TaxTMI 
TaxTMI 
2019 (8) TMI 1870
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....the Act did not exist, or having not been complied with and consequently the order of the assessing officer is bad in law for want of requisite jurisdiction. b) The assessing officer erred in not providing the copy of the approval granted by the Commissioner which is in violation of the settled principles of natural justice and thus the order of assessment needs to be set aside. 4. The addition of Rs. 64,16,427/- being adjustment under section 92CA of the Act made by the assessing officer is bad in law and thus the addition made needs to be deleted on the facts and circumstances of the case. 5. The TPO, DRP and the AO erred in rejecting the comparables selected by the appellant without giving any cogent reasons. 6. The TPO, DRP and the Assessing Officer erred in - a) Rejecting the TP study of the appellant. b) Rejecting the use of multiple year data while arriving at appropriate comparables. c) Rejecting companies having different financial year ending. d) Rejecting companies that have export sales less than 75% of the sales e) Rejecting companies that have sales from ITES less than 75% of the total op....
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....stment is to be made, only a positive adjustment has to be made to the comparables. 14. The TPO, DRP and the AO failed to appreciate that the appellant being a captive service provider runs a 'single customer risk'. b) The TPO, DRP and the AO further erred in not appreciating that the appellant renders services only to their parent company and thus suitable risk adjustment needs to be made in case of the appellant under the facts and circumstances of the case. 15. The TPO, DRP and the AO failed to understand the spirit and intent of Rule 10B(1)(e)(ii) as per which even if one of the comparables selected by the appellant satisfies the computation mechanism for determination of the ALP, the determination of ALP by using arithmetic mean of different comparables is not warranted under the facts and circumstances of the case. 16. The TPO, DRP and the Assessing Officer erred in not granting the benefit of the proviso to section 92C(2) of the Act which is mandatory under the scheme of the Act. 17. The appellant denies itself liable to be levied to interest under sections 234B and 234C of the Act and further the computation of interest u....
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....bmissions advanced. In our considered view it is observed that these comparables were alleged by assessee before authorities below for exclusion. Considering inadvertent mistake, in raising these comparables assessee to raise them now. Accordingly, Additional Ground raised by assessee vide application dated 10-07-2018 stands allowed. 4. Brief facts of the case are as under: Assessee is a company engaged in business of software development, IT enabled and BPO service providers. Return of income for year under consideration was filed on 29/09/12 declaring total income of Rs.4,92,53,040/-. Return was processed under section 143(1), subsequently case was selected for scrutiny and notice under section 143(2) was issued to assessee. In response to statutory notices, assessee appeared before Ld. AO and filed requisite details as called for. Ld.AO observed that assessee entered into international transaction during year under consideration with associated enterprises and therefore case was referred to transfer pricing officer. Ld.TPO upon receipt of reference under section 90 2C of the Act, issued notice to assessee calling upon to file economic details of international transactio....
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....ed objections before DRP. DRP though upheld most of the comparables selected by Ld. TPO, however excluded Accentia Technologies based on functional differences. DRP also excluded M/s informed technologies India Ltd though it was not objected by assessee. Upon receipt of DRP directions Ld. AO passed final assessment order by making an addition of Rs.64,16,427/-as TP adjustment. L.AO also disallowed donation claimed by assessee is expenses amounting to Rs.1,41,240/-. 6. Aggrieved by order passed by Ld. AO, assessee is in appeal before us now. It has been submitted that Ground No. 1,4 & 18-19 are general in nature and therefore do not require any adjudication. 7 Ground No. 5-16 along with Additional Ground 1-2 are in respect of comparables alleged to be excluded/included by assessee. Assessee placed before us chart, wherein following comparables are sought to be exclude/include Comparables sought to be excluded: * Universal Print Systems Ltd (segmental) (BPO) * Infosys BPO Ltd * TCS E-Serve Ltd * BNR Udyog Ltd (segment) (medical transcription) * Excel Infoways Ltd (segmental) (IT) (BPO) Comparables sought for inclusion ....
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....from page 579 of paper book volume II. 8.1 Ld.CIT DR placed reliance upon orders of authorities below and submitted that this comparable is functionally comparable with that of assessee. 9. We have heard submissions advanced by both sides in light of record placed before us. On perusal of annual report of this company placed in paper book, we are of considered opinion that this comparable is basically into sale of products and services unlike a captive service provider such as assessee, who works on cost plus basis, providing services only to its AE's. It is also observed that this comparable is basically providing BPO services from its Prepress units. In written submission filed, assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt Ltd., vs ACIT reported in (2019) 101 taxman.com 292, wherein this comparable has been excluded by observing as under: 10.4 We heard rival submissions and perused the material on record. The issue of comparability of universal Print Systems Ltd. with that of the assessee-company has been duly considered by TPO after referring to information contained in Annual Report. The relevant findings of the TPO had no....
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....ployee cost filter. The employee cost filter requires that the employees cost incurred by the company must be more than 25% of its revenue. 48. The TPO at page-20 of his order has dealt with the above objections by observing as follows: (a) Pre-Press BPO unit provides back office support services. (b) This company has four major segments viz., Repro, Label Printing, Offset Printing and pre-press BPO. The employee cost of pre-press BPO was more than 25% of the revenue from pre-press BPO and therefore the employee cost filter is satisfied in the case of this company. (c) On the service revenue filter viz., the requirement that a comparable company must have revenue from rendering services of more than 75% of its total revenue, the TPO again held that the pre-press BPO segment's entire income is from services and therefore this objection is not to be accepted. 49. On objections by the Assessee before the DRP, the DRP confirmed the action of the TPO. One of the objection before the DRP was that this company did not figure in the list of companies engaged in ITES. On this objection the DRP held that though this company did not figure in t....
