AI Drafter 
TaxTMI 
TaxTMI 
2023 (10) TMI 688
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....ejudicial to the Appellant, is bad in law and liable to be quashed. Transfer Pricing Grounds 2. On the facts and in the circumstances of the case and in law, the Assessment Unit erred in partly confirming the action of the NaFAC in making an adjustment of INR 12,73,38,540/- to the value of international transactions w.r.t Information Technology enabled Services ('ITeS') provided by the Appellant to Associated Enterprises. 3. On the facts and in the circumstances of the case and in law, the Assessment Unit/ learned TPO/NaFAC erred in not conforming with the directions of the learned Panel in entirety and making an adjustment dehors the direction, to the transfer price of the Appellant. 4. On the facts and circumstances of the case and in law, the learned Panel erred in upholding the action of the TPO/NaFAC of rejecting the Transfer Pricing (`TP') documentation maintained by the Appellant, in good faith, as required under section 92D of the Income-tax Act, 1961 ('the Act') read with rule 10D of the Income-tax Rules, 1962 ('the Rules'). 5. On the facts and in the circumstances of the case and in law, and for the ....
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....e case and in law, the learned Panel erred in upholding the action of the Assessment Unit /TPO/NaFAC in including Manipal Digital Systems Pvt Ltd in the final list of comparables which ought to be excluded. 13. On the facts and circumstances of the case and in law, the learned Panel erred in upholding the action of the Assessment Unit /TPO/NaFAC in including Domex E Data Pvt Ltd in the final list of comparables which ought to be excluded. 14. On the facts and circumstances of the case and in law, the learned Panel erred in upholding the action of the Assessment unit /TPO/NaFAC in including Vitae International Accounting Services Pvt Ltd in the final list of comparables which ought to be excluded. 15. On the facts and circumstances of the case and in law, the learned Panel erred in upholding the action of the Assessment unit/TPO/NaFAC in including Inteq B P 0 Services Pvt Ltd in the final list of comparables which ought to be excluded. 16. On the facts and circumstances of the case and in law, the learned Panel erred in upholding the action of the Assessment unit /TPO/NaFAC in including Motif India Infotech Pvt Ltd in the final list of comparables....
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.... • Fuzen Software Pvt. Ltd. • Motif India Infotech Pvt. Ltd. 26. On the facts and in the circumstances of the case and in law, the Assessment unit /TPO/NaFAC has erred in not conforming with the directions of the Learned Panel and has continued to consider domestic cost of INR 29,051,050 (corresponding to domestic revenue which the learned TPO has himself taken to be non-operating) as operating in nature while calculating the margin of the Appellant w.r.t. ITeS segment resulting into erroneous mark up of 4.81% instead of 9.02%. 27. On the facts and in the circumstances of the case and in law, the Assessment unit erred in directing levy of interest under section 234B & 234C of the Act. 28. On the facts and in the circumstances of the case and in law, the Assessment unit /NaFAC has erred in initiating penalty proceedings under section 271(1)(c) of the Act for concealment of income and for furnishing inaccurate particulars of such income. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal." 2. B....
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.... the PLI for bench marking the transactions. The Ld.TPO noted that, the assessee had chosen following 13 comparables with a median of 8.19% under SWD segment and thus held the transaction under SWD segment to be at arms length. Sl. No. Name of the Company Weighted Average PLI 1 Rheal Software Ltd. -4.26% 2 Maveric Systems Ltd. 0.19% 3 Isummation Technologies Pvt. Ltd. 3.44% 4 Yudiz Solutions Pvt. Ltd. 4.18% 5 Sagarsoft (India) Ltd. 5.89% 6 Sasken Technologies Ltd. 6.52% 7 CG-VAK Software & Exports Ltd. 8.19% 8 E-Zest Solutions Ltd. 9.29% 9 Mukand Engineers Ltd. 21.18% 10 R Systems International Ltd. 24.17% 11 InfoBeans Technologies Ltd. 25.85% 12 Bhilwara Infotechnology Ltd. 26.45% 13 Tata Elxsi Ltd. 27.19% 35^th Percentile 5.89% Median 8.19% 65^th Percentile 21.18% 2.3.3 In respect of ITeS segment, the Ld.TPO noted that the assessee used 20 comparables with a median of 10.31% and thus held the transaction to be at arms length. Sl. No. Name of the Company Weighted Average PLI 1 Osource I....
