TaxTMI 
TaxTMI 
2022 (3) TMI 1533
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.... return of income. 3. The CIT in exercise of his powers under section 263 of the Act, on perusal of the records of assessment noticed that as early as 08.07.2016, the AO made a reference to the Transfer Pricing Officer (TPO) u/s.92CA of the Act, for determination of Arm's Length Price (ALP) in respect of an international transaction of rendering back-office services by the assessee to its Associated Enterprise (AE). The approval for reference to the TPO was accorded by the Office of the CIT on 18.07.2016 and ultimate reference under section 92CA of the Act was made on 19.07.2016. Even before the AO could receive an order section 92CA from the TPO, the Order of Assessment was passed on 27.12.2016 accepting the income returned by the assessee. The CIT also noticed that consequent to the reference under section 92CA of the Act by the AO to the TPO dated 19.07.2016, the TPO passed an order dated 31.10.2017 wherein he suggested an addition of Rs.14,73,25,254/- to the total income of the assessee on account of determination of ALP. According to the CIT, since the AO passed an Order of Assessment even before an order of reference to the TPO under section 92CA was pending was erroneous ....
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....f assessment dated 26.7.2019 against which the Assessee has filed appeal before the Tribunal which is ITA No.2042/Bang/2019 through Mr. Suresh Muthukrishna, CA on 23.9.2019. The present appeal has been filed on 05.01.2022. It is no doubt true that the advice of the erstwhile CA and the client's action or inaction on the basis of the advice of an erstwhile Counsel can afford the reasonable ground for condoning delay, but in the present facts and circumstances, the subsequent Counsel Mr. Suresh Muthukrishna, CA, was approached by the assessee after the draft assessment order dated 31.08.2018 was passed. In fact, he filed the objections against the draft assessment order before the DRP and the DRP gave its directions on 26.07.2019. Pursuant to the directions of the DRP, the AO passed the final order of assessment dated 26.07.2019 against which the Assessee has filed appeal before the Tribunal which is ITA No.2042/Bang/2019 through Mr. Suresh Muthukrishna, CA on 23.09.2019. Therefore, the earliest point of time at which Mr. Suresh Muthukrishna, CA, could have applied his mind is the period between 26.02.2018 and 28.05.2019. The present appeal has however been filed as already stated on....
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....; Total Expenses- II 4,02,43,370.00 14,42,42,764.00 30,42,12,837.00 48,86,98,971.00 Earning before Interest, Depreciation, Exceptional Items and Tax- III =(I-II) 27,28,441.00 3,38,76,877.00 2,28,06,756.00 5,94,12,074.00 Less: Financial costs- IV Turnover 11,59,903.00 38,75,263.00 87,52,027.00 1,37,87,193.00 Earning before Depreciational, Exceptional Items & Tax- V=( III-IV) 15,68,538.00 3,00,01,614.00 1,40,54,729.00 4,56,24,881.00 Less:Deprection and amortisation- VI Turnover 14,73,935.00 49,75,271.00 34,44,340.00 98,93,546.00 Earning before Exceptional Items & Tax- VII=(V-VI) 94,603.00 2,50,26,343.00 1,06,10,389.00 3,57,31,335.00 Less: Exeptional items- VIII Actual 11,69,690.00 11,69,690.00 Earning before Taxes- XI=(VII-VI....
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....P. The TPO suggested addition of Rs.10,73,87,230/-. But pursuant to the DRP's direction, the savings stood enhanced to Rs.11,28,18,726/-. Aggrieved by the aforesaid final Order of Assessment, assessee has preferred the present appeal before the Tribunal. 11. The learned Counsel for the assessee has prayed for exclusion of 3 out of the 5 comparable companies that remain after the order of the DRP viz., Infosys BPO Ltd., Eclerx Services Ltd., and Crossdomain Solutions Pvt. Ltd. As far as the plea for exclusion of the aforesaid companies from the list of comparable companies is concerned, learned Counsel for the assessee has filed before us a copy of the decision of the ITAT, Bengaluru Bench, rendered in the case of EMC Software and Services Pvt. Ltd. Vs. JCIT 115 taxmann.com 293. The aforesaid decision which also relates to Assessment Year 2014-15 and which was rendered in the context of a company providing ITeS such as the assessee and in whose case also the very same comparable companies that were chosen in the case of the assessee in this appeal was chosen as a comparable company, the Tribunal directed to be excluded Infosys BPO Ltd., Eclerx Services Ltd., and Crossdomain Solut....