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....t margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii): (v)the net profit margin thus established is then taken into account an arm's length price in relation to the international transaction. (2) For the purposes of sub-rule (1), the comparability of an (a) the specific characteristics of the property transferred or services provide: either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions (c) the specific characteristics of the property transferred or services provide: either transaction; (d) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions (e) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or Implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions: d) co....
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....excluded from the list of comparable companies. The TPO for this purpose can use his powers u/s. 133(6) of the Act to get required details from this company. As far as the argument that this company fails functional comparability, we find that none of the objections raised the Assessee in this regard about lack of information about allied services performed by the pre-press BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO.' Respectfully following the decision, we remand this comparable to the file of the TPO/AO for fresh adjudication on the above lines. Respectfully following aforesaid decision, we remand this comparable to file of Ld.AO/TPO, for fresh adjudication, on t....
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.... of brand related expenses incurred by Infosys BPO Ltd. Further, Infosys BPO Ltd. has acquired Australian based company M/s Portland Group Pty Ltd. during financial year 2011-12. They provide sourcing and category management services in Sydney, Australia. Therefore, this company also failed the TPO's own filter of rejecting companies with peculiar circumstances. In view of the above i.e. functionally not comparable, presence of brand and extraordinary event that has taken place during the year on account of acquisition of Australian based company, we are of the considered opinion that Infosys BPO Ltd. should not be included in the list of comparables. We accordingly direct the Assessing Officer/TPO to exclude Infosys BPO Ltd. from the list of comparables for the purpose of computing the average margin." 2. It was also brought to our notice that the Hon'ble Delhi High Court in ITA No.260/2018 in the appeal filed by the Revenue against the aforesaid order dismissed the appeal at the admission stage observing that rationale given by the ITAT for exclusion was correct. In view of the aforesaid decision, we direct exclusion of Infosys BPO from the list of comparabl....
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....e processes. Your Company is an integral part of the Tata Consultancy Services' (TCS) strategy to build on its 'Full Services Offerings' that offer global customers an integrated portfolio of services ranging from IT services to BPO services. The Company provides its services from various processing facilities, backed t) a robust and scalable infrastructure network tailored to meet clients' needs. A detailed Business Continuity Plan has also been put in place to ensure the services are provided to the customers without any disruptions. Thus, this company is also stated to be a Knowledge Process Outsourcing and therefore for I'- reasons stated by us while dealing with this issue of comparability of the company Infosys BPOLtd. shall equally hold good and therefore we direct the AO/TPO to exclude this company from : list of comparables.' Since the appellant company is into low end BPO, it cannot be compared with KPO service provider. 11.4 Respectfully following the decision of the co-ordinate bench of Tribunal, we direct for exclusion this company from the list of comparable". It has been observed that this company is into....
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....(2017) 85 Taxmann.com 60, wherein it has been held as under: "9.3.1. We have heard the rival contentions and perused and carefully considered the material on record including the judicial pronouncements cited. From the details on record we observe that while the assessee has contended that the services rendered by this company M/s TCS E-serve Ltd are high end KPO services, it has not brought out as to which of these are the services that would come under technical services. On the other hand, w also notice that that the TPO has held all the services rendered by the assessee to be BPO services with any proper analysis. In this factual matrix of the case, we find that on similar facts, the co-ordinate Bench o ITAT Bangalore in the case of Indegene (P) Ltd., (supra) has remanded the matter of comparability of this company to the file of the TPO for fresh consideration. In view of the factual matrix of the case on hand, as laid out above and following the decision of the coordinate Bench in the case of Indegene (P) Ltd. (Supra) which is also rendered on similar facts, we deem it appropriate to remand the matter of the comparability of this company, TCS E-serve Ltd. To the file....
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....at is sought to be excluded from the list of comparable companies is Exclusion of Excel Info Ltd. The Tribunal had retained this company as a comparable company in its original order. The assessee sought exclusion of this company on the ground that this company was functionally different from the assessee company and the employee cost to the revenue was less than the threshold limit of 25% and that there were peculiar economic circumstances which impacted the profit margin of this company thereby rendering this company as not comparable company. The Tribunal while adjudicating of exclusion of this company in paragraph 14.3 of its order held that on application of employee cost filter that the Assessee has failed to show as to how the findings of the TPO and DRP are not correct. 3. The assessee has pointed out certain facts with regard to employee cost and diminishing revenue of this company which takes it out of the comparability and these aspects have not been considered by the Tribunal in its order. On the above objections in the MA, the Tribunal held as follows:- "8. We have examined the contents in the misc. petition and we find that there has been omission to....
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....ra Activity segment. We. therefore. find merit in the argument of the Id. counsel for the assessee that the information provided as per section 133(6) by Excel Infoways Ltd. is unreliable and should not be used to compute employ ee cost for ITES segment. The Delhi Bench of the Tribunal in the case of Motorola Solutions India (P.) Ltd. v. Assts. CIT[2014] 48 taxmann.com 24842015] 152 ITD 158 (Delhi) has held that a company should be rejected as comparable in case there is contradiction in the facts or data sourced from annual report and as per the information gathered u/s. 133(6). In view of above discussion, we hold that Excel Infoways Ltd. cannot be considered as comparable and should be excluded from the list of comparables. We hold and direct accordingly". From the above observation by coordinate bench, objection raised by Ld.CIT DR stands clarified, as this company for year under consideration made a statement under 133 (6) regarding allocating entire employee cost to IT-BPO segment, with no allocation to other segment, which amounts to almost 49% of its total revenue during the year under consideration. At this stage, we clarify that, we are not inclined to express our opin....