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....td. 30.18 33.36 29.27 30.94 18 Threesixty Logica Testing Services Pvt. Ltd. 48.46 36.63 26.2 36.58 19 Infosys Ltd. 38.29 38.79 35.27 37.38 20 Cybage Software Pvt. Ltd. 62.04 61.40 47.78 56.81 35^th Percentile 20.19 Median 23.60 65^th percentile 26.83 2.3.5 For ITeS segment, the Ld.TPO selected a set of 17 comparables with a median of 26.34%, the details of which are as under: Sl. No. Company Name F. Year wise OP/OC (%) 2017-18 2016-17 2015-16 Wt. Avg 1 Jindal Intellicom Ltd. -5.35 8.66 2.78 7.41 2 Microland Ltd. 9.83 5.85 10.17 8.58 3 Datamatics Business Solutions Ltd. 3.19 8.88 34.85 13.41 4 Fuzen Software Pvt. Ltd 16.1 15.07 16.06 15.75 5 Tech Mahindra Business Services Ltd. 18.95 18.51 19.09 18.85 6 Infosys B P M Services Pvt. Ltd. 16.65 22.35 24.41 20.95 7 CES Ltd. (seg) 12.50 26.48 31.90 21.77 8 Manipal Digital Systems Pvt. Ltd. 20.93 28.91 21.04 23.54 9 Domex E Data Pvt Ltd. 35.61 35.97 13.77 26.34 10 ....
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....CIT TP 'W(1), Bangalore CLd. TPO') erred in not adopting the upper turnover filter of Rs. 200 crores while doing the comparability analysis for the Appellant's international transaction pertaining to provision of IT enables services. It is prayed that upper turnover filter of Rs. 200 crores be applied while selecting the comparable companies. Further, the Assessee craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. Further, this ground of appeal is independent of the grounds of appeal already filed by the Appellant. Submitted with utmost reverence" 5.1 It has been submitted that no new facts needs to be considered in order to dispose of the additional grounds raised by the assessee. It is submitted that, the additional grounds raised do not require verification of any new facts. The Ld.AR, thus prayed for the admission of additional grounds so raised by assessee. 5.2 On the contrary, the Ld.CIT.DR though opposed admission of the additional ground, could not bring anything on record which....
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.... 153 i.e., within one month from the end of the month in which such direction is received. We therefore do not find any merit in Additional Ground no. 29 raised by the assessee. Accordingly legal issue raised in Additional Ground no. 29 stands dismissed. 7. Coming to the merits of the case, the Ld.AR submitted that Ground nos. 1-2 are general in nature and therefore do not require any adjudication. 7.1 He submitted that in Ground no. 3, assessee is seeking a relief to the extent that the DRP directions were not followed. The Ld.AR at the time of argument has not highlighted the issues in respect of which the DRP directions were not followed by the Ld.AO. Under such circumstances, we are unable to record a categorical observation and a direction to the Ld.AO. However, we mention that the Ld.AO shall once again consider and pass an order in conformity with the DRP directions as the case may be in respect of the issues that were raised and considered by the DRP. Accordingly, ground no. 3 raised by assessee stands allowed for statistical purposes. 7.2 Ground nos. 4-10 raised by assessee is submitted to be not pressed. Accordingly, these grounds are dismissed as not....
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....re not justified in failing to adopt the upper turnover filter of Rs. 200 crores that resulted in wrongful selection of following 7 companies selected by the TPO: 1) Microland Ltd.; 2) Tech Mahindra Business Services Ltd; 3) Infosys B P M Services Pvt. Ltd; 4) Access Healthcare Services Pvt. Ltd 5) Motif India Infotech Pvt. Ltd; 6) Eclerx Services Limited; 7) MPS Ltd." 31. We have already seen that the Assessee's turnover in the ITeS was only Rs. 12,88,48,604 after adjustment of revenue by the TPO. We have also seen while deciding the application of turnover filter in SWD services Segment that companies with turnover of Rs. 200 crores or more cannot be compared with companies having turnover of less than Rs. 200 crores. For the reasons stated therein, we direct exclusion of the companies listed in ground No.11.5.2 whose turnover is admitted above Rs. 200 crores from the list of comparable companies." 9.4 In the above decision, we note that for the same assessment year under consideration, this Coordinate Bench in case of Altair Engineering India Pvt. Ltd. vs. ACIT (supra) has noted that the turnover of the f....