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....O 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. We find the judicial decisions, applicable for the Assessment Year 2014-15 and based on the observations of the co-ordinate Bench, we consider the company Infosys BPO Limited comparable has to be excluded and accordingly direct the TPO to exclude this company form the final list of comparables. E-Clerx Services Ltd., was excluded for the following reasons: (ii) E-Clerx Services Limited has a margin of 70.26% and engaged in both rendering KPO and BPO services and no segmental information is available and the company has acquired entire share holding of Agilyst Inc. The company was excluded for the Assessment Year 2014- 15 in the case of Hyundai Motor India Engineering (P.) Ltd. v. ACIT [2019] 109 taxmann.com 429 (Hyd - Trib) at para 32 which read as under: "32. Thus, on a comparison of the functions of the and other companies reproduced above. we find that E-Clerx Ltd is not only into ITe....
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....on the basis of a non-existent TP order passed for the A.Y. 2007-08. It is seen that the business profile of this company is re-engineered payroll service. This company is also engaged in the development of information systems. These activities are totally different from the activities of the assessee which perform very limited/low end functions back office services. The review and business functions of Cross Domain is as follows: "With a decade of experience in Payroll Outsourcing, Crossdomain has created a re-engineered payroll service EFFIPAY - that processes and delivers accurate payroll to clients with headcount up to 1000 employees in just 4 hours. With Effipay Lite and Effipay Lite Plus, our bouquet of services cover end to end payroll, retrials, reimbursement, tax proof verifications upto issue of Form 16 for employees of our clients across different industry verticals. Our processes are highly scalable and provide end to end payroll solutions to clients with headcount ranging from 5 to 65,000." "Crossdomain's IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation and continuously increas....
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....o.2152/Mum/2014, dated 10-10-2014, Mr. Suresh Kumar learned counsel appearing for the Revenue states that inspite of his best efforts, the Revenue is unable to instruct him whether or not an appeal has been preferred against the order of the Tribunal dated 10 October 2014. in the case of Wills Processing Services under (P.) Ltd. (supra). 7. In the above view we proceed on the basis that no appeal from the order passed in Wills Processing Services under (P.) Ltd. (supra)has been filed by the Revenue. We further note that the impugned order records that the services provided by Crossdomain Solutions is in the nature of KPO ^Knowledge Process Outsourcing). 8. It is an agreed position between the parties that the entity at Sl. no.(v) above was a subject matter of consideration by this Court in the Revenue's appeal being Pr. CIT v. Aptara Technology (P.) Ltd. [2018] 92 taxmann.com 240. In the aforesaid case, this Court recorded the fact that M/s Crossdomain Solutions Ltd. was engaged in distinct activities such as payroll activity. 'Knowledge Process Outsourcing'(KPO) service, development of products and routine IT services. Thus, it was found not comparabl....
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....icularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed would result in increasing the profit in respect of transactions entered to with non-AE. This adjustment is beyond the scope and ambit of Chapter X of the Act. 5. In the above view, as the provisions of the Act in respect of transfer pricing are self evidence, Question No.(a) as proposed does not give rise to any substantial question of law. Thus not entertained." 14. The Hon'ble Bombay High Court in the case of Phoenix Mecano (India) Private Limited [ITA No. 1182 of 2014], had to deal with the following question of law suggested by the revenue:- 6.1 Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was correct in directing the AO to restrict the determination of the ALP to transactions with the AE rather than on the entire turnover of the Company. 6.2 Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was correct while issuing the above directions without app....
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....old of submission made by the learned counsel for the assessee and direct the Assessing Officer to confine the adjustment, qua the purchases made by the assessee from the AE. To be more specific, the adjustment is to be made only to the purchases made from the AE ..... 16. The ITAT Bangalore, in the case of IKA India Pvt Ltd, Bangalore Vs DCIT IT(TP)A No.2192/Bang/2017, order dated 17.09.2018, took a same view relying on the various judgments quoted above and held as follows: "53. The CIT(A) in exercise of his powers of enhancement of income took the view that the ALP has to be determined on the basis of the entire sales in the finished goods segment including transactions with Non-AE also. The reasoning adopted by the CIT(A) for doing so was as follows:- "10.0 While examining the working of ALP in the case of appellant, it was observed that the TPO has reduced the adjustment proportionately by holding that only 8.46% of revenue of the appellant is from AE. She accordingly adopted 8.46% of the operating revenue and 8.46% of the Operating cost for purpose of the determination of ALP. However, this method is not the correct approach as the ALP determination shoul....