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2023 (6) TMI 506
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....decision of the Hon'ble Supreme Court in the case of Mumbai International Airport Private Limited Vs. Golden Chariot Airport with regard to the "Doctrine of Election" and the "Doctrine of approbation and Reprobation", wherein it has been laid down that litigant cannot change and choose its stand to suit its convenience. 2. Whether the Ld. CIT(A) was justified in laying down stringent standards of capability and attempting to identify exact replica of the taxpayer for comparability analysis, whereas the Indian law and the international jurisprudence recognize the reality that there cannot be an exact comparable in a given situation without any difference without any differences appreciating that such stringency will defeat the purpose of flexibility provided in comparability analysis for determination of ALP. 3. Whether the Ld. CIT(A) was justified in rejecting M/s Eclerx Services Ltd., M/s Accentia Technologies Limited and M/s Cosmic Global Limited as a comparable companies and relying upon the concept of KPO Vs. BPO in comparability analysis, super normal profit and functional difference whereas in reality there is a seamlessness in ITES functions and the compara....
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....k taking service provider which assumes minimal risks. The assessee noted Operating Profit margin to operating cost (OP/OC) on its international transactions was shown as under:- Profit and Loss Account F.Y. 2008-09 Operating Income Data/Software Receipts 360,021,854 IT enables Services Receipts 13,034,487 Other Operating Income 911,337 TOTAL OPERATING INCOME 373,967,678 OPERATING EXPENSES Other Operating Expenses 1,325,143 Employee Cost 217,096,399 Administration Cost 55,015,770 Selling Cost 615,926 Managerial Remuneration 13,824,027 Depreciation 14.10,9109 TOTAL OPERATING EXPENSES 301,987,103 OPERATING PROFIT 71,980,574 Non- Operating Income Interest on Fixed Deposit 5,453,381 Profit on Exchange Fluctuation 13,570,696 Non Operating Expense Donation 5,000 Interest Paid 251,905 Loss on Sale/Discard of assets 62,565 PROFIT BEFORE TAX 90,685,181 OP/OC 23.84% 5. The Arm's Length Price of the international transaction representing data processing services provided by the assessee to its Associated Enterprises (AE)....
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....td., Accentia Technology Ltd., Cosmic Global Ltd. and Vishal Information Technology Ltd. (Coral Hub).The Revenue is in appeal before us in rejecting four comparables by the ld. CIT (Appeals) out of final set of comparables selected by the TPO. 11. M/s. Cosmic Global Ltd.: With respect to this comparable, the ld. DR referring to page 31 of the assessment order submits that this comparable is selected by the assessee and he has not objected in inclusion of this comparable in the final set of comparables before the TPO, but the ld. CIT (Appeals) excluded the same. The ld. DR submits that since this comparable was picked up by the assessee and not by the TPO the ld. CIT (Appeals) should not have excluded this comparable. Therefore, ld. DR requests that this comparable be retained and only for the purpose of computing margins direction may be given to the Assessing Officer in respect of this comparable. 12. On the other hand, the ld. Counsel for the assessee, Shri Tarandeep Singh, referring to the written submissions filed before the ld. CIT (Appeals) submits that the assessee demonstrated with statistics before the ld. CIT (Appeals) that M/s. Cosmic Global is outsourcing major po....
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....s that the objections of the assessee were considered by the TPO and held that there is functional similarity between Accentia Technology Ltd. and the assessee, as both are engaged in providing ITES services. The TPO observed that the clients/subscribers to which they are catering to are not important as long as their functions remain the same. The ld. DR submits that since the observations of the TPO that the objection of the assessee that there are no segmentals, negated by the TPO since Accentia Technology Ltd., has one segment i.e. healthcare receivable management and the reporting of the segments does not arise. The ld. DR submits that the TPO has rightly rejected the contentions of the assessee to exclude Accentia Technology Ltd. from final set of comparables. 15. Referring to para 5.1.1 of CIT (Appeal) order, the ld. Counsel submits that Accentia had acquired 96% stake in M/s. Oak Technologies Inc. during financial year 2008-09 relevant to assessment year under consideration i.e. 2009-10 and, therefore, it should be rejected as comparable having peculiar economic circumstances and TPO himself has set criteria of rejecting companies affected by some peculiar economic circu....
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....ld. Counsel also placed reliance on the decision of the Delhi High Court in the case of Rampgreen Solutions (P.) Ltd.Vs. CIT [377 ITR 533] wherein Eclerx Services Ltd., which was providing KPO services was rejected as a comparable as the Rampgreen Solutions (P.) Ltd. was engaged in Information Technology Enabled Services (ITES). 18. Coral Hub Ltd. (formerly known as M/s. Vishal Technologies Ltd.): The ld. DR referring to page Nos. 28 of TPO's order submits that the TPO rejected the contention of the assessee that Coral Hub should be excluded from comparables on the ground that in ITES sector the number of employees is not very important and the determining factor for doing business. The ld. DR supported the order of the ld. TPO. 19. The ld. Counsel for the assessee submits that the assessee has objected for inclusion of Coral Hub Ltd., for the reason that Coral Hub Ltd., is out-sourcing its activities to third party ventures and, therefore, its business model is different. The ld. Counsel for the assessee submits that the Hon'ble Delhi High Court in the case of Rampgreen Solutions (P.) Ltd. Vs. CIT (supra) at para 38 held that a company which out-sourced its activities cannot....
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.... the comparability of this company viz-a-viz the assessee is concerned, the Ld. AR relied on the submissions of the assessee made before the Ld. CIT(A) for excluding this company as comparable and the findings of the Ld. CIT(A) in respect thereof. 8.3 We have heard the Ld. Representative of the parties and perused the material on record as well as the orders of the Ld. TPO/AO/CIT(A). The very first contention of the Ld. AR is that even if the assessee did not take up the issue of considering this company as comparable during the transfer pricing proceedings, the assessee cannot be prohibited from adopting a different stand later before the appellate authorities. We agree with the contention of the Ld. AR in view of the decision of the Special Bench of the Tribunal in the case of Quark Systems (P.) Ltd. (supra) wherein the Hon'ble Bench held the company which was included by the assessee and also by the Ld. TPO in the list of comparables at the time of computing arm's length price can be excluded by the Tribunal, if the assessee proves that the same was wrongly included. 8.4 From the perusal of the Ld CIT(A)'s order, we notice that before the Ld. CIT(A) the assesse....
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....he case of DCIT Vs. PTC Software India Pvt. Ltd. [101 taxmann.com 117] held as under:- "(i) The impugned order of the Tribunal has excluded M/s. Accentia Technologies Ltd., from the list of comparables to determine the ALP of the Respondent's transactions. (ii) The impugned order renders a finding of fact that the nature of activities carried out by M/s. Accentia Technologies Ltd. are different from that carried out by Respondent M/s. Accentia Technologies Ltd. develops its own software and rendered Medical transcription services while the Respondent is providing BPO Services. Besides the impugned order of the Tribunal held that high profit margins of M/s. Accentia Technologies Ltd., was attributable to amalgamation which took place in the previous years relevant to subject Assessment Year. Therefore, not comparable. (iii) In fact, this Court in Pr. CIT Vs. Aptara Technologies (P.) Ltd. [(2018) 92 taxmann.com 240] has upheld the view of the Tribunal in not accepting the Accentia Technologies Ltd., as comparable, inter alia, on account of fact that extraordinary event such as merger/amalgamation would affect the profitability of M/s. Accentia Technologies ....
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....MM so much of minor difference can be tolerated as TNMM allows some degree of flexibility and tolerance in the matter of selection of comparables because, under this method, Net Margins are compared and some amount of functional dissimilarity can be tolerated at the net margin level, i.e., to a certain extent, functional dissimilarities are subsumed and taken care of at the net margin level. Therefore, it is an appropriate comparable. 6.2 The Ld. AR submitted that there were certain extraordinary events that took place in this company in the form of mergers and acquisitions in the relevant financial year and hence this company should not be considered as a comparable company. He further placed reliance on the submissions made by the assessee before the Ld. CIT(A) which are recorded by him in para 6.1.1.1 of his order and pleaded for exclusion of this company on the ground of functional dissimilarity and high turnover of this company as compared to that of the assessee. He submitted that the case of the assessee is squarely covered by several decisions of the jurisdictional Delhi ITAT and Hon'ble Delhi High Court for AY 2009- 10 itself wherein this company has been held to ....
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....r looking at the annual report of this company and the information available in public domain submitted by the assessee before him. We notice that the Ld. CIT(A) directed to exclude this company as a comparable after recording cogent reasons backed with precedents. We, therefore do not find any reason to interfere with the findings of the Ld. CIT(A) and uphold his view." 21.3 Respectfully following the decision of the Hon'ble Bombay High Court we hold that the functions of the assessee company and the comparable selected by the TPO with that of Accentia Technologies Ltd., are dissimilar and also since during the assessment year 2009-10 there were extra-ordinary events such as merger/amalgamation, this company cannot be considered as comparable. Thus, the ld. CIT (Appeals) has rightly excluded Accentia Technologies Ltd. from the final set of comparables selected by the TPO. We affirm the order of the ld. CIT (Appeals) on this score. 23.1 With regard to Eclerx Services Ltd. we find that the activities of Eclerx Services Ltd., is a KPO providing specialized services whereas the activities of the assessee are in the nature of routine BPO services. We observe that the ld. CIT (App....
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....he profitability of those entities. However, where the controlled transactions are clearly in the nature of lower-end ITeS such as Call Centers etc. for rendering data processing not involving domain knowledge, inclusion of any KPO service provider as a comparable would not be warranted and the transfer pricing study must take that into account at the threshold. 36. As pointed out earlier, the transfer pricing analysis must serve the broad object of benchmarking an international transaction for determining an ALP. The methodology necessitates that the comparables must be similar in material aspects. The comparability must be judged on factors such as product/sendee characteristics, functions undertaken, assets used, risks assumed. This is essentia! to ensure the efficacy of the exercise. There is sufficient flexibility available within the statutory framework to ensure a fair ALP. 37. Applying the aforesaid principles to the facts of the present case, it is once again clear that both Vishal and eClerx could not be taken as comparables for determining the ALP. Vishal and eClerx, both are into KPO Services. In Maersk Global Centers (India) (P.) Ltd. (supra), the Spe....
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....a company which carries BPO activities as business model of both the companies are different. The Hon'ble High Court observed as under:- "38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal's expenditure on employment cost during the relevant period was a small fraction of the proportionate cost incurred by the Assessee, apparently, for the reason that most of its work was outsourced to other vendors/service providers. The DRP and the Tribunal erred in brushing aside this vital difference by observing that outsourcing was common in ITeS industry and the same would not have a bearing on profitability. Plainly, a business model where services are rendered by employing own employees and using one's own infrastructure would have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the out-sourcing of services by Vishal would have no bearing on the profitability of the said entity." 24.2 We also observe that the Pune Bench of the Tribunal in the case of Cummins Turbo Technologies ....