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.... various segments or atleast ITeS segment is available. Reliance was placed on the following decisions of the ITAT whereby Tribunal has held that this company cannot be compared with ITeS company. Global E-business Operations Pvt Ltd vs DCIT [TS-796- ITAT-2022(Bang)-TP] AY 2016-17 M/s. Schlumberger India Technology Centre Private Ltd vs DCIT [TS-473-ITAT-2022(PUN)-TP] AY 2016-17 Credence Resource Management (P.) Ltd vs ACIT [2022] 138 taxmann.com 543 (Pune - Trib.), for AY 2016-17 33. The plea of the assessee was however rejected by the DRP on the ground that ITeS includes BPO and KPO services and that the contentions of the assessee were based on website information which cannot be regarded as correct. Learned DR relied on the order of the DRP. We have carefully considered the rival submissions. We find that in the decision cited by the learned DR, Tribunal has held that this company is not comparable with an ITeS company owing to those companies being in the field of KPO which cannot be equated or compared with a company rendering ITeS. 34. In so far as comparability of Domex E Data Pvt. Ltd., is concerned, the argument was that this c....
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....d in web development, mobile application development. The company also provides publishing editorial & composition services, which includes creating layout & artwork for advertisements and brochures, typesetting services and proof reading. As per revenue from operations, it includes "Revenue from web development and other services" (INR 2.18 Cr) and "income from e-book Distribution" (INR 69 lakhs), without providing the segmental revenue and profitability with respect to ITES segment. Advertising and sales promotion expenses at 6.50%, 7.19% & 8.78% of total expenditure in FY 2016- 17, FY 2015-16 & FY 2014-15 respectively. 12.1.9 Further, the Tribunal in the case of Iron Mountain Services Ltd. in IT(TP)A No. 307/Bang/2022 dated 20-9- 2022 has held as under:- 16. "The next company the assessee seeks to exclude is Manipa lDigital Systems Pvt. Ltd. In this regard, it was submitted that this company is engaged in provision of multiple high-end services including KPO activity like Design Services, Animation. It was submitted that no segmental details were available in the financial statements on the variety of services provided by this company like Design Services, Anim....
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....r. Further, both service providers cannot be considered to be functionally similar. Their business environment would be entirely different, the demand and supply for the services would be different, the assets and capital employed would differ, the competence required to operate the two services would be different. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous. 32. It has been pointed out that whilst the Tribunal in Willis Processing Services (India) Pvt. Ltd. v. DCIT (supra) held that no distinction could be made between KPO and BPO service providers, however, a contrary view had been taken by several benches of the Tribunal in other cases. In Capital IQ Information System India (P.) Ltd. v. Dy. CIT, (IT) [2013] 32 taxmann.com 21 and Lloyds TSB Global Services Pvt. Ltd. v. DCIT, (ITA No. 5928/Mum/2012 dated 21^th November 2012), the Hyderabad and Mumbai Bench of the Tribunal respectively accepted the view that a BPO service provider could not be ....
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....lled transactions be judged with reference to service/product characteristics. This factor cannot be undermined by using a broad classification of ITeS which takes within its fold various types of services with completely different content and value. Thus, where the tested party is not a KPO service provider, an entity rendering KPO services cannot be considered as a comparable for the purposes of Transfer Pricing analysis. The perception that a BPO service provider may have the ability to move up the value chain by offering KPO services cannot be a ground for assessing the transactions relating to services rendered by the BPO service provider by benchmarking it with the transactions of KPO services providers. The object is to ascertain the ALP of the service rendered and not of a service (higher in value chain) that may possibly be rendered subsequently. 35. As pointed out by the Special Bench of the Tribunal in Maersk Global Centers (India) Pvt. Ltd. (supra), there may be cases where an entity may be rendering a mix of services some of which may be functionally comparable to a KPO while other services may not. In such cases a classification of BPO and KPO may not be feas....
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....ice functions and rendering ITeS to their clients abroad using computer software. The present assessee before us is also the contract service provider with absolutely minimal risk. The only segment with which this company earns income is from sale of services being processing fees. In our view, this comparable carries out the basic ITeS services similar to that of assessee and therefore is held to be comparable. Accordingly, we direct this comparable to be included in the final list. Accordingly ground no. 14 raised by assessee stands dismissed. 11. Ground no. 15 - The Ld.AR submitted that assessee do not wish to press this ground and accordingly, this ground is dismissed as not pressed. 12. Ground no. 19 - Assessee is seeking exclusion of Ultramarine & Pigment Ltd. as the DRP had already excluded in para 2.51.1.1. The Ld.AR submitted that, the DRP directions has not been followed while passing the assessment order. We note that the DRP observed in respect of this comparable as under: "2.51.1.1 Having considered the submissions, on perusal of the annual reports, it is seen that the company has spent an amount of Rs. 3821.72 lakhs (page 61 of the AR) as against ....
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....id companies as comparable companies should be set aside to AO/TPO for fresh consideration in the light of the information available in public domain. Thus ground No. 7 is treated as allowed for statistical purposes." Respectfully following the above, we accordingly, remand this comparable to the Ld.AO/TPO to reconsider it in the light of the annual reports that will be filed by assessee. In the event they are found to be functionally similar with that of assessee, the same may be included in the final list. Accordingly, this ground raised by the assessee stands partly allowed for statistical purposes. 15. Ground no. 25 - The Ld.AR submits that assessee do not wish to press this ground. Accordingly the same is dismissed as not pressed. 16. In Ground no. 26, the Ld.AR submits that assessee seeks to directions to rectify the computational errors in calculating the margins of the assessee with respect to ITeS segment. He submitted that the directions of the DRP has not been followed. 16.1 We accordingly, direct the Ld. AO/TPO to compute the correct margins of the remaining comparables on giving order effect to this order of the Tribunal in accordance with law. Acc....
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....ngaluru had uploaded the DRP direction u/s 144C(5) on ITBA on 04.07.2022. A copy of email received and copy of case history noting on ITBA are enclosed herewith. Since DRP directions u/s 144C(5) was received Document 2 by faceless Assessment unit in the month of July 2022, the final assessment order was correctly passed u/s 143(3) r.w.s 144C(13) on 16.08.2022 and it is passed within stipulated time. Enclosed as above: à¤à¤µà¤¦à¥€à¤¯, Yours faithfully, L (पà¥à¤°à¤µà¥€à¤£ सिनà¥à¤¹à¤¾, à¤à¤¾. रा. से / PRAVEEN SINHA, IRS) उप आ आयॠ/ Dy. Commissioner of Income Tax सरà¥à¤•à¤²/Circle -1(1)(1), बेंगलूरू / Bengaluru Copy to: CIT(OSD) Range-1(1), Bangalore Document 3ATBA ATBA INGERES FUGLIN JURBARK THE POM д п п MEDRIP LIN'S MAN " п Document 4ATBA-sset n n " 14 n " n Document 5SCAUT UNIA MEN NO CAMIN 890 A Document 6 Ariba India provides the following services to Ariba/SAP Group under the IT enabled services segment viz....
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....purchase orders, parts, etc. The client data is run through the Ariba Data Enrichment ('ADE') tool of the Ariba analysis package. The data enrichment team at Ariba India takes the data through the pre-defined steps of the tools in the ADE tool. The data is run on the supplier/item engine which automatically match data relating to similar supplier or item and accordingly consolidate the supplier/item data of the client. In case of supplier data, the data with respect to purchases of the client from the same supplier is consolidated. With respect to the item-wise data, based on the description of the items, each item purchased is matched to the respective United Nations Standard Products and Services Code ("UNSPSC") code for a given item. In certain cases, some data may not be available, due to which the data would not get consolidated automatically. The team performs manual matching of the data which does not get automatically matched by the engine due to missing data. For example, the supplier enrichment team performs web search for missing data with respect to the ultimate supplier company and manually matches such data. With respect to invoi....
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....es assets (tangible or intangible) without which it cannot carry out its activities. Intangibles play a significant role in the functioning of a business and are accordingly more important. An understanding of the assets employed and owned by Ariba india provides an insight into the resources deployed by Ariba India and their contribution to the business processes/ economic activities of Ariba India. 4.3.1. Tangibles Asset The following are the tangible assets that are owned by Ariba India as at March 31, 2017 as provided in Table below: Table 2: Assets owned by Ariba India as on March 31, 2018 SI. No. Particulars of assets Computer Hardware 2. Office Equipment 3. Furniture and fixture 4. Leasehold Improvements Total Gross Block Amount (INR) 224,322,912 119,408,741 17,844,436 204,908,634 566,484.723 4.3.2. Intangibles Any business requires assets for undertaking its operations. SAP is the owner or licensee, as the case may be, of rights, titles and interest in intellectual properties ("IP"). Ariba India, on the other hand, does not own any significant intangibles. Ariba India uses the process, te....
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.... entering into contracts with the clients. Consequently, the entire market risk rests with the Group. The Group enters into contracts with customers. The services are are delivered to the end customer by the Group based on the capacity of its own. Therefore the Group assume the entire product/ service liability risk. The Group bears any additional costs on account of cost over runs runs or underutilization of capacity personnel in relation to the services undertaken by Ariba India and is therefore exposed to capacity utilization risk. Since the output from the development work is owned by the Group, any success or failure of these development activities also lies with the Group. Thus, the risk of any failure of R&D activities is borne solely by the Group. The Group undertakes the projects/ provides services to a wide array of customers. worldwide, which might result in non-payments and bad debts. business The Group has dealings with a numby CHNOL G Document 10 Risk Category and Description impact on profits that may arise because of changes in ....