the financials of this CG Vak Software. At page No.21 of the Annual report of this company, the income from software development product and services is separately mentioned and was also at page 26, the segment revenue and segme....
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....ovided at Page 23 of its Annual Report and that IT segment of Acropetal cannot be compared to the assessee company, which is undisputedly an ITeS company. The TPO while including Acropetal Technology perused the page no.24 of its Annual Report and concluded that this company operates in two segments namely Engineering Design segment and ITeS. The ITeS segmental results were considered. The objection of assessee about the high turnover, the ld. TOP concluded that assessee failed to demonstrate as to in what way turnover impact the profitability of the comparable company. Before the ld. DRP, the assessee objected for inclusion of this comparable. The DRP concluded that the TPO has considered only ITeS segment as comparable. There is nothing in the annual report to suggest that ITeS segment of this comparable has exported any software product. There is nothing to indicate that there is expenditure of Rs. 4.23 crore on Site Development Expenses in ITeS segment. 23. On perusal of page no. 23 & 24 (page no.387 & 388 of PB) of Annual Report of Acropetal, we find that these reports pertaining to AY 2009-10 and relates to Engineering Design Services and Information Technology Servi....
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....ded as a comparable by the assessee itself in its Transfer Pricing Study, and there is no estoppel in law to exclude the comparable, if the same is not comparable with the assessee on functional comparability. Infosys BPO is a giant company with different risk profile and nature of services, has brand value and owns IPs unlike the assessee who broadly provides back office support service and hence not comparable to the assessee. We have seen that the Tribunal in case of Stream International Services (P.) Ltd. vs. ADIT (141 ITD 492 Mum-Trib), while considering the functional similarity/dissimilarity excluded this comparable by taking view that Infosys BPO is a market leader and a giant company with a different risk profile and nature of service, has brand value and hence not comparable to the assessee due to huge difference in the size and scale of the company. Further, we have noted that the TPO himself in A.Y. 2009-10 himself rejected this comparable on account of Multiple Functional Segments with huge allocated items. The Hon'ble Bombay High Court in CIT vs. Pentair Water India (P.) Ltd. (supra) while considering the question of law relating to the exclusion of this comparable